As filed with the Securities and Exchange Commission on February 11, 1999
Registration No. 333-55753
- --------------------------------------------------------------------------------
U.S. Securities and Exchange Commission
Washington, D.C. 20549
AMENDMENT NO. 3 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Baron Capital Properties, L.P.
(Exact name of registrant as specified in its charter)
Delaware 6798 31-1574856
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
Baron Capital Trust
(Exact name of registrant as specified in its charter)
Delaware 6798 31-1584691
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
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 (Address, including ZIP Code and
telephone number, including area telephone number, including area
code, of registrants' principal code, of registrants' principal
executive offices) executive offices)
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.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each class of Dollar amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered offering price per unit aggregate offering price registration fee (1)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2,500,000 Units of
Limited Partnership
Interest $25,000,000 $10.00 $25,000,000 $7,576.00
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2,500,000 Common
Shares of Beneficial
Interest in Baron Capital
Trust into which the
registered Units will be
exchangeable N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Previously paid.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<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 .................... C-2
FINANCIAL STATEMENTS
February 3, 1998 Balance Sheet (audited) .......................... C-3
Notes ............................................................. C-4
September 30, 1998 and from Commencement of Operations
(February 3, 1998) through September 30, 1998 (unaudited)
Condensed Balance Sheet ....................................... C-5
Condensed Statement of Operations ............................ C-6
Condensed Statement of Shareholders' Equity ................... C-7
Condensed Statement of Cash Flows ............................. C-8
Notes ......................................................... C-9
Pro forma Balance Sheet (minimum/maximum Exchange Offering) ... C-13
Pro forma Statement of Operations (maximum Exchange Offering) . C-14
BARON CAPITAL PROPERTIES, L.P.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS .................... C-15
FINANCIAL STATEMENTS
February 3, 1998 Balance Sheet (audited) .......................... C-16
Notes ............................................................. C-17
September 30, 1998 and from Commencement of Operations
(February 3, 1998) through September 30, 1998 (unaudited)
Condensed Balance Sheet ....................................... C-18
Condensed Statement of Operations ............................. C-19
Condensed Statement of Partners' Capital ...................... C-20
Condensed Statement of Cash Flows ............................. C-21
Notes ......................................................... C-22
Pro forma Balance Sheet (maximum Exchange Offering) ........... C-26
Pro forma Statement of Operations (maximum Exchange Offering) . C-27
Pro forma Balance Sheet (minimum Exchange Offering) ........... C-28
Pro forma Statement of Operations (minimum Exchange Offering) . C-29
BARON ADVISORS, INC
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS .................... C-30
FINANCIAL STATEMENTS
February 28, 1998 Balance Sheet (audited) ......................... C-31
Notes ............................................................. C-32
September 30, 1998 Balance Sheet (unaudited) ...................... C-33
Notes ............................................................. C-34
C-1
<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
C-2
<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.
C-3
<PAGE>
BARON CAPITAL TRUST
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 3, 1998
NOTE 1. ORGANIZATION
Baron Capital Trust (the "Trust") was organized as a business trust in
Delaware on July 31, 1997. The Trust and its affiliate, Baron Capital
Properties, L.P. (the "Operating Partnership"), a Delaware limited
partnership, constitute an integrated real estate company which has been
organized to indirectly acquire equity interests in residential apartment
properties located in the United States and to provide or acquire mortgage
loans secured by such types of property. The Trust intends to acquire, own,
operate, manage and improve residential apartment properties for long-term
ownership, and thereby to seek to maximize current and long-term income and
the value of its assets.
The Managing Shareholder of the Trust is Baron Advisors, Inc., a Delaware
corporation which will manage the operations of the Trust and the Operating
Partnership subject to the supervisory authority of the Board of the Trust
over the activities of the Trust and the Operating Partnership and the
Board's prior approval authority in respect of certain actions of the Trust
and the Operating Partnership specified in the Declaration of Trust of the
Trust.
The Trust's Declaration authorizes it to issue up to 25,000,000 shares of
beneficial interest, no par value per share, consisting of common shares
and of preferred shares of such classes with such preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption as the Managing
Shareholder may create and authorize from time to time in accordance with
Delaware law and the Declaration. Prior to the proposed offering referred
to below, there were no shares outstanding.
The Trust commenced operations on February 3, 1998, at which time it
received its initial capital contribution.
NOTE 3. 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.
C-4
<PAGE>
BARON CAPITAL TRUST
CONDENSED BALANCE SHEET
September 30, 1998
(UNAUDITED)
ASSETS
Investment in Baron Capital Properties, L.P. $ 2,293,432
Cash 291,387
Cash held in escrow 16,300
Other Receivables 400
-----------
Total assets $ 2,601,519
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities:
Managing shareholder --
Commissions --
-----------
--
-----------
Shareholders' Equity:
Common shares, no par value; 25,000,000 shares 3,476,228
authorized; 379,496 shares issued and outstanding,
a change of 186,373 shares
Deficit (874,709)
-----------
2,601,519
-----------
Total liabilities and shareholders' equity $ 2,601,519
===========
See notes to financial statements
C-5
<PAGE>
BARON CAPITAL TRUST
CONDENSED STATEMENT OF OPERATIONS
FROM COMMENCEMENT OF OPERATIONS
(FEBRUARY 3, 1998) TO SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
From Commencement
of Operations
(February 3, 1998) To
September 30, 1998
------------------
<S> <C>
Revenue:
Interest Income $ 1,064
Costs and Expenses:
Advisory and investment fees - managing shareholder 182,110
General and administrative expenses 13,855
---------
Total costs and expenses 195,965
---------
Net Loss from Investment in Baron Capital Properties, LP (679,808)
---------
Net Loss $(874,709)
=========
Net Loss per Common Share $ (2.25)
=========
</TABLE>
See notes to financial statements
C-6
<PAGE>
BARON CAPITAL TRUST
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
FROM COMMENCEMENT OF OPERATIONS (FEBRUARY 3, 1998) TO SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
-------------------------
Shares Amount Deficit Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Initial Capital Contribution -- $ 100 $ -- $ 100
Issuance of Common Shares 379,496 3,491,362 -- 3,491,362
Return of Capital -- (15,234) -- (15,234)
Net Loss -- -- (874,709) $ (874,709)
----------- ----------- ----------- -----------
Balance, September 30, 1998 379,496 $ 3,476,228 $ (874,709) $ 2,601,519
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
C-7
<PAGE>
BARON CAPITAL TRUST
CONDENSED STATEMENT OF CASH FLOWS
FROM COMMENCEMENT OF OPERATIONS (FEBRUARY 3, 1998) TO SEPTEMBER 30, 1998
(UNAUDITED)
Cash Flows from Operating Activities:
Net loss $ (874,709)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Increase in accounts payable and accrued liabilities, --
managing shareholder
Increase in accounts receivable (400)
-----------
Net cash used in operating activities (875,109)
-----------
Cash Flows from Investing Activities:
Investment in Baron Capital Properties, L.P. (2,293,432)
-----------
Cash Flows from Financing Activities:
Proceeds from issuance of common shares 3,476,228
Accrued comm in connection with issuance of common shares --
Cash held in escrow (16,300)
-----------
Net cash provided by financing activities 3,459,928
-----------
Net Increase in Cash 291,387
Cash, Beginning --
-----------
Cash, Ending $ 291,387
===========
See notes to financial statements
C-8
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 1. ORGANIZATION
Baron Capital Trust (the "Trust") was organized as a business trust in
Delaware on July 31, 1997. The Trust and its affiliate, Baron Capital
Properties, L.P. (the "Operating Partnership"), a Delaware limited
partnership, constitute an integrated real estate company which has been
organized to indirectly acquire equity interests in residential apartment
properties located in the United States and to provide or acquire mortgage
loans secured by such types of property. The Trust intends to acquire, own,
operate, manage and improve residential apartment properties for long-term
ownership, and thereby to seek to maximize current and long-term income and
the value of its assets.
The Managing Shareholder of the Trust is Baron Advisors, Inc., a Delaware
corporation which will manage the operations of the Trust and the Operating
Partnership subject to the supervisory authority of the Board of the Trust
over the activities of the Trust and the Operating Partnership and the
Board's prior approval authority in respect of certain actions of the Trust
and the Operating Partnership specified in the Declaration of Trust of the
Trust.
The Trust's Declaration authorizes it to issue up to 25,000,000 shares of
beneficial interest, no par value per share, consisting of common shares
and of preferred shares of such classes with such preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption as the Managing
Shareholder may create and authorize from time to time in accordance with
Delaware law and the Declaration. Prior to the proposed offering referred
to below, there were no shares outstanding.
The Trust commenced operations on February 3, 1998, at which time it
received its initial capital contribution. As a result, the statements of
operations and cash flows have been presented for the period from
commencement of operations (February 3, 1998) to September 30, 1998.
NOTE 2. BASIS OF PRESENTATION
The accompanying unaudited financial statements as of September 30, 1998
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, these condensed financial statements reflect all adjustments,
which, in the opinion of management, are necessary for a fair presentation
of financial position as of September 30, 1998 and results of operations
and cash flows for the period from commencement of operations (February 3,
1998) to September 30, 1998. All such adjustments are of a normal recurring
nature. The results of operations for interim periods are not necessarily
indicative of the results to be expected for a full year.
C-9
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
NOTE 3. PUBLIC OFFERING
In May 1998, the Trust commenced an initial public offering of a maximum of
2,500,000 common shares of beneficial interest in the Trust at $10 per
common share, which is payable in full upon subscription, for total maximum
gross proceeds of $25,000,000. Funds were held in escrow until the minimum
of 50,000 common shares were sold. All of the common shares issued or sold
by the Trust in the offering are tradable without restriction under the
Securities Act, but are 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.
In connection with this public offering, the Trust issued and had
outstanding 379,496 shares through September 30, 1998 for proceeds of
$3,476,228, net of related costs (primarily commissions). Of the net
proceeds received, the Trust invested $2,973,240 in Baron Capital
Properties, L.P. of which the Trust is the sole general partner and a
limited partner (the "Operating Partnership").
NOTE 4. RELATED PARTY TRANSACTIONS
Trust Management Agreement
The Trust has entered into a Trust Management Agreement with Baron
Advisors, Inc., the Managing Shareholder of the Trust (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 (see Note 3). 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 of
Trust.
The Trust will reimburse the Managing Shareholder on a monthly basis during
the term of the Trust Management Agreement for its operating expenses
relating to the business of the Trust and the Operating Partnership, in an
aggregate amount up to 1% of the gross proceeds of the Cash Offering plus
1% of the initial value of Units issued in connection with the Operating
Partnership's proposed Exchange Offering (annual maximum $500,000). The
Managing Shareholder in its sole discretion may elect to receive payment
for its services in the form of common shares with an equivalent value.
C-10
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
NOTE 4. RELATED PARTY TRANSACTIONS (Continued)
Trust Management Agreement (Continued)
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.
Fees incurred under the Trust Management Agreement amounted to
approximately $37,950 from commencement of operations (February 3, 1998) to
September 30, 1998, of which approximately $1,528 were unpaid and accrued
at September 30, 1998.
NOTE 5. MATERIAL SUBSEQUENT EVENTS AND CONTINGENCIES
In October 1998, the Operating Partnership acquired an approximately 12.3%
limited partnership interest in Alexandria Development, L.P. (the
"Alexandria Partnership"), a Delaware limited partnership which is the
owner and developer of a 168-unit residential apartment property under
construction in Alexandria, Kentucky. Thirty eight of the 168 residential
units (approximately 22.6%) have been completed and are in the rent-up
stage. The Operating Partnership paid $400,000 for the acquired partnership
interest and retains an option to acquire the remaining limited partnership
interests at the same price per percentage interest (for a total price of
approximately $3,250,000 for the entire limited partnership interest). The
option is exercisable as additional apartment buildings are completed and
rented. An affiliate of Mr. McGrath, the founder and Chief Executive
Officer of the Trust and the Operating Partnership, sold the partnership
interest in the Alexandria Partnership to the Operating Partnership and
also serves as the managing general partner of the Alexandria Partnership.
During the construction stage of the apartment property, the Operating
Partnership's limited partnership interest in the Alexandria Partnership is
entitled to an annual 12% preferential return which is senior to the other
limited partnership interests and the general partner's nominal 1%
interest.
In September 1998, the Trust entered in an agreement with three real estate
development companies to acquire two luxury residential apartment
properties in the development stage upon the completion of construction.
The development companies are controlled by Mr. McGrath. The properties
will have a total of 652 units, comprised of one, two and three bedroom/one
or two bathroom apartments. Construction on one of the properties, located
in Louisville, Kentucky, is expected to be completed prior to the end of
2000, and construction of the other property, located in Burlington,
Kentucky (part of the Cincinnati metropolitan
C-11
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
area), is expected to be completed by the end of 2001. The aggregate
purchase price for the two properties is in the range of approximately
$41,000,000 to $43,000,000.
In connection with the transaction, the Trust agreed to co-guarantee (along
with Mr. McGrath), for a period of 60 days (plus any extensions which may
be granted), up to $3,000,000 of the development portion of long-term bank
construction loans with an aggregate principal amount of up to $36,000,000
to be made to the development companies in connection with the development
and construction of the two apartment properties and an 111,000 square foot
shopping center in Burlington, Kentucky. The Trust also agreed that, if the
loans are not repaid prior to the expiration of the guarantee, it will
either buy out the bank's position on the entire amount of the construction
loans or arrange for a third party to do so. The construction loans are
expected to be replaced by a long-term credit facility within 180 days.
C-12
<PAGE>
BARON CAPITAL TRUST
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Pro forma Pro forma
Maximum Minimum
Exchange Offering Exchange Offering
----------------------------------------
<S> <C> <C>
ASSETS
Investment in Baron Capital Properties, $ 2,875,309 $ 2,764,436
L.P
Cash 291,384 291,384
Cash held in escrow 16,300 16,300
Other receivables 400 400
------------------------------------
Total assets $ 3,183,393 $ 3,072,520
====================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities: $ -- $ --
Managing shareholder -- --
Commissions -- --
------------------------------------
Total liabilities -- --
------------------------------------
Shareholders' Equity
Common shares, no par value; 25,000,000
shares authorized, 379,496 shares issued
and outstanding, a change of 186,373 shares 3,476,228 3,476,228
Deficit (292,835) (403,708)
------------------------------------
$ 3,183,393 $ 3,072,520
------------------------------------
Total liabilities and shareholders' equity $ 3,183,393 $ 3,072,520
====================================
</TABLE>
- ----------
The table above sets forth a pro forma balance sheet (based on a maximum and
minimum Exchange Offering) for the Trust as of September 30, 1998 based on the
Trust's assumed percentage ownership interest in the Operating Partnership. The
pro forma data is presented as if at September 30,1998: (i) the Operating
Partnership had owned the Acquired Properties and had issued all 2,500,000 Units
being offered, in the case of the maximum Exchange Offering, and had issued only
600,000 Units, in the case of the minimum Exchange Offering, and (ii) the Trust
had owned approximately 11.5% of the assumed outstanding Units, in the case of
the maximum Exchange Offering, and approximately 31.9%, in the case of the
minimum Exchange Offering (calculated taking into account the number of Units
(379,496) the Trust had acquired from the Operating Partnership with the net
proceeds of the Trust's Cash Offering as of September 30, 1998 in relation to
the number of assumed outstanding Units that would have been held by recipients
of Units in the Exchange Offering and the Original Investors.
The financial information shown should be read in conjunction with the
discussion set forth in "INITIAL REAL ESTATE INVESTMENTS" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION," and all of the financial
statements included elsewhere in this Prospectus. The pro forma financial
information is not necessarily indicative of what the actual financial position
of the Trust would have been as of the date indicated, nor does it purport to
represent the future financial position for future periods.
C-13
<PAGE>
BARON CAPITAL TRUST
PRO FORMA STATEMENT OF OPERATIONS
FROM COMMENCEMENT OF OPERATIONS
(FEBRUARY 3, 1998) TO SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Pro forma Pro forma
Maximum Minimum
Exchange Offering Exchange Offering
----------------------------------------
<S> <C> <C>
Revenue
Interest income $ 1,064 $ 1,064
Costs and Expenses
Advisory and investment fees - managing shareholder 182,110 182,110
General and administrative expenses 13,855 13,855
--------------------------------
Total costs and expenses 195,965 195,965
--------------------------------
Net loss from investment in Baron Capital Properties, L.P. (97,934) (208,807)
--------------------------------
Net Loss $(292,835) $(403,708)
================================
</TABLE>
- ----------
The table above sets forth a pro forma statement of operations (based on a
maximum and minimum Exchange Offering) for the Trust from February 3. 1998 (the
commencement of operations) through September 30, 1998 based on the Trust's
assumed percentage ownership interest in the Operating Partnership. The pro
forma data is presented as if at the beginning of the indicated period: (i) the
Operating Partnership had owned the Acquired Properties and had issued all
2,500,000 Units being offered, in the case of the maximum Exchange Offering, and
had issued only 600,000 Units, in the case of the minimum Exchange Offering, and
(ii) the Trust had owned approximately 11.5% of the assumed outstanding Units,
in the case of the maximum Exchange Offering, and approximately 31.9%, in the
case of the minimum Exchange Offering (calculated taking into account the number
of Units (379,496) the Trust had acquired from the Operating Partnership with
the net proceeds of the Trust's Cash Offering as of September 30, 1998 in
relation to the number of assumed outstanding Units that would have been held by
recipients of Units in the Exchange Offering and the Original Investors.
The financial information shown should be read in conjunction with the
discussion set forth in "INITIAL REAL ESTATE INVESTMENTS" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION," and all of the financial
statements included elsewhere in this Prospectus. The pro forma financial
information is not necessarily indicative of what the results of operations of
the Trust would have been for the period indicated, nor does it purport to
represent the results of operations for future periods.
C-14
<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
C-15
<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.
C-16
<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 an
integrated real estate company which has been organized to indirectly
acquire equity interests in residential apartment properties located in the
United States and to provide or acquire mortgage loans secured by such
types of property. The Trust intends to acquire, own, operate, manage and
improve residential apartment properties for long-term ownership, and
thereby to seek to maximize current and long-term income and the value of
its assets. As of the date of this report, only two units of limited
partnership interest in the Operating Partnership had been issued. One unit
was issued to each of Gregory K. McGrath and Robert S. Geiger, its
formative limited partners and founders of the Trust and the Operating
Partnership.
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.
In its proposed exchange offering, the Operating Partnership intends to
issue up to 2,500,000 units of limited partnership interest ("Units") in
exchange for limited partnership interests owned by limited partners in
real estate limited partnerships which own direct or indirect equity or
debt interests in residential apartment properties. Holders of Units
("Unitholders") will have the right, exercisable at any time, to exchange
all or a portion of their Units into an equivalent number of Common Shares
of beneficial interest in the Trust. Generally, this exchange right may be
exercised by a Unitholder by delivering notice to the Trust at least 10
days prior to such exchange. Upon the exchange, the Operating Partnership
will immediately cancel the Units and issue to the Trust an equivalent
number of new Units. The Trust, at its option, may satisfy a Unitholder's
exchange right by acquiring on the specified exchange date the Units at a
price equal to the average of the daily market price for the 10 consecutive
trading days immediately preceding the date the Trust receives the exchange
notice.
The Trust, as general Partner of the Operating partnership, is authorized
to cause the Operating Partnership to issue additional limited partnership
interests in the Operating Partnership for any purpose of the Operating
Partnership at any time to such persons and on such terms and conditions as
may be determined by the Trust in its sole and absolute discretion. Since
Units are exchangeable by Unitholders into an equivalent number of Common
Shares of the Trust, the maximum number of Units that may be issued by the
Operating Partnership is limited to the number of authorized Shares of the
Trust, which is 25,000,000.
In exchange for a cash capital contribution paid to the Operating
Partnership, in May 1988, each of its founders, Gregory K. McGrath and
Robert S. Geiger, was issued an amount of Units which are exchangeable
(subject to certain escrow restrictions) into 9.5% of the Common Shares of
the Trust (up to 1,202,160 Common Shares) outstanding as of the earlier to
occur of the completion of the exchange offering and the cash public
offering to be made by the Trust or May 14, 1999, calculated on a fully
diluted basis assuming that all then outstanding Units (other than those
owned by the Trust) have been exchanged into an equivalent number of Common
Shares.
Mr. McGrath and Mr. Geiger have deposited their Units into an escrow
account with American Stock Transfer & Trust Company. 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 Trust's public offering of Common Shares (the "Cash Offering"),
provided that the escrowed Units may be released in their entirety earlier
if either (i) the Trust achieves annual net earnings per Common Share of at
least $.50 (i.e., 5% of the public offering price per share), after taxes
and excluding extraordinary items, for any consecutive two-year period
following the commencement of the Cash Offering, or (ii) the Trust achieves
average annual net earnings per share of at least $.50 (after taxes and
excluding extraordinary items) for any consecutive five-year period
following the commencement of the Cash Offering, or (iii) the Common Shares
have traded on a national stock market at a price per share of at least
$17.50 (i.e., 175% of the public offering price per share) for at least 90
consecutive trading days following the first anniversary of the
commencement of the Cash Offering. In addition, the Original Investors'
Units will be subject to the trading restrictions under Rule 144 issued
under the Securities Act of 1933, as amended.
The Trust and the Operating Partnership will consider these escrowed shares
as being outstanding for purposes of calculating basic earnings per share
in the financial statements. To the extent that these shares are considered
compensatory, the implicit compensation will be recognized over the
six-year period represented by the minimum release provisions of the escrow
agreement. Because the release of the shares from escrow is not dependent
upon the achievement of any specified level of profits, no accounting
measurement is anticipated to be given the release of the shares from
escrow. As indicated above, the compensation will be amortized over the
shortest period of the release.
C-17
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
Investment in real estate limited partnerships $2,260,150
Investment in limited partnership interests 341,280
Cash 183,459
Prepaid expenses and other assets 52,500
Other receivables 126,948
Property and equipment 106,358
----------
Total assets $3,070,695
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Note payable 575,000
Other accrued liabilities 102,263
----------
677,263
----------
Partners' Capital
General partner $ --
Limited partners, 25,000,000 units authorized:
472,309 units issued and outstanding 2,393,432
----------
2,393,432
----------
Total liabilities and shareholders' equity $3,070,695
==========
See notes to financial statements
C-18
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONDENSED STATEMENT OF OPERATIONS
FROM COMMENCEMENT OF OPERATIONS (FEBRUARY 3, 1998) TO SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
From Commencement
of Operations
(February 3, 1998) To
September 30, 1998
------------------
<S> <C>
Revenue:
Interest Income $ 712
Income from real estate 21,644
---------
22,356
---------
Costs and Expenses:
Personnel $ 237,815
Professional services 119,900
Managed properties expenses 259,042
Other general and administrative expenses 85,407
---------
Total costs and expenses 702,164
---------
Net Loss $(679,808)
=========
</TABLE>
See notes to financial statements
C-19
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONDENSED STATEMENT OF PARTNERS' CAPITAL
FROM COMMENCEMENT OF OPERATIONS (FEBRUARY 3, 1998) TO SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
Initial Capital Contribution (89,018 units) $ -- $ 100,000 $ 100,000
Issuance of limited partnership interests (379,496 units) -- 2,973,240 2,973,240
Net Loss -- (679,808) (679,808)
----------- ----------- -----------
Balance, September 30, 1998 $ -- $ 2,393,432 $ 2,393,432
=========== =========== ===========
</TABLE>
See notes to financial statements
C-20
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONDENSED STATEMENT OF CASH FLOWS
FROM COMMENCEMENT OF OPERATIONS (FEBRUARY 3, 1998) TO SEPTEMBER 30, 1998
(UNAUDITED)
Cash Flows from Operating Activities:
Net loss $ (679,808)
Adjustments to reconcile net loss to net cash
used in operating activities:
Changes in operating assets and liabilities:
Increase in prepaid expenses and other assets (52,500)
Increase in other receivables (126,948)
Increase in accrued liabilities 102,263
-----------
Net cash used in operating activities (756,993)
-----------
Cash Flows from Investing Activities:
Investment in real estate limited partnerships (2,260,150)
Investment in limited partnership interests (341,280)
Purchase of property and equipment (106,358)
Due on purchase of limited partnership interests --
-----------
Net cash used in investing activities (2,707,788)
-----------
Cash Flows from Financing Activities:
Issuance of limited partnership interests 2,973,240
Initial capital contribution 100,000
Increase in notes payable 575,000
Loan from related party --
-----------
Net cash provided by financing activities 3,648,240
-----------
Net Increase in Cash 183,459
Cash, Beginning --
-----------
Cash, Ending $ 183,459
===========
See notes to financial statements
C-21
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF, AND FOR THE PERIOD BEGINNING ON
THE DATE OF COMMENCEMENT OF OPERATIONS
(FEBRUARY 3, 1998) AND ENDING, SEPTEMBER 30, 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"), a Delaware business trust. Together, both
the Trust and Operating Partnership constitute an integrated real
estate company which has been organized to indirectly acquire equity
interests in residential apartment properties located in the United
States and to provide or acquire mortgage loans secured by such types
of property. The Trust intends to acquire, own, operate, manage and
improve residential apartment 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 of limited partnership interest 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.
In its proposed exchange offering (the "Exchange Offering"), the
Operating Partnership intends to issue up to 2,500,000 units of
limited partnership interest ("Units") in exchange for limited
partnership interests owned by limited partners in real estate limited
partnerships which own direct or indirect equity or debt interests in
residential apartment properties. Holders of Units ("Unitholders")
(other than the Trust) will have the right, exercisable at any time,
to exchange all or a portion of their Units into an equivalent number
of Common Shares of beneficial interest in the Trust. Generally, this
exchange right may be exercised by a Unitholder by delivering notice
to the Trust at least 10 days prior to such exchange. Upon the
exchange, the Operating Partnership will immediately cancel the Units
and issue to the Trust an equivalent number of new Units. The Trust,
at its option, may satisfy a Unitholder's exchange right by acquiring
on the specified exchange date the Units at a price equal to the
average of the daily market price for the 10 consecutive trading days
immediately preceding the date the Trust receives the exchange notice.
The Trust, as General Partner of the Operating Partnership, is
authorized to cause the Operating Partnership to issue additional
limited partnership interests in the Operating Partnership for any
purpose of the Operating Partnership at any time to such persons and
on such terms and conditions as may be determined by the Trust in its
sole and absolute discretion. Since Units (other than Units held by
the Trust) are exchangeable by Unitholders into an equivalent number
of Common Shares of the Trust, the maximum number of Units that may be
issued by the Operating Partnership is limited to the number of
authorized Shares of the Trust, which is 25,000,000.
C-22
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS (cont'd)
NOTE 1. ORGANIZATION (cont'd)
In May 1998, the Trust commenced an initial public offering (the "Cash
Offering") of a maximum of 2,500,000 common shares of beneficial
interest in the Trust at $10 per common share for total maximum gross
proceeds of $25,000,000. The Trust is required to contribute to the
Operating Partnership net cash proceeds from the issuance of Common
Shares in the Cash Offering and from any subsequent issuance of Common
Shares, in exchange for an equivalent number of Units. In connection
with the Cash Offering, the Trust issued and had outstanding 379,496
shares as of September 30, 1998 for proceeds of $3,476,228, net of
related costs (primarily commissions). Of the net proceeds received,
the Trust invested $2,973,240 in the Operating Partnership in exchange
for 379,496 Units.
In connection with the formation of the Trust and the Operating
Partnership, Gregory K. McGrath and Robert S. Geiger, the Original
Investors, each subscribed for 601,080 Units. In consideration for the
Units subscribed for by them, the Original Investors made a $100,000
capital contribution to the Operating Partnership. If the Cash
Offering and the Exchange Offering are fully subscribed, those Units
would represent 9.5% of the total Common Shares outstanding after
completion of the Cash Offering and exchange by the Operating
Partnership of 2,500,000 of its Units for units of limited partnership
interest in real estate limited partnerships (including any exchange
completed pursuant to the Exchange Offering), calculated on a fully
diluted basis assuming all then outstanding Units (other than those
acquired by the Trust) have been exchanged into an equivalent number
of Common Shares. If, however, as of May 14, 1999, the Cash Offering
and/or the Exchange Offering has been completed and the number of
Units subscribed for by each Original Investor represents a percentage
greater than 9.5% of the then outstanding Common Shares, calculated on
a fully diluted basis assuming that all then outstanding Units (other
than those acquired by the Trust) have been exchanged into an
equivalent number of Common Shares, each Original Investor has agreed
to return any excess Units to the Operating Partnership for
cancellation. As described further below, Mr. McGrath and Mr. Geiger
have deposited Units subscribed for by them into a security escrow
account for six to nine years, subject to earlier release under
certain conditions.
Mr. McGrath and Mr. Geiger have deposited their Units into an escrow
account with American Stock Transfer & Trust Company. Under the
agreement, 25% of the escrowed Units may be released from the escrow
account on the sixth, seventh, eighth and ninth anniversary dates of
the commencement of the Cash Offering, provided that the escrowed
Units may be released in their entirety earlier if either (i) the
Trust achieves annual net earnings per Common Share of at least $.50
(i.e., 5% of the public offering price per share), after taxes and
excluding extraordinary items, for any consecutive two-year period
following the commencement of the Cash Offering, or (ii) the Trust
achieves average annual net earnings per share of at least $.50 (after
taxes and excluding extraordinary items) for any consecutive five-year
period following the commencement of the Cash Offering, or (iii) the
Common Shares have traded on a national stock market at a price per
share of at least $17.50 (i.e., 175% of the public offering price per
share) for at least 90 consecutive trading days following the first
anniversary of the commencement of the Cash Offering. In addition, the
Original Investors' Units will be subject to the trading restrictions
under Rule 144 issued under the Securities Act of 1933, as amended.
The Trust and the Operating Partnership will consider these escrowed
shares as being outstanding for purposes of calculating basic earnings
per share in the financial statements. To the extent that these shares
are considered compensatory, the implicit compensation will be
recognized over the six-year period represented by the minimum release
provisions of the escrow agreement. Because
C-23
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS (cont'd)
NOTE 1. ORGANIZATION (cont'd)
the release of the shares from escrow is not dependent upon the
achievement of any specified level of profits, no accounting
measurement is anticipated to be given the release of the shares from
escrow. As indicated above, the compensation will be amortized over
the shortest period of the release.
The Operating Partnership commenced operations on February 3, 1998. As
a result, the statements of operations and cash flows have been
presented for the period from commencement of operations (February 3,
1998) to September 30, 1998.
NOTE 2. BASIS OF PRESENTATION
The accompanying unaudited financial statements as of September 30,
1998 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
rules and regulations of the Securities and Exchange Commission. In
the opinion of management, these condensed financial statements
reflect all adjustments, which, in the opinion of management, are
necessary for a fair presentation of financial position as of
September 30, 1998 and results of operations and cash flows for the
period from commencement of operations (February 3, 1998) to September
30, 1998. All such adjustments are of a normal recurring nature. The
results of operations for interim periods are not necessarily
indicative of the results to be expected for a full year.
NOTE 3. MATERIAL SUBSEQUENT EVENTS AND CONTINGENCIES
In October 1998, the Operating Partnership acquired an approximately
12.3% limited partnership interest in Alexandria Development, L.P.
(the "Alexandria Partnership"), a Delaware limited partnership which
is the owner and developer of a 168-unit residential apartment
property under construction in Alexandria, Kentucky. Thirty eight of
the 168 residential units (approximately 22.6%) have been completed
and are in the rent-up stage. The Operating Partnership paid $400,000
for the acquired partnership interest and retains an option to acquire
the remaining limited partnership interests at the same price per
percentage interest (for a total price of approximately $3,250,000 for
the entire limited partnership interest). The option is exercisable as
additional apartment buildings are completed and rented. An affiliate
of Mr. McGrath, an Original Investor, founder and Chief Executive
Officer of the Trust and the Operating Partnership, sold the
partnership interest in the Alexandria Partnership to the Operating
Partnership and also serves as the managing general partner of the
Alexandria Partnership. During the construction stage of the apartment
property, the Operating Partnership's limited partnership interest in
the Alexandria Partnership is entitled to an annual 12% preferential
return which is senior to the other limited partnership interests and
the general partner's nominal 1% interest.
In September 1998, the Trust entered in an agreement with three real
estate development companies to acquire two luxury residential
apartment properties in the development stage upon the completion of
construction. The development companies are controlled by Mr. McGrath.
The properties will have a total of 652 units, comprised of one, two
and three bedroom/one or two bathroom apartments. Construction on one
of the properties, located in Louisville, Kentucky, is expected to be
completed prior to the end of 2000, and construction of the other
property, located in Burlington, Kentucky (part of the Cincinnati
metropolitan area), is expected to be completed by
C-24
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS (cont'd)
NOTE 3. MATERIAL SUBSEQUENT EVENTS AND CONTINGENCIES (cont'd)
the end of 2001. The aggregate purchase price for the two properties
is in the range of approximately $41,000,000 to $43,000,000.
In connection with the transaction, the Trust agreed to co-guarantee
(along with Mr. McGrath), for a period of 60 days (plus any extensions
which may be granted), up to $3,000,000 of the development portion of
long-term bank construction loans with an aggregate principal amount
of up to $36,000,000 to be made to the development companies in
connection with the development and construction of the two apartment
properties and an 111,000 square foot shopping center in Burlington,
Kentucky. The Trust also agreed that, if the loans are not repaid
prior to the expiration of the guarantee, it will either buy out the
bank's position on the entire amount of the construction loans or
arrange for a third party to do so. The construction loans are
expected to be replaced by a long-term credit facility within 180
days.
C-25
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1998
UNAUDITED
<TABLE>
<CAPTION>
Pro forma Baron Capital
Baron Capital Acquired Properties, L.P. Exchange Adjusted
Properties, L.P. Properties As Adjusted Properties Total
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Real estate $ -- $ 4,868,717 $ 4,868,717 $ 19,616,582 $ 24,485,299
Less accumulated depreciation -- (973,369) (973,369) (2,285,807) (3,259,176)
Investments in real estate limited partnership 2,260,150 -- 2,260,150 2,100,994 4,361,144
Investments in limited partnership interests 341,280 -- 341,280 -- 341,280
Cash and cash equivalents 183,459 242,553 426,012 499,277 925,289
Accounts receivable -- 2,777 2,777 18,571 21,348
Deferred expenses, net -- 22,267 22,267 622,337 644,604
Notes receivable from affiliates -- -- -- 4,903,879 4,903,879
Accrued interest receivable from affiliates -- -- -- 538,174 538,174
Other assets 285,806 158,508 444,314 4,138,961 4,583,275
---------------------------------------------------------------------------
$ 3,070,695 $ 4,321,453 $ 7,392,148 $ 30,152,968 $ 37,545,116
===========================================================================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ -- $ 4,549,346 $ 4,549,346 $ 17,744,845 $ 22,294,191
Notes payable to affiliates 575,000 -- 575,000 675,687 1,250,687
Loans payable -- 14,087 14,087 2,479,270 2,493,357
Accrued interest and payable -- -- -- 39,419 39,419
Accrued real estate taxes payable -- 61,615 61,615 58,180 119,795
Security deposits and prepaid rent -- 37,263 37,263 167,433 204,696
Other liabilities 102,263 112,727 214,990 874,475 1,089,465
---------------------------------------------------------------------------
Total liabilities 677,263 4,775,038 5,452,301 22,039,309 27,491,610
PARTNERS' CAPITAL: 2,393,432 (453,585) 1,939,847 8,113,659 10,053,506
---------------------------------------------------------------------------
$ 3,070,695 $ 4,321,453 $ 7,392,148 $ 30,152,968 $ 37,545,116
===========================================================================
</TABLE>
- ----------
The table above sets forth a pro forma balance sheet for the Operating
Partnership as of September 30, 1998. The data has been derived from the
unaudited financial statements for the Operating Partnership, the three
Acquired Properties acquired by the Operating Partnership to date which
have historical operating results, and the 23 Exchange Partnerships whose
limited partners are being offered the opportunity to exchange their
limited partnership interests therein for Operating Partnership Units in
the Exchange Offering.
The pro forma data is presented as if the Operating Partnership had owned
the Acquired Properties and all of the limited partnership interests in the
Exchange Partnerships at September 30,1998. The financial information shown
should be read in conjunction with the discussion set forth in "INITIAL
REAL ESTATE INVESTMENTS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION," and all of the financial statements included elsewhere in
this Prospectus. The pro forma financial information is not necessarily
indicative of what the actual financial position of the Operating
Partnership would have been as of the date indicated, nor does it purport
to represent the future financial position for future periods.
C-26
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
PRO FORMA STATEMENTS OF OPERATIONS
FROM COMMENCEMENT OF OPERATIONS
(FEBRUARY 3, 1998) TO SEPTEMBER 30, 1998
UNAUDITED
<TABLE>
<CAPTION>
Pro forma Baron Capital
Baron Capital Acquired Properties, L.P. Exchange Adjusted
Properties, L.P. Properties As Adjusted Properties Total
--------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ -- $ 673,660 $ 673,660 $ 3,079,381 $ 3,753,041
Interest income 712 -- 712 601,100 601,812
Equity in net income of affiliate 21,644 26,437 48,081 90,233 138,314
Other income -- -- -- 3,762 3,762
-------------------------------------------------------------------------------
Total Revenue 22,356 700,097 722,453 3,774,476 4,496,929
COSTS AND EXPENSES:
Personnel 237,815 83,057 320,872 465,659 786,531
Real estate taxes and insurance -- 76,203 76,203 353,389 429,592
Property management fees 259,042 29,335 288,377 163,712 452,089
Interest -- 260,227 260,227 1,023,204 1,283,431
Depreciation and amortization -- 116,234 116,234 677,068 793,302
Major maintenance -- 46,740 46,740 33,458 80,198
Other operating expenses 205,307 131,577 336,884 1,186,479 1,523,363
-------------------------------------------------------------------------------
Total costs and expenses 702,164 743,373 1,445,537 3,902,969 5,348,506
-------------------------------------------------------------------------------
NET INCOME (LOSS) $ (679,808) $ (43,276) $ (723,084) $ (128,493) $ (851,577)
===============================================================================
</TABLE>
- ----------
The table above sets forth the pro forma statement of operations for the
Operating Partnership from February 3. 1998 (the commencement of
operations) through September 30, 1998. The operating data has been derived
from the unaudited financial statements for the Operating Partnership, the
three Acquired Properties acquired by the Operating Partnership to date
which have historical operating results, and the 23 Exchange Partnerships
whose limited partners are being offered the opportunity to exchange their
limited partnership interests therein for Operating Partnership Units in
the Exchange Offering. In the opinion of management, the operating data for
the indicated period include all adjustments (consisting solely of normal
recurring adjustments) necessary to present fairly the information set
forth therein.
The pro forma operating data is presented as if the Operating Partnership
had owned the Acquired Properties and all of the limited partnership
interests in the Exchange Partnerships at the beginning of the indicated
period. The financial information shown should be read in conjunction with
the discussion set forth in "INITIAL REAL ESTATE INVESTMENTS" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION," and all of the
financial statements included elsewhere in this Prospectus. The pro forma
financial information is not necessarily indicative of what the results of
operations of the Operating Partnership would have been for the period
indicated, nor does it purport to represent the results of operations for
future periods.
C-27
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1998
BASED ON MINIMUM EXCHANGE PROPERTIES
UNAUDITED
<TABLE>
<CAPTION>
Pro forma Baron Capital
Baron Capital Acquired Properties, L.P. Exchange Adjusted
Properties, L.P. Properties As Adjusted Properties Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Real estate $ -- $ 4,868,717 $ 4,868,717 $ 4,638,021 $ 9,506,738
Less accumulated depreciation -- (973,369) (973,369) (628,732) (1,602,101)
Investments in real estate limited partnership 2,260,150 -- 2,260,150 1,518,508 3,778,658
Investments in limited partnership interests 341,280 -- 341,280 -- 341,280
Cash and cash equivalents 183,459 242,553 426,012 145,052 571,064
Accounts receivable -- 2,777 2,777 -- 2,777
Deferred expenses, net -- 22,267 22,267 115,901 138,168
Notes receivable from affiliates -- -- -- 719,508 719,508
Accrued interest receivable from affiliates -- -- -- 162,152 162,152
Other assets 285,806 158,508 444,314 1,381,189 1,825,503
-------------------------------------------------------------------------------
$ 3,070,695 $ 4,321,453 $ 7,392,148 $ 8,051,599 $ 15,443,747
===============================================================================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ -- $ 4,549,346 $ 4,549,346 $ 4,538,843 $ 9,088,189
Loans payable -- 14,087 14,087 730,083 744,170
Notes payable affiliates 575,000 -- 575,000 400,000 975,000
Accrued interest and payable -- -- -- -- --
Accrued real estate taxes payable -- 61,615 61,615 -- 61,615
Security deposits and prepaid rent -- 37,263 37,263 38,066 75,329
Other liabilities 102,263 112,727 214,990 184,266 399,256
-------------------------------------------------------------------------------
Total liabilities 677,263 4,775,038 5,452,301 5,891,258 11,343,559
PARTNERS' CAPITAL: 2,393,432 (453,585) 1,939,847 2,160,341 4,100,188
-------------------------------------------------------------------------------
$ 3,070,695 $ 4,321,453 $ 7,392,148 $ 8,051,599 $ 15,443,747
===============================================================================
</TABLE>
- ----------
The table above sets forth a pro forma balance sheet (based on a minimum
Exchange Offering) for the Operating Partnership as of September 30, 1998.
The pro forma data is presented as if the Operating Partnership had owned
at September 30,1998 the Acquired Properties and only the minimum number of
limited partnership interests in Exchange Partnerships to satisfy the
closing conditions of the Exchange Offering. The Operating Partnership will
not complete the offering in respect of any Exchange Partnership if limited
partners holding more than 10% of the limited partnership interests therein
affirmatively elect not to accept the offering. In addition, the Operating
Partnership will not complete any transaction in the offering whatsoever
unless a sufficient number of Offerees accept the offering such that the
offering involves the issuance of Operating Partnership Units with an
initial assigned value of at least $6,000,000.
C-28
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
PRO FORMA STATEMENTS OF OPERATIONS
FROM COMMENCEMENT OF OPERATIONS
(FEBRUARY 3, 1998) TO SEPTEMBER 30, 1998
BASED ON MINIMUM EXCHANGE PROPERTIES
UNAUDITED
<TABLE>
<CAPTION>
Pro forma Baron Capital
Baron Capital Acquired Properties, L.P. Exchange Adjusted
Properties, L.P. Properties As Adjusted Properties Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ -- $ 673,660 $ 673,660 $ 854,679 $ 1,528,339
Interest income 712 -- 712 166,117 166,829
Equity in net income of affiliate 21,644 26,437 48,081 41,647 89,728
Other income -- -- -- 950 950
------------------------------------------------------------------------------
Total Revenue 22,356 700,097 722,453 1,063,393 1,785,846
COSTS AND EXPENSES:
Personnel 237,815 83,057 320,872 110,756 431,628
Real estate taxes and insurance -- 76,203 76,203 96,267 172,470
Property management fees 259,042 29,335 288,377 52,345 340,722
Interest -- 260,227 260,227 256,557 516,784
Depreciation and amortization -- 116,234 116,234 219,303 335,537
Major maintenance -- 46,740 46,740 15,133 61,873
Other operating expenses 205,307 131,577 336,884 244,515 581,399
------------------------------------------------------------------------------
Total costs and expenses 702,164 743,373 1,445,537 994,876 2,440,413
------------------------------------------------------------------------------
NET INCOME (LOSS) $ (679,808) $ (43,276) $ (723,084) $ 68,517 $ (654,567)
==============================================================================
</TABLE>
- ----------
The table above sets forth the pro forma statement of operations (based on
a minimum Exchange Offering) for the Operating Partnership from February 3.
1998 (the commencement of operations) through September 30, 1998. The pro
forma operating data is presented as if the Operating Partnership had owned
at the beginning of the indicated period the Acquired Properties and only
the minimum number of limited partnership interests in Exchange
Partnerships to satisfy the closing conditions of the Exchange Offering.
The Operating Partnership will not complete the offering in respect of any
Exchange Partnership if limited partners holding more than 10% of the
limited partnership interests therein affirmatively elect not to accept the
offering. In addition, the Operating Partnership will not complete any
transaction in the offering whatsoever unless a sufficient number of
Offerees accept the offering such that the offering involves the issuance
of Operating Partnership Units with an initial assigned value of at least
$6,000,000.
C-29
<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
C-30
<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
====
C-31
<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.
C-32
<PAGE>
BARON ADVISORS, INC.
BALANCE SHEET
SEPTEMBER 30, 1998
ASSETS
Current Assets
Checking/ Savings Key Bank $ 16,318.19
-------------
Total Checking/ Savings 16,318.19
-------------
Total Current Assets 16,318.19
-------------
Total Assets $ 16,318.19
=============
LIABILITIES AND EQUITY
Equity
Common Stock 100.00
Net Income 16,218.19
-------------
Total Equity $ 16,318.19
-------------
TOTAL LIABILITIES AND EQUITY $ 16,318.19
=============
C-33
<PAGE>
BARON ADVISORS, INC.
NOTES TO BALANCE SHEET
(unaudited)
NOTE 1. RELATED PARTY TRANSACTIONS
Trust Management Agreement
Baron Advisors, Inc., the Managing Shareholder of Baron Capital Trust (the
"Trust"), and the Trust have entered into a Trust Management Agreement with
under which the Managing Shareholder is obligated to provide management,
administrative and investment advisory services to the Trust from the
commencement of the Trust's initial public offering (the "Cash Offering")
of up to 2,500,000 common shares of beneficial interest in the Trust at $10
per common share, for total maximum gross proceeds of $25,000,000. 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 of Trust.
The Trust will reimburse the Managing Shareholder on a monthly basis during
the term of the Trust Management Agreement for its operating expenses
relating to the business of the Trust and the Operating Partnership, in an
aggregate amount up to 1% of the gross proceeds of the Cash Offering plus
1% of the initial value of Units issued in connection with the Operating
Partnership's proposed Exchange Offering (annual maximum $500,000). The
Managing Shareholder in its sole discretion may elect to receive payment
for its services in the form of common shares with an equivalent value.
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.
Fees earned under the Trust Management Agreement amounted to approximately
$37,950 from commencement of operations (February 3, 1998) to September 30,
1998, of which approximately $1,528 were unpaid and accrued at September
30, 1998.
C-34
<PAGE>
EXHIBIT D
FINANCIAL STATEMENTS OF THE EXCHANGE PROPERTIES
<PAGE>
EXHIBIT D
BARON CAPITAL PROPERTIES, L.P.
INDEX TO FINANCIAL STATEMENTS
OF EXCHANGE PROPERTIES PURSUANT TO REGULATION SB 310
Page
----
EQUITY PROPERTIES
EXCHANGE EQUITY PARTNERSHIPS ............................................ D-7
BLOSSOM CORNERS APARTMENTS PHASE I:
Independent Auditors Report ........................................ D-8
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997 .......................... D-9
Notes to Statement of Revenues and Certain Expenses ................ D-10
Statement of Revenues and Certain Expenses
for the Nine-Month Period Ended September 30, 1998 (unaudited) .. D-11
Notes to Statement of Revenues and Certain Expenses ................ D-12
BRIDGEPOINT APARTMENTS PHASE II:
Independent Auditors Report ........................................ D-13
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997 .......................... D-14
Notes to Statement of Revenues and Certain Expenses ................ D-15
Statement of Revenues and Certain Expenses
for the Nine-Month Period Ended September 30, 1998 (unaudited) .. D-16
Notes to Statement of Revenues and Certain Expenses ................ D-17
BROOKWOOD WAY APARTMENTS:
Independent Auditors Report ........................................ D-18
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997 .......................... D-19
Notes to Statement of Revenues and Certain Expenses ................ D-20
Statement of Revenues and Certain Expenses
for the Nine-Month Period Ended September 30, 1998 (unaudited) .. D-21
Notes to Statement of Revenues and Certain Expenses ................ D-22
CAMELLIA COURT APARTMENTS:
Independent Auditors Report ........................................ D-23
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997 .......................... D-24
Notes to Statement of Revenues and Certain Expenses ................ D-25
Statement of Revenues and Certain Expenses
for the Nine-Month Period Ended September 30, 1998 (unaudited) .. D-26
Notes to Statement of Revenues and Certain Expenses ................ D-27
EAGLE LAKE APARTMENTS:
Independent Auditors Report ........................................ D-28
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997 .......................... D-29
Notes to Statement of Revenues and Certain Expenses ................ D-30
Statement of Revenues and Certain Expenses
for the Nine-Month Period Ended September 30, 1998 (unaudited) .. D-31
Notes to Statement of Revenues and Certain Expenses ................ D-32
FOREST GLEN APARTMENTS PHASE I:
Independent Auditors Report ........................................ D-33
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997 .......................... D-34
Notes to Statement of Revenues and Certain Expenses ................ D-35
Statement of Revenues and Certain Expenses
for the Nine-Month Period Ended September 30, 1998 (unaudited) .. D-36
Notes to Statement of Revenues and Certain Expenses ................ D-37
FOREST GLEN APARTMENTS PHASE II:
Independent Auditors Report ........................................ D-38
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997 .......................... D-39
Notes to Statement of Revenues and Certain Expenses ................ D-40
Statement of Revenues and Certain Expenses
for the Nine-Month Period Ended September 30, 1998 (unaudited) .. D-41
Notes to Statement of Revenues and Certain Expenses ................ D-42
FOREST GLEN APARTMENTS PHASE III:
Independent Auditors Report ........................................ D-43
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997 .......................... D-44
Notes to Statement of Revenues and Certain Expenses ................ D-45
Statement of Revenues and Certain Expenses
for the Nine-Month Period Ended September 30, 1998 (unaudited) .. D-46
Notes to Statement of Revenues and Certain Expenses ................ D-47
D-1
<PAGE>
Page
----
FOREST GLEN APARTMENTS PHASE IV:
Independent Auditors Report ........................................ D-48
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997 .......................... D-49
Notes to Statement of Revenues and Certain Expenses ................ D-50
Statement of Revenues and Certain Expenses
for the Nine-Month Period Ended September 30, 1998 (unaudited) .. D-51
Notes to Statement of Revenues and Certain Expenses ................ D-52
GLEN LAKE ARMS APARTMENTS:
Independent Auditors Report ........................................ D-53
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997 .......................... D-54
Notes to Statement of Revenues and Certain Expenses ................ D-55
Statement of Revenues and Certain Expenses
for the Nine-Month Period Ended September 30, 1998 (unaudited) .. D-56
Notes to Statement of Revenues and Certain Expenses ................ D-57
LAUREL OAKS (FORMERLY GROVE HAMLET) APARTMENTS:
Independent Auditors Report ........................................ D-58
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997 .......................... D-59
Notes to Statement of Revenues and Certain Expenses ................ D-60
Statement of Revenues and Certain Expenses
for the Nine-Month Period Ended September 30, 1998 (unaudited) .. D-61
Notes to Statement of Revenues and Certain Expenses ................ D-62
STADIUM CLUB APARTMENTS:
Independent Auditors Report ........................................ D-63
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997 .......................... D-64
Notes to Statement of Revenues and Certain Expenses ................ D-65
Statement of Revenues and Certain Expenses
for the Nine-Month Period Ended September 30, 1998 (unaudited) .. D-66
Notes to Statement of Revenues and Certain Expenses ................ D-67
STEEPLECHASE APARTMENTS:
Independent Auditors Report ........................................ D-68
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997 .......................... D-69
Notes to Statement of Revenues and Certain Expenses ................ D-70
Statement of Revenues and Certain Expenses
for the Nine-Month Period Ended September 30, 1998 (unaudited) .. D-71
Notes to Statement of Revenues and Certain Expenses ................ D-72
EXCHANGE HYBRID PARTNERSHIPS
CRYSTAL COURT APARTMENTS PHASE I:
Independent Auditors Report ........................................ D-74
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997 .......................... D-75
Notes to Statement of Revenues and Certain Expenses ................ D-76
Statement of Revenues and Certain Expenses
for the Nine-Month Period Ended September 30, 1998 (unaudited) .. D-77
Notes to Statement of Revenues and Certain Expenses ................ D-78
LAMPLIGHT COURT APARTMENTS:
Independent Auditors Report ........................................ D-79
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997 .......................... D-80
Notes to Statement of Revenues and Certain Expenses ................ D-81
Statement of Revenues and Certain Expenses
for the Nine-Month Period Ended September 30, 1998 (unaudited) .. D-82
Notes to Statement of Revenues and Certain Expenses ................ D-83
PINEVIEW APARTMENTS:
Independent Auditors Report ........................................ D-84
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997 .......................... D-85
Notes to Statement of Revenues and Certain Expenses ................ D-86
Statement of Revenues and Certain Expenses
for the Nine-Month Period Ended September 30, 1998 (unaudited) .. D-87
Notes to Statement of Revenues and Certain Expenses ................ D-88
D-2
<PAGE>
DEBT PROPERTIES
Page
----
BARON STRATEGIC INVESTMENT FUND, LTD. ................................... D-89
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ................. D-91
FINANCIAL STATEMENTS
As of December 31, 1997 and for the year then ended (audited)
Balance Sheet ............................................... D-92
Statement of Operations ..................................... D-93
Statement of Partners' Capital .............................. D-94
Statement of Cash Flows ..................................... D-95
Notes ....................................................... D-96
As of September 30, 1998 and for the nine-month period then ended
(unaudited)
Balance Sheet ............................................... D-222
Statement of Operations ..................................... D-223
Statement of Partners' Capital .............................. D-224
Statement of Cash Flows ..................................... D-225
Notes ....................................................... D-226
BARON STRATEGIC INVESTMENT FUND IV, LTD. ................................ D-102
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ................. D-104
FINANCIAL STATEMENTS
As of December 31, 1997 and for the year then ended (audited)
Balance Sheet ............................................... D-105
Statement of Operations ..................................... D-106
Statement of Partners' Capital .............................. D-107
Statement of Cash Flows ..................................... D-108
Notes ....................................................... D-109
As of September 30, 1998 and for the nine-month period then ended
(unaudited)
Balance Sheet ............................................... D-233
Statement of Operations ..................................... D-234
Statement of Partners' Capital .............................. D-235
Statement of Cash Flows ..................................... D-236
Notes ....................................................... D-237
BARON STRATEGIC INVESTMENT FUND V, LTD. ................................. D-115
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ................. D-117
FINANCIAL STATEMENTS
As of December 31, 1997 and for the year then ended (audited)
Balance Sheet ............................................... D-118
Statement of Operations ..................................... D-119
Statement of Partners' Capital .............................. D-120
Statement of Cash Flows ..................................... D-121
Notes ....................................................... D-122
As of September 30, 1998 and for the nine-month period then ended
(unaudited)
Balance Sheet ............................................... D-243
Statement of Operations ..................................... D-244
Statement of Partners' Capital .............................. D-245
Statement of Cash Flows ..................................... D-246
Notes ....................................................... D-247
D-3
<PAGE>
Page
----
BARON STRATEGIC INVESTMENT FUND VI, LTD. ................................ D-130
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ................. D-132
FINANCIAL STATEMENTS
As of December 31, 1997 and for the year then ended (audited)
Balance Sheet ............................................... D-133
Statement of Operations ..................................... D-134
Statement of Partners' Capital .............................. D-135
Statement of Cash Flows ..................................... D-136
Notes ....................................................... D-137
As of September 30, 1998 and for the nine-month period then ended
(unaudited)
Balance Sheet ............................................... D-254
Statement of Operations ..................................... D-255
Statement of Partners' Capital .............................. D-256
Statement of Cash Flows ..................................... D-257
Notes ....................................................... D-258
BARON STRATEGIC INVESTMENT FUND VIII, LTD. .............................. D-143
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ................. D-145
FINANCIAL STATEMENTS
As of December 31, 1997 and for the year then ended (audited)
Balance Sheet ............................................... D-146
Statement of Operations ..................................... D-147
Statement of Partners' Capital .............................. D-148
Statement of Cash Flows ..................................... D-149
Notes ....................................................... D-150
As of September 30, 1998 and for the nine-month period then ended
(unaudited)
Balance Sheet ............................................... D-265
Statement of Operations ..................................... D-266
Statement of Partners' Capital .............................. D-267
Statement of Cash Flows ..................................... D-268
Notes ....................................................... D-269
BARON STRATEGIC INVESTMENT FUND IX, LTD. ................................ D-157
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ................. D-159
FINANCIAL STATEMENTS
As of December 31, 1997 and for the year then ended (audited)
Balance Sheet ............................................... D-160
Statement of Operations ..................................... D-161
Statement of Partners' Capital .............................. D-162
Statement of Cash Flows ..................................... D-163
Notes ....................................................... D-164
As of September 30, 1998 and for the nine-month period then ended
(unaudited)
Balance Sheet ............................................... D-276
Statement of Operations ..................................... D-277
Statement of Partners' Capital .............................. D-278
Statement of Cash Flows ..................................... D-279
Notes ....................................................... D-280
BARON STRATEGIC INVESTMENT FUND X, LTD. ................................. D-170
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS .................. D-172
FINANCIAL STATEMENTS
As of December 31, 1997 and for the year then ended (audited)
Balance Sheet ............................................... D-173
Statement of Operations ..................................... D-174
Statement of Partners' Capital .............................. D-175
Statement of Cash Flows ..................................... D-176
Notes ....................................................... D-177
As of September 30, 1998 and for the nine-month period then ended
(unaudited)
Balance Sheet ............................................... D-287
Statement of Operations ..................................... D-288
Statement of Partners' Capital .............................. D-289
Statement of Cash Flows ..................................... D-290
Notes ....................................................... D-291
D-4
<PAGE>
Page
----
BARON STRATEGIC VULTURE FUND I, LTD. .................................... D-184
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ................. D-186
FINANCIAL STATEMENTS
As of December 31, 1997 and for the year then ended (audited)
Balance Sheet ............................................... D-187
Statement of Operations ..................................... D-188
Statement of Partners' Capital .............................. D-189
Statement of Cash Flows ..................................... D-190
Notes ....................................................... D-191
As of September 30, 1998 and for the nine-month period then ended
(unaudited)
Balance Sheet ............................................... D-299
Statement of Operations ..................................... D-300
Statement of Partners' Capital .............................. D-301
Statement of Cash Flows ..................................... D-302
Notes ....................................................... D-303
BREVARD MORTGAGE PROGRAM, LTD. .......................................... D-196
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS .................. D-198
FINANCIAL STATEMENTS
As of December 31, 1997 and for the year then ended (audited)
Balance Sheet ............................................... D-199
Statement of Operations ..................................... D-200
Statement of Partners' Capital .............................. D-201
Statement of Cash Flows ..................................... D-202
Notes ....................................................... D-203
As of September 30, 1998 and for the nine-month period then ended
(unaudited)
Balance Sheet ............................................... D-309
Statement of Operations ..................................... D-310
Statement of Partners' Capital .............................. D-311
Statement of Cash Flows ..................................... D-312
Notes ....................................................... D-313
D-5
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD. ....................... D-209
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ................. D-211
FINANCIAL STATEMENTS
As of December 31, 1997 and for the year then ended (audited)
Balance Sheet ............................................... D-212
Statement of Operations ..................................... D-213
Statement of Partners' Capital .............................. D-214
Statement of Cash Flows ..................................... D-215
Notes ....................................................... D-216
As of September 30, 1998 and for the nine-month period then ended
(unaudited)
Balance Sheet ............................................... D-319
Statement of Operations ..................................... D-320
Statement of Partners' Capital .............................. D-321
Statement of Cash Flows ..................................... D-322
Notes ....................................................... D-323
D-6
<PAGE>
EXCHANGE EQUITY PARTNERSHIPS
D-7
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Blossom Corners Apartments, Phase I, for the years ended December 31, 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
D-8
<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
D-9
<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.
Property Management
In exchange for services performed during 1996 and 1997, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee of in the range of $275 to
$325.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-10
<PAGE>
Blossom Corners I Apartments
Statement of Revenues and Certain Expenses
For the Nine-Month Period Ending 9/30/98
1/1/98-9/30/98
--------------
Revenue
Rent Base 268,778
Other Income _______
Total Revenue 268,778
Certain Expenses
Personnel 34,486
Advertising and Promotion 4,124
Utilities Expense 14,014
Repairs and Maintenance 23,376
Real Estate Taxes and Insurance 15,570
Mortgage Interest Expense 77,965
Management Fees 17,513
Other Operating Expense 11,009
-------
Total Operating Expense 198,057
Revenues in Excess of Certain Expenses 70,721
=======
D-11
<PAGE>
BLOSSOM CORNERS APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Blossom Corners Apartments, Phase I, consist of 70 units located in
Orlando, Florida. The property was acquired by purchase July 7, 1995 by
Florida Income Growth Fund V, Ltd. The following percentage of units were
occupied at the period ending date:
September 30, 1998 89%
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 I Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed in January through May 1998, a property
manager was paid a property management fee equal to 5% of collected rental
income from the property, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee of in the range of
$275 to $325. In June 1998, the property management agreement was
terminated, and since that time the property has been self-managed.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-12
<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
D-13
<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
D-14
<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.
Property Management
In exchange for services performed during 1996 and 1997, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee of in the range of $275 to
$325.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-15
<PAGE>
Bridgepoint Apartments
Bridgepoint Apartments
Statement of Revenues and Certain Expenses
For the Nine-Month Period Ending 9/30/98
1/1/98-9/30/98
--------------
Revenue
Rent Base 185,158
Other Income ______
Total Revenue 185,158
Certain Expenses
Personnel 13,260
Advertising and Promotion 6,958
Utilities Expense 26,227
Repairs and Maintenance 18,394
Real Estate Taxes and Insurance 10,225
Mortgage Interest Expense 47,103
Management Fees 12,283
Other Operating Expense 6,551
-------
Total Operating Expense 141,001
Revenues in Excess of Certain Expenses 44,157
=======
D-16
<PAGE>
BRIDGEPOINT APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Bridgepoint Apartments consist of 48 units located in Jacksonville,
Florida. The property was acquired by purchase July 17, 1995 by Florida
Capital Income Fund III, Ltd. The following percentage of units were
occupied at the period ending date:
September 30, 1998 90%
Basis of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Bridgepoint Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed in January through May 1998, a property
manager was paid a property management fee equal to 5% of collected rental
income from the property, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee of in the range of
$275 to $325. In June 1998, the property management agreement was
terminated, and since that time the property has been self-managed.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-17
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Brookwood Way Apartments for the years ended December 31, 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 Brookwood Way Apartments for the years ended December 31, 1996 and 1997
in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
March 28, 1998
D-18
<PAGE>
BROOKWOOD WAY 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 $248,950 $236,466
Other income 7,988 6,293
-------- --------
Total revenues 256,938 242,759
-------- --------
CERTAIN EXPENSES
Personnel 22,296 27,583
Advertising and promotion 6,998 4,626
Utilities 20,793 20,213
Repairs and maintenance 15,092 14,234
Real estate taxes and insurance 17,645 12,941
Mortgage interest expense 96,565 96,745
Management fees 15,720 16,637
Other operating expenses 2,972 2,727
-------- --------
Total certain expenses 198,081 195,706
-------- --------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 58,857 $ 47,053
======== ========
See Note to Statement of Revenues and Certain Expenses
D-19
<PAGE>
BROOKWOOD WAY 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
Brookwood Way Apartments consist of 66 units located in Mansfield, Ohio.
The property was acquired by purchase in November 1996 by Midwest Income
Growth Fund VI, Ltd. The following percentage of units were occupied at the
various period ending dates:
December 31, 1996 94%
December 31, 1997 88%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Brookwood Way Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1996 and 1997, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee of in the range of $275 to
$325.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-20
<PAGE>
Brookwood Way Apartments
Statement of Revenues and Certain Expenses
For the Nine-Month Period Ending 9/30/98
1/1/98-9/30/98
--------------
Revenue
Rent Base 206,024
Other Income _______
Total Revenue 206,024
Certain Expenses
Personnel 15,688
Advertising and Promotion 6,842
Utilities Expense 16,060
Repairs and Maintenance 15,139
Real Estate Taxes and Insurance 12,587
Mortgage Interest Expense 57,338
Management Fees 13,396
Other Operating Expense 4,195
-------
Total Operating Expense 141,245
Revenues in Excess of Certain Expenses 64,779
=======
D-21
<PAGE>
BROOKWOOD WAY APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Brookwood Way Apartments consist of 66 units located in Mansfield, Ohio.
The property was acquired by purchase in November, 1996 by Midwest Income
Growth Fund VI, Ltd. The following percentage of units were occupied at the
period ending date:
September 30, 1998 97%
Basis of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Brookwood Way Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed in January through May 1998, a property
manager was paid a property management fee equal to 5% of collected rental
income from the property, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee of in the range of
$275 to $325. In June 1998, the property management agreement was
terminated, and since that time the property has been self-managed.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-22
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Camellia Court Apartments for the years ended December 31, 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 Camellia Court Apartments for the years ended December 31, 1996 and 1997
in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
June 13, 1998
D-23
<PAGE>
CAMELLIA COURT 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 $ 213,718 $ 255,025
Other income 16,516 19,693
--------- ---------
Total revenues 230,234 274,718
--------- ---------
CERTAIN EXPENSES
Personnel 35,481 20,430
Advertising and promotion 9,056 6,756
Utilities 25,805 30,769
Repairs and maintenance 24,685 21,320
Real estate taxes and insurance 35,934 37,559
Mortgage interest expense 98,851 78,273
Management fees 13,884 14,525
Other operating expenses 5,359 3,300
--------- ---------
Total certain expenses 249,055 212,932
--------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ (18,821) $ 61,786
========= =========
See Note to Statement of Revenues and Certain Expenses
D-24
<PAGE>
CAMELLIA COURT 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
Camellia Court Apartments consist of 60 units located in Daytona Beach,
Florida. The property was acquired by purchase March 6, 1995 by Florida
Opportunity Income Partners, Ltd. The following percentage of units were
occupied at the various period ending dates:
December 31, 1996 88%
December 31, 1997 78%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Camellia Court Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1996 and 1997, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee of in the range of $275 to
$325.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-25
<PAGE>
Camellia Court Apartments
Statement of Revenues and Certain Expenses
For the Nine-Month Period Ending 9/30/98
1/1/98-9/30/98
--------------
Revenue
Rent Base 213,762
Other Income _______
Total Revenue 213,762
Certain Expenses
Personnel 26,292
Advertising and Promotion 5,137
Utilities Expense 15,076
Repairs and Maintenance 22,774
Real Estate Taxes and Insurance 15,749
Mortgage Interest Expense 81,678
Management Fees 13,603
Other Operating Expense 10,066
-------
Total Operating Expense 190,375
Revenues in Excess of Certain Expenses 23,387
=======
D-26
<PAGE>
CAMELLIA COURT APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Camellia Court Apartments consist of 60 units located in Daytona Beach,
Florida. The property was acquired by purchase March 6, 1995 by Florida
Opportunity Income Partners, Ltd. The following percentage of units were
occupied at the period ending date:
September 30, 1998 96%
Basis of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Camellia Court Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed in January through May 1998, a property
manager was paid a property management fee equal to 5% of collected rental
income from the property, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee of in the range of
$275 to $325. In June 1998, the property management agreement was
terminated, and since that time the property has been self-managed.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-27
<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
D-28
<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
D-29
<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.
Property Management
In exchange for services performed during 1996 and 1997, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee of in the range of $275 to
$325.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-30
<PAGE>
Eagle Lake Apartments
Statement of Revenues and Certain Expenses
For the Nine-Month Period Ending 9/30/98
1/1/98-9/30/98
--------------
Revenue
Rent Base 302,920
Other Income 3,585
-------
Total Revenue 306,505
Certain Expenses
Personnel 36,669
Advertising and Promotion 10,497
Utilities Expense 27,224
Repairs and Maintenance 26,731
Real Estate Taxes and Insurance 22,628
Mortgage Interest Expense 106,580
Management Fees 18,564
Other Operating Expense 8,604
-------
Total Operating Expense 257,497
Revenues in Excess of Certain Expenses 49,008
=======
D-31
<PAGE>
EAGLE LAKE APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Eagle Lake Apartments consist of 77 units located in Port Orange, Florida.
The property was acquired by purchase July 12, 1994 by Florida Capital
Income Fund, Ltd. The following percentage of units were occupied at the
period ending date.
September 30, 1998 91%
Basis of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Eagle Lake Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed in January through May 1998, a property
manager was paid a property management fee equal to 5% of collected rental
income from the property, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee of in the range of
$275 to $325. In June 1998, the property management agreement was
terminated, and since that time the property has been self-managed.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-32
<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
D-33
<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
D-34
<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.
Property Management
In exchange for services performed during 1996 and 1997, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee of in the range of $275 to
$325.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-35
<PAGE>
Forest Glen I Apartments
Statement of Revenues and Certain Expenses
For the Nine-Month Period Ending 9/30/98
1/1/98-9/30/98
--------------
Revenue
Rent Base 277,130
Other Income _______
Total Revenue 277,130
Certain Expenses
Personnel 39,702
Advertising and Promotion 4,902
Utilities Expense 9,609
Repair and Maintenance 31,160
Real Estate Taxes and Insurance 23,373
Mortgage Interest Expense 107,071
Management Fees 15,232
Other Operating Expense 14,957
-------
Total Operating Expense 246,006
Revenues in Excess of Certain Expenses 31,124
=======
D-36
<PAGE>
FOREST GLEN APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Forest Glen I Apartments 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 period ending date:
September 30, 1998 91%
Basis of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Forest Glen I Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed in January through May 1998, a property
manager was paid a property management fee equal to 5% of collected rental
income from the property, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee of in the range of
$275 to $325. In June 1998, the property management agreement was
terminated, and since that time the property has been self-managed.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-37
<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
D-38
<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
D-39
<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.
Property Management
In exchange for services performed during 1996 and 1997, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee of in the range of $275 to
$325.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-40
<PAGE>
Forest Glen II Apartments
Statement of Revenues and Certain Expenses
For the Nine-Month Period Ending 9/30/98
1/1/98-9/30/98
--------------
Revenue
Rent Base 157,829
Other Income _______
Total Revenue 157,829
Certain Expenses
Personnel 3,824
Advertising and Promotion 2,890
Utilities Expense 5,885
Repairs and Maintenance 16,752
Real Estate Taxes and Insurance 13,502
Mortgage Interest Expense 47,988
Management Fees 9,466
Other Operating Expense 8,037
-------
Total Operating Expense 118,344
Revenues in Excess of Certain Expenses 39,485
=======
D-41
<PAGE>
FOREST GLEN APARTMENTS, PHASE II
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Forest Glen II Apartments 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 period ending date:
September 30, 1998 91%
Basis of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Forest Glen II Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed in January through May 1998, a property
manager was paid a property management fee equal to 5% of collected rental
income from the property, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee of in the range of
$275 to $325. In June 1998, the property management agreement was
terminated, and since that time the property has been self-managed.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-42
<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
D-43
<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
D-44
<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.
Property Management
In exchange for services performed during 1996 and 1997, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee of in the range of $275 to
$325.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-45
<PAGE>
Forest Glen III Apartments
Statement of Revenues and Certain Expenses
For the Nine-Month Period Ending 9/30/98
1/1/98-9/30/98
--------------
Revenue
Rent Base 142,199
Other Income _______
Total Revenue 142,199
Certain Expenses
Personnel 12,041
Advertising and Promotion 2,413
Utilities Expense 4,078
Repairs and Maintenance 14,639
Real Estate Taxes and Insurance 13,547
Mortgage Interest Expense 42,192
Management Fees 8,292
Other Operating Expense 4,025
-------
Total Operating Expense 101,227
Revenues in Excess of Certain Expenses 40,972
=======
D-46
<PAGE>
FOREST GLEN APARTMENTS, PHASE III
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Forest Glen III Apartments 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 period ending date:
September 30, 1998 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 Forest Glen III Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed in January through May 1998, a property
manager was paid a property management fee equal to 5% of collected rental
income from the property, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee of in the range of
$275 to $325. In June 1998, the property management agreement was
terminated, and since that time the property has been self-managed.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-47
<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
D-48
<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
D-49
<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.
Property Management
In exchange for services performed during 1996 and 1997, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee of in the range of $275 to
$325.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-50
<PAGE>
Forest Glen IV Apartments
Statement of Revenues and Certain Expenses
For the Nine-Month Period Ending 9/30/98
1/1/98-9/30/98
--------------
Revenue
Rent Base 38,648
Other Income _______
Total Revenue 38,648
Certain Expenses
Personnel 4,306
Advertising and Promotion 762
Utilities Expense 1,257
Repairs and Maintenance 4,368
Real Estate Taxes and Insurance 3,591
Mortgage Interest Expense 13,029
Management Fees 2,610
Other Operating Expense 2,487
------
Total Operating Expense 32,410
Revenues in Excess of Certain Expenses 6,238
======
D-51
<PAGE>
FOREST GLEN APARTMENTS, PHASE IV
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Forest Glen IV Apartments 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 period ending date:
September 30, 1998 100%
Basis of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Forest Glen IV Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed in January through May 1998, a property
manager was paid a property management fee equal to 5% of collected rental
income from the property, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee of in the range of
$275 to $325. In June 1998, the property management agreement was
terminated, and since that time the property has been self-managed.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-52
<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
D-53
<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
D-54
<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.
Property Management
In exchange for services performed during 1996 and 1997, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee of in the range of $275 to
$325.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-55
<PAGE>
Glen Lake Arms Apartments
Statement of Revenues and Certain Expenses
For the Nine-Month Period Ending 9/30/98
1/1/98-9/30/98
--------------
Revenue
Rent Base 571,980
Other Income ______
Total Revenue 571,980
Certain Expenses
Personnel 104,297
Advertising and Promotion 24,572
Utilities Expense 89,904
Repairs and Maintenance 118,256
Real Estate Taxes and Insurance 88,015
Mortgage Interest Expense 192,536
Management Fees 0
Other Operating Expense 93,019
--------
Total Operating Expense 710,599
Revenues in Excess of Certain Expenses (138,619)
========
D-56
<PAGE>
GLEN LAKE ARMS APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Glen Lake Arms consists 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 period ending date:
September 30, 1998 48%
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 Glen Lake Arms.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed in January through May 1998, a property
manager was paid a property management fee equal to 5% of collected rental
income from the property, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee of in the range of
$275 to $325. In June 1998, the property management agreement was
terminated, and since that time the property has been self-managed.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-57
<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
D-58
<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
D-59
<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.
Property Management
In exchange for services performed during 1996 and 1997, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee of in the range of $275 to
$325.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-60
<PAGE>
Laurel Oaks Apartments
(formerly Grove Hamlet Apartments)
Statement of Revenues and Certain Expenses
For the Nine-Month Period Ending 9/30/98
1/1/98-9/30/98
--------------
Revenue
Rent Base 217,728
Other Income _______
Total Revenue 217,728
Certain Expenses
Personnel 30,427
Advertising and Promotion 1,227
Utilities Expense 10,157
Repairs and Maintenance 21,020
Real Estate Taxes and Insurance 16,655
Mortgage Interest Expense 90,261
Management Fees 13,574
Other Operating Expense 6,611
-------
Total Operating Expense 189,932
Revenues in Excess of Certain Expenses 27,796
=======
D-61
<PAGE>
GROVE HAMLET APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Grove Hamlet Apartments consist of 57 units located in Deland, Florida. The
property was acquired by purchase December 29, 1993 by Central Florida
Income Appreciation Fund, Ltd. The following percentage of units were
occupied at the period ending date:
September 30, 1998 95%
Basis of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Grove Hamlet Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed in January through May 1998, a property
manager was paid a property management fee equal to 5% of collected rental
income from the property, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee of in the range of
$275 to $325. In June 1998, the property management agreement was
terminated, and since that time the property has been self-managed.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-62
<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
D-63
<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
D-64
<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.
Property Management
In exchange for services performed during 1996 and 1997, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee of in the range of $275 to
$325.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-65
<PAGE>
Stadium Club Apartments
Statement of Revenues and Certain Expenses
For the Nine-Month Period Ending 9/30/98
1/1/98-9/30/98
--------------
Revenue
Rent Base 311,584
Other Income _______
Total Revenue 311,584
Certain Expenses
Personnel 55,544
Advertising and Promotion 10,867
Utilities Expense 49,905
Repairs and Maintenance 29,733
Real Estate Taxes and Insurance 10,277
Mortgage Interest Expense 102,025
Management Fees 32,982
Other Operating Expense 30,026
--------
Total Operating Expense 321,359
Revenues in Excess of Certain Expenses (9,775)
========
D-66
<PAGE>
STADIUM CLUB APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Stadium Club Apartments consist of 229 units located in Statesboro,
Georgia. The property was acquired by purchase June 30, 1995 by GSU Stadium
Student Apartments, Ltd. The following percentage of units were occupied at
the period ending date:
September 30, 1998 64%
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 Stadium Club Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed in January through May 1998, a property
manager was paid a property management fee equal to 5% of collected rental
income from the property, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee of in the range of
$275 to $325. In June 1998, the property management agreement was
terminated, and since that time the property has been self-managed.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-67
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Steeplechase Apartments for the years ended December 31, 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 Steeplechase Apartments for the years ended December 31, 1996 and 1997 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
June 13, 1998
D-68
<PAGE>
STEEPLECHASE 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 $ 234,305 $ 231,630
Other income 10,733 13,663
--------- ---------
Total revenues 245,038 245,293
--------- ---------
CERTAIN EXPENSES
Personnel 50,624 57,299
Advertising and promotion 11,417 6,207
Utilities 49,085 56,241
Repairs and maintenance 31,930 21,149
Real estate taxes and insurance 33,112 37,786
Mortgage interest expense 93,448 95,540
Management fees 15,227 11,792
Other operating expenses 7,495 7,612
--------- ---------
Total certain expenses 292,338 293,626
--------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ (47,300) $ (48,333)
========= =========
See Note to Statement of Revenues and Certain Expenses
D-69
<PAGE>
STEEPLECHASE 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
Steeplechase Apartments consist of 72 units located in Anderson, Indiana.
The property was acquired on October 1, 1996 by Income Partners III, Ltd.
in which Baron Strategic Investment Fund II, Ltd. owns a 99% limited
partnership interest. The following percentage of units were occupied at
the various period ending dates:
December 31, 1996 65%
December 31, 1997 65%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Steeplechase Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1996 and 1997, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee of in the range of $275 to
$325.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-70
<PAGE>
Steeplechase Apartments
Statement of Revenues and Certain Expenses
For the Nine-Month Period Ending 9/30/98
1/1/98-9/30/98
--------------
Revenue
Rent Base 232,453
Other Income _______
Total Revenue 232,453
Certain Expenses
Personnel 46,225
Advertising and Promotion 2,422
Utilities Expense 41,559
Repairs and Maintenance 35,791
Real Estate Taxes and Insurance 18,362
Mortgage Interest Expense 68,203
Management Fees 14,696
Other Operating Expense 14,020
--------
Total Operating Expense 241,278
Revenues in Excess of Certain Expenses (8,825)
========
D-71
<PAGE>
STEEPLECHASE APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Steeplechase Apartments consist of 72 units located in Anderson, Indiana.
The property was acquired on October 1, 1996 by Income Partners III, Ltd.
in which Baron Strategic Investment Fund II, Ltd. owns a 99% limited
partnership interest The following percentage of units were occupied at the
period ending date:
September 30, 1998 75%
Basis of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Steeplechase Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed in January through May 1998, a property
manager was paid a property management fee equal to 5% of collected rental
income from the property, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee of in the range of
$275 to $325. In June 1998, the property management agreement was
terminated, and since that time the property has been self-managed.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-72
<PAGE>
EXCHANGE HYBRID PARTNERSHIPS
D-73
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Crystal Court Apartments, Phase 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 audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Crystal Court Apartments, Phase I, for the years ended December 31, 1996
and 1997 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
March 28, 1998
D-74
<PAGE>
CRYSTAL COURT 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 $ 282,679 $ 270,046
Other income 14,701 9,356
--------- ---------
Total revenues 297,380 279,402
--------- ---------
CERTAIN EXPENSES
Personnel 30,622 31,136
Advertising and promotion 2,628 2,768
Utilities 20,609 25,684
Repairs and maintenance 26,081 37,278
Real estate taxes and insurance 34,604 33,957
Mortgage interest expense 139,652 147,658
Management fees 20,019 19,102
Other operating expenses 5,015 3,893
--------- ---------
Total certain expenses 279,230 301,476
--------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 18,150 $ (22,074)
========= =========
See Note to Statement of Revenues and Certain Expenses
D-75
<PAGE>
CRYSTAL COURT 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
Crystal Court Apartments, Phase I, consist of 72 units located in Lakeland,
Florida. The property was acquired by purchase in 1997 by Cystal Court
Properties, Ltd. The following percentage of units were occupied at the
various period ending dates:
December 31, 1996 92%
December 31, 1997 89%
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 Crystal Court 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.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-76
<PAGE>
Crystal Court I Apartments
Statement of Revenues and Certain Expenses
For the Nine-Month Period Ending 9/30/98
1/1/98-9/30/98
--------------
Revenue
Rent Base 199,919
Other Income 4,391
-------
Total Revenue 204,310
Certain Expenses
Personnel 18,169
Advertising and Promotion 1,986
Utilities Expense 12,796
Repairs and Maintenance 16,133
Real Estate Taxes and Insurance 11,393
Mortgage Interest Expense 62,950
Management Fees 8,143
Other Operating Expense 5,133
-------
Total Operating Expense 136,708
Revenues in Excess of Certain Expenses 67,602
=======
D-77
<PAGE>
CRYSTAL COURT APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Crystal Court Apartments, Phase I, consist of 72 units located in Lakeland,
Florida. The property was acquired by purchase in 1997 by Cystal Court
Properties, Ltd. The following percentage of units were occupied at the
various period ending dates:
September 30, 1998 93%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Crystal Court Apartments, Phase I.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed in January through May 1998, a property
manager was paid a property management fee equal to 5% of collected rental
income from the property, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee of in the range of
$275 to $325. In June 1998, the property management agreement was
terminated, and since that time the property has been self-managed.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-78
<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
Lamplight Court 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 Lamplight Court Apartments for the years ended December 31, 1996 and 1997
in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
March 28, 1998
D-79
<PAGE>
LAMPLIGHT COURT 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 $303,933 $325,019
Other income 14,083 14,901
-------- --------
Total revenues 318,016 339,920
-------- --------
CERTAIN EXPENSES
Personnel 39,363 49,403
Advertising and promotion 6,648 6,747
Utilities 48,903 45,192
Repairs and maintenance 19,279 19,456
Real estate taxes and insurance 38,313 41,360
Mortgage interest expense 126,175 134,591
Management fees 18,581 21,187
Other operating expenses 4,690 7,093
-------- --------
Total certain expenses 301,952 325,029
-------- --------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 16,064 $ 14,891
======== ========
See Note to Statement of Revenues and Certain Expenses
D-80
<PAGE>
LAMPLIGHT COURT 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
Lamplight Court Apartments consist of 80 units located in Bellefontaine,
Ohio. The property was acquired by purchase in 1985 by Independence
Village, Ltd. The following percentage of units were occupied at the
various period ending dates:
December 31, 1996 86%
December 31, 1997 90%
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 Lamplight Court Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1996 and 1997, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee of in the range of $275 to
$325.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-81
<PAGE>
Lamplight Court Apartments
Statement of Revenues and Certain Expenses
For the Nine-Month Period Ending 9/30/98
<TABLE>
<CAPTION>
Undivided 31.7% Interest
held by Lamplight Court of Undivided 68.3% Interest
Bellefontaine Apartments, Ltd. held by Non-affiliate Total
------------------------------ --------------------- -----
<S> <C> <C> <C>
Revenue
Rent Base 86,411 186,179 272,590
Other Income 766 1,649 2,415
------- ------- -------
Total Revenue 87,177 187,828 275,005
Certain Expenses
Personnel 8,018 17,276 25,294
Advertising and Promotion 602 1,296 1,898
Utilities Expense 8,688 18,720 27,408
Repairs and Maintenance 2,021 4,353 6,374
Real Estate Taxes and Insurance 7,691 16,572 24,263
Mortgage Interest Expense 29,804 64,214 94,018
Management Fees 3,525 7,596 11,121
Other Operating Expenses 5,504 11,859 17,363
------- ------- -------
Total Operating Expenses 65,853 141,886 207,739
------- ------- -------
Revenues in Excess
of Certain Expenses 21,323 45,943 67,266
======= ======= =======
</TABLE>
D-82
<PAGE>
LAMPLIGHT COURT APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Lamplight Court Apartments consist of 80 units located in Bellefontaine,
Ohio. The property was acquired by purchase in 1985 by Independence
Village, Ltd. The following percentage of units were occupied at the period
ending date:
September 30, 1998 91%
Basis of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Lamplight Court Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed in January through May 1998, a property
manager was paid a property management fee equal to 5% of collected rental
income from the property, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee of in the range of
$275 to $325. In June 1998, the property management agreement was
terminated, and since that time the property has been self-managed.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-83
<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 Pine
View 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 audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Pine View Apartments for the years ended December 31, 1996 and 1997 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
March 28, 1998
D-84
<PAGE>
PINE VIEW 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 $358,074 $382,792
Other income 32,557 19,469
-------- --------
Total revenues 390,631 402,261
-------- --------
CERTAIN EXPENSES
Personnel 33,083 40,056
Advertising and promotion 16,713 19,452
Utilities 49,502 46,699
Repairs and maintenance 52,329 64,718
Real estate taxes and insurance 43,589 45,005
Mortgage interest expense 131,707 138,693
Management fees 25,709 28,159
Other operating expenses 13,185 8,201
-------- --------
Total certain expenses 365,817 390,983
-------- --------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 24,814 $ 11,278
======== ========
See Note to Statement of Revenues and Certain Expenses
D-85
<PAGE>
PINE VIEW 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
Pine View Apartments consist of 92 units located in Orlando, Florida. The
property was acquired by purchase in 1986 by Pineview Apartments, Ltd. The
following percentage of units were occupied at the various period ending
dates:
December 31, 1996 93%
December 31, 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 Pine View Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed in January through May 1998, a property
manager was paid a property management fee equal to 5% of collected rental
income from the property, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee of in the range of
$275 to $325. In June 1998, the property management agreement was
terminated, and since that time the property has been self-managed.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-86
<PAGE>
Pineview Apartments
Statement of Revenues and Certain Expenses
For the Nine-Month Period Ending 9/30/98
1/1/98-9/30/98
Revenue
Rent Base 288,547
Other Income 18,664
-------
Total Revenue 307,211
Certain Expenses
Personnel 30,650
Advertising and Promotion 4,685
Utilities Expense 32,319
Repairs and Maintenance 28,670
Real Estate Taxes and Insurance 14,457
Mortgage Interest Expense 73,004
Management Fees 10,541
Other Operating Expense 12,062
-------
Total Operating Expense 206,388
Revenues in Excess of Certain Expenses 100,823
=======
D-87
<PAGE>
PINE VIEW APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Pine View Apartments consist of 92 units located in Orlando, Florida. The
property was acquired by purchase in 1986 by Pineview Apartments, Ltd. The
following percentage of units were occupied at the various period ending
dates:
September 30, 1998 92%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Pine View Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed in January through May 1998, a property
manager was paid a property management fee equal to 5% of collected rental
income from the property, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee of in the range of
$275 to $325. In June 1998, the property management agreement was
terminated, and since that time the property has been self-managed.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust under common control, for whom Baron
Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the
assets acquired and the liabilities assumed at their fair value at the date
of acquisition.
D-88
<PAGE>
DEBT PROPERTIES
================================================================================
BARON STRATEGIC INVESTMENT FUND, LTD.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
D-89
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Partners' Capital 4
Statement of Cash Flows 5
Notes to Financial Statements 6-11
D-90
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund, Ltd. (the "Partnership") as of December 31, 1997, and the related
statements of operations, partners' capital and cash flows for the year then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment
Fund, Ltd. at December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Note 3, the Partnership and its affiliates have
engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ
Miami, Florida
August 14, 1998 except for the third paragraph 7 of
Note 6, as to which the date is December 15, 1998
D-91
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Cash $ 39,440
Notes receivable from affiliates 559,000
Advances receivable from affiliate 249,739
Accrued interest receivable from affiliate 21,459
--------
$869,638
========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner $ 9,500
--------
Commitments, Subsequent Events and Other Matter --
Partners' Capital:
General partner 90
Limited partners 860,048
--------
860,138
--------
$869,638
========
See notes to financial statements.
D-92
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
Revenues:
Interest income from affiliate $76,981
Other 1,906
-------
78,887
-------
Expenses:
General and administrative 10,745
Administrative fees to general partner 6,000
-------
16,745
-------
Net Income $62,142
=======
See notes to financial statements.
D-93
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1997
General Limited
Partner Partners Total
------- -------- -----
Partners' Capital, Beginning $ 90 $ 910,570 $ 910,660
Distributions -- (112,664) (112,664)
Net Income -- 62,142 62,142
--------- --------- ---------
Partners' Capital, Ending $ 90 $ 860,048 $ 860,138
========= ========= =========
See notes to financial statements.
D-94
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net income $ 62,142
Adjustments to reconcile net income to net
cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliate (15,981)
Increase in administrative fees payable to general partner 6,000
---------
Net cash provided by operating activities 52,161
---------
Cash Flows from Investing Activities:
Investment in notes receivables from affiliates (339,000)
Advances to affiliate (7,239)
---------
Net cash used in investing activities (346,239)
---------
Cash Flows from Financing Activities:
Distributions to limited partners (112,664)
Syndication costs (6,800)
---------
Net cash used in financing activities (119,464)
---------
Net Decrease in Cash (413,542)
Cash, Beginning 452,982
---------
Cash, Ending $ 39,440
=========
</TABLE>
See notes to financial statements.
D-95
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund, Ltd. ("the Partnership") was initially
organized on April 24, 1996 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of $90
in cash; and (b) the maximum capital contributions of the limited partners of
$1,200,000, to be divided into 2,400 equal units of limited partnership
interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt and equity financing to existing affiliated
limited partnerships owning residential apartment communities located in
Florida.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is recognized
as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the related
allowance for impairment of such notes receivable. The Partnership accounts for
such notes under the provisions of Statement of Financial Accounting Standard
No. 114, Accounting by Creditors for Impairment of a Loan, as amended by
Statement of Financial Accounting Standard No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure. Management,
considering current information and events regarding the borrowers' ability to
repay their obligations, considers a note to be impaired when it is probable
that the Partnership will be unable to collect all amounts due according to the
contractual terms of the note. When a loan is considered to be impaired, the
amount of impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate; and (b) the
liquidation value of the note's collateral reduced by expected selling costs and
other notes secured by the same collateral. Cash receipts on impaired notes
receivable are applied to reduce the principal amount of such receivables until
the principal has been recovered, and are recognized as interest income
thereafter.
D-96
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amount of assets and liabilities as of the date of the balance sheet
and operations for the year then ended. Material estimates as to which it is
reasonably possible that a change in the estimate could occur in the near term
relates to the collectibility of the notes receivable due from affiliates.
Although these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ from
actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed depending
on their personal tax situations. The financial statements do not reflect a
provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement of
Limited Partnership ("the Agreement") made and entered into as of May 20, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash, and
maximum capital contributions of the limited partners of $1,200,000, to be
divided into 2,400 units of limited partnership units. A capital account is
maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will
not be reinvested but will be distributed in order of priority to the
Partners, if available, quarterly, to (a) the limited partners who
will receive 100% of the distributable cash until they have received a
12.5% non-cumulative annual cash-on-cash return on the aggregate
amount of their capital contribution as calculated from each limited
partner's admission date; and (b) the excess, if any, will be
allocated 50% to the limited partners and 50% to the general partner.
D-97
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them when added to
all prior distributions of distributable cash and net proceeds made to
them, is equal to the sum of their capital contributions plus an
annual 12.5% cash-on-cash return; and (b) next to the general partner,
until the total amount so distributed to it when added to all prior
distributions of distributable cash and net proceeds made to it, is
equal to the sum of its capital contribution plus an annual 12.5%
cash-on-cash return and; (c) the balance, if any is distributed 50% to
the limited partners and 50% to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and credit
recognized by the Partnership for federal income tax purposes will be made as
follows:
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by
the Partnership equal the cumulative amounts distributable to the
general partner under the terms of the distributions of cash and net
proceeds. The balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of the
Agreement; (b) the determination of the limited partners exercising their voting
rights to dissolve the Partnership; (c) the death, resignation, retirement,
dissolution, removal, bankruptcy, adjudication of insolvency, or adjudication of
insanity or incompetence of the last remaining general partner then in office
and the refusal of any successor general partner to replace it, unless the
holders of a majority of the units then outstanding vote to continue the
Partnership and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale of all
or substantially all of the Partnership's property; (e) the repayment in full of
all loans made by the Partnership, unless the Partnership thereafter continues
to own non-loan assets; and (f) the occurrence of any other event which, by law,
would require the Partnership to be dissolved.
D-98
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the assets,
and the proceeds will be applied and distributed (a) first to the Partnership
creditors, other than partners; (b) then, any loans owed by the Partnership to
the partners shall be paid in proportion thereto; and (c) finally, to the
limited partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between the
Partnership and the general partner stipulated in the Agreement, the Partnership
retained the general partner to provide administrative services for $500 per
month through December 1, 2003.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES
The following are the balances of the notes receivable from affiliates at
December 31, 1997:
Notes
Receivable
----------
Blossom Corners Apartments II, Ltd. ("Blossom II") $457,000 (a)
Falls Properties III, Ltd. ("Falls III") 102,000 (b)
--------
$559,000
========
(a) In November 1996, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest due from
Blossom II, were converted into promissory notes as more fully described in
the table below:
Blossom II Second Mortgage Note; matures on April 1, 2002;
accrues interest at an minimum annual rate of 6% and provides for
participation interest at the rate of 3% per annum based upon the
amount of the unpaid principal, which shall be due and payable to
the extent that it does not exceed the available cash flow, as
defined in the note; provides for additional participation
interest in an annual equal to 20% of remaining available cash
flow, as defined, which will continue to be made until such time
as the collateral has been sold, and which obligation will
continue notwithstanding total repayment of the principal amount
of the note; secured by a lien upon certain real and personal
property of Blossom II; subordinated to the first mortgage which
had a balance of approximately $1,130,000 as of December 31,
1997. $622,103
D-99
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
Unsecured promissory note, representing advances made by the
former general partner to Blossom II. The note is payable
upon demand and bears interest at 1% over prime (9.5% as of
December 31,1997). 68,861
Other receivables, related to advances for refinancing fees
and professional services. 29,732
--------
720,696
Less discount 263,696
--------
Notes receivable, net of discount $457,000
========
See Note 6 regarding a subsequent amendment to the second mortgage.
(b) In April 1997, the Partnership acquired, at a discount, certain receivables
owed Falls III from an unrelated entity. In connection with Falls III
filing for reorganization under Chapter 11 of the Bankruptcy Code in August
1994, the notes, which had included a Second Mortgage Note Receivable, were
converted into two unsecured promissory notes of $198,750 and $44,398
(total of $234,148). The notes provide for the partial repayment of the
principal balance in April 1999 using 20% of the excess cash flow of Falls
III. The remaining principal is to be repaid after all secured notes and
other claims designated by the court have been paid in full.
Notes receivable $ 243,148
Less discount (141,148)
---------
Notes receivable, net of discount $ 102,000
=========
NOTE 4. ADVANCES RECEIVABLE FROM AFFILIATE
During 1996 and 1997, the Partnership provided funding to Blossom II by means of
advances in an arrangement equivalent to an open ended line of credit. The
advances are due on demand and accrue interest at 12% per annum. The balance of
$249,739 remained outstanding as of December 31, 1997. Interest income of
$36,427 was recognized during the year, of which $21,459 was accrued as of
December 31, 1997. Subsequent to December 31, 1997, the Partnership received
$134,992 from Blossom II as payment towards the principal and interest.
NOTE 5. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
In 1996, in accordance with the terms of a Private Placement Memorandum dated
May 20, 1996, the Partnership issued the 2,400 units of limited partner interest
being offered at $500 per unit for total gross proceeds of $1,200,000. Costs of
$284,000 incurred in connection with syndicating the limited partnership units
were recorded as a reduction of limited partners' capital contributions. Of the
$284,000 in syndication costs, the Partnership paid $164,000 to its general
partner for administrative, legal and investment fees.
D-100
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. SUBSEQUENT EVENTS
Loan to Affiliate
In March 1998, the Partnership made a loan of $128,000 to Sycamore Real Estate
Development, an affiliate. The loan is due on demand and has an annual interest
rate of 12%.
Distributions to Limited Partners
In 1998, the Partnership made distributions of approximately $76,000 to the
limited partners.
Amendment to Second Mortgage
On December 15, 1998, the Partnership entered into a Second Amendment to
Open-End Second Mortgage and Security Agreement by which all of the notes will
be secured by the Second Mortgage, and the maturities extended to April 1, 2002.
The amendment also provides for additional advances to be secured under a future
advance clause up to $1,250,000 maximum.
NOTE 7. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties, L.P.
("the Operating Partnership"), a partnership under common control, will offer to
exchange Operating Partnership Units to the limited partners of the Partnership
in exchange for their limited partner interests. These units are exchangeable
for an equivalent number of common shares of beneficial interest in Baron
Capital Trust, a real estate investment trust under common control, for whom
Baron Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the assets
acquired and the liabilities assumed at their fair value at the date of
acquisition.
D-101
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND IV, LTD.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
D-102
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Partners' Capital 4
Statement of Cash Flows 5
Notes to Financial Statements 6-11
D-103
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund IV, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund IV, Ltd. (the "Partnership") as of December 31, 1997, and the related
statements of operations, partners' capital and cash flows for the year then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment Fund
IV, Ltd. at December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Notes 3 and 4, the Partnership and its
affiliates have engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ
Miami, Florida
August 14, 1998 except for the second paragraph of
Note 6, as to which the date is December 15, 1998
D-104
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Cash $ 98,947
Notes receivable from affiliates 968,751
Advances receivable from affiliates 19,500
Accrued interest receivable from affiliate 20,858
----------
$1,108,056
==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Note payable to affiliate $ 379,267
Accrued syndication costs 20,100
Administrative fees payable to general partner 14,000
Accrued interest payable to affiliate 2,182
----------
415,549
----------
Commitments and Other Matter --
Partners' Capital:
General partner 511
Limited partners 692,507
----------
692,507
----------
$1,108,056
==========
See notes to financial statements.
D-105
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
Revenues:
Interest income from affiliate $128,047
Other 1,573
--------
129,620
--------
Costs and Expenses:
Interest expense to affiliate 67,699
Administrative fees to general partner 12,000
General and administrative 5,181
--------
84,880
--------
Net Income $ 44,740
========
See notes to financial statements.
D-106
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, Beginning $ 64 $ 70,023 $ 70,087
Capital Contributions, Net of Syndication Costs -- 604,810 604,810
Distributions -- (27,130) (27,130)
Net Income 447 44,293 44,740
--------- --------- ---------
Partners' Capital, Ending $ 511 $ 691,996 $ 692,507
========= ========= =========
</TABLE>
See notes to financial statements.
D-107
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Cash Flows from Operating Activities:
<S> <C>
Net loss $ 44,740
Adjustments to reconcile net loss to net cash
provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliate (20,858)
Increase in administrative fees payable to general partner 12,000
Increase in accrued interest payable to affiliate 2,182
---------
Net cash provided by operating activities 38,064
---------
Cash Flows from Investing Activities:
Investment in notes receivable from affiliate (981,237)
Payment received on notes receivable from affiliate 12,486
Advances to affiliates (19,500)
---------
Net cash used in investing activities (988,251)
---------
Cash Flows from Financing Activities:
Proceeds from notes payable to affiliate 690,000
Payments on note payable to affiliate (310,733)
Partners' capital contributions 769,263
Syndication costs (144,353)
Distributions to limited partners (27,130)
---------
Net cash provided by financing activities 977,047
---------
Net Increase in Cash 26,860
Cash, Beginning 72,087
---------
Cash, Ending $ 98,947
=========
</TABLE>
See notes to financial statements.
D-108
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund IV, Ltd. ("the Partnership") was initially
organized on October 1, 1996 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of $90
in cash; and (b) the maximum capital contributions of the limited partners of
$1,000,000, to be divided into 2,000 equal units of limited partnership
interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt financing to existing affiliated limited
partnerships owning residential apartment communities located in Florida.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is recognized
as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the related
allowance for impairment of such notes receivable. The Partnership accounts for
such notes under the provisions of Statement of Financial Accounting Standard
No. 114, Accounting by Creditors for Impairment of a Loan, as amended by
Statement of Financial Accounting Standard No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure. Management,
considering current information and events regarding the borrowers' ability to
repay their obligations, considers a note to be impaired when it is probable
that the Partnership will be unable to collect all amounts due according to the
contractual terms of the note. When a loan is considered to be impaired, the
amount of impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate; and (b) the
liquidation value of the note's collateral reduced by expected selling costs and
other notes secured by the same collateral. Cash receipts on impaired notes
receivable are applied to reduce the principal amount of such receivables until
the principal has been recovered, and are recognized as interest income
thereafter.
D-109
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amount of assets and liabilities as of the date of the balance sheet
and operations for the year then ended. Material estimates as to which it is
reasonably possible that a change in the estimate could occur in the near term
relates to the collectibility of the notes receivable due from affiliates.
Although these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ from
actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed depending
on their personal tax situations. The financial statements do not reflect a
provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement of
Limited Partnership ("the Agreement") made and entered into as of October 22,
1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash, and
maximum capital contributions of the limited partners of $1,000,000, to be
divided into 2,000 units of limited partnership units. A capital account is
maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will
not be reinvested but will be distributed in order of priority to the
Partners, if available, quarterly, to (a) the limited partners who
will receive 100% of the distributable cash until they have received a
12% non-cumulative annual cash-on-cash return on the aggregate amount
of their capital contribution as calculated from each limited
partner's admission date; and (b) the excess, if any, will be
allocated to the general partner.
D-110
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them, when added
to all prior distributions of distributable cash and net proceeds made
to them, is equal to the sum of their capital contributions plus an
annual 18% cash-on-cash return; and (b) the balance, if any, is
distributed to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and credit
recognized by the Partnership for federal income tax purposes will be made as
follows:
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by
the Partnership equal the cumulative amounts distributable to the
general partner under the terms of the distributions of cash and net
proceeds. The balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of the
Agreement; (b) the determination of the limited partners exercising their voting
rights to dissolve the Partnership; (c) the death, resignation, retirement,
dissolution, removal, bankruptcy, adjudication of insolvency, or adjudication of
insanity or incompetence of the last remaining general partner then in office
and the refusal of any successor general partner to replace it, unless the
holders of a majority of the units then outstanding vote to continue the
Partnership and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale of all
or substantially all of the Partnership's property; (e) the repayment in full of
all loans made by the Partnership, unless the Partnership thereafter continues
to own non-loan assets; and (f) the occurrence of any other event which, by law,
would require the Partnership to be dissolved.
D-111
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the assets,
and the proceeds will be applied and distributed (a) first to the Partnership
creditors, other than partners; (b) then, any loans owed by the Partnership to
the partners shall be paid in proportion thereto; and (c) finally, to the
limited partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between the
Partnership and the general partner stipulated in the Agreement, the Partnership
retained the general partner to provide administrative services for $1,000 per
month through December 31, 2003.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE
The following are the balances of the notes receivable and accrued interest
receivable from affiliates at December 31, 1997: Notes Accrued Receivable
Interest
Country Square Apartments, Ltd. ("Country Square") $797,189 $ -- (a)
-------
Country Square 171,562 20,858 (b)
-------- -------
$968,751 $20,858
======== =======
(a) In March 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest due from
Country Square, were converted into promissory notes as more fully
described in the table below:
Country Square Second Mortgage Note; matures on April 30, 2008;
accrues interest at an minimum annual rate of 12%; secured by a
lien upon certain real and personal property of Country Square;
subordinated to the first mortgage which had a balance of
approximately $1,240,000 as of December 31, 1997. $1,192,987
Less discount 395,798
----------
Note receivable, net of discount $ 797,189
==========
(b) In July 1997, the Partnership made a loan to Country Square of $171,562
pursuant to the terms of a promissory note. The note is due on demand and
accrues interest quarterly at 12% per annum.
D-112
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE (Continued)
See Note 6 regarding a subsequent amendment to the second mortgage.
NOTE 4. Note Payable to Affiliate
In March 1997, the Partnership borrowed funds from Baron Strategic Investment
Fund VI, Ltd. ("Fund VI") pursuant to the terms of a promissory note. The note
matures in September 2002 with interest payable monthly at 15% per annum. As
collateral for the note payable, the Partnership has granted Fund VI a security
interest in the second mortgage notes and mortgages (see Note 3). The note had
an unpaid principal balance of $379,267 as of December 31, 1997. Interest
expense to the affiliate amounted to $67,699 for 1997 of which $2,182 was unpaid
and accrued at December 31, 1997.
NOTE 5. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
In 1996, in accordance with the terms of a Private Placement Memorandum dated
October 22, 1996, the Partnership issued 180 units of limited partnership
interest of the 2,000 units being offered at $500 per unit for total gross
proceeds of $90,000. Costs of $17,400 incurred in connection with syndicating
the partnership units were recorded as a reduction of limited partners' capital
contributions. Of the syndication costs, $14,000 was paid to the General Partner
for administrative, legal and investment fees.
During 1997, the Partnership issued 1,538.5 units of limited partnership
interest at $500 per unit for total gross proceeds of $769,263. This issuance
increased the total units sold to 1,718.5 units of the 2,000 units being
offered. Costs of $164,453 incurred in connection with syndicating these
partnership units have been recorded as a reduction of limited partners' capital
contributions. Of the syndication costs, $80,570 was incurred with regard to the
General Partner for administrative, legal and investment fees. Syndicated costs
of $20,100 were unpaid and accrued at December 31, 1997.
Subsequent to December 31, 1997, the Partnership issued 280.5 units of the
remaining 281.5 units at $500 per unit for a total of $140,237. This issuance
increased the total units sold to 1,999 units of the 2,000 units being offered.
Costs of $26,647 incurred in connection with syndicating these partnership units
were recorded as a reduction of limited partner's capital contributions in 1998.
Of the syndication costs, $22,524 was paid to the General Partner for
administrative, legal and investment fees.
NOTE 6. SUBSEQUENT EVENTS
Distributions to Limited Partners
In 1998, the Partnership made distributions of approximately $15,000 to the
limited partners.
D-113
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. SUBSEQUENT EVENTS (Continued)
Amendment to Second Mortgage
On December 15, 1998, the Partnership entered into a Second Amendment to
Open-End Second Mortgage and Security Agreement by which all of the notes will
be secured by the Second Mortgage, and the maturities extended to April 30,
2008. The amendment also provides for additional advances to be secured under a
future advance clause up to $1,750,000 maximum.
NOTE 7. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties, L.P.
("the Operating Partnership"), a partnership under common control, will offer to
exchange Operating Partnership Units to the limited partners of the Partnership
in exchange for their limited partner interests. These units are exchangeable
for an equivalent number of common shares of beneficial interest in Baron
Capital Trust, a real estate investment trust under common control, for whom
Baron Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the assets
acquired and the liabilities assumed at their fair value at the date of
acquisition.
D-114
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND V, LTD.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
D-115
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Partners' Capital 4
Statement of Cash Flows 5
Notes to Financial Statements 6-12
D-116
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund V, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund V, Ltd. (the "Partnership") as of December 31, 1997, and the related
statements of operations and partners' capital and cash flows for the year then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment Fund
V, Ltd. at December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the stockholder and president of the Partnership's general
partner. As discussed in Notes 3 and 4, the Partnership and its affiliates have
engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ
Miami, Florida
August 14, 1998 except for the third paragraph
of Note 6, as to which the date is December 15, 1998.
D-117
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Cash $112,521
Notes receivable from affiliates 706,100
Advances receivable from affiliates 54,800
Accrued interest receivable from affiliates 55,694
--------
$929,115
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner $ 14,000
--------
Commitments, Subsequent Events and Other Matter --
Partners' Capital:
General partner 69
Limited partners 915,046
--------
915,115
--------
$929,115
========
See notes to financial statements.
D-118
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
Revenues:
Interest income from affiliates $55,694
Other 3,423
-------
59,117
-------
Costs and Expenses:
Administrative fees to general partner 12,000
General and administrative 5,117
-------
17,117
-------
Net income $42,000
=======
See notes to financial statements.
D-119
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, Beginning $ 69 $ 85,614 $ 85,683
Capital Contributions, Net of Syndication Costs -- 850,300 850,300
Distributions -- (62,868) (62,868)
Net Income -- 42,000 42,000
--------- --------- ---------
Partners' Capital, Ending $ 69 $ 915,046 $ 915,115
========= ========= =========
</TABLE>
See notes to financial statements.
D-120
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Cash Flows from Operating Activities:
<S> <C>
Net income $ 42,000
Adjustments to reconcile net loss to net cash
used in operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliate (55,694)
Increase in administrative fees payable to general partner 12,000
-----------
Net cash used in operating activities (1,694)
-----------
Cash Flows from Investing Activities:
Investment in notes receivable from affiliates (706,100)
Investment in advances receivable from affiliates (54,800)
-----------
Net cash used in investing activities (760,900)
-----------
Cash Flows from Financing Activities:
Partners' capital contributions 1,090,000
Syndication costs paid (239,700)
Distributions to limited partners (62,868)
-----------
Net cash provided by financing activities 787,432
-----------
Net Increase in Cash 24,838
Cash, Beginning 87,683
-----------
Cash, Ending $ 112,521
===========
</TABLE>
See notes to financial statements.
D-121
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
D-122
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund V, Ltd. ("the Partnership") was initially
organized on October 1, 1996 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of $90
in cash; and (b) the maximum capital contributions of the limited partners of
$1,200,000, to be divided into 2,400 equal units of limited partnership
interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt and equity financing to existing affiliated
limited partnerships owning residential apartment communities located in
Florida.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is recognized
as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the related
allowance for impairment of such notes receivable. The Partnership accounts for
such notes under the provisions of Statement of Financial Accounting Standard
No. 114, Accounting by Creditors for Impairment of a Loan, as amended by
Statement of Financial Accounting Standard No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure. Management,
considering current information and events regarding the borrowers' ability to
repay their obligations, considers a note to be impaired when it is probable
that the Partnership will be unable to collect all amounts due according to the
contractual terms of the note. When a loan is considered to be impaired, the
amount of impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate; and (b) the
liquidation value of the note's collateral reduced by expected selling costs and
other notes secured by the same collateral. Cash receipts on impaired notes
receivable are applied to reduce the principal amount of such receivables until
the principal has been recovered, and are recognized as interest income
thereafter.
D-123
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amount of assets and liabilities as of the date of the balance sheet
and operations for the year then ended. Material estimates as to which it is
reasonably possible that a change in the estimate could occur in the near term
relates to the allowance for impairment and the collectibility of the notes
receivable due from affiliates. Although these estimates are based on
management's knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed depending
on their personal tax situations. The financial statements do not reflect a
provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement of
Limited Partnership ("the Agreement") made and entered into as of October 23,
1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash, and
maximum capital contributions of the limited partners of $1,200,000, to be
divided into 2,400 units of limited partnership units. A capital account is
maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will
not be reinvested but will be distributed in order of priority to the
Partners, if available, quarterly, to (a) the limited partners who
will receive 100% of the distributable cash until they have received a
15% non-cumulative annual cash-on-cash return on the aggregate amount
of their capital contribution as calculated from each limited
partner's admission date; and (b) the excess, if any, will be
allocated to the general partner.
D-124
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions (Continued)
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them, when added
to all prior distributions of distributable cash and net proceeds made
to them, is equal to the sum of their capital contributions plus an
annual 15% cash-on-cash return; and (b) the balance, if any, is
distributed 50% to the limited partners and 50% to the general
partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and credit
recognized by the Partnership for federal income tax purposes will be made as
follows:
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by
the Partnership equal the cumulative amounts distributable to the
general partner under the terms of the distributions of cash and net
proceeds. The balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of the
Agreement; (b) the determination of the limited partners exercising their voting
rights to dissolve the Partnership; (c) the death, resignation, retirement,
dissolution, removal, bankruptcy, adjudication of insolvency, or adjudication of
insanity or incompetence of the last remaining general partner then in office
and the refusal of any successor general partner to replace it, unless the
holders of a majority of the units then outstanding vote to continue the
Partnership and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale of all
or substantially all of the Partnership's property; (e) the repayment in full of
all loans made by the Partnership, unless the Partnership thereafter continues
to own non-loan assets; and (f) the occurrence of any other event which, by law,
would require the Partnership to be dissolved.
D-125
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the assets,
and the proceeds will be applied and distributed (a) first to the Partnership
creditors, other than partners; (b) then, any loans owed by the Partnership to
the partners shall be paid in proportion thereto; and (c) finally, to the
limited partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between the
Partnership and the general partner stipulated in the Agreement, the Partnership
retained the general partner to provide administrative services for $1,000 per
month through December 31, 2003.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES
The following are the balances of the notes receivable, net of allowance for
impairment, and accrued interest due from affiliates at December 31, 1997:
Notes Accrued
Receivable Interest
---------- --------
Sunrise Apartments, Ltd.("Sunrise") $488,000 $ 26,309(a)
Curiosity Creek Apartments, Ltd. ("Curiosity Creek") 218,100 29,385(b)
-------- --------
$706,100 $ 55,694
======== ========
(a) In June 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest due from
Sunrise, were converted into promissory notes as more fully described in
the table below.
Sunrise Second Mortgage Note; matures on October 1, 2007;
accrues interest at an minimum annual rate of 6% and
provides for participation interest at the rate of 3% per
annum based upon the amount of the unpaid principal, which
shall be due and payable to the extent that it does not
exceed the available cash flow, as defined in the note;
provides for additional participation interest in an annual
equal to 20% of remaining available cash flow, as defined,
which will continue to be made until such time as the
collateral has been sold, and which obligation will continue
notwithstanding total repayment of the principal amount of
the note; secured by a lien upon certain real and personal
property of Sunrise; subordinated to the first mortgage
which had a balance of approximately $1,037,000 as of
December 31, 1997. $ 335,000
D-126
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
Unsecured promissory note, representing advances made by the
former general partner to Sunrise. The note is payable upon
demand and bears interest at an annual rate of 4%. 621,515
Unsecured promissory note, representing advances made by the
former general partner to Sunrise. The note is payable upon
demand and bears interest at 1% over prime (9.5% as of
December 31, 1997). 1,467
Other receivables, related to advances for refinancing fees
and professional services 48,468
----------
1,006,450
Less discount 518,450
----------
Notes receivable, net of discount $ 488,000
==========
(b) In March 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest due from
Curiosity Creek, were converted into promissory notes as more fully
described in the table below.
Curiosity Creek Second Mortgage Note; matures on April 1,
2007; accrues interest at an minimum annual rate of 6% and
participation interest at the rate of 3% per annum based
upon the amount of the unpaid principal, which shall be due
and payable to the extent that it does not exceed the
available cash flow, as defined in the note; provides for
additional participation interest in an annual equal to 20%
of remaining available cash flow, as defined, which will
continue to be made until such time as the collateral has
been sold, and which obligation will continue
notwithstanding total repayment of the principal amount of
the note; secured by a lien upon certain real and personal
property of Curiosity Creek; subordinated to the first
mortgage which had a balance of approximately $1,180,000 as
of December 31, 1997. $ 807,560
Unsecured promissory note, representing advances made by the
former general partner to Curiosity Creek. The note is
payable upon demand and bears an annual interest rate of
12.5%. 416,000
Unsecured promissory note, representing advances made by the
former general partner to Curiosity Creek. The note is
payable on demand and bears interest at 1% over prime (9.5%
as of December 31, 1997). 414,380
Other receivables, related to advances for refinancing fees
and professional fees 29,732
-----------
1,667,672
Percentage purchased 26.27%
-----------
438,097
Less discount 219,997
-----------
Notes receivable, net of discount $ 218,100
===========
D-127
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. ADVANCES RECEIVABLE FROM AFFILIATES
During 1997, the Partnership provided funding to affiliates by means of advances
in an arrangement equivalent to an open ended line of credit. The advances are
due on demand and provide for interest at 12% per annum. Interest income related
to the advances was not material for 1997. The balances as of December 31, 1997
are as follows:
Sunrise $51,200
Curiosity Creek 3,600
-------
Total $54,800
=======
See Note 6 for subsequent transactions relating to these advances.
NOTE 5. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
In 1996, in accordance with the terms of a Private Placement Memorandum dated
October 23, 1996, the Partnership issued 220 units of limited partnership
interest units at $500 per unit for gross proceeds of $110,000. Costs of $22,300
incurred in connection with syndicating the limited partnership units were
recorded as a reduction of limited partners' capital contributions. Of the
$22,300 in syndication costs incurred in 1996, the Partnership paid $17,500 to
its general partner for administrative, legal and investment fees.
During 1997, the Partnership issued the 2,180 units of the limited partner
interest units at $500 per unit for gross proceeds of $1,090,000. Costs of
$239,700 incurred in connection with syndicating the limited partnership units
were recorded as a reduction of limited partners' capital contributions. Of the
$239,700 in syndication costs incurred in 1997, the Partnership paid $124,500 to
its general partner for administrative, legal and investment fees.
NOTE 6. SUBSEQUENT EVENTS
Distributions
In 1998, the Partnership made distributions of approximately $90,000 to the
limited partners.
Advances Receivable from Affiliates
In 1998, the Partnership continued to provide funding to affiliates by means of
advances in an arrangement equivalent to an open ended line of credit. The
advances are due on demand and provide for interest at 12% per annum. The
following is a summary of the transactions subsequent to December 31, 1997
relating to these advances:
Additional Advances:
Candelwood Apartments II, Ltd. $ 21,000
Baron Strategic Vulture Fund I, Ltd. 44,500
--------
$ 65,500
========
Repayments:
Sunrise $(43,700)
========
D-128
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. SUBSEQUENT EVENTS (Continued)
Amendment to Sunrise and Curiosity Creek Second Mortgages
On December 15, 1998, the Partnership entered into a Second Amendment to
Open-End Second Mortgage and Security Agreement by which all of the notes will
be secured by the Second Mortgage, and the maturities extended to November 1,
2007 and April 1, 2007, respectively. The amendment also provides for additional
advances to be secured under a future advance clause up to a maximum of $______
and $2,000,000, respectively.
NOTE 7. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties, L.P.
("the Operating Partnership"), a partnership under common control, will offer to
exchange Operating Partnership Units to the limited partners of the Partnership
in exchange for their limited partner interests. These units are exchangeable
for an equivalent number of common shares of beneficial interest in Baron
Capital Trust, a real estate investment trust under common control, for whom
Baron Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the assets
acquired and the liabilities assumed at their fair value at the date of
acquisition.
D-129
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND VI, LTD.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
D-130
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Partners' Capital 4
Statement of Cash Flows 5
Notes to Financial Statements 6-11
D-131
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund VI, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund VI, Ltd. (the "Partnership") as of December 31, 1997, and the related
statements of operations, partners' capital and cash flows for the year then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment Fund
VI, Ltd. at December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Notes 3 and 4, the Partnership and its
affiliates have engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ
Miami, Florida
August 14, 1998
D-132
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Cash $184,572
Note receivable from affiliate 379,267
Investment in affiliate 320,819
Advance receivable from affiliate 2,570
Accrued interest receivable from affiliate 2,182
--------
$889,410
========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Advance payable to affiliate $ 8,050
Administrative fees payable to general partner 13,000
--------
21,050
--------
Commitments, Subsequent Events and Other Matter --
Partners' Capital:
General partner 81
Limited partners 868,279
--------
868,360
--------
$889,410
========
See notes to financial statements.
D-133
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
Revenues:
Interest income from affiliates $67,699
Other 4,638
-------
72,337
-------
Costs and Expenses:
Equity in net loss of affiliate 26,181
Administrative fees to general partner 12,000
General and administrative 5,974
-------
44,155
-------
Net Income $28,182
=======
See notes to financial statements.
D-134
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, Beginning $ 81 $ 449,650 $ 449,731
Capital Contributions, Net of Syndication Costs -- 475,450 475,450
Distributions -- (85,003) (85,003)
Net Income -- 28,182 28,182
--------- --------- ---------
Partners' Capital, Ending $ 81 $ 868,279 $ 868,360
========= ========= =========
</TABLE>
See notes to financial statements.
D-135
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
Cash Flows from Operating Activities:
Net income $ 28,182
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in net loss of affiliate 26,181
Changes in operating assets and liabilities:
Increase in administrative fees payable to general partner 12,000
Increase in accrued interest receivable from affiliate (2,182)
---------
Net cash provided by operating activities 64,181
---------
Cash Flows from Investing Activities:
Investment in affiliate (347,000)
Investment in note receivable from affiliate (690,000)
Repayments of note receivable from affiliate 310,733
Advances to affiliates (2,570)
Net cash used in investing activities (728,837)
---------
Cash Flows from Financing Activities:
Partners' capital contributions 668,000
Syndication costs (192,550)
Distributions to limited partners (85,003)
Advances from affiliates 8,050
---------
Net cash provided by financing activities 398,497
---------
Net Decrease in Cash (266,159)
Cash, Beginning 450,731
---------
Cash, Ending $ 184,572
=========
See notes to financial statements.
D-136
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund VII, Ltd. ("the Partnership") was initially
organized on October 30, 1996 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of $90
in cash; and (b) the maximum capital contributions of the limited partners of
$1,200,000, to be divided into 2,400 equal units of limited partnership
interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt and equity financing to existing affiliated
limited partnerships owning residential apartment communities located in
Florida.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is recognized
as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the related
allowance for impairment of such notes receivable. The Partnership accounts for
such notes under the provisions of Statement of Financial Accounting Standard
No. 114, Accounting by Creditors for Impairment of a Loan, as amended by
Statement of Financial Accounting Standard No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure. Management,
considering current information and events regarding the borrowers' ability to
repay their obligations, considers a note to be impaired when it is probable
that the Partnership will be unable to collect all amounts due according to the
contractual terms of the note. When a loan is considered to be impaired, the
amount of impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate; and (b) the
liquidation value of the note's collateral reduced by expected selling costs and
other notes secured by the same collateral. Cash receipts on impaired notes
receivable are applied to reduce the principal amount of such receivables until
the principal has been recovered, and are recognized as interest income
thereafter.
D-137
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment in Affiliate
The Partnership holds a 56.43% limited partner interest in Pineview Apartments,
Ltd. ("Pineview"), a limited partnership which owns a residential apartment
property in Orlando, Florida. The investment in Pineview is accounted for using
the equity method of accounting as a result of the Partnership and Pineview
having the same general partner president and the general partner's ability to
exercise significant influence on Pineview. As such, the investment in Pineview
is carried at cost and adjusted for the Partnership's share of undistributed
earnings or losses using the equity method of accounting.
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amount of assets and liabilities as of the date of the balance sheet
and operations for the year then ended. Material estimates as to which it is
reasonably possible that a change in the estimate could occur in the near term
relates to the collectibility of the notes receivable due from affiliates.
Although these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ from
actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed depending
on their personal tax situations. The financial statements do not reflect a
provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement of
Limited Partnership ("the Agreement") made and entered into as of November 12,
1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash, and
maximum capital contributions of the limited partners of $1,200,000, to be
divided into 2,400 units of limited partnership units. A capital account is
maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
D-138
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will
not be reinvested but will be distributed in order of priority to the
Partners, if available, quarterly, to (a) the limited partners who
will receive 100% of the distributable cash until they have received a
12.5% non-cumulative annual cash-on-cash return on the aggregate
amount of their capital contribution as calculated from each limited
partner's admission date; and (b) the excess, if any, will be
allocated 50% to the limited partners and 50% to the general partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them, when added
to all prior distributions of distributable cash and net proceeds made
to them, is equal to the sum of their capital contributions plus an
annual 12.5% cash-on-cash return; and (b) the balance, if any, is
distributed 50% to the limited partners and 50% to the general
partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and credit
recognized by the Partnership for federal income tax purposes will be made as
follows:
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by
the Partnership equal the cumulative amounts distributable to the
general partner under the terms of the distributions of cash and net
proceeds. The balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
D-139
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of the
Agreement; (b) the determination of the limited partners exercising their voting
rights to dissolve the Partnership; (c) the death, resignation, retirement,
dissolution, removal, bankruptcy, adjudication of insolvency, or adjudication of
insanity or incompetence of the last remaining general partner then in office
and the refusal of any successor general partner to replace it, unless the
holders of a majority of the units then outstanding vote to continue the
Partnership and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale of all
or substantially all of the Partnership's property; (e) the repayment in full of
all loans made by the Partnership, unless the Partnership thereafter continues
to own non-loan assets; and (f) the occurrence of any other event which, by law,
would require the Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the assets,
and the proceeds will be applied and distributed (a) first to the Partnership
creditors, other than partners; (b) then, any loans owed by the Partnership to
the partners shall be paid in proportion thereto; and (c) finally, to the
limited partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between the
Partnership and the general partner stipulated in the Agreement, the Partnership
retained the general partner to provide administrative services for $1,000 per
month through December 31, 2003.
NOTE 3. NOTE RECEIVABLE FROM AFFILIATE
In March 1997, the Partnership advanced funds to, and received a $690,000 note
from, Baron Strategic Investment Fund IV, Ltd. ("BSIF IV"), an affiliate, with
an annual interest rate of 15%. The note, which is secured by real property of
County Square Apartments, Ltd., an affiliate, provides for monthly payments of
interest only on the unpaid principal balance, with principal plus any accrued
interest due in September 2002. Interest income recognized on the note during
1997 was $67,699. As of December 31, 1997, the note had an outstanding balance
of $379,267 and accrued interest of $2,182.
D-140
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. INVESTMENT IN AFFILIATE
The following is a summary of the financial position and results of operations
of Pineview as of and for the year ended December 31, 1997.
Financial position:
Rental apartments $ 1,849,363
Other assets 119,836
-----------
Total assets $ 1,969,199
===========
Mortgage payable $ 1,622,364
Other liabilities 493,337
-----------
Total liabilities 2,115,701
Partners' deficiency (146,502)
-----------
$ 1,969,199
===========
Results of operations:
Revenues (including rental income of $416,192) $ 419,085
Costs and expenses 465,471
-----------
Net loss $ (46,386)
===========
NOTE 5. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
In 1996, in accordance with the terms of a Private Placement Memorandum dated
November 12, 1996, the Partnership issued 1,064 units of limited partnership
interest at $500 per unit for gross proceeds of $532,000. Costs of $81,450
incurred in connection with syndicating the limited partnership units were
recorded as a reduction of limited partners' capital contributions. Of the
$81,450 in syndication costs incurred in 1996, the Partnership paid $38,890 to
its general partner for administrative, legal and investment fees.
During 1997, the Partnership issued 1,336 units of limited partner interest at
$500 per unit for gross proceeds of $668,000. Costs of $192,550 incurred in
connection with syndicating the limited partnership units were recorded as a
reduction of limited partners' capital contributions. Of the $192,550 in
syndication costs incurred in 1997, the Partnership paid $115,110 to its general
partner for administrative, legal and investment fees.
NOTE 6. SUBSEQUENT EVENTS
Notes Receivable from Affiliates
In February 1998, the Partnership received a payment of $125,000 on the note
receivable from BSIF IV (see Note 3), which was applied to the outstanding
balance of principal and interest.
In February 1998, the Partnership purchased from Baron Strategic Investment Fund
X, an affiliate, an undivided 20% interest in the second mortgage note and
accrued interest of Garden Terrace Apartments III, Ltd. for $160,000.
D-141
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. SUBSEQUENT EVENTS (Continued)
Advances Receivable from Affiliates
In 1998, the Partnership continued to provide funding to affiliates by means of
advances in an arrangement equivalent to an open ended line of credit. The
advances are due on demand and provide for interest at 12% per annum. The
following is a summary of the transactions subsequent to December 31, 1997
relating to these advances:
Additional Advances:
Candlewood Apartments II, Ltd. $68,000
Pineview 24,500
-------
$92,500
=======
Distributions
In 1998, the Partnership made distributions of approximately $90,000 to the
limited partners.
NOTE 7. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties, L.P.
("the Operating Partnership"), a partnership under common control, will offer to
exchange Operating Partnership Units to the limited partners of the Partnership
in exchange for their limited partner interests. These units are exchangeable
for an equivalent number of common shares of beneficial interest in Baron
Capital Trust, a real estate investment trust under common control, for whom
Baron Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the assets
acquired and the liabilities assumed at their fair value at the date of
acquisition.
D-142
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
D-143
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Partners' Capital 4
Statement of Cash Flows 5
Notes to Financial Statements 6-12
D-144
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund VIII, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund VIII, Ltd. (the "Partnership") as of December 31, 1997, and the related
statements of operations, partners' capital and cash flows for the year then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment Fund
VIII, Ltd. at December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Note 3, the Partnership and its affiliates have
engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ
Miami, Florida
August 14, 1998 except for the third paragraph of
Note 6, as to which the date is December 15, 1998
D-145
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Cash $ 84,615
Notes receivable from affiliates 685,650
Advances receivable from affiliates 65,095
Accrued interest receivable from affiliates 38,892
--------
$874,252
========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner $ 10,000
Accrued syndication costs 2,854
--------
12,854
--------
Commitments, Subsequent Events and Other Matter --
Partners' Capital:
General partner 90
Limited partners 861,308
--------
861,398
--------
$874,252
========
See notes to financial statements.
D-146
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
Revenues:
Interest income from affiliates $38,892
Other 1,708
-------
40,600
-------
Costs and Expenses:
Administrative fees to general partner 10,000
General and administrative 4,453
-------
14,453
-------
Net Income $26,147
=======
See notes to financial statements.
D-147
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, Beginning $ -- $ -- $ --
Capital Contributions, Net of Syndication Costs 90 865,611 865,701
Distributions -- (30,450) (30,450)
Net Income -- 26,147 26,147
--------- --------- ---------
Partners' Capital, Ending $ 90 $ 861,308 $ 861,398
========= ========= =========
</TABLE>
See notes to financial statements.
D-148
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net income $ 26,147
Adjustments to reconcile net income to
net cash used in operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliates (38,892)
Increase in administrative fees payable to general partner 10,000
-----------
Net cash used in operating activities (2,745)
-----------
Cash Flows from Investing Activities:
Investment in notes receivable from affiliates (685,650)
Advances to affiliates (65,095)
-----------
Net cash used in investing activities (750,745)
-----------
Cash Flows from Financing Activities:
Partners' capital contributions 1,149,131
Syndication costs paid (280,576)
Distributions to limited partners (30,450)
-----------
Net cash provided by financing activities 838,105
-----------
Net Increase in Cash 84,615
Cash, Beginning --
-----------
Cash, Ending $ 84,615
===========
</TABLE>
See notes to financial statements.
D-149
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund VIII, Ltd. ("the Partnership") was initially
organized on February 25, 1997 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of $90
in cash; and (b) the maximum capital contributions of the limited partners of
$1,200,000, to be divided into 2,400 equal units of limited partnership
interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt financing to existing affiliated limited
partnerships owning residential apartment communities located in Florida.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is recognized
as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the related
allowance for impairment of such notes receivable. The Partnership accounts for
such notes under the provisions of Statement of Financial Accounting Standard
No. 114, Accounting by Creditors for Impairment of a Loan, as amended by
Statement of Financial Accounting Standard No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure. Management,
considering current information and events regarding the borrowers' ability to
repay their obligations, considers a note to be impaired when it is probable
that the Partnership will be unable to collect all amounts due according to the
contractual terms of the note. When a loan is considered to be impaired, the
amount of impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate; and (b) the
liquidation value of the note's collateral reduced by expected selling costs and
other notes secured by the same collateral. Cash receipts on impaired notes
receivable are applied to reduce the principal amount of such receivables until
the principal has been recovered, and are recognized as interest income
thereafter.
D-150
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amount of assets and liabilities as of the date of the balance sheet
and operations for the year then ended. Material estimates as to which it is
reasonably possible that a change in the estimate could occur in the near term
relates to the collectibility of the notes receivable from affiliates. Although
these estimates are based on management's knowledge of current events and
actions it may undertake in the future, they may ultimately differ from actual
results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed depending
on their personal tax situations. The financial statements do not reflect a
provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement of
Limited Partnership ("the Agreement") made and entered into as of February 26,
1997.
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash, and
maximum capital contributions of the limited partners of $1,200,000, to be
divided into 2,400 units of limited partnership units. A capital account is
maintained for each partner.
Term
The Partnership will continue through December 31, 2025, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will
not be reinvested but will be distributed in order of priority to the
Partners, if available, quarterly, to (a) the limited partners who
will receive 100% of the distributable cash until they have received a
12.5% non-cumulative annual cash-on-cash return on the aggregate
amount of their capital contribution as calculated from each limited
partner's admission date; and (b) the excess, if any, will be
allocated 50% to the limited partners and 50% to the general partner.
D-151
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them, when added
to all prior distributions of distributable cash and net proceeds made
to them, is equal to the sum of their capital contributions plus an
annual 12.5% cash-on-cash return; and (b) the balance, if any, is
distributed 50% to the limited partners and 50% to the general
partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and credit
recognized by the Partnership for federal income tax purposes will be made as
follows:
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by
the Partnership equal the cumulative amounts distributable to the
general partner under the terms of the distributions of cash and net
proceeds. The balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of the
Agreement; (b) the determination of the limited partners exercising their voting
rights to dissolve the Partnership; (c) the death, resignation, retirement,
dissolution, removal, bankruptcy, adjudication of insolvency, or adjudication of
insanity or incompetence of the last remaining general partner then in office
and the refusal of any successor general partner to replace it, unless the
holders of a majority of the units then outstanding vote to continue the
Partnership and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale of all
or substantially all of the Partnership's property; (e) the repayment in full of
all loans made by the Partnership, unless the Partnership thereafter continues
to own non-loan assets; and (f) the occurrence of any other event which, by law,
would require the Partnership to be dissolved.
D-152
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the assets,
and the proceeds will be applied and distributed (a) first to the Partnership
creditors, other than partners; (b) then, any loans owed by the Partnership to
the partners shall be paid in proportion thereto; and (c) finally, to the
limited partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between the
Partnership and the general partner stipulated in the Agreement, the Partnership
retained the general partner to provide administrative services for $1,000 per
month through December 31, 2004.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES
The following are the principal balances of the notes receivable, net of
unamortized discount and accrued interest due from affiliates at December 31,
1997:
Notes Accrued
Receivable Interest
---------- --------
Longwood Apartments I, Ltd.("Longwood I") $525,150 $ 34,221(a)
Heatherwood Apartments II, Ltd. ("Heatherwood II") 160,500 3,416(b)
-------- --------
$685,650 $ 37,637
======== ========
(a) In July 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest due from
Longwood I, were converted into promissory notes as more fully described in
the table below:
Longwood I Second Mortgage Note; matures on October 1, 2007;
accrues interest at an minimum annual rate of 6% and
provides for participation interest at the rate of 3% per
annum based upon the amount of the unpaid principal, which
shall be due and payable to the extent that it does not
exceed the available cash flow, as defined in the note;
provides for additional participation interest in an annual
equal to 20% of remaining available cash flow, as defined,
which will continue to be made until such time as the
collateral has been sold, and which obligation will continue
notwithstanding total repayment of the principal amount of
the note; secured by a lien upon certain real and personal
property of Longwood I; subordinated to the first mortgage
which had a balance of approximately $1,036,000 as of
December 31, 1997. $368,558
D-153
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
Unsecured promissory note, representing advances made by the
former general partner to Longwood I. The note is payable
upon demand and bears interest at 1% over prime (9.5% as of
December 31, 1997). 526,465
Other receivables, related to advances for refinancing fees
and professional services. 21,966
--------
916,989
Less discount 391,839
--------
Notes receivable, net of discount $525,150
========
See Note 6 regarding a subsequent amendment to the second mortgage.
(b) In August 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest due from
Heatherwood II, were converted into promissory notes as more fully
described in the table below:
Heatherwood II Second Mortgage Note; matures on October 1,
2004; accrues interest at an minimum annual rate of 6% and
participation interest at the rate of 3% per annum based
upon the amount of the unpaid principal, which shall be due
and payable to the extent that it does not exceed the
available cash flow, as defined in the note; provides for
additional participation interest in an annual equal to 20%
of remaining available cash flow, as defined, which will
continue to be made until such time as the collateral has
been sold, and which obligation will continue
notwithstanding total repayment of the principal amount of
the note; secured by a lien upon certain real and personal
property of Heatherwood II; subordinated to the first
mortgage which had a balance of approximately $710,000 as of
December 31, 1997. $325,000
Unsecured promissory note, representing advances made by the
former general partner to Heatherwood II. The note is
payable on demand and bears interest at 1% over prime (9.5%
as of December 31, 1997). 1,742
Other receivables related to advances and professional
services 13,404
--------
340,146
Percentage purchased 58%
--------
197,285
Less discount 36,785
--------
Notes receivable, net of discount $160,500
========
D-154
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. ADVANCES RECEIVABLE FROM AFFILIATES
During 1997, the Partnership provided funding to affiliates by means of advances
in an arrangement equivalent to an open ended line of credit. The advances are
due on demand and accrue interest at 12% per annum. The balance of $65,095
remained outstanding as of December 31, 1997. Interest income of $1,255 was
recognized during the year and accrued at December 31, 1997.
NOTE 5. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1997, in accordance with the terms of a Private Placement Memorandum
dated February 26, 1997, the Partnership issued 2,298 units of limited partner
interest of the 2,400 units being offered at $500 per unit for gross proceeds of
$1,149,041. Costs of $283,430 incurred in connection with syndicating the
partnership units were recorded as a reduction of limited partners' capital
contributions. Of the syndication costs, $168,525 was paid to the General
Partner for administrative, legal and investment fees.
Subsequent to December 31, 1997, the Partnership issued the remaining 102 units
at $500 per unit for gross proceeds of $50,959. Costs of $13,163 incurred in
connection with syndicating the partnership units were recorded as a reduction
of limited partners' capital contributions in 1998. Of the syndication costs,
$8,067 was paid to the General Partner for administrative, legal and investment
fees.
NOTE 6. SUBSEQUENT EVENTS
Distributions to Limited Partners
In 1998, the Partnership made distributions of approximately $30,000 to the
limited partners.
Notes Receivable from Affiliate
In February 1998, the Partnership made a loan of $98,000 to Burlington
Development Holdings, Ltd. ("Burlington"), an affiliate, pursuant to the terms
of a promissory note. The note provides for interest at 12% per annum and
principal is due on demand. In April 1998, the partnership received $21,000 from
Burlington as a partial payment on the note.
Amendment to Second Mortgage
On December 15, 1998, the Partnership entered into a Second Amendment to
Open-End Second Mortgage and Security Agreement by which all of the notes will
be secured by the Second Mortgage, and the maturities extended to October 1,
2007. The amendment also provides for additional advances to be secured under a
future advance clause up to $1,300,000 maximum.
D-155
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 7. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties, L.P.
("the Operating Partnership"), a partnership under common control, will offer to
exchange Operating Partnership Units to the limited partners of the Partnership
in exchange for their limited partner interests. These units are exchangeable
for and equivalent number of common shares of beneficial interest in Baron
Capital Trust, a real estate investment trust under common control, for whom
Baron Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the assets
acquired and the liabilities assumed at their fair value at the date of
acquisition.
D-156
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND IX, LTD.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
D-157
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Partners' Capital 4
Statement of Cash Flows 5
Notes to Financial Statements 6-11
D-158
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund IX, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund IX, Ltd. (the "Partnership") as of December 31, 1997, and the related
statements of operations, partners' capital and cash flows for the year then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment Fund
IX, Ltd. at December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Notes 3 and 4, the Partnership and its
affiliates have engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ
Miami, Florida
August 14, 1998
D-159
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Cash $195,984
Investment in affiliate 293,207
Advances receivable from affiliate 21,495
Accrued interest receivable from affiliate 392
--------
$511,078
========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued syndication costs, including $23,165
to general partner $ 42,435
Administrative fees payable to general partner 7,000
--------
49,435
--------
Commitments, Subsequent Event and Other Matter --
Partners' Capital:
General partner 27
Limited partners 461,616
--------
461,643
--------
$511,078
========
See notes to financial statements.
D-160
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
Revenues:
Equity in net income of affiliate $ 4,207
Interest income from affiliate 392
Other 676
--------
5,275
--------
Costs and Expenses:
Administrative fees to general partner 7,000
General and administrative 4,533
--------
11,533
--------
Net Loss $ (6,258)
========
See notes to financial statements.
D-161
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, Beginning $ -- $ -- $ --
Capital Contributions, Net of Syndication Costs 90 471,400 471,490
Distributions -- (3,589) (3,589)
Net Loss (63) (6,195) (6,258)
--------- --------- ---------
Partners' Capital, Ending $ 27 $ 461,616 $ 461,643
========= ========= =========
</TABLE>
See notes to financial statements.
D-162
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net loss $ (6,258)
Adjustments to reconcile net loss to
net cash used in operating activities:
Equity in net income of affiliate (4,207)
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliate (392)
Increase in administrative fees payable to general partner 7,000
---------
Net cash used in operating activities (3,857)
---------
Cash Flows from Investing Activities:
Investment in affiliate (289,000)
Investment in advances receivable from affiliate (21,495)
---------
Net cash used in investing activities (310,495)
---------
Cash Flows from Financing Activities:
Partners' capital contributions 623,090
Syndication costs paid (109,165)
Distributions to limited partners (3,589)
---------
Net cash provided by financing activities 510,336
---------
Net Increase in Cash 195,984
Cash, Beginning --
---------
Cash, Ending $ 195,984
=========
</TABLE>
See notes to financial statements.
D-163
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund IX, Ltd. ("the Partnership") was initially
organized on June 2, 1997 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of $90
in cash; and (b) the maximum capital contributions of the limited partners of
$1,200,000, to be divided into 2,400 equal units of limited partnership
interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt and equity financing to existing affiliated
limited partnerships owning residential apartment communities located in
Florida.
Revenue Recognition
Revenue consisting of equivalent income of affiliate is recognized on the equity
method, as more fully described below.
Revenue consisting of interest on notes receivable is recognized as it becomes
due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Investment in Affiliate
The Partnership holds a 41.1% limited partner interest in Crystal Court
Properties, Ltd. ("Crystal Court"), a limited partnership which owns a
residential apartment property in Jacksonville, Florida. The investment in
Crystal Court is accounted for using the equity method of accounting as a result
of the Partnership and Crystal Court having the same general partner president
and the general partner's ability to exercise significant influence on Crystal
Court. As such, the investment in Crystal Court is carried at cost and adjusted
for the Partnership's share of undistributed earnings or losses using the equity
method of accounting.
D-164
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amount of assets and liabilities as of the date of the balance sheet
and operations for the year then ended. Material estimates as to which it is
reasonably possible that a change in the estimate could occur in the near term
relates to the collectibility of the notes receivable due from affiliates.
Although these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ from
actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed depending
on their personal tax situations. The financial statements do not reflect a
provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement of
Limited Partnership ("the Agreement") made and entered into as of June 2, 1997:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash, and
maximum capital contributions of the limited partners of $1,200,000, to be
divided into 2,400 units of limited partnership units. A capital account is
maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will
not be reinvested but will be distributed in order of priority to the
Partners, if available, quarterly, to (a) the limited partners who
will receive 100% of the distributable cash until they have received a
15% non-cumulative annual cash-on-cash return on the aggregate amount
of their capital contribution as calculated from each limited
partner's admission date; and (b) the excess, if any, will be
allocated to the general partner.
D-165
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions (Continued)
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them, when added
to all prior distributions of distributable cash and net proceeds made
to them, is equal to the sum of their capital contributions plus an
annual 15% cash-on-cash return; and (b) the balance, if any, is
distributed 50% to the limited partners and 50% to the general
partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and credit
recognized by the Partnership for federal income tax purposes will be made as
follows:
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by
the Partnership equal the cumulative amounts distributable to the
general partner under the terms of the distributions of cash and net
proceeds. The balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of the
Agreement; (b) the determination of the limited partners exercising their voting
rights to dissolve the Partnership; (c) the death, resignation, retirement,
dissolution, removal, bankruptcy, adjudication of insolvency, or adjudication of
insanity or incompetence of the last remaining general partner then in office
and the refusal of any successor general partner to replace it, unless the
holders of a majority of the units then outstanding vote to continue the
Partnership and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale of all
or substantially all of the Partnership's property; (e) the repayment in full of
all loans made by the Partnership, unless the Partnership thereafter continues
to own non-loan assets; and (f) the occurrence of any other event which, by law,
would require the Partnership to be dissolved.
D-166
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the assets,
and the proceeds will be applied and distributed (a) first to the Partnership
creditors, other than partners; (b) then, any loans owed by the Partnership to
the partners shall be paid in proportion thereto; and (c) finally, to the
limited partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between the
Partnership and the general partner stipulated in the Agreement, the Partnership
retained the general partner to provide administrative services for $1,000 per
month through December 31, 2004.
NOTE 3. ADVANCES TO AFFILIATE
During 1997, the Partnership provided funding to Crystal Court by means of
advances in an arrangement equivalent to an open ended line of credit. The
advances are due on demand and accrue interest at 12% per annum. The principal
balance of $21,549 remained outstanding as of December 31, 1997. Interest income
of $392 was recognized during 1997 and accrued at December 31, 1997.
NOTE 4. INVESTMENT IN AFFILIATE
The following is a summary of the financial position and results of operations
of Crystal Court as of and for the year ended December 31, 1997.
Financial position:
Rental apartments $1,101,444
Other assets 194,027
----------
Total assets $1,295,471
==========
Mortgage payable $1,260,447
Other liabilities 24,861
Total liabilities 1,285,308
Partners' capital 10,163
----------
$1,295,471
==========
Results of operations:
Revenues (including rental income of $63,628) $ 63,825
Costs and expenses 53,242
----------
Net income $ 10,163
==========
D-167
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1997, in accordance with the terms of a Private Placement Memorandum
dated June 3, 1997, the Partnership issued 1,246 units of limited partner
interest being offered at $500 per unit for total gross proceeds of $623,000.
Costs of $151,600 incurred in connection with syndicating the partnership units
were recorded as a reduction of limited partners' capital contributions. Of the
syndication costs, $88,530 was paid or accrued to the General Partner for
administrative, legal and investment fees. Of the total syndication costs
incurred, $42,435 remained unpaid and accrued at December 31, 1997, including
$23,165 to the General Partner.
NOTE 6. SUBSEQUENT EVENTS
Distributions
In 1998, the Partnership made distributions of approximately $33,000 to the
limited partners.
Note Receivable from Affiliate
In January 1998, the Partnership purchased from an unrelated party an undivided
25% interest of Garden Terrace Apartments III, Ltd. second mortgage note and
accrued interest for $200,000.
Advances Receivable from Affiliates
The Partnership continued to provide funding to affiliates in the form of
advances. The advances are due on demand and accrue interest at 12% per annum.
The following are affiliates which received funding:
Apartment Development Holdings, Ltd. $128,000
Burlington Development Holdings, Ltd. 95,500
Candlewood Apartments II, Ltd. 75,500
--------
Total $299,000
========
Limited Partners' Capital Contributions
In 1998, the Partnership issued 1,104 units of limited partner interest, which
increased the total units issued to 2,350 of the 2,400 available units, at $500
per unit for total gross proceeds of $552,000. Costs of $175,105 incurred with
syndicating the partnership have been recorded as a reduction of limited
partners' capital contributions. Of the syndication costs, $98,905 was paid or
accrued to the General Partner for administrative, legal and investment fees.
D-168
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 7. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties, L.P.
("the Operating Partnership"), a partnership under common control, will offer to
exchange Operating Partnership Units to the limited partners of the Partnership
in exchange for their limited partner interests. These units are exchangeable
for an equivalent number of common shares of beneficial interest in Baron
Capital Trust, a real estate investment trust under common control, for whom
Baron Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the assets
acquired and the liabilities assumed at their fair value at the date of
acquisition.
D-169
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND X, LTD.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
D-170
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Partners' Capital 4
Statement of Cash Flows 5
Notes to Financial Statements 6-11
D-171
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund X, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund X, Ltd. (the "Partnership") as of December 31, 1997, and the related
statements of operations, partners' capital and cash flows for the year then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment Fund
X, Ltd. at December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Notes 3 and 4, the Partnership and its
affiliates have engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ
Miami, Florida
August 14, 1998
D-172
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Cash $ 171,989
Investments in affiliates 562,670
Notes receivable from affiliate 117,500
Advances receivable from affiliate 56,500
Accrued interest receivable from affiliates 7,622
---------
$ 916,281
=========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued syndication costs, including
$70,258 to general partner $ 79,708
Administrative fees payable to general partner 6,000
---------
85,708
---------
Commitments, Subsequent Events and Other Matter --
Partners' Capital:
General partner (68)
Limited partners 830,641
---------
830,573
---------
$ 916,281
=========
See notes to financial statements.
D-173
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
Revenues:
Interest income from affiliates $ 7,622
Other 2,116
--------
9,738
--------
Costs and Expenses:
Equity in net losses of affiliates 15,330
Administrative fees to general partner 6,000
General and administrative 4,237
--------
25,567
--------
Net Loss $(15,829)
========
See notes to financial statements.
D-174
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1997
General Limited
Partner Partners Total
--------- --------- ---------
Partners' Capital, Beginning $ -- $ -- $ --
Capital Contributions 90 859,740 859,830
Distributions -- (13,428) (13,428)
Net Loss (158) (15,671) (15,829)
--------- --------- ---------
Partners' Capital, Ending $ (68) $ 830,641 $ 830,573
========= ========= =========
See notes to financial statements.
D-175
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net loss $ (15,829)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Equity in net losses of affiliates 15,330
Changes in operating assets and liabilities:
Increase in administrative fees payable to general partner 6,000
Increase in accrued interest receivable from affiliates (7,622)
-----------
Net cash used in operating activities (2,121)
-----------
Cash Flows from Investing Activities:
Investments in affiliates (578,000)
Investment in notes receivable from affiliate (117,500)
Investment in advances receivable from affiliate (56,500)
-----------
Net cash used in investing activities (752,000)
-----------
Cash Flows from Financing Activities:
Partner capital contributions 1,128,090
Syndication costs paid (188,552)
Distributions to limited partners (13,428)
-----------
Net cash provided by financing activities 926,110
-----------
Net Increase in Cash 171,989
Cash, Beginning --
-----------
Cash, Ending $ 171,989
===========
</TABLE>
See notes to financial statements.
D-176
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund X, Ltd. ("the Partnership") was initially
organized on June 26, 1997 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of $90
in cash; and (b) the maximum capital contributions of the limited partners of
$1,200,000, to be divided into 2,400 equal units of limited partnership
interest. b See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt and equity financing to existing affiliated
limited partnerships owning residential apartment communities located in
Florida.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is recognized
as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Notes Receivable from Affiliate
Notes receivable from affiliate are recorded at cost, less the related allowance
for impairment of such notes receivable. The Partnership accounts for such notes
under the provisions of Statement of Financial Accounting Standard No. 114,
Accounting by Creditors for Impairment of a Loan, as amended by Statement of
Financial Accounting Standard No. 118, Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosure. Management, considering current
information and events regarding the borrowers' ability to repay their
obligations, considers a note to be impaired when it is probable that the
Partnership will be unable to collect all amounts due according to the
contractual terms of the note. When a loan is considered to be impaired, the
amount of impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate; and (b) the
liquidation value of the note's collateral reduced by expected selling costs and
other notes secured by the same collateral. Cash receipts on impaired notes
receivable are applied to reduce the principal amount of such receivables until
the principal has been recovered, and are recognized as interest income
thereafter.
D-177
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments in Affiliates
The Partnership holds a 43.5% limited partner interest in Crystal Court
Properties, Ltd. ("Crystal Court"), a limited partnership which owns a
residential apartment property in Lakeland, Florida. The investment in Crystal
Court is accounted for using the equity method of accounting as a result of the
Partnership and Crystal Court having the same general partner president and the
general partner's ability to exercise significant influence on Crystal Court. As
such, the investment in Crystal Court is carried at cost and adjusted for the
Partnership's share of undistributed earnings or losses using the equity method
of accounting.
The Partnership holds a 42.57% limited partner interest in Pineview Apartments,
Ltd. ("Pineview"), a limited partnership which owns a residential apartment
property in Orlando, Florida. The investment in Pineview is accounted for using
the equity method of accounting as a result of the Partnership and Pineview
having the same general partner president and the general partner's ability to
exercise significant influence on Pineview. As such, the investment in Pineview
is carried at cost and adjusted for the Partnership's share of undistributed
earnings or losses using the equity method of accounting.
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amount of assets and liabilities as of the date of the balance sheet
and operations for the year then ended. Material estimates as to which it is
reasonably possible that a change in the estimate could occur in the near term
relates to the collectibility of the notes receivable due from affiliates.
Although these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ from
actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed depending
on their personal tax situations. The financial statements do not reflect a
provision for income taxes.
D-178
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement of
Limited Partnership ("the Agreement") made and entered into as of June 26, 1997:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash, and
maximum capital contributions of the limited partners of $1,200,000, to be
divided into 2,400 units of limited partnership units. A capital account is
maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will
not be reinvested but will be distributed in order of priority to the
Partners, if available, quarterly, to (a) the limited partners who
will receive 100% of the distributable cash until they have received a
12.5% non-cumulative annual cash-on-cash return on the aggregate
amount of their capital contribution as calculated from each limited
partner's admission date; and (b) the excess, if any, will be
allocated 50% to the limited partners and 50% to the general partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them, when added
to all prior distributions of distributable cash and net proceeds made
to them, is equal to the sum of their capital contributions plus an
annual 12.5% cash-on-cash return; and (b) the balance, if any, is
distributed 50% to the limited partners and 50% to the general
partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and credit
recognized by the Partnership for federal income tax purposes will be made as
follows:
D-179
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by
the Partnership equal the cumulative amounts distributable to the
general partner under the terms of the distributions of cash and net
proceeds. The balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of the
Agreement; (b) the determination of the limited partners exercising their voting
rights to dissolve the Partnership; (c) the death, resignation, retirement,
dissolution, removal, bankruptcy, adjudication of insolvency, or adjudication of
insanity or incompetence of the last remaining general partner then in office
and the refusal of any successor general partner to replace it, unless the
holders of a majority of the units then outstanding vote to continue the
Partnership and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale of all
or substantially all of the Partnership's property; (e) the repayment in full of
all loans made by the Partnership, unless the Partnership thereafter continues
to own non-loan assets; and (f) the occurrence of any other event which, by law,
would require the Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the assets,
and the proceeds will be applied and distributed (a) first to the Partnership
creditors, other than partners; (b) then, any loans owed by the Partnership to
the partners shall be paid in proportion thereto; and (c) finally, to the
limited partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between the
Partnership and the general partner stipulated in the Agreement, the Partnership
retained the general partner to provide administrative services for $1,000 per
month through December 31, 2003.
D-180
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE
In August 1997, the Partnership acquired certain receivables from an unrelated
entity at a discount from the face amount thereof. The receivables, which
included notes receivable and accrued interest due from Heatherwood Apartments
II, Ltd. ("Heatherwood II") were converted into promissory notes as more fully
described in the table below.
Heatherwood II Second Mortgage Note; matures on October
1, 2004; accrues interest at an minimum annual rate of
6% and provides for participation interest at the rate
of 3% per annum based upon the amount of the unpaid
principal, which shall be due and payable to the extent
that it does not exceed the available cash flow, as
defined in the note; provides for additional
participation interest in an annual equal to 20% of
remaining available cash flow, as defined, which will
continue to be made until such time as the collateral
has been sold, and which obligation will continue
notwithstanding total repayment of the principal amount
of the note; secured by a lien upon certain real and
personal property of Heatherwood II; subordinated to
the first mortgage which had a balance of approximately
$710,000 as of December 31, 1997. $325,000
Unsecured promissory note, representing advances made
by the former general partner to Heatherwood II. The
note is payable upon demand and bears interest at 1%
over prime (9.5% as of December 31, 1997). 1,742
Other receivables, related to advances for refinancing
fees and professional services 13,404
--------
340,146
Percentage purchased 42%
--------
142,861
Less discount 25,361
--------
Notes receivable, net of discount $117,500
========
NOTE 4. INVESTMENTS IN AFFILIATES
The following is a summary of the financial position and results of operations
of Crystal Court as of and for the year ended December 31, 1997.
Financial position:
Rental apartments $1,101,444
Other assets 194,027
----------
Total assets $1,295,471
==========
Mortgage payable $1,260,447
Other liabilities 24,861
----------
Total liabilities 1,285,308
Partners' capital 10,163
----------
$1,295,471
==========
D-181
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. INVESTMENTS IN AFFILIATES (Continued)
Results of operations:
Revenues (including rental income of $63,628) $63,825
Costs and expenses 53,242
-------
Net income $10,163
=======
The following is a summary of the financial position and results of operations
of Pineview as of and for the year ended December 31, 1997.
Financial position:
Rental apartments $ 1,849,363
Other assets 119,836
-----------
Total assets $ 1,969,199
===========
Mortgage payable $ 1,622,364
Other liabilities 493,337
-----------
Total liabilities 2,115,701
Partners' deficiency (146,502)
-----------
$ 1,969,199
===========
Results of operations:
Revenues (including rental income of $416,192) $ 419,085
Costs and expenses 465,471
-----------
Net loss $ (46,386)
===========
NOTE 5. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1997, in accordance with the terms of a Private Placement Memorandum
dated June 26, 1997, the Partnership issued 2,256 units of limited partner
interest at $500 per unit for gross proceeds of $1,128,000. Costs of $268,260
incurred in connection with syndicating the limited partnership units were
recorded as a reduction of limited partners' capital contributions. Of the
$268,260 in syndication costs incurred in 1997, the Partnership incurred a total
of $164,000 to its general partner for administrative, legal and investment
fees. Of the syndication costs incurred, costs of $79,708 remained unpaid and
were accrued as of December 31,1997, including $70,258 to the general partner.
Subsequent to December 31, 1997, the Partnership issued 144 units at $500 per
unit for gross proceeds of $72,000. Costs of $15,800 incurred in connection with
syndicating the limited partners units were recorded as a reduction of limited
partners' capital contributions in 1998.
NOTE 6. SUBSEQUENT EVENTS
Distributions
In 1998, the Partnership made distributions of approximately $82,615 to the
limited partners.
D-182
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. SUBSEQUENT EVENTS (Continued)
Notes Receivable from Affiliates
In January 1998, the Partnership purchased from an unrelated entity an undivided
75% interest of Garden Terrace Apartments III, Ltd. ("Garden Terrace"), an
affiliate, second mortgage note and accrued interest for $40,000 in cash and a
promissory note of $560,000. The note has an original maturity date of June 30,
1998, which was extended to March 31, 1999, and bears interest of 10% per annum.
In February 1998, the Partnership sold to Baron Strategic Investment Fund VI, an
affiliate, an undivided 20% interest of Garden Terrace second mortgage note and
accrued interest for $160,000.
NOTE 7. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties, L.P.
("the Operating Partnership"), a partnership under common control, will offer to
exchange Operating Partnership Units to the limited partners of the Partnership
in exchange for their limited partner interests. These units are exchangeable
for an equivalent number of common shares of beneficial interest in Baron
Capital Trust, a real estate investment trust under common control, for whom
Baron Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the assets
acquired and the liabilities assumed at their fair value at the date of
acquisition.
D-183
<PAGE>
================================================================================
BARON STRATEGIC VULTURE FUND I, LTD.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
D-184
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Partners' Capital 4
Statement of Cash Flows 5
Notes to Financial Statements 6-10
D-185
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Vulture Fund I, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Vulture Fund
I, Ltd. (the "Partnership") as of December 31, 1997, and the related statements
of operations, partners' capital and cash flows for the year then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Vulture Fund I,
Ltd. at December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Note 3, the Partnership and its affiliates have
engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ
Miami, Florida
August 14, 1998 except for the third paragraph of
Note 5, as to which the date is December 15, 1998
D-186
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Cash $ 1,204
Notes receivable from affiliate 612,000
Advances receivable from affiliates 14,513
Accrued interest receivable from affiliate 55,471
--------
$683,188
========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Advance payable to affiliate $ 17,000
Administrative fees payable to general partner 10,000
--------
27,000
--------
Commitments, Subsequent Events and Other Matters --
Partners' Capital:
General partner 81
Limited partners 656,107
--------
656,188
--------
$683,188
========
See notes to financial statements.
D-187
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
Revenues:
Interest income from affiliate $82,471
Other 1,581
-------
84,052
=======
Costs and Expenses:
General and administrative 8,246
Administrative fees to general partner 6,000
14,246
-------
Net Income $69,806
=======
See notes to financial statements.
D-188
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1997
General Limited
Partner Partners Total
--------- --------- ---------
Partners' Capital, Beginning $ 81 $ 676,196 $ 676,277
Distributions -- (89,895) (89,895)
Net Income -- 69,806 69,806
--------- --------- ---------
Partners' Capital, Ending $ 81 $ 656,107 $ 656,188
========= ========= =========
See notes to financial statements.
D-189
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net income $ 69,806
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliate (55,471)
Increase in administrative fees payable to general partner 6,000
---------
Net cash provided by operating activities 20,335
---------
Cash Flows from Investing Activities:
Investment in notes receivable from affiliate (128,000)
Advances to affiliates (8,513)
---------
Net cash used in investing activities (136,513)
---------
Cash Flows from Financing Activities:
Distributions to limited partners (89,895)
Advance from affiliate 17,000
---------
Net cash used in financing activities (72,895)
---------
Net Decrease in Cash (189,073)
Cash, Beginning 190,277
---------
Cash, Ending $ 1,204
=========
</TABLE>
See notes to financial statements.
D-190
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Vulture Fund I, Ltd. ("the Partnership") was initially organized
on April 9, 1996 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of $90
in cash; and (b) the maximum capital contributions of the limited partners of
$900,000, to be divided into 1,800 equal units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt and equity financing to existing affiliated
limited partnerships owning residential apartment communities located in
Florida.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is recognized
as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the related
allowance for impairment of such notes receivable. The Partnership accounts for
such notes under the provisions of Statement of Financial Accounting Standard
No. 114, Accounting by Creditors for Impairment of a Loan, as amended by
Statement of Financial Accounting Standard No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure. Management,
considering current information and events regarding the borrowers' ability to
repay their obligations, considers a note to be impaired when it is probable
that the Partnership will be unable to collect all amounts due according to the
contractual terms of the note. When a loan is considered to be impaired, the
amount of impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate; and (b) the
liquidation value of the note's collateral reduced by expected selling costs and
other notes secured by the same collateral. Cash receipts on impaired notes
receivable are applied to reduce the principal amount of such receivables until
the principal has been recovered, and are recognized as interest income
thereafter.
D-191
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amount of assets and liabilities as of the date of the balance sheet
and operations for the year then ended. Material estimates as to which it is
reasonably possible that a change in the estimate could occur in the near term
relates to the allowance for impairment and the collectibility of the notes
receivable due from affiliates. Although these estimates are based on
management's knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed depending
on their personal tax situations. The financial statements do not reflect a
provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement of
Limited Partnership ("the Agreement") made and entered into as of April 24,
1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash, and
maximum capital contributions of the limited partners of $900,000, to be divided
into 1,800 units of limited partnership units. A capital account is maintained
for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will
not be reinvested but will be distributed in order of priority to the
Partners, if available, quarterly, to (a) the limited partners who
will receive 100% of the distributable cash until they have received a
15% non-cumulative annual cash-on-cash return on the aggregate amount
of their capital contribution as calculated from each limited
partner's admission date; and (b) the excess, if any, will be
allocated to the general partner.
D-192
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions (Continued)
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them when added to
all prior distributions of distributable cash and net proceeds made to
them, is equal to the sum of their capital contributions plus an
annual 10% cash-on-cash return; (b) the general partner until the
total amount distributed to them when added to all prior distributions
of distributable cash and net proceeds made to it, is equal to the sum
of its capital contribution plus an annual 10% cash-on-cash return
and; (c) the balance, if any, is distributed 50% to the limited
partners and 50% to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and credit
recognized by the Partnership for federal income tax purposes will be made as
follows:
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by
the Partnership equal the cumulative amounts distributable to the
general partner under the terms of the distributions of cash and net
proceeds. The balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of the
Agreement; (b) the determination of the limited partners exercising their voting
rights to dissolve the Partnership; (c) the death, resignation, retirement,
dissolution, removal, bankruptcy, adjudication of insolvency, or adjudication of
insanity or incompetence of the last remaining general partner then in office
and the refusal of any successor general partner to replace it, unless the
holders of a majority of the units then outstanding vote to continue the
Partnership and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale of all
or substantially all of the Partnership's property; (e) the repayment in full of
all loans made by the Partnership, unless the Partnership thereafter continues
to own non-loan assets; and (f) the occurrence of any other event which, by law,
would require the Partnership to be dissolved.
D-193
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the assets,
and the proceeds will be applied and distributed (a) first to the Partnership
creditors, other than partners; (b) then, any loans owed by the Partnership to
the partners shall be paid in proportion thereto; and (c) finally, to the
limited partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between the
Partnership and the general partner stipulated in the Agreement, the Partnership
retained the general partner to provide administrative services for $500 per
month through December 31, 2003.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE
In January 1997, the Partnership acquired certain receivables from an unrelated
entity at a discount from the face amount thereof. The receivables, which
included notes receivable and accrued interest due from Curiosity Creek
Apartments, Ltd. ("Curiosity Creek"), were converted into promissory notes as
more fully described in the table below:
Curiosity Creek Second Mortgage Note; matures on April
1, 2007; accrues interest at an minimum annual rate of
6% and provides for participation interest at the rate
of 3% per annum based upon the amount of the unpaid
principal, which shall be due and payable to the extent
that it does not exceed the available cash flow, as
defined in the note; provides for additional
participation interest in an annual equal to 20% of
remaining available cash flow, as defined, which will
continue to be made until such time as the collateral
has been sold, and which obligation will continue
notwithstanding total repayment of the principal amount
of the note; secured by a lien upon certain real and
personal property of Curiosity Creek; subordinated to
the first mortgage which had a balance of approximately
$1,188,000 as of December 31, 1997. $ 807,560
Unsecured promissory note, representing advances made
by the former general partner to Curiosity Creek. The
note is payable upon demand and bears interest at 1%
over prime (9.5% as of December 31, 1997). 414,280
Unsecured promissory note, representing advances made
by the former general partner to Curiosity Creek. The
note is payable upon demand and bears interest at
12.5%. 416,000
Other receivables, related to advances for refinancing
fees and professional services. 29,732
1,667,672
Percentage purchased 73.73%
1,229,575
Less discount 617,575
----------
Notes receivable, net of discount $ 612,000
==========
D-194
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE (Continued)
See Note 5 regarding a subsequent amendment to the second mortgage.
In June 1998, the Partnership collected the $55,471 accrued interest receivable
due from Curiosity Creek related to the notes receivable.
NOTE 4. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
In 1996, in accordance with the terms of a Private Placement Memorandum dated
April 24, 1996, the Partnership issued the 1,800 units of limited partner
interest being offered at $500 per unit for total gross proceeds of $900,000.
Costs of $209,000 incurred in connection with syndicating the limited
partnership units were recorded as a reduction of limited partners' capital
contributions. Of the $209,000 in syndication costs, the Partnership paid
$119,000 to its general partner for administrative, legal and investment fees.
NOTE 5. SUBSEQUENT EVENTS
Distributions to Limited Partners
In 1998, the Partnership made distributions of approximately $67,500 to the
limited partners.
Advances Payable to Affiliates
In January and April 1998, the Partnership received a loan of $22,500 and
$22,000, respectively, from Baron Strategic Investment Fund V, Ltd., an
affiliate. The loans bear interest at 12% and are due on demand.
Amendment to Second Mortgage
On December 15, 1998, the Partnership entered into a Second Amendment to
Open-End Second Mortgage and Security Agreement by which all of the notes will
be secured by the Second Mortgage, and the maturities extended to April 1, 2007.
The amendment also provides for additional advances to be secured under a future
advance clause up to $2,000,000 maximum.
NOTE 6. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties, L.P.
("the Operating Partnership"), a partnership under common control, will offer to
exchange Operating Partnership Units to the limited partners of the Partnership
in exchange for their limited partner interests. These units are exchangeable
for an equivalent number of common shares of beneficial interest in Baron
Capital Trust, a real estate investment trust under common control, for whom
Baron Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the assets
acquired and the liabilities assumed at their fair value at the date of
acquisition.
D-195
<PAGE>
================================================================================
BREVARD MORTGAGE PROGRAM, LTD.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
D-196
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Partners' Capital 4
Statement of Cash Flows 5
Notes to Financial Statements 6-11
D-197
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Brevard Mortgage Program, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Brevard Mortgage Program, Ltd.
(the "Partnership") as of December 31, 1997, and the related statements of
operations, partners' capital and cash flows for the year then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brevard Mortgage Program, Ltd.
at December 31, 1997, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Note 3, the Partnership and its affiliates have
engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ
Miami, Florida
August 14, 1998 except for the second paragraph of
Note 5, as to which the date is December 15, 1998
D-198
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Cash $ 25,387
Notes receivable from affiliate 474,191
Accrued interest receivable from affiliate 65,094
--------
$564,672
========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner $ 18,000
--------
Commitments, Subsequent Events and Other Matter --
Partners' Capital:
General partner 832
Limited partners 545,840
--------
546,672
--------
$564,672
========
See notes to financial statements.
D-199
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
Revenues:
Interest income from affiliate $72,300
Other 909
-------
73,209
-------
Costs and Expenses:
Administrative fees to general partner 9,000
General and administrative 2,119
-------
11,119
-------
Net Income $62,090
=======
See notes to financial statements.
D-200
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1997
General Limited
Partner Partners Total
--------- --------- ---------
Partners' Capital, Beginning $ 683 $ 541,399 $ 542,082
Distributions -- (57,500) (57,500)
Net Income 149 61,941 62,090
--------- --------- ---------
Partners' Capital, Ending $ 832 $ 545,840 $ 546,672
========= ========= =========
See notes to financial statements.
D-201
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net income $ 62,090
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliate (56,200)
Increase in administrative fees payable to general partner 9,000
--------
Net cash provided by operating activities 14,890
--------
Cash Flows from Investing Activities:
Advances to affiliate (25,000)
--------
Net cash used in investing activities (25,000)
--------
Cash Flows from Financing Activities:
Distributions to limited partners (57,500)
--------
Net cash used in financing activities (57,500)
--------
Net Decrease in Cash (67,610)
Cash, Beginning 92,997
--------
Cash, Ending $ 25,387
========
</TABLE>
See notes to financial statements.
D-202
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Brevard Mortgage Program, Ltd. ("the Partnership") was initially organized on
November 14, 1995 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of $90
in cash; and (b) the maximum capital contributions of the limited partners of
$575,000, to be divided into 575 equal units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt financing to existing affiliated limited
partnerships owning residential apartment communities located in Florida.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is recognized
as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the related
allowance for impairment of such notes receivable. The Partnership accounts for
such notes under the provisions of Statement of Financial Accounting Standard
No. 114, Accounting by Creditors for Impairment of a Loan, as amended by
Statement of Financial Accounting Standard No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure. Management,
considering current information and events regarding the borrowers' ability to
repay their obligations, considers a note to be impaired when it is probable
that the Partnership will be unable to collect all amounts due according to the
contractual terms of the note. When a loan is considered to be impaired, the
amount of impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate; and (b) the
liquidation value of the note's collateral reduced by expected selling costs and
other notes secured by the same collateral. Cash receipts on impaired notes
receivable are applied to reduce the principal amount of such receivables until
the principal has been recovered, and are recognized as interest income
thereafter.
D-203
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amount of assets and liabilities as of the date of the balance sheet
and operations for the year then ended. Material estimates as to which it is
reasonably possible that a change in the estimate could occur in the near term
relates to the collectibility of the notes receivable due from affiliates.
Although these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ from
actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed depending
on their personal tax situations. The financial statements do not reflect a
provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement of
Limited Partnership ("the Agreement") made and entered into as of December 8,
1995.
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash, and
maximum capital contributions of the limited partners of $575,000 to be divided
into 575 units of limited partnership units. A capital account is maintained for
each partner.
Term
The Partnership will continue through December 31, 2025, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will
not be reinvested but will be distributed in order of priority to the
Partners, if available, quarterly, to (a) the limited partners who
will receive 99% of the distributable cash; and (b) to the general
partner who will receive 1% of the distributable cash.
D-204
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions (Continued)
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the entire principal amount of the purchased
second mortgage loan has been repaid; and (b) the balance, if any, is
distributed to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and credit
recognized by the Partnership for federal income tax purposes will be made as
follows:
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by
the Partnership equal the cumulative amounts distributable to the
general partner under the terms of the distributions of cash and net
proceeds. The balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are allocated
99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of the
Agreement; (b) the determination of the limited partners exercising their voting
rights to dissolve the Partnership; (c) the death, resignation, retirement,
dissolution, removal, bankruptcy, adjudication of insolvency, or adjudication of
insanity or incompetence of the last remaining general partner then in office
and the refusal of any successor general partner to replace it, unless the
holders of a majority of the units then outstanding vote to continue the
Partnership and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale of all
or substantially all of the Partnership's property; (e) the repayment in full of
all loans made by the Partnership, unless the Partnership thereafter continues
to own non-loan assets; and (f) the occurrence of any other event which, by law,
would require the Partnership to be dissolved.
D-205
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the assets,
and the proceeds will be applied and distributed (a) first to the Partnership
creditors, other than partners; (b) then, any loans owed by the Partnership to
the partners shall be paid in proportion thereto; and (c) finally, to the
limited partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between the
Partnership and the general partner stipulated in the Agreement, the Partnership
retained the general partner to provide administrative services for $750 per
month through December 31, 2002.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE
The Partnership had the following receivables from Florida Opportunity Income
Partners II, Ltd. ("FOIP II") at December 31, 1997:
Notes Accrued
Receivable Interest
---------- --------
Notes receivable, net of discount $450,000 $ 63,792(a)
Advances 24,191 1,302(b)
-------- --------
$474,191 $ 65,094
======== ========
(a) In December 1995, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. These
receivables, which include notes receivable and accrued interest due from
FOIP II, were converted into promissory notes as more fully described in
the table below:
FOIP II Second Mortgage Note; matures on July 31, 2001;
accrues interest at a minimum annual rate of 6% and
provides for participation interest at the rate of 3%
per annum based upon the amount of the unpaid
principal, which shall be due and payable to the extent
that it does not exceed the available cash flows, as
defined in the note; provides for additional
participation interest in an amount equal to 20% of
remaining available cash flow, as defined, which will
continue to be made until such time as the collateral
has been sold, and which obligation will continue
notwithstanding total repayment of the principal amount
of the note; secured by a lien upon certain real and
personal property of FOIP II and; subordinated to a
first mortgage, which had a balance of approximately
$974,000 as of December 31, 1997. $ 752,747
D-206
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE (Continued)
Unsecured promissory note representing advances made by
the former general partner to FOIF II. The note is
payable upon demand and bears an annual interest rate
of 1% over prime (9.5% as of December 31, 1997) 271,923
----------
1,024,670
Less discount 574,670
----------
Notes receivable, net of discount $ 450,000
==========
(b) During 1997, the Partnership provided funds to FOIF II by means of advances
in an arrangement equivalent to an open ended line of credit. The advances
are due on demand and accrue interest at a rate of 12% per annum.
See Note 5 regarding a subsequent amendment to the second mortgage.
NOTE 4. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1996, in accordance with the terms of a Private Placement Memorandum
dated December 8, 1995, the Partnership issued the 575 units of limited partner
interest being offered at $1,000 per unit for total gross proceeds of $575,000.
Costs of $67,500 incurred in connection with syndicating the partnership units
were recorded as a reduction of limited partners' capital contributions. Of the
syndication costs, $10,000 was paid to the General Partner for administrative,
legal and investment fees.
NOTE 5. SUBSEQUENT EVENTS
Distributions to Limited Partners
In 1998, the Partnership made distributions of approximately $14, 375 to the
limited partners.
Amendment to Second Mortgage
On December 15, 1998, the Partnership entered into a Second Amendment to
Open-End Second Mortgage and Security Agreement by which all of the notes will
be secured by the Second Mortgage, and the maturities extended to August 1,
2001. The amendment also provides for additional advances to be secured under a
future advance clause up to $500,000 maximum.
D-207
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties, L.P.
("the Operating Partnership"), a partnership under common control, will offer to
exchange Operating Partnership Units to the limited partners of the Partnership
in exchange for their limited partner interests. These units are exchangeable
for an equivalent number of common shares of beneficial interest in Baron
Capital Trust, a real estate investment trust under common control, for whom
Baron Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the assets
acquired and the liabilities assumed at their fair value at the date of
acquisition.
D-208
<PAGE>
================================================================================
LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
D-209
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Partners' Capital 4
Statement of Cash Flows 5
Notes to Financial Statements 6-11
D-210
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Lamplight Court of Bellefontaine, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Lamplight Court of
Bellefontaine, Ltd. (the "Partnership") as of December 31, 1997, and the related
statements of operations, partners' capital and cash flows for the year then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lamplight Court of
Bellefontaine, Ltd. at December 31, 1997, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the stockholder and president of the Partnership's general
partner. As discussed in Note 3, the Partnership and its affiliates have engaged
in significant transactions with each other.
RACHLIN COHEN & HOLTZ
Miami, Florida
August 14, 1998
D-211
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
Cash $ 50,793
Note receivable from affiliate 365,000
Advances receivable from affiliate 93,302
Accrued interest receivable from affiliate 77,800
--------
$586,895
========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner $ 10,500
--------
Commitments, Subsequent Events and Other Matter --
Partners' Capital:
General partner 90
Limited partners 576,305
--------
576,395
--------
$586,895
========
See notes to financial statements.
D-212
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
Revenues:
Interest income from affiliate $63,188
Other 1,973
-------
65,161
-------
Costs and Expenses:
Administrative fees to general partner 6,000
General and administrative 1,262
-------
7,262
-------
Net Income $57,899
=======
See notes to financial statements.
D-213
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1997
General Limited
Partner Partners Total
--------- --------- ---------
Partners' Capital, Beginning $ 90 $ 587,931 $ 588,021
Distributions -- (69,525) (69,525)
Net Income -- 57,899 57,899
--------- --------- ---------
Partners' Capital, Ending $ 90 $ 576,305 $ 576,395
========= ========= =========
See notes to financial statements.
D-214
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net income $ 57,899
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in interest receivable from affiliate (55,188)
Increase in administrative fees payable to the general partner 6,000
---------
Net cash provided by operating activities 8,711
---------
Cash Flows from Investing Activities:
Advances to affiliate (17,366)
---------
Net cash used in investing activities (17,366)
---------
Cash Flows from Financing Activities:
Distributions to limited partners (69,526)
---------
Net cash used in financing activities (69,526)
---------
Net Decrease in Cash (78,181)
Cash, Beginning 128,974
---------
Cash, Ending $ 50,793
=========
</TABLE>
See notes to financial statements.
D-215
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Lamplight Court of Bellefontaine, Ltd. ("the Partnership") was initially
organized on February 16, 1996 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of $90
in cash; and (b) the maximum capital contributions of the limited partners of
$700,000, to be divided into 700 equal units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt and equity financing to existing affiliated
limited partnerships owning residential apartment communities located in Ohio.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is recognized
as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the related
allowance for impairment of such notes receivable. The Partnership accounts for
such notes under the provisions of Statement of Financial Accounting Standard
No. 114, Accounting by Creditors for Impairment of a Loan, as amended by
Statement of Financial Accounting Standard No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure. Management,
considering current information and events regarding the borrowers' ability to
repay their obligations, considers a note to be impaired when it is probable
that the Partnership will be unable to collect all amounts due according to the
contractual terms of the note. When a loan is considered to be impaired, the
amount of impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate; and (b) the
liquidation value of the note's collateral reduced by expected selling costs and
other notes secured by the same collateral. Cash receipts on impaired notes
receivable are applied to reduce the principal amount of such receivables until
the principal has been recovered, and are recognized as interest income
thereafter.
D-216
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment in Affiliate
In 1996, the Partnership acquired certain receivables and a limited partner
interest in Independence Village, Ltd. ("Independence Village") from an
unrelated entity at a discount from the face amount thereof (see Note 3). As a
result, the Partnership holds a 31.7% limited partner interest in Independence
Village, a limited partnership which owns a residential apartment property in
Bellefontaine, Ohio. The investment in Independence Village is accounted for
using the equity method of accounting as a result of the Partnership and
Independence Village having the same general partner president and the general
partner's ability to exercise significant influence on Independence Village. As
such, the investment in Independence Village is carried at cost and adjusted for
the Partnership's share of undistributed earnings or losses using the equity
method of accounting. At the date of purchase, management estimated the value of
the limited partner interest to be insignificant and did not allocate any of the
purchase price to the investment.
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amount of assets and liabilities as of the date of the balance sheet
and operations for the year then ended. Material estimates as to which it is
reasonably possible that a change in the estimate could occur in the near term
relates to the value of the limited partner interest and the collectibility of
the notes receivable due from affiliates. Although these estimates are based on
management's knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed depending
on their personal tax situations. The financial statements do not reflect a
provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement of
Limited Partnership ("the Agreement") made and entered into as of March 7, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash, and
maximum capital contributions of the limited partners of $700,000, to be divided
into 700 units of limited partnership units. A capital account is maintained for
each partner.
D-217
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will
not be reinvested but will be distributed in order of priority to the
Partners, if available, quarterly, to (a) the limited partners who
will receive 100% of the distributable cash until they have received a
10% non-cumulative annual cash-on-cash return on the aggregate amount
of their capital contribution as calculated from each limited
partner's admission date; and (b) the general partner will receive
100% of the remaining distributable cash.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them, when added
to all prior distributions of distributable cash and net proceeds made
to them, is equal to the sum of their capital contributions plus an
annual 10% cash-on-cash return; and (b) then 31.7% of up to $350,000
of any remaining net proceeds to the limited partners; and (c) the
balance, if any, to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and credit
recognized by the Partnership for federal income tax purposes will be made as
follows:
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by
the Partnership equal the cumulative amounts distributable to the
general partner under the terms of the distributions of cash and net
proceeds. The balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
D-218
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of the
Agreement; (b) the determination of the limited partners exercising their voting
rights to dissolve the Partnership; (c) the death, resignation, retirement,
dissolution, removal, bankruptcy, adjudication of insolvency, or adjudication of
insanity or incompetence of the last remaining general partner then in office
and the refusal of any successor general partner to replace it, unless the
holders of a majority of the units then outstanding vote to continue the
Partnership and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale of all
or substantially all of the Partnership's property; and (e) the occurrence of
any other event which, by law, would require the Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the assets,
and the proceeds will be applied and distributed (a) first to the Partnership
creditors, other than partners; (b) then, any loans owed by the Partnership to
the partners shall be paid in proportion thereto; and (c) finally, to the
limited partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between the
Partnership and the general partner stipulated in the Agreement, the Partnership
retained the general partner to provide administrative services for $500 per
month through December 31, 2002.
NOTE 3. NOTE RECEIVABLE FROM AFFILIATE
In 1996, the Partnership acquired certain receivables and a 31.7% interest in
Independence Village from an unrelated entity at a discount from the face amount
thereof. The receivables, which included notes receivable and accrued interest
due from Independence Village, were converted into promissory notes as more
fully described in the table below.
Independence Village Second Mortgage Note; matures in
December 1998; accrues interest at an annual rate of
9.5%; secured by a lien upon certain real and personal
property of Independence Village; subordinated to the
first mortgage which had a balance of approximately
$1,383,000 as of December 31, 1997. $585,000
Less discount 220,000
--------
Note receivable, net of discount $365,000
========
D-219
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTE RECEIVABLE FROM AFFILIATE (Continued)
The second mortgage matures on December 1, 1998, and may be extended at the
option of Independence Village by payment of a fee equal to 1% of the loan's
initial principal amount of $585,000.
NOTE 4. ADVANCES RECEIVABLE FROM AFFILIATE
In 1996 and during 1997, the Partnership provided funding to Independence
Village by means of advances in an arrangement equivalent to an open ended line
of credit advances. The outstanding advances are due on demand and accrue
interest at 12% per annum. The balance of $93,302 remained outstanding as of
December 31, 1997. Interest income of $7,613 was recognized during the year and
$11,343 remained outstanding as accrued interest at December 31, 1997.
NOTE 5. INVESTMENT IN AFFILIATE
The following is a summary of the financial position and results of operations
of Independence Village as of and for the year ended December 31, 1997.
Financial position:
Rental apartments $ 928,650
Other assets 96,590
-----------
Total assets $ 1,025,240
===========
Mortgage payable $ 1,383,125
Other liabilities 711,602
-----------
Total liabilities 2,094,727
Partners' deficiency (1,069,487)
-----------
$ 1,025,240
===========
Results of operations:
Revenues (including rental income of $316,241) $ 354,764
Costs and expenses 393,935
-----------
Net loss $ (39,171)
===========
As discussed in Note 1, upon acquisition of certain receivables and the limited
partnership interest in Independence Village, the Partnership did not allocate
any of the purchase price to the investment in affiliate. The Partnership has
deferred recognition of its proportionate share of net losses because there is
no personal obligation to fund the resulting negative limited partner's capital
account balance. Future net income, if any, will not be recognized until such
time as the limited partner's capital account becomes a positive balance.
D-220
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1996, in accordance with the terms of a Private Placement Memorandum
dated March 7, 1996, the Partnership issued 700 units of limited partnership
interest units at $1,000 per unit for total gross proceeds of $700,000. Costs of
$120,000 incurred in connection with syndicating the partnership were recorded
as a reduction of limited partners' capital contributions. Of the syndication
costs, $57,000 was paid to the General Partner for administrative, legal and
investment fees.
NOTE 7. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Partnership made distributions of
approximately $35,000 to the limited partners.
NOTE 8. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties, L.P.
("the Operating Partnership"), a partnership under common control, will offer to
exchange Operating Partnership Units to the limited partners of the Partnership
in exchange for their limited partner interests. These units are exchangeable
for an equivalent number of common shares of beneficial interest in Baron
Capital Trust, a real estate investment trust under common control, for whom
Baron Capital Properties, L.P. is the operating partnership. Subject to the
completion of the proposed Exchange Offering, the Trust and the Operating
Partnership will account for the acquisition of the limited partnership
interests in the offering on the purchase method and therefore record the assets
acquired and the liabilities assumed at their fair value at the date of
acquisition.
D-221
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
BALANCE SHEET
NINE MONTHS ENDING SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
Cash $ 21,679
Notes receivable from affiliates 552,008
Accrued interest receivable from affiliates 28,146
Advances to affiliates 256,949
--------
$858,782
========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner $ 9,500
--------
9,500
--------
Commitments and Other Matter
Partners' Capital:
General partner 90
Limited partners 849,192
--------
849,282
--------
$858,782
========
D-222
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Revenues:
Interest income from affiliates $63,687
Other 315
-------
64,002
-------
Costs and Expenses:
Administrative fees to general partner 6,000
General and administrative 11,858
-------
17,858
-------
Net Income $46,144
=======
D-223
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
STATEMENT OF PARTNERS' CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
General Limited
Partner Partners Total
--------- --------- ---------
Partners' Capital, Beginning $ 90 $ 860,048 $ 860,138
Distributions -- (57,000) (57,000)
Net Income -- 46,144 46,144
--------- --------- ---------
Partners' Capital, Ending $ 90 $ 849,192 $ 849,282
========= ========= =========
D-224
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Cash Flows from Operating Activities:
Net income $ 46,144
Adjustments to reconcile net income to
net cash used in operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliates (6,687)
--------
Net cash used in operating activities 39,457
--------
Cash Flows from Investing Activities:
Purchase of receivables due from affiliates 6,992
Net proceeds provided to affiliate under line of credit (7,210)
--------
Net cash used in investing activities (218)
--------
Cash Flows from Financing Activities:
Limited partner distributions (57,000)
--------
Net cash provided by financing activities (57,000)
--------
Net Increase in Cash (17,761)
Cash, Beginning 39,440
--------
Cash, Ending $ 21,679
========
D-225
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund, Ltd. ("the Partnership") was initially
organized on April 24, 1996 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of
$90 in cash; and (b) the maximum capital contributions of the limited
partners of $1,200,000, to be divided into 2,400 equal units of limited
partnership interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt and equity financing to existing affiliated
limited partnerships owning residential apartment communities located in
Florida.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the related
allowance for impairment of such notes receivable. The Partnership accounts
for such notes under the provisions of Statement of Financial Accounting
Standard No. 114, Accounting by Creditors for Impairment of a Loan, as
amended by Statement of Financial Accounting Standard No. 118, Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosure.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a note to be
impaired when it is probable that the Partnership will be unable to collect
all amounts due according to the contractual terms of the note. When a loan
is considered to be impaired, the amount of impairment is measured based
upon (a) the present value of expected future cash flows discounted at the
note's effective interest rate; and (b) the liquidation value of the note's
collateral reduced by expected selling costs and other notes secured by the
same collateral. Cash receipts on impaired notes receivable are applied to
reduce the principal amount of such receivables until the principal has
been recovered, and are recognized as interest income thereafter.
D-226
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amount of assets and liabilities as of the date of the
balance sheet and operations for the year then ended. Material estimates as
to which it is reasonably possible that a change in the estimate could
occur in the near term relates to the collectibility of the notes
receivable due from affiliates. Although these estimates are based on
management's knowledge of current events and actions it may undertake in
the future, they may ultimately differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed
depending on their personal tax situations. The financial statements do not
reflect a provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of May
20, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash,
and maximum capital contributions of the limited partners of $1,200,000, to
be divided into 2,400 units of limited partnership units. A capital account
is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will not
be reinvested but will be distributed in order of priority to the Partners,
if available, quarterly, to (a) the limited partners who will receive 100%
of the distributable cash until they have received a 12.5% non-cumulative
annual cash-on-cash return on the aggregate amount of their capital
contribution as calculated from each limited partner's admission date; and
(b) the excess, if any, will be allocated 50% to the limited partners and
50% to the general partner.
D-227
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets will
not be reinvested but will be distributed to the partners in order of
priority after repayment of all indebtedness secured by the assets to (a)
the limited partners who will receive 100% of the distributions until the
total amount distributed to them when added to all prior distributions of
distributable cash and net proceeds made to them, is equal to the sum of
their capital contributions plus an annual 12.5% cash-on-cash return; and
(b) next to the general partner, until the total amount so distributed to
it when added to all prior distributions of distributable cash and net
proceeds made to it, is equal to the sum of its capital contribution plus
an annual 12.5% cash-on-cash return and; (c) the balance, if any is
distributed 50% to the limited partners and 50% to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes will
be made as follows:
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by the
Partnership equal the cumulative amounts distributable to the general
partner under the terms of the distributions of cash and net proceeds. The
balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are allocated
99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of
the Agreement; (b) the determination of the limited partners exercising
their voting rights to dissolve the Partnership; (c) the death,
resignation, retirement, dissolution, removal, bankruptcy, adjudication of
insolvency, or adjudication of insanity or incompetence of the last
remaining general partner then in office and the refusal of any successor
general partner to replace it, unless the holders of a majority of the
units then outstanding vote to continue the Partnership and elect one or
more successor general partners willing to serve in such capacity to
continue the business of the Partnership; (d) the sale of all or
substantially all of the Partnership's property; (e) the repayment in full
of all loans made by the Partnership, unless the Partnership thereafter
continues to own non-loan assets; and (f) the occurrence of any other event
which, by law, would require the Partnership to be dissolved.
D-228
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the
assets, and the proceeds will be applied and distributed (a) first to the
Partnership creditors, other than partners; (b) then, any loans owed by the
Partnership to the partners shall be paid in proportion thereto; and (c)
finally, to the limited partners and the general partner in proportion to
their respective positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between
the Partnership and the general partner stipulated in the Agreement, the
Partnership retained the general partner to provide administrative services
for $500 per month through December 1, 2003.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES
The following are the balances of the notes receivable and accrued interest
from affiliates at September 30, 1998:
Notes
Receivable
----------
Blossom Corners Apartments II, Ltd. ("Blossom II") $322,008(a)
Falls Properties III, Ltd. ("Falls III") 102,000(b)
Sycamore Real Estate Development, LP ("Sycamore") 128,000(c)
--------
$552,008
========
(a) In November 1996, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest due
from Blossom II, were converted into promissory notes as more fully
described in the table below:
Blossom II Second Mortgage Note; matures on April 1, 2002; accrues
interest at an minimum annual rate of 6% and provides for
participation interest at the rate of 3% per annum based upon the
amount of the unpaid principal, which shall be due and payable to the
extent that it does not exceed the available cash flow, as defined in
the note; secured by a lien upon certain real and personal property of
Blossom II; provides for additional participation interest in an
amount equal to 30% of remaining available cash flow, as defined,
which will continue to be made until such time as the collateral has
been sold, and which obligation will continue notwithstanding total
repayment of the principal amount of the note; subordinated to the
first mortgage which had a balance of approximately $1,130,000 as of
September 30, 1998.
$622,103
D-229
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
Unsecured promissory note, representing advances made by the former general
partner to Blossom II. The note is payable upon demand and bears interest
at 1% over prime (9.5% as of September 30, 1998). 68,861
Other receivables, related to advances for refinancing fees and
professional services.
29,732
--------
720,696
Less discount 263,696
Less principal payment 134,992
Notes receivable, net of payment and discount $322,008
========
See Note 6 regarding a subsequent amendment to the second mortgage.
(b) In April 1997, the Partnership acquired, at a discount, certain
receivables owed Falls III from an unrelated entity. In connection
with Falls III filing for reorganization under Chapter 11 of the
Bankruptcy Code in August 1994, the notes, which had included a Second
Mortgage Note Receivable, were converted into two unsecured promissory
notes of $198,750 and $44,398 (total of $234,148). The notes provide
for the partial repayment of the principal balance in April 1999 using
20% of the excess cash flow of Falls III. The remaining principal is
to be repaid after all secured notes and other claims designated by
the court have been paid in full.
Notes receivable $243,148
Less discount (141,148)
--------
Notes receivable, net of discount $102,000
========
c) In March 1998, the Partnership made a loan of $128,000 to Sycamore
Real Estate Development, Ltd. The note matures on December 14, 2003,
accrues interest at an annual rate of 12%; is secured by a lien upon
certain real and personal property of Villas at Lake Sycamore; and is
subordinated to the first mortgage which had a balance of
approximately $800,000 as of September 30, 1998.
Note receivable $128,000
========
NOTE 4. ADVANCES RECEIVABLE FROM AFFILIATE
During 1996 through 1998, the Partnership provided funding to Blossom II by
means of advances in an arrangement equivalent to an open ended line of
credit. The advances are due on demand and accrue interest at 12% per
annum. The balance of $256,949 remained outstanding as of September 30,
1998. Interest income of $49,887 was recognized during the period.
D-230
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
In 1996, in accordance with the terms of a Private Placement Memorandum
dated May 20, 1996, the Partnership issued the 2,400 units of limited
partner interest being offered at $500 per unit for total gross proceeds of
$1,200,000. Costs of $284,000 incurred in connection with syndicating the
limited partnership units were recorded as a reduction of limited partners'
capital contributions. Of the $284,000 in syndication costs, the
Partnership paid $164,000 to its general partner for administrative, legal
and investment fees.
NOTE 6. SUBSEQUENT EVENTS
Loan to Affiliate
In December 1998, the Partnership endorsed to Sycamore the note from Falls
III in the principal amount of $102,000 and the $128,000 note payable by
Sycamore; in exchange Sycamore delivered to the Partnership a new
promissory note in the original principal amount of $230,000. The new note
matures on December 14, 2003; accrues interest at an annual rate of 12%; is
secured by a lien upon certain real and personal property of Villas at Lake
Sycamore; and is subordinated to the first mortgage which had a balance of
approximately $800,000 as of September 30, 1998. Two other affiliated
partnerships also hold second mortgage notes in the aggregate principal
amount of $341,500 secured by the property. The lending parties have agreed
to share the benefits of the second mortgage on a pari-passu basis.
Amendment to Blossom II Second Mortgage
On December 15, 1998, Blossom II amended and restated the $622,103 second
mortgage note and the $68,861 promissory note and made a new promissory
note in favor of the Partnership in the original principal amount of
$160,002 to consolidate prior advances in that amount as of such date. The
Partnership and Blossom II also entered into a Second Amendment to Open-End
Second Mortgage and Security Agreement by which all of the Blossom II notes
will be secured by the Second Mortgage, and the maturities extended to
April 1, 2002. The amendment also provides for additional advances up to a
$1,250,000 maximum to be secured under a future advance clause.
Distributions to Limited Partners
Subsequent to September 30, 1998, the Partnership made distributions of
approximately $14,375 to the limited partners.
D-231
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 7. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
D-232
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
Cash $ 875
Notes receivable from affiliates 976,439
Accrued interest receivable from affiliates 125,668
Advances receivable from affiliates 19,500
----------
$1,122,482
==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Note payable to afilliate $ 254,267
Administrative fees payable to general partner 14,000
Accrued syndication costs 20,100
Accrued interest payable to afilliate 39,419
----------
327,786
----------
Commitments and Other Matter
Partners' Capital:
General partner 511
Limited partners 794,185
----------
794,696
----------
$1,122,482
==========
D-233
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Revenues:
Interest income from affiliates $124,110
Other 342
--------
124,452
--------
Costs and Expenses:
Interest expense to affiliate 37,237
General and administrative 10,503
--------
47,740
--------
Net Income $ 76,712
========
D-234
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
STATEMENT OF PARTNERS' CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
General Limited
Partner Partners Total
------- -------- -----
Partners' Capital, Beginning $ 511 $691,996 $692,507
Contributions, Net of Syndication Costs -- 92,490 92,490
Distributions -- 67,013 67,013
Net Income -- 76,712 76,712
-------- -------- --------
Partners' Capital, Ending $ 511 $794,185 $794,696
======== ======== ========
D-235
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Cash Flows from Operating Activities:
Net income $ 76,712
Adjustments to reconcile net income to
net cash used in operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliates (104,810)
Decrease in accrued interest payable to affiliate 37,237
---------
Net cash provided by operating activities 9,137
---------
Cash Flows from Investing Activities:
Advances to Affiliates (7,688)
---------
Net cash used in investing activities (7,688)
Cash Flows from Financing Activities:
Payments on note payable to affiliate (125,000)
Partners' capital contributions 140,237
Syndication costs (47,747)
Distributions to limited partners (67,013)
---------
Net cash provided by financing activities (99,523)
---------
Net increase in Cash (98,072)
Cash, Beginning 98,947
---------
Cash, Ending $ 875
=========
D-236
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund IV, Ltd. ("the Partnership") was initially
organized on October 1, 1996 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of
$90 in cash; and (b) the maximum capital contributions of the limited
partners of $1,000,000, to be divided into 2,000 equal units of limited
partnership interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt financing to existing affiliated limited
partnerships owning residential apartment communities located in Florida.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the related
allowance for impairment of such notes receivable. The Partnership accounts
for such notes under the provisions of Statement of Financial Accounting
Standard No. 114, Accounting by Creditors for Impairment of a Loan, as
amended by Statement of Financial Accounting Standard No. 118, Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosure.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a note to be
impaired when it is probable that the Partnership will be unable to collect
all amounts due according to the contractual terms of the note. When a loan
is considered to be impaired, the amount of impairment is measured based
upon (a) the present value of expected future cash flows discounted at the
note's effective interest rate; and (b) the liquidation value of the note's
collateral reduced by expected selling costs and other notes secured by the
same collateral. Cash receipts on impaired notes receivable are applied to
reduce the principal amount of such receivables until the principal has
been recovered, and are recognized as interest income thereafter.
D-237
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amount of assets and liabilities as of the date of the
balance sheet and operations for the year then ended. Material estimates as
to which it is reasonably possible that a change in the estimate could
occur in the near term relates to the collectibility of the notes
receivable due from affiliates. Although these estimates are based on
management's knowledge of current events and actions it may undertake in
the future, they may ultimately differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed
depending on their personal tax situations. The financial statements do not
reflect a provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of
October 22, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash,
and maximum capital contributions of the limited partners of $1,000,000, to
be divided into 2,000 units of limited partnership units. A capital account
is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will not
be reinvested but will be distributed in order of priority to the Partners,
if available, quarterly, to (a) the limited partners who will receive 100%
of the distributable cash until they have received a 12% non-cumulative
annual cash-on-cash return on the aggregate amount of their capital
contribution as calculated from each limited partner's admission date; and
(b) the excess, if any, will be allocated to the general partner.
D-238
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets will
not be reinvested but will be distributed to the partners in order of
priority after repayment of all indebtedness secured by the assets to (a)
the limited partners who will receive 100% of the distributions until the
total amount distributed to them, when added to all prior distributions of
distributable cash and net proceeds made to them, is equal to the sum of
their capital contributions plus an annual 18% cash-on-cash return; and (b)
the balance, if any, is distributed to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes will
be made as follows:
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by the
Partnership equal the cumulative amounts distributable to the general
partner under the terms of the distributions of cash and net proceeds. The
balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are allocated
99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of
the Agreement; (b) the determination of the limited partners exercising
their voting rights to dissolve the Partnership; (c) the death,
resignation, retirement, dissolution, removal, bankruptcy, adjudication of
insolvency, or adjudication of insanity or incompetence of the last
remaining general partner then in office and the refusal of any successor
general partner to replace it, unless the holders of a majority of the
units then outstanding vote to continue the Partnership and elect one or
more successor general partners willing to serve in such capacity to
continue the business of the Partnership; (d) the sale of all or
substantially all of the Partnership's property; (e) the repayment in full
of all loans made by the Partnership, unless the Partnership thereafter
continues to own non-loan assets; and (f) the occurrence of any other event
which, by law, would require the Partnership to be dissolved.
D-239
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the
assets, and the proceeds will be applied and distributed (a) first to the
Partnership creditors, other than partners; (b) then, any loans owed by the
Partnership to the partners shall be paid in proportion thereto; and (c)
finally, to the limited partners and the general partner in proportion to
their respective positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between
the Partnership and the general partner stipulated in the Agreement, the
Partnership retained the general partner to provide administrative services
for $1,000 per month through December 31, 2003.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE
The following are the balances of the notes receivable and accrued interest
receivable from affiliates at September 30, 1998:
Notes Accrued
Receivable Interest
---------- --------
Country Square Apartments, Ltd. ("Country Square") $797,189 $110,224(a)
Country Square 179,250 20,858(b)
-------- --------
$976,439 $ 20,858
======== ========
(a) In March 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest due
from Country Square, were converted into promissory notes as more
fully described in the table below:
Country Square Second Mortgage Note; matures on April 30, 2008;
accrues interest at an minimum annual rate of 12%; is secured by a
lien upon certain real and personal property of Country Square; and is
subordinated to the first mortgage which had a balance of
approximately $1,240,000 as of September 30, 1998. $1,192,987
Less discount 502,987
----------
Note receivable, net of discount $797,189
==========
D-240
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE (Continued)
In July 1997, the Partnership made a loan to Country Square of $171,562
pursuant to the terms of a promissory note. The note is due on demand and
accrues interest quarterly at 12% per annum.
Note receivable $179,250
========
See Note 6 regarding subsequent amendments to the second mortgage.
NOTE 4. Note Payable to Affiliate
In March 1997, the Partnership borrowed funds from Baron Strategic
Investment Fund VI, Ltd. ("Fund VI") pursuant to the terms of a promissory
note. The note matures in September 2002 with interest payable monthly at
15% per annum. As collateral for the note payable, the Partnership has
granted Fund VI a security interest in the second mortgage notes and
mortgages (see Note 3). The note had an unpaid principal balance of
$254,363 as of September 30, 1998. Interest expense to the affiliate
amounted to $67,699 for the period of which $29,895 was unpaid and accrued
at September 30, 1998.
NOTE 5. LIMITED PARTNER'S CAPITAL CONTRIBUTIONS
In 1996, in accordance with the terms of a Private Placement Memorandum
dated October 22, 1996, the Partnership issued 180 units of limited
partnership interest of the 2,000 units being offered at $500 per unit for
a total of $90,000. Costs of $17,400 incurred in connection with
syndicating the partnership were recorded as a reduction of limited partner
contributions. Of the syndication costs, $14,000 was paid to the General
Partner for administrative, legal and investment fees.
In 1997, the Partnership issued 1,538.5 units of limited partnership
interest at $500 per unit for $769,263. This issuance increased the total
units sold to 1,718.5 units of the 2,000 units being offered. Costs of
$164,453 incurred in connection with syndicating these partnership units
have been recorded as a reduction of limited partner's capital
contributions. Of the syndication costs, $80,570 was incurred with regard
to the General Partner for administrative, legal and investment fees.
Syndicated costs of $20,100 were unpaid and accrued at December 31, 1997.
During 1998, the Partnership issued 280.5 units of the remaining 281.5
units at $500 per unit for a total of $140,237. This issuance increased the
total units sold to 1,999 units of the 2,000 units being offered. Costs of
$26,647 incurred in connection with syndicating these partnership units
were recorded as a reduction of limited partner's capital contributions in
1998. Of the syndication costs, $22,524 was paid to the General Partner for
administrative, legal and investment fees.
D-241
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. SUBSEQUENT EVENTS
Amendment to Second Mortgage
On December 15, 1998, Country Square restated and amended the $1,192,987
second mortgage note and the $179,250 promissory note in favor of the
Partnership to extend the maturities to April 30, 2008. The Partnership and
Country Square also entered into a Second Amendment to Consolidated Renewal
Replacement Second Mortgage and Security Agreement under which Country
Square agreed to secure repayment of both notes and any future advances up
to a $1,750,000 maximum under the second mortgage.
Distributions to Limited Partners
In 1998, the Partnership made distributions of approximately $15,000 to the
limited partners.
NOTE 7. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for common stock of Baron Capital Trust, a real
estate investment trust under common control, for whom Baron Capital
Properties, L.P. is the operating partnership. Subject to the completion of
the proposed Exchange Offering, the Trust and the Operating Partnership
will account for the acquisition of the limited partnership interests in
the offering on the purchase method and therefore record the assets
acquired and the liabilities assumed at their fair value at the date of
acquisition.
D-242
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
Cash $ 20,987
Notes receivable from affiliates 731,802
Advances to affiliates 96,939
Accrued interest 26,309
--------
$876,037
========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner $ 13,500
--------
13,500
--------
Commitments and Other Matter
Partners' Capital:
General partner 1,551
Limited partners 864,088
862,537
--------
$876,037
========
D-243
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Revenues:
Interest income from affiliates $75,215
Other 474
-------
75,689
-------
Costs and Expenses:
Administrative fees to general partner 4,500
General and administrative 7,458
-------
11,957
-------
Net Income $63,731
=======
D-244
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
STATEMENT OF PARTNERS' CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
General Limited
Partner Partners Total
------- -------- -----
Partners' Capital, Beginning $ (2,188) $ 652,994 $ 650,806
Contributions, Net of Syndication Costs 238,000 238,000
Distributions -- (90,000) (90,000)
Net Income 637 63,094 63,737
--------- --------- ---------
Partners' Capital, Ending $ (1,551) $ 864,088 $ 862,537
========= ========= =========
D-245
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Cash Flows from Operating Activities:
<S> <C>
Net income $ 63,731
Adjustments to reconcile net income to
net cash used in operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliates 3,076
Increase in administrative fees payable to general partner (500)
Net cash used in operating activities 66,307
---------
Cash Flows from Financing Activities:
Advances to affiliates (93,339)
Investment in notes receivable from affiliates (212,502)
Net cash used in investing activities (305,841)
---------
Cash Flows from Financing Activities:
Partners' capital contibutions 238,000
Limited partners' distributions (90,000)
Net cash provided by financing activities 148,000
---------
Net Increase in Cash (91,534)
Cash, Beginning 112,521
---------
Cash, Ending $ 20,987
=========
</TABLE>
D-246
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund V, Ltd. ("the Partnership") was initially
organized on October 1, 1996 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of
$90 in cash; and (b) the maximum capital contributions of the limited
partners of $1,200,000, to be divided into 2,400 equal units of limited
partnership interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt and equity financing to existing affiliated
limited partnerships owning residential apartment communities located in
Florida.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the related
allowance for impairment of such notes receivable. The Partnership accounts
for such notes under the provisions of Statement of Financial Accounting
Standard No. 114, Accounting by Creditors for Impairment of a Loan, as
amended by Statement of Financial Accounting Standard No. 118, Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosure.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a note to be
impaired when it is probable that the Partnership will be unable to collect
all amounts due according to the contractual terms of the note. When a loan
is considered to be impaired, the amount of impairment is measured based
upon (a) the present value of expected future cash flows discounted at the
note's effective interest rate; and (b) the liquidation value of the note's
collateral reduced by expected selling costs and other notes secured by the
same collateral. Cash receipts on impaired notes receivable are applied to
reduce the principal amount of such receivables until the principal has
been recovered, and are recognized as interest income thereafter.
D-247
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amount of assets and liabilities as of the date of the
balance sheet and operations for the year then ended. Material estimates as
to which it is reasonably possible that a change in the estimate could
occur in the near term relates to the allowance for impairment and the
collectibility of the notes receivable due from affiliates. Although these
estimates are based on management's knowledge of current events and actions
it may undertake in the future, they may ultimately differ from actual
results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed
depending on their personal tax situations. The financial statements do not
reflect a provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of
October 23, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash,
and maximum capital contributions of the limited partners of $1,200,000, to
be divided into 2,400 units of limited partnership units. A capital account
is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will not
be reinvested but will be distributed in order of priority to the Partners,
if available, quarterly, to (a) the limited partners who will receive 100%
of the distributable cash until they have received a 15% non-cumulative
annual cash-on-cash return on the aggregate amount of their capital
contribution as calculated from each limited partner's admission date; and
(b) the excess, if any, will be allocated to the general partner.
D-248
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions (Continued)
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets will
not be reinvested but will be distributed to the partners in order of
priority after repayment of all indebtedness secured by the assets to (a)
the limited partners who will receive 100% of the distributions until the
total amount distributed to them, when added to all prior distributions of
distributable cash and net proceeds made to them, is equal to the sum of
their capital contributions plus an annual 15% cash-on-cash return; and (b)
the balance, if any, is distributed 50% to the limited partners and 50% to
the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes will
be made as follows:
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by the
Partnership equal the cumulative amounts distributable to the general
partner under the terms of the distributions of cash and net proceeds. The
balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are allocated
99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of
the Agreement; (b) the determination of the limited partners exercising
their voting rights to dissolve the Partnership; (c) the death,
resignation, retirement, dissolution, removal, bankruptcy, adjudication of
insolvency, or adjudication of insanity or incompetence of the last
remaining general partner then in office and the refusal of any successor
general partner to replace it, unless the holders of a majority of the
units then outstanding vote to continue the Partnership and elect one or
more successor general partners willing to serve in such capacity to
continue the business of the Partnership; (d) the sale of all or
substantially all of the Partnership's property; (e) the repayment in full
of all loans made by the Partnership, unless the Partnership thereafter
continues to own non-loan assets; and (f) the occurrence of any other event
which, by law, would require the Partnership to be dissolved.
D-249
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the
assets, and the proceeds will be applied and distributed (a) first to the
Partnership creditors, other than partners; (b) then, any loans owed by the
Partnership to the partners shall be paid in proportion thereto; and (c)
finally, to the limited partners and the general partner in proportion to
their respective positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between
the Partnership and the general partner stipulated in the Agreement, the
Partnership retained the general partner to provide administrative services
for $1,000 per month through December 31, 2003.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES
The following are the balances of the notes receivable, net of allowance
for impairment, and accrued interest due from affiliates at September 30,
1998:
<TABLE>
<CAPTION>
Notes Accrued
Receivable Interest
---------- --------
<S> <C> <C>
Sunrise Apartments, Ltd.("Sunrise") $488,000 $27,927(a)
Curiosity Creek Apartments, Ltd. ("Curiosity Creek") 213,451 20,979(b)
Baron Strategic Investment Fund III, Ltd. ("Strategic III") 21,000 1,890(c)
-------- -------
$722,451 $50,796
(a) In June 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest due
from Sunrise, were converted into promissory notes as more fully
described in the table below.
Sunrise Second Mortgage Note; matures on October 1, 2007; accrues
interest at an minimum annual rate of 6% and provides for
participation interest at the rate of 3% per annum based upon the
amount of the unpaid principal, which shall be due and payable to the
extent that it does not exceed the available cash flow, as defined in
the note; provides for additional participation interest in an amount
equal to 20% of remaining available cash flow, as defined, which will
continue to be made until such time as the collateral has been sold,
and which obligation will continue notwithstanding total repayment of
the principal amount of the note; secured by a lien upon certain real
and personal property of Sunrise; subordinated to the first mortgage
which had a balance of approximately $1,037,000 as of September 30,
1998.
$ 335,000
</TABLE>
D-250
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
Unsecured promissory note, representing advances made by the former
general partner to Sunrise. The note is payable upon demand and bears
interest at an annual rate of 4%. 621,515
Unsecured promissory note, representing advances made by the former
general partner to Sunrise. The note is payable upon demand and bears
interest at 1% over prime (9.5% as of September 30, 1998). 1,467
Other receivables, related to advances for refinancing fees and
professional services
48,468
----------
1,006,450
Less unamortized discount 518,450
----------
Notes receivable, net of unamortized discount $ 488,000
==========
(b) In March 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest due
from Curiosity Creek, were converted into promissory notes as more
fully described in the table below.
Curiosity Creek Second Mortgage Note; matures on April 1, 2007;
accrues interest at an minimum annual rate of 6% and participation
interest at the rate of 3% per annum based upon the amount of the
unpaid principal, which shall be due and payable to the extent that it
does not exceed the available cash flow, as defined in the note;
provides for additional participation interest in an amount equal to
30% of remaining available cash flow, as defined, which will continue
to be made until such time as the collateral has been sold, and which
obligation will continue notwithstanding total repayment of the
principal amount of the note; secured by a lien upon certain real and
personal property of Curiosity Creek; subordinated to the first
mortgage which had a balance of approximately $1,180,000 as of
September 30, 1998.
$ 807,560
Unsecured promissory note, representing advances made by the former
general partner to Curiosity Creek. The note is payable upon demand
and bears an annual interest rate of 12.5%. 416,000
Unsecured promissory note, representing advances made by the former
general partner to Curiosity Creek. The note is payable on demand and
bears interest at 1% over prime (9.5% as of September 30, 1998).
414,380
Other receivables related to advances for refinancing fees and
professional fees
29,732
1,667,672
Percentage purchased 26.27%
----------
438,097
Less unamortized discount 219,997
----------
Less reclassification of one payment 4,649
Notes receivable, net of unamortized discount $213,451
==========
D-251
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
In April, 1998 Strategic III made a promissory note in favor of the
Partnership in the original principal amount of $21,000 to cover certain
advances made to Strategic III. The note matures on March 1, 2003, and
accrues interest at an annual rate of 12%. The note is secured by a Second
Mortgage on the Candlewood II apartment property. Two other loans by
affiliated partnerships in the aggregate principal amount of $143,500 are
also secured by separate second mortgages on the property. Each of the
lending parties has agreed to share the benefits of the second mortgages on
a pari-passu basis.
Notes receivable $ 21,000
========
NOTE 4. ADVANCES TO AFFILIATES
In 1998, the Partnership provided funding to affiliates by means of
advances in an arrangement equivalent to an open ended line of credit. The
advances are due on demand and provide for interest at 12% per annum. The
balances as of September 30, 1998 are as follows:
Sunrise $ 51,659
Curiosity Creek 36,439
Baron Strategic Vulture Fund I 44,500
--------
Total $153,598
========
NOTE 5. LIMITED PARTNERS CAPITAL CONTRIBUTIONS
In 1996, in accordance with a Private Placement Memorandum, dated October
23, 1996, the Partnership issued 220 units of limited partnership interest
units at $500 per unit for gross proceeds of $110,000. Costs of $22,300
incurred in connection with syndicating the limited partnership were
recorded as a reduction of limited partner contributions. Of the $22,300 in
syndication costs incurred in 1996, the Partnership paid $17,500 to its
general partner for administrative, legal and investment fees.
During 1997, the Partnership issued the 2,180 units of the limited partner
interest units at $500 per unit for gross proceeds of $1,090,000. Costs of
$239,700 incurred in connection with syndicating the limited partnership
were recorded as a reduction of limited partner contributions. Of the
$239,700 in syndication costs incurred in 1997, the Partnership paid
$124,500 to its general partner for administrative, legal and investment
fees.
D-252
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. SUBSEQUENT EVENTS
Amendment to Sunrise Second Mortgage
In December 1998, Sunrise restated and amended the $335,000 second mortgage
note and the $621,515 promissory note and made a new promissory note in the
original principal amount of $48,468 and a new promissory note in the
original principal amount of $25,351 in favor of the Partnership. In
addition, the parties entered into a mortgage modification agreement under
which Sunrise agreed to secure its repayment obligations under the notes
with a second mortgage on the Sunrise property.
Amendment to Curiosity Creek Mortgage
In December 1998, Curiosity Creek, the Partnership and Baron Strategic
Vulture Fund I, Ltd. ("Baron Vulture I"), entered into a mortgage
modification agreement pursuant to which the Partnership and Baron Vulture
I agreed to set the maturity date of the unsecured notes and advances at
April 1, 2007 (the maturity date of the second mortgage note) and Curiosity
Creek agreed to secure the unsecured notes and advances under the second
mortgage secured by the Curiosity Creek property.
Distributions
Subsequent to September 30, 1998, the Partnership made distributions of
approximately $30,000 to the limited partners.
NOTE 7. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
D-253
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
Cash $ 5,366
Notes receivable from affiliates 349,337
Investment in affiliate 480,433
Advances to affiliates 31,834
--------
$866,970
========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Advance payable to affiliate $ 8,050
Administrative fees payable to general partner 17,500
--------
25,550
--------
Commitments, Subsequent Events and Other Matter
Partners' Capital:
General partner 81
Limited partners 841,339
--------
841,420
--------
$866,970
========
D-254
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Revenues:
Interest income from affiliates $29,652
Other 636
Equity in net income of affiliate 41,289
-------
71,577
-------
Costs and Expenses:
Administrative fees to general partner 4,500
General and administrative 4,017
-------
8,517
-------
Net Income $63,060
=======
D-255
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
STATEMENT OF PARTNERS' CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
General Limited
Partner Partners Total
------- -------- -----
Partners' Capital, Beginning $ 81 $ 868,279 $ 868,360
Distributions -- (90,000) (90,000)
Net Income -- 63,060 63,060
------ --------- ---------
Partners' Capital, Ending $ 81 $ 841,339 $ 841,420
====== ========= =========
D-256
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Cash Flows from Operating Activities:
<S> <C>
Net income $ 63,060
Adjustments to reconcile net income to
net cash used in operating activities:
Equity in net income of affiliate (41,289)
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliates 4,500
Increase in administrative fees payable to general partner (29,652)
---------
Net cash used in operating activities (3,381)
---------
Cash Flows from Investing Activities:
Investment in affiliate (118,325)
Repayments of notes receivable from affiliate 29,930
Advances to affiliates 2,570
---------
Net cash used in investing activities (85,825)
---------
Cash Flows from Financing Activities:
Distributions to limited partners (90,000)
---------
Net cash provided by financing activities (90,000)
---------
Net Decrease in Cash (179,206)
Cash, Beginning 184,572
---------
Cash, Ending $ 5,366
=========
</TABLE>
D-257
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund VI, Ltd. (the "Partnership") was initially
organized on October 30, 1996 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of
$90 in cash; and (b) the maximum capital contributions of the limited
partners of $1,200,000, to be divided into 2,400 equal units of limited
partnership interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt and equity financing to existing affiliated
limited partnerships owning residential apartment communities located in
Florida.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the related
allowance for impairment of such notes receivable. The Partnership accounts
for such notes under the provisions of Statement of Financial Accounting
Standard No. 114, Accounting by Creditors for Impairment of a Loan, as
amended by Statement of Financial Accounting Standard No. 118, Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosure.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a note to be
impaired when it is probable that the Partnership will be unable to collect
all amounts due according to the contractual terms of the note. When a loan
is considered to be impaired, the amount of impairment is measured based
upon (a) the present value of expected future cash flows discounted at the
note's effective interest rate; and (b) the liquidation value of the note's
collateral reduced by expected selling costs and other notes secured by the
same collateral. Cash receipts on impaired notes receivable are applied to
reduce the principal amount of such receivables until the principal has
been recovered, and are recognized as interest income thereafter.
D-258
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment in Affiliate
The Partnership holds a 57% limited partner interest in Pineview
Apartments, Ltd. ("Pineview"), a limited partnership which owns a
residential apartment property in Orlando, Florida. The investment in
Pineview is accounted for using the equity method of accounting as a result
of the Partnership and Pineview having the same general partner president
and the general partner's ability to exercise significant influence on
Pineview. As such, the investment in Pineview is carried at cost and
adjusted for the Partnership's share of undistributed earnings or losses
using the equity method of accounting.
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amount of assets and liabilities as of the date of the
balance sheet and operations for the year then ended. Material estimates as
to which it is reasonably possible that a change in the estimate could
occur in the near term relates to the collectibility of the notes
receivable due from affiliates. Although these estimates are based on
management's knowledge of current events and actions it may undertake in
the future, they may ultimately differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed
depending on their personal tax situations. The financial statements do not
reflect a provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of
November 12, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash,
and maximum capital contributions of the limited partners of $1,200,000, to
be divided into 2,400 units of limited partnership units. A capital account
is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
D-259
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will not
be reinvested but will be distributed in order of priority to the Partners,
if available, quarterly, to (a) the limited partners who will receive 100%
of the distributable cash until they have received a 12.5% non-cumulative
annual cash-on-cash return on the aggregate amount of their capital
contribution as calculated from each limited partner's admission date; and
(b) the excess, if any, will be allocated 50% to the limited partners and
50% to the general partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets will
not be reinvested but will be distributed to the partners in order of
priority after repayment of all indebtedness secured by the assets to (a)
the limited partners who will receive 100% of the distributions until the
total amount distributed to them, when added to all prior distributions of
distributable cash and net proceeds made to them, is equal to the sum of
their capital contributions plus an annual 12.5% cash-on-cash return; and
(b) the balance, if any, is distributed 50% to the limited partners and 50%
to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes will
be made as follows:
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by the
Partnership equal the cumulative amounts distributable to the general
partner under the terms of the distributions of cash and net proceeds. The
balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are allocated
99% to the limited partners and 1% to the general partner.
D-260
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of
the Agreement; (b) the determination of the limited partners exercising
their voting rights to dissolve the Partnership; (c) the death,
resignation, retirement, dissolution, removal, bankruptcy, adjudication of
insolvency, or adjudication of insanity or incompetence of the last
remaining general partner then in office and the refusal of any successor
general partner to replace it, unless the holders of a majority of the
units then outstanding vote to continue the Partnership and elect one or
more successor general partners willing to serve in such capacity to
continue the business of the Partnership; (d) the sale of all or
substantially all of the Partnership's property; (e) the repayment in full
of all loans made by the Partnership, unless the Partnership thereafter
continues to own non-loan assets; and (f) the occurrence of any other event
which, by law, would require the Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the
assets, and the proceeds will be applied and distributed (a) first to the
Partnership creditors, other than partners; (b) then, any loans owed by the
Partnership to the partners shall be paid in proportion thereto; and (c)
finally, to the limited partners and the general partner in proportion to
their respective positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between
the Partnership and the general partner stipulated in the Agreement, the
Partnership retained the general partner to provide administrative services
for $1,000 per month through December 31, 2003.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE
The following are the balances of the notes receivable and accrued interest
due from affiliates at September 30, 1998:
Baron Strategic Investment Fund IV, Ltd. ("BSIF IV") $349,337 (a)
Baron Strategic Investment Fund III, Ltd. ("Strategic III") $ 68,000 (b)
-------
$417,337
a) In March 1997, the Partnership advanced $690,000 and received a note
with an annual interest rate of 15% payable by BSIF IV, an affiliate.
The note, which is secured by real property of Country Square
Apartments, Ltd., an affiliate, provides for monthly payments of
interest only on the unpaid principal balance with principal plus any
accrued interest due in September 2002.
D-261
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE (Continued)
Interest income recognized on the note during 1998 was $13,213. As of
September 30, 1998, the note had an outstanding balance of $349,337 and
accrued interest of $31,834. In February 1998, the Partnership received a
payment of $125,000 on the note receivable from BSIF IV which was applied
to the outstanding accrued interest and the outstanding principal balance.
Note receivable $349,337
========
b) In April 1998, Strategic III made a promissory note in favor of the
Partnership in the original principal amount of $68,000 to cover certain
advances made to Strategic III. The note matures on March 1, 2003 and
accrues interest at an annual rate of 12%. The note is secured by a Second
Mortgage on the Candlewood II apartment property. Two other loans by
affiliated partnerships in the aggregate principal amount of $96,500 are
also secured by separate Second Mortgages on the property. Each of the
lending parties has agreed to share the benefits of the Second Mortgages on
a pari-passu basis.
Note receivable $68,000
=======
NOTE 4. INVESTMENT IN NON-AFFILIATE
In February 1998, the Partnership purchased from Baron Strategic Investment
Fund X, Ltd. ("Strategic X"), an affiliate, for $160,000, an undivided 20%
interest in a second mortgage note in the original principal amount of
$735,000 (with accrued unpaid interest thereon of $506,767) payable by
Garden Terrace Apartments III ("Garden Terrace"), a non-affiliate. The
second mortgage note matures on January 1, 2007 and bears interest at a
minimum annual rate of 2% plus participation interest of up to 7% based on
the amount of the unpaid principal, payable out of excess cash flow.
Second Mortgage Note $ 735,000
Accrued Interest $ 506,767
----------
Total $1,241,767
Percentage Purchased 20%
$ 248,353
Less unamortized discount $ 88,353
----------
$ 160,000
==========
Advances to Affiliates
In 1998, the Partnership continued to provide funding to affiliates by
means of advances in an arrangement equivalent to an open ended lines of
credit. The advances are due on demand and provide for interest at 12% per
annum. The following is a summary of the transactions, at September 30,
1998, relating to advances:
Pineview 26,935
--------
$ 26,935
========
D-262
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. INVESTMENT IN AFFILIATE
The following is a summary of the financial position and results of
operations of Pineview as of the nine months ended September 30, 1998.
Financial position:
Rental apartments $1,815,945
Other assets 214,580
----------
Total assets $2,030,525
==========
Mortgage payable $1,593,060
Other liabilities 511,529
----------
Total liabilities 2,104,589
Partners' capital -74,064
Results of operations:
Revenues (including rental income of $269,986) $ 307,211
Costs and expenses 234,773
----------
Net loss $ 72,438
NOTE 6. LIMITED PARTNERS CAPITAL
Contributions
In 1996, in accordance with a Private Placement Memorandum, dated November
12, 1996, the Partnership issued 1,064 units of limited partnership
interest units at $500 per unit for gross proceeds of $532,000. Costs of
$81,450 incurred in connection with syndicating the limited partnership
were recorded as a reduction of limited partner contributions. Of the
$81,450 in syndication costs incurred in 1996, the Partnership paid $38,890
to its general partner for administrative, legal and investment fees.
During 1997, the Partnership issued 1,336 units of the limited partner
interest units at $500 per unit for gross proceeds of $668,000. Costs of
$192,550 incurred in connection with syndicating the limited partnership
were recorded as a reduction of limited partner contributions. Of the
$192,550 in syndication costs incurred in 1997, the Partnership paid
$115,110 to its general partner for administrative, legal and investment
fees.
D-263
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 7. SUBSEQUENT EVENTS
Investment in Non-Affiliate- Garden Terrace
In October 1998, Garden Terrace III restated and amended the $735,000
second mortgage note and created a new second mortgage note in the original
principal amount of $506,767 to cover accrued interest. Both notes mature
on January 1, 2007 and are secured by a second mortgage on the Garden
Terrace III property. The terms of the amended $735,000 second mortgage
note remained the same as the prior note except that it provides for
additional participation interest (after payment of minimum interest and
participation interest) to be payable to the holder of the $506,767 note in
an amount equal to 30% of any remaining cash flow from the property. The
$506,767 second mortgage note bears interest at an annual rate of 9%
payable from excess cash flows after minimum interest of 2% and
participation interest of 7% are paid on the $735,000 second mortgage note.
Baron Strategic Investment Fund IX, Ltd. ("Strategic IX") and Strategic X,
affiliates of the Partnership, own the remaining undivided 80% interest in
the notes.
Distributions
Subsequent to September 30, 1998, the Partnership made distributions of
approximately $30,000 to the limited partners.
NOTE 8. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
D-264
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
Cash $ 7,074
Notes receivable from affiliates 675,602
Accrued interest receivable from affiliates 6,195
Advances receivable from affiliates 182,313
--------
$871,184
========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Loan payable - Affiliate $ 21,420
--------
21,420
--------
Commitments and Other Matter
Partners' Capital:
General partner 90
Limited partners 849,674
--------
849,764
--------
$871,184
========
D-265
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Revenues:
Interest income from affiliates $63,098
Other 326
-------
63,424
-------
Costs and Expenses:
General and administrative 22,069
-------
22,069
-------
Net Income $41,355
=======
D-266
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
STATEMENT OF PARTNERS' CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
General Limited
Partner Partners Total
------- -------- -----
Partners' Capital, Beginning $ 90 $ 861,308 $ 861,398
Contributions, Net of Syndication Costs -- 35,535 35,535
Distributions -- (88,524) (88,524)
Net Income -- 41,355 41,355
--------- --------- ---------
Partners' Capital, Ending $ 90 $ 849,674 $ 849,764
========= ========= =========
D-267
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Cash Flows from Operating Activities:
<S> <C>
Net income $ 41,355
Adjustments to reconcile net income to
net cash used in operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliates 32,697
Increase in administrative fees payable to general partner (12,854)
---------
Net cash used in operating activities 61,198
---------
Cash Flows from Investing Activities:
Advances to affiliates (163,338)
Investment in notes receivable from affiliates 56,168
Loan payable affiliate 21,420
---------
Net cash used in investing activities (85,750)
---------
Cash Flows from Financing Activities:
Partners' capital contributions 35,535
Limited partners' distribution (88,524)
---------
Net cash provided by financing activities (52,989)
---------
Net Increase in Cash (77,541)
Cash, Beginning 84,615
---------
Cash, Ending $ 7,074
=========
</TABLE>
D-268
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund VIII, Ltd. ("the Partnership") was
initially organized on February 25, 1997 under the laws of the State of
Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of
$90 in cash; and (b) the maximum capital contributions of the limited
partners of $1,200,000, to be divided into 2,400 equal units of limited
partnership interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt financing to existing affiliated limited
partnerships owning residential apartment communities located in Florida.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the related
allowance for impairment of such notes receivable. The Partnership accounts
for such notes under the provisions of Statement of Financial Accounting
Standard No. 114, Accounting by Creditors for Impairment of a Loan, as
amended by Statement of Financial Accounting Standard No. 118, Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosure.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a note to be
impaired when it is probable that the Partnership will be unable to collect
all amounts due according to the contractual terms of the note. When a loan
is considered to be impaired, the amount of impairment is measured based
upon (a) the present value of expected future cash flows discounted at the
note's effective interest rate; and (b) the liquidation value of the note's
collateral reduced by expected selling costs and other notes secured by the
same collateral. Cash receipts on impaired notes receivable are applied to
reduce the principal amount of such receivables until the principal has
been recovered, and are recognized as interest income thereafter.
D-269
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amount of assets and liabilities as of the date of the
balance sheet and operations for the year then ended. Material estimates as
to which it is reasonably possible that a change in the estimate could
occur in the near term relates to the collectibility of the notes
receivable from affiliates. Although these estimates are based on
management's knowledge of current events and actions it may undertake in
the future, they may ultimately differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed
depending on their personal tax situations. The financial statements do not
reflect a provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of
February 26, 1997.
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash,
and maximum capital contributions of the limited partners of $1,200,000, to
be divided into 2,400 units of limited partnership units. A capital account
is maintained for each partner.
Term
The Partnership will continue through December 31, 2025, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will not
be reinvested but will be distributed in order of priority to the Partners,
if available, quarterly, to (a) the limited partners who will receive 100%
of the distributable cash until they have received a 12.5% non-cumulative
annual cash-on-cash return on the aggregate amount of their capital
contribution as calculated from each limited partner's admission date; and
(b) the excess, if any, will be allocated 50% to the limited partners and
50% to the general partner.
D-270
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets will
not be reinvested but will be distributed to the partners in order of
priority after repayment of all indebtedness secured by the assets to (a)
the limited partners who will receive 100% of the distributions until the
total amount distributed to them, when added to all prior distributions of
distributable cash and net proceeds made to them, is equal to the sum of
their capital contributions plus an annual 12.5% cash-on-cash return; and
(b) the balance, if any, is distributed 50% to the limited partners and 50%
to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes will
be made as follows:
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by the
Partnership equal the cumulative amounts distributable to the general
partner under the terms of the distributions of cash and net proceeds. The
balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are allocated
99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of
the Agreement; (b) the determination of the limited partners exercising
their voting rights to dissolve the Partnership; (c) the death,
resignation, retirement, dissolution, removal, bankruptcy, adjudication of
insolvency, or adjudication of insanity or incompetence of the last
remaining general partner then in office and the refusal of any successor
general partner to replace it, unless the holders of a majority of the
units then outstanding vote to continue the Partnership and elect one or
more successor general partners willing to serve in such capacity to
continue the business of the Partnership; (d) the sale of all or
substantially all of the Partnership's property; (e) the repayment in full
of all loans made by the Partnership, unless the Partnership thereafter
continues to own non-loan assets; and (f) the occurrence of any other event
which, by law, would require the Partnership to be dissolved.
D-271
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the
assets, and the proceeds will be applied and distributed (a) first to the
Partnership creditors, other than partners; (b) then, any loans owed by the
Partnership to the partners shall be paid in proportion thereto; and (c)
finally, to the limited partners and the general partner in proportion to
their respective positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between
the Partnership and the general partner stipulated in the Agreement, the
Partnership retained the general partner to provide administrative services
for $1,000 per month through December 31, 2004.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES
The following are the principal balances of the notes receivable, net of
unamortized discount and accrued interest due from affiliates at September
30, 1998:
09/30/98 09/30/98
Notes Accrued
Receivable Interest
---------- --------
Longwood Apartments I, Ltd. ("Longwood I") $515,102 $ 42,273(a)
Heatherwood Apartments II, Ltd. ("Heatherwood II") $160,500 $ 15,435(b)
Burlington Development, L.P. ("Burlington") $ 98,000 $ 5,390(c)
-------- --------
$773,602 $ 63,098
======== ========
(a) In July 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest due
from Longwood I, were converted into promissory notes as more fully
described in the table below:
Longwood I Second Mortgage Note; matures on October 1, 2007; accrues
interest at an minimum annual rate of 6% and provides for
participation interest at the rate of 3% per annum based upon the
amount of the unpaid principal, which shall be due and payable to the
extent that it does not exceed the available cash flow, as defined in
the note; provides for additional participation interest in an amount
equal to 30% of remaining available cash flow, as defined, which will
continue to be made until such time as the collateral has been sold,
and which obligation will continue notwithstanding total repayment of
the principal amount of the note; secured by a lien upon certain real
and personal property of Longwood I; subordinated to the first
mortgage which had a balance of approximately $1,036,000 as of
September 30, 1998.
$368,558
D-272
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
Unsecured promissory note, representing advances made by the former
general partner to Longwood I. The note is payable upon demand and
bears interest at 1% over prime (9.5% as of September 30, 1998).
526,465
Other receivables, related to advances for refinancing fees and
professional services.
21,966
--------
916,989
Less discount 391,839
Less refund on receivable purchase 10,048
--------
Notes receivable, net of discount and refund $515,102
========
See Note 6 regarding a subsequent amendment to the second mortgage.
(b) In August 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest due
from Heatherwood II, were converted into promissory notes as more
fully described in the table below:
Heatherwood II Second Mortgage Note; matures on October 1, 2004;
accrues interest at an minimum annual rate of 6% and participation
interest at the rate of 3% per annum based upon the amount of the
unpaid principal, which shall be due and payable to the extent that it
does not exceed the available cash flow, as defined in the note;
secured by a lien upon certain real and personal property of
Heatherwood II; provides for additional participation interest in an
amount equal to 30% of remaining available cash flow, as defined,
which will continue to be made until such time as the collateral has
been sold and which obligation will continue notwithstanding total
repayment of the principal amount of the note; subordinated to the
first mortgage which had a balance of approximately $710,000 as of
September 30, 1998.
$325,000
Unsecured promissory note, representing advances made by the former
general partner to Heatherwood II. The note is payable on demand and
bears interest at 1% over prime (9.5% as of September 30, 1998).
1,742
Other receivables related to advances and professional services
13,404
--------
340,146
Percentage purchased 58%
--------
197,285
Less discount 36,785
--------
Notes receivable, net of discount $160,500
========
(c) In February 1998, the Partnership made a loan of $98,000 to
Burlington, an affiliate, pursuant to the terms of a promissory note.
The note provides for interest at 12% per annum and principal is due
on demand.
Note Receivable 98,000
D-273
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. ADVANCES RECEIVABLE FROM AFFILIATES
During 1998, the Partnership provided funding to affiliates by means of
advances in an arrangement equivalent to an open ended line of credit. The
advances are due on demand and accrue interest at 12% per annum. The
balance of $52,279 and $8,975 remained outstanding from Longwood I and
Heatherwood II as of September 30, 1998. Interest income of $4,705 was
recognized in respect of the Longwood advance during the year and accrued
at September 30, 1998.
NOTE 5. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1997, in accordance with the terms of a Private Placement Memorandum
dated February 26, 1997, the Partnership issued 2,298 units of limited
partner interest of the 2,400 units being offered at $500 per unit for
gross proceeds of $1,149,041. Costs of $283,430 incurred in connection with
syndicating the partnership units were recorded as a reduction of limited
partners' capital contributions. Of the syndication costs, $168,525 was
paid to the General Partner for administrative, legal and investment fees.
During 1998, the Partnership issued the remaining 102 units at $500 per
unit for gross proceeds of $50,959. Costs of $13,163 incurred in connection
with syndicating the partnership units were recorded as a reduction of
limited partners' capital contributions in 1998. Of the syndication costs,
$8,067 was paid to the General Partner for administrative, legal and
investment fees.
NOTE 6. SUBSEQUENT EVENTS
Note Receivable from Affiliate
In December 1998, the Partnership endorsed the $98,000 promissory note
payable by Burlington to Sycamore Real Estate Development, Ltd.
("Sycamore") The new note matures on December 14, 2003; accrues interest at
an annual rate of 12%; is secured by a lien upon certain real and personal
property of Villas of Lake Sycamore and is subordinated to the first
mortgage which had a balance of approximately $800,000 as of September 30,
1998. Two other affiliated partnerships also hold second mortgage notes in
the aggregate principal amount of $473,500 secured by the property. The
lending parties have agreed to share the benefits of the second mortgage on
a pari-passu basis.
Amendment to Longwood Second Mortgage
In December 1998, Longwood I restated and amended the second mortgage note
and the unsecured promissory note. The new second mortgage note is in the
original principal amount of $368,558 (which includes the prior principal
balance and accrued unpaid interest) and has a maturity date of October 1,
2007. The other terms remain unchanged. The new demand note is in the
original principal amount of $526,465 (which includes the prior
D-274
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. SUBSEQUENT EVENTS (Continued)
principal and accrued unpaid interest) and has a maturity date of October
1, 2007. The other terms remain unchanged.
Longwood I also created a new promissory note in favor of the Partnership
in the original principal amount of $74,243, which includes prior advances
of $21,966 described above and of $52,279. The new note bears interest at
the annual rate of 12% and has a maturity date of October 1, 2007. On
December 15, 1998, the Partnership and Longwood I entered into a Second
Amendment to Open-End Second Mortgage and Security Agreement by which all
of the notes will be secured by the Second Mortgage. The amendment also
provides for additional advances to be secured under a future advance
clause up to $1,300,000 maximum.
Distributions to Limited Partners
Subsequent to September 30, 1998, the Partnership made distributions of
approximately $30,000 to the limited partners.
NOTE 7. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
D-275
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
Cash $ 9,964
Investment in affiliate 576,244
Advances receivable from affiliate 342,995
Accrued interest receivable from affiliate 33,967
--------
$963,170
========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to the general partner $ 11,500
--------
11,500
--------
Commitments, Subsequent Events and Other Matter
Partners' Capital:
General partner 27
Limited partners 951,643
--------
951,670
--------
$963,170
========
D-276
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Revenues:
Equity in net income of affiliate $ 7,297
Interest income from affiliate 33,575
Other 523
-------
41,395
-------
Costs and Expenses:
Administrative fees to general partner 4,500
General and administrative 9,167
-------
13,667
-------
Net Income $27,728
=======
D-277
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
STATEMENT OF PARTNERS' CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
General Limited
Partner Partners Total
------- -------- -----
Partners' Capital, Beginning $ 27 $ 461,616 $ 461,643
Contributions, Net of Syndication Costs -- 520,070 520,070
Distributions -- (57,771) (57,771)
Net Income -- 27,728 27,728
------- --------- ---------
Partners' Capital, Ending September 30, 1998 $ 27 $ 951,643 $ 951,670
======= ========= =========
D-278
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Cash Flows from Operating Activities:
<S> <C>
Net income $ 27,728
Adjustments to reconcile net income to
net cash used in operating activities:
Changes in operating assets and liabilities:
Equity in net income of affiliate (7,297)
Increase in accrued interest receivable from affiliates (33,575)
Increase in administrative fees payable to general partner 4,500
---------
Net cash used in operating activities (8,644)
---------
Cash Flows from Investing Activities:
Investment in affiliate (335,698)
Investment in notes receivable from affiliates (283,037)
Accrued syndication costs (42,435)
---------
Net cash used in investing activities (661,170)
---------
Cash Flows from Financing Activities:
Partners' capital contributions 577,000
Syndication costs (56,930)
Distributions to limited partners (57,771)
Payments on line of credit from affiliate 21,495
---------
483,794
Net Increase in Cash (186,020)
Cash, Beginning 195,984
---------
Cash, Ending $ 9,964
=========
</TABLE>
D-279
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund IX, Ltd. ("the Partnership") was initially
organized on June 2, 1997 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of
$90 in cash; and (b) the maximum capital contributions of the limited
partners of $1,200,000, to be divided into 2,400 equal units of limited
partnership interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt and equity financing to existing affiliated
limited partnerships owning residential apartment communities located in
Florida.
Revenue Recognition
Revenue consisting of equity in net income of affiliate is recognized on
the equity method, as more fully described below. Revenue consisting of
interest on notes receivable is recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the related
allowance for impairment of such notes receivable. The Partnership accounts
for such notes under the provisions of Statement of Financial Accounting
Standard No. 114, Accounting by Creditors for Impairment of a Loan, as
amended by Statement of Financial Accounting Standard No. 118, Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosure.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a note to be
impaired when it is probable that the Partnership will be unable to collect
all amounts due according to the contractual terms of the note. When a loan
is considered to be impaired, the amount of impairment is measured based
upon (a) the present value of expected future cash flows discounted at the
note's effective interest rate; and (b) the liquidation value of the note's
collateral reduced by expected selling costs and other notes secured by the
same collateral. Cash receipts on impaired notes receivable are applied to
reduce the principal amount of such receivables until the principal has
been recovered, and are recognized as interest income thereafter.
D-280
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment in Affiliate
The Partnership holds a 41.1% limited partner interest in Crystal Court
Properties, Ltd. ("Crystal Court"), a limited partnership which owns a
residential apartment property in Jacksonville, Florida. The investment in
Crystal Court is accounted for using the equity method of accounting as a
result of the Partnership and Crystal Court having the same general partner
and the general partner's ability to exercise significant influence on
Crystal Court. As such, the investment in Crystal Court is carried at cost
and adjusted for the Partnership's share of undistributed earnings or
losses using the equity method of accounting.
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amount of assets and liabilities as of the date of the
balance sheet and operations for the year then ended. Material estimates as
to which it is reasonably possible that a change in the estimate could
occur in the near term relates to the collectibility of the notes
receivable due from affiliates. Although these estimates are based on
management's knowledge of current events and actions it may undertake in
the future, they may ultimately differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed
depending on their personal tax situations. The financial statements do not
reflect a provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of June
2, 1997:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash,
and maximum capital contributions of the limited partners of $1,200,000, to
be divided into 2,400 units of limited partnership units. A capital account
is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
D-281
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will not
be reinvested but will be distributed in order of priority to the Partners,
if available, quarterly, to (a) the limited partners who will receive 100%
of the distributable cash until they have received a 15% non-cumulative
annual cash-on-cash return on the aggregate amount of their capital
contribution as calculated from each limited partner's admission date; and
(b) the excess, if any, will be allocated to the general partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets will
not be reinvested but will be distributed to the partners in order of
priority after repayment of all indebtedness secured by the assets to (a)
the limited partners who will receive 100% of the distributions until the
total amount distributed to them, when added to all prior distributions of
distributable cash and net proceeds made to them, is equal to the sum of
their capital contributions plus an annual 15% cash-on-cash return; and (b)
the balance, if any, is distributed 50% to the limited partners and 50% to
the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes will
be made as follows:
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by the
Partnership equal the cumulative amounts distributable to the general
partner under the terms of the distributions of cash and net proceeds. The
balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are allocated
99% to the limited partners and 1% to the general partner.
D-282
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of
the Agreement; (b) the determination of the limited partners exercising
their voting rights to dissolve the Partnership; (c) the death,
resignation, retirement, dissolution, removal, bankruptcy, adjudication of
insolvency, or adjudication of insanity or incompetence of the last
remaining general partner then in office and the refusal of any successor
general partner to replace it, unless the holders of a majority of the
units then outstanding vote to continue the Partnership and elect one or
more successor general partners willing to serve in such capacity to
continue the business of the Partnership; (d) the sale of all or
substantially all of the Partnership's property; (e) the repayment in full
of all loans made by the Partnership, unless the Partnership thereafter
continues to own non-loan assets; and (f) the occurrence of any other event
which, by law, would require the Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the
assets, and the proceeds will be applied and distributed (a) first to the
Partnership creditors, other than partners; (b) then, any loans owed by the
Partnership to the partners shall be paid in proportion thereto; and (c)
finally, to the limited partners and the general partner in proportion to
their respective positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between
the Partnership and the general partner stipulated in the Agreement, the
Partnership retained the general partner to provide administrative services
for $1,000 per month through December 31, 2004.
NOTE 3. ADVANCES TO AFFILIATE
For the period ended September 30, 1998, the Partnership provided funding
to the following by means of advances in an arrangement equivalent to an
open ended line of credit. The advances are due on demand and accrue
interest at 12% per annum.
Accrued
Outstanding Balance Interest
------------------- -------
Crystal Court Apartments, Ltd. $ 23,995 0
("Crystal Court")
Apartment Development Holding, L.P.
("Apartment Development") $148,000 $ 8,960
Burlington Development, L.P. $ 95,500 $ 6,685
-------- --------
("Burlington")
Total $267,495 $ 15,645
-------- --------
D-283
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. INVESTMENT IN AFFILIATE
The following is a summary of the financial position and results of
operations of Crystal Court as of and for the year ended September 30,
1998.
Financial position:
Rental apartments $1,064,434
Other assets 242,868
----------
Total assets $1,307,302
==========
Mortgage payable $1,202,529
Other liabilities 76,811
----------
Total liabilities 1,279,340
Partners' Capital 27,962
----------
1,307,302
==========
Results of operations:
Revenues (including rental income of $63,628) $ 204,310
Costs and expenses 186,511
----------
Net income $ 17,799
==========
NOTE 5. NOTES RECEIVABLE FROM AFFILIATE
In April 1998, Baron Strategic Investment Fund III, Ltd. ("Strategic III")
made a promissory note in favor of the Partnership in the original
principal amount of $75,500 to cover certain advances made to Strategic
III. The note matures on March 1, 2003, and accrues interest at an annual
rate of 12%. The note is secured by a Second Mortgage on the Candlewood II
apartment property. Two other loans by affiliated partnerships in the
aggregate principal amount of $89,000 are also secured by separate second
mortgages on the property. Each of the lending parties has agreed to share
the benefits of the second mortgages on a pari-passu basis.
Note receivable $ 75,500
==========
NOTE 6. INVESTMENT IN NON-AFFILIATE
In January 1998, the Partnership purchased from an unrelated party for
$200,000 an undivided 25% interest in a second mortgage note in the
original principal amount of $735,000 (with accrued unpaid interest thereon
of $506,767) payable by Garden Terrace Apartments III, Ltd. ("Garden
Terrace"), a non-affiliate. The second mortgage note matures on January 1,
2007, and bears interest at a minimum annual rate of 2% plus participation
interest of up to 7% based on the amount of the unpaid principal, payable
out of excess cash flow
Second Mortgage Note $ 735,000
Accrued Interest $ 506,767
----------
Total $1,241,767
Percentage Purchased 25%
$ 310,442
Less unamortized discount $ 110,442
----------
$ 200,000
==========
D-284
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 7. LIMITED PARTNERS CAPITAL CONTRIBUTIONS
During 1997, in accordance with the terms of a Private Placement Memorandum
dated June 3, 1997, the Partnership issued 1,246 units of limited partner
interest being offered at $500 per unit for total gross proceeds of
$623,000. Costs of $151,600 incurred in connection with syndicating the
partnership units were recorded as a reduction of limited partners' capital
contributions. Of the syndication costs, $88,530 was paid or accrued to the
General Partner for administrative, legal and investment fees. Of the total
syndication costs incurred, $42,435 remained unpaid and accrued at December
31, 1997, including $23, 165 to the General Partner.
During 1998 the Partnership issued 1,104 equal units of limited partner
interest, which increased the total units issued to 2,350 of the 2,400
available units, at $500 per unit for a total of $552,000. Costs incurred
with syndicating the Partnership of $175,105 have been recorded as a
reduction of limited partner contributions. Of the syndication costs,
$98,905 was paid to the General Partner for administrative, legal, and
investment fees.
NOTE 8. SUBSEQUENT EVENTS
Note Receivable from Affiliate
In December 1998, the Partnership endorsed to Sycamore Real Estate
Development, Ltd. ("Sycamore") the promissory note from Burlington in the
principal amount of $95,500 and the promissory note from Apartment
Development in the principal amount of $148,000; in exchange Sycamore
delivered to the Partnership a new promissory note in the original
principal amount of $243,500. The new note matures on December 14, 2003;
accrues interest at an annual rate of 12%; is secured by a lien upon
certain real and personal property of Villas of Lake Sycamore and is
subordinated to the first mortgage which had a balance of approximately
$800,000 as of September 30, 1998.
Investment in Non-Affiliate
In October 1998, Garden Terrace III restated and amended the $735,000
second mortgage note and created a new second mortgage note in the original
principal amount of $506,767 to cover accrued interest. Both notes mature
on January 1, 2007 and are secured by a second mortgage on the Garden
Terrace III property. The terms of the amended $735,000 second mortgage
note remained the same as the prior note except that it provides for
additional participation interest (after payment of minimum interest and
participation interest) to be payable to the holder of the $506,767 note in
an amount equal to 30% of any remaining cash flow from the property. The
$506,767 second mortgage note bears interest at an annual rate of 9%
payable from excess cash flows after minimum interest of 2% and
participation interest of 7% are paid on the $735,000 second mortgage note.
Baron Strategic Investment Fund VI, Ltd. ("Strategic VI") and Strategic X,
affiliates of the Partnership, own the remaining undivided 75% interest in
the notes.
D-285
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8. SUBSEQUENT EVENTS (Continued)
Distributions
Subsequent to September 30, 1998, the Partnership made distributions of
approximately $29,750 to the limited partners.
NOTE 9. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
D-286
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
Cash $ 39,374
Investment in affiliates 1,044,317
Notes receivable from affiliates 167,500
Advances receivable from affiliate 6,500
Accrued interest receivable from affiliates 39,977
-----------
$ 1,297,668
===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Liabilities:
Accrued syndication costs $ 12,900
Administrative fees payable to general partner 10,500
Note payable to affiliate 400,000
-----------
423,400
-----------
Commitments, Subsequent Events and Other Matter
Partners' Capital (Deficit):
General partner (68)
Limited partners 874,336
-----------
874,268
$ 1,297,668
===========
D-287
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Revenues:
Equity in net income of affiliate $41,647
Interest income from affiliates 54,145
Other 600
-------
96,392
-------
Costs and Expenses:
General and administrative 12,784
Administrative fees to general partner 15,500
-------
28,284
-------
Net Loss $68,108
=======
D-288
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
STATEMENT OF PARTNERS' CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
General Limited
Partner Partners Total
------- -------- -----
Partners' Capital (Deficit), Beginning $ (68) $ 830,641 $ 830,573
Contributions, Net of Syndication Costs 58,202 58,202
Distributions -- (82,615) (82,615)
Net Loss -- 68,108 68,108
--------- --------- ---------
Partners' Capital (Deficit), Ending $ (68) $ 874,336 $ 874,268
========= ========= =========
D-289
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Cash Flows from Operating Activities:
<S> <C>
Net income $ 68,108
Adjustments to reconcile net loss to net
cash provided by operating activities:
Changes in operating assets and liabilities:
Equity in net income of affiliates (41,647)
Increase in administrative fees payable to general partner 4,500
Increase in accrued interest receivable from affiliates (32,355)
Decrease in accrued syndication costs (66,808)
---------
Net cash used in operating activities (68,202)
---------
Cash Flows from Investing Activities:
Investments in affiliates (440,000)
Investments in notes receivable from affiliate 50,000
Investment in advances receivable from affiliate (50,000)
Advances to affiliates 400,000
---------
Net cash used in investing activities (40,000)
---------
Cash Flows from Financing Activities:
Partner capital contributions 71,550
Syndication costs paid (13,348)
Distributions to limited partners (82,615)
---------
Net cash provided by financing activities (24,413)
---------
Net Decrease in Cash (132,615)
Cash, Beginning 171,989
---------
Cash, Ending $ 39,374
=========
</TABLE>
D-290
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund X, Ltd. ("the Partnership") was initially
organized on June 26, 1997 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of
$90 in cash; and (b) the maximum capital contributions of the limited
partners of $1,200,000, to be divided into 2,400 equal units of limited
partnership interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt and equity financing to existing affiliated
limited partnerships owning residential apartment communities located in
Florida.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Notes Receivable from Affiliate
Notes receivable from affiliate are recorded at cost, less the related
allowance for impairment of such notes receivable. The Partnership accounts
for such notes under the provisions of Statement of Financial Accounting
Standard No. 114, Accounting by Creditors for Impairment of a Loan, as
amended by Statement of Financial Accounting Standard No. 118, Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosure.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a note to be
impaired when it is probable that the Partnership will be unable to collect
all amounts due according to the contractual terms of the note. When a loan
is considered to be impaired, the amount of impairment is measured based
upon (a) the present value of expected future cash flows discounted at the
note's effective interest rate; and (b) the liquidation value of the note's
collateral reduced by expected selling costs and other notes secured by the
same collateral. Cash receipts on impaired notes receivable are applied to
reduce the principal amount of such receivables until the principal has
been recovered, and are recognized as interest income thereafter.
D-291
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments in Affiliates
The Partnership holds a 43.5% limited partner interest in Crystal Court
Properties, Ltd. ("Crystal Court"), a limited partnership which owns a
residential apartment property in Jacksonville, Florida. The investment in
Crystal Court is accounted for using the equity method of accounting as a
result of the Partnership and Crystal Court having the same general partner
president and the general partner's ability to exercise significant
influence on Crystal Court. As such, the investment in Crystal Court is
carried at cost and adjusted for the Partnership's share of undistributed
earnings or losses using the equity method of accounting.
The Partnership holds a 43% limited partner interest in Pineview
Apartments, Ltd. ("Pineview"), a limited partnership which owns a
residential apartment property in Orlando, Florida. The investment in
Pineview is accounted for using the equity method of accounting as a result
of the Partnership and Pineview having the same general partner president
and the general partner's ability to exercise significant influence on
Pineview. As such, the investment in Pineview is carried at cost and
adjusted for the Partnership's share of undistributed earnings or losses
using the equity method of accounting.
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amount of assets and liabilities as of the date of the
balance sheet and operations for the year then ended. Material estimates as
to which it is reasonably possible that a change in the estimate could
occur in the near term relates to the collectibility of the notes
receivable due from affiliates. Although these estimates are based on
management's knowledge of current events and actions it may undertake in
the future, they may ultimately differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed
depending on their personal tax situations. The financial statements do not
reflect a provision for income taxes.
D-292
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of June
26, 1997:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash,
and maximum capital contributions of the limited partners of $1,200,000, to
be divided into 2,400 units of limited partnership units. A capital account
is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will not
be reinvested but will be distributed in order of priority to the Partners,
if available, quarterly, to (a) the limited partners who will receive 100%
of the distributable cash until they have received a 12.5% non-cumulative
annual cash-on-cash return on the aggregate amount of their capital
contribution as calculated from each limited partner's admission date; and
(b) the excess, if any, will be allocated 50% to the limited partners and
50% to the general partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets will
not be reinvested but will be distributed to the partners in order of
priority after repayment of all indebtedness secured by the assets to (a)
the limited partners who will receive 100% of the distributions until the
total amount distributed to them, when added to all prior distributions of
distributable cash and net proceeds made to them, is equal to the sum of
their capital contributions plus an annual 12.5% cash-on-cash return; and
(b) the balance, if any, is distributed 50% to the limited partners and 50%
to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes will
be made as follows:
D-293
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by the
Partnership equal the cumulative amounts distributable to the general
partner under the terms of the distributions of cash and net proceeds. The
balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are allocated
99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of
the Agreement; (b) the determination of the limited partners exercising
their voting rights to dissolve the Partnership; (c) the death,
resignation, retirement, dissolution, removal, bankruptcy, adjudication of
insolvency, or adjudication of insanity or incompetence of the last
remaining general partner then in office and the refusal of any successor
general partner to replace it, unless the holders of a majority of the
units then outstanding vote to continue the Partnership and elect one or
more successor general partners willing to serve in such capacity to
continue the business of the Partnership; (d) the sale of all or
substantially all of the Partnership's property; (e) the repayment in full
of all loans made by the Partnership, unless the Partnership thereafter
continues to own non-loan assets; and (f) the occurrence of any other event
which, by law, would require the Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the
assets, and the proceeds will be applied and distributed (a) first to the
Partnership creditors, other than partners; (b) then, any loans owed by the
Partnership to the partners shall be paid in proportion thereto; and (c)
finally, to the limited partners and the general partner in proportion to
their respective positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between
the Partnership and the general partner stipulated in the Agreement, the
Partnership retained the general partner to provide administrative services
for $1,000 per month through December 31, 2003.
D-294
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES
In August 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest due from
Heatherwood Apartments II, Ltd. ("Heatherwood II") were converted into
promissory notes as more fully described in the table below.
Heatherwood II Second Mortgage Note; matures on October 1, 2004; accrues
interest at an minimum annual rate of 6% and provides for participation
interest at the rate of 3% per annum based upon the amount of the unpaid
principal, which shall be due and payable to the extent that it does not
exceed the available cash flow, as defined in the note; provides for
additional participation interest in an amount equal to 30% of remaining
available cash flow, as defined, which will continue to be made until such
time as the collateral has been sold, and which obligation will continue
notwithstanding total repayment of the principal amount of the note;
secured by a lien upon certain real and personal property of Heatherwood
II; subordinated to the first mortgage which had a balance of approximately
$710,000 as of September 30, 1998.
$325,000
Unsecured promissory note, representing advances made by the former general
partner to Heatherwood II. The note is payable upon demand and bears
interest at 1% over prime (9.5% as of September 30, 1998). 1,742
Other receivables, related to advances for refinancing fees and
professional services
13,404
----------
340,146
Percentage purchased 42%
----------
142,861
Less discount 25,361
----------
Notes receivable, net of discount $ 17,500
==========
NOTE 4. NOTES FROM NON-AFFILIATE
In January 1998, the Partnership purchased from an unrelated party for
$40,000 and a promissory note in the original principal amount of $560,000,
an undivided 75% interest in a second mortgage note in the original
principal amount of $735,000 (with accrued unpaid interest thereon of
$506,767) made by Garden Terrace Apartments III, Ltd. ("Garden Terrace"), a
non-affiliate. The second mortgage note matures on January 1, 2007, bears
interest at a minimum annual rate of 2% plus participation interest of up
to 7% based on the amount of the unpaid principal, payable out of excess
cash flow. In February 1998, the Partnership sold to Baron Strategic
Investment Fund VI, Ltd., an affiliate, an undivided 20% interest of the
Garden Terrace second mortgage note and accrued interest for $160,000.
Second Mortgage Note $ 735,000
Accrued Interest $ 506,767
----------
$1,241,767
----------
Percentage Purchased 55%
$ 682,972
Less unamortized discount, $ 282,972
----------
Second mortgage note and accrued interest,
net of unamortized discount $ 400,000
==========
D-295
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. INVESTMENT IN AFFILIATE
The following is a summary of the financial position and results of
operations of Crystal Court as of and for the nine month period ended
September 30, 1998.
Financial position:
Rental apartments $1,064,434
Other assets 242,868
----------
Total assets $1,307,302
==========
Mortgage payable $1,202,529
Other liabilities 76,811
----------
Total liabilities 1,279,302
27,962
----------
Partners' capital 1,307,302
Results of operations:
Revenues $ 204,310
Costs and expenses 186,511
----------
Net income $ 17,799
==========
The following is a summary of the financial position and results of
operations of Pineview as of and for the nine month period ended September
30, 1998.
Financial position:
Rental apartments $ 1,815,945
Other assets 214,580
-----------
Total assets $ 2,030,525
===========
Mortgage payable $ 1,593,060
Other liabilities 511,529
-----------
Total liabilities 2,104,589
Partners' capital (74,064)
Results of operations:
Revenues $ 307,211
Costs and expenses 234,773
-----------
Net income $ 72,438
===========
D-296
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. ADVANCES RECEIVABLE FROM AFFILIATE
During 1998, the Partnership provided funding to an affiliate by means of
advances in an arrangement equivalent to an open ended line of credit. The
advances are due on demand and accrue interest at 12% per annum. The
balance of $6,500 remained outstanding from Heatherwood II as of September
30, 1998.
NOTE 7. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1997, in accordance with the terms of a Private Placement
Memorandum, dated June 26, 1997, the Partnership issued 2,256 units of
limited partner interest units at $500 per unit for gross proceeds of
$1,128,000. Costs of $268,260 incurred in connection with syndicating the
limited partnership were recorded as a reduction of limited partners'
capital contributions. Of the $268,260 in syndication costs incurred in
1997, the Partnership paid $93,742 to and accrued $70,258 for its general
partner for administrative, legal and investment fees.
During 1998, the Partnership issued 144 units at $500 per unit for gross
proceeds of $72,000. Costs of $15,800 incurred in connection with
syndicating the limited partners were recorded as a reduction of limited
partners' contributions in 1998.
NOTE 8. SUBSEQUENT EVENTS
Investment in Non-Affiliate
In October 1998, Garden Terrace III restated and amended the $735,000
second mortgage note and created a new second mortgage note in the original
principal amount of $506,767 to cover accrued interest. Both notes mature
on January 1, 2007 and are secured by a second mortgage on the Garden
Terrace property The terms of the $735,000 second mortgage note are as
described above in Note 4 except that the restated note provides for
additional participation interest (payable to the holder of the $506,767
second mortgage note) in an amount equal to 20% of any available cash flow
remaining after payment of minimum interest and participation interest. The
$506,767 second mortgage note bears interest at an annual rate of 9%
payable from excess cash flows after 2% minimum interest and 7%
participation interest has been paid on the $735,000 second mortgage note.
Baron Strategic Investment Fund VI, Ltd. ("Strategic VI") and Baron
Strategic Investment Fund IX, Ltd. ("Strategic IX"), affiliates of the
Partnership, own the remaining undivided 45% interest on the notes.
Distributions
Subsequent to September 30, 1998 the partnership distributed $30,000 to the
limited partners.
D-297
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
D-298
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
Cash $ 31,922
Notes receivable from affiliates 612,000
Accrued interest receivable from affiliates 68,898
--------
$712,820
========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Advances payable to affiliate 64,000
Administrative fees payable to general partner $ 14,500
Accrued interest payable 2,900
--------
81,400
--------
Commitments, Subsequent Events and Other Matter
Partners' Capital:
General partner 81
Limited partners 631,339
--------
631,420
--------
$712,820
========
D-299
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Revenues:
Interest income from affiliates $59,248
Other 354
-------
59,602
-------
Costs and Expenses:
General and administrative 16,870
-------
16,870
-------
Net Income $42,732
=======
D-300
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
STATEMENT OF PARTNERS' CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
General Limited
Partner Partners Total
------- -------- -----
Partners' Capital, Beginning $ 81 $ 656,107 $ 656,188
Distributions -- (67,500) (67,500)
Net Income -- 42,732 42,732
--------- --------- ---------
Partners' Capital, Ending $ 81 $ 631,339 $ 631,420
========= ========= =========
D-301
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Cash Flows from Operating Activities:
<S> <C>
Net income $ 42,732
Adjustments to reconcile net income to
net cash used in operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliates 1,086
Decrease in administrative fees payable to general partner 4,500
Decrease in accrued interest payable 2,900
--------
Net cash used in operating activities 51,218
--------
Cash Flows from Financing Activities:
Advances to affiliates 47,000
--------
Net cash used in investing activities 47,000
--------
Cash Flows from Financing Activities:
Limited partners' distributions (67,500)
--------
Net cash provided by financing activities (67,500)
--------
Net Increase in Cash 30,718
Cash, Beginning 1,204
--------
Cash, Ending $ 31,922
========
</TABLE>
D-302
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Vulture Fund I, Ltd. ("the Partnership") was initially
organized on April 9, 1996 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of
$90 in cash; and (b) the maximum capital contributions of the limited
partners of $900,000, to be divided into 1,800 equal units of limited
partnership interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt and equity financing to existing affiliated
limited partnerships owning residential apartment communities located in
Florida.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the related
allowance for impairment of such notes receivable. The Partnership accounts
for such notes under the provisions of Statement of Financial Accounting
Standard No. 114, Accounting by Creditors for Impairment of a Loan, as
amended by Statement of Financial Accounting Standard No. 118, Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosure.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a note to be
impaired when it is probable that the Partnership will be unable to collect
all amounts due according to the contractual terms of the note. When a loan
is considered to be impaired, the amount of impairment is measured based
upon (a) the present value of expected future cash flows discounted at the
note's effective interest rate; and (b) the liquidation value of the note's
collateral reduced by expected selling costs and other notes secured by the
same collateral. Cash receipts on impaired notes receivable are applied to
reduce the principal amount of such receivables until the principal has
been recovered, and are recognized as interest income thereafter.
D-303
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amount of assets and liabilities as of the date of the
balance sheet and operations for the year then ended. Material estimates as
to which it is reasonably possible that a change in the estimate could
occur in the near term relates to the allowance for impairment and the
collectibility of the notes receivable due from affiliates. Although these
estimates are based on management's knowledge of current events and actions
it may undertake in the future, they may ultimately differ from actual
results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed
depending on their personal tax situations. The financial statements do not
reflect a provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of April
24, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash,
and maximum capital contributions of the limited partners of $900,000, to
be divided into 1,800 units of limited partnership units. A capital account
is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will not
be reinvested but will be distributed in order of priority to the Partners,
if available, quarterly, to (a) the limited partners who will receive 100%
of the distributable cash until they have received a 15% non-cumulative
annual cash-on-cash return on the aggregate amount of their capital
contribution as calculated from each limited partner's admission date; and
(b) the excess, if any, will be allocated to the general partner.
D-304
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions (Continued)
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets will
not be reinvested but will be distributed to the partners in order of
priority after repayment of all indebtedness secured by the assets to (a)
the limited partners who will receive 100% of the distributions until the
total amount distributed to them when added to all prior distributions of
distributable cash and net proceeds made to them, is equal to the sum of
their capital contributions plus an annual 10% cash-on-cash return; (b) the
general partner until the total amount distributed to them when added to
all prior distributions of distributable cash and net proceeds made to it,
is equal to the sum of its capital contribution plus an annual 10%
cash-on-cash return and; (c) the balance, if any, is distributed 50% to the
limited partners and 50% to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes will
be made as follows:
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by the
Partnership equal the cumulative amounts distributable to the general
partner under the terms of the distributions of cash and net proceeds. The
balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are allocated
99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of
the Agreement; (b) the determination of the limited partners exercising
their voting rights to dissolve the Partnership; (c) the death,
resignation, retirement, dissolution, removal, bankruptcy, adjudication of
insolvency, or adjudication of insanity or incompetence of the last
remaining general partner then in office and the refusal of any successor
general partner to replace it, unless the holders of a majority of the
units then outstanding vote to continue the Partnership and elect one or
more successor general partners willing to serve in such capacity to
continue the business of the Partnership; (d) the sale of all or
substantially all of the Partnership's property; (e) the repayment in full
of all loans made by the Partnership, unless the Partnership thereafter
continues to own non-loan assets; and (f) the occurrence of any other event
which, by law, would require the Partnership to be dissolved.
D-305
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the
assets, and the proceeds will be applied and distributed (a) first to the
Partnership creditors, other than partners; (b) then, any loans owed by the
Partnership to the partners shall be paid in proportion thereto; and (c)
finally, to the limited partners and the general partner in proportion to
their respective positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between
the Partnership and the general partner stipulated in the Agreement, the
Partnership retained the general partner to provide administrative services
for $500 per month through December 31, 2003. No fees were incurred in
1998.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE
In January 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest due from
Curiosity Creek Apartments, Ltd. ("Curiosity Creek"), were converted into
promissory notes as more fully described in the table below:
Curiosity Creek Second Mortgage Note; matures on April 1, 2007; accrues
interest at an minimum annual rate of 6% and provides for participation
interest at the rate of 3% per annum based upon the amount of the unpaid
principal, which shall be due and payable to the extent that it does not
exceed the available cash flow, as defined in the note; provides for
additional participation interest in an amount equal to 30% of remaining
available cash flow, as defined, which will continue to be made until such
time as the collateral has been sold, and which obligation will continue
notwithstanding total repayment of the principal amount of the note;
secured by a lien upon certain real and personal property of Curiosity
Creek; subordinated to the first mortgage which had a balance of
approximately $1,188,000 as of September 30, 1998.
$ 807,560
Unsecured promissory note, representing advances made by the former general
partner to Curiosity Creek. The note is payable upon demand and bears
interest at 1% over prime (9.5% as of September 30, 1998). 414,280
Unsecured promissory note, representing advances made by the former general
partner to Curiosity Creek. The note is payable upon demand and bears
interest at 12.5%.
416,000
Other receivables, related to advances for refinancing fees and
professional services.
29,732
----------
1,667,672
Percentage purchased 73.73%
----------
1,229,575
Less discount 617,575
----------
Notes receivable, net of discount $ 612,000
==========
D-306
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE (Continued)
See Note 6 regarding a subsequent amendment to the second mortgage.
NOTE 4. NOTES PAYABLE FROM AFFILIATE
Advances Payable to Affiliates
In 1998, the Partnership received loans of $19,500 and $44,500, from
affiliate partnerships Baron Strategic Investment Fund IV, Ltd., and Baron
Strategic Investment Fund V, Ltd., respectively. The loans bear interest at
12% and are due on demand.
NOTE 5. ADVANCES TO AFFILIATE
During 1998, the Partnership provided funding to an affiliate by means of
advances in an arrangement equivalent to an open ended line of credit. The
advances are due on demand and accrue interest at 12%. The balance of
$14,513 remained outstanding from Curiosity Creek as of September 30, 1998.
NOTE 6. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
In 1996, in accordance with the terms of a Private Placement Memorandum
dated April 24, 1996, the Partnership issued the 1,800 units of limited
partner interest being offered at $500 per unit for total gross proceeds of
$900,000. Costs of $209,000 incurred in connection with syndicating the
limited partnership units were recorded as a reduction of limited partners'
capital contributions. Of the $209,000 in syndication costs, the
Partnership paid $119,000 to its general partner for administrative, legal
and investment fees.
NOTE 7. SUBSEQUENT EVENTS
Amendment to Second Mortgage
In December 1998, Curiosity Creek, the Partnership and Baron Strategic
Investment Fund V, Ltd. ("Strategic V"), entered into a mortgage
modification agreement pursuant to which the Partnership and Strategic V
agreed to set the maturity date of the unsecured notes and advances at
April 1, 2007 (the maturity date of the second mortgage note) and Curiosity
Creek agreed to secure the unsecured notes and advances under the second
mortgage secured by the Curiosity Creek property.
Distributions
Subsequent to September 30, 1998, the Partnership made distributions of
approximately $90,000 to the limited partners
D-307
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
D-308
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
Cash $ 104
Notes receivable from affiliates 474,191
Accrued interest receivable from affiliates 94,029
--------
$568,324
========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner $ 18,000
Loan Payable to Affiliate 1,750
--------
19,750
--------
Commitments, Subsequent Events and Other Matter
Partners' Capital:
General partner 832
Limited partners 547,742
--------
548,574
--------
$568,324
========
D-309
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Revenues:
Interest income from affiliates $48,285
Other 35
-------
48,320
-------
Costs and Expenses:
General and administrative 3,293
-------
3,293
-------
Net Income $45,027
=======
D-310
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
STATEMENT OF PARTNERS' CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
General Limited
Partner Partners Total
------- -------- -----
Partners' Capital, Beginning $ 832 $ 545,840 $ 546,672
Distributions -- (43,125) (43,125)
Net Income -- 45,027 45,027
--------- --------- ---------
Partners' Capital, Ending $ 832 $ 547,742 $ 548,574
========= ========= =========
D-311
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Cash Flows from Operating Activities:
Net income $ 45,027
Adjustments to reconcile net income to
net cash used in operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliates (28,935)
--------
Net cash used in operating activities 16,092
--------
Cash Flows from Investing Activities:
Advances to affiliates 1,750
--------
Net cash used in investing activities 1,750
--------
Cash Flows from Financing Activities:
Limited partners' distributions (43,125)
--------
Net cash provided by financing activities (43,125)
--------
Net Increase in Cash (25,283)
Cash, Beginning 25,387
--------
Cash, Ending $ 104
========
D-312
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Brevard Mortgage Program, Ltd. ("the Partnership") was initially organized
on November 14, 1995 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of
$90 in cash; and (b) the maximum capital contributions of the limited
partners of $575,000, to be divided into 575 equal units of limited
partnership interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt financing to existing affiliated limited
partnerships owning residential apartment communities located in Florida.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in financial
institutions in excess of the federally insured limits. The Partnership
maintains its cash with a high quality financial institution which the
Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the related
allowance for impairment of such notes receivable. The Partnership accounts
for such notes under the provisions of Statement of Financial Accounting
Standard No. 114, Accounting by Creditors for Impairment of a Loan, as
amended by Statement of Financial Accounting Standard No. 118, Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosure.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a note to be
impaired when it is probable that the Partnership will be unable to collect
all amounts due according to the contractual terms of the note. When a loan
is considered to be impaired, the amount of impairment is measured based
upon (a) the present value of expected future cash flows discounted at the
note's effective interest rate; and (b) the liquidation value of the note's
collateral reduced by expected selling costs and other notes secured by the
same collateral. Cash receipts on impaired notes receivable are applied to
reduce the principal amount of such receivables until the principal has
been recovered, and are recognized as interest income thereafter.
D-313
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amount of assets and liabilities as of the date of the
balance sheet and operations for the year then ended. Material estimates as
to which it is reasonably possible that a change in the estimate could
occur in the near term relates to the collectibility of the notes
receivable due from affiliates. Although these estimates are based on
management's knowledge of current events and actions it may undertake in
the future, they may ultimately differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed
depending on their personal tax situations. The financial statements do not
reflect a provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of
December 8, 1995.
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash,
and maximum capital contributions of the limited partners of $575,000 to be
divided into 575 units of limited partnership units. A capital account is
maintained for each partner.
Term
The Partnership will continue through December 31, 2025, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will not
be reinvested but will be distributed in order of priority to the Partners,
if available, quarterly, to (a) the limited partners who will receive 99%
of the distributable cash; and (b) to the general partner who will receive
1% of the distributable cash.
D-314
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions (Continued)
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets will
not be reinvested but will be distributed to the partners in order of
priority after repayment of all indebtedness secured by the assets to (a)
the limited partners who will receive 100% of the distributions until the
entire principal amount of the purchased second mortgage loan has been
repaid; and (b) the balance, if any, is distributed to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes will
be made as follows:
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by the
Partnership equal the cumulative amounts distributable to the general
partner under the terms of the distributions of cash and net proceeds. The
balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are allocated
99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of
the Agreement; (b) the determination of the limited partners exercising
their voting rights to dissolve the Partnership; (c) the death,
resignation, retirement, dissolution, removal, bankruptcy, adjudication of
insolvency, or adjudication of insanity or incompetence of the last
remaining general partner then in office and the refusal of any successor
general partner to replace it, unless the holders of a majority of the
units then outstanding vote to continue the Partnership and elect one or
more successor general partners willing to serve in such capacity to
continue the business of the Partnership; (d) the sale of all or
substantially all of the Partnership's property; (e) the repayment in full
of all loans made by the Partnership, unless the Partnership thereafter
continues to own non-loan assets; and (f) the occurrence of any other event
which, by law, would require the Partnership to be dissolved.
D-315
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the
assets, and the proceeds will be applied and distributed (a) first to the
Partnership creditors, other than partners; (b) then, any loans owed by the
Partnership to the partners shall be paid in proportion thereto; and (c)
finally, to the limited partners and the general partner in proportion to
their respective positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between
the Partnership and the general partner stipulated in the Agreement, the
Partnership retained the general partner to provide administrative services
for $750 per month through December 31, 2002.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE
The Partnership had the following receivables from Florida Opportunity
Income Partners II, Ltd. ("FOIP II") at September 30, 1998:
Notes Accrued
Receivable Interest
---------- --------
Notes receivable, net of discount $450,000 $ 78,318(a)
Advances 24,191 15,711(b)
-------- --------
$474,191 $ 94,029
======== ========
(a) In December 1995, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. These
receivables, which include notes receivable and accrued interest due
from FOIP II, were converted into promissory notes as more fully
described in the table below:
FOIP II Second Mortgage Note matures on July 31, 2001; accrues
interest at a minimum annual rate of 6% and provides for participation
interest at the rate of 3% per annum based upon the amount of the
unpaid principal, which shall be due and payable to the extent that it
does not exceed the available cash flows, as defined in the note;
provides for additional participation interest in an amount equal to
20% of remaining available cash flow, as defined, which will continue
to be made until such time as the collateral has been sold, and which
obligation will continue notwithstanding total repayment of the
principal amount of the note; is secured by a lien upon certain real
and personal property of FOIP II and; is subordinated to a first
mortgage, which had a balance of approximately $974,000 as of
September 30, 1998.
$752,747
D-316
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE (Continued)
Unsecured promissory note representing advances made by the former general
partner to FOIF II. The note matures October 1, 2007 and bears an annual
interest rate of 1% over prime (9.5% as of September 30, 1998).
271,923
----------
1,024,670
Less discount 574,670
----------
Notes receivable, net of discount $ 450,000
==========
See Note 5 regarding a subsequent amendment to the second mortgage.
NOTE 4. ADVANCES TO AFFILIATE
In 1998, the Partnership provided funding to affiliates by means of
advances in an arrangement equivalent to an open ended line of credit. The
advances are due on demand and provide for interest at 12% per annum. The
balance as of September 30, 1998 are as follows:
FOIP II $24,191
=======
NOTE 5. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1996, in accordance with the terms of a Private Placement Memorandum
dated December 8, 1995, the Partnership issued the 575 units of limited
partner interest being offered at $1,000 per unit for total gross proceeds
of $575,000. Costs of $67,500 incurred in connection with syndicating the
partnership units were recorded as a reduction of limited partners' capital
contributions. Of the syndication costs, $10,000 was paid to the General
Partner for administrative, legal and investment fees.
NOTE 6. SUBSEQUENT EVENTS
Distributions to Limited Partners
Subsequent to September 30, 1998, the Partnership made distributions of
approximately $14,375 to the limited partners.
Amendment to Second Mortgage
On December 15, 1998 FOIPII restated and amended the second mortgage note
and the promissory note and created a new promissory note in favor of the
Partnership in the original principal amount of $24,191 (12% annual
interest rate) to cover prior advances. The Partnership and FOIPII also
entered into a Second Amendment to Open-End Second Mortgage and Security
Agreement. Pursuant to these transactions, all of the notes will be secured
by the Second Mortgage, and the maturities extended to October 1, 2001. The
amendment also provides for additional advances to be secured under a
future advance clause up to $500,000 maximum.
D-317
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 7. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
D-318
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
Cash $ 38
Notes receivable from affiliates 365,000
Accrued interest receivable from affiliates 114,985
Advances to affiliates 93,302
--------
$573,325
========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner $ 10,500
--------
Commitments and Other Matters
Partners' Capital:
General partner 90
Limited partners 562,735
--------
562,825
--------
$573,325
========
D-319
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Revenues:
Interest income from affiliates $50,085
Other 157
-------
50,242
-------
Costs and Expenses:
Administrative fees to general partner 6,000
General and administrative 5,312
-------
11,312
-------
Net Income $38,930
=======
D-320
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
STATEMENT OF PARTNERS' CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 1998
General Limited
Partner Partners Total
------- -------- -----
Partners' Capital, Beginning $ 90 $ 576,305 $ 576,395
Distributions -- (52,500) (52,500)
Net Income -- 38,930 38,930
--------- --------- ---------
Partners' Capital, Ending $ 90 $ 562,735 $ 562,825
========= ========= =========
D-321
<PAGE>
LAMPLIGHT COURT OF BELLEFOUNTAINE APARTMENTS, LTD.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Cash Flows from Operating Activities:
Net income $ 38,930
Adjustments to reconcile net income to
net cash used in operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliates (37,185)
--------
Net cash used in operating activities 1,745
--------
Cash Flows from Financing Activities:
Limited partners' distributions (52,500)
--------
Net cash provided by financing activities (52,500)
--------
Net Increase in Cash (50,755)
Cash, Beginning 50,793
--------
Cash, Ending $ 38
========
D-322
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Lamplight Court of Bellefontaine, Ltd. (the "Partnership") was initially
organized on February 16, 1996 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions of
partners to be comprised of (a) the general partner capital contribution of
$90 in cash; and (b) the maximum capital contributions of the limited
partners of $700,000, to be divided into 700 equal units of limited
partnership interest.
See Note 2 for a summary of other provisions of the Agreement of Limited
Partnership.
Business
The Partnership provides debt and equity financing to existing affiliated
limited partnerships owning residential apartment communities located in
Ohio.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the nine months ended September 30, 1998 the
Partnership had deposits in financial institutions in excess of the
federally insured limits. The Partnership maintains its cash with a high
quality financial institution which the Partnership believes limits these
risks.
Note Receivable from Affiliates
Note receivable from affiliates is recorded at cost, less the related
allowance for impairment of such notes receivable. The Partnership accounts
for such notes under the provisions of Statement of Financial Accounting
Standard No. 114, Accounting by Creditors for Impairment of a Loan, as
amended by Statement of Financial Accounting Standard No. 118, Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosure.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a note to be
impaired when it is probable that the Partnership will be unable to collect
all amounts due according to the contractual terms of the note. When a loan
is considered to be impaired, the amount of impairment is measured based
upon (a) the present value of expected future cash flows discounted at the
note's effective interest rate; and (b) the liquidation value of the note's
collateral reduced by expected selling costs and other notes secured by the
same collateral. Cash receipts on impaired notes receivable are applied to
reduce the principal amount of such receivables until the principal has
been recovered, and are recognized as interest income thereafter.
D-323
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment in Affiliate
In 1996, the Partnership acquired certain receivables and a limited partner
interest in Independence Village, Ltd. ("Independence Village") from an
unrelated entity at a discount from the face amount thereof (see Note 3).
As a result, the Partnership holds a 31.7% limited partner interest in
Independence Village, a limited partnership which owns a residential
apartment property in Bellefontaine, Ohio. The investment in Independence
Village is accounted for using the equity method of accounting as a result
of the Partnership and Independence Village having the same general partner
president and the general partner's ability to exercise significant
influence on Independence Village. As such, the investment in Independence
Village is carried at cost and adjusted for the Partnership's share of
undistributed earnings or losses using the equity method of accounting. At
the date of purchase, management estimated the value of the limited partner
interest to be insignificant and did not allocate any of the purchase price
to the investment.
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amount of assets and liabilities as of the date of the
balance sheet and operations for the year then ended. Material estimates,
as to which it is reasonably possible that a change in the estimate could
occur in the near term, relates to the value of the limited partner
interest and the collectibility of the note receivable due from affiliates.
Although these estimates are based on management's knowledge of current
events and actions it may undertake in the future, they may ultimately
differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income tax
purposes and as such does not incur income taxes. Instead, its earnings and
losses are included in the personal returns of the partners and taxed
depending on their personal tax situations. The financial statements do not
reflect a provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership (the "Agreement") made and entered into as of March
7, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in cash,
and maximum capital contributions of the limited partners of $700,000, to
be divided into 700 units of limited partnership units. A capital account
is maintained for each partner.
D-324
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year will not
be reinvested but will be distributed in order of priority to the Partners,
if available, quarterly, to (a) the limited partners who will receive 100%
of the distributable cash until they have received a 10% non-cumulative
annual cash-on-cash return on the aggregate amount of their capital
contribution as calculated from each limited partner's admission date; and
(b) the general partner will receive 100% of the remaining distributable
cash.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets will
not be reinvested but will be distributed to the partners in order of
priority after repayment of all indebtedness secured by the assets to (a)
the limited partners who will receive 100% of the distributions until the
total amount distributed to them, when added to all prior distributions of
distributable cash and net proceeds made to them, is equal to the sum of
their capital contributions plus an annual 10% cash-on-cash return; and (b)
then 31.7% of up to $350,000 of any remaining net proceeds to the limited
partners; and (c) the balance, if any, to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes will
be made as follows:
Income
The first 100% of income is allocated to the general partner until the
profits allocated plus the cumulative profits allocated to the general
partner for prior fiscal periods during which a profit was earned by the
Partnership equal the cumulative amounts distributable to the general
partner under the terms of the distributions of cash and net proceeds. The
balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses are allocated
99% to the limited partners and 1% to the general partner.
D-325
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term of
the Agreement; (b) the determination of the limited partners exercising
their voting rights to dissolve the Partnership; (c) the death,
resignation, retirement, dissolution, removal, bankruptcy, adjudication of
insolvency, or adjudication of insanity or incompetence of the last
remaining general partner then in office and the refusal of any successor
general partner to replace it, unless the holders of a majority of the
units then outstanding vote to continue the Partnership and elect one or
more successor general partners willing to serve in such capacity to
continue the business of the Partnership; (d) the sale of all or
substantially all of the Partnership's property; and (e) the occurrence of
any other event which, by law, would require the Partnership to be
dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take full
account of the Partnership's assets and liabilities, and the assets will be
liquidated as promptly as is consistent with obtaining fair value of the
assets, and the proceeds will be applied and distributed (a) first to the
Partnership creditors, other than partners; (b) then, any loans owed by the
Partnership to the partners shall be paid in proportion thereto; and (c)
finally, to the limited partners and the general partner in proportion to
their respective positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract") between
the Partnership and the general partner stipulated in the Agreement, the
Partnership retained the general partner to provide administrative services
for $500 per month through December 31, 2002.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE
In 1996, the Partnership acquired certain receivables and a 31.7% interest
in Independence Village from an unrelated entity at a discount from the
face amount thereof. The receivables, which included note receivable and
accrued interest due from Independence Village, were converted into
promissory note as more fully described in the table below.
Independence Village Second Mortgage Note; matures in December 2006;
accrues interest at an annual rate of 9.5%; secured by a lien upon certain
real and personal property of Independence Village (the Lamplight Court
Property); subordinated to the first mortgage which had a balance of
approximately $585,000 as of September 30, 1998. $585,000
Less discount 220,000
--------
Note receivable, net of discount $365,000
========
D-326
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTE RECEIVABLE FROM AFFILIATE (Continued)
The second mortgage matures on December 1, 1998, and may be extended at the
option of Independence Village by payment of a fee equal to 1% of the
loan's initial principal amount of $585,000.
NOTE 4. ADVANCES RECEIVABLE FROM AFFILIATE
In 1996 and during 1997, the Partnership provided funding to Independence
Village by means of advances in an arrangement equivalent to an open ended
line of credit advances. The outstanding advances are due on demand and
accrue interest at 12% per annum. The balance of $93,302 remained
outstanding as of September 30, 1998.
NOTE 5. INVESTMENT IN AFFILIATE
The following is a summary of the financial position and results of
operations of Independence Village as of and for the nine months ended
September 30, 1998.
Financial position:
Rental apartments $ 823,912
Other assets 217,953
-----------
Total assets $ 1,041,865
===========
Mortgage payable $ 1,676,259
Other liabilities 424,947
-----------
Total liabilities 2,101,206
Partners' deficiency (1,059,341)
-----------
$ 1,041,865
===========
Results of operations:
Rent Income 179,564
Costs and expenses 156,520
-----------
Net loss $ 123,044
===========
As discussed in Note 1, upon acquisition of certain receivables and the
limited partnership interest in Independence Village, the Partnership did
not allocate any of the purchase price to the investment in affiliate. The
Partnership has deferred recognition of its proportionate share of net
losses because there is no personal obligation to fund the resulting
negative limited partner's capital account balance. Future net income, if
any, will not be recognized until such time as the limited partner's
capital account becomes a positive balance.
D-327
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1996, in accordance with the terms of a Private Placement Memorandum
dated March 7, 1996, the Partnership issued 700 units of limited
partnership interest units at $1,000 per unit for total gross proceeds of
$700,000. Costs of $120,000 incurred in connection with syndicating the
partnership were recorded as a reduction of limited partners' capital
contributions. Of the syndication costs, $57,000 was paid to the General
Partner for administrative, legal and investment fees.
NOTE 7. SUBSEQUENT EVENTS
Distribution
Subsequent to September 30, 1998, the Partnership made distributions of
approximately $17,500 to the limited partners.
Amendment to Second Mortgage
In December 1998, Independence Village and the Partnership entered into a
mortgage modification agreement under which the Partnership agreed to set
the maturity date on the unsecured indebtedness at December 2006, in
exchange for the agreement of Independence Village to secure its repayment
obligations on the unsecured indebtedness with a second mortgage on the
Lamplight Court property.
NOTE 8. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
D-328
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Amendment No. 3 to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Cincinnati, State of Ohio on February 11, 1999.
BARON CAPITAL PROPERTIES, L.P.
By: Baron Capital Trust,
General Partner
By: Baron Advisors, Inc.,
Managing Shareholder
By: /s/Gregory K. McGrath
------------------------------------
Gregory K. McGrath, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registrant's Registration Statement has been signed by the
following person in the capacity and on the date stated.
Name Title Date
---- ----- ----
/s/Gregory K. McGrath Chief Executive Officer of February 11, 1999
- ---------------------- Baron Advisors, Inc.,
Gregory K. McGrath Managing Shareholder of Baron Capital
Trust, General Partner of Registrant
II-1
<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. --
3.2* Agreement of Limited Partnership of Registrant, dated as of May 15, 1998
(incorporated herein by reference to Exhibit 10.6 to Amendment No. 3 to
the Form SB-2 Registration Statement of Baron Capital Trust filed with
the Securities and Exchange Commission on May 15, 1998 (Registration No.
333-35063). --
4.1* Form of Unit Certificate --
5.1* Form of Opinion of Schoeman, Marsh & Updike, LLP as to legality of
securities being registered --
5.2* Form of Opinion of Keating, Muething & Klekamp P.L.L. on certain tax
matters --
10.1* Trust Management Agreement, dated as of May 15, 1998, between the
Registrant and Baron Advisors, Inc. (incorporated herein by reference to
Exhibit 10.1 to Amendment No. 3 to the Form SB-2 Registration Statement
of Baron Capital Trust filed with the Securities and Exchange Commission
on May 15, 1998 (Registration No. 333-35063). --
10.2* Amended and Restated Declaration of Trust for Baron Capital Trust made
as of August 11, 1998 --
10.3* Indemnification Agreement among the Registrant, Baron Capital Trust (its
General Partner), officers of the Registrant and trustees, officers and
members of the Board of Baron Capital Trust and such other persons as
Baron Capital Trust may designate (included in Section 7.7 of the --
Agreement of Limited Partnership of the Registrant attached hereto as
Exhibit 3.2)
10.4* Amended and Restated Security Escrow Agreement dated as of May 15, 1998
among Gregory K. McGrath, Robert S. Geiger, Baron Capital Trust
and American Stock Transfer & Trust Company --
10.5* Founders' Subscription Agreement --
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. ____
99.2 Consents of Rachlin Cohen & Holtz, Independent Certified Public
Accountants. ____
99.3* Prior Performance Table VI: Acquisitions of Properties by Program
required under Guide 5 relating to preparation of registration
statements relating to interests in real estate limited partnerships. --
99.4* Consent of Consortium Appraisal, Inc. and Consortium Appraisal and
Consulting Services, Inc., Appraisal Firms --
99.5* Consent of Richards Appraisal Service, Inc., Appraisal Firm --
99.6* Appraisal Reports Relating to Exchange Properties --
* Previously filed
</TABLE>
Exhibit 99.1
Consent of Independent Auditor
The Board of Baron Capital Trust:
I consent to the use of my reports in respect of 16 residential apartment
properties included in Amendment No. 3 to the Form S-4 Registration Statement of
Baron Capital Properties, L.P. and incorporated herein by reference and to the
reference to my firm and such reports under the heading "Experts" in the
prospectus.
/s/ Elroy D. Miedema
---------------------------
Elroy D. Miedema
Certified Public Accountant
Miami, Florida
February 11, 1999
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in Amendment No. 3 to the Registration Statement on
Form S-4 of our report dated August 14, 1998 (except for the third paragraph of
Note 6, as to which the date is December 15, 1998) relating to the financial
statements of Baron Strategic Investment Fund, Ltd., and to all references to
our firm appearing in such Registration Statement.
RACHLIN COHEN & HOLTZ
Miami, Florida
February 11, 1999
