<PAGE>
PART 1
ITEM I. FINANCIAL STATEMENTS
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
Assets June 30, December 31,
1995 1994
----------------------------
<S> <C> <C>
Cash and cash equivalents $ 3,037,000 $ 2,267,000
Real estate loans receivable, earning 272,000 282,000
Real estate loans receivable, nonearning 3,844,000 2,319,000
Real estate loans receivable from
unconsolidated investees (note 4) 3,844,000 4,040,000
----------------------------
6,208,000 6,641,000
Less allowance for possible loan losses 957,000 1,157,000
----------------------------
Net real estate loans receivable 5,251,000 5,484,000
Real estate owned, net,
held for sale (note 3) 10,793,000 11,435,000
Real estate owned, insubstance
foreclosed (note 3) 1,870,000 2,385,000
----------------------------
12,663,000 13,820,000
Less allowance for possible losses on
real estate owned 4,494,000 4,013,000
----------------------------
Net real estate owned 8,169,000 9,807,000
Accrued interest receivable 28,000 42,000
Other assets, net 106,000 88,000
----------------------------
$ 16,591,000 $ 17,688,000
============================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
Consolidated Balance Sheets
(Continued)
(Unaudited)
<TABLE>
LIABILITIES AND PARTNERS' EQUITY
<CAPTION>
<S> <C> <C>
Notes payable (note 5) $ 4,019,000 $ 4,019,000
Notes payable to affiliates 37,000 144,000
Accounts payable and accrued liabilities 39,000 55,000
Interest and taxes payable on real
estate owned 10,000 8,000
Interest and taxes payable on real
estate owned to affiliate 215,000 172,000
Payable to affiliates 4,000 9,000
Deferred profit on equity participation 559,000 559,000
--------------------------
Total liabilities 4,883,000 4,966,000
Partners' equity (deficit) -- 38,729
limited partnership units outstanding as
of June 30, 1995 and December 31, 1994
General partners (525,000) (525,000)
Limited partners 12,233,000 13,247,000
----------------------------
Total partners' equity 11,708,000 12,722,000
Contingencies (note 6)
----------------------------
$ 16,591,000 $ 17,688,000
============================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Consolidated Statements of Operations
(Unaudited)
<TABLE>
For the six and three months ended June 30, 1995 and 1994
<CAPTION> Six Months Three Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Interest income on loans
to affiliates,
including fees $ --- $ --- $ --- $ (37,000)
Interest income on loans
to nonaffiliates,
including fees 45,000 142,000 20,000 30,000
Interest-bearing deposits 48,000 30,000 26,000 13,000
Income from operations of
real estate owned 438,000 407,000 225,000 227,000
Gain on sale of property 112,000 --- 40,000 ---
------------------------------------------------------
Total revenue 643,000 579,000 311,000 233,000
Expenses:
Provision for possible losses 716,000 43,000 716,000 ---
Share of losses in unconsolidated
investees 310,000 --- 157,000 ---
Operating expenses from operations
of real estate owned 126,000 123,000 64,000 63,000
Operating expenses from operations
of real estate owned paid
to affiliates 28,000 28,000 15,000 14,000
Expenses associated with non-operating
real estate owned 123,000 153,000 77,000 70,000
Depreciation expense 58,000 55,000 29,000 28,000
Interest expense 271,000 241,000 132,000 107,000
General and administrative,
affiliates 81,000 87,000 47,000 66,000
General and administrative,
nonaffiliates 45,000 59,000 22,000 30,000
Mortgage investment servicing fees 25,000 26,000 12,000 13,000
------------------------------------------------------
Total expenses 1,783,000 815,000 1,271,000 391,000
------------------------------------------------------
Net loss before minority interest (1,140,000) (236,000) (960,000) (158,000)
Minority interest 126,000 209,000 100,000 (14,000)
------------------------------------------------------
Net loss $(1,014,000) $ (27,000) $ (860,000) $(172,000)
======================================================
Net loss per limited
partnership unit $ (26.18) $ (.70) $ (22.21) $ (4.44)
======================================================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Consolidated Statement of Partners' Equity
(Unaudited)
<TABLE>
For the six months ended June 30, 1995
<CAPTION>
General Limited Total Partners'
Partners Partners Equity
----------------------------------------
<S> <C> <C> <C>
Balance at
December 31, 1994 $ (525,000) $ 13,247,000 $ 12,722,000
Net loss --- (1,014,000) (1,014,000)
----------------------------------------
Balance at
June 30, 1995 $ (525,000) $ 12,233,000 $ 11,708,000
========================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
For the six months ended June 30, 1995 and 1994
<CAPTION>
1995 1994
-----------------------------
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (1,014,000) $ (27,000)
Adjustments to reconcile net
loss to cash used in
operating activities:
Provision for possible losses 716,000 43,000
Interest accrued principal on
loans receivable (6,000) ---
Depreciation expense 58,000 55,000
Minority interest (126,000) (209,000)
Gain on sale of real estate owned (112,000) ---
Equity in losses of unconsolidated
investees 310,000 ---
Changes in assets and liabilities:
(Increase) decrease in accrued
interest receivable 14,000 (16,000)
Increase in other assets (24,000) (5,000)
Decrease in accounts payable
and accrued liabilities (16,000) (29,000)
Increase in interest and taxes
payable on real estate owned 2,000 30,000
Increase in interest and taxes payable
on real estate owned to affiliates 43,000 23,000
Decrease in payable to affiliates (5,000) ---
Increase (decrease) in deferred profit --- (75,000)
------------------------------
Net cash used in operating activities (160,000) (210,000)
Cash flows from investing activities:
Principal collected on loans 12,000 484,000
Advances on loans to unconsolidated
investees (note 4) (114,000) (1,259,000)
Advances on loans to customers (2,000) (14,000)
Proceeds from sale of real
estate owned 1,015,000 188,000
Disbursements on real estate owned --- (11,000)
Short-term investments purchased --- (444,000)
------------------------------
Net cash provided by (used in)
operating activities 911,000 (1,056,000)
Cash flows from financing activities:
Principal advances on notes payable
to affiliates 19,000 22,000
Principal payments on notes payable --- (1,000)
------------------------------
Net cash provided by
financing activities 19,000 21,000
------------------------------
Net increase (decrease) in cash 770,000 (1,245,000)
Beginning cash and cash equivalents 2,267,000 3,279,000
------------------------------
Ending cash and cash equivalents $ 3,037,000 $ 2,034,000
==============================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows
(Unaudited)
(Continued)
<TABLE>
For the six months ended June 30, 1995 and 1994
1995 1994
-----------------------------
<S> <C> <C>
Supplemental schedule of cash
flow information:
Cash paid during the six months for:
Interest $ 200,000 $ 199,000
Supplemental schedule of noncash
investing and financing activities:
Decrease in real estate owned and
related allowance for losses
resulting from partial writedown
of property upon transfer of
ownership $ --- $ 752,000
Decrease in real estate owned through
transfer of ownership --- 2,543,000
Decrease in allowance for losses
resulting from partial chargeoff of
real estate owned upon transfer
of ownership --- 709,000
Decrease in notes payable through
transfer of ownership --- 655,000
Decrease in interest and taxes
payable on real estate owned through
transfer of ownership --- 122,000
Increase in real estate loans from affiliates
through transfer of ownership --- 1,057,000
Decrease in real estate owned and notes
payable to affiliates due to retroactive
reduction in note balance --- 120,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 1995 and 1994
(1) BUSINESS
Centennial Mortgage Income Fund (the "Partnership") has
historically invested in commercial, industrial and residential
income-producing real property through mortgage investments
consisting of participating first mortgage loans, other equity
participation loans, construction loans, and wrap-around and other
junior loans. The Partnership's underwriting policy for granting
credit was to fund loans secured by first and second deeds of trust
on real property. The Partnership's area of concentration is in
California.
Management believes that the real estate industry in California
continues to stabilize. Sources of financing for borrowers have
become more readily available, however, due to decreased real
estate market values the Partnership's borrowers continue to have
difficulty obtaining long-term financing to pay off existing loans.
As these loans become delinquent, management of the Partnership
might elect to foreclose, thereby increasing real estate owned
balances. As a result of past foreclosures, the Partnership has
become a direct investor in this real estate and intends to manage
operating properties and develop raw land until such time as the
Partnership is able to sell this real estate owned.
As required by the Partnership Agreement, the Partnership is
currently in the repayment stage, and as a result, cash proceeds
from mortgage investments are no longer available for reinvestment.
(2) BASIS OF PRESENTATION
The consolidated financial statements are unaudited and reflect all
adjustments, consisting only of normal recurring accruals, which
are, in the opinion of management, necessary for a fair statement
of the results of operations for the interim periods. Results for
the six months ended June 30, 1995 and 1994 are not necessarily
indicative of results which may be expected for any other interim
period, or for the year as a whole.
Information pertaining to the six months ended June 30, 1995 and
1994 is unaudited and condensed inasmuch as it does not include all
related footnote disclosures.
The condensed consolidated financial statements do not include all
information and footnotes necessary for fair presentation of
financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. Notes to
consolidated financial statements included in Form 10-K for the
year ended December 31, 1994 on file with the Securities and
Exchange Commission, provide additional disclosures and a further
description of accounting policies.
<PAGE>
NET LOSS PER LIMITED PARTNERSHIP UNIT
Net loss per limited partnership unit for financial statement
purposes was based on the weighted average number of limited
partnership units outstanding of 38,729 for all periods presented.
IMPAIRED LOANS
Effective January 1, 1995, the Partnership adopted Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" ("SFAS 114"), as amended by Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures"
("SFAS 18"). Under SFAS 114 a loan is impaired when it is
"probable" that a creditor will be unable to collect all amounts
due (i.e. both principal and interest) according to the contractual
terms of the loan agreement. The measurement of impairment may be
based on (i) the present value of the expected future cash flows of
the impaired loan discounted at the loan's original effective
interest rate, (ii) the observable market price of the impaired
loan, or (iii) the fair value of the collateral of a collateral-
dependent loan. SFAS 114 does not apply to large groups of smaller
balance homogeneous loans that are collectively evaluated for
impairment. Although the adoption of SFAS 114, as amended by SFAS
118, had no material impact on the Partnership's consolidated
financial statements pursuant to the provisions of SFAS 114 the
Partnership reclassified a loan formerly classified as insubstance
foreclosure to impaired loans receivable. The Partnership's
existing policy of measuring loan impairment is consistent with
methods prescribed in these standards.
The Partnership considers a loan to be impaired when based upon
current information and events, it believes it is probable that the
Partnership will be unable to collect all amounts due according to
the contractual terms of the loan agreement. In determining
impairment, the Partnership considers large non-homogeneous loans
including nonaccrual loans, troubled debt restructurings and
performing loans which exhibit, among other characteristics, high
loan-to-value ratios, low debt-coverage ratios, or other
indications that the borrowers are experiencing increased levels of
financial difficulty. The Partnership bases the measurement of
collateral-dependent impaired loans on the fair value of the loan's
collateral. The amount by which the recorded investment of the
loan exceeds the measure of the impaired loan's value is recognized
by recording a valuation allowance.
At June 30, 1995, the carrying value of loans that are considered
to be impaired under SFAS 114 totaled $2,092,000 (of which
$2,092,000 were on nonaccrual status). At June 30, 1995, the
allowance for possible loan losses determined in accordance with
the provisions of SFAS 114, related to loans considered to be
impaired under SFAS 114 totaled $952,000. There were two loans
considered impaired under SFAS 114 for which there is no related
allowance for possible loan losses at June 30, 1995. The two loans
receivable are recorded with a corresponding deferred profit
liability of $559,000. There was a $1,000 investment in impaired
loans during the six months ended June 30, 1995. For the six
months ended June 30, 1995, the Partnership recognized interest
<PAGE>
income on those impaired loans of $19,000. There was no interest
income recognized using the cash basis method of income during the
six months ended June 30, 1995.
NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121").
SFAS 121 provides guidance for recognition and measurement of
impairment of long-lived assets, certain identifiable intangibles
and goodwill related both to assets to be held and used by an
entity and assets to be disposed of. SFAS 121 is effective for
financial statements for fiscal years beginning after December 15,
1995. Although the Partnership has not yet adopted SFAS 121,
management does not expect such adoption to have a material impact
on the Partnership's consolidated financial statements.
<TABLE>
(3) REAL ESTATE OWNED
Real estate owned consists of the following:
<CAPTION>
(dollars in thousands)
June 30, December 31,
1995 1994
--------------------------
<S> <C> <C>
1. Shopping center in Upland, CA $ 5,096 $ 5,096
2. 19 acres in Sacramento, CA 2,571 2,571
3. Auto retail center in Corona, CA 2,579 2,579
4. 23 acres in Riverside, CA 1,012 1,012
5. 7 condominiums in Oxnard, CA 1,870 2,385
6. 55 percent interest in an office
building in Sacramento, CA --- 589
-----------------------
Subtotal 13,128 14,232
Less accumulated depreciation 465 412
-----------------------
Total real estate owned $ 12,663 $ 13,820
=======================
</TABLE>
Property No. 5 has been accounted for as insubstance foreclosure,
the Partnership has possession of the property; however, the
Partnership does not currently hold legal title to this property.
(4) TRANSACTIONS WITH AFFILIATES
CMIF, Inc., an affiliate of the general partners, and Centennial
Corporation, are entitled to receive from the Partnership,
mortgage investment servicing fees for loans serviced equal to an
annual rate of 1/4 of 1 percent of the committed amount to be
funded by the Partnership. The Partnership incurred $25,000 and
$12,000 of mortgage investment servicing fees for the six and three
months ended June 30, 1995 and 1994, payable to CMIF, Inc. and
Centennial Corporation.
<PAGE>
Under the Partnership Agreement, the general partners are to
receive compensation for their services in supervising the affairs
of the Partnership. This partnership management compensation shall
be equal to 10 percent of the cash available for distribution, as
defined in the Partnership Agreement. The general partners will
not receive this compensation until the limited partners have
received a 12 percent per annum cumulative return of their adjusted
invested capital, but are entitled to receive a 5 percent interest
in cash available for distribution in any year until this provision
has been met. Adjusted invested capital is defined as the original
capital invested less distributions from mortgage reductions.
Payments to the general partners have been limited to 5 percent of
cash available for distribution as the limited partners have not
yet received their 12 percent per annum cumulative return.
The Partnership holds 50 percent of the outstanding capital stock
of LCR Devleopment, Inc., ("LCR"). The balance of outstanding
capital stock of LCR is owned by Centennial Mortgage Income Fund
II, ("CMIF II"), an affiliate. The Partnership holds a $1,250,000
note and holds a 50 percent participation in a $2,755,000 note,
both due from LCR. The Partnership's share of the $2,755,000 note
at June 30, 1995 is $1,363,000 and the Partnership had applied
$266,000 of cumulative losses from unconsolidated investees against
the carrying value of the note as of that same date. The
Partnership has not accrued its share of interest on these notes
which was appriximately $367,000 as of June 30, 1995.
LCR has been evaluating various alternative strategies for
liquidating its investment in the 179 lots in Lancaster ranging
from the sale of the lots in their present condition to a full-
scale buildout and sale of single-family homes at the project.
During late 1993 and through 1994, LCR had numerous discussions
with several independent real estate brokers and home-building
companies to assist it in determining its best alternatives for the
project. After these discussions, LCR determined that its best
course of action appeared to be the full-scale buildout and sale of
single-family homes since the market for finished lots had fallen
so precipitously. In late 1993, discussions with one home builder
advanced to the point of a draft joint venture agreement, whereby
the home builder was to build and sell homes at the project and
obtain construction financing. Under this draft joint venture
agreement, LCR was to complete improvements to the lots, pay all
developer fees at an estimated cost of $12,619 per lot and then
contribute finished lots to the joint venture in exchange for an
initial capital contribution credit of $32,000 per lot. The home
builder was to obtain construction financing and supervise the
construction and sale of single family homes at the project. The
home builder was to be reimbursed for all onsite costs of
construction and marketing of the project and receive an overhead
fee equal to 3% of all sales revenues. After these costs had been
paid, LCR was to receive distributions from the joint venture equal
its $32,000 initial capital contribution. Subsequent to the return
of LCR's initial capital contribution, the joint venture partner
was to receive distributions equal to $5,000 of the first $7,000 in
profits. Thereafter, LCR and the joint venture partner would split
profits and distributions equally. At the time LCR was conducting
its negotiations with this home builder, it did not have the
financial resources to build homes at the project without
additional funds. Thus, the ability of the independent home
builder to obtain construction financing was the principal reason
for utilizing a third party to construct the homes. The joint
<PAGE>
venture negotiations were terminated when the home builder insisted
on managerial control of the joint venture, which would have been
in violation of paragraph 10.9 of the Partnership Agreement of the
Partnership.
Subsequent to the termination of the joint venture negotiations
discussed, LCR has obtained construction financing commitments from
CMIF II and the Partnership. LCR has entered into a joint venture
agreement with Home Devco, Inc., ("Home Devco"), an affiliate of
the general partners to construct and sell single-family homes at
the project. This new joint venture agreement includes
substantially the same terms as the draft joint venture discussed
above except that: i) the contribution value per lot has been
adjusted from $32,000 to $19,381 in order to reflect the fact that
the joint venture rather than LCR will now be responsible for
paying the $12,619 in estimated costs; ii) Home Devco will not
obtain construction financing for the project; and iii) Home Devco
will not receive any priority interest in profits after LCR has
received the equivalent of $19,381 in distributions per lot
contributed to the joint venture but rather will receive only a 50
percent interest in profits and distributions from the joint
venture. LCR's cost basis of lots contributed to the joint venture
was approxmately $19,810. Management believes that the market
value of finished lots in Lancaster has fallen since the original
joint venture was negotiated and that the new joint venture
agreement with Home Devco is on more favorable terms to LCR than
could now be obtained with an independent home builder. The new
joint venture began constructing a model home complex at the
project in June 1995.
The consolidated balance sheet and statement of operations of LCR
Development, Inc. have not been consolidated in the Partnership's
financial statements. The Partnership accounts for its investment
in this corporation using the equity method. The following
represents condensed financial information for LCR at June 30, 1995
and for the six months ended June 30, 1995:
<PAGE>
<TABLE>
LCR DEVELOPMENT, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
Assets June 30,
1995
------------------
<S> <C>
Cash $ 2,000
Real property 3,999,000
Organization costs 2,000
------------------
$ 4,003,000
==================
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Deficit
<S> <C>
Notes payable to affiliates $ 4,005,000
Interest and taxes payable
on real estate owned 532,000
---------------
Total liabilities 4,537,000
Stockholders' deficit (534,000)
---------------
$ 4,003,000
===============
</TABLE>
<TABLE>
LCR DEVELOPMENT, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
Six months
ended
June 30, 1995
------------------
<S> <C>
Provision for losses on real
estate investments $ 220,000
------------------
Net loss $ 220,000
==================
</TABLE>
<PAGE>
The Partnership holds 50 percent of the outstanding capital stock
of BKS Development, Inc., ("BKS"). The balance of outstanding
capital stock of BKS is also owned by CMIF II. The Partnership
holds a 50 percent participation in a $3,894,000 note due from BKS.
The Partnership's share of the note receivable at June 30, 1995 is
$1,946,000 and the Partnership had applied $449,000 of cumulative
losses from unconsolidated investees against the carrying value of
the note as of that same date.
The balance sheet and statement of operations of BKS have not been
consolidated in the Partnership's financial statements. The
Partnership accounts for its investment in this corporation using
the equity method. The following represents condensed financial
information for BKS at June 30, 1995 and for the six months ended
June 30, 1995:
<TABLE>
BKS DEVELOPMENT, INC.
BALANCE SHEET
<CAPTION>
Assets June 30,
1995
-------------------
<S> <C>
Cash $ 1,000
Real property 5,199,000
-------------------
$ 5,200,000
===================
Liabilities and Stockholders' Deficit June 30,
1995
-------------------
Bonds payable $ 899,000
Notes payable to affiliates 3,893,000
Interest and property taxes
payable on real property 1,307,000
-----------------
Total liabilities 6,099,000
Stockholders' deficit (899,000)
------------------
$ 5,200,000
==================
</TABLE>
<PAGE>
<TABLE>
BKS DEVELOPMENT, INC.
STATEMENT OF OPERATIONS
<CAPTION>
Six months
ended
June 30, 1995
-----------------
<S> <C>
Provision for losses on real
estate investments $ 346,000
Property taxes 54,000
-----------------
Net loss $ 400,000
=================
</TABLE>
The Partnership owns an interest in Grand Plaza Auto Retail, Inc.,
the corporation which owns the auto retail center in Corona,
California jointly with an affiliated entity, Centennial Mortgage
Income Fund III ("CMIF III"). At June 30, 1995, the ownership
percentages are 86.7 for the Partnership and 13.3 for CMIF III.
The assets and liabilities of this corporation have been
consolidated in the accompanying consolidated financial statements.
Notes payable and interest and taxes payable on real estate owend
to affiliates includes $477,000 and $457,000 at June 30, 1995 and
December 31, 1994, respectively, and the Partnership had
cumulatively applied $330,000 and $247,000 of minority interest
from this corporate joint venture against the note payable to
affiliates balance as of the same dates. The notes payable to
affiliates balance reflects CMIF III's share of a note payable by
the corporation to the Partnership and CMIF III. The note bears
interest at 14 percent fixed and matures October 1, 1995.
The Partnership owns an interest in BNN Development, Inc., the
corporation which owns the 19 acres in Sacramento, California
jointly with an affiliated entity, CMIF III. At June 30, 1995,
the ownership percentages are 86.25 for the Partnership and 13.75
for CMIF III. The assets and liabilities of this corporation have
been consolidated in the accompanying consolidated financial
statements. Notes payable and interest and taxes payable on real
estate owned to affiliates includes $413,000 and $373,000 at June
30, 1995 and December 31, 1994, respectively, and the Partnership
had cumulatively applied $308,000 and $267,000 of minority interest
from this corporate venture against the note payable to affiliates
balance as of the same dates. The notes payable to affiliates
balance reflects CMIF III's share of a note payable by the
corporation to the Partnership and CMIF III. The note bears
interest at 15 percent fixed and matures November 1, 1995.
<PAGE>
<TABLE>
(5) NOTES PAYABLE
Notes payable consist of the following:
<CAPTION>
(dollars in thousands)
June 30, December 31,
1995 1994
--------------------------
<S> <C> <C>
Note payable secured by 19 acres
in Sacramento, CA with interest
only payments due monthly;
interest rate of 12 percent fixed,
maturing September 1, 1996 $ 900 $ 900
Note payable secured by shopping
center in Upland, CA with
interest and principal payments
due monthly of $24,000; interest
rate of 11.25 percent fixed,
maturing November 1, 1996 2,469 2,469
Note payable secured by 23 acres in
Riverside, CA; Interest rate of 13.75
percent fixed, matured August 1, 1992 650 650
---------------------
Total notes payable $ 4,019 $ 4,019
=====================
</TABLE>
The Partnership acquired the 23 acres in Riverside by deed in lieu
of foreclosure, subject to the note payable discussed above. In
the third quarter of 1993, the lender filed a notice of default and
commenced judicial foreclosure proceedings on the property. The
original borrower on the note payable is negotiating with the
lender to perfect a nonjudicial foreclosure on the property.
Management believes that the lender will complete this nonjudicial
foreclosure and the Partnership will have minimal future liability.
Accordingly, the Partnership has not accrued interest expense on
this note.
(6) CONTINGENCIES
There are no material pending legal proceedings other than ordinary
routine litigation incidental to the Partnership's business.
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND JUNE 30, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Partnership had net losses and losses per limited partnership
unit of $(1,014,000) and $(26.18), and $(860,000) and $(22.21),
for the six and three months ended June 30, 995 and $(27,000) and
$(.70), and $(172,000) and $(4.44), for the six and three months
ended June 30, 1994. The increase in losses from June 30, 1994 to
June 30, 1995 is primarily the result of an increase in the
provision for possible losses and share of losses in unconsolidated
investees.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, the Partnership had $3,037,000 in cash and
interest-bearing deposits, and had performing loans with maturities
of less than one year totaling $48,000. The Partnership had no
unfunded loan commitments at June 30, 1995. Sources of funds are
expected to be from the sale of real estate owned, future
operations of real estate owned and payoffs of existing loans. The
Partnership funded disbursements on loans to affiliates and
customers during the first half of 1995 totaling $116,000 and
received payoffs and paydowns on loans totaling $12,000. During
the first half of 1995, the Partnership received proceeds from the
sale of real estate owned of $1,015,000.
The Partnership's notes payable commitments consist of interest and
non-balloon principal payments due of approximately $200,000
payable in 1995 which does not include payments on the notes
secured by the 23 acres in Riverside. In addition to the note
payable commitments, the Partnership's principal capital
requirements include: (i) real property taxes on real estate owned
of approximately $114,000 payable and delinquent in 1995 and (ii)
selling, general and administrative costs. These commitments are
expected to be made from existing cash reserves, future loan
payoffs and the sale of real estate owned.
The Partnership is continuously evaluating various alternative
strategies for liquidating its real estate assets under current
market conditions. These alternative strategies include the
potential joint venture and/or build out of certain of the
Partnership's properties in order to increase their marketability
and maximize the return to the limited partners. In the event the
Partnership decides to implement some of these strategies, it may
require the investment of proceeds received from the payoff of
existing loans and the sale of other real estate assets. The
decision to invest additional cash in existing assets will only be
made if, based on management's best judgement at the time, there is
a clear indication that such investment should generate a
significantly greater return to the limited partners than any other
strategies available to the Partnership.
<PAGE>
Effective with the third quarter of 1991, the Partnership suspended
cash distributions to partners, due to a decline in liquidity and
the uncertainty of the cash requirements for existing and potential
real estate owned. Pursuant to the Partnership Agreement, 60
months after the closing of the offering, cash proceeds from
mortgage investments are no longer available for reinvestment by
the Partnership. Management believes that current and projected
liquidity is sufficient to fund operating expenses and to meet the
contractual obligations and cash flow operating requirements of the
Partnership. However, although no new mortgage investments shall
be made, the general partners expect that the cash proceeds from
mortgage reductions will be retained by the Partnership until such
time as the Partnership has sufficient cash to fulfill the
operating requirements of the real estate owned by the Partnership.
RESULTS OF OPERATIONS
Due to the downturn in the real estate industry in California and
its impact on the Partnership's borrowers, most of the
Partnership's loans have become non-performing and/or real estate
owned. As a result, interest income on loans to non-affiliates
continues to decline. Interest income on loans to affiliates,
including fees decreased to $45,000 and $20,000 for the six and
three months ended June 30, 1995 from $142,000 and $30,000 for the
six and three months ended June 30, 1994. The decrease in interest
income on loans from 1994 to 1995 is due to a decrease in
performing loans and the receipt of a one time equity participation
of $75,000 received in 1994 for which there was no comparable
receipt in 1995.
The outstanding principal balance of loans on nonaccrual at June
30, 1995 totaled $2,092,000 as compared with $1,787,000 at June
30, 1994. Loans on "nonaccrual" refers to loans upon which the
Partnership is no longer accruing interest. Management's policy is
to cease accruing interest on loans when interest and/or principal
repayments become 90 days past due. Had interest accrued
throughout the first half of 1995 and 1994 on the nonaccrual
loans, interest income would have been approximately $197,000 and
$129,000 higher than was actually reported for those periods.
The real estate owned balance at June 30, 1995 and 1994 was
$12,663,000 and $18,355,000, respectively.
The following sections entitled Nonaccrual and Nonperforming Loans
and Real Estate Owned provide a detailed analysis of these assets.
NONACCRUAL AND NONPERFORMING LOANS
Loans on nonaccrual and nonperforming status at June 30, 1995 are
summarized below:
<PAGE>
During 1988, the Partnership recorded an equity participation note
with an original committed amount of $350,000 secured by a second
trust deed on a 160-unit apartment complex in Riverside,
California. The loan is on nonaccrual due to past due interest.
The complex is 82 percent leased and due to low rental rates and
slow payments, the first trust deed holder filed a notice of
default on April 12, 1995. The principal balance and nonaccrued
interest at June 30, 1995 are $270,000, and $55,000, respectively.
During 1992, funds were provided for a workout loan secured by a
third trust deed on a mini-storage facility in Citrus Heights,
California, with a committed amount of $792,000. The loan paid off
the Partnership's existing loan secured by a second trust deed,
allowed the recordation of new debt secured by a first and second
trust deed which reduced the senior debt by $677,000, paid a
portion of the loan secured by the existing first trust deed and
provided additional funds for tenant improvements to enlarge the
facility. During 1994, the borrower asked for a partial deferral
of interest payable for one year due to economic conditions.
Management agreed and placed the deferred interest on nonaccrual.
This loan has not matured and management is working on a
restructure of this debt. The principal balance, accrued and
nonaccrued interest at June 30, 1995 are $758,000, $3,000 and
$153,000, respectively.
During 1994, the Partnership renegotiated an equity participation
note with an original committed amount of $374,000 secured by a
second deed of trust on a 32,431 square foot shopping center in
Corona, California. The loan provides for interest due to be
payable at loan maturity; however, due to the amount of the senior
debt and the decrease in land values, the Partnership has placed
the loan on nonaccrual. The principal balance and nonaccrued
interest at June 30, 1995 are $312,000 and $52,000 respectively.
During 1991, the Partnership sold a pad on an existing piece of
real estate owned in Corona, California and carried back financing
in the amount of $600,000. The Partnership's share of the loan is
77 percent. Due to the loss of the major tenant, the borrower has
been unable to make monthly interest payments. Management has
worked out a forbearance agreement with the borrower for net cash
flow monthly payments. The remaining interest due has been placed
on nonaccrual. The principal balance, accrued and nonaccrued
interest at June 30, 1995 are $460,000, $23,000 and $50,000
respectively.
During 1989, the Partnership funded a loan with an original
committed amount of $343,000 to provide land development financing.
The loan matured June 1, 1993 and the borrower was unable to make
interest payments or pay off the loan. The Partnership classified
the loan as an insubstance foreclosure at December 31, 1993. Given
the depressed value of the property and the amount of the
delinquent bonds and taxes, the Partnership has been negotiating
with the borrower in an attempt to discount the note to facilitate
a sale or have the borrower deed the property to the Partnership.
Should the negotiations not be completed and the property be lost
to a tax sale, management has established an allowance for losses
sufficient to cover the Partnership's equity in the property. The
principal balance and nonaccrual interest at June 30, 1995 are
$292,000 and $96,000, respectively.
Real Estate Owned
A description of the Partnership's real estate owned and loans
classified as insubstance foreclosure follows:
<PAGE>
Shopping Center in Upland, California
During the third quarter of 1988, the Partnership foreclosed on a
loan secured by this project. The Partnership originally committed
$5,600,000 for the rehabilitation of a 33,327 square foot retail
center and construction of an automotive service facility in
Upland, California. Cost overruns and construction delays
prevented the borrower from selling the project and thereby
performing on the loan. A pad was sold in 1989 which resulted in
a net paydown of $323,000. The property generated net operating
income before debt service of $218,000 during the first half of
1995 and its carrying value was $4,632,000 at June 30, 1995. The
property is currently 73 percent leased. The property is
encumbered by a note of $2,469,000, secured by a first trust deed
on the property. The Partnership is now marketing this property
for sale.
19 Acres in Sacramento, California
During the third quarter of 1991, the Partnership took a deed in
lieu of foreclosure on a second trust deed and renegotiated the
first trust deed secured by 20 acres of undeveloped land in
Sacramento, California. The principal and nonaccrued interest
balances at foreclosure totaled $1,595,000. The Partnership paid
down the first trust deed approximately $1,080,000 and executed a
$900,000 12 percent fixed rate note payable to the original first
trust deed holder, which is secured by a new first trust deed on
the property. The note requires monthly interest-only payments and
the balance is due September 1, 1996. The Partnership continues to
finalize the entitlement processing, flood issues and provide for
utility services for the property. As economic conditions rebound
in California, and the demand for development land in the area
returns, the Partnership intends to list the property for sale. At
June 30, 1995, the carrying value of this asset was $2,571,000.
Auto Retail Center in Corona, California
During 1988, the Partnership funded a loan with an original
committed amount of $3,313,000 for the purpose of constructing a
39,185 square foot auto/retail center in Corona, California. The
loan matured on September 1, 1989. The borrower defaulted under a
forbearance agreement and the Partnership filed a notice of default
on December 14, 1990. The borrower filed for bankruptcy on
February 15, 1991. A pad was sold during April 1991 resulting in
the Partnership receiving a net paydown of $249,000. The
Partnership provided financing to the purchaser. The Partnership
took a grant deed on the property through the Bankruptcy Courts in
December 1991. The subject center is 100 percent completed and 76
percent leased. The property generated net operating income
of $66,000 during the first half of 1995 and the Partnership
<PAGE>
continues to manage the property while occupancy stabilizes and
rental rates increase. The center is being marketed for sale. The
carrying value at June 30, 1995 is $2,578,000.
23 Acres in Riverside, California
The Partnership took a grant deed in consideration of its note
secured by a third trust deed on the property during the second
quarter of 1992 and paid off the second deed of trust. The
carrying value at June 30, 1995 is $1,012,000. The property is
encumbered by a 13.75 percent fixed rate note payable secured by a
first trust deed of $650,000 payable to another financial
institution which matured August 1, 1992. During 1993 and 1994,
management has attempted to negotiate with the FDIC as successor to
the financial institution to payoff or restructure the terms of the
note secured by the first trust deed and was not successful
resulting in the FDIC commencing foreclosure proceedings on the
property. Throughout the two year period, the land values have
continued to decline and lot improvement costs have significantly
increased. Management has agreed to allow the lender to complete
this foreclosure and has established an allowance for losses
sufficient to cover the loss which will be incurred as a result of
the foreclosure of this property.
7 Condominiums in Oxnard, California
During 1990, the Partnership funded a loan secured by a first trust
deed with an original committed amount of $3,000,000 for the
construction of 12 condominiums in Oxnard, California. The
Partnership recorded an insubstance foreclosure on these 12
condominiums. The borrower signed over control to the second trust
deed holder in December 1992, and the second trust deed holder, an
affiliate, has now abandoned the property. The condominiums are
located adjacent to the beach. The values of beach front property
have been hard hit in the local market due to the excess supply of
these types of properties. The Partnership has declined to assume
any of the original builder's liabilities which would be required
should the Partnership accept a deed in lieu of foreclosure on the
property. However, the Partnership does receive 100 percent of all
sales proceeds net of selling costs. As of June 30, 1995, the
Partnership had sold five condominiums and is attempting to sell
the remaining units. The carrying value at June 30, 1995 is
$1,870,000. Gain on sale of the condominiums recorded in 1995 was
$57,000.
Office Building in Sacramento, California
During the third quarter of 1994, the Partnership foreclosed on the
loan secured by a first trust deed on an office building in
Sacramento. The Partnership's $700,000 loan secured by a second
trust deed on the office building was foreclosed out and charged
off. An additional 10 percent interest was purchased at a discount
by the Partnership from a participant in the fourth quarter of 1994
increasing its interest to 55 percent. Management hired a leasing
agent to increase occupancy in the building and subsequently
accepted an offer on the property. The property closed escrow in
January, 1995 with a total sales price of $1,150,000 and gain of
$55,000.
INTEREST ON INTEREST-BEARING DEPOSITS
Interest on interest-bearing deposits totaled $48,000 and $26,000
for the six and three months ended June 30, 1995 and $30,000 and
$13,000 for the six and three months ended June 30, 1994,
respectively. Interest on interest-bearing deposits is principally
due to increased cash balances for the six months ended June 30,
1995.
INCOME FROM OPERATIONS OF REAL ESTATE OWNED
Income from operations of real estate owned consists of operating
revenues of $438,000 and $225,000 for the six and three months
ended June 30, 1995 and $407,000 and $227,000 for the six and three
months ended June 30, 1994, respectively. These revenues are from
the Upland shopping center and the auto retail center in Corona,
California.
<PAGE>
PROVISION FOR POSSIBLE LOSSES
The provision for possible losses was $716,000 the six and three
months ended June 30, 1994. The provision for possible losses was
$43,000 for the six months ended June 30, 1994. There was no
provision for losses for the three months ended June 30, 1994. The
1995 provision relates primarily to the shopping center in Upland
and the auto retail center in Corona. The 1994 provision relates
primarily to the loan secured by a third trust deed on a
mini-storage facility in Citrus Heights. The provision for
possible losses results from the change in the allowance for
possible losses and the allowance for possible losses on real
estate owned net of charge-offs, if any. Management believes that
the allowance for possible losses at June 30, 1995 is adequate to
absorb the known and inherent risk in the Partnership's loan and
real estate owned portfolio.
SHARE OF LOSSES IN UNCONSOLIDATED INVESTEES
The Partnership has invested in corporations in which it has less
than a majority ownership. The Partnership's share of losses in
these unconsolidated investees was $310,000 and $157,000 for the
six and three months ended June 30, 1995. There were no comparable
expenses for the six and three months ended June 30, 1994. The
share of losses consist primarily of provisions for losses on real
estate investments related to the 179 lots in Lancaster owned by
LCR and the 283 acres in Bakersfield owned by BKS.
OTHER EXPENSES
Operating expenses from operations of real estate owned were
$126,000 and $64,000 for the six and three months ended June 30,
1995 and $123,000 and $63,000 for the six and three months ended
June 30, 1994, respectively. The expenses were associated with the
Upland shopping center and the auto retail center in Corona.
Operating expenses from operations of real estate owned paid to
affiliates were $28,000 and $15,000 for the six and three months
ended June 30, 1995 and $28,000 and $14,000 for the six and three
months ended June 30, 1994, respectively. The operating expenses
consist of property management fees paid to an affiliate.
Expenses associated with non-operating real estate owned were
$123,000 and $77,000 for the six and three months ended June 30,
1995 and $153,000 and $70,000 for the six and three months ended
June 30, 1994, respectively. The 1995 expenses relate to the 19
acres in Sacramento, the condominiums in Oxnard, and the 23 acres
in Riverside. The decrease for 1995 is due to a decrease in
expenses for BKS.
Depreciation and amortization expense was $58,000 and $29,000 for
the six and three months ended June 30, 1995 and $55,000 and
$28,000 for the six and three months ended June 30, 1994. The
depreciation relates to the Upland shopping center and tenant
improvements for the auto retail center in Corona.
<PAGE>
Interest expense was $271,000 and $132,000 for the six and three
months ended June 30, 1995 and $241,000 and $107,000 for the six
and three months ended June 30, 1994, respectively. The interest
expense relates to the Upland shopping center and the 19 acres in
Sacramento, California.
General and administrative expenses, affiliates totaled $81,000 and
$47,000 for the six and three months ended June 30, 1995 and
$87,000 and $66,000 for the six and three months ended June 30,
1994, respectively. These expenses are primarily salary allocation
reimbursements paid to affiliates.
General and administrative expenses, nonaffiliates totaled $45,000
and $22,000 for the six and three months ended June 30, 1995 and
$59,000 and $30,000 for the six and three months ended June 30,
1994, respectively. These expenses consist of other costs
associated with the administration of the Partnership.
Mortgage investment servicing fees for the same periods totaled
$25,000 and $12,000 for the six and three months ended June 30,
1995 and $26,000 and $13,000 six the six and three months ended
June 30, 1994. This consists of fees paid to CMIF, Inc., an
affiliate of the general partners and Centennial Corporation, for
servicing the Partnership's loan and real estate owned portfolio.
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND JUNE 30, 1995
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) NONE
(b) NONE
<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.
CENTENNIAL MORTGAGE INCOME FUND,
A California Limited Partnership
By: /s/Ronald R. White August 14, 1995
Ronald R. White Date
General Partner
By: /s/John B. Joseph August 14, 1995
John B. Joseph Date
General Partner
By: CENTENNIAL CORPORATION
General Partner
/s/Joel H. Miner August 14, 1995
Joel H. Miner Date
Chief Financial Officer
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1995
<CASH> 3,037
<SECURITIES> 0
<RECEIVABLES> 6,208
<ALLOWANCES> 957
<INVENTORY> 0
<CURRENT-ASSETS> 3,171
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,591
<CURRENT-LIABILITIES> 268
<BONDS> 4,019
<COMMON> 0
0
0
<OTHER-SE> 11,708
<TOTAL-LIABILITY-AND-EQUITY> 16,591
<SALES> 0
<TOTAL-REVENUES> 643
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 670
<LOSS-PROVISION> 716
<INTEREST-EXPENSE> 271
<INCOME-PRETAX> (1,014)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,014)
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> (1,014)
<EPS-PRIMARY> (26.18)
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