UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 25, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-14941
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3330195
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
625 Madison Avenue, New York, New York 10022
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------
Limited Partnership Interests
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
None
Index to exhibits may be found on page _74_
Page 1 of 80
<PAGE>
PART I
Item 1. Business.
General
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Cambridge Advantaged Properties II Limited Partnership (formerly
Hutton Advantaged Properties II Limited Partnership) (the "Partnership") is a
limited partnership which was formed under the laws of the State of Delaware
on June 25, 1985. The general partners of the Partnership are Advantaged
Housing Associates, Inc. (formerly Hutton Advantaged Housing Associates, Inc.)
(the "Advantaged General Partner"), a Delaware corporation, Related Advantaged
Residential Associates Inc., (the "Related General Partner"), a Delaware
corporation and an affiliate of The Related Companies, Inc. ("Related"), a New
York limited partnership, and Related and Cambridge Associates Limited
Partnership (formerly Related and Hutton Associates Limited Partnership)
("Related and Cambridge Associates"), a Delaware limited partnership, together
the "General Partners". The general partners of Related and Cambridge
Associates are the Advantaged General Partner and the Related General Partner.
The General Partners manage and control the affairs of the Partnership. See
Item 10, Directors and Executive Officers of the Registrant, below.
On May 19, 1994, the Partnership's name was changed to Cambridge
Advantaged Properties II Limited Partnership.
On August 9, 1985, pursuant to a prospectus dated August 9, 1985 as
supplemented by the supplements thereto dated September 20, 1985 and October
25, 1985 (as so supplemented, the "Prospectus"), the Partnership commenced a
public offering (the "Offering"). Pursuant to the Offering, the Partnership
issued and sold 7,150 Limited Partnership Interests resulting in $35,750,000
in Gross Proceeds from 2,926 investors (before offering expenses and sales
commissions of $3,896,518). The Offering was completed in January 1986 and no
further issuance of Limited Partnership Interests is anticipated.
The Partnership was formed to invest, as a limited partner, in other
limited partnerships (referred to herein as "Local Partnerships",
"subsidiaries" or "subsidiary partnerships"), each of which owns or leases and
operates an existing residential housing development ("Apartment Complexes")
which benefit from financing at rates below those otherwise available from
conventional lenders that is made available through various federal and state
government programs or through the issuance of tax-exempt bonds ("Advantaged
Financing"). In acquiring its interests in the Local Partnerships ("Local
Partnership Interests"), the Partnership's investment objectives are, to:
(1) provide current tax benefits in the form of tax losses which
Limited Partners may use to offset taxable income from other sources;
(2) provide long-term capital appreciation through an increase in
the value of the Partnership's investments in Local Partnerships;
(3) provide cash distributions from sale or refinancing
transactions; and
(4) preserve and protect the Partnership's capital.
Federal, state and local government agencies have provided
significant incentives in order to stimulate private investment in housing
which benefits from Advantaged Financing. The intent of these incentives was
to reduce certain market risks and provide investors with (i) tax benefits,
(ii) long-term capital appreciation, and (iii) limited cash distributions.
Notwithstanding these factors, there remain significant risks. These risks
include, but are not limited to, the financial strength and expertise of the
general partners of the Local Partnerships ("Local General Partners"); the
long-term nature of investments in Advantaged Housing which limits the ability
of the Partnership to vary its investments in response to changing economic,
financial and investment conditions; and changes in local economic
circumstances and housing patterns which have an impact on real estate values.
Apartment Complexes benefiting from Advantaged Financing also require greater
management expertise and may have higher operating
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expenses than conventional apartment buildings. See Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Further information concerning the Advantaged Financing programs in
which the Local Partnerships participate can be found in Item 2, Properties.
The Local Partnership Interests owned by the Partnership were
acquired from unaffiliated sellers. The Partnership became the principal
limited partner in these Local Partnerships pursuant to local limited
partnership agreements. As a limited partner, the Partnership's liability for
obligations of the Local Partnerships is limited to its investment. The Local
General Partners of the Local Partnerships retain responsibility for
maintaining, operating and managing the Apartment Complexes. However,
Related/Cambridge Associates, a general partner of the Partnership, is a
special limited partner of each Local Partnership, and, under certain
circumstances, has the right to replace the Local Partners of the Local
Partnership and also has certain rights with respect to voting on or approving
of certain matters, including the sale of the Apartment Complex. These rights
were given to Related/Cambridge Associates rather than the Partnership so as
to avoid claims that by the existence or exercise of such rights the
Partnership was taking part in the control of the Local Partnerships'
operations and should thereby incur liability for all debts and obligations of
the Local Partnerships (if this were found to be the case, the Partnership's
interest in one Local Partnership could have been reached by creditors of
another Local Partnership). Related/Cambridge Associates has agreed to
exercise these rights as a fiduciary of the Limited Partners of the
Partnership.
The Partnership purchased the Local Partnership Interests for a
purchase price consisting in each case of a cash down payment, and a deferred
cash payment, as evidenced by an Installment Promissory Note. Such notes were
and are payable upon the occurrence of certain events, generally in two
stages, upon completion of construction and upon the later of permanent loan
closing or attainment of 95% occupancy. The cash payments were made in part as
the purchase price of the Local Partnership Interests and in part as capital
contributions to the Local Partnerships. Such contributions were generally
used by the Local Partnership to pay partnership management fees to the Local
General Partners, fees to the Local General Partners for guaranteeing the
funding of operating deficits (generally for a period of three to five years
and subject to a maximum amount), and payments to Related/Cambridge Associates
or its affiliates for acquisition fees, development consulting fees,
administrative service fees, and organizational expense reimbursements in an
amount of up to 6.6% of the aggregate cash payments made by the Partnership to
the Local Partnership and the persons from whom the Partnership purchased its
Local Partnership Interest.
The Tax Reform Act of 1986 (the "TRA") provides that commencing in
1991 the passive losses generated by the Partnership can only be used to
shelter passive income or, in the alternative, may be carried forward to
offset a gain upon the sale of properties.
As of March 25, 1997, several Local Partnerships are experiencing
financial difficulties. As a consequence, recoverability of a significant
portion of the Partnership's investments will depend upon material
improvements in their operating results and their ability to meet debt service
obligations. In addition, the level of cash distributions provided to the
Partnership by the Local Partnership has not been sufficient, and may not be
sufficient in the future, to cover the Partnership's operating expenses. As a
result, the Partnership has required, and may in the future require, funding
from other sources for such purposes. See Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations for further
discussion.
On May 31, 1996, the property and the related assets and liabilities
of McAdam Park-336 ("McAdam") were sold to Fannie Mae for $14,735,000
resulting in a gain in the amount of $6,108,426 and forgiveness of
indebtedness income of $1,320,280 as a result of forgiveness of interest on
mortgage debt and advances from the mortgage note holder.
The Partnership is subject to risks incident to potential losses
arising from the management and ownership of improved real estate. The
Partnership can also be affected by poor economic conditions generally,
however no more than 27% of the properties are located in any single state.
There are also substantial risks associated with owning properties receiving
government assistance, for example the possibility that Congress may
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not appropriate funds to enable HUD to make rental assistance payments. HUD
also restricts annual cash distributions to partners based on operating
results and a percentage of the owners equity contribution. The Partnership
cannot sell or substantially liquidate its investments in subsidiary
partnerships during the period that the subsidy agreements are in existence,
without HUD's approval. Furthermore there may not be market demand for
apartments at full market rents when the rental assistance contracts expire.
Competition
- - -----------
The real estate business is highly competitive and each of the Local
Partnerships in which the Partnership has invested owns an Apartment Complex
which must compete for tenants with other rental housing in its area. However,
the below market interest rates on Advantaged Financing generally make it
possible to offer the apartments to eligible tenants at a cost to the tenant
significantly below the market rate for comparable conventionally financed
apartments in the area.
Employees
- - ---------
The Partnership does not have any employees. All services are
performed for the Partnership by its General Partners and their affiliates.
The General Partners receive compensation in connection with such activities
as set forth in Items 11 and 13 herein. In addition, the Partnership
reimburses the General Partners and certain of their affiliates for expenses
incurred in connection with the performance by their employees of services for
the Partnership in accordance with the Partnership Agreement.
Item 2. Properties.
The Partnership holds a 98% Limited Partnership Interest in 11 Local
Partnerships each of which owns an Apartment Complex. On May 31, 1996, the
property and the related assets and liabilities of McAdam Park-336 were sold
to Fannie Mae (see Item 7. below). Set forth below is certain information
concerning the Apartment Complexes and their operations and financing. See
Schedule III to the consolidated financial statements included herein for
additional information pertaining to the Apartment Complexes.
Each of the Local Partnerships owns one Apartment Complex. The
Apartment Complexes are located in California (1), Florida (3), Kansas (2),
Oklahoma (1), Texas (2) and Virginia (2). Three of the Apartment Complexes are
in the suburbs of major cities, while the remaining Apartment Complexes are in
close proximity to the downtown business districts of their respective cities.
The Apartment Complexes are occupied by low, moderate and middle-income
tenants. The occupancy rates are set forth below. The aggregate number of
rental units contained in the Apartment Complexes is 3,132. The largest
Apartment Complex contains 520 units and the smallest contains 156 units.
All of the Apartment Complexes are subject to existing permanent
first mortgage loans ("Mortgage Loans on Real Estate"). See Schedule III.
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LOCAL PARTNERSHIP SCHEDULE
<TABLE>
<CAPTION>
Percentage of Units Occupied at December 31,
Name and Location of --------------------------------------------
Property (Number of Units) Government Assistance(a) 1996 1995 1994 1993 1992
- - --------------------------------------- ------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Triangle/Oaks Limited Partnership
Jacksonville, FL (520) Tax exempt financing 84% 91% 93% 95% 87%
Sheridan Square Associates of Lawton
Lawton, OK (276) Conventional financing 87% 88% 96% 91% 91%
Apple Creek Associates of Denton, Ltd
Denton, TX (308) Tax exempt financing 96% 97% 93% 94% 89%
Galveston-Stewart's Landing, Ltd
Galveston, TX (216) ss.221(d)(4) 88% 96% 88% 94% 88%
Woodridge, Ltd
Lenexa, KS (248) Tax exempt financing 99% 95% 96% 96% 89%
Players Club at Fort Myers, Ltd
Ft. Myers, FL (288) Tax exempt financing 79% 90% 92% 97% 82%
Suntree at Fort Myers, Ltd
Ft. Meyers, FL (240) Tax exempt financing 90% 94% 95% 98% 82%
The Harbours Associates
Newport News, VA (396) Tax exempt financing 95% 92% 92% 90% 85%
Brookwood Apartments L.P.
Wichita, KS (216) ss.221(d)(4) 97% 97% 95% 98% 94%
Westwind II Associates
Roanoke, VA (156) Tax exempt financing 98% 97% 98% 95% 84%
McAdam Park-336, Ltd
Palmdale, CA (336) Tax exempt financing (b) 50% 62% 87% 72%
Suncreek-268, Ltd
Sacramento, CA (268) Tax exempt financing 96% 93% 94% 97% 80%
</TABLE>
(a) The Partnership invested in Local Partnerships owning existing
Apartment Complexes which receive either Federal or state subsidies. HUD
through FHA, administers a variety of subsidies for low- and moderate-income
housing. FmHA administers similar housing programs for nonurban areas. The
Federal programs generally provide one or a combination of the following forms
of assistance: (i) mortgage loan insurance and (ii) rental subsidies.
i) HUD provides mortgage insurance for rental housing projects
pursuant to a number of sections of Title II of the National Housing Act
("NHA"), including Section 236, Section 221(d)(4), Section 221(d)(3) and
Section 220. Under all of these programs, HUD will generally provide insurance
equal to 100% of the total replacement cost of the project to nonprofit owners
and 90% of the total replacement cost to limited-distribution owners.
Mortgages are provided by institutions approved by HUD, including banks,
savings and loan companies and local housing authorities. Section 221(d)(4) of
NHA provides for federal insurance of private construction and permanent
mortgage loans to finance new construction of rental apartment complexes
containing five or more units. The most significant difference between the
221(d)(4) program and the 221(d)(3) program is the maximum amount of the loan
which may be obtained. Under the 221(d)(3) program, nonprofit sponsors may
obtain a permanent mortgage equal to 100% of the total replacement cost; no
equity contribution is required of a nonprofit sponsor. In all other respects
the 221(d)(3) program is substantially similar to the 221(d)(4) program.
ii) Many of the tenants in HUD insured projects receive some form
of rental assistance payments, primarily through the Section 8 Housing
Assistance Payments Program (the "Section 8 Program"). Apartment Complexes not
receiving assistance through the Section 8 Program ("Section 8 Payments") will
generally have limitations on the amounts of rent which may be charged. One
requirement imposed by HUD regulations effective for apartment complexes
initially approved for Section 8 payments on or after November 5, 1979 is to
limit
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<PAGE>
the amount of the owner's annual cash distributions from operations to 10% of
the owner's equity investment in an apartment complex if the apartment complex
is intended for occupancy by families and to 6% of the owner's equity
investment in an apartment complex intended for occupancy by elderly persons.
The owner's equity investment in the apartment complex is 10% of the project's
replacement cost as determined by HUD.
All leases are generally for periods not exceeding one to two years
and no tenant occupies more than 10% of the rentable square footage.
Rents from commercial tenants (to which average rental per square
foot applies) comprised less than 5% of the rental revenues of the
Partnership. Rents for the residential units are determined annually by HUD
and reflect increases in consumer price indices in various geographic areas.
Management continuously reviews the physical state of the properties
and budgets improvements when required which are generally funded from cash
flow from operations or release of replacement reserve escrows. No
improvements are expected to require additional financing.
Management continuously reviews the insurance coverage of the
properties and believes such coverage is adequate.
See Item 1, Business, above for the general competitive conditions
to which the properties described above are subject.
Real estate taxes are calculated using rates and assessed valuations
determined by the township or city in which the property is located. Such
taxes have approximated 1% of the aggregate cost of the properties as shown in
Schedule III to the financial statements included herein.
(b) On May 31, 1996, the property and the related assets and
liabilities of McAdam Park-336 were sold to Fannie Mae (see Item 7. below).
Item 3. Legal Proceedings.
This information is incorporated by reference to the discussion of
Galveston in the Results of Operations of Certain Local Partnerships contained
in Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the
fiscal year covered by this report through the solicitation of proxies or
otherwise.
PART II
Item 5. Market for the Registrant's Limited Partnership Interests and Related
Security Holder Matters.
As of March 25, 1997, the Partnership had issued and outstanding 7,150
Limited Partnership Interests, each representing a $5,000 capital contribution
per unit to the Partnership, for aggregate Gross Proceeds of $35,750,000.
Limited Partnership Interests are not traded in any organized market.
It is not anticipated that any public market will develop for the purchase and
sale of the Limited Partnership Interests. Limited Partnership Interests may be
transferred only if certain requirements are satisfied, including an opinion of
counsel to the
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Partnership that such transfer would not cause a termination of the Partnership
under Section 708 of the Internal Revenue Code and would not violate any federal
or state securities laws.
As of May 1, 1997, there were 2,947 registered holders of Limited
Partnership Interests.
The Partnership has made no distributions to its Limited Partners
since its inception on June 25, 1985. There are no material restrictions upon
the Partnership's present or future ability to make distributions in accordance
with the provisions of the Partnership's Amended and Restated Agreement and
Certificate of Limited Partnership. The Partnership has invested as a limited
partner in Local Partnerships owning Apartment Complexes which receive
Governmental Assistance under programs which in many instances restrict the cash
return available to owners, (see Item 8). The Partnership does not anticipate
providing significant cash distributions to its Limited Partners.
There has recently been an increasing number of requests for the list
of holders of Limited Partnership Interests in limited partnerships such as the
Partnership. Often these requests are made by a person who, only a short time
before making the request, acquired merely a small number of Limited Partnership
Interests in the partnership and seeks the list for an improper purpose, a
purpose that is not in the best interest of the partnership or is harmful to the
partnership. In order to best serve and protect the interests of the Partnership
and all of its investors, the general partners of the Partnership have adopted a
policy with respect to requests for the Partnership's list of holders of Limited
Partnership Interests. This policy is intended to protect investors from
unsolicited and coercive offers to acquire the interests of holders of Limited
Partnership Interests and does not limit any other rights the general partners
may have under the Partnership Agreement or applicable law.
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Item 6. Selected Financial Data.
The information set forth below presents selected financial data of
the Partnership. Additional detailed financial information is set forth in the
audited financial statements and footnotes contained in Item 8 hereof and in
Schedules contained in Item 14 hereof.
<TABLE>
<CAPTION>
Year Ended March 25
----------------------------------------------------------------------------
OPERATIONS 1997 1996 1995 1994 1993
- - ---------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 24,916,993 $ 19,483,652 $ 19,418,028 $ 19,391,837 $ 18,832,386
Operating expenses (23,746,261) (25,288,830) (24,345,121) (25,111,610) (25,483,188)
Provision for impairment
of assets 0 (1,116,378) 0 0 0
Minority interest (124,886) (42,752) (15,637) 68,916 73,055
------------ ------------ ------------ ------------ ------------
Income (loss) before
extraordinary item 1,045,846 (6,964,308) (4,942,730) (5,650,857) (6,577,747)
Extraordinary item -
forgiveness of
indebtedness 5,161,583 6,416,231 3,494,274 0 151,862
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 6,207,429 $ (548,077) $ (1,448,456) $ (5,650,857) $ (6,425,885)
============ ============ ============ ============ ============
Number of limited
partnership units
outstanding 7,150 7,150 7,150 7,150 7,150
============ ============ ============ ============ ============
Per Limited
Partnership Unit:
Income (loss) before
extraordinary item $ 145 $ (964) $ (684) $ (782) $ (911)
Extraordinary item 715 888 484 0 21
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 860 $ (76) $ (200) $ (782) $ (890)
============ ============ ============ ============ ============
Year Ended March 25
----------------------------------------------------------------------------
FINANCIAL POSITION 1997 1996 1995 1994 1993
- - ------------------ ------------ ------------ ------------ ------------ ------------
Total assets $ 84,212,602 $ 94,239,730 $ 97,393,817 $101,702,764 $106,141,832
============ ============ ============ ============ ============
Long-term obligations $ 98,340,680 $116,955,198 $120,109,587 $122,455,599 $121,109,562
============ ============ ============ ============ ============
Total liabilities $112,321,944 $130,038,490 $132,687,043 $135,563,171 $134,282,466
============ ============ ============ ============ ============
Minority interest $ 5,111,554 $ 3,629,565 $ 3,587,022 $ 3,571,385 $ 3,640,301
============ ============ ============ ============ ============
</TABLE>
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During the years ended March 25, 1992 through 1996, total assets
decreased primarily due to depreciation, partially offset by net additions to
property and equipment. During the years ended March 25, 1992 through 1994,
long-term obligations and total liabilities increased primarily due to
accruals of interest on mortgage notes payable. There was a decrease in
long-term obligations and total liabilities in both 1996 and 1995 due to
forgiveness of indebtedness at Harbours, Westwind II, Woodbridge and at
Triangle/Oaks Partnerships, respectively. For the year ended March 25, 1996,
there was also a decrease in assets due to a provision for impairment of
assets. During the year ended March 25, 1997 total assets decreased primarily
due to depreciation and the sale of property (see Note 11 in Item 8. Financial
Statements and Supplementary Data), partially offset by net additions to
property and equipment. Long-term obligations and total liabilities decreased
for the year ended March 25, 1997 primarily due to the decrease in mortgage
notes payable satisfied by the sales price of the property which was sold and
the forgiveness of indebtedness of mortgage debt and advances from the note
holder.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
- - -------------------------------
The Partnership's capital has been invested primarily in 12 Local
Partnerships in which the Partnership made an initial investment of $29,354,485
(including acquisition expenses) in the Local Partnerships. These investments
are highly illiquid. On May 31, 1996, the property and the related assets and
liabilities owned by one of the Local Partnerships was sold to Fannie Mae (see
below), which reduced the number of Local Partnerships in which the Partnership
is invested to eleven. In addition, the Partnership has obtained loans from an
affiliate of the Related General Partner, which together with Partnership funds,
have been advanced to five local partnerships . Approximately $473,000 of such
advances were forgiven as a result of the above sale.
Cash of the Partnership and its consolidated subsidiaries increased by
approximately $203,000 during the 1996 Fiscal Year. This increase is primarily
attributable to cash flow provided by operating activities ($989,000), a
decrease in mortgage escrow deposits-replacement reserves ($520,000) and an
increase in capitalization of consolidated subsidiaries attributable to minority
interest ($410,000) which exceeded an increase in deferred costs ($551,000),
repayments of mortgage notes payable ($730,000) and a decrease in acquisition of
property and equipment ($436,000). Included in the adjustments to reconcile the
net income to cash flow provided by operating activities is gain on sale of
property ($6,108,000), forgiveness of indebtedness income ($5,162,000) and
depreciation and amortization ($3,724,000).
The Partnership's primary source of funds are the cash distributions
from operations of the Local Partnerships in which the Partnership has invested.
These sources are available to meet obligations of the Partnership. However, the
cash distributions received from the Local Partnerships to date have not been
sufficient to meet all such obligations of the Partnership. During the years
ended March 25, 1997 ("the 1996 Fiscal Year") , 1996 ("the 1995 Fiscal Year") ,
and 1995 ("the 1994 Fiscal Year"), such distributions amounted to approximately
$13,000, $15,000 and $0, respectively. Accordingly, the Related General Partner
advanced funds to meet the Partnership's third party obligations with remaining
unpaid balances of approximately $2,067,000, $1,980,000 and $1,857,000 as of
March 25, 1997, 1996, and 1995, respectively. In addition, certain fees and
expense reimbursements owed to the General Partners amounting to approximately
$1,680,000, $831,000 and $694,000 were accrued and unpaid as of March 25, 1997,
1996, and 1995, respectively. Without the General Partners' advances and
continued accrual without payment of certain fees and expense reimbursements,
the Partnership will not be in the position to meet its obligations. The General
Partners, have continued advancing and allowing the accrual without payment of
these amounts, but are under no obligation to do so.
On May 31, 1996, the property and the related assets and liabilities
of McAdam Park-336 ("McAdam") were sold to Fannie Mae for $14,735,000 resulting
in a gain in the amount of $6,108,426 and forgiveness of indebtedness income of
$1,320,280 as a result of forgiveness of interest on mortgage debt and advances
from the mortgage note holder.
For a discussion of contingencies affecting certain Local
Partnerships, see Results of Operations of Certain Local Partnerships below.
Since the maximum loss the Partnership would be liable for is its net investment
in the respective local partnerships, the resolution of the existing
contingencies is not anticipated to impact future results of operations,
liquidity or financial condition in a material way.
Except as described above, management is not aware of any trends or
events, commitments or uncertainties, which have not otherwise been disclosed,
that will or are likely to impact liquidity in a material way. Management
believes the only impact would be for laws that have not yet been adopted. The
portfolio is diversified by the location of the properties around the United
States so that if one area of the country is experiencing downturns in the
economy, the remaining properties in the portfolio may be experiencing upswings.
However, the geographic diversification of the portfolio may not protect against
a general downturn in the national economy.
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Results of Operations
- - ---------------------
In March 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". Under SFAS No. 121, the Partnership is required to review long-lived assets
and certain identifiable intangibles for impairment whenever events or changes
in circumstances indicate that the book value of an asset may not be
recoverable. An impairment loss should be recognized whenever the review
demonstrates that the book value of a long-lived asset is not recoverable.
Effective March 26, 1996, the Partnership adopted SFAS No. 121, consistent with
the required adoption period.
Property and equipment are carried at the lower of depreciated cost or
estimated amounts recoverable through future operations and ultimate disposition
of the property. Cost includes the purchase price, acquisition fees and
expenses, and any other costs incurred in acquiring the properties. A provision
for loss on impairment of assets is recorded when estimated amounts recoverable
through future operations and sale of the property on an undiscounted basis are
below depreciated cost. Property investments themselves are reduced to estimated
fair value (generally using discounted cash flows) when the property is
considered to be impaired and the depreciated cost exceeds estimate fair value.
During the fiscal year ended March 25, 1996 and through March 25, 1997, the
Partnership has recorded approximately $1,116,300 as a provision for loss on
impairment of assets.
The following is a summary of the results of operations of the
Partnership for the 1996, 1995 and 1994 Fiscal Years.
The results of operations of the Partnership, as well as the Local
Partnerships, excluding gain on sale of property, administrative and
management-related parties, provision for impairment of assets and forgiveness
of indebtedness income, remained fairly consistent for the 1996, 1995 and 1994
Fiscal Years. The Partnership's primary source of income continues to be its
portion of the Local Partnerships' operating results. The majority of Local
Partnership income continues to be in the form of rental income with the
corresponding expenses being divided among operations, depreciation and
amortization, and mortgage interest.
Net income (loss) for the 1996, 1995 and 1994 Fiscal Years totaled
$6,207,429, $(548,077), and $(1,448,456) respectively.
Excluding 1996, in which the Partnership generated passive income, the
Partnership has met the investment objective of generating tax benefits in the
form of passive losses (which Limited Partners may use to offset passive income
from other sources ). This passive income may be offset by the carry forward of
any unused passive losses from prior years; however, the sale or refinancing
transactions of the Local Partnerships to date have been insufficient to provide
cash distributions to the Limited Partners.
1996 vs 1995
- - ------------
Rental income decreased approximately 2% for the 1996 Fiscal Year as
compared to the 1995 Fiscal Year. Excluding McAdam, which sold its property on
May 31, 1996, rental income increased approximately 2% for the 1996 Fiscal Year
as compared to the 1995 Fiscal Year primarily due to increases in occupancy at
Harbours, Suncreek and Woodridge.
Other income decreased approximately $312,000 for the 1996 Fiscal Year
as compared to the 1995 Fiscal Year. Excluding McAdam, such income decreased
approximately $179,000 primarily due to a decrease in income from funding of the
Breakeven Guarantee by the Local General Partner of Suncreek.
A gain on sale of property in the amount of approximately $6,108,000
was recorded in the 1996 Fiscal Year and forgiveness of indebtedness income in
the amounts of approximately $5,162,000 and $6,416,000 were recorded in the 1996
and 1995 Fiscal Years (see Notes 11 and 12 in Item 8. Financial Statements and
Supplemental Data).
-11-
<PAGE>
Total expenses, excluding McAdam, administrative and
management-related parties, repairs and maintenance and provision for impairment
of assets remained fairly consistent with a decrease of approximately 3% for the
1996 Fiscal Year as compared to the 1995 Fiscal Year.
Administrative and management-related parties increased approximately
$705,000 for the 1996 Fiscal Year as compared to the 1995 Fiscal Year primarily
due to an increase in partnership management fees payable to the General
Partners.
Repairs and maintenance increased approximately $69,000 for the 1996
Fiscal Year as compared to the 1995 Fiscal Year. Excluding McAdam such expenses
increased approximately $340,000 primarily due to the refurbishing and
redecorating of the model at Harbors, repairs to a building damaged by fire at
Triangle/Oaks, and concrete repairs and an increase in landscaping expenses at
Woodridge.
Taxes and insurance decreased approximately $314,000 for the 1996
Fiscal Year as compared to the 1995 Fiscal Year. Excluding McAdam, such expenses
remained fairly consistent with a increase of approximately 2%.
Interest expense decreased approximately $1,403,000 for the 1996
Fiscal Year as compared to the 1995 Fiscal Year. Excluding McAdam, such expense
decreased approximately $759,000 primarily due to the refinancing of four
mortgage notes and the modification of two mortgage notes during the 1995 Fiscal
Year.
A provision for impairment of assets was recorded in the 1995 Fiscal
Year (see Note 4 in Item 8. Financial Statements and Supplemental Data).
1995 vs 1994
- - ------------
Rental income has remained fairly consistent with an increase of less
than 1% for the 1995 Fiscal Year as compared to the 1994 Fiscal Year primarily
due to rental rate increases partially offset by a decrease in occupancy at
McAdam.
Total expenses, excluding repairs and maintenance and provision for
impairment of assets increased approximately 3% for the 1995 Fiscal Year as
compared to the 1994 Fiscal Year.
Repairs and maintenance increased approximately $303,000 for the 1995
Fiscal Year as compared to the 1994 Fiscal Year. This increase is primarily due
to increases at McAdam Park to improve the grounds, interior and exterior of the
buildings in the attempt to attract new tenants and improve occupancy.
A provision for impairment of assets was recorded in the 1995 Fiscal
Year (see Note 4 in Item 8. Financial Statements and Supplemental Data).
For the 1995 and 1994 Fiscal Years, extraordinary item-forgiveness of
indebtedness amounted to approximately $6,416,000 and $3,494,000, respectively
(see Note 12 in Item 8. Financial Statements and Supplemental Data).
Results of Operations of Certain Local Partnerships
- - ---------------------------------------------------
Galveston-Stewarts Landing, Ltd.
--------------------------------
Galveston-Stewarts Landing, Ltd. ("Galveston") has sustained continued
operating deficits and has a net partners' deficiency of approximately
$5,765,000 at March 25, 1997. Galveston's mortgage note was originally due to
HUD. During 1995, HUD assigned and transferred the mortgage note to Beal Bank.
On December 14, 1995, Galveston was notified that the mortgage note was in
default and Galveston was in arrears on required principal and interest in the
amount of approximately $427,000 and $2,359,000, respectively. Beal Bank then
commenced
-12-
<PAGE>
foreclosure proceedings. In order to stay such proceedings, Galveston filed a
voluntary petition under Chapter 11 of the United States Bankruptcy Code in
August 1996. These factors create an uncertainty about Galvestons' ability to
continue as a going concern. Galveston is presently developing a plan to
reorganize under Chapter 11 of the United States Bankruptcy Code. The ability of
Galveston to continue as a going concern is dependent on acceptance of the plan
by Galvestons' bank creditors and the plan's success. The financial statements
do not include any adjustments that might be necessary if Galveston is unable to
continue as a going concern. As of March 25, 1997 the Partnership had advanced
$606,445 of interest-free loans to Galveston of which approximately $549,000
remains unpaid at March 25, 1997. The Partnership's investment in Galveston has
been reduced to zero by prior years' losses. The minority interest balance in
Galveston was zero at both March 25, 1997 and 1996. Galveston's net loss after
minority interest amounted to approximately $109,000 $1,377,000, and $357,000
for the 1996, 1995, and 1994 Fiscal Years, respectively.
Players Club at Fort Meyers, Ltd. and Suntree at Fort Meyers, Ltd.
------------------------------------------------------------------
Players Club at Fort Meyers, Ltd. ("Players Club") and Suntree at Fort
Meyers, Ltd. ("Suntree") have incurred operating losses and cash flow deficits
due to low occupancy levels. At March 25, 1997, Players Club and Suntree have
partners' deficiencies of approximately $3,286,000 and $2,401,000, respectively.
In addition, the Local General Partners' operating deficit guarantees have
expired and there is no further obligation to continue to fund operating
deficits. The Partnership entered into agreements with bondholders in January
1993 (further modified effective January 1996 and again extended and modified
effective January 1997). The extension of the forbearance agreements call for
minimum debt service payments at the rate of 6.5% and 7.5% for the periods
January 1, 1997 through June 30, 1997, July 1, 1997 through December 31, 1997,
respectively, for Suntree and 6.5% and 6.25% for the periods January 1, 1997
through January 31, 1997 and February 1, 1997 through December 31, 1997,
respectively, for Players Club, at which time the minimum pay rates increased to
the original stated rates of 8%. The difference between the minimum pay rate and
the stated rate is payable from all future available cash flow or is deferred to
be paid from sales/refinancing proceeds. Recoverability of a major portion of
the recorded asset amounts shown in the accompanying balance sheet is dependent
upon continued operation of the subsidiary partnerships, which is dependent upon
their abilities to meet financing requirements on a continuing basis, to
maintain present financing, and to succeed in future operations. In addition,
management has taken steps to control the subsidiary partnerships' operating
expenses.
The Partnership's investments in Players Club and Suntree have been
reduced to zero by prior years' losses. The minority interest balance for
Players Club was approximately $7,000 and $18,000 at March 25, 1997 and 1996,
respectively. In the case of Suntree, the minority interest balance was
approximately $11,000 and $18,000 at March 25, 1997 and 1996, respectively.
Players Club's net loss after minority interest amounted to approximately
$559,000, $544,000 and $597,000 for the 1996, 1995 and 1994 Fiscal Years,
respectively. Suntree's net loss after minority interest amounted to
approximately $350,000, $307,000 and $401,000 for the 1996, 1995 and 1994 Fiscal
Years, respectively.
Suncreek - 268, Ltd.
--------------------
In 1985, Suncreek-268 Ltd. ("Suncreek") obtained a $10,000,000
variable rate mortgage loan from the County of Sacramento, California (the
County) which was to mature in April 2007. In connection with the mortgage loan,
Suncreek obtained a $10,000,000 irrevocable letter of credit, which was provided
to the County as additional collateral. During 1995, the mortgage loan from the
County was paid in full by Resolution Trust Corporation (RTC), by drawing upon
the letter of credit. During 1996, Suncreek, RTC and the County agreed to
replace the mortgage loan by issuing bonds (see below), resulting in Suncreek
recognizing a $3,200,000 extraordinary gain from the forgiveness of debt
relating to the mortgage loan.
On April 15, 1996, Suncreek entered into an agreement with the County
to issue $6,800,000 in bonds which mature April 1, 2026, with interest at
variable rates (adjusted weekly - 3.7% at December 31, 1996) payable in monthly
installments through May 1, 1998, when payments of $10,000 per month will begin.
The payments will be accumulated in an interest bearing account until $100,000
is accumulated and then will be used to begin redeeming the bonds. Suncreek
entered into a Reimbursement Agreement and a
-13-
<PAGE>
Collateral Security Agreement with the Bank which set forth how payments to the
bond holders are to be made. In conjunction with these agreements, the Bank has
issued an Irrevocable Letter of Credit (the Letter) in favor of First Trust of
California, the Trustee for the bond holders in the amount of $6,878,247. In
connection with the Letter, Suncreek incurs an annual fee of 1.37% of the letter
of credit. The California State Teacher's Retirement System (CALSTRS) has
entered into a Confirmation Agreement with the Bank whereby CALSTRS has agreed
to honor the Letter of Credit from the Bank in the event that U.S. Bank is
unable to honor the Letter.
Refinancing costs incurred in connection with the agreements described
above of $559,864 were paid by the general partner and accounted for as a
capital contribution.
In connection with the agreements above, Suncreek entered into a new
Regulatory Agreement with the County which requires that at least 20% of the
available units be rented to very low income tenants (as defined). Suncreek was
in compliance with this requirement as of December 31, 1996.
In connection with the refinancing under which Suncreek will pay a
substantially lower interest rate on a lower principal amount, the Partnership
amended the terms of its partnership agreement with Robert Randall, ("Randall"),
the general partner of Suncreek, to reflect the elimination of the land lease
together with all accrued and unpaid land lease payments, Randall's contribution
to Suncreek of the underlying land, as well as the elimination of all other
existing guarantee agreements between the partners. The land was recorded at
$2,000,000 which represents the estimation by Suncreek's management of its fair
market value as of the contribution date. In addition, the balance of a note
payable to the selling partner amounting to $641,303 which represented a portion
of the original purchase price was forgiven.
Apple Creek Associates of Denton, Ltd.
--------------------------------------
The first mortgage note of Apple Creek Associates of Denton, Ltd.
("Apple Creek") matured during February 1995. Since the maturity date Apple
Creek had been involved in negotiations to obtain a loan modification on the
first mortgage and had continued to make required interest and principal
payments. During February 1996, Apple Creek executed a loan modification
agreement, which provided among other things for an extension of the maturity
date of the loan for five years . Terms of the note require monthly payments of
principal and interest computed at an interest rate of 8.5%, based on an
amortization period of 25 years. In addition, Apple Creek agreed to remit on a
quarterly basis 25% of cash flow generated by the property to be applied to
principal reduction. During the first three years of the loan extension, Apple
Creek has the option to make additional principal reductions in an amount not to
exceed $300,000. As a condition of the loan modification agreement, Apple Creek
was required to pay for all closing costs and pay a 1% fee of the restated
principal balance at closing. In September 1996, the second and third mortgage
notes which matured on February 27, 1995 and were accruing interest at 12% per
annum since that date were assigned to Prospector Chair General Partnership, an
affiliate of the Related General Partner, effective as of December 12, 1996.
Under the terms of the Extension and Modification Agreement, the interest rate
was adjusted to be 7 3/4% and shall continue to be at that rate until default or
maturity. The Maturity Date was also extended to September 12, 2003. The
Extension and Modification Agreement also provided for prepayment options, in
full only (no partial prepayments to be allowed) to payoff the second and third
Mortgages plus accrued interest as follows: (i) for the Period from the
Effective Date to September 12, 2000, the sum of $400,000; (ii) for the Period
from September 13, 2000 to September 12, 2001, the sum of $500,000; (iii) for
the Period from September 13, 2001 to September 12, 2002, the sum of $600,000;
(iv) for the Period from September 13, 2002 to the Maturity Date, the sum of
$868,673.
McAdam Park-336, Ltd.
---------------------
During November 1995, McAdam Park-336, Ltd. ("McAdam") completed a
refinancing of its mortgage debt. The existing debt was refinanced through the
issuance of tax-exempt refunding bonds in the amount of $6,500,000 and by
increasing the project's second mortgage to $8,185,000 (see Note 11). On May 31,
1996, the property and the related assets and liabilities of McAdam were sold to
Fannie Mae for $14,735,000 resulting in a gain in the amount of $6,108,426 and
forgiveness of indebtedness income of $1,320,280 as a result of forgiveness of
interest on mortgage debt and advances from the mortgage note holder (see
above).
-14-
<PAGE>
Other
- - -----
Management's Intentions
In view of the matters described in the preceding paragraphs,
recoverability of the Partnership's investment in the subsidiary partnerships is
dependent upon continued operations of the subsidiary partnerships, which in
turn is dependent upon the subsidiary partnership's ability to meet financing
requirements on a continuing basis and to succeed in future operations.
Management of the Partnership intends to continue to support the
efforts of the Local General Partners of these subsidiary partnerships to
refinance or restructure mortgage indebtedness and to provide consultation and
advice in such matters as required, however, there can be no assurance that such
efforts will be successful.
General
- - -------
The Partnership's investment as a limited partner in the Local
Partnerships is subject to the risks incident to the management and ownership of
improved real estate. The Partnership's investments also could be adversely
affected by poor future economic conditions generally, which, could increase
vacancy levels, rental payment defaults, and increased operating expenses, any
or all of which could threaten the financial viability of one or more of the
Local Limited Partnerships.
There are substantial risks associated with the operation of Apartment
Complexes benefiting from Advantaged Financing. These include governmental
regulations concerning tenant eligibility, which may make it more difficult to
rent apartments in the complexes; difficulties in obtaining government approval
for rent increases; and limitations on the percentage of income which low and
moderate-income tenants may pay as rent.
The Local Partnerships are impacted by inflation in several ways.
Inflation allows for increases in rental rates generally to reflect the impact
of higher operating and replacement costs. Inflation also affects the Local
Partnerships adversely by increasing operating costs as, for example, for such
items as fuel, utilities and labor.
In view of the adverse operating results of certain of the Local
Partnerships as discussed above in this Item 7, recoverability of a major
portion of the Partnership's recorded assets is dependent upon continued
operations of the various Local Partnerships, which in turn is dependent upon
their ability to meet financing requirements on a continued basis. This must be
achieved through continued work-out agreements and/or through improved
operations of the Local Partnerships.
There has recently been an increasing number of requests for the list
of holders of Limited Partnership Interests in limited partnerships such as the
Partnership. Often these requests are made by a person who, only a short time
before making the request, acquired merely a small number of Limited Partnership
Interests in the partnership and seeks the list for an improper purpose, a
purpose that is not in the best interest of the partnership or is harmful to the
partnership. In order to best serve and protect the interests of the Partnership
and all of its investors, the general partners of the Partnership have adopted a
policy with respect to requests for the Partnership's list of holders of Limited
Partnership Interests. This policy is intended to protect investors from
unsolicited and coercive offers to acquire the interests of holders of Limited
Partnership Interests and does not limit any other rights the general partners
may have under the Partnership Agreement or applicable law.
-15-
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Sequential
Page
----------
(a) 1. Financial Statements
Independent Auditors' Report 17
Consolidated Balance Sheets at March 25, 1997 and 1996 48
Consolidated Statements of Operations for the Years Ended
March 25, 1997, 1996 and 1995 49
Consolidated Statements of Changes in Partners' Deficit
for the Years Ended March 25, 1997, 1996 and 1995 50
Consolidated Statements of Cash Flows for the Years Ended
March 25, 1997, 1996, and 1995 51
Notes to Consolidated Financial Statements 54
-16-
<PAGE>
[TRIEN, ROSENBERG, ROSENBERG, WEINBERG,
CIULLO & FAZZARI, LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Partners of
Cambridge Advantaged Properties II
Limited Partnership and Subsidiaries
We have audited the consolidated balance sheets of Cambridge
Advantaged Properties II Limited Partnership and Subsidiaries as of March 25,
1997 and 1996, and the related consolidated statements of operations, changes in
partners' deficit, and cash flows for the years ended March 25, 1997, 1996 and
1995 (the 1996, 1995 and 1994 Fiscal Years, respectively). 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 did not audit the financial statements for 11 subsidiary
partnerships whose losses before extraordinary item aggregated $3,214,557,
$5,786,199 and $3,568,822 during the 1996, 1995 and 1994 Fiscal Years,
respectively, and whose assets constituted 99% and 89% of the Partnership's
assets at March 25, 1997 and 1996, respectively, presented in the accompanying
consolidated financial statements. The financial statements of these subsidiary
partnerships were audited by other auditors whose reports thereon have been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for these subsidiary partnerships, is based solely upon the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of the other
auditors, the accompanying consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cambridge
Advantaged Properties II Limited Partnership and Subsidiaries at March 25, 1997
and 1996, and the results of their operations and cash flows for the years ended
March 25, 1997, 1996 and 1995, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements of Cambridge
Advantaged Properties II Limited Partnership and Subsidiaries have been prepared
assuming that the consolidated entity will continue as going concerns. As
discussed in Notes 2 and 13, the auditors of three (Fiscal 1996) subsidiary
partnerships have modified their reports due to the uncertainties of the
subsidiary partnerships' abilities to continue as going concerns. These
subsidiary partnerships' losses before extraordinary item aggregated $1,036,448,
$2,245,883 and $1,375,088 for the 1996, 1995 and 1994 Fiscal Years,
respectively, and their assets constituted 22% and 20% of the Partnership's
assets at March 25, 1997 and 1996, respectively. These matters raise substantial
doubt about Cambridge Advantaged Properties II Limited Partnership and
Subsidiaries ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 13. The consolidated
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
TRIEN, ROSENBERG, ROSENBERG,
WEINBERG, CIULLO & FAZZARI, LLP
New York, New York
June 23, 1997
-17-
<PAGE>
[DICKEY & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Triangle/Oaks Limited Partnership
We have audited the accompanying balance sheet of TRIANGLE/OAKS LIMITED
PARTNERSHIP as of December 31, 1996, and the related statement of operations,
partners' equity/(deficit) and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TRIANGLE/OAKS LIMITED
PARTNERSHIP as of December 31, 1996, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/S/ DICKEY & WOLF, LLC
DICKEY & WOLF, LLC
Certified Public Accountants
Harrisonville, Missouri
January 15, 1997
<PAGE>
[DICKEY & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Triangle/Oaks Limited Partnership
We have audited the accompanying balance sheet of TRIANGLE/OAKS LIMITED
PARTNERSHIP as of December 31, 1995, and the related statement of operations,
partners' equity/(deficit) and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TRIANGLE/OAKS LIMITED
PARTNERSHIP as of December 31, 1995, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Dickey & Wolf
DICKEY & WOLF, LLC
Certified Public Accountants
Harrisonville, Missouri
January 17, 1996
<PAGE>
[DICKEY, FRANKLIN & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Triangle/Oaks Limited Partnership
We have audited the accompanying balance sheet of TRIANGLE/OAKS LIMITED
PARTNERSHIP as of December 31, 1994, and the related statement of operations,
partners' equity/(deficit) and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TRIANGLE/OAKS LIMITED
PARTNERSHIP as of December 31, 1994, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Dickey, Franklin & Wolf, LLC
DICKEY, FRANKLIN & WOLF, LLC
Certified Public Accountants
Harrisonville, Missouri
February 1, 1995
<PAGE>
[DICKEY & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Sheridan Square Associates of Lawton,
We have audited the accompanying balance sheet of Sheridan Square Associates of
Lawton, (a Oklahoma Limited Partnership) as of December 31, 1996, and the
related statements of operations, changes in partners' equity (deficit), and
cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sheridan Square Associates of
Lawton as of December 31, 1996, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/S/ DICKEY & WOLF, LLC
DICKEY & WOLF, LLC
Certified Public Accountants
Harrisonville, MO
January 27, 1997
<PAGE>
[DICKEY & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Sheridan Square Associates of Lawton
We have audited the accompanying balance sheet of Sheridan Square Associates of
Lawton, (a Oklahoma Limited Partnership) as of December 31, 1995, and the
related statements of operations, changes in partners' equity (deficit), and
cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects the financial position of Sheridan Square Associates of
Lawton as of December 31, 1995, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ Dickey & Wolf
DICKEY & WOLF, LLC
Certified Public Accountants
Harrisonville, MO
January 26, 1996
<PAGE>
[DICKEY, FRANKLIN & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Sheridan Square Associates of Lawton,
A Limited Partnership
Lawton, Oklahoma
We have audited the accompanying balance sheet of Sheridan Square Associates of
Lawton, A Limited Partnership as of December 31, 1994, and the related
statements of operations, changes in partners' equity (deficit), and cash flows
for the year then ended. These financial statements are the responsibility of
the management of Sheridan Square Associates of Lawton, A Limited Partnership.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sheridan Square Associates of
Lawton, A Limited Partnership as of December 31, 1994, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern. The Partnership has suffered
recurring losses from operations
<PAGE>
To the Partners
Sheridan Square Associates of Lawton
Page Two
and has a net capital deficiency. These matters raise substantial doubt about
the ability of the Partnership to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Dickey, Franklin & Wolf, LLC
DICKEY, FRANKLIN & WOLF, LLC
Certified Public Accountants
Harrisonville, MO
January 27, 1995
<PAGE>
[DICKEY & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Apple Creek Associates of Denton, Ltd.
We have audited the accompanying balance sheets of APPLE CREEK ASSOCIATES OF
DENTON, LTD. as of December 31, 1996 and 1995, and the related statements of
operations, statements of changes in partners' equity/(deficit), and statements
of cash flows for the years then ended. These financial statements are the
responsibility of 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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of APPLE CREEK ASSOCIATES OF
DENTON, LTD. as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
/S/ DICKEY & WOLF, LLC
DICKEY & WOLF, LLC
Certified Public Accountants
Harrisonville, MO
January 27, 1997
<PAGE>
[DICKEY & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Apple Creek Associates of Denton, Ltd.
We have audited the accompanying balance sheets of APPLE CREEK ASSOCIATES OF
DENTON, LTD. as of December 31, 1995 and 1994, and the related statements of
operations, statements of changes in partners' equity (deficit), and statements
of cash flows for the years then ended. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of APPLE CREEK ASSOCIATES OF
DENTON, LTD. as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/ Dickey & Wolf
DICKEY & WOLF, LLC
Certified Public Accountants
Harrisonville, MO
January 26, 1996
<PAGE>
[DICKEY & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Galveston-Stewart's Landing, Ltd.
We have audited the accompanying balance sheet of GALVESTON-STEWART'S LANDING,
LTD. (a Texas Limited Partnership) as of December 31, 1996, and the related
statements of operations, changes in partners' equity/(deficit) and cash flows
for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GALVESTON STEWART'S LANDING,
LTD. as of December 31, 1996, and the results of its operations and its cash
flows for the year then ended in conformity to generally accepted accounting
principles.
The accompany financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 9 to the
financial statements, the Partnership has suffered recurring losses from
operations and has a net capital deficiency. In addition, the mortgage holder
commenced foreclosure proceedings and the Partnership has filed a voluntary
relief under Chapter 11 of the United States Bankruptcy Code. These factors
raise substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Dickey & Wolf, LLC
DICKEY & WOLF, LLC
Certified Public Accountants
Harrisonville, MO
January 27, 1997
<PAGE>
[DICKEY, FRANKLIN & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Galveston-Stewart's Landing, Ltd.
We have audited the accompanying balance sheet of GALVESTON-STEWART'S LANDING,
LTD. (a Texas Limited Partnership) as of December 31, 1995, and the related
statements of operations, changes in partners' equity (deficit) and cash flows
for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GALVESTON-STEWART'S LANDING,
LTD. as of December 31, 1995, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As shown in the financial
statements, the Partnership incurred a net loss of $(1,377,231) during the year
ended December 31, 1995. In addition, as explained in Note 8, Beal Bank had
commenced foreclosure on the property during 1995. These conditions raise
substantial doubt about the Partnership's ability to continue as a going
concern.
The ability of the Partnership to continue depends upon its ability to obtain
additional or restructured financing and ultimately to attain a level of
operating profit sufficient to enable it to meets its obligations. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Dickey & Wolf
DICKEY & WOLF, LLC
Certified Public Accountants
Harrisonville, MO
January 26, 1996
<PAGE>
[DICKEY, FRANKLIN & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Galveston-Stewart's Landing, Ltd.
Galveston, TX
We have audited the accompanying balance sheet of GALVESTON-STEWART'S LANDING,
LTD., FHA Project Number 114-35294 (a Limited Partnership), as of December 31,
1994, and the related statements of profit and loss (on HUD Form No. 92410),
partners' equity (deficiency) and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
and HUD Audit Guide. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of GALVESTON-STEWART'S LANDING,
LTD. as of December 31, 1994, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As shown in the financial
statements, the Partnership incurred a net loss of $(308,759) during the year
ended December 31, 1994. As further explained in Note 4 of the financial
statements, the Department of Housing and Urban Development had commenced
foreclosure on the property in 1991. However, during 1994, HUD has accepted a
provisional workout agreement with GALVESTON-STEWART'S LANDING, LTD.
<PAGE>
To the Partners
Galveston-Stewart's Landing, Ltd.
Page Two
The ability of the Partnership to continue depends upon its ability to attain a
level of operating profit sufficient to enable it to meets its obligations. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Dickey, Franklin & Wolf, LLC
DICKEY, FRANKLIN & WOLF, LLC
Certified Public Accountants
Harrisonville, MO
January 27, 1995
<PAGE>
[DICKEY & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Woodridge, Ltd.
We have audited the accompanying balance sheet of WOODRIDGE, LTD., (a California
Limited Partnership) as of December 31, 1996, and the related statement of
operations, partners' equity/(deficit) and cash flows for the year then ended.
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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WOODRIDGE, LTD. as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
/S/ DICKEY & WOLF, LLC
DICKEY & WOLF, LLC
Certified Public Accountants
Harrisonville, MO
January 27, 1997
<PAGE>
[DICKEY & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Woodridge, Ltd.
We have audited the accompanying balance sheet of WOODRIDGE, LTD., (a California
Limited Partnership) as of December 31, 1995, and the related statement of
operations, partners' equity/(deficit) and cash flows for the year then ended.
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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WOODRIDGE, LTD. as of December
31, 1995, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Dickey & Wolf
DICKEY & WOLF, LLC
Certified Public Accountants
Harrisonville, MO
January 26, 1996
<PAGE>
[DICKEY, FRANKLIN & WOLF, LLC LETTERHEAD]
To the Partners
Woodridge, Ltd.
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of WOODRIDGE, LTD., (a California
Limited Partnership) as of December 31, 1994, and the related statement of
operations, partners' equity/(deficit) and cash flows for the year then ended.
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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WOODRIDGE, LTD. as of December
31, 1994, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Dickey, Franklin & Wolf
DICKEY, FRANKLIN & WOLF, LLC
Certified Public Accountants
Harrisonville, MO
Januay 21, 1995
<PAGE>
[REZNICK FEDDER & SILVERMAN LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Players Club at Fort Myers, Ltd.
We have audited the accompanying balance sheets of Players Club at Fort
Myers, Ltd. as of December 31, 1996 and 1995, and the related statements of
operations, partners' deficit and cash flows for the years then ended. 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.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Players Club at Fort Myers,
Ltd. as of December 31, 1996 and 1995, and the results of its operations, and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
partnership will continue as a going concern. As discussed in Note B to the
financial statements, the partnership has incurred operating and cash deficits
and low occupancy levels which raises substantial doubt about the partnership's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note B. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Atlanta, Georgia /s/ Reznick Fedder & Silverman
February 7, 1997 ------------------------------
Reznick Fedder & Silverman
<PAGE>
[REZNICK FEDDER & SILVERMAN LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Players Club at Fort Myers, Ltd.
We have audited the accompanying balance sheets of Players Club at Fort
Myers, Ltd. as of December 31, 1995 and 1994, and the related statements of
operations, partners' deficit and cash flows for the years then ended. 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Players Club at Fort Myers,
Ltd. as of December 31, 1995 and 1994, and the results of its operations, the
changes in partners' deficit and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
partnership will continue as a going concern. As discussed in Note B to the
financial statements, the partnership has incurred operating and cash deficits
and low occupancy levels which raises substantial doubt about the partnership's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note B. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ REZNICK FEDDER & SILVERMAN
Charlotte, North Carolina
February 2, 1996
<PAGE>
[REZNICK FEDDER & SILVERMAN LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Suntree at Fort Myers, Ltd.
We have audited the accompanying balance sheets of Suntree at Fort Myers,
Ltd. as of December 31, 1996 and 1995, and the related statements of operations,
partners' deficit and cash flows for the years then ended. 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.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Suntree at Fort Myers, Ltd.
as of December 31, 1996 and 1995, and the results of its operations, and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
partnership will continue as a going concern. As discussed in Note B to the
financial statements, the partnership has incurred operating and cash deficits
and low occupancy levels which raises substantial doubt about the partnership's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note B. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Atlanta, Georgia /s/ Reznick Fedder & Silverman
February 7, 1997 ------------------------------
Reznick Fedder & Silverman
<PAGE>
[REZNICK FEDDER & SILVERMAN LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Suntree at Fort Myers, Ltd.
We have audited the accompanying balance sheets of Suntree at Fort Myers,
Ltd. (a California limited partnership) as of December 31, 1995 and 1994, and
the related statements of operations, partners' deficit and cash flows for the
years then ended. 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.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Suntree at Fort Myers, Ltd.
as of December 31, 1995 and 1994, and the results of its operations, the changes
in partners' deficit and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
partnership will continue as a going concern. As discussed in Note B to the
financial statements, the partnership has incurred operating and cash deficits
and low occupancy levels which raises substantial doubt about the partnership's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note B. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ REZNICK FEDDER & SILVERMAN
Charlotte, North Carolina
January 29, 1996
<PAGE>
[BDO SEIDMAN, LLP LETTERHEAD]
Independent Auditors' Report
To the Partners of
The Harbours Associates
We have audited the accompanying balance sheet of The Harbours Associates, VHDA
Project No 95-0759 (a limited partnership), as of December 31, 1996, and the
related statements of profit and loss, partners' deficit and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Harbours Associates at
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
Richmond, Virginia
February 9, 1997
<PAGE>
[BDO SEIDMAN, LLP LETTERHEAD]
Independent Auditors' Report
To the Partners of
The Harbours Associates
We have audited the accompanying balance sheets of The Harbours Associates (a
limited partnership) as of December 31, 1995 and 1994, and the related
statements of operations, partners' deficit, and cash flows for the years then
ended. 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Harbours Associates at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
February 9, 1996
<PAGE>
[GEORGE, BOWERMAN, OSBORN & COMPANY, P.A. LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the General Partners
Brookwood Apartments, L.P.
We have audited the accompanying balance sheet of Brookwood Apartments, L.P. (A
Kansas Limited Partnership), Project No. 102-35157-PM as of December 31, 1996,
and the related statements of profit and loss, changes in partners' deficit and
cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brookwood Apartments, L.P. as
of December 31, 1996, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
In accordance with Government Auditing Standards, we have also issued a report
dated January 22, 1997 on our consideration of Brookwood Apartments, L.P.'s
internal control structure and a report dated January 22, 1997 on its compliance
with laws and regulations.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information included in
the report is presented for purposes of additional analysis and is not a
required part of the basic financial statements of Brookwood Apartments, L.P.
Such information has been subjected to the procedures applied in the audit of
the basic financial statements and, in our opinion, is fairly stated, in all
material respects, in relation to the financial statements taken as a whole.
/s/ George, Bowerman, Osborn & Company, P.A.
Wichita, Kansas
January 22, 1997
<PAGE>
[GEORGE, BOWERMAN, OSBORN & COMPANY, P.A. LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the General Partners
Brookwood Apartments, L.P.
We have audited the accompanying balance sheet of Brookwood Apartments, L.P. (A
Kansas Limited Partnership), Project No. 102-35157-PM as of December 31, 1995,
and the related statements of profit and loss, changes in partners' deficit and
cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brookwood Apartments, L.P. as
of December 31, 1995, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
In accordance with Government Auditing Standards, we have also issued a report
dated January 24, 1996 on our consideration of Brookwood Apartments, L.P.'s
internal control structure and a report dated January 24, 1996 on its compliance
with laws and regulations.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information included in
the report is presented for purposes of additional analysis and is not a
required part of the basic financial statements of Brookwood Apartments, L.P.
Such information has been subjected to the procedures applied in the audit of
the basic financial statements and, in our opinion, is fairly stated, in all
material respects, in relation to the financial statements taken as a whole.
/s/ George, Bowerman, Osborn & Company, P.A.
Wichita, Kansas
January 24, 1996
<PAGE>
[GEORGE, BOWERMAN, OSBORN & COMPANY, P.A. LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the General Partners
Brookwood Apartments, L.P.
We have audited the accompanying balance sheet of Brookwood Apartments, L.P. (A
Kansas Limited Partnership), Project No. 102-35157-PM as of December 31, 1994,
and the related statements of profit and loss, changes in partners' deficit and
cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brookwood Apartments, L.P. as
of December 31, 1994, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information included in
the report is presented for purposes of additional analysis and is not a
required part of the basic financial statements of BrooLwood Apartments, L.P.
Such information has been subjected to the procedures applied in the audit of
the basic financial statements and, in our opinion, is fairly stated, in all
material respects, in relation to the financial statements taken as a whole.
/s/ George, Bowerman, Osborn & Company, P.A.
Wichita, Kansas
January 18, 1995
<PAGE>
[BDO SEIDMAN, LLP LETTERHEAD]
Independent Auditors' Report
To the Partners
Westwind II Associates
We have audited the accompanying balance sheets of Westwind II Associates (a
limited partnership) as of December 31, 1996 and 1995, and the related
statements of operations, partners' deficit and cash flows for the years then
ended. 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Westwind II Associates as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
Richmond, Virginia
February 8, 1997
<PAGE>
[BDO SEIDMAN, LLP LETTERHEAD]
Independent Auditors' Report
To the Partners
Westwind II Associates
We have audited the accompanying balance sheets of Westwind II Associates (a
limited partnership) as of December 31, 1995 and 1994, and the related
statements of operations, partners' deficit and cash flows for the years then
ended. 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Westwind II Associates as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
February 9, 1996
<PAGE>
[COOPERS & LYBRAND L.L.P. LETTERHEAD]
Report of Independent Accountants
To the Partners
Suncreek - 268, Ltd.
We have audited the accompanying balance sheet of Suncreek - 268, Ltd. as of
December 31, 1996, and the related statements of operations, changes in
partners' equity (deficit) and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Suncreek - 268, Ltd. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Coopers & Lyland, L.L.P.
Portland, Oregon
February 6, 1997
<PAGE>
[COOPERS & LYBRAND LETTERHEAD]
Report of Independent Accountants
To the Partners
Suncreek - 268, Ltd.
We have audited the accompanying balance sheet of Suncreek - 268, Ltd. as of
December 31, 1995, and the related statements of operations, changes in
partners' deficit and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Suncreek - 268, Ltd. as of
December 31, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand LLP
Portland, Oregon
February 8, 1996
<PAGE>
[COOPERS & LYBRAND LETTERHEAD]
Report of Independent Accountants
To the Partners
Suncreek - 268, Ltd.
We have audited the accompanying balance sheet of Suncreek - 268, Ltd. as of
December 31, 1994, and the related statements of operations, changes in
partners' deficit and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Suncreek - 268, Ltd. as of
December 31, 1994, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 1 to the
financial statements, the Partnership has suffered recurring losses and negative
cash flows from operations and its mortgage note payable may be subject to
mandatory redemption, factors that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that migrht result from the outcome of this uncertainty.
/s/ Coopers & Lybrand LLP
Portland, Oregon
February 8, 1995
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 25
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Property and equipment - at cost, less accumulated depreciation
(Notes 2, 4 and 7) $ 77,764,894 $ 88,408,189
Cash and cash equivalents (Notes 2 and 13) 1,225,369 1,022,522
Cash - restricted for tenants' security deposits 572,624 601,598
Mortgage escrow deposits (Notes 5 and 7) 1,895,569 1,875,866
Deferred costs, net of accumulated amortization (Notes 2 and 6) 2,330,143 1,945,386
Prepaid expenses and other assets 424,003 386,169
------------- -------------
Total assets $ 84,212,602 $ 94,239,730
============= =============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgage notes payable (Notes 7 and 11) $ 98,340,680 $ 116,955,198
Due to selling partners (Note 8) 0 641,303
Accounts payable, accrued expenses and other liabilities 7,573,750 6,961,794
Tenants' security deposits payable 572,624 595,263
Due to general partners of subsidiaries and their affiliates 1,731,240 1,760,369
Due to general partners and affiliates (Note 9) 4,103,650 3,124,563
------------- -------------
112,321,944 130,038,490
------------- -------------
Minority interest (Note 2) 5,111,554 3,629,565
------------- -------------
Commitments and contingencies (Note 13)
Partners' deficit:
Limited Partner (32,571,140) (38,716,495)
General Partner (649,756) (711,830)
------------- -------------
Total partners' deficit (33,220,896) (39,428,325)
------------- -------------
Total liabilities and partners' deficit $ 84,212,602 $ 94,239,730
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
-18-
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended March 25
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Rental, net $ 17,942,395 $ 18,305,514 $ 18,292,506
Other 866,172 1,178,138 1,125,522
Gain on sale of property (Note 11) 6,108,426 0 0
------------ ------------ ------------
Total revenues 24,916,993 19,483,652 19,418,028
------------ ------------ ------------
Expenses
Selling and renting 1,175,793 1,211,297 1,135,615
Administrative and management 1,761,117 1,874,078 1,908,112
Administrative and management-related parties (Note 9) 1,661,940 950,989 985,580
Operating 1,700,813 1,751,876 1,741,630
Repairs and maintenance 3,366,076 3,297,559 2,995,015
Taxes and insurance 2,198,318 2,512,801 2,345,711
Interest 8,158,391 9,561,637 9,032,353
Depreciation and amortization 3,723,813 4,128,593 4,201,105
Provision for impairment of assets (Note 4) 0 1,116,378 0
------------ ------------ ------------
Total expenses 23,746,261 26,405,208 24,345,121
------------ ------------ ------------
Income (loss) before minority interest and extraordinary item 1,170,732 (6,921,556) (4,927,093)
Minority interest in income of subsidiaries (124,886) (42,752) (15,637)
------------ ------------ ------------
Income (loss) before extraordinary item 1,045,846 (6,964,308) (4,942,730)
Extraordinary item - forgiveness of indebtedness
income (Note 12) 5,161,583 6,416,231 3,494,274
------------ ------------ ------------
Net income (loss) $ 6,207,429 $ (548,077) $ (1,448,456)
============ ============ ============
Income (loss) before extraordinary item - limited partners $ 1,035,388 $ (6,894,665) $ (4,893,302)
Extraordinary item - limited partners 5,109,967 6,352,069 3,459,331
------------ ------------ ------------
Net income (loss) - limited partners $ 6,145,355 $ (542,596) $ (1,433,971)
============ ============ ============
Number of limited partnership units outstanding 7,150 7,150 7,150
============ ============ ============
Per limited partnership unit:
Income (loss) before extraordinary item $ 145 $ (964) $ (684)
Extraordinary item 715 888 484
------------ ------------ ------------
Net income (loss) $ 860 $ (76) $ (200)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-19-
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
Total Limited Partners General Partners
------------ ---------------- ----------------
Balance - March 25, 1994 $(37,431,792) $(36,739,928) $(691,864)
Net loss (1,448,456) (1,433,971) (14,485)
------------ ------------ ---------
Balance - March 25, 1995 (38,880,248) (38,173,899) (706,349)
Net loss (548,077) (542,596) (5,481)
------------ ------------ ---------
Balance - March 25, 1996 (39,428,325) (38,716,495) (711,830)
Net income 6,207,429 6,145,355 62,074
------------ ------------ ---------
Balance - March 25, 1997 $(33,220,896) $(32,571,140) $(649,756)
============ ============ =========
See accompanying notes to consolidated financial statements.
-20-
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Year Ended March 25
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 6,207,429 $ (548,077) $(1,448,456)
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Gain on sale of property (Note 11) (6,108,426) 0 0
Extraordinary item - forgiveness of indebtedness
(Note 12) (5,161,583) (6,416,231) (3,494,274)
Depreciation and amortization 3,723,813 4,128,593 4,201,105
Provision for impairment of assets 0 1,116,378 0
Minority interest income of subsidiaries 124,886 42,752 15,637
(Increase) decrease in assets:
Cash-restricted for tenants' security deposits (29,412) (2,442) (7,171)
Mortgage escrow deposits (664,035) 267,998 222,549
Deferred costs 0 0 194
Prepaid expenses and other assets (100,225) (17,148) 36,253
Increase (decrease) in liabilities:
Accounts payable, accrued expenses and other liabilities 2,017,692 2,204,058 1,249,372
Tenants' security deposits payable 29,142 (3,893) 7,171
Increase in due to general partners of
subsidiaries and their affiliates 248 28,514 (440,135)
Decrease in due to general partners of subsidiaries
and their affiliates (29,377) 0 0
Due to general partners and affiliates 979,087 273,069 344,197
----------- ----------- -----------
Total adjustments (5,218,190) 1,621,648 2,134,898
----------- ----------- -----------
Net cash provided by operating activities 989,239 1,073,571 686,442
----------- ----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (436,268) (69,119) (77,753)
(Increase) decrease in mortgage escrow deposits -
replacement reserves 520,459 (844,940) (70,018)
----------- ----------- -----------
Net cash provided by (used in) investing activities 84,191 (914,059) (147,771)
----------- ----------- -----------
Net cash from operating and investing activities,
carried forward 1,073,430 159,512 538,671
</TABLE>
See accompanying notes to consolidated financial statements.
-21-
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE IN CASH AND CASH EQUIVALENTS
(CONTINUED)
<TABLE>
<CAPTION>
Year Ended March 25
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net cash from operating and investing activities,
brought forward 1,073,430 159,512 538,671
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from mortgage notes payable 0 25,514,700 0
Principal payments of mortgage notes payable (729,518) (23,776,639) (466,012)
Increase (decrease) in minority interest 410,202 (209) 0
Increase in deferred costs (551,267) (1,244,470) 0
Increase in due to general partners of subsidiaries
and their affiliates 0 50,428 0
----------- ----------- -----------
Net cash (used in) provided by financing activities (870,583) 543,810 (466,012)
----------- ----------- -----------
Net increase in cash 202,847 703,322 72,659
Cash and cash equivalents at beginning of year 1,022,522 319,200 246,541
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,225,369 $ 1,022,522 $ 319,200
=========== =========== ===========
Supplemental disclosure of cash flows information:
Cash paid during the year for interest $ 6,511,044 $ 7,120,065 $ 8,126,210
=========== =========== ===========
Supplemental disclosures of noncash investing and
financing activities:
Acquisition of property and equipment
contributed by minority interest shareholders $(2,000,000) $ 0 $ 0
Forgiveness of indebtedness (Note 12):
Decrease in mortgage notes payable (10,000,000) (4,892,450) (1,472,166)
Issuance of mortgage notes payable 6,800,000 0 0
Decrease in accounts payable, accrued expenses
and other liabilities (1,320,280) 0 (2,098,555)
Decrease in prepaid and other assets 0 0 76,447
Accrued interest forgiven in connection with
restructuring of mortgage notes payable 0 (2,046,343) 0
Other assets forgiven in connection with restructuring
of mortgage notes payable 0 209,731 0
Net deferred financing costs written off in connection
with restructuring of mortgage notes payable 0 312,828 0
Decrease in due to selling partners (641,303) 0 0
</TABLE>
See accompanying notes to consolidated financial statements.
-22-
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(CONTINUED)
Year Ended March 25
-----------------------------------
1997 1996 1995
----------- ---------- --------
Supplemental disclosures of noncash investing
and financing activities:
Summarized below are the components
of the gain on sale of property:
Decrease in mortgage notes payable
satisfied by sales price (14,685,000) 0 0
Decrease in property and equipment,
net of accumulated depreciation 9,522,260 0 0
Decrease in cash - restricted for
tenants' security deposits 58,386 0 0
Decrease in mortgage escrow deposits 123,873 0 0
Decrease in prepaid expenses
and other assets 62,391 0 0
Decrease in accounts payable, accrued
expenses and other liabilities (85,456) 0 0
Decrease in tenants' security
deposits payable (51,781) 0 0
Decrease in minority interest (1,053,099) 0 0
See accompanying notes to consolidated financial statements.
-23-
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1997
NOTE 1 - Organization
Cambridge Advantaged Properties II Limited Partnership (formerly
Hutton Advantaged Properties II Limited Partnership) ("the Partnership") was
formed pursuant to the laws of the State of Delaware on June 25, 1985. The
Partnership invests, as a limited partner, in limited partnerships ("Local
Partnerships", "Subsidiaries" and "Subsidiary Partnerships"), each of which owns
and operates residential housing developments, which benefit from financing at
rates below those otherwise available from conventional lenders, made available
through various federal and state government programs or through the issuance of
tax-exempt bonds ("Advantaged Financings").
The Partnership holds an interest in 11 Local Partnerships which own
11 Apartment Complexes receiving government assistance. On May 31, 1996, the
property and the related assets and liabilities of McAdam Park-336 were sold to
Fannie Mae (see Note 11).
The general partners of the Partnership are Advantaged Housing
Associates Inc. (the "Advantaged General Partner"), a Delaware corporation and
an affiliate of Lehman Brothers, Inc. ("Lehman"), Related Advantaged Residential
Associates Inc. (the "Related General Partner"), a Delaware corporation and an
affiliate of The Related Companies, Inc. ("Related"), a New York limited
partnership and Related and Cambridge Associates Limited Partnership ("Related
and Cambridge Associates"), a Delaware limited partnership, together the
"General Partners". The general partners of Related and Cambridge Associates are
the Advantaged General Partner and the Related General Partner.
Pursuant to the public offering, which occurred from 1985 through
1986, the Partnership received $35,750,000 of Gross Proceeds from 7,150 Limited
Partnership Interests. No further issuance of Limited Partnership Interests is
anticipated.
The terms of the Partnership's Restated Agreement of Limited
Partnership (the "Limited Partnership Agreement") provide, among other things,
that, subject to certain exceptions, profits and losses be shared 99% by the
limited partners and 1% by the general partners.
Effective May 19, 1995, the Partnership's name was changed from Hutton
Advantaged Properties II Limited Partnership to Cambridge Advantaged Properties
II Limited Partnership.
NOTE 2 - Summary of Significant Accounting Policies
a) Going Concern
As of March 25, 1997, several Local Partnerships are experiencing
financial difficulties. There is substantial doubt about the Partnership's
ability to continue as a going concern. Recoverability of a significant portion
of the Partnership's investments will depend upon material improvements in the
ability of each subsidiary partnership to meet its debt service obligations. In
addition, the level of cash distributions provided to the Partnership by the
Local Partnerships have not been sufficient, and may not be sufficient in the
future, to cover the Partnership's operating expenses. As a result, the
Partnership has required, and may in the future require, funding from other
sources for such purposes. There can be no assurance that the partnership will
be successful in obtaining such financing. The consolidated financial statements
do not include any adjustments that might result from the outcome of these
uncertainties. See Note 13 for management's intentions.
-24-
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1997
NOTE 2 - Summary of Significant Accounting Policies (continued)
b) Basis of Consolidation
The consolidated financial statements include the accounts of
Cambridge Advantaged Properties II Limited Partnership, (the "Partnership"), and
twelve subsidiary partnerships ("subsidiaries", "subsidiary partnerships" or
"Local Partnerships") one of which only has activity through the date of sale of
its property and the related assets and liabilities which occurred on May 31,
1996. The Partnership is a limited partner, with an ownership interest of 98% in
each of the subsidiary partnerships. Through the rights of the Partnership
and/or a General Partner, which General Partner has a contractual obligation to
act on behalf of the Partnership, to remove the general partner of the
subsidiary local partnerships and to approve certain major operating and
financial decisions, the Partnership has a controlling financial interest in the
subsidiary local partnerships.
The Partnership's fiscal year ends March 25. All subsidiaries
have fiscal years ending December 31. Accounts of subsidiaries have been
adjusted for intercompany transactions from January 1 through March 25.
All intercompany accounts and transactions have been eliminated
in consolidation.
Increases (decreases) in the capitalization of consolidated
subsidiaries attributable to minority interest arise from cash contributions and
cash distributions to the minority interest partners.
Losses attributable to minority interests which exceed the
minority interests' investment in a subsidiary have been charged to the
Partnership. Such losses aggregated $2,200, $47,500 and $39,400 for the years
ended March 25, 1997, 1996 and 1995 (the 1996, 1995 and 1994 Fiscal Years,
respectively). The Partnership's investment in each subsidiary is equal to the
respective subsidiary's partners' equity less minority interest capital, if any.
In consolidation, all subsidiary partnership losses are included in the
Partnership's capital account except for losses allocated to minority interest
capital.
c) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks and
investments in short-term highly liquid instruments purchased with original
maturities of less than three months.
d) Property and Equipment
In March 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". Under SFAS No. 121, the Partnership is required to review long-lived assets
and certain identifiable intangibles for impairment whenever events or changes
in circumstances indicate that the book value of an asset may not be
recoverable. An impairment loss should be recognized whenever the review
demonstrates that the book value of a long-lived asset is not recoverable.
Effective March 26, 1996, the Partnership adopted SFAS No. 121, consistent with
the required adoption period.
Property and equipment are carried at the lower of depreciated
cost or estimated amounts recoverable through future operations and ultimate
disposition of the property. Cost includes the purchase price, acquisition fees
and expenses, and any other costs incurred in acquiring the properties. The cost
of property and equipment is depreciated over their estimated useful lives using
accelerated and straight-line
-25-
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1997
NOTE 2 - Summary of Significant Accounting Policies (continued)
methods. Expenditures for repairs and maintenance are charged to expense as
incurred; major renewals and betterments are capitalized. At the time property
and equipment are retired or otherwise disposed of, the cost and accumulated
depreciation are eliminated from the assets and accumulated depreciation
accounts and the profit or loss on such disposition is reflected in earnings. A
provision for loss on impairment of assets is recorded when estimated amounts
recoverable through future operations and sale of the property on an
undiscounted basis are below depreciated cost. Property investments themselves
are reduced to estimated fair value (generally using discounted cash flows) when
the property is considered to be impaired and the depreciated cost exceeds
estimate fair value. During the fiscal year ended March 25, 1996 and through
March 25, 1997, the Partnership has recorded approximately $1,116,000 as a
provision for loss on impairment of assets.
e) Amortization
Deferred costs are being amortized over their respective periods
of benefit.
f) Income Taxes
No provision has been made for income taxes in the accompanying
financial statements since such taxes, if any, are the responsibility of the
individual partners. For income tax purposes, the Partnership has a fiscal year
ending December 31 (Note 10).
g) Loss Contingencies
The Partnership records loss contingencies as a charge to income
when information becomes available which indicates that it is probable that an
asset has been impaired or a liability has been incurred as of the date of the
financial statements and the amount of loss can be reasonably estimated.
h) Use of estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
NOTE 3 - Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments (all of which are held for
non-trading purposes) for which it is practicable to estimate that value:
Cash and Cash Equivalents, Certificates of Deposit, Mortgage
Escrow Deposits and Cash-Restricted for Tenants' Security Deposits
The carrying amount approximates fair value.
Mortgage Notes Payable
The fair value of mortgage notes payable is estimated, where
practicable, based on the borrowing rate currently available for similar loans.
-26-
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1997
NOTE 3 - Fair Value of Financial Instruments
The estimated fair values of the Partnership's mortgage note payable
are as follows:
March 25, 1997 March 25, 1996
------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
Mortgage Notes Payable
for which it is:
Practicable to estimate
fair value $90,520,391 $87,225,398 $85,445,797 $81,476,701
Not Practicable (a) $ 7,820,289 $ 0 $31,509,401 $ 0
(a) Management believes it is not practical to estimate the fair
value of the mortgage notes payable because mortgage programs with similar
characteristics are not currently available to the partnerships.
Accounts payable and accrued expenses
The estimated fair value of the Partnership's accounts payable and
accrued expenses which are different than carrying value are as follows:
March 25, 1997 March 25, 1996
------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
Accounts payable and
accrued expenses for
which it is:
Practicable to estimate
fair value $ 4,828,566 $ 609,586 $ 3,904,929 $ 302,545
The carrying amount of other assets and liabilities reported on the
statement of financial position that require such disclosure approximates fair
value.
-27-
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1997
NOTE 4 - Property and Equipment
The components of property and equipment and their estimated useful
lives are as follows:
March 25
------------------------------ Estimated
1997 1996 Useful Lives
------------- ------------- ------------
Land* $ 13,960,010 $ 11,960,011
Buildings and improvements 101,406,102 116,307,408 15-40 Years
Furniture and fixtures 5,523,339 5,880,928 5-15 Years
------------- -------------
120,889,451 134,148,347
Less: Accumulated depreciation (43,124,557) (45,740,158)
------------- -------------
$ 77,764,894 $ 88,408,189
============= =============
*For one subsidiary partnership, Suncreek, land was leased but no
payment was required until certain cash flow levels are achieved. No payments
were required in the 1996, 1995 and 1994 Fiscal Years. In connection with
Suncreek's refinancing in April 1996, Suncreek amended the terms of its
partnership agreement with the general partner to reflect the elimination of the
land lease together with all accrued and unpaid land lease payments and the
general partner's contribution to Suncreek of the underlying land (see Note 7).
The land was recorded at $2,000,000 which represents the estimation by
Suncreek's management of its fair market value as of the contribution date.
Depreciation expense for the 1996, 1995, and 1994 Fiscal Years
amounted to $3,557,303, $3,923,830 and $3,961,144, respectively.
During the 1996 Fiscal Year there was a decrease in accumulated
depreciation in the amount of approximately $6,173,000 due to the sale of McAdam
(see Note 11).
Galveston-Stewarts Landing, Ltd. ("Galveston") has experienced
significant cash flow problems and is presently in default on the Mortgage Note
Payable. Beal Bank then commenced foreclosure proceedings. In order to stay such
proceedings, Galveston filed a voluntary petition under Chapter 11 of the United
States Bankruptcy Code in August 1996. As a result of the 1995 loss combined
with a history of operating and cash flows losses, it was determined that an
impairment of property and equipment existed at December 31, 1995. The
impairment loss was determined to be $1,116,378 and reported separately in the
Consolidated Statements of Operations. The amount of the impairment loss was
determined based on the difference on the carrying value of property and
equipment (net of depreciation) and the appraisal provided by Beal Bank, the
underlying mortgage holder. The appraisal was dated January 29, 1996, in the
amount of $4,050,000.
-28-
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1997
NOTE 5 - Mortgage Escrow Deposits
Mortgage escrow deposits consist of the following:
March 25
-----------------------
1997 1996
---------- ----------
Reserve for replacements $ 877,739 $1,398,198
Real estate taxes, insurance and other 1,017,830 477,668
---------- ----------
$1,895,569 $1,875,866
========== ==========
NOTE 6 - Deferred Costs
The components of deferred costs and their periods of amortization are
as follows:
<TABLE>
<CAPTION>
March 25
-------------------------- Period
1997 1996 (Months)
----------- ----------- --------
<S> <C> <C> <C>
Organization fee (a)(b) $ 102,709 $ 102,709 60
Bond and financing fees 3,068,899 2,517,632 65-240
----------- -----------
3,171,608 2,620,341
Less: Accumulated amortization (841,465) (674,955)
----------- -----------
$ 2,330,143 $ 1,945,386
=========== ===========
</TABLE>
(a) Represents fees to the Partnership's general partners and
affiliates.
(b) Payable from capital contributions of the Partnership to the
subsidiary partnerships.
Amortization of deferred costs for the 1996, 1995 and 1994 Fiscal
Years aggregated $166,510, $204,764 and $239,961, respectively.
During the 1996, 1995 and 1994 Fiscal Years, respectively,
approximately $0, $60,000 and $899,000 of fully amortized deferred costs were
written off.
NOTE 7 - Mortgage Notes Payable
The mortgage notes are payable in aggregate monthly installments of
approximately $614,000, including principal and interest at rates varying from
3.7% to 10.5% per annum, through 2030. Each subsidiary partnership's mortgage
note payable is collateralized by the land and buildings of the respective
subsidiary partnership, the assignment of certain subsidiary partnership's rents
and leases and is without further recourse.
-29-
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1997
NOTE 7 - Mortgage Notes Payable (continued)
Annual principal payment requirements for each of the next five fiscal
years are as follows:
Year Ending December 31 Amount
----------------------- -----------
1997 $ 769,370
1998 820,078
1999 874,309
2000 8,198,290
2001 7,241,698
Thereafter 80,436,935
-----------
$98,340,680
===========
The mortgage agreements require monthly deposits to replacement
reserves of approximately $66,000 and monthly deposits to escrow accounts for
real estate taxes, hazard and mortgage insurance and other (see Note 5).
Suncreek - 268, Ltd.
--------------------
In 1985, Suncreek-268 Ltd. ("Suncreek") obtained a $10,000,000
variable rate mortgage loan from the County of Sacramento, California (the
County) which was to mature in April 2007. In connection with the mortgage loan,
Suncreek obtained a $10,000,000 irrevocable letter of credit, which was provided
to the County as additional collateral. During 1995, the mortgage loan from the
County was paid in full by Resolution Trust Corporation (RTC), by drawing upon
the letter of credit. During 1996, Suncreek, RTC and the County agreed to
replace the mortgage loan by issuing bonds, resulting in recognizing a
$3,200,000 extraordinary gain from the forgiveness of debt relating to the
mortgage loan.
On April 15, 1996, Suncreek entered into an agreement with the County
to issue $6,800,000 in bonds which mature April 1, 2026, with interest at
variable rates (adjusted weekly - 3.7% at December 31, 1996) payable in monthly
installments through May 1, 1998, when payments of $10,000 per month will begin.
The payments will be accumulated in an interest bearing account until $100,000
is accumulated and then will be used to begin redeeming the bonds. Suncreek
entered into a Reimbursement Agreement and a Collateral Security Agreement with
the Bank which set forth how payments to the bond holders are to be made. In
conjunction with these agreements, the Bank has issued an Irrevocable Letter of
Credit (the Letter) in favor of First Trust of California, the Trustee for the
bond holders in the amount of $6,878,247. In connection with the Letter,
Suncreek incurs an annual fee of 1.37% of the letter of credit. The California
State Teacher's Retirement System (CALSTRS) has entered into a Confirmation
Agreement with the Bank whereby CALSTRS has agreed to honor the Letter of Credit
from the Bank in the event that U.S. Bank is unable to honor the Letter.
Refinancing costs incurred in connection with the agreements described
above of $559,864 were paid by the general partner and accounted for as a
capital contribution.
In connection with the agreements above, Suncreek entered into a new
Regulatory Agreement with the County which requires that at least 20% of the
available units be rented to very low income tenants (as defined). Suncreek was
in compliance with this requirement as of December 31, 1996.
In connection with the refinancing under which Suncreek will pay a
substantially lower interest rate on a lower principal amount, the Partnership
amended the terms of its partnership agreement with Robert Randall, ("Randall"),
the general partner of Suncreek, to reflect the elimination of the land lease
together with all accrued and unpaid land lease payments, Randall's contribution
to Suncreek of the underlying land, as well
-30-
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1997
NOTE 7 - Mortgage Notes Payable (continued)
as the elimination of all other existing guarantee agreements between the
partners. The land was recorded at $2,000,000 which represents the estimation by
Suncreek's management of its fair market value as of the contribution date. In
addition, the balance of a note payable to the selling partner amounting to
$641,303 which represented a portion of the original purchase price was
forgiven.
Apple Creek Associates of Denton, Ltd.
--------------------------------------
The first mortgage note of Apple Creek Associates of Denton, Ltd.
("Apple Creek") matured during February 1995. Since the maturity date Apple
Creek had been involved in negotiations to obtain a loan modification on the
first mortgage and had continued to make required interest and principal
payments. During February 1996, Apple Creek executed a loan modification
agreement, which provided among other things for an extension of the maturity
date of the loan for five years . Terms of the note require monthly payments of
principal and interest computed at an interest rate of 8.5%, based on an
amortization period of 25 years. In addition, Apple Creek agreed to remit on a
quarterly basis 25% of cash flow generated by the property to be applied to
principal reduction. During the first three years of the loan extension, Apple
Creek has the option to make additional principal reductions in an amount not to
exceed $300,000. As a condition of the loan modification agreement, Apple Creek
was required to pay for all closing costs and pay a 1% fee of the restated
principal balance at closing. In September 1996, the second and third mortgage
notes which matured on February 27, 1995 and were accruing interest at 12% per
annum since that date were assigned to Prospector Chair General Partner, an
affiliate of the Related General Partner, effective as of December 12, 1996.
Under the terms of the Extension and Modification Agreement, the interest rate
was adjusted to be 7 3/4% and shall continue to be at that rate until default or
maturity. The Maturity Date was also extended to September 12, 2003. The
Extension and Modification Agreement also provided for prepayment options, in
full only (no partial prepayments to be allowed) to payoff the Second and Third
Mortgages plus accrued interest as follows: (i) for the Period from the
Effective Date to September 12, 2000, the sum of $400,000; (ii) for the Period
from September 13, 2000 to September 12, 2001, the sum of $500,000; (iii) for
the Period from September 13, 2001 to September 12, 2002, the sum of $600,000;
(iv) for the Period from September 13, 2002 to the Maturity Date, the sum of
$868,673.
McAdam Park-336, Ltd.
---------------------
During November 1995, McAdam Park-336, Ltd. ("McAdam") completed a
refinancing of its mortgage debt. The existing debt was refinanced through the
issuance of tax-exempt refunding bonds in the amount of $6,500,000 and by
increasing the project's second mortgage to $8,185,000 (see Note 11). On May 31,
1996, the property and the related assets and liabilities of McAdam were sold to
Fannie Mae for $14,735,000 resulting in a gain in the amount of $6,108,426 and
forgiveness of indebtedness income of $1,320,280 as a result of forgiveness of
interest on mortgage debt and advances from the mortgage note holder (see Note
10).
NOTE 8 - Due to Selling Partners
Short-term notes payable in the original amount of $14,171,840 were
issued to the selling partners of the subsidiary partnerships as part of the
purchase price, plus cash payments of $4,894,910. Payment dates of the
noninterest bearing notes were subject to various conditions including
break-even and occupancy rental levels. In connection with the refinancing of
the mortgage debt of Suncreek, the balance of the note payable to the selling
partner amounting to $641,303 was forgiven (see Note 7).
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<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1997
NOTE 9 - Related Party Transactions
One of the general partners of the Partnership, Related/Cambridge
Associates, has a 1% interest as a special limited partner in each of the
subsidiary partnerships.
Whitney Management Corp., an affiliate of the Related General Partner,
is the general partner of one and managing agent of four of the properties.
Fees incurred to related parties for the years ended March 25, 1997,
1996 and 1995 were as follows:
Year Ended March 25
------------------------------------
1997 1996 1995
---------- -------- --------
Partnership management fees (a) $ 765,000 $ 60,000 $ 60,000
Expense reimbursement (b) 82,927 77,677 89,368
Property management fees (c) 804,013 803,312 826,212
Local administrative fee (d) 10,000 10,000 10,000
---------- -------- --------
$1,661,940 $950,989 $985,580
========== ======== ========
(a) After all other expenses of the Partnership are paid, an annual
partnership management fee of up to .5% of invested assets is payable to the
Partnership's general partners and affiliates. Partnership management fees have
been charged to operations and are included in administrative and
management-related parties expenses. Partnership management fees owed to the
general partners amounting to approximately $1,222,000 and $457,000 were accrued
and unpaid as of March 25, 1997 and 1996, respectively.
(b) An affiliate of the Related General Partner performs services for
the Partnership which include, but are not limited to: accounting and financing
management, registrar, transfer and assignment functions, asset management,
investor communications, printing and other administrative services. The amount
of reimbursement from the Partnership is limited by the provisions of the
Partnership agreement. Another affiliate of the General Partners performs asset
monitoring for the Partnership. These services include site visits and
evaluations of the subsidiary partnerships' performances. Expense reimbursements
and asset monitoring fees owed to the General Partner amounting to approximately
$458,000 and $373,000 were accrued and unpaid as of March 25, 1997 and 1996,
respectively.
(c) Property management fees paid by subsidiary partnerships amounted
to $872,604, $862,480 and $879,563 for the 1996, 1995 and 1994 Fiscal Years,
respectively. Of these fees, $437,151, $433,519 and $323,726, were incurred to
affiliates of the subsidiary partnerships. In addition, $582,597, $587,800 and
$616,956, were incurred to affiliates of the Related General Partner for the
1996, 1995 and 1994 Fiscal Years, respectively. Of such amounts incurred to
affiliates of the Related General Partner, $215,735, $218,007 and $114,470, are
also included in amounts incurred to affiliates of the subsidiary partners
because they were incurred to affiliates of both.
(d) Related and Cambridge Associates, a limited partner of the
subsidiary partnerships is entitled to receive a local administrative fee of up
to $2,500 from each subsidiary partnership.
-32-
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1997
NOTE 9 - Related Party Transactions (continued)
Related and Cambridge Associates, a General Partner of the
Partnership, is a special limited partner of each Local Partnership, with a 1%
interest in profits, losses and distributions. Distributions aggregating $129
and $0 were made to Related and Cambridge Associates for the 1996 and 1995
Fiscal Years.
C/R Florida Associates, L.P., a Delaware limited partnership ("C/R
Florida"), is the general partner of Players Club and Suntree, with a 1%
interest in profits, losses and distributions. The Related General Partner and
the Advantaged General Partner are the general partners of C/R Florida.
During September 1988, the Partnership obtained a $793,867 loan from
an affiliate of the Related General Partner. This loan accrues interest at the
bank's prime rate plus 1% and is repayable from all available cash sources.
These funds, together with $2,545,223 of Partnership funds, were advanced by the
Partnership to complete Oaks refinancing and to provide adequate working capital
for the local partnership. Approximately $2,750,000 was outstanding at both
March 25, 1997and 1996 (see Note 13).
As of March 25, 1997, an affiliate of the Related General Partner
advanced $310,926 to the Partnership, none of which was advanced in the 1996 or
1995 Fiscal Years. These funds were advanced by the Partnership to Sheridan to
provide working capital . Such note is noninterest bearing (see Note 13).
As of March 25, 1997, the Partnership and Whitney Management
Corporation, an affiliate of the Local General Partner, and the Partnership had
advanced $606,445 to Galveston, none of which was advanced during the 1996 and
1995 Fiscal Years, respectively. These funds were advanced to provide working
capital to the subsidiary partnership. Such note is noninterest bearing.
Approximately $549,000 was outstanding at both March 25, 1997 and 1996 (see Note
13).
The Partnership advanced $473,007 to McAdam in connection with the
restructuring of their mortgage debt, none of which was advanced during the 1996
and 1995 Fiscal Years. Although these advances were treated as voluntary loans
as defined in the subsidiary partnership agreement, by separate agreement with
the mortgagee, these advances were noninterest bearing. The loan was subordinate
to the mortgage notes and repayment was expected only from resale of the
Property or refinancing of the mortgage debt. In 1996, such advances were
forgiven as a result of a sale of the property and the related assets and
liabilities of McAdam (see Note 11).
As of March 25, 1997, the Partnership had advanced Apple Creek
approximately $853,000, none of which was advanced during the 1996 or 1995
Fiscal Years.
Due to local general partners and affiliates at March 25, 1997 and
1996 consists of the following:
December 31,
-----------------------
1996 1995
---------- ----------
Operating deficit loans (*) $1,625,441 $1,625,441
Long-term note payable (**) 10,000 25,000
Management and other operating advances 95,799 109,928
---------- ----------
$1,731,240 $1,760,369
========== ==========
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<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1997
NOTE 9 - Related Party Transactions (continued)
(*) Operating deficit loans include five loans payable to local
general partners and affiliates which are unsecured, non-interest bearing and
are payable out of available surplus cash, of the respective subsidiary
partnership, or at the time of sale or refinancing.
(**) One subsidiary partnership has a long-term note payable to its
local general partner. The note, which matures in 1997, requires monthly
principal payments in the amount of $1,250 plus interest at the prime rate.
NOTE 10 - Income Taxes
A reconciliation of the financial statement net loss to the income tax
loss for the Partnership and its consolidated subsidiaries is as follows:
Year Ended December 31
----------------------------------------
1996 1995 1994
----------- ----------- -----------
Financial statement net income (loss) $ 6,207,429 $ (548,077) $(1,448,456)
Difference between depreciation expense
recorded for financial reporting
purposes and the accelerated cost
recovery system utilized for
income tax purposes (1,174,962) (1,068,098) (1,260,062)
Gain on sale of property 2,672,002 0 0
Extraordinary item - forgiveness
of indebtedness (64,000) 0 0
Debt restructuring (318,479) (352,835) 0
Provision for impairment of assets 0 1,116,378 0
Other 238,085 (763,090) (375,334)
----------- ----------- -----------
Income (loss) as shown on the
income tax return
for the calendar year ended $ 7,560,075 $(1,615,722) $(3,083,852)
=========== =========== ===========
NOTE 11 - Sale of Property
On May 31, 1996, the property and the related assets and liabilities
of McAdam were sold to Fannie Mae for $14,735,000 resulting in a gain in the
amount of $6,108,426 and forgiveness of indebtedness income of $1,320,280 as a
result of forgiveness of interest on mortgage debt and advances from the
mortgage note holder.
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<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1997
NOTE 12 - Extraordinary Item - Forgiveness of Indebtedness Income
Extraordinary items-forgiveness of indebtedness consist of the
follows:
Year Ended March 25
------------------------------------
1996 1995 1994
---------- ---------- ----------
McAdam Park-336 Ltd. $1,320,280 $1,092,796 $ 0
Suncreek 3,841,303 0 0
Woodridge 0 1,462,450 0
Westwind II 0 1,560,716 0
Harbours 0 2,300,269 0
Triangle/Oaks Limited Partnership 0 0 3,494,274
---------- ---------- ----------
$5,161,583 $6,416,231 $3,494,274
========== ========== ==========
McAdam
------
During November 1995, McAdam refinanced its mortgage debt. Accrued and
unpaid mortgage interest of $1,346,343 net of unamortized deferred mortgage
costs of $253,547 was forgiven and recorded as an extraordinary item (see Note
7).
On May 31, 1996 the property and the related assets and liabilities of
McAdam were sold to Fannie Mae for $14,685,000. For financing reporting
purposes, forgiveness of indebtedness income of $1,320,280 was realized (see
Note 11).
Suncreek
--------
In April 1996, Suncreek completed a refinancing of its mortgage debt
resulting in forgiveness of indebtedness income of $3,200,000 which was realized
as a result of forgiveness of former mortgage debt. In addition, the balance of
a note payable to the selling partner amounting to $641,303 which represented a
portion of the original purchase price was also forgiven (see Note 7).
Woodridge
---------
During 1995, Woodridge completed a refinancing of its first mortgage
debt which matured on June 1, 1995 (see Note 7). As a result of the refinancing,
the previous mortgage including past due interest was discounted and paid and an
extraordinary gain of $1,462,450 was realized.
Westwind II
-----------
During 1995 Westwind II incurred an extraordinary gain of $1,560,716
on the early retirement of the debt related to the Multifamily Rental Housing
Revenue bonds issued by the authority of the Roanoke Redevelopment and Housing
Authority. Westwind II retired the debt at a discount, using the funds obtained
from a mortgage issued by FHA. The debt balance at the time of the refinancing
was $5,660,000 and the amount paid to retire the debt was $4,040,000 resulting
in a discount of $1,620,000. The gain was offset by the write off of the net
unamortized deferred mortgage costs of $59,284 related to the bonds.
-35-
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1997
NOTE 12 - Extraordinary Item - Forgiveness of Indebtedness Income (continued)
Harbours
--------
During 1995 Harbours incurred an extraordinary gain of $2,300,269 on
the early retirement of the debt related to the Multifamily Rental Housing
Revenue bonds issued by the authority of the Newport News Redevelopment and
Housing Authority. Harbours retired the debt at a discount, using the funds
obtained from a mortgage issued by Virginia Housing Development Authority. The
debt balance at the time of the refinancing was $15,525,000 and the amount paid
to retire the debt was $13,015,000 resulting in a discount of $2,150,000. The
gain was offset by the write off of certain other assets of $209,731 related to
the bonds.
Triangle/Oaks Limited Partnership
---------------------------------
During 1994, the debt of Triangle/Oaks Limited Partnership ("Oaks")
was modified. As a result of the modification, three subordinated notes
previously recorded as a liability of the partnership in the amount of
$1,472,166 were surrendered by the mortgagee and cancelled. In addition,
interest previously accrued on the subordinated and wrap notes were also
cancelled. Trustee fees were forgiven and legal costs incurred during 1994 were
netted against the reduced liabilities resulting in a recognized extraordinary
gain of $3,494,274 during the 1994 Fiscal Year.
NOTE 13 - Commitments and Contingencies
a) Events of Default and Going Concern
The financial statements for three subsidiary partnerships have
been prepared assuming each will continue as a going concern. The circumstances
described below as well as matters discussed in Note 2 raise substantial doubt
about the Partnership and its consolidated subsidiaries ability to continue as a
going concern. The auditors for these three subsidiary partnerships modified
their reports on the 1996 Fiscal Year financial statements due to the
uncertainty of each subsidiary partnership's ability to continue as a going
concern. The three subsidiary partnerships are Galveston, Players Club and
Suntree.
In view of the matters described in the preceding paragraph,
recoverability of the Partnership's investment in the subsidiary partnerships is
dependent upon continued operations of the subsidiary partnerships, which in
turn are dependent upon the ability of each subsidiary partnership to meet
financing requirements on a continuing basis and to succeed in future
operations. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the subsidiary
partnerships be unable to continue in existence.
Management of the Partnership intends to continue to support the
efforts of the Local General Partners of these subsidiary partnerships to
refinance or restructure mortgage indebtedness and to provide consultation and
advice in such matters as required.
The following is a description of each subsidiary's events of
default and going concern issues, as well as the courses of action taken by the
respective local general partners to enable the subsidiary partnerships to
achieve such goals.
-36-
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1997
NOTE 13 - Commitments and Contingencies (continued)
a) Events of Default and Going Concern (continued)
Galveston
---------
Galveston has sustained continued operating deficits and has a net
partners' deficiency of approximately $5,765,000 at March 25, 1997. Galveston's
mortgage note was originally due to HUD. During 1995, HUD assigned and
transferred the mortgage note to Beal Bank. On December 14, 1995, Galveston was
notified that the mortgage note was in default and Galveston was in arrears on
required principal and interest in the amount of approximately $427,000 and
$2,359,000, respectively. Beal Bank then commenced foreclosure proceedings. In
order to stay such proceedings, Galveston filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code in August 1996. These factors
create an uncertainty about Galvestons' ability to continue as a going concern.
Galveston is presently developing a plan to reorganize under Chapter 11 of the
United States Bankruptcy Code. The ability of Galveston to continue as a going
concern is dependent on acceptance of the plan by Galvestons' bank creditors and
the plan's success. The financial statements do not include any adjustments that
might be necessary if Galveston is unable to continue as a going concern. As of
March 25, 1997 the Partnership had advanced $606,445 of interest-free loans to
Galveston of which approximately $549,000 remains unpaid at March 25, 1997. The
Partnership's investment in Galveston has been reduced to zero by prior years'
losses. The minority interest balance in Galveston was zero at both March 25,
1997 and 1996. Galveston's net loss after minority interest amounted to
approximately $109,000 $1,377,000, and $357,000 for the 1996, 1995, and 1994
Fiscal Years, respectively.
Players Club at Fort Meyers, Ltd. and Suntree at Fort Meyers, Ltd.
------------------------------------------------------------------
Players Club at Fort Meyers, Ltd. ("Players Club") and Suntree at Fort
Meyers, Ltd. ("Suntree") have incurred operating losses and cash flow deficits
due to low occupancy levels. At March 25, 1997, Players Club and Suntree have
partners' deficiencies of approximately $3,286,000 and $2,401,000, respectively.
In addition, the Local General Partners' operating deficit guarantees have
expired and there is no further obligation to continue to fund operating
deficits. The Partnership entered into agreements with bondholders in January
1993 (further modified effective January 1996 and again extended and modified
effective January 1997). The extension of the forbearance agreements call for
minimum debt service payments at the rate of 6.5% and 7.5% for the periods
January 1, 1997 through June 30, 1997, July 1, 1997 through December 31, 1997,
respectively, for Suntree and 6.5% and 6.25% for the periods January 1, 1997
through January 31, 1997 and February 1, 1997 through December 31, 1997,
respectively, for Players Club, at which time the minimum pay rates increased to
the original stated rates of 8%. The difference between the minimum pay rate and
the stated rate is payable from all future available cash flow or is deferred to
be paid from sales/refinancing proceeds. Recoverability of a major portion of
the recorded asset amounts shown in the accompanying balance sheet is dependent
upon continued operation of the subsidiary partnerships, which is dependent upon
their abilities to meet financing requirements on a continuing basis, to
maintain present financing, and to succeed in future operations. In addition,
management has taken steps to control the subsidiary partnerships' operating
expenses.
The Partnership's investments in Players Club and Suntree have been
reduced to zero by prior years' losses. The minority interest balance for
Players Club was approximately $7,000 and $18,000 at March 25, 1997 and 1996,
respectively. In the case of Suntree, the minority interest balance was
approximately $11,000 and $18,000 at March 25, 1997 and 1996, respectively.
Players Club's net loss after minority interest amounted to approximately
$559,000, $544,000 and $597,000 for the 1996, 1995 and 1994 Fiscal Years,
respectively. Suntree's net loss after minority interest amounted to
approximately $350,000, $307,000 and $401,000 for the 1996, 1995 and 1994 Fiscal
Years, respectively.
-37-
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1997
NOTE 13 - Commitments and Contingencies (continued)
b) Uninsured Cash and Cash Equivalents
The Partnership maintains cash and cash equivalents in various
banks. Accounts at each bank are guaranteed by the Federal Deposit Insurance
Corporation ("FDIC") up to $100,000. As of March 25, 1997, uninsured cash and
cash equivalents approximated $300,000.
c) Other
The Partnership is subject to risks incident to potential losses
arising from the management and ownership of improved real estate. The
Partnership can also be affected by poor economic conditions generally, however
no more than 27% of the properties are located in any single state. There are
also substantial risks associated with owning properties receiving government
assistance, for example the possibility that Congress may not appropriate funds
to enable HUD to make rental assistance payments. HUD also restricts annual cash
distributions to partners based on operating results and a percentage of the
owners equity contribution. The Partnership cannot sell or substantially
liquidate its investments in subsidiary partnerships during the period that the
subsidy agreements are in existence, without HUD's approval. Furthermore there
may not be market demand for apartments at full market rents when the rental
assistance contract expire.
Each subsidiary partnership with restricted assets had
liabilities in excess of assets at December 31, 1996.
-38-
<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 Partnership has no directors or executive officers.
Advantaged Housing Associates Inc., the Advantaged General Partner, is
an affiliate of Lehman. Related Advantaged Residential Associates Inc., (Related
General Partner), is an affiliate of The Related Companies, L.P. ("Related").
The general partner of Related is The Related Realty Group, Inc., of which
Stephen M. Ross is president, director and a stockholder. The General Partners
will manage and control the affairs of the Partnership directly and engage other
affiliates of Related and Lehman, to assist them in connection herewith.
Certain information concerning the directors and executive officers of
the General Partners are set forth below.
Advantaged Housing Associates Inc.
- - ----------------------------------
Advantaged Housing Associates Inc. was incorporated in Delaware on
June 25, 1985. As described below, several of the executive officers and
directors of the Advantaged General Partner have had significant experience in
the real estate business. The Advantaged General Partner reviews the operations,
budgets and financial results of the Partnership and Local Partnerships on an
ongoing basis. The Advantaged General Partner and/or its affiliates, through
participation on the Investment Committee or otherwise, will provide
consultation and advice with respect to proposed sales and refinancings of the
Partnership's investments in appropriate circumstances. The Advantaged General
Partner also assists in the preparation of, and reviews and comments upon, all
filings required to be made by the Partnership with the Securities and Exchange
Commission, the Internal Revenue Service, and any other federal or state
government body, and communications with and reports to Limited Partners.
The directors and executive officers of the Advantaged General Partner
are as follows:
PAUL L. ABBOTT, 51, is President of the Advantaged General Partner and
the Managing Director of Lehman Brothers. Mr. Abbott joined Lehman in August
1988, and is responsible for investment management of residential, commercial
and retail real estate. Prior to joining Lehman, Mr. Abbott was a real estate
consultant and a senior officer of a privately held company specializing in the
syndication of private real estate limited partnerships. From 1974 to 1983, Mr.
Abbott was an officer of two life insurance companies and a director of an
insurance agency subsidiary. Mr. Abbott received his formal education in the
undergraduate and graduate schools of Washington University in St. Louis.
DONALD E. PETROW, 40, is a Vice President of the Advantaged General
Partner and First Vice President of Lehman Brothers. From March 1989, he has
been responsible for the investment management and restructuring of mortgage and
equity investments secured by multi-family apartments and government assisted
housing. From November 1981 to February 1989, Mr. Petrow, as a Vice President of
Lehman, was involved in investment banking activities relating to commercial
real estate direct investments. Prior to joining Lehman, Mr. Petrow was employed
in accounting and equipment leasing firms. Mr. Petrow holds a B.S. degree in
accounting from Saint Peters College and an M.B.A. in finance from Pace
University.
-39-
<PAGE>
Related Advantaged Residential Associates Inc.
- - ----------------------------------------------
Related Advantaged Residential Associates Inc. was incorporated in
Delaware on January 25, 1985. The directors and executive officers of the
Related General Partner are as follows:
STEPHEN M. ROSS, 57, is a Director of the Related General Partner. Mr.
Ross is also president, director and a shareholder of The Related Realty Group,
Inc., the general partner of The Related Companies, L.P. He graduated from the
University of Michigan School of Business Administration with a bachelor of
science degree and from Wayne State University School of Law with a Juris Doctor
degree. Mr. Ross then received a master of laws degree in taxation from New York
University School of Law. He joined the accounting firm of Coopers & Lybrand in
Detroit as a tax specialist and later moved to New York, where he worked for two
large Wall Street investment banking firms in their real estate and corporate
finance departments. Mr. Ross formed the predecessor of The Related Companies,
L.P. in 1972 to develop, manage, finance and acquire subsidized and conventional
apartment developments.
J. MICHAEL FRIED, 53, is President and a Director of the Related
General Partner. Mr. Fried is president, a director and a principal shareholder
of Related Capital Corporation ("Capital"), a real estate finance and
acquisition affiliate of the General Partner. In that capacity, he is the chief
executive officer of Capital, and is responsible for initiating and directing
all of Capital's syndication, finance, acquisition and investor reporting
activities. Mr. Fried practiced corporate law in New York City with the law firm
of Proskauer Rose Goetz & Mendelsohn from 1974 until he joined Capital in 1979.
Mr. Fried graduated from Brooklyn Law School with a Juris Doctor degree, magna
cum laude; from Long Island University Graduate School with a master of science
degree in psychology; and from Michigan State University with a bachelor of arts
degree in history.
D. GARRY MUNSON, 52, was an Executive Vice President of the Related
General Partner prior to resigning on January 2, 1992. Mr. Munson graduated from
Cornell University with a bachelor of science degree in industrial and labor
relations and from the University of Pennsylvania Wharton School of Finance with
a Masters in business administration. Mr. Munson founded in 1977, and is
currently President and part owner of, Whitney Management Company, and Munson
and Company. Whitney Management Company manages residential real estate
projects. Munson and Company provides consulting services to the residential
real estate industry. Mr. Munson joined Capital in September 1985 as head of the
Acquisition Department.
ALAN P. HIRMES, 42, is a Senior Vice President of the Related General
Partner. Mr. Hirmes has been a Certified Public Accountant in New York since
1978. Prior to joining Capital in October 1983, Mr. Hirmes was employed by
Weiner & Co., certified public accountants. Mr. Hirmes is also a Vice President
of Capital. Mr. Hirmes graduated from Hofstra University with a bachelor of arts
degree.
STUART J. BOESKY, 41, is a Vice President of the Related General
Partner. Mr. Boesky practiced real estate and tax law in New York City with the
law firm of Shipley & Rothstein from 1984 until February 1986 when he joined
Capital. From 1983 to 1984, Mr. Boesky practiced law with the Boston law firm of
Kaye Fialkow Richard & Rothstein and from 1978 to 1980, was a consultant
specializing in real estate at the accounting firm of Laventhol & Horwath. Mr.
Boesky graduated from Michigan State University with a bachelor of arts degree
and from Wayne State School of Law with a Juris Doctor degree. He then received
a master of laws degree in taxation from Boston University School of Law.
RICHARD A. PALERMO, 37, is Treasurer of the Related General Partner.
Mr. Palermo has been a Certified Public Accountant in New York since 1985. Prior
to joining Related in September 1993, Mr. Palermo was employed by Sterling Grace
Capital Management from October 1990 to September 1993, Integrated Resources,
Inc. from October 1988 to October 1990 and E.F. Hutton & Company, Inc. from June
1986 to October 1988. From October 1982 to June 1986, Mr. Palermo was employed
by Marks Shron & Company and Mann Judd Landau, certified public accountants. Mr.
Palermo graduated from Adelphi University with a Bachelor of Business
Administration degree.
-40-
<PAGE>
LYNN A. McMAHON, 41, is Secretary of the Related General Partner.
Since 1983, she has served as assistant to the President of Capital. From 1978
to 1983 she was employed at Sony Corporation of America in the Government
Relations Department.
-41-
<PAGE>
Item 11. Executive Compensation.
The Partnership has no officers or directors. The Partnership does not
pay or accrue any fees, salaries or other forms of compensation to directors or
officers of the General Partners for their services. However, under the terms of
the Amended and Restated Agreement of Limited Partnership of the Partnership,
the General Partners and their affiliates are entitled to receive compensation
from the Partnership in consideration of certain services rendered to the
Partnership by such parties. In addition, the General Partners collectively hold
a 1% interest in all profits, losses and distributions attributable to sales and
refinancings. Certain directors and officers of the General Partners receive
compensation from the General Partners and their affiliates for services
performed for various affiliated entities which may include services performed
for the Partnership. See Note 9 to the Financial Statements, which is
incorporated by reference.
Tabular information concerning salaries, bonuses and other types of
compensation payable to execute officers has not been included in this annual
report. As noted above, the Partnership has no executive officers. The levels of
compensation payable to the General Partners and/or their affiliates is limited
by the terms of the Partnership Agreement and may not be increased therefrom on
a discretionary basis.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The General Partners own all of the outstanding general partnership
interests in the Partnership. The General Partners have a 1% interest in all
profits, losses and distributions of the Partnership from operations and a
subordinated 15% interest in such items from sale or refinancing proceeds.
Except as aforesaid, no person is known to own beneficially in excess of 5% of
the outstanding partnership interests.
At March 25, 1997, security ownership by the General Partners and
their affiliates is as listed:
Percentage of
Name of Outstanding General
Title of Class Beneficial Ownership Amount Partner Interest
- - -------------- -------------------- ------ -------------------
General Partnership Advantaged Housing
Interest in the Associates Inc. $10 13.2%
Partnership
Related Advantaged 6 19.8%
Residential
Associates Inc.
Related and Cambridge
Associates Limited Partnership 4 67.0%
-----
100.0%
Item 13. Certain Relationships and Related Transactions.
The Partnership has and will continue to have certain relationships
with the General Partners and their affiliates, as discussed in Item 11 and also
Note 9 to the Financial Statements in Item 8 above. However, there have been no
direct financial transactions between the Partnership and the directors and
officers of the General Partners.
Related and Cambridge Associates is a special limited partner of each
Local Partnership, with a 1% interest in profits, losses and distributions from
such Local Partnerships. As discussed in Item 1, Related and Cambridge
Associates has been admitted to the Local Partnerships for the purpose of
monitoring the Local Partnerships and exercising certain rights under the Local
Partnership Agreements on behalf of the Partnership. Related and Cambridge
Associates, an affiliate of the Related General Partner, is also the general
partner of four of the properties.
-42-
<PAGE>
The Related General Partner and the Cambridge General Partner are the
general partners of C/R Florida, which is the Local General Partner of Players
Club and Suntree. The Cambridge General Partner and certain officers, directors
and shareholders of the Related General Partner are the limited partners of C/R
Florida.
Related Management Corporation of Florida, an affiliate of the Related
General Partner, provides property management services to three Local
Partnerships, for which it was paid its usual and customary management fees,
aggregating approximately $308,000, $309,000 and $299,000 during the 1996, 1995
and 1994 Fiscal Years, respectively.
Whitney Management Corp., an affiliate of the Related General Partner,
is the general partner of one and the managing agent of four of the properties.
Property management fees earned by Whitney Management Corp. were approximately
$275,000, $278,000 and $268,000 for the 1996, 1995 and 1994 Fiscal Years,
respectively.
During the 1994 Fiscal Year Related Management Corp., an affiliate of
the Related General Partner, provided property management services to one of the
Local Partnerships, for which it was paid its usual and customary management
fees, totaling approximately $50,000.
-43-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Sequential
Page
----------
(a) 1. Financial Statements
Independent Auditors' Report 17
Consolidated Balance Sheets at March 25, 1997 and 1996 48
Consolidated Statements of Operations for the Years Ended
March 25, 1997, 1996 and 1995 49
Consolidated Statements of Changes in Partners' Deficit
for the Years Ended March 25, 1997, 1996 and 1995 50
Consolidated Statements of Cash Flows for the Years Ended
March 25, 1997, 1996, and 1995 51
Notes to Consolidated Financial Statements 54
The financial statements of the Local Partnerships
are not included separately herein
(a) 2. Financial Statements Schedules
Independent Auditors' Report on Financial Statement Schedules 77
Schedule III - Real Estate and Accumulated Depreciation 78
All other schedules have been omitted because the required
information is included in the financial statements and notes
thereto, or they are not applicable or not required.
(a) 3. Exhibits
(3A) Form of Amended and Restated Agreement and
Certificate of Limited Partnership of the Registrant**
(3B) Amended Certificate of Limited Partnership of the
Registrant, as filed with the Secretary of State
of the State of Delaware**
(10A) Form of Escrow Agreement**
(22) Subsidiaries of the Registrant 79
(27) Financial Data Schedule (filed herewith) 80
** Incorporated by reference to exhibits filed with
Amendment No. 1 to Cambridge Advantaged
Properties II L.P.'s Registration Statement
Form S-11 Registration File No. 2-98773.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
-44-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP
(Registrant)
By: RELATED ADVANTAGED RESIDENTIAL
ASSOCIATES INC.,
a General Partner
Dated: June 20, 1997
By: /s/ J. Michael Fried
--------------------------
J. Michael Fried,
President and Director
By: ADVANTAGED HOUSING ASSOCIATES, INC.
a General Partner
Dated: June 20, 1997
By: /s/ Paul L. Abbott
--------------------------
Paul L. Abbott,
President
-47-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the report has been signed below by the following persons on behalf by the
registrant and in the capacities and on the dates indicated:
Signature Title Date
- - ---------------------- ------------------------------------- -------------
President and Chief Executive Officer
/s/ J. Michael Fried (Principal executive officer) and
- - ---------------------- Director of Related Advantaged
J. Michael Fried Residential Associates, Inc. June 20, 1997
Vice President
/s/ Alan P. Hirmes (principal financial officer)
- - ---------------------- of Related Advantaged Residential
Alan P. Hirmes Associates, Inc. June 20, 1997
Treasurer
/s/ Richard A. Palermo (principal accounting officer)
- - ---------------------- of Related Advantaged Residential
Richard A. Palermo Associates, Inc. June 20, 1997
/s/ Stephen M. Ross
- - ---------------------- Director of Related Advantaged
Stephen M. Ross Residential Associates, Inc. June 20, 1997
Chairman of the Board, President,
Chief Executive Officer
/s/ Paul L. Abbott (principal executive officer)
- - ---------------------- and Director of Advantaged Housing
Paul L. Abbott Associates, Inc. June 20, 1997
-48-
<PAGE>
[TRIEN, ROSENBERG, ROSENBERG, WEINBERG,
CIULLO & FAZZARI, LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Partners of
Cambridge Advantaged Properties II
Limited Partnership and Subsidiaries
In connection with our audits of the consolidated financial statements
of Cambridge Advantaged Properties II Limited Partnership and Subsidiaries
included in this Form 10-K as presented in our opinion dated June 23, 1997 on
page 17, which is based in part on the reports of other auditors, we have
also audited supporting Schedule III at March 25, 1997. In our opinion, and
based on the reports of other auditors, (certain of which were modified due to
the uncertainty of these subsidiary partnerships' abilities to continue in
existence), this consolidated schedule presents fairly, when read in conjunction
with the related consolidated financial statements, the financial data required
to be set forth therein.
The accompanying consolidated financial statements of Cambridge
Advantaged Properties II Limited Partnership and Subsidiaries have been prepared
assuming that the consolidated entity will continue as a going concern. As
discussed in Notes 2 and 13, the auditors of three (Fiscal 1996) subsidiary
partnerships have modified their reports due to the uncertainties of the
subsidiary partnerships' abilities to continue as going concerns. These
subsidiary partnerships' losses before extraordinary item aggregated $1,036,448,
$2,245,833 and $1,375,088 for the 1996, 1995 and 1994 Fiscal Years,
respectively, and their assets constituted 22% and 20% of the Partnership's
assets at March 25, 1997 and 1996, respectively. These matters raise substantial
doubt about Cambridge Advantaged Properties II Limited Partnership and
Subsidiaries ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 13. The consolidated
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
TRIEN, ROSENBERG, ROSENBERG, WEINBERG,
CIULLO & FAZZARI, LLP
New York, New York
June 23, 1997
-49-
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
Partnership Property Pledged as Collateral
MARCH 25, 1997
<TABLE>
<CAPTION>
Initial Cost to Partnership Cost Capitalized
--------------------------- Subsequent to
Buildings and Acquisition:
Subsidiary Partnership's Residential Property Encumbrances Land Improvements Improvements
- - --------------------------------------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
(2) Triangle/Oaks Limited Partnership $19,370,000 $ 1,412,511 $ 17,812,831 $ 4,898,346
(4) Sheridan Square Associates of Lawton 8,853,060 1,093,520 8,228,192 459,426
(5) Apple Creek Associates of Denton, Ltd 7,851,324 398,000 8,517,595 (406,708)
(5) Galveston-Stewart's Landing, Ltd (a) 6,540,089 1,112,405 6,462,225 (1,069,129)
(2) Players Club at Fort Myers, Ltd 9,700,000 3,204,124 10,013,904 (2,178,666)
(2) Suntree at Fort Myers, Ltd 7,500,000 2,098,029 8,748,887 (2,185,943)
(3) Woodridge, Ltd 8,185,000 1,368,929 7,072,779 496,426
(6) The Harbours Associates 13,456,997 1,449,985 15,323,441 (255,982)
(6) Westwind II Associates 4,503,519 322,817 4,919,687 750,207
(3) Brookwood Apartments L.P. 5,580,691 368,827 6,803,294 59,463
(1) Suncreek-268, Ltd 6,800,000 0(b) 9,170,112 4,419,917
(1) McAdam Park-336, Ltd (f) 0 0(e) 11,027,615 (11,027,615)
----------- ----------- ------------ ------------
$98,340,680 $12,829,147 $114,100,562 $ (6,040,258)
=========== =========== ============ ============
[RESTUBBED TABLE]
<CAPTION>
Gross Amount at which Carried At Close of Period
------------------------------------------------
Buildings and Accumulated
Subsidiary Partnership's Residential Property Land Improvements Total Depreciation
- - --------------------------------------------- ------------ ------------- ----------- ------------
<C> <C> <C> <C> <C>
(2) Triangle/Oaks Limited Partnership $ 1,882,423 $ 22,241,265 $ 24,123,688 $ 8,042,285
(4) Sheridan Square Associates of Lawton 1,093,520 8,687,618 9,781,138 3,518,885
(5) Apple Creek Associates of Denton, Ltd 398,000 8,110,887 8,508,887 3,436,479
(5) Galveston-Stewart's Landing, Ltd (a) 875,351 5,630,150 6,505,501 2,588,805
(2) Players Club at Fort Myers, Ltd 2,668,486 8,370,876 11,039,362 3,304,875
(2) Suntree at Fort Myers, Ltd 1,667,738 6,993,235 8,660,973 2,777,214
(3) Woodridge, Ltd 1,232,864 7,705,270 8,938,134 3,186,559
(6) The Harbours Associates 1,449,985 15,067,459 16,517,444 6,122,408
(6) Westwind II Associates 322,817 5,669,894 5,992,711 2,340,452
(3) Brookwood Apartments L.P. 368,826 6,862,758 7,231,584 2,708,329
(1) Suncreek-268, Ltd 2,000,000(b) 11,590,029 13,590,029 5,098,266
(1) McAdam Park-336, Ltd (f) 0(e) 0 0 0
------------ ------------ ------------ ------------
$ 13,960,010 $106,929,441 $120,889,451 $ 43,124,557
============ ============ ============ ============
[RESTUBBED TABLE]
<CAPTION>
Life on which
Depreciation in
Latest Income
Year of Statement is
Subsidiary Partnership's Residential Property Construction Acquired Computed(c)(d)
- - --------------------------------------------- ------------ ----------- ---------------
<CAPTION>
(2) Triangle/Oaks Limited Partnership (c) 9/85 40 Years
(4) Sheridan Square Associates of Lawton (c) 10/85 30 Years
(5) Apple Creek Associates of Denton, Ltd (c) 10/85 30 Years
(5) Galveston-Stewart's Landing, Ltd (a) (c) 10/85 15-30 Years
(2) Players Club at Fort Myers, Ltd (c) 10/85 30 Years
(2) Suntree at Fort Myers, Ltd (c) 10/85 30 Years
(3) Woodridge, Ltd (c) 10/85 30 Years
(6) The Harbours Associates (c) 11/85 30 Years
(6) Westwind II Associates (c) 12/85 30 Years
(3) Brookwood Apartments L.P. (c) 12/85 30 Years
(1) Suncreek-268, Ltd (c) 12/85 27.5 Years
(1) McAdam Park-336, Ltd (f) (c) 12/85 27.5 Years
[END RESTUBBED TABLE]
</TABLE>
(a) Included in Gross Amount of Land and Buildings and Improvements at Close of
Period is a provision for impairment of assets in the amount of $237,054 and
$879,324, respectively. The total provision in the amount of $1,116,378 is
also included in Costs Capitalized Subsequent to Acquisition. See Note 4 in
Item 8, Financial Statements and Supplementary Data.
(b) Property was subject to a 99 year land lease expiring 2084. In connection
with Suncreek's refinancing in April 1996, Suncreek amended the terms of its
partnership agreement with the general partner to reflect the elimination of
the land lease together with all accrued and unpaid land lease payments and
the general partner's contribution to Suncreek of the underlying land. The
land was recorded at $2,000,000 which represents the estimation by
Suncreek's management of its fair market value as of the contribution date
(see Note 7 to financial statements in Item 8).
(c) Since all properties were acquired as operating properties, depreciation is
computed using primarily by the straight line method over the estimated
useful lives determined by the Partnership date of acquisition.
(d) Furniture and fixtures, included in buildings and improvements, are
depreciated primarily by the straight line method over the estimated useful
lives ranging from 5 to 15 years.
(e) Land was leased from the former general partner. During December 1991, the
bankruptcy court approved the termination of said lease and transfer of
title of the property to McAdam Park-336.
(f) On May 31, 1996, the property and the related assets and liabilities of
McAdam Park-336 were sold to Fannie Mae. (See Note 11 in Item 8. Financial
Statements and Supplemental Data).
Geographic Locations: (1) California, (2) Florida, (3) Kansas, (4) Oklahoma,
- - -------------------- (5) Texas, (6) Virginia.
<TABLE>
<CAPTION>
Cost of Property and Equipment Accumulated Depreciation
-------------------------------------------- -----------------------------------------
Year Ended March 25,
-----------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
------------ ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $134,148,347 $135,195,606 $135,135,979 $45,740,159 $41,816,329 $37,873,311
Additions during period:
Improvements 2,436,268 69,119 130,252
Depreciation expense 3,557,303 3,923,830 3,961,144
Reductions during period:
Dispositions 15,695,164 0 70,625 6,172,905 0 18,126
Provision for impairment 0 1,116,378 0 0 0 0
------------ ------------ ------------ ----------- ----------- -----------
Balance at end of period $120,889,451 $134,148,347 $135,195,606 $43,124,557 $45,740,159 $41,816,329
============ ============ ============ =========== =========== ===========
</TABLE>
At the time the local partnerships were acquired by Cambridge Advantaged
Properties II Limited Partnership, the entire purchase price paid by Cambridge
Advantaged Properties II Limited Partnership was pushed down to the local
partnerships as property and equipment with an offsetting credit to capital.
Since the projects were in the construction phase at the time of acquisition,
the capital accounts were insignificant at the time of purchase. Therefore,
there are no material differences between the original cost basis for tax and
GAAP.
<PAGE>
Exhibit 22
Subsidiaries of Registrant State of Organization
- - -------------------------- ---------------------
Triangle/Oaks Limited Partnership MA
Sheridan Square Associates of Lawton OK
Apple Creek Associates of Denton, Ltd TX
Galveston-Stewart's Landing, Ltd TX
Woodridge, Ltd CA
Players Club at Fort Myers, Ltd CA
Suntree at Fort Myers, Ltd CA
The Harbours Associates VA
Brookwood Apartments L.P. KS
Westwind II Associates VA
Suncreek-268, Ltd OR
-50-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information
extracted from the financial statements for Cambridge
Advantage Properties II L.P. and is qualified in its
entirety by reference to such financial statements
</LEGEND>
<CIK> 0000771996
<NAME> Cambridge Advantage Properties II L.P.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-25-1997
<PERIOD-START> MAR-26-1996
<PERIOD-END> MAR-25-1997
<CASH> 1,225,369
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,892,196
<PP&E> 120,889,451
<DEPRECIATION> 43,124,557
<TOTAL-ASSETS> 84,212,602
<CURRENT-LIABILITIES> 13,981,264
<BONDS> 98,340,680
0
0
<COMMON> 0
<OTHER-SE> (28,109,342)
<TOTAL-LIABILITY-AND-EQUITY> 84,212,602
<SALES> 0
<TOTAL-REVENUES> 24,916,993
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,587,870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,158,391
<INCOME-PRETAX> 1,170,732
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 5,161,583
<CHANGES> 0
<NET-INCOME> 6,207,429
<EPS-PRIMARY> 860
<EPS-DILUTED> 0
</TABLE>
