FORM 10-K-ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period.........to.........
Commission file number 0-14194
VMS NATIONAL PROPERTIES JOINT VENTURE
(exact name of registrant as specified in its charter)
Illinois 36-3311347
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
630 Dundee Road, Suite 220
Northbrook, Illinois 60062
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (847) 562-4537
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership Interest
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the 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]
State the aggregate market value of the voting partnership interests held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the partnership interests were sold, or the
average bid and asked prices of such partnership interests, as of December 31,
1996. Market value information for the Registrant's partnership interests is
not available.
PART I
ITEM 1. BUSINESS
General
The Registrant, VMS National Properties Joint Venture (the "Venture"), of which
the general partners are VMS National Residential Portfolio I ("Portfolio I")
and VMS National Residential Portfolio II ("Portfolio II"), was formed in
September 1984. Collectively, Portfolio I and Portfolio II are referred to as
the "Partnerships". The Partnerships are limited partnerships formed in
September 1984, under the Uniform Limited Partnership Act of the State of
Illinois. The Managing General Partner of each of the Partnerships is VMS
Realty Investment, Ltd. (formerly VMS Realty Partners), an Illinois limited
partnership. (Effective as of January 1, 1987, Chicago Wheaton Partners
assigned its ownership interests in the Partnerships to VMS Realty Investment,
Ltd.). Prudential-Bache Properties, Inc. is also a minority general partner of
Portfolio I.
The Venture originally acquired 51 residential apartment complexes located
throughout the United States. At December 31, 1996, 34 of the Venture's
properties had been foreclosed and two had been sold. The Venture continues to
own and operate the remaining 15 residential apartment complexes it originally
acquired. However, as provided by the Plan, the Venture filed notices of
abandonment on the 34 properties that have foreclosed. The Venture plans to
continue to own and operate the remaining 15 retained properties. One of the
remaining 15 properties is encumbered by financing insured by the Department of
Housing and Urban Development ("HUD"). HUD does not provide rent or interest
subsidies in connection with the property nor does it restrict rental rates from
being at market rates. This property is owned by a separate subpartnership
("Subpartnership"), of which the Venture owns a 99% equity interest. The
remaining 1% interest is owned by VMS Realty Investment, Ltd.
From the period October 26, 1984, through June 16, 1985, the Partnerships sold
912 Limited Partnership Interests at a price of $150,000 per Limited Partnership
Interest for a total of $136,800,000. The Interests of each Partnership were
offered in reliance upon exemptions from registration under the Securities Act
of 1933, as amended (the "ACT"), and Regulation D thereunder.
The Venture is engaged solely in the business of real estate investment. A
presentation of information about industry segments is not applicable and would
not be material to an understanding of the Venture's business taken as a whole.
As a result of financial difficulties, VMS National Properties Joint Venture
filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court
in the Central District of California on February 22, 1991 (see "Note 4" of the
Notes to Combined Financial Statements). This voluntary filing encompassed the
Venture's non-HUD properties only. In March 1993, the substance of the
Venture's Plan of Reorganization was approved by the Bankruptcy Court and a
Confirmation Order was entered (see "Note 5" of the Notes to Combined Financial
Statements) and the Plan became effective on September 30, 1993.
The participation interest in the Venture of Portfolio I and Portfolio II is
approximately 71% and 29%, respectively.
The Venture has no employees. The officers and employees of VMS Realty Partners
and their affiliates performed all administrative and operational services,
including all asset management functions, but excluding all property management
functions, for the Venture's properties through September 30, 1993. Effective
October 1, 1993, the Managing General Partner engaged Insignia Financial Group,
Inc. ("Insignia") to provide asset management services to the Venture's retained
complexes. Several nonaffiliated management companies had been retained by the
Venture to manage, operate and maintain the Venture's HUD and non-HUD
properties; however, they were replaced as the property manager by Insignia on
all of the Venture's retained properties on January 1, 1994.
The terms of transactions between the Venture and affiliates of the General
Partners of the Venture are set forth in "Item 13 Certain Relationships and
Related Transactions."
Recent Developments - VMS Realty Partners and Affiliates
PAST LIQUIDITY DIFFICULTIES
As previously reported, VMS Realty Partners, an affiliate of VMS Realty
Investment, Ltd. ("VMSRIL"), and certain of its affiliates had experienced
severe liquidity problems. Because of VMS Realty Partners' inability to resolve
the liquidity problems affecting it and its affiliates, VMS Realty Partners had
generally suspended making payments relating to operating assets of it and its
affiliates, other than payments generally necessary to maintain the operation of
such assets and changed the business of VMS Realty Partners and its affiliates,
eliminating the acquisition and development of real estate assets. However,
VMSRIL and each of its affiliates that serve as general partners of the
Syndicated Partnerships, as defined below, continued and are continuing to
perform their responsibilities as general partners. On November 18, 1993, VMS
Realty Partners assigned (without change in terms, including compensation) its
asset management responsibilities for the Syndicated Partnerships, other than
VMS National Properties Joint Venture, to Strategic Realty Advisers ("SRA"), a
real estate company with primary emphasis on asset management and property
management. SRA is wholly owned by Joel A. Stone, who is the sole shareholder
of one of the corporate partners of VMSRIL. In the case of a number of the
Syndicated Partnerships, including the Venture, SRA subsequently assigned such
responsibilities to affiliates of Insignia Financial Group, Inc. ("Insignia"), a
fully integrated real estate service organization. See "Insignia and MAE." SRA
has retained, and is performing, such asset management responsibilities for
Syndicated Partnerships owning hotels. VMS Realty Partners had previously
assigned its asset management responsibilities for VMS National Properties Joint
Venture directly to affiliates of Insignia. See "Insignia Transactions -
Management." The "Syndicated Partnerships" are those partnerships, including
the Venture, of which VMSRIL, one of the VMS Principal Entities (as defined
below), or an affiliate thereof, is the managing general partner (or a general
partner of a general partner) and as to which limited partnership interests were
sold to investors through syndications.
VMSRIL AGREEMENT AND CRA
In response to the above-described liquidity problems, on March 25, 1992,
VMSRIL, the managing general partner of the Partnerships, and an affiliate of
(i.e., under common control with) the VMS Principal Entities, as defined below,
entered into an agreement (the "VMSRIL Agreement") with its single major
creditor, European American Bank, and one of its affiliates, EURAM (collectively
"EAB"), which held a lien on all of VMSRIL's assets.
The VMSRIL Agreement provided that for a 12-month period VMSRIL was prohibited
from engaging in business activities or operations unrelated to the orderly
liquidation of its existing assets, which liquidation was to be conducted
consistent with its duties as the managing general partner of the Syndicated
Partnerships. Notwithstanding the foregoing, the VMSRIL Agreement provided that
VMSRIL was not prohibited from engaging in any activities with respect to the
Syndicated Partnerships, including, but not limited to, the continuation of the
Syndicated Partnerships' business operations.
Under the VMSRIL Agreement, in order to facilitate VMSRIL's operation of its
assets in a manner intended to preserve and, if possible, enhance the value of
such assets prior to their disposition, EAB granted VMSRIL a moratorium on
enforcement of all indebtedness owed to EAB by VMSRIL. EAB agreed that, during
the one year term of the VMSRIL Agreement (assuming no default by VMSRIL in the
performance of its obligations under the VMSRIL Agreement), EAB would not take
any action which would materially adversely affect the interests of VMSRIL,
including, without limitation, demanding payment of indebtedness and filing a
petition to institute an involuntary bankruptcy proceeding against VMSRIL.
Also in response to the above-described liquidity problems, on March 31, 1992,
certain affiliates of VMSRIL, specifically VMS Realty Partners, Chicago Wheaton
Partners, VMS Realty Investors, VMS Financial Services, VMS Financial
Guarantee Limited Partnership and VMS Realty Guarantee Limited Partnership (the
"VMS Principal Entities") entered into the VMS Creditor Repayment Agreement
(the "CRA") with a number of parties including substantially all of the
unsecured and undersecured creditors (other than trade creditors) of the VMS
Principal Entities and certain of the unsecured or undersecured creditors (other
than trade creditors) of their affiliates (collectively, the "Creditors").
Although VMSRIL is a party to the CRA, it is generally not considered a VMS
Principal Entity thereunder.
The CRA was intended to achieve a purpose comparable to that described above for
the VMSRIL Agreement. In consideration of the benefits received by the
Creditors under the CRA, the Creditors granted the VMS Principal Entities a
moratorium similar to that contained in the VMSRIL Agreement.
During the respective terms of, and under certain circumstances specified in,
the VMSRIL Agreement and the CRA, VMS Realty Partners and certain of its
affiliates, including VMSRIL, were required to pay certain sums derived from
their operations and asset dispositions to be applied to their restructured
debts; these sums were paid by VMS Realty Partners and its affiliates, including
VMSRIL, as and when required under the terms of those agreements.
Effective November 17, 1993, the VMS Principal Entities entered into the Fifth
Amendment to the CRA, dated as of October 25, 1993, pursuant to which each VMS
Principal Entity (and not VMSRIL) has transferred certain of its assets in lieu
of foreclosure (other than general partnership interests in Syndicated
Partnerships and assets that the Creditors chose not to acquire, based on their
view of the value of such assets and concerns about possible liability
associated with them) to separate trusts beneficially owned by the Creditors of
each of the respective transferring VMS Principal Entities, subject to the liens
of the applicable Creditors, in consideration of, among other things, the
granting of covenants not to sue by the respective Creditors (and their
successors and assigns) with respect to each of the VMS Principal Entities'
liability for the indebtedness owed such Creditors. Such transactions have
amicably concluded the debtor/creditor relationship between the VMS Principal
Entities and the Creditors.
Pursuant to the CRA and the Fifth Amendment thereto, and as an inducement to the
VMS Principal Entities to engage in the deed in lieu transactions described
above, substantial cash consideration was paid by the Creditors to SRA as
advanced payment for future services to be performed by SRA for the benefit of
the VMS Principal Entities.
During the summer of 1993, EAB introduced VMSRIL to Insignia, which was engaged
in discussions with EAB concerning the possible acquisition by an Insignia
affiliate of VMSRIL's debt to EAB and the assets securing that debt, and the
granting by that Insignia affiliate of a covenant not to sue VMSRIL. This
transaction has now occurred, effectively resolving VMSRIL's financial
difficulties with its single major creditor. See "Purchase of EAB and Creditor
Assets and Granting of Covenants Not to Sue."
Subsequently, Insignia entered into negotiations with VMSRIL that have resulted
in the execution of the Insignia Letter of Intent and, thereafter, following
consummation of certain transactions contemplated by the Insignia Letter of
Intent, an agreement dated July 14, 1994 ("Insignia Agreement"), which
terminated the Insignia Letter of Intent, and restructured certain of the then
unconsummated transactions that had been contemplated by the Insignia Letter of
Intent and provided for certain other agreements of the parties. See "Insignia
Transactions."
INSIGNIA TRANSACTIONS
MANAGEMENT
Effective November 16, 1993, the Insignia Letter of Intent was executed by
VMSRIL and various of its affiliates, SRA, Insignia and a limited partnership
("ISLP").1 The Insignia Letter of Intent contemplated that VMSRIL and
affiliates of VMSRIL serving as general partners of Syndicated Partnerships that
do not own hotels ("Non-Hotel Syndicated Partnership") would withdraw as general
partners and be replaced by MAERIL, Inc. ("MAERIL"), a single purpose affiliate
of Metropolitan Asset Enhancement, L.P. ("MAE"). See "Settlement Agreement
Proxies." MAE is a limited partnership in which Insignia owns a 19.13% limited
partnership interest and the general partner of which is a corporation owned by
Andrew L. Farkas, the Chairman and Chief Executive Officer of Insignia.
Pursuant to the Insignia Agreement, MAERIL will become the substitute general
partner of only the Selected Syndicated Partnerships,2 rather than all of the
Non-Hotel Syndicated Partnerships as originally contemplated in the Insignia
Letter of Intent. MAERIL has already become the substitute general partner of
many of the Selected Syndicated Partnerships.
1 An affiliate of MAE, as defined below, is the sole general partner in
ISLP, and an Insignia affiliate holds the limited partnership
interests.
2 "Selected Syndicated Partnerships" means, collectively, the VMS
National Realty Partners I, VMS National Realty Partners II, Boca
Glades Associates, Ltd., Boca West Shopping Center Associates, Ltd.,
Four Quarters Habitat Apartments Associates, Ltd., Hearthwood
Associates, Investors First-Staged Equity, L.P., Kendall Townhome
Investors, Ltd., Lynnhaven Associates, Merrifields Apartments, Mount
Regis Associates II, Pasadena Office Park Associates, Prudential-Bache
VMS Realty Associates L.P. I, Scarlett Oaks Apartment Associates,
Ltd., VMS Investors First-Staged Equity L.P. II, Woodlawn Associates
and Yorktown Towers Associates.
The Plan of Reorganization of the Venture requires that the consent of
ContiTrade Service Corporation ("ContiTrade"), a creditor of the Venture, be
obtained as a condition to the substitution of a new general partner, such
consent not to be unreasonably withheld by ContiTrade. The parties are
currently negotiating the terms of this consent, including a request by
ContiTrade that Insignia and MAERIL acknowledge that ContiTrade has the right to
consent to any future changes in control of the Venture, the Partnerships,
MAERIL and Insignia. Pursuant to the terms of the Venture's secured loan
obligations with respect to each of the Venture's properties, the substitution
of MAERIL as general partner of the Venture also requires certain lender
consents (including the FDIC and HUD), which have been requested but not
received. The substitution of MAERIL, Inc. as the General Partner is expected
and has been approved by the Bankruptcy Court and certain other creditors, but
there is no assurance that the transaction will be consummated.
Each property owned by the Venture as well as the other Selected Syndicated
Partnerships, is subject to one or more secured project loans. The terms of
each loan require lender consent for a change in (i) the general partner of the
owner Non-Hotel Syndicated Partnership, (ii) such general partner's general
partner or (iii) the general partner of any subpartnership which directly owns
that particular property. Although VMSRIL has attempted to obtain such consents
with respect to all such loans, it has been unsuccessful in obtaining any
consents, and, in many cases, VMSRIL has not received any response to its
request; however, none of the lenders have expressly rejected the proposed
substitution.
Although the Venture could contend that such consent was unreasonably withheld,
or that a lender's failure to respond should constitute an implied consent (or
waiver of its right to consent), it is possible that one or more lenders might
seek to declare a default and attempt to foreclose on their respective
collateral if the transfer of general partnership interests to MAERIL were to
proceed without such lender's express consent. The substitution of MAERIL as
general partner of the Selected Syndicated Partnerships will transpire upon the
occurrence of certain events (including receiving certain of the above consents)
as specified in the Insignia Agreement.
Pursuant to the Insignia Letter of Intent, most of the Non-Hotel Syndicated
Partnerships retained (to the extent permitted under applicable mortgages and
other governing documents) Insignia affiliates to provide all management and
asset management services to such Non-Hotel Syndicated Partnership for the
maximum term permitted under the partnership agreement or other governing
documents of such Non-Hotel Syndicated Partnerships. However, pursuant to the
Insignia Agreement, Insignia terminated it and its affiliates' rights and
obligations to provide management services to the following Syndicated
Partnerships: Fort Lauderdale Office Park Associates, Garden City Plaza
Associates, Ltd., Jacksonville/Windsong Apartments Associates, Natick Village
Apartment Associates, Oak Brook International Office Center Associates,
Ramblewood Associates, 1600 Arch Investors Ltd., 1600 Arch Limited Partnership,
Valley View Associates, Valley View Associates II, Village Green - Townhome
Associates, Woodmere Associates, Ltd. In addition, an Insignia affiliate will
not provide management services with respect to Kendall Mall which was formerly
owned by VMS Investors First-Staged Equity L.P. II but was foreclosed upon after
execution of the Insignia Letter of Intent.
The Insignia Letter of Intent had contemplated that the Insignia
affiliate providing management services to the Syndicated Partnerships would
retain SRA to assist it in the provision of such management services; however,
pursuant to the Insignia Agreement, SRA has been retained to assist in the
provision of management services only to the Venture and will not be retained to
provide such services with respect to any of the other Syndicated Partnerships.
In particular, Insignia, SRA, and the Venture have reached an agreement under
which a subsidiary of Insignia is to become the asset manager of 15 apartment
complexes owned by the Venture throughout the country, for a total fee to
Insignia of $500,000 per year plus reimbursement of expenses of $200,000 per
year. As a matter of comparison, the Bankruptcy Court allowed claims of a
VMSRIL affiliate for $400,000 for asset management services for January 1993
through September 1993 (i.e., the date of the Venture's emergence from
bankruptcy and on which Insignia assumed responsibility as the Venture's asset
manager). The Venture has also entered into an agreement pursuant to which it
has retained another subsidiary of Insignia to perform property management
services (the "Property Management Services Agreement"). As consideration for
its performance of property management services pursuant to the Property
Management Services Agreement, the Insignia affiliate will receive a fee of 4%
of collected revenues on each property. As a matter of comparison, the
Venture's property management services prior to the effectiveness of the
Property Management Services Agreement were performed by three different
entities, none of which are affiliated with VMSRIL or Insignia. Harbour Realty
Advisors, Inc. ("Harbour") provided property management services with respect to
the Venture's non-HUD retained properties. For such services, Harbour received
a fee of 4.0% of the rents actually collected per month on such properties.
Republic Management Services, Inc. ("Republic") or FPI Management, Inc. ("FPI")
managed all of the Venture's other properties. Republic received a management
fee of 4% of effective gross income with respect to the properties it managed.
The management agreements with FPI provided for management fee payments of 3.5%
to 4.0% of effective gross income with respect to the properties it managed.
As required, the Venture obtained the consent of the FDIC, ContiTrade and HUD
to its entry into the Property Management Services Agreement. ContiTrade's
consent (the "CT Consent"), however, was conditioned upon an agreement by
Insignia that no payment, compensation or thing of value will be conveyed by
Insignia to any VMSRP Related Entity, including SRA, in connection with the
payment of the property management fee by the Venture. Pursuant to the CT
Consent, although Insignia is not permitted to pay SRA a percentage of the
property management fees it earns with respect to the venture's property as
contemplated by the Insignia Letter of Intent, Insignia was permitted to perform
its other obligations under the Insignia Letter of Intent; furthermore, Insignia
is authorized to pay SRA compensation for property management services actually
performed by SRA in a reasonable amount for such services based upon what an
unrelated third-party in the market place would receive for rendering similar
services. See "Insignia Transactions -- Compensation to VMSRIL Affiliate".
PURCHASE OF EAB AND CREDITOR ASSETS AND GRANTING OF COVENANTS NOT TO SUE
Pursuant to the Insignia Letter of Intent, ISLP purchased for an aggregate price
paid to EAB of $1,500,000 all of the debt of VMSRIL (the "EAB Debt") and of
VMSRP to VMSRIL's single major creditor, EAB. Subsequently, VMSRIL conveyed to
ISLP in a transfer in lieu of foreclosure, all of the assets (the "EAB Assets")
securing the EAB Debt. The EAB Assets constituted all of the assets owned by
VMSRIL other than its rights to act as general partner of the Syndicated
Partnerships in which it is a general partner. In connection with this
conveyance, ISLP has covenanted (i) not to sue VMSRIL with respect to the EAB
Debt, (ii) to look exclusively to the EAB Assets for payment of the EAB Debt and
(iii) to repay (but only out of the proceeds realized from the EAB Assets
acquired by ISLP) loans made to VMSRIL, of which approximately $845,000 was
outstanding as of November 16, 1993 (including principal and unpaid interest).
These loans which were originally made to VMSRIL in 1992 by certain of its
principals to provide VMSRIL sufficient funds to permit it to meet its
obligations under the VMSRIL Agreement, were repaid in full by ISLP as of
December 31, 1993.
Upon exercise of an option granted SRA pursuant to the Insignia Letter of
Intent, SRA acquired from Insignia, without payment of separate consideration,
all of the EAB assets relating to the Syndicated Partnerships that own hotels.
Furthermore, the Insignia Agreement contemplates, as did the Insignia Letter of
Intent, that ISLP may seek to purchase certain assets (the "Creditor Assets")
conveyed to creditors of VMSRP pursuant to the Fifth Amendment to the CRA.
Following any such purchase, ISLP will (i) covenant not to sue VMSRP with
respect to debts associated with the Creditor Assets, and (ii) agree to look
exclusively to the beneficial interest of the applicable creditors in the
Creditor Assets for payment of such debts.
INDEMNITIES GRANTED BY INSIGNIA
Pursuant to the Insignia Letter of Intent, Insignia granted an indemnity to each
of the individual partners of each of the VMS Principal Entities and each of
their partners (the "Indemnified Partners") with respect to the Non-Hotel
Syndicated Partnerships, including the Venture. Insignia agreed to indemnify
the Indemnified Partners for up to $500,000 of claims of creditors in connection
with (i) consummation of the transactions contemplated by the Insignia Letter of
Intent, (ii) the Indemnified Partners' roles as general partners of, and service
providers to, the Non-Hotel Syndicated Partnerships, and (iii) the EAB and
Creditor Assets. This indemnification obligation will be funded solely through a
cash reserve (the "Reserve") established by Insignia. The Reserve has been
fully funded pursuant to the Insignia Agreement. In the event that the entire
Reserve is not applied to the payment of Insignia indemnity obligations, all of
the remaining funds in the Reserve will be paid over to SRA.
Pursuant to the Insignia Agreement, Insignia also will indemnify the Indemnified
Partners against all claims in connection with certain prospective
actions which may be taken by Insignia, MAE, and/or MAERIL. The Reserve may
not be used to pay Insignia's obligations with respect to this indemnity.
COMPENSATION TO VMSRIL AFFILIATE
The Insignia Letter of Intent also provided for certain business relationships
between Insignia (and its affiliates) and SRA. Pursuant to the Insignia Letter
of Intent, SRA was to perform certain services (the "Services") for Insignia and
its affiliates including:
(i) assisting Insignia and its affiliates in minimizing
their indemnity obligation under the Letter of Intent;
(ii) maximizing the return on ISLP's investment in the EAB
and Creditor Assets; and
(iii) assisting (a) Insignia or its affiliates in connection with
the management and asset management of properties owned by the
Non-Hotel Syndicated Partnerships and (b) MAERIL or its
affiliates in fulfillment of their obligations as substitute
general partners.
As discussed below under the Insignia Agreement, SRA's right to provide the
services and receive compensation therefore was bought-out by Insignia and SRA
will not provide the services other than provision of asset management services
to The Venture.
For its provision of the Services, SRA was to receive a variety of forms of
compensation, including a right to acquire a 48.5% limited partnership interest
in ISLP for nominal consideration. SRA exercised this right on May 24, 1994,
but, pursuant to the Insignia Agreement, subsequently revoked such exercise, and
relinquished such right. Prior to its exercise of this right, SRA also received
48.5% of all amounts realized from the EAB Assets and the other assets purchased
by ISLP pursuant to the Insignia Letter of Intent, net of certain specified
deductions; such right to receive such payments was not revived, however,
following SRA's revocation of the exercise of its acquisition right. The
payments to SRA prior to its exercise of its acquisition right totalled $17,135.
As further consideration, to the extent Insignia became the property manager or
asset manager for Non-Hotel Syndicated Partnerships and retained SRA to assist
it, Insignia was to pay SRA the SRA Management Fee consisting of (a) 28% of the
management and asset management fees paid to Insignia affiliates by the Non-
Hotel Syndicated Partnerships and (b) 28% of all net income received by MAERIL
(including all fees and distributions) as a result of its acting as general
partner of the Non-Hotel Syndicated Partnerships. With certain exceptions, the
obligations of Insignia pursuant to the Insignia Letter of Intent were to be
secured.
Although Insignia and MAE desired to have MAERIL substituted as the general
partner of the Selected Syndicated Partnerships, Insignia, MAE and ISLP
determined that they did not require SRA's management and related services on a
long-term basis. Accordingly, the Insignia Agreement effects, among other
things, a buyout by Insignia of SRA's rights to provide the Services and to
receive the compensation therefore discussed above. Pursuant to the Insignia
Agreement, SRA's right to provide the Services was terminated, except that SRA
is required to assist Insignia in performing asset management services for the
Venture but none of the other Syndicated Partnerships. Furthermore, Insignia
and SRA acknowledged that they no longer contemplate seeking to maintain any
future or ongoing mutual business relationships (although such relationships had
been contemplated by the Insignia Letter of Intent). Additionally, SRA
will be owed no further fees or obligations pursuant to the Insignia Letter of
Intent or on account of services it has provided or will provide, but in lieu
thereof will receive the following:
(a) $500,000 on closing;
(b) $100,000 on both of the first and second anniversaries of
closing;
(c) $226,250 each calendar quarter for 6 years commencing in the
calendar quarter beginning in July of 1994;
(d) 28% of all fees and other payments received by (i) Insignia or
its affiliates for the provision of management services to Boca
West Center Associates, ltd. and (ii) MAERIL in its capacity of
substitute general partner of such Syndicated Partnership or
otherwise related to such Syndicated Partnership;
(e) the first $1.2 million of all net proceeds ("Net Proceeds") in
excess of the Calculation Amount3 derived by Insignia or ISLP
from the sale of Creditor Assets and EAB Assets; and
(f) 50% of Net Proceeds in excess of the sum of (i) the Calculation
Amount plus (ii) $1.2 million.
The payments pursuant to Clauses (a), (b), (e) and (f) of this paragraph are
referred to herein as the "Aggregate Payments." All of the obligations
specified in clauses (a) through (f) will be secured by a security interest in
Insignia's 48.5% limited partnership interest in ISLP and Insignia's economic
rights (but not obligations) pursuant to each of the property and asset
management agreements between Insignia or its affiliates and the Non-Hotel
Syndicated Partnerships. In order to further secure payment of such
obligations, Insignia and MAERIL agreed that at such time and from time to time
as MAERIL becomes substitute general partner of a Selected Syndicated
Partnership, at the election of SRA either (i) Insignia and/or its affiliates
owning 100% of the stock of MAERIL shall pledge such stock to SRA or (ii) MAERIL
shall pledge to SRA 100% of its economic rights and entitlements of every kind
and nature (but not obligations) as general partner of each of the Selected
Syndicated Partnerships, including, but not limited to, rights to general
partner distributions and fees.
The Calculation Amount is equal to (x) $3.4 million plus (y) the
aggregate cost of each of the Creditor Assets acquired by ISLP
(including interest at a rate of 4% over Citibank's base rate from the
date of acquisition of each of the respective Creditor Assets) plus
(z) the sum of any amounts previously received by Insignia in
repayment of its loan to ISLP to acquire the EAB Assets and the
Creditor Assets, or by ISLP as proceeds of the sale, refinancing or
disposition of any EAB Assets or Creditor Assets, which Insignia or
ISLP has been required to disgorge by reason of a valid claim thereto
asserted by an unaffiliated third party.
In addition, pursuant to the Insignia Agreement, Insignia and its affiliates
granted SRA a right of first refusal with respect to any proposed future sale by
Insignia of EAB Assets and Creditor Assets to which Insignia or ISLP takes title
by foreclosure, deed-in-lieu of foreclosure or otherwise.
The consideration to be received by SRA pursuant to the Insignia Agreement,
however, is limited by the terms of the Plan of Reorganization of the Venture
and the CT Consent. The Plan, as modified by subsequent orders4, provides that
subject to the exceptions set forth in the next two sentences, none of Insignia,
its affiliates, any VMSRP Related Party, any person who is a partner in or in
control of Insignia, nor any affiliate of any of the foregoing, may receive,
directly or indirectly, any payments or other compensation relating to the
Venture or its business except with respect to asset management functions or
payments on account of the Stout Claim pursuant to the Plan and VMSRP's
prefiling and administrative claims against the Venture. The Plan further
provides that no VMSRP Related Party is to receive compensation for services
related to the Venture without the prior written consent of ContiTrade.
However, the Plan does permit Insignia or any wholly-owned subsidiary of
Insignia to receive property management fees for management of the Venture's
properties by Insignia or its subsidiary if Insignia or such subsidiary is
approved pursuant to the Plan as a property manager and actually becomes a
property manager of one or more of the Venture's properties. In addition, the
Plan expressly authorizes Insignia to pay to VMSRP not more than 28% of
Insignia's asset management fee and 28% of any fees Insignia receives for the
provision of property management services to the Venture. In light of the
foregoing restrictions and to permit SRA to provide property management services
to Insignia with respect to the Venture's properties, SRA obtained ContiTrade's
consent, pursuant to the CT Consent, to receive market rate compensation for
property management services actually performed by SRA, and/or such other
compensation to which ContiTrade in the future may consent.
The Plan was modified by the Order Re Documents to Be Delivered under
Second Amended and Restated Plan of Reorganization and Approving
Modification of Plan (the "Modification Order"), which was entered by
the Bankruptcy Court on October 6, 1993. The Modification Order
incorporates by reference the Revised Restructured Amended and
Restated Asset Management Agreement with Insignia Financial Group,
Inc. (the "Insignia Asset Management Agreement"), by and between the
Venture and Insignia.
SETTLEMENT AGREEMENT PROXIES
Under the terms of the Settlement Agreement (defined below), the holders of
approximately 98% of the limited partnership interests in the Partnerships have
given proxies to consent to an amendment of the partnership agreement of the
Partnership permitting withdrawal of a general partner of the partnership and
substitution of a replacement general partner if the withdrawing general partner
reasonably determines that (x) the proposed withdrawal will not result in the
reclassification of such Partnership as an association taxable as a corporation
for Federal income tax purposes; and (y) any proposed substitute general partner
has experience in real estate management and is reasonably capitalized to carry
out its duties and obligations as general partner. Similar proxies have been
used to facilitate the substitution of MAERIL as general partner in each of the
Selected Syndicated Partnerships of which MAERIL has become the substitute
general partner.
DISPOSITION OF PROPERTIES
Certain of the Syndicated Partnerships have entered into a contract to sell
certain real estate assets. In addition, there are preliminary discussions and
negotiations with third parties regarding the sale of assets owned by certain
Syndicated Partnerships. There can be no assurance as to whether any such
negotiations, letters of intent or contracts will result in the contemplated
sales transactions. In addition, there can be no assurance as to the amount of
net proceeds which may result from any one or all of such contemplated
transactions. Since the CRA was entered into, Syndicated Partnerships have
consummated a number of property dispositions involving sales, foreclosures, or
deeds in lieu of foreclosure.
In the case of those Syndicated Partnerships, including the Partnerships,
covered by the Settlement Agreement, the disposition of properties owned by said
partnerships is subject to the review of the Oversight Committee (as such
term is defined in the Settlement Agreement). To date, of approximately 13
proposed property dispositions submitted to the Oversight Committee for
approval, only two have been challenged by a member of the Oversight Committee.
A proposed sale of the property owned by Lynnhaven Associates was challenged by
Equity Resources Group, a former member of the Oversight Committee as to only
those Settling Limited Partnerships in which it is a limited partner, including
Lynnhaven Associates. Judge Zagel of the United States District Court for the
Northern District of Illinois approved the sale of the Lynnhaven property over
the objection of Equity Resources Group, in accordance with the terms of the
Settlement Agreement. Equity Resources Group then appealed Judge Zagel's
decision, which was subsequently affirmed by the United States Court of Appeals
for the Seventh Circuit. The Oversight Committee also objected to a proposed
transaction in which the mortgage loan on two office buildings owned by Eaton
Canyon Partners was to be restructured. As a result of the objection, the
restructuring was abandoned and the properties were foreclosed.
INSPECTOR GENERAL AUDIT
The Office of the Inspector General (OIG) for the Department of Housing and
Urban Development (HUD) has completed an audit of the books and records of VMS
Realty Management, Inc. relative to seven HUD projects which VMS Realty
Management, Inc. managed from 1987 to 1991, the years which were the subject of
the OIG audit. The OIG concluded that VMS Realty Management, Inc. did not
comply with the terms and conditions for the HUD Regulatory Agreements and
applicable HUD regulations and instructions relating to the financial and
general management practices for six of the seven HUD projects reviewed.
Specifically, the OIG audit concluded that VMS Realty Management, Inc.
inappropriately disbursed approximately $6,366,000 from the projects' funds for
partnership expenses from 1987 to 1991 when the projects were in a non-surplus
cash position or lacked adequate surplus cash for the payments as the term
"surplus cash" is defined pursuant to the HUD Regulatory Agreements.
Approximately $735,000 of the $6,366,000 which the OIG has concluded
to have been inappropriately disbursed in payment of partnership obligations
relates to projects in which the Venture is a partner. These inappropriate
disbursements included payments for second mortgages, asset management fees,
notes payable and other partnership expenses.
The OIG's Audit Report to HUD recommended that (1) the projects' owners
reimburse $6,366,000 to the projects' accounts for the excess distributions and
if the owners fail to comply, then HUD should initiate action for double damages
remedy, (2) take action to debar VMS Realty Management, Inc. and the individuals
which comprise it, and (3) require the appropriate HUD Regional/Field Offices to
conduct reviews of the 13 remaining HUD projects which VMS Realty Management,
Inc. previously managed which were not the subject of the OIG audit.
The Venture, VMS Realty Management, Inc. and HUD entered into a Settlement
Agreement dated December 9, 1996, which provided an aggregate payment of
$550,000 to the Federal government. Of this amount, $102,000 was paid from
available funds of the Venture, and the remainder of the settlement payment was
paid by entities other than the Venture and its subpartnerships.
INSIGNIA AND MAE
Insignia is a publicly held fully integrated real estate service organization
performing property management, asset management, investor services, partnership
administration, mortgage banking, and real estate investment banking services
for various ownership entities, including approximately 900 limited partnerships
having approximately 360,000 limited partners. Based upon published industry
surveys, Insignia is the largest manager of multifamily residential properties
in the United States and is a significant manager of commercial property.
Insignia commenced operations in December 1990 and since then has grown to
provide property and/or asset management services for over 2,400 properties,
which include approximately 260,000 residential units and approximately
110,000,000 square feet of commercial space, located in over 500 cities in 48
states.
A primary method of growth for Insignia has been by acquiring, directly or
through related entities (principally MAE), controlling positions in general
partners of real estate limited partnerships. Many of the sellers of such
assets, and in some cases the partnerships which own the properties, were
financially distressed, but the partnerships own properties that Insignia in
most cases believes to be fundamentally sound. Following each acquisition,
Insignia takes steps to enhance the value and stability of the acquired
properties, including a thorough analysis of each property's operations,
develops a detailed marketing strategy, and, when appropriate, develops a
program for restructuring its indebtedness. Insignia or MAE has, where
consistent with its fiduciary obligations to the property owner, caused the
controlled entity to retain Insignia to provide property management and other
services for the property, and will continue to do so in the future.
Insignia's services include property management, providing all of the day-to-day
services necessary to operate a property, whether residential or commercial;
asset management, including long-term financial planning, monitoring and
implementing capital improvement plans, and development and execution of
refinancings and dispositions; maintenance and construction services; marketing
and advertising; investor reporting and accounting, including preparation of
quarterly reports and annual K-1 tax reporting forms for limited partners as
well as regular reporting under the Securities Exchange Act of 1934 where
applicable; investment banking, including assistance in workouts and
restructurings, mergers and acquisitions, and debt and equity securitizations;
and mortgage banking and real estate brokerage.
Insignia's senior residential property management personnel have an average of
over 15 years of experience in property management with a broad range of types
of properties throughout the United States. Many of Insignia's most experienced
managers joined Insignia in connection with certain of its acquisitions.
Insignia believes that its management expertise and state-of-the-art computer
and communications systems allow it to offer its customized services efficiently
and at a cost to Insignia which permits it to be competitive with other real
estate management service companies.
Insignia was incorporated in Delaware in July 1990. Insignia's principal
executive offices are located at One Insignia Financial Plaza, P.O. Box 1089,
Greenville, South Carolina 29602, telephone number (864) 239-1000.
Originally, MAE was formed to be the principal vehicle for acquiring interests
in real property that would be managed or serviced by Insignia. MAE, directly
or through subsidiaries, holds general partnership interests in approximately
500 partnerships, all of which have retained Insignia as manager for all or
certain aspects of their operations. MAE has no other material assets and has
no material cash flow. MAE has various liabilities associated with prior
acquisitions, certain of which have been guaranteed or are joint
obligations with Insignia or one or more of its subsidiaries.
Insignia holds a 19.13% limited partnership interest in MAE. Andrew L. Farkas,
the Chairman of the Board and Chief Executive Officer of Insignia, owns the
general partner of MAE, which has a 1% partnership interest. In addition, a 3%
limited partnership interest in MAE is owned by five officers and one employee
of Insignia. Although the general partner may not assign its interest in MAE
without the consent of holders of a majority in interest of the limited
partners' interests, there are no restrictions on Mr. Farkas' ability to sell
such general partner. Insignia may not transfer its limited partnership
interest in MAE without the consent of the general partner of MAE. The general
partner has complete authority over the management of MAE and its assets,
provided that, except in connection with acquisitions, the general partner may
not cause MAE to sell all or a substantial portion of its assets without the
consent of holders of a majority in interest of the limited partners' interests.
The limited partners, including Insignia, have no other rights with regard to
the business or operations of MAE.
MAERIL is a Delaware corporation, formed in March 1994 for the purpose of
serving as general partner of the Partnerships and certain of the other
Syndicated Partnerships. MAE GP Corporation is the sole stockholder of MAERIL
and MAE is the sole stockholder of MAE GP Corporation.
Other Information
On October 21, 1993, an affiliate of Prudential-Bache Properties ("PBP"),
Prudential Securities Incorporated ("PSI"), settled, without admitting or
denying the allegations contained therein, civil and administrative proceedings
with the Securities and Exchange Commission, the National Association of
Securities Dealers, Inc., and various state regulators. These proceedings
concerned, among other things, the sale by PSI of limited partnership interests,
including interests of the Partnerships, during the period of 1980 through 1990.
The settlement has no impact on the Partnerships themselves.
Recent Developments - the Venture
PETITION FOR RELIEF UNDER CHAPTER 11
On February 22, 1991, VMS National Properties Joint Venture filed for Chapter 11
bankruptcy protection in the United States Bankruptcy Court in the Central
District of California. The initial filing included only the residential
apartment complexes directly owned by VMS National Properties Joint Venture
(entities included in the filing hereinafter referred to collectively as the
Debtor) and excluded the 10 Subpartnerships consisting of 10 residential
apartment complexes encumbered by financing insured or held by the Department of
Housing and Urban Development, and the investing limited partnerships, VMS
National Residential Portfolio I and VMS National Residential Portfolio II (see
"Note 4" of the Notes to Combined Financial Statements).
The Venture's "Second Amended and Restated Plan of Reorganization" (the
"Plan") was confirmed by the Bankruptcy Court in March 1993 and became effective
September 30, 1993. (See "Note 5" of the Notes to Combined Financial
Statements).
The primary aspects of the Venture's Second Amended and Restated Plan of
Reorganization included the following:
a. The Venture retained 17 properties from the existing portfolio (the
"retained properties"), and abandoned title of the remaining properties
(the "non-retained properties") to the Federal Deposit Insurance
Corporation (the "FDIC"). The retained properties consist of one HUD
property and sixteen non-HUD properties. Two of the seventeen retained
properties were sold during the second quarter of 1996. All of the non-
retained properties have been foreclosed upon as of December 31, 1996.
b. The Venture restructured the existing senior-lien debt obligations on the
retained properties (except for one of the retained properties which has a
first mortgage lien insured by HUD and two of the retained properties which
have senior liens formerly payable to the FDIC, as successor to Beverly
Hills Mortgage Corporation, ("BH")) to provide for an interest rate of
8.75% per annum effective as of the first day of the month of the Effective
Date with payments based on a 30 year amortization commencing on the first
monthly payment due thereafter and a maturity date of January 15, 2000.
The senior lien collateralized by HUD on one of the retained properties
was not modified, and the senior liens formerly held by the FDIC were
modified to accrue at 9% per annum effective as of the first day of the
month of the Effective Date with monthly payments of interest only made
at 7% per annum commencing with the first monthly payment due thereafter
on the FDIC value, as defined in "c" below.
c.As it pertains to the existing BH junior mortgages on the retained
properties, the FDIC reduced its claim on two of the properties to $300,000
per property evidenced by a non-interest bearing note scheduled to mature
January 15, 2000, and has left in place liens for the full amount of its
claims at the petition date for all other retained properties. Interest on
the former FDIC loans for these retained properties accrues at 10% per annum
on the FDIC value (total property value per the FDIC's June 1992 valuations
less the property's senior lien indebtedness) commencing as of the first day
of the month of the Effective Date and monthly payments of interest only at
7% per annum on the FDIC value will commence with the first monthly payment
due thereafter. (The retained property governed by a HUD Regulatory
Agreement is to make payments of interest only following the approval by HUD
of the Surplus Cash calculation.) On October 28, 1995, the FDIC sold all of
the debt it held related to the retained properties to BlackRock Capital
Finance, L.P. The debt amounts and terms were not modified.
d.The Venture distributed the following amounts in conjunction with the terms
of the Plan: (1) approximately $5,980,000 to satisfy unsecured prepetition
creditor claims of the nonaffiliated note payable to Security Pacific
National Bank, trade creditors, and property taxes on the retained
properties; (2) approximately $1,056,000 to provide for allowed and
unclassified administrative claims; and (3) approximately $5,960,000 to make
capital improvements at the retained properties. This capital improvement
reserve was exhausted during 1995.
e.The VMS/Stout Joint Venture was granted an allowed claim in the amount
of $49,535,000 for the Assignment and Long-Term Loan Arrangement Notes
payable to them by the Venture. Payments totalling $3,475,000 in conjunction
with this allowed claim were made to the nonaffiliated members of the
VMS/Stout Joint Venture on October 7, 1993. The Venture also executed a
$4,000,000 promissory note dated September 1, 1993, to ContiTrade Services
Corporation (the ContiTrade Note) in connection with these allowed note
claims. The ContiTrade Note represents a prioritization of payments to
ContiTrade of the first $4,000,000 in repayments made under the existing
Assignment and Long-Term Loan Arrangement Notes payable to the VMS/Stout
Joint Venture, and does not represent an additional $4,000,000 claim payable
to ContiTrade. In addition to prioritizing ContiTrade's receipt of the first
$4,000,000 of repayments on the old notes, the ContiTrade Note provides for
5% non-compounding interest on the outstanding principal balance calculated
daily on the basis of a 360 day year. The ContiTrade Note is secured by a
Deed of Trust, Assignment of Rents and Security Agreement on each of the
Venture's retained properties, and provides ContiTrade with other approval
rights as to the ongoing operations of the Venture's retained properties. The
ContiTrade Note matures January 15, 2000. The remaining $42,060,000 is
noninterest bearing.
f. The Venture entered into a Revised Restructured Amended and Restated Asset
Management Agreement (the Revised Asset Management Agreement) with Insignia.
Effective October 1, 1993, Insignia took over the asset management of the
Venture's retained properties and partnership functions for the Venture. The
Revised Asset Management Agreement provides for an annual compensation of
$500,000 to be paid to Insignia in equal monthly installments. In addition,
Insignia will receive reimbursement for all out-of-pocket costs incurred in
connection with their services up to $200,000 per calendar year. These
amounts are to be paid from the available operating cash flow of the
Venture's retained complexes after the payment of operating expenses and
priority reserve fundings for insurance, real estate and personal property
taxes, senior mortgage payments, minimum interest payment requirements
on the former FDIC mortgages, and any debt service and principal payments
currently due on any liens or encumbrances senior to the ContiTrade Deeds of
Trust. If insufficient operating cash flow exists after the funding of these
items, the balance of Insignia's fees and reimbursements may be paid from
available partnership cash sources. Additionally, the asset management fee
payable to Insignia will be reduced proportionately for each of the Venture's
retained complexes which are sold or otherwise disposed of from time to time.
Accordingly, the fee was reduced upon the disposition of Bellevue and
Carlisle Square in 1996. The Venture engaged Insignia to commence property
management of all of the Venture's retained complexes effective January 1,
1994.
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT
(dollar amounts in thousands)
The Combined Statements of Operations for the years ended December 31, 1996,
1995, and 1994 includes the effects of the foreclosures of the following 2, 5,
and 4 of the Venture's properties, respectively:
1996 1995 1994
Weatheridge The Winery Broad Meadows
Sierra Gardens Venetian Bridges - Canal Court Courts of Harford Square
Venetian Bridges - Grand Canal I Edgewater I
Venetian Bridges - Grand Canal II Edgewater II
Pacific Hacienda
As a result of these foreclosures, the following liabilities and assets were
written off:
1996 1995 1994
Mortgage Principal Payable $6,291 $22,074 $23,320
Accrued Interest Payable 9,941 25,636 16,490
Other 26 (645) (369)
Investment in Properties (5,781) (23,453) (22,858)
Accumulated depreciation 3,618 10,986 10,835
Extraordinary Gain $14,095 $34,598 $27,418
Additionally, as a result of the implementation of the Venture's Plan of
Reorganization, certain liabilities compromised by the Plan were adjusted in
1993 to the present value of amounts to be paid determined at appropriate
current interest rates. As a result, the Venture realized a gain in 1993 on
extinguishment of debt on the retained properties as follows:
FDIC mortgages $ 9,972
Accrued interest on FDIC mortgages 55,216
Notes payable 21,491
Other 2,894
Extraordinary gain 89,573
Less portion of gain deferred (54,053)
Extraordinary gain realized $ 35,520
Pursuant to the Plan, the mortgages held by the FDIC were modified effective
September 30, 1993. For 15 of the 17 retained properties, the face value of the
note was restated to the Agreed Valuation Amount. Under the terms of the
restated notes, the FDIC may reinstate the full claim which was in place at the
petition filing date upon the default of any note. The restated notes are
cross-collateralized; however, they are not cross-defaulted. As a result, the
Venture has deferred $54,053,000 of this extraordinary gain on extinguishment of
debt. On October 28, 1995, the FDIC sold all of the debt it held related to the
retained properties to BlackRock Capital Finance, L.P. The debt amounts and
terms were not modified.
ITEM 2. DESCRIPTION OF PROPERTIES
The following table sets forth the Registrant's investments in properties:
Date of
Property Purchase Use
Buena Vista Apartments
Pasadena, CA 10/26/84 Apartments - 92 Units
Casa de Monterey
Norwalk, CA 10/26/84 Apartments - 144 Units
Crosswood Park
Citrus Heights, CA 12/05/84 Apartments - 180 Units
Mt. View Apartments
San Dimas, CA 10/26/84 Apartments - 168 Units
Pathfinder
Fremont, CA 10/26/84 Apartments - 246 Units
Scotchollow
San Mateo, CA 10/26/84 Apartments - 418 Units
The Bluffs
Milwaukie, OR 10/26/84 Apartments - 137 Units
Vista Village Apartments
El Paso, TX 10/26/84 Apartments - 220 Units
Chapelle Le Grande
Merrillville, IN 12/05/84 Apartments - 105 Units
North Park Apartments
Evansville, In 11/14/84 Apartments - 284 Units
Shadowood Apartments
Monroe, LA 11/14/84 Apartments - 120 Units
Towers of Westchester Park
College Park, MD 10/26/84 Apartments - 303 Units
Terrace Gardens
Omaha, NE 10/26/84 Apartments - 126 Units
Watergate Apartments
Little Rock, AR 10/26/84 Apartments - 140 Units
Forest Ridge Apartments
Flagstaff, AZ 10/26/84 Apartments - 278 Units
In the opinion of the Managing General Partner, each of the properties is
adequately covered by insurance.
Each property above is encumbered by various debt. For additional information
regarding the encumbrances and carrying value of the above properties, see
accompanying Schedule of Properties and Schedule of Mortgages and "Note 7" of
the combined financial statements.
SCHEDULE OF PROPERTIES:
(dollar amounts in thousands
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Federal
Property Value Depreciation Tax Basis
<S> <C> <C> <C>
Buena Vista Apartments $ 5,840 $ 2,809 $ 1,923
Casa de Monterey 7,708 3,811 2,502
Crosswood Park 8,587 4,305 4,025
Mt. View Apartments 10,599 4,774 3,389
Pathfinder 14,993 7,228 6,050
Scotchollow 27,499 13,342 9,506
The Bluffs 4,267 2,257 1,175
Vista Village Apartments 6,522 3,032 2,307
Chapelle Le Grande 4,592 2,363 1,380
North Park Apartments 10,194 5,201 3,151
Shadowood Apartments 4,152 2,140 1,294
Towers of Westchester Park 16,054 8,410 4,541
Terrace Gardens 5,471 2,750 1,772
Watergate Apartments 6,870 3,456 2,165
Forest Ridge Apartments 8,511 4,141 2,924
$141,859 $70,019 $48,104
</TABLE>
Depreciation is computed using the following methods and estimated useful lives:
<TABLE>
<CAPTION>
GAAP BASIS TAX BASIS
Lives Lives
Method (Years) Method (Years)
<S> <C> <C> <C> <C>
Buildings and
improvements Straight-line 25 to 29 175% declining 18/19
balance (ACRS)
Straight-line 27.5
(Modified ACRS)
Personal Property 150% declining 5 150% declining 5
balance balance (ACRS)
200% declining 7 200% declining 7
balance balance (Modified
ACRS)
150% declining 15 150% declining 15
balance balance (Modified
ACRS)
</TABLE>
SCHEDULE OF MORTGAGES:
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Principal Principal
Balance At Balance
December 31, Imputed Interest Period Maturity Due At
Property 1996 Interest (A) Rate Amortized Date Maturity
<S> <C> <C> <C> <C> <C>
Buena Vista Apartments
1st mortgage $ 7,000 (F) -- 01/00 $ 7,000
Casa de Monterey
1st mortgage 871 8.75% 30 years 01/00(D) 842
2nd mortgage 6,450 (G) -- 01/00 6,450
Crosswood Park
1st mortgage 4,232 1,531 7.50% 40 years 05/18(E) (B)(C)
2nd mortgage 2,468 (G)(H) -- 01/00 2,468
Mt. View Apartments
1st mortgage 10,165 (F) -- 01/00 10,165
Pathfinder
1st mortgage 1,225 8.75% 30 years 01/00(D) 1,184
2nd mortgage 11,170 (G) -- 01/00 11,170
Scotchollow
1st mortgage 3,261 8.75% 30 years 01/00(D) 3,153
2nd mortgage 22,425 (G) -- 01/00 22,425
The Bluffs
1st mortgage 616 8.75% 30 years 01/00(D) 596
2nd mortgage 443 8.75% 30 years 01/00(D) 428
3rd mortgage 3,006 (G) -- 01/00 3,006
Vista Village Apartments
1st mortgage 1,930 8.75% 30 years 01/00(D) 1,866
2nd mortgage 1,792 (G) -- 01/00 1,792
Chapelle Le Grande
1st mortgage 1,207 8.75% 30 years 01/00(D) 1,167
2nd mortgage 2,244 (G) -- 01/00 2,244
North Park Apartments
1st mortgage- 1st phase 113 8.75% 30 years 01/00(D) 109
2nd phase 468 8.75% 30 years 01/00(D) 452
3rd phase 835 8.75% 30 years 01/00(D) 812
4th phase 421 8.75% 30 years 01/00(D) 407
2nd mortgage 4,582 (G) -- 01/00 4,582
Shadowood Apartments
1st mortgage 1,226 8.75% 30 years 01/00(D) 1,185
2nd mortgage 1,059 (G) -- 01/00 1,059
Towers of Westchester Park
1st mortgage 2,536 8.75% 30 years 01/00(D) 2,472
2nd mortgage 14,439 (G) -- 01/00 14,439
Terrace Gardens
1st mortgage 2,257 8.75% 30 years 01/00(D) 2,183
2nd mortgage 1,515 (G) -- 01/00 1,515
Watergate Apartments
1st mortgage 2,187 8.75% 30 years 01/00(D) 2,115
2nd mortgage 1,157 (G) -- 01/00 1,157
Forest Ridge Apartments
1st mortgage 2,130 8.75% 30 years 01/00(D) 2,059
2nd mortgage 2,201 8.75% 30 years 01/00(D) 2,128
3rd mortgage 3,129 (G) -- 01/00 3,129
Total $120,760 $1,531 $115,759
<FN>
(A) Imputed interest represents the difference between the face value of
assumed mortgage loans and the current market value of these obligations
as determined by the 14% mortgage rate received from the Beverly Hills
Mortgage Corporation at the dates of purchase. The book value of the
real estate to which the debt relates was adjusted by this difference.
Imputed interest is being amortized over the remaining terms of the
related mortgage loans, using the effective interest method. This
amortization amounted to $72,000 in 1996, $199,000 in 1995, $306,000 in
1994, and was included in mortgage interest expense for the respective
year.
(B) Property is encumbered by first mortgage financing insured by HUD.
(C) At maturity, the principal balance will be fully amortized.
(D) Pursuant to the terms of the Venture's Plan, the senior mortgages on the
Venture's non-HUD retained properties were modified effective September
1, 1993 (see "Note 5" of the Combined Financial Statements). The
modified senior mortgages provide for an interest rate of 8.75% per annum
and a maturity date of January 15, 2000. Payments are based on a thirty-
year amortization.
(E) The senior mortgage on the Venture's HUD retained property, which is
insured by HUD, was not modified.
(F) The senior liens formerly held by the FDIC on two of the Venture's non-
HUD retained properties were modified effective September 1, 1993, to
accrue at 9% with monthly payments commencing October 1, 1993, of
interest only at 7% on the restated FDIC notes' Agreed Valuation Amount,
as defined (See "Note 5" of the Combined Financial Statements). The
difference between the 9% interest accrual rate and the 7% minimum
interest rate shall accrue, but not be added to principal, and bear
interest at the 9% note rate from and after the due date of each payment,
compounded monthly. All unpaid principal and accrued interest is due in
full on the January 15, 2000, maturity date.
(G) The junior liens formerly held by the FDIC on the Venture's non-HUD
retained properties were modified effective September 1, 1993 to accrue
at 10% with monthly payments commencing October 1, 1993, of interest only
at 7% on the restated FDIC notes' Agreed Valuation Amount as defined (see
"Note 5" of the Combined Financial Statements). The difference between
the 10% interest accrual rate and the 7% minimum interest rate shall
accrue, but not be added to principal, and bear interest at the 10% note
rate from and after the due date of each payment, compounded monthly.
All unpaid principal and accrued interest is due in full on the January
15, 2000, maturity date.
(H) The property governed by HUD Regulatory Agreements will make payments of
interest only at 7% each April 1st following HUD's approval of Surplus
Cash Calculations prepared each December 31st.
</TABLE>
On October 28, 1995, the FDIC sold all of the debt it held related to the
retained properties to BlackRock Capital Finance, L.P. The debt amounts and
terms were not modified.
Average annual rental rates per unit and occupancy for 1996 and 1995 for the
retained properties:
Average Annual Average
Rental Rates Per Unit Occupancy
Property 1996 1995 1996 1995
Buena Vista Apartments $11,132 $10,758 96% 96%
Casa de Monterey 7,793 7,690 93% 92%
Crosswood Park 8,251 8,065 97% 94%
Mt. View Apartments 9,556 9,197 96% 92%
Pathfinder 10,537 9,899 96% 94%
Scotchhollow 10,896 10,470 99% 99%
The Bluffs 6,358 6,131 96% 96%
Vista Village Apartments 6,065 5,854 89% 82%
Chapelle Le Grande 7,641 7,380 98% 96%
North Park Apartments 5,543 5,353 97% 97%
Shadowood Apartments 5,940 5,779 95% 94%
Towers of Westchester Park 10,297 10,013 95% 97%
Terrace Gardens 7,961 7,535 95% 96%
Watergate Apartments 6,674 6,518 95% 96%
Forest Ridge Apartments 7,080 6,486 85% 94%
The Managing General Partner attributes the occupancy fluctuations at the
properties to the following: increases in occupancy level at Mt. View
Apartments to improved market conditions, increased marketing efforts and
increased lease renewals; increases in occupancy level at Vista Village to
strong marketing efforts including additional advertising; decrease in occupancy
level at Forest Ridge Apartments to the move-out of college students, the
primary tenants, mostly due to new properties being built in the area.
As noted under "Item 1. Description of Business," the real estate industry is
highly competitive. All of the properties of the partnership are subject to
competition from other residential apartment complexes in the area. The
Managing General Partner believes that all of the properties are adequately
insured. The multi-family residential properties' lease terms are for one year
or less. No residential tenant leases 10% or more of the available rental
space.
Real estate taxes and rates in 1996 for each property were (in thousands):
1996 1996
Taxes Rate
Buena Vista Apartments 63 1.15%
Casa de Monterey 76 1.17%
Crosswood Park 92 1.03%
Mt. View Apartments 114 1.23%
Pathfinder 212 1.51%
Scotchollow 319 1.26%
The Bluffs 62 1.31%
Vista Village Apartments 91 2.89%
Chapelle Le Grande 50 12.16%
North Park Apartments 139 9.93%
Shadowood Apartments 31 12.32%
Towers of Westchester Park 227 3.69%
Terrace Gardens 89 2.59%
Watergate Apartments 45 6.68%
Forest Ridge Apartments 89 9.82%
ITEM 3. LEGAL PROCEEDINGS
As disclosed in the prior reports on Form 10-Q or Form 10-K ("Prior Public
Filings"), the Joint Venture including the Joint Venturers, VMS Realty
Investment L.T.D., General Partner of the Joint Venturers, Subpartnerships, VMS
Realty Partners, now known as VMS Realty Partners, L.P., certain officers and
directors of VMS Realty Partners, now known as VMS Realty Partners, L.P. and
certain other affiliates of the Venture are parties to certain pending legal
proceedings which are summarized below (other than litigation matters covered by
insurance policies). The adverse outcome of certain of the legal proceedings
disclosed in this Report and the Prior Public Filings could have a materially
adverse effect on the present and future operations of the Joint Venture.
Summarized below are certain developments in legal proceedings filed against VMS
Realty Partners, now known as VMS Realty Partners, L.P. and its affiliates which
were disclosed in the Prior Public Filings and certain pending legal proceedings
not previously reported that have been filed against VMS Realty Partners, now
known as VMS Realty Partners, L.P. and its affiliates. The inclusion in this
Report of any legal proceeding or developments in any legal proceeding is not
intended as a representation by the Joint Venture that such particular
proceeding is material. For those actions summarized below in which the
plaintiffs are seeking damages, the amount of damages being sought is an amount
to be proven at trial unless otherwise specified. There can be no assurance as
to the outcome of any of the legal proceedings summarized in this Report or in
Prior Public Filings.
A. VMS Limited Partnership Litigation
1. Settlement of Consolidated Class Actions
Forty-three actions were filed by investors in various limited partnerships
against VMS Realty Partners, now known as VMS Realty Partners, L.P. and certain
entities and individuals related to VMS Realty Partners, now known as VMS Realty
Partners, L.P.. Also named were certain selling agents, surety companies,
appraisers, accountants, attorneys, and other parties that were involved in the
syndication, sale, and management of the limited partnership interests and
properties. Thirty-eight of these actions (i.e., all of the actions filed in
federal court) were consolidated for pretrial and discovery purposes in the
United States District Court for the Northern District of Illinois under the
caption In Re VMS Limited Partnership Securities Litigation, No. 90 C 2412
(Judge James B. Zagel) (the "Consolidated Actions"). In addition, for
settlement purposes, one action (the "New Action") was filed on behalf of all
investors in approximately 100 non-publicly-traded VMS-sponsored syndicated
limited partnerships against those defendants in the Consolidated Actions that
had reached a Settlement Agreement with the class. The nature of these actions
was described in the Prior Public Filings.
After a final fairness hearing, on July 2, 1991, the United States District
Court gave final approval to the Settlement Agreement. The order dismissed with
prejudice all settling defendants from all of the Consolidated Actions and
dismissed the New Action in full. No appeals were filed and the Settlement
became effective on August 12, 1991. The terms of the Settlement Agreement were
described in the Prior Public Filings.
Subsequent to the effective date of the Settlement Agreement, the respective
general partner of the various VMS sponsored syndicated limited partnerships has
filed collection actions against the limited partners who remain in default in
the payment of their installment promissory notes which were given to
the limited partnership in consideration for the limited partner's partnership
interest.
2. CIGNA Claims
One of the non-settling defendants, CIGNA Securities, Inc. ("CIGNA"), has
asserted claims against VMS Realty Partners, now known as VMS Realty Partners,
L.P. and its affiliated entities for contribution and indemnification in cases
in which CIGNA is a defendant.
CIGNA subsequently entered into a class-action settlement agreement with a class
of investors in the consolidated actions who had purchased their interest from
CIGNA. As previously reported, on May 19, 1993, CIGNA and VMS executed a mutual
release, effective when the CIGNA class-action settlement is effective. The
Cigna class action settlement is now effective and, pursuant to the terms of the
mutual release, CIGNA settling parties released the VMS released persons of and
from all claims and liabilities relating to or arising out of the released
claims in the VMS class-action settlement, including contractual claims for
indemnification. In exchange, the VMS settling parties released the CIGNA
released persons of and from all claims and liabilities relating to or arising
out of the released claims in the VMS class-action settlement, including
contractual claims for indemnification. However, the settling parties expressly
reserved all common law and contractual claims for contribution and/or
indemnification arising out of or relating to claims brought by investors who
opted out of both the VMS and CIGNA settlements, except to the extent such
claims are barred by; (1) Section 4.02(A) of the VMS settlement agreement and
the court's July 15, 1991, order approving the VMS class-action settlement
agreement, or (2) Section 4.2(A) of the CIGNA class-action settlement agreement
and any court order approving the CIGNA settlement agreement. In addition, now
that the CIGNA class-action settlement agreement is effective, CIGNA's claims
pending in the consolidated actions have been dismissed, except the Corkery
action which is brought by opt-outs from both settlement agreements.
Paul J. Corkery; Ronnie Rone; Max C. Jordan; F.J. Vollmer; Paula Boedeker;
Norbert Braeuer; Dales Y. Foster; Billy J. Harris; Bob White; Gordon Flesch;
Travis Barton, Jr.; Satish A. Dhaget; Varsha S. Dhaget; Alan J. Young; Dennis J.
Cavanaugh; F. Jim Slater; Lois W. Rosebrook, Trustee; Sundaram V. Ramanan;
Chitraleka Ramanan; Jeffrey A. Matz; Charles C. Voorhis III; Gerald C. Miller;
Prince George's Orthopedic Associates, P.A.; John A. Martinez; Tom Rubattino;
Susan Rubattino; Harold W. Stark and William C. Riedesel v. VMS Realty Partners;
United States Fidelity and Guaranty Company; CIGNA Securities, Inc.; Boettcher &
Company, Inc.; and A.G. Edwards & Sons, Inc., CA. No. Ca 4-90 087-E (U.S.
District Court, N.D. Texas), filed February 5, 1990, removed to 90 C 3841,
United States District Court for Northern District of Illinois, Eastern
Division. CIGNA filed a Counterclaim against plaintiffs, Cross-Claims against
VMS Realty Partners and A.G. Edwards & Sons, Inc., and a Third-Party Complaint
against LaSalle/Market Streets Associates, Ltd., Chicago Wheaton Partners, Peter
Morris, Joel Stone, Robert Van Kampen, Residential Equities, Ltd., Van Kampen
Stone, Inc., VMS Realty Management, Inc., VMS Realty, Inc., and VMS Mortgage Co.
in this action. On July 12, 1993, the VMS' defendants filed a Motion to Dismiss
and Memorandum in Support thereof. On December 21, 1995, the court dismissed
Plaintiff's action against the VMS entities and Cigna Securities, Inc.
B. Other Litigation
Mutual Benefit Life Insurance Co. v. PRM-Garden City Associates, Garden City
Plaza Associates, First Texas Savings Association, People of the State of New
York and John Doe #1 through John Doe #100, No. 9945-1990 (New York Sup. Court,
Nassau County), filed April 30, 1990. This is an action to foreclose mortgages
securing the payment of a loan made by plaintiff to Garden City Plaza
Associates. Plaintiff declared due and owing the principal sum of
$25,851,261.38, together with accrued interest of $470,988.73, and late charges
of $42,813.28, totalling $26,305,004.39, together with interest from April 15,
1990. Mutual Benefit is the first mortgagee; First Texas Savings which
has been taken over by the FDIC, is the second mortgagee. First Texas has
asserted cross-claims against Morris, Van Kampen, Stone, and Merritt and seeks
to foreclose on its second mortgage. On October 21, 1992, Garden City Plaza
Associates filed for bankruptcy protection. On December 8, 1994, Garden City
Plaza Associates' Plan of Reorganization was confirmed. The Plan of
Reorganization provides for Garden City Plaza Associates to have until April 1,
1999, (absent a default) to sell or refinance the property.
San Jacinto Savings Association v. VMS Realty Partners; LaSalle/Market Street
Associates, Ltd.; Residential Equities, Ltd.; Van Kampen Stone, Inc.; Peter R.
Morris; Joel A. Stone; Robert D. Van Kampen; Does 1 through 50, Case No. C
89-4398 JPV (California Sup. Court, San Francisco County), filed December 12,
1989. This is a foreclosure action brought by San Jacinto Savings Association,
first mortgagee on the property known as the Phelan Building, San Francisco.
The property was sold in a nonjudicial foreclosure sale and plaintiffs were
pursuing a deficiency judgment alleged to be between $6-16 million. The action
was remanded back to state court after removal to federal court. On March 17,
1992, the parties signed a settlement agreement pursuant to which VMS Realty
Partners paid plaintiff $400,000 in exchange for a reduction in debt to
$3,500,000. In connection with the settlement, plaintiff signed the VMS Realty
Partners and Related Entities Creditor Repayment Agreement ("CRA"). San Jacinto
Savings Association subsequently assigned its claim to Premier Financial
Services.
Sheraton Holding, Inc. v. Park Centre Associates, f/k/a VMS Seventh Avenue Hotel
Associates, Ingersoll-Rand Financial Corp., VMS Hotel Investment Trust, Omni
Hotel Credit Corp., f/k/a/ Dunfey Credit Corp., VMS Realty Partners, Marine
Midland Bank, N.A., Bid Fire Systems, Inc., Mass Electric Construction Co., Mass
Electric of New York, New York Plumbing & Heating Corp., Center 56 Associates,
Basic Leasing Corp., EECO Inc., EECO Computer, Inc., RCA Corp., Ameritech Credit
Corp., COMTEL Communications Corp., The City of New York, The People of the
State of New York, and "John Doe" #1 through 500. This action has been
dismissed.
C. VMS National Properties and Subpartnerships Foreclosure Litigation
i) The following foreclosure proceedings were filed against VMS National
Properties and/or its affiliates by lenders during the VMS National
Properties bankruptcy proceedings:
Federal Deposit Insurance Corporation in its Corporate capacity v. VMS
National Properties, an Illinois joint venture, VMS National Properties V, VMS
Realty Investment, Ltd., an Illinois limited partnership, Chicago Wheaton
Partners, an Illinois general partnership, Case No. 92-5041-CBM (United States
District Court, Central District of California), filed on August 24, 1992. On
April 2, 1992, Beverly Hills Business Bank ("BHBB") sold and assigned to the
FDIC in its Corporate capacity as Manager of the FSLIC Resolution Fund BHBB's
right, title and interest in certain assets referred to as the "VMS Portfolio"
which included, but was not limited to this loan. On August 19, 1992, VMS
National Properties, by order of the bankruptcy court, abandoned its
partnership interest in VMS National Properties V, which owned the Sierra
Gardens Apartments. VMS National Properties V is alleged to have breached its
obligation under the Note by virtue of, among other things, failure to make
payments of principal and interest, and by the abandonment of the property.
Stipulation for Appointment of Receiver was filed on August 31, 1992. A
receiver was appointed on September 15, 1992.
Federal Deposit Insurance Corporation in its Corporate capacity v. VMS
National Properties, an Illinois joint venture, VMS National Properties X, VMS
Realty Investment, Ltd., an Illinois limited partnership, Chicago Wheaton
Partners, an Illinois general partnership, Case No. CV-F 92-5571-OWW (United
States District Court, Eastern District of California), filed on or about
August 24, 1992. On April 2, 1992, Beverly Hills Business Bank ("BHBB")
sold and assigned to the FDIC in its Corporate capacity as Manager of the
FSLIC Resolution Fund BHBB's right, title and interest in certain assets
referred to as the "VMS Portfolio" which included, but was not limited to this
loan. On August 19, 1992, VMS National Properties, by order of the bankruptcy
court, abandoned its partnership interest in VMS National Properties X, which
owned The Winery Apartments. VMS National Properties X is alleged to have
breached its obligation under the Note by virtue of, among other things,
failure to make payments of principal and interest, and by the abandonment of
the property. Stipulation for Appointment of Receiver was filed on August 31,
1992. Receiver was appointed on September 16, 1992. A quit claim deed was
executed as of March 27, 1995, from VMS National Properties X to Ecumenical
Association for Housing. This action has been dismissed.
Federal Deposit Insurance Corporation as manager of the Federal Savings and
Loan Insurance Corporation Resolution Fund as assignee of BH Mortgage
Corporation, a California corporation, v. Chicago Wheaton Partners, an
Illinois general partnership, VMS National Properties, an Illinois
partnership, VMS National Properties VI, a California general partnership,
Case No. CIV S 93 861 EJG JFM (United States District Court, Eastern Division
of California), filed on or about May 24, 1993. Complaint for Breach of
Promissory Note and Security Agreement, Appointment of Rent Receiver; and
Injunctive Relief. Receiver was appointed to Venetian Bridges on May 24,
1993. Properties were transferred to Venetian Bridges G.C. Operating
Partnership, Venetian Bridges G.C.I Operating Partnership and Venetian Bridges
G.C. II Operating Partnership. This action has been dismissed.
Federal Deposit Insurance Corporation as manager of the Federal Savings and
Loan Insurance Corporation Resolution Fund as assignee of BH Mortgage
Corporation, a California corporation, v. Chicago Wheaton Partners, an
Illinois general partnership, VMS National Properties, an Illinois
partnership, VMS National Properties IV, a California general partnership,
Case No. CIV S 93 933 EJG JFM (United States District Court, Eastern Division
of California), filed on or about June 9, 1993. Property was transferred on
February 6, 1996, to RJR Development, Inc. This action is in the process of
being dismissed. Receiver was appointed to Pacific Hacienda on June 28, 1993.
Federal Deposit Insurance Corporation, in its corporate capacity, as assignee
of BH Mortgage Corporation, a California corporation, v. Chicago Wheaton
Partners, an Illinois general partnership, VMS National Properties, an
Illinois general partnership, VMS National Properties IX, a New York general
partnership, Case No. 93 CV-1218FJS (United States District Court, Northern
District of New York). FDIC and defendants seek an order appointing a
Receiver to take possession of and manage Weatheridge Apartments. A receiver
has not yet been appointed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is not a public market for the Limited Partnership Interests.
As of December 31, 1996, there were 823 holders of record of Portfolio I and 332
holders of record of Portfolio II.
As of December 31, 1996, there have been no cash distributions to the Limited
Partners of either of the Partnerships. In accordance with the respective
Agreements of Limited Partnership, there are no material restrictions on the
Partnerships' ability to make cash distributions; future cash distributions are,
however, subject to the order of distributions stipulated by the Venture's Plan
of Reorganization. The source of future cash distributions is dependent upon
cash generated by the Venture's properties and cash generated through the sale
or refinancing of these properties.
ITEM 6. SELECTED FINANCIAL DATA
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31,December 31, December 31, December 31,December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Total revenues from rental $25,200 $ 27,874 $ 30,012 $ 41,788 $ 49,859
operations
Extraordinary Item-Gain on
Extinguishment of Debt $14,095 C $ 34,598 C $ 27,418C $ 137,141 $ 11,799
Net Income (Loss) $ 1,823 $ 15,626 $ 2,890 $92,529A,B $(13,632)A
Net Income (Loss) per Limited
Partnership Interest
Portfolio I -
644 Interests $ 2 C $ 17 C $ 3C $ 99A,B $ (15)A
Portfolio II - 268 $ 2 C $ 17 C $ 3C $ 100A,B $ (15)A
Interests
Tax Income (Loss) $ 3,188 $ 21,385 $ 14,412 $175,890 $(52,427)
Tax Income (Loss) per
Limited
Partnership Interest
Portfolio I -
644 Interests $ 3 $ 23 $ 16 $ 189 $ (56)
Portfolio II - 268 $ 3 $ 23 $ 16 $ 189 $ (56)
Interests
Total assets $ 76,779 $ 88,440 $111,232 $133,383B $249,859
Mortgage loans and notes $153,066 $158,733 $178,061 $198,802B $346,760
payable
<FN>
A) During its bankruptcy proceedings the Venture followed AICPA Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code (SOP 90-7). In accordance therewith, unamortized deferred loan
costs and imputed interest related to the Venture's properties included in the
bankruptcy of $3,088,000 and $6,821,000, respectively, were written off as of
the bankruptcy filing date. Also, during 1992, two of the Venture's properties
were foreclosed; as a result of these proceedings, the Venture has recognized
extraordinary gains on the extinguishment of the related debt.
B) The Venture's Plan of Reorganization became effective on September 30, 1993.
As a result of the implementation of the Plan, 19 of the Venture's properties
were foreclosed during 1993 creating a gain of approximately $89,573,000 in
order to adjust liabilities compromised by the Plan to the present value of
amounts to be paid (see "Note 11" of the Notes to the Combined Financial
Statements); $54,053,000 of this extraordinary gain has been deferred by the
Venture.
C) During 1994, 1995 and 1996 respectively, four, five and two of the Ventures
nonretained properties were foreclosed. As a result of these events, the
Venture has recognized extraordinary gains on the extinguishment of the
related debt. As of December 31, 1996, all of the nonretained properties have
been foreclosed.
</TABLE>
The above selected financial data should be read in conjunction with the
combined financial statements and the related notes.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
The Venture held unrestricted cash at December 31, 1996, of $1,788,000 which
decreased $196,000 from December 31, 1995. This decrease was attributable to
net cash provided by operating and investing activities of $2,147,000 and
$1,818,000, respectively, offset by net cash used in financing activities of
$4,161,000.
The decrease in net cash provided by operating activities for the year ended
December 31, 1996, compared to the corresponding periods of 1994 and 1995 was
primarily due to the disposition of the remaining non-retained properties and
sale of the Bellevue Towers and Carlisle Square properties during the second
quarter of 1996. Additionally, payments of accrued expenses and deposits to
escrows and other reserves increased for the year ended December 31, 1996.
Net cash provided by investing activities increased for the year ended December
31, 1996, compared to the corresponding periods of 1994 and 1995 as a result of
proceeds received from the sale of Carlisle Square and Bellevue Towers during
the second quarter of 1996.
Net cash used in financing activities increased for the year ended December 31,
1996, compared to the years ended December 31, 1994 and 1995, due to increased
payments on mortgage notes and advances from affiliates resulting from proceeds
received from the sale of the two investment properties noted above.
At December 31, 1992, the Venture had approximately $15,433,000 in excess
limited partner contributions. Permitted uses of these excess limited partner
contributions during 1993 were limited to 1) the funding of monthly Bankruptcy
Court approved professional fees; 2) establishing a reserve of $5,960,000 to
fund capital improvements on the retained complexes; 3) repayments of
approximately $5,980,000 on various prepetition claims including notes payable,
real estate taxes and amounts due trade creditors; 4) payments of $1,006,000 to
the Managing General Partner for reimbursement of cash advances and asset
management services; and 5) payments to the FDIC and ContiTrade for
reimbursement of administrative costs incurred in connection with the bankruptcy
case (see "Note 5" of the Notes to Combined Financial Statements). The
Venture's Plan of Reorganization, which became effective on September 30, 1993,
also restricts the permitted uses of the cash balances on hand at December 31,
1996.
Total capital contribution and interest amounts due from limited partners of
Portfolio I and Portfolio II at December 31, 1996, approximated $1,009,000. A
settlement agreement was entered into on March 28, 1991, by the Plaintiff class
counsel on behalf of the class of limited partners in approximately 100 non-
publicly traded VMS sponsored limited partnerships including VMS National
Residential Portfolio I and II, VMS National Properties Joint Venture, and VMS
Realty Partners and its affiliates and certain other defendants. The Settlement
Agreement provided the settling Limited Partners with an option to refinance
their defaulted subscription note principal and interest payments. Of the total
number of limited partner units in Portfolio I and Portfolio II, only 10 limited
partner units in Portfolio I and 5.666 limited partner units in Portfolio II
opted out of the Settlement Agreement, and, accordingly, were ineligible to
elect this refinancing option. Approximately 65% of the total capital and
accrued interest amounts due from limited partners of Portfolio I and Portfolio
II represented amounts due from limited partners who elected the refinancing
option. All amounts remaining due from the limited partners are considered past
due and their outstanding amount bears interest at the 18% default rate.
A cash payment of $24,550,000 was paid into a settlement fund for the benefit of
the settling class members of all settling limited partnerships on behalf of VMS
and the other settling defendants. VMS National Residential Portfolio I and II
and VMS National Properties Joint Venture was not obligated to fund any portion
of this cash settlement. The settling class members in VMS National Residential
Portfolio I and II were collectively allocated approximately $3,000,000 of the
net settlement proceeds paid on behalf of the VMS Settling Defendants and
Prudential-Bache Settling Defendants.
Continued operating losses and insufficient cash flows to meet all obligations
of certain of the Venture's properties are expected to occur. The Managing
General Partner is not obligated, and does not intend, to fund any such
operating and cash flow deficits. However, the Venture's ability to continue as
a going concern and to meet its obligations as they come due is solely
dependent upon its ability to generate adequate cash flow from maintaining
profitable operations on the retained properties or securing an infusion of
capital. Management is involved in negotiations which would replace VMSRIL as
the managing general partner and has entered into an agreement with Insignia
which contemplates that VMSRIL will withdraw as general partner and be replaced
by an entity in which Insignia owns an interest. This change in ownership is
subject to the approval of various parties, including, among others, HUD, the
FDIC and ContiTrade. The Managing General Partner believes that they will be
successful in obtaining a replacement general partner and that the Venture will
be able to continue operations as a going concern. However, the ultimate
resolution of these financial difficulties and uncertainties cannot be
determined at this time.
Results of Operations
The Partnership realized net income of $1,823,000 for the year ended December
31, 1996, which decreased compared to net income of $15,626,000 for the year
ended December 31, 1995. The decrease in net income was primarily due to the
Partnership recognizing a lower gain on the extinguishment of debt in 1996 as
the number of foreclosures decreased. The Partnership realized net income of
$2,890,000 for the year ended December 31, 1994. The increase in net income for
the year ended December 31, 1995, compared to 1994, was due to gains recognized
upon the foreclosure of 5 non-retained properties during 1995.
The decreases in revenues and total expenses for the years ended December 31,
1994, 1995 and 1996, resulted from the timing of the foreclosures of non-
retained properties. There were four non-retained properties foreclosed upon
during 1994, five non-retained properties foreclosed upon during 1995, and two
non-retained properties foreclosed upon during 1996. Additionally, two of the
retained properties were sold during 1996. Excluding the impact of the
foreclosures and sale of properties, total revenues for the year ended December
31, 1996, increased approximately 4% compared to the same period of 1995. Total
property expenses increased approximately 1%.
The ordinary losses recognized for the write-downs of the carrying values of
properties to their estimated fair values related to 2, 5 and 4 properties
foreclosed upon during the years ended December 31, 1996, 1995 and 1994,
respectively. The ordinary losses were recognized pursuant to EITF Abstract
Issue No. 91-2, "Debtor's Accounting for Forfeiture of Real Estate Subject to a
Nonrecourse Mortgage" which prescribes that a "two-step" approach method be used
to fairly present the economic transaction upon foreclosure events.
The extraordinary gain on extinguishment of debt for the years ended December
31, 1996, 1995 and 1994, relates to the foreclosures of 2, 5 and 4 properties,
respectively.
Impact of Recently Issued Accounting Statement
On February 22, 1991, the Venture filed for Chapter 11 bankruptcy protection
(see "Note 4" of the Notes to Combined Financial Statements). The Combined
Financial Statements of the Venture during the bankruptcy proceedings (February
22, 1991 through September 30, 1993) reflect the financial reporting guidance
prescribed by the AICPA Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" (SOP 90-7).
Pursuant to SOP 90-7, interest on secured or undersecured debt is recognized to
the extent of cash paid or to the extent that the value of the related
collateral exceeds the sum of principal plus accrued interest, determined on a
property by property basis. Interest on unsecured claims is recognized only to
the extent paid. The Combined Statement of Operations includes the interest
recognized by this method. Mortgage interest recorded was approximately
$33,258,000 less than the contractual amount for 1993. Notes payable and other
interest expense recorded was approximately $6,931,000 less than the contractual
amount for 1993. Penalties on delinquent real estate taxes after February 22,
1991, and penalties on delinquent debt on the Venture's entities in bankruptcy
are not accrued in the Combined Financial Statements nor are they contractually
disclosed.
Inflation
Inflation has had an insignificant impact on the Venture's operations since
inception in September 1984. Inflation, if present, should allow for future
increases in rental rates to offset some of the impact of higher operating
expenses and replacement costs. Furthermore, inflation generally does not
impact contractually fixed long-term financing under which the real property
investments were purchased.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF COMBINED FINANCIAL STATEMENTS
Report of Independent Auditors
Combined Balance Sheets - Years ended December 31, 1996 and 1995
Combined Statements of Operations - Years ended December 31, 1996, 1995 and
1994
Combined Statements of Changes in Partners' Deficit - Years ended December 31,
1996, 1995 and 1994
Combined Statements of Cash Flows - Years ended December 31, 1996, 1995 and
1994
Notes to Combined Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
VMS National Residential Portfolio I and
VMS National Residential Portfolio II
We have audited the accompanying combined balance sheets of VMS National
Residential Portfolio I (an Illinois Limited Partnership), VMS National
Residential Portfolio II (an Illinois Limited Partnership) and VMS National
Properties (an Illinois Partnership) and Subpartnerships (collectively the
Venture) as of December 31, 1996 and 1995, and the related combined statements
of operations, changes in partners' deficit and cash flows for each of the three
years in the period ended December 31, 1996. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Venture's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of VMS
National Residential Portfolio I, VMS National Residential Portfolio II and
VMS National Properties and Subpartnerships at December 31, 1996 and 1995, and
the combined results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
The combined financial statements and financial statement schedule referred to
above have been prepared assuming that the Venture will continue as a going
concern. As more fully described in Note 1, the Venture has incurred recurring
operating losses and has a partners' deficit. In addition, the General Partner
and its affiliates have announced the existence of serious financial
difficulties that may have an effect on the ability of the General Partner to
function in that capacity and may adversely affect the financial condition of
the Venture. These conditions raise substantial doubt about the Venture's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability of
assets or the amounts of liabilities that may result from the inability of the
Venture to continue as a going concern.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
February 10, 1997
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS
COMBINED BALANCE SHEETS
(in thousands)
December 31, December 31,
1996 1995
Assets
Cash and cash equivalents:
Unrestricted $ 1,788 $ 1,984
Restricted-tenant security deposits 1,082 1,120
Accounts receivable 151 240
Escrows and other reserves 1,507 1,364
Other assets 411 511
Investment properties:
Land 13,404 14,293
Buildings and personal property 128,455 133,517
Investment properties subject to abandonment:
Land, buildings and personal property -- 7,630
Less accumulated depreciation (70,019) (72,219)
$ 76,779 $ 88,440
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 302 $ 356
Tenant security deposits 1,080 1,080
Accrued interest 11,948 8,193
Accrued taxes 492 507
Other liabilities 381 559
Mortgage loans payable 119,229 121,845
Notes payable 33,837 30,610
Advances from affiliates of general partner 753 2,280
Deferred gain on extinguishment of debt 54,053 54,053
Liabilities subject to abandonment:
Accrued interest -- 9,477
Accrued taxes -- 121
Other liabilities -- 295
Mortgage loans payable -- 6,278
Partners' Deficit (145,296) (147,214)
$ 76,779 $ 88,440
See Accompanying Notes to Combined Financial Statements
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
(in thousands, except per interest data)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Rental income $ 24,046 $ 26,649 $ 28,692
Other income 1,154 1,225 1,320
Total revenues 25,200 27,874 30,012
Expenses:
Operating 7,658 9,267 10,962
General and administrative 1,063 1,121 1,345
Maintenance 3,000 3,992 5,196
Depreciation 5,447 6,090 6,659
Interest 16,652 20,899 24,226
Property taxes 1,802 2,220 2,378
Write-down of investment property 1,850 3,257 3,774
Total expenses 37,472 46,846 54,540
Net loss before extraordinary item (12,272) (18,972) (24,528)
Extraordinary item - gain on
extinguishment of debt 14,095 34,598 27,418
Net income $ 1,823 $ 15,626 $ 2,890
Net income allocated to general
partners $ 36 $ 313 $ 58
Net income allocated to limited
partners 1,787 15,313 2,832
$ 1,823 $ 15,626 $ 2,890
Net income (loss) per limited
partnership interest:
Net loss before extraordinary item
Portfolio I (644 interests) $(13,185) $(20,386) $(26,358)
Portfolio II (268 interests) $(13,193) $(20,386) $(26,352)
Extraordinary item
Portfolio I (644 interests) $ 15,146 $ 37,177 $ 29,463
Portfolio II (268 interests) $ 15,146 $ 37,177 $ 29,463
Net income
Portfolio I (644 interests) $ 1,961 $ 16,791 $ 3,105
Portfolio II (268 interests) $ 1,953 $ 16,791 $ 3,111
<FN>
See Accompanying Notes to Combined Financial Statements
</TABLE>
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS
COMBINED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(in thousands)
<TABLE>
<CAPTION>
VMS National Residential Portfolio I
Limited Partners
General Accumulated Subscription
Partners Deficit Notes Total Total
<S> <C> <C> <C> <C>
Partners' deficit at January 1, 1994 $ (3,644) $(112,399) $ (812) $(113,211) $(116,855)
Collections of subscription notes -- -- 156 156 156
Write-off of subscription notes -- (29) 29 -- --
Net income for year ended
December 31, 1994 41 1,999 -- 1,999 2,040
Partners' deficit at December 31, 1994 (3,603) (110,429) (627) (111,056) (114,659)
Collections of subscription notes -- -- 41 41 41
Net income for year ended
December 31, 1995 221 10,813 -- 10,813 11,034
Partners' deficit at December 31, 1995 (3,382) (99,616) (586) (100,202) (103,584)
Collections of subscription notes -- -- 52 52 52
Net income for the year ended
December 31, 1996 26 1,263 -- 1,263 1,289
Partner's deficit at December 31, 1996 $ (3,356) $ (98,353) $ (534) $(98,887) $(102,243)
<FN>
See Accompanying Notes to Combined Financial Statements
</TABLE>
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS
COMBINED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(in thousands)
<TABLE>
<CAPTION>
VMS National Residential Portfolio II
Limited Partners
General Accumulated Subscription
Partners Deficit Notes Total Total
<S> <C> <C> <C> <C> <C>
Partners' deficit at
January 1, 1994 $(1,523) $ (47,161) $ (467) $ (47,628) $ (49,151)
Collections of subscription
notes -- -- 51 51 51
Write-off of subscription notes -- (4) 4 -- --
Net income for year ended 17 834 -- 834 851
December 31, 1994
Partners' deficit at
December 31, 1994 (1,506) (46,331) (412) (46,743) (48,249)
Collections of subscription
notes -- -- 28 28 28
Net income for year ended 92 4,500 -- 4,500 4,592
December 31, 1995
Partners' deficit at
December 31, 1995 (1,414) (41,831) (384) (42,215) (43,629)
Collections of subscription
notes -- -- 42 42 42
Net income for the year ended 10 524 -- 524 534
December 31, 1996
Partner's deficit at
December 31, 1996 $ (1,404) $ (41,307) $ (342) $ (41,649) $ (43,053)
Combined partner's deficit at $ (4,760) $(139,660) $ (876) $(140,536) $(145,296)
December 31, 1996
<FN>
See Accompanying Notes to Combined Financial Statements
</TABLE>
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,823 $ 15,626 $ 2,890
Adjustments to reconcile net income
to net cash provided by
operating activities:
Writedown of investment property 1,850 3,257 3,774
Extraordinary gain on
extinguishment of debt (14,095) (34,598) (27,418)
Depreciation 5,447 6,090 6,659
Amortization of discounts and loan
costs 3,309 3,105 2,918
Loss on disposal of property 163 111 370
Gain on sale of property (59) -- --
Change in accounts:
Escrows and other reserves (408) 2,205 2,258
Accounts receivable 67 (17) (10)
Restricted tenant security deposits 40 (62) 127
Other assets 198 (226) 362
Accounts payable (62) (522) 884
Accrued taxes 39 146 214
Accrued interest 4,220 7,966 11,157
Tenant security deposit liabilities 4 (4) 94
Other liabilities (389) (160) 75
Net cash provided by
operating activities 2,147 2,917 4,354
Cash flows from investing activities:
Property improvements and replacements (2,029) (2,415) (3,408)
Proceeds from sale of property 3,847 -- --
Net cash provided by (used in)
investing activities $ 1,818 $ (2,415) $ (3,408)
Cash flows from financing activities:
Payments on mortgage loans payable $(2,674) $ (332) $ (293)
Payments received on subscription notes 94 69 207
Payments on advances from affiliates (1,528) (82) (116)
Cash released to lenders upon
foreclosure (53) (649) (317)
Net cash used in financing
activities (4,161) (994) (519)
Net increase (decrease) in cash and cash
equivalents (196) (492) 427
Cash and cash equivalents at beginning
of year 1,984 2,476 2,049
Cash and cash equivalents at end of year $ 1,788 $ 1,984 $ 2,476
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 9,103 $ 9,503 $ 9,904
<FN>
See Accompanying Notes to Combined Financial Statements
</TABLE>
1. GOING CONCERN
The combined financial statements have been prepared assuming that the VMS
National Properties Joint Venture (the "Venture") will continue as a going
concern. The combined financial statements do not include any adjustments
that might result from the outcome of the uncertainties described below,
however, such uncertainties raise substantial doubt about the Venture's
ability to continue as a going concern.
The Venture has incurred recurring operating losses and has a partners'
deficit of approximately $145 million at December 31, 1996 and expects
operating losses to continue. Further, historically the General Partner
and its affiliates had advanced funds to the Venture; however, the
General Partner does not intend to fund any future deficits. During
1994, the General Partner and its affiliates assigned a portion of the
unpaid advances to an affiliate of Insignia Financial Group, Inc.,
("Insignia") ("Notes 5 and 10"). The General Partner is evaluating its
options for the Venture should the Venture continue to suffer substantial
losses from operations and cash deficiencies.
In addition, the General Partner and its affiliates have incurred serious
financial difficulties that may affect the ability of the General Partner to
function in that capacity. The administration and management of the Venture
are dependent on the General Partner and its affiliates. Pursuant to an
agreement dated July 14, 1994, a transaction is pending in which the current
General Partner would be replaced by MAERIL, Inc., an affiliate of Insignia.
The substitution of MAERIL, Inc. as the General Partner is expected, but there
is no assurance that the transaction will be consummated. The pending
replacement of the General Partner in and of itself will not necessarily
improve the financial condition of the Venture.
The combined financial statements do not include any adjustments relating to
the recoverability of the recorded asset accounts or the amount of liabilities
that might be necessary should the Venture be unable to continue as a going
concern.
2.ORGANIZATION
The Venture was formed as a general partnership pursuant to the Uniform
Partnership Act of the State of Illinois and a joint venture agreement (the
"Venture Agreement") dated September 27, 1984, between VMS National
Residential Portfolio I ("Portfolio I") and VMS National Residential Portfolio
II ("Portfolio II"). The General Partner of Portfolio I and Portfolio II is
VMS Realty Investment, Ltd. (formerly VMS Realty Partners) an Illinois limited
partnership. Prudential-Bache Properties, Inc. is also a minority general
partner of Portfolio I. The Venture originally acquired 51 residential
apartment properties located throughout the United States. Of these 51
properties, four were foreclosed prior to 1993. As more fully described in
"Note 4", the Venture filed for Chapter 11
bankruptcy protection on February 22, 1991. The Venture's Second Amended and
Restated Plan of Reorganization (the "Plan") became effective on September 30,
1993. Pursuant to the Plan, 19 of the Venture's properties were foreclosed in
1993, four properties were foreclosed in 1994, five properties were foreclosed
in 1995 and an additional two properties foreclosed in 1996. Also, the
Venture sold two of the residential properties during 1996. The Venture
continues to own and operate 15 of the residential apartment complexes it
originally acquired.
One of the remaining properties is encumbered by financing insured by the
Department of Housing and Urban Development ("HUD"). This property is owned
by a separate subpartnership (the "Subpartnership"), of which the Venture owns
a 99% interest. The remaining 1% interest is owned by VMS Realty Investment,
Ltd. (Minority Interest). During 1993 cumulative losses of $640,000
previously allocated to the Minority Interest were reallocated to the Venture
due to the severe financial difficulties encountered by the Minority Interest.
The VMS/Stout Joint Venture (the "VMS/Stout Venture") was formed pursuant to
an agreement dated August 18, 1984, which was amended and restated on October
4, 1984. VMS Realty Partners has a 50% interest and affiliates of the Seller
(as defined below) have a 50% interest in the VMS/Stout Venture. The
VMS/Stout Venture, the J.D. Stout Company ("Stout") and certain affiliates of
Stout entered into a contract of sale dated August 18, 1984, which was amended
on October 4, 1984. The contract provided for the sale by Stout and other
owners (collectively the "Seller") of the 51 residential apartment complexes
to the VMS/Stout Venture. The VMS/Stout Venture assigned its interest as
purchaser to the Venture. During 1987, Stout assigned its interest in the
VMS/Stout Joint Venture to ContiTrade Service Corporation ("ContiTrade"). On
November 17, 1993, VMS Realty Partners assigned its interest in the VMS/Stout
Joint Venture to the Partners Liquidating Trust (see "Note 8").
Pursuant to the terms of the Joint Venture Agreement for the Venture and the
respective Partnership Agreements for Portfolio I and Portfolio II, the
Managing General Partner will manage Portfolio I, Portfolio II, VMS National
Properties and each of the Venture's operating properties. The Limited
Partners do not participate in or control the management of their respective
partnership, except that certain events must be approved by the Limited
Partners. These events include: (1) voluntary dissolution of either
Portfolio I or Portfolio II, and (2) amending substantive provisions of either
Partnership Agreement.
The operating profits and losses of VMS National Properties and the Venture's
properties are allocated to Portfolio I and Portfolio II on a pro-rata,
cumulative basis using the ratio of their respective Limited Partnership
Interests issued and outstanding. The operating profits and losses of
Portfolio I and Portfolio II are allocated 98% to the respective Limited
Partners and 2% to the respective General Partners.
Operating cash flow distributions for Portfolio I and Portfolio II will be
made at the discretion of the Managing General Partner subject to the order
of distribution indicated in the Plan and approved by the Bankruptcy Court.
Such distributions will be allocated first to the respective Limited Partners
in an amount equal to 12% per year (on a noncumulative basis) of their
contributed capital; then, to the General Partners, a subordinated incentive
fee equal to 10.45% of remaining operating cash flow; and finally, of the
balance to be distributed, 98% to the Limited Partners and 2% to the General
Partners.
Distributions of proceeds arising from the sale or refinancing of the
Venture's properties will be allocated to Portfolio I and Portfolio II in
proportion to their respective Venture interests subject to the order of
distribution indicated in the Plan and approved by Bankruptcy Court.
Distributions by Portfolio I and Portfolio II will then be allocated as
follows: (1) first to the Limited Partners in an amount equal to their
aggregate capital contributions; (2) then to the General Partners in an
amount equal to their aggregate capital contributions; (3) then, among the
Limited Partners, an amount equal to $62,000,000 multiplied by the respective
percentage interest of Portfolio I or Portfolio II in the Venture; and (4)
finally, of the balance, 76% to the Limited Partners and 24% to the General
Partners.
In any event, there shall be allocated to the General Partners not less than
1% of profits or losses.
3. ACCOUNTING POLICIES
(a) The combined financial statements of the Venture for the period during
the bankruptcy proceedings (February 22, 1991 to September 30, 1993)
reflect the financial reporting guidance prescribed by the AICPA
Statement of Position 90-7 (SOP 90-7), "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code". In accordance with SOP 90-
7, interest on secured or undersecured debt of the Venture's entities in
bankruptcy was recognized to the extent of cash paid or to the extent
that the value of the related collateral exceeded the sum of principal
plus accrued interest, determined on a property by property basis.
Interest on unsecured claims was recognized only to the extent paid.
Effective September 30, 1993, the Venture resumed an accrual basis of
interest recognition. Mortgage interest recorded for the three years
ended December 31, 1993, was $33,258,000 less than the contractual
amount. Interest on notes payable and other interest expense recorded
for the same period was $6,931,000 less than the contractual amount.
Penalties on delinquent real estate taxes after February 22, 1991, and
penalties on delinquent debt on the Venture's entities that were in
bankruptcy were not approved by the Bankruptcy Court as an allowed claim.
Therefore, these penalties were neither accrued in the combined financial
statements nor contractually disclosed.
Debt discounts (imputed interest) and deferred loan costs related to the
Venture's entities in bankruptcy were written off as of February 22, 1991,
in order to adjust the net debt balance to the amount allowed by the
bankruptcy court as a claim against the Venture.
Pursuant to the Plan which became effective on September 30, 1993, the
Bankruptcy Court disallowed accrued contractual obligations of
approximately $89,573,000 (see "Note 11") related to the retained
complexes. Additionally, the assets and liabilities of the Venture's non-
retained complexes (see "Note 5") have been segregated and presented as
investment properties subject to abandonment and liabilities related to
properties subject to abandonment on the Venture's Combined Balance Sheets
(see "Note 13").
(b)The accompanying combined financial statements include the accounts of
Portfolio I, Portfolio II, the Venture and Subpartnerships (collectively,
the "Partnerships"). Significant interpartnership accounts and
transactions have been eliminated from these combined financial
statements.
(c)Depreciation is computed using the following methods and estimated useful
lives:
<TABLE>
<CAPTION>
GAAP BASIS TAX BASIS
Lives Lives
Method (Years) Method (Years)
<S> <C> <C> <C> <C>
Buildings and
improvements Straight-line 25 to 29 175% declining 18/19
balance (ACRS)
Straight-line 27.5
(Modified ACRS)
Personal Property 150% declining 5 150% Declining 5
balance Balance (ACRS)
200% declining 7 200% declining 7
balance balance (Modified
ACRS)
150% declining 15 150% declining 15
balance balance (Modified
ACRS)
</TABLE>
(d) During 1996 the Venture adopted "FASB Statement No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," which requires impairment losses to be recorded on long-
lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amount. The impairment loss is
measured by comparing the fair value of the asset to its carrying amount.
The adoption of this statement resulted in a writedown of the non-retained
properties of $1,850,000 to their estimated fair value.
(e) The Venture generally leases its residential apartment units for twelve
month terms or less.
(f) The Venture expenses the costs of advertising as incurred. Advertising
expense included in operating expenses was $313,000, 428,000 and $426,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
(g) The Venture considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
Cash and cash equivalents are carried at cost which approximates fair
value. At times cash balances exceed the insured limit as provided by the
Federal Deposit Insurance Corporation.
(h) The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
(i) In 1995, the Venture implemented "Statement of Financial Accounting
Standards No. 107, Disclosure about Fair Value of Financial Instruments,"
which requires disclosure of fair value information about financial
instruments for which it is practicable to estimate that value. The
carrying amount of the Venture's cash and cash equivalents approximates
fair value due to short-term maturities. The Venture estimates the fair
value of its fixed rate mortgages by discounted cash flow analysis, based
on estimated borrowing rates currently available to the Venture ("Note
7"). The carrying amounts of variable-rate mortgages approximate fair
value due to frequent re-pricing.
(j) Certain reclassifications have been made to the 1995 and 1994 balances to
conform to the 1996 presentation.
(k) The Partnership requires security deposits from all apartment lessees for
the duration of the lease and considers these deposits to be restricted
cash. Deposits are refunded when the tenant vacates the apartment if there
has been no damage to the unit.
4. PETITION FOR RELIEF UNDER CHAPTER 11
On February 22, 1991, VMS National Properties Joint Venture filed for
Chapter 11 bankruptcy protection in the United States Bankruptcy court in
the Central District of California. The initial filing included only the
residential apartment complexes directly owned by VMS National Properties
Joint Venture (entities included in the filing herein after referred to
collectively as the Debtor) and excluded the 10 Subpartnerships consisting
of 10 residential apartment complexes encumbered by financing insured or
held by the Department of Housing and Urban Development ("HUD"), and the
investing limited partnerships Portfolio I and Portfolio II. Due to the
partnership agreements existing between the Venture, Portfolio I and
Portfolio II, which provide the Venture with exclusive rights to the limited
partner investor contributions, the Venture's initial filing was amended to
reflect the Venture's right to receive any excess limited partner investor
contributions.
The Venture's Plan was confirmed by the Bankruptcy Court in March 1993 and
became effective on September 30, 1993 ("Effective Date") (see "Note 5").
5. PLAN OF REORGANIZATION
The Primary aspects of the Venture's Second Amended and Restated Plan of
Reorganization included the following:
(a) The venture retained 17 properties from the existing portfolio (the
"retained properties"), and abandoned title of the remaining properties
(the "non-retained properties") to the Federal Deposit Insurance
Corporation (the "FDIC"). The retained properties consist of one HUD
property and sixteen non-HUD properties. Two of the seventeen retained
properties were sold during the second quarter of 1996. All of the non-
retained properties have been foreclosed upon as of December 31, 1996.
(b) The Venture restructured the existing senior-lien debt obligations on the
retained properties (except for one of the retained properties which has
a first mortgage lien insured by HUD and two of the retained properties
which have senior liens formerly payable to the FDIC, as successor to
Beverly Hills Mortgage Corporation, ("BH")) to provide for an interest
rate of 8.75% per annum effective as of the first day of the month of the
Effective Date with payments based on a 30 year amortization commencing
on the first monthly payment due thereafter and a maturity date of
January 15, 2000.
The senior lien collateralized by HUD on one of the retained properties
was not modified, and the senior liens formerly held by the FDIC were
modified to accrue at 9% per annum effective as of the first day of the
month of the Effective Date with monthly payments of interest only made
at 7% per annum commencing with the first monthly payments due thereafter
on the FDIC value, as defined in "c" below.
(c) As it pertains to the existing BH junior mortgages on the retained
properties, the FDIC reduced its claim on two of the properties to
$300,000 per property evidenced by a non-interest bearing note scheduled
to mature January 15, 2000, and has left in place liens for the full
amount of its claims at the petition date for all other retained
properties. Interest on the former FDIC loans for these retained
properties accrues at 10% per annum on the FDIC value (total property
value per the FDIC's June 1992 valuations less the property's senior lien
indebtedness) commencing as of the first day of the month of the
Effective Date and monthly payments of interest only at 7% per annum on
the FDIC value will commence with the first monthly payment due
thereafter. (The retained property governed by a HUD Regulatory
Agreement is to make payments of interest only following the approval by
HUD of the Surplus Cash calculation.) On October 28, 1995, the FDIC sold
all of the debt it held related to the retained properties to BlackRock
Capital Finance, L.P. The debt amounts and terms were not modified.
(d) The Venture distributed the following amounts in conjunction with the
terms of the Plan: (1) approximately $5,980,000 to satisfy unsecured
prepetition creditor claims of the nonaffiliated note payable to Security
Pacific National Bank, trade creditors, and property taxes on the
retained properties; (2) approximately $1,056,000 to provide for allowed
and unclassified administrative claims; and (3) approximately $5,960,000
to make capital improvements at the retained properties. This capital
improvement reserve was exhausted during 1995.
(e) The VMS/Stout Joint Venture was granted an allowed claim in the amount of
$49,535,000 for the Assignment and Long-Term Loan Arrangement Notes
Payable to them by the Venture. Payments totalling $3,475,000 in
conjunction with this allowed claim were made to the nonaffiliated members
of the VMS/Stout Joint Venture on October 7, 1993. The Venture also
executed a $4,000,000 promissory note dated September 1, 1993, to
ContiTrade Services Corporation (the ContiTrade Note) in connection with
these allowed note claims. The ContiTrade Note represents a
prioritization of payments to ContiTrade of the first $4,000,000 in
repayments made under the existing Assignment and Long-Term Loan
Arrangement Notes payable to the VMS/Stout Joint Venture, and does not
represent an additional $4,000,000 claim payable to ContiTrade. In
addition to prioritizing ContiTrade's receipt of the first $4,000,000 of
repayments on the old notes, the ContiTrade Note provides for 5% non-
compounding interest on the outstanding principal balance calculated daily
on the basis of a 360 day year. The ContiTrade Note is secured by a Deed
of Trust, Assignment of Rents and Security Agreement on each of the
Venture's retained properties, and provides ContiTrade with other approval
rights as to the ongoing operations of the Venture's retained properties.
The ContiTrade Note matures January 15, 2000. The remaining $42,060,000
is noninterest bearing.
(f) The Venture entered into a Revised Restructured Amended and Restated
Asset Management Agreement (the Revised Asset Management Agreement) with
Insignia. Effective October 1, 1993, Insignia took over the asset
management of the Venture's retained properties and partnership functions
for the Venture. The Revised Asset Management Agreement provides for an
annual compensation of $500,000 to be paid to Insignia in equal monthly
installments. In addition, Insignia will receive reimbursement for all
out-of-pocket costs incurred in connection with their services up to
$200,000 per calendar year. These amounts are to be paid from the
available operating cash flow of the Venture's retained complexes after
the payment of operating expenses and priority reserve funding for
insurance, real estate and personal property taxes, senior mortgage
payments, minimum interest payment requirements on the former FDIC
mortgages, and any debt service and principal payments currently due on
any liens of encumbrances senior to the ContiTrade Deeds of Trust. If
insufficient operating cash flow exists after the funding of these items,
the balance of Insignia's fees and reimbursements may be paid from
available partnership cash sources. Additionally, the asset management
fee payable to Insignia will be reduced proportionately for each of the
Venture's retained complexes which are sold or otherwise disposed of from
time to time. Accordingly, the fee was reduced upon the disposition of
Bellevue and Carlisle Square in 1996. The Venture engaged Insignia to
commence property management of all of the Venture's retained complexes
effect January 1, 1994.
6. SUBSCRIPTION NOTES AND ACCRUED INTEREST RECEIVABLE
Portfolio I and Portfolio II executed promissory notes requiring cash
contributions from the partners aggregating $136,800,000 to the capital of
Portfolios I and II for 644 and 268 units, respectively. Of this amount,
$135,014,000 was contributed in cash through December 31, 1996, and $910,000
was deemed uncollectible and written-off prior to December 31, 1996. The
following table represents the remaining Limited Partners' subscription
notes principal balances and the related accrued interest receivable at
December 31, 1996 (in thousands):
Portfolio I Portfolio II
Subscription notes receivable $ 534 $ 342
Accrued interest receivable 66 67
Total subscription notes and
accrued interest receivable $ 600 $ 409
All amounts outstanding at December 31, 1996, are considered past due and
bear interest at the default rate of 18%. The subscription notes receivable
and the related interest are not recognized until collection is assured.
MORTGAGE LOANS PAYABLE
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Principal Principal
Balance At Balance
December 31, Imputed Interest Period Maturity Due At
Property 1996 Interest (A) Rate Amortized Date Maturity
<S> <C> <C> <C> <C> <C> <C>
Buena Vista Apartments
1st mortgage $ 7,000 (F) -- 01/00 $ 7,000
Casa de Monterey
1st mortgage 871 8.75% 30 years 01/00(D) 842
2nd mortgage 6,450 (G) -- 01/00 6,450
Crosswood Park
1st mortgage 4,232 1,531 7.50% 40 years 05/18(E) (B)(C)
2nd mortgage 2,468 (G)(H) -- 01/00 2,468
Mt. View Apartments
1st mortgage 10,165 (F) -- 01/00 10,165
Pathfinder
1st mortgage 1,225 8.75% 30 years 01/00(D) 1,184
2nd mortgage 11,170 (G) -- 01/00 11,170
Scotchollow
1st mortgage 3,261 8.75% 30 years 01/00(D) 3,153
2nd mortgage 22,425 (G) -- 01/00 22,425
The Bluffs
1st mortgage 616 8.75% 30 years 01/00(D) 596
2nd mortgage 443 8.75% 30 years 01/00(D) 428
3rd mortgage 3,006 (G) -- 01/00 3,006
Vista Village Apartments
1st mortgage 1,930 8.75% 30 years 01/00(D) 1,866
2nd mortgage 1,792 (G) -- 01/00 1,792
Chapelle Le Grande
1st mortgage 1,207 8.75% 30 years 01/00(D) 1,167
2nd mortgage 2,244 (G) -- 01/00 2,244
North Park Apartments
1st mortgage-1st phase 113 8.75% 30 years 01/00(D) 109
2nd phase 468 8.75% 30 years 01/00(D) 452
3rd phase 835 8.75% 30 years 01/00(D) 812
4th phase 421 8.75% 30 years 01/00(D) 407
2nd mortgage 4,582 (G) -- 01/00 4,582
Shadowood Apartments
1st mortgage 1,226 8.75% 30 years 01/00(D) 1,185
2nd mortgage 1,059 (G) -- 01/00 1,059
Towers of Westchester Park
1st mortgage 2,536 8.75% 30 years 01/00(D) 2,472
2nd mortgage 14,439 (G) -- 01/00 14,439
Terrace Gardens
1st mortgage 2,257 8.75% 30 years 01/00(D) 2,183
2nd mortgage 1,515 (G) -- 01/00 1,515
Watergate Apartments
1st mortgage 2,187 8.75% 30 years 01/00(D) 2,115
2nd mortgage 1,157 (G) -- 01/00 1,157
Forest Ridge Apartments
1st mortgage 2,130 8.75% 30 years 01/00(D) 2,059
2nd mortgage 2,201 8.75% 30 years 01/00(D) 2,128
3rd mortgage 3,129 (G) -- 01/00 3,129
Total $120,760 $ 1,531 $115,759
<FN>
(A) Imputed interest represents the difference between the face value of
assumed mortgage loans and the current market value of these obligations as
determined by the 14% mortgage rate received from the Beverly Hills
Mortgage Corporation at the dates of purchase. The book value of the real
estate to which the debt relates was adjusted by this difference. Imputed
interest is being amortized over the remaining terms of the related
mortgage loans, using the effective interest method. This amortization
amounted to $72,000 in 1996, $199,000 in 1995, $306,000 in 1994, and was
included in mortgage interest expense.
(B) Property is encumbered by first mortgage financing insured by HUD.
(C) At maturity, the principal balance will be fully amortized.
(D) Pursuant to the terms of the Venture's Plan, the senior mortgages on the
Venture's non-HUD retained properties were modified effective September 1,
1993 (see "Note 5"). The modified senior mortgages provide for an
interest rate of 8.75% per annum and a maturity date of January 15, 2000.
Payments are based on a thirty-year amortization.
(E) The senior mortgage on the Venture's HUD retained property, which is
insured by HUD, was not modified.
(F) The senior liens formerly held by the FDIC on two of the Venture's non-
HUD retained properties were modified effective September 1, 1993, to
accrue at 9% with monthly payments commencing October 1, 1993, of interest
only at 7% on the restated FDIC notes' Agreed Valuation Amount, as defined
(see "Note 5"). The difference between the 9% interest accrual rate and
the 7% minimum interest rate shall accrue, but not be added to principal,
and bear interest at the 9% note rate from and after the due date of each
payment, compounded monthly. All unpaid principal and accrued interest is
due in full on the January 15, 2000, maturity date.
(G) The junior liens formerly held by the FDIC on the Venture's non-HUD
retained properties were modified effective September 1, 1993, to accrue
at 10% with monthly payments commencing October 1, 1993, of interest only
at 7% on the restated FDIC notes' Agreed Valuation Amount as defined (see
"Note 5"). The difference between the 10% interest accrual rate and the
7% minimum interest rate shall accrue, but not be added to principal, and
bear interest at the 10% note rate from and after the due date of each
payment, compounded monthly. All unpaid principal and accrued interest
is due in full on the January 15, 2000, maturity date.
(H) The retained property governed by HUD Regulatory Agreements will make
payments of interest only at 7% each April 1st following HUD's approval
of Surplus Cash Calculations prepared each December 31st.
</TABLE>
On October 28, 1995, the FDIC sold all of the debt it held related to the
retained properties to BlackRock Capital Finance, L.P. The debt amounts and
terms were not modified.
The Managing General Partner believes that it is not appropriate to use the
Venture's incremental borrowing rate for the debt as there is currently no
market in which the Venture could obtain similar financing. Therefore, the
Managing General Partner considers estimation of fair value to be
impracticable.
Principal payments on mortgage loans payable during the next five years are
noted below.
1997 $ 319
1998 347
1999 378
2000 113,443
2001 150
Thereafter 6,123
$120,760
8. NOTES PAYABLE
(a) The Venture executed a $29,000,000 purchase money subordinated note (the
"Assignment Note") payable to the VMS/Stout Venture in exchange for the
assignment by the VMS/Stout Venture of its interest in the contract of sale
to the Venture. The Assignment Note is collateralized by the pledge from
Portfolio I and Portfolio II of their respective interests in the Venture.
On November 17, 1993, VMS Realty Partners assigned its 50% interest in the
VMS Stout Joint Venture to the Partners Liquidating Trust which was
established for the benefit of the former creditors of VMS Realty Partners
and its affiliates. As a result of this assignment of interest, the
Assignment Note and the Long-Term Loan Arrangement Fee Note (see below) are
no longer classified as notes payable to related parties.
The stated rate of interest on the Assignment Note (prior to modification
by the Plan) was 12% per annum (compounded semi-annually) with monthly
payments of interest only at a rate of 6%. Monthly payments on this note
were discontinued in May 1990, and the accrual of interest was discontinued
after the February 22, 1991, petition filing date. Additionally, effective
April 10, 1991, VMS Realty Partners waived its right to collect interest on
its portion of the Assignment Note.
Pursuant to the Plan, the allowed claim for the Assignment note and related
interest was $46,285,000; $3,475,000 of this amount was paid in October
1993, in accordance with the terms of the Plan. The Venture also executed
a $4,000,000 promissory note payable dated September 1, 1993 to ContiTrade
Services Corporation ("ContiTrade note") which bears interest at 5% per
annum. This note represents a prioritization of payment to ContiTrade and
did not represent the assumption of any additional debt. The ContiTrade
note matures on January 15, 2000, and is collateralized by a Deed of Trust,
Assignment of Rents and Security Agreement on each of the Venture's
retained complexes. Accrued interest on the ContiTrade note at December
31, 1996, is $667,000.
The remaining $42,810,000 of the Assignment Note is non-interest bearing
and is payable only after payment of debt of higher priority, including
mortgage notes due to senior lien holders and junior mortgages payable to
the FDIC. Pursuant to SOP 90-7, the Assignment Note, the Long-Term Loan
Arrangement Fee Note (as defined below) and related accrued interest were
adjusted to the present value of amounts to be paid using an estimated
current interest rate of 11.5%. Accordingly, the Venture recognized an
extraordinary gain on extinguishment of debt of $21,491,000 in 1993.
Interest expense is being recognized through the amortization of the
discount which totaled $3,227,000, $2,878,000 and $2,567,000 in 1996, 1995
and 1994, respectively.
(b) The Venture executed a $3,000,000 unsecured, nonrecourse promissory note,
the "Long-Term Loan Arrangement Fee Note" payable to the VMS/Stout Venture
as consideration for arranging long-term financing.
The stated rate of interest on this note prior to modification by the Plan
is 10% per annum, payable on a monthly basis. Monthly interest payments on
this Note were discontinued in May 1990. Additionally, the accrual of
interest on this Note was discontinued after the February 22, 1991,
petition filing date.
Pursuant to the Plan, the entire $3,000,000 principal balance plus $250,000
in unpaid accrued interest was granted as an allowed claim. None of this
balance bears interest, and the balance is payable only after debt of a
higher priority, including senior and junior mortgage loans.
(c) The Venture executed a $3,190,000 nonrecourse promissory note payable
to the Seller ("Stout Note") as additional consideration for the sale
of the properties in 1984 which was collateralized by a letter of
credit for $3,190,000.
The Venture discontinued scheduled monthly interest payments in May
1990, on the Stout Note. As a result, in July 1990 all three holders
drew on the Letter of Credit for the principal note balances due. The
drafts under the Letter of Credit bear interest at prime plus 5% and
were due upon funding.
The accrual of interest on this Letter of Credit was discontinued after
February 22, 1991.
Pursuant to the Plan, the entire amount of the allowed claim for the
Letter of Credit, $3,505,000, was paid in full in October 1993.
9. INCOME TAXES
The Partnership has received a ruling from the Internal Revenue Service that
it will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the combined financial
statements of the Partnership. Taxable income or loss of the Partnership is
reported in the income tax returns of its partners.
The following is a reconciliation of reported net income and Federal
taxable income:
1996 1995 1994
Net income as reported $ 1,823 $15,626 $ 2,890
Depreciation and amortization
differences (1,036) (2,342) (2,647)
Prepaid rent -- (24) 87
Accrued audit 81 (125) 128
Unapplied cash (179) 33 289
Gain on foreclosure and sale 793 (640) 8,591
Management fees -- -- (121)
Mortgage interest expense -- (33) 1,180
Write-down of fixed assets 1,936 7,212 2,968
Other (230) 1,678 1,047
Federal taxable income $ 3,188 $21,385 $ 14,412
The following is a reconciliation between the partnership's reported amounts and
Federal tax basis of net assets and liabilities at December 31, 1996:
Net deficiency as reported $(145,296)
Land and buildings 15,841
Accumulated depreciation (39,453)
Syndication costs (17,650)
Deferred gain 54,053
Loan costs 1,036
Other deferred costs 9,601
Other (18,453)
Notes Payable 4,882
Subscription note receivable 2,016
Mortgage payable (50,768)
Accounts payable - Affiliates 8,454
Net assets - Federal tax basis $(175,737)
10. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
(a) The Venture entered into agreements with affiliates of the Managing
General Partner to provide asset management services at a fee equal to
1.5% (.5% to 1.5% for HUD properties) of monthly gross revenues.
Subsequent to the February 22, 1991, bankruptcy filing, payment of these
fees had been restricted by Bankruptcy Court approvals. Pursuant to the
terms of the Venture's Plan, asset management fees of $1,734,100 for
services rendered through September 30, 1993, were approved by the
Bankruptcy Court as allowed claim payments. All affiliated asset
management fees in excess of the allowed claim payments were written off
as of September 30, 1993. Fees of $950,000 were approved for immediate
payment and were paid in 1993. In addition, payments of $82,000 and
$116,000 were made in 1995 and 1994, respectively. The remaining
prepetition portion of the allowed claim was paid during 1996 from cash
received relating to the sale of Carlisle Square and Bellevue Towers.
Effective October 1, 1993, the Venture entered into an asset management
agreement with Insignia in conjunction with the implementation of the
Plan (see "Note 5").
Various nonaffiliated management companies have managed the properties
since September 1991. Accordingly, no affiliated property management
fees were incurred or paid in 1993; however, prepetition property
management fees of $356,000 were approved by the Bankruptcy Court for
payment to an affiliate. This allowed claim may be paid only from
available partnership cash and remains unpaid at December 31, 1996.
(b) Certain affiliates of the General Partners and the VMS/Stout Venture may
be entitled to receive various fees upon disposition of the properties.
These fees will be paid from the disposition proceeds and are
subordinated to the distributions required by the Plan. There were no
property dispositions for which proceeds were received through December
31, 1996.
(c) Prior to 1994, an affiliate of the Managing General Partner was
reimbursed for accounting, due diligence, data processing, and other
departmental costs, along with partnership travel, communication and
certain overhead expenses of staff engaged in analysis and operation of
Portfolio I, Portfolio II, the Venture and each of the Venture's
operating properties.
These services were performed by Insignia in 1994, 1995 and 1996 (See
"Note 5"). A portion of the 1994 reimbursements received by Insignia were
assigned to an affiliate of the General Partner. The total reimbursable
costs paid to an affiliate of the General Partner included on the
Combined Statements of Operations for the years ended December 31, 1994,
amounted to approximately $95,000. Payment of these reimbursable costs
during the bankruptcy proceedings was restricted to $25,000 per month
pursuant to court-approved cash collateral orders. No such payments were
made in 1994 and 1995; however $755,000 in prepetition reimbursable
costs was approved for payment as part of the Plan. During 1996, these
costs were reimbursed primarily from proceeds received from the sale of
Carlisle Square and Bellevue Towers. The remainder of reimbursable costs
payable to affiliates not allowed by the Bankruptcy Court were written
off as of September 30, 1993.
(d) Under the terms of the Venture agreement, the Managing General Partner
and its affiliates provided management and other services to the Venture
through December 31, 1991. Pursuant to the Plan, a prepetition portion
of fees totalling $583,000 was approved for payment from available
partnership cash. Approximately $186,000 of this amount was paid during
1996 from proceeds received from the sale of Carlisle Square and Bellevue
Towers. The portion of these fees not allowed by the Bankruptcy Court
were written off. As of December 31, 1996, $397,000 remains unpaid.
(e) The Venture has engaged affiliates of Insignia to provide day-to-day
management of the Venture's properties and to provide all partnership
administrative functions under an agreement which provides for property
management fees equal to 4% of revenues on each property and asset
management fees of $500,000 for the Venture in total. For the period from
October 1, 1993, through July 14, 1994, Insignia assigned a portion of
these fees to an affiliate of the General Partner. Payments to this
affiliate under this assignment were approximately $93,000 in 1994.
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT
(dollar amounts in thousands)
The Combined Statements of Operations for the year ended December 31, 1996,
1995 and 1994, reflect the foreclosures of 2, 5, and 4 of the Venture's
properties, respectively:
1996 1995 1994
Weatheridge The Winery Broad Meadows
Sierra Gardens Venetian Bridges - Canal Court Courts of Harford Square
Venetian Bridges - Grand Canal I Edgewater I
Venetian Bridges - Grand Canal II Edgewater II
Pacific Hacienda
As a result of these foreclosures, the following liabilities and assets were
written off:
1996 1995 1994
Mortgage Principal Payable $ 6,291 $ 22,074 $ 23,320
Accrued Interest Payable 9,941 25,636 16,490
Other 26 (645) (369)
Investment in Properties (5,781) (23,453) (22,858)
Accumulated depreciation 3,618 10,986 10,835
Extraordinary Gain $ 14,095 $ 34,598 $ 27,418
Additionally, as a result of the implementation of the Venture's Plan of
Reorganization, certain liabilities compromised by the Plan were adjusted in
1993 to the present value of amounts to be paid determined at appropriate
current interest rates. As a result, the Venture realized a gain in 1993 on
extinguishment of debt on the retained properties as follows:
FDIC mortgages $ 9,972
Accrued interest on former FDIC
mortgages 55,216
Notes payable 21,491
Other 2,894
Extraordinary gain 89,573
Less portion of gain deferred (54,053)
Extraordinary gain realized $ 35,520
Pursuant to the Plan, the mortgages formerly held by the FDIC were modified
effective September 30, 1993. For 15 of the 17 retained properties, the
face value of the note was restated to the Agreed Valuation Amount (see
"Note 5"). Under the terms of the restated notes, the FDIC may reinstate
the full claim which was in place at the petition filing date upon the
default of any note. The restated notes are cross-collateralized; however,
they are not cross-defaulted. As a result, the Venture deferred $54,053,000
of this extraordinary gain on extinguishment of debt. On October 28, 1995,
the FDIC sold all of the debt it held related to the retained properties to
BlackRock Capital Finance, L.P. The debt amounts and terms were not
modified.
12. CONTINGENCIES
The Venture and certain affiliates of the Venture, including the Managing
General Partner and certain officers and directors of the Managing General
Partner, are parties to certain legal proceedings filed prior to December
31, 1996. The legal proceedings in which the Venture is included relate
primarily to the limited partners' investment in the Venture. The adverse
outcome of any one or more legal proceedings against the Venture or any of
its affiliates which provide financial support or services to the Venture
could have a materially adverse effect on the present and future operations
of the Venture. The eventual outcome of these matters cannot be determined
at this time. Accordingly, no provision for any liability that may result
has been made in the financial statements.
13. INVESTMENT IN PROPERTIES SUBJECT TO ABANDONMENT
The Venture's investment in 10 properties for which it obtained Bankruptcy
Court approval to abandon, to which it still held legal title for two of
these properties at December 31, 1995, has been presented as "Investment
Properties Subject To Abandonment" on the Venture's Combined Balance Sheet
at December 31, 1995. The extraordinary gain on the extinguishment of debt
for all of these properties exceeded the ordinary loss from the write down
of the net carrying values of these properties to their estimated fair
market values. Therefore, no allowance or provision for the loss in asset
value has been made in the Venture's Combined Statements of Operations for
the year ended December 31, 1995. The adoption of FASB Statement No. 121 in
1996 (see Note 3) resulted in the writedown of the two remaining non-
retained properties of $1,850,000 to their estimated fair values. Five of
these properties were foreclosed during 1995 and the remaining two were
foreclosed during 1996 (see "Note 11"). None of the non-retained properties
remain at December 31, 1996.
14. HUD CONTINGENCIES
The Venture, VMS Realty Management, Inc. and HUD entered into a Settlement
Agreement dated December 9, 1996, related to the appropriateness of certain
Crosswood Park and Venetian Bridges Grand Canal I disbursements totaling
approximately $603,000 and $133,000, respectively, made during the years
1987 through 1991. This audit also included five other HUD projects managed
by VMS Realty Management, Inc. which were not owned by the Venture. The
Settlement Agreement provided an aggregate payment of $550,000 to the
Federal government, $102,000 of which was paid from available funds of
Venetian Bridges Grand Canal I and the remainder of the settlement payment
of $448,000 were paid by entities other than the Venture and its
subpartnerships.
15. Investment Properties and Accumulated Depreciation
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Initial Cost
To Venture
Buildings Provision to
Personal Subsequent Reduce to
Description Encumbrance Land Property Improvements Fair Value
<S> <C> <C> <C> <C> <C>
THE BLUFF APTS. (a) $193 $ 3,667 $ 407 $ --
BUENA VISTA APTS. (a) 893 4,538 409 --
CASA DE MONTEREY APTS. (a) 869 6,136 703 --
CHAPELLE LE GRAND APTS. (a) 166 3,873 553 --
CROSSWOOD PARK APTS. (a) 611 8,597 1,379 (2,000)
FOREST RIDGE APTS. (a) 701 6,930 880 --
MOUNTAIN VIEW APTS. (a) 1,289 8,490 820 --
NORTH PARK APTS. (a) 557 8,349 1,288 --
PATHFINDER APTS. (a) 3,040 11,698 1,505 (1,250)
SCOTCHOLLOW APTS. (a) 3,510 19,344 4,645 --
SHADOWOOD APTS. (a) 209 3,393 550 --
TERRACE GARDENS APTS. (a) 433 4,517 521 --
TOWERS OF WESTCHESTER (a) 529 13,491 2,034 --
VISTA VILLAGE APTS. (a) 568 5,209 745 --
WATERGATE APTS. (a) 263 5,625 982 --
TOTAL $13,831 $113,857 $17,421 $(3,250)
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which Carried
At December 31, 1996
Buildings
And
Related
Personal Accumulated Year Date Depreciable
Description Land Property Total Depreciation Constructed Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C> <C>
THE BLUFF APTS. $ 193 $ 4,074 $ 4,267 $ 2,257 1968 10/26/84 5-27.5
BUENA VISTA APTS. 893 4,947 5,840 2,809 1972 10/26/84 5-27.5
CASA DE MONTEREY APTS. 869 6,839 7,708 3,811 1970 10/26/84 5-27.5
CHAPELLE LE GRAND APTS. 166 4,426 4,592 2,363 1972 12/05/84 5-27.5
CROSSWOOD PARK APTS 471 8,116 8,587 4,305 1977 12/05/84 5-29
FOREST RIDGE APTS. 701 7,810 8,511 4,141 1974 10/26/84 5-27.5
MOUNTAIN VIEW APTS. 1,289 9,310 10,599 4,774 1978 10/26/84 5-29
NORTH PARK APTS. 557 9,637 10,194 5,201 1968 11/14/84 5-27.5
PATHFINDER APTS. 2,753 12,240 14,993 7,228 1971 10/26/84 5-27.5
SCOTCHOLLOW APTS. 3,510 23,989 27,499 13,342 1973 10/26/84 5-27.5
SHADOWOOD APTS. 209 3,943 4,152 2,140 1974 11/14/84 5-27.5
TERRACE GARDENS APTS. 433 5,038 5,471 2,750 1973 10/26/84 5-27.5
TOWERS OF WESTCHESTER 529 15,525 16,054 8,410 1971 10/26/84 5-27.5
VISTA VILLAGE APTS. 568 5,954 6,522 3,032 1971 10/26/84 5-27.5
WATERGATE APTS. 263 6,607 6,870 3,456 1972 10/26/84 5-27.5
TOTAL $13,404 $128,455 $141,859 $70,019
</TABLE>
(a) See description of Mortgage Loans Payable in "Note 7" of Notes to Combined
Financial Statements.
(b) The aggregate cost of land, building, personal property and improvements
for financial reporting purposes differs from Federal income tax purposes
by the imputed interest recorded at the various dates of acquisition. As a
result of the Venture's reorganization and related debt modification, the
aggregate cost for Federal income tax purposes of buildings and
improvements was downwardly adjusted in 1993. The aggregate costs of the
real estate for Federal income tax purposes at December 31, 1996 and 1995,
is $157,577,233 and $175,133,000, respectively. The accumulated
depreciation taken for Federal income tax purposes at December 31, 1996 and
1995, is $109,472,449 and $116,337,000, respectively.
(c) Reconciliation of Real Estate
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $155,440 $180,146 $204,480
Additions during the year:
Improvements 2,029 2,415 3,408
Provision to reduce investment
properties to fair value (1,850) (3,257) (3,774)
Removal of properties due to
foreclosures (5,781) (23,453) (22,858)
Disposition of property (7,979) (411) (1,110)
Balance at End of Year $141,859 $155,440 $180,146
Reconciliation of Accumulated Depreciation
Balance at beginning of year $ 72,219 $ 77,414 $ 82,331
Depreciation expense 5,447 6,090 6,659
Removal of accumulated
depreciation on
foreclosed properties (3,618) (10,986) (10,835)
Disposition of property (4,029) (299) (741)
Balance at End of Year $ 70,019 $ 72,219 $ 77,414
</TABLE>
16. Sale of Property
The Partnership sold two of the retained properties, Carlisle Square Apartments
and Bellevue Towers Apartments, to an unaffiliated party on April 19, 1996, and
April 30, 1996, respectively. The properties sold on a net book value of
$2,247,000 for Carlisle Square Apartments and $1,541,000 for Bellevue Towers
Apartments. The Partnership received net proceeds from the sales of Carlisle
Square and Bellevue Towers after payments of costs related to the sales of
approximately $2,291,000 and $1,556,000, respectively. The total gains on the
sale of Carlisle Square and Bellevue Towers were $44,000 and $15,000,
respectively, and are included in other income in the accompanying combined
statements of operations. The gain has been allocated to the partners in
accordance with the Limited Partnership Agreement. Of the combined proceeds,
$2,356,000 was used to pay down the mortgage note payable and $1,488,000, was
used to repay advances from affiliates of the General Partner.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Managing General Partner of Partnership I and Partnership II at December 31,
1996, was VMS Realty Investment, Ltd., an Illinois General Partnership.
Prudential-Bache Properties, Inc. was a minority General Partner of Partnership
I at December 31, 1996.
VMS Realty Investment, Ltd. is a limited partnership owned by Azel Realty
Corporation (100% owned by Robert D. Van Kampen), PRM Realty Corporation (100%
owned by Peter R. Morris), JAS Realty Corporation (100% owned by Joel A. Stone),
Brewster Realty Inc. (which is controlled by Messrs. Van Kampen and Stone) and
Residential Equities, Ltd. (which is 100% owned by Peter R. Morris) and XCC
Investment Corporation (a Delaware Corporation).
MS Realty Partners ("VMS"), an affiliate of the General Partner, assisted the
Managing General Partner in the management and control of the Venture's affairs
through November 17, 1993, and Strategic Realty Advisors, Inc. ("SRA"), also an
affiliate of the General Partner, replaced VMS in assisting the Managing General
Partner effective November 18, 1993. VMS Realty Partners is an Illinois general
partnership whose partners are Van Kampen/Morris/Stone, Inc. (100% owned by
Robert D. Van Kampen, Peter R. Morris and Joel A. Stone), Residential Equities,
Ltd. (100% owned by Mr. Morris), XCC Investment Corporation (a subsidiary of
Xerox Credit Corporation) and Brewster Realty, Inc. (100% owned by Messrs. Van
Kampen and Stone). A substantial number of the officers of VMS are also
officers of entities affiliated with VMS. The principal executive officers of
VMS are the following:
Joel A. Stone ............. President and Chief Executive Officer and
Member of the Executive Committee
Peter R. Morris ........... Member of the Executive Committee
Robert D. Van Kampen ...... Member of the Executive Committee
Stuart Ross ............... Member of the Executive Committee
The principal executive officers of SRA are the following:
Joel A. Stone ............. President and Chief Executive Officer
Richard A. Berman ........... Senior Vice President/Secretary
Thomas A. Gatti ............. Senior Vice President
JOEL A. STONE, age 52, is President and Chief Executive Officer of Strategic
Realty Advisors, Inc., since November 1993. From the inception in 1981 of VMS
Realty Partners, he held the positions of President and then Chief Executive
Officer. Mr. Stone began his career as an Internal Revenue Agent and worked as
a certified public accountant and an attorney specializing in taxation and real
estate law. In 1972, Mr. Stone co-founded the certified public accounting firm
formerly known as Moss, Stone and Gurdak. In 1979, Mr. Stone joined the Van
Kampen group of companies, a privately held business engaged in investment
banking and in real estate activities. He served as Senior Vice President of
Van Kampen Merritt, Inc. until its sale to Xerox Corporation in 1984. An
alumnus of DePaul University, Mr. Stone earned a Bachelor of Science degree in
Accounting in 1966 and a Juris Doctorate in 1970. Mr. Stone is a member of the
Illinois Bar and a certified public accountant.
PETER R. MORRIS, age 47, is a member of the Executive Committee of VMS, and is
one of the three individuals owning the entities that own VMS. From July 1970
to June 1973, Mr. Morris was employed by Continental Wingate Company, Inc., a
firm engaged in the development of inner city housing projects, in the
capacities of Vice President/Finance, Director/Consulting Division and Executive
Assistant to the President. He has published a book and numerous articles
relating to real estate development and syndication. Mr. Morris has been
involved in the real estate and finance business with Messrs. Van Kampen and
Stone since 1977. He received a Bachelor of Arts degree (summa cum laude) from
Princeton University in 1971 and a Juris Doctorate (cum laude) from Harvard Law
School in 1975.
ROBERT D. VAN KAMPEN, age 58, is a member of the Executive Committee of VMS and
is one of the three individuals owning the entities that own VMS. Mr. Van
Kampen has been involved in various facets of the municipal and corporate bond
business for over 20 years. In 1967, he co-founded the company now known as Van
Kampen Merritt, Inc., which specializes in municipal bonds and acts as a sponsor
of unit investment trusts. The firm was sold to Xerox Corporation in January
1984. Mr. Van Kampen is a general partner of Van Kampen Enterprises. Mr. Van
Kampen received his Bachelor of Science degree from Wheaton College in 1960.
STUART ROSS, age 60, is a member of the Executive Committee of VMS. He is an
executive vice president of Xerox Corporation and chairman and chief executive
officer of Xerox Financial Services, Inc., a wholly owned subsidiary. Mr. Ross
joined Xerox in 1966 and has held a series of financial management positions.
He assumed his current position in May 1990. Prior to Xerox, Mr. Ross was a
financial representative for The Macmillan Publishing Company from 1963 to 1966,
and a public accountant for Harris, Kerr, Forster & Company from 1958 to 1963.
Mr. Ross is a director of Crum and Forster, Inc. and Ekco Group, Inc., and a
trustee of the State University of New York at Purchase. He received a bachelor
of science degree in accounting from New York University in 1958 and a master of
business administrative degree from the City College of New York in 1966. Mr.
Ross is a certified public accountant.
RICHARD A. BERMAN, age 45, is a Senior Vice President and General Counsel of
Strategic Realty Advisors, Inc. From 1986 through 1993, Mr. Berman was employed
by VMS Realty Partners and was First Vice President and Corporate Counsel.
Prior to joining VMS Realty Partners, Mr. Berman was a partner in the law firm
of Gottlieb and Schwartz with his practice concentrated in corporate and real
estate law. He received a Juris Doctorate from Northwestern University School
of Law Cum laude, 1976) and a Bachelor of Arts degree from the University of
Illinois high honors, 1973). Mr. Berman is a member of the Illinois Bar.
THOMAS A. GATTI, age 40, is a Senior Vice President - Partnership Accounting of
Strategic Realty Advisors, Inc., effective November 18, 1993. Prior to this
time, Mr. Gatti was First Vice President - Partnership Accounting with VMS
Realty Partners, where he was employed since January, 1982. Prior to joining
VMS Realty Partners, he was with Coopers & Lybrand. Mr. Gatti received a
Bachelor of Science in Accounting from DePaul University in 1978. Mr. Gatti is
a Certified Public Accountant.
Prudential-Bache Properties, Inc.
Prudential-Bache Properties, Inc.("PBP"), pursuant to the Partnership
Agreement, does not participate in or exercise control over the affairs of the
Partnership.
The directors and officers of PBP are as follows:
James M.Kelso.................. President, Chief Executive Officer, Chairman
of the Board of Directors, and Director
Barbara J.Brooks............... Vice President - Finance and Chief Financial
Officer
JAMES M. KELSO, age 41, is the President, Chief Executive Officer, Chairman of
the Board of Directors and Director of PBP. He is a Senior Vice President of
Prudential Securities Incorporated ("PSI"). Mr. Kelso also serves in various
capacities for other affiliated companies. Mr. Kelso joined PSI in July 1981.
BARBARA J. BROOKS, age 47, is the Vice President-Finance and Chief Financial
Officer of PBP. She is a Senior Vice President of PSI. Ms. Brooks also serves
in various capacities for other affiliated companies. She has held numerous
positions within PSI since 1983. Ms. Brooks is a certified public accountant.
There are no family relationships among any of the foregoing directors or
executive officers. All of the foregoing directors and/or officers have
indefinite terms.
LEGAL PROCEEDINGS
See "Item 3, Legal proceedings", for a discussion of legal proceedings during
the past five years which may be material to an evaluation of the ability or
integrity of any of the aforementioned directors or officers and VMS Realty
Partners and its affiliates.
ITEM 11. EXECUTIVE COMPENSATION
None of the directors and officers of the General partner received any
remuneration from the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of certain beneficial owners.
No person owns of record or is known by the Partnerships to own beneficially
more than 5% of the outstanding Interests of either of the Partnerships as
of December 31, 1996.
(b) Security ownership of management.
No partners of VMS Realty Investment, Ltd. or officers or directors of
Prudential-Bache Properties, Inc., the general partners of the Partnerships,
own any Limited Partnership Interests in the Partnerships.
No general partners, officers or directors of the General Partners of the
Partnerships possess the right to acquire a beneficial ownership of
Interests of either of the Partnerships.
(c) Changes in Control.
The managing general partner of the Registrant is currently contemplating an
agreement with Insignia Financial Group, Inc. ("Insignia") whereby an
affiliate of Insignia would replace VMSRIL as the managing general partner
of the Partnerships.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Note 10" of the Notes to Combined Financial Statements for information
relating to transactions with affiliates.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following combined financial statements of the Registrant are included
in Item 8:
Combined Balance Sheets at December 31, 1996 and 1995.
Combined Statements of Operations for the years ended December 31, 1996,
1995 and 1994.
Combined Statements of Changes in Partners' Deficit for the years ended
December 31, 1996, 1995 and 1994.
Combined Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994.
Notes to Combined Financial Statements
Schedules, other than those listed, are omitted for the reason that they
are inapplicable or equivalent information has been included elsewhere
herein.
The following items are incorporated:
Part V - Amended Restated Certificate and Agreement of:
Item 1(b)(i) Limited Partnership of VMS National Residential Portfolio I.
Item 1(b)(ii) Limited Partnership of VMS National Residential Portfolio II.
Item 1(b)(iii) Joint Venture Agreement between VMS National Residential
Portfolio I and VMS National Residential Portfolio II.
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1996.
(c) EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
(3) and (21) Portions of the Prospectus of the Partnership dated May 15,
1986 as supplemented by Supplement Numbers 1 through 7 dated
December 18, 1986, February 11, 1987, March 31, 1987, August
19, 1987, January 4, 1988, April 18, 1988 and June 30, 1988
as filed with the Commission pursuant to Rule 424(b) and
(c), as well as the Restated Limited Partnership Agreement
set forth as Exhibit A to the Prospectus, are hereby
incorporated by reference, specifically pages 15 - 21, 44 -
68, 76, 86 - 90, 106 - 108, A9 - A13, A16 - A20 and
Supplements Numbers 1 and 2.
(10A) Stipulation Regarding Entry of Agreed Final Judgement of
Foreclosure and Order Relieving Receiver of Obligation to
Operate Subject Property - Kendall Mall is incorporated by
reference to the Form 10-QSB dated June 30, 1995.
(27) Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the
egistrant has duly caused this report to be signed on its behalf by the
ndersigned thereunto duly authorized.
VMS NATIONAL PROPERTIES JOINT VENTURE
(Registrant)
VMS National Residential Portfolio I
By: VMS Realty Investment, Ltd.
Managing General Partner
By: JAS Realty Corporation
Date: March 28, 1997 By: /s/Joel A. Stone
Joel A. Stone, President
Date: March 28, 1997 By: /s/Thomas A. Gatti
Thomas A. Gatti
Senior Vice President and
Principal Accounting Officer
VMS National Residential Portfolio II
By: VMS Realty Investment, Ltd.
Managing General Partner
By: JAS Realty Corporation
Date: March 28, 1997 By: /s/Joel A. Stone
Joel A. Stone, President
Date: March 28, 1997 By: /s/Thomas A. Gatti
Thomas A. Gatti
Senior Vice President and
Principal Accounting Officer
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.
/s/Joel A. Stone President
Joel A. Stone
/s/Thomas A. Gatti Senior Vice President and
Thomas A. Gatti Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from VMS
National Properties Joint Venture 1996 Year-End 10-K and is qualified in its
entirety by reference to such 10-K filing.
</LEGEND>
<CIK> 0000789089
<NAME> VMS NATIONAL PROPERTIES JOINT VENTURE
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,788
<SECURITIES> 0
<RECEIVABLES> 151
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 141,859
<DEPRECIATION> 70,019
<TOTAL-ASSETS> 76,779
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 153,066
0
0
<COMMON> 0
<OTHER-SE> (145,296)
<TOTAL-LIABILITY-AND-EQUITY> 76,779
<SALES> 0
<TOTAL-REVENUES> 25,200
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 37,472
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 16,652
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 14,095<F2>
<CHANGES> 0
<NET-INCOME> 1,823
<EPS-PRIMARY> 1,957<F3>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Gain.
<F3>Multiplier is 1.
</FN>
</TABLE>
