FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period __________________________to ______________________
Commission file number 0-16798
SECURED INVESTMENT RESOURCES FUND, L.P. II
(Exact name of registrant as specified in its charter)
Delaware 36-3451000
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5453 W. 61st Place, Mission, Kansas 66205
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number,
including area code) (913) 362-0200
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests ("Units")
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or such shorter periods that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes No X
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]
<PAGE>
PART I
Item 1. Business
Secured Investment Resources Fund, L.P. II ("Partnership") is a Delaware
limited partnership formed pursuant to the Delaware Revised Uniform Limited
Partnership Act on July 1, 1986. James R. Hoyt is the Individual General
Partner and Secured Investment Resources, II Inc., a Missouri corporation,
is the Corporate General Partner. The Partnership has no predecessors or
subsidiaries. The Partnership was formed with the intent to engage in the
business of acquiring, improving, developing, operating and holding for
investment, income-producing real properties with the objectives of (i)
preserving and protecting the Partnership's capital; (ii) providing cash
distributions from operations; (iii) providing capital growth through
property appreciation; and (iv) increasing equity in property ownership by
the reduction of mortgage loans on Partnership properties. The term of the
partnership is sixty (60) years from the date of the Partnership Agreement
September 25, 1986, or the date of which all the assets acquired by the
partnership are sold or converted to cash.
On September 24, 1988, the Partnership closed its offering, having received
gross proceeds of $26,830,500 from the sale of 53,661 units of limited
partnership interests.
The Partnership originally acquired eight properties, which included four
apartment communities, three shopping centers and a health care facility.
The General Partners feel that all of these properties met the Partnership's
investment criteria and objectives. Since the inception of the Partnership,
three properties (two apartment community and one shopping center) have been
sold.
As of December 31, 1998, the Partnership has made cash distributions to
Limited Partners of $5,046,241 for the period April 1, 1987 through December
31, 1998. The Partnership made a distribution of $321,786 during the year
ending December 31, 1998. Future distributions will only be made from excess
cash flow not needed for working capital reserves.
As of December 31, 1998, the Partnership had no employees. As of January 1,
1995, employees of SPECS, Inc. provide property management services to the
Partnership (as described in Note D). James R. Hoyt, a General Partner, is
the principal and owner of 100% of SPECS, Inc. as of December 31, 1998.
<PAGE>
Item 1. Business--Cont'd.
Competition
The real estate business is highly competitive and the Partnership competes
with numerous entities engaged in real estate activities, some of which have
greater financial resources than those of the Partnership. The Partnership's
management believes that success against such competition is dependent upon
the geographic location of the property, the performance of property
managers, the amount of new construction in the area and the maintenance and
appearance of the property. With respect to residential property,
competition is also based upon the design and mix of the units and the
ability to provide a community atmosphere for the tenants. The Partnership's
management believes that general economic circumstances and trends and new
properties in the vicinity of each of the Partnership's properties will also
be competitive factors.
Inflation
The effects of inflation on the Partnership's operations or investments are
not quantifiable. Revenues from property operations fluctuate
proportionately with increases and decreases in housing costs. Fluctuations
in the rate of inflation also affect the sales values of properties and,
correspondingly, the ultimate gains to be realized by the Partnership from
property sales.
<PAGE>
Item 2. Properties.
The following table sets forth the investment portfolio of the Partnership at
December 31, 1998: Average
Properties at Occupancy(*)
Property Description Initial Cost Date Acquired Percentage
1998 1997
Sunwood Village
Apartments 252 Units $10,954,651 May 15, 1987 88% 83%
Las Vegas, NV
Bayberry Crossing
Shopping Center 56,113 Sq.Ft. $ 4,175,012 Jun. 30, 1987 91% 88%
Lee's Summit, MO
Oak Terrace Active
Retirement
Center 129 Units $ 8,604,769 Aug. 31, 1988 97% 97%
Springfield, IL
Oak Terrace
Healthcare 98 Beds $ 3,980,340 Aug. 31, 1988 100% 100%
Center
Springfield, IL
Forest Park
Shopping Center 19,980 Sq.Ft. $ 2,871,199 Nov. 23, 1988 97% 100%
St. Louis, MO
(*) Based upon vacancy amount (in dollars) as a percent of
gross possible rents. (Gross possible rents is calculated by
multiplying established market rates for each unit type by the
total unit mix).
The encumbrances against each property are described in Note C
to the Partnership's consolidated financial statements.
<PAGE>
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
Matters.
(A) There is no established public trading market for the Units of the
Partnership.
(B) There were no distributions for the years ended December 31, 1996 and
1997. During 1998 distributions of $321,786 were made.
(C) As of December 31, 1998, the Partnership had admitted 2,722 Limited
Partners who have purchased 53,661 units.
(The remainder of this page left blank intentionally.)
<PAGE>
Item 6. Selected Financial Data.
Years Ended December 31,
OPERATING DATA 1998 1997 1996 1995 1994
(In Thousands)
Rents $ 5,675 5,792 5,917 5,583 5,435
Maintenance
Escalations and
Other Income 307 314 281 314 256
Property Operating
Expenses 3,338 3,192 3,101 3,021 2,878
Depreciation/
Amortization 1,303 1,501 1,461 1,388 1,380
Net operating income 1,341 1,413 1,636 1,488 1,433
Interest Expense (1) 2,288 2,248 2,242 2,429 2,322
Gain on sale (4) 2,076 --- --- --- ---
Net Income/Loss before
extraordinary gain 1,129 (606) (941) (889)
Extraordinary gain
on debt restructuring --- --- 413 890 ---
Partnership Income
(Loss) $ 1,129 $ (835) (193) (51) (889)
Partnership Income
(Loss) Per Limited
Partnership
Unit (2)
Operating Loss $ (20.78) (15.41) (11.19) (17.36) (16.40)
Extraordinary Gain
on debt restructuring --- --- 7.62 16.42 ---
$ 20.78 (15.41) (3.57) (.94) (16.40)
Cash Distributions
Per Limited
Partnership
Unit (3) $ 6.00 --- --- --- ---
BALANCE SHEET DATA 1998 1997 1996 1995 1994
(In Thousands)
Total Assets $23,748 $29,005 $29,702 $30,294 $30,963
Mortgage Debt $22,416 $27,442 $27,474 $27,581 $28,556
(1) Certain reclassifications have been made from interest expense to
amortization to more accurately reflect the change in the bond discount
amortization related to the Oak Terrace bond financing. There was no
income effect as a result of these reclassifications.
<PAGE>
Item 6. Selected Financial Data--Cont'd.
(2) Partnership income (loss) per limited partnership unit is
computed by dividing the income (loss) allocated to the Limited
Partners by the weighted average number of limited partnership
units outstanding. Per unit information has been computed based
on 53,661 weighted average limited partnership units outstanding.
(3) Cash distributions per limited partnership unit has been computed by
dividing distributions paid to the Limited Partners by 53,661 limited
partnership units outstanding.
(4) In September 1998, the Partnership consummated a settlement agreement
in which it sold Thomasbrook Apartments to a third party. As a result
of the sale, a $2,075,587 gain on disposition of the asset was recorded.
(The remainder of this page intentionally left blank.)
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
1998 vs 1997
Revenues for the Partnership (excluding revenues attributed to the
Thomasbrook Apartments which had revenues of $727,000 and $1,063,000 during
1998 and 1997 respectively) increased $213,000 in 1998 from 1997. This 4.2%
increase is attributable to the increase of 5% in the occupancy of the
residential properties and the increase rental rates charged to the
commercial properties. The Thomasbrook Apartments were managed by a receiver
during 1998 and was sold during September 1998. Revenues from properties
operating during both years continued to increase their rental rates.
Occupancy rates are expected to remain at the current high levels and
rental rates will improve during 1999 producing increased revenues in 1999.
Operating expenses including property administrative expenses (excluding
expenses attributed to the Thomasbrook Apartments which were $544,000 and
$577,000 during 1998 and 1997 respectively) increased $58,000 in 1998 from
1997. This 2% increase is related to increased expenses on residential
properties. These expenses relate to increases in fees for services and
repairs and maintenance. The increased repairs and maintenance resulted from
an ongoing renovation program at one of the properties. Additional expenses
were incurred on commercial properties for legal fees and commissions on new
leases. The professional fees incurred by the Partnership increased by
$102,000 in 1998 from 1997 primarily due to the legal proceedings with
the lender and the subsequent sale of Thomasbrook Apartments. Management
fees increased $12,000 in 1998 from 1997 for the properties excluding
Thomasbrook Apartments.
Interest expense (excluding interest expense attributed to the Thomasbrook
Apartments of $307,000 and $450,000 during 1998 and 1997 respectively)
increased $33,000 in 1998 from 1997 due to the increase in the variable rate
on the Oak Terrace Active Retirement Center note agreement during 1998 as
compared to 1997 and refinancing fees included with interest expense which
accounted for $17,000 of the increase.
The Partnership expects that the operating results for 1999 will continue to
improve based on strong occupancy of the remaining properties and the rental
rates in place at each property. The disposition of the Thomasbrook
Apartments will have a positive impact on the net operating income of the
Partnership as the property could not produce revenue to fund operating
expenses or service its financing agreement.
1997 vs 1996
When comparing 1997 and 1996 operations, total revenues decreased $92,000
(1.5%) primarily due to decreased occupancy on both residential and one of
the commercial properties.
Interest expense increased $6,000 (.2%) to $2,248,000 for 1997. Depreciation
and amortization went from $1,461,000 in 1996 to $1,501,000 in 1997, an
increase of $40,000 (2.8%).
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations--Cont'd.
Results of Operations--Cont'd.
Total property operating expenses for 1997 increased $91,000 (3.5%) from 1996
levels. Professional services increased $53,000 (65.1%) due primarily as a
result of legal expense related to the Thomasbrook lender claims and
subsequent sale. Management fees decreased $14,000 (4.9%) while general and
administrative expenses remained stable. In 1997 the loss before
extraordinary item increased from ($606,000) in 1996 to ($835,000) in 1997
(37.8%).
The General Partners anticipate 1999 operating results will continue to
improve over 1998 and 1997 as a result of the continued planned increase in
rental rates and decreased rental incentives. This planned increase in net
rental income will be combined with continued efforts to reduce expenses.
Liquidity and Capital Resources
During 1998, the primary source of cash flow was provided by net cash
provided by operating activities of $465,000. Investing activities for new
equipment and additional bond reserves consumed $329,000 and financing
activities consumed an additional $454,000. The cash used in financing
activities included a cash distribution of $322,000 to the limited partners,
which is equal to $6.00 per limited partnership unit. The net result was a
decrease in cash of $317,000 during the year.
Because the sale of the Thomasbrook Apartments, the liquidity and financial
condition of the Partnership is expected to improve. The cash generated from
operations of the Thomasbrook Apartments was insufficient to service the
mortgage on the property.
During 1997, the primary source of cash flow was provided by net cash provided
by operating activities of $811,000. Investing activities for new equipment
and additional bond reserves consumed $322,000 and financing activities
consumed an additional $182,000. This resulted in an increase of cash of
$306,000 during the year. Accrued interest increased during the year by
$115,000.
Thomasbrook Apartments' principal of $4,984,000 and accrued interest of
$723,000 was past due during 1997. The cash generated from operations for
that property is insufficient to service the mortgage under the current
payment requirements. The General Partner has had ongoing negotiations with
the lender concerning a complete restructure of the mortgage and related debt
service. In December 1997, the mortgage lender initiated foreclosure
proceedings and appointed a receiver.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Cont'd.
Liquidity and Capital Resources--Cont'd.
During 1996, the primary source of cash flow was provided by net cash
provided by operating activities of $1,029,000. Investing activities for
new equipment and additional bond reserves consumed $378,000 and financing
activities consumed an additional $612,000. This resulted in an increase of
cash of $39,000 during the year. Accrued interest decreased during the year
by $4,000.
On May 17, 1996 the Partnership refinanced the matured first mortgage on
Sunwood Village Apartments. The terms of the new mortgage are interest at
8.625% with monthly principal and interest payments of $63,000 through the
loan maturity date of June 1, 2001 (5 years). The Partnership recognized a
gain of $352,000 refinancing the note due in 1996. All of the deferred
interest relating to the original note was forgiven by the Lender.
On November 21, 1996 the Partnership refinanced the first and second mortgage
on Bayberry Crossing Shopping Center. The terms of the new mortgage are
8.25% interest with monthly principal and interest payments of $22,000 through
the loan maturity date of November 10, 1999 (three years).
The Partnership recognized a gain of $61,000 upon refinancing of the notes
due in 1996. All of the deferred interest, accrued interest and late charges
relating to the original note were forgiven by the lender.
The General Partners believe that sufficient working capital will be available
during 1999 to fund known, on-going operating and capital requirements of the
Partnership. In 1999, the Partnership anticipates cash flow from operations
will improve because management intends to 1) improve occupancy on the
commercial properties; 2) achieve rental rate increases; 3) decrease the
amount of promotional rent discounts offered on the residential properties;
and 4) continue to maintain stringent controls over expenses.
The General Partners intend to evaluate the property portfolio to determine if
it is prudent to offer one or more properties for sale or possibly restructure
the related financing packages. Any unleveraged portion of the net sales
proceeds or favorable refinancing terms will generate additional working
capital.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Cont'd.
Year 2000
The Partnership is currently dependent upon the General Partners and SPECS,
Inc. ("SPECS") for management and administrative services. It is anticipated
that the General Partners and SPECS will have to modify or replace portions of
their software so that the computer systems will function properly with
respect to dates in the year 2000 and thereafter (the "Year 2000 Issue").
During 1999, the General Partners and SPECS, Inc. did install a Year 2000
compliant software system on the properties. The cost of the conversion was
not material. The general partners believe that with modifications to
existing software and conversion to new software, the Year 2000 Issue did not
and will not pose significant operational problems for its computer systems.
Inflation
The effects of inflation on the Partnership's operations or investments are
not quantifiable. Revenues from property operations fluctuate proportionately
with increases and decreases in housing costs. Fluctuations in the rate of
inflation also affect the sales values of properties and, correspondingly,
the ultimate gains to be realized by the Partnership from property sales.
New Accounting Standards
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5 Reporting on the Costs of Start-Up Activities. SOP 98-5
provides guidance on the financial reporting of start up costs and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred. The SOP broadly defines start-up
activities and provides examples to help entities determine what costs are
and are not within the scope of this SOP. The SOP applies to all
nongovernmental entities and, in general, is effective for financial
statements for fiscal years beginning after December 15, 1998. The
Partnership does not expect this SOP to have a significant effect on its
financial statement when it becomes effective in calendar 1999.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Cont'd.
New Accounting Standards--Cont'd
In June 1998, the Financial Accounting Standards Board Issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS 133
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i) the changes
in the fair value of the hedged asset or liability that are attributable to
the hedged risk or (ii) the earnings effect of the hedged forecasted
transaction. For a derivative not designated as a hedging instrument, the
gain or loss is recognized in income in the period of change. SFAS 133 is
effective for all fiscal quarters of fiscal years beginning after June 15,
2000.
Historically, the Partnership has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes. Accordingly, the
Partnership does not expect adoption of the new standard on January 1, 2001
to affect its financial statements.
Quantitative and Qualitative Disclosure about Market Risk
The Partnership is exposed to interest rate changes primarily as a result of
its real estate mortgages. The Partnership's interest rate risk management
objective is to limit the impact of interest rate changes on earnings and
cash flows and to lower its overall borrowing costs. To achieve its
objectives, the Partnership borrows at fixed rates. The Partnership does not
enter into derivative or interest rate transactions for any purpose.
Item 8. Financial Statements and Supplementary Data.
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. II
Index
Page
Report of Independent Certified Public Accountants 14
Financial Statements:
Balance Sheets - December 31,
1998 and 1997 15-16
Statements of Operations - Years
Ended December 31, 1998, 1997 and 1996 17
Statements of Partnership Capital (Deficit) -
Years Ended December 31, 1998,
1997 and 1996 18
Statements of Cash Flows - Years
Ended December 31, 1998, 1997
and 1996 19-20
Notes to Financial Statements 21-33
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Partners
Secured Investment Resources Fund, L.P. II
Mission, KS
We have audited the accompanying balance sheets of Secured Investment
Resources Fund, L.P. II as of December 31, 1998 and 1997, and the related
statements of operations, partnership capital (deficit) and cash flows for
each of the three years in the period ended December 31, 1998. We have also
audited the schedules listed in the accompanying index. These financial
statements and schedules are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedules based upon 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 and
schedules are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements and schedules. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial statements and
schedules. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Secured Investment Resources
Fund, L.P. II at December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Also in our opinion, the schedules present fairly, in all material respects,
the information set forth therein.
s/ BDO Seidman, LLP
St. Louis, Missouri
February 17, 1999
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. II
BALANCE SHEETS
December 31,
1998 1997
ASSETS
INVESTMENT PROPERTIES (Notes B and C)
Land and buildings $ 30,458,599 $ 36,499,896
Furniture, fixtures and equipment 1,695,055 2,095,961
32,153,654 38,595,857
Less accumulated depreciation
and allowance for losses 11,856,495 13,184,260
20,297,159 25,411,597
RESTRICTED DEPOSITS
Bond cash reserves (Note C) 1,510,000 1,510,000
Bond principal reduction reserves (Note C) 582,668 519,767
Other 28,750 28,750
2,121,418 2,058,517
OTHER ASSETS
Cash 550,176 867,658
Rents and other receivables, less
allowance of $113,963 in 1998 and
$122,350 in 1997 37,613 55,968
Due from related parties (Note D) 269,046 179,423
Prepaid expenses 224,966 117,532
Debt issuance costs, net of accumulated
amortization of $406,256 in 1998 and
$330,728 in 1997 178,058 253,586
Commercial commissions, deposits and
other 69,699 60,679
1,329,558 1,534,846
$ 23,748,135 $ 29,004,960
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. II
BALANCE SHEETS--CONT'D.
December 31,
1998 1997
LIABILITIES AND PARTNERSHIP CAPITAL (DEFICIT)
Mortgage debt (Note C) $ 22,415,582 $ 27,442,267
Deferred interest (Note C) 737,370 737,370
Accrued interest 58,398 799,278
Accounts payable and accrued
expenses (Note G) 271,425 548,265
Unearned revenue 32,415 12,736
Tenant security deposits 110,315 149,660
TOTAL LIABILITIES 23,625,505 29,689,576
Commitments and Contingencies (Notes F and I)
PARTNERSHIP CAPITAL (DEFICIT)
General Partners
Capital contribution 1,000 1,000
Partnership deficit (184,585) (195,875)
(183,585) (194,875)
Limited Partners
Capital contributions 18,901,831 18,901,831
Partnership deficit (18,595,616) (19,391,572)
306,215 (489,741)
TOTAL PARTNERSHIP CAPITAL (DEFICIT) 122,630 (684,616)
$ 23,748,135 $ 29,004,960
See notes to financial statements.
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. II
STATEMENTS OF OPERATIONS
Years Ended December 31,
1998 1997 1996
REVENUES
Rent $ 5,674,765 $ 5,791,800 $ 5,916,810
Interest 23,154 24,230 11,722
Maintenance escalations 283,899 289,442 269,041
5,981,818 6,105,472 6,197,573
OPERATING AND ADMINISTRATIVE
EXPENSES
Property operating
expenses 2,710,552 2,649,931 2,604,239
General and administrative
expenses 139,529 143,211 136,698
Professional services (Note D) 235,173 133,298 80,728
Management fees (Note D) 252,002 265,549 279,374
Depreciation and amortization 1,302,986 1,500,977 1,460,582
4,640,242 4,692,966 4,561,621
NET OPERATING INCOME 1,341,576 1,412,506 1,635,952
NON-OPERATING (EXPENSES)
Interest (2,288,131) (2,247,944) (2,242,210)
Gain on sale--(Note J) 2,075,587 -- --
Partnership income (loss)
before extraordinary item 1,129,032 (835,438) (606,258)
Extraordinary item gain on
debt restructuring--(Note C) -- -- 412,798
PARTNERSHIP PROFIT (LOSS) $ 1,129,032 $ (835,438) $ (193,460)
Allocation of profit (loss)
General Partners $ 11,290 $ (8,354) $ (1,935)
Limited Partners 1,117,742 (827,084) (191,525)
$ 1,129,032 $ (835,438) $ (193,460)
Per Limited Partnership Unit
loss before extraordinary item (20.78) $ (15.41) $ (11.19)
Extraordinary item --- --- 7.62
Total per Limited
Partnership Unit $ 20.78 $ (15.41) $ (3.57)
See notes to financial statements.
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. II
STATEMENTS OF PARTNERSHIP CAPITAL (DEFICIT)
Years Ended December 31, 1998, 1997 and 1996
General Limited
Partners Partners Total
Balances at January 1, 1996 $ (184,586) $ 528,868 $ 344,282
Partnership loss (1,935) (191,525) (193,460)
Balances at December 31, 1996 (186,521) 337,343 150,822
Partnership loss (8,354) (827,084) (835,438)
Balances at December 31, 1997 (194,875) (489,741) (684,616)
Partnership profit 11,290 1,117,742 1,129,032
Distributions 0 (321,786) (321,786)
Balances at December 31, 1998 $ (183,585) $ 306,215 $ 122,630
See notes to financial statements.
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. II
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1998 1997 1996
OPERATING ACTIVITIES
Partnership profit (loss) $ 1,129,032 $ (835,438) $ (193,460)
Adjustments to reconcile
partnership loss to net cash
provided by operating activities:
Depreciation and amortization 1,302,986 1,500,977 1,460,582
Gain on sale of property (Note J) (2,225,597) --- ---
Gain on debt restructuring --- --- (412,798)
Provision for losses on rents
and other receivables 75,079 71,536 65,590
Changes in assets and liabilities:
Rents and other receivables (77,610) (113,073) (67,952)
Prepaid expenses (106,575) (20,550) 14,079
Commercial commissions,
deposits and other (8,990 37,628 40,663
Accounts payable
and accrued expenses (37,377) 76,697 96,525
Accrued interest 289,238 115,139 (4,329)
Unearned revenue 20,419 (23,566) 21,944
Tenant security deposits 104,541 1,198 8,138
NET CASH PROVIDED BY
OPERATING ACTIVITIES 465,146 810,548 1,028,982
INVESTING ACTIVITIES
Improvements to investment
properties (415,812) (257,426) (323,827)
Proceeds from sale of property (Note J) 150,000
Purchase of restricted bond
cash reserves (62,901) (64,642) (53,951)
NET CASH USED IN
INVESTING ACTIVITIES $ (328,713) $ (322,068) $ (377,778)
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. II
STATEMENTS OF CASH FLOWS--CONT'D.
Years Ended December 31,
1998 1997 1996
FINANCING ACTIVITIES
Debt issuance costs $ --- $ --- $ (348,243)
Advance to related
parties (89,623) --- (5,000)
Principal payments on debt (42,506) (182,489) (259,129)
Cash Distributions (321,786) --- ---
NET CASH USED IN
FINANCING ACTIVITIES (453,915) (182,489) (612,37)
(DECREASE) INCREASE IN CASH (317,482) 305,991 38,832
CASH BEGINNING OF YEAR 867,658 561,667 522,835
CASH END OF YEAR $ 550,176 $ 867,658 $ 561,667
See notes to financial statements.
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. II
NOTES TO FINANCIAL STATEMENTS
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Organization and Business--Secured Investment Resources Fund, L.P. II (the
Partnership) is a Delaware limited partnership formed pursuant to the
Delaware Revised Uniform Limited Partnership Act on July 1, 1986. The
General Partners' and Limited Partners' interest in Partnership earnings or
loss initially amounts to 1% and 99%, respectively. The allocation of
the 1% interest between the General Partners is discretionary. At such point
in time cash distributions to the Limited Partners amount to their original
invested capital plus interest at a rate of the greater of 8% (10% for those
investors who subscribed for units on or before December 31, 1986) or the
increase in the consumer price index per annum, cumulative non-compounded on
their adjusted invested capital, earnings or loss will be allocated 15% to
the General Partners and 85% to the Limited Partners.
Restricted Deposits--These restricted deposits are deposited into Money
Market Treasury Funds and Certificates of Deposits. The Partnership expects
to hold these until bond maturity. The amortized cost value equals market
value.
Investment Properties--Investment properties consist of two residential
complexes and two commercial shopping centers and are stated at cost. In
accordance with the Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", the Partnership records impairment losses on
long-lived assets used in operations when events and circumstances indicate
the assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
Costs of investment properties that have been permanently impaired have been
written down to appraised value. No adjustments for impairment of value were
necessary for the years ending December 31, 1998 or 1997.
Revenue Recognition--The Partnership has leased substantially all of its
investments in real estate under operating leases. Revenue is recognized in
the month earned for rent.
Advertising Costs--The Partnership expenses advertising costs as incurred.
Depreciation--Investment property is depreciated on a straight-line basis
over the estimated useful life of the property (30 years for buildings and 5
years for furniture, fixtures and equipment). Improvements are capitalized
and depreciated over their estimated useful lives. Maintenance and repair
expenses are charged to operations as incurred.
Income Taxes--Any tax liabilities or benefits arising from Partnership
operations are recognized individually by the respective partners and,
consequently, no provision will be made by the Partnership for income taxes
or income tax benefits.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONT'D.
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONT'D
New Accounting Standards
Guaranteed Income or Loss Per Limited Partnership Unit--Partnership
operations are recognized individually by the respective partners and,
consequently, no provision will be made by the Partnership for income taxes
or income tax benefits.
Debt Issuance and Refinancing Costs--Loan costs in the amount of $346,243
were incurred and capitalized by the Partnership in 1996. These costs are
being amortized over the term of the related loans.
Reclassifications--Certain items in the 1998, 1997 and 1996 financial
statements have been reclassified. No income effect resulted from these
reclassifications.
Accounting Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statement and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5 Reporting on the Costs of Start-Up Activities. SOP 98-5
provides guidance on the financial reporting of start up costs and
organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. The SOP broadly defines
start-up activities and provides examples to help entities determine what
costs are and are not within the scope of this SOP. The SOP applies to all
nongovernmental entities and, in general, is effective for financial
statements for fiscal years beginning after December 15, 1998.
The Partnership does not expect this SOP to have a significant effect on its
financial position or operating results when it becomes effective.
(The remainder of this page intentionally left blank.)
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONT'D.
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONT'D
New Accounting Standards - Cont'd.
In June 1998, the Financial Accounting Standards Board Issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS 133
requires companies to recognize all derivatives contracts as either assets
or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i) the changes
in the fair value of the hedged asset or liability that are attributable to
the hedged risk or (ii) the earnings effect of the hedged forecasted
transaction. For a derivative not designated as a hedging instrument, the
gain or loss is recognized in income in the period of change. SFAS 133 as
amended is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000.
Historically, the Partnership has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes. Accordingly,
the Partnership does not expect adoption of the new standard on January 1,
2001 to affect its financial statements.
(The remainder of this page intentionally left blank.)
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONT'D.
NOTE B--INVESTMENT PROPERTIES
Investment properties consists of the following:
December 31,
1998 1997
Cost (including capital
improvements subsequent
to acquisition):
Bayberry Crossing Shopping
Center $ 4,496,025 $ 4,476,000
Forest Park Shopping Center 2,946,998 2,946,998
Thomasbrook Apartments -- 6,688,856
Sunwood Village Apartments 11,763,770 11,560,916
Oak Terrace Healthcare Center 3,980,340 3,980,340
Oak Terrace Active Retirement
Center 8,958,042 8,934,268
Other equipment 8,479 8,479
32,153,654 38,595,857
Less
Accumulated depreciation 11,106,495 12,434,260
Allowance for losses on
investment properties 750,000 750,000
$ 20,297,159 $ 25,411,597
During 1991 and 1990, the Partnership reduced the carrying value of its
commercial property portfolio to reflect real estate market conditions.
This change is reflected in Allowance for Losses on Investment Properties.
Depreciation expense was $1,227,458, $1,237,778 and $1,220,507 for the year
ended December 31, 1998, 1997 and 1996, respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONT'D.
NOTE C--MORTGAGE DEBT
Mortgage debt consists of the following:
December 31,
1998 1997
Collateralized by Investment Property:
Bayberry Crossing Shopping Center $ 2,547,699 $ 2,586,092
Forest Park Shopping Center 1,026,797 1,114,184
Thomasbrook Apartments --- 4,984,179
Sunwood Village Apartments 7,940,528 8,008,454
Oak Terrace Active Retirement
Center (OTARC) and Oak Terrace
Healthcare Center (OTHCC) 12,800,000 12,800,000
Less bond discount (1,899,442) (2,050,642)
$ 22,415,582 $ 27,442,267
Bayberry Crossing Shopping Center (Bayberry)
On November 21, 1996 the Partnership refinanced the first and second mortgage
on Bayberry Crossing Shopping Center. The terms of the new mortgage are
8.25% interest with monthly principal and interest payments of $21,571
through the loan maturity date of November 10, 1999 (three years).
The Partnership recognized a gain of $60,571 upon the refinancing of the
notes in 1996. All of the deferred interest, accrued interest and late
charges relating to the original note were forgiven by the lender.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONT'D.
NOTE C--MORTGAGE DEBT--CONT'D.
Forest Park Shopping Center (Forest Park)
A bond financing agreement with a current balance of $1,026,797 is
collateralized by Forest Park. Principal and interest payments are due
monthly. Interest is calculated at 80% of the current prime rate and
adjusted annually. Monthly principal is due at an amortization rate of 17
1/2 years, which fully amortizes the loan through the maturity date of March,
2008. The bonds are callable on April 1, 2003. The interest rates at the
adjustment dates of April 1, 1996, 1995 and 1994 were 8.25%, 7.20%, and
6.25% respectively.
Sunwood Village Apartments (Sunwood)
On May 17, 1996 the Partnership refinanced the matured first mortgage on
Sunwood Village Apartments. The terms of the new mortgage are interest at
8.625% with monthly principal and interest payments of $63,000 through the
loan maturity date of June 1, 2001 (5 years).
The Partnership recognized a gain of $352,227 upon refinancing of the note
in 1996. All of the deferred interest relating to the original note was
forgiven by the lender.
Thomasbrook Apartments (Thomasbrook)
A purchase money note with a current balance of $4,984,179 is collateralized
by Thomasbrook at December 31, 1997. Principal and interest payments are due
monthly in an amount necessary to amortize the principal over thirty years.
The interest rate is 9.5% through the maturity date of September 1, 2000.
No principal payments were made in 1997 and 1996 and as of December 31, 1997,
accrued interest for Thomasbrook Apartments is past due by $722,760 due to
the negative cash flow status of the apartment complex.
During 1998, the purchase money note and accrued interest were subject to the
settlement agreement discussed in Note J. As a result, the purchase money
and accrued interest was assumed by the purchaser.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONT'D.
NOTE C--MORTGAGE--CONT'D.
Oak Terrace Active Retirement Center (OTARC) and Oak Terrace Healthcare
Center (OTHCC)
A bond financing agreement is collateralized by OTARC, OTHCC, and interest
earned on bond cash reserves and debt service reserves invested in Money
Market Mutual Funds ($1,510,000) and Certificates of Deposits ($582,668).
The original principal balance of $15,100,000 consisted of variable rate
demand multi-family housing revenue bonds, which mature serially from
December 31, 1991 to December 2015. The effective rate was fixed on the
commencement date of the bonds based on 20 Year U.S. Treasury Bonds futures
contracts. The bonds contained a financing agreement providing for the
financial institution to receive a fee to fix the interest rate at 6.2% on
$10,700,000 of the principal balance. The bond discount paid to obtain this
agreement is amortized over the life of the bonds using an effective interest
rate method. The remaining $4,400,000 of the original principal balance
bears interest at variable rates. This rate, which is determined weekly by
the Remarketing Agent, is based upon his opinion as to the minimum rate
necessary to sell the Bonds (at par) in a secondary market. At December 31,
1998 the variable rate was 3.5%. The current $12,800,000 balance of bonds
consist $2,100,000 at a variable interest rates and $10,700,000 at the fixed
interest rates.
Pursuant to the terms of the bond financing agreement, certain cash reserves
are required and are designated for scheduled principal payments and
replacement reserves. Interest earned on these reserves is recorded as a
reduction of interest expense and is considered in the computation of the
amortization of the bond discount. As of December 31, 1998 and 1997, the
unamortized balance of the bond discount was $1,899,442 and $2,050,642.
In 1993, the Partnership reached an agreement with the lender whereby the
lender released $2,096,949 of bond cash reserves to the Partnership in
exchange for a principal paydown of $1,900,000 on the variable rate portion
of the bonds. The principal paydown was a prepayment of scheduled principal
reductions through December 31, 1998. Therefore, no additional principal
payments are required until December 1999.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONT'D.
NOTE C--MORTGAGE--CONT'D.
Cash paid for interest totaled $1,998,893, $2,132,805 and $2,636,889 during
1998, 1997, and 1996, respectively.
Maturities of mortgage debt are as follows:
1999 $ 2,709,106
2000 168,051
2001 7,873,231
2002 87,387
2003 87,387
Thereafter 13,389,862
24,315,024
Bond discount (1,899,442)
$ 22,415,582
NOTE D--RELATED PARTY TRANSACTIONS
SPECS, Inc., a Kansas Corporation in which the individual General Partner has
a minority interest during 1996 and 1997 and owned 100% in 1998, receives
property management fees for providing property management services. SPECS,
Inc. also performs various professional services for the Partnership,
primarily tax accounting, audit preparation, SEC 10Q and 10K preparation, and
investor services. Amounts paid by the Partnership to SPECS, Inc. are as
follows:
Years Ended December 31,
1998 1997 1996
Property management fees $ 234,942 $ 265,549 $ 273,374
Professional Services 31,200 46,592 48,668
$ 266,142 $ 312,141 $ 322,042
The General Partners are entitled to receive a Partnership Management Fee
equal to 5% of Cash Flow From Operations (as defined) for managing the day
to day operations of the Partnership excluding those related to Forest Park
for which the Management Fee is equal to 3%, Oak Terrace Health Care which
pays 2% in Management Fees, and Sunwood Village whose Management Fee is equal
to 3%. Management fees due to SPECS, Inc. was $4,190 and $17,802 for the
years ended December 31, 1998 and 1997.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONT'D.
NOTE D--RELATED PARTY TRANSACTIONS--CONT'D.
Amounts due from related parties consist of the following:
December 31,
1998 1997
Secured Investment Resources II, Inc. $ 174,423 $ 174,423
Secured Investment Resources Fund, L.P. $ 94,623 $ 5,000
$ 269,046 $ 179,423
The amount due from Secured Investment Resources II, Inc. represents excess
syndication costs. Because of many factors, the Partnership did not raise the
level of capital anticipated during the initial offering period. As a
result, syndication and acquisition costs exceeded the amount allowed per the
Partnership Agreement. The General Partners are obligated to reimburse these
excess costs/fees.
The amounts due from Secured Investment Resources Fund, L.P. represent funds
loaned from the Partnership to provide support for the related entity
operations.
NOTE E--CASH DISTRIBUTIONS
During 1998 the Partnership made distributions of $321,786. Prior to 1998
the Partnership had made no distributions since April 1990. Future
distributions will only be made from excess cash flow not needed for working
capital reserves.
NOTE F--PARTNERSHIP LIQUIDITY
The Partnership operates within the real estate industry and is subject to
its economic forces, which contributes additional liquidity risk to the
Partnership's investment portfolio. These risks include, but are not limited
to, changes in general or local economic conditions, changes in interest
rates and the availability of permanent mortgage financing which may render
the acquisition, sale or refinancing of a property difficult or unattractive,
changes in real estate and zoning laws, increases in real estate taxes,
federal or local economic or rent controls, floods, earthquakes and other
acts of God and other factors beyond the control of the Partnership's
management. The illiquidity of real estate investments generally may impair
the ability of the Partnership to respond promptly to changing economic
conditions.
Management believes that with the disposition of Thomasbrook, which could not
produce sufficient cash flow to support it's cash requirements, the
Partnership shall experience greater cash flow and increased net income for
1999.
The General Partners believe that sufficient working capital will be
available to fund known, ongoing operating and capital expenditure
requirements of the Partnership during 1999. The primary source of working
capital is expected to be cash flow from operations which is expected
to improve over that of the previous year due to improved operations.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONT'D.
Certain positive factors are expected to affect 1999 operations are improved
occupancy on the commercial properties, residential rental rate increases and
decreased usage of promotional rent discounts. It is also expected that
stringent controls over expenditures will be maintained.
The availability of the liquidity sources and accomplishment of these
objectives are partially predicated on the real estate economic conditions
discussed above, which are beyond the control of the Partnership, and will
influence the achieved results.
NOTE G--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following:
December 31,
1998 1997
Vendor accounts payable $ 64,800 $ 81,153
Real estate / property taxes 147,962 382,968
Professional fees 49,488 45,803
Utilities 9,175 15,300
Payroll reimbursement 0 23,041
$ 271,425 $ 548,265
(The remainder of this page intentionally left blank.)
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONT'D.
NOTE H--INCOME TAXES
The Partners' capital accounts differ for financial reporting purposes and
federal income tax purposes. The primary differences result from: 1)
depreciation and amortization; 2) losses and provision for losses on
investment properties; and 3) provision for doubtful accounts. The effect
of these items is summarized as follows:
December 31,
1998 1997
Financial reporting basis:
Total assets $ 23,748,135 $ 29,004,960
Total liabilities 23,625,505 (29,689,576)
Total Partners' capital (deficit) $ 122,630 $ (684,616)
Tax basis:
Total assets $ 22,818,713 $ 36,661,645
Total liabilities (20,123,790) (34,655,327)
Total Partners' capital $ 2,694,923 $ 2,006,318
Years Ended December 31,
1998 1997 1996
Partnership income
(loss)--financial
reporting purposes $ 1,129,032 $(835,438) $ (193,460)
Book versus tax differences
due to:
Depreciation and
amortization (7,208) (6,649) (17,931)
Bond discount
amortization (51,342) (98,009) (98,010)
Unearned income 19,679 (23,566) 21,944
Provision for doubtful
accounts (8,387) 67,750 9,125
Other (71,383) 3,001 2,476
(118,641) (57,473) (82,396)
Partnership
loss--federal income
tax purposes $ 1,010,391 $ (892,911) $ (275,856)
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONT'D.
NOTE I--LEASES
Rental income on investment properties is reported when earned. The
Partnership leases its commercial properties under non-cancelable operating
lease agreements. The Partnership's residential properties are leased under
short-term lease agreements. Future minimum rents to be received on
commercial properties as of December 31, 1998 are as follows:
1999 $ 484,825
2000 360,076
2001 182,152
2002 94,697
2003 78,505
Thereafter $ 142,809
TOTAL $ 1,343,064
NOTE J--GAIN ON SALE OF THOMASBROOK APARTMENTS
During September 1998, the Partnership consummated a settlement agreement in
which it sold Thomasbrook Apartments to a third party. The sale price was
approximately $150,000 and the property was subject to all debts of the
property including the purchase money note in the amount of $4,984,179 plus
accrued interest of $1,030,118. As a result of the sale, the difference
between the Fund's basis and the total of the outstanding debt, net of
depreciation, restricted deposits and cash received of $150,000, or
$2,075,587, was treated as a gain on disposition of the asset.
(The remainder of this page intentionally left blank.)
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONT'D.
NOTE K--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate
that value:
Cash and Short-term Investments. The carrying amount approximates fair value
because of the short maturity of those instruments.
Long-Term Debt. The fair value of the Partnership's long-term debt is
estimated based on the quoted market prices for the same or similar issues or
on the current rates offered to the Partnership for debt of the same
remaining maturities.
The estimated fair values of the Partnership's financial instruments are as
follows:
Carrying Fair
1998 Amount Value
Cash and short-term investments $ 2,671,594 $ 2,671,594
Long-term debt $ 22,415,582 $ 19,640,235
NOTE L--SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash activity:
Year ended December 31, 1996
In 1996 the Partnership refinanced debt from various lending institutions for
the Bayberry Crossing Shopping Center and the Sunwood Village Apartments.
Gain on debt restructuring consisted of the following:
Bayberry Crossing Shopping Center
Principal, interest and other related incurred fees $ 2,689,262
Refinanced note issued by bank 2,628,691
Gain debt restructuring 60,571
Sunwood Village Apartments
Interest incurred from debt, net of refinancing costs 352,227
Total gain on debt restructuring $ 412,798
<PAGE>
NOTES TO FINANCIAL STATEMENTS--CONT'D.
NOTE L--SUPPLEMENTAL CASH FLOW INFORMATION--Cont'd
Year Ended December 31, 1998
As discussed in Note J, the Partnership sold Thomasbrook Apartments to a
third party for $150,000 and the party was subject to all debts of the
property. The following is a summary of the assets and liabilities that
were sold by the Partnership:
Current assets $ (19,997)
Investment property (6,858,015
Accumulated depreciation 2,555,223
Current liabilities 239,463
Purchase money note 4,984,179
Accrued interest 1,030,118
Other liabilities 144,626
Total gain on sale of
Thomasbrook Apartments $ 2,075,597
<PAGE>
Item 9. Changes in and Disagreements with Registrant's Certifying
Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The General Partners of the Partnership are James R. Hoyt and
Secured Investment Resources II, Inc.
Secured Investment Resources II, Inc. (the Corporate General
Partner) was incorporated under the laws of the state of Missouri
on June 20, 1986 for the purpose of acting as General Partner and
Acquisition Agent of the Partnership.
Mr. James R. Hoyt is the sole officer and director.
James R. Hoyt (the Individual General Partner), age 61, holds a
Bachelor's Degree in Business Administration and is a licensed
real estate broker in two states. Mr. Hoyt has been actively
involved for more than the past twenty years in various real
estate endeavors including development, syndication, property
management and brokerage.
Mr. Hoyt is the Individual General Partner and sponsor of Secured
Investment Resources Fund, L.P. (S.I.R.). Since 1983, Mr. Hoyt
has also been involved as the Individual General Partner in ten
specified real estate private placement offerings. As of December
31, 1998, these partnerships, including Secured Investment Resources
Fund, L.P. II, have raised a total of $60,709,750.
<PAGE>
Item 11. Management Compensation
During 1998, the Partnership paid $234,942 in fees to related
parties for property management services.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of certain beneficial owners.
No individual or group as defined by Section 13(d)(3) of
the Securities Exchange Act of 1934, known to the registrant
is the beneficial owner of more than 5 percent of the
registrant's securities.
(b) Security ownership of Management.
The General Partners own less than 1%.
(c) Change in Control.
None.
Item 13. Certain Relationships and Related Transactions.
See Notes to Financial Statements, Note D appearing in Item 8.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) The following Financial Statements of Secured Investment
Resources Fund, L.P. II are included in Item 8:
Page
(i) Report of Independent Certified
Public Accountants 14
(ii) Balance Sheets -
December 31, 1998 and 1997 15-16
(iii) Statements of Operations -
Years Ended December 31, 1998,
1997 and 1996 17
(iv) Statements of Partnership
Capital (Deficit) - Years Ended December 31,
1998, 1997 and 1996 18
(v) Statements of Cash Flows
Years Ended December 31, 1998,
1997 and 1996 19-20
(vi) Notes to Financial Statements 21-34
(a)(2) The following Financial Statement Schedules are
filed as part of this report:
(i) Schedule II - Valuation and Qualifying
Accounts 41
(ii) Schedule III - Real Estate and
Accumulated Depreciation 42-44
All schedules other than those indicated in the index have been omitted as
the required information is presented in the financial statements, related
notes or is inapplicable.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K--Cont'd.
(a)(3) The following Exhibits are Incorporated by Reference and are an
integral part of this Form 10-K.
Exhibit Number Description
(1) (a) Amendment to Dealer Manager Agreement
dated April 30, 1987. (ix)
(3) (a) Amended and Restated Agreement of
Limited Partnership. (iii)
(b) Second Amendment to Restated Certificate
and Agreement of Limited Partnership. (vii)
(c) Certificate of Limited Partnership. (i)
(4) (a) Form of Subscription Agreement. (iii)
(b) Form of Certificate evidencing units. (I)
(c) See 3(a) & 3(b) above. (iii)
(d) See 3(c) above. (i)
(10) (a) Property Management Agreement between the
Partnership and The Hoyt Group Limited
Partnership. (i)
(b) Escrow Agreement between the Partnership and
The Mission Bank. (ii)
(c) Administrative Services Agreement between
Secured Investment Resources II, Inc. and
the Partnership. (i)
(d) Real Estate Contract of Sale and Exhibit
for Sunwood Apartments. (iv)
(e) Deed of Trust, Promissory Note and Exhibits
for Sunwood Apartments. (vi)
(f) Real Estate Contract of Sale and Exhibits
for Bayberry Crossing Shopping Center. (v)
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K--Cont'd.
Exhibit Number Description
(g) Deed of Trust, Promissory Note and Exhibits
for Bayberry Crossing Shopping Center. (vi)
(h) Real Estate Purchase Agreement and Exhibits
for Country Club Place Shopping Center. (vi)
(i) Deed of Trust, Promissory Note and Exhibits
for Country Club Place Shopping Center. (vi)
(j) Real Estate Purchase Agreement and Exhibits for
In The Pines Apartments. (viii)
(k) Deed of Trust, Promissory Note and Exhibits
for In The Pines Apartments. (viii)
(l) Asset Purchase Agreement and Exhibits for
Oak Terrace Active Retirement Community. (x)
(m) Asset Purchase Agreement and Exhibits for
Oak Terrace Health Care Center. (x)
(n) Lease for Oak Terrace Health Care Center. (x)
(o) Loan Agreement for Bond Financing on
OakTerrace Active Retirement Community. (x)
(p) Real Estate Contract of Sale and Exhibits
for Forest Park Shopping Center. (xi)
(q) Real Estate Contract of Sale and Exhibits
for Thomasbrook Apartments. (xii)
(r) Loan Assumption Documents for Thomasbrook
Apartments. (xii)
(25) (a) Power of Attorney (i)
(28) (a) Guarantee of General Partners. (I)
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K--Cont'd.
(i) Previously filed on July 17, 1986 as an
Exhibit to the Registration Statement on
Form S-11 (file no. 33-7302) such Exhibit
and Registration Statement incorporated
herein by reference.
(ii) Previously filed on September 25, 1986 as
an Exhibit to Amendment #1 to the
Registration Statement of Form S-11 such
Exhibit and Registration Statement
incorporated herein by reference.
(iii) Previously filed on September 25, 1986 in
the Prospectus as part of Amendment #1 to
Registration Statement and incorporated
herein by reference.
(iv) Previously filed as an exhibit to Form 8-K
dated June 2, 1987 and incorporated herein
by reference.
(v) Previously filed as an exhibit to Form 8-K
dated June 5, 1987 and incorporated herein
by reference.
(vi) Previously filed as an exhibit to
Registration Statement on Form S-11
(file No. 33-7302) dated August 13, 1987
and incorporated herein by reference.
(vii) Previously filed as an Exhibit to the
Supplement Prospectus dated August 13, 1987
as part of Post-effective Amendment No. 4 to
the Registration Statement on Form S-11
(file No. 33-7302) and incorporated herein
by reference.
(viii) Previously filed as an Exhibit to Form 8-K
dated January 13, 1988 and incorporated
herein by reference.
(ix) Previously filed as an Exhibit to Form 8,
Amendment to Form 8-K dated February 29,
1988 and incorporated herein by reference.
(x) Previously filed as an Exhibit to Form 8-K
dated September 14, 1988 and incorporated
herein by reference.
(xi) Previously filed as an Exhibit to Form 8-K
dated December 7, 1988 and incorporated
herein by reference.
(xii) Previously filed as an Exhibit to Form 10-K
dated March 30, 1989 and incorporated
herein by reference.
(xiii) Previously filed as an Exhibit to Form 8-K
dated December 4, 1989 and incorporated
herein by reference.
(b) Report of Form 8-K filed during the fourth
quarter
None.
<PAGE>
Secured Investment Resources Fund L.P. II
Schedule II - Valuation and Qualifying Accounts
December 31, 1998
Balance at Additions Deductions Balance at
Beginning of Charged to Bad Debt End
Period Operations Write-Offs of Period
Allowance for Doubtful Accounts
For Years Ended December 31,
1998 $ 122,350 $ 75,079 $ 83,466 $ 113,963
1997 $ 54,600 $ 71,536 $ 3,786 $ 122,350
1996 $ 45,475 $ 65,590 $ 56,465 $ 54,600
<PAGE>
<TABLE>
<CAPTION>
Secured Investment Resources Fund, L.P. II
Schedule III - Real Estate & Accumulated Depreciation
December 31, 1998
Initial Cost to Partnership (A)
Subsequent to Acquisition
Buildings & Furniture Reduction
Encumbrances Land Improvements Equipment Improvements of Basis (B)
<S> <C> <C> <C> <C> <C> <C>
Other Equipment $ --- $ --- $ --- $ --- $ 8,479 $ ---
Garden Apartments:
Sunwood Apartments 7,940,528 1,375,448 9,706,178 123,000 829,034 (269,890)
Las Vegas, NV
Strip Shopping Centers
Bayberry Crossings 2,547,699 607,184 3,729,847 --- 399,889 (240,895)
Lee's Summit, MO
Forest Park 1,026,797 504,761 2,372,378 --- 113,070 (43,211)
St. Louis, MO
Retirement Center:
Oak Terrace Active
Retirement Center
Springfield, IL 11,744,225 258,269 8,174,500 172,000 353,273 ---
Nursing Home:
Oak Terrace Health
Care Center 1,055,775 273,834 3,412,956 293,550 --- ---
Springfield, IL
Less Bond Discount on
Oak Terrace Active
Retirement Center and (1,899,442) --- --- --- --- ---
Health Care Center
$ 22,415,582 $ 3,019,496 $ 27,395,859 $ 588,550 $ 1,703,745 $ (553,996)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Gross Amount at Which
Carried at Close of Period
Buildings & Furniture Accumulated
Accumulated Date Depreciation
Land Improvements Equipment Total Depreciation Acquired Life
<S> <C> <C> <C> <C> <C> <C> <C>
Other Equipment $ --- $ --- $ 8,479 $ 8,479 $ 8,475 5 Yrs(2)
Garden Apartments:
Sunwood Apartments 1,340,363 10,300,555 122,852 11,763,770 4,132,658 15-May-87 30 Yrs(1)
Las Vegas, NV 5 Yrs(2)
Strip Shopping Centers
Bayberry Crossing 574,761 3,921,264 -- 4,496,025 1,588,303 30-Jun-87 30 Yrs(1)
Lee's Summit, MO 5 Yrs(2)
Forest Park Shopping Center 492,694 2,454,304 -- 2,946,998 1,564,406(3) 23-Nov-88 30 Yrs(1)
St. Louis, MO 5 Yrs(2)
Retirement Center:
Oak Terrace Active
Retirement Center
Springfield, IL 366,834 8,513,520 77,688 8,958,042 3,143,529 31-Aug-88 30 Yrs(1)
5 Yrs(2)
Nursing Home:
Oak Terrace Health
Care Center 273,834 3,706,506 -- 3,980,340 1,469,124 31-Aug-88 30 Yrs(1)
Springfield, IL 5 Yrs(2)
$ 3,048,486 $ 28,896,149 $ 209,019 $ 32,153,654 $ 11,856,495
<FN>
(1) Estimated useful life of buildings.
(2) Estimated useful life of furniture and fixtures.
(3) Includes allowance for losses of $750,000.
NOTES:
(A) The initial cost to the Partnership represents the original purchase price of the properties,
including $205,582 and $145,578 of improvements incurred in 1988 and 1987, respectively, which
were contemplated at the time the property was acquired.
(B) Receipts received under the terms of certain guarantee agreements are recorded by the Partnership as a
reduction of the basis of the property to which the guaranteed income relates
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Secured Investment Resources Fund, L.P. II
Schedule III - Real Estate & Accumulated Depreciation -- Continued
December 31, 1998
Buildings & Furniture &
Total Land Improvements Equipment
<S> <C> <C> <C> <C>
(C) Reconciliation of Real Estate owned:
Balance at January 1, 1997 38,338,431 3,449,545 32,855,070 1,983,816
Additions during year:
Improvements 257,426 --- 145,281 112,145
Balance at December 31, 1997 38,595,857 3,499,545 33,000,351 2,095,961
Additions during year:
Improvements 415,812 --- 288,349 127,463
Reductions - Sale of property (6,858,015) (451,059) (5,878,587) (528,369)
Balance at December 31, 1998 $ 32,153,654 $ 3,048,486 $ 27,410,113 $ 1,695,055
(D) Reconciliation of Accumulated Depreciation
Balance at January 1, 1997 11,946,482 --- 10,272,635 1,673,847
Additions during year:
Depreciation Expense 1,237,778 --- 1,091,038 146,740
Balance at December 31, 1997 13,184,260 --- 11,363,673 1,820,587
Additions during year:
Depreciation Expense 1,227,458 --- 1,142,430 85,028
Reductions - Sale of property (2,555,223) --- (1,410,087) (1,147,136)
Balance at December 31, 1998 $ 11,856,495 $ --- $ 11,098,016 $ 758,479
(E) The total gross amount of real estate at December 31, 1998 includes $3,085,450 of acquisition fees paid to affiliates.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SECURED INVESTMENT RESOURCES FUND, L.P. II
A Delaware Limited Partnership
(Registrant)
By:
James R. Hoyt
as Individual General Partner
Date:
<PAGE>
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.
By: Secured Investment Resources II, Inc.
as Corporate General Partner
By:
James R. Hoyt, President
Date:
Supplemental Information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act.
No annual report or proxy material has been sent to security holders.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SECURED INVESTMENT RESOURCES FUND, L.P. II
A Delaware Limited Partnership
(Registrant)
By: /s/ James R. Hoyt
James R. Hoyt
as Individual General Partner
Date:
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.
By: Secured Investment Resources II, Inc.
as Corporate General Partner
By: /s/ James R. Hoyt
James R. Hoyt, President
Date:
Supplemental Information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act.
No annual report or proxy material has been sent to security holders.
