<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended Commission File No.
March 31, 1996 2-94249
HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its charter)
Arizona 75-1982134
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4455 EAST CAMELBACK ROAD
SUITE A-200
PHOENIX, ARIZONA 85018
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (602) 840-0060
Indicate by a 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> 2
PART I. FINANCIAL INFORMATION:
The financial statements and information included herein,
except for the balance sheet at December 31, 1995, are
unaudited; however, they reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of
the results for the interim periods ended March 31, 1996 and
1995. These results may not be indicative of the results which
may be expected for the year ended December 31, 1996, or any
other period.
2
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HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995 (NOTE 1)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents (Note 2) $ 2,542,248 $ 1,332,041
Mortgage notes receivable, net of an allowance for doubtful
receivables of $4,576,000 and $4,576,000 at March 31, 1996
and December 31, 1995, respectively (Note 3) - 1,094,683
Accrued interest receivable, net of deferred interest of
$4,078,508 and $3,928,180 at March 31, 1996 and
December 31, 1995, respectively (Note 3) 1,551,840 1,639,890
Deferred charges, net 1,350 1,950
----------- -----------
$ 4,095,438 $ 4,068,564
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 9 $ 9
Deferred revenue (Notes 1 and 4) - 2,338
----------- -----------
9 2,347
Partners' equity:
Limited partners - 2,568 units outstanding
at March 31, 1996 and December 31, 1995 4,057,223 4,028,303
General Partner 38,206 37,914
----------- -----------
4,095,429 4,066,217
----------- -----------
$ 4,095,438 $ 4,068,564
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE BALANCE SHEETS.
3
<PAGE> 4
HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
UNAUDITED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (NOTE 1)
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Revenues:
Interest (Note 2) $ 33,414 $ 33,018
Loan origination fees 2,338 3,099
----------- ----------
35,752 36,117
----------- ----------
Expenses:
Operating 5,940 4,690
Amortization 600 600
----------- ----------
6,540 5,290
----------- ----------
Net income $ 29,212 $ 30,827
=========== ==========
Net income allocable to
limited partners $ 28,920 $ 30,519
Net income allocable to
General partner 292 308
----------- ----------
Net income $ 29,212 $ 30,827
=========== ==========
Net income per limited
partnership unit $ 11 $ 681
=========== ==========
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
4
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HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND
FOR THE YEAR ENDED DECEMBER 31, 1995 (NOTE 1)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
-------------- ------------- -------------
<S> <C> <C> <C>
Balance, December 31, 1994 $ 20,237 $ 2,278,289 $ 2,298,526
Net income 17,677 1,750,014 1,767,691
-------------- ------------- -------------
Balance, December 31, 1995 37,914 4,028,303 4,066,217
Net income 292 28,920 29,212
-------------- ------------- -------------
Balance, March 31, 1996 $ 38,206 $ 4,057,223 $ 4,095,429
============== ============= =============
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
5
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HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (NOTE 1)
<TABLE>
<CAPTION>
1996 1995
----------- --------------
<S> <C> <C>
Cash Flows From Operating Activities
Receipt of interest on Specific Loans and
short-term investments $ 121,464 $ 570,269
Payment of operating costs (5,940) (4,704)
----------- --------------
Net cash provided by operating
activities, net of distributions 115,524 565,565
Cash Flows From Financing Activities
Payment of Loans to Affiliated Borrowers 1,094,683 -
----------- --------------
Net cash from financing activities 1,094,683 -
----------- --------------
Cash and cash equivalents, beginning of
year 1,332,041 204,315
----------- --------------
Cash and cash equivalents, end of period $ 2,542,248 $ 769,880
=========== ==============
RECONCILIATION OF NET INCOME TO CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Net income $ 29,212 $ 30,827
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization expense 600 600
Decrease in accrued interest receivable 88,050 361,948
Decrease in accounts payable - (14)
Deferred interest - 175,303
Decrease in deferred revenue (2,338) (3,099)
----------- --------------
Net cash provided by operating
activities, net of distributions $ 115,524 $ 565,565
=========== ==============
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
6
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HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES:
In the opinion of management, the accompanying audited and unaudited
financial statements contain all adjustments necessary to present fairly
the financial position of Hall Institutional Mortgage Fund Limited
Partnership (the "Partnership"), as of March 31, 1996 and December 31,
1995, and the results of operations and changes in financial position for
the three months ended March 31, 1996 and 1995. The general partner of
the Partnership is Hall Pension Fund Associates and the general partner of
Hall Pension Fund Associates is Hall 1985 Management Associates (the
"Managing General Partner").
For a summary of additional significant accounting policies and other
matters, see the notes to financial statements of the Partnership which are
included in the Annual Report of Form 10-K for the year ended December 31,
1995.
(2) ACCRUED INTEREST RECEIVABLE:
The original loans made by the Partnership were to affiliated partnerships
("Affiliated Borrowers") which at the time of origination were secured only
by a subordinate lien on the mortgaged real property which was pledged as
security ("Specific Loans"). All of the Specific Loans have been modified
and do not require payment of interest until either sale or refinancing of
the Affiliated Borrower's real property or in some instances to the extent
cash flow is available from the Affiliated Borrowers after the payment in
full of the Affiliated Borrower's first lien mortgage or other amounts
having priority. Certain of the Partnership's loans, through restructure
and reorganization of Affiliated Borrowers, are in full or part
subordinated to the return of equity in addition to being subordinate to
senior indebtedness of the Affiliated Borrower. Accordingly, in the first
three months of 1996, the Partnership accrued interest of $178,064, of
which $150,328 was deferred.
In February 1995, three of the Affiliated Borrowers entered into a
transaction with affiliates of NHP, Inc., Paine Webber and Hall Financial
Group, Inc. whereby the properties were transferred to separate limited
partnerships (the "New LPs") by the respective Affiliated Borrowers (the
"NHP Transaction"). As a result of the NHP Transaction, Lanetree Associates
Limited Partnership, Twintree Associates Limited Partnership and Coachtree
Associates Limited Partnership ("NHP Transaction Partnerships") each hold a
limited partnership interest in its respective New LP in which affiliates
of NHP, Inc. and Paine Webber are general partners. As part of the NHP
Transaction, the senior mortgage for each property involved in the NHP
Transaction was paid in full. In addition, as part of the NHP Transaction,
each NHP Transaction Partnership received cash at closing, and is entitled
to a defined priority equity amount in the New LPs (the "Preferred Equity")
and an annual return on the Preferred Equity of 6% per annum provided that
all of the New LPs have been paid in full at the end of each calender
quarter ("Operational Participation Proceeds"). In the event all of the New
LPs have not bee paid in full for Operational Participation Proceeds at the
end of each calender quarter, the annual return on the Preferred Equity in
calculating Operational Participation Proceeds increases to 9% per annum
(hereafter referred to as a "Non-Major Default"). In addition to
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Operational Participation Proceeds, each NHP Transaction Partnership is
entitled to a priority return of the Preferred Equity and any accrued and
unpaid Operational Participation Proceeds upon refinancing or sale of the
properties over other equity classes and a 20% participation in net
proceeds available from sale or refinancing after payment of the Preferred
Equity and any accrued and unpaid Operational Participation Proceeds ("Sale
or Refinancing Participation Proceeds"). As a condition of the NHP
Transaction, the Partnership was required to release its second lien
positions and retain unsecured loans from the NHP Transaction Partnerships
for the remaining balances on their respective Specific Loans. The
remaining balances on the NHP Transaction Partnerships' Specific Loans have
the same economic and payment terms as prior to the NHP Transaction.
Lanetree Associates Limited Partnership distributed $569,419 to the
Partnership in March 1995 in partial payment of its loan obligation to the
Partnership from proceeds it received at closing of the NHP Transaction.
There were not sufficient proceeds at closing (after the payment of
priority repayments) to distribute funds to the Partnership from Coachtree
Associates Limited Partnership or Twintree Associates Limited Partnership.
However, the NHP Transaction Partnerships remain obligated to the
Partnership pursuant to each partnership's Bankruptcy Plan. The terms of
the Preferred Equity held by the NHP Transaction Partnerships provide that
defined amounts be paid not later than December 10, 2000. NHP, Inc. has the
option to pay the Preferred Equity amounts due the NHP Transaction
Partnerships at an earlier date at a discounted amount. If NHP, Inc.
exercises its option within twenty-one months of the original transaction
date, or November 7, 1996, it would result in the following estimated
payments, excluding Sale or Refinancing Participation Proceeds and assuming
a Non-Major Default has not occurred, to the Partnership from each of the
NHP Transaction Partnerships:
Coachtree . . . . . . . . . . . . . . . . $177,960
Lanetree . . . . . . . . . . . . . . . . $1,167,626
Twintree . . . . . . . . . . . . . . . . . $381,815
The amounts the Partnership would receive on December 10, 2000, excluding
Sale or Refinancing Participation Proceeds and assuming a Non-Major Default
has not occurred, is estimated to be:
Coachtree . . . . . . . . . . . . . . . . $334,743
Lanetree . . . . . . . . . . . . . . . . $1,167,626
Twintree . . . . . . . . . . . . . . . . . $561,409
In April 1996, a Non-Major Default had occurred in the NHP Transaction.
During the first three months of 1996, two Affiliated Borrowers, Lanetree
Associates Limited Partnership and Hall Seven Trails Associates
("Arrowtree"), repaid accrued interest to the Partnership of $71,512 and
$44,274, respectively.
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(3) DISTRIBUTIONS TO PARTNERS:
There were no partner distributions paid during the first three months of
1996.
(4) MORTGAGE NOTES RECEIVABLE:
In January 1996, Northtree Associates Limited Partnership ("Candlewick"),
an Affiliated Borrower, refinanced the Candlewick apartments' mortgages.
The property was refinanced with a new $5.0 million first lien mortgage
which accrues interest at 7.58% with principal and interest payments due
monthly based on a 22-year amortization schedule through maturity on
February 1, 2003. As a condition of the refinancing agreement, the
Partnership was required to release its second lien position and retain an
unsecured loan from Candlewick for the remaining balance on Candlewick's
Specific Loan. The remaining balance on the Candlewick Specific Loan has
the same economic terms as prior to the refinancing. The Partnership
believes it was in its best interest to release its second lien position to
allow the refinancing to consummated, thereby decreasing Candlewick's first
lien mortgage interest rate and extending the maturity date.
During the first quarter of 1996, Arrowtree refinanced its mortgages. As
part of the overall refinancing, the property was transferred to
Arrowtree Properties, Ltd. ("New Arrowtree"), with Arrowtree retaining a
99% interest in New Arrowtree. The property was refinanced with a new $2.75
million first lien mortgage which accrues interest at 7.57% with principal
and interest payments due monthly. The refinancing allowed Arrowtree to
repay the Partnership in full the $181,000 of principal and $44,274 of
accrued interest on a loan the Partnership made to Arrowtree pursuant to
the 1994 restructuring of Arrowtree's first lien mortgage. Arrowtree also
made a partial payment of $914,000 on Arrowtree's Specific Loan. As a
condition of the refinancing agreement, the Partnership was required to
release its second lien position and retain an unsecured loan from
Arrowtree for the remaining balance on Arrowtree's Specific Loan. The
remaining balance on the Arrowtree Specific Loan has the same economic and
payment terms as prior to the refinancing.
The Partnership updated a detailed analysis of the collectibility of its
mortgage notes receivable at December 31, 1995. The Partnership reversed
bad debt reserves totaling $1,653,386 during 1995 primarily based on
interest payments received during 1995 the principal and interest payments
received in connection with the Arrowtree refinancing discussed above.
(5) INVESTMENT ACT OF 1940:
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. In February 1996, the
Partnership's attorneys advised the Partnership that the release of the
second lien positions on certain of the loan receivables could cause the
Partnership to be treated as an investment company under the 1940
Investment Company Act (the "1940 Act") by the Securities and Exchange
Commission. The Partnership cannot become an investment company under the
1940 Act because it is in conflict with its partnership agreement and the
purpose of the original offering. In the original offering, it was
anticipated that when the loans were repaid, the funds would be distributed
back to the unit holders rather than being allowed to be reinvested.
Therefore, based upon the Partnership's original partnership documents, the
intent was
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<PAGE> 10
to have a liquidating fund after all the initial loans were made. Certain
securities regulations which may be applicable to the Partnership
complicate the determination of the best alternative for the liquidation of
the Partnership. Although there can be no assurances with respect to the
outcome, the Partnership intends to use its best efforts to implement the
alternative that provides the maximum benefit to its limited partners,
while maintaining compliance with all applicable securities regulations.
The alternatives currently being evaluated, if implemented, may require the
Partnership to seek limited partner approval. If such limited partner
approval is required, proxy statements will be sent to the limited partners
which will request their votes regarding certain aspects of the alternative
proposed.
The accompanying financial statements have not been prepared on the
liquidation basis of accounting, as it is not determinable if an immediate
liquidation of the Partnership will be required. This uncertainty raises
substantial doubt about the Partnership's ability to continue as a going
concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
10
<PAGE> 11
HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY -
The Partnership's primary sources of liquidity are repayments of principal
and interest from the NHP Transaction Partnerships and repayments of
principal and interest from Affiliated Borrowers that have refinanced their
mortgages. Liquidity is also maintained with cash the Partnership holds as
working capital reserves.
The Partnership's ability to pay distributions to the general and limited
partners was, prior to the NHP Transaction, materially affected by the
non-payment of interest on the loans owed by Affiliated Borrowers. It is
anticipated there will be some distributions from operations in 1996 as a
result of the NHP Transaction and certain Affiliated Borrowers' refinancing
of their underlying debts. As of March 31, 1996, certain of the Affiliated
Borrowers were not making payments to the Partnership. Accordingly, during
the three months of 1996, the Partnership deferred $150,328 of accrued
interest income. The Partnership expects to continue to defer a majority
of the accrued interest quarterly through December 31, 1996. Interest
accrued on Lanetree Associates Limited Partnership is being recognized as
income as a result of the December 31, 1995 detailed analysis of
collectibility of mortgage notes receivable and the NHP Transaction. Since
the Affiliated Borrowers have reorganized their debt obligations to lenders
who have priority liens, the Partnership's ability to collect on the
mortgage loans has been diminished (except for the NHP Transaction
Partnerships-see Note 2). The Managing General Partner is currently
reviewing the options available to the Partnership.
RESULTS OF OPERATIONS -
The Partnership recorded net income of $29,212, and $30,827 for the three
months ended March 31, 1996 and 1995, respectively. During the first
three months of 1996, $5,678 of interest income was earned on short-term
investments.
11
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PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS
The Partnership is not a party to any material legal
proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) None
(B) None
12
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
By: Hall Pension Fund Associates,
its General Partner
By: Hall 1985 Management Associates Limited Partnership
its General Partner
By: Hall Apartment Associates, Inc.,
its Managing General Partner
By: /s/ Don Braun Date: May 14, 1996
---------------------- ------------------
Don Braun
President/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person in the capacities
indicated of the Managing General Partner, on behalf of the registrant on
the date indicated.
By: Hall Apartment Associates, Inc., the Managing General Partner
of Hall 1985 Management Associates Limited Partnership, the
General Partner of Hall Pension Fund Associates, the General
Partner of Hall Institutional Mortgage Fund Limited Partnership
By: /s/ Don Braun Date: May 14, 1996
---------------------- ------------------
Don Braun
President/Treasurer
13
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,542,248
<SECURITIES> 0
<RECEIVABLES> 10,206,348
<ALLOWANCES> 8,654,508
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,095,438
<CURRENT-LIABILITIES> 9
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 4,095,429
<TOTAL-LIABILITY-AND-EQUITY> 4,095,438
<SALES> 0
<TOTAL-REVENUES> 35,752
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,540
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 29,212
<INCOME-TAX> 0
<INCOME-CONTINUING> 29,212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,212
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
