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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
Commission file number 0-14581
CALIFORNIA SEVEN ASSOCIATES LIMITED PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 94-2970056
(State of Organization) (I.R.S. Employer Identification No.)
900 Cottage Grove Road, South Building
Bloomfield, Connecticut 06002
(Address of principal executive offices)
Registrant's telephone number, including area code: (860) 726-6000
Securities registered pursuant to Section
12(b) of the Act:
None
(Title of Each Class)
Securities registered pursuant to Section
12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Not applicable.
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PART I PAGE
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 32
PART III
Item 10. Directors and Executive Officers of the Registrant 32
Item 11. Executive Compensation 35
Item 12. Security Ownership of Certain Beneficial Owners and Management 35
Item 13. Certain Relationships and Related Transactions 35
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 37
SIGNATURES 41
2
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
The Registrant, California Seven Associates Limited Partnership, a
California limited partnership (the "Partnership"), was formed on January 30,
1985 under the laws of the State of California to acquire and operate seven
apartment complexes located in California. Pursuant to a private offering, in
February 1985, the Partnership sold Class B Limited Partnership Interests for an
aggregate purchase price of $500,000. Commencing in March 1985, the Partnership
sold Class A Limited Partnership Interests (the "Units") at a price of $150,000
each (362 Units in total), for an aggregate purchase price of $54,300,000. The
selling period closed on December 15, 1985 with $54,800,000 having been raised
from a total of 526 Class A and B investors (the "Interest Holders" or "Limited
Partners"). On April 30, 1986, the Partnership filed a General Form for
Registration of Securities on Form 10 pursuant to the Securities Act of 1934
(Registration No. 0-14581), which was amended by Form 8 dated July 25, 1986.
The General Partner of the Partnership is CIGNA Realty Resources,
Inc.-Seventh (the "General Partner"), a Delaware corporation qualified to do
business in the States of California and Connecticut which is an indirect wholly
owned subsidiary of CIGNA Corporation ("CIGNA"), a publicly held corporation
whose stock is traded on the New York Stock Exchange.
The Partnership is engaged solely in the business of real estate
investment. A presentation of information about industry segments is not
applicable.
The Partnership is engaged in passive activities and therefore investors
are subject to the applicable provisions of the Internal Revenue Service Code
and Regulations. Losses from "passive activities" (which include any rental
activity) may only offset income from "passive activities." Passive losses in
excess of passive income are suspended and are carried over to future years when
they may be deducted against passive income generated by the Partnership in such
year (including gain recognized on the sale of the Partnership's assets) or
against passive income derived by investors from other sources. Any suspended
losses remaining subsequent to Partnership dissolution may be used by investors
to offset ordinary income.
The Partnership itself has no employees; however, the unaffiliated property
managers contracted and supervised by CIGNA Investments, Inc. ("CII", formerly
CIGNA Capital Advisors, Inc.) on behalf of the Partnership maintained on-site
staff. For a description of property management services provided by CII, and
the terms of transactions between the Partnership and affiliates of the General
Partner, see Item 13 and the Notes to Financial Statements.
On January 31, 1985, the Partnership acquired from IFD Properties,
Inc.-First, ("IFD-First"), an affiliate of the General Partner, fee title,
subject to a first mortgage note and seven deeds of trust, to seven apartment
complexes (the "Project") and related site improvements in the State of
California for the aggregate purchase price, excluding acquisition fees and
expenses, of $146,000,000.
3
<PAGE>
Although the cost to the Partnership for the Project was an aggregate
purchase price, the General Partner allocated cost, including the assignment fee
and certain capitalized fees and expenses, to each of the properties based on
their appraised values at the time of purchase. The allocated cost is set forth
in the table below:
<TABLE>
<CAPTION>
Purchase Price, Assignment
Name of Property Fees and Certain Capitalized No. of Year
and Location (a) Fees and Expenses (b) Units Completed
<S> <C> <C> <C>
1. Amberway Apartments
Anaheim, California $ 15,691,572 272 1983
2. Pacifica Club
Huntington Beach, California 17,619,662 304 1971
3. Oakwood Apartments
Los Angeles, California 22,968,097 363 1966
4. Mission Bay East
San Diego, California 42,077,743 564 1970
5. Oakwood Apartments
Sherman Oaks, California (c) 22,442,254 372 1969
6. The Torrance Property
Torrance, California (d) 14,901,734 248 1965
7. Arbor Park Apartments
Upland, California 11,745,533 260 1971
<FN>
(a) Reference is made to Item 7 and the Notes to Financial Statements for a
description of the long-term indebtedness secured by the properties in
aggregate.
(b) The Partnership's total investment in the Project was $147,446,595,
representing the purchase price of $146,000,000 and assignment fees and
certain capitalized fees and expenses of $l,446,595.
(c) The property was severely damaged by the January 17, 1994 Southern
California earthquake. The property was evacuated and remains
unoccupied.
(d) This property was sold October 25, 1990.
</FN>
The Project was described in Form 8 dated July 25, 1986, under Item 3
thereof, which property descriptions are hereby incorporated by reference.
4
</TABLE>
<PAGE>
The following list details operating revenues for each of the properties as
a percentage of the Partnership's operating and interest revenues during 1993,
1994 and 1995. (In all years, interest income accounted for less than 2% of
Partnership revenue.):
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
The Anaheim Property 11% 14% 14%
The Huntington Beach Property 14% 18% 17%
The West Los Angeles Property 20% 25% 25%
The San Diego Property 26% 31% 31%
The Sherman Oaks Property (a) 20% 1% 0%
The Upland Property 9% 11% 11%
</TABLE>
[FN]
(a) The property was severely damaged by the January 17, 1994 Southern
California earthquake. The property was evacuated and remains
unoccupied.
Approximate occupancy levels for the properties on a quarterly basis are
set forth in the table in Item 2.
The Torrance property was sold October 25, 1990. The Sherman Oaks property
was severely damaged by the January 17, 1994 Southern California earthquake. The
property was evacuated and remains unoccupied.
On September 16, 1994, the Partnership filed a voluntary petition for
reorganization under Chapter 11 of the Federal Bankruptcy Code in the United
States Bankruptcy Court for the Central District of California (the "Court").
Pursuant to Section 1108 of the Bankruptcy Code, the Partnership is managing its
business as a debtor in possession and will continue to do so pursuant to
Sections 1107 and 1108 of the Bankruptcy Code unless otherwise ordered by the
Court.
On February 1, 1996, the Court denied the Second Amended Plan of
Reorganization (the "Plan") filed by the Partnership and granted the first
mortgage holder, Travelers Insurance Company ("Travelers"), relief from the
automatic stay. Travelers immediately posted "Notices of Sale" with a scheduled
foreclosure sale date of March 8, 1996. On February 23, 1996, the Court entered
the order denying the Plan and granting Travelers relief from the stay. On
February 28, 1996, Travelers obtained the appointment of a State Court Receiver
to operate the properties and collect rents. On March 8, 1996, Travelers
foreclosed on the Partnership's six properties.
The majority of the Partnership's remaining assets, cash collateral bank
accounts, are subject to Travelers' security interest. The Partnership has
insufficient unencumbered assets from which to make full payment to any other
creditors and, therefore, has filed a request with the Court to enter an order
dismissing the Partnership's Chapter 11 bankruptcy case. The Court has set April
1, 1996 for a hearing on the motion to dismiss the case.
Once the Court executes the order dismissing the Chapter 11 case, the
Partnership will complete its liquidation and dissolution resulting in the loss
of the Class A and Class B Limited Partnership Interests held by the Interest
Holders. The Limited Partners will not be required to provide any additional
capital contributions prior to the liquidation and dissolution of the
Partnership. Reference is made to Item 7 and Item 8 for information on the
effect of the bankruptcy on the financial condition of the Partnership.
ITEM 2. PROPERTIES
At December 31, 1995 the Partnership owned directly (subject to first and
second mortgage loans) the properties described in Item 1 hereof. The Torrance
property was sold October 25, 1990. The Sherman Oaks property was severely
damaged by the January 17, 1994 Southern California earthquake. The property was
evacuated and remains unoccupied. Reference is made to Items 1 and 7 regarding
the Partnership's Chapter 11 bankruptcy case. On March 8, 1996, the first
mortgage holder foreclosed on the Partnership's properties.
5
<PAGE>
The following is a listing of approximate physical occupancy levels by
quarter for the Partnership's investment properties during 1991, 1992, 1993,
1994 and 1995:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
===============================================================================================================================
THE THE THE WEST LOS THE SAN THE SHERMAN THE
ANAHEIM HUNTINGTON ANGELES DIEGO OAKS UPLAND
PROPERTY BEACH PROPERTY PROPERTY PROPERTY (A) PROPERTY
PROPERTY
===============================================================================================================================
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1991
- ----------------
AT 03/31 85% 93% 87% 84% 90% 88%
AT 06/30 96% 96% 95% 97% 94% 92%
AT 09/30 81% 85% 84% 83% 84% 94%
AT 12/31 72% 72% 74% 78% 84% 94%
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1992
- ----------------
AT 03/31 84% 83% 89% 86% 85% 91%
AT 06/30 75% 89% 94% 93% 90% 94%
AT 09/30 85% 89% 87% 87% 90% 87%
AT 12/31 90% 85% 83% 72% 93% 92%
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1993
- ----------------
AT 03/31 91% 91% 85% 86% 87% 92%
AT 06/30 96% 86% 93% 92% 88% 90%
AT 09/30 94% 94% 92% 86% 88% 91%
AT 12/31 91% 96% 83% 97% 84% 91%
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1994
- ----------------
AT 03/31 83% 95% 87% 84% N/A 91%
AT 06/30 81% 98% 92% 93% N/A 90%
AT 09/30 89% 99% 87% 95% N/A 91%
AT 12/31 95% 94% 83% 92% N/A 95%
- -------------------------------------------------------------------------------------------------------------------------------
1995
- ----------------
AT 03/31 92% 94% 91% 95% N/A 85%
AT 06/30 93% 97% 97% 94% N/A 87%
AT 09/30 93% 95% 94% 95% N/A 90%
AT 12/31 92% 95% 92% 96% N/A 90%
===============================================================================================================================
<FN>
(a) The property was severely damaged by the January 17, 1994 Southern
California earthquake. The property is currently not operating and
remains unoccupied.
</TABLE>
6
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On September 16, 1994, the Partnership filed a voluntary petition for
reorganization under Chapter 11 of the Federal Bankruptcy Code in the United
States Bankruptcy Court for the Central District of California. Pursuant to
Section 1108 of the Bankruptcy Code, the Partnership is managing its business as
a debtor in possession and will continue to do so pursuant to Sections 1107 and
1108 of the Bankruptcy Code unless otherwise ordered by the Court. Reference is
made to Item 7 for a description of the events prior to and subsequent to the
bankruptcy filing. The information disclosed in "Notes to Financial Statements",
included herein, is incorporated by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
As of December 31, 1995, there were approximately 535 Interest Holders of
Units, including the Initial Limited Partner, the Class A Limited Partners, and
the seven Class B Limited Partners.
On September 16, 1994, the Partnership filed a voluntary petition for
reorganization under Chapter 11 of the Federal Bankruptcy Code in the United
States Bankruptcy Court for the Central District of California. Pursuant to
Section 1108 of the Bankruptcy Code, the Partnership is managing its business as
a debtor in possession and will continue to do so pursuant to Sections 1107 and
1108 of the Bankruptcy Code unless otherwise ordered by the Court.
On February 1, 1996, the Court denied the Plan filed by the Partnership and
granted the first mortgage holder relief from the automatic stay. On March 8,
1996, Travelers foreclosed on the Partnership's six properties.
The majority of the Partnership's remaining assets, cash collateral bank
accounts, are subject to Travelers' security interest. The Partnership has
insufficient encumbered assets from which to make full payment to any other
creditors and, therefore, has filed a request with the Court to enter an order
dismissing the Partnership's Chapter 11 bankruptcy case. The Court has set April
1, 1996 for a hearing on the motion to dismiss the case.
The Partnership is currently in the process of liquidation. The Partnership
has estimated that there will be no net assets available for distribution to
Interest Holders upon completion of liquidation. As soon as the liquidation is
completed, the Partnership will be dissolved, resulting in the loss of the Class
A and Class B Limited Partnership Interests held by the Interest Holders. The
Limited Partners will not be required to provide any additional capital
contributions prior to the liquidation and dissolution of the Partnership.
Units of Registrant are not listed or quoted for trading on an established
securities exchange. Although secondary market firms exist which may provide a
means for matching potential sellers with potential buyers of various limited
partnerships' interests, there is currently no market for the Partnership Units.
The Partnership's Units will not be transferable prior to the complete
liquidation and ultimate dissolution of the Partnership.
7
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA (A)
CALIFORNIA SEVEN ASSOCIATES LIMITED PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
(DEBTOR IN POSSESSION)
DECEMBER 31, 1995, 1994, 1993, 1992 AND 1991
(IN THOUSANDS EXCEPT PER UNIT AND FOOTNOTED INFORMATION)
(NOT COVERED BY REPORT OF INDEPENDENT ACCOUNTANTS)
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Total operating income $ 14,798 $ 14,625 $ 17,926 $ 18,014 $ 18,982
Net income (loss) (a)(b) 16,679 (3,239) (6,554) (6,386) (5,432)
Net income (loss) per unit (a)(b)
Class A 45,615 (8,859) (17,924) (17,465) (14,856)
Class B -- -- -- -- --
Total assets 100,577 98,399 101,769 106,512 113,058
Mortgages payable (a)(c) 99,445 111,984 111,984 111,984 111,984
Net deficiency
in assets in liquidation (a) (5,494) -- -- -- --
<FN>
(a) On September 16, 1994, the Partnership filed a voluntary petition for
reorganization under Chapter 11 of the Federal Bankruptcy Code in the
United States Bankruptcy Court for the Central District of California.
Pursuant to Section 1108 of the Bankruptcy Code, the Partnership is
managing its business as a debtor in possession and will continue to do
so pursuant to Sections 1107 and 1108 of the Bankruptcy Code unless
otherwise ordered by the Court. On February 1, 1996, the Court denied
the Plan filed by the Partnership and granted the first mortgage holder
relief from the automatic stay. On March 8, 1996, the first mortgage
holder foreclosed on the Partnership's six properties. Effective with
the foreclosure of the properties, the Partnership ceased all of its
operations and commenced a liquidation of the Partnership. As a result,
the Partnership has changed its basis of accounting as of December 31,
1995 to the liquidation basis of accounting. As a result of changing
the Partnership's basis of accounting for its financial statements at
December 31, 1995 from going concern basis to the liquidation basis in
accordance with generally accepted accounting principles, assets have
been estimated at net realizable value and liabilities are reflected at
their estimated settlement amounts, if determinable, including
estimated costs to be incurred for the liquidation. The valuations of
the assets have been estimated by the General Partner as of the date of
the financial statements. Due to inherent uncertainties, the amounts
realizable from the disposition of remaining assets and liabilities
could be materially different from the amounts indicated.
The above selected financial data should be read in conjunction with
the financial statements and the related notes herein. Reference is
made to Notes to Financial Statements for a description of payments to
the State of Connecticut on behalf of limited partners. These payments
are charged to limited partner capital accounts and have not been
included as part of the above presentation.
(b) Included in 1995 is an adjustment to liquidation basis of $19,369,624
($52,972 per Class A Unit). Included in 1994 is $2,000,000
extraordinary gain ($5,470 per Class A Unit).
(c) Amounts shown for 1994, 1993, 1992, and 1991 do not include accrued
interest payable.
8
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership was formed on January 30, 1985 in the State of California
for the purpose of acquiring from IFD Properties, Inc.-First (an affiliate of
the General Partner) and operating seven apartment complexes located in the
state. CIGNA Financial Partners, Inc. ("CFP"), the parent of the General
Partner, had entered into a purchase and sale agreement, dated as of January 15,
1985, with IFD Properties, Inc.-First to acquire the fee interest in the
Project. On January 30, 1985, CFP assigned all its rights under the agreement to
the Partnership. Pursuant to the agreement, the Partnership acquired the
Investment on January 31, 1985 for the aggregate purchase price of $146,000,000.
The Partnership accepted title to the Project subject to the existing first
mortgage note and the seven deeds of trust, held by Travelers and in February
1985 obtained from Brookside Savings & Loan Association, Los Angeles,
California, a nine-year second mortgage loan in the principal amount of
$20,000,000. The first mortgage note was modified in 1987 and again in 1990. In
1990, the second mortgage was refinanced by a combination of debt forgiveness by
Brookside Savings and Loan Association, Partnership cash reserves, and a new
$14,000,000 second mortgage note. Reference is made to the Notes to Financial
Statements for a description of the mortgage debt, modifications and refinance
thereto. In conjunction with the initial modification of the first mortgage, the
Partnership established a $1 million escrow account in the name of the lender
which had earned approximately $206,000 in interest as of the date of the second
modification. As a requirement of the second modification, $706,000 was applied
to deferred interest.
In October 1990, concurrent with the second modification of the first
mortgage and second mortgage refinance, the Partnership sold the Torrance
property for a gross sales price of $20,750,000. After closing costs, the
Partnership netted approximately $19,787,000. Of that amount, $19,000,000 was
required to be paid to the first mortgage lender; $14,000,000 was applied to
principal, and $5,000,000 was applied to deferred interest. Of the remaining
amount, $730,000 was retained by the first mortgage lender and added to the
existing escrow account for funding operating deficits and capital expenditures.
Closing costs for the Torrance sale included a real estate advisory fee of
$518,750 earned by CII, an affiliate of the General Partner. CII deferred
payment of this fee to permit the Partnership to utilize the funds for
operations. The fee remained unpaid at December 31, 1995.
At the time of the sale of the Torrance property, the Partnership was owed
some receivables from rents. The purchaser of the property collected the rents
receivable after the sale date, but refused to remit the collection proceeds to
the Partnership. The Partnership filed a lawsuit to recover the rent payments
and during 1994, reached a settlement with SBD Group, Inc., the purchaser, for
$184,257, including interest and fees. The Partnership received the settlement
proceeds in 1995.
In April 1986, pursuant to a loan agreement, the Partnership obtained from
ContiTrade Services Corporation an 8% working capital loan in the principal
amount of $36,649,813 (of which the Partnership received loan proceeds of
$35,200,000 after deducting a $1,449,813 discount). A portion of the loan,
approximately $32,900,000, was used to repay interim indebtedness secured in
conjunction with the acquisition of the Project and the remainder was added to
Partnership cash reserves. The loan served as a vehicle to help fund Partnership
cash needs as limited partners made staged payments on capital contributions. In
1991, virtually all the limited partners made their last installment payment on
the capital contribution notes and, subsequently, the Partnership paid the final
payment on the working capital loan. The difference between the limited partner
note payments received and the final working capital loan payment made,
approximately $500,000, was added to reserves and used for the operational needs
of the Partnership. Reference is made to the Notes to Financial Statements for a
description of limited partner capital contributions.
The mortgage escrow account, established with the first mortgage lender in
conjunction with the debt modifications, was closed in 1992. The Partnership
withdrew $523,000 on April 13, 1992 for renovation projects at the West Los
Angeles and Sherman Oak properties. On October 23, 1992, the remaining balance,
$870,000, was
9
<PAGE>
withdrawn for renovation projects at the San Diego, Sherman Oaks, and West Los
Angeles properties, and for 1992 operating deficits.
During 1992 and 1993, the Partnership committed a portion of Partnership
cash reserves for renovation projects at the West Los Angeles, Sherman Oaks, and
Mission Bay properties. In addition, as a result of shortfalls from operations,
the Partnership was utilizing cash reserves to supplement debt service payments
on the second mortgage. During 1993, the Partnership's cash reserves were
reduced to very low levels, and in November 1993, the Partnership ceased payment
on the second mortgage.
One of the Partnership's six properties, Sherman Oaks, sustained extensive
damage from the Southern California earthquake on January 17, 1994. The property
was evacuated and city inspectors classified the property as unsafe for use. The
Partnership had insurance for the damage as well as for business interruption,
subject to a 5% deductible (the "Policies").
On April 28, 1994, the Partnership received a $750,000 cash advance on the
business interruption portion of the Policies. The funds were utilized for
working capital needed for the ordinary and necessary operations of the Project
and ultimately, to fund the first mortgage debt service.
During July 1994, a claim representing the first six months of 1994
business interruption was sent to the insurance company carrying the first layer
of insurance under the Policies. A short time after the claim was sent,
Travelers asserted that it had control over the business interruption insurance
proceeds as well as the property damage proceeds. As a result, the Partnership
was delayed in receiving any further proceeds under the Policies, including
proceeds offered as "undisputed" by the insurance company carrying the first
$10,000,000 layer of insurance. The insurance company required Travelers'
consent prior to the payment of any insurance proceeds. In March 1995, the
Partnership submitted a report, prepared as of January 11, 1995, representing
the Partnership's estimate of the entire business interruption claim. After
Travelers agreed to allow the claim adjuster to begin a review of the claim, the
claim adjuster made an offer to settle the business interruption claim. By the
end of October 1995, the Partnership received an additional $2,200,000 of
insurance proceeds, of which $1,450,000 was related to the business interruption
claim.
On February 3, 1995, the insurance company carrying the first $10,000,000
layer of coverage, offered to settle a portion of the loss resulting from the
earthquake. The insurance company requested that the Partnership and Travelers
jointly submit a "Proof of Loss" and the insurance company would settle its
portion of the loss based on the conclusion that the magnitude of the loss will
require the insurance company to pay the full amount of its coverage. The
Partnership received an additional partial settlement of $9,250,000 on April 26,
1995.
Based on analysis performed by the General Partner of the research and data
prepared by various experts hired by the General Partner and the Partnership,
the General Partner concluded that it was in the best interest of the
Partnership's creditors and partners to repair/rebuild Sherman Oaks. Travelers
contended that applying net insurance and residual sales proceeds to outstanding
first mortgage debt appeared to be the appropriate action.
As a result of the low level of Partnership cash reserves, the additional
strain from the loss of one of the Partnership's larger income producing
properties, and the Partnership's inability to collect business interruption
proceeds, the Partnership experienced cash flow difficulties. On September 16,
1994, the Partnership filed a voluntary petition for reorganization under
Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court
for the Central District of California. Pursuant to Section 1108 of the
Bankruptcy Code, the Partnership is managing its business as a debtor in
possession and will continue to do so pursuant to Sections 1107 and 1108 of the
Bankruptcy Code unless otherwise ordered by the Court.
The filing of the voluntary petition under Chapter 11 was the Partnership's
only available alternative while allowing the Partnership the time and resources
to repair Sherman Oaks. The Partnership's goal in the Chapter 11
10
<PAGE>
proceeding was to maximize recovery by creditors and partners by preserving the
Partnership as a viable entity with a going concern value.
During the two year period prior to the petition filing, the Partnership
made three formal attempts (including one subsequent to the earthquake) and
participated in numerous informal discussions on debt modifications with
Travelers; however, no agreement was reached despite these efforts.
Additionally, in the year prior to the petition, the Partnership pursued
non-traditional opportunities to refinance the Partnership's debt, which
generally were not considered feasible due to loan to value constraints,
questions relating to debt coverage ratios or lack of benefit to the partners.
On September 22, 1994, the Partnership entered into a Letter Agreement with
Travelers which defined and authorized the use of cash collateral. The
Partnership was granted use of cash collateral pursuant to the Letter Agreement
with Travelers and extensions of that agreement until March 31, 1996. In
addition to using revenues generated by the Project to pay ordinary and
necessary operating expenses of the Project, the Partnership and Travelers
agreed that the Partnership would establish certain segregated cash collateral
accounts as follows: a tenant security deposit account (equivalent to the tenant
security deposit liability), a tax and insurance account, and a Sherman Oaks
deductible account (initial deposit plus additional deposits over a period of
time not to exceed $500,000). All excess cash flow from property operations
after payment of property operating expenses, allowed capital expenditures, and
funding of agreed upon segregated cash collateral accounts, was remitted to
Travelers monthly.
As part of the Partnership's Motion for Use of Cash Collateral, the
Partnership requested all use of property that may be cash collateral in the
form of rental revenues and insurance proceeds to repair the Sherman Oaks
property. Travelers objected to the use of cash collateral for the repair of
Sherman Oaks, asserting that its interest in Sherman Oaks would not be
adequately protected. On October 17, 1994, the Court held a status hearing in
connection with the use of cash collateral to repair Sherman Oaks and the Court
set a trial for February 1 and 2, 1995. On February 1, 1995, the Court held a
hearing on the use of cash collateral to repair Sherman Oaks and denied the
Partnership's Motion without prejudice after determining that the issue should
be decided in the context of the confirmation of the Partnership's plan of
reorganization.
On or about December 6, 1994, Travelers commenced a declaratory action
against the Partnership, claiming that the second lien holder, Congen
Properties, Inc., was an insider as defined under 11 U.S.C. Sec. 101. The
Partnership filed an answer to the Complaint denying that Congen Properties,
Inc. was an insider as that term is defined in the Bankruptcy Code. Congen
Properties Inc., also filed an answer denying that it was an insider as defined
in the Code. After numerous status hearings with the Court and extensive
discovery by Travelers, the Court dismissed the action.
On or about January 30, 1995, the first mortgage lender filed a Motion for
Relief from the Automatic Stay. The Partnership filed an Opposition to the
Motion. At the hearing held on February 21, 1995, the court set April 18, 1995
as the final evidentiary hearing. After hearing arguments and representations of
counsel, the Court continued the hearing to July 12, 1995 and then to August 9,
1995. At the Continued Confirmation Hearing on August 9, 1995, the Court allowed
Travelers limited relief from the automatic stay to file its Notice of Default
in accordance with California state law. The continued hearing on the Motion for
Relief from the Automatic Stay was set for September 26, 1995 and then continued
to October 18, 1995.
On March 17, 1995, the Partnership filed its proposed Plan of
Reorganization under Chapter 11 of the Bankruptcy Code dated March 16, 1995,
together with a Disclosure Statement Pursuant to Section 1125 of the Bankruptcy
Code. On March 17, 1995, the Court set the hearing on the Partnership's
Disclosure Statement for April 18, 1995. On April 17, 1995, the Partnership
filed with the Bankruptcy Court certain Non-material Amendments to the
Disclosure Statement. On April 18, 1995, the Bankruptcy Court held a hearing and
acted upon the approval of the Partnership's Disclosure Statement together with
the Non-material Amendments. After considering the Disclosure Statement and the
Non-material Amendments thereto, the Court ruled that certain additional
information should be
11
<PAGE>
included in the Partnership's Disclosure Statement. The Court required the
Partnership to file an Amended Disclosure Statement which the Court approved
without further hearing.
The Partnership filed its Amended Disclosure Statement and Amended Plan of
Reorganization (the "Plan") on May 4, 1995. On May 15, 1995, the Partnership
mailed all impaired creditors, limited partners, and parties in interest a copy
of the Amended Disclosure Statement and Plan, along with a ballot for voting and
other notices. All classes of creditors, limited partners and parties in
interest impaired under the Plan voted to accept the plan except Class 1, the
first mortgage lender, Travelers.
Pursuant to the order approving the Amended Disclosure Statement, the Court
set July 12, 1995 as the confirmation hearing for the Partnership's Plan.
Subsequently, a stipulation was agreed to and approved by the Court to bifurcate
the confirmation hearing to allow additional pleadings. Nonfeasibility issues
were scheduled to be heard on July 12, 1995 and all feasibility related issues
would be heard by the Court on August 9, 1995.
As a result of the hearing on July 12, 1995, the Court ruled on certain
nonfeasibility related objections and issues raised by Travelers, including
pricing of interest rates. Based on the Court's rulings, the Partnership
proposed a Third Modification to the Plan. On August 9, 1995, the Court
considered the Plan, the proposed Third Modification and all other evidence in
support of the confirmation of the Plan, as well as the objections and related
filings filed by the Travelers in support of its objections. The Court found
that Travelers did not have sufficient advance notice and disclosure regarding
the proposed Third Modification to the Plan. Therefore, the Court denied the
Plan to allow the Partnership to incorporate the Third Modification to the Plan
into a new plan of reorganization, the Second Amended Plan. The Second Amended
Plan was essentially the Plan incorporating the Third Modification. The Court
set a schedule of time requirements for the Partnership to file a Second
Disclosure Statement and Amended Plan which would allow appropriate time for
notice. The Court set a combined hearing on the adequacy of the Partnership's
Second Disclosure Statement and Confirmation of the Second Amended Plan for
September 26, 1995.
On August 25, 1995, the Partnership filed and served its Second Amended
Plan of Reorganization ("Amended Plan") and a Second Disclosure Statement. The
Partnership's Second Disclosure Statement was approved on September 26, 1995.
The Court held the Confirmation hearing on September 26, 1995 and continued the
hearing to October 18, 1995. The Confirmation hearing was concluded on October
18, 1995.
On November 22, 1995, the Court orally communicated its findings of fact
and conclusions of law regarding the confirmation of the Partnership's Amended
Plan. The Court found that the Partnership's Amended Plan would be feasible and
would provide fair treatment to all classes of creditors, including the secured
creditor, Travelers, provided that a higher claim amount could be paid to
Travelers over a five year term.
On December 22, 1995, the Partnership filed the second modification to its
Amended Plan incorporating changes to Travelers' claim amount and the term of
the Amended Plan as requested by the Court. The Court had scheduled a continued
confirmation hearing for January 9, 1996 on the second modification to the
Amended Plan. The January 9, 1996 hearing was subsequently continued to January
30, 1996.
Travelers objected to the second modification to the Amended Plan,
challenging the validity of the capitalization rates used by the Partnership's
independent appraiser to calculate residual sales prices of the Partnership's
six properties. The capitalization rates were the same rates which were used by
the Partnership's appraiser in the appraisals used by the Court to establish the
value of the Partnership's properties. Travelers accepted the appraisals for
purposes of this valuation.
Although the Court stated that it would not allow a collateral attack on
the appraisals, it did allow Travelers to present evidence on capitalization
rates. In addition, although both the Partnership and Travelers had performed
residual sales price calculations based on operating cash flows projected by the
Partnership, the Court opined that the residual sales price calculation must be
executed using cash flow projections contained in the Partnership's appraisals.
Subsequent to the presentation of evidence, the Court ruled on the
capitalization rates to be used to determine the
12
<PAGE>
residual values for each of the Partnership properties. While the Court found
that the residual capitalization rates were different than those used to
determine the value of Travelers' secured claim, the Court declined to revisit
the valuation which it had already determined. The confirmation hearing was
continued to February 1, 1996.
At the continued confirmation hearing, the Partnership informed the Court
that based on the residual capitalization rates and cash flows established by
the Court, there was insufficient residual value from the sale of the
Partnership properties to pay Travelers' allowed secured claim as required by
the Court. On February 1, 1996, at the continued hearing, the Court denied
confirmation of the Amended Plan and granted Travelers relief from the automatic
stay allowing Travelers to proceed with a foreclosure of the Partnership's
properties. Travelers immediately posted "Notices of Sale" with a scheduled
foreclosure sale date of March 8, 1996. On February 23, 1996, the Court entered
the order denying the Amended Plan and granting Travelers relief from the stay.
On February 28, 1996, Travelers obtained the appointment of a State Court
Receiver to operate the properties and collect rents.
The Partnership reviewed all options available through the bankruptcy
proceedings, including motions for reconsideration of previously decided issues
and an appeal, and determined that dismissal of the case was the best route to
pursue. As a result, the only available option was to negotiate a settlement
with Travelers prior to foreclosure. The Partnership obtained financing
alternatives to be used in proposing an offer to Travelers to purchase or
refinance the Travelers' Note and Trust Deed positions relative to the
Partnership's properties; however, Travelers rejected the Partnership's
proposals. As a result, Travelers proceeded with the foreclosure of the
Partnership's properties on March 8, 1996.
The majority of the Partnership's remaining assets, cash collateral bank
accounts, are subject to Travelers' security interest. The Partnership has
insufficient unencumbered assets from which to make full payment to any other
creditors and, therefore, has filed a request with the Court to enter an order
dismissing the Partnership's Chapter 11 bankruptcy case. The Court has set April
1, 1996 for a hearing on the motion to dismiss the case.
Once the Court executes the order dismissing the Chapter 11 case, the
Partnership will complete its liquidation and dissolution resulting in the loss
of the Class A and Class B Limited Partnership Interests held by the Interest
Holders. The Limited Partners will not be required to provide any additional
capital contributions prior to the liquidation and dissolution of the
Partnership.
As a result of the foreclosure, the Partnership has adopted the liquidation
basis of accounting as of December 31, 1995 in conformity with generally
accepted accounting principles. The Partnership's change in accounting methods
is necessary for financial reporting purposes as required under generally
accepted accounting principles. The liquidation method of accounting is not used
for tax reporting and, therefore, does not impact the 1995 tax basis income and
loss allocations to Limited Partners. As a result of changing the Partnership's
basis of accounting for its financial statements at December 31, 1995 from going
concern basis to the liquidation basis in accordance with generally accepted
accounting principles, assets have been estimated at net realizable value and
liabilities are reflected at their estimated settlement amounts, if
determinable, including estimated costs to be incurred for the liquidation. The
valuations of the assets have been estimated by the General Partner based on
available information as of the date of the financial statements. Actual amounts
realizable from the disposition of remaining assets and liabilities could be
materially different than the amounts indicated.
The Court's rulings have had an impact on 1995 tax allocations. Although
the Partnership's Amended Plan included the repair of the Sherman Oaks property,
the Court's ruling on the Plan has led to a foreclosure, and therefore, the
Partnership will not repair the property. During 1995, the Partnership received
$10,000,000 in a partial settlement of the earthquake insurance claim. Since a
repair will not occur, the Internal Revenue Service will treat the receipt of
the insurance proceeds as a partial sale of the property. Since the net tax
basis of the Sherman Oaks building and building improvements is less than
insurance proceeds received in 1995, a tax gain has been recorded on the deemed
partial sale for 1995. The tax gain was calculated to be approximately
$3,500,000. The
13
<PAGE>
Partnership agreement states that the allocation first goes to eliminate
negative capital account balances of Class B limited partners and then to
remaining partners in proportion to their negative capital account balances.
The allocation of gain to Class B limited partners was approximately
$1,228,000 or $368,000 per $150,000 Class B unit. The allocation of gain to
Class A limited partners was approximately $1,469,000 or $4,058 per $150,000
Class A unit. For 1995, Class A limited partners also received an allocation of
loss from operations. Class B partners received no other allocations for 1995.
For 1996 tax reporting, a foreclosure will result in income allocations to
Class A limited partners. Class B will not receive additional income allocations
in 1996. The Class A income allocation will approximate existing negative
capital account balances approximating $90,100 per $150,000 Class A unit. If a
Class A limited partner's ownership interest in the Partnership is the partner's
only passive activity and the limited partner has been suspending passive loss
allocations as required by the Tax Reform Act of 1986, the suspended losses
available are estimated to be more than the potential foreclosure income
allocation, resulting in an available net loss. In a year in which the Project
is disposed of and the Partnership dissolved, any accumulative suspended loss
will be available for use by a limited partner to offset ordinary income. In
addition, in the case of a Partnership termination, each limited partner would
be allocated a pro rata share of syndication expenses equivalent to
approximately $14,150 which may be deductible.
RESULTS OF OPERATIONS
Results, exclusive of the Sherman Oaks property, improved slightly in 1995.
When adjusted for Sherman Oaks activity, net property revenues increased 1% in
1995 to approximately $7,879,000 from approximately $7,821,000 in 1994.
RESULTS - 1995 COMPARED WITH 1994
The Sherman Oaks property was severely damaged by the Southern California
earthquake on January 17, 1994. The property was evacuated and city inspectors
classified the property as unsafe for use. The property is not operating and is
unoccupied. As a result, the property generated no revenue in 1995, and only a
nominal amount in 1994, and has incurred only necessary operating expenses and
expenses related to the earthquake since. Sherman Oaks' results for the year
ended December 31, 1995, as compared with 1994, were affected as follows: Rental
income decreased approximately $91,000, other income decreased approximately
$8,000, property operating expenses decreased approximately $139,000, real
estate taxes decreased approximately $54,000, management fees decreased
approximately $55,000 and property administrative expenses decreased
approximately $63,000. The following analytical comments have been limited to
the Partnership's five operating properties.
Rental income increased approximately $347,000 for the year ended December
31, 1995, as compared with 1994. Average occupancy was higher by 6% at West Los
Angeles, 4% at Mission Bay East and 6% at Amberway from the prior year causing
rental income to increase approximately $195,000, $138,000 and $132,000,
respectively. The increase at Mission Bay East was net of a decrease in rental
income in the first quarter of 1995 compared with 1994, as 1994 included
carryover corporate business, which generally commands higher rates, subsequent
to the property's conversion from OAKWOOD. A slight decrease in average
occupancy at Pacifica Club led to a decrease in rental income of approximately
$38,000 for the year ended December 31, 1995. Rental income at Arbor Park
decreased approximately $80,000 for the year as a result of soft market
conditions and lower average occupancy.
Other income decreased for the year ended December 31, 1995, as compared
with 1994, due primarily to decreased laundry revenue and cleaning fees earned
at Arbor Park.
Property operating expenses increased for the year ended December 31, 1995,
as compared to the previous year. Insurance expense increased approximately
$265,000 for the five operating properties. Other operating expense increases
for the year resulted from costs of termite treatments at Pacifica Club and
utility increases at Mission Bay
14
<PAGE>
East, West Los Angeles and Arbor Park. Partially offsetting increases in
operating expenses was a decrease in furniture rental and earthquake related
repairs and maintenance expenses at West Los Angeles. Decreases in corporate
apartment expenses at Amberway were offset by increases in nonroutine
maintenance for carpet, vinyl and blinds replacements.
Property tax expense increased for the year ended December 31, 1995, as
compared with 1994 as larger tax refunds were recorded in 1994 than in 1995.
Exclusive of the refunds, taxes decreased slightly from 1994 due to lower
assessed values resulting from successful property tax appeals at each of the
Partnership's properties.
The increase in property administrative expense for the year ended December
31, 1995, as compared with 1994, was the result of higher payroll and related
costs. In addition, an increase in the amount of advertising at West Los
Angeles, Arbor Park and Mission Bay East was partially offset by a decrease in
advertising at Pacifica Club and Amberway.
The decrease in partnership administrative expense for the year ended
December 31, 1995, as compared with 1994, was due primarily to a decrease in
legal fees incurred.
The increase in interest income for the year ended December 31, 1995, as
compared with 1994, was due to the increase in interest rates combined with
higher average cash balances.
RESULTS - 1994 COMPARED WITH 1993
The Sherman Oaks property was severely damaged by the Southern California
earthquake on January 17, 1994. The property was evacuated and city inspectors
classified the property as unsafe for use. The property is not operating and is
unoccupied. As a result, the property generated virtually no revenue and has
incurred only necessary operating expenses and expenses directly related to the
earthquake. Sherman Oaks' results for the year ended December 31, 1994, as
compared with 1993, were affected as follows: Rental income decreased
approximately $3,295,000, other income decreased approximately $110,000,
property operating expenses decreased approximately $581,000, real estate taxes
decreased approximately $157,000 and property administrative expenses decreased
approximately $704,000. The following discussion has been limited to the
Partnership's five remaining operating properties.
Total 1994 rental income, exclusive of Sherman Oaks, was $13,972,863
compared with $13,880,354 for 1993. Increased rental income at West Los Angeles
was attributable to increased average occupancy and less corporate rate
discounting. Mission Bay East posted a decrease of approximately $13,000, as
conventional rates are lower than corporate rates. Rental income at Pacifica
Club increased approximately $196,000 as the result of higher average occupancy.
At Arbor Park, increases in rates and average occupancy led to an approximate
$24,000 increase. Lower average occupancy at Amberway resulted in an approximate
$119,000 decrease.
Other income decreased in total for the year ended December 31, 1994, as
compared with 1993, due to one-time redecorating fees received from a new
laundry contract in 1993 of $38,000, $40,000, and $30,000 at Amberway, Pacifica
Club, and Arbor Park, respectively. In addition, 1993 included an offsetting
$66,000 adjustment for accounts receivable at Amberway as a result of a
management company change (certain accounts receivable were recorded as revenue
when collected and the adjustment recorded negated the revenue effect).
Overall, property operating expenses decreased for the year ended December
31, 1994, as compared to 1993. Amberway and West Los Angeles posted lower
maintenance and repair expenses due, in part, to costs in the first quarter of
1993 from damages caused by heavy rains. Routine maintenance and repair expenses
decreased at both West Los Angeles and Pacifica Club, in part, due to a rehab
performed in past years. In 1993 nonrecurring painting projects were completed
at Amberway and Arbor Park at a cost of approximately $69,000 and $71,000,
respectively. West Los Angeles posted a $43,000 savings in utilities. Offsetting
the decreases was an increase in utilities at Mission Bay East, as a result of
lower reimbursements for various utilities from corporate tenants. As the
property
15
<PAGE>
converts to conventional operations from OAKWOOD, utilities will increase as the
Partnership will not charge back certain utilities to its non-corporate tenants.
Additionally, Mission Bay East and Arbor Park had increased nonroutine
maintenance for carpet replacements, faucets, and vinyl. At Amberway,
nonroutine maintenance expenses increased for pool repairs, draperies and
linoleum replacement. At West Los Angeles, furniture rental expense increased.
Insurance expense increased approximately $95,000 for the five properties in
total.
Property taxes decreased for the year ended December 31, 1994, as compared
to 1993, due to successful property tax appeals. Assessed values decreased for
fiscal year 1995 (July 1, 1994 to June 30, 1995) at all the properties. Property
tax refunds were received at West Los Angeles, Pacifica Club and Arbor Park for
fiscal year 1993 (July 1, 1992 to June 30, 1993). Property tax refunds were also
received at West Los Angeles and Arbor Park for fiscal year 1994 (July 1, 1993
to June 30, 1994). The decreases were partially offset by consulting fees paid
for the tax appeals and a tax refund received at Mission Bay East in 1993.
The increase in management fees for the year ended December 31, 1994, as
compared to 1993, was due to incentive management fees earned at Mission Bay
East, West Los Angeles and Pacifica Club in 1994. In 1993, Mission Bay East
earned an incentive management fee.
The decrease in property administrative expense for the year ended December
31, 1994, as compared with 1993, was the result of a reduction of OAKWOOD
related costs at Mission Bay East. The property had savings primarily in payroll
and advertising costs. Although conventional type advertising increased with the
conversion, OAKWOOD related advertising dropped for the year. Property
administrative expenses decreased at Pacifica Club due to savings in payroll
related costs and advertising.
The decrease in interest income for the year ended December 31, 1994, as
compared with 1993, was due to the decrease in the average cash balance
invested.
Amortization decreased for the year ended December 31, 1994, as compared
with 1993, due to deferred loan costs becoming fully amortized during 1993.
Partially offsetting the decrease was an increase in depreciation from major
additions in 1992 and 1993.
INFLATION
Since inflation has been at a low rate during 1995, 1994 and 1993, the
effect inflation and changing prices have had on current revenue and income from
operations has been minimal.
16
<PAGE>
<TABLE>
<CAPTION>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CALIFORNIA SEVEN ASSOCIATES LIMITED PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
(DEBTOR IN POSSESSION)
INDEX
<S> <C>
PAGE
Report of Independent Accountants 18
Financial Statements:
Statement of Net Deficiency in Assets in Liquidation, Pro Forma December 31, 1995
(Unaudited) and December 31, 1995 (Audited) 19
Balance Sheet, December 31, 1994 20
Statements of Operations, For the Years Ended December 31, 1995, 1994 and 1993 21
Statements of Partners' Deficit and Net Deficiency in Assets in Liquidation, For the Years
Ended December 31, 1995, 1994 and 1993 22
Statements of Cash Flows, For the Years Ended December 31, 1995, 1994 and 1993 23
Notes to Financial Statements 24
Schedules not filed:
All schedules other than those indicated in the index have been omitted as
the required information is inapplicable or the information is presented in the
financial statements or related notes.
17
</TABLE>
<PAGE>
Report of Independent Accountants
To the Partners of
California Seven Associates Limited Partnership
We have audited the accompanying statement of net deficiency in assets in
liquidation of California Seven Associates Limited Partnership (the Partnership)
as of December 31, 1995. In addition, we have audited the accompanying balance
sheet of California Seven Associates Limited Partnership as of December 31,
1994, and the related statements of operations, partners' deficit and net
deficiency in assets in liquidation and cash flows for each of the three years
in the period ended December 31, 1995. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully described in Note 1 to the financial statements, on September 16,
1994, the Partnership filed a petition for relief under Chapter 11 of the
federal bankruptcy laws. On February 1, 1996, the bankruptcy court denied
confirmation of the plan of reorganization and granted the first mortgage holder
relief from the stay in order to exercise its foreclosure rights with respect to
the Partnership's operating properties. On March 8, 1996, the first mortgage
holder exercised its foreclosure rights. As a result, the Partnership has
changed its basis of accounting as of December 31, 1995 to the liquidation basis
of accounting.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net deficiency in assets in liquidation of
California Seven Associates Limited Partnership at December 31, 1995, the
financial position of California Seven Associates Limited Partnership at
December 31, 1994, and the results of its operations and its cash flows for the
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
As more fully described in Note 1 to the financial statements, it is not
presently determinable whether the amounts realizable from the disposition of
the remaining assets and liabilities will differ materially from the amounts
shown in the accompanying financial statements.
Price Waterhouse LLP
Hartford, Connecticut
March 29, 1996
18
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA SEVEN ASSOCIATES LIMITED PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
(DEBTOR IN POSSESSION)
STATEMENT OF NET DEFICIENCY IN ASSETS IN LIQUIDATION
<S> <C> <C>
PRO FORMA
DECEMBER 31, 1995 DECEMBER 31, 1995
ASSETS (UNAUDITED) (AUDITED)
Property and improvements $ -- $ 86,136,000
Cash and cash equivalents 7,643 13,680,826
Accounts receivable -- 228,912
Prepaid expenses and other assets 531,095
--------------- ---------------
7,643 100,576,833
--------------- ---------------
LIABILITIES
Mortgages payable -- 99,444,717
Accounts payable and accrued expenses 1,048,356 1,601,864
Tenants security deposits -- 499,720
Unearned income -- 71,245
Accounts payable to affiliates 4,453,311 4,453,311
--------------- ---------------
5,501,667 106,070,857
--------------- ---------------
Net deficiency in assets in liquidation $ (5,494,024) $ (5,494,024)
=============== ===============
The Notes to Financial Statements are an integral part of these statements.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA SEVEN ASSOCIATES LIMITED PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
(DEBTOR IN POSSESSION)
BALANCE SHEET
(GOING CONCERN BASIS)
DECEMBER 31, 1994
ASSETS
<S> <C>
Property and improvements, at cost:
Land and land improvements $ 20,562,073
Buildings 109,890,874
Furniture and fixtures 13,030,382
Machinery and equipment 765,087
---------------
144,248,416
Less accumulated depreciation 48,128,827
---------------
Net property and improvements 96,119,589
Cash and cash equivalents 1,191,015
Accounts receivable 488,885
Prepaid expenses and other assets 599,166
---------------
Total $ 98,398,655
===============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Liabilities not subject to compromise:
Accounts payable and accrued expenses $ 357,719
Tenant security deposits 472,898
Unearned income 79,046
---------------
909,663
---------------
Postpetition liabilities subject to compromise:
Fees and reimbursement payable to the General
Partner and its affiliates 102,832
---------------
Prepetition liabilities subject to compromise:
Note and mortgages payable 111,983,903
Accrued interest payable 2,560,559
Accounts payable and accrued expenses 923,957
Fees and reimbursement payable to the
General Partner and its affiliates 4,078,563
---------------
119,546,982
---------------
Total liabilities 120,559,477
===============
Partners' deficit:
General Partner (764,846)
Limited partners (362 Class A Units and 3 Class B Units) (21,395,976)
---------------
Total partners' deficit (22,160,822)
---------------
Total $ 98,398,655
===============
The Notes to Financial Statements are an integral part of these statements.
20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA SEVEN ASSOCIATES LIMITED PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
(DEBTOR IN POSSESSION)
STATEMENTS OF OPERATIONS
(GOING CONCERN BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(ADJUSTMENT TO LIQUIDATION BASIS AT DECEMBER 31, 1995)
<S> <C> <C> <C>
1995 1994 1993
---- ---- ----
Property operating revenues:
Rental income $ 14,320,083 $ 14,063,949 $ 17,266,927
Other 477,603 561,014 659,373
-------------- -------------- --------------
14,797,686 14,624,963 17,926,300
-------------- -------------- --------------
Property operating expenses:
Maintenance and repairs, furniture rental,
insurance, and other property operations 2,852,069 2,854,709 3,484,288
Real estate taxes 1,024,993 1,025,137 1,401,422
Management fees 587,702 672,578 595,936
Property administrative 2,735,141 2,723,703 3,739,022
-------------- -------------- --------------
7,199,905 7,276,127 9,220,668
-------------- -------------- --------------
Net property revenue 7,597,781 7,348,836 8,705,632
-------------- -------------- --------------
Other operating costs and (income) expenses:
Depreciation and amortization 4,180,816 4,220,906 4,411,344
Management and administrative fees to affiliates 297,803 296,032 329,118
Partnership administrative 120,400 124,672 109,978
Net recovery on business interruption insurance (1,234,951) (299,540) --
-------------- -------------- --------------
3,364,068 4,342,070 4,850,440
-------------- -------------- --------------
Net partnership operating income 4,233,713 3,006,766 3,855,192
Interest income 51,010 19,875 52,585
Interest expense (contractual interest of $10,461,800 in 1995
and 1994) (6,566,587) (7,908,417) (10,461,800)
--------------- --------------- ---------------
Net loss before extraordinary gain, reorganization
items, and adjustment to liquidation basis (2,281,864) (4,881,776) (6,554,023)
Reorganization items:
Interest income 232,107 1,768 --
United States Trustee fees (20,000) (4,800) --
Professional fees (620,456) (354,397) --
-------------- -------------- --------------
Net loss before extraordinary gain
and adjustment to liquidation basis (2,690,213) (5,239,205) (6,554,023)
Adjustment to liquidation basis 19,369,624 -- --
Extraordinary gain - deferred management fees -- 2,000,000 --
-------------- -------------- --------------
Net income (loss) $ 16,679,411 $ (3,239,205) $ (6,554,023)
============== ============== ==============
Income (loss) before extraordinary gain per Class A Unit $ 45,615 $ (14,328) $ (17,924)
============== ============== ==============
Net income (loss) per Class A Unit: $ 45,615 $ (8,859) $ (17,924)
============== ============== ==============
The Notes to Financial Statements are an integral part of these statements.
21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA SEVEN ASSOCIATES LIMITED PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
(DEBTOR IN POSSESSION)
STATEMENTS OF PARTNERS' DEFICIT AND NET DEFICIENCY IN ASSETS IN LIQUIDATION
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<S> <C> <C> <C> <C> <C>
Net Deficiency
General Limited Partners in Assets
Partner Class A Class B Original in Liquidation
Balance, December 31, 1992 $ (666,914) $ (11,699,571) $ -- $ (4,623) $ --
Cash distributions -- (2,343) -- -- --
Contribution - note payment -- 6,821 -- -- --
Net loss (65,540) (6,488,483) -- -- --
------------ ---------------- ----------- ----------- ---------------
Balance, December 31, 1993 (732,454) (18,183,576) -- (4,623) --
(going concern basis)
Cash distributions -- (964) -- -- --
Net loss (32,392) (3,206,813) -- -- --
------------ ---------------- ----------- ----------- ---------------
Balance, December 31, 1994 (764,846) (21,391,353) -- (4,623) --
(going concern basis)
Cash distributions -- (12,613) -- -- --
Net income 166,794 16,512,617 -- --
Change from going concern to
liquidation basis of accounting 598,052 4,891,349 -- 4,623 (5,494,024)
------------ ---------------- ----------- ----------- ---------------
Net deficiency in
assets in liquidation as
of December 31, 1995 $ -- $ -- $ -- $ -- $ (5,494,024)
============ ================ =========== =========== ===============
The Notes to Financial Statements are an integral part of these statements.
22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA SEVEN ASSOCIATES LIMITED PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
(DEBTOR IN POSSESSION)
STATEMENTS OF CASH FLOWS
(GOING CONCERN BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(ADJUSTMENT TO LIQUIDATION BASIS AT DECEMBER 31, 1995)
<S> <C> <C> <C>
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 16,679,411 $ (3,239,205) $ (6,554,023)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Adjustment to liquidation basis (19,369,624) -- --
Extraordinary gain - deferred management fees -- (2,000,000) --
Depreciation and amortization 4,180,816 4,220,906 4,411,344
Accounts receivable 259,973 (100,713) 3,809
Accounts payable and accrued expenses 233,977 (121,177) 32,311
Accrued interest payable 570,670 -- --
Other, net 87,092 (804,250) 1,974,032
Liabilities subject to compromise 396,506 2,217,288 --
---------------- ---------------- ---------------
Net cash provided by (used in)
operating activities 3,038,821 172,849 (132,527)
---------------- ---------------- ---------------
Cash flows from investing activities:
Purchase of property and improvements (548,046) (419,967) (696,040)
Proceeds from earthquake insurance 10,000,000 -- --
---------------- ---------------- ---------------
Net cash provided by (used in)
investing activities 9,451,954 (419,967) (696,040)
---------------- ---------------- ---------------
Cash flows from financing activities:
Cash distribution to limited partners (964) (2,343) (6,322)
Proceeds from partners' capital contributions -- -- 6,821
---------------- ---------------- ---------------
Net cash provided by (used in)
financing activities (964) (2,343) 499
---------------- ---------------- ---------------
Net increase (decrease) in cash and cash equivalents 12,489,811 (249,461) (828,068)
Cash and cash equivalents, beginning of year 1,191,015 1,440,476 2,268,544
---------------- ---------------- ---------------
Cash and cash equivalents, end of year $ 13,680,826 $ 1,191,015 $ 1,440,476
================ ================ ===============
Supplemental disclosure of cash information:
Accrued purchase of property and improvements $ 22,000 $ -- $ --
================ ================ ===============
Interest paid during year $ 5,995,917 $ 6,947,976 $ 9,213,683
================ ================ ===============
Fees paid in connection with reorganization $ 357,349 $ 355,447 $ --
================ ================ ===============
The Notes to Financial Statements are an integral part of these statements.
23
</TABLE>
<PAGE>
CALIFORNIA SEVEN ASSOCIATES LIMITED PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
(DEBTOR IN POSSESSION)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF ACCOUNTING
California Seven Associates Limited Partnership, a California limited
partnership, (the "Partnership") was formed to acquire and operate apartment
complexes located in California.
The general partner of the Partnership is CIGNA Realty Resources,
Inc.-Seventh (the "General Partner"), a Delaware corporation qualified to do
business in the States of California and Connecticut and an indirect wholly
owned subsidiary of CIGNA Corporation.
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
On September 16, 1994, the Partnership filed a voluntary petition for
reorganization under Chapter 11 of the Federal Bankruptcy Code in the United
States Bankruptcy Court for the Central District of California (the "Court").
Pursuant to Section 1108 of the Bankruptcy Code, the Partnership is managing its
business as a debtor in possession and will continue to do so pursuant to
Sections 1107 and 1108 of the Bankruptcy Code unless otherwise ordered by the
Court.
Under Chapter 11, certain claims against the Debtor in existence prior to
the filing of the petitions for relief under the Federal bankruptcy laws are
stayed while the Debtor continues business operations as Debtor in Possession.
These claims are reflected in the December 31, 1994 accompanying balance sheet
as "prepetition liabilities subject to compromise."
Generally, in Chapter 11 cases, additional claims may arise subsequent to
the filing date resulting from the rejection of executory contracts and from the
determination by the Court of allowed claims for contingencies and other
disputed amounts. Claims secured against a debtor's assets are stayed, although
the holders of such claims have the right to move the court for relief from the
stay. Secured claims are secured by liens on a debtor's property and
improvements.
On September 22, 1994, the Partnership entered into a Letter Agreement with
the first mortgage lender which defined and authorized the use of cash
collateral. The Partnership was granted use of collateral pursuant to the Letter
Agreement and extensions of the Letter Agreement until March 31, 1996. All
excess cash flow from property operations after payment of property operating
expenses, allowed capital expenditures, and funding of agreed upon segregated
cash collateral accounts, is remitted to the first mortgage lender monthly.
On February 1, 1996, the Court denied the Second Amended Plan of
Reorganization (the "Plan") filed by the Partnership and granted the first
mortgage holder, Travelers Insurance Company ("Travelers"), relief from the
automatic stay. Travelers immediately posted "Notices of Sale" with a scheduled
foreclosure sale date of March 8, 1996. On February 23, 1996, the Court entered
the order denying the Plan and granting Travelers relief from the stay. On
February 28, 1996, Travelers obtained the appointment of a State Court Receiver
to operate the properties and collect rents. On March 8, 1996, Travelers
foreclosed on the Partnership's properties.
Effective with the foreclosure of the properties, the Partnership ceased
all of its operations and commenced a liquidation of the Partnership. As a
result, the Partnership has changed its basis of accounting as of December 31,
24
<PAGE>
CALIFORNIA SEVEN ASSOCIATES LIMITED PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
(DEBTOR IN POSSESSION)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
1995 to the liquidation basis of accounting. As a result of changing the
Partnership's basis of accounting for its financial statements at December 31,
1995 from going concern basis to the liquidation basis in accordance with
generally accepted accounting principles, assets have been estimated at net
realizable value and liabilities are reflected at their estimated settlement
amounts, if determinable, including estimated costs to be incurred for the
liquidation. The valuation of the assets has been estimated by the General
Partner as of the date of the financial statements. Due to inherent
uncertainties, actual realization of the assets and settlement of liabilities
could be materially different from the amounts indicated.
The unaudited pro forma balance sheet presents the Partnership's position
as though the foreclosure of the Partnership's properties and the related
liquidation of certain assets and liabilities had occurred on December 31, 1995.
The Partnership's records are maintained on the accrual basis of accounting
in accordance with generally accepted accounting principles for financial
reporting purposes and are adjusted for federal income tax reporting. The net
effect of the adjustments as of December 31, 1995, 1994 and 1993, principally
relating to differences in liquidation accounting and depreciation methods, are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
Financial Tax Financial Tax Financial Tax
Reporting Reporting Reporting Reporting Reporting Reporting
<S> <C> <C> <C> <C> <C> <C>
Total assets (a) $ 100,576,833 $ 69,082,686 $ 98,398,655 $ 68,092,407 $ 101,769,008 $ 73,208,025
Partners' deficit (a):
General Partner -- (20,036,499) (764,846) (20,779,181) (732,454) (20,703,414)
Limited partners:
Class A -- (32,613,030) (21,391,353) (30,371,092) (18,183,576) (25,236,476)
Class B -- -- -- (1,227,911) -- (1,227,911)
Original -- (9,842) (4,623) (9,842) (4,623) (9,842)
Net deficiency in
assets in liquidation (5,494,024) -- -- -- -- --
Net income (loss) (a)(b):
General Partner 166,794 742,682 (32,392) (75,767) (65,540) (2,252,898)
Limited partners:
Class A 16,512,617 (2,229,325) (3,206,813) (5,133,652) (6,488,483) (5,956,956)
Class B -- 1,227,911 -- -- -- --
Net income (loss)
per Class A Unit (a)(b): 45,615 (6,159) (8,859) (14,182) (17,924) (16,456)
<FN>
(a) On March 8, 1996, the first mortgage holder foreclosed on the
Partnership's six properties. Effective with the foreclosure of the
properties, the Partnership ceased all of its operations and commenced
a liquidation of the Partnership. As a result, the Partnership has
changed its basis of accounting as of December 31, 1995 to the
liquidation basis of accounting. As a result of changing the
Partnership's basis of accounting for its financial statements at
December 31, 1995 from going concern basis to the liquidation basis in
accordance with generally accepted accounting principles, assets have
been estimated at net realizable value and liabilities are reflected at
their estimated settlement amounts, if determinable, including
estimated costs to be incurred for the liquidation. The valuations of
the assets have been estimated by the General Partner as of the date of
the financial statements. Actual realization of the assets and
settlement of liabilities could be materially different than the
amounts estimated.
25
</TABLE>
<PAGE>
CALIFORNIA SEVEN ASSOCIATES LIMITED PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
(DEBTOR IN POSSESSION)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(b) Included in 1995 is $3,476,919 gain due to the deemed partial sale of
Sherman Oaks for tax reporting only ($1,227,911 or $368,410 per Class B
Unit and $1,468,969 or $4,058 per Class A Unit). Included in 1994 is
$2,000,000 extraordinary gain ($5,470 per Class A Unit) for financial
reporting and tax reporting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) PROPERTY AND IMPROVEMENTS: Property and improvements at December 31, 1995 are
stated at estimated net realizable value under liquidation basis of accounting.
At December 31, 1994, under the going concern basis, property and improvements
were carried at cost less accumulated depreciation. The cost represents the
initial purchase price and subsequent capitalized costs, including certain
acquisition expenses. Property and improvements were pledged as security for the
mortgages payable. Depreciation on property and improvements is calculated on
the straight-line method based on the estimated useful lives of the various
components (5 to 30 years). Repair and maintenance expenses are charged to
operations as incurred.
B) CASH AND CASH EQUIVALENTS: Short-term investments with a maturity of three
months or less at the time of purchase are generally reported as cash
equivalents. At December 31, 1995 the Partnership had cash and cash equivalents
classified as cash collateral used for operations of the properties totalling
$760,589 (net of outstanding checks). In addition, at December 31, 1995, cash
and cash equivalents included amounts the Partnership was required to maintain
in segregated cash collateral accounts for security deposits, taxes and
insurance and the Sherman Oaks deductible. The balances of these accounts at
December 31, 1995 were $493,108, $269,219 and $507,902, respectively. The
Partnership had unencumbered cash and cash equivalents at December 31, 1995 of
$7,276. Cash and cash equivalents at December 31, 1995 also includes $11,642,732
held in a cash collateral account relating to a partial insurance settlement for
the Sherman Oaks earthquake claim. At December 31, 1994 the Partnership had cash
and cash equivalents classified as cash collateral used for operations of the
properties totalling $(149,946) (net of outstanding checks). In addition, at
December 31, 1994, cash and cash equivalents include amounts the Partnership is
required to maintain in segregated cash collateral accounts for security
deposits, taxes and insurance and the Sherman Oaks deductible. The balances of
these accounts at December 31, 1994 were $467,777, $374,095 and $351,931,
respectively. The Partnership had unencumbered cash and cash equivalents at
December 31, 1994 of $147,158. At December 31, 1995 and 1994, the first mortgage
lender had a security interest in cash and cash equivalents held in cash
collateral accounts.
C) PREPAID EXPENSES AND OTHER ASSETS: Prepaid expenses consist of prepaid
insurance at each property. Other assets consist of utility deposits at
various properties.
D) PARTNERS' DEFICIT: Offering costs comprised of sales commissions and other
issuance expenses have been charged to the partners' capital accounts as
incurred.
E) INCOME TAXES: No provision for income taxes has been made as the liability
for such taxes is that of the partners rather than the Partnership.
3. LIQUIDATION BASIS OF ACCOUNTING
As a result of the events described in Note 1, the Partnership's properties
were foreclosed by Travelers on March 8, 1996 and the Partnership ceased its
operations as a going concern. Consequently the Partnership is in the process of
liquidation. In accordance with the liquidation basis of accounting, assets were
adjusted to their estimated net
26
<PAGE>
CALIFORNIA SEVEN ASSOCIATES LIMITED PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
(DEBTOR IN POSSESSION)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
realizable values and liabilities were adjusted to their estimated settlement
amounts, including the estimated costs of professional fees for the period of
the liquidation. The adjustment required to convert from the going concern
(historical cost) basis to the liquidation basis of accounting was an increase
in carrying value of $19,369,624 which is included in the Statement of
Operations. Adjustments to the carrying value of the assets and liabilities are
as follows:
<TABLE>
<CAPTION>
<S> <C>
Increase
(Decrease)
Adjust property and improvements to estimated
net realizable value $ 3,627,181
Adjust first mortgage to estimated settlement amount (1,081,811)
Adjust second mortgage to estimated settlement amount 15,699,892
Adjust accounts payable to General Partner to estimated
settlement amount 1,251,316
Estimated professional fees from January 1, 1996 through liquidation (126,954)
----------------
Net increase in carrying value to adjust to liquidation basis of accounting $ 19,369,624
================
The valuation of the assets and liabilities was based on the General Partner's
estimates and assumptions as of the date of the financial statements. Due to
inherent uncertainties, actual amounts realizable from the disposition of the
remaining assets and liabilities could be materially different from the amounts
indicated.
</TABLE>
4. PROPERTY AND IMPROVEMENTS
At December 31, 1995, the Partnership owned five operating apartment
properties located in California totalling 1,763 units with leases generally for
a term of one year or less. The Partnership owned a sixth property (372
apartment units) which was severely damaged by the January 17, 1994 Southern
California earthquake. The property is not operating and remains unoccupied.
All properties were pledged as security for the mortgages payable. As a
result of the events described in Note 1, the first mortgage lender exercised
its option to foreclose and took title to the Partnership's six properties on
March 8, 1996.
The Partnership's properties are covered by insurance, including earthquake
and business interruption although the policy carries a 5% deductible. On April
28, 1994, the Partnership received a $750,000 advance on the business
interruption policy for the earthquake damaged property. In October 1995, the
Partnership received an additional $1,450,000 in business interruption
insurance. Included in the statement of operations as "Net recovery on business
interruption" is the insurance proceeds less costs specifically associated with
the earthquake.
5. NOTES, MORTGAGES AND LOAN MODIFICATIONS
As a result of events described in Note 1, the first mortgage lender
foreclosed on the Partnership's six properties on March 8, 1996. Effective with
the foreclosure of the properties, the Partnership ceased all of its operations
and commenced a liquidation of the Partnership. As a result, the Partnership has
changed its basis of accounting as of December 31, 1995 from going concern basis
to the liquidation basis in accordance with generally accepted
27
<PAGE>
CALIFORNIA SEVEN ASSOCIATES LIMITED PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
(DEBTOR IN POSSESSION)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
accounting principles. The mortgages payable at December 31, 1995 have been
estimated by the General Partner based on the estimated settlement amounts.
The General Partner has estimated the settlement amount for the nonrecourse
first mortgage payable as the estimated net value of the assets acquired and
liabilities assumed by Travelers as a result of the foreclosure. Since the
second mortgage note was nonrecourse, the second mortgage note holder's claim
has been reduced to zero effective with the foreclosure by the first mortgage
lender.
The following table summarizes outstanding debt as of December 31, 1994:
<TABLE>
<CAPTION>
<S> <C>
First mortgage loan (including cumulative
deferred interest of $11,433,903) $ 97,433,903
Second mortgage loan 14,000,000
Assignment note, which bears interest at 16%
per annum, payable to an affiliate of the
General Partner. As of December 31, 1994,
the balance remained deferred and unpaid. 550,000
---------------
Total notes and mortgages payable $ 111,983,903
===============
</TABLE>
Although the first and second mortgages payable represented secured claims
under the bankruptcy proceedings, there was uncertainty as to whether the claims
were undersecured or would be impaired under a plan of reorganization. The
mortgages payable, therefore, were classified as liabilities subject to
compromise in the accompanying December 31, 1994 balance sheet. Interest expense
was recorded postpetition to the extent paid during the proceeding. The
Partnership entered into a cash collateral agreement with the first mortgage
lender which called for the payment of cash flow from operations, rents less
operating expenses and capital, on a monthly basis.
Partnership property was held subject to a first mortgage loan from
Travelers, with an original principal balance of $100,000,000. Interest thereon
initially accrued and compounded at 12.75% per annum. Pursuant to an eighteen
month payment modification agreement negotiated during 1987, interest only
payments calculated at 10% were due monthly through January 1, 1989. The
difference between the pay rate and the coupon rate accumulated as deferred
interest. Interest was charged on accumulated deferred interest at 12.75% per
annum. In conjunction with the modification, a $1 million escrow account was
established in the name of the lender to provide the lender additional
collateral to secure the Partnership's obligations under the loan.
Effective with the August 1, 1989 payment, a temporary arrangement reduced
monthly payments to interest only at 10.5% and then to 10% effective with the
May 1, 1990 payment. The differences between the negotiated rates and the coupon
rate of 12.75% continued to accrue.
In October 1990, simultaneously with the sale of the Torrance property, the
Partnership completed a permanent modification of the first mortgage loan. Terms
included a reduced interest rate from the coupon of 12.75% to 10%, an extension
of the due date from December 1993 to May 1995 and a fixing of deferred interest
at $17,140,361 as of May 1, 1990 with no additional interest accruals on
deferred interest. As an additional requirement of the modification, $14,000,000
of the sales proceeds from the Torrance property was applied to the principal
and
28
<PAGE>
CALIFORNIA SEVEN ASSOCIATES LIMITED PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
(DEBTOR IN POSSESSION)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
$5,000,000 was applied to the deferred interest balance. No gain or loss was
recorded on the first mortgage modification. In addition, $706,458 of the escrow
account, including accumulated interest of $206,458, was applied against the
deferred interest balance. Also, as part of the Torrance property sale, $730,000
of the sales proceeds was required to be deposited in the escrow account to be
used for operating deficits and capital expenditures.
The Partnership's properties were also held subject to a $20,000,000 variable
rate second mortgage loan scheduled to mature on December 31, 1993. The interest
rate was adjusted monthly to 2% above the Five Year Treasury Constant Matrix
Index as published by the Federal Reserve Board (the "current accrual rate").
Pursuant to debt modification agreements signed in 1987 and 1989, interest only
payments, calculated at 8.64%, were due monthly from August 1, 1987 until
January 1, 1990. Beginning February 1, 1990, interest only payments calculated
at 9% were due monthly until maturity. The difference between interest accruing
on the note and interest paid during this period was deferred. During the term
of the mortgage, the interest rate could not exceed 17.5% per annum.
On October 26, 1990, the Partnership refinanced its $20,000,000 second
mortgage loan. At the time of the refinance, the Partnership was indebted to
Brookside Savings in the principal amount of $20,310,706, including deferred
interest, and $419,328 of unpaid current interest payable. The Partnership
maintained a $200,000 debt escrow account for the benefit of Brookside Savings,
established as a result of the 1987 debt modification agreement. The Partnership
negotiated a discounted payoff with Brookside Savings for $14,419,328 plus
forfeiture of the debt escrow account of $200,000. The Partnership utilized the
proceeds from a new second mortgage of $14,000,000 plus $419,328 of Partnership
cash reserves to pay off the Brookside Savings mortgage. The second mortgage
lender was Congen Properties, Inc., an indirect wholly owned subsidiary of CIGNA
Corporation. The difference between the payoff amount, including the escrow
account, and the total amounts outstanding netted a $6,110,706 extraordinary
gain from debt forgiveness in the 1990 Statement of Operations. The term of the
replacement second mortgage require monthly interest only payments at 12.67%
with a maturity date concurrent with the first mortgage, as modified.
Effective November 1, 1993, the Partnership began withholding the interest
payment on the second mortgage note.
6. LIMITED PARTNER CAPITAL
The initial Limited Partner contributed $100 to the capital of the
Partnership. Pursuant to a private offering, the Partnership sold Limited
Partnership Interests to seven Class B Limited Partners for an aggregate
purchase price of $500,000. The Partnership also sold 362 Class A partnership
Units at a Unit price of $150,000 each ($54,300,000 in total). Of these Units,
1.5 Units were purchased for cash, 14.4 Units were purchased pursuant to a
three-year note option and 346.1 Units were purchased pursuant to a seven-year
note option. The three and seven-year note options provided for the sale of
Units upon receipt at subscription of $45,000 and $18,343 per Unit,
respectively, with the balance due of $105,000 and $131,657 per Unit,
respectively, being evidenced by a secured recourse promissory note bearing
interest at the rate of 12% per annum. Interest payments were due in semi-annual
installments on each March 1 and December 1, beginning on December 1, 1985.
As a result of the March 8, 1996 foreclosure, the Partnership is in process
of liquidation and dissolution. The dissolution will result in the complete loss
of the Class A and Class B Limited Partnership Interests. There are no net
assets in liquidation and, therefore, will be no distributions to the Limited
Partners upon liquidation.
29
<PAGE>
CALIFORNIA SEVEN ASSOCIATES LIMITED PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
(DEBTOR IN POSSESSION)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
During 1991, the State of Connecticut enacted new income tax legislation, a
part of which affects partnerships. The portfolio income allocations made by the
Partnership to the limited partners are considered Connecticut based income and
subject to Connecticut tax. The Partnership has elected to pay the tax due on
the Limited Partners' share of portfolio income and, on July 13, 1995, paid tax
due of $964 on its 1994 Form CT-G Connecticut Group Income Tax Return. The
Partnership also accrued the 1995 estimated payment of $12,613 as of December
31, 1995. These amounts were treated as reductions of partners' capital and
reported as distributions in the accompanying financial statements.
7. TRANSACTIONS WITH AFFILIATES
Fees and other expenses incurred by the Partnership to the General Partner
or its affiliates during the years ended December 31, 1995, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
---- ---- ----
Interest on assignment note (a) $ -- $ 62,333 $ 88,000
Asset management fee 147,803 146,032 179,118
General partner salary 150,000 150,000 150,000
Reimbursement (at cost) for
out-of-pocket expenses 77,403 40,417 30,508
Reorganization item:
Professional fees 95,692 -- --
----------- ----------- -----------
$ 470,898 $ 398,782 $ 447,626
=========== ========== ===========
<FN>
(a) Postpetition interest was recorded to the extent it was paid.
Contractual interest on assignment note was $88,000 for both December
31, 1995 and 1994.
</TABLE>
8. MANAGEMENT AGREEMENTS
On January 31, 1985, the Partnership entered into a Management Agreement
with R & B Apartment Management Company ("R&B"). The term of the agreement was
approximately ten years with provisions to extend the term as defined in the
Management Agreement.
In 1991, the Management Agreement was renegotiated for the five remaining
OAKWOOD format properties and one conventional property. For the OAKWOOD
properties, a base amount was set up using 1991 as a base year. For 1992 to
1995, the fee was to be 5% provided R&B achieved a 5% annual growth in net
operating income from the 1991 base. If the annual growth target was not met,
R&B would only receive a 3% fee. In 1991, the base net operating income was not
reached and R&B's fee was reduced by 40% to 3% of the gross rental receipts. For
the conventional property, the Upland property, the fee was set at 4% of gross
revenues.
On May 1, 1992, the Huntington Beach and Anaheim properties were converted
from the OAKWOOD concept to conventional apartment operations. The Property
management fee for the Huntington Beach property had been changed to 3% of gross
receipts plus an additional 1% incentive fee based on certain revenue and
expense goals. The Partnership also renegotiated the management fee on the
remaining OAKWOOD properties, West Los Angeles, Sherman Oaks and San Diego, to
an incentive base fee of 3% of gross receipts with the potential for an
additional 1% if net operating income objectives are met.
30
<PAGE>
CALIFORNIA SEVEN ASSOCIATES LIMITED PARTNERSHIP,
A CALIFORNIA LIMITED PARTNERSHIP
(DEBTOR IN POSSESSION)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
On May 1, 1992, in conjunction with the Anaheim property's conversion, R&B
was replaced as the property manager by Maxim Management Group, formerly known
as Prometheus Management Group. The management fee is 3% of gross receipts plus
an additional 1% incentive based on certain revenue and expense goals.
For the period between 1985 and 1989, a portion of the annual management
fee earned by R&B was subject to deferral based on certain operating results.
The deferral maximum of $2,000,000 was reached in 1989. During 1994, R&B
released the Partnership from the deferred management fee obligation and as a
result, the Partnership recorded an extraordinary gain.
9. PARTNERSHIP AGREEMENT
Generally, distribution of operating cash flow, allocations of net income
or losses from operations, and loss on dispositions, as reported on the
Partnership's Federal income tax returns, will be allocated 99% to the Limited
Partners and 1% to the General Partner.
All allocations among the Limited Partners of net income or loss will be
made in the proportion that the capital contribution made or required to be made
by each Limited Partner bears to the total capital contributions made or
required to be made by all Limited Partners except as noted in the Partnership
Agreement Section 6(e) and 6(f).
In general, gains from dispositions shall be allocated first to the Class B
Limited Partners in proportion to their respective negative capital accounts and
then to the other Partners in proportion to their respective negative capital
accounts. Thereafter, gains from dispositions shall be allocated in accordance
with Partnership Agreement Section 6(g)(i) through (iv).
Proceeds from capital transactions will be distributed generally to each
Limited Partner equivalent to aggregate capital contributions; then, to each
Limited Partner, equal to 8% per annum of his aggregate capital contribution;
then, to the General Partner equivalent to its aggregate capital contribution;
then, of the balance, 75% to the Limited Partners and 25% to the General
Partner.
Paragraph 6(u) of the Partnership Agreement limits the allocation of losses
recognized for Federal income tax purposes to partners where such allocation
would cause their negative capital account to be in excess of their share of
minimum gain as defined in such paragraph. Those losses not allocated to the
Limited Partners are allocated to the General Partner.
Paragraph 6(v) contains minimum gain charge back and qualified income
offset provisions in accordance with Treasury Regulation 1.704-1T(b)(4)(iv)(e),
- - 1T(b)(4)(iv)(h)(4), and - 1(b)(2)(ii)(d).
10. LITIGATION
[Theodore D. Cohen, et al v. California Seven Associates, et al., No.
657925 (Orange County, CA, May 16, 1991)] Plaintiffs in suit brought against the
Partnership and its General Partner are members of the class participating in a
federal court action in Chicago [In re VMS Securities Litigation, No. 90 c 2412,
N.D. Ill.] which has concluded in a settlement, of which plaintiffs have been
notified. Defendant filed a Motion for Summary Judgment which was granted, and
no appeal was filed within the time allowed. The case has concluded with no
liability to the Partnership.
31
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The General Partner of the Partnership, CIGNA Realty Resources,
Inc.-Seventh, a Delaware corporation, is an indirect, wholly owned subsidiary of
CIGNA Corporation, a publicly held corporation whose stock is traded on the New
York Stock Exchange. The General Partner has responsibility for and control over
the affairs of the Partnership.
The directors and executive officers of the General Partner as of February
15, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Office Served Since
R. Bruce Albro Director May 2, 1988
David Scheinerman Director July 25, 1995
Philip J. Ward Director May 2, 1988
John D. Carey President, Controller September 7, 1993,
September 4, 1990
Verne E. Blodgett Vice President, Counsel April 2, 1990
Joseph W. Springman Vice President, Assistant Secretary September 7, 1993
David C. Kopp Secretary September 29, 1989
Michael M. Sinisgalli Treasurer August 1, 1994
</TABLE>
There is no family relationship among any of the foregoing directors or
officers. There are no arrangements or understandings between or among said
officers or directors and any other person pursuant to which any officer or
director was selected as such.
The foregoing directors and officers are also officers and/or directors of
various affiliated companies of CIGNA Realty Resources, Inc.-Seventh, including
CIGNA Financial Partners, Inc. (the parent of CIGNA Realty Resources,
Inc.-Seventh), CIGNA Investments, Inc., CIGNA Corporation (the parent of CIGNA
Investments, Inc.), and Connecticut General Corporation (the parent of CIGNA
Financial Partners, Inc.).
32
<PAGE>
The business experience of each of the directors and executive officers of
the General Partner of the Partnership is as follows:
R. BRUCE ALBRO - DIRECTOR
Mr. Albro, age 53, a Senior Managing Director of CIGNA Investment
Management (CIM), joined Connecticut General's Investment Operations in 1971 as
a Securities Analyst in Paper, Forest Products, Building and Machinery.
Subsequently, he served as a Research Department Unit Head, as an Assistant
Portfolio Manager, then as Director of Equity Research and a member of the
senior staff of CIGNA Investment Management Company and as a Portfolio Manager
in the Fixed Income area. He then headed the Marketing and Merchant Banking area
for CII. Prior to his current assignment of Division Head, Portfolio Management
Division, he was an insurance portfolio manager, and prior to that, he was
responsible for Individual Investment Product Marketing. In addition, Mr. Albro
currently serves as President of the CIGNA Funds Group and other CIGNA
affiliated mutual funds. Mr. Albro received a Master of Arts degree in Economics
from the University of California at Berkeley and a Bachelor of Arts degree in
Economics from the University of Massachusetts at Amherst.
DAVID SCHEINERMAN - DIRECTOR
Mr. Scheinerman, age 35, was appointed Chief Financial Officer of CIGNA
Individual Insurance, a division with more than $77 billion of life insurance in
force, in July of 1995. Mr. Scheinerman has served in various actuarial and
business management capacities with CIGNA. In 1991 he was appointed Vice
President and Pricing Actuary for CIGNA HealthCare. He has more than 12 years of
financial management experience and has served as Chief Financial Officer of
Crusader Insurance PLC, a CIGNA subsidiary life company in the United Kingdom.
Mr. Scheinerman holds a BA in Mathematics from Rice University and an MBA from
the University of Pennsylvania Wharton School of Business. He is a fellow of the
Society of Actuaries and a member of the American Academy of Actuaries.
PHILIP J. WARD - DIRECTOR
Mr. Ward, age 47, is Senior Managing Director and Division Head of CIGNA
Investment Management (CIM), in charge of the Real Estate Investment Division of
CIM. He was appointed to that position in December 1985. Mr. Ward joined
Connecticut General's Mortgage and Real Estate Department in 1971 and became an
officer in 1976. Since joining the company he has held real estate investment
assignments in Mortgage and Real Estate Production and in Portfolio Management.
Prior to his current position, Mr. Ward held assignments in CIGNA Investments
Inc., responsible for the Real Estate Production area, CIGNA Realty Advisors,
Inc. and Congen Realty Advisory Company, all wholly-owned subsidiaries of CIGNA
Corporation and/or Connecticut General. Mr. Ward has held various positions with
the General Partner. His experience includes all forms of real estate
investments, with recent emphasis on acquisitions and joint ventures. Mr. Ward
is a 1970 graduate of Amherst College with a Bachelor of Arts degree in
Economics. He is a member of the Society of Industrial and Office Realtors, the
National Association of Industrial and Office Parks, the Urban Land Institute
and the International Council of Shopping Centers. He is a member of the Board
of Directors of DeBartolo Realty Corporation.
33
<PAGE>
JOHN D. CAREY - PRESIDENT, CONTROLLER
Mr. Carey, age 32, joined CIGNA Investment Management-Real Estate as
Controller of Tax Advantaged Investments in 1990. In September 1993, Mr. Carey
was appointed President. Prior to joining CIGNA Investment Management, he held
the position of manager at KPMG Peat Marwick LLP in the audit department and was
a member of the Real Estate Focus Group. His experiences include accounting and
financial reporting for public and private real estate limited partnership
syndications. Mr. Carey is a graduate of Central Connecticut State University
with a Bachelor of Science Degree and is a Certified Public Accountant.
VERNE E. BLODGETT - VICE PRESIDENT, COUNSEL
Mr. Blodgett, age 58, is an Assistant General Counsel of CIGNA Corporation.
He joined Connecticut General Life Insurance Company in 1975 as an investment
attorney and has held various positions in the Legal Division of Connecticut
General Life Insurance Company prior to his appointment as Assistant General
Counsel in 1981. Mr. Blodgett received a Bachelor of Arts degree from Yale
University and graduated with honors from the University of Connecticut School
of Law. He is a member of the Connecticut and the American Bar Associations.
JOSEPH W. SPRINGMAN - VICE PRESIDENT, ASSISTANT SECRETARY
Mr. Springman, age 54, is Managing Director and department head responsible
for asset management. He joined CIGNA's Real Estate operations in 1970. He has
held positions as an officer or director of several real estate affiliates of
CIGNA. His past real estate assignments have included Development and
Engineering, Property Management, Director, Real Estate Operations, Portfolio
Management and Vice President, Real Estate Production. Prior to assuming his
asset management post, Mr. Springman was responsible for production of real
estate and mortgage investments. He received a Bachelor of Science degree from
the U.S. Naval Academy.
DAVID C. KOPP - SECRETARY
Mr. Kopp, age 50, is Secretary of CII, Corporate Secretary of Connecticut
General Life Insurance Company and Assistant Corporate Secretary and Assistant
General Counsel, Insurance and Investment Law of CIGNA Corporation. He also
serves as an officer of various other CIGNA Companies. In August of 1995, he
also assumed responsibility as chief compliance officer for CIGNA HealthCare, a
division of CIGNA Corporation. He joined Connecticut General Life Insurance
Company in 1974 as a commercial real estate attorney and held various positions
in the Legal Department of Connecticut General Life Insurance Company prior to
his appointment as Corporate Secretary in 1977. Mr. Kopp is an honors graduate
of Northern Illinois University and served on the law review at the University
of Illinois College of Law. He is a member of the Connecticut Bar Association
and is Past President of the Hartford Chapter, American Society of Corporate
Secretaries.
MICHAEL M. SINISGALLI - TREASURER
Michael M. Sinisgalli, age 37, is Assistant Director, Treasury Process
Management of CIGNA Corporation. In this capacity his responsibilities include
the analysis, design and management of treasury processes supporting insurance
divisions. Michael joined CIGNA in 1991 after having been with Bank of New
England since 1983. He served in a variety of Cash Management positions, being
appointed in 1990 as Assistant Vice President, Cash Management Sales/Marketing.
A graduate of Central Connecticut State University (B.S., Business
Administration, 1981), Mr. Sinisgalli is a Certified Cash Manager and a member
of Connecticut Cash Manager Association.
34
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Officers and directors of the General Partner receive no current or
proposed direct compensation from the Partnership in such capacities. However,
certain officers and directors of the General Partner received compensation from
the General Partner and/or its affiliates (but not from the Partnership) for
services performed for various affiliated entities, which may include services
performed for the Partnership, but such compensation was not material in the
aggregate.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person or group is known by the Partnership to own beneficially more
than 5% of the outstanding Units of interest of the Partnership.
There exists no arrangement, known to the Partnership, the operation of
which may at a subsequent date result in a change in control of the Partnership.
As of February 15, 1996, the individual directors and the directors and
officers, as a group, of the General Partner beneficially owned Partnership
Units and shares of the common stock of CIGNA, the indirect parent of the
General Partner, as set forth in the following table:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Units Shares
Beneficially Beneficially Percent
Name Owned(a) Owned(b) of Class
R. Bruce Albro (c) 0 6,653 *
Philip J. Ward (d) 0 16,491 *
All directors and officers
Group (8) (e) 0 29,994 *
* Less than 1% of class
(a) No officer or director of the General Partner possesses a right to acquire
beneficial ownership of additional Units of interest of the Partnership.
(b) The directors and officers have sole voting and investment power over all
the shares of CIGNA common stock they own beneficially.
(c) Shares beneficially owned includes options to acquire 4,487 shares and 1,432 shares which are restricted as to
disposition.
(d) Shares beneficially owned includes options to acquire 8,826 shares and 2,400 shares which are restricted as to
disposition.
(e) Shares beneficially owned by directors and officers include 15,318 shares
of CIGNA common stock which may be acquired upon exercise of stock options
and 8,126 shares which are restricted as to disposition.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In consideration for the assignment to the Partnership of the right to
acquire the Project pursuant to the agreement of sale, the Partnership paid CFP
the sum of $l,400,000, $300,000 of which was paid to CFP during 1985 in cash
from the first available cash of the Partnership, which was the Partners'
Capital Contributions, and $l,100,000 of which was paid by executing and
delivering to CFP an assignment note. The assignment note bears interest at
16.0% per annum. No interest was earned during 1995. Interest earned since 1989
of $502,334 and the principal balance of $550,000 remained unpaid at December
31, 1995.
35
<PAGE>
The Partnership and CFP have entered into an agreement (the "Partnership
Administration and Management Service Agreement") pursuant to which CFP performs
administrative and management services for the Partnership for an aggregate fee
(the "Partnership Administration and Management Fee") of $543,000, representing
one percent (l.0%) of the equity raised from the Class A Limited Partners. This
fee was to be paid over the course of the seven-year investor note option which
concluded in 1991. The Partnership Administration and Management Fee was for
monitoring the payments of the Limited Partners on the Limited Partners' notes.
The amounts due for 1990 and 1991 of $260,050 remained unpaid at December 31,
1995.
In addition, pursuant to the Partnership Administration and Management
Services Agreement, the General Partner earned a salary of $200,000 in 1985 and
$150,000 annually thereafter for managing the day-to-day operations of the
Partnership and for performing administrative services for the Partnership,
including, without limitation, mailing tax information to the Limited Partners,
and soliciting their consents when required under the Limited Partnership
Agreement and other investor communications, managing the Partnership's banking
arrangements, balancing the Partners' capital accounts, filing the Partnership's
tax returns, and exposing its assets to creditors as a general partner. In 1995,
the General Partner earned a salary of $150,000. The amounts due for 1989
through 1995 of $1,050,000 remained unpaid at December 31, 1995. The General
Partner's claims will be discharged.
The Partnership has entered into an agreement with CFP (the "Partnership
Incentive Management Agreement") pursuant to which CFP will attempt to maximize
cash flow to the Limited Partners by increasing revenues and minimizing
expenses. Pursuant to the Partnership Incentive Management Agreement, commencing
in 1991, CFP will be paid an annual fee (the "Incentive Management Fee") of nine
percent (9.0%) of the cash flow, but only to the extent that actual cash flow
exceeds projected cash flow. No such fee will be paid.
Pursuant to an agreement between the Partnership and CII (the "Real Estate
Advisory Services Agreement"), on the sale of the Project, CII will receive a
real estate advisory fee equal to 3.5% of the gross sales price of the property,
from which amount third party brokerage commissions to the extent of one percent
(l.0%) may be paid. In 1990, CII earned a 2.5% real estate advisory fee on the
gross sales price of the Torrance Property. The amount of the fee was $518,750
(which remained unpaid at December 31, 1995).
The Partnership has entered into an asset management agreement (the "Asset
Management Agreement") with CII pursuant to which CII performs certain functions
relating to the supervision of the management of the assets of the Partnership
and supervision of unaffiliated property management companies. For these
services, CII earned a fee (the "Asset Management Fee") equal to two percent
(2.0%) per annum of gross revenue for the years 1985-1990 (inclusive) and one
percent (l.0%) per annum of gross revenues thereafter. CII earned $147,803 for
its services in 1995. At December 31, 1995 the Partnership owed CII $2,612,880
for the 1987 through 1995 fees.
The General Partner and its affiliates may be reimbursed for their direct
expenses incurred in the offering, organization and administration of the
Partnership. In 1995, the General Partner and its affiliates were due
reimbursement for such out of pocket administrative expenses in the amount of
$173,095. At December 31, 1995, $210,613 was unpaid. The General Partner's
claims will be discharged.
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. See Index to Financial Statements in
Item 8.
2. Financial Statement Schedules
(a) Real Estate and Accumulated Depreciation. See Index to
Financial Statements in Item 8.
3. Exhibits
2.1 Plan of Reorganization under Chapter 11 of the
Bankruptcy Code for California Seven Associates
Limited Partnership, Debtor and Debtor in Possession,
Proposed by the Debtor dated March 16, 1994.
2.2 Amended Plan of Reorganization under Chapter 11 of
the Bankruptcy Code for California Seven Associates
Limited Partnership, Debtor and Debtor in Possession,
Proposed by the Debtor, dated April 25, 1995.
2.3 Third Modification to Amended Plan of Reorganization
under Chapter 11 of the Bankruptcy Code for
California Seven Associates Limited Partnership,
Debtor and Debtor in Possession, Proposed by the
Debtor, dated April 25, 1995.
3.1 Form 8, Amendment No. 1 to Form 10 Registration
Statement dated July 25, 1986.
3.2 Certificate of Limited Partnership of California
Seven Associates Limited Partnership, dated January
30, 1985, incorporated by reference to Exhibit 3.1 to
Form 10 Registration Statement under the Securities
Act of 1934, File No. 0-13458.
3.3 Second Amended and Restated Limited Partnership
Agreement of California Seven Associates Limited
Partnership, dated as of February 14, 1985,
incorporated by reference to Exhibit 3.2 to Form 10
Registration Statement under the Securities Act of
1934, File No. 0-13458.
4.1 Form of Seven-Year Negotiable Promissory Note of the
Class A Limited Partner, incorporated by reference to
Exhibit 4.2 to Form 10 Registration Statement under
the Securities Act of 1934, File No. 0-13458.
4.2 Second Amended and Restated Limited Partnership
Agreement defining the rights of the Limited
Partners, dated as of February 14, 1985 (See pp. 3-18
- 3-26 of Exhibit 3.2), incorporated by reference to
Exhibit 4.6 to Form 10 Registration Statement under
the Securities Act of 1934, File No. 0-13458.
10.1 Mortgage Note from IFD Properties, Inc.-First to The
Travelers Insurance Company, as Mortgagee, dated as
of December 20, 1984, incorporated by reference to
Exhibit 10.1 to Form 10 Registration Statement under
the Securities Act of 1934, File No. 0-13458.
10.2 Deed of Trust from IFD Properties, Inc.-First to The
Travelers Insurance Company, dated as of December 20,
1984, relating to the Los Angeles Property,
incorporated by reference to Exhibit 10.2 to Form 10
Registration Statement under the Securities Act of
1934, File No.
0-13458.
37
<PAGE>
10.3 Security Agreement between IFD Properties, Inc.-First
and The Travelers Insurance Company, dated as of
December 20, 1984, incorporated by reference to
Exhibit 10.3 to Form 10 Registration Statement under
the Securities Act of 1934, File No. 0-13458.
10.4 Purchase and Sale Agreement between IFD Properties,
Inc.-First and CIGNA Financial Partners, Inc., dated
as of January 15, 1985, incorporated by reference to
Exhibit 10.4 to Form 10 Registration Statement under
the Securities Act of 1934, File No. 0-13458.
10.5 Assignment and Assumption Agreement between CIGNA
Financial Partners, Inc. and the Registrant, dated
January 30, 1985, incorporated by reference to
Exhibit 10.5 to Form 10 Registration Statement under
the Securities Act of 1934, File No. 0-13458.
10.6 Transfer and Assignment Agreement between CIGNA
Financial Partners, Inc. and the Registrant, dated
January 30, 1985, incorporated by reference to
Exhibit 10.6 to Form 10 Registration Statement under
the Securities Act of 1934, File No. 0-13458.
10.7 Mortgage Note from the Registrant to Brookside
Savings & Loan Association, as Mortgagee, dated
February 15, 1985, incorporated by reference to
Exhibit 10.7 to Form 10 Registration Statement under
the Securities Act of 1934, File No. 0-13458.
10.8 Deed of Trust and Assignment of Rents from the
Registrant to Brookside Savings & Loan Association,
dated February 15, 1985, incorporated by reference to
Exhibit 10.8 to Form 10 Registration Statement under
the Securities Act of 1934, File No. 0-13458.
10.9 Real Estate Advisory Services Agreement between the
Registrant and CIGNA Capital Advisers, Inc., dated as
of February 1, 1985, incorporated by reference to
Exhibit 10.9 to Form 10 Registration Statement under
the Securities Act of 1934, File No. 0-13458.
10.10 Promissory Note from the Registrant to CIGNA
Financial Partners, Inc., dated as of January 30,
1985, incorporated by reference to Exhibit 10.10 to
Form 10 Registration Statement under the Securities
Act of 1934, File No. 0-13458.
10.11 Partnership Administration and Management Services
Fee Agreement between the Registrant and CIGNA
Financial Partners, Inc., dated as of March 1, 1985,
incorporated by reference to Exhibit 10.13 to Form 10
Registration Statement under the Securities Act of
1934, File No.
0-13458.
10.12 Agreement between the Registrant and CIGNA Financial
Partners, Inc., dated as of December 1, 1985,
incorporated by reference to Exhibit 10.14 to Form 10
Registration Statement under the Securities Act of
1934, File No. 0-13458.
10.13 Incentive Management Agreement between the Registrant
and CIGNA Financial Partners, Inc., dated as of March
1, 1985, incorporated by reference to Exhibit 10.15
to Form 10 Registration Statement under the
Securities Act of 1934, File No. 0-13458.
10.14 Asset Management Agreement between the Registrant and
CIGNA Capital Advisers, Inc., dated as of March 1,
1985, incorporated by reference to Exhibit 10.16 to
Form 10 Registration Statement under the Securities
Act of 1934, File No. 0-13458.
10.15 Organization Agreement between the Registrant and
CIGNA Financial Partners, Inc., dated as of March 1,
1985, incorporated by reference to Exhibit 10.17 to
Form 10 Registration Statement under the Securities
Act of 1934, File No. 0-13458.
38
<PAGE>
10.16 Working Capital Loan Arrangement Agreement between
the Registrant and CIGNA Financial Partners, Inc.,
dated as of March 1, 1985, incorporated by reference
to Exhibit 10.18 to Form 10 Registration Statement
under the Securities Act of 1934, File No. 0-13458.
10.17 Management Agreement between IFD Properties,
Inc.-First and R&B Enterprises, dated as of January
30, 1985, incorporated by reference to Exhibit 10.19
to Form 10 Registration Statement under the
Securities Act of 1934, File No. 0-13458.
10.18 Assignment and Assumption of Management Agreement
between IFD Properties, Inc.-First and the
Registrant, dated January 31, 1985, incorporated by
reference to Exhibit 10.20 to Form 10 Registration
Statement under the Securities Act of 1934, File No.
0-13458.
10.19 Inducement Agreement between Industrial Indemnity
Company and the Registrant, incorporated by reference
to Exhibit 10.21 to Form 10 Registration Statement
under the Securities Act of 1934, File No. 0-13458.
10.20 Surety Bonds of Industrial Indemnity Company,
incorporated by reference to Exhibit 10.22 to Form 10
Registration Statement under the Securities Act of
1934, File No. 0-13458.
10.21 Indemnification Agreement between the Registrant,
CIGNA Realty Resources, Inc.,-Seventh and Industrial
Indemnity Company, dated March 21, 1986, incorporated
by reference to Exhibit 10.23 to Form 10 Registration
Statement under the Securities Act of 1934, File No.
0-13458.
10.22 Loan Agreement between the Registrant and ContiTrade
Services Corporation, dated as of April 10, 1986,
incorporated by reference to Exhibit 10.24 to Form 10
Registration Statement under the Securities Act of
1934, File No. 0-13458.
10.23 Promissory Note from the Registrant to ContiTrade
Services Corporation, dated as of April 10, 1986,
incorporated by reference to Exhibit 10.25 to Form 10
Registration Statement under the Securities Act of
1934, File No. 0-13458.
10.24 Pledge and Assignment Agreement between the
Registrant and ContiTrade Services Corporation, dated
as of April 10, 1986, incorporated by reference to
Exhibit 10.26 to Form 10 Registration Statement under
the Securities Act of 1934, File No. 0-13458.
10.25 Letter Agreement between the Registrant and
ContiTrade Services Corporation, dated as of April
10, 1986, incorporated by reference to Exhibit 10.27
to Form 10 Registration Statement under the
Securities Act of 1934, File No. 0-13458.
10.26 Modification Agreement between the Registrant, IFD
Properties, Inc.-First and The Travelers Insurance
Company, dated as of August 1, 1987, incorporated by
reference to Exhibit 10.26 to Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1987.
10.27 Security Agreement between the Registrant and The
Travelers Insurance Company, effective as of August
1, 1987, incorporated by reference to Exhibit 10.27
to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987.
10.28 Agreement for purchase and sale dated October 26,
1990 between the Registrant and SBD Group Inc. for
the sale of the Registrant's Torrance Property,
incorporated by reference to Exhibit 10.28 to
Registrants Annual Report on Form 10Q for the
quarterly period ended September 30, 1990.
39
<PAGE>
10.29 Second Note Modification Agreement between IFD
Properties, Inc., -First, the Registrant and the
Travelers Insurance Company, dated May 1, 1990.
10.30 Promissory Note between the Registrant and Congen
Properties, Inc. as Mortgagee, dated October 26, 1990.
20.1 Investor letter dated September 16, 1994, reporting
the Partnership's September 16, 1994 voluntary
petition for reorganization under Chapter 11 of the
United States Bankruptcy Code, incorporated by
reference to Form 8-K dated September 30, 1994.
27 Financial Data Schedules
(b) Reports on Form 8-K:
On February 23, 1996, the Partnership filed a report on Form 8-K reporting
the conclusion of the confirmation hearing for the proposed Plan of
Reorganization. An Order Denying Confirmation and Granting Travelers'
Motion for Relief from Stay was entered by the United States Bankruptcy
Court.
40
<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.
California Seven Associates Limited Partnership
a California Limited Partnership
By: CIGNA Realty Resources, Inc.-Seventh,
General Partner
Date: March 29, 1996 By: /s/ John D. Carey
-------------------
John D. Carey, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities (with respect to the General Partner) and on the date
indicated.
/s/ R. Bruce Albro Date: March 29, 1996
------------------------------------------
R. Bruce Albro, Director
/s/ David Scheinerman Date: March 29, 1996
------------------------------------------
David Scheinerman, Director
/s/ Philip J. Ward Date: March 29, 1996
------------------------------------------
Philip J. Ward, Director
/s/ John D. Carey Date: March 29, 1996
------------------------------------------
John D. Carey, President, Controller
(Principal Executive Officer)
(Principal Accounting Officer)
/s/ Michael M. Sinisgalli Date: March 29, 1996
------------------------------------------
Michael M. Sinisgalli, Treasurer
(Principal Financial Officer)
41
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<PERIOD-TYPE> Year
<CASH> 13680826
<SECURITIES> 0
<RECEIVABLES> 228912
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 86136000
<DEPRECIATION> 0
<TOTAL-ASSETS> 100576833
<CURRENT-LIABILITIES> 0
<BONDS> 99444717
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 100576833
<SALES> 0
<TOTAL-REVENUES> 14797686
<CGS> 0
<TOTAL-COSTS> 7199905
<OTHER-EXPENSES> (15648217)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6566587
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 16679411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16679411
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
