<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
Securities Exchange Act of 1934
For the year ended December 31, 1997 Commission File
Number 0-11063
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
(Exact name of small business issuer as
specified in its charter)
Maryland 04-2742158
(State of organization) (I.R.S. Employer I.D. No.)
5 Cambridge Center, Cambridge, Massachusetts 02142
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (617) 234-3000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Registrant's revenues for its most recent fiscal year were $2,775,000.
No market for the Limited Partnership Units exists and therefore, a market
value for such Units cannot be determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I
Item 1. Description of Business.
Development.
Winthrop Residential Associates II ("WRA II"), was originally
organized under the Uniform Limited Partnership Act of the State of Maryland
on October 21, 1981, for the purpose of investing, as a limited partner, in
other limited partnerships which would develop, manage, own, operate and
otherwise deal with apartment complexes, the financing of which are assisted
by federal, state or local government agencies ("Local Limited Partnerships")
pursuant to programs which do not significantly restrict distributions to
owners or the rates of return on investments in such properties. On June 23,
1983, WRA II elected to comply with and be governed by the Maryland Revised
Uniform Limited Partnership Act (the "Act") and filed its Agreement and
Certificate of Limited Partnership (the "Partnership Agreement") with the
Maryland State Department of Assessments and Taxation. In accordance with and
upon filing its Certificate of Limited Partnership pursuant to the Act, WRA II
changed its name to Winthrop Residential Associates II, A Limited Partnership
(the "Partnership").
The general partners of the Partnership are One Winthrop Properties,
Inc., a Massachusetts corporation ("One Winthrop"), and Linnaeus-Hawthorne
Associates Limited Partnership ("Linnaeus-Hawthorne"). One Winthrop is a
wholly-owned subsidiary of First Winthrop Corporation ("First Winthrop"),
which in turn is wholly-owned by Winthrop Financial Associates, A Limited
Partnership ("WFA"), a Maryland public limited partnership. One Winthrop is
the Partnership's managing general partner. See "Change in Control."
In late 1982 the Partnership sold, pursuant to a Registration
Statement on Form S-11 filed with the Securities and Exchange Commission,
25,000 Units of limited partnership interest ("Units") at a purchase price of
$1,000 per Unit (an aggregate of $25,000,000). Capital contributions, net of
selling commissions, sales and registration costs, were utilized to purchase
interests in 10 Local Limited Partnerships and temporary short term
investments.
The Partnership invests as a limited partner in Local Limited
Partnerships that own, operate and otherwise deal with apartment complexes
with original financing insured by the U.S. Department of Housing and Urban
Development ("HUD").
2
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Initially, the Partnership acquired equity interests ranging from
52.8% to 99% in ten Local Limited Partnerships, owning 12 properties, for an
aggregate investment, including capitalizable and noncapitalizable fees and
expenses, of approximately $21,669,334. One of the Partnership's properties
was sold in 1986. See "Item 2, Description of Properties" for information
relating to these properties.
In November 1997, the Partnership sold its interest in Westbury
Springs, L.P., a Local Limited Partnership, to an affiliate of the general
partner of the Local Limited Partnership for $1,447,000. It is expected that
the Partnership will distribute these proceeds during the first half of 1998.
Defaults
The Partnership holds limited partnership interests in Local Limited
Partnerships which own apartment properties, all of which were originally
financed with HUD-insured first mortgages. If a Local Limited Partnership
defaults on a HUD-insured mortgage, the mortgagee can assign the defaulted
mortgage to HUD and recover the principal owed on its first mortgage from HUD.
HUD, in its discretion, may then either (i) negotiate a workout agreement with
the Local Limited Partnership, (ii) sell the mortgage, or (iii) pursue its
right to transfer the ownership of the property from the Local Limited
Partnership to HUD through a foreclosure action. The objective of a workout
agreement between an owner and HUD is to secure HUD's sanction of a plan
which, over time, will cure any mortgage delinquencies. While a workout
agreement is effective and its terms are being met, HUD agrees not to pursue
any remedies available to it as a result of the default.
In March 1987, the Local Limited Partnership owning Southwest Parkway
defaulted on its mortgage. Over time, the Local Limited Partnership submitted
various proposals to HUD to cure the mortgage default, all of which had been
rejected. The Partnership was notified that this mortgage would be included in
an auction. In August 1996, the Local Limited Partnership owning Southwest
Parkway Apartments ("Southwest Parkway"), in an effort to avoid a foreclosure
of the property, filed a voluntary petition for reorganization under Chapter
11 of the United States Bankruptcy Code. In November 1996, Southwest Parkway
filed its Bankruptcy Plan which was confirmed by the Bankruptcy Court in
January 1997. The plan included the payment to the lender of $4,100,000 as
full satisfaction of the outstanding indebtedness. In order to effect this
transaction, the Partnership invested an additional $1,799,000 in Southwest
Parkway as a capital contribution and Southwest Parkway obtained a new first
mortgage loan in the amount of $2,200,000. As a result of this transaction,
the Partnership recognized an extraordinary gain of
3
<PAGE>
$2,698,000 on extinguishment of debt in 1997. See "Item 2, Description of
Properties" for information with respect to the origination of funds used to
satisfy the outstanding indebtedness.
In April 1995, the Local Limited Partnership owning Sanford Landing
negotiated a workout agreement with HUD pursuant to which the interest rate on
the debt was reduced so that the debt service payments are at a serviceable
level based on the property's current cash flow. In addition, a portion of the
mortgage was reassigned to the original mortgagee. The remaining balance
continues to be held by HUD.
Change in Control
On July 18, 1995 Londonderry Acquisition II Limited Partnership
("Londonderry II"), a Delaware limited partnership, and affiliate of Apollo
Real Estate Advisors, L.P. ("Apollo"), acquired, among other things, a general
partner interest in W.L. Realty, L.P. ("W.L. Realty") and a sixty four percent
(64%) limited partnership interest in W.L. Realty, and the general partnership
interest in Linnaeus-Hampshire. As a result of the foregoing acquisitions,
Londonderry II is the sole general partner of W.L. Realty which is the sole
general partner of Linnaeus, which in turn is the sole general partner of WFA.
As a result of the foregoing, effective July 18, 1995, Londonderry II, an
affiliate of Apollo, became the controlling entity of the General Partners. In
connection with the transfer of control, the officers and directors of One
Winthrop resigned and Londonderry II appointed new officers and directors. See
Item 9, "Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
Employees
The Partnership does not have any employees. Until December 16, 1997,
Services were performed for the Partnership by the Managing General Partner,
and agents retained by it, including Winthrop Management, an affiliate of the
Managing General Partner. On October 28, 1997, affiliates of the Managing
General Partner and Insignia Financial Group, Inc. ("Insignia") entered into
an agreement pursuant to which, among other things, an affiliate of Insignia
was to be retained as the property manager at the Local Limited Partnership
properties then managed by Winthrop Management. This transfer of property
management was subject to certain conditions including HUD approval. As of
March 1, 1998, HUD approval had been obtained with respect to Southwest
Parkway. The remaining Local Limited Partnerships properties are managed by
the Local Limited Partnerships' respective general partners.
4
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On December 16, 1997, the Managing General Partner and certain of its
affiliates entered into a Services Agreement with Coordinated Services of
Valdosta, LLC ("Coordinated Services") pursuant to which Coordinated Services
was retained to provide asset management and investor services to the
Partnership and certain affiliated partnerships. As a result of this
agreement, Coordinated Services has the right to direct the day to day affairs
of the Partnership, including, without limitation, reviewing and analyzing
potential sale, refinancing or restructuring proposals by Local Limited
Partnerships, preparation of all Partnership reports, maintaining Partnership
records and maintaining bank accounts of the Partnership. Coordinated Services
is not permitted, however, without the consent of the Managing General
Partner, or as otherwise required under the terms of the Partnership's
Agreement of Limited Partnership (the "Partnership Agreement") to, among other
things, cause the Partnership to consent to a sale of an asset or cause the
Partnership to file for bankruptcy. As compensation for providing these
services, the Managing General Partner and its affiliates assigned to
Coordinated Services all of their right to receive fees from the Partnership
as provided in the Partnership Agreement. See "Item 12. Certain Relationships
and Related Transactions."
Item 2. Description of Properties.
The Partnership has invested in Local Limited Partnerships which own
properties located in diverse markets with respect to both the amount and
nature of competition affecting the properties. Some of the rental markets
first became overbuilt during the mid-1980's. Supply of apartments available
for rent began to exceed demand and consumers became very price sensitive. In
order to attract tenants, certain properties were required to maintain rental
rates rather than increase them to meet increasing costs. As a result, these
properties were forced to defer maintenance and replacements which were
necessary to attract tenants, thus exacerbating the competitive forces at work
in these markets.
5
<PAGE>
The following table sets forth certain information regarding the
properties owned by the Local Limited Partnerships in which the Partnership
has retained an interest and which continue to own apartment properties as of
March 15, 1998:
Date Number
of of
Property Name Location Acquisition(1) Units
- ------------- -------- -------------- -----
Whisper Lake Orlando, FL 2/24/82 400
Apartments
Sanford Landing Sanford, FL 4/06/82 264
Apartments
Honeywood
Apartments Roanoke, VA 1/05/83 300
Brookside
Apartments Sylacauga, AL 4/20/82 80
Southwest Parkway Wichita Falls, TX 6/22/82 200
Apartments (2)
Wedgewood Creek Gurnee, IL 6/24/82 198
Apartments
Mountain Vista I Albuquerque, NM 10/28/82 124
Mountain Vista II Albuquerque, NM 10/28/82 96
Cibola Village Albuquerque, NM 10/28/82 128
Apartments
Crofton Village Crofton, MD 10/04/82 258
Apartments
- --------------------
(1) Represents the date on which the Partnership made its initial investment
in the Local Limited Partnership
(2) Consolidated effective January 1, 1997.
6
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The following table sets forth information relating to the first
mortgage encumbering each of the Local Limited Partnership's properties:
Principal Principal
Balance at Balance
December 31, Interest Period Maturity Due at
Property 1997 Rate Amortized Date Maturity
- -------- ---- ---- --------- ---- --------
Whisper Lake $11,890,409 7.675% 40 years 4/1/2024 (1)
Sanford Landing 9,353,122 8.75% 40 years 6/1/2024 (1)
Honeywood 5,713,561 7.5% 40 years 12/1/2019 (1)
Brookside 1,403,470 7.5% 40 years 2/1/2023 (1)
Southwest Parkway 2,183,403 8.75% 27.5 years 2/1/2007 $1,898,000
Wedgewood Creek 8,901,905 7.5% 40 years 8/1/2024 (1)
Mountain Vista I 1,869,135 7.5% 38 years 10/1/2018 (1)
Mountain Vista II 1,981,839 7.5% 38 years 5/1/2020 (1)
Cibola Village 1,879,237 7.5% 37 years 2/1/2019 (1)
Crofton Village 9,495,813 8.2% 38 years 9/1/2006 (1)
(1) Loan at maturity is fully amortized.
In connection with the Bankruptcy of the Local Limited Partnership
which owns Southwest Parkway Apartments, on January 27, 1997 the Local Limited
Partnership obtained a new first mortgage loan in the principal amount of
$2,200,000. The loan bears interest at a rate of 8.75%, is amortized over a 30
year period and matures on February 1, 2007. The Local Limited Partnership
paid approximately $100,000 in transactional costs.
In order to obtain the remaining $2,000,000 needed by the Local
Limited Partnership to satisfy the then existing debt on the property pursuant
to the Bankruptcy Plan, the Partnership made a capital contribution of
approximately $1,799,000 and the balance was funded from the Local Limited
Partnership's cash reserves.
In November 1997, the Partnership sold its interest in Westbury
Springs, L.P., a Local Limited Partnership, to an affiliate of the general
partner of the Local Limited Partnership for $1,447,000. As a result of the
Partnership's investment account having a zero balance at the date of sale,
the Partnership recognized a gain on sale of $1,447,000. It is expected that
the Partnership will distribute these proceeds during the first half of 1998.
7
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The following table sets forth the Partnership's ownership interest
in each of the Local Limited Partnerships:
Apartment Complexes Owned by
The Local Limited Partnerships Ownership Interest
- ------------------------------ ------------------
Whisper Lake Apartments 99%
Sanford Landing Apartments 98%
Honeywood Apartments 95%
Brookside Apartments 99%
Southwest Parkway Apartments 99%
Wedgewood Creek Apartments 99%
Mountain Vista I 90%
Mountain Vista II 90%
Cibola Village Apartments 90%
Crofton Village Apartments 44%
The following chart provides comparative data for each property owned
by the Local Limited Partnerships regarding occupancy rates and average market
rental rates per apartment unit, for the last two years, where that data is
available to the Partnership:
Average Monthly Average Monthly
Occupancy Rate Rental Rate per Unit
----------------- -----------------
Property 1997 1996 1997 1996
- -------- ---- ---- ---- ----
Whisper Lake 94% 92% $588 $548
Sanford Landing 95% 93% $523 $497
Honeywood 98% 89% $516 $508
Brookside 89% 88% $332 $334
Southwest Parkway 90% 99% $411 $364
Wedgewood Creek 93% 92% $737 $718
Mountain Vista I 83% 86% $573 $584
Mountain Vista II 88% 89% $587 $593
Cibola Village 89% 93% $507 $511
Crofton Village 92% 94% $691 $680
8
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Set forth below is a table showing the gross carrying value and
accumulated depreciation and federal tax basis of each of the Partnership's
properties as of December 31, 1997:
<TABLE>
<CAPTION>
Gross Federal
Carrying Accumulated Tax
Property Value Depreciation Rate Method Basis
----- ------------ ---- ------ -----
<S> <C> <C> <C> <C> <C>
Whisper Lake 14,250,490 7,894,001 10-25 yrs. S/L 1,238,688
Sanford Landing 9,043,423 5,123,399 7-25 yrs. S/L 446,459
Honeywood 6,154,450 3,594,249 5-25 yrs. ACRS 598,593
Brookside 1,812,110 1,145,938 10-25 yrs. S/L 54,871
Southwest Parkway 5,657,327 3,207,242 10-27.5 yrs. S/L 704,649
Wedgewood Creek 11,068,660 6,086,420 10-25 yrs. S/L 1,119,193
Mountain Vista I 3,282,116 1,776,447 5-27.5 yrs. S/L (1)
Mountain Vista II 2,981,175 1,629,072 5-27.5 yrs. S/L (1)
Cibola Village 3,094,163 1,631,106 5-27.5 yrs. S/L (1)
Crofton Village 10,362,374 5,798,301 10-25 yrs. S/L 1,345,195
</TABLE>
(1) The Partnership's aggregate Federal Tax Basis in the Local Limited
Partnership which owns Mountain Vista I, Mountain Vista II and Cibola Village
is $1,510,300.
The Partnership has no present intentions of investing any additional
funds in the Local Limited Partnerships.
Item 3. Legal Proceedings.
The Partnership is not a party nor are any of its properties subject
to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the
period covered by this report.
9
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters.
The Partnership is a partnership and thus has no common stock. There
is no active market for the Units. Trading in the Units is sporadic and occurs
solely through private transactions.
As of March 1, 1998, there were 2,596 holders of 25,010 outstanding
Units.
The Partnership Agreement requires that if the Partnership has Cash
Available for Distribution, it be distributed quarterly to the Partners in
specified proportions. The Partnership Agreement defines Cash Available for
Distribution as Cash Flow less cash designated by the Managing General Partner
to be held for restoration or creation of reserves. Cash Flow, in turn, is
defined as cash derived from the Local Limited Partnerships (but excluding
sale or refinancing proceeds) and all cash derived from Partnership
operations, less cash used to pay operating expenses of the Partnership. For
the years ended December 31, 1997 and 1996, cash distributions paid or accrued
to the Investor Limited Partners as a group totaled $1,601,000 and $850,000.
10
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Item 6. Management's Discussion and Analysis or Plan of Operation.
The matters discussed in this Form 10-KSB contain certain
forward-looking statements and involve risks and uncertainties (including
changing market conditions, competitive and regulatory matters, etc.) detailed
in the disclosure contained in this Form 10-KSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operation. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
Liquidity and Capital Resources
As of December 31, 1997, the Partnership retained an equity interest
in seven Local Limited Partnerships owning nine apartment properties. The
Partnership also owns a 99% limited partnership interest in Southwest Parkway
Ltd. ("Southwest Parkway"). An affiliate of the general partners of the
Partnership is the general partner of Southwest Parkway. In conjunction with
the substantial investment made by the Partnership, in January 1997, in
Southwest Parkway (which had been accounted for as another Local Limited
Partnership under the equity method), the financial statements of the
Partnership and Southwest Parkway have been consolidated since January 1,
1997. The Partnership's primary sources of income are distributions from the
Local Limited Partnerships and rental income from Southwest Parkway. The
Partnership requires cash to pay the operating expenses of Southwest Parkway,
management fees, general and administrative expenses or to make capital
contributions, or loans, to any of the Local Limited Partnerships which the
Managing General Partner deems to be in the Partnership's best interest to
preserve its ownership interest.
Southwest Parkway in an effort to avoid foreclosure and retain
control of the property, filed for protection under Chapter 11 of the United
States Bankruptcy Code (see Item 7, "Financial Statements" - Note 7).
Southwest Parkway negotiated an agreement for a settlement with its lender
that was approved by the Bankruptcy Court as part of the confirmation of the
plan of reorganization in January 1997. The agreement, which was closed in
January 1997, allowed Southwest Parkway to purchase its debt for $4,100,000
and retain ownership of the property. In conjunction with the purchase of the
debt, the Partnership invested approximately $1,799,000 in Southwest Parkway
as a
11
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capital contribution. Southwest Parkway obtained a new first mortgage in the
amount of $2,200,000. The new mortgage bears interest of 8.75% per annum and
matures on February 1, 2007, with a balloon payment of approximately
$1,898,000.
To date, all cash requirements have been satisfied by interest income
earned on short-term investments, rental income from Southwest Parkway and
cash distributed to the Partnership by the Local Limited Partnerships. If the
Partnership funds any operating deficits, it will use monies from its
operating reserves. The Managing General Partner's current policy is to
maintain a reserve balance sufficient to provide the Partnership the
flexibility to preserve its economic interest in the Local Limited
Partnerships.
During November 1997, the Partnership sold its interest in Westbury
Springs, L.P. ("Westbury Springs"), a Local Limited Partnership to an
affiliate of the general partner of the Local Limited Partnership for
$1,447,000. The Partnership recognized a $1,447,000 gain on sale, as a result
of the Partnership's investment account having a zero balance at the date of
sale. The Partnership distributed these proceeds to the limited partners in
February 1998.
The level of liquidity based on cash and cash equivalents experienced
an $85,000 increase at December 31, 1997, as compared to December 31, 1996. The
Partnership's $298,000 of cash provided by operating activities and $2,045,000
of cash from investing activities was significantly offset by $2,258,000 of
cash used in financing activities. Cash from investing activities included
$1,447,000 of proceeds from the Partnership's sale of its interest in Westbury
Springs. Financing activities consisted of the satisfaction of a mortgage
payable of $4,148,000, mortgage principal payments of $17,000, cash
distributed to partners of $211,000 and payment of deferred loan costs of
$82,000, which were only partially offset by loan proceeds of $2,200,000.
On December 16, 1997, the Managing General Partner and certain of its
affiliates entered into a Services Agreement with Coordinated Services of
Valdosta, LLC ("Coordinated Services") pursuant to which Coordinated Services
was retained to provide asset management and investor services to the
Partnership and certain affiliated partnerships. As a result of this
agreement, Coordinated Services has the right to direct the day to day affairs
of the Partnership, including, without limitation, reviewing and analyzing
potential sale, refinancing or restructuring proposals by Local Limited
Partnerships, preparation of all Partnership reports, maintaining Partnership
records and maintaining bank accounts of the Partnership.
12
<PAGE>
Coordinated Services is not permitted, however, without the consent of the
Managing General Partner, or as otherwise required under the terms of the
Partnership's Agreement of Limited Partnership (the "Partnership Agreement")
to, among other things, cause the Partnership to consent to a sale of an asset
or cause the Partnership to file for bankruptcy. As compensation for providing
these services, the Managing General Partner and its affiliates assigned to
Coordinated Services all of their rights to receive fees from the Partnership
as provided in the Partnership Agreement.
The Partnership is not obligated to provide any additional funds to
the Local Limited Partnerships to fund operating deficits. The Partnership
will determine on a case by case basis whether to fund any operating deficits.
If a Local Limited Partnership sustains continuing operating deficits and has
no other sources of funding, it is likely that it will eventually default on
its mortgage obligations and risk a foreclosure on its property by the lender.
If a foreclosure were to occur, the Local Limited Partnership would lose its
investment in the property and would incur a tax liability due to the
recapture of tax benefits taken in prior years. The Partnership would share in
these consequences in proportion to its ownership interest in the Local
Limited Partnership.
The Partnership is contemplating investing an additional $100,000 to
$150,000 to be used for capital improvements in the Local Limited Partnership
owning Brookside Apartments ("Brookside"). The Partnership is currently
negotiating with the general partner of the Local Limited Partnership which
holds title to Brookside pursuant to which an affiliate of the general partner
of the Partnership would be appointed as general partner of the Brookside
Local Limited Partnership and an affiliate of Coordinated Services would
assume responsibility for managing Brookside. Such transfer would be subject
to the approval of the U.S. Department of Housing and Urban Development.
For the year ended December 31, 1997, Partnership distributions (paid
or accrued) aggregated $1,601,000 ($64.01 per unit) to its limited partners
and $9,000 to the general partners of which $1,447,000 relates to the sale of
the Partnership's interest in Westbury Springs. The ability of the Partnership
to continue to make distributions to its partners is dependent upon the
financial performance of the Local Limited Partnerships and Southwest Parkway.
The Partnership is dependent upon Coordinated Services and the
management agents of the Local Limited Partnerships for management and
administrative services. Coordinated Services has completed an assessment and
believes that its computer systems
13
<PAGE>
will function properly with respect to dates in the year 2000 and thereafter
(the "Year 2000 Issue"). The Partnership does not expect that it will incur
any material costs associated with, or be materially affected by, the Year
2000 Issue.
Results of Operations
The Partnership's net income for the year ended December 31, 1997,
was $4,157,000, as compared to net income of $1,871,000, for the year ended
December 31, 1996. Net income for 1997 includes a $2,698,000 extraordinary
gain on extinguishment of debt from Southwest Parkway and a $1,447,000 gain on
the sale of the Partnership's interest in the Westbury Springs Local Limited
Partnership. Excluding Southwest Parkway (which was consolidated in 1997) and
the gain on sale, the Partnerships net income declined by $1,639,000 primarily
due to a decline in cash distributions from Local Limited Partnerships.
In 1997, Local Limited Partnerships owning Honeywood and Crofton
Village Apartments made cash distributions to the Partnership of $261,000 and
$89,000, respectively, as compared to $1,969,000 (Honeywood $71,000, First
Investment Limited Partnership IX $225,000 and Crofton Village Apartments of
$1,673,000, which includes $1,391,000 of refinancing proceeds distributed
during the third quarter of 1996), in the prior comparative period.
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<PAGE>
Item 7. Financial Statements
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
INDEX
Page
Independent Auditors' Report...........................................F - 2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1997
and 1996.............................................................F - 3
Consolidated Statements of Income for the Years Ended
December 31, 1997 and 1996........................................F - 4
Consolidated Statements of Partner's Capital for the
Years Ended December 31, 1997 and 1996...............................F - 5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997 and 1996........................................F - 6
Notes to Consolidated Financial Statements.............................F - 7
F-1
<PAGE>
Independent Auditors' Report
To the Partners
Winthrop Residential Associates II, A Limited Partnership
Boston, Massachusetts
We have audited the accompanying consolidated balance sheets of Winthrop
Residential Associates II, A Limited Partnership (a Maryland limited
partnership), and its subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of income, partners' capital and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. We did not audit the financial statements of the Local Limited
Partnerships, the investments in which are reflected in the accompanying
financial statements using the equity method of accounting and were written
down to zero (see Note 1). Those statements were audited by other auditors
whose reports have been furnished to us, and our opinion, insofar as it
relates to the amounts included for those Local Limited Partnerships, is based
solely on the reports of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Winthrop Residential Associates
II, A Limited Partnership, and its subsidiary as of December 31, 1997 and
1996, and the consolidated results of their operations and their cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Imowitz Koenig & Co., LLP
New York, New York
March 18, 1998
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Unit Data)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,817 $ 2,732
Escrow deposits 177 370
Other assets 115 5
Real estate, net 2,450 --
------------ -----------
Total Assets $ 5,559 $ 3,107
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 290 $ 70
Distribution payable 1,452 53
Due to affiliate 501 --
Mortgage payable 2,183 --
------------ -----------
Total Liabilities 4,426 123
------------ -----------
Minority interest 25 --
------------ -----------
Partners' Capital:
Limited Partners -
Units of Limited Partnership Interest,
$1,000 stated value per unit; 25,010
units authorized, issued and outstanding 2,102 3,898
General Partners' deficit ( 994) (914)
------------ -----------
Total Partners' Capital 1,108 2,984
------------ -----------
Total Liabilities and Partners' Capital $ 5,559 $ 3,107
============ ===========
</TABLE>
See notes to consolidated financial statement.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Unit Data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Income:
Rental income $ 886 $ --
Income from Local Limited Partnership
cash distributions 350 1,969
Interest income 74 124
Other income 27 --
Gain on sale of interest in
Local Limited Partnership 1,447 --
--------------- ---------------
Total income 2,784 2,093
--------------- ---------------
Expenses:
General and Administrative 90 99
Operating 486 --
Depreciation 214 --
Amortization 186 --
Interest 178 --
Management fees 146 123
--------------- ---------------
Total expenses 1,300 222
--------------- ---------------
Net income before minority interest and
extraordinary item 1,484 1,871
Minority interest (25) --
--------------- ---------------
Income before extraordinary item 1,459 1,871
Extraordinary gain on extinguishment of debt 2,698 --
--------------- ---------------
Net income $ 4,157 $ 1,871
=============== ===============
Net income allocated to General Partners $ 150 $ 93
=============== ===============
Net income allocated to Limited Partners $ 4,007 $ 1,778
=============== ===============
Net income per Unit of Limited Partnership interest:
Income before extraordinary item $ 57.74 $ 71.09
Extraordinary gain 102.48 --
--------------- ---------------
Net income $ 160.22 $ 71.09
=============== ===============
Distributions per Unit of Limited
Partnership Interest $ 64.01 $ 33.99
=============== ===============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
Winthrop Residential Associates II, A Limited Partnership
Consolidated Statements of Partners' Capital
Years Ended December 31, 1997 and 1996
(In Thousands, Except Unit Data)
Units of
Limited General Limited
Partnership Partners' Partners' Total
Interest Deficit Capital Capital
-------- -------- -------- --------
Balance - January 1, 1996 25,010 $ (989) $ 2,970 $ 1,981
Net income 93 1,778 1,871
Distributions (18) (850) (868)
-------- -------- -------- --------
Balance - December 31, 1996 25,010 (914) 3,898 2,984
Adjustment due to
consolidation (221) (4,202) (4,423)
Net income 150 4,007 4,157
Distributions (9) (1,601) (1,610)
-------- -------- -------- --------
Balance - December 31, 1997 25,010 $ (994) $ 2,102 $ 1,108
======== ======== ======== ========
See notes to consolidated financial statements.
F-5
<PAGE>
Winthrop Residential Associates II, A Limited Partnership
Consolidated Statements of Cash Flows
(In Thousands, Except Unit Data)
Years ended December 31,
----------------------------
1997 1996
------------- -------------
Cash Flows from Operating Activities:
Net income $ 4,157 $ 1,871
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 214 --
Amortization 186 --
Extraordinary gain on extinguishment of debt (2,698) --
Gain on sale of interest in Local Limited (1,447) --
Partnership
Minority interest in joint venture's operations 25 --
Changes in assets and liabilities:
Increase in escrow deposits (131) --
(Increase) decrease in other assets (9) 3
Increase in accounts payable and
accrued expenses 1 70
------------- -------------
Net cash provided by operating activities 298 1,944
------------- -------------
Cash Flows From Investing Activities:
Proceeds from Sale of interest in
Local Limited Partnership 1,447 --
Deposits to replacement reserve (46) --
Escrow deposits 700 (370)
Property improvements (56) --
------------- -------------
Net Cash provided by (used in)
investing activities 2,045 (370)
------------- -------------
Cash Flows From Financing Activities:
Loan proceeds 2,200 --
Satisfaction of mortgage payable (4,148) --
Mortgage principal payments (17) --
Cash distributions (211) (920)
Deferred loan costs (82) --
------------- -------------
Net cash used in financing activities (2,258) (920)
------------- -------------
Net increase in cash and cash equivalents 85 654
Cash and cash equivalents, beginning of period 2,732 2,078
------------- -------------
Cash and cash equivalents, end of period $ 2,817 $ 2,732
============= =============
Supplemental Disclosure of Cash Flow Information
Interest paid in cash $ 163 $ --
============= =============
Supplemental Disclosure of Non-Cash Financing
Activities
Accrued Distributions to Partners $ 1,452 $ 53
============= =============
See Notes 1 and 7, with respect to consolidation of a Local Limited
Partnership in 1997.
See notes to consolidated financial statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Winthrop Residential Associates II, A Limited Partnership (the
"Partnership") was organized on October 21, 1981 under the Uniform Limited
Partnership Act of the State of Maryland to invest in limited partnerships
(the "Local Limited Partnerships") which develop, manage, operate and
otherwise deal in government assisted apartment complexes and which do not
significantly restrict distributions to owners or the rate of return on
investments in such properties. The Partnership has investments in eight Local
Limited Partnerships owning ten apartment complexes located throughout the
United States.
The Partnership was capitalized with $25,000,000 of contributions
representing 25,000 investor limited partnership units. The offering closed on
November 17, 1982. The general partners and the initial limited partner (10
units) contributed $12,000.
Consolidation
In conjunction with the January 1997 significant new capital
contribution by the Partnership and substantive transfer of control of
Southwest Parkway Ltd., A Local Limited Partnership ("Southwest Parkway"), to
an affiliate of the Partnership's general partners, the accompanying financial
statements have been prepared on a consolidated basis, including the accounts
of Southwest Parkway, from the date of transfer of control. All significant
intercompany transactions and balances have been eliminated. Prior to January
1, 1997, Southwest Parkway was a Local Limited Partnership accounted for under
the equity method (see Note 7).
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with an
original maturity of three months or less at the time of purchase to be cash
equivalents. The carrying amount of cash and cash equivalents approximates its
fair value due to its short term nature.
Uses of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts in the
F-7
<PAGE>
financial statements and accompanying notes. Actual results could differ from
those estimates.
Real Estate
Real estate is carried at cost, less accumulated depreciation. In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of", the Partnership records impairment losses for long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows are not sufficient to recover the asset's carrying
amount. The impairment loss is measured by comparing the fair value of the
asset to its carrying amount.
Depreciation
Depreciation is computed using the straight-line method over the
estimated useful life of each class of asset, which ranges from 5 to 27.5
years.
Loan Costs
At December 31, 1997, loan costs of $82,000 are included in other
assets in the accompanying balance sheet and are being amortized on a
straight-line basis over the life of the respective loan. At December 31,
1997, accumulated amortization totaled $7,000.
Investments in Local Limited Partnerships
The Partnership accounts for its investment in each Local Limited
Partnership using the equity method. Under the equity method of accounting,
the investment cost is subsequently adjusted by the Partnership's share of the
Local Limited Partnership's results of operations and by distributions
received. Costs relating to the acquisition and selection of the investment in
the Local Limited Partnerships are capitalized to the investment account and
amortized over the life of the investment. Costs in excess of the
Partnership's initial basis in the net assets of the Local Limited Partnership
are amortized over the estimated useful lives of the underlying assets. Equity
in the loss of Local Limited Partnerships, amortization of investment costs
and costs in excess of initial basis are not recognized to the extent that the
investment balance would become negative, since the Partnership is not
obligated to advance funds to the Local Limited Partnerships.
F-8
<PAGE>
Net Income Per Limited Partnership Unit
Net income per limited partnership unit is computed by dividing net
income allocated to the limited partners by the 25,010 units outstanding.
Income Taxes
Taxable income or loss of the Partnership is reported in the income
tax returns of its partners. Accordingly, no provision for income taxes is
made in the financial statements of the Partnership.
Concentration of Credit Risk
Principally all of the Partnership's cash and cash equivalents
consist of a mutual fund that invests in U.S. treasury bills and repurchase
agreements with original maturity dates of three months or less.
2. ALLOCATION OF PROFITS, LOSSES AND DISTRIBUTIONS
In accordance with the partnership agreement, profits and losses not
arising from a sale or refinancing and cash available for distribution are
allocated 5% to the general partners and 95% to the limited partners. Gains
and distributions of proceeds arising from a sale or refinancing are allocated
first to the limited partners to the extent of their Adjusted Capital
Contribution (as defined) and then in accordance with the partnership
agreement, however, the general partner is allocated at least 1% of the gain.
In the event that there is no cash to be distributed from a sale or
refinancing, gains are allocated 5%, to the general partners and 95%, to the
limited partners.
3. TRANSACTIONS WITH RELATED PARTIES
One Winthrop Properties, Inc. ("One Winthrop" or the "Managing
General Partner") and WP Management Co., Inc. ("WP Management"), the manager
of the Partnership's investments in the Local Limited Partnerships, are wholly
owned subsidiaries of First Winthrop Corporation, which in turn is controlled
by Winthrop Financial Associates, A Limited Partnership ("WFA").
On December 16, 1997, the Managing General Partner and certain of its
affiliates entered into a Services Agreement with Coordinated Services of
Valdosta, LLC ("Coordinated Services") pursuant to which Coordinated Services
was retained to provide asset management and investor services to the
Partnership and certain affiliated partnerships. As a result of this
agreement, Coordinated Services has the right to direct the day to day affairs
of the Partnership. Coordinated Services is not
F-9
<PAGE>
permitted, however, without the consent of the Managing General Partner, or as
otherwise required under the terms of the Partnership's Agreement of Limited
Partnership (the "Partnership Agreement") to, among other things, cause the
Partnership to consent to a sale of an asset or cause the Partnership to file
for bankruptcy. As compensation for providing these services, the Managing
General Partner and its affiliates assigned to Coordinated Services all of
their rights to receive fees from the Partnership, as provided in the
Partnership Agreement.
WP Management was entitled to a fee for services rendered in managing
the Partnership's investments in the Local Limited Partnerships equal to 10%
of the Partnership's share of cash distributions from operations of the Local
Limited Partnerships, not to exceed one half of 1% of the sum of (a) the
amount of the Partnership's aggregate total investment in all Local Limited
Partnerships, plus (b) the Partnership's allocable share of all liens and
mortgages secured by the projects of all Local Limited Partnerships. The fee
is noncumulative and commences at the closing of each Local Limited
Partnership's permanent loan. The minimum fee is $100,000 per annum. For the
years ended December 31, 1997 and 1996, WP Management earned $100,000 and
$123,000, respectively, for managing the Partnership's investments in the
Local Limited Partnerships. The 1996 fee includes a $23,000 adjustment for
1995.
Affiliates of Southwest Parkway were paid management fees, based on
5% of the gross receipts of the property, of approximately $46,000, during
1997. As of December 31, 1997, Southwest Parkway is obligated to its general
partner for an operating deficit loan payable of $501,000. The loan is
non-interest bearing. An affiliate of the Managing General Partner received a
fee of approximately $17,000, in connection with refinancing the Southwest
Parkway debt (see Note 7).
During the liquidation stage of the Partnership, the general partners
and their affiliates are entitled to receive certain distributions,
subordinated to specified minimum returns to the limited partners as described
in the partnership agreement.
4. REAL ESTATE
Real estate is comprised of the following:
1997
----
Land $ 263,000
Buildings and Improvements 4,903,000
Furnishings 491,000
----------
5,657,000
Accumulated Depreciation (3,207,000)
----------
$2,450,000
==========
F-10
<PAGE>
5. SALE OF INTEREST
During November 1997, the Partnership sold its interest in Westbury
Springs, L.P., a Local Limited Partnership, to an affiliate of the general
partner of the Local Limited Partnership for $1,447,000. The Partnership
recognized a $1,447,000 gain on sale, as a result of the Partnership's
investment account having a zero balance at the date of sale. The Partnership
distributed these proceeds to the limited partners in February 1998.
6. MORTGAGE PAYABLE
In January 1997, Southwest Parkway obtained a new first mortgage in
the amount of $2,200,000. The new mortgage bears interest at 8.75%, requires
monthly payments of approximately $18,000 and is being amortized over 27 1/2
years. The loan matures on February 1, 2007, with a balloon payment of
approximately $1,898,000. As specified in the loan agreement, Southwest
Parkway is required to make monthly payments of approximately $4,000 to a
replacement reserve account for future capital improvements. Total capitalized
loan costs were approximately $82,000. In connection with the discounted
payoff of the old mortgage, the Partnership recognized an extraordinary gain
of $2,698,000 on the extinguishment of debt (see Note 7).
Principal payments on the mortgage note are due as follows:
1998 $ 22,000
1999 24,000
2000 26,000
2001 28,000
2002 31,000
Thereafter 2,052,000
--------------------
$ 2,183,000
====================
7. INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS
As of December 31, 1997, the Partnership's equity interests in seven
Local Limited Partnerships is summarized, as follows:
Local Limited Partnership Percentage Ownership
------------------------- --------------------
Whisper Lake, Ltd. (Whisper Lake Apartments) 99
Sanford Landing Apartments, Ltd. (Sanford Landing Apartments) 98
Honeywood Associates (Honeywood Apartments) 95
Brookside, Ltd. (Brookside Apartments) 99
Wedgewood Creek Limited Partnership (Wedgewood Creek Apartments) 99
First Investment Limited Partnership IX (Mountain Vista I, 90
Mountain Vista II and Cibola Village Apartments)
Crofton Village Limited Partnership (Crofton Village Apartments) 44
F-11
<PAGE>
In addition, the Partnership holds a 99% limited partnership interest
in Southwest Parkway, which was accounted for under the equity method as a
Local Limited Partnership, prior to January 1997.
Southwest Parkway, in an effort to avoid foreclosure and retain
control of the property, filed for protection under Chapter 11 of the United
States Bankruptcy Code. Southwest Parkway negotiated an agreement for a
settlement with its lender that was approved by the Bankruptcy Court as part
of the confirmation of the plan of reorganization in January 1997. The
agreement, which was closed in January 1997, allowed Southwest Parkway to
purchase its debt for $4,100,000 and retain ownership of the property. In
conjunction with the purchase of the debt, the Partnership invested
approximately $1,799,000 in Southwest Parkway as a capital contribution. As of
December 31, 1996, $370,000 was reflected as an escrow deposit in
contemplation of the above settlement. Southwest Parkway obtained a new first
mortgage in the amount of $2,200,000 and recognized an extraordinary gain of
$2,698,000 on the extinguishment of debt.
The combined balance sheets of the Local Limited Partnerships are as follows
(in thousands):
DECEMBER 31,
------------
1997 1996
---- ----
ASSETS
Real estate, at cost:
Land $ 4,079 $ 4,616
Buildings, net of accumulated
depreciation of $34,679 and $38,137 in
1997 and 1996, respectively 23,291 29,768
Cash and cash equivalents 1,095 1,042
Other assets, net of accumulated
amortization of $1,517 and $1,652 in
1997 and 1996, respectively 3,772 4,466
----------- -----------
Total Assets $ 32,237 $ 39,892
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Liabilities subject to compromise $ -- $ 8,003
Notes payable 2,428 2,488
Loans payable 473 473
Mortgage notes payable 52,488 57,442
Accounts payable and accrued expenses 2,489 2,650
----------- -----------
Total Liabilities 57,878 71,056
----------- -----------
Partners' Deficit:
Winthrop Residential Associates II (23,268) (28,802)
Other partners (2,373) (2,362)
----------- -----------
Total Deficit (25,641) (31,164)
----------- -----------
Total Liabilities and Partners' Deficit $ 32,237 $ 39,892
=========== ============
F-12
<PAGE>
The combined statements of operations of the Local Limited Partnerships are as
follows (in thousands):
DECEMBER 31,
------------
1997 1996
---- ----
Income:
Rental Income $ 12,882 $ 13,323
Other Income 511 573
----------- -----------
Total Income 13,393 13,896
----------- -----------
Expenses:
Interest 4,427 4,659
Depreciation and amortization 2,616 2,782
Taxes and insurance 1,318 1,610
Other operating expenses 5,728 6,111
----------- -----------
Total expenses 14,089 15,162
----------- -----------
Net loss $ (696) $ (1,266)
=========== ===========
Net loss allocated to Winthrop
Residential Associates II $ (688) $ (1,331)
=========== ===========
Net (loss) income allocated to
other partners $ (8) $ 65
=========== ===========
As of December 31, 1997, the Partnership has Limited Partnership
equity interests in seven Local Limited Partnerships that own nine apartment
complexes. These Local Limited Partnerships have outstanding mortgages
totaling $52,488,000, which are secured by the Local Limited Partnerships'
real property, security interests, liens and endorsements common to first
mortgage loans.
F-13
<PAGE>
8. PROFORMA FINANCIAL INFORMATION
The following proforma condensed, consolidated balance sheet assumes
that the Partnership and Southwest Parkway were consolidated at December 31,
1996, and the proforma condensed, consolidated statements of operations assume
that the Partnership and Southwest Parkway were consolidated at January 1,
1996 (in thousands):
December 31,
1996
----
Cash $ 2,732
Other assets, primarily real estate 3,520
------------
Total assets $ 6,252
============
Liabilities, primarily a mortgage payable 7,715
Deficit (1,463)
------------
Total liabilities and equity $ 6,252
============
Year ended
December 31,
1996
----
Total revenue $ 3,031
------------
Operating and other expenses 853
Depreciation 212
Mortgage interest 279
------------
Total expenses 1,344
------------
Net Income $ 1,687
============
The proforma results do not necessarily represent the results which
would have occurred if the transaction had taken place on the basis assumed
above, nor are they indicative of the results of future operations.
F-14
<PAGE>
9. TAXABLE INCOME
The Partnership's taxable loss differs from the net income for
financial reporting purposes as follows (in thousands):
1997 1996
---- ----
Net income for financial reporting purposes $ 4,157 $ 1,871
Differences in equity in Local Limited Partnership's 2,672 (1,719)
income/loss for financial reporting and tax reporting
purposes
Income from Local Limited Partnership cash distributions (350) (1,969)
------- -------
Taxable income (loss) $ 6,479 $(1,817)
======= =======
F-15
<PAGE>
Winthrop Residential Associates II, A Limited Partnership
December 31, 1997
Supplementary Information Required Pursuant to Section 9.4 of the Partnership
Agreement (Unaudited)
<TABLE>
<CAPTION>
1. Statement of Cash Available for Distribution for the:
Year Ended Three Months Ended
December 31, 1997 December 31, 1997
----------------- ------------------
<S> <C> <C>
Net Income $ 4,157,000 $1,530,000
Add: Depreciation 214,000 60,000
Amortization 186,000 2,000
Minority interest in joint venture's operations 25,000 25,000
Less: Extraordinary gain on extinguishment of debt (2,698,000) --
Cash to reserves (274,000) (165,000)
----------- ----------
Cash Available for Distribution $ 1,610,000 $1,452,000
=========== ==========
Distributions allocated to General Partners $ 9,000 $ 1,000
=========== ==========
Distributions allocated to Limited Partners $ 1,601,000 $1,451,000
=========== ==========
2. Fees and other compensation paid or accrued by the Partnership to the General Partners, or
their affiliates, during the three months ended December 31, 1997:
Entity Receiving Form of
Compensation Compensation Amount
-------------------------- ------------------------------------------- ----------------
W.P. Management
Co., Inc. Property Management Fees $25,000
General Partners Interest in Cash Available for Distribution $ 1,000
WFC Realty Co., Inc.
(Initial Limited Partner) Interest in Cash Available for Distribution $ 290
</TABLE>
<PAGE>
Item 8. Changes in and Disagreements on Accounting and
Financial Disclosure.
There were no disagreements with Imowitz Koenig & Co., LLP regarding
the 1997 or 1996 audits of the Partnership's financial statements.
30
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act.
The Partnership has no officers or directors. One Winthrop
Properties, Inc., the managing general partner of the Partnership (the
"Managing General Partner"), manages and controls substantially all of the
Partnership's affairs and has general responsibility and ultimate authority in
all matters affecting its business. As of March 1, 1998, the names of the
directors and executive officers of the Managing General Partner and the
position held by each of them, are as follows:
Has Served as
Position Held with the a Director or
Name Managing General Partner Officer Since
- ---- ------------------------ -------------
Michael L. Ashner Chief Executive Officer 1-96
and Director
Edward Williams Chief Financial Officer 4-96
Vice President and
Treasurer
Peter Braverman Senior Vice President 1-96
Carolyn Tiffany Vice President and Clerk 10-95
Michael L. Ashner, age 46, has been the Chief Executive Officer of
Winthrop Financial Associates, A Limited Partnership ("WFA") since January 15,
1996. From June 1994 until January 1996, Mr. Ashner was a Director, President
and Co-chairman of National Property Investors, Inc., a real estate investment
company ("NPI"). Mr. Ashner was also a Director and executive officer of NPI
Property Management Corporation ("NPI Management") from April 1984 until
January 1996. In addition, since 1981 Mr. Ashner has been President of Exeter
Capital Corporation, a firm which has organized and administered real estate
limited partnerships.
Edward V. Williams, age 57, has been the Chief Financial Officer of
WFA since April 1996. From June 1991 through March 1996, Mr. Williams was
Controller of NPI and NPI Management. Prior to 1991, Mr. Williams held other
real estate related positions including Treasurer of Johnstown American
Companies and Senior Manager at Price Waterhouse.
31
<PAGE>
Peter Braverman, age 46, has been a Senior Vice President of WFA
since January 1996. From June 1995 until January 1996, Mr. Braverman was a
Vice President of NPI and NPI Management. From June 1991 until March 1994, Mr.
Braverman was President of the Braverman Group, a firm specializing in
management consulting for the real estate and construction industries. From
1988 to 1991, Mr. Braverman was a Vice President and Assistant Secretary of
Fischbach Corporation, a publicly traded, international real estate and
construction firm.
Carolyn Tiffany, age 31, has been employed with WFA since January
1993. From 1993 to September 1995, Ms. Tiffany was a Senior Analyst and
Associate in WFA's accounting and asset management departments. From October
1995 to present Ms. Tiffany has been a Vice President in the asset management
and investor relations departments of WFA.
One or more of the above persons are also directors or officers of a
general partner (or general partner of a general partner) of the following
limited partnerships which either have a class of securities registered
pursuant to Section 12(g) of the Securities and Exchange Act of 1934, or are
subject to the reporting requirements of Section 15(d) of such Act: Winthrop
Partners 79 Limited Partnership; Winthrop Partners 80 Limited Partnership;
Winthrop Partners 81 Limited Partnership; Winthrop Residential Associates I, A
Limited Partnership; Winthrop Residential Associates III, A Limited
Partnership; 1626 New York Associates Limited Partnership; 1999 Broadway
Associates Limited Partnership; Nantucket Island Associates Limited
Partnership; One Financial Place Limited Partnership; Presidential Associates
I Limited Partnership; Riverside Park Associates Limited Partnership;
Springhill Lake Investors Limited Partnership; Twelve AMH Associates Limited
Partnership; Winthrop California Investors Limited Partnership; Winthrop
Growth Investors I Limited Partnership; Winthrop Interim Partners I, A Limited
Partnership; Southeastern Income Properties Limited Partnership; Southeastern
Income Properties II Limited Partnership; and Winthrop Miami Associates
Limited Partnership.
Except as indicated above, neither the Partnership nor the Managing
General Partner has any significant employees within the meaning of Item
401(b) of Regulation S-B. There are no family relationships among the officers
and directors of the Managing General Partner.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Partnership under Rule 16a-3(e) during the Partnership's most
recent fiscal year and Forms 5 and amendments thereto furnished to the
Partnership with respect to its most recent fiscal year, the Partnership is
not aware of any
32
<PAGE>
director, officer, beneficial owner of more than ten percent of the units of
limited partnership interest in the Partnership that failed to file on a
timely basis, as disclosed in the above Forms, reports required by section
16(a) of the Exchange Act during the most recent fiscal year or prior fiscal
years.
Effective December 16, 1997, the Managing General Partner and certain
of its affiliates entered into an agreement with Coordinated Services of
Valdosta, LLC ("Coordinated Services") to provide for the daily asset and
property management services and investor services for the Partnership. See
"Item 11, Security Ownership of Certain Beneficial Owners and Management."
Coordinated Services of Valdosta LLC is a Georgia limited liability
corporation with headquarters in Valdosta, Georgia. Founded in 1997, its
managing member is Investor Service Group, Inc., a Georgia Corporation. The
principals of Investor Service Group are Mary T. Johnson and James L.
Dewar, Jr.
Mary T. Johnson is the Manager of Coordinated Services. Ms. Johnson
is also Executive Vice President of Dewar Realty, Inc. and Dewar Properties,
Inc. Ms. Johnson is a graduate of Valdosta State University and is a licensed
Georgia Real Estate Broker. Ms. Johnson has 21 years of experience in property
management, asset management, investor services, and development of apartment
and assisted living properties. Ms. Johnson is currently responsible for the
asset management of over 150 investor partnerships and property management of
over 50 apartment communities.
James L. Dewar, Jr. is the founder of Dewar Realty, Inc. and Dewar
Properties, Inc. Mr. Dewar is a graduate of the University of Georgia and is a
licensed Georgia Real Estate Broker. Mr. Dewar has 32 years experience in real
estate construction, property management and development of apartment and
assisted living properties. Mr. Dewar has produced over $100 million in
conventional and government funded family and elderly apartment communities.
Item 10. Executive Compensation.
The Partnership is not required to and did not pay any compensation
to the officers or directors of the Managing General Partner. The Managing
General Partner does not presently pay any compensation to any of its officers
or directors. (See Item 12, "Certain Relationships and Related Transactions.")
33
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
(a) Security ownership of certain beneficial owners.
The General Partners own all the outstanding general partnership
interests. No person or group is known by the Partnership to be the beneficial
owner of more than 5% of the outstanding Units at December 31, 1997. Under the
Partnership Agreement, the voting rights of the Limited Partners are limited
and, in some circumstances, are subject to the prior receipt of certain
opinions of counsel or judicial decisions.
Under the Partnership Agreement, the right to manage the business of
the Partnership is vested in the General Partners and is generally to be
exercised only by the Managing General Partner, although approval of Linnaeus
is required as to all investments in Local Limited Partnerships and in
connection with any votes or consents arising out of the ownership of a Local
Limited Partnership interest.
(b) Security ownership of management.
None of the officers, directors or general partners of the General
Partners or their respective officers, directors or general partners owned any
Units at December 31, 1997 in individual capacities; however, WFC Realty Co.,
Inc., a wholly owned subsidiary of First Winthrop, (of which certain officers
and directors of the Managing General Partner are officers or directors) owns
95 units (.38%).
(c) Changes in control.
There exists no arrangement known to the Partnership the operation of
which may at a subsequent date result in a change in control of the
Partnership. On December 16, 1997, the Managing General Partner and certain of
its affiliates entered into a Services Agreement with Coordinated Services of
Valdosta, LLC ("Coordinated Services") pursuant to which Coordinated Services
was retained to provide asset management and investor services to the
Partnership and certain affiliated partnerships. As a result of this
agreement, Coordinated Services has the right to direct the day to day affairs
of the Partnership, including, without limitation, reviewing and analyzing
potential sale, refinancing or restructuring proposals by Local Limited
Partnerships, preparation of all Partnership reports, maintaining Partnership
records and maintaining bank accounts of the Partnership. Coordinated Services
is not permitted, however, without the consent of the Managing General
Partner, or as otherwise required under the terms of the Partnership's
Agreement of Limited
34
<PAGE>
Partnership (the "Partnership Agreement") to, among other things, cause the
Partnership to consent to a sale of an asset or cause the Partnership to file
for bankruptcy. As compensation for providing these services, the Managing
General Partner and its affiliates assigned to Coordinated Services all of
their right to receive fees from the Partnership as provided in the
Partnership Agreement.
Item 12. Certain Relationships and Related Transactions.
The General Partners and their affiliates are entitled to receive
various fees, commissions, cash distributions, allocations of taxable income
or loss and expense reimbursements from the Partnership. WP Management Co.,
Inc. ("WP Management"), an affiliate of the Managing General Partner, is
entitled to a fee for services rendered in managing the Partnership's
investments equal to 10% of the Partnership's share of cash distributions from
the Local Limited Partnerships, not to exceed 1/2 of 1% of the sum of (a) the
amount of the Partnership's aggregate total investment in all Local Limited
Partnerships, plus (b) the Partnership's allocable share of all liens and
mortgages secured by the projects of all Local Limited Partnerships. The fee
is noncumulative and commences at the closing of each Local Limited
Partnership's permanent loan. For the years ended December 31, 1997 and 1996,
WP Management earned approximately $100,000 and $123,000, respectively.
The Partnership's general partners are entitled to 5% of cash
available for distribution. The general partners received $9,214 and $18,428
of cash distributions in 1997 and 1996, respectively.
For the year ended December 31, 1997, the Partnership allocated
$44,153 of taxable income to the Managing General Partner and $73,588 to the
Associate General Partner.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits:
The Exhibits listed on the accompanying Index to Exhibits
are filed as part of this Annual Report and incorporated in
this Annual Report as set forth in said Index.
(b) Reports on Form 8-K - None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized this 6th day of
April 1998.
WINTHROP RESIDENTIAL ASSOCIATES II,
A LIMITED PARTNERSHIP
By: ONE WINTHROP PROPERTIES, INC.
Managing General Partner
By: /s/ Michael L. Ashner
------------------------------
Michael Ashner
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature/Name Title Date
/s/ Michael Ashner Chief Executive April 6, 1998
- ---------------------- Officer and Director
Michael Ashner
/s/ Edward V. Williams Chief Financial Officer April 6, 1998
- ----------------------
Edward V. Williams
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INDEX TO EXHIBITS
Exhibit
No. Title of Document Page
--- ----------------- ----
3. Agreement and Certificate of Limited
Partnership of Winthrop Residential
Associates II, A Limited Partnership,
dated as of June 23, 1983
(incorporated by reference to the
Registrant's Annual Report on Form
10-K for the fiscal year ended
December 31, 1983)
4. Agreement and Certificate of Limited
Partnership of Winthrop Residential
Associates II, A Limited Partnership,
dated as of June 23, 1983
(incorporated herein by reference to
the Registrant's Annual Report on Form
10-K for the fiscal year ended
December 31, 1983)
10.1 Agreement between Winthrop Residential
Associates II, A Limited Partnership
and The Artery Organization, Inc.
(incorporated herein by reference to
the Registrant's Registration
Statement on Form S-11, File No.
2-74784)
10.2 Service Agreement, dated December 16, 1997,
by and between First Winthrop
Corporation, Winthrop Financial Co.,
Inc., WFC Realty Co., Inc., WFC Realty
Saugus, Inc., Winthrop Properties,
Inc., Winthrop Metro Equities
Corporation, Winthrop Lisbon Realty,
Inc. and Northwood Realty Co., Inc.
and Coordinated Services of Valdosta,
LLC.
16. Letter from Arthur Andersen LLP dated
September 19, 1996 (incorporated
herein by reference to Registrant's
Current Report on Form 8-K dated
September 19, 1996).
27. Financial Data Schedule
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DRAFT 3/27/98
SERVICES AGREEMENT
This Agreement (the "Services Agreement") is entered into as of this
_____ day of December, 1997 by and between First Winthrop Corporation, a
Delaware corporation ("FWC"), Winthrop Financial Co., Inc., a Massachusetts
corporation, WFC Realty Co., Inc., a Massachusetts corporation, WFC Realty
Saugus, Inc., a Massachusetts corporation, One Winthrop Properties, Inc., a
Massachusetts corporation, Two Winthrop Properties, Inc., a Massachuset
corporation, Three Winthrop Properties, Inc., a Massachusetts corporation,
Winthrop Metro Equities Corporation, a Delaware corporation, Winthrop Libson
Realty, Inc., a Massachusetts corporation, and Northwood Realty Co., Inc., a
Massachusetts corporation (FWC and the foregoing entities are sometimes
collectively referred to herein as "Winthrop"), and Coordinated Services of
Valdosta, LLC, a Georgia limited liability company ("Agent").
R E C I T A L S:
A. Winthrop provides asset management and investor services to the
partnerships listed on Schedule 1 attached hereto (the "Partnerships");
B. Winthrop also serves as a general partner of certain, but not all,
of the Partnerships;
C. Winthrop is entitled to: (i) certain fees from the Partnerships
for the provision of asset management and investor services as listed in
Column "A" on Schedule 1 (the "Asset Management Fees"), including the payment
of certain accrued fees from the Partnerships as listed in Column "B" on
Schedule 1 (the "Accrued Asset Management Fees"), and in certain instances,
reimbursement of its expenses incurred in the performance of such services to
the Partnerships as set forth in Column "F" on Schedule 1 (the
"Reimbursements"); and (ii) certain (x) cash distributions from operations
("Operating Distributions"), (y) cash distributions from the refinancing
("Refinancing Distributions") of properties owned by the Partnerships, and
(z) cash distributions from the sale ("Sale Distributions") of the properties
owned by the Partnerships, all in its capacity as a partner of the
Partnerships;
D. Winthrop has made certain loans to the Partnerships as listed in
Column "C" on Schedule 1 (the "Existing Loans") which loans have been
assigned by Winthrop to a third party pursuant to a separate agreement;
E. Winthrop maintains numerous bank accounts on behalf of the
Partnerships, including, without limitation, those accounts listed in Column
"I" on Schedule 1 (the "Operating Accounts"), which accounts contain the
operating reserves of the Partnerships which are available to pay third party
costs, including, when appropriate, the Asset Management Fees, Reimbursements
and loans made to the Partnerships; and
F. Winthrop, in its capacity as asset manager and investor services
agent of the Partnerships, desires to assign and appoint Agent to perform
such services, and Agent hereby accepts such assignment and appointment, all
subject to the terms and conditions set forth in this Services Agreement.
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the mutual provisions contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
ARTICLE 1 - Recitals
1.1 Recitals. The foregoing recitals are hereby affirmed by the
parties as true and correct and are incorporated herein by this reference.
ARTICLE 2 - Services
2.1 Assignment and Acceptance. Winthrop hereby assigns to Agent all
of its rights to perform the asset management and investor services duties
currently being performed by Winthrop on behalf of the Partnerships, and
Agent hereby accepts such appointment and agrees to perform all asset
management and investor services on behalf of the Partnerships, including,
without limitation, the following services:
2.1.1 Asset Management Services. Asset management services
shall include those duties and services which are necessary or appropriate in
connection with the business or operation of the Partnerships, and which are
customarily performed by an asset manager, including, without limitation, the
following:
(i) review and respond to proposals received from
operating partnerships or local general partners pertaining to the
refinancing, sale or restructuring of partnership properties;
(ii) coordinate the prosecution or defense of any
litigation with respect to any of the Partnerships in which Winthrop is the
controlling general partner (excluding any litigation instituted by or on
behalf of any limited partners of the Partnerships against any Partnership or
Winthrop);
(iii) preparation and review of partnership reports;
(iv) supervision and review of partnership bookkeeping,
accounting and audits for Winthrop Residential Associates I, A Limited
Partnership, Winthrop Residential Associates II, A Limited Partnership,
Winthrop Residential Associates III, A Limited Partnership, and Presidential
Associates I Limited Partnership;
(v) maintenance and updating of partnership records, as
appropriate;
(vi) supervision and review of partnership state and
federal tax returns for the Partnerships in which Winthrop serves as tax
matters partners;
(vii)supervision of professionals employed by a
Partnership in connection with any of the foregoing, including attorneys,
accountants and appraisers; and
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(viii) review of each investor Partnership's cash
reserves and approval of distributions to the partners of such Partnerships;
2.1.2 Investor Services. Investor services shall include those
duties and services which are necessary and appropriate in connection with
reporting and communicating with the limited partners of the Partnerships,
including, without limitation:
(i) maintenance and updating the Partnerships'
investors database, including the facilitation of partnership interest
transfers;
(ii) maintenance and updating of all limited partner
records, including, without limitation, limited partner correspondence;
(iii) communications with the limited partners of the
Partnerships in response to their telephone and/or written inquiries
regarding partnership operations and/or the availability of the Partnerships'
tax information;
(iv) preparation of any required limited partner
consent solicitation to any sale or refinancing of a partnership property, or
other major event requiring limited partner consent, and the subsequent
solicitation of any such consent;
(v) an annual mailing (or more frequent communication
as may be required) to the limited partners of the Partnerships with respect
to partnership operations, including annual financial statements of the
Partnerships;
(vi) the mailing to each limited partner of the
Partnerships' limited partner tax information (Schedule K-1);
(vii) analyze the federal income tax consequences of
the sale of any partnership property;
(viii) periodic mailings to limited partners of the
Partnership of partnership distribution checks, if any; and
(ix) upon termination of any Partnership, deliver to
Winthrop such Partnership's records;
2.1.3. Management of Partnership Accounts. Within ten (10)
business days after the full execution of this Services Agreement by all
parties (the "Effective Date"), Winthrop shall transfer the Operating
Accounts to Agent. Agent agrees to provide cash management services to the
Partnerships, subject to the following terms and conditions:
(i) all partnership cash shall be maintained in
segregated cash accounts;
(ii) each cash account shall be clearly identified as
belonging to a Partnership (e.g. XYZ Partnership Account);
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<PAGE>
(iii) each account shall be an interest bearing account
for the benefit of the respective Partnership, and shall be maintained at a
federally insured depository institution;
(iv) each account shall be in an amount less than
$100,000 or otherwise invested in an account that is backed by government
securities; and
(v) a fidelity bond in the amount of $150,000 shall be
obtained covering all persons authorized to draw on such accounts, such bond
to be reasonably acceptable to Winthrop with respect to the issuing carrier,
and shall name Winthrop as an additional insured; and
2.1.4 Other Services. Agent or any affiliate thereof shall be
permitted to perform other services to the Partnerships as may be agreed to
between Agent and the Partnerships, provided that such services are not
duplicating the services to be performed hereunder (a property management fee
or a fee for services rendered in procuring a refinancing or sale shall not
be deemed duplicative) and such amounts are similar to those that would be
charged by an independent third party rendering comparable services.
2.2 Obligation to Loan Funds. Agent agrees to lend funds to the
Partnerships (the "Agent Loans") in an amount necessary to pay the costs
associated with the preparation of the tax returns for those Partnerships in
which Winthrop serves as tax matters partner and the distribution thereof to
the limited partners of the Partnerships, through June 30, 2002. The Agent
Loans will be repaid in accordance with Section 3.3 herein.
2.3 Winthrop Consent; Actions Regarding Approval. Winthrop, as
general partner of those Partnerships in which its serves as a general
partner, hereby consents to the services to be performed by Agent hereunder
on its behalf, and hereby agrees, subject to its fiduciary duties when acting
as a general partner of a Partnership, that Agent shall have the power and
authority to perform the necessary asset management and investor services
required to be performed hereunder for the Partnerships in which Winthrop
serves as a general partner (or limited partner to the extent Winthrop
possesses any special approval rights separate and apart from the other
limited partners of a Partnership), without any approval from Winthrop;
provided, however, Agent shall have no authority to perform the following
functions without the prior written approval of Winthrop:
(i) the sale, transfer, assignment or other disposition
of all or any portion of the properties owned by a Partnership;
(ii) filing for protection under the bankruptcy laws by
a Partnership;
(iii) surrender of a property of a Partnership to a
lender;
(iv) the filing of any reports required under the
Securities Exchange Act of 1934 (e.g. Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and any Current Reports required to be filed on Form
8-K);
4
<PAGE>
(v) the subordination of the Existing Loans to any
loans in excess of the outstanding principal balance of all indebtedness of
the respective Partnership as of the date of this Services Agreement;
(vi) transfer of partnership assets to a master limited
partnership or any other form of so-called partnership roll-up;
(vii) the tender or offer to purchase of any limited
partnership interests;
(viii) amending any partnership agreement as it affects
the rights or obligations of a general partner; and
(ix) the making of any future distributions to partners
of the Partnerships after Winthrop has given written notice to Agent that, in
the reasonable judgment of Winthrop, such future distributions will result in
an unacceptable amount of cash reserves available for future operations;
provided, however, that in any event a payment to Agent of the annual fee
shown on Schedule I shall not be affected.
In addition to the matters listed above, Winthrop shall
have the right, upon at least ten (10) days prior written notice to Agent, to
designate any additional action as an action that should require its prior
approval if, in its reasonable judgment, such designation is reasonably
necessary in order to permit Winthrop to carry out its fiduciary duty as a
general partner of a Partnership; provided Agent shall not be obligated to
increase its scope of services or liability under this Services Agreement,
nor decrease its compensation as a result thereof.
2.4 Standard of Performance. In performing the services required to
be performed by it pursuant to this Services Agreement, Agent shall perform
such services in accordance with all applicable laws, rules and regulations,
and in a manner that is consistent with all applicable provisions of the
partnership agreements of the Partnerships (and Agent shall take no action
with respect to any Partnership which cannot otherwise be taken by the
general partner or limited partner of any Partnership (the "Partner")), and,
subject to the provisions of and limitations set forth in Section 2.3, with
such care and in accordance with such standards of performance as would be
applied to a such Partner pursuant to the terms of any partnership agreement
if such Partner had performed such services directly.
2.5 Servicer not a Partner. No provision of this Services Agreement
shall be construed as stating or implying that Agent is acting or
substituting for Winthrop as a Partner of any of the Partnerships, or that
Agent has assumed any fiduciary duty or fiduciary responsibility that
Winthrop, as a Partner of a Partnership, may have as to the Partnership.
2.6 Power of Attorney. Upon the reasonable request of Agent and so
long as a power of attorney is necessary to consummate the action requested,
and, if required hereunder Winthrop has consented to such action, Winthrop
shall within ten (10) business days after written receipt of Agent's request,
deliver a power of attorney to enable Agent to act on behalf of Winthrop,
provided such action is consistent with the terms of this Services Agreement.
5
<PAGE>
ARTICLE 3 - Consideration
3.1 Winthrop Compensation. For and in consideration of the rights
transferred to Agent hereunder, Agent hereby agrees to pay Winthrop Six
Hundred Thousand Dollars ($600,000) in immediately available funds upon the
Effective Date of this Services Agreement. The parties hereto acknowledge
that the foregoing consideration is allocable as follows:
(i) $100,000 consulting fee with respect to the
transfer of the Partnerships' records;
(ii) $200,000 consulting fee with respect to the
potential sale of Irvington and New Brunswick; and
(iii) $300,000 in consideration for the fee income and
distributions assigned pursuant to Section 3.2 below.
As additional consideration, Agent shall pay to Winthrop one hundred
twenty-five thousand dollars ($125,000) within five (5) days after the
closing of the WMC Mortgage transaction, when and if such closing occurs.
3.2 Agent Compensation. For and in consideration of the assumption of
the rights, duties and obligations by Agent hereunder, Winthrop hereby
assigns to Agent all of its right, title and interest in and to the Asset
Management Fees, the Accrued Asset Management Fees, the Reimbursements, the
Operating Distributions and the Refinancing Distributions. Agent acknowledges
that Sale Distributions are not being assigned pursuant to the terms of this
Services Agreement, and that any Sale Distributions shall be paid to the
partners of the Partnerships, including Winthrop, as provided by the
appropriate Partnership's partnership agreement, with the exception of any
Sale Distributions attributable to Irvington and New Brunswick which shall be
paid to Agent.
3.3 Agent Loans. Agent Loans shall be repaid pursuant to the terms of
the respective partnership agreement as third party loans of the Partnerships
to which a loan was made. Notwithstanding Section 2.3(v) of this Services
Agreement, Agent Loans shall be repaid prior to the Existing Loans.
3.4 Fees Nonrecourse. Agent acknowledges that the services to be
provided hereunder are for the benefit of the Partnerships and not Winthrop,
and therefore, Agent agrees to look solely to the net assets of each
Partnership for the payment of the Asset Management Fees, the Accrued Asset
Management Fees, the Reimbursements, the Operating Distributions, the
Refinancing Distributions, and the repayment of any Agent Loans, and not to
the assets of any other Partnership or Winthrop (except to the extent any
sums received by Winthrop which should otherwise be paid to Agent pursuant to
the terms of this Services Agreement are not paid to Agent), and further
agrees that any deficit capital account of a partner in a Partnership shall
not be deemed an asset of the Partnership. The provisions of this Section 3.4
shall not apply to the obligations of Winthrop under Section 6.3 below.
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ARTICLE 4 - Partnership Information
4.1 Partnership Information. Winthrop, within five (5) business days
after the Effective Date, shall deliver the following information to Agent:
(i) all Partnership files, consisting of the
syndication and acquisition files of the Partnerships to the extent in
Winthrop's possession;
(ii) all Partnership records, consisting of the
Partnership Agreements and any amendments thereto;
(iii) all investors records, consisting of limited
partner lists and correspondence, including access to the existing Resource
Phoenix investor database;
(iv) federal tax returns for the Partnerships for the
years 1994, 1995 and 1996, to the extent in Winthrop's possession; and
(v) federal tax returns for years prior to 1994 on an
as requested basis with payment of a fee to Winthrop for retrieving such
information from its off-site storage facility, such fee to be determined in
writing by Winthrop prior to such retrieval.
Further, all information and payments relating to Partnerships
received by Winthrop after the Effective Date shall be promptly forwarded to
Agent.
4.2 Future Information. Agent agrees to deliver to Winthrop the
following reports after the Effective Date of this Services Agreement:
(i) all correspondence and other reports sent to the
limited partners of the Partnerships;
(ii) copies of all status reports for the Partnerships;
(iii) copies of all complaints, cease and desist orders
from federal or state regulatory authorities, notices threatening litigation
or regulatory proceedings, any other similar notices which relate to any of
the Partnerships;
(iv) annual financial reports and tax returns; and
(v) copies of such other documents and reports relating
to this Services Agreement as Winthrop may reasonably require.
ARTICLE 5 - Representations
5.1 Representations by Winthrop. Winthrop hereby represents and
warrants to Agent as follows:
(i) Each Winthrop entity (a) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation , and (b) has full
7
<PAGE>
corporate power to enter into this Services Agreement and to perform all of
the terms, conditions and provisions set forth herein to be performed by it;
(ii) the acceptance and performance of the terms and
provisions of this Services Agreement have been duly authorized and approved
by all necessary governmental authorities and this Services Agreement is
binding upon and enforceable against Winthrop in accordance with its terms;
(iii) none of the transactions hereby contemplated to
be performed by Winthrop, nor the fulfillment of the terms, provisions and
conditions hereof, will conflict with, or result in a breach of any of the
material terms, conditions, or provisions of, or constitute a default under,
any material agreement or instrument to which Winthrop is a party or by which
it is bound; and
(iv) Schedule 1 attached hereto is true, correct and
complete in all material respects;
5.2 Representations by Agent. Agent hereby represents and warrants to
FWC as follows:
(i) Agent (a) is a limited liability company duly
organized, validly existing and in good standing under the laws of the State
of Georgia, and (b) has full power to enter into this Services Agreement and
to perform all of the terms, conditions and provisions set forth herein to be
performed by Agent;
(ii) the acceptance and performance of the terms and
provisions of this Services Agreement have been duly authorized and approved
by all necessary governmental authorities and this Services Agreement is
binding upon and enforceable against Agent in accordance with its terms; and
(iii) none of the transactions hereby contemplated to
be performed by Agent, nor the fulfillment of the terms, provisions and
conditions hereof, will conflict with, or result in a breach of any of the
material terms, conditions, or provisions of, or constitute a default under,
any material agreement or instrument to which Agent is a party or by which it
is bound.
5.3 Survival. All representations and warranties contained in this
Services Agreement or made pursuant hereto or in connection herewith shall
remain in effect for a period of five (5) years after the Effective Date,
after which they shall expire and cease to be of any force and effect,
provided that any representation or warranty which is not true when made and
which is made fraudulently and with intent to defraud or mislead shall
survive such 5-year period.
ARTICLE 6 - Term, Transfer and Termination
6.1 Term. This Services Agreement shall commence on the Effective
Date and shall continue with respect to each Partnership until the
liquidation of such Partnership and the distribution of all of its assets;
provided, however, that this Services Agreement shall terminate in any event
no later than June 30, 2014. Notwithstanding the foregoing, at any time after
June
8
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30, 2008, Winthrop may elect to request Agent (or affiliate(s) of
Agents, as Agent shall direct) to acquire (including by way of a transfer of
control of a Winthrop entity) its general partnership in all of the
Partnerships in which Winthrop acts as the general partner for the purchase
price of one thousand dollars ($1,000) (the "Purchase Price"). Such request
shall be made by Winthrop by delivering notice to Agent indicating Winthrop's
request under this Section 6.1. Within sixty (60) days following receipt of
such request, if Agent elects to agree to Winthrop's request,: (a) Agent
shall cause the Purchase Price to be paid by check to Winthrop; and (b)
Winthrop shall (i) provide appropriate documentation evidencing the transfer
of the general partnership to Agent or its designee, and (ii) deliver to
Agent an absolute and unconditional assignment of its rights to provide the
services contemplated by this Services Agreement, together with the fees
associated therewith, without representation or warranty. Upon closing of the
aforementioned transaction, this Services Agreement shall terminate, and
neither party shall have any further rights or obligations hereunder, except
those that expressly survive the termination of this Services Agreement. Upon
receipt of Winthrop's request, Agent may decline the same by written notice
to Winthrop within thirty (30) days. In such event, this Services Agreement
shall terminate fifteen (15) days after Agent's notice, and neither party
shall have any further rights or obligations hereunder, except those that
expressly survive the termination of this Services Agreement. In the event
that no offer is then outstanding under Section 6.2 below, Winthrop shall be
obligated to make an offer to Agent in accordance with the terms of this
Section 6.1 by May 1, 2014.
6.2 Transfer/Right of First Offer. Agent shall have no right to
transfer (including by way of a transfer of control of Agent) or assign this
Services Agreement without the consent of Winthrop, which may be given or
withheld in its sole discretion. Winthrop shall have the right to transfer
its general partner interest in any or all of the Partnerships in which it
acts as a general partner; provided, however, that if Winthrop elects to sell
its general partnership interest in a Partnership during the term of this
Services Agreement, Agent shall have the right of first offer set forth in
subsection (i) to purchase such interest:
(i) Winthrop shall give written notice to Agent of the
price and terms on which Winthrop desires to sell the general partnership
interest. Such notice shall constitute an offer by Winthrop to sell the
general partnership interest to Agent on an "as is" basis, without any
representations and warranties other than those as to ownership of such
interest. The price offered to Agent shall be the value of the interest
encumbered by this Services Agreement. Agent shall have thirty (30) days from
receipt of such notice to accept the offer by giving to Winthrop within such
period written notice of acceptance. If the offer is so accepted, the
purchase and sale of the interest shall be consummated within sixty (60) days
after such acceptance (or such longer period, not to exceed six (6) months,
as may be required solely to obtain the approval of any governmental
authority whose consent is required to transfer a general partnership
interest in any Partnership). If the purchase transaction is not consummated
within the foregoing 60-day period, Agent's rights pursuant to this Section
shall terminate.
(ii) In the event Agent rejects the offer or fails
timely to accept the offer made pursuant to subsection (i) above, Winthrop
may, during the six (6) month period next following the expiration of the
30-day offer period, enter into an agreement with any third person for the
sale of the interest at a price not less than the price contained in the
notice
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submitted to Agent and on terms not more favorable to the purchaser than the
terms contained in the notice submitted to Agent. Conditions to the
purchaser's obligation to buy and warranties concerning the interest shall
not be deemed terms more favorable to the purchaser. If no agreement is
entered into within such 6-month period, or if an agreement is entered into
within such 6-month period, but the purchase transaction has not been
consummated with sixty (60) days after expiration of such 6-month period (or
such longer period, not to exceed six (6) months, as may be required solely
to obtain the approval of any governmental authority whose consent is
required to transfer a general partnership interest in any Partnership), the
interest shall not thereafter be sold without first being reoffered to Agent
in accordance with the terms of this Section.
6.3 Termination by Winthrop. If, during the term of this Services
Agreement, Winthrop receives notice of the occurrence of any of the events
listed in this Section 6.3, Winthrop may terminate this Services Agreement
(either in total for the reasons set forth in clauses (i)or (ii) below, or as
to one or more of the Partnerships for the reasons set forth in clause (iii)
or clause (iv) below to the extent that such reasons are applicable to such
Partnership(s)), upon thirty (30) days written notice to Agent (or such
shorter period if required in the reasonable judgment of Winthrop to prevent
a disruption of continuous services to the Partnerships):
(i) a continuing material default by Agent to provide
the services to the Partnerships required herein and in the manner provided
herein, which default shall not be cured within thirty (30) days after
receipt of written notice thereof from Winthrop or within such longer period
(but in any event not to exceed one hundred and twenty (120) days), if any,
as may be reasonably required to effect such proceeding to effect such cure;
(ii) the discontinuance or cessation of business by
Agent, including by reason of the bankruptcy of Agent;
(iii) with respect to any one or more of the
Partnerships, a decision made in the good faith judgment of Winthrop that
termination is required to permit Winthrop to satisfy their fiduciary
obligations to such Partnership(s); or
(iv) at any time after the Effective Date, the adoption
or enactment of any applicable law or governmental rule, requirement,
guideline, order or regulation, or any change therein or change in the
interpretation or administration thereof, by any judicial or governmental
authority which shall make it illegal or impossible for Winthrop or the
Partnerships to engage Agent to provide the services described in this
Services Agreement; provided, however, that (a) Winthrop shall use its
reasonable efforts to eliminate such illegality or impossibility to the
extent reasonably possible, and shall have the right to terminate only those
portions of this Services Agreement which it has become illegal or impossible
for Winthrop or the Partnerships to engage Agent to perform, and (b) Winthrop
shall provide to Agent an opinion of Winthrop's counsel (which counsel shall
be reasonably satisfactory to Agent) confirming such illegality or
impossibility.
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In the event Winthrop elects to terminate this Services Agreement (in
whole or part) for the reasons set forth in clause (iii) above, Winthrop
shall pay Agent the following termination fee (the "Termination Fee"):
Years Termination Fee
1 - 5 Three (3) times the actual
collected Asset Management Fees and
Operating Distributions received
from the Partnerships for which
this Services Agreement is canceled
for the calendar year preceding
such termination
6 - 10 Two (2) times the actual collected
Asset Management Fees and Operating
Distributions received from the
Partnerships for which this
Services Agreement is canceled for
the calendar year preceding such
termination
11 - 15 One (1) times the actual collected
Asset Management Fees and Operating
Distributions received from the
Partnerships for which this
Services Agreement is canceled for
the calendar year preceding such
termination
In the event Winthrop elects to terminate this Services Agreement (in
whole or part) for the reasons set forth in clause (iv) above at any time
prior to June 30, 2002, Winthrop shall refund the consideration paid by Agent
under Section 3.1 (i), (ii), and (iii) less the amount of Asset Management
Fees, Accrued Asset Management Fees, Operation Distributions, Refinancing
Distributions, and Sale Distributions Agent has collected after deducting
Agent's reasonable direct costs and unreimbursed expenses which it has
incurred in the performance of its services hereunder.
Said Termination Fees, if any, will be paid within five (5) business
days after receipt from Agent of all Partnership information required to be
returned to Winthrop pursuant to the terms of this Services Agreement, and
the transfer of the Operating Accounts, if any, held by Agent pursuant to
Section 2.1.3 herein.
6.4 Termination by Agent. If, during the term of this Services
Agreement, Agent receives notice of the occurrence of any of the events
listed below, Agent may terminate this Services Agreement:
(i) at any time after the Effective Date, the adoption
or enactment of any applicable law or governmental rule, requirement,
guideline, order or regulation, or any change therein or change in the
interpretation or administration thereof, by any judicial or governmental
authority which shall make it illegal or impossible for Agent to provide the
services described herein; provided, however, that (a) Agent shall use its
reasonable efforts to
11
<PAGE>
eliminate such illegality or impossibility to the extent reasonably possible,
and shall have the right to terminate only those portions of this Services
Agreement which it has become illegal or impossible for Agent to perform, and
(b) Agent shall provide to Winthrop an opinion of Agent's counsel (which
counsel shall be reasonably satisfactory to Winthrop) confirming such
illegality or impossibility;
(ii) the material breach by Winthrop of any one or more
of the representations made in Section 5.1, but only where such material
breach has a material adverse effect on the business, condition (financial or
otherwise) or results of operations of Agent; or
(iii) with respect to any one or more of the
Partnerships, the amendment of the partnership agreement of a Partnership
upon the request or direction of Winthrop which has a material adverse effect
on Agent's rights, compensation or obligations under this Services Agreement
as to such Partnership.
In any event, Agent shall have the right to terminate this Services
Agreement on June 30, 2002, and each anniversary thereafter, upon six (6)
months prior written notice to Winthrop.
In the event this Services Agreement is terminated by Agent pursuant
to Section 6.4 (i) or (iii) above (in whole or part) at any time prior to
June 30, 2002, Winthrop shall refund the consideration paid by Agent under
Section 3.1 (i), (ii), and (iii) less the amount of Asset Management Fees,
Accrued Asset Management Fees, Operation Distributions, Refinancing
Distributions, and Sale Distributions Agent has collected after deducting
Agent's reasonable direct costs and unreimbursed expenses which it has
incurred in the performance of its services hereunder; said refund will be
paid within five (5) business days after receipt from Agent of all
Partnership information required to be returned to Winthrop pursuant to the
terms of this Services Agreement, and the transfer of Operating Accounts, if
any, held by Agent pursuant to Section 2.1.3 herein.
6.5 Effect of Termination. In the event of the termination of this
Services Agreement with respect to any one or more particular Partnership,
then the entitlement of Agent with respect to any compensation referred to in
Section 3.2 with respect to such Partnership shall terminate concurrently
therewith. Notwithstanding the foregoing, no termination of this Services
Agreement, either in total or with respect to any Partnership, shall impair
the rights of Agent to ultimately receive all amounts earned by Agent under
this Services Agreement prior to the effective date of any such termination.
6.6 Post-Termination Matters.
6.6.1 Servicer Cooperation. In the event of a termination of
this Services Agreement, in its entirety or as to one or more Partnerships,
Agent shall:
(i) turn over to Winthrop within five (5) business
days, without charge, all Partnership books and records, whether in writing
or stored in electro-magnetic form, all bank accounts maintained on behalf of
the Partnerships, all management summaries relating
12
<PAGE>
to the administration of Partnership business, and all management systems
utilized to provide services to the Partnerships, and all other materials
generally relating to the Partnerships;
(ii) consent, without the payment of any consideration,
to the employment by Winthrop, or any other person that Winthrop may retain
to provide services to the Partnerships, of any of Agent's employees
following termination of this Services Agreement which Agent shall not
require (in Agent's sole discretion) in order to continue its other business
activities; and
(iii) for such period as is reasonably required
therefor, generally cooperate in good faith with Winthrop in winding down its
activities under this Services Agreement and causing an orderly transition of
responsibility for the services to occur.
In the event this Services Agreement is terminated by Winthrop under
Section 6.3 (iv) or (v) or by Agent under Section 6.4 (i), (ii) or (iii),
Winthrop shall reimburse Agent for the cost of compliance with Section
6.6.1(i), provided, however, Agent shall not charge any fee in connection
with such matters.
6.6.2 Survival. The provisions of this Section of this
Services Agreement shall survive any termination hereof for a period of one
(1) year.
ARTICLE 7 - Miscellaneous
7.1 Access to Books and Records. Agent shall permit Winthrop and its
agents and representatives to have access, during normal business hours, to
all books and records of Agent and the Partnerships (as they relate to the
Partnerships) and to those management-level persons employed or retained by
Agent who provide services to any of the Partnerships, for the purpose of
permitting Winthrop to verify the performance by Agent of its obligations
under this Services Agreement. Agent shall also, from time to time, supply to
Winthrop such other information as Winthrop may reasonably request for such
purpose. All information and documents received hereunder by Winthrop shall,
unless the same have previously been made available to the public by Agent or
otherwise are generally known in the trade, be kept confidential by Winthrop
and its agents and representatives and shall not be disclosed or released to
any other person or entity without the express written consent of Agent or
the Partnerships. Winthrop shall provide similar access to Agent for any
records in its possession which relate to the Partnerships.
7.2 Successors and Assiqns. Without limiting the restrictions on
transfer set forth in Section 6.2, this Services Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
permitted successors and assigns.
7.3 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Services
Agreement shall be governed by and construed and enforced in accordance with
the laws of the Commonwealth of Massachusetts applicable to contracts
intended to be performed entirely within such Commonwealth (without regard to
any choice of law provisions thereof). The parties each hereby irrevocably
consent and submit to the jurisdiction of the courts in the Commonwealth of
Massachusetts, for the purposes of all legal proceedings arising out of or
13
<PAGE>
relating to this Services Agreement, and agree that venue for any legal
action arising out of this Services Agreement shall be in Suffolk County,
Massachusetts.
7.4 Entire Agreement. This Services Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof, and
supersedes any prior oral or written agreement between the parties respecting
the subject matter hereof.
7.5 Waivers. Neither this Services Agreement nor any of the terms
hereof may be terminated, amended or waived orally by the parties, but only
by an instrument in writing signed by the party against which enforcement of
the termination, amendment or waiver is sought. Notwithstanding the foregoing
provisions of this Section 7.5, the rights and obligations of the parties
hereunder shall be automatically modified from time to time hereunder to the
extent and in the manner necessary to make this Services Agreement and the
rights and obligations of the parties hereunder comply with any and all
applicable federal and state securities and real estate syndication laws,
rules and regulations.
7.6 Counterparts. This Services Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, and it shall
not be necessary in making proof of this Services Agreement to produce or
account for more than one such counterpart.
7.7 Independent Contractor Relationship. This Services Agreement is
not intended to and shall not create any relationship of principal and agent,
partnership, joint venture, employer and employee or any other relationship,
association or affiliation whatsoever between the parties, except for that of
independent contractor.
7.8 Further Assurances. Each party covenants on behalf of itself, its
successors and assigns, to execute, with acknowledgment or affidavit if
required, any and all documents and writings which may be necessary or
desirable to carry out the purposes of this Services Agreement.
7.9 Severability. In the event that any provision of this Services
Agreement, or the application of such provision to any person, entity or set
of circumstances, shall be deemed invalid, unlawful or unenforceable to any
extent, the remainder of this Services Agreement, and the application of all
such provisions to persons, entities or circumstances other than those
determined invalid, unlawful or unenforceable shall not be affected and shall
continue to be enforceable to the fullest extent permitted by law.
7.10 Notices.
7.10.1 All notices, demands or requests provided for or
permitted to be given pursuant to this Services Agreement must be in writing.
All notices, demands and requests to be sent to Winthrop pursuant hereto
shall be deemed to have been properly given or served by personal delivery,
by depositing the same in the United States mail, postpaid and registered or
certified with return receipt requested or by depositing the same with any
reputable overnight mail courier at the following address:
14
<PAGE>
First Winthrop Corporation
5 Cambridge Center, 9th Floor
Cambridge, Massachusetts 02142
Attention: Carolyn Tiffany
and
First Winthrop Corporation
100 Jericho Quadrangle, Suite 214
Jericho, New York 11753
Attention: Peter Braverman
with a copy to: Post & Heymann, LLP
100 Jericho Quadrangle, Suite 214
Jericho, New York 11753
Attention: William W. Post, Esquire
7.10.2 All notices, demands or requests to be sent to Agent
pursuant hereto shall be deemed to have been properly given or served by
personal delivery, by depositing the same in the United States mail, postpaid
and registered or certified with return receipt requested or by depositing
the same with any reputable overnight mail courier at the following address:
2409 Bemiss Road
Valdosta, Georgia 31601
Attention: Mary T. Johnson
with a copy to: Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: Katharine E. Bachman, Esquire
7.10.3 Unless another requirement is specifically set forth in
any Section hereof, each notice, demand and request shall be effective upon
personal delivery or three (3) business days after the date on which the same
is deposited in the United States mail or the next business day after the
date on which the same is deposited with any reputable overnight mail courier
in accordance with the foregoing requirements. Rejection or other refusal to
accept or the inability to deliver because of changed address of which no
notice was given shall not adversely impact the effectiveness of any such
notice, demand or request.
7.10.4 By giving to the other parties at least fifteen (15)
days written notice thereof, the parties hereto, and their respective
successors and assigns, shall have the right from time to time and at any
time during the term of this Services Agreement to change their respective
addresses and each shall have the right to specify as its address any other
address within the United States of America.
15
<PAGE>
7.11 Titles and Captions. Paragraph titles or captions contained in
this Services Agreement are inserted only as a matter of convenience and for
reference. Such titles and captions in no way define, limit, extend or
describe the scope of this Services Agreement nor the intent of any
provisions hereof.
7.12 No Third Party Beneficiaries. Under no circumstances shall any
provision of this Services Agreement be deemed to be for the benefit of or
enforceable by any person or entity other than Winthrop, each of the
Partnerships (unless and until this Services Agreement is terminated with
respect to such Partnership) and Agent.
7.13 Attorneys' Fees. If any party hereto brings an action to enforce
the terms hereof or to obtain a declaration of the rights of such party
hereunder, the prevailing party in any such action, on trial or appeal, shall
be entitled to such party's reasonable attorneys' fees to be paid by the
losing party.
[SIGNATURE LINES ON SET FORTH ON NEXT PAGE]
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Services Agreement
as of the Effective Date.
COORDINATED SERVICES OF VALDOSTA, LLC
By:
--------------------------
Name:
Title:
FIRST WINTHROP CORPORATION
By:
--------------------------
Name:
Title:
WINTHROP FINANCIAL CO., INC.
By:
--------------------------
Name:
Title:
WFC REALTY CO., INC.
By:
--------------------------
Name:
Title:
WFC REALTY SAUGUS, INC.
By:
--------------------------
Name:
Title:
ONE WINTHROP PROPERTIES, INC.
By:
--------------------------
Name:
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
17
<PAGE>
TWO WINTHROP PROPERTIES, INC.
By:
--------------------------
Name:
Title:
THREE WINTHROP PROPERTIES, INC.
By:
--------------------------
Name:
Title:
WINTHROP METRO EQUITIES CORPORATION
By:
--------------------------
Name:
Title:
WINTHROP LIBSON REALTY, INC.
By:
--------------------------
Name:
Title:
NORTHWOOD REALTY CO., INC.
By:
--------------------------
Name:
Title:
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WINTHROP
RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,817,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,657,000
<DEPRECIATION> (3,207,000)
<TOTAL-ASSETS> 5,559,000
<CURRENT-LIABILITIES> 0
<BONDS> 2,183,000
0
0
<COMMON> 0
<OTHER-SE> 1,108,000
<TOTAL-LIABILITY-AND-EQUITY> 5,559,000
<SALES> 0
<TOTAL-REVENUES> 2,710,000<F1>
<CGS> 0
<TOTAL-COSTS> 1,032,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 178,000
<INCOME-PRETAX> 1,459,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,459,000
<DISCONTINUED> 0
<EXTRAORDINARY> 2,698,000
<CHANGES> 0
<NET-INCOME> 4,157,000
<EPS-PRIMARY> 160.22
<EPS-DILUTED> 160.22
<FN>
<F1>
INCLUDES GAIN ON SALE OF INTEREST IN LOCAL LIMITED PARTNERSHIP OF $1,447,000.
</TABLE>
