<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-2
Annual Report Pursuant to Sections 13 or 15 (d)
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
Commission File Number 2-94249
HALL INSTITUTIONAL MORTGAGE FUND LIMITED PARTNERSHIP
(name of registrant)
Arizona 75-1982134
(State of Organization) (I.R.S. employer ID No.)
4455 East Camelback Road
Suite A-200
Phoenix, Arizona 85018
(address of principal executive office)
(602) 840-0060
(registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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
----- -----
Documents Incorporated by Reference
None
<PAGE> 2
HALL INSTITUTIONAL MORTGAGE FUND
DECEMBER 31, 1995, 1994 AND 1993
<PAGE> 3
HALL INSTITUTIONAL MORTGAGE FUND
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994 (NOTE 1)
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ ---------- -----------
<S> <C> <C>
Cash and cash equivalents (Note 2) $1,332,041 $ 204,315
Mortgage notes receivable - affiliates, net of an allowance for doubtful
receivables of $4,576,000 and $5,571,770 in 1995 and 1994, respectively
(Note 3), and net of loan origination fees of $2,338 and $14,734 for 1995
and 1994 respectively (Note 1 and 4) 1,092,345 600,911
Accrued interest receivable - affiliates, net of deferred interest and an
allowance for doubtful interest receivable of $3,928,180 and $4,826,539 in
1995 and 1994, respectively (Note 3) 1,639,890 1,488,973
Deferred charges, net 1,950 4,350
---------- ----------
$4,066,226 $2,298,549
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 9 $ 23
Partners' equity:
Limited partners - 2,568 units outstanding
at December 31, 1995 and 1994 4,028,303 2,278,289
General Partner 37,914 20,237
---------- ----------
4,066,217 2,298,526
---------- ----------
$4,066,226 $2,298,549
========== ==========
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE BALANCE SHEETS.
F-2
<PAGE> 4
HALL INSTITUTIONAL MORTGAGE FUND
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (NOTE 1)
<TABLE>
<CAPTION>
Revenues: 1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Interest and loan origination
fees from affiliates (Notes 3 and 4) $ 177,535 $ 26,524 $ 50,494
Gain on debt settlement (Note 3) -- -- 75,000
----------- ----------- -----------
177,535 26,524 125,494
----------- ----------- -----------
Expenses:
Operating 60,830 32,255 47,928
Bad debt reversal (Note 3) (1,653,386) (1,923,618) --
Amortization 2,400 2,400 2,400
----------- ----------- -----------
(1,590,156) (1,888,963) 50,328
----------- ----------- -----------
Net income $ 1,767,691 $ 1,915,487 $ 75,166
=========== =========== ===========
Net income allocable to
limited partners $ 1,750,014 $ 1,896,332 $ 74,414
Net income allocable to
General Partner 17,677 19,155 752
----------- ----------- -----------
Net income $ 1,767,691 $ 1,915,487 $ 75,166
=========== =========== ===========
Net income per limited
partnership unit $ 681 $ 738 $ 29
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
F-3
<PAGE> 5
HALL INSTITUTIONAL MORTGAGE FUND
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (NOTES 1 AND 5)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1992 $ 1,046 $ 307,543 $ 308,589
Net income 752 74,414 75,166
----------- ----------- -----------
Balance, December 31, 1993 1,798 381,957 383,755
Distributions (716) -- (716)
Net income 19,155 1,896,332 1,915,487
----------- ----------- -----------
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
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
F-4
<PAGE> 6
HALL INSTITUTIONAL MORTGAGE FUND
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (NOTE 1)
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Receipt of interest on Specific Loans - affiliates
and short-term investments $ 1,188,570 $ 8,596 $ 8,311
Proceeds from debt settlement -- -- 75,000
Payment of operating costs (60,844) (33,735) (46,425)
----------- ----------- -----------
Net cash provided by (used in) operating activities,
net of distributions 1,127,726 (25,139) 36,886
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans to Affiliated Borrowers -- -- (181,000)
Distribution paid -- (2,083) --
----------- ----------- -----------
Net cash used in financing activities -- (2,083) (181,000)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 1,127,726 (27,222) (144,114)
Cash and cash equivalents, beginning of year 204,315 231,537 375,651
----------- ----------- -----------
Cash and cash equivalents, end of year $ 1,332,041 $ 204,315 $ 231,537
=========== =========== ===========
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Net income $ 1,767,691 $ 1,915,487 $ 75,166
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Bad debt reversal (1,653,386) (1,923,618) --
Amortization expense 2,400 2,400 2,400
Amortization of deferred revenue (12,396) (17,928) (42,183)
Decrease in accrued interest receivable 1,023,431 -- --
Increase (decrease) in accounts payable (14) (1,480) 1,503
----------- ----------- -----------
Net cash provided by (used in) operating
activities, net of distributions $ 1,127,726 $ (25,139) $ 36,886
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
F-5
<PAGE> 7
HALL INSTITUTIONAL MORTGAGE FUND
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Hall Institutional Mortgage Fund, an Arizona limited partnership (the
"Partnership"), was formed on October 12, 1984. The general partner of the
Partnership is Hall Pension Fund Associates (the "General Partner") and
the general partner of Hall Pension Fund Associates is Hall 1985
Management Associates Limited Partnership (the "Managing General
Partner"). The Partnership has invested in subordinated mortgages with
affiliated partnerships (the "Affiliated Borrowers") which were primarily
secured by income-producing real estate. The investments were made during
1985, 1986 and 1987 (except for the Arrowtree Loan hereinafter defined).
The limited partners in the Partnership are primarily qualified pension,
profit sharing and other retirement trusts and plans, commingled trust
funds managed by banks for such trusts, government pension and retirement
trusts, individual retirement accounts, Keogh plans, certain endowment
funds and other institutional investors intended to be exempt from federal
income taxation. The Partnership also accepted nontaxexempt investors who
desired current taxable income from mortgage investments in real estate.
BASIS OF PRESENTATION -
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles ("GAAP"). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
REVENUE RECOGNITION -
Interest income derived from mortgage notes receivable is deferred to the
extent the underlying mortgage notes receivable are determined, by the
Managing General Partner, to be either partially or completely
uncollectible on the basis described in note 3. If in future periods such
mortgage notes receivable and related interest are deemed to be
collectible, the deferred interest income will be recognized. Deferred
interest is classified in the accompanying balance sheets as a reduction
in accrued interest receivable.
Cash receipts on impaired loans are first applied to recognize previously
deferred interest and then as a reduction of accrued interest and then
finally as a reduction of principal.
For the purpose of the statement of cash flows the Partnership considers
all highly liquid investments with a maturity of three months or less to
be cash equivalents.
F-6
<PAGE> 8
INCOME TAXES -
The Partnership is not subject to federal, state, or local income taxes
and, accordingly, none have been provided in the accompanying financial
statements. Such taxes are the responsibility of the partners and are,
therefore, included in their individual tax returns.
LOAN ORIGINATION FEE -
A 3 percent loan origination fee was earned by the Partnership on each
participating mortgage loan made. This revenue was initially deferred and
is being recognized ratably over the life of the specific related loans.
AMORTIZATION OF ORGANIZATION COSTS -
Organization costs are amortized on a straight-line basis over twelve
years.
ALLOCATION OF PROFIT AND LOSS -
Partnership net profits are allocated 99 percent to the limited partners
and 1 percent to the General Partner. Net losses are allocated to the
limited partners and General Partner in proportion to the positive
balances in their capital accounts. However, all net losses will be
allocated to the General Partner if the allocation to the limited partners
would result in a negative capital account balance for the limited
partners.
DISTRIBUTIONS OF DISTRIBUTABLE CASH FROM OPERATIONS AND SURPLUS FUNDS -
Distributable cash from operations and surplus funds, as defined, is
allocated 99 percent to the limited partners and 1 percent to the General
Partner. However, the General Partner, exercising reasonable discretion,
may retain in the Partnership all or any part of the funds available for
distributions to meet the working capital needs of the Partnership (see
Note 2).
NET INCOME PER LIMITED PARTNERSHIP UNIT -
Net income per limited partnership unit ("Unit") is computed by dividing
net income allocated to the limited partners by the weighted average
number of Units outstanding. Per Unit information has been computed based
on 2,568 Units outstanding in 1995, 1994 and 1993.
F-7
<PAGE> 9
(2) CASH AND CASH EQUIVALENTS:
Cash and cash equivalents at December 31, 1995 and 1994, consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Cash $ 55,804 $ 44,898
Certificates of deposit/Money
Market account 1,276,237 159,417
---------- ----------
$1,332,041 $ 204,315
========== ==========
</TABLE>
Under the terms of the partnership agreement, the General Partner is
required to maintain in the Partnership reasonable cash reserves for
working capital and contingencies in an amount of not less than 1% of
invested capital, as defined ($74,400 and $78,400 in 1995 and 1994
respectively). The Partnership maintained the required working capital
reserve at December 31, 1995 and 1994.
(3) MORTGAGE NOTES RECEIVABLE:
The Partnership's loans to Affiliated Borrowers (see notes 1 and 4 for
relationship) are nonrecourse obligations of the Affiliated Borrowers and
certain of the loans are secured by a subordinate lien on the mortgaged
real property which is pledged as security. The Partnership has released
its second lien position on certain of the loans to Affiliated Borrowers
(see below and Notes 6 and 7). All loans, except a certain amount advanced
to Hall Seven Trails Associates, as more fully discussed hereafter (the
"Arrowtree Loan"), made by the Partnership to the Affiliated Borrowers
were subject at the time of origination to the rights and restrictions set
out in a specified loan agreement ("Model Loan Agreement") and two
specified forms of notes ("Participating Notes"). Such loans are hereafter
referred to as "Specific Loans". As described hereinafter, all of the
Specific Loans set out in the Model Loan Agreement and the Participating
Notes have been modified subsequent to their origination. As a result of a
detailed analysis the Partnership performs on the estimated values of the
underlying assets relating to and impacting the collectibility of the
Specific Loans, as hereafter described, certain amounts of the Specific
Loans have been reserved through bad debt provisions. The following table
describes the terms and status of outstanding Specific Loans at December
31, 1994 and 1995:
<TABLE>
<CAPTION>
Outstanding Principal
Loan Amount Property
Borrower 1994 1995 Location Accrue Status
- -------- ---- ---- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Arrowtree $ 850,000 $ 913,683 Okemos, MI (A) Modified
Brambletree 1,751,000 1,751,000 Garland, TX 7.00% Modified
</TABLE>
F-8
<PAGE> 10
<TABLE>
<S> <C> <C> <C> <C> <C>
Twintree 720,000 720,000 Albuquerque, NM 8.00% Modified
Midtree 410,000 410,000 Albuquerque, NM 8.00% Modified
Fawntree 550,000 - Albuquerque, NM N/A Retired
Lanetree 620,000 620,000 Albuquerque, NM 8.00% Modified
Candlewick 460,000 460,000 Albuquerque, NM 8.00% Modified
Coachtree 615,000 615,000 Albuquerque, NM 8.00% Modified
------- -----------
$5,976,000 $ 5,489,683
========== ===========
</TABLE>
The following table shows the changes in the Partnership's allowance for
loan losses for the years ending December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Balance at beginning of period $ 5,571,770 $ 5,976,000
Allowance recorded on loans 33,268 211,415
Recovery of prior loans -- --
Reduction in allowance for loan losses (1,029,038) (615,645)
----------- -----------
Balance at end of period $ 4,576,000 $ 5,571,770
=========== ===========
</TABLE>
The following table shows the changes in the Partnership's allowance for
interest receivable losses for the years ending December 31, 1995 and
1994.
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Balance at beginning of period $ 4,826,539 $ 6,139,271
Allowance recorded on interest receivables 684,119 868,181
Recovery of prior losses -- --
Reduction in allowance for interest receivable (1,582,478) (2,180,913)
----------- -----------
Balance at end of period $ 3,928,180 $ 4,826,539
=========== ===========
</TABLE>
(A) Arrowtree's Specific Loan accrual rate is equal to the principal
payments Arrowtree makes on its first lien mortgage.
The Partnership periodically reviews the amount of reserves which are
necessary on both its mortgages and interest receivables. Previously, the
process of reviewing the amount of reserves was based on the current
market value of each Affiliated Borrower's asset holdings and where the
Partnership stands in relation to the Affiliated Borrower's other
creditors. Effective January 1, 1995, the Partnership adopted Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" (SFAS #114). SFAS #114 required the Partnership to
evaluate its mortgage notes for impairment based on a measurement of the
present value of expected future cash flows, the loans observable market
price, or the fair value of the loans collateral if the loan is collateral
dependent. In accordance with SFAS #114, the Partnership obtained a
third-party appraisal of its mortgages and interest receivables which
estimated values of the Partnership's mortgages and
F-9
<PAGE> 11
interest receivables ranging from $1,275,000 - $1,600,000, exclusive of
amounts received in connection with the Arrowtree refinancing (see Note
8). The accompanying financial statements reflect the results of the
receivables appraised values at December 31, 1995, and is based on the
upper end of the valuation range.
The resulting appraised valuations were based on the discounted cash flow
analysis' of the underlying properties (discounted at 12%) assuming a
five-year holding period with a sale occurring at the end of the fifth
year. The total discounted cash flows were further discounted (at 50%-60%)
to compensate for the risk associated with owning a minority
non-controlling equity interest which the Partnership is deemed to possess
as a lender to each of the Affiliated Borrowers.
For the years ended December 31, 1995 and 1994, respectively, the
Partnership reversed bad debt reserves totaling $1,653,386 and $1,923,618.
The amounts reversed during 1995 were primarily based on interest payments
received during the year on previously reserved amounts and the expected
principal payments to be received in connection with the Arrowtree
refinancing discussed in Note 8. The amounts reversed during 1994 were
based upon management's process of reviewing the necessary reserves as
discussed above and resulted from the increased values of the properties
that collateralized the mortgage notes at that time. There was no change
in the reserve during 1993.
On November 1, 1995, Midtree Associates, Ltd. ("Midtree") refinanced the
Midtree apartments' mortgages. The first lien mortgage in place prior to
the refinancing had an original maturity date of August 1, 1995, but was
extended to allow Midtree time to secure the refinancing proceeds. As part
of the overall refinancing, the property was transferred to Phoenix Square
Associates, Ltd. ("New Midtree"), with Midtree retaining a 99% interest in
New Midtree. The property was refinanced with a new $4.2 million first
lien which accrues interest at 8.1% through maturity on November 1, 2002.
Monthly principal and interest payments are based on a 30-year
amortization schedule. As a condition of the refinancing, the Partnership
was required to release its second lien position and retain an unsecured
loan from Midtree for the remaining balance on Midtree's Specific Loan.
The remaining balance on the Midtree Specific Loan has the same economic
and payment terms as prior to the refinancing. The Partnership believes it
was in its best interest to agree to release its second lien position
pursuant to the refinancing. By doing so, Midtree was able to avoid
foreclosure on its underlying property from the original first lien holder
and reduce the interest rate on the first lien from 12%.
Hall Seven Trails Associates ("Arrowtree") completed an agreement with
Prudential Insurance Company ("Prudential") in 1994 regarding
restructuring its first lien encumbrance on which Arrowtree had been in
default since March 1, 1989. The agreement with Prudential required
Arrowtree to raise $345,000 in cash and funding commitments (the "New
Capital") to fund a capital improvement escrow account, pay the lender's
administrative costs, and to bring debt service current under its new
terms. Arrowtree issued a capital call to equity investors and raised
approximately $171,000 of the New Capital. The Partnership loaned
Arrowtree $181,000 ("Arrowtree Reorganization Advance") with such funds
being used by Arrowtree as part of the New Capital. The Arrowtree
Reorganization Advance accrues interest at 10% compounded monthly
beginning January 1, 1994. Interest and principal on the Arrowtree
Reorganization Advance was deferred and
F-10
<PAGE> 12
reserved, respectively, in 1994. Pursuant to the Partnership's analysis of
the collectibility of receivables from the Affiliated Borrowers, a portion
of this reserve was reversed in 1995. In 1994, the Partnership modified
its Specific Loan from Arrowtree to agree with various modifications
called for as part of the agreement with Prudential and in the Arrowtree
plan of reorganization (the "1994 Arrowtree Modification"). The 1994
Arrowtree Modification provided that repayment of the principal portion
of Arrowtree's Specific Loan and the repayment of the Arrowtree
Reorganization Advance and its related accrued interest is subordinate to
Prudential receiving their entire first lien and related accrued interest.
The interest portion of Arrowtree's Specific Loan, in addition to being
subordinate to Prudential, is also subordinate to the repayment of all the
New Capital contributed by equity investors plus a 10% annual preference
on such funds. The Partnership believes it was in its best interest to
have consented to the 1994 modification of the first lien, to have
consented to the 1994 Arrowtree Modification, and to make the Arrowtree
Reorganization Advance. As a result of these events, the Partnership was
able to retain its second lien on the property since the first lien was
not assumable by the Partnership and the Partnership did not have the
capability of paying off the first lien. As of December 31, 1995, the
Arrowtree Reorganization Advance was secured by the Partnership's second
lien on the property.
A plan of reorganization (the "Plan") for Hall Brambletree Associates
("Brambletree") was confirmed on May 19, 1993. According to the Plan, the
principal and interest of $2,037,324 due to the Partnership on its
mortgage note receivable will bear interest at 7% per annum beginning
January 1, 1993. Property cash flow and sale and refinance proceeds will
be allocated first to the investors who provided additional equity of
$250,000 to Brambletree as part of the Plan (the "Participating
Investors"), plus a 12% annual preference, then 50% to the Participating
Investors and 50% to Hall Financial Group, Inc. ("HFGI") and the
Partnership to be shared pro rata until HFGI and the Partnership are paid
in full, and then 100% to the Participating Investors.
The Partnership, Hall Buckingham Associates ("Buckingham"), and
Buckingham's senior mortgage holder signed an agreement on July 15, 1993
wherein the Partnership released Buckingham of its mortgage note
receivable in return for consideration of $75,000. The Partnership
recognized a $75,000 gain on debt settlement in 1993 since the Buckingham
mortgage note had been fully reserved in prior periods.
Fawntree Associates, Ltd. ("Fawntree"), an Affiliated Borrower, was sold
for $6,400,000 on June 15, 1995. After the satisfaction of all claims
having priority over the Partnership, Fawntree distributed $582,682 to the
Partnership per the terms on the Fawntree Specific Loan. The Partnership
had previously reserved the entire amount of the Fawntree Specific Loan.
As a result of the sale of the property in 1995 and related payment to the
Partnership, the Partnership reversed the reserve related to the repayment
and wrote off the remaining accrued but unpaid interest of $397,408 and
principal balance of $550,000 against the related reserves.
In February 1995, three of the Affiliated Borrowers entered into a
transaction with affiliates of NHP, Inc., Paine Webber and HFGI whereby
the properties were transferred to separate limited partnerships (the
"New LPs") by the respective Affiliated Borrower (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
F-11
<PAGE> 13
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 been 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 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"). 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 provided 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
F-12
<PAGE> 14
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
As of April 8, 1996, a Non-Major Default had occurred in the NHP
Transaction.
(4) TRANSACTIONS WITH AFFILIATES:
Loan origination fees of $12,396, $17,928 and $42,183 were recognized in
1995, 1994 and 1993, respectively. In 1995, pursuant to the Partnership's
analysis of the collectibility of receivables from the Affiliated
Borrowers, interest income of $128,670 was recognized on the Specific Loan
from Lanetree Associates Limited Partnership. No interest income was
recognized on Specific Loans in 1994 or 1993. The interest income is net
of deferred interest of $673,397, $849,228, and $971,098 on non-performing
mortgage notes receivable in 1995, 1994 and 1993, respectively.
The General Partner, the Managing General Partner and the Affiliated
Borrowers are all affiliates of HFGI whose majority shareholder is Mr.
Craig Hall. As is more fully discussed in the Partnership's Annual Report
on Form 10-K, Part II, Item 7, certain of the limited partnerships
affiliated with HFGI have experienced cash flow deficits due primarily to
overbuilding and poor economic conditions in the market areas in which
they operate. Certain of these cash flow deficits have been and are being
funded by HFGI. HFGI may be unwilling or unable to provide additional cash
deficit funding to the Affiliated Borrowers and there can be no assurance
such funding will be available from other sources.
HFGI performs administrative services for the Partnership. The Partnership
agreement does not allow the Partnership to pay HFGI for these services.
No provision has been made in these financial statements to record the
value of these services. It is estimated that these services are worth
less than $5,000 per year and are therefore insignificant to the
operations of the Partnership.
(5) DISTRIBUTIONS TO PARTNERS:
During the year ended December 31, 1994, distributions of $2,083 (of which
$1,367 had been previously accrued) were paid to the General Partner. No
distributions were made in 1995 or 1993. Such distributions were made in
accordance with the partnership agreement which requires quarterly
distributions of Partnership distributable cash flow, as defined.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires the Partnership to disclose
the estimated fair values of its financial instruments.
F-13
<PAGE> 15
The carrying amount of the Partnership's cash and cash equivalents
approximates its fair value due to the short maturity of these
instruments. The Partnership's mortgage note receivables and accrued
interest receivables have been recorded at their estimated fair value
based upon an independent third-party appraisal (see Note 3).
(7) 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 to have a liquidating fund after all the initial
loans were made. In order to adopt a liquidating plan, a proxy will be
sent to each unit holder for their vote. A majority vote (over 50%) will
be required of all unit holders.
The liquidating plan would be an immediate liquidation of the Partnership
based on a sale of all the loans receivable to HFGI for $1.6 million. This
amount was determined by taking the highest range of value as determined
by an independent third party appraisal. The proceeds from the sale of the
loans receivable plus the cash on hand will then be distributed to the
unit holders based upon their percentage interest. The Partnership would
then be dissolved.
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.
(8) SUBSEQUENT EVENTS:
In January 1996, Northtree Associates Limited Partnership ("Candlewick")
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 be consummated, thereby decreasing Candlewick's first lien mortgage
interest rate and extending the maturity date.
F-14
<PAGE> 16
In January 1996, the Arrowtree apartments' mortgages were refinanced. 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 principal and accrued interest on the
Arrowtree Reorganization Advance and to make a partial payment of
approximately $913,000 on Arrowtree's Specific Loan. As a condition of the
refinancing agreement, however, 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.
F-15
<PAGE> 17
SIGNATURE
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 as of February 21,
1997.
HALL INSTITUTIONAL MORTGAGE FUND LIMITED
PARTNERSHIP, an Arizona limited partnership
By: HALL PENSION FUND ASSOCIATES, LTD.
its General Partner
By: HALL 1985 MANAGEMENT ASSOCIATES, LTD.
its General Partner
By: HALL APARTMENT ASSOCIATES, INC.,
its General Partner
By: /s/ Donald L. Braun
---------------------------
Donald L. Braun
President
