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, 1998
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
incorporation or organization) Identification No.)
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 68
Page 1 of 75
<PAGE>
PART I
Item 1. Business.
General
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. Since November 25, 1997, the general partners of the Partnership have been
Related Advantaged Residential Associates Inc., (the "Related General Partner"),
a Delaware corporation and an affiliate of The Related Companies, L.P.
("Related"), a New York limited partnership, and Related and Cambridge
Associates Limited Partnership (formerly Related and Hutton Associates Limited
Partnership), a Delaware limited partnership, ("Related and Cambridge
Associates"), and together with the Related General Partner, the "General
Partners". The general partner of Related and Cambridge Associates is the
Related General Partner. On November 25, 1997, the Related General Partner and
one of the then other general partners of the Partnership, Advantaged Housing
Associates, Inc. ("AHA"), consummated a Purchase Agreement pursuant to which the
Related General Partner purchased AHA's general partner interest in the
Partnership (the "Transfer"). In addition to the Transfer, the Related General
Partner also acquired AHA's general partner interest in Related and Cambridge
Associates Limited Partnership, another General Partner which is also the
special limited partner of the Partnership. 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.
Investment Objectives/Government Incentives
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 have been, 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
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(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 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 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 30% 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
contracts expire.
Investments
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 and 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 General 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 and 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 and 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
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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.
As of March 25, 1998, 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.
Sales of Underlying Properties
On May 31, 1996, the property and the related assets and liabilities of McAdam
Park-336 ("McAdam") were sold to an unaffiliated third party 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.
On November 12, 1997, the property and the related assets and liabilities of
Galveston-Stewart's Landing, Ltd. ("Galveston") were sold to an unaffiliated
third party for $5,030,000 resulting in a gain in the amount of $1,378,652.
Galveston used $5,000,000 of the net proceeds to settle the mortgage
indebtedness and accrued interest thereon which amounted to $8,629,807,
resulting in forgiveness of indebtedness income of $3,629,807.
Tax Matters
The Tax Reform Act of 1986 (the "TRA") provides as of 1991 that 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.
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.
4
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Item 2. Properties.
As of March 25, 1998, the Partnership holds a 98% Limited Partnership Interest
in 10 Local Partnerships each of which owns an Apartment Complex. The original
underlying properties in two of the Local Partnerships in which the Partnership
had an interest have been sold. See Item 1. Business-Sales of Underlying
Properties. 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 (1) 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.
LOCAL PARTNERSHIP SCHEDULE
<TABLE>
<CAPTION>
Percentage of Units
Occupied at December 31,
Name and Location of Government -------------------------------
Property (Number of Units) Assistance(a) 1997 1996 1995 1994 1993
- - -------------------------- ------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Triangle/Oaks Limited Partnership Tax exempt
Jacksonville, FL (520) financing 83.9% 84% 91% 93% 95%
Sheridan Square Associates of Lawton Conventional
Lawton, OK (276) financing 93.4% 87% 88% 96% 91%
Apple Creek Associates of Denton, Ltd Tax exempt
Denton, TX (308) financing 87.7% 96% 97% 93% 94%
Galveston-Stewart's Landing, Ltd
Galveston, TX (216) *221(d)(4) (c) 88% 96% 88% 94%
Woodridge, Ltd Tax exempt
Lenexa, KS (248) financing 98% 99% 95% 96% 96%
Players Club at Fort Myers, Ltd Tax exempt
Ft. Myers, FL (288) financing 83.1% 79% 90% 92% 97%
Suntree at Fort Myers, Ltd Tax exempt
Ft. Meyers, FL (240) financing 97.9% 90% 94% 95% 98%
The Harbours Associates Tax exempt
Newport News, VA (396) financing 91.5% 95% 92% 92% 90%
Brookwood Apartments L.P.
Wichita, KS (216) *221(d)(4) 97.2% 97% 97% 95% 98%
Westwind II Associates Tax exempt
Roanoke, VA (156) financing 98% 98% 97% 98% 95%
McAdam Park-336, Ltd Tax exempt
Palmdale, CA (336) financing (b) (b) 50% 62% 87%
Suncreek-268, Ltd Tax exempt
Sacramento, CA (268) financing 96.2% 96% 93% 94% 97%
</TABLE>
5
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(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) Mortgage Loan Insurance. 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) Rental Subsidies. 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 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 Local Partnerships. 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.
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(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).
(c) On November 12, 1997, the property and the related assets and liabilities of
Galveston-Stewart's Landing, Ltd. were sold to Beal Bank (see Item 7. below).
Item 3. Legal Proceedings.
None
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, 1998, 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 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, 1998, there were 2,946 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 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 1998 1997 1996 1995 1994
- - ---------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 19,260,738 $ 24,916,993 $ 19,483,652 $ 19,418,028 $ 19,391,837
Operating expenses (21,939,186) (23,746,261) (25,288,830) (24,345,121) (25,111,610)
Loss on impairment of assets 0 0 (1,116,378) 0 0
Minority interest (44,781) (124,886) (42,752) (15,637) 68,916
------------- ------------- ------------- ------------- ------------
(Loss) income before (2,723,229) 1,045,846 (6,964,308) (4,942,730) (5,650,857)
extraordinary item
Extraordinary item 3,629,807 5,161,583 6,416,231 3,494,274 0
-forgiveness of ------------- ------------- ------------- ------------- ------------
indebtedness
Net income (loss) $ 906,578 $ 6,207,429 $ (548,077) $ (1,448,456) $ (5,650,857)
============= ============= ============= ============= ============
Number of limited 7,150 7,150 7,150 7,150 7,150
partnership units ============= ============= ============= ============= ============
outstanding
Per Limited Partnership Unit:
(Loss) income before $ (377) $ 145 $ (964) $ (684) $ (782)
extraordinary item
Extraordinary item 502 715 888 484 0
------------- ------------- ------------- ------------- ------------
Net income (loss) $ 125 $ 860 $ (76) $ (200) $ (782)
============= ============= ============= ============= ============
Year ended March 25,
----------------------------------------------------------------------------------
FINANCIAL POSITION 1998 1997 1996 1995 1994
- - ------------------ ------------- ------------- ------------- ------------- ------------
Total assets $ 76,840,906 $ 84,212,602 $ 94,239,730 $ 97,393,817 $101,702,764
============= ============= ============= ============= ============
Long-term obligations $ 91,209,333 $ 98,340,680 $ 116,955,198 $ 120,109,587 $122,455,599
============= ============= ============= ============= ============
Total liabilities $ 104,244,079 $ 112,321,944 $ 130,038,490 $ 132,687,043 $135,563,171
============= ============= ============= ============= ============
Minority interest $ 4,911,145 $ 5,111,554 $ 3,629,565 $ 3,587,022 $ 3,571,385
============= ============= ============= ============= ============
</TABLE>
During the years ended March 25, 1994 through 1996, total assets decreased
primarily due to depreciation, partially offset by net additions to property and
equipment. During the year ended March 25, 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 loss on impairment
of assets. During the years ended March 25, 1997 and 1998 total assets decreased
primarily due to depreciation and the sale of property (see Note 10 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 years ended March 25, 1997 and 1998 primarily due to the decrease in
mortgage notes payable satisfied by the sales price of the properties which were
sold and the forgiveness of indebtedness of mortgage debt and payments to the
note holders.
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
General
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
of McAdam Park-336 were sold to Fannie Mae and on November 12, 1997, the
property and the related assets and liabilities of Galveston-Stewarts's Landing,
Ltd. were sold to Beal Bank (see below), which reduced the number of Local
Partnerships in which the Partnership is invested to ten. In addition, the
Partnership has obtained loans from an affiliate of the Related General Partner,
which together with Partnership funds, have been advanced to four local
partnerships. Cumulatively, approximately $994,000 of such advances were
forgiven as a result of the above sales.
Cash of the Partnership and its consolidated subsidiaries decreased by
approximately $214,000 during the 1997 Fiscal Year. This decrease is
attributable to principal payments of mortgage notes payable ($5,591,000),
acquisition of property and equipment ($157,000), an increase in mortgage escrow
deposits-replacement reserves ($169,000) and a decrease in capitalization of
consolidated subsidiaries attributable to minority interest ($130,000) which
exceeded cash flow provided by operating activities ($795,000), proceeds from
the sale of property ($5,030,000) and a decrease in deferred costs ($9,000).
Included in the adjustments to reconcile the net income to cash flow provided by
operating activities is gain on sale of property ($1,379,000), forgiveness of
indebtedness income ($3,630,000) and depreciation and amortization ($3,456,000).
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, 1998 ("the 1997 Fiscal Year") , 1997 ("the 1996 Fiscal Year") ,
and 1996 ("the 1995 Fiscal Year"), such distributions amounted to approximately
$150,000, $13,000, and $15,000, respectively. Accordingly, the Related General
Partner advanced funds to meet the Partnership's third party obligations with
the remaining unpaid balance of advanced funds equaling approximately
$2,060,000, $2,067,000, and $1,980,000 as of March 25, 1998, 1997, and 1996,
respectively. In addition, certain fees and expense reimbursements owed to the
General Partners amounting to approximately $2,414,000, $1,680,000, and $831,000
were accrued and unpaid as of March 25, 1998, 1997, and 1996, 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.
Sales of Underlying Properties
On November 12, 1997, the property and the related assets and liabilities of
Galveston-Stewart's Landing, Ltd. ("Galveston") were sold to an unaffiliated
third party for $5,030,000 resulting in a gain in the amount of $1,378,652.
Galveston used $5,000,000 of the net proceeds to settle the mortgage
indebtedness and accrued interest thereon which amounted to $8,629,807,
resulting in forgiveness of indebtedness income of $3,629,807.
On May 31, 1996, the property and the related assets and liabilities of McAdam
Park-336 ("McAdam") were sold to an unaffiliated third party for $14,735,000
resulting in a gain in the
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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.
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.
Results of Operations
Property and equipment to be held and used are carried at cost which includes
the purchase price, acquisition fees and expenses, construction period interest
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 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 loss on impairment of assets is recorded when management estimates
amounts recoverable through future operations and sale of the property on an
undiscounted basis are below depreciated cost. At that time 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 estimated fair value.
At the time management commits to a plan to dispose of assets, said assets are
adjusted to the lower of carrying amount or fair value less costs to sell. These
assets are classified as property and equipment-held for sale and are not
depreciated.
During the fiscal year ended March 25, 1996 and through March 25, 1998, the
Partnership has recorded approximately $1,116,000 as a loss on impairment of
assets.
The following is a summary of the results of operations of the Partnership for
the 1997, 1996 and 1995 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, loss on impairment of assets and forgiveness of indebtedness income,
remained fairly consistent for the 1997, 1996 and 1995 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 1997, 1996 and 1995 Fiscal Years totaled $906,578,
$6,207,429, and $(548,077), respectively.
Excluding 1997 and 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
10
<PAGE>
Limited Partners may use to offset passive income from other sources ). This
passive income may be offset by the carryforward 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.
1997 vs 1996
Rental income decreased approximately 4% for the 1997 Fiscal Year as compared to
the 1996 Fiscal Year. Excluding McAdam which sold its property on May 31, 1996
and Galveston which sold its property on November 12, 1997, rental income
increased less than 1% primarily due to increases in occupancy at Sheridan.
Other income decreased approximately $271,000 for the 1997 Fiscal Year as
compared to the 1996 Fiscal Year. Excluding McAdam and Galveston, such income
decreased approximately $222,000 due to a decrease in income from funding of the
Breakeven Guarantee by the Local General Partner of Suncreek and an overaccrual
in 1996 of fire insurance proceeds at Triangle Oaks.
A gain on sale of property in the amount of approximately $1,379,000 was
recorded in the 1997 Fiscal Year and forgiveness of indebtedness income in the
amounts of approximately $3,630,000 was recorded in the 1997 Fiscal Year (see
Notes 10 and 11 in Item 8. Financial Statements and Supplemental Data).
Total expenses, excluding McAdam and Galveston, and repairs and maintenance
remained fairly consistent with a decrease of approximately 1% for the 1997
Fiscal Year as compared to the 1996 Fiscal Year.
Repairs and maintenance increased approximately $136,000 for the 1997 Fiscal
Year as compared to the 1996 Fiscal Year. Excluding McAdam and Galveston, such
expenses increased approximately $350,000 primarily due to carpet replacement,
roof repairs and painting at two Local Partnerships, parking lot resurfacing at
a third Local Partnership and roof repairs, sidewalk paving and general repairs
at a fourth Local Partnership.
Administrative and management and interest expense decreased approximately
$402,000 and $1,049,000 for the 1997 Fiscal Year as compared to the 1996 Fiscal
Year. Excluding McAdam and Galveston, such expenses remained fairly consistent
with an increase of approximately $109,000 and a decrease of approximately
$324,000, respectively.
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 an 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 loss on impairment of assets was recorded in the 1995 Fiscal Year (see Note 4
in Item 8. Financial Statements and Supplemental Data).
Results of Operations of Certain Local Partnerships
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
soft market conditions and reduced occupancy levels. At March 25, 1998, Players
Club and Suntree have partners' deficiencies of approximately $4,132,000 and
$2,980,000, 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 partnerships entered into agreements with
bondholders in January 1993 (further modified effective January 1996 and again
extended and modified effective January 1997). Pursuant to the modification, the
minimum pay rate for Suntree was reduced to 6.5% and 7.5% for the periods
January 1, 1997 through June 30, 1997 and July 1, 1997 through December 31,
1997, respectively. Due to continuing weak market conditions and a change in
property management, effective with the July payment, the forbearance agreement
with Suntree was further modified extending the minimum pay rate of 6.5% through
December 31, 1997. Thereafter, the stated rate is to be reinstated unless an
agreement can be reached as discussed below. The minimum pay rate for Players
Club was reduced to 6.5% and 6.25% for the periods January 1, 1997 through
January 31, 1997 and February 1, 1997 through December 31, 1997, respectively.
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. Currently, Suntree and Players Club are in negotiations with the
bondholder with regard to a permanent modification of the terms of the bonds,
including an extension of maturity of the bonds. Based on current negotiations
and issuer approvals, it is expected that such modifications will close in the
second quarter of 1998. The forbearance agreement and its terms have been
temporarily extended pending closing of this permanent modification.
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
12
<PAGE>
basis, to maintain present financing, and to succeed in future operations. As of
year-end 1997, the bondholders, pursuant to forbearance and second mortgage
agreements have advanced $280,000 and $130,000 to Players Club and Suntree,
respectively. Such funds were advanced to cover certain deferred maintenance
items and delinquent real estate taxes. These loans will be repaid from
available cash flow after payment of bond interest on a self amortizing basis.
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 $3,000 and $20,000 at March 25, 1998 and 1997, respectively. In
the case of Suntree, the minority interest balance was approximately $7,000 and
$18,000 at March 25, 1998 and 1997, respectively. Players Club's net loss after
minority interest amounted to approximately $829,000, $559,000 and $544,000 for
the 1997, 1996 and 1995 Fiscal Years, respectively. Suntree's net loss after
minority interest amounted to approximately $567,000, $350,000 and $307,000 for
the 1997, 1996 and 1995 Fiscal Years, respectively.
Triangle/Oaks Limited Partnership
During the years ended December 31, 1997 and 1996, the Local Partnership
incurred losses of $915,330 and $551,907, respectively. In addition, at December
31, 1997, accounts payable and accrued expenses exceed available cash by
$538,226 and total liabilities exceed total assets by $6,997,712. These factors
among others may indicate that the Local Partnership will be unable to continue
as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability that might be necessary should the Local Partnership be unable to
continue as a going concern. The partnership has received a commitment from
affiliates of the Local General Partner to provide additional cash funding as
follows:
<TABLE>
<CAPTION>
<S> <C>
April 1, 1998 $ 80,000
May 1, 1998 100,000
June 1, 1998 100,000
Thereafter 25,000
</TABLE>
The cash funds provided will assist the Local Partnership in reducing accounts
payable and accrued liabilities. In addition, the cash funds will provide the
partnership an opportunity to improve the property; thereby increasing occupancy
and improving performance.
The Partnership's investments in Triangle/Oaks has been reduced to zero by prior
years' losses. The minority interest balance for Triangle/Oaks was approximately
$396,000 and $414,000 at March 25, 1998 and 1997, respectively. Triangle/Oaks
net loss after minority interest amounted to approximately $897,000, $588,000
and $402,000 for the 1997, 1996 and 1995 Fiscal Years, respectively.
Galveston - Stewarts Landing, Ltd.
On November 12, 1997, the property and the related assets and liabilities of
Galveston were sold to an unaffiliated third party for $5,030,000 resulting in a
gain in the amount of $1,378,652. Galveston used $5,000,000 of the net proceeds
to settle the mortgage indebtedness and accrued interest thereon which amounted
to $8,629,807, resulting in forgiveness of indebtedness income of $3,629,807.
13
<PAGE>
McAdam Park - 336, Ltd.
On May 31, 1996, the property and the related assets and liabilities of McAdam
were sold to an unaffiliated third party 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.
Year 2000 Compliance
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The General Partners are in the process of working with the
Partnership's service providers to prepare for the year 2000. Based on
information currently available, the Partnership does not expect that it will
incur significant operating expenses or be required to incur material costs to
be year 2000 compliant.
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
14
<PAGE>
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 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, 1998
and 1997 44
Consolidated Statements of Operations for the
Years Ended March 25, 1998, 1997 and 1996 45
Consolidated Statements of Changes in
Partners' Deficit for the Years Ended March
25, 1998, 1997 and 1996 46
Consolidated Statements of Cash Flows for the
Years Ended March 25, 1998, 1997 and 1996 47
Notes to Consolidated Financial Statements 50
16
<PAGE>
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, 1998 and
1997, and the related consolidated statements of operations, changes in
partners' deficit, and cash flows for the years ended March 25, 1998, 1997 and
1996 (the 1997, 1996 and 1995 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 income (losses) before extraordinary item aggregated
$2,252,981, ($3,214,557) and ($5,786,199) during the 1997, 1996 and 1995 Fiscal
Years, respectively, and whose assets constituted 99% of the Partnership's
assets at March 25, 1998 and 1997, 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, 1998 and 1997,
and the results of their operations, and their cash flows for the years ended
March 25, 1998, 1997 and 1996, 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 a going concern. As discussed in
Notes 2 and 12, the auditors of three (Fiscal 1997) 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 $2,340,047, $1,478,861 and $1,278,519 for
the 1997, 1996 and 1995 Fiscal Years, respectively, and their assets constituted
39% and 37% of the Partnership's assets at March 25, 1998 and 1997,
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 12. 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 15, 1998
17
<PAGE>
[DICKEY & WOLF, LLC letterhead]
INDEPENDENT AUDITORS' REPORT
To the Partners
Triangle/Oaks Limited Partnership
We have audited the accompanying balance sheets of TRIANGLE/OAKS LIMITED
PARTNERSHIP as of December 31, 1997 and 1996, and the related statement of
operations, partners' equity/(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 TRIANGLE/OAKS LIMITED
PARTNERSHIP as of December 31, 1997 and 1996, 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 9, the
Partnership is experiencing difficulty in generating sufficient cash flow to
meet its obligations and sustain its operations, which raises substantial doubt
about its ability to continue as a going concern at December 31, 1997.
Management's plans in regard to these matters are also described in Note 9. 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, Missouri
January 27, 1998
<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 & WOLF, LLC letterhead]
INDEPENDENT AUDITORS' REPORT
To the Partners
Sheridan Square Associates of Lawton,
We have audited the accompanying balance sheets of SHERIDAN SQUARE ASSOCIATES OF
LAWTON, (a Oklahoma Limited Partnership) as of December 31, 1997 and 1996, and
the related statements of operations, changes in partners' equity (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 SHERIDAN SQUARE ASSOCIATES OF
LAWTON as of December 31, 1997 and 1996, 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 28, 1998
<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 & 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., (a Texas Limited Partnership) as of December 31, 1997 and 1996,
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, 1997 and 1996, 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 28, 1998
<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
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, 1997, 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, 1997, and the results of its operations and its cash
flows for the year then ended in conformity to generally accepted accounting
principles.
/s/ Dickey & Wolf, LLC
DICKEY & WOLF, LLC
Certified Public Accountants
Harrisonville, MO
January 28, 1998
<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 & WOLF, LLC letterhead]
INDEPENDENT AUDITORS' REPORT
To the Partners
Woodridge, Ltd.
We have audited the accompanying balance sheets of WOODRIDGE, LTD. as of
December 31, 1997 and 1996, 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 WOODRIDGE, LTD. as of December
31, 1997 and 1996, 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 28, 1998
<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>
[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, 1997 and 1996, 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, 1997 and 1996, 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 losses and cash
flow deficits and low occupancy levels which raises substantial doubt about the
Partnership's ability to continue as a going concern. In addition, the general
partner's operating deficit guarantee has expired and there is no further
obligation to continue to fund operating deficits. Management's plans in regard
to these matters are also described in Note B. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded assets or amounts and classification of liabilities that might be
necessary should the Partnership be unable to continue in existence.
/s/ Reznick Fedder & Silverman
Boston, Massachusetts
January 29, 1998
<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
Suntree at Fort Myers, Ltd.
We have audited the accompanying balance sheets of Suntree at Fort
Myers, Ltd. as of December 31, 1997 and 1996, 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, 1997 and 1996, 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 losses and cash
flow deficits and low occupancy levels which raises substantial doubt about the
Partnership's ability to continue as a going concern. In addition, the general
partner's operating deficit guarantee has expired and there is no further
obligation to continue to fund operating deficits. Managemenfs plans in regard
to these matters are also described in Note B. The financial statements do not
include any adjustments relating the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities that might
be necessary should the Partnership be unable to continue in existence.
/s/ Reznick Fedder & Silverman
Boston, Massachusetts
January 29, 1998
<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>
[BDO SEIDMAN, LLP LETTERHEAD]
Report of Independent Certified Public Accountants'
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, 1997, 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, 1997, 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
BDO Seidman, LLP
Richmond, Virginia
February 11, 1998
<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-Richmond, Virginia]
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 & Noel, P.A. letterhead]
INDEPENDENT AUDITORS' REPORT
The Partners
Brookwood Apartments, L.P.
(A Kansas Limited Partnership)
Wichita, Kansas
We have audited the accompanying balance sheet of Brookwood Apartments, L.P. (A
Kansas Limited Partnership) as of December 31, 1997, and the related statements
of operations, partners' capital (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.
As described in Note 1, the accompanying financial statements reflect certain
reorganization adjustments of the Partnership on a "push-down" basis. However,
in connection with the reorganization, the Partnership has not discounted
certain debt which, in our opinion, should be discounted and has capitalized
certain deferred financing costs which, in our opinion, should have been written
off in order to conform with generally accepted accounting principles. If these
additional reorganization adjustments had been made, deferred financing costs
and mortgage note payable would have been reduced by $274,641 in the
accompanying balance sheet. These departures from generally accepted accounting
principles do not have a material effect on the results of operations or cash
flows of Brookwood Apartments, L.P. (A Kansas Limited Partnership) for the year
ended December 31, 1997.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Brookwood
Apartments, L.P. (A Kansas Limited Partnership) for the year ended December 31,
1997 and its financial position at December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ George, Bowerman & Noel, P.A.
Wichita, Kansas
February 12, 1998
<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>
[BDO SEIDMAN, LLP LETTERHEAD]
Report of Independent Certified Public Accountants'
To the Partners
Westwind II Associates
We have audited the accompanying balance sheets of Westwind II Associates (a
limited partnership) as of December 31, 1997 and 1996, 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, 1997 and 1996, 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
BDO Seidman, LLP
Richmond, Virginia
February 11, 1998
<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>
[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, 1997, 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, 1997, 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 L.L.P.
Portland, Oregon
February 6, 1998
<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 & Lybrand, L.L.P.
Portland, Oregon
February 6, 1997
<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, 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 L.L.P.
Portland, Oregon
February 8, 1996
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 25,
---------------------------------
1998 1997
------------- --------------
<S> <C> <C>
Property and equipment - at cost, less accumulated
depreciation (Notes 2, 4 and 7) $ 70,875,621 $ 77,764,894
Cash and cash equivalents (Notes 2 and 12) 1,011,604 1,225,369
Cash - restricted for tenants' security deposits 563,247 572,624
Mortgage escrow deposits (Notes 5 and 7) 1,815,521 1,895,569
Deferred costs, net of accumulated amortization
(Notes 2 and 6) 2,142,743 2,330,143
Prepaid expenses and other assets 432,170 424,003
------------ -------------
Total assets $ 76,840,906 $ 84,212,602
============ =============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgage notes payable (Notes 7 and 10) $ 91,209,333 $ 98,340,680
Accounts payable, accrued expenses and other liabilities 6,179,587 7,573,750
Tenants' security deposits payable 563,247 572,624
Due to general partners of subsidiaries and their affiliates 1,631,151 1,731,240
Due to general partners and affiliates (Note 8) 4,660,761 4,103,650
------------ -------------
104,244,079 112,321,944
------------ -------------
Minority interest (Note 2) 4,911,145 5,111,554
------------ -------------
Commitments and contingencies (Note 12)
Partners' deficit:
Limited Partner (31,673,628) (32,571,140)
General Partner (640,690) (649,756)
------------ -------------
Total partners' deficit (32,314,318) (33,220,896)
------------ -------------
Total liabilities and partners' deficit $ 76,840,906 $ 84,212,602
============ =============
</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,
-----------------------------------------------
1998 1997* 1996*
---------- ----------- -------------
<S> <C> <C> <C>
Revenues
Rental, net $17,286,847 $17,942,395 $18,305,514
Other 595,239 866,172 1,178,138
Gain on sale of property (Note 10) 1,378,652 6,108,426 0
----------- ----------- -----------
Total revenues 19,260,738 24,916,993 19,483,652
----------- ----------- -----------
Expenses
Administrative and management 2,552,217 2,936,910 3,085,375
Administrative and management-related
parties (Note 8) 1,515,834 1,661,940 950,989
Operating 1,698,501 1,700,813 1,751,876
Repairs and maintenance 3,501,972 3,366,076 3,297,559
Taxes and insurance 2,105,144 2,198,318 2,512,801
Interest 7,109,841 8,158,391 9,561,637
Depreciation and amortization 3,455,677 3,723,813 4,128,593
Loss on impairment of assets (Note 4) 0 0 1,116,378
----------- ----------- -----------
Total expenses 21,939,186 23,746,261 26,405,208
----------- ----------- -----------
(Loss) income before minority interest and
extraordinary item (2,678,448) 1,170,732 (6,921,556)
Minority interest in income of subsidiaries (44,781) (124,886) (42,752)
----------- ----------- -----------
(Loss) income before extraordinary item (2,723,229) 1,045,846 (6,964,308)
Extraordinary item - forgiveness of indebtedness
income (Note 11) 3,629,807 5,161,583 6,416,231
----------- ----------- -----------
Net income (loss) $ 906,578 $ 6,207,429 $ (548,077)
=========== =========== ===========
(Loss) income before extraordinary item -
limited partners $(2,695,997) $ 1,035,388 $(6,894,665)
Extraordinary item - limited partners 3,593,509 5,109,967 6,352,069
----------- ----------- -----------
Net income (loss) - limited partners $ 897,512 $ 6,145,355 $ (542,596)
=========== =========== ===========
Number of limited partnership units outstanding 7,150 7,150 7,150
=========== =========== ===========
Per limited partnership unit:
(Loss) income before extraordinary item $ (377) $ 145 $ (964)
Extraordinary item 502 715 888
----------- ----------- -----------
Net income (loss) $ 125 $ 860 $ (76)
=========== =========== ===========
</TABLE>
*Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
19
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
Limited General
Total Partners Partners
---------- ---------- ----------
<S> <C> <C> <C>
Balance - March 26, 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)
Net Income 906,578 897,512 9,066
------------ ------------ ---------
Balance - March 25, 1998 $(32,314,318) $(31,673,628) $(640,690)
============ ============ =========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Year Ended March 25,
-------------------------------------------------
1998 1997 1996
----------- ----------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 906,578 $ 6,207,429 $ (548,077)
----------- ----------- -------------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Gain on sale of property (Note 10) (1,378,652) (6,108,426) 0
Extraordinary item - forgiveness of indebtedness
(Note 11) (3,629,807) (5,161,583) (6,416,231)
Depreciation and amortization 3,455,677 3,723,813 4,128,593
Loss on impairment of assets 0 0 1,116,378
Minority interest income of subsidiaries 44,781 124,886 42,752
(Increase) decrease in assets:
Cash-restricted for tenants' security deposits 9,377 (29,412) (2,442)
Mortgage escrow deposits 248,861 (664,035) 267,998
Prepaid expenses and other assets (5,279) (100,225) (17,148)
Increase (decrease) in liabilities:
Accounts payable, accrued expenses and
other liabilities 396,554 2,017,692 2,204,058
Tenants' security deposits payable (9,377) 29,142 (3,893)
Increase in due to general partners of
subsidiaries and their affiliates 48,277 248 28,514
Decrease in due to general partners of subsidiaries
and their affiliates (148,366) (29,377) 0
Due to general partners and affiliates 856,112 979,087 273,069
----------- ----------- -------------
Total adjustments (111,842) (5,218,190) 1,621,648
----------- ----------- -------------
Net cash provided by operating activities 794,736 989,239 1,073,571
----------- ----------- -------------
Cash flows from investing activities:
Proceeds from the sale of property 5,030,000 0 0
Acquisition of property and equipment (157,112) (436,268) (69,119)
(Increase) decrease in mortgage escrow deposits -
replacement reserves (168,813) 520,459 (844,940)
----------- ----------- -------------
Net cash provided by (used in) investing activities 4,704,075 84,191 (914,059)
----------- ----------- -------------
Net cash from operating and investing activities,
carried forward 5,498,811 1,073,430 159,512
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(CONTINUED)
<TABLE>
<CAPTION>
Year Ended March 25,
-------------------------------------------------
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Net cash from operating and investing activities,
brought forward 5,498,811 1,073,430 159,512
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from mortgage notes payable 0 0 25,514,700
Principal payments of mortgage notes payable (5,591,258) (729,518) (23,776,639)
(Decrease) increase in minority interest (129,885) 410,202 (209)
Decrease (increase) in deferred costs 8,567 (551,267) (1,244,470)
Increase in due to general partners of
subsidiaries and their affiliates 0 0 50,428
----------- ------------ ------------
Net cash (used in) provided by financing activities (5,712,576) (870,583) 543,810
----------- ------------ ------------
Net (decrease) increase in cash (213,765) 202,847 703,322
Cash and cash equivalents at beginning of year 1,225,369 1,022,522 319,200
----------- ------------ ------------
Cash and cash equivalents at end of year $ 1,011,604 $ 1,225,369 $ 1,022,522
=========== ============ ============
Supplemental disclosure of cash flows information:
Cash paid during the year for interest $ 6,866,054 $ 6,511,044 $ 7,120,065
=========== ============ ============
Supplemental disclosures of noncash investing and financing activities:
Acquisition of property and equipment
contributed by minority interest
shareholders $ 0 $ (2,000,000) $ 0
Forgiveness of indebtedness (Note 11):
Decrease in mortgage notes payable (1,540,089) (10,000,000) (4,892,450)
Issuance of mortgage notes payable 0 6,800,000 0
Decrease in accounts payable, accrued
expenses and other liabilities (1,790,717) (1,320,280) 0
Accrued interest forgiven in connection with
restructuring of mortgage notes payable 0 0 (2,046,343)
Other assets forgiven in connection with
restructuring of mortgage notes payable 0 0 209,731
Net deferred financing costs written off in
connection with restructuring of mortgage
notes payable 0 0 312,828
Decrease in due to selling partners 0 (641,303) 0
Decrease in due to general partners and affiliates (299,001) 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)
<TABLE>
<CAPTION>
Year Ended March 25,
------------------------------------------------
1998 1997 1996
---------- --------- -----------
Supplemental disclosures of noncash investing
and financing activities:
Summarized below are the components
of the gain on sale of property:
<S> <C> <C> <C>
Decrease in mortgage notes payable
satisfied by sales price 0 (14,685,000) 0
Decrease in property and equipment,
net of accumulated depreciation 3,769,541 9,522,260 0
Decrease in cash - restricted for tenants'
security deposits 0 58,386 0
Decrease in mortgage escrow deposits 0 123,873 0
(Increase) decrease in prepaid expenses
and other assets (2,888) 62,391 0
Decrease in accounts payable, accrued
expenses and other liabilities 0 (85,456) 0
Decrease in tenants' security deposits payable 0 (51,781) 0
Decrease in minority interest (115,305) (1,053,099) 0
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1998
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").
As of March 25, 1998 the Partnership holds an interest in 10 Local Partnerships
which own 10 Apartment Complexes. On May 31, 1996, the property and the related
assets and liabilities of McAdam Park-336, Ltd. ("McAdam") were sold to an
unaffiliated third party. On November 12, 1997, the property and the related
assets and liabilities of Galveston-Stewart's Landing, Ltd. ("Galveston") were
sold to an unaffiliated third party (see Note 10).
The general partners of the Partnership are Related Advantaged Residential
Associates Inc. (the "Related General Partner"), a Delaware corporation and an
affiliate of The Related Companies, L.P. ("Related"), a New York limited
partnership and Related and Cambridge Associates Limited Partnership, a Delaware
limited partnership ("Related and Cambridge Associates" and together with the
Related General Partner, the "General Partners"). The general partner of Related
and Cambridge Associates is 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, 1998, 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
24
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1998
include any adjustments that might result from the outcome of these
uncertainties. See Note 12 for management's intentions.
b) Basis of Consolidation
The consolidated financial statements include the accounts of Cambridge
Advantaged Properties II Limited Partnership, (the "Partnership"), and eleven
subsidiary partnerships (1997 Fiscal Year) one of which only has activity
through the date of sale of its property and the related assets and liabilities
which occurred on November 12, 1997, twelve subsidiary partnerships (1996 Fiscal
Year), one of which only has activitiy through the date of sale of its property
and the related assets and liabilities which occurred on May 31, 1996 and twelve
subsidiary partnerships (1995 Fiscal Year). 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.
For financial reporting purposes, the Partnership's fiscal year ends March 25.
The Partnership's fiscal year ends March 25 in order to allow adequate time for
the subsidiaries' financial statements to be prepared and consolidated. The
books and records of the Partnership are maintained on the accrual basis of
accounting, in accordance with generally accepted accounting principles
("GAAP"). 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.
The Partnership's investment in each subsidiary is equal to the respective
subsidiary partners' equity less minority interest capital, if any. Losses
attributable to minority interests which exceed the minority interests'
investment in a subsidiary have been charged to the Partnership. Such losses
aggregated $0, $2,200, and $47,500, for the years ended March 25, 1998, 1997 and
1996 (the 1997, 1996 and 1995 Fiscal Years, respectively). 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
Property and equipment to be held and used are carried at cost which includes
the purchase price, acquisition fees and expenses, construction period interest
and any other costs incurred
25
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1998
in acquiring the properties. The cost of property and equipment is depreciated
over their estimated useful lives using accelerated and straight-line 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
loss on impairment of assets is recorded when management estimates amounts
recoverable through future operations and sale of the property on an
undiscounted basis are below depreciated cost. At that time 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 estimated fair value.
At the time management commits to a plan to dispose of assets, said assets are
adjusted to the lower of carrying amount or fair value less costs to sell. These
assets are classified as property and equipment-held for sale and are not
depreciated.
During the fiscal year ended March 25, 1996 and through March 25, 1998, the
Partnership has recorded approximately $1,116,000 as a 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 9).
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:
26
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1998
Cash and Cash Equivalents, 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.
The estimated fair values of the Partnership's mortgage note payable are as
follows:
<TABLE>
<CAPTION>
March 25, 1998 March 25, 1997
------------------------- -----------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Mortgage Notes Payable for which it is:
Practicable to estimate fair value $87,892,564 $87,212,374 $90,520,391 $87,225,398
Not Practicable* $ 3,316,769 $ 0 $ 7,820,289 $ 0
</TABLE>
*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:
<TABLE>
<CAPTION>
March 25, 1998 March 25, 1997
------------------------- -----------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Accounts payable and accrued
expenses for which it is:
Practicable to estimate fair value $2,437,624 $ 306,840 $4,828,566 $ 609,586
The carrying amount of other financial instruments that require such disclosure
approximates fair value.
</TABLE>
27
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1998
NOTE 4 - Property and Equipment
The components of property and equipment and their estimated useful lives are as
follows:
<TABLE>
<CAPTION>
March 25,
------------------------------------------ Estimated
1998 1997 Useful Lives
------------------ ------------------ ------------
<S> <C> <C> <C>
Land* $ 13,084,659 $ 13,960,010
Buildings and improvements 96,134,562 101,406,102 7-40 Years
Furniture and fixtures 5,321,840 5,523,339 5-15 Years
------------ ------------
114,541,061 120,889,451
Less: Accumulated depreciation (43,665,440) (43,124,557)
----------- -------------
$ 70,875,621 $ 77,764,894
=========== ============
</TABLE>
*For one subsidiary partnership, Suncreek, prior to April 1996 land was leased
but no payment is required until certain cash flow levels are achieved. No
payments were required in the 1996 and 1995 Fiscal Years. In connection with
Suncreek's refinancing in April 1996, Suncreek amended the terms of its
partnership agreement with the Local General Partner to reflect the elimination
of the land lease together with all accrued and unpaid land lease payments and
the Local 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.
Depreciation expense for the 1997, 1996, and 1995 Fiscal Years amounted to
$3,276,844, $3,557,303 and $3,923,830, respectively.
During the 1997 and 1996 Fiscal Years there was a decrease in accumulated
depreciation in the amount of approximately $2,736,000 and $6,173,000 due to the
sale of Galveston and McAdam, respectively (see Note 10).
Galveston had experienced significant cash flow problems and was 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. On November 12, 1997, the property and the related
assets and liabilities of Galveston were sold to an unaffiliated third party for
$5,030,000.
28
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1998
NOTE 5 - Mortgage Escrow Deposits
Mortgage escrow deposits consist of the following:
<TABLE>
<CAPTION>
March 25,
-----------------------------
1998 1997
--------- ---------
<S> <C> <C>
Reserve for replacements $ 768,969 $ 877,739
Real estate taxes, insurance and other 1,046,552 1,017,830
--------- ---------
$1,815,521 $1,895,569
========= =========
</TABLE>
NOTE 6 - Deferred Costs
The components of deferred costs and their periods of amortization are as
follows:
<TABLE>
<CAPTION>
March 25
------------------------------------- Period
1998 1997 (Months)
------------ ----------- -------
<S> <C> <C> <C>
Organization fee (a)(b) $ 102,709 $ 102,709 60
Bond and financing fees 3,023,626 3,068,899 65-240
--------- ---------
3,126,335 3,171,608
Less: Accumulated amortization (983,592) (841,465)
--------- ----------
$2,142,743 $2,330,143
========= =========
</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 1997, 1996 and 1995 Fiscal Years
aggregated $178,833, $166,510, and $204,764, respectively.
During the 1997, 1996 and 1995 Fiscal Years, respectively, approximately
$37,000, $0, and $60,000 of fully amortized deferred costs were written off.
NOTE 7 - Mortgage Notes Payable
The mortgage notes are payable in aggregate monthly installments of
approximately $575,000, including principal and interest at rates varying from
3.45% 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, 1998
Annual principal payment requirements for each of the next five fiscal years are
as follows:
<TABLE>
<CAPTION>
Year Ending December 31 Amount
- - ----------------------- ------
<S> <C>
1998 $ 985,412
1999 1,164,697
2000 5,077,756
2001 10,809,623
2002 564,797
Thereafter 72,607,048
-----------
$91,209,333
===========
</TABLE>
The mortgage agreements require monthly deposits to replacement reserves of
approximately $21,000 and monthly deposits to escrow accounts for real estate
taxes, hazard and mortgage insurance and other (see Note 5).
NOTE 8 - Related Party Transactions
One of the general partners of the Partnership, Related and 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
managing agent of four of the properties. On November 12, 1997, the property and
the related assets and liabilities of Galveston, one of the properties, was sold
(see Note 10).
Fees incurred to related parties for the years ended March 25, 1998, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
Year Ended March 25,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Partnership management fees (a) $ 654,750 $ 765,000 $ 60,000
Expense reimbursement (b) 80,385 82,927 77,677
Property management fees (c) 773,199 804,013 803,312
Local administrative fee (d) 7,500 10,000 10,000
---------- ---------- ----------
$1,515,834 $1,661,940 $ 950,989
========== ========== ==========
</TABLE>
(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 $1,877,000 and $1,222,000 were accrued and unpaid as of March 25,
1998 and 1997, 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 ad-
30
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1998
ministrative services. The amount of reimbursement from the Partnership is
limited by the provisions of the Partnership agreement. Another affiliate of the
Related General Partner performs asset monitoring for the Partnership. These
services include site visits and evaluations of the subsidiary partnerships'
performance. Expense reimbursements and asset monitoring fees owed to the
Related General Partner amounting to approximately $537,000 and $458,000 were
accrued and unpaid as of March 25, 1998 and 1997, respectively.
(c) Property management fees paid by subsidiary partnerships amounted to
$830,247, $872,604, and $862,480 for the 1997, 1996 and 1995 Fiscal Years,
respectively. Of these fees, $421,184, $437,151, and $433,519, were incurred to
affiliates of the subsidiary partnerships. In addition, $547,671, $582,597 and
$587,800 were incurred to affiliates of the Related General Partner for the
1997, 1996 and 1995 Fiscal Years, respectively. Of such amounts incurred to
affiliates of the Related General Partner, $195,656, $215,735, and $218,007 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.
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 $1,531 and $129
were made to Related and Cambridge Associates for the 1997 and 1996 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. Related Advantaged Residential Associates Inc. is the
general partner 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 the Triangle/Oaks refinancing and to provide adequate
working capital for the local partnership. Approximately $2,735,000 was
outstanding at both March 25, 1998 and 1997 (see Note 12).
As of March 25, 1998, an affiliate of the Related General Partner advanced
$310,926 to the Partnership, none of which was advanced in the 1997, 1996 or
1995 Fiscal Years. These funds were advanced by the Partnership to Sheridan to
provide working capital. During the 1997 Fiscal Year, $74,587 was repaid. Such
note is noninterest bearing (see Note 12).
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 1997, 1996 and 1995
Fiscal Years, respectively. These funds were advanced to provide working capital
to the subsidiary partnership. Such note is noninterest bearing. In 1997, such
advances were forgiven as a result of a sale of the property and the related
assets and liabilities of Galveston (see Note 10).
31
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1998
The Partnership advanced $473,007 to McAdam in connection with the restructuring
of their mortgage debt, none of which was advanced during the 1997, 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 10).
As of March 25, 1998, the Partnership had advanced Apple Creek approximately
$853,000, none of which was advanced during the 1997, 1996 or 1995 Fiscal Years.
Due to local general partners and affiliates at March 25, 1998 and 1997 consists
of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
---------- -----------
<S> <C> <C>
Operating deficit loans (*) $1,522,075 $1,625,441
Long-term note payable (**) 0 10,000
Management and other operating advances 109,076 95,799
---------- -----------
$1,631,151 $1,731,240
========== ==========
</TABLE>
(*) Operating deficit loans include five and four loans payable to local general
partners and affiliates, respectively, 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 had a long-term note payable to its local
general partner. The note, which matured in 1997, required monthly principal
payments in the amount of $1,250 plus interest at the prime rate.
32
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1998
NOTE 9 - 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:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1997 1996 1995
---------- --------- -----------
<S> <C> <C> <C>
Financial statement net income (loss) $ 906,578 $6,207,429 $ (548,077)
Difference between depreciation expense recorded
for financial reporting purposes and the
accelerated cost recovery system utilized for
income tax purposes (1,159,303) (1,174,962) (1,068,098)
Gain on sale of property 420,103 2,672,002 0
Extraordinary item - forgiveness of indebtedness 108,797 (64,000) 0
Debt restructuring 332,796 (318,479) (352,835)
Loss on impairment of assets 0 0 1,116,378
Other (213,259) 238,085 (763,090)
----------- --------- ----------
Income (loss) as shown on the income tax return
for the calendar year ended $ 395,712 $7,560,075 $(1,615,722)
=========== ========= ==========
</TABLE>
NOTE 10 - Sale of Property
On November 12, 1997, the property and the related assets and liabilities of
Galveston were sold to an unaffiliated third party for $5,030,000 resulting in a
gain in the amount of $1,378,652. Galveston used $5,000,000 of the net proceeds
to settle the mortgage indebtedness and accrued interest thereon which amounted
to $8,629,807, resulting in forgiveness of indebtedness income of $3,629,807.
On May 31, 1996, the property and the related assets and liabilities of McAdam
were sold to an unaffiliated third party 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.
33
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1998
NOTE 11 - Extraordinary Item - Forgiveness of Indebtedness Income
Extraordinary items-forgiveness of indebtedness consist of the following:
<TABLE>
<CAPTION>
Year Ended March 25,
------------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Galveston $3,629,807 $ 0 $ 0
McAdam Park-336 Ltd. 0 1,320,280 1,092,796
Suncreek 0 3,841,303 0
Woodridge 0 0 1,462,450
Westwind II 0 0 1,560,716
Harbours 0 0 2,300,269
---------- ---------- ----------
$3,629,807 $5,161,583 $6,416,231
========== ========== ==========
</TABLE>
Galveston
On November 12,1997, the property and the related assets and liabilities of
Galveston were sold to an unaffiliated third party for $5,030,000. For financing
reporting purposes, forgiveness of indebtedness income of $3,629,807 was
realized (see Note 10).
McAdam
On May 31, 1996 the property and the related assets and liabilities of McAdam
were sold to an unaffiliated third party for $14,685,000. For financing
reporting purposes, forgiveness of indebtedness income of $1,320,280 was
realized (see Note 10).
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.
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.
34
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1998
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.
NOTE 12 - 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 1997 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 Players Club, Suntree and Triangle/Oaks.
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.
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
soft market conditions and reduced occupancy levels. At March 25, 1998, Players
Club and Suntree have partners' deficiencies of approximately $4,132,000 and
$2,980,000, 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 partnerships entered into agreements with
bondholders in January 1993 (further modified effective January 1996 and again
extended and modified effective January 1997). Pursuant to the modification, the
minimum pay rate for Suntree was reduced to 6.5% and 7.5% for the periods
January 1, 1997 through June 30, 1997 and July 1, 1997 through December 31,
1997, respectively. Due to continuing weak market conditions and
35
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1998
a change in property management, effective with the July payment, the
forbearance agreement with Suntree was further modified extending the minimum
pay rate of 6.5% through December 31, 1997. Thereafter, the stated rate is to be
reinstated unless an agreement can be reached as discussed below. The minimum
pay rate for Players Club was reduced to 6.5% and 6.25% for the periods January
1, 1997 through January 31, 1997 and February 1, 1997 through December 31, 1997,
respectively. 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. Currently, Suntree and Players Club are in
negotiations with the bondholder with regard to a permanent modification of the
terms of the bonds, including an extension of maturity of the bonds. Based on
current negotiations and issuer approvals, it is expected that such
modifications will close in the second quarter of 1998. The forbearance
agreement and its terms have been temporarily extended pending closing of this
permanent modification. 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. As of year-end 1997, the
bondholders, pursuant to forbearance and second mortgage agreements have
advanced $280,000 and $130,000 to Players Club and Suntree, respectively. Such
funds were advanced to cover certain deferred maintenance items and delinquent
real estate taxes. These loans will be repaid from available cash flow after
payment of bond interest on a self amortizing basis.
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 $3,000 and $20,000 at March 25, 1998 and 1997, respectively. In
the case of Suntree, the minority interest balance was approximately $7,000 and
$18,000 at March 25, 1998 and 1997, respectively. Players Club's net loss after
minority interest amounted to approximately $829,000, $559,000 and $544,000 for
the 1997, 1996 and 1995 Fiscal Years, respectively. Suntree's net loss after
minority interest amounted to approximately $567,000, $350,000 and $307,000 for
the 1997, 1996 and 1995 Fiscal Years, respectively.
Triangle/Oaks Limited Partnership
During the years ended December 31, 1997 and 1996, the Local Partnership
incurred losses of $915,330 and $551,907, respectively. In addition, at December
31, 1997, accounts payable and accrued expenses exceed available cash by
$538,226 and total liabilities exceed total assets by $6,997,712. These factors
among others may indicate that the Local Partnership will be unable to continue
as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability that might be necessary should the Local Partnership be unable to
continue as a going concern. The partnership has received a commitment from
affiliates of the Local General Partner to provide additional cash funding as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
April 1, 1998 $ 80,000
May 1, 1998 100,000
June 1, 1998 100,000
Thereafter 25,000
</TABLE>
36
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 25, 1998
The cash funds provided will assist the Local Partnership in reducing accounts
payable and accrued liabilities. In addition, the cash funds will provide the
partnership an opportunity to improve the property; thereby increasing occupancy
and improving performance.
The Partnership's investments in Triangle/Oaks has been reduced to zero by prior
years' losses. The minority interest balance for Triangle/Oaks was approximately
$396,000 and $414,000 at March 25, 1998 and 1997, respectively. Triangle/Oaks
net loss after minority interest amounted to approximately $897,000, $588,000
and $402,000 for the 1997, 1996 and 1995 Fiscal Years, respectively.
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, 1998, uninsured cash and cash
equivalents approximated $241,000.
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 30% 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, 1997.
37
<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.
Since November 25, 1997, the General Partners of the Partnership have been
Related Advantaged Residential Associates Inc., (Related General Partner), and
Related and Cambridge Associates Limited Partnership, both of which are
affiliates 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, to assist them in connection herewith.
Certain information concerning the directors and executive officers of the
Related General Partner (which is also the general partner of Related and
Cambridge, the other General Partner of the Partnership) are set forth below.
On November 25, 1997, the Related General Partner and one of the then other
general partners of the Partnership, Advantaged Housing Associates, Inc.
("AHA"), consummated a Purchase Agreement pursuant to which the Related General
Partner purchased AHA's general partner interest in the Partnership (the
"Transfer"). In addition to the Transfer, the Related General Partner also
acquired AHA's general partner interest in Related and Cambridge Associates
which is also the special limited partner of the Partnership.
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, 58, is 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, 54, 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
38
<PAGE>
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, 53, 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, 43, 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, 42, 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.
GLENN F. HOPPS, 35, joined Related in December, 1990, and prior to that date was
employed by Marks Shron & Company and Weissbarth, Altman and Michaelson,
certified public accountants. Mr. Hopps graduated from New York State University
at Albany with a Bachelor of Science Degree in Accounting.
LYNN A. McMAHON, 42, 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.
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.
39
<PAGE>
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, 1998, security ownership by the General Partners and their
affiliates is as listed:
<TABLE>
<CAPTION>
Percentage of
Outstanding
Name of General Partner
Title of Class Beneficial Ownership Amount Interest
- - -------------- -------------------- ------ --------
<S> <C> <C> <C>
General Partnership Related Advantaged
Interest in the Residential $16 33.0%
Partnership Associates Inc.
Related and Cambridge
Associates Limited Partnership 4 67.0%
-----
100.0%
</TABLE>
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 8
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.
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 Service Group, an affiliate of the Related General Partner, provided
property management services to three Local Partnerships through July 1997, for
which it was paid its usual and customary management fees, aggregating
approximately $168,000, $308,000 and $309,000 during the 1997, 1996 and 1995
Fiscal Years, respectively. Commencing August 1, 1997 the properties are managed
by Related Management Company, an affiliate of the Related General Partner and
were paid approximately $115,000 during the 1997 Fiscal Year.
Whitney Management Corp., an affiliate of the Related General Partner, is the
managing agent of four of the properties. Property management fees earned by
Whitney Management Corp. were approximately $265,000, $275,000 and $278,000 for
the 1997, 1996 and 1995 Fiscal Years,
40
<PAGE>
respectively. On November 12, 1997, the property and the related assets and
liabilities of Galveston, one of the properties, was sold to an unaffiliated
third party for $5,030,000 (see Note 10).
41
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
<TABLE>
<CAPTION>
Sequential
Page
----------
<S> <C> <C>
(a) 1. Financial Statements
Independent Auditors' Report 17
Consolidated Balance Sheets at March 25, 1998 and 1997 44
Consolidated Statements of Operations for the Years Ended March 25,
1998, 1997 and 1996 45
Consolidated Statements of Changes in Partners' Deficit for the
Years Ended March 25, 1998, 1997 and 1996 46
Consolidated Statements of Cash Flows for the Years Ended March 25,
1998, 1997 and 1996 47
Notes to Consolidated Financial Statements 50
The financial statements of the Local Partnerships are not included
separately herein
(a) 2. Financial Statements Schedules
Independent Auditors' Report on Financial Statement Schedules 72
Schedule III - Real Estate and Accumulated Depreciation 74
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 73
(27) Financial Data Schedule (filed herewith) 75
** 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.
</TABLE>
42
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K (continued)
<TABLE>
<CAPTION>
Sequential
Page
----------
<S> <C>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
</TABLE>
43
<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 15, 1998
By: /s/ J. Michael Fried
--------------------
J. Michael Fried,
President and Director
By: RELATED AND CAMBRIDGE ASSOCIATES,
LIMITED PARTNERSHIP,
a General Partner
By: Related Advantaged Residential
Associates Inc.,
its General Partner
Dated: June 15, 1998
By: /s/ J. Michael Fried
--------------------
J. Michael Fried,
President and Director
<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:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President and Chief Executive Officer June 15, 1998
(Principal executive officer) and
/s/ J. Michael Fried Director of Related Advantaged
- - ------------------- Residential Associates, Inc.
J. Michael Fried
Senior Vice President (principal June 15, 1998
/s/ Alan P. Hirmes financial officer) of Related Advantaged
- - ------------------ Residential Associates, Inc.
Alan P. Hirmes
Treasurer (principal accounting officer) June 15, 1998
/s/ Glenn F. Hopps of Related Advantaged Residential
- - ------------------ Associates, Inc.
Glenn F. Hopps
/s/ Stephen M. Ross Director of Related Advantaged June 15, 1998
- - ------------------- Residential Associates, Inc.
Stephen M. Ross
Chairman of the Board, President, Chief June 15, 1998
Executive Officer (principal executive
/s/ J. Michael Fried officer) and Director of Advantaged
- - -------------------- Housing Associates, Inc.
J. Michael Fried
</TABLE>
<PAGE>
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 15, 1998 on page 17,
which is based in part on the reports of other auditors, we have also audited
supporting Schedule III-March 25, 1998. 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 and its subsidiary partnerships will continue as a
going concern. As discussed in Notes 2 and 12, the auditors of three (Fiscal
1997) 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 $2,340,047, $1,478,861 and $1,278,519 for the 1997, 1996 and 1995
Fiscal Years, respectively, and their assets constituted 39% and 37% of the
Partnership's assets at March 25, 1998 and 1997, 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 12. 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 15, 1998
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
Partnership Property Pledged as Collateral
MARCH 25, 1998
<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 $4,961,161
(4) Sheridan Square Associates of Lawton 8,485,076 1,093,520 8,228,192 459,426
(5) Apple Creek Associates of Denton, Ltd 7,749,213 398,000 8,517,595 (406,708)
(5) Galveston-Stewart's Landing, Ltd (a)(g) 0 1,112,405 6,462,225 (7,574,630)
(2) Players Club at Fort Myers, Ltd 9,970,029 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 8,100,000 1,368,929 7,072,779 522,680
(6) The Harbours Associates 13,241,667 1,449,985 15,323,441 (255,982)
(6) Westwind II Associates 4,469,171 322,817 4,919,687 750,207
(3) Brookwood Apartments L.P. 5,524,177 368,827 6,803,294 59,463
(1) Suncreek-268, Ltd 6,800,000 0 (b) 9,170,112 4,487,959
(1) McAdam Park-336, Ltd (f) 0 0 (e) 11,027,615 (11,027,615)
----------- ----------- ------------ ------------
$91,209,333 $12,829,147 $114,100,562 $(12,388,648)
=========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at which Carried At Close of Period
------------------------------------------------
Buildings and Accumulated
Subsidiary Partnership's Residential Property Land Improvements Total Depreciation
- - --------------------------------------------- ---- ------------ ----- ------------
<S> <C> <C> <C> <C>
(2) Triangle/Oaks Limited Partnership $ 1,882,423 $ 22,304,080 $ 24,186,503 $ 8,533,611
(4) Sheridan Square Associates of Lawton 1,093,520 8,687,618 9,781,138 3,794,425
(5) Apple Creek Associates of Denton, Ltd 398,000 8,110,887 8,508,887 3,704,579
(5) Galveston-Stewart's Landing, Ltd (a)(g) 0 0 0 0
(2) Players Club at Fort Myers, Ltd 2,668,486 8,370,876 11,039,362 3,595,593
(2) Suntree at Fort Myers, Ltd 1,667,738 6,993,235 8,660,973 3,020,922
(3) Woodridge, Ltd 1,232,864 7,731,524 8,964,388 3,475,381
(6) The Harbours Associates 1,449,985 15,067,459 16,517,444 6,592,713
(6) Westwind II Associates 322,817 5,669,894 5,992,711 2,515,791
(3) Brookwood Apartments L.P. 368,826 6,862,758 7,231,584 2,926,891
(1) Suncreek-268, Ltd 2,000,000 (b) 11,658,071 13,658,071 5,505,534
(1) McAdam Park-336, Ltd (f) 0 (e) 0 0 0
------------ ------------ ------------ -----------
$ 13,084,659 $101,456,402 $114,541,061 $43,665,440
============ ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Life on which
Depreciation in
Latest Income
Year of Statement is
Subsidiary Partnership's Residential Property Construction Acquired Computed(c)(d)
- - --------------------------------------------- ------------ -------- --------------
<S> <C> <C> <C>
(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)(g) (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 7-30 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
</TABLE>
(a) The total loss on impairment of assets in the amount of $1,116,378 is
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 10 in Item 8. Financial
Statements and Supplemental Data).
(g) On November 12, 1997, the property and the related assets and liabilities
of Galveston-Stewart Landing, Ltd. were sold to Beal Bank. (See Note 10 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,
-----------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $120,889,451 $134,148,347 $135,195,606 $43,124,557 $45,740,159 $41,816,329
Additions during period:
Improvements 157,112 2,436,268 69,119
Depreciation expense 3,276,844 3,557,303 3,923,830
Reductions during period:
Dispositions 6,505,502 15,695,164 0 2,735,961 6,172,905 0
Loss on impairment 0 0 1,116,378 0 0 0
------------ ------------ ------------ ------------ ------------ -----------
Balance at end of period $114,541,061 $120,889,451 $134,148,347 $43,665,440 $43,124,557 $45,740,159
============ ============ ============ ============ ============ ===========
</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.
Exhibit 22
<TABLE>
<CAPTION>
Subsidiaries of Registrant State of Organization
- - -------------------------- ---------------------
<S> <C>
Triangle/Oaks Limited Partnership MA
Sheridan Square Associates of Lawton OK
Apple Creek Associates of Denton, 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
</TABLE>
<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-25-1998
<PERIOD-START> MAR-26-1997
<PERIOD-END> MAR-25-1998
<CASH> 1,011,604
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,810,938
<PP&E> 114,541,061
<DEPRECIATION> 43,665,440
<TOTAL-ASSETS> 76,840,906
<CURRENT-LIABILITIES> 13,034,746
<BONDS> 91,209,333
0
0
<COMMON> 0
<OTHER-SE> (27,403,173)
<TOTAL-LIABILITY-AND-EQUITY> 76,940,906
<SALES> 0
<TOTAL-REVENUES> 19,260,738
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,829,345
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,109,841
<INCOME-PRETAX> (2,733,448)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 3,629,807
<CHANGES> 0
<NET-INCOME> 906,578
<EPS-PRIMARY> 125
<EPS-DILUTED> 0
</TABLE>
