FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2000 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 0-16497
CAPITAL SOURCE L.P.
(Exact name of registrant as specified in its charter)
Delaware 52-1417770
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
(402) 444-1630
(Registrant's telephone number, including area code)
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
<PAGE> - i -
Part I. Financial Information
Item 1. Financial Statements
CAPITAL SOURCE L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 2000 Dec. 31, 1999
(unaudited)
--------------- ---------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value $ 8,315,018 $ 8,658,997
Investment in FHA Loans (Note 2) 12,292,911 12,340,447
Investment in GNMA Certificates (Note 2) 22,964,286 23,105,420
Investment in Operating Partnerships (Note 3) - -
Interest receivable 306,969 304,743
Other assets 612,886 457,866
--------------- ---------------
$ 44,492,070 $ 44,867,473
=============== ===============
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable (Note 4) $ 282,834 $ 420,860
Distribution payable 860,597 860,597
--------------- ---------------
1,143,431 1,281,457
--------------- ---------------
Partners' Capital (Deficit)
General Partner (182,173) (179,799)
Beneficial Assignment Certificate Holders
($12.90 per BAC in 2000 and $12.97 in 1999) 43,530,812 43,765,815
--------------- ---------------
43,348,639 43,586,016
--------------- ---------------
$ 44,492,070 $ 44,867,473
=============== ===============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> - 1 -
CAPITAL SOURCE L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the For the Six For the Six
Quarter Ended Quarter Ended Months Ended Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Income
Mortgage-backed securities income $ 796,675 $ 805,006 $ 1,595,331 $ 1,612,472
Interest income on temporary cash investments 123,680 102,894 238,010 206,920
Equity in earnings (losses) of Operating Partnerships 49,500 - 64,988 (50,000)
Other income - - - 2,000
--------------- --------------- --------------- ---------------
969,855 907,900 1,898,329 1,771,392
Expenses
Operating and administrative expenses (Note 4) 258,710 179,413 409,860 323,534
--------------- --------------- --------------- ---------------
Net income 711,145 728,487 1,488,469 1,447,858
Other comprehensive income:
Unrealized holding gains (losses) on securities
arising during the period 841 (12,636) (4,652) (9,641)
--------------- --------------- --------------- ---------------
Net comprehensive income $ 711,986 $ 715,851 $ 1,483,817 $ 1,438,217
=============== =============== =============== ===============
Net income allocated to:
General Partner $ 7,112 7,285 $ 14,885 $ 14,479
Limited Partner 704,033 721,202 1,473,584 1,433,379
--------------- --------------- --------------- ---------------
$ 711,145 728,487 $ 1,488,469 $ 1,447,858
=============== =============== =============== ===============
Net income, basic and diluted, per BAC $ .21 $ .21 $ .44 $ .42
=============== =============== =============== ===============
Weighted average number of BACs outstanding 3,374,222 3,374,222 3,374,222 3,374,222
=============== =============== =============== ===============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> - 2 -
CAPITAL SOURCE L.P.
STATEMENT OF PARTNERS CAPITAL (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
General BAC
Partner Holders Total
-------------- ---------------- ---------------
<S> <C> <C> <C>
Partners' Capital (Deficit)
(excluding accumulated other comprehensive income)
Balance at December 31, 1999 $ (179,964) $ 43,749,455 $ 43,569,491
Net income 14,885 1,473,584 1,488,469
Cash distributions paid or accrued (17,212) (1,703,982) (1,721,194)
-------------- ---------------- ---------------
(182,291) 43,519,057 43,336,766
-------------- ---------------- ---------------
Accumulated other comprehensive income
Balance at December 31, 1999 165 16,360 16,525
Other comprehensive income (47) (4,605) (4,652)
-------------- ---------------- ---------------
118 11,755 11,873
-------------- ---------------- ---------------
Balance at June 30, 2000 $ (182,173) $ 43,530,812 $ 43,348,639
============== ================ ===============
</TABLE>
CAPITAL SOURCE L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 2000 June 30, 1999
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,488,469 $ 1,447,858
Adjustments to reconcile net income to net cash
from operating activities
Equity in (earnings) losses of Operating Partnerships (64,988) 50,000
Amortization of discount on mortgage-backed securities (760) (1,346)
(Increase) decrease in interest receivable (2,226) 5,755
Decrease in other assets 4,891 2,178
Decrease in accounts payable (138,026) (251,885)
--------------- ---------------
Net cash provided by operating activities 1,287,360 1,252,560
--------------- ---------------
Cash flows from investing activities
FHA Loan and GNMA principal payments received 184,778 228,251
Distributions received from Operating Partnerships 64,988 -
Investment in Operating Partnerships - (50,000)
Deferred transaction costs paid (159,911) (42,205)
--------------- ---------------
Net cash provided by investing activities 89,855 136,046
--------------- ---------------
Cash flow used in financing activity
Distributions paid (1,721,194) (1,721,194)
--------------- ---------------
Net decrease in cash and temporary cash investments (343,979) (332,588)
Cash and temporary cash investments at beginning of period 8,658,997 9,304,694
--------------- ---------------
Cash and temporary cash investments at end of period $ 8,315,018 $ 8,972,106
=============== ===============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> - 3 -
CAPITAL SOURCE L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
1.Basis of Presentation
The accompanying interim unaudited financial statements have been prepared
according to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted according to such rules and
regulations, although management believes that the disclosures are adequate to
make the information presented not misleading. The financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1999. In the opinion of management, all normal and recurring
adjustments necessary to present fairly the financial position at June 30,
2000 and results of operations for all periods presented have been made. The
results of operations for the three and six-month periods ended June 30, 2000
are not necessarily indicative of the results to be expected for the full
year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Investment in Mortgage-Backed Securities
At June 30, 2000, the total amortized cost, gross unrealized holding
gains and aggregate fair value of available-for-sale securities were $592,357,
$11,873 and $604,230, respectively. At June 30, 2000, the total
amortized cost, gross unrealized holding gains and aggregate fair value of
held-to-maturity securities were $34,652,967, $19,049 and $34,672,016,
respectively.
<PAGE> - 4 -
CAPITAL SOURCE L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
Descriptions of the Partnership's mortgage-backed securities at June 30, 2000
are as follows:
<TABLE>
<CAPTION>
Number Interest Maturity Carrying
Type of Security and Name Location of Units Rate Date Amount
---------------------------------- -------------------- -------- -------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Held-to-Maturity
GNMA Certificates:
Misty Springs Apartments Daytona Beach, FL 128 8.75% 06-15-2029 $ 4,204,245
The Ponds at Georgetown Ann Arbor, MI 134 7.50% 12-15-2029 2,390,251
Waterman's Crossing Newport News, VA 260 10.00% 09-15-2028 10,783,263
Water's Edge Apartments Lake Villa, IL 108 8.75% 12-15-2028 4,982,297
---------------
22,360,056
FHA Loans:
Bluff Ridge Apartments Jacksonville, NC 108 8.72% 11-15-2028 3,449,015
Highland Park Apartments Columbus, OH 252 8.75% 11-01-2028 8,843,896
---------------
12,292,911
---------------
34,652,967
---------------
Available-for-Sale
GNMA Certificates:
Pools of single-family mortgages 7.58%(1) 2008 to 2009 322,903
Pools of single-family mortgages 7.58%(1) 2007 to 2008 281,327
---------------
604,230
---------------
Balance at June 30, 2000 $ 35,257,197
===============
</TABLE>
(1) Represents effective yield to the Partnership.
Reconciliation of the carrying amount of the mortgage-backed securities is as
follows:
<TABLE>
<S> <C>
Balance at December 31, 1999 $ 35,445,867
Addition
Amortization of discount on mortgage-backed securities 760
Deductions
FHA Loan and GNMA principal payments received (184,778)
Change in net unrealized holding gains (losses) on available-for-sale
mortgage-backed securities (4,652)
---------------
Balance at June 30, 2000 $ 32,257,197
===============
</TABLE>
3. Investment in Operating Partnerships
The Partnership's investment in Operating Partnerships consists of interests
in limited partnerships which own multifamily properties financed by the GNMA
Certificates and FHA Loans held by the Partnership and are accounted for using
the equity method. Currently, losses are recognized only to the extent of
additional contributions, net of distributions received, to the Operating
Partnerships by the Partnership. Any distributions received by the
Partnership from the Operating Partnerships are recorded as income.
<PAGE> - 5 -
CAPITAL SOURCE L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
Descriptions of the Operating Partnerships held at June 30, 2000, are as
follows:
<TABLE>
<CAPTION>
Carrying
Name Location Partnership Name Amount
------------------------ --------------------- ----------------------------------------- ------------
<S> <C> <C> <C>
Misty Springs Apartments Daytona Beach, FL Cypress Landings II, Ltd. $ -
Fox Hollow Apartments High Point, NC Fox Hollow Limited Partnership -
The Ponds at Georgetown Ann Arbor, MI Ponds at Georgetown Limited Partnership -
Waterman's Crossing Newport News, VA Oyster Cove Limited Partnership -
Water's Edge Apartments Lake Villa, IL Water's Edge Limited Partnership -
Bluff Ridge Apartments Jacksonville, NC Bluff Ridge Associates Limited Partnership -
Highland Park Apartments Columbus, OH Interstate Limited Partnership -
------------
Balance at June 30, 2000 $ -
============
</TABLE>
Reconciliation of the carrying amount of the Operating Partnerships is as
follows:
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30, 2000
---------------
<S> <C>
Balance at beginning of year $ -
Addition
Equity in earnings of Operating Partnerships 64,988
Deduction
Distributions received from Operating Partnerships (64,988)
---------------
Balance at end of period $ -
===============
4. Transactions with Related Parties
The General Partners, certain of their affiliates and the Operating
Partnerships' general partners have received or may receive fees,
compensation, income, distributions and payments from the Partnership in
connection with the offering and the investment, management and sale of the
Partnership's assets (other than disclosed elsewhere) as follows.
The General Partners are entitled to receive an asset management and
partnership administration fee equal to 0.5% of invested assets per annum,
payable only during such years that an 8% return has been paid to investors on
a noncumulative basis. Any unpaid amounts will accrue and be payable only
after a 13% annual return to investors has been paid on a cumulative basis and
the investors have received the return of their capital contributions. For
the quarter and six months ended June 30, 2000, distributions to investors
represented less than an 8% return; accordingly, no fees were paid or accrued
during these periods.
Substantially all of the Partnership's general and administrative expenses and
certain costs capitalized by the Partnership are paid by a General Partner or
an affiliate and reimbursed by the Partnership. The amount of such expenses
and costs reimbursed to the General Partner for the six months ended June 30,
2000, was $817,549 ($411,876 for the quarter ended June 30, 2000). These
reimbursed expenses are presented on a cash basis and do not reflect accruals
made at quarter end.
<PAGE> - 6 -
CAPITAL SOURCE L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
An affiliate of the General Partners has been retained to provide property
management services for Waterman's Crossing, Misty Springs Apartments, Fox
Hollow Apartments and The Ponds at Georgetown. The fees for services provided
were $51,427 and $101,165 for the quarter and six months ended June 30, 2000,
respectively, and represented the lower of costs incurred in providing
management of the property or customary fees for such services determined on a
competitive basis.
5. Legal Proceedings
The Partnership has been named as a defendant in a purported class action
lawsuit filed in the Delaware Court of Chancery on February 3, 1999, by two
BAC holders, Alvin M. Panzer and Sandra G. Panzer, against the Partnership,
its General Partners, America First and various of their affiliates (including
Capital Source II L.P.-A, a similar partnership with general partners that are
affiliates of America First) and Lehman Brothers, Inc. The plaintiffs seek to
have the lawsuit certified as a class action on behalf of all BAC holders of
the Partnership and Capital Source II L.P.-A. The lawsuit alleges, among
other things, that a proposed merger transaction involving the Partnership and
Capital Source II L.P.-A is deficient and coercive, that the defendants have
breached the terms of the Partnership's partnership agreement and that the
defendants have acted in manners which violate their fiduciary duties to the
BAC holders. In this complaint, the plaintiffs sought to enjoin the proposed
merger transaction and seek to appoint an independent BAC holder
representative to investigate alternative transactions. The lawsuit also
requests a judicial dissolution of the Partnership, an accounting, and
unspecified damages and costs.
The General Partners determined not to pursue the merger transaction which was
the subject of the initial lawsuit and proposed an alternative transaction to
BAC holders. A prospectus/consent solicitation statement outlining this
alternative transaction was sent to BAC holders on or about November 16,
1999. The plaintiffs amended their complaint on December 8, 1999, and again
on February 22, 2000. The second amended complaint challenges this current
prospectus/consent solicitation statement on grounds similar to those alleged
in the original complaint, as well as on other procedural grounds. The second
amended complaint does not seek to enjoin the proposed merger transaction.
On July 12, 1999, Sandra G. Panzer, one of the named plaintiffs in the action
described above, filed an additional complaint against the Partnership, its
General Partners and America First in the Delaware Court of Chancery (the
Books and Records Action). The complaint seeks to compel the General
Partners to supply the plaintiff with a list of all BAC holders of the
Partnership and copies of the limited partnership agreements of the Operating
Partnerships.
To resolve these lawsuits, the Partnership and affiliates, on April 24, 2000,
entered into a settlement agreement (the Settlement) with the plaintiffs. The
Settlement remains subject to approval by the Court. In connection with the
Settlement, which, if approved, will also result in the dismissal of the Book
and Records Action, the Partnership submitted a revised transaction to BAC
holders for approval on or about June 30, 2000. The complete terms of the
Settlement, along with the updated consent solicitation material describing
the revised merger transaction, was filed with the Securities and Exchange
Commission (the SEC) on or about June 15, 2000.
<PAGE> - 7 -
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with all of the
financial statements and notes included in Item 1 of this report as well as
the Partnership's Annual Report on Form 10-K for the year ended December 31,
1999.
Liquidity and Capital Resources
At June 30, 2000, the Partnership owned: (i) four mortgage-backed securities
guaranteed as to principal and interest by the Government National Mortgage
Association (GNMA) collateralized by first mortgage loans on multifamily
housing properties located in four states; and (ii) two first mortgage loans
insured as to principal and interest by the Federal Housing Administration
(FHA) on multifamily housing properties located in two states; and (iii)
Partnership Equity Investments in seven limited partnerships which own
multifamily properties. Six of these properties are financed by GNMA
Certificates or FHA Loans. The remaining property was financed by an FHA Loan
which was repaid to the Partnership in 1993. The GNMA Certificates, FHA Loans
and Partnership Equity Investments are referred to as the "Permanent
Investments". The Partnership has also invested amounts in certain GNMA
securities backed by pools of single-family mortgages (Reserve Investments).
The obligations of GNMA and FHA are backed by the full faith and credit of the
United States government. The overall status of the Partnership's investments
has remained relatively constant since December 31, 1999.
The following table shows the occupancy levels of the properties financed by
the Partnership at June 30, 2000:
</TABLE>
<TABLE>
<CAPTION>
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
------------------------------- -------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Bluff Ridge Apartments Jacksonville, NC 108 102 94%
Fox Hollow Apartments High Point, NC 184 181 98%
Highland Park Apartments Columbus, OH 252 241 96%
Misty Springs Apartments Daytona Beach, FL 128 127 99%
The Ponds at Georgetown Ann Arbor, MI 134 133 99%
Waterman's Crossing Newport News, VA 260 258 99%
Water's Edge Apartments Lake Villa, IL 108 102 94%
------------- ------------ ------------
1,174 1,144 97%
============= ============ ============
Distributions
Cash distributions paid or accrued per BAC for the periods shown were as
follows:
</TABLE>
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 2000 June 30, 1999
--------------- ---------------
<S> <C> <C>
Regular quarterly distributions
Income $ .4367 $ .4248
Return of capital .0683 .0802
--------------- ---------------
$ .5050 $ .5050
=============== ===============
Distributions
Paid out of cash flow $ .4719 $ .5050
Paid out of reserves .0331 -
--------------- ---------------
$ .5050 $ .5050
=============== ===============
</TABLE>
<PAGE> - 8 -
Regular quarterly distributions to BAC Holders consist primarily of interest
received on FHA Loans and GNMA Certificates. Additional cash for
distributions is received from other investments. The Partnership may draw on
reserves to pay operating expenses or to supplement cash distributions to BAC
Holders. The Partnership is permitted to replenish reserves with cash flows
in excess of distributions paid. For the six months ended June 30, 2000,
$112,935 was withdrawn from reserves to supplement distributions to BAC
Holders ($99,268 was withdrawn for the quarter ended June 30, 2000). The
total amount held in reserves at June 30, 2000 was $8,890,065 of which
$604,230 was invested in GNMA Certificates.
The Partnership believes that cash provided by operating and investing
activities and, if necessary, withdrawals from the Partnership's reserves will
be adequate to meet its short-term and long-term liquidity requirements,
including the payments of distributions to BAC Holders. Under the terms of its
Partnership Agreement, the Partnership has the authority to enter into
short-term and long-term debt financing arrangements; however, the Partnership
currently does not anticipate entering into such arrangements. The
Partnership is not authorized to issue additional BACs to meet short-term and
long-term liquidity requirements.
Results of Operations
Comparison of the Quarters Ended June 30, 2000 and June 30, 1999
Mortgage-backed securities income decreased slightly for the quarter
ended June 30, 2000, compared to the same period in 1999 due to the
continued amortization of the principal balances of the Partnership's
mortgage-backed securities.
Interest income on temporary cash investments increased for the quarter
ended June 30, 2000, compared to the same period in 1999 due to an increase
in the average interest rate earned on reserve investments.
During the quarter ended June 30, 2000, the Partnership received a
distribution of $49,500 from Highland Park Apartments whereas no such
distribution was received from any of the Operating Partnerships during the
comparable period in 1999. The Partnership recorded equity in earnings
(losses) of Operating Partnerships for the respective periods to the extent of
the additional investments in Operating Partnerships, net of distributions
received. Accordingly, equity in earnings (losses) of Operating Partnerships
increased $49,500 for the quarter ended June 30, 2000 compared to the same
period in 1999.
Operating and administrative expenses increased for the quarter ended June 30,
2000, compared to the same period in 1999 primarily due to an increase in
legal fees resulting from the defense of a purported class action lawsuit
filed against the Partnership as more fully described in Note 5 to the
financial statements. The increase in legal fees was partially offset
by a decrease in salaries and related expenses.
Comparison of the Six Months Ended June 30, 2000 and June 30, 1999
Mortgage-backed securities income decreased slightly for the six months
ended June 30, 2000, compared to the same period in 1999 due to the
continued amortization of the principal balances of the Partnership's
mortgage-backed securities.
Interest income on temporary cash investments increased for the six months
ended June 30, 2000, compared to the same period in 1999 due to an increase
in the average interest rate earned on reserve investments.
During the six months ended June 30, 2000, the Partnership received
distributions totaling $64,988 from The Ponds at Georgetown and Highland Park
Apartments whereas no such distributions were received from any of the
Operating Partnerships during the comparable period in 1999. In addition, the
Partnership did not make additional contributions to any Operating
Partnerships during the six months ending June 30, 2000, while additional
contributions totaling $50,000 were made to Waterman's Crossing and Misty
Springs Apartments during the same period in 1999. The Partnership recorded
equity in earnings (losses) of Operating Partnerships for the respective
periods to the extent of the additional investments in Operating Partnerships,
net of distributions received. Accordingly, equity in earnings (losses) of
Operating Partnerships increased $114,988 for the six months ended June 30,
2000 compared to the same period in 1999.
<PAGE> - 9 -
Operating and administrative expenses increased for the six months ended June
30, 2000, compared to the same period in 1999 primarily due to an increase in
legal fees resulting from the defense of a purported class action lawsuit
filed against the Partnership as more fully described in Note 5 to the
financial statements. The increase in legal fees was partially offset
by a decrease in salaries and related expenses.
Forward Looking Statements
This report contains forward looking statements that reflect management's
current beliefs and estimates of future economic circumstances, industry
conditions, the Partnership's performance and financial results. All
statements, trend analysis and other information concerning possible or
assumed future results of operations of the Partnership and the real estate
investments it has made (including, but not limited to, the information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations"), constitute forward-looking statements. BAC Holders
and others should understand that these forward looking statements are subject
to numerous risks and uncertainties and a number of factors could affect the
future results of the Partnership and could cause those results to differ
materially from those expressed in the forward looking statements contained
herein.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in the Partnership's
market risk since December 31, 1999.
<PAGE> - 10 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Partnership has been named as a defendant in a purported
class action lawsuit filed in the Delaware Court of Chancery
on February 3, 1999, by two BAC holders, Alvin M. Panzer and
Sandra G. Panzer, against the Partnership, its General Partners,
America First and various of their affiliates (including Capital
Source II L.P.-A, a similar partnership with general partners
that are affiliates of America First) and Lehman Brothers, Inc.
The plaintiffs seek to have the lawsuit certified as a class
action on behalf of all BAC holders of the Partnership and
Capital Source II L.P.-A. The lawsuit alleges, among other
things, that a proposed merger transaction involving the
Partnership and Capital Source II L.P.-A is deficient and
coercive, that the defendants have breached the terms of the
Partnership's partnership agreement and that the defendants
have acted in manners which violate their fiduciary duties to
the BAC holders. In this complaint, the plaintiffs sought to
enjoin the proposed merger transaction and seek to appoint an
independent BAC holder representative to investigate alternative
transactions. The lawsuit also requests a judicial dissolution
of the Partnership, an accounting, and unspecified damages and
costs.
The General Partners determined not to pursue the merger
transaction which was the subject of the initial lawsuit and
proposed an alternative transaction to BAC holders. A
prospectus/consent solicitation statement outlining this
alternative transaction was sent to BAC holders on or about
November 16, 1999. The plaintiffs amended their complaint on
December 8, 1999, and again on February 22, 2000. The second
amended complaint challenges this current prospectus/consent
solicitation statement on grounds similar to those alleged
in the original complaint, as well as on other procedural
grounds. The second amended complaint does not seek to enjoin
the proposed merger transaction.
On July 12, 1999, Sandra G. Panzer, one of the named plaintiffs
in the action described above, filed an additional complaint
against the Partnership, its General Partners and America First
in the Delaware Court of Chancery (the Books and Records
Action). The complaint seeks to compel the General Partners to
supply the plaintiff with a list of all BAC holders of the
Partnership and copies of the limited partnership agreements of
the Operating Partnerships.
To resolve these lawsuits, the Partnership and affiliates, on
April 24, 2000, entered into a settlement agreement (the
Settlement) with the plaintiffs. The Settlement remains subject
to approval by the Court. In connection with the Settlement,
which, if approved, will also result in the dismissal of the
Book and Records Action, the Partnership submitted a
revised transaction to BAC holders for approval on or about
June 30, 2000. The complete terms of the Settlement, along
with the updated consent solicitation material describing the
revised merger transaction, was filed with the Securities and
Exchange Commission (the SEC) on or about June 15, 2000.
There are no other material pending legal proceedings to which
the Partnership is a party or to which any of its property is
subject.
Item 4. Submission of Matters to a Vote of Security Holders.
On or about June 30, 2000, the General Partners submitted a
proposal for a merger of the Registrant with Capital Source II
L.P.-A and America First Real Estate Investment Partners, L.P.
for consent to the BAC holders without a meeting. The
solicitation is still pending and therefore, a final vote of
the BAC holders has not been tabulated.
<PAGE> - 11 -
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4(a) Agreement of Limited Partnership of Capital Source
L.P. (incorporated herein by reference from Exhibit A of
the Prospectus contained in the Registrant's
Post-Effective Amendment No. 3 dated May 15, 1986 to the
Registration Statement on Form S-11 (Commission File No.
0-16497)).
4(b) Amendment to the Capital Source L.P. Limited Partnership
Agreement (incorporated by reference to Exhibit 3.08 to
Post-Effective Amendment No. 1 to Registration Statement
on Form S-4 dated June 15, 2000 filed by America First
Real Estate Investments Partners, L.P. (Commission File No.
333-52117).
4(c) Beneficial Assignment Certificate (incorporated by
reference to page 47 of Form 10-K for the fiscal year
ended December 31, 1989 filed with the Securities and
Exchange Commission by the Registrant (Commission File No.
0-16497)).
10(a) Stipulation of Settlement
IN THE CASE OF
ALVIN M. PANZER and
SANDRA G. PANZER
Plaintiffs,
v.
INSURED MORTGAGE EQUITIES, INC.,
INSURED MORTGAGE EQUITIES II
LP., AMERICA FIRST CAPITAL
SOURCE I, LLC., AMERICA FIRST
CAPITAL SOURCE II, LLC, AMERICA
FIRST COMPANIES, LLC, AMERICA
FIRST REAL ESTATE INVESTMENT
PARTNERS, L.P., LEHMAN
BROTHERS, INC., CAPITAL SOURCE
L.P., PAUL L. ABBOTT, and CAPITAL
SOURCE II, L.P.,
Defendants.
(incorporated herein by reference to Form 10-Q dated March
31, 2000 filed pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 by Capital Source L.P.
(Commission File No. 0-16497)).
27. Financial Data Schedule
(b) Reports on Form 8-K
The Registrant did not file a report on Form 8-K during the
quarter for which this report is filed.
<PAGE> - 12 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CAPITAL SOURCE L.P.
By America First Capital
Source I L.L.C., General
Partner of the Registrant
By /s/ Michael Thesing
Michael Thesing,
Vice President and
Principal Financial Officer
Dated: August 11, 2000
<PAGE> - 13 -
