<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14A INFORMATION
CONSENT SOLICITATION STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box: [_] CONFIDENTIAL, FOR USE OF
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Preliminary Consent Solicitation Statement
[X] Definitive Consent Solicitation Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CONAM REALTY INVESTORS 4, L.P.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAMES OF PERSONS FILING CONSENT SOLICITATION STATEMENT, IF OTHER THAN THE
REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Units
of Limited Partnership Interest ("Units")
(2) Aggregate number of securities to which transaction applies: 128,110
Units
(3) Per Unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): The filing
fee of $1,850 has been calculated in accordance with Rule 0-11 under
the Exchange Act and is equal to 1/50 of 1% of $9,250,000 (the
aggregate amount of the cash to be distributed to security holders).
(4) Proposed maximum aggregate value of transaction: $9,250,000
(5) Total fee paid: $1,850
[X] Fee paid previously with preliminary materials: $1,870
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
CONAM REALTY INVESTORS 4, L.P.
1764 SAN DIEGO AVENUE
SAN DIEGO, CALIFORNIA 92110-1906
December 16, 1998
Dear Limited Partner,
We are writing to inform you of an opportunity to liquidate your investment
in ConAm Realty Investors 4, L.P. (the "Partnership") through the sale of the
remaining two properties (the "Properties") of the Partnership for $9,350,000
to a Delaware limited liability company (the "Purchaser") to be formed if the
sale is approved by the Limited Partners. Shortly after the sale of the
Properties, it is anticipated that the Partnership would be liquidated and net
proceeds from the sale, together with certain cash reserves, would be
distributed to the Limited Partners in accordance with their respective
interests in the Partnership. Two pension funds advised by Lend Lease Real
Estate Investments, Inc. ("Lend Lease"), which is unaffiliated with the
General Partner, will each own a 45.5% interest in the Purchaser, and ConAm
DOC Affiliates LLC, an affiliate of the General Partner, will own a 9%
interest in the Purchaser. In addition, ConAm Management Corporation, an
affiliate of the General Partner which will not be a member of the Purchaser,
will act as the initial property manager for the Purchaser if the sale is
approved. See "THE PROPOSALS--The Purchaser" in the enclosed Consent
Solicitation Statement.
The accompanying materials discuss the proposed sale and certain related
matters in detail, but we would like to summarize our reasons for recommending
that you consent to the sale.
. The General Partner believes that current market conditions are favorable
for the sale of the Properties.
. The Partnership has held the Properties substantially longer than the
originally anticipated holding period.
. If the sale is consummated, aggregate distributions to the Limited Partners
following the sale, including a distribution in respect of the sale and a
final distribution upon the anticipated liquidation of the Partnership, are
estimated to be $80.01 per Unit. This compares favorably with an average
price of $39 per Unit offered in four recent tender offers made by parties
unaffiliated with the General Partner. See "MARKET FOR THE UNITS" in the
enclosed Consent Solicitation Statement.
. The purchase price for the Properties is equal to the fair market value
of the Properties set forth in an independent, annual appraisal of the
Properties made in the ordinary course of the Partnership's business and
greater than that offered by two other prospective purchasers. See
"SPECIAL FACTORS--Independent Appraisal" and "THE PROPOSALS--Background
of the Sale" in the enclosed Consent Solicitation Statement.
. The sale of the Properties will permit the Partnership to liquidate,
thus eliminating (i) the fixed costs associated with maintaining a
public limited partnership and (ii) the annual filing and reporting of
Schedule K-1 tax information by the Limited Partners.
Following for your consideration are some potential disadvantages to the
sale of the Properties:
. An affiliate of the General Partner will own a 9% interest in the
Purchaser in consideration of a pro rata cash contribution to the
Purchaser, and the General Partner will have other relationships with
the Purchaser. See "THE PROPOSALS--The Purchaser."
. The General Partner negotiated the terms of the sale with Lend Lease,
including the consideration to be received.
. As with most sales of real estate, the Partnership expects to recognize
taxable gains from the sale of the Properties. The Partnership estimates
that these taxable gains will equal approximately $39.56 per Unit, which
will result in federal taxes payable of approximately $10.41 per Unit
for Limited Partners who acquired their Units in the public offering.
See "CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE."
<PAGE>
. The Partnership will not benefit from possible improvements in economic
and market conditions, if any, which might be expected to produce
increased cash flow and potentially enhance the sales price of the
Properties.
. The sale of the Properties together may not result in as high an
aggregate gross sales price as if each were sold individually.
. Limited Partners will not be afforded appraisal rights or dissenters'
rights in connection with the sale.
Under the terms of the Partnership Agreement, the sale at one time of all or
substantially all of the Partnership's assets except in the ordinary course of
the Partnership's business requires the approval of a majority in interest of
the Limited Partners. In addition, certain affiliated transactions between the
General Partner and the Partnership are prohibited. Because the Purchaser may
be deemed to be an "affiliate" of the General Partner (under the Partnership
Agreement), the General Partner is also seeking to amend the Partnership
Agreement to permit such a sale, which requires the approval of a majority in
interest of the Limited Partners.
The accompanying materials contain a complete discussion of the purchase
price under the heading "SPECIAL FACTORS--Fairness of the Sale," together with
a discussion of all of the disadvantages and conflicts of interest arising in
connection with the sale under the heading "THE PROPOSALS--Conflicts of
Interest of the General Partner."
We have considered several alternatives to this transaction. After carefully
weighing the facts and circumstances associated with the transaction as well
as with alternative courses of action, we have concluded that the proposed
sale of the Properties is the best alternative for the Limited Partners. Our
conclusions are set forth in the section of the Consent Solicitation Statement
entitled "SPECIAL FACTORS--Alternatives Considered to the Sale." It is
anticipated that distributions to the Limited Partners of net proceeds from
the sale, together with certain cash reserves, will occur within 30 days after
the closing date of the sale.
If the Limited Partners fail to approve the sale and the amendment, the
Partnership will attempt to obtain financing for the Properties and utilize
the loan proceeds to implement certain capital improvements, establish
reserves for future capital improvements and make a tax-deferred distribution
to the Limited Partners. This course of action would enable the Partnership to
take advantage of future appreciation, if any, in the value of the Properties,
but could also increase the risk of loss of the Properties because of debt
service and might adversely affect the timing and amount of future
distributions to Limited Partners. See "THE PROPOSALS--Failure to Approve the
Sale."
YOU ARE ENCOURAGED TO READ THE CONSENT SOLICITATION STATEMENT IN ITS
ENTIRETY. WE REQUEST THAT YOU APPROVE THE SALE AND THE AMENDMENT BY SIGNING
AND RETURNING THE ENCLOSED CONSENT CARD IN THE ACCOMPANYING POSTAGE-PAID
ENVELOPE PRIOR TO JANUARY 15, 1999. YOUR VOTE IS IMPORTANT. PLEASE SIGN AND
DATE THE ENCLOSED CONSENT AND RETURN IT IMMEDIATELY SO THAT YOUR VOTE CAN BE
COUNTED.
If you have questions regarding the proposed sale or need assistance in
completing and returning your consent card, you may call the Partnership's
Solicitation Agent, D.F. King & Co., Inc., at (800) 735-3591 (toll-free).
Sincerely,
CONAM PROPERTY SERVICES IV, LTD.,
General Partner
By: Continental American
Development, Inc.,
the General Partner
By: /s/ Daniel J. Epstein
---------------------------------
Daniel J. Epstein
President and Chief Executive
Officer
<PAGE>
CONAM REALTY INVESTORS 4, L.P.
1764 SAN DIEGO AVENUE
SAN DIEGO, CALIFORNIA 92110-1906
CONSENT SOLICITATION STATEMENT
This Consent Solicitation Statement ("Solicitation Statement") is being
furnished to limited partners ("Limited Partners") holding units of limited
partnership interest ("Units") in ConAm Realty Investors 4, L.P., a California
limited partnership (the "Partnership"), in connection with the solicitation
of written consents ("Consents") by ConAm Property Services IV, Ltd. (the
"General Partner") to proposals (the "Proposals") to (i) sell the remaining
two income-producing, multi-family residential real properties, and all
intangible and personal property relating thereto (collectively, the
"Properties"), of the Partnership to a Delaware limited liability company,
which will be named DOC Investors, L.L.C. and formed if the Proposals are
approved (the "Purchaser"), in the manner described under the section of this
Solicitation Statement entitled "THE PROPOSALS" (the "Sale") and (ii) enact an
amendment (the "Amendment") to the Partnership's Amended and Restated
Certificate and Agreement of Limited Partnership (the "Partnership Agreement")
to permit the Sale to an "affiliate" of the General Partner as presently
defined in the Partnership Agreement. The full text of the proposed Amendment
is set forth in Appendix A attached hereto. If the Sale is approved by the
Limited Partners but the Amendment is not, the General Partner will have no
authority to consummate the Sale, and the Sale will not occur.
There is no assurance that the Sale will be consummated. However, assuming
the Sale is consummated, it is anticipated that an initial distribution to
Limited Partners of net proceeds from the Sale, together with certain cash
from operations, will aggregate approximately $78.06 per Unit and will occur
within 30 days after the closing date of the Sale. A final distribution of
cash from contingent reserves of up to $1.95 per Unit will be made upon
liquidation of the Partnership, approximately six months after the
consummation of the Sale. See "THE PROPOSALS--Description of the
Partnership."As with most sales of real estate, the Partnership expects to
recognize taxable gains from the Sale of the Properties. The Partnership
estimates that these taxable gains will equal approximately $39.58 per Unit,
which will result in federal taxes payable of approximately $10.41 per Unit
for Limited Partners who acquired their Units in the public offering. See
"CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE."
While the General Partner, an affiliate of which will own a 9% interest in
the Purchaser, negotiated the terms of the Sale, including the consideration
to be received, holders of a majority of the outstanding Units must consent to
the Proposals for the transaction to proceed. Limited Partners will not be
afforded appraisal rights or dissenters' rights in connection with the Sale.
This Solicitation Statement and the accompanying consent card are first
being mailed to Limited Partners on or about December 16, 1998.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE DATE OF THIS CONSENT SOLICITATION STATEMENT IS DECEMBER 16, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................... 3
ACTION BY CONSENT.......................................................... 7
General.................................................................. 7
Matters to be Considered................................................. 7
Record Date.............................................................. 8
Action by Consent........................................................ 8
SPECIAL FACTORS............................................................ 9
Reasons for the Sale..................................................... 9
Alternatives Considered to the Sale...................................... 10
Effects of the Sale...................................................... 11
Fairness of the Sale..................................................... 12
Independent Appraisal.................................................... 14
THE PROPOSALS.............................................................. 16
Description of the Partnership........................................... 16
The Purchaser............................................................ 16
Description of the Properties to be Sold................................. 17
Indebtedness on the Properties........................................... 17
Purchaser's Valuation.................................................... 17
General Partner's Valuation.............................................. 18
Background of the Sale................................................... 18
Conflicts of Interest of the General Partner............................. 21
Failure to Approve the Sale.............................................. 22
Terms of the Purchase Agreements......................................... 22
The Amendment............................................................ 24
Indemnification.......................................................... 25
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE.............. 25
General.................................................................. 25
Capital Gains............................................................ 27
Passive Loss Limitations................................................. 28
Certain State Income Tax Considerations.................................. 28
Tax Conclusion........................................................... 28
DISTRIBUTIONS.............................................................. 28
NO APPRAISAL RIGHTS........................................................ 28
MARKET FOR THE UNITS....................................................... 29
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF............................ 29
YEAR 2000 INFORMATION...................................................... 29
VOTING PROCEDURES.......................................................... 30
AVAILABLE INFORMATION...................................................... 30
APPENDIX A--THE PROPOSED AMENDMENT......................................... 1
APPENDIX B--FORM OF CONSENT OF LIMITED PARTNER............................. 1
ANNEX 1--FORM 10-K
ANNEX 2--FORM 10-Q
</TABLE>
2
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
SOLICITATION STATEMENT. REFERENCES ARE MADE TO, AND THIS SUMMARY IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED IN THIS
SOLICITATION STATEMENT. UNLESS OTHERWISE DEFINED HEREIN, TERMS USED IN THIS
SUMMARY HAVE THE RESPECTIVE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS
SOLICITATION STATEMENT. LIMITED PARTNERS ARE URGED TO READ THIS SOLICITATION
STATEMENT IN ITS ENTIRETY.
THE PARTNERSHIP
CONAM REALTY INVESTORS 4, L.P.
The Partnership owns two residential properties: Village at the Foothills II
& III Apartments ("Village II & III"), a 120-unit apartment complex located in
Tucson, Arizona, and Shadowood Village Apartments ("Shadowood"), a 110-unit
apartment complex located in Jacksonville, Florida. The principal offices of
the Partnership are located at 1764 San Diego Avenue, San Diego, California
92110-1906, and its telephone number is (619) 297-6771.
The proposed transaction contemplates the Sale of the Partnership's remaining
real property assets, which are the only material assets currently owned by the
Partnership. The Partnership will retain no interests in any real property
following the Sale, and the General Partner anticipates liquidating the
Partnership within six months after consummation of the Sale.
THE PURCHASER
If the Proposals are approved, DOC Investors, L.L.C. (the "Purchaser") will
be formed as a Delaware limited liability company in which two pension funds
(the "Pension Funds") advised by Lend Lease Real Estate Investments, Inc.
("Lend Lease"), which is unaffiliated with the General Partner, will each own a
45.5% interest and in which ConAm DOC Affiliates LLC, an affiliate of the
General Partner, will own a 9% interest. The principal offices of the Purchaser
will be located at 1764 San Diego Avenue, San Diego, CA 92110-1906.
THE PROPOSALS
THE SALE
Upon the approval of a majority in interest of the Limited Partners pursuant
to this Solicitation Statement, the Properties may be sold to the Purchaser for
an aggregate purchase price of $9,350,000 in cash, subject to certain
adjustments at closing (the "Purchase Price"), as described under "THE
PROPOSALS--Terms of the Purchase Agreements." After the payment of expenses of
the Sale, there will be approximately $9,250,000 of net proceeds from the Sale
available for distribution.
THE AMENDMENT
The Partnership Agreement provides that the General Partner has no authority
to sell any Partnership property to the General Partner or an "affiliate" of
the General Partner. An affiliate of the General Partner will own a 9% interest
in the Purchaser, will have a right of first offer and certain buy/sell rights
with respect to the property of and interests in the Purchaser, and will be
entitled to receive, under certain circumstances, a percentage of the
Purchaser's profits in excess of such affiliate's percentage ownership interest
in the Purchaser. In addition, an affiliate of the General Partner which will
not be a member of the Purchaser, ConAm Management
3
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Corporation ("ConAm Management"), will serve as the initial property manager
for the Purchaser. The following charts set forth the proposed relationship
among the General Partner, ConAm Management, and, when formed, the Purchaser.
[CHART APPEARS HERE]
- --------
* RI 3-4 Real Estate Services, Inc. sold its co-general partner interest in
the Partnership to the General Partner effective July 1, 1997. See "THE
PROPOSALS--Background of the Sale."
Taken together, these relationships might cause the Purchaser to be an
"affiliate" of the General Partner under the terms of the Partnership
Agreement. In order to permit the Sale, the General Partner proposes to amend
the Partnership Agreement to permit proposed sales of Partnership properties to
"affiliates" of the General Partner, if such proposed sales are approved by the
Limited Partners. See "THE PROPOSALS--The Amendment" and "SPECIAL FACTORS--
Effects of the Sale."
FAIRNESS OF THE SALE AND CERTAIN CONFLICTS OF INTEREST
The General Partner has carefully considered the Sale and has concluded that
the Sale is in the best interests of the Partnership and the Limited Partners.
This conclusion is supported by (i) an appraisal of the Properties rendered by
an independent real estate valuation advisory firm, Bach Realty Advisors, Inc.
(the "Appraiser"), as of December 31, 1997, (ii) an appraisal commissioned by
the prospective lender for the Purchaser in the course of obtaining financing
for the Sale and (iii) comparisons with other offers for the Properties
received by the General Partner within the last year. See "SPECIAL FACTORS--
Fairness of the Sale" and "THE PROPOSALS--Background of the Sale." There are
certain factors, including conflicts of interest, described in this
Solicitation Statement that Limited Partners should consider when determining
the fairness of the Sale. In particular, (i) the Purchase Price was negotiated
by the General Partner, an affiliate of which will have a 9% interest in the
Purchaser, without the benefit of an independent representative to negotiate on
behalf of the Limited Partners, (ii) the General Partner affiliate owning 9% of
the Purchaser may, under certain circumstances, be entitled to receive an
additional 18% of the profits of the Purchaser, and will have an option to
purchase additional interests in the Purchaser and a right of first offer with
respect to sales of the Purchaser's property,
4
<PAGE>
and (iii) another affiliate of the General Partner will serve as the initial
property manager for the Purchaser. See "THE PROPOSALS--Conflicts of Interest
of the General Partner," and "SPECIAL FACTORS--Effects of the Sale."
SECURITY OWNERSHIP AND VOTING THEREOF
As of the Record Date, an affiliate of the General Partner owned a total of
20 Units (approximately 0.0156% of the then-outstanding Units). This affiliate
intends to consent to the Proposals. See "VOTING SECURITIES AND PRINCIPAL
HOLDERS THEREOF."
CONSUMMATION OF THE SALE
The material terms of the Agreements for Purchase and Sale and Joint Escrow
Instructions (the "Purchase Agreements") have been negotiated between Lend
Lease and the General Partner. If the Limited Partners approve the Proposals,
the Purchase Agreements will be executed and delivered. Assuming the requisite
approval of the Limited Partners is obtained promptly, the consummation of the
Sale is expected to occur during January 1999 and is required to occur no later
than February 1, 1999, unless extended by the mutual agreement of the parties
(the "Closing Date"). See "THE PROPOSALS--Terms of the Purchase Agreements."
NO APPRAISAL RIGHTS
If the Sale is approved by Limited Partners owning a majority in interest of
the outstanding Units, dissenting Limited Partners will not have appraisal
rights in connection with the Sale. See "NO APPRAISAL RIGHTS."
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES
The General Partner expects that the Limited Partners will recognize taxable
gains of approximately $39.56 per Unit from the Sale. The Sale proceeds
distributed to the Limited Partners, together with certain distributions from
cash reserves, are expected to exceed the Limited Partners' income tax
liability attributable thereto. The Partnership estimates that these taxable
gains will result in federal taxes payable of approximately $10.41 per Unit for
Limited Partners who acquired their Units in the public offering. See "CERTAIN
FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE."
DISTRIBUTION OF NET SALE PROCEEDS
Net proceeds from the Sale, together with certain cash reserves, aggregating
approximately $78.06 per Unit, are expected to be distributed to the Limited
Partners within 30 days after the Closing Date of the Sale. A final
distribution of cash from contingent reserves of up to $1.95 per Unit will be
made upon liquidation of the Partnership, approximately six months after the
consummation of the Sale.
ACTION BY CONSENT
TERMINATION OF CONSENT SOLICITATION
Consents must be received by mail or facsimile before January 15, 1999, at
5:00 P.M., Pacific Standard Time, unless such date or time is extended for an
aggregate of up to an additional 40 days in the sole discretion of the General
Partner or unless the necessary vote to approve the Proposals is received
earlier.
RECORD DATE; UNITS ENTITLED TO CONSENT
Limited Partners of record at the close of business on December 10, 1998 (the
"Record Date") are entitled to approve the Proposals by written Consent. At
such date there were outstanding 128,110 Units, each of which will entitle the
record owner thereof to one vote.
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PURPOSE OF THE ACTION
Written Consents are being solicited to approve the Proposals, which consist
of the Sale and the Amendment.
SOLICITATION AGENT
The Partnership has retained D.F. King & Co., Inc. (the "Solicitation Agent")
to assist in the solicitation of Consents. Completed, signed consent cards must
be returned to the Solicitation Agent by mail or facsimile before the
Expiration Date. If you have any questions, please call the Solicitation Agent
at (800) 735-3591 (toll-free).
VOTE REQUIRED
The Proposals must be approved by Limited Partners holding a majority of all
outstanding Units. If the Sale is approved but the Amendment is not, the
General Partner will have no authority to consummate the Sale, and the Sale
will not occur.
6
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ACTION BY CONSENT
GENERAL
This Solicitation Statement is being furnished on behalf of the Partnership
to the Limited Partners of the Partnership in connection with the solicitation
of Consents by ConAm Property Services IV, Ltd., as the General Partner.
This Solicitation Statement and accompanying consent card are first being
mailed to Limited Partners on or about December 16, 1998.
MATTERS TO BE CONSIDERED
Consents are being solicited to approve (i) the Sale of the Properties to
the Purchaser pursuant to the Purchase Agreements and (ii) since the Purchaser
may be an "affiliate" of the General Partner under the Partnership Agreement,
the Amendment of the Partnership Agreement to permit proposed sales of
Partnership properties to "affiliates" of the General Partner, if such
proposed sales are approved by the Limited Partners. If the Proposals are
approved by the Limited Partners, and the Sale is consummated, there will be
approximately $9,250,000 of net proceeds from the Sale, after the payment of
expenses of the Sale. The following table sets forth the calculations used in
determining the estimated initial distribution from the net proceeds from the
Sale, together with certain cash reserves, assuming a Sale as of November 30,
1998:
ESTIMATED NET CASH AVAILABLE BEFORE CONTINGENT RESERVES
<TABLE>
<CAPTION>
NET NET CASH
PROCEEDS FROM
FROM SALE OPERATIONS TOTAL
---------- ---------- -----------
<S> <C> <C> <C> <C>
Gross Purchase Price............ $9,350,000
Estimated Transaction Costs(1).. (100,000)
----------
Net Sale Proceeds............... 9,250,000
Repayment of Secured Debt....... 0
Prepayment Penalties............ 0
----------
Net Distributable Proceeds from
Sale........................... 9,250,000 $ 9,250,000
Other Available Cash(2)......... $1,111,392 1,111,392
Less: General Partner Portion
(10%).......................... (111,139) (111,139)
---------- ---------- -----------
Net Cash Available Before Con-
tingent Reserves............... 9,250,000 1,000,253 10,250,253
========== ========== ===========
Net Cash Available Before Con-
tingent Reserves, per Unit
(128,110 Units) ............... $ 80.01
===========
Net Asset Value Per Unit at
12/31/97....................... $ 81.62
===========
ESTIMATED PROJECTED INITIAL DISTRIBUTION TO LIMITED PARTNERS
<CAPTION>
PER UNIT
--------
<S> <C> <C>
Net Cash Available Before Con-
tingent Reserves (from above).. $10,250,253 $80.01
Less: Contingent Reserves(3).... (250,000) $(1.95)
----------- ------
Net Initial Distribution to Lim-
ited Partners.................. $10,000,253 $78.06
=========== ======
</TABLE>
- --------
(1) Includes estimated costs of consent solicitation and Sale which are
anticipated to be paid prior to the initial distribution.
7
<PAGE>
(2) Includes cash balance at 9/30/98, adjusted for projected cash flow from
10/01/98-11/30/98, refund of security deposits, projected 3rd quarter
distributions to Limited Partners, and costs incurred in the final
administration and liquidation of the Partnership.
(3) Represents a reserve for costs related to the consent solicitation not
paid prior to the initial distribution and for unanticipated costs related
to the Sale and liquidation of the Partnership. Any unused portion of this
reserve will be distributed upon liquidation of the Partnership.
Of the $80.01 total potential distribution per Unit, approximately $78.06
will be distributed within 30 days of the consummation of the Sale, and the
remaining $1.95 will be retained to cover contingencies related to the Sale
and the expenses of the Partnership's winding-up and liquidation. This
additional reserve equal to $1.95 per Unit will be distributed to Limited
Partners, to the extent available, upon liquidation of the Partnership, which
is expected to occur within six months of the consummation of the Sale.
THE GENERAL PARTNER PROPOSES THAT THE LIMITED PARTNERS TAKE THE FOLLOWING
ACTIONS BY CONSENT:
APPROVE THE SALE OF THE PARTNERSHIP'S RESIDENTIAL PROPERTIES KNOWN AS
VILLAGE AT THE FOOTHILLS II & III APARTMENTS AND SHADOWOOD VILLAGE APARTMENTS,
TOGETHER WITH ALL INTANGIBLE AND PERSONAL PROPERTY NECESSARY TO THE OPERATION
THEREOF, TO THE PURCHASER, PURSUANT TO CERTAIN PURCHASE AGREEMENTS TO BE
ENTERED INTO BETWEEN THE PURCHASER AND CERTAIN TITLE-HOLDING ENTITIES WHICH
THE PARTNERSHIP CONTROLS, AND APPROVE THE AMENDMENT OF THE PARTNERSHIP
AGREEMENT TO PERMIT PROPOSED SALES OF PARTNERSHIP PROPERTIES TO "AFFILIATES"
OF THE GENERAL PARTNER, IF SUCH PROPOSED SALES ARE APPROVED BY THE LIMITED
PARTNERS.
WHILE THE GENERAL PARTNER, AN AFFILIATE OF WHICH WILL OWN A 9% INTEREST IN
THE PURCHASER, NEGOTIATED THE TERMS OF THE SALE, INCLUDING THE CONSIDERATION
TO BE RECEIVED, HOLDERS OF A MAJORITY OF THE OUTSTANDING UNITS MUST CONSENT TO
THE PROPOSALS FOR THE TRANSACTION TO PROCEED.
RECORD DATE
The close of business on December 10, 1998 has been fixed by the General
Partner as the Record Date for determining the Limited Partners entitled to
receive notice of the solicitation of Consents and to give their consent to
the Proposals. As of the Record Date, there were 128,110 issued and
outstanding Units entitled to vote held of record by 6,670 holders.
ACTION BY CONSENT
Under the terms of the Partnership Agreement the sale at one time of all or
substantially all of the Partnership's assets except in the ordinary course of
the Partnership's business requires the approval of a majority in interest of
the Limited Partners. In addition, the sale of Partnership properties to the
General Partner or its affiliates is prohibited, unless the Partnership
Agreement is amended with the approval of a majority in interest of the
Limited Partners to permit such sales. Such approval will be obtained through
the solicitation of written Consents from Limited Partners, and no meeting of
Limited Partners will be held to vote on these matters. Consents must be
received by January 15, 1999, at 5:00 P.M., Pacific Standard Time, unless such
date or time is extended for an aggregate of up to an additional 40 days in
the sole discretion of the General Partner or unless the necessary vote to
approve the Proposals is received earlier (the "Expiration Date"). A vote
"for" or "against" either of the Proposals may be revoked by the person giving
it at any time before the Expiration Date by sending a written notice of
revocation or a later-dated Consent containing different instructions to the
Solicitation Agent before such date. Any written notice of revocation or
subsequent Consent should be sent to the Solicitation Agent at the address
that appears on the back cover of this Solicitation Statement.
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<PAGE>
In addition to solicitation by use of the mails, officers, directors and
employees of the General Partner or its affiliates, or the Solicitation Agent,
may solicit Consents in person or by telephone, facsimile or other means of
communication. Such officers, directors and employees will not receive
additional compensation for such services but may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation. Arrangements have
been made with custodians, nominees and fiduciaries for the forwarding of
Consent solicitation materials to beneficial owners of Units held of record by
such custodians, nominees and fiduciaries, and the Partnership will reimburse
such custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith. In addition, the Partnership has hired the Solicitation
Agent to assist in the solicitation of the Consents, and will pay an estimated
fee of $1,750 plus the usual and customary fees and expenses associated with
such solicitation assistance. All costs and expenses of the solicitation of
Consents, including the costs of preparing and mailing this Solicitation
Statement, will be borne by the Partnership, whether or not the required
Consents are received and the Sale is consummated. The aggregate expenses
anticipated to be incurred by the Partnership relating to this solicitation
are expected to be approximately $126,993 and are detailed in the following
table:
<TABLE>
<S> <C>
Filing fees....................................................... $ 1,850
Legal fees........................................................ 65,000
Accounting fees................................................... 3,000
Solicitation fees................................................. 10,920
Printing fees..................................................... 46,223
--------
$126,993
========
</TABLE>
SPECIAL FACTORS
REASONS FOR THE SALE
The General Partner's decision to proceed with the Sale at this time is
based upon the belief that current market conditions are favorable for the
Sale; that the Properties have been held substantially longer than the
originally anticipated holding period; that the Purchase Price is attractive;
and that the Pension Funds and Lend Lease are highly likely to consummate the
transaction. The General Partner has also considered: (a) the amount likely to
be distributed to the Limited Partners if the Sale were to occur; (b) the
business risks to which the Partnership would be exposed if the Sale were not
to occur; and (c) the elimination of (i) the fixed costs associated with
maintaining a public limited partnership and (ii) the annual filing and
reporting of Schedule K-1 tax information by the Limited Partners.
If the Sale is consummated, aggregate distributions to the Limited Partners
following the Sale, including a distribution in respect of the Sale and a
final distribution upon the anticipated liquidation of the Partnership, are
estimated to be $80.01 per Unit. This compares favorably with an average price
of $39 per Unit offered in four recent tender offers made by parties
unaffiliated with the General Partner. See "MARKET FOR THE UNITS."
If the Sale does not occur, the Partnership will attempt to obtain financing
for the Properties and utilize any loan proceeds to implement certain capital
improvements, establish reserves for future capital improvements and make a
tax-deferred distribution to the Limited Partners. The Partnership might then
take advantage of any future property appreciation through a future sale of
one or both of the Properties to the Purchaser or otherwise. However, such a
course of action could also increase the risk of loss of the Properties due to
any failure to make debt service payments and might also adversely affect the
timing and amount of future distributions to Limited Partners. See "THE
PROPOSALS--Failure to Approve the Sale."
As indicated in the Partnership's annual reports to Limited Partners and
Form 10-Ks, the annual third party cost of administration of the Partnership
was $189,785 for 1995, $173,535 for 1996 and $213,479 for 1997. These
administrative costs are incurred irrespective of the number of properties
owned by the Partnership and cover the annual audit, preparation of the
Partnership's tax return, transfer agent fees and investor services and
9
<PAGE>
public reporting fees. In addition, the Limited Partners incur individual
costs associated with the preparation of appropriate schedules for their tax
returns.
The primary disadvantages of the Sale to Limited Partners include (i) a
potential loss of benefits resulting from any improvements in economic and
market conditions, (ii) a potentially lower aggregate gross sales price
resulting from sale of the Properties together as opposed to individually and
(iii) a lack of appraisal rights for dissenting Limited Partners. See "--
Fairness of the Sale."
ALTERNATIVES CONSIDERED TO THE SALE
Continued Ownership of the Properties. The decision to sell the Properties
at this time took into account the General Partner's opinion concerning the
limited prospects for capital appreciation of the Properties, unless
significant additional investments are made in the Properties. The General
Partner considered retaining one or both of the Properties for a longer period
with the expectation of achieving greater capital appreciation. However, due
to the fact that the Properties are aging, the General Partner believes that
the Partnership will need to expend significant funds for capital improvements
and maintenance costs in order for the Properties to compete in their
respective markets in the future. The improvements would involve ongoing
replacement of carpeting and appliances and ongoing exterior maintenance,
including painting, roof replacement, heating and air conditioning
refurbishment, repaving of common areas and access roads, and ongoing repairs
to plumbing, electrical systems and building exteriors. The General Partner
estimates that the average cost of these improvements in 1999, 2000 and 2001
would approximate $287,000 per year.
While the General Partner believes that the Partnership could borrow funds
in order to finance these improvements, the General Partner does not believe
that leveraging the Properties would be in the best interests of the
Partnership, if another alternative such as the Sale is feasible. Leveraging
the Properties would increase the risk of loss and significantly decrease net
cash flow, resulting in an indefinite suspension of distributions to the
Limited Partners. Such a plan of action also would subject the Limited
Partners to the continued risks of ownership of the Properties and prolong the
fixed costs associated with maintaining a public limited partnership,
including the administrative burden of annual filing and reporting of Schedule
K-1 tax information.
Tender Offer. From time to time, the Limited Partners have been approached
by investors seeking to acquire Units. Based on analyses of these proposals
and general market information as to other tender offers for real estate
limited partnership interests, the General Partner has concluded that such
tender offers are generally made at prices that reflect a significant discount
from the net asset value of the Units. For instance, those tender offers
during the past three years of which the General Partner is aware have been
made at prices that reflect approximately 34% to 72% of the net asset value of
the Units. The General Partner has consistently recommended that the Limited
Partners decline a tender offer on terms that reflect such a significant
discount from net asset value.
The General Partner has considered the possibility of making a tender offer
itself for all or a portion of the outstanding Units of the Partnership.
However, the General Partner determined that the purchase of less than a
controlling interest in the Partnership would be difficult to finance at a
fair approximation of the net asset value of the Units. Accordingly, the
General Partner decided not to pursue a tender offer for the Units.
Consolidation. The General Partner also considered a consolidation of the
Partnership with certain other partnerships for which it or its affiliates act
as general partner. Such a consolidation would have involved the merger of the
Partnership into, or the sale of the Partnership's interests in the Properties
to, a newly-formed entity, pursuant to which the Limited Partners would
receive securities in the surviving entity. Although the General Partner did
not perform any specific financial analysis in the context of evaluating the
merits of this alternative, it rejected this alternative because it would not
necessarily provide the Limited Partners with
10
<PAGE>
improved liquidity and might continue to subject the Limited Partners to the
market and other risks associated with the ownership of securities which might
not have an active trading market. In addition, there has been significant
negative publicity regarding such "roll-up" transactions, and recently enacted
legislation on both the federal and state levels as well as increased regulation
of such transactions have made this alternative expensive and time consuming.
Other Sales. See "THE PROPOSALS--Background of the Sale" for a discussion of
other proposals to purchase the Properties received by the General Partner.
Conclusion. After considering all of the foregoing alternatives, the General
Partner concluded that it is in the best interests of the Partnership and the
Limited Partners to proceed with the Sale to the Purchaser for the Purchase
Price. The primary disadvantages of the Sale to Limited Partners include (i) a
potential loss of benefits resulting from any improvements in economic and
market conditions, (ii) a potentially lower aggregate gross sales price
resulting from sale of the Properties together as opposed to individually and
(iii) a lack of appraisal rights for dissenting Limited Partners. See "--
Fairness of the Sale."
EFFECTS OF THE SALE
Partnership. The Sale, if consummated, would effect a dissolution of the
Partnership under the Partnership Agreement and California law. Accordingly,
an initial distribution to Limited Partners of net proceeds from the Sale,
together with certain cash from operations, would be followed by a liquidation
distribution of cash from contingent reserves approximately six months after
consummation of the Sale. Any taxable income realized by the Partnership in
connection with the Sale or liquidation will be passed through to the partners
of the Partnership, in accordance with federal and state tax law and the
Partnership Agreement. The Partnership will not incur any income taxes in
respect of such transactions. See "CERTAIN FEDERAL AND STATE INCOME TAX
CONSEQUENCES OF THE SALE."
Affiliates of the Partnership. Continental American Development, Inc.
("CADI") is the general partner of the General Partner. The shareholders of
CADI are substantially identical to the partners of Continental American
Properties, Ltd. ("CAPL"), which is the managing member of ConAm DOC
Affiliates LLC ("ConAm DOC"), the prospective owner of a 9% interest in the
Purchaser. In addition, the shareholders of CADI are identical to the
shareholders of ConAm Management which will act as the initial property
manager for the Purchaser if the Proposals are approved. As a result, the Sale
is subject to various conflicts of interest.
The General Partner anticipates benefiting from the Sale to the Purchaser
because ConAm DOC, an affiliate of the General Partner, will own a 9% interest
in the Purchaser and will benefit on any returns the Purchaser receives from
its investment in the Properties. The Purchaser will buy the Properties with a
view to generating a positive return on its investment, whether from operating
the Properties, selling the Properties or ultimately selling interests in the
Purchaser. Achieving this investment objective is possible, because the
Pension Funds are willing to invest funds in capital improvements and other
items necessary to enhance the value of the Properties and potentially
increase the revenues generated by the Properties. In addition, the Purchaser
would likely be able to borrow on more favorable terms than the Partnership if
it purchases additional properties and is therefore able to cross-
collateralize any loans with all of such properties, something the Partnership
is not in a position to do.
As further benefits of the Sale to the General Partner, ConAm DOC might
have, under certain circumstances and at certain times, an option to purchase
additional interests in the Purchaser and will have a right of first offer
with respect to the Purchaser's property. See "THE PROPOSALS--The Purchaser."
As a result of the Sale and subsequent liquidation of the Partnership, the
General Partner will recognize taxable income of $5,520. The General Partner
expects to receive $111,139 as its pro rata share of the cash reserves,
excluding net proceeds from the Sale.
11
<PAGE>
As a result of the Sale, the General Partner will retain without
modification its current interest in the net book value and net earnings of
the Partnership. No affiliate of the General Partner will obtain any interest
in the net book value and net earnings of the Partnership as a result of the
Sale.
Limited Partners. It is anticipated that, shortly after the Sale, the net
proceeds from the Sale, together with certain cash reserves, would be
distributed to the Limited Partners in accordance with their respective
interests in the Partnership. This initial distribution to Limited Partners of
net proceeds from the Sale and certain cash reserves will aggregate
approximately $78.06 per Unit and will occur within 30 days after the Closing
Date. A final distribution of cash from contingent reserves of up to $1.95 per
Unit will be made upon the subsequent liquidation of the Partnership,
approximately six months after the consummation of the Sale. The Sale will
thus eliminate (a) the fixed costs associated with maintaining a public
limited partnership and (b) the annual filing and reporting of Schedule K-1
tax information by the Limited Partners. The Sale and liquidation will also
have certain income tax consequences to the Limited Partners. See "CERTAIN
FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE."
The primary disadvantages of the Sale to Limited Partners include (i) a
potential loss of benefits resulting from any improvements in economic and
market conditions, (ii) a potentially lower aggregate gross sales price
resulting from sale of the Properties together as opposed to individually and
(iii) a lack of appraisal rights for dissenting Limited Partners. See "--
Fairness of the Sale."
FAIRNESS OF THE SALE
The General Partner and its affiliates believe that the Sale is fair and
reasonable as to both price and structure and is in the best interests of the
Limited Partners and the Partnership and has, therefore, approved the Sale.
Because (i) the Purchase Price was negotiated by the General Partner, an
affiliate of which will have a 9% interest in the Purchaser, without the
benefit of an independent representative to negotiate on behalf of the Limited
Partners, (ii) the General Partner affiliate owning 9% of the Purchaser may,
under certain circumstances, be entitled to receive an additional 18% of the
profits of the Purchaser, and will have an option to purchase additional
interests in the Purchaser and a right of first offer with respect to sales of
the Purchaser's property, and (iii) another affiliate of the General Partner
will serve as the initial property manager for the Purchaser, the General
Partner has economic and other interests which are in conflict with the
interests of the Limited Partners. These interests of the General Partner may
conflict with its fiduciary obligations to the Limited Partners. The General
Partner believes, however, that it has fulfilled its fiduciary obligations to
the Partnership and that the Sale is fair to the Limited Partners. See "THE
PROPOSALS--Conflicts of Interest of the General Partner."
IN REACHING ITS DETERMINATION THAT THE SALE IS SUBSTANTIVELY AND
PROCEDURALLY FAIR, THE GENERAL PARTNER CONSIDERED THE FOLLOWING FACTORS WITH
RESPECT TO THE SALE. NEITHER CONAM DOC NOR CAPL HAS PERFORMED OR INTENDS TO
PERFORM AN INDEPENDENT ANALYSIS OF THE SUBSTANTIVE AND/OR PROCEDURAL FAIRNESS
OF THE SALE TO LIMITED PARTNERS. BOTH CONAM DOC AND CAPL, IN PUBLICLY-
AVAILABLE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, HAVE EXPLICITLY
ADOPTED THE FOLLOWING PROCEDURAL AND SUBSTANTIVE FAIRNESS ANALYSIS OF THE
GENERAL PARTNER:
(i) The General Partner believes that the Purchase Price represents a
fair price for the Properties. For the reasons described in "--Independent
Appraisal," the General Partner relied during initial negotiations with Lend
Lease on the Independent Appraisal (as defined below) as representative of a
fair price for the Properties. As negotiations for the Sale continued, Lend
Lease and the General Partner learned of lower values which had been
attributed to the Properties by the prospective lender for the Purchaser. See
"THE PROPOSALS--Background of the Sale." In addition, the Purchase Price
exceeds two offers for the Properties which were made to the General Partner
prior to or during negotiations with Lend Lease. See "THE PROPOSALS--
Background of the Sale." Because the Purchase Price is equal to or in excess
of
12
<PAGE>
these market indicators of a fair market value for the Properties, the
General Partner believes that the Sale is fair and in the best interests of
the Limited Partners.
(ii) The General Partner believes that current market conditions are
favorable for the Sale, because fair market values have generally
appreciated over the last few years. However, recent volatility and
uncertainty in the global capital markets is having (and is likely to
continue to have) an adverse effect on the financing of real estate
acquisitions. Therefore, in the General Partner's opinion, future
appreciation is unlikely in the near term and there is increased risk in
holding real estate generally. In addition, retention of the Properties
will continue to subject the Partnership to the risks inherent in the
ownership of property, such as fluctuations in occupancy rates, operating
expenses and rental rates, which in turn may be affected by general and
local economic conditions, the supply and demand for properties of the type
owned by the Partnership and federal and local laws and regulations
affecting the ownership and operation of real estate. Therefore, the
General Partner has determined that the Sale is more advantageous to the
Limited Partners than retaining the Properties at the present time.
(iii) Due to the age and physical condition of the Properties, the
General Partner anticipates a need for expenditures averaging approximately
$287,000 per year in 1999, 2000 and 2001 if the Partnership continues to
hold the Properties. These improvements would involve the ongoing
replacement of carpeting and appliances and ongoing exterior maintenance,
including painting, roof replacement, heating and air conditioning
refurbishment, repaving of common areas and access roads, and ongoing
repairs to plumbing, electrical systems and building exteriors. While
higher rents might be obtained if such improvements are made, distributions
might need to be reduced because of debt service. Given that continued
long-term investment in the Properties would thus subject the Limited
Partners to the risk of reduced distributions, in addition to the increased
risk of holding real estate generally, the General Partner believes that
the Sale is in the best interests of the Limited Partners.
(iv) The form of the Purchase Agreements, described under "THE
PROPOSALS--Terms of the Purchase Agreements," contains several favorable
provisions which are not customarily found in third party agreements,
including: limited representations and warranties; limited survivability of
representations and warranties; sale of the Properties on an "as is" basis;
lack of due diligence conditions precedent to closing; and lack of any
financing contingencies relating to the Sale. Because these favorable
provisions have the effect of limiting the prospective and other risks
inherent in a sale of real property, the General Partner has determined
that the Proposals are a fair opportunity to submit to the Limited Partners
for approval.
(v) Experience in the multi-family housing market indicates that selling
the Properties together will result in lower aggregate transaction costs,
particularly lower legal and title insurance fees. Furthermore, the Sale
will not be subject to the protracted timelines, contingencies and
administrative costs associated with individual sales. For example, if one
of the Properties were sold, the remaining Property might not generate
sufficient revenues to service debt, pay Partnership administrative costs
and provide for distributions at the current level to Limited Partners.
(vi) As a result of changes in the federal capital gains tax rate which
became effective in 1997, the Limited Partners will receive more favorable
capital gains tax treatment on the distribution of Sale proceeds than they
would have received prior to such changes.
(vii) The Sale will accelerate distributions to the Limited Partners,
thereby permitting them to liquidate their investments. At present, there
is no established public trading market for the Units and liquidity is
limited to (a) sporadic sales which occur within an informal secondary
market or (b) tender offers for Units, both of which are generally at a
substantial discount to net asset value and often involve only a limited
number of Units.
(viii) The Sale will permit the Partnership to liquidate, thus
eliminating (a) the fixed costs associated with maintaining a public
limited partnership and (b) the annual filing and reporting of Schedule K-1
tax information by the Limited Partners.
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<PAGE>
(ix) Consummation of the Sale is subject to approval of the Proposals by
a majority in interest of the Limited Partners. Given this procedural
safeguard, the General Partner has determined that offering the Limited
Partners the option of liquidating their investment at or above current
appraised values is preferable
to subjecting the Limited Partners to the increased risk associated with
making additional capital investments and continuing to hold properties in
an already competitive market.
THE PRIMARY DISADVANTAGES OF DISPOSING OF THE PROPERTIES PURSUANT TO THE
SALE ARE AS FOLLOWS:
(i) The Partnership will not benefit from improvements in economic and
market conditions, if any, which might be expected to produce increased
cash flow and potentially enhance the sales price of the Properties.
(ii) The sale of the Properties together may not result in as high an
aggregate gross sales price as if they were sold individually.
(iii) Limited Partners will not be afforded appraisal rights or
dissenters' rights in connection with the Sale. See "NO APPRAISAL RIGHTS."
(iv) The Purchase Price was negotiated by the General Partner, an
affiliate of which will have an interest in the Purchaser, without the
benefit of an independent committee or representative to negotiate the
terms of the Sale on behalf of the Limited Partners.
(v) The form of the Purchase Agreements contains provisions that may be
less advantageous to the Partnership than those found in many third party
agreements, in that (a) the purchase of the Properties by the Purchaser is
subject to the concurrent approval by the limited partners of five public
limited partnerships (the "Affiliated Partnerships") of which the General
Partner or affiliates of the General Partner are the general partners of
the sale of their respective properties to the Purchaser and (b) the
Purchaser may terminate the Purchase Agreements if, due to condemnation or
casualty, the Purchaser is entitled to terminate the purchase agreements
with respect to any two or more properties owned by the Affiliated
Partnerships.
INDEPENDENT APPRAISAL
Each year, in the ordinary course of Partnership business, the General
Partner commissions an appraisal of the fair market value of the Partnership's
properties. For the past four years, the Appraiser has rendered these
appraisals for properties of the Partnership, as well as those of the
Affiliated Partnerships. These appraisals have included appraisals of the
Properties and 12 other properties (together with the Properties, the "RI
Portfolio") which are owned by the Affiliated Partnerships and are currently
proposed to be sold to the Purchaser. The General Partner retains the
Appraiser based upon its reputation as a real estate valuation advisory firm
with
experience in the valuation of real property assets similar to those
comprising the RI Portfolio. The Appraiser was originally selected by the
former co-general partner of the Partnership based upon the principal's 30
years of experience as an appraiser and real estate executive with several
national real estate appraisal and research companies and the principal's
familiarity with the markets where the Properties are located. The Appraiser
has received annual fees of $5,800 during each of the last two years for
rendering appraisals to the Partnership with respect to the Properties. Total
fees paid to the Appraiser by the Partnership and its affiliates during 1996
and 1997 were $44,150 and $47,900, respectively.
In March 1998, the Appraiser delivered its independent appraisals to the
General Partner (the "Independent Appraisal") that, as of December 31, 1997,
based on the Appraiser's review and subject to the limitations described
below, the value of Village II & III was $4,700,000 and the value of Shadowood
was $4,650,000. The Independent Appraisal does not constitute a recommendation
to any Limited Partner as to whether such Limited Partner should approve the
Sale.
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<PAGE>
In appraising the Properties, the Appraiser obtained pertinent property data
regarding income and expense figures and tenant rent rolls and conducted
inspections of the Properties. Additionally, the Appraiser conducted research
either personally or through associates to obtain information concerning
current market rental rates, construction trends, the sale of comparable
improved properties, anticipated investor returns, appropriate operating
expenses and the supply and demand of competitive apartment projects in the
general and immediate area. The value of the Properties was determined by the
Appraiser using both the sales comparison approach and the income approach to
value.
For Village II & III, the Appraiser used an actual sales price for ten
apartment sales from August 1996 to November 1997 in order to implement the
sales comparison approach. The Appraiser implemented the income approach for
Village II & III under the direct capitalization model and the discounted cash
flow model. The Appraiser's assumptions under the direct capitalization model
included: a capitalization rate of 9.5%; current market rents; stabilized
vacancy rate of 7%; other income based on historical collections; operating
expenses based upon historical actuals and comparable projects; a replacement
reserve allowance of $300 per unit per year; a reduction for deferred
maintenance of $105,000; and a reduction for rent loss due to lease-up of
$34,324. The Appraiser's assumptions under the discounted cash flow model
included: a terminal capitalization rate of 10.5%; a discount rate of 12.5%; a
4% cost of sale; a 10-year holding period; income growth rate of 0% in 1998
and 4% thereafter; a vacancy rate of 10% in 1998 and 7% thereafter; operating
expense growth rate of 4% per year; and a replacement reserve of $300 per unit
per year, increasing by 4% per year.
For Shadowood, the Appraiser used an actual sales price for eight apartment
sales from May 1996 to August 1997 in order to implement the sales comparison
approach. The Appraiser implemented the income approach for Shadowood under
the direct capitalization model and the discounted cash flow model. The
Appraiser's assumptions under the direct capitalization model included: a
capitalization rate of 9.0%; current market rents; stabilized vacancy rate of
5%; other income based on historical collections; operating expenses based
upon historical actuals and comparable projects; a replacement reserve
allowance of $300 per unit per year; a reduction for deferred maintenance of
$201,000; and a reduction for rent loss due to lease-up of $71,728. The
Appraiser's assumptions under the discounted cash flow model included: a
terminal capitalization rate of 10.0%; a discount rate of 12.0%; a 4% cost of
sale; a 10-year holding period; income growth rate of 2% in 1998 and 4%
thereafter; a vacancy rate of 7% in 1998 and 5% thereafter; operating expense
growth rate of 4% per year; and a replacement reserve of $300 per unit per
year, increasing by 4% per year.
The Appraiser estimated the leased fee market value for Village II & III to
be $4,700,000 and for Shadowood to be $4,650,000, a total of $9,350,000 for
both Properties. These estimates were made after investigating the appropriate
real estate markets and applying the Appraiser's experience with and knowledge
of similar real estate properties. The estimated values assume an all cash,
"as is" basis and a minimum of six to twelve months to market and sell the
Properties, but do not take into consideration any potential costs which might
be incurred in the course of the marketing and sale of the Properties.
The Independent Appraisal was made in accordance with the accepted
techniques, standards, methods and procedures of the Appraisal Institute and
was certified by the Appraiser. LIMITED PARTNERS SHOULD NOTE, HOWEVER, THAT
APPRAISALS ARE ONLY ESTIMATES OF CURRENT VALUE AND ACTUAL VALUES REALIZABLE
UPON SALE MAY BE SIGNIFICANTLY DIFFERENT. While the Appraiser may have a
conflict of interest in that it has prepared appraisals of properties for the
Affiliated Partnerships, it has not rendered appraisals for any other
affiliates of the General Partner. The General Partner has not commissioned
any appraisals of the Properties other than the Independent Appraisal, because
the General Partner believes that appraisals by the Appraiser accurately
reflect the fair market value of the properties appraised. This determination
is supported by certain offers received for the Properties by the General
Partner. See "THE PROPOSALS--Background of the Sale." While the General
Partner considered the Independent Appraisal in negotiating the terms of the
Sale, the Independent Appraisal was not determinative of the Purchase Price.
15
<PAGE>
The Independent Appraisal is available for inspection and copying at the
principal executive offices of the General Partner during its regular business
hours by any interested Limited Partner or such Limited Partner's
representative who has been so designated in writing. In addition, the
Independent Appraisal has been filed as an exhibit to the Partnership's
Schedule 13E-3 in respect of the Sale, which is a publicly-available filing
with the Securities and Exchange Commission. See "AVAILABLE INFORMATION."
THE PROPOSALS
DESCRIPTION OF THE PARTNERSHIP
The Partnership was formed on May 10, 1984 for the primary purpose of
acquiring and operating multi-family, residential real properties. The
Partnership currently owns two apartment complexes: Village II & III, a 120-
unit apartment complex located in Tucson, Arizona, and Shadowood, a 110-unit
apartment complex located in Jacksonville, Florida. The Partnership sold two
residential apartment complexes in 1995 and another two in 1997. The
Partnership will retain no interests in real property after the Sale. See "--
Description of the Properties to be Sold."
The Partnership was structured as a self-liquidating partnership with a
finite life, which would distribute its cash flow during its operating stage
and its proceeds of sale during its liquidating stage, whereupon the
Partnership would be liquidated and dissolved. It was originally anticipated
that the Partnership's properties would be held for approximately five years
after their acquisition although, depending on economic and market factors,
they could have been held for shorter or longer periods in the complete
discretion of the General Partner. The interests in the Properties were
purchased between 1984 and 1987 and now have been held for substantially
longer than the originally anticipated holding period.
THE PURCHASER
Prior to the Sale, the Purchaser will be formed as a Delaware limited
liability company in which the Pension Funds will each own a 45.5% interest
and in which ConAm DOC, an affiliate of the General Partner, will own a 9%
interest.
Under the proposed limited liability company agreement of the Purchaser (the
"LLC Agreement"), ConAm DOC will be the administrative member of the Purchaser
and will have the obligation and responsibility to manage and conduct the day-
to-day business and affairs of the Purchaser. However, because significant
decisions (each, a "Major Decision") can be made only by or with the approval
of 66 2/3% of the membership interests in the Purchaser, Lend Lease and the
Pension Funds will effectively control the Purchaser. Major Decisions include:
the approval or amendment of property budgets; the sale, lease, financing, or
encumbrance of the Properties; the acquisition of any real property in
addition to the Properties; the making of capital improvements to the
Properties; the admission of a new member of the Purchaser; entering into any
contract with an affiliate of any member; the issuance or sale of equity or
debt securities of the Purchaser; the consummation of any business combination
involving the Purchaser; the filing of any petition in bankruptcy with respect
to the Purchaser; the selection or replacement of a property manager; and the
distribution of net cash flow or capital proceeds.
Under the proposed LLC Agreement, the Purchaser will enter into a two-year
property management agreement with ConAm Management, an affiliate of the
General Partner. ConAm Management is required to manage the daily operations
of the Properties and will receive a management fee of 3.5% of each Property's
gross collected monthly revenues. If the Purchaser elects in its sole
discretion to retain ConAm Management beyond the initial two-year term, the
management fee will be reduced to 3% of each Property's gross collected
monthly revenues. If the Purchaser sells one or both of the Properties during
the year following the initial two-year term, ConAm Management will be
entitled to a termination fee equal to the management fee otherwise payable in
respect of such Property or Properties for the remainder of that year.
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<PAGE>
The proposed LLC Agreement provides that, following the two-year anniversary
of the effective date of the LLC Agreement (or at any prior time if the
members of the Purchaser are unable to reach a consensus on any Major Decision
within a 30-day period), any member of the Purchaser, including any affiliate
of the General Partner which is a member of the Purchaser, may make an offer
for the other members' interests in the Purchaser. Each other member may elect
to either sell its interests in the Purchaser for the stated price or make an
offer to purchase the other members' interests in the Purchaser for the stated
price. Accordingly, ConAm DOC might have, under certain circumstances and at
certain times, an option to purchase additional interests in the Purchaser.
At any time following the two-year anniversary of the effective date of the
LLC Agreement, the Pension Funds will be able to solicit offers for the sale
of either or both of the Properties. In such a case, the Pension Funds will
have to provide ConAm DOC with the exclusive opportunity to negotiate a
purchase of the applicable Property for a 30-day period. If the parties are
unable to reach an agreement as to such a purchase, the Pension Funds will
then be able, without the consent of ConAm DOC, to cause the Purchaser to sell
the applicable Property to a third party.
DESCRIPTION OF THE PROPERTIES TO BE SOLD
Village II & III. Village II & III is a 120-unit apartment community located
in the northwest portion of Tucson, Arizona, approximately 10 miles north of
the Central Business District. The property had an average occupancy rate of
96% during the first six months of 1998 and 93% in 1997. Low interest rates
and affordable home prices have also increased competition by luring many
renters to purchase homes. This competition has led to the reemergence of
rental incentives and other concessions in the marketplace to attract tenants.
Shadowood. Shadowood is a 110-unit apartment community located in southeast
Jacksonville, Florida, approximately eight miles from downtown. The property
had an average occupancy rate of 97% during the first six months of 1998 and
92.9% in 1997. The Jacksonville apartment market has experienced strong
competition lately, particularly in the area near Shadowood. Recently, average
occupancy rates have declined, apparently reflecting an increase in home-
buying, although average monthly rents have increased modestly.
INDEBTEDNESS ON THE PROPERTIES
There is currently no indebtedness on the Properties.
PURCHASER'S VALUATION
The Purchase Price for the Properties is $9,350,000, which is equal to the
aggregate appraised values of the Properties as of December 31, 1997. See
"SPECIAL FACTORS--Independent Appraisal." The Purchase Price was derived
through negotiations between Lend Lease and the General Partner. See "--
Background of the Sale." Lend Lease, acting on behalf of the Purchaser,
considered a number of factors, including the preceding twelve months of net
operating income of the Properties, the age, condition and location of the
Properties, and the significant costs necessary to appropriately manage
properties this age and undertake the capital improvements necessary to
position the Properties to meet competition from newer properties.
The Purchase Price is not subject to adjustment based on the results of Lend
Lease's due diligence investigation on behalf of the Pension Funds. In
addition, because the Properties are being sold on an "as is" basis, it is
more likely that the Partnership will receive and retain the full amount of
the Purchase Price without further adjustment. The Partnership has a high
degree of confidence in the Purchaser's ability to consummate the Sale,
because Lend Lease will have completed its due diligence investigation and
will have deposited $100,000 earnest money into escrow prior to consummation
of the Sale. Another advantage of the Sale is that, because the offer is for
multiple properties, the transaction costs are lower than they might otherwise
be if the Properties were listed with a broker and sold in separate sales, and
therefore the amount which can be distributed to the Limited Partners is
enhanced. However, for a discussion of certain disadvantages of the Sale, see
"SPECIAL FACTORS--Fairness of the Sale" and "--Terms of the Purchase
Agreements."
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GENERAL PARTNER'S VALUATION
The General Partner has not prepared a formal valuation with respect to the
proposed Sale. The General Partner has relied on the Independent Appraisal,
prior offers for the Properties and its general familiarity with and
experience in the Properties' markets to establish that the Purchase Price is
a fair price for the Properties. See "SPECIAL FACTORS--Independent Appraisal"
and "--Background of the Sale."
BACKGROUND OF THE SALE
In 1994, the General Partner and RI 3-4 Real Estate Services, Inc., the then
co-general partners of the Partnership (the "General Partners"), determined,
in their business judgment, that it was an appropriate time to begin exploring
a means of converting the Partnership's interests in its properties to either
cash or marketable securities. This determination was based, in significant
part, upon their belief that the consummation of a sale or a "roll-up"
transaction would be consistent with (i) the Limited Partners' desire for
liquidity, (ii) the fact that a longer holding period could subject the
Limited Partners to risks associated with changing interest rates and property
valuations, and (iii) the aging nature of the properties, which would require
increasingly larger commitments of funds to address on-going capital
expenditures and keep the properties competitive in their respective markets.
Under the terms of the Partnership Agreement, the General Partner or General
Partners have the responsibility to determine when Partnership properties
should be sold. As discussed in the Partnership's original offering
prospectus, the decision to sell the Partnership's properties would depend on
a variety of factors. Accordingly, it was not possible at the outset of the
Partnership to determine precisely when the Partnership's properties would be
sold. Although the terms of the Partnership Agreement do not provide for
termination of the Partnership until December 31, 2010, it was never intended
that the Partnership would hold its properties for the entire term of the
Partnership. In fact, the Partnership's offering prospectus originally
anticipated a holding period of approximately five years for the properties.
However, primarily as a result of extremely unfavorable market conditions in
the late 1980's and early 1990's, the properties were held beyond their
originally anticipated holding periods in order to take advantage of
recovering real estate markets and to avoid adverse tax and cash flow
consequences to the Limited Partners resulting from a sale of the properties
at significantly depressed values.
In 1994, the General Partners concluded that a "roll-up" of the Limited
Partners' interests with those of the Affiliated Partnerships was not in the
best interests of the Limited Partners. See "SPECIAL FACTORS--Alternatives
Considered to the Sale--Consolidation." Therefore, the decision was made to
begin marketing selected properties for sale. This decision was based upon the
General Partners' belief that the real estate capital markets were improving,
particularly in the multi-family sector. Pension funds, real estate investment
trusts and other institutional buyers had increased their purchasing activity
as compared to the early 1990's when these same institutional buyers were
largely out of the market. Lower interest rates had also improved the market
for selling properties, as entrepreneurial buyers who required debt financing
to purchase properties were able to borrow funds at more advantageous interest
rates. Further, with respect to the Partnership's properties, local real
estate market conditions were improving, resulting in improved operating
performances of certain properties and enhanced prospects for selling certain
properties at attractive prices.
Based upon the improvement in the real estate capital markets and certain of
the local real estate markets, the General Partners concluded that it would
then be easier to identify buyers for certain of the Partnership's properties
and that the offers might be at more favorable capitalization rates than were
previously available. Evaluating the effects to the Limited Partners of an
immediate sale and the prospects for near-term appreciation, the General
Partners made an assessment of each of the Partnership's properties and its
local market. In accordance with this assessment, certain properties were
identified for sale and subsequently sold. See "--Description of the
Partnership."
From time to time, the General Partners have received unsolicited
indications of interest in one or more of the remaining properties owned by
the Partnership, including the Properties. The General Partners did not pursue
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these indications of interest for a variety of reasons. For instance, in some
cases, the General Partners could not obtain adequate information regarding
the proposed buyer and its sources of financing. In other cases,
investigations as to the proposed buyer's purchase criteria, return
requirements, sources of capital, experience in the relevant real estate
markets, and timelines did not indicate that the proposed buyer was a
realistic potential purchaser. Finally, certain indications of interest were
not pursued because the General Partners believed that market conditions and,
therefore, prices, were likely to improve over the near-term.
In October 1997 and July 1998, respectively, an equity real estate
investment trust (the "REIT") and a real estate investment fund (the "Fund"),
parties unrelated to the General Partners, each expressed an interest in
acquiring the Properties and certain other properties owned by the Affiliated
Partnerships. The REIT and the Fund were familiar with these properties and
their respective locations within their respective trade areas. The REIT offer
included two properties which are no longer part of the RI Portfolio. Based on
the General Partner's understanding of the allocation of the REIT's offer, the
REIT offer for the RI Portfolio was $111,600,000, which was equal to the
appraised value of the RI Portfolio as of December 31, 1996. As to the
Partnership, this would have resulted in an aggregate purchase price for the
Properties of $9,000,000. The Fund offer indicated that the aggregate value of
the RI Portfolio was $115,650,000, which equaled the value set forth in the
Independent Appraisal, but, in consideration of the purported advantages to
the seller of a single transaction over an asset-by-asset sale, including the
avoidance of seller-paid brokerage commissions (estimated by the Fund to be 4%
or more of the purchase price) and reduced legal fees and related closing
costs, the Fund's offer for the RI Portfolio was $104,085,000. As to the
Partnership, this would have resulted in an aggregate purchase price for the
Properties of $8,415,000. In any event, these offers were not accepted
because, in the opinion of the General Partner and its affiliates, they either
did not reflect the value of the Properties at the time they were made and/or
they were subject to significant due diligence, underwriting and other
contingencies.
Neither the General Partner, the Partnership nor any of their affiliates
have received any other offers for the RI Portfolio or the Partnership's
properties. Due to, among other things, the protracted timelines,
contingencies and administrative costs associated with sales of individual
properties, continued individual sales of RI Portfolio properties have not
been pursued by the General Partner and its affiliates subsequent to the REIT
and Fund offers.
Effective July 1, 1997, the General Partner purchased the co-general partner
interest of RI 3-4 Real Estate Services, Inc. for $150,000 in cash. Subsequent
to this acquisition, the General Partner has considered alternative
disposition strategies for the Properties in light of the following:
(i) Due to previous sales of Partnership property, the Partnership
currently owns only two Properties, resulting in a disproportionate amount
of fixed costs associated with maintaining a public limited partnership;
(ii) The General Partner believes that the appropriate strategy for the
continued ownership of the Properties is the implementation of a physical
refurbishment program, which would result in capital expenditures that
would likely be unattractive to the Limited Partners, because they would
result in the suspension or reduction of cash distributions; and
(iii) Village II & III and Shadowood are each part of an integrated
apartment community, the other property or properties of which are owned by
Affiliated Partnerships, making a sale of the Properties on a stand-alone
basis difficult.
In mid-February 1998, ConAm Management, an affiliate of the General Partner,
acquired Alliance Residential Management, Inc., a Phoenix-based property
management company ("Alliance"). At the time of the acquisition, Alliance was
managing property in Phoenix on behalf of Lend Lease, advisor to the Pension
Funds. Shortly after the acquisition of Alliance, Steve Walker, a Pension Fund
senior portfolio manager at Lend Lease, telephoned Jim Krohn, the former owner
of Alliance, who was at that time a newly-appointed officer at ConAm
Management. During this telephone conversation, Mr. Walker asked to be
introduced to the principals of ConAm Management, for the purpose of
familiarizing himself with Lend Lease's new property manager and exploring
whether any further mutually beneficial business relationships could be
established between the two parties and/or their affiliates.
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On March 13, 1998, Mr. Krohn and J. Bradley Forrester, President of ConAm
Management and Vice President of the general partner of the General Partner,
flew to Atlanta to meet with Messrs. Ray D'Ardenne, Don Miller, Ted Klinck,
and Walker of Lend Lease. During this meeting, Messrs. Forrester and Krohn
presented the Lend Lease principals with general information about ConAm
Management and the multi-family real estate holdings of its affiliates,
including the RI Portfolio. The Lend Lease principals responded to this
presentation by expressing Lend Lease's desire to acquire well-located multi-
family properties where there was the opportunity to add value through
physical refurbishment and repositioning. At that time, Mr. D'Ardenne
expressed a possible interest in acquiring a small portfolio of multi-family
residential housing properties from ConAm Management's affiliates. While, as
described above, the General Partner and its affiliates had been contemplating
a sale of the RI Portfolio for some time, no formal presentations, proposals
or solicitations for an offer relating to the RI Portfolio were made to the
Lend Lease principals on that date.
On March 16, Mr. Forrester sent Mr. Klinck at Lend Lease an informational
package relating to the RI Portfolio. The package included information
relating to the locations of the properties, the number of units at each
property, a brief financial overview, and lists of amenities. Over the next
few days, Mr. Forrester continued to send information concerning the RI
Portfolio to Mr. Klinck. Subsequently, Mr. Klinck called Mr. Forrester and
expressed Lend Lease's interest in pursuing the acquisition of the RI
Portfolio. The General Partner believes that, during this time, Lend Lease
representatives may have made site visits to certain of the properties
comprising the RI Portfolio. The General Partner and its affiliates did not
consider retaining an independent advisor to represent the interests of the
Limited Partners in any prospective sale of the Properties, because they
determined that that the Independent Appraisal would provide adequate
assurance that a fair offer would be presented to the Limited Partners for
approval.
In late March and early April, the parties continued to exchange information
relating to the RI Portfolio. At the request of Mr. Klinck, Mr. Forrester
began to deliver more detailed financial reports and other information to Mr.
Klinck, in order to assist Lend Lease in its development of an offer. During
this time, Mr. Klinck and Mr. Forrester discussed the relative merits of
having affiliates of the General Partner contribute up to $5 million to the
purchase price of the RI Portfolio and provide property management services to
the RI Portfolio after the proposed sale. Through this alignment of interests,
Lend Lease believed that the underwriting risks inherent in the purchase of
real estate properties and the risks associated with the ongoing management of
the Properties would be reduced. The General Partner believes that this
reduction of risk to Lend Lease is reflected in the fact that the Purchase
Price is greater than the amounts offered by others.
During the following weeks, Lend Lease performed its own financial analysis
of the RI Portfolio and made several visits to the RI Portfolio property
sites. Also during this time, numerous telephone conversations took place
between Mr. Klinck and Mr. Forrester. Mr. Forrester informed Mr. Klinck that
if Lend Lease was not prepared to pay at least the appraised value of the RI
Portfolio, then the General Partner would not be interested in making a sale.
In arriving at this determination, the General Partner considered the original
Unit price of $500 and concluded that a sale at the appraised value of the
Properties, when taken together with all prior distributions
with respect to the Units, would provide the Limited Partners with a return of
capital in excess of their original investment. Mr. Klinck made several
counteroffers for the RI Portfolio at prices below the appraised value, but
the General Partner refused to consider a sale at those prices. During the
same period, Mr. Klinck attempted to negotiate a break-up fee of $250,000, to
become payable to Lend Lease if the proposed sale of the RI Portfolio did not
close due to a lack of approval by the limited partners of the Partnership or
any Affiliated Partnership. The General Partner refused to make these
concessions.
On May 22, 1998, Mr. Klinck sent a proposed term sheet to Mr. Forrester,
including a proposed purchase offer for the RI Portfolio. On June 10, 1998,
Messrs. Klinck, Walker and Joe Thomas from Lend Lease met with Messrs.
Epstein, Dupree, Svatos and Tilley to discuss the transaction in general. On
July 7 and 8, 1998, Mr. Forrester and Michael Johnson, a regional vice
president of ConAm Management, went to Jacksonville, Florida to present the RI
Portfolio properties in that area to Messrs. Walker, Thomas and Klinck and
representatives of the Pension Funds. On July 28 and 29, 1998, a similar
meeting took place in Phoenix, Arizona. Over the next few months, Mr.
Forrester continued to send information on the RI Portfolio to Mr. Klinck,
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including city maps, rental brochures, market summaries, occupancy
information, floor and site plans, management report summaries, operating
statements, rent rolls, location maps, memos regarding capital improvements
and management biographies.
During late July, the parties continued to negotiate the Purchase Price. In
arriving at the purchase offer contained in the proposed term sheet, Lend
Lease had performed independent evaluations of the historical financial
performance of the properties, the current and anticipated local real estate
market conditions affecting the properties, and the existing physical
condition of the properties. Lend Lease's purchase offer was less than the
value set forth in the Independent Appraisal, and the proposed purchase
agreements contained provisions obligating the Partnership to make additional
expenditures for capital improvements prior to closing (or credit the purchase
price for any unexpended amounts). As a result of the late July telephonic
negotiations between Mr. Klinck and Mr. Forrester, the purchase offer was
increased to the value set forth in the Independent Appraisal. In late August
and early September, the parties agreed to eliminate the obligation to make
additional expenditures for capital improvements.
In the course of evaluating financing options for the proposed acquisition,
the prospective lender to the Purchaser had an independent appraisal of the RI
Portfolio prepared (the "Lender Appraisal"). The Lender Appraisal indicated
that the aggregate appraised value of the Properties was $9,175,000. After
deducting a sales commission of 2.5%, or $229,375, normally paid by the seller
but not applicable to the Sale, the Lender Appraisal indicated that the value
of the Properties was $8,945,625, or $404,375 less than the value of
$9,350,000 set forth in the Independent Appraisal. During late October 1998,
Mr. Forrester had numerous telephone conversations with Mr. Klinck in which
Mr. Klinck sought a reduction in the purchase offer and Mr. Forrester sought
to have the purchase offer remain at $9,350,000. As a result of these
discussions, the purchase offer remained at the Purchase Price of $9,350,000.
This brought the aggregate amount offered by the Purchaser for the RI
Portfolio to $117,900,000.
Thereafter, the parties finalized the material terms of the proposed LLC
Agreement, the property management agreement for ConAm Management, and the
Purchase Agreements. The definitive Purchase Agreements will be executed and
delivered immediately after the Proposals are approved by the Limited
Partners.
CONFLICTS OF INTEREST OF THE GENERAL PARTNER
The Sale contemplates that the properties will be sold to an entity in which
an affiliate of the General Partner will own a 9% interest. Because of this
ownership interest, the General Partner has a conflict with the interests of
the Limited Partners, and the interests of the General Partner may conflict
with its fiduciary obligation to the Limited Partners. The General Partner
believes, however, that the Sale is fair to the Limited Partners. The General
Partner believes that the fairness factors enumerated in "SPECIAL FACTORS--
Fairness of the Sale," and the fact that the Sale requires the approval of the
Limited Partners, provide sufficient procedural safeguards to minimize the
effects of the potential conflicts of interest inherent in any such
transaction.
Nevertheless, Limited Partners should consider the following factors when
examining the Sale:
(i) In consideration of a pro rata cash capital contribution to the
Purchaser, an affiliate of the General Partner, ConAm DOC, will own a 9%
interest in the Purchaser, and consequently, the General Partner faces
direct conflicts of interest in negotiating the Sale. Furthermore, ConAm
DOC has the potential to receive up to an additional 18% of the profits of
the Purchaser after pro rata distributions of profits to members of the
Purchaser have resulted in recoupment by such members of their aggregate
capital contributions and payment of cumulative returns of 15% per annum on
their previously unrecovered capital contributions.
(ii) No independent committee or representative has been appointed or
retained to negotiate the terms of the Sale on behalf of the Limited
Partners.
(iii) The Partnership has in the past and is currently being represented
by legal counsel who has also represented and is currently representing the
General Partner and certain of its affiliates in various matters, and the
Limited Partners will not be represented by separate legal counsel.
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(iv) As an equity participant in the Purchaser, an affiliate of the
General Partner will benefit from any future cash flow attributable to, and
any future appreciation of, the Properties if the Sale is approved.
Furthermore, if the Sale is approved, ConAm Management, an affiliate of the
General Partner which will not be a member of the Purchaser, will be party
to a property management agreement relating to the Properties. ConAm
Management might not have otherwise obtained this contract if it were not
an affiliate of the General Partner. Finally, the General Partner and its
affiliates will benefit from the Sale as discussed in "SPECIAL FACTORS--
Effects of the Sale."
FAILURE TO APPROVE THE SALE
The General Partner believes that consummation of the Sale is the preferable
course of action at this time. If the Limited Partners fail to approve the
Proposals, however, the Partnership will attempt to obtain financing for the
Properties and utilize any loan proceeds to implement certain capital
improvements. The Partnership might then take advantage of any future property
appreciation through a future sale of one or both the Properties to the
Purchaser or otherwise (subject to any necessary amendment to the Partnership
Agreement to permit such sale or sales, which might require the consent of the
Limited Partners). There is no assurance that the General Partner could
arrange for an alternative sale of the Properties at an appropriate price or
on terms acceptable to the Partnership. Such a course of action could also
increase the risk of loss of the Properties due to any failure to make debt
service payments and might also adversely affect the timing and amount of
future distributions to Limited Partners.
The General Partner believes that a financing of the Properties at 75% of
the Lender Appraisal could generate $6,885,000 in loan proceeds. After
deducting financing costs and reserves for capital expenditures required to
maintain the competitive position of the Properties, the General Partner
expects that the Partnership would make a tax-deferred distribution of
approximately $49.76 per Unit, as compared to an expected distribution of
$80.01 per Unit from net proceeds from the Sale and the subsequent liquidation
of the Partnership.
If the Properties were leveraged to the extent set forth above at a 7%
interest rate, the annual debt service of $549,673 related to the financing
might result in the suspension of distributions or might affect the timing and
amount of future distributions. Furthermore, under current lending practices,
the loans would include provisions that could result in material prepayment
penalties if the loans were repaid prior to their maturity. Consequently, the
General Partner believes that the Sale is the preferable course of action at
this time.
TERMS OF THE PURCHASE AGREEMENTS
The following is a summary of the material terms of the proposed Purchase
Agreements. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE, AND REFERENCE IS
MADE TO THE FORM OF PURCHASE AGREEMENTS, WHICH IS AVAILABLE UPON REQUEST
PURSUANT TO THE PROCEDURES SET FORTH IN THE SECTION OF THIS SOLICITATION
STATEMENT ENTITLED "AVAILABLE INFORMATION." The Purchase Agreements will not
be executed unless the Limited Partners approve the Proposals. Capitalized
terms used but not defined in this summary of material terms have the meaning
ascribed to them in the form of the Purchase Agreements.
Structure of the Sale. The Partnership holds majority interests in and
controls two limited partnerships, one of which holds title to Village II &
III and the other of which holds title to Shadowood. In order to effectuate
the Sale, these title-holding entities will transfer title and deliver the
deeds and other documents of transfer to the Purchaser on the Closing Date.
Purchase Price. The Purchase Price for the Properties will be $9,350,000,
payable by the Purchaser on the Closing Date and subject to certain
adjustments at closing. The Purchase Price will be paid in cash and is
expected to be paid out of proceeds from third party financing and capital
contributions made to the Purchaser. It is anticipated that the third party
financing will be provided by the Federal National Mortgage Association
("FNMA"). FNMA would be financing 65% of the aggregate purchase price for the
RI Portfolio under a
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$100,000,000 Master Credit Facility (the "Proposed Facility") secured by the
RI Portfolio. The Proposed Facility would have a five-year term and a minimum
borrowing base of $50,000,000. All loans under the Proposed Facility would be
cross-collateralized and cross-defaulted, and the Proposed Facility would
require a minimum of five properties in three geographically distinct areas.
For these reasons, a similar financing facility is not available to the
Partnership.
It is expected that borrowings under the Proposed Facility will bear a
variable interest rate of 0.52% plus the effective interest rate at which FNMA
is able to sell mortgage-backed securities collateralized by outstanding
borrowings. The General Partner estimates that the effective interest rate
would be 5.74% if borrowings were outstanding at this time. The Pension Funds
intend to cause the Purchaser to enter into an interest rate swap agreement
with a commercial bank that will effectively fix the interest rate for five
years at approximately 6%.
The Proposed Facility will require the Purchaser to pay a prepayment penalty
if outstanding borrowings are repaid within the first three years. The
Purchaser has no plans to refinance or repay the Proposed Facility prior to
the earlier of its maturity date or the sale by it of any or all of the RI
Portfolio.
Condition of the Properties; Review of the Properties. The Purchaser will
purchase the Properties on an "As Is," "Where-Is" and "With All Faults" basis
with limited representations by the Partnership as to the condition of the
Properties or their fitness for any purpose. Lend Lease, on behalf of the
Pension Funds, has undertaken an extensive due diligence review of the
Properties. Unlike purchasers in many third party purchase agreements, Lend
Lease will complete its due diligence prior to execution of the Purchase
Agreements, and as such, satisfaction with the due diligence investigation
will not be a condition precedent to closing.
Conditions Precedent to Closing. The obligation of the Purchaser to close
under the Purchase Agreements will be subject to the concurrent approval by
the limited partners of the Affiliated Partnerships of the sale of their
respective properties to the Purchaser. There will be customary closing
conditions for real estate transactions, including issuance of appropriate
title policies.
Casualty to or Condemnation of the Properties. If any Property or any
portion thereof is damaged by fire or other casualty on or before the Closing
Date, and the cost of repairing such damage equals or exceeds the greater of
$400,000 or 5% of that portion of the Purchase Price allocable to the affected
Property, then the Purchaser may elect to terminate the Purchase Agreement
with respect to such Property. Further, if all or any material portion of any
Property is taken by eminent domain (or is a subject of a pending or
contemplated taking which has not been consummated) before the Closing Date,
then the Purchaser will have the right to terminate the Purchase Agreement as
to the affected Property. In the event of a fire or other casualty where the
damage is less than $400,000 or 5% of that portion of the Purchase Price
allocable to the affected Property, or if the condemnation does not affect a
material portion of the affected Property, the Purchaser will be required to
proceed with the closing without adjustment to the Purchase Price with respect
to the affected Property and will be entitled to receive, as applicable, an
assignment of the proceeds of any insurance in the event of a fire or other
casualty or an assignment of any award for such taking in the event of a
condemnation.
The purchase agreements relating to the properties of the Affiliated
Partnerships will contain provisions substantially similar to those outlined
above with respect to the rights of the Purchaser to terminate such purchase
agreements as a result of condemnation or destruction of the applicable
properties. While, as a general rule, the Purchaser will be able to terminate
the Purchase Agreements if any one of the sales to the Purchaser by the
Affiliated Partnerships is terminated, the Purchase Agreements will provide
that the Purchaser may terminate the Purchase Agreements in the case of
condemnation or destruction of the properties of the Affiliated Partnerships
only if two or more of such properties are condemned or destroyed. For
purposes of the foregoing determination, properties which comprise an
integrated apartment community will be counted as a single property. Because
Village II & III and Shadowood are each part of an integrated apartment
community, the Purchase Agreement with respect to each of these properties
permits the Purchaser to terminate the Purchase Agreement if, because of
condemnation or destruction, the Purchaser is entitled to terminate the
purchase agreement with respect to the other property or properties comprising
such integrated apartment community, irrespective of whether there has been
condemnation or destruction of the Properties or any other properties of the
Affiliated Partnerships.
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Representations and Warranties and Physical Due Diligence Conditions. Unlike
many third party agreements, the Purchase Agreements will not require the
Partnership to make substantial representations and warranties concerning the
condition or operation of the Properties, or other similar matters, such as
environmental studies or engineering. The Purchase Agreements also will not
provide the purchaser with a typical period to perform due diligence
investigations at the Properties or with a basis on which to refuse to close
the Sale based directly on the outcome of any due diligence investigation,
since such due diligence investigations will have been completed prior to
execution of the Purchase Agreements. Further, any representations and
warranties made by the Partnership pursuant to the Purchase Agreements will
survive for a period of only six months after the closing, which is a shorter
period of time than that found in many third party agreements.
Default and Damages. The Purchase Agreements will provide that the
Purchaser's recourse for any uncured breach ("Default") by the Partnership on
or prior to the Closing Date of any matter related to the Purchase Agreements
will be either to (i) seek from the escrow holder the return of the earnest
money deposits made on behalf of the Purchaser and any documents which have
been deposited with the escrow holder on behalf of the Purchaser and to seek
reimbursement from the Partnership for the reasonable and documented out-of-
pocket expenses incurred in connection with Lend Lease's due diligence
investigation (such as environmental and engineering studies) and other
transaction costs, but in no event an amount in excess of 1/4% of the Purchase
Price, or (ii) seek specific performance of the Partnership's obligations
under the Purchase Agreements.
In the event of the Purchaser's Default with respect to either of the
Purchase Agreements or the purchase agreements relating to the properties of
the Affiliated Partnerships, the Partnership's sole remedy will be to retain,
as liquidated damages, the earnest money deposits for the Properties. Further,
in the event the Purchaser objects or fails to cooperate with the release of
such earnest money deposit held by the escrow holder, the Partnership will
also have all of the remedies otherwise available to the Partnership at law or
in equity.
Pro-rations and Costs. All items of income and expense for the Properties,
such as collected rents and real estate taxes, will be apportioned and
adjusted between the Partnership and the Purchaser to the Closing Date. The
Partnership and the Purchaser will each pay one-half of any third party escrow
fees from the transaction, with the Partnership paying any documentary
transfer and stamp taxes in connection with the recordation of the applicable
deed and the Purchaser paying the premiums and other costs for title
insurance, including any endorsements requested by the Purchaser or its
lender.
Comparison to Third Party Agreements. The Purchase Agreements relating to
the Sale will contain several provisions which are not customarily found in
combination with each other in many third party agreements.
Provisions which may be more advantageous to the Partnership than those
found in many third party agreements include the following: the lack of due
diligence conditions precedent to closing; lack of a financing contingency;
limited representations and warranties; limited survivability of
representations and warranties; and sale of the Properties on an "as is"
basis.
Provisions which may be less advantageous to the Partnership than those
found in many third party agreements include the condition precedent to
closing of concurrent approval by the limited partners of the Affiliated
Partnerships of the sale of their respective properties to the Purchaser and
the ability of the Purchaser to terminate the Purchase Agreements if, due to
condemnation or casualty, the Purchaser is entitled to terminate the purchase
agreements with respect to any two or more properties owned by the Affiliated
Partnerships.
THE AMENDMENT
The Partnership Agreement prohibits sales of property to the General Partner
or an "affiliate" of the General Partner. "Affiliate" is defined in relevant
part as any person "that, directly or indirectly, is the beneficial owner of
10% or more of any class of equity securities of, or otherwise has a
substantial beneficial interest in," another person. While the Pension Funds
will own 91% of the Purchaser and will effectively control the Purchaser, an
affiliate of the General Partner will (i) own a 9% interest in the Purchaser,
(ii) have a right of first
24
<PAGE>
offer and certain buy/sell rights under the proposed LLC Agreement and (iii)
have the potential to receive up to an additional 18% of the profits of the
Purchaser after pro rata distributions of profits to members of the Purchaser
have resulted in recoupment by such members of their aggregate capital
contributions and payment of cumulative returns of 15% per annum on their
previously unrecovered capital contributions. An affiliate of the General
Partner which will not be a member of the Purchaser will serve as the initial
property manager for the Purchaser. The foregoing factors might cause the
Purchaser to be an "affiliate" of the General Partner under the terms of the
Partnership Agreement. In order to permit the Sale, the General Partner
proposes to amend the Partnership Agreement to permit proposed sales of
Partnership properties to "affiliates" of the General Partner, if such
proposed sales are approved by the Limited Partners. The proposed Amendment
requires the approval of a majority in interest of the Limited Partners. The
full text of the proposed Amendment is set forth in Appendix A hereto.
INDEMNIFICATION
If a claim is made against the General Partner in connection with its
actions on behalf of the Partnership with respect to the Sale, the General
Partner expects that it will seek to be indemnified by the Partnership with
respect to such claim. The Partnership Agreement provides that, except in the
case of fraud, negligence, misconduct or other breach of fiduciary duty to the
Partnership or any Partner, the General Partner will not be liable,
responsible or accountable in damages or otherwise to the Partnership or any
of the Limited Partners for any liabilities or other obligations imposed on,
incurred by or asserted against the General Partner or the Partnership in any
way relating to or arising out of, or alleged to relate to or arise out of,
any action or inaction on the part of the Partnership or on the part of the
General Partner as a general partner of the Partnership. However, the General
Partner will not be indemnified from any liability, loss, or damage incurred
by it in connection with any claim or settlement involving allegations that
any state securities law or the Securities Act of 1933, as amended, was
violated by the General Partner unless the General Partner is successful in
defending such action and such indemnification is specifically approved by a
court of law which has been advised as to the current position of both the
Securities Exchange Commission and the California Commissioner of Corporations
regarding indemnification for violations of securities laws.
As a result of these indemnification rights, a Limited Partner's remedy with
respect to claims against the General Partner relating to its involvement in
the Sale could be more limited than the remedy which might have been available
absent the existence of these rights in the Partnership Agreement. A
successful claim for indemnification would reduce the amount of Partnership
cash available for distributions to the Limited Partners by an amount
equivalent to that paid to the General Partner under such a claim.
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE
GENERAL
The Sale, if approved, will have certain tax implications to the Limited
Partners that must be considered. The following summarizes the material
estimated federal income tax consequences to Limited Partners arising from the
Sale and provides a general overview of certain state income tax
considerations. This summary is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury regulations, court decisions and published
positions of the Internal Revenue Service (the "Service"), each as in effect
on the date of this Solicitation Statement. There can be no assurance that the
Service will agree with the conclusions stated herein or that future
legislation or administrative changes or court decisions will not
significantly modify the federal or state income tax law regarding the matters
described herein, potentially with retroactive effect. This summary is not
intended to, and should not, be considered an opinion respecting the federal
or state income tax consequences of the Sale.
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner is required to take into account in computing
his or her income tax liability, his or her allocable share of the
partnership's items of income, gain, loss, deduction and credit (hereinafter
referred to as "income or loss") in accordance with the partnership agreement.
If the allocation of income or loss in the partnership agreement does
25
<PAGE>
not have "substantial economic effect" as defined in Code Section 704(b), the
law requires the partnership's income or loss to be allocated in accordance
with the partners' economic interests in the partnership. The distribution of
cash attributable to partnership income is generally not a separate taxable
event.
For tax purposes, the Partnership will realize and recognize gain or loss
separately for each Property (and in some cases, for each building which is
part of a Property). The amount of gain for tax purposes recognized with
respect to an asset, if any, will be an amount equal to the excess of the
amount realized (i.e., cash or consideration received reduced by the expenses
of the Sale) over the Partnership's adjusted tax basis for such asset.
Conversely, the amount of loss recognized with respect to an asset, if any,
will be an amount equal to the excess of the Partnership's adjusted tax basis
over the amount realized by the Partnership for such asset. The "adjusted tax
basis" of an asset is its cost (including nondeductible capital expenditures
made by the Partnership at the time of purchase) or other basis with certain
additions or subtractions, including (i) additions for the cost of capital
expenditures such as improvements, betterments, commissions and other
nondeductible charges and (ii) subtractions for depreciation and amortization.
Each Limited Partner must report his or her allocable share of these gains
and losses in the year in which the Properties are sold. Each Limited
Partner's allocable share of any Section 1245 gain, Section 1231 gain, Section
1250 gain or loss and Partnership net taxable income or loss from operations
will be reflected on his or her applicable Schedule K-1 (as determined in
accordance with the allocation provisions contained in the Partnership
Agreement discussed below).
Under Section 702(a)(3) of the Code, a partnership is required to separately
state, and partners are required to account separately for, their distributive
share of all gains and losses. Accordingly, each Limited Partner's allocable
share of any Section 1231 gain or loss and depreciation recapture realized by
the Partnership as a result of the Sale would be reportable by such Limited
Partner on his or her individual tax return. Section 1231 gains are those
gains arising from the sale or exchange of "Section 1231 Property" which means
(i) depreciable assets used in a trade or business or (ii) real property used
in a trade or business and held for more than one year. Conversely, Section
1231 losses are those losses arising from the sale or exchange of Section 1231
Property. If Section 1231 losses exceed Section 1231 gains, such losses would
be treated as ordinary losses by the Partners.
To the extent that Section 1231 gains for any taxable year exceed certain
Section 1231 losses for the year, subject to certain exceptions (such as
depreciation recapture, as discussed below), such gains and losses will be
treated as long-term capital gains. However, Section 1231 gains will be
treated as ordinary income to the extent of prior Section 1231 losses from any
source that were treated as ordinary in any of the previous five years.
Under Sections 1245 and 1250 of the Code, a portion of the amount allowed as
depreciation expense with respect to Section 1231 Property may be "recaptured"
as ordinary income upon sale or other disposition rather than as long-term
capital gains ("Section 1245 gains" and "Section 1250 gains," respectively).
The Partnership does not anticipate that it would have material amounts of
Section 1245 or Section 1250 gains as a result of the Sale. Therefore, it is
anticipated that the Sale will result in capital gain without the re-capture
of any significant gain to be reported at ordinary income tax rates. (It is
not anticipated that any Property will be sold at a tax loss.)
The Partnership Agreement provides that distributions from the Sale will be
made:
(i) First, 100% to the Limited Partners until each Limited Partner has
received an amount equal to his Adjusted Capital Value (as defined in the
Partnership Agreement);
(ii) Second, and subject to certain reductions, 100% to the Limited
Partners until each Limited Partner has received an amount equal to a 7%
cumulative annual return with respect to his Adjusted Capital Value, which
amount shall be calculated commencing with the first anniversary date of
the last Additional Closing Date (as defined in the Partnership Agreement)
(but in no event less than a 6% cumulative annual return with respect to
the Limited Partner's Adjusted Capital Value calculated from the date of
the Limited Partner's admission to the Partnership); and
26
<PAGE>
(iii) Third, the balance 85% to the Limited Partners and 15% to the
General Partner.
The General Partner expects that the Limited Partners will recognize taxable
gain from the Sale of approximately $39.56 per Unit. Actual gain will be
allocated among the General Partner and the Limited Partners (the "Partners")
as follows: (i) first, 99% to the Limited Partners and 1% to the General
Partner, until each Limited Partner's deficit, if any, in its capital account
is restored to zero; (ii) second, 100% to the General Partner, until the
General Partner's deficit, if any, in its capital account is restored to zero;
(iii) third, 99% to the Limited Partners and 1% to the General Partner, until
each Limited Partner's capital account is equal to the sum of (A) the Limited
Partner's Adjusted Capital Value and (B) an amount equal to the excess of a 7%
cumulative annual return, from the first anniversary date of the last
Additional Closing Date, with respect to the Limited Partner's Adjusted
Capital Value (or, if greater, a 6% cumulative annual return, from the date of
the Limited Partner's admission to the Partnership with respect to the Limited
Partner's Adjusted Capital Value), subject to certain reductions; and (iv)
fourth, 85% to the Limited Partners and 15% to the General Partner. Any
passive losses which have been suspended from this or other passive
investments may be available to reduce this gain. The Partnership's
accountants have estimated that approximately $0.00 per Unit in suspended
passive losses will be available from the Partnership. Furthermore,
unamortized syndication costs in the amount of $52 per Unit will reduce the
amount of gain reportable by the Limited Partners. The expected distribution
to the Limited Partners from net proceeds from the Sale and certain cash
reserves, together with the planned distribution upon liquidation, is
anticipated to be approximately $80.01 per Unit and is expected to exceed the
Limited Partners' income tax liability attributable thereto of Limited
Partners who acquired their Units in the public offering.
The Partnership anticipates that approximately $10.41 per Unit in federal
income taxes may be incurred as a result of the Sale and liquidation by
Limited Partners who acquired their Units in the public offering, as reflected
in the following table, which assumes that a Limited Partner has a marginal
federal income tax rate of 39.6%.
<TABLE>
<CAPTION>
GAIN EST.
PER UNIT FEDERAL TAX
-------- -----------
<S> <C> <C>
Taxed at a 39.6% federal rate......................... $ 3.56 $ 1.41
Taxed at a 25% federal rate........................... $36.00 $ 9.00
Taxed at a 20% federal rate........................... $ 0.00 $ 0.00
------ -------
Total (without regard to suspended passive losses).... $39.56 $ 10.41
======
Potential suspended passive losses of $0.00 at 39.6%.. $ (0.00)
-------
Total potential taxes (including suspended passive
losses).............................................. $ 10.41
=======
</TABLE>
After allocating income or loss to the Partners, with the concomitant tax
basis adjustments, the distribution of proceeds from the Sale will reduce each
Limited Partner's federal income tax basis in its Unit. To the extent that the
amount of the distribution is in excess of that basis, such excess will be
taxed as a long-term or short-term capital gain depending on a Limited
Partner's holding period. To the extent that the distribution received is less
than that basis, the remaining basis, representing a Partner's share of the
Partnership syndication cost incurred at the inception of the Partnership, may
represent a tax benefit in connection with the termination of such Partner's
partnership interest. Limited Partners are encouraged to consult their
respective tax advisors with respect to the foregoing.
CAPITAL GAINS
Net long-term capital gains allocated to individuals, trusts and estates
from the Sale will be taxed at a maximum rate of 20% (except that the rate
will be 25% on that portion of the gain which is equal to the amount of real
estate depreciation not recaptured as ordinary income under Section 1250),
while ordinary income will be taxed at a maximum rate of up to 39.6%. The
amount of net capital loss that can be utilized to offset income will be
limited to the sum of net capital gains from other sources recognized by the
Limited Partner during the tax year, plus $3,000 ($1,500 in the case of a
married individual filing a separate return). The excess amount of such net
long-term capital loss may be carried forward and utilized in subsequent years
subject to the same limitations.
27
<PAGE>
PASSIVE LOSS LIMITATIONS
Limited Partners who are individuals, trusts, estates, or personal service
corporations are subject to the passive activity loss limitations rules. A
Limited Partner's allocable share of Partnership income or loss is treated as
derived from a passive activity, except to the extent of the Partnership's
portfolio income. Portfolio income includes such items as interest and
dividends. A Limited Partner's allocable share of any Partnership gain
realized on the Sale will be characterized as passive activity income, and the
liquidation of the Partnership will permit the deduction of any previously
deferred passive losses, if any, allocated to the Limited Partners.
CERTAIN STATE INCOME TAX CONSIDERATIONS
Because each state's tax law varies, it is impossible to predict the tax
consequences to the Limited Partners in all the state tax jurisdictions in
which they are subject to tax. Accordingly, the following is a general summary
of certain common (but not necessarily uniform) principles of state income
taxation. State income tax consequences to each Limited Partner will depend
upon the provisions of the state tax laws to which the Limited Partner is
subject. The Partnership will generally be treated as engaged in business in
each of the states in which the Properties are located, and the Limited
Partners would generally be treated as doing business in such states and
therefore subject to tax in such states. Most states modify or adjust the
taxpayer's federal taxable income to arrive at the amount of income
potentially subject to state tax. Resident individuals generally pay state tax
on 100% of such state-modified income, while corporations and other taxpayers
generally pay state tax only on that portion of state-modified income assigned
to the taxing state under the state's own apportionment and allocation rules.
TAX CONCLUSION
The discussion set forth above is only a summary of the material federal
income tax consequences to the Limited Partners of the Sale and of certain
state income tax considerations. It does not address all potential tax
consequences that may be applicable to the Limited Partners and to certain
other categories of Limited Partners, such as non-United States persons,
corporations, insurance companies, subchapter S corporations, partnerships or
financial institutions. It also does not address local or foreign tax
consequences of the Sale. ACCORDINGLY, LIMITED PARTNERS SHOULD CONSULT THEIR
OWN TAX ADVISORS REGARDING THE SPECIFIC INCOME TAX CONSEQUENCES OF THE SALE TO
THEM, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS.
DISTRIBUTIONS
Since its inception on May 10, 1984, the Partnership has made quarterly
distributions aggregating $256.00 per Unit and returns of capital of $252.00
per Unit. The Partnership has made seven quarterly distributions during the
last two years, averaging $2.96 per Unit per distribution, and intends to make
a distribution of $1.00 per Unit in respect of the most recently-completed
fiscal quarter. With the projected distribution of $80.01 per Unit upon
liquidation of the Partnership, Limited Partners will have received aggregate
distributions of approximately $88.01 per Unit and a full return of their
initial investment of $500.
NO APPRAISAL RIGHTS
If Limited Partners owning a majority of the outstanding Units on the Record
Date consent to the Proposals, such approval will bind all Limited Partners.
The Partnership Agreement and the California Uniform Limited Partnership Act,
under which the Partnership is governed, do not give rights of appraisal or
similar rights to Limited Partners who dissent from the consent of the
majority in approving or disapproving the Proposals. Accordingly, dissenting
Limited Partners do not have the right to have their Units appraised or to
have the value of their Units paid to them if they disapprove of the action of
a majority in interest of the Limited Partners.
28
<PAGE>
MARKET FOR THE UNITS
The General Partner has no knowledge of a formal, established public trading
market for the Units and believes that secondary sales activity for the Units
is limited and sporadic. Due to the fact that the Units are not listed on any
exchange or quoted on NASDAQ, privately negotiated sales and sales through
intermediaries are the primary means available to a Limited Partner to
liquidate an investment in the Units. While some information is available
through private publications regarding the prices at which such secondary
sales transactions in the Units have been made, these publications expressly
disclaim the accuracy and reliability of the information regarding such
trades. Accordingly, the General Partner does not believe that such
information is of comparative value in analyzing the distributions to be made
in connection with the Sale. No sales of Units were made by or to affiliates
of the Partnership during the last two years.
In addition to informal secondary market sales, investors have periodically
sought to acquire Units by means of a tender offer for outstanding Units.
However, such tender offers generally involve only a limited number of Units,
are held open only for a limited time, and are available only on a limited
basis. Furthermore, those tender offers during the past three years of which
the General Partner is aware have been made at approximately 34% to 72% of the
net asset value of the Units. In particular, during the last six months, four
tender offers for outstanding Units were made by parties unaffiliated with the
General Partner for prices of $50, $40, $33 and $30 per Unit. The estimated
aggregate distribution to the Limited Partners following consummation of the
Sale and the anticipated liquidation of the Partnership, equal to $80.01 per
Unit, compares favorably with the average price of $39 per Unit represented by
these recent tender offers.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On the Record Date, there were 128,110 Units issued and outstanding and
entitled to vote held of record by 6,670 Limited Partners. At the Record Date,
Daniel J. Epstein, Chairman and Chief Executive Officer of ConAm Management,
owned 20 Units (approximately 0.0156% of the outstanding Units). Mr. Epstein
intends to consent to the Proposals. No person is known by the Partnership to
be the beneficial owner of more than 5% of the Units.
YEAR 2000 INFORMATION
The Partnership has assessed the potential impact of the "Year 2000"
computer systems issue on its operations. If the Sale is consummated, the
Partnership will liquidate prior to January 1, 2000, and no Year 2000 issues
will be presented.
In the event that the Sale is not consummated, the Partnership has relied on
the efforts of ConAm Management, which has been retained by the Partnership to
manage the business and financial operations of the Properties, to resolve any
potential Year 2000 issues. In the course of providing property management
services for the Partnership, ConAm Management retained a third party
consultant to modify all applicable software to provide for 4-digit year
fields. The General Partner believes that the modifications undertaken by
ConAm Management are sufficient to address any potential Year 2000 problems
and that the impact of the Year 2000 issue will not materially affect the
Partnership's operating results or financial condition if the Sale is not
consummated. Accordingly, neither ConAm Management nor the Partnership has
taken any further actions with respect to the Year 2000 issue.
29
<PAGE>
VOTING PROCEDURES
Each Limited Partner is entitled to one (1) vote for each Unit owned of
record by such Limited Partner on the Record Date. Approval of the Proposals
requires the affirmative consent of Limited Partners holding a majority in
interest of the Units. A duly executed consent card on which a consent or an
indication of withholding consent is not indicated will be deemed a consent to
the Proposals. A vote "for" or "against" either of the Proposals may be
revoked by written notice of revocation or by a later-dated consent containing
different instructions at any time on or before the Expiration Date.
This Solicitation Statement is accompanied by a separate consent card.
Consent cards should be completed, signed and returned by the Expiration Date
to the Solicitation Agent at the address specified below or by facsimile
transmission of the front and back of the card to the number specified below.
A self-addressed, prepaid envelope for return of the consent card is included
with this Solicitation Statement.
<TABLE>
<S> <C>
By Mail: By Facsimile:
D.F. King & Co., Inc. (212) 809-8839
77 Water Street
20th Floor
New York, NY 10005
</TABLE>
For Information Call:
(800) 735-3591
(TOLL-FREE)
AVAILABLE INFORMATION
The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports,
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and should be available at the Commission's regional
offices at 500 West Madison, 14th Floor, Chicago, Illinois 60661-2511 and 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
material may also be accessed on the World Wide Web through the Commission's
Internet address at "http://www.sec.gov."
The following documents, which have been filed with the Commission, contain
important information about the Partnership and its financial condition and
are annexed hereto as Annex 1 and Annex 2, respectively:
(i) The Partnership's Annual Report on Form 10-K, as amended and restated
for the year ended December 31, 1997 (Commission File No. 0-13329) (the
"Form 10-K").
(ii) The Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1998 (Commission File No. 0-13329) (the "Form
10-Q").
The Commission permits the Partnership to "incorporate by reference"
information into this Solicitation Statement, which means that the Partnership
can disclose important information to Limited Partners by referring them to
another document filed separately with the Commission. The information
incorporated by reference is deemed to be a part of this Solicitation
Statement, except for any information superseded by information in this
Solicitation Statement.
30
<PAGE>
The Partnership hereby incorporates by reference the Form 10-K, all reports
filed pursuant to Section 13(a) or 15(d) of the Exchange Act that it may file
or has already filed with the Commission between December 31, 1997 and the
date of action by Consent, other than those delivered in connection herewith,
and the financial information contained in Part I of the Form 10-Q.
A Limited Partner of the Partnership may obtain from the Partnership or the
Commission any of the documents incorporated by reference. Documents
incorporated by reference are available from the Partnership without charge,
excluding all exhibits unless such exhibits have been specifically
incorporated by reference in the document incorporated by reference in this
Solicitation Statement. Limited Partners may obtain documents incorporated by
reference in this Solicitation Statement, or a copy of the Partnership
Agreement or the form of Purchase Agreements, by written or oral request, by
first class mail or other equally prompt means within one business day of
receipt of such request, from ConAm Property Services IV, Ltd., 1764 San Diego
Avenue, San Diego, California 92110-1906, telephone number (619) 297-6771.
If you would like to request documents from the Partnership, please do so by
January 8, 1999 in order to ensure receipt before action by Consent.
San Diego, California
December 16, 1998
CONAM PROPERTY SERVICES IV, LTD.,
General Partner
By: Continental American Development,
Inc., the General Partner
By: /s/ Daniel J. Epstein
----------------------------
Daniel J. Epstein
President and Chief
Executive Officer
31
<PAGE>
APPENDIX A
THE PROPOSED AMENDMENT
Set forth below is the provision of the Partnership Agreement that would be
modified by the proposed Amendment. The following is qualified in its entirety
by reference to the form of Amendment, a copy of which can be obtained without
charge from the Solicitation Agent.
IF THE PROPOSED AMENDMENT IS ADOPTED, THE FOLLOWING SECTION WILL BE MODIFIED
AS FOLLOWS (underlines indicate where text has been added):
12. RIGHTS, DUTIES AND LIABILITY OF GENERAL PARTNERS.
....
d. Limitations on General Partners' Authority. The General Partners shall
have no authority to do any act prohibited by law, nor shall the General
Partners have any authority to:
....
(xi) Except as provided in Subsection 12f.(vi), permit the Partnership to
purchase or lease property in which a General Partner or any Affiliate has an
interest or sell or lease any Property to a General Partner or any Affiliate,
-
unless such transaction is specifically approved by Limited Partners owning a
- -----------------------------------------------------------------------------
majority of the Units outstanding at that time.
- ----------------------------------------------
[The remainder of Section 12 is unaffected.]
A-1
<PAGE>
APPENDIX B
FORM OF CONSENT OF LIMITED PARTNER
CONAM REALTY INVESTORS 4, L.P.
CONSENT OF LIMITED PARTNER
THIS CONSENT IS SOLICITED BY AND ON BEHALF OF CONAM REALTY INVESTORS 4, L.P.
(THE "PARTNERSHIP") BY CONAM PROPERTY SERVICES IV, LTD., THE GENERAL PARTNER
OF THE PARTNERSHIP. The General Partner recommends a vote "FOR" the Proposals,
as defined in the accompanying Consent Solicitation Statement. A vote "FOR"
the Proposals also will constitute your consent to all actions necessary to
consummate all transactions with respect to the Proposals contemplated by the
Consent Solicitation Statement. All capitalized terms used herein without
definition have the meanings assigned to them in the Consent Solicitation
Statement.
THIS CONSENT WILL BE RECORDED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW. IF
NO INSTRUCTIONS ARE INDICATED, YOU WILL BE DEEMED BY YOUR SIGNATURE BELOW TO
HAVE CONSENTED TO THE PROPOSALS AS RECOMMENDED BY THE GENERAL PARTNER.
PLEASE MARK THE APPROPRIATE BOX WITH RESPECT TO EACH PROPOSAL:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
With the General Partner's recommendation to
approve the Sale of the Properties (as set
forth in "ACTION BY CONSENT--Matters to be
Considered"), the undersigned votes all of
the undersigned's Units: [_] [_] [_]
With the General Partner's recommendation to
amend the Partnership Agreement to permit
sales of Partnership property to affiliates
of the General Partner, including the Sale
(as set forth in Appendix A to the Consent
Solicitation Statement), the undersigned
votes all of the undersigned's Units: [_] [_] [_]
</TABLE>
IF THE SALE IS APPROVED BUT THE AMENDMENT OF THE PARTNERSHIP AGREEMENT IS
NOT, THE GENERAL PARTNER WILL HAVE NO AUTHORITY TO CONSUMMATE THE SALE, AND
THE SALE WILL NOT OCCUR. If the Amendment of the Partnership Agreement is
approved but the Sale is not, the General Partner anticipates amending the
Partnership Agreement in accordance with Appendix A to the Consent
Solicitation Statement.
The undersigned acknowledges receipt from the General Partner of the Consent
Solicitation Statement dated December 16, 1998 pertaining to the Proposals.
Dated: ___________, 199_ -------------------------------
Signature
-------------------------------
Print Name
-------------------------------
Signature (if held jointly)
-------------------------------
Print Name
-------------------------------
Title
B-1
<PAGE>
Please sign exactly as name appears hereon. When Units are held by joint
tenants, both should sign. When signing as an attorney, executor,
administrator, trustee or guardian, please give full title. If a corporation,
please sign in full corporate name by President or other authorized officer.
If a partnership, please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT, PRIOR TO 5:00 P.M. PACIFIC
STANDARD TIME ON JANUARY 15, 1999 (UNLESS SUCH TIME IS EXTENDED PURSUANT TO
THE CONSENT SOLICITATION STATEMENT), BY FACSIMILE TO (212) 809-8839 OR BY
MAIL, USING THE ENCLOSED PRE-PAID ENVELOPE, TO D.F. KING & CO., INC., WALL
STREET STATION, P.O. BOX 411, NEW YORK, NY 10269-0069. IF YOU NEED ASSISTANCE
IN FILLING OUT THIS CONSENT, PLEASE CALL THE SOLICITATION AGENT AT (800) 735-
3591.
B-2
<PAGE>
Annex 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number: 0-13329
CONAM REALTY INVESTORS 4 L.P.
formerly known as
HUTTON/CONAM REALTY INVESTORS 4
Exact name of Registrant as specified in its charter
California 11-2685746
State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization
1764 San Diego Avenue
San Diego, CA 92110 Attn.: Robert J. Svatos 92110-1906
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (619) 297-6771
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-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
(X)
Documents Incorporated by Reference:
Portions of Parts I, II, III and IV are incorporated herein by reference to the
Partnership's Annual Report to Unitholders for the year ended December 31,
1997.
<PAGE>
PART I
Item 1. Business
General Description of Business and Objectives
ConAm Realty Investors 4 L.P., formerly known as Hutton/ConAm Realty Investors
4 (the "Partnership") is a California limited partnership formed on January 13,
1984. ConAm Property Services IV, Ltd. ("CPS IV"), a California limited
partnership, and RI 3-4 Real Estate Services Inc. ("RI 3- 4"), a Delaware
corporation, were the original co-general partners of the Partnership. On
October 8, 1997, CPS IV acquired RI 3-4's co-general partner interest in the
Partnership, effective July 1, 1997, pursuant to a Purchase Agreement between
CPS IV and RI 3-4 dated August 29, 1997. As a result, CPS IV now serves as the
sole general partner (the "General Partner") of the Partnership. In
conjunction with this transaction, the name of the Partnership was changed from
Hutton/ConAm Realty Investors 4 to ConAm Realty Investors 4 L.P.
The Partnership was organized to engage in the business of acquiring, operating
and holding for investment multifamily residential properties. The Partnership
originally invested in three residential apartment properties and three limited
partnerships, each of which was formed to own a specified property. As
described below, four properties have been sold. Funds held as a working
capital reserve are invested in bank certificates of deposit, unaffiliated
money market funds or other highly liquid short-term investments where there is
appropriate safety of principal in accordance with the Partnership's investment
objectives and policies.
The Partnership's principal investment objectives with respect to its interests
in real property are:
(1) capital appreciation;
(2) distributions of net cash from operations attributable to rental
income; and
(3) preservation and protection of capital.
<PAGE>
Distribution of net cash from operations is the Partnership's objective during
its operational phase, while preservation and appreciation of capital are the
Partnership's long-term objectives. The attainment of the Partnership's
investment objectives will depend on many factors, including future economic
conditions in the United States as a whole and, in particular, in the
localities in which the Partnership's properties are located, especially with
regard to achievement of capital appreciation.
From time to time the Partnership expects to sell its real property interests
taking into consideration such factors as the amount of appreciation in value,
if any, to be realized and the possible risks of continued ownership. Proceeds
from any future sale, financing or refinancing of properties will not be
reinvested and may be distributed to the General Partner and Limited Partners
(sometimes referred to together herein as the "Partners"), so that the
Partnership will, in effect, be self-liquidating. If deemed necessary, the
Partnership may retain a portion of the proceeds from any sale, financing or
refinancing as capital reserves. As partial payment for properties sold, the
Partnership may receive purchase money obligations secured by mortgages or
deeds of trust. In such cases, the amount of such obligations will not be
included in Net Proceeds From Sale or Refinancing (distributable to the
Partners) until and only to the extent the obligations are realized in cash,
sold or otherwise liquidated.
Originally, the Partnership utilized the net proceeds of its public offering to
acquire six residential apartment complexes (collectively, the "Properties"),
either directly or through investments in limited partnerships or joint
ventures as follows: (1) Village at the Foothills II, a 120-unit apartment
complex located in Tucson, Arizona; (2) Shadowood Village, a 110-unit apartment
complex located in Jacksonville, Florida; (3) Pelican Landing, a 204-unit
apartment complex located in Clearwater, Florida; (4) River Hill, a 192-unit
apartment complex located in Tulsa, Oklahoma; (5) Cypress Lakes, a 176-unit
apartment complex located in Deerfield Beach, Florida; and (6) Trails at
Meadowlakes, a 189-unit apartment complex located in Fort Lauderdale, Florida.
On July 19, 1995, the Partnership sold Cypress Lakes and Trails at Meadowlakes
to an unaffiliated buyer for sales prices of $8,825,000 and $8,940,000,
respectively. On August 6, 1997, the Partnership sold River Hill to an
unaffiliated buyer for $7,275,000. On December 30, 1997, the Partnership sold
Pelican Landing to an unaffiliated buyer for $13,400,000. For further
information on each of the Properties, see Note 4 to the Consolidated Financial
Statements incorporated herein by reference to the Partnership's Annual Report
to Unitholders for the year ended December 31, 1997, which is filed as an
exhibit under Item 14.
The Partnership considers itself to be engaged in only one industry segment,
real estate investment.
<PAGE>
Competition
The Partnership's real property investments are subject to competition from
similar types of properties in the vicinities in which they are located and
such competition has increased since the Partnership's investment in the
Properties due principally to the addition of newly-constructed apartment
complexes offering increased residential and recreational amenities. The
Properties have also been subject to competition from condominiums and
single-family properties, especially during periods of low mortgage interest
rates. The Partnership competes with other real estate owners and developers
in the rental and leasing of its Properties by offering competitive rental
rates and, if necessary, leasing incentives. Such competition may affect the
occupancy levels and revenues of the Properties. The occupancy levels at the
Properties in Arizona and Florida reflect some seasonality, which is also
reflected in the markets. In some cases, Partnership properties may compete
with other properties owned by partnerships affiliated with the General Partner
of the Partnership.
For a discussion of current market conditions in each of the areas where the
Partnership's Properties are located, reference is made to the Partnership's
Annual Report to Unitholders for the year ended December 31, 1997, which is
filed as an exhibit under Item 14.
Employees
The Partnership has no employees. Services are provided by CPS IV, ConAm
Management Corporation ("ConAm Management"), an affiliate of CPS IV, as well as
Service Data Corporation and First Data Investor Services Group, both
unaffiliated companies. The Partnership has entered into property management
agreements pursuant to which ConAm Management provides management services with
respect to the Properties. First Data Investor Services Group has been
retained by the Partnership to provide all accounting and investor
communication functions, while Service Data Corporation provides transfer agent
services. Effective January 1, 1998, the accounting functions of the
Partnership have been transferred to the firm of Brock, Tibbetts and Snell, an
unaffiliated company located in San Diego, California. See Item 13, "Certain
Relationships and Related Transactions for a further description of the service
and management agreements between the Partnership and affiliated entities.
Item 2. Properties
For a description of the Partnership's Properties and a discussion of current
market conditions in each of the areas where the Properties are located and
appraised values, reference is made to the Partnership's Annual Report to
Unitholders for the year ended January 1, 1998, which is filed as an exhibit
under Item 13. For information on the purchase of the Properties, reference is
made to Note 4 to the Consolidated Financial Statements, included in the
Partnership's Annual Report to Unitholders. Average occupancy rates are
incorporated by reference to Item 7.
Item 3. Legal Proceedings
The Partnership is not subject to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the year ended December 31, 1997, no matter was
submitted to a vote of security holders through the solicitation of proxies or
otherwise.
<PAGE>
PART II
Item 5. Market for the Partnership's Limited Partnership Units and Related
Security Holder Matters
As of December 31, 1997, the number of Unitholders of record was 6,753.
No established public trading market has developed for the Units, and it is not
anticipated that such a market will develop in the future. Distributions of Net
Cash Flow From Operations, are determined by the General Partner on a quarterly
basis, with distributions generally occurring approximately 45 days after the
end of each quarter. Such distributions have been made primarily from net
operating income with respect to the Partnership's investment in the Properties
and from interest on short-term investments, and partially from excess cash
reserves. Special distributions, as a result of net cash flow from sales
proceeds, are made as soon as administratively possible after a sale.
Information on cash distributions paid by the Partnership for the past two
years is incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1997, which is filed as an exhibit
under Item 14. The level of future distributions will be evaluated on a
quarterly basis and will depend on the Partnership's operating results and
future cash needs. Reference is made to Item 7 for a discussion of the General
Partners' expectations for future cash distributions.
Item 6. Selected Financial Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1997, which is filed as an exhibit under Item 14.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
At December 31, 1997, the Partnership had cash and cash equivalents of
$15,150,595, which were invested in unaffiliated money market funds, compared
with $2,314,876 at December 31, 1996. The increase is primarily attributable
to net proceeds received on the sale of Pelican Landing in December 1997 and
net cash provided by operating activities exceeding additions to real estate
and cash distributions. The Partnership expects sufficient cash to be
generated from operations to meet its current operating expenses.
Accounts payable and accrued expenses increased from $108,269 at December 31,
1996 to $144,530 at December 31, 1997. The increase is primarily attributable
to higher costs associated with Partnership administrative services and the
timing of payments for audit and appraisal fees.
Distribution payable increased from $533,792 at December 31, 1996, to
$13,729,122 at December 31, 1997. The increase is primarily attributable to
the undistributed net proceeds resulting from the sale of Pelican Landing in
December 1997.
Security deposits payable decreased from $144,220 at December 31, 1996 to
$35,573 at December 31, 1997, primarily due to the sale of River Hill
Apartments on August 6, 1997, and the sale of Pelican Landing on December 30,
1997.
On August 6, 1997 the Partnership sold River Hill Apartments to an unaffiliated
institutional buyer for a sales price of $7,275,000. The Partnership received
net proceeds from the sale totaling $7,108,356 and the transaction resulted in
a net loss of $249,944. On December 30, 1997, the Partnership sold Pelican
Landing to an unaffiliated institutional buyer for a sales price of
$13,400,000. The Partnership received net proceeds from the sale totaling
<PAGE>
$13,171,373 and the transaction resulted in a net gain on sale of $5,157,383.
Both selling prices were determined by arm's length negotiations between the
Partnership and the respective buyers.
The Partnership declared distributions of net cash flow from Partnership
operations totaling $15.00 per Unit for the year ended December 31, 1997,
including a cash distribution of $3.75 per Unit for the quarter ended December
31, 1997, which was paid to investors on February 13, 1998. On January 21,
1998 the Partnership paid a special cash distribution of $103.00 per Unit,
representing the net proceeds received from the sale of Pelican Landing. The
level of future distributions will be evaluated on a quarterly basis and will
depend on the Partnership's operating results and future cash needs. As a
result of the sale of River Hill Apartments and Pelican Landing, future
quarterly cash distributions will be reduced to reflect the corresponding
reduction in the Partnership's cash flow.
The General Partner continues to evaluate the sale potential of the remaining
properties and other options with respect to the Partnership's investments. One
of these options includes obtaining mortgage loans secured by certain of the
Properties in order to return capital to the limited partners on a tax-free
basis and lock in favorable fixed interest rates. This would also potentially
enhance the future marketability of the Properties, while enabling the
Partnership to take advantage of possible future property appreciation. The
Partnership's ability to sell the Properties is dependent upon a variety of
factors, many of which are not within the Partnership's control. There can be
no assurance that any specific property or both the properties can be sold,
that particular prices will be achieved, or that the Properties can be sold
within a specific time frame.
Results of Operations
1997 versus 1996
Partnership operations for the year ended December 31, 1997 resulted in net
income of $6,019,161, compared with net income of $1,022,553 for the year ended
December 31, 1996. The increase in net income is primarily attributable to the
$4,907,439 gain on sale of properties, composed of a $5,157,383 gain from the
sale of Pelican Landing, and a $249,944 loss from the sale of River Hill.
Excluding the gain, the Partnership generated income from operations of
$1,111,722 for the year ended December 31, 1997. Net cash provided by operating
activities was $1,741,457 for the year ended December 31, 1997, compared to
$2,137,022 in 1996. The decrease is primarily due to the decrease in cash flow
from property operations resulting from the sale of River Hill Apartments in
August 1997.
Rental income for the year ended December 31, 1997 was $4,272,753, compared
with $4,778,238 for the year ended December 31, 1996. The decrease in 1997
reflects the sale of River Hill Apartments, partially offset by increased
rental income at Pelican Landing and Shadowood Village. Interest and other
income for the year ended December 31, 1997 was $212,589, compared with
$148,102 in 1996. The increase is primarily due to the Partnership maintaining
higher average cash balances in 1997.
Total expenses for the year ended December 31, 1997 were $3,373,620, compared
with $3,903,787 in 1996. The decrease reflects a decrease in depreciation and
property operating expenses primarily as a result of the sale of River Hill
Apartments. Property operating expenses for the year ended December 31, 1997
totaled $2,465,118, compared to $2,545,471 in 1996. The decrease reflects the
sale of River Hill Apartments, and was partially offset by an increase in
repairs and maintenance expenses at Pelican Landing, Shadowood Village and
Village at the Foothills II, primarily due to carpet and appliance replacement
at all three properties.
Depreciation expense for the year ended December 31, 1997 totaled $695,023,
compared to $1,184,781 for the year ended December 31, 1996. The decrease is
due to the reclassification of River Hill Apartments as Property held for
disposition effective October 1, 1996 and the reclassification of Pelican
Landing as property held for disposition effective October 1, 1997.
General and administrative expenses for the year ended December 31, 1997
<PAGE>
totaled $213,479, compared to $173,535 in 1996. The increase is primarily
attributable to an increase in expenses for Partnership accounting, tax and
other administrative services. During the 1997 period, certain expenses
incurred by RI 3-4, its affiliates, and an unaffiliated third party service
provider in servicing the Partnership, which were voluntarily absorbed by
affiliates of RI 3-4 in prior periods, were reimbursable to RI 3-4 and its
affiliates.
1996 versus 1995
Partnership operations for the year ended December 31, 1996 resulted in net
income of $1,022,553, compared with net income of $3,259,624 for the year ended
December 31, 1995. The decline in net income was primarily attributable to the
$2,854,884 gain recognized on the sale of Trails at Meadowlakes and Cypress
Lakes. Excluding the gain, the Partnership generated income from operations of
$404,740 for the year ended December 31, 1995. Net cash provided by operating
activities was $2,137,022 for the year ended December 31, 1996, compared to
$2,363,323 in fiscal 1995. The decrease was primarily due to the decrease in
cash flow from property operations resulting from the sale of Trails at
Meadowlakes and Cypress Lakes in July 1995.
Rental income for the year ended December 31, 1996 was $4,778,238, compared
with $6,351,434 for the year ended December 31, 1995. The decrease in 1996
reflects lower revenues primarily due to the sale of Trails at Meadowlakes and
Cypress Lakes, partially offset by increased rental income at three of the four
remaining properties. Interest and other income for the year ended December
31, 1996 was $148,102, compared with $245,330 in 1995. The decrease was
primarily due to the Partnership maintaining lower average cash balances in
1996.
Total expenses for the year ended December 31, 1996 were $3,903,787, compared
with $6,192,024 for 1995. The decrease in 1996 reflects a decrease in
depreciation, interest and property operating expenses and the absence of a
loss on write-down of real estate. Depreciation and property operating
expenses declined primarily as a result of the sale of Trails at Meadowlakes
and Cypress Lakes. There was no interest expense in 1996 due to the July 1995
pre-payment of the mortgage loan secured by Trails at Meadowlakes. Total
expenses were also higher in the 1995 period due to a $477,170 loss on the
write-down of River Hill Apartments. General and administrative expenses for
1996 decreased from 1995 as a result of decreases in legal fees and appraisal
fees, partially offset by higher partnership administrative expenses.
The average occupancy levels at each of the remaining properties for the years
ended December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Twelve Months Ended December 31,
----------------------------------------------------------
<S> <C> <C> <C>
Property 1997 1996 1995
Village at the Foothills II 94% 95% 95%
Shadowood Village 93% 95% 95%
----------------------------------------------------------
</TABLE>
New Accounting Pronouncements
The Financial Accounting Standards Board also issued SFAS No. 129, "Disclosure
of Information about Capital Structure," SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information." These statements, which are effective for years
beginning after December 15, 1997, expand or modify disclosures and,
accordingly, will have no impact on the Partnership's reported financial
position, results of operations or cash flows.
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to the Partnership's
Annual Report to Unitholders for the year ended December 31, 1997, which is
filed as an exhibit under Item 14. Supplementary Data is incorporated by
reference to page F-1 of this report.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Effective December 1, 1997, the Partnership advised Coopers & Lybrand L.L.P.
that it was changing accounting firms and engaged KPMG Peat Marwick LLP.
Coopers & Lybrand L.L.P.'s report on the financial statements for the years
ended December 31, 1996 and December 31, 1995 contained no adverse opinion or
disclaimer of opinion and was not qualified as to uncertainty, audit scope or
accounting principles. There have been no disagreements with Coopers & Lybrand
L.L.P. on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope procedure.
The decision to change accountants was approved by CPS IV and RI 3-4, the
General Partners of the Partnership at that time.
PART III
Item 10. Directors and Executive Officers of the Partnership
The Partnership has no officers or directors. CPS IV, the General Partner of
the Partnership, manages and controls the affairs of the Partnership and has
general responsibility and authority in all matters affecting its business.
CPS IV is a California limited partnership organized on August 30, 1982. The
sole general partner of CPS IV is Continental American Development, Inc.
("ConAm Development"). The names and positions held by the directors and
executive officers of ConAm Development are set forth below. There are no
family relationships between any officers or directors.
Name Office
Daniel J. Epstein President and Director
E. Scott Dupree Vice President and Director
Robert J. Svatos Vice President and Director
Ralph W. Tilley Vice President
J. Bradley Forrester Vice President
Daniel J. Epstein, 58, has been the President and a Director of ConAm
Development. and a general partner of Continental American Properties, Ltd.
("ConAm"), an affiliate of ConAm Services, since their inception. He is also
Chairman and Chief Executive Officer of ConAm Management. Prior to organizing
ConAm, Mr. Epstein was Vice President and a Director of American Housing Guild,
which he joined in 1969. At American Housing Guild, he was responsible for the
formation of the Multi-Family Division and directed its development and
property management activities. Mr. Epstein holds a Bachelor of Science degree
in Engineering from the University of Southern California.
E. Scott Dupree, 47, is a Senior Vice President and general counsel of ConAm
Management responsible for negotiation, documentation, review and closing of
acquisition, sale and financing proposals. Mr. Dupree also acts as principal
legal advisor on general legal matters ranging from issues and contracts
involving the management company to supervision of litigation and employment
issues. Prior to joining ConAm Management in 1985, he was corporate counsel to
Trusthouse Forte, Inc., a major international hotel and restaurant corporation.
Mr. Dupree holds a B.A. from United States International University and a Juris
Doctorate degree from the University of San Diego.
Robert J. Svatos, 39, is a Senior Vice President and is the Chief Financial
Officer of ConAm Management. His responsibilities include the accounting,
treasury and data processing functions of the organization. Prior to joining
ConAm Management in 1988, he was the Chief Financial Officer for AmeriStar
Financial Corporation, a nationwide mortgage banking firm. Mr. Svatos holds an
M.B.A. in Finance from the University of San Diego and a Bachelor's of Science
<PAGE>
degree in Accounting from the University of Illinois. He is a Certified Public
Accountant.
Ralph W. Tilley, 43, is a Senior Vice President and Treasurer of ConAm
Management. He is responsible for the financial aspects of syndications and
acquisitions, the company's asset management portfolio and risk management
activities. Prior to joining ConAm Management in 1980, he was a senior
accountant with KPMG Peat Marwick LLP, specializing in real estate. He holds a
Bachelor's of Science degree in Accounting from San Diego State University and
is a Certified Public Accountant.
J. Bradley Forrester, 40, is the President of ConAm Management. He is
currently responsible for overseeing all aspects of the operations of the firm.
His primary focus is on new business related activities including property
acquisitions, property development and rehabilitation, and the acquisition of
other property management companies. Prior to joining ConAm in 1994, Mr.
Forrester served as Senior Vice President - Commercial Real Estate for First
Nationwide Bank in San Francisco, where he was responsible for a $2 billion
problem asset portfolio including bank-owned real estate and non-performing
commercial real estate loans for three years. His past experience includes
significant involvement in real estate development and finance, property
acquisitions and dispositions and owner's representation matters. Prior to
entering the real estate profession, he worked for KPMG Peat Marwick LLP in
Dallas, Texas. Mr. Forrester holds a Bachelor of Science degree in Accounting
from Louisiana State University. He received his CPA certification in the
State of Texas.
Item 11. Executive Compensation
Neither the General Partner nor any of its directors or executive officers
received any compensation from the Partnership. See Item 13 of this report for
a description of certain transactions of the General Partner and its affiliates
with the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 1, 1998, no person was known by the Partnership to be the
beneficial owner of more than five percent of the Units of the Partnership.
Daniel J. Epstein, President and Director of ConAm Services, owned twenty Units
as of March 1, 1998. No other directors or executive officers of the General
Partners own any Units.
Item 13. Certain Relationships and Related Transactions
RI 3-4 Services and CPS IV received a total of $213,517 as its allocable share
of Net Cash From Operations with respect to the year ended December 31, 1997.
Pursuant to the Amended and Restated Certificate and Agreement of Limited
Partnership of the Partnership, for the year ended December 31, 1997, $213,517
of the Partnership's net income was allocated to RI 3-4 and CPS IV. For a
description of the share of Net Cash From Operations and the allocation of
income and loss to which the General Partners are entitled, reference is made
to the Partnership's Annual Report to Unitholders for the year ended December
31, 1997, which is filed as an exhibit under Item 14. Effective July 1, 1997,
all General Partner allocations will be made solely to CPS IV.
The Partnership has entered into property management agreements pursuant to
which ConAm Management has assumed direct responsibility for day-to-day
management of the Properties. It is the responsibility of ConAm Management to
select resident managers and monitor their performance. ConAm Management's
services also include the supervision of leasing, rent collection, maintenance,
budgeting, employment of personnel, payment of operating expenses, strategic
asset management and related services. For such services, ConAm Management is
entitled to receive a management fee equal to 5% of gross revenues. A summary
of property management fees earned by ConAm Management during the past three
fiscal years is incorporated by reference to Note 7 to the Consolidated
Financial Statements included in the Partnership's Annual Report to Unitholders
for the year ended December 31, 1997, which is filed as an exhibit under Item
14.
Pursuant to Section 12(g) of Partnership's Amended and Restated Certificate and
<PAGE>
Agreement of Limited Partnership, the General Partner may be reimbursed by the
Partnership for certain of its costs. A summary of amounts paid to the General
Partners or their affiliates during the past three years is incorporated by
reference to Note 7, "Transactions with Related Parties," of the Notes to the
Consolidated Financial Statements, included in the Partnership's Annual Report
to Unitholders for the year ended December 31, 1997, which is filed as an
exhibit under Item 14.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a)(1) Financial Statements:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets - December 31, 1997 and 1996 (1)
Consolidated Statements of Operations - For the years ended
December 31, 1997, 1996 and 1995 (1)
Consolidated Statements of Partners' Capital - For the years ended
December 31, 1997, 1996 and 1995 (1)
Consolidated Statements of Cash Flows - For the years ended
December 31, 1997, 1996 and 1995 (1)
Notes to the Consolidated Financial Statements (1)
Independent Auditors' Report (1)
Report of Former Independent Accountants (1)
(a)(2) Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation F-1
Independent Auditors' Report F-2
Report of Former Independent Accountants F-3
</TABLE>
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1997, filed as an exhibit
under Item 14.
(a)(3) Exhibits:
(3) Certificate and Agreement of Limited Partnership (included as, and
incorporated herein by reference to, Exhibit A to the Prospectus of
Registrant dated January 13, 1984 (the "Prospectus"), contained in
Amendment No. 1 to Registration Statement No. 2-84863 of Registrant,
filed January 13, 1984 (the "1984 Registration Statement")).
(4) Subscription Agreement and Signature Page (included as, and
incorporated herein by reference to, Exhibit 3.1 to the Prospectus).
(10)(A) Purchase Agreement relating to Pelican Landing (formerly Feather Sound
Apartments), between the Registrant and Feather Sound, Inc., and the
exhibits thereto (included as, and incorporated herein by reference
to, Exhibit (10)(B) to the 1984 Annual Report).
(B) Purchase Agreement relating to River Hill Apartments (formerly Oxbow
Ridge I), between the Registrant and Tres Titan Investors, and the
exhibits thereto (included as, and incorporated herein by reference to,
Exhibit (10)(D) to the 1984 Annual Report).
<PAGE>
(C) Purchase Agreement relating to Village at the Foothills II (formerly
Ina Village Apartments), between the Registrant and Epoch
Properties, Inc. and the exhibits thereto (included as, and
incorporated herein by reference to, Exhibit (10)(E) to the 1984
Annual Report).
(D) Documents relating to Shadowood Village (included as, and incorporated
herein by reference to, Exhibit (10)(A) to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1985 (the
"1985 Quarterly Report" (Commission File No. 0- 13329)).
(E) Settlement Agreement by and among the Managing Joint Venturers and the
Epoch Joint Venturers dated July 1, 1992 (included as, and
incorporated herein by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1992 (Commission File No. 0-13329)).
(F) Amended and Restated Agreement of Limited Partnership of Village at the
Foothills II Joint Venture Limited Partnership dated as of July 1,
1992 (included as, and incorporated herein by reference to Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992 (Commission File No. 0- 13329)).
(G) Certificate and Agreement of Limited Partnership of River Hill
Apartments, Ltd. (included as, and incorporated herein by reference
to Exhibit 10(I) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 (Commission File No.
0-13329)).
(H) Amended and Restated Agreement of Limited Partnership of Shadowood
Village, Ltd., dated as of July 1, 1992 (included as, and
incorporated herein by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1992 (Commission File No. 0-13329)).
(I) Property Management Agreement between Hutton/ConAm Realty Investors 4
and ConAm Management Corporation for the Pelican Landing property
(included as, and incorporated herein by reference to Exhibit 10-M
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 (Commission File No. 0- 13329)).
(J) Property Management Agreement between Hutton/ConAm Realty Investors 4
and ConAm Management Corporation for the River Hill property (included
as, and incorporated herein by reference to Exhibit 10-N to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993 (Commission File No. 0-13329)).
(K) Property Management Agreements between Hutton/ConAm Realty Investors 4
and ConAm Management Corporation for the Shadowood Village property
(included as, and incorporated herein by reference to Exhibit 10-O to
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1993 (Commission File No. 0- 13329)).
(L) Property Management Agreement between Hutton/ConAm Realty Investors 4
and ConAm Management Corporation for the Village at the Foothills II
property (included as, and incorporated herein by reference to Exhibit
10-Q to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 (Commission File No. 0-13329)).
(13) Annual Report to Unitholders for the year ended December 31,1997.
(21) List of Subsidiaries, Joint Ventures or Limited Partnerships (included
as, and incorporated herein by reference to Exhibit 22 of the
Registrant's Annual Report on Form 10-K filed March 27, 1992
(Commission File No. 0-13329)).
(27) Financial Data Schedule.
(99) Portions of the Prospectus of Registrant dated January 13, 1984
(included as, and incorporated herein by reference to Exhibit 28 to the
Registrant's 1988 Annual Report on Form 10-K for the fiscal year ended
December 31, 1988 (Commission File No. 0-13329)).
(b) Reports on Form 8-K:
On October 8, 1997, the Partnership filed a Form 8-K disclosing the
sale of RI 3-4's co-General Partner interest in the Partnership to
CPS IV.
On December 1, 1997, the Partnership filed a Form 8-K reporting the
change in Partnership's Certifying Accountants.
<PAGE>
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.
Dated: March 25, 1998
BY: ConAm Property Services IV, Ltd.
General Partner
BY: Continental American Development, Inc.
General Partner
BY: /s/ Daniel J. Epstein
Name: Daniel J. Epstein
Title: President, Director and
Principal 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 in the capacities and on the dates indicated.
CONAM PROPERTY SERVICES IV, LTD.
A General Partner
By: Continental American Development, Inc.
General Partner
Date: March 25, 1998
BY: /s/ Daniel J. Epstein
Daniel J. Epstein
Director, President and
Principal Executive Officer
Date: March 25, 1998
BY: /s/ E. Scott Dupree
E. Scott Dupree
Vice President and Director
Date: March 25, 1998
BY: /s/ Robert J. Svatos
Robert J. Svatos
Vice President and Director
Date: March 25, 1998
BY: /s/ Ralph W. Tilley
Ralph W. Tilley
Vice President
Date: March 25, 1998
BY: /s/ J. Bradley Forrester
J. Bradley Forrester
Vice President
<PAGE>
ConAm Realty Investors 4 L.P.
Annual Report 1997
Exhibit 13
ConAm Realty Investors 4 L.P.
ConAm Realty Investors 4 L.P. is a California limited
partnership formed in 1984 to acquire, operate and hold
for investment multifamily residential properties. At
December 31, 1997, the Partnership's portfolio
consisted of two apartment properties located in
Florida and Arizona. Provided below is a comparison of
average occupancy levels for the years ended
December 31, 1997 and 1996.
<TABLE>
<CAPTION>
Average Occupancy
Property Location 1997 1996
---------------------------------------------------------------------
<S> <C> <C> <C>
Shadowood Village Jacksonville, Florida 93% 95%
Village at the Foothills II Tucson, Arizona 94% 95%
---------------------------------------------------------------------
</TABLE>
Contents
1 Message to Investors
3 Financial Highlights
4 Consolidated Financial Statements
7 Notes to the Consolidated
Financial Statements
13 Independent Auditors' Report and
Report of Former Independent Accountants
15 Net Asset Valuation
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 800-223-3464
<PAGE>
Message to Investors
Presented for your review is the 1997 Annual Report for ConAm Realty Investors
4 L.P. In this report, we review property sales and discuss general market
conditions affecting the Partnership's two remaining properties (the
"Properties"). We have also included an update on operations at the Properties
and financial highlights for the year.
Cash Distributions
- -------------------
The Partnership declared cash distributions totaling $173.00 per Unit for the
year ended December 31, 1997, including the fourth quarter distribution of
$3.75 per Unit, which was credited to your brokerage account or sent directly
to you on February 13, 1998. Since inception, the Partnership has paid
distributions totaling $506.01 per original $500 Unit, including $252.00 per
Unit in return of capital payments. The level of future distributions will be
reduced to reflect the decline in the Partnership's cash flow resulting from
the sales of River Hill Apartments and Pelican Landing.
Property Sales
- ---------------
The Partnership completed the sales of River Hill Apartments and Pelican
Landing in 1997. The Partnership sold River Hill Apartments on August 6, 1997,
and Pelican Landing on December 30, 1997, resulting in net sales proceeds of
$7,108,356 and $13,171,373, respectively. The Partnership paid special cash
distributions of $55.00 per Unit from the net proceeds of the sale of River
Hill on October 31, 1997, and $103.00 per Unit from the net proceeds of the
sale of Pelican Landing on January 21, 1998.
Operations Overview
- --------------------
In 1997, operations at the Partnership's properties continued to be impacted to
varying degrees by strong competition for tenants in the markets where the
Properties are located. Although population and job growth remained strong in
Arizona and Florida, the addition of newly constructed complexes, especially in
the Jacksonville market, limited rental rate increases and caused overall
vacancy rates to rise. In Tucson, where Village at the Foothills II is
located, many high-end renters opted to purchase homes due to low interest
rates. Strong economic growth in both areas helped strengthen multi-family
housing, and average occupancy at both Properties declined only slightly in
1997 when compared to 1996. In addition, the appraised values of the
Properties increased by 3.9% in total when compared to the prior year.
The General Partner is continuing to evaluate the sale potential of the
remaining properties and other options with respect to the Partnership's
investments. One of these options includes obtaining mortgage loans secured by
certain of the Properties in order to return capital to the limited partners on
a tax-free basis and lock in favorable fixed interest rates. This would also
potentially enhance the future marketability of the Properties, while enabling
the Partnership to take advantage of possible future property appreciation. The
Partnership's ability to sell the Properties is dependent upon a variety of
factors, many of which are not within the Partnership's control. There can be
no assurance that any specific property or all the properties can be sold, that
particular prices will be achieved, or that the Properties can be sold within a
specific time frame. We will keep you apprised of our sales efforts in future
correspondence.
<PAGE>
Property Review
- ----------------
Shadowood Village
Shadowood Village is a 110-unit luxury apartment complex located in a
residential area in Jacksonville. The property's average occupancy level
declined slightly to 93% in 1997, down from 95% in 1996, while rental income
increased 2% from the prior year. Favorable market conditions in the
Jacksonville area have led to an increase in new multifamily construction, with
new construction permits issued for approximately 3,831 new apartment units
throughout the year. This was partially due to the city's 1996 ranking as one
of the fastest growing labor markets in the country. Although population and
job growth in the Jacksonville area remains high, continuing construction at
this pace could lead to softness in the market in the future. While vacancy
rates remained low in 1997, the use of rental concessions has recently
increased in the marketplace to attract and retain tenants in anticipation of
the new competition.
Village at the Foothills II
Village at the Foothills II is a 120 unit apartment community located in the
northwest area of Tucson. The property maintained an average occupancy rate of
94% during 1997, down slightly from 95% in 1996. Apartment vacancy rates
remain high in this market, but significant population and job growth in Tucson
over the last few years is slowly reducing the number of available units, and
should favorably impact the market in 1998. Low interest rates and affordable
home prices have also increased competition by luring many renters to purchase
homes. This competition has led to the reemergence of rental incentives and
other concessions in the marketplace to attract tenants. Strong competition
for tenants is likely to continue as the addition of new properties to the
market puts further pressure on occupancies.
Summary
- --------
We will continue to monitor market conditions to determine the opportune time
to sell the Properties, and are also evaluating a potential financing of the
Partnership's two properties. In the interim, we intend to maximize the
performance of the Properties and further improve their appearance and
condition. We will keep you apprised of significant developments affecting
your investment in future reports.
Very truly yours,
/s/ Daniel J. Epstein
Daniel J. Epstein
President
Continental American Development Inc.
General Partner of ConAm Property
Services IV, Ltd.
March 25, 1998
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Selected Financial Data
For the periods ended December 31, 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------
Dollars in thousands, except
for per unit data
<S> <C> <C> <C> <C> <C>
Total Income $4,485 $4,926 $6,597 $7,633 $7,299
Gain on Sale of Properties 4,907 _ 2,855 _ _
Net Income 6,019 1,023 3,260 985 724
Net Cash Provided by
Operating Activities 1,741 2,137 2,363 3,034 2,778
Long-term Obligations at Year End _ _ _ 5,051 5,091
Total Assets at Year End 22,770 26,010 27,247 44,686 45,646
Net Income per
Limited Partnership Unit* 45.32 6.32 22.28 2.12 2.30
Distributions per
Limited Partnership Unit* 15.00 15.00 11.25 9.00 18.00
Special Distributions per
Limited Partnership Unit* 158.00 _ 111.25 _ _
- --------------------------------------------------------------------------------
</TABLE>
* 128,110 Units outstanding
<TABLE>
<CAPTION>
Cash Distributions
Per Limited Partnership Unit 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Special Distributions* $158.00 $ _
First Quarter 3.75 3.75
Second Quarter 3.75 3.75
Third Quarter 3.75 3.75
Fourth Quarter 3.75 3.75
------- ------
Total $173.00 $15.00
- -----------------------------------------------------------------------------
</TABLE>
* On October 31, 1997, the Partnership paid a special cash distribution of
$55.00 per Unit, representing net proceeds from the sale of River Hill
Apartments on August 6, 1997.
On January 21, 1998, the Partnership paid a special cash distribution of
$103.00 per Unit, representing net proceeds from the sale of Pelican
Landing on December 30, 1997.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets At December 31, At December 31,
1997 1996
- --------------------------------------------------------------------------------
Assets
<S> <C> <C>
Investments in real estate:
Land $ 2,153,239 $ 5,627,763
Building and improvements 11,015,879 20,448,021
----------------------------
13,169,118 26,075,784
Less accumulated depreciation (5,552,827) (9,754,730)
----------------------------
7,616,291 16,321,054
Property held for disposition _ 7,358,300
Cash and cash equivalents 15,150,595 2,314,876
Other assets 3,300 15,370
- -------------------------------------------------------------------------------
Total Assets $22,770,186 $26,009,600
- -------------------------------------------------------------------------------
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $144,530 $108,269
Distribution payable 13,729,122 533,792
Due to affiliates 15,471 20,443
Security deposits payable 35,573 144,220
----------------------------
Total Liabilities 13,924,696 806,724
----------------------------
Partners' Capital:
General Partners _ _
Limited Partners (128,110 Units outstanding) 8,845,490 25,202,876
----------------------------
Total Partners' Capital 8,845,490 25,202,876
----------------------------
Total Liabilities and Partners' Capital $22,770,186 $26,009,600
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
For the years ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Income
<S> <C> <C> <C>
Rental $4,272,753 $4,778,238 $6,351,434
Interest and other 212,589 148,102 245,330
------------------------------------
Total Income 4,485,342 4,926,340 6,596,764
- -------------------------------------------------------------------------------
Expenses
Property operating 2,465,118 2,545,471 3,630,788
Loss on write-down of real estate _ _ 477,170
Depreciation 695,023 1,184,781 1,610,725
Interest _ _ 283,556
General and administrative 213,479 173,535 189,785
------------------------------------
Total Expenses 3,373,620 3,903,787 6,192,024
- -------------------------------------------------------------------------------
Income from operations 1,111,722 1,022,553 404,740
Gain on sale of properties, net 4,907,439 _ 2,854,884
- -------------------------------------------------------------------------------
Net Income $6,019,161 $1,022,553 $3,259,624
- -------------------------------------------------------------------------------
Net Income Allocated:
To the General Partners $ 213,517 $ 213,517 $ 405,680
To the Limited Partners 5,805,644 809,036 2,853,944
- -------------------------------------------------------------------------------
$6,019,161 $1,022,553 $3,259,624
- -------------------------------------------------------------------------------
Per limited partnership Unit
(128,110 Units outstanding):
Income from operations $ 7.32 $6.32 $ 2.00
Gain on sale of properties 38.00 _ 20.28
- -------------------------------------------------------------------------------
Net Income $45.32 $6.32 $22.28
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
Consolidated Statement of Partners' Capital
For the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1994 $ _ $ 39,155,021 $ 39,155,021
Net Income 405,680 2,853,944 3,259,624
Distributions ($122.50 per Unit) (405,680) (15,693,475) (16,099,155)
- --------------------------------------------------------------------------------
Balance at December 31, 1995 _ 26,315,490 26,315,490
Net Income 213,517 809,036 1,022,553
Distributions ($15.00 per Unit) (213,517) (1,921,650) (2,135,167)
- --------------------------------------------------------------------------------
Balance at December 31, 1996 _ 25,202,876 25,202,876
Net Income 213,517 5,805,644 6,019,161
Distributions ($173.00 per Unit) (213,517) (22,163,030) (22,376,547)
- --------------------------------------------------------------------------------
Balance at December 31, 1997 $ _ $ 8,845,490 $ 8,845,490
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
For the years ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net Income $ 6,019,161 $ 1,022,553 $ 3,259,624
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 695,023 1,184,781 1,610,725
Loss on write-down of real estate _ _ 477,170
Gain on sale of properties, net (4,907,439) _ (2,854,884)
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Other assets 12,070 836 6,321
Accounts payable and accrued expenses 36,261 (73,169) 21,651
Due to affiliates (4,972) 841 (11,989)
Security deposits payable (108,647) 1,180 (145,295)
--------------------------------------
Net cash provided by operating activities 1,741,457 2,137,022 2,363,323
- --------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Net proceeds from sale of properties 20,279,729 _ 17,551,351
Additions to real estate (4,250) (69,956) (149,631)
--------------------------------------
Net cash provided by (used for)
investing activities 20,275,479 (69,956) 17,401,720
- --------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Mortgage principal payments _ _ (5,051,086)
Distributions (9,181,217) (2,188,546) (15,511,984)
--------------------------------------
Net cash used for financing activities (9,181,217) (2,188,546) (20,563,070)
- --------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 12,835,719 (121,480) (798,027)
Cash and cash equivalents,
beginning of period 2,314,876 2,436,356 3,234,383
--------------------------------------
Cash and cash equivalents,
end of period $15,150,595 $ 2,314,876 $ 2,436,356
- --------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the period for interest $ _ $ _ $ 283,556
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
1. Organization
ConAm Realty Investors 4 L.P., (formerly Hutton/ConAm Realty Investors 4) (the
"Partnership") was organized as a limited partnership under the laws of the
State of California pursuant to a Certificate and Agreement of Limited
Partnership (the "Partnership Agreement") dated May 10, 1984. The Partnership
was formed for the purpose of acquiring and operating certain types of
residential real estate. The original co-general partners of the Partnership
were RI 3-4 Real Estate Services, Inc. ("RI 3- 4"), an affiliate of Lehman
Brothers Inc., and ConAm Property Services IV, Ltd. ("CPS IV"), an affiliate of
Continental American Properties, Ltd. (the "General Partners"). On October 8,
1997, CPS IV acquired RI 3-4's co-general partner interest in the Partnership
effective July 1, 1997, pursuant to a Purchase Agreement between CPS IV and RI
3-4 dated August 29, 1997. As a result, CPS IV now serves as the sole general
partner (the "General Partner") of the Partnership. In conjunction with this
transaction, the name of the Partnership changed from Hutton/ConAm Realty
Investors 4 to ConAm Realty Investors 4 L.P.
2. Significant Accounting Policies and Practices
Financial Statements - The consolidated financial statements are prepared on the
accrual basis of accounting and include the accounts of the Partnership and its
affiliated ventures when the Partnership has a controlling interest in the
ventures. The effect of transactions between the Partnership and its ventures
have been eliminated in consolidation.
Investments in Real Estate - Investments in real estate are recorded at cost
less accumulated depreciation and include the initial purchase price of the
property, legal fees, acquisition and closing costs.
Revenue is recognized when earned and expenses (including depreciation) are
recognized when incurred in accordance with generally accepted accounting
principles. Leases are generally for terms of one year or less.
Depreciation is computed using the straight-line method based upon the
estimated useful lives of the properties (25 years). Maintenance and repairs
are charged to operations as incurred. Costs incurred for significant
betterments and improvements are capitalized and depreciated over their
estimated useful lives.
For assets sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
reflected in net income for the period.
Impairment of Long-Lived Assets - Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("FAS 121"), requires the Partnership to assess its
real estate investments for impairment whenever events or changes in
circumstances indicate that the carrying amount of the real estate may not be
recoverable. Recoverability of real estate to be held and used is measured by
a comparison of the carrying amount of the real estate to future net cash flows
(undiscounted and without interest) expected to be generated by the real
estate. If the real estate is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the real
estate exceeds the fair value of the real estate. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.
Income Taxes - No provision for income taxes has been made in the financial
statements as the liability for such taxes is that of the partners rather than
the Partnership.
Cash and Cash Equivalents - Cash and cash equivalents consist of highly liquid
short-term investments with original maturities of three months or less.
Concentration of Credit Risk - Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
and cash equivalents in excess of the financial institution's federally insured
limits. The Partnership invests its cash and cash equivalents with high credit
quality federally insured financial institutions.
Use of Estimates - Management of the Partnership has made a number of estimates
<PAGE>
and assumptions relating to the reporting of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
3. The Partnership Agreement
The Partnership Agreement provides that net cash from operations, as defined,
is to be distributed quarterly, 90% to the limited partners and 10% to the
General Partners.
Net loss and all depreciation for any fiscal year is to be allocated 99% to the
limited partners and 1% to the General Partners.
Net income before depreciation is to be allocated as follows:
(a) To the extent that net income from operations before depreciation does
not exceed the amount of net cash from operations distributable to the
partners with respect to such fiscal year, net income from operations
before depreciation is to be allocated among the partners, pro rata in
accordance with the amount of net cash from operations distributable to
each partner with respect to such fiscal year to the extent thereof; and
(b) To the extent that net income from operations before depreciation exceeds
the amount of net cash from operations distributable to the partners with
respect to such fiscal year, such excess is to be allocated (1) first,
100% to the General Partners, pro rata, in an amount equal to the excess,
if any, of the General Partners' deficits, if any, in their capital
accounts, over an amount equal to 1% of the aggregate capital
contributions to the Partnership as reduced by the amount of the General
Partners' capital contributions, and (2) second, 99% to the limited
partners and 1% to the General Partners.
Net proceeds from sales or refinancing are to be distributed 100% to the
limited partners until each limited partner has received an amount equal to his
adjusted capital value (as defined) and an annual, cumulative 7% return
thereon. The balance, if any, is to be distributed 85% to the limited partners
and 15% to the General Partners.
4. Investments in Real Estate
The Partnership owns two residential apartment complexes acquired through
investments in joint ventures and limited partnerships as follows:
<TABLE>
<CAPTION>
Apartment Date Purchase
Property Name Units Location Acquired Price
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Village at the Foothills II 120 Tucson, AZ 5/30/85 $7,216,400
Shadowood Village 110 Jacksonville, FL 7/3/86 5,400,000
- ------------------------------------------------------------------------------
</TABLE>
Village at the Foothills II was acquired through a joint venture with an
unaffiliated developer and Shadowood Village was acquired through a limited
partnership with an unaffiliated developer. To each limited partnership and
joint venture, the Partnership assigned its rights to acquire the above
properties and contributed cash equal to the purchase price of the properties.
The Partnership's partners did not make initial capital contributions to these
entities.
On July 20, 1995, the Partnership sold Trails at Meadowlakes and Cypress Lakes.
Trails at Meadowlakes and Cypress Lakes sold for $8,940,000 and $8,825,000,
respectively, to an institutional buyer (the "Buyer"), which is unaffiliated
with the Partnership. The selling price was determined by arm's length
negotiations between the Partnership and the Buyer. The Partnership received
net proceeds of $17,551,351 from the transaction of which $5,057,952,
representing outstanding principal and interest, was used to fully satisfy the
Partnership's mortgage obligation on Trails at Meadowlakes. The transaction
resulted in a gain on sale of $2,854,884, which is reflected in the
Partnership's consolidated statements of operations for the year ended December
31, 1995.
<PAGE>
On August 22, 1995, the Partnership paid a special distribution of $14,252,238
to the limited partners. The special distribution was comprised of net
proceeds from the sale of Trails at Meadowlakes and Cypress Lakes and from
Partnership cash reserves.
In 1995, the Partnership recorded a write-down of $477,170 in 1995 to reduce
the carrying value of River Hill Apartments to its estimated fair value. The
impairment was caused by the need for necessary property improvements and
changing market conditions.
On August 6, 1997, the Partnership sold River Hill Apartments to an unaffiliated
institutional buyer for a sales price of $7,275,000. The Partnership received
net proceeds from the sale totaling $7,108,356 and the transaction resulted in
a loss of $249,944, which is reflected in the Partnership's consolidated
statements of operations for the year ended December 31, 1997. On October 31,
1997, the General Partners paid a special distribution to Limited Partners
representing the net proceeds from the sale.
On December 30, 1997, the Partnership sold Pelican Landing to an unaffiliated
institutional buyer for a sales price of $13,400,000. The Partnership received
net proceeds from the sale totaling $13,171,373 and the transaction resulted in
a net gain of $5,157,383, which is reflected in the Partnership's consolidated
statements of operations for the year ended December 31, 1997. A distribution
in the amount of $103 per Unit was paid to limited partners on January 21,
1998, and is reflected on the Partnership's Balance Sheet as "Distribution
payable" at December 31, 1997. Distribution payable was $13,195,330 at
December 31, 1997.
The limited partnership agreement of River Hill Apartments substantially
provides that:
a. Net cash from operations of River Hill Apartments is to be distributed
100% to the Partnership until it has received an annual, noncumulative
return of 10% on its adjusted capital contribution. Any remaining
balance is to be distributed 60% to the Partnership and 40% to the
co-venturer.
b. Net income of the limited partnership is to be allocated to the
Partnership and the co-venturers basically in accordance with the
distribution of net cash from operations. All net losses and
depreciation are to be allocated to the Partnership.
c. Net proceeds from a sale or refinancing of River Hill Apartments are to
be distributed 100% to the Partnership, until it has received an
amount equal to 110% of its adjusted capital contribution.
Distributions are to then be made 75% to the Partnership and 25% to
the co-venturer, until the Partnership has received an additional 110%
of the Partnership's adjusted capital contribution. Any remaining
balance is to be distributed 50% to the Partnership and 50% to the
co-venturer. In 1997, 100% of the net proceeds from sale were
distributed to the Partnership.
The joint venture and limited partnership agreements of Village at the
Foothills II and Shadowood Village substantially provide that:
a. Available cash from operations is to be distributed 100% to the
Partnership until it has received its annual, noncumulative preferred
return, as defined. Any remaining balance is to be distributed 99% to
the Partnership and 1% to the General Partners.
b. Net income is to be allocated first, proportionately to partners with
negative capital accounts, as defined, until such capital accounts, as
defined, have been increased to zero; then, to the Partnership up to
the amount of any payments made on account of its preferred return;
thereafter, 99% to the Partnership and 1% to the General Partners. All
losses are to be allocated first to the partners with positive capital
accounts, as defined, until such accounts have been reduced to zero
and, then, 99% to the Partnership and 1% to the General Partners.
<PAGE>
c. Income from a sale is to be allocated to the Partnership until the
Partnership's capital accounts, as defined, are equal to the fair
market value of the venture's assets at the date of the amendments;
then, any remaining balance is to be allocated 99% to the Partnership
and 1% to the General Partners. Net proceeds from a sale or
refinancing are to be distributed first to the partners with a positive
capital account balance, as defined; thereafter, 99% to the Partnership
and 1% to the General Partners.
5. Mortgage Payable
On July 19, 1985, the Partnership obtained financing of $5,200,000,
collateralized by a first mortgage encumbering Trails at Meadowlakes. The loan
had an initial term of five years bearing interest at an annual rate of 12.50%
with monthly payments of interest only. The loan was extended in 1990 for an
additional five years bearing interest at a rate of 10.125% with monthly
principal and interest payments. On July 20, 1995 the Partnership closed on the
sale of Trails at Meadowlakes and used a portion of the sales proceeds to
satisfy the Partnership's outstanding mortgage obligation of $5,029,661.
6. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires that the fair values be disclosed for
the Partnership's financial instruments. The carrying amount of cash and cash
equivalents, accounts payable and accrued expenses, distribution payable, due
to affiliates and security deposits are reasonable estimates of their fair
values due to the short-term nature of those instruments.
7. Transactions with Related Parties
The following is a summary of fees earned and reimbursable expenses paid to the
General Partners and affiliates for the years ended December 31, 1997, 1996 and
1995, and the unpaid portion at December 31, 1997:
<TABLE>
<CAPTION>
Earned and
Unpaid at
December 31, Earned
1997 1997 1996 1995
- -------------------------------------------------------------------------------
RI 3-4 Real Estate Services, Inc.
and affiliates:
<S> <C> <C> <C> <C>
Out-of-pocket expenses $ _ $ 1,236 $ 724 $ 3,541
ConAm and affiliates:
Property operating salaries _ 298,398 307,565 411,731
Property management fees 15,471 220,820 239,560 322,934
- -------------------------------------------------------------------------------
Total $15,471 $520,454 $547,849 $738,206
- -------------------------------------------------------------------------------
</TABLE>
8. Reconciliation of Financial Statement and Tax Information - The following
is a reconciliation of the net income for financial statement purposes to net
income (loss) for federal income tax purposes for the years ended December 31,
1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income per financial statements $6,019,161 $1,022,553 $3,259,624
Depreciation deducted for tax
purposes in excess of
depreciation expense per
financial statements (unaudited) (144,847) (92,628) (105,426)
Tax basis joint venture net income
(loss) in excess of GAAP basis
joint venture net income (unaudited) 1,916,863 (104,176) (103,451)
Financial statements loss on
write-down of real estate over
tax basis loss on write-down of
real estate (unaudited) _ _ 477,170
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Gain on sale of properties
for tax purposes in excess of
gain per financial
statements (unaudited) 3,487,244 _ 5,305,729
Other (unaudited) 10,820 (2,213) 470
- --------------------------------------------------------------------------------
Taxable net income (loss) (unaudited) $11,289,241 $ (823,536) $ 8,834,116
- --------------------------------------------------------------------------------
</TABLE>
The following is a reconciliation of partners' capital for financial statement
purposes to partners' capital for federal income tax purposes as of December
31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' capital per
financial statements $ 8,845,490 $25,202,876 $26,315,490
Accrued distribution from sale
of Pelican Landing (unaudited) 13,195,330 _ _
Adjustment for cumulative difference
between tax basis net income
and net income per financial
statements (unaudited) 3,435,914 (1,834,166) (1,635,149)
- -------------------------------------------------------------------------------
Partners' capital per income
tax return (unaudited) $25,476,734 $23,368,710 $24,680,341
- -------------------------------------------------------------------------------
</TABLE>
At December 31, 1997, the tax basis of the Partnership's assets was $26,168,869
and the tax basis of the Partnership's liabilities was $692,135.
9. Distributions Paid - Distributions per the consolidated statements of
partners' capital are recorded on the accrual basis which recognizes specific
record dates for payments within each calendar year. The consolidated
statements of cash flows recognize actual cash distributions paid during the
calendar year. The following table discloses the annual amounts as presented on
the consolidated financial statements:
<TABLE>
<CAPTION>
Distributions Distributions
Payable Distributions Distributions Payable
Beginning of Year Declared Paid December 31,
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 $533,792 $22,376,547 $ 9,181,217 $13,729,122
1996 587,171 2,135,167 2,188,546 533,792
1995 _ 16,099,155 15,511,984 587,171
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
Independent Auditors' Report
The General Partner
ConAm Realty Investors 4 L.P.:
We have audited the accompanying consolidated balance sheet of ConAm Realty
Investors 4 L.P. (a California limited partnership) (formerly Hutton/ConAm
Realty Investors 4) and consolidated ventures (the "Partnership"), as of
December 31, 1997, and the related consolidated statements of operations,
partners' capital, and cash flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1997 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ConAm
Realty Investors 4 L.P. and consolidated ventures as of December 31, 1997, and
the results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Diego, California
March 4, 1998
<PAGE>
Report of Former Independent Accountants
To the Partners of
ConAm Realty Investors 4 L.P.:
We have audited the consolidated balance sheet of ConAm Realty Investors 4 L.P.
(formerly Hutton/ConAm Realty Investors 4), a California limited partnership,
and Consolidated Ventures as of December 31, 1996 and the related consolidated
statements of operations, partners' capital (deficit) and cash flows for each
of the two years in the period ended December 31, 1996. 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ConAm
Realty Investors 4 L.P., a California limited partnership, and Consolidated
Ventures as of December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
<PAGE>
Net Asset Valuation
Comparison of Acquisition Costs to Appraised Value and
Determination of Net Asset Value Per Unit at December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Acquisition Cost
(Purchase Price
Plus General
Partners' December 31,
Date of Acquisition 1997 Appraised
Property Acquisition Fees) Value (1)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Village at the Foothills II 05-30-85 $ 7,376,000 $ 4,700,000
Shadowood Village 07-03-86 5,649,540 4,650,000
----------- -----------
$13,025,540 $ 9,350,000
Cash and cash equivalents 15,150,595
Other assets 3,300
-----------
24,503,895
Less:
Total liabilities (13,924,696)
-----------
Partnership Net Asset Value (2) $10,579,199
-----------
Net Asset Value Allocated:
Limited Partners 10,456,279
General Partner 122,920
-----------
$10,579,199
-----------
Net Asset Value Per Unit (128,110 Units outstanding) $81.62
- ------------------------------------------------------------------------------
</TABLE>
(1) This represents the December 31, 1997 Appraised Values which were
determined by an independent property appraisal firm.
(2) The Partnership Net Asset Value assumes a hypothetical sale at December
31, 1997 of all the Partnership's properties at a price based upon their
value as a rental property as determined by an independent property
appraisal firm, and the distribution of the proceeds of such sale,
combined with the Partnership's cash after liquidation of the
Partnership's assets and liabilities, to the Partners.
Limited Partners should note that appraisals are only estimates of current
value and actual values realizable upon sale may be significantly different. A
significant factor in establishing an appraised value is the actual selling
price for properties which the appraiser believes are comparable. In addition,
the appraised value does not reflect the actual costs which would be incurred
in selling the properties. As a result of these factors and the illiquid
nature of an investment in Units of the Partnership, the variation between the
appraised value of the Partnership's properties and the price at which Units of
the Partnership could be sold is likely to be significant. Fiduciaries of
Limited Partners which are subject to ERISA or other provisions of law
requiring valuations of Units should consider all relevant factors, including,
but not limited to Net Asset Value per Unit, in determining the fair market
value of the investment in the Partnership for such purposes.
<PAGE>
Schedule III - Real Estate and Accumulated Depreciation:
December 31, 1997
<TABLE>
<CAPTION>
Residential Property: Village at the Shadowood
Foothills II Village Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Location Tucson, AZ Jacksonville, FL na
Construction date 1984-1985 1985-1986 na
Acquisition date 05-30-85 07-03-86 na
Life on which depreciation
in latest income statements
is computed 25 years 25 years na
Initial cost to Partnership:
Land $ 1,584,049 $ 566,000 $ 2,150,049
Buildings and
improvements 5,838,595 5,125,065 10,963,660
Costs capitalized
subsequent to acquisition:
Land, buildings
and improvements 11,135 44,274 55,409
Gross amount at which
carried at close of period: (1)
Land 1,583,965 569,274 2,153,239
Buildings and
improvements 5,849,814 5,166,065 11,015,879
- -------------------------------------------------------------------------------
7,433,779 5,735,339 13,169,118
- -------------------------------------------------------------------------------
Accumulated depreciation (2) $ 3,052,632 $ 2,500,195 $ 5,552,827
- -------------------------------------------------------------------------------
</TABLE>
(1) Represents aggregate cost for both financial reporting and Federal
income tax purposes.
(2) The amount of accumulated depreciation for Federal income tax purposes
is $8,757,690.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1997, 1996, and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------
Investments in real estate and
property held for disposition:
<S> <C> <C> <C>
Beginning of period $33,434,084 $33,752,728 $60,325,756
Additions 4,250 69,956 149,631
Write-down _ _ (4,498,633)
Dispositions (20,269,216) _ (22,224,026)
Reclassification to held
for disposition _ (388,600) _
- -------------------------------------------------------------------------------
End of period $13,169,118 $33,434,084 $33,752,728
- -------------------------------------------------------------------------------
Accumulated depreciation:
Beginning of period $ 9,754,730 $ 8,958,549 $18,896,846
Depreciation expense 695,023 1,184,781 1,610,725
Elimination of accumulated depreciation _ (388,600) _
Write-down _ _ (4,021,463)
Dispositions (4,896,926) _ (7,527,559)
- -------------------------------------------------------------------------------
End of period $ 5,552,827 $ 9,754,730 $ 8,958,549
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
Independent Auditors' Report
The General Partner
ConAm Realty Investors 4 L.P.:
Under date of March 4, 1998, we reported on the consolidated balance sheet of
ConAm Realty Investors 4 L.P. (a California limited partnership) (formerly
Hutton/ConAm Realty Investors 4) and consolidated ventures (the "Partnership")
as of December 31, 1997, and the related consolidated statements of operations,
partners' capital, and cash flows for the year then ended, as contained in the
1997 annual report to Unitholders. These consolidated financial statements and
our report thereon are incorporated by reference in the 1997 annual report on
Form 10-K. In connection with our audit of the aforementioned consolidated
financial statements, we also have audited the related consolidated financial
statement schedule. This consolidated financial statement schedule is the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on this consolidated financial statement schedule based on our audit.
In our opinion, the consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
San Diego, California
March 4, 1998
<PAGE>
Report of Former Independent Accountants
Our report on the consolidated financial statements of ConAm Realty Investors 4
L.P. (formerly Hutton/ConAm Realty Investors 4), a California Limited
Partnership, and Consolidated Ventures has been incorporated by reference in
this Form 10-K from the Annual Report to Unitholders of ConAm Realty Investors
4 for the year ended December 31, 1996. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in the index of this Form 10- K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
<PAGE>
Annex 2
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
or
Transition Report Pursuant to Section 13 of 15(d) of the Securities
- ----- Exchange Act of 1934
For the transition period from to
----- -----
COMMISSION FILE NUMBER: 0-13329
CONAM REALTY INVESTORS 4 L.P.
-----------------------------
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
California 11-2685746
---------- ----------
STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER IDENTIFICATION NO.
INCORPORATION OR ORGANIZATION
1764 San Diego Avenue
San Diego, CA 92110 92110-1906
- --------------------- ----------
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES ZIP CODE
(619) 297-6771
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
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
--- ---
<PAGE>
CONAM REALTY INVESTORS 4 L.P.
AND CONSOLIDATED VENTURES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
1998 1997
- -------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Investments in real estate:
Land $ 2,153,239 $ 2,153,239
Buildings and improvements 11,015,879 11,015,879
-----------------------------
13,169,118 13,169,118
Less accumulated depreciation (5,869,930) (5,552,827)
-----------------------------
7,299,188 7,616,291
Cash and cash equivalents 1,533,173 15,150,595
Other assets 71,485 3,300
- -------------------------------------------------------------------------------
TOTAL ASSETS $ 8,903,846 $22,770,186
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses 229,699 144,530
Distribution payable 142,344 13,729,122
Due to General Partner 10,757 15,471
Security deposits 35,579 35,573
-----------------------------
Total Liabilities 418,379 13,924,696
-----------------------------
Partners' Capital:
General Partner - -
Limited Partners (128,110 Units outstanding) 8,485,467 8,845,490
-----------------------------
Total Partners' Capital 8,485,467 8,845,490
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 8,903,846 $22,770,186
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONAM REALTY INVESTORS 4 L.P.
AND CONSOLIDATED VENTURES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
INCOME
<S> <C> <C> <C> <C>
Rental $406,642 $998,355 $1,220,582 $3,425,855
Interest and other 18,630 88,932 104,043 149,384
--------------------------------------------------------------------
Total Income 425,272 1,087,287 1,324,625 3,575,239
- ------------------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating 254,936 675,756 741,652 1,994,347
Depreciation 105,701 196,464 317,103 589,322
General and administrative 84,234 37,115 198,860 144,787
--------------------------------------------------------------------
Total Expenses 444,871 909,335 1,257,615 2,728,456
- ------------------------------------------------------------------------------------------------------------------------
Income (Loss) from operations (19,599) 177,952 67,010 846,783
Loss on sale of property - (249,944) - (249,944)
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(19,599) $ (71,992) $ 67,010 $ 596,839
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) ALLOCATED:
To the General Partner $ 14,234 $ 53,379 $ 42,703 $ 160,138
To the Limited Partners (33,833) (125,371) 24,307 436,701
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(19,599) $ (71,992) $ 67,010 $ 596,839
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
PER LIMITED PARTNERSHIP UNIT
(128,110 UNITS OUTSTANDING)
Income (Loss) from operations $ (0.26) $ 0.97 $ 0.19 $5.36
Loss on sale of property - (1.95) - (1.95)
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (0.26) $ (0.98) $ 0.19 $3.41
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 $ - $8,845,490 $8,845,490
Net income 42,703 24,307 67,010
Distributions ($3.00 per Unit) (42,703) (384,330) (427,033)
- ------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1998 $ - $8,485,467 $8,485,467
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
CONAM REALTY INVESTORS 4 L.P.
AND CONSOLIDATED VENTURES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 67,010 $ 596,839
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 317,103 589,322
Loss on sale of property 249,944
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Other assets (68,185) 12,070
Accounts payable and accrued expenses 85,169 244,259
Due to General Partner (4,714) (41,257)
Security deposits 6 (6,232)
----------------------------
Net cash provided by operating activities 396,389 1,644,945
- ---------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES-
Net proceeds from sale of properties - 7,108,356
Additions to real estate - (4,250)
----------------------------
Net cash provided by investing activities - 7,104,106
- ---------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES-
Distributions (14,013,811) (1,601,376)
----------------------------
Net cash used for financing activities (14,013,811) (1,601,376)
- ---------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (13,617,422) 7,147,675
Cash and cash equivalents, beginning of period 15,150,595 2,314,876
- ---------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,533,173 $ 9,462,551
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONAM REALTY INVESTORS 4 L.P.
AND CONSOLIDATED VENTURES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements should be read in
conjunction with the Partnership's annual 1997 audited consolidated financial
statements within Form 10-K.
The unaudited interim consolidated financial statements include all normal
and recurring adjustments which are, in the opinion of management, necessary
to present a fair statement of financial position as of September 30, 1998
and the results of operations for the three and nine months ended September
30, 1998 and 1997, cash flows for the nine months ended September 30, 1998
and 1997, and the consolidated statement of partners' capital for the nine
months ended September 30, 1998. Results of operations are not necessarily
indicative of the results to be expected for the full year.
No significant events have occurred subsequent to the year ended December 31,
1997, and no material contingencies exist, which would require disclosure in
this interim report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
<PAGE>
CONAM REALTY INVESTORS 4 L.P.
AND CONSOLIDATED VENTURES
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Partnership had cash and cash equivalents of
$1,533,173 which were invested in money market funds, compared with
$15,150,595 at December 31, 1997. The decrease reflects a special cash
distribution on January 21, 1998 of $103.00 per Unit from the net proceeds of
the sale of Pelican Landing. The Partnership expects sufficient cash to be
generated from operations to meet its current operating expenses.
The General Partner declared a regular cash distribution of $1.00 per Unit
for the quarter ended September 30, 1998 which will be paid in November,
1998. The General Partner will determine the amount of future quarterly
distributions based on the Partnership's available cash flow and future cash
needs.
The General Partner, on behalf of the Partnership, is negotiating and expects
to enter into an agreement for the sale of the Partnership's remaining
properties and properties owned by various other limited partnerships
affiliated with the General Partner (the "Affiliated Partnerships") to DOC
Investors LLC, a Delaware limited liability company to be formed to acquire
real property (the "Purchaser"). An Affiliate of the General Partner will
hold a 9% interest in the Purchaser. Consummation of the sale is subject to
various conditions, including the execution of definitive documents, the
approval of a majority in interest of the Limited Partners, and approval by
the limited partners of the Affiliated Partnerships. Accordingly, there can
be no assurance that the sale will be consummated.
Following satisfaction of applicable securities regulatory requirements, the
General Partner will solicit the approval of the Limited Partners to the sale
and to a related amendment to the Partnership's agreement of limited
partnership by means of a Consent Solicitation Statement. Such Consent
Solicitation Statement will set forth the terms and conditions of the
proposed sale, the text of the proposed amendment to the Partnership's
agreement of limited partnership, and other matters with respect to the sale.
If the sale and related amendment are approved, and the other conditions to
the sale satisfied, the sale, which is expected to occur before December 31,
1998, would result in distributions approximating the net asset value of the
Units and the final liquidation of the Partnership. The terms of the proposed
sale are contained in the Preliminary Consent Solicitation Statement filed by
the Partnership with the Securities and Exchange Commission pursuant to
Section 14(a) of the Securities Exchange Act of 1934 on October 30, 1998.
RESULTS OF OPERATIONS
Partnership operations for the three and nine months ended September 30, 1998
generated a net loss of ($19,599) and net income of $67,010 respectively,
compared with a net loss of ($71,992) and net income of $596,839 for the
corresponding periods in 1997. The decrease for the three and nine month
periods is primarily attributable to reduced rental revenue partially offset
by reduced property operating expenses due to the sales of River Hill
Apartments on August 6, 1997 and Pelican Landing on December 30, 1997.
<PAGE>
Rental income for the three and nine months ended September 30, 1998 was
$406,642 and $1,220,582, respectively, compared with $998,355 and $3,425,855,
respectively, for the corresponding periods in 1997. The decrease is
primarily due to the sales of properties as described above.
Interest and other income totaled $18,630 and $104,043, respectively, for
the three and nine months ended September 30, 1998 compared with $88,932 and
$149,384, respectively, for the corresponding periods in 1997. The decrease
is primarily due to higher cash equivalent balances in the first quarter
of 1998, related to the undistributed proceeds from the sale of Pelican
Landing in December, 1997.
Property operating expenses for the three and nine months ended September 30,
1998 totaled $254,936 and $741,652, respectively, compared with $675,756 and
$1,994,347, respectively, for the corresponding periods in 1997. The decrease
CONAM REALTY INVESTORS 4 L.P.
AND CONSOLIDATED VENTURES
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - CONTINUED
is primarily attributable to a decrease in property operating expenses
associated with the sales of the two properties. The property operating
expenses for the two remaining properties, Shadowood Village and Village at
the Foothills II were relatively stable between the two periods.
The occupancy rate for Shadowood Village has increased from the same period
in 1997, reflecting favorable economic conditions in Florida. Occupancy for
Village at the Foothills has remained unchanged from the prior nine month period
in 1997 but has decreased to approximately 91% during the three months ended
September 30, 1998. This decrease in occupancy for the quarter is due to a very
strong economy in the Arizona market but is off-set somewhat by increased rental
rates.
During the first nine months of 1998 and 1997, average occupancy levels at
the Partnership's properties were as follows:
PROPERTY 1998 1997
------------------------------------------------------
Shadowood Village 96% 93%
Village at the Foothills II 93% 93%
------------------------------------------------------
YEAR 2000
The Partnership has assessed the potential impact of the Year 2000 issue on
<PAGE>
its computer systems, operating equipment with imbedded microchips and major
third party vendors. If the proposed sale of its remaining properties is
consummated, the Partnership will liquidate prior to January 1, 2000, and no
Year 2000 issues will be presented.
In the event that the sale is not consummated, the Partnership has relied on
the efforts of ConAm Management Corporation ("ConAm Management"), which has
been retained by the Partnership to manage the business and financial
operation of the Partnership's properties, to resolve any potential Year 2000
issues. In the course of providing property management services for the
Partnership, ConAm Management retained a third party consultant to modify all
applicable software to provide for a 4-digit year field. The General Partner
believes that the modifications undertaken by ConAm Management related to
computer systems are sufficient to address any potential Year 2000 problems
and that the impact of the Year 2000 issue will not materially affect the
Partnership's operating results or financial condition if the Partnership is
not liquidated prior to January 1, 2000. Accordingly, neither ConAm
Management nor the Partnership has taken any further actions with respect to
the Year 2000 issue related to the computer systems.
The Partnership plans to initiate a program to evaluate the Year 2000
readiness of each property's operating equipment with embedded microchips and
replace as considered necessary. In the event that the replacement project
is not completed by the Year 2000, failure of the property's operating
equipment as a result of the Year 2000 issue is not expected to have a
significant impact on operations.
The Partnership plans to initiate discussion with significant suppliers and
other third parties to determine the extent to which the Partnership may be
vulnerable to the failure of these parties to address and correct their own
Year 2000 issues. However, there can be no guarantee that the systems of
other companies that support the Partnership's operations will be timely
converted or that a failure by these companies to correct their Year 2000
problems would not have a material adverse effect on the Partnership. At the
present time the Partnership does not have a contingency plan in place, in
the event of Year 2000 failure related to significant suppliers and other
third parties, but plans to create one within the next year.
The Partnership currently has no indication that the costs associated with any
remedial actions in connection with the Year 2000 related to its operating
equipment with imbedded microchips and major third party vendors issue will be
material. All costs related to the remediation plan of the computer system were
incurred by ConAm Management in connection with their management services.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CONAM PROPERTY SERVICES IV, LTD.
General Partner of ConAm Realty Investors 4 L.P.
BY: CONTINENTAL AMERICAN DEVELOPMENT, INC.
GENERAL PARTNER
Date: November 13, 1998 BY:/s/ DANIEL J. EPSTEIN
Daniel J. Epstein
Director, President, and
Principal Executive Officer
Date: November 13, 1998 BY:/s/ ROBERT J. SVATOS
Robert J. Svatos
Vice President and Director
<PAGE>
CONAM REALTY INVESTORS 4 L.P.
AND CONSOLIDATED VENTURES
PART II OTHER INFORMATION
ITEMS 1-5 Not applicable
ITEM 6 Exhibits and reports on Form 8-K
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended September 30, 1998.
