FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-16862
CAPITAL SOURCE II L.P.-A
(Exact name of registrant as specified in its Agreement of Limited Partnership)
Delaware 38-2684691
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
(402) 444-1630
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Beneficial Assignment Certificates ("BACs") representing the beneficial
assignment of limited partnership interests.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by the Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of the chapter) is not contained herein,
and will not be contained, to the best of the 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]
BACs are not currently traded in any market. Therefore, there is no
market price or average bid and asked price for BACs within the 60 days prior
to the date of this filing.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> -i-
TABLE OF CONTENTS
Page
PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . 3
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . 4
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . 4
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 4
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. . . . . 9
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . 9
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . . 9
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . 11
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 13
Item 12. Security Ownership of Certain Beneficial Owners and Management . . 13
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . 13
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
<PAGE> -ii-
PART I
Item 1. Business. Capital Source II L.P.-A (the "Registrant" or the
"Partnership") was formed in August 1986 under the Delaware Revised Uniform
Limited Partnership Act to invest principally in federally-insured mortgages
on multifamily housing properties and to acquire, hold, sell, dispose of and
otherwise deal with limited partnership interests (the "Partnership Equity
Investments") in the limited partnerships (the "Operating Partnerships") which
construct and operate these properties. The Registrant's investment
objectives generally are to (i) preserve and protect the Registrant's capital;
(ii) provide quarterly cash distributions to investors; and (iii) achieve
increasing current income and long-term capital appreciation through increases
in income from the Partnership Equity Investments. Originally, there was a
fourth investment objective which was to make the BACs freely transferable 24
to 36 months after the Partnership commenced operations by qualifying the BACs
for quotation on NASDAQ. However, at a Special Meeting of BAC Holders on
December 17, 1990, amendments to the Registrant's Agreement of Limited
Partnership (the "Partnership Agreement") were approved to only allow limited
transferability of BACs to preserve the tax status of the Partnership and
avoid being designated as a "publicly traded partnership".
A total of 4,011,101 beneficial assignment certificates representing
beneficial assignment of limited partnership interests in the Registrant
("BACs") were sold at $20 per BAC for total capital contributions of
$80,222,020 prior to the payment of certain organization and offering costs.
The Registrant originally acquired (i) four mortgage-backed securities
(the "GNMA Certificates") guaranteed as to principal and interest by the
Government National Mortgage Association ("GNMA") collateralized by first
mortgage loans on multifamily housing properties located in three states, (ii)
a first mortgage loan insured by the Federal Housing Administration (the "FHA
Loan") on a multifamily housing property located in Charlotte, North Carolina,
and (iii) Partnership Equity Investments in five limited partnerships which
own the multifamily housing properties financed by the GNMA Certificates and
the FHA Loan. The Partnership has been repaid by GNMA on one of the GNMA
Certificates and the related property has been deeded to GNMA in lieu of
foreclosure, thus eliminating the Partnership Equity Investment in this
property. Collectively, the remaining GNMA Certificates, the FHA Loan and the
Partnership Equity Investments are referred to as the "Permanent
Investments." A description of the properties financed by the Registrant
through December 31, 1999, appears in Item 7 hereof. The Partnership had also
invested amounts held in its reserve account in certain GNMA securities backed
by pools of single-family mortgages ("Reserve Investments"); however, the
Partnership has not held any GNMA securities in its reserve account since the
third quarter of 1998.
While principal of and interest on the GNMA Certificates and the FHA Loan
are ultimately guaranteed by the United States government, the amount of cash
distributions received by the Registrant from the Partnership Equity
Investments is a function of the net rental revenues generated by the
properties owned by the Operating Partnerships. Net rental revenues from a
multifamily apartment complex depend on the rental and occupancy rates of the
property and on the level of operating expenses. Occupancy rates and rents
are directly affected by the supply of, and demand for, apartments in the
market area in which a property is located. This, in turn, is affected by
several factors such as local or national economic conditions, the amount of
new apartment construction and interest rates on single-family mortgage
loans. In addition, factors such as government regulation (such as zoning
laws), inflation, real estate and other taxes, labor problems and natural
disasters can affect the economic operations of a property.
<PAGE> - 1 -
In each city in which the Registrant's properties are located, such
properties compete with a substantial number of other apartment complexes.
Apartment complexes also compete with single-family housing that is either
owned or leased by potential tenants. The principal method of competition is
to offer competitive rental rates. The Registrant's properties also compete by
emphasizing property location, condition and amenities.
The Registrant believes that each of its properties is in compliance in
all material respects with federal, state and local regulations regarding
hazardous waste and other environmental matters and the Registrant is not
aware of any environmental contamination at any of such properties that would
require any material capital expenditure by the Registrant for the remediation
thereof.
The Registrant is engaged solely in the business of owning mortgages and
holding equity interests in real estate limited partnerships. Accordingly,
the presentation of information about industry segments is not applicable and
would not be material to an understanding of the Registrant's business taken
as a whole.
The Registrant has no employees. Certain services are provided to the
Registrant by employees of America First Companies L.L.C. ("America First")
which is an affiliate of the general partners of the Registrant, and the
Registrant reimburses America First Companies L.L.C. for such services at
cost. The Registrant is not charged and does not reimburse for the services
performed by managers and officers of America First Companies L.L.C.
Item 2. Properties. The Registrant does not directly own or lease any
physical properties. However, by virtue of its interest in the Partnership
Equity Investments in the Operating Partnerships, the Registrant indirectly
owns up to a 99% interest in three multifamily apartment projects. In
addition, the Registrant owns a 68.70% interest in another multifamily
apartment project known as The Ponds at Georgetown. The multifamily
apartment projects are described in the following table:
<TABLE>
<CAPTION>
Average
Number Square Feet Federal
Property Name Location of Units Per Unit Tax Basis
- -------------------------- ------------------- -------- ----------- ---------------
<S> <C> <C> <C> <C>
Crane's Landing Winter Park, FL 252 751 $ 8,207,230
Delta Crossing Charlotte, NC 178 880 4,639,818
Monticello Apartments Southfield, MI 106 1,027 3,836,033
The Ponds at Georgetown Ann Arbor, MI 134 1,002 5,426,659
-------- ---------------
670 $ 22,109,740
======== ===============
</TABLE>
Depreciation is taken by the Operating Partnerships on each property on a
straight-line basis over the estimated useful lives of the various components
of the properties ranging from five to 40 years.
The average annual occupancy rate and average effective rental rate per
unit for each of the properties for each of the last five years are listed in
the following table:
<PAGE> - 2 -
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CRANE'S LANDING
Average Occupancy Rate 96% 96% 96% 94% 89%
Average Effective Annual Rental Per Unit $8,090 $7,577 $7,366 $6,954 $6,327
DELTA CROSSING
Average Occupancy Rate 94% 94% 93% 92% 94%
Average Effective Annual Rental Per Unit $7,634 $7,457 $7,260 $7,097 $6,866
MONTICELLO APARTMENTS
Average Occupancy Rate 90% 98% 97% 96% 99%
Average Effective Annual Rental Per Unit $9,120 $9,627 $8,873 $8,804 $8,630
THE PONDS AT GEORGETOWN
Average Occupancy Rate 99% 99% 97% 95% 95%
Average Effective Annual Rental Per Unit $10,732 $10,362 $9,883 $9,515 $9,174
</TABLE>
In the opinion of the Partnership's management, each of the properties is
adequately covered by insurance. For additional information concerning the
properties, see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations". A discussion of general competitive
conditions to which these properties are subject is included in Item 1 hereof.
Item 3. Legal Proceedings.
The Partnership has been named as a defendant in a purported class action
lawsuit filed in the Delaware Court of Chancery on February 3, 1999, by two
BAC holders, Alvin M. Panzer and Sandra G. Panzer, against the Partnership,
its General Partners, America First and various of their affiliates (including
Capital Source L.P., a similar partnership with general partners that are
affiliates of America First) and Lehman Brothers, Inc. The plaintiffs seek to
have the lawsuit certified as a class action on behalf of all BAC holders of
the Partnership and Capital Source L.P. The lawsuit alleges, among other
things, that a proposed merger transaction involving the Partnership and
Capital Source L.P. is deficient and coercive, that the defendants have
breached the terms of the Partnership's partnership agreement and that the
defendants have acted in manners which violate their fiduciary duties to the
BAC holders. In this complaint, the plaintiffs sought to enjoin the proposed
merger transaction and seek to appoint an independent BAC holder
representative to investigate alternative transactions. The lawsuit also
requests a judicial dissolution of the Partnership, an accounting, and
unspecified damages and costs.
The General Partners determined not to pursue the merger transaction which
was the subject of the initial lawsuit and proposed an alternative transaction
to BAC holders. A prospectus/consent solicitation statement outlining this
alternative transaction was sent to BAC holders on or about November 16,
1999. The plaintiffs amended their complaint on December 8, 1999, and again
on February 22, 2000. The second amended complaint challenges this current
prospectus/consent solicitation statement on grounds similar to those alleged
in the original complaint, as well as on other procedural grounds. The second
amended complaint does not seek to enjoin the proposed merger transaction.
On July 12, 1999, Alvin M. Panzer, one of the named plaintiffs in the action
described above, filed an additional complaint against the Partnership, its
General Partners and America First in the Delaware Court of Chancery. The
complaint seeks to compel the General Partners to supply the plaintiff with a
list of all BAC holders of the Partnership and copies of the limited
partnership agreements of the Operating Partnerships.
The General Partners have moved to dismiss these complaints, and they intend
to defend these lawsuits vigorously, but are unable to estimate the effect of
either of these lawsuits, if any, on the financial statements of the
Partnership or on the ability of the Partnership to consummate the proposed
merger with Capital Source L.P.
There are no other material pending legal proceedings to which the Partnership
is a party or to which any of its property is subject.
PAGE> - 3 -
Item 4. Submission of Matters to a Vote of Security Holders.
On or about November 16, 1999, the general partners submitted a proposal for a
merger of the Registrant with Capital Source, L.P. and America First Real
Estate Investment Partners, L.P. for consent of the BAC holders without a
meeting. As of December 31, 1999, the solicitation was still pending, and
therefore, a final vote of the BAC holders has not been tabulated.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
(a) Market Information. The BACs are subject to various transfer
restrictions imposed to prevent the Registrant from being treated as a
publicly traded partnership for federal income tax purposes and, accordingly,
there is no public trading market for the BACs.
In the event the General Partners have reason to believe that a requested
sale, transfer or assignment of BACs would cause the Partnership to be
characterized as a publicly traded partnership for federal income tax
purposes, the General Partners will, pursuant to their powers under Section
5.09 of the Partnership Agreement, refuse to process such requested sale,
transfer or assignment unless the General Partners receive an unqualified
opinion of Counsel to the effect that such sale, transfer or assignment of
BACs, would not cause the Partnership to be characterized as a publicly
traded partnership for federal income tax purposes. Neither the General
Partners nor the Partnership may be held liable for any losses resulting to a
holder of BACs or a purchaser of BACs as a result of a requested sale,
transfer or assignment of BACs not being processed due to these limitations.
The foregoing restrictions are intended to prevent the trading volume of
BACs from reaching a level that would cause the Partnership to be
characterized as a publicly traded partnership under Section 7704 of the Code.
In the event the Partnership were characterized as a publicly traded
partnership, the Partnership could be subject to entity level taxation. In
such event, amounts otherwise distributable to holders of BACs would be used
to satisfy federal income tax liabilities of the Partnership and, thus,
amounts received by holders of BACs would be less than anticipated.
(b) Investors. The approximate number of BAC Holders on December 31,
1999, was 5,092.
(c) Distributions. Cash distributions are being distributed on a monthly
basis to the record holders of BACs as of the last day of each month. Total
cash distributions paid or accrued to BAC Holders during the fiscal years
ended December 31, 1999, and December 31, 1998, equaled $1,804,995 and
$2,647,327 respectively. The cash distributions paid or accrued per BAC
during the fiscal years ended December 31, 1999, and December 31, 1998, were
as follows:
<TABLE>
<CAPTION>
Per BAC
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Income $ .3585 $ .2175
Return of Capital .0915 .4425
----------------- -----------------
Total $ .4500 $ .6600
================= =================
</TABLE>
See Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations, for information regarding the sources of funds used
for cash distributions and for a discussion of factors, if any, which may
adversely affect the Registrant's ability to make cash distributions in 2000
and thereafter.
<PAGE> - 4 -
Item 6. Selected Financial Data. Set forth below is selected financial
data for the Registrant. The information set forth below should be read in
conjunction with the Financial Statements and Notes thereto filed in response
to Item 8 hereof.
<TABLE>
<CAPTION>
For the For the For the For the For the
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities income $ 2,318,543 $ 2,426,356 $ 2,499,844 $ 2,520,727 $ 2,561,901
Interest income on temporary cash investments
and U.S. government securities 14,505 42,339 91,327 147,530 200,678
Equity in losses of Operating Partnerships - (407,218) (121,450) - (109,900)
Other income 400 4,750 3,800 6,950 4,650
Gain on sale of mortgage-backed securities - 35,101 - - 15,670
Operating and administrative expenses (880,808) (1,220,213) (819,516) (552,170) (499,903)
------------- ------------- ------------- ------------- -------------
Net income $ 1,452,640 $ 881,115 $ 1,654,005 $ 2,123,037 $ 2,173,096
============= ============= ============= ============= =============
Net income, basic and diluted, per
Beneficial Assignment Certificate (BAC) $ .36 $ .22 $ .41 $ .52 $ .54
============= ============= ============= ============= =============
Cash distributions paid or accrued per BAC $ .4500 $ .6600 $ .8100 $ .8100 $ .8100
============= ============= ============= ============= =============
Investment in FHA Loan $ 6,470,165 $ 6,505,857 $ 6,538,424 $ 6,568,139 $ 6,595,251
============= ============= ============= ============= =============
Investment in GNMA Certificates $ 20,367,475 $ 20,497,706 $ 21,674,940 $ 21,895,675 $ 22,142,421
============= ============= ============= ============= =============
Total assets $ 27,348,772 $ 27,771,206 $ 29,829,534 $ 31,340,155 $ 32,541,767
============= ============= ============= ============= =============
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership originally acquired: (i) four GNMA Certificates which are
guaranteed as to principal and interest by the Government National Mortgage
Association (GNMA) collateralized by first mortgage loans on multifamily
housing properties located in three states; (ii) an FHA Loan which is insured
as to principal and interest by the Federal Housing Administration (FHA) on a
multifamily housing property; and (iii) Partnership Equity Investments in five
Operating Partnerships which own the multifamily properties financed by the
GNMA Certificates and the FHA Loan. The Partnership has been repaid by GNMA
on one of the GNMA Certificates and the related property has been deeded to
GNMA in lieu of foreclosure, thus eliminating the Partnership Equity
Investment in this property. Collectively, the remaining GNMA Certificates,
the FHA Loan, and the Partnership Equity Investments are referred to as the
"Permanent Investments". The Partnership also invested amounts held in
its reserve account in certain GNMA securities backed by pools of
single-family mortgages (Reserve Investments); however, the Partnership has
not held any GNMA securities in its reserve account since the third quarter of
1998. The obligations of GNMA and FHA are backed by the full faith and credit
of the United States government.
<PAGE> - 5 -
Distributions
Cash distributions paid or accrued per BAC were as follows:
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Regular monthly distributions
Income $ .3585 $ .2175 $ .4082
Return of capital .0915 .4425 .4018
-------------- -------------- --------------
$ .4500 $ .6600 $ .8100
============== ============== ==============
Distributions
Paid out of cash flow .4149 .4005 $ .5172
Paid out of reserves .0351 .2595 .2928
-------------- -------------- --------------
$ .4500 $ .6600 $ .8100
============== ============== ==============
</TABLE>
Regular monthly distributions to BAC Holders consist primarily of interest
received on the FHA Loan and the GNMA Certificates. Additional cash for
distributions is received from other investments. The Partnership may draw on
reserves to pay operating expenses or to supplement cash distributions to BAC
Holders. The Partnership is permitted to replenish reserves with cash flows
in excess of distributions paid. During 1999, $141,972 was withdrawn from
reserves.
The Partnership believes that cash provided by operating activities and, if
necessary, withdrawals from the Partnership's reserves, to the extent
available, will be adequate to meet its short-term liquidity requirements,
including the payments of distributions to BAC Holders. The Partnership has
no other internal or external sources of liquidity. Under the terms of its
Partnership Agreement, the Partnership has the authority to enter into short-
and long-term debt financing arrangements; however, the Partnership currently
does not anticipate entering into such arrangements. The Partnership is not
authorized to issue additional BACs to meet short-term and long-term liquidity
requirements.
Asset Quality
The FHA Loan and GNMA Certificates owned by the Partnership are guaranteed as
to principal and interest by FHA and GNMA, respectively. The obligations of
FHA and GNMA are backed by the full faith and credit of the United States
government. The Partnership Equity Investments, however, are not insured or
guaranteed. The value of these investments is a function of the value of
the real estate underlying the Operating Partnerships.
The fair value of the properties underlying the Operating Partnerships is
based on management's best estimate of the net realizable value of such
properties; however, the ultimate realized values may vary from these
estimates. The net realizable value of the properties is determined based on
the discounted estimated future cash flows from the properties, including
estimated sales proceeds. The calculation of discounted estimated future cash
flows includes certain variables such as the assumed inflation rates for rents
and expenses, capitalization rates and discount rates. These variables are
supplied to management by an independent real estate firm and are based on
local market conditions for each property. In certain cases, additional
factors such as the replacement value of the property or comparable sales of
similar properties are also taken into consideration.
<PAGE> - 6 -
The following table shows the occupancy levels of the properties financed by
the Partnership as of December 31, 1999:
<TABLE>
<CAPTION>
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
------------------------------------ ------------------ --------- ---------- -----------
<S> <C> <C> <C> <C>
Crane's Landing Winter Park, FL 252 244 97%
Delta Crossing Charlotte, NC 178 166 93%
Monticello Apartments Southfield, MI 106 98 92%
The Ponds at Georgetown Ann Arbor, MI 134 134 100%
--------- ---------- -----------
670 642 96%
========= ========== ===========
</TABLE>
The following sets forth certain information regarding the properties financed
by the Partnership.
Crane's Landing
Crane's Landing, located in Winter Park, Florida, is a 252-unit complex with
one-, two- and three-bedroom apartments on fourteen acres of land. Average
occupancy was 96% during 1999 and 1998. Operating revenue increased 7.5% from
1998 to 1999, due to increases in rental rates while real estate operating
expenses decreased 6.9% for the same period. The decrease in real estate
operating expenses is primarily attributable to a 29.8% decrease in repairs
and maintenance expenses and property improvements which was partially offset
by an increase in labor and insurance costs. As a result, net operating
income before depreciation, interest and amortization increased approximately
21% from 1998 to 1999. The property remained current on its mortgage
obligations during 1999.
Delta Crossing
Delta Crossing is a 178-unit apartment complex located in Charlotte, North
Carolina. Average occupancy was 94% in 1999 and 1998. As a result of rental
rate increases, rental income increased approximately 2.5% in 1999, compared
to 1998. The increase in rental income was partially offset by a 4.5%
increase in real estate operating expenses. The increase in real estate
operating expenses is attributable to increases in administrative and labor
costs offset by a decrease in repairs and maintenance expense and property
improvements. As a result, net operating income before depreciation, interest
and amortization increased approximately 1% from 1998 to 1999. The property
was current on its mortgage obligations during 1999.
Monticello Apartments
Monticello Apartments, located in Southfield, Michigan, contains 106 rental
units. Average occupancy was 90% in 1999, compared to 98% in 1998. The
decrease in average occupancy resulted in a 5% decrease in rental revenue in
1999 compared to 1998. In addition, real estate operating expenses increased
approximately 35% due primarily to increases in repairs and maintenance
expenses, property improvements, advertising expenses and administrative
costs. As a result of the decrease in revenue and increase in expenses, net
operating income before depreciation, interest and amortization decreased
approximately 31% from 1998 to 1999. Despite the decrease in net operating
income the property remained current on its mortgage obligations during 1999.
The Ponds at Georgetown
The Ponds at Georgetown consists of 134 apartments located in Ann Arbor,
Michigan. Average occupancy was 99% in 1999 and 1998. Excluding interest,
depreciation and amortization, operating income generated by the property in
1999 approximated that of 1998. As previously disclosed, the mortgage loan
for the Ponds at Georgetown was restructured in September 1998 which lowered
the interest rate from 9.25% to 7.85%. Since the restructuring, cash flow
generated from operations has generally been sufficient to cover all the
Operating Partnership's cash needs. The property was current on its mortgage
obligations as of December 31, 1999.
<PAGE> - 7 -
Results of Operations
The tables below compare the results of operations for each year shown.
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage-backed securities income $ 2,318,543 $ 2,426,356 $ 2,499,844
Interest income on temporary cash investments 14,505 42,339 91,327
Equity in losses of Operating Partnerships - (407,218) (121,450)
Other income 400 4,750 3,800
Gain on sale of mortgage-backed securities - 35,101 -
-------------- --------------- ---------------
2,333,448 2,101,328 2,473,521
Operating and administrative expenses 880,808 1,220,213 819,516
-------------- --------------- ---------------
Net income $ 1,452,640 $ 881,115 $ 1,654,005
============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Increase Increase
(Decrease) (Decrease)
From 1998 From 1997
--------------- ---------------
<S> <C> <C>
Mortgage-backed securities income $ (107,813) $ (73,488)
Interest income on temporary cash investments (27,834) (48,988)
Equity in losses of Operating Partnerships 407,218 (285,768)
Other income (4,350) 950
Gain on sale of mortgage-backed securities (35,101) 35,101
-------------- ---------------
232,120 (372,193)
Operating and administrative expenses (339,405) 400,697
-------------- ---------------
Net income $ 571,525 $ (772,890)
============== ===============
</TABLE>
Mortgage-backed securities income decreased by $107,813 from 1998 to 1999.
Approximately $55,000 of such decrease was attributable to the fourth quarter
of 1998 payoff of the GNMA Certificate on the Ponds at Georgetown which had an
interest rate of 9% and the issuance of a new GNMA Certificate at 7.25%. The
remaining $53,000 decrease was due to: (i) a reduction of approximately
$39,000 resulting from the sales of Reserve Investments during 1998 and (ii)
the continued amortization of the Partnership's other mortgage-backed
securities.
Mortgage-backed securities income decreased by $73,488 from 1997 to 1998.
Approximately $43,000 of such decrease was due to the aforementioned sales of
the Partnership's Reserve Investments. The remaining decrease of $30,000
resulted from the restructuring of The Ponds at Georgetown GNMA certificate
discussed above and the continued amortization of the principal balances of
the Partnership's other mortgage-backed securities.
Interest income on temporary cash investments decreased by $27,834 from 1998
to 1999 and $48,988 from 1997 to 1998. These decreases were due to
withdrawals made from the Partnership's reserves to supplement distributions
to BAC Holders.
The Partnership's suspended recognizing losses in the Operating Partnerships
when its entire initial investment had been consumed by such losses.
Subsequently, losses have been recognized only to the extent of additional
contributions, net of distributions received, to the Operating Partnership by
the Partnership.
<PAGE> - 8 -
The Partnership made additional contributions to certain Operating
Partnerships during 1998 and 1997. As such, equity in losses of Operating
Partnerships was recorded in 1998 and 1997 to the extent of the additional
investments in the amount of $407,218 and $121,450, respectively. No such
investments were made and therefore no equity in losses was recorded in 1999.
As a result, equity in losses of Operating Partnerships increased $407,218
from 1998 to 1999 and decreased $285,768 from 1997 to 1998.
During 1998, the Partnership sold the mortgage-backed securities held in its
reserves and realized a gain of $35,101 on the sale. There were no such sales
or gains during either 1999 or 1997.
Operating and administrative expenses decreased $339,405 from 1998 to 1999.
Such decrease was due to: (i) a decrease of approximately $164,000 in
transaction costs incurred in conjunction with proposed mergers under
consideration in the respective years; (ii) decreases of approximately
$182,000 in salaries and related expenses and $31,000 in consulting expenses
due to a reduction in personnel time and consulting fees incurred in
connection with developing and evaluating alternatives for restructuring the
Partnership; (iii) net decreases of approximately $22,000 in other general and
administrative expenses; offset by (iv) an increase of approximately $60,000
in legal fees resulting from the defense of a class action lawsuit filed
against the Partnership as more fully described in Note 8 to the financial
statements.
Operating and administrative expenses increased $400,697 from 1997 to 1998.
Such increase was due to: (i) an increase of approximately $341,000 in
transaction costs incurred in conjunction with a proposed merger (which is no
longer under consideration); (ii) an increase of approximately $152,000 in
salaries and related expenses primarily due to additional personnel time
incurred in conjunction with the aforementioned merger; (iii) and increase of
approximately $31,000 in consulting fees incurred in connection with a review
of various options for restructuring the Partnership to improve total
investment returns and provide liquidity to the Partnership's investors; (iv)
a decrease of $116,000 in asset management and partnership administration fees
payable to the General Partners and (v) decreases of approximately $7,000 in
other operating and administrative expenses.
Year 2000
The Partnership does not own or operate its own computer system and owns no
business or other equipment. However, the operation of the Partnership's
business relies on the computer system and other equipment maintained by
America First. In addition, the Partnership has business relationships with a
number of third parties whose ability to perform their obligations to the
Partnership depend on such systems and equipment. To date, the Partnership
has not experienced any significant problems with such systems and equipment
arising from the inability of computer programs and embedded circuitry to
correctly recognize dates occurring after December 31, 1999. Although the
Partnership does not anticipate that so-called "Year 2000 problems" will
surface, there can be no assurance that such problems will not arise. The
Partnership has not incurred any significant costs in rectifying Year 2000
problems.
Forward Looking Statements
This report contains forward looking statements that reflect management's
current beliefs and estimates of future economic circumstances, industry
conditions, the Partnership's performance and financial results. All
statements, trend analysis and other information concerning possible or
assumed future results of operations of the Partnership and the real estate
investments it has made (including, but not limited to, the information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations"), constitute forward-looking statements. BAC holders
and others should understand that these forward looking statements are subject
to numerous risks and uncertainties and a number of factors could affect the
future results of the Partnership and could cause those results to differ
materially from those expressed in the forward looking statements contained
herein.
<PAGE> - 9 -
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Partnership's primary market risk exposure is interest rate risk. The
Partnership's exposure to market risk for changes in interest rates relates
primarily to its investment securities which are comprised of investments in
debt securities with fixed interest rates. The Partnership does not use
derivative financial instruments to hedge its investment portfolio.
The table below presents principal amounts and weighted average interest rates
by year of maturity for the Partnership's investment portfolio:
<TABLE>
<CAPTION>
Principal Weighted Average
Maturity Amount Interest Rate
------------ ----------------- -----------------
<C> <C> <C>
2000 $ 181,456 8.6%
2001 198,021 8.6%
2002 216,085 8.6%
2003 235,858 8.6%
2004 257,360 8.6%
Thereafter 25,788,573 8.6%
</TABLE>
The aggregate fair value of the Partnership's investment securities at
December 31, 1999 was $26,877,353.
As the above table incorporates only those positions or exposures that existed
as of December 31, 1999, it does not consider those exposures or posititons
that could arise after that date. Moreover, because future commitments are
not presented in the table above, the information presented has limited
predictive value. As a result, the Partnership's ultimate economic impact
with respect to interest rate fluctuations will depend on the exposures that
arise during the period, the Partnership's risk mitigating strategies at that
time and interest rates.
Item 8. Financial Statements and Supplementary Data. The Financial
Statements and supporting schedules of the Registrant are set forth in Item 14
hereof and are incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure. There were no disagreements with the Registrant's
independent accountants on accounting principles and practices or financial
disclosure during the fiscal years ended December 31, 1999 and 1998.
The information required by this Item 9 relating to a change in accountants
has been previously reported (as that term is defined by Rule 12b-2 of the
Exchange Act) with the Commission by the Partnership on its Current Report on
Form 8-K dated October 2, 1998, as amended, and is hereby incorporated by
reference.
<PAGE> - 10 -
PART III
Item 10. Directors and Executive Officers of Registrant. The Registrant
has no directors or officers. The general partners of the Registrant are
America First Capital Source II, L.L.C., (the "America First General Partner")
and Insured Mortgage Equities II L.P., (the "IME II General Partner"), each of
which is controlled by America First Companies L.L.C. ("America First").
Collectively, the America First General Partner and the IME II General Partner
are referred to as the "General Partners".
The following individuals are the officers, directors and managers of the
America First General Partner, the general partner of the IME II General
Partner and America First, and each serves for a term of one year.
<TABLE>
<CAPTION>
Name Position Held Position Held Since
- ----------------------- ---------------------------------- -----------------------
<S> <C> <C>
Michael B. Yanney Chairman of the Board, President, 1984
Chief Executive Officer and
Manager of America First
Chairman and Chief Executive 1991
Officer of the America First
General Partner
Chairman of the Board, President, 1997
Chief Executive Officer and
Director of the general partner of the IME II
General Partner
Michael Thesing Vice President, Secretary, Treasurer and 1984
Manager of America First
Vice President, Secretary and 1991
Treasurer of the America First
General Partner
Vice President, Secretary and 1997
Treasurer of the IME II
General Partner
William S. Carter, M.D. Manager of America First 1994
Martin A. Massengale Manager of America First 1994
Alan Baer Manager of America First 1994
Gail Walling Yanney Manager of America First 1996
Mariann Byerwalter Manager of America First 1997
Lisa Yanney Roskens Manager of America First 1999
</TABLE>
Michael B. Yanney, 66, has served as the Chairman, President and Chief
Executive Officer of America First Companies L.L.C. and its predecessors since
1984. From 1977 until the organization of the first such fund in 1984, Mr.
Yanney was principally engaged in the ownership and management of commercial
banks. Mr. Yanney also has investments in private corporations engaged in a
variety of businesses. From 1961 to 1977, Mr. Yanney was employed by Omaha
National Bank and Omaha National Corporation (now part of U.S. Bank), where he
held various positions, including the position of Executive Vice President and
Treasurer of the holding company. Mr. Yanney also serves as a member of the
boards of directors of Burlington Northern Santa Fe Corporation, Forest Oil
Corporation, Level 3 Communications, Inc., Freedom Communications, Inc.,
Magnum Resources, Inc., America First Mortgage Investments, Inc., RCN
Corporation, Rio Grande Medical Technologies, Inc., and Telecom Technologies,
Inc. Mr Yanney is the husband of Gail Walling Yanney and the father of Lisa
Yanney Roskens.
<PAGE> - 11 -
Michael Thesing, 45, has been Vice President and Chief Financial Officer
of affiliates of America First Companies L.L.C. since July 1984. He serves as
President of America First Investment Advisors, L.L.C. and is a member of the
Board of Managers of America First Companies L.L.C. and America First
Investment Advisors, L.L.C. From January 1984 until July 1984 he was employed
by various companies controlled by Mr. Yanney. He was a certified public
accountant with Coopers & Lybrand from 1977 through 1983.
William S. Carter, M.D., 73, is a retired physician. Dr. Carter
practiced medicine for 30 years in Omaha, Nebraska, specializing in
otolaryngology (disorders of the ears, nose and throat).
Martin A. Massengale, 66, is President Emeritus of the University of
Nebraska, Director of the Center for Grassland Studies and Foundation
Distinguished Professor. Prior to becoming President in 1991, he served as
Interim President from 1989, as Chancellor of the University of Nebraska
Lincoln from 1981 until 1991 and as Vice Chancellor for Agriculture and
Natural Resources from 1976 to 1981. Prior to that time, he was a professor
and associate dean of the College of Agriculture at the University of
Arizona. Dr. Massengale currently serves on the board of directors of Woodmen
Accident & Life Insurance Company and IBP, Inc. and is a member of the Board
of Trustees of the Great Plains Funds, Inc.
Alan Baer, 77, is presently Chairman of Alan Baer & Associates, Inc., a
management company located in Omaha, Nebraska. He is also Chairman of Lancer
Hockey, Inc., Baer Travel Services, Wessan Telemarketing, Total Security
Systems, Inc. and several other businesses. Mr. Baer is the former Chairman
and Chief Executive Officer of the Brandeis Department Store chain which,
before its acquisition, was one of the larger retailers in the Midwest. Mr.
Baer has also owned and served on the board of directors of several banks in
Nebraska and Illinois.
Gail Walling Yanney, 63, is a retired physician. Dr. Walling practiced
anesthesia and was most recently the Executive Director of the Clarkson
Foundation until October of 1995. In addition, she was a director of FirsTier
Bank, N.A., Omaha prior to its merger with First Bank, N.A.. Ms. Yanney is
the wife of Michael B. Yanney and the mother of Lisa Yanney Roskens.
Mariann Byerwalter, 39, is Vice President of Business Affairs and Chief
Financial Officer of Stanford University. Ms. Byerwalter was Executive Vice
President of America First Eureka Holdings, Inc. ("AFEH") and EurekaBank from
1988 to January 1996. Ms. Byerwalter was Chief Financial Officer and Chief
Operating Officer of AFEH, and Chief Financial Officer of EurekaBank from 1993
to January 1996. She was an officer of BankAmerica Corporation and its
venture capital subsidiary from 1984 to 1987. She served as Vice President
and Executive Assistant to the President of Bank of America and was a Vice
President in the bank's Corporate Planning and Development Department. Ms.
Byerwalter currently serves on the board of directors of Redwood Trust, Inc.,
SRI International, Stanford Management Company and Stanford Hospitals and
clinics.
Lisa Yanney Roskens, 33 is a Managing Director of Twin Compass, LLC, a
small business consulting firm. From 1997 to 1999, Ms. Roskens was employed
by Inacom Corporation, where she held the position of Director of Business
Development and Director of Field Services Development. From 1995 to 1997,
Ms. Roskens served as Finance Director for the U.S. Senate campaign of Senator
Charles Hagel of Nebraska. From 1992 to 1995, Ms. Roskens was an attorney
with the Kutak Rock law firm in Omaha, Nebraska, specializing in commercial
litigation. Ms. Roskens is the daughter of Michael Yanney and Gail Walling
Yanney.
<PAGE> - 12 -
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
managers and executive officers of the parent company of the Registrant's
General Partners and persons who beneficially own more than 10% of the
Registrant's BACs to file reports of their ownership of BACs with the
Securities and Exchange Commission (the "SEC"). Such executive officers,
managers and BAC holders are required by SEC regulation to furnish the
Registrant with copies of all Section 16(a) reports they file. Based solely
upon review of the copies of such reports received by the Registrant and
written representations from each such person who did not file an annual
report with the SEC (Form 5) that no other reports were required, the
Registrant believes that there was compliance for the fiscal year ended
December 31, 1999 with all Section 16(a) filing requirements applicable to
such executive officers, managers and beneficial owners of BACs.
Item 11. Executive Compensation. The Registrant does not have any
directors or officers. Certain services are provided to the Registrant by
managers and officers of America First. None of the directors or officers of
the General Partners or the managers or officers of America First receive
compensation from the Registrant and neither General Partner receives
reimbursement from the Registrant for any portion of their salaries.
Remuneration paid by the Registrant to the General Partners pursuant to the
terms of its agreement of limited partnership during the period ending
December 31, 1999, is described in Note 6 to the Notes to the Financial
Statements filed in response to Item 8 hereof.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) No person is known by Registrant to own beneficially more than 5% of
the BACs.
(b) No director or officers of the General Partners or managers or
officers of America First own any BACs.
(c) There are no arrangements known to the Registrant the operation of
which may at any subsequent date result in a change in control of the
Registrant.
Item 13. Certain Relationships and Related Transactions. The members of
the America First General Partner are America First and Mr. Yanney. The
general partner of the IME II General Partner is CS Housing II, Inc. ("CSII"),
which is owned by America First. Except as described herein, the Registrant
is not a party to any transaction or proposed transaction with either General
Partner or with any person who is (i) a member, director or executive officer
of the America First General Partner or manager or officer of America First or
a director or officer of CSII, (ii) a nominee for election as a director or
manager of the America First General Partner, or a manager of America First or
CSII, (iii) an owner of more than 5% of the BACs or (iv) a member of the
immediate family of any of the foregoing persons.
The General Partners are entitled to receive an asset management and
partnership administrative fee equal to 0.5% of invested assets per annum, the
first $50,000 of which shall be paid each year with the balance payable only
during such years that a 6.5% annual return has been paid to investors on a
noncumulative basis. An additional fee of 0.5% of invested assets will be
paid in those years that an 11.5% annual return has been paid to investors on
a cumulative basis. Any unpaid amounts will accrue and be payable only after
a 11.5% annual return to investors has been paid on a cumulative basis and the
investors have received the return of their capital contributions. During
1999, the General Partners earned, and the Registrant incurred $50,000 in
such asset management and partnership administration fees.
During 1999, the Registrant paid or reimbursed one of the General
Partners or an affiliate of the General Partners $585,181 for certain costs
and expenses incurred in connection with the operation of the Registrant,
including legal and accounting fees and investor communication costs, such as
printing and mailing charges. See Note 6 to Notes to Financial Statements
filed in response to Item 8 hereof for a description of these costs and
expenses.
<PAGE> - 13 -
America First Properties Management, L.L.C. (the "Manager") has been
retained to provide property management services with respect to the
day-to-day operation of The Ponds at Georgetown. The property management
agreement provides that the Manager is entitled to receive a management fee
equal to a stated percentage of the gross revenues generated by the property
under management. Management fees payable to the Manager are 4% of gross
revenues. Because the Manager is an affiliate of the General Partners the
management fees payable by the Registrant to the Manager may not exceed the
lesser of (i) the rates that the Registrant would pay an unaffiliated manager
for similar services in the same geographic location or (ii) the Manager's
actual cost for providing such services. During the year ended December 31,
1999, the Manager was paid property management fees of $42,842.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements. The following financial statements are included
in response to Item 8 of this report:
Independent Auditors' Report
Balance Sheets of the Registrant as of December 31, 1999,
and December 31, 1998.
Statements of Income and Comprehensive Income of the Registrant for the
years ended December 31, 1999, December 31, 1998, and December 31, 1997.
Statements of Partners' Capital (Deficit) of the Registrant for the
years ended December 31, 1999, December 31, 1998, and December 31, 1997.
Statements of Cash Flows of the Registrant for the years
ended December 31, 1999, December 31, 1998, and December 31, 1997.
Notes to Financial Statements of the Registrant.
2. Financial Statement Schedules. The information required to be set
forth in the financial statement schedules is included in the Financial
Statements filed in response to Item 8 hereof.
3. Exhibits. The following exhibits are filed as required by Item 14(c)
of this report. Exhibit numbers refer to the paragraph numbers under Item 601
of Regulation S-K:
4(a). Agreement of Limited Partnership of Capital Source II L.P.-A
(incorporated herein by reference from Exhibit A of the Prospectus
contained in the Registrant's Post Effective Amendment No. 4 dated
February 5, 1987, to the Registration Statement on Form S-11 (Commission
File No. 0-16862)).
4(b). Amendment to the Capital Source II L.P.-A Limited Partnership
Agreement (incorporated by reference to Exhibit 3.09 to Pre-Effective
Amendment No. 3 to the Registration Statement on Form S-4 filed by America
First Real Estate Investment Partners, L.P. on July 21, 1999 (Commission
File No. 333-52117)).
4(c). Beneficial Assignment Certificate (incorporated by reference
from Exhibit 10(a) to the Registrant's Amendment No. 2 dated January 27,
1987, to the Registration Statement on Form S-11 (Commission File No. 0-
16862)).
24. Power of Attorney
27. Financial Data Schedule
(b) The Registrant did not file any reports on Form 8-K during the last
quarter of the period covered by this report.
<PAGE> - 14 -
Independent Auditors' Report
To the Partners
Capital Source II L.P.-A:
We have audited the accompanying balance sheets of Capital Source II L.P.-A as
of December 31, 1999 and 1998, and the related statements of income and
comprehensive income, partners' capital (deficit) and cash flows for the three
years in the period ended December 31, 1999. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Source II L.P.-A as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.
Omaha, Nebraska
March 17, 2000 /s/KPMG LLP
<PAGE> - 15 -
CAPITAL SOURCE II L.P.-A
Balance Sheets
<TABLE>
<CAPTION>
Dec. 31, 1999 Dec. 31, 1998
--------------- ---------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value $ 278,134 $ 432,999
Investment in FHA Loan (Note 4) 6,470,165 6,505,857
Investment in GNMA Certificates (Note 4) 20,367,475 20,497,706
Investment in Operating Partnerships (Note 5) - -
Interest receivable 193,934 195,440
Other assets 39,064 139,204
--------------- ---------------
$ 27,348,772 $ 27,771,206
=============== ===============
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable (Note 6) $ 295,599 $ 347,446
Distribution payable (Note 3) 303,871 303,871
--------------- ---------------
599,470 651,317
--------------- ---------------
Partners' Capital (Deficit)
General Partner (298,965) (295,259)
Beneficial Assignment Certificate Holders
($6.74 per BAC in 1999 and $6.83 per BAC in 1998) 27,048,267 27,415,148
--------------- ---------------
26,749,302 27,119,889
--------------- ---------------
$ 27,348,772 $ 27,771,206
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> - 16 -
CAPITAL SOURCE II L.P.-A
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Income
Mortgage-backed securities income (Note 4) $ 2,318,543 $ 2,426,356 $ 2,499,844
Interest income on temporary cash investments 14,505 42,339 91,327
Equity in losses of Operating Partnerships (Note 5) - (407,218) (121,450)
Other income 400 4,750 3,800
Gain on sale of mortgage-backed securities (Note 4) - 35,101 -
--------------- --------------- ---------------
2,333,448 2,101,328 2,473,521
Expenses
Operating and administrative expenses (Note 6) 880,808 1,220,213 819,516
--------------- --------------- ---------------
Net income 1,452,640 881,115 1,654,005
Other comprehensive income:
Unrealized gains on securities
Net unrealized holding gains (losses) arising during the year - (7,110) 5,969
Plus: reclassification adjustment for losses included in net income - (35,101) -
-------------- -------------- --------------
Change in net unrealized holding gains - (42,211) 5,969
-------------- -------------- --------------
Net comprehensive income $ 1,452,640 $ 838,904 $ 1,659,974
============== ============== ==============
Net income allocated to:
General Partner $ 14,526 $ 8,811 $ 16,540
BAC Holders 1,438,114 872,304 1,637,465
--------------- --------------- ---------------
$ 1,452,640 $ 881,115 $ 1,654,005
=============== =============== ===============
Net income, basic and diluted, per BAC $ .36 $ .22 $ .41
=============== =============== ===============
Weighted average number of BACs outstanding 4,011,101 4,011,101 4,011,101
=============== =============== ===============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> - 17 -
CAPITAL SOURCE II L.P.-A
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FROM DECEMBER 31, 1996 TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
General BAC
Partners Holders Total
--------------- --------------- ---------------
<S> <C> <C> <C>
Partners' Capital (Deficit) (excluding
accumulated other comprehensive income)
Balance at December 31, 1996 $ (261,051) $ 30,801,698 $ 30,540,647
Net income 16,540 1,637,465 1,654,005
Cash distributions paid or accrued (Note 3) (32,818) (3,248,992) (3,281,810)
--------------- --------------- ---------------
Balance at December 31, 1997 (277,329) 29,190,171 28,912,842
Net income 8,811 872,304 881,115
Cash distributions paid or accrued (Note 3) (26,741) (2,647,327) (2,674,068)
--------------- --------------- ---------------
Balance at December 31, 1998 (295,259) 27,415,148 27,119,889
Net income 14,526 1,438,114 1,452,640
Cash distributions paid or accrued (Note 3) (18,232) (1,804,995) (1,823,227)
--------------- --------------- ---------------
Balance at December 31, 1999 (298,965) 27,048,267 26,749,302
Accumulated Other Comprehensive Income
Balance at December 31, 1996 362 35,880 36,242
Other comprehensive income 60 5,909 5,969
--------------- --------------- ---------------
Balance at December 31, 1997 422 41,789 42,211
Other comprehensive income (422) (41,789) (42,211)
--------------- --------------- ---------------
Balance at December 31, 1998 and December 31, 1999 - - -
--------------- --------------- ---------------
Balance at December 31, 1999 $ (298,965) $ 27,048,267 $ 26,749,302
=============== =============== ===============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> - 18 -
CAPITAL SOURCE II L.P.-A
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 1,452,640 $ 881,115 $ 1,654,005
Adjustments to reconcile net income to
net cash provided by operating activities
Equity in losses of Operating Partnerships - 407,218 121,450
Amortization of discount on mortgage-backed securities (316) (1,471) (1,397)
Gain on sale of mortgage-backed securities - (35,101) -
Decrease in interest receivable 1,506 17,584 6,637
Decrease in other assets 100,140 22,950 63,589
Increase (decrease) in accounts payable (51,847) 19,933 111,215
--------------- --------------- ---------------
Net cash provided by operating activities 1,502,123 1,312,228 1,955,499
--------------- --------------- ---------------
Cash flows from investing activities
FHA Loan and GNMA principal payments received 166,239 271,807 257,816
Disposition of mortgage-backed securities - 5,046,437 -
Proceeds from sale of available-for-sale securities - 915,012 -
Acquisition of GNMA Certificate - (5,029,094) -
Investments in Operating Partnerships - (407,218) (121,450)
--------------- --------------- ---------------
Net cash provided by investing activities 166,239 796,944 136,366
--------------- --------------- ---------------
Cash flows from financing activity
Distributions paid (1,823,227) (2,917,165) (3,281,810)
--------------- --------------- ---------------
Net decrease in cash and temporary cash investments (154,865) (807,993) (1,189,945)
Cash and temporary cash investments at beginning of year 432,999 1,240,992 2,430,937
--------------- --------------- ---------------
Cash and temporary cash investments at end of year $ 278,134 $ 432,999 $ 1,240,992
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> - 19 -
CAPITAL SOURCE II L.P.-A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. Organization
Capital Source II L.P.-A (the Partnership) was formed on August 22, 1986,
under the Delaware Revised Uniform Limited Partnership Act. The General
Partners of the Partnership are Insured Mortgage Equities II L.P. and America
First Capital Source II, L.L.C. (the General Partners).
The Partnership was formed to invest principally in federally-insured
mortgages on multifamily housing properties and limited partnership interests
in the Operating Partnerships which construct and operate these properties.
Each federally insured loan is guaranteed in amounts equal to the face amount
of the mortgage, by the Federal Housing Administration (FHA) or the Government
National Mortgage Association (GNMA). Hereinafter, the Partnership's
investments in such mortgages are referred to as investments in
mortgage-backed securities. The Operating Partnerships are geographically
located as follows: (i) two in Michigan; and, (ii) one each in Florida and
North Carolina.
CS Properties II, Inc. which is owned by the General Partners, serves as the
Special Limited Partner for the Operating Partnerships. The Special Limited
Partner has the power, among other things, to remove the general partners of
the Operating Partnerships under certain circumstances and to consent to the
sale of the Operating Partnerships' assets. CS Properties II, Inc. also
serves as a co-general partner of The Ponds at Georgetown.
The Partnership will terminate subsequent to the sale of all properties but in
no event will the Partnership continue beyond December 31, 2035.
2. Summary of Significant Accounting Policies
A)Method of Accounting
The financial statements of the Partnership are prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
B)Investment in Mortgage-Backed Securities
Investment securities are classified as held-to-maturity,
available-for-sale, or trading. Investments classified as
held-to-maturity are carried at amortized cost. Investments classified as
available-for-sale are reported at fair value, as determined by reference
to published sources. Any unrealized gains or losses are excluded from
earnings and reflected in other comprehensive income. Subsequent increases
and decreases in the net unrealized gain/loss on the available-for-sale
securities are reflected as adjustments to the carrying value of the
portfolio and in other comprehensive income. The Partnership has not had
investments classified as available-for-sale since the second quarter of
1998. The Partnership does not have investment securities classified as
trading.
<PAGE> - 20 -
CAPITAL SOURCE II L.P.-A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
C) Investment in Operating Partnerships
The Partnership's Investment in Operating Partnerships consists of interests
in limited partnerships which own properties underlying the mortgage-backed
securities and are accounted for using the equity method. The investments
by the Partnership in the Operating Partnership were recorded at the cost
to acquire such interests. Subsequently losses were recorded by the
Partnership as they were realized by the Operating Partnerships. The
Partnership suspended recognizing losses in the Operating Partnerships
when its entire initial investment had been consumed by such losses.
Subsequently, losses have been recognized only to the extent of additional
contributions, net of distributions received, to the Operating Partnerships
by the Partnership. The Operating Partnerships are not insured or
guaranteed. The value of these investments is a function of the value of
the real estate owned by the Operating Partnerships. With regard to the
Operating Partnerships, the Partnership is not the general partner and it
has no legal obligation to provide additional cash support nor has it
indicated any commitment to provide this support; accordingly, it has not
reduced its investment in these Operating Partnerships below zero.
D)Income Taxes
No provision has been made for income taxes since BAC Holders are required
to report their share of the Partnership's income for federal and state
income tax purposes. The tax basis of the Partnership's assets and
liabilities exceeded the reported amounts by $826,459 and $1,236,222 at
December 31, 1999, and December 31, 1998, respectively.
E)Temporary Cash Investments
Temporary cash investments are invested in short-term debt securities
purchased with original maturities of three months or less.
F)Net Income per Beneficial Assignment Certificate (BAC)
Net income per BAC was calculated based on the number of BACs outstanding
(4,011,101) during each year presented.
G)New Accounting Pronouncement
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). This statement provides
new accounting and reporting standards for the use of derivative
instruments. Adoption of this statement, as amended, is required by the
Partnership effective January 1, 2000. Management believes that the impact
of such adoption will not be material to the financial statements.
3. Partnership Income, Expenses and Cash Distributions
Profits and losses from continuing operations and cash available for
distribution will be allocated 99% to the investors and 1% to the General
Partners. Certain fees payable to the General Partners will not become due
until investors have received certain priority returns. Cash distributions
included in the financial statements represent the actual cash distributions
made during each year and the change in cash distributions accrued at the end
of each year.
The General Partners will receive 1% of the net proceeds from any sale of
Partnership assets. The General Partners will receive a termination fee equal
to 3% of all sales proceeds less actual costs incurred in connection with all
sales transactions, payable only after the investors have received a return of
their capital contributions and an 11.5% annual return on a cumulative basis.
The General Partners will also receive a fee equal to 9.1% of all cash
available for distribution and sales proceeds (after deducting from cash
available or sales proceeds any termination fee paid therefrom) after
investors have received a return of their capital contributions and an 11.5%
annual return on a cumulative basis.
<PAGE> - 21 -
CAPITAL SOURCE II L.P.-A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
4. Investment in Mortgage-Backed Securities
The mortgage-backed securities held by the Partnership represent Government
National Mortgage Association (GNMA) Certificates and a Federal Housing
Administration (FHA) loan. The GNMA Certificates are backed by
first mortgage loans on multifamily housing properties and pools of
single-family properties. The GNMA Certificates are debt securities issued by
a private mortgage lender and are guaranteed by GNMA as to the full and timely
payment of principal and interest on the underlying loans. The FHA loan is
guaranteed as to the full and timely payment of principal and interest on the
underlying loan.
At December 31, 1999, the total amortized cost, gross unrealized holding gains
and aggregate fair value of held-to-maturity securities were $26,837,640,
$39,713 and $26,877,353, respectively. At December 31, 1998, the total
amortized cost, gross unrealized holding gains and aggregate fair value of
held-to-maturity securities were $27,003,563, $245,407 and $27,248,970,
respectively. At December 31, 1999 and 1998, the Partnership did not have
any available-for-sale securities.
During May and August of 1998, the Partnership sold available-for-sale
mortgage-backed securities with an amortized cost of $879,911 for $915,012
thereby recognizing a gain of $35,101 on the sales.
Descriptions of the Partnership's mortgage-backed securities held during the
year ended December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Income
Number Interest Maturity Carrying Earned
Location of Units Rate Date Amount in 1999
- ------------------------------- ------------------- ---------- ---------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
GNMA Certificates:
Crane's Landing Winter Park, FL 252 8.75% 12/15/30 $ 10,119,375 $ 887,786
Monticello Apartments Southfield, MI 106 8.75% 11/15/29 5,264,973 462,036
The Ponds at Georgetown Ann Arbor, MI 134 7.50% (1) 12/15/29 4,983,127 378,423
-------------- ------------
20,367,475 1,728,245
FHA Loan:
Delta Crossing Charlotte, NC 178 9.10% 10/01/30 6,470,165 590,298
-------------- ------------
Balance at December 31, 1999 $ 26,837,640 $ 2,318,543
============== ============
(1) During the fourth quarter of 1998, the GNMA Certificate backed by a first
mortgage loan on this property was repaid and a new GNMA Certificate was
issued. The interest rate on the reissued GNMA Certificate is 7.5% compared
to 9% on the repaid GNMA Certificate.
Reconciliation of the carrying amount of the mortgage-backed securities is as
follows:
</TABLE>
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance at beginning of year $ 27,003,563 $ 28,213,364 $ 28,463,814
Additions
Acquisition of GNMA Certificate - 5,029,094 -
Amortization of discount on mortgage-backed securities 316 1,471 1,397
Deductions
FHA Loan and GNMA principal payments received (166,239) (271,807) (257,816)
Disposition of mortgage-backed securities - (5,011,336) -
Proceeds from sale of available-for-sale securities - (915,012) -
Change in net unrealized holding gains on
available-for-sale mortgage-backed securities - (42,211) 5,969
--------------- --------------- ---------------
Balance at end of year $ 26,837,640 $ 27,003,563 $ 28,213,364
=============== =============== ===============
</TABLE>
<PAGE> - 22 -
CAPITAL SOURCE II L.P.-A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
5. Investment in Operating Partnerships
The Partnership's Operating Partnerships consist of interests in limited
partnerships which own multifamily properties financed by the GNMA
Certificates and FHA Loan held by the Partnership. The limited partnership
agreements provide for the payment of a base return on the equity
provided to the limited partnerships and for the payment of additional amounts
out of a portion of the net cash flow or net sale or refinancing proceeds of
the properties, subject to various priority payments.
Descriptions of the Operating Partnerships held at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
1999
Equity in
Losses of
Carrying Operating
Name Location Partnership Name Amount Partnerships
- ------------------------ --------------------- ----------------------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Crane's Landing Winter Park, FL Crane's Landing Partner, Ltd. - -
Delta Crossing Charlotte, NC Delta Crossing Limited Partnership $ - $ -
Monticello Apartments Southfield, MI Centrum Monticello Limited Partnership - -
The Ponds at Georgetown Ann Arbor, MI Ponds at Georgetown Limited Partnership - -
------------ ------------
Balance at December 31, 1999 $ - $ -
============ ============
</TABLE>
Reconciliation of the carrying amount of the Operating Partnerships is as
follows:
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance at beginning of year $ - $ - $ -
Addition
Investment in Operating Partnerships - 407,218 121,450
Deduction
Equity in losses of Operating Partnerships - (407,218) (121,450)
--------------- --------------- ----------------
Balance at end of year $ - $ - $ -
=============== =============== ================
</TABLE>
<PAGE> - 23 -
CAPITAL SOURCE II L.P.-A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
Combined Financial Statements of the Operating Partnerships are as follows:
CAPITAL SOURCE II L.P.
OPERATING PARTNERSHIPS BALANCE SHEETS
<TABLE>
<CAPTION>
Dec. 31, 1999 Dec. 31, 1998
--------------- ---------------
<S> <C> <C>
Assets
Investment in real estate:
Land $ 2,800,750 $ 2,800,750
Buildings 24,660,289 24,582,828
Personal Property 1,622,278 1,580,684
--------------- ---------------
29,083,317 28,964,262
Less accumulated depreciation (7,967,609) (7,290,932)
--------------- ---------------
Net investment in real estate 21,115,708 21,673,330
Cash and temporary cash investments, at cost
which approximates market value 690,902 632,149
Escrow deposits and property reserves 568,743 606,575
Interest and other receivables 22,698 19,437
Deferred mortgage issuance cost, net of
accumulated amortization 1,348,151 1,394,161
Other assets 263,640 193,964
--------------- ---------------
$ 24,009,842 $ 24,519,616
=============== ===============
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable and accrued expenses $ 441,036 $ 307,981
Mortgage loan payable 27,019,503 27,186,893
Interest payable 115,382 294,222
Due to general partners and their affiliates 884,181 920,347
--------------- ---------------
28,460,102 28,709,443
--------------- ---------------
Partners' Capital (Deficit)
General Partners (4,450,260) (4,189,827)
Limited Partners - -
--------------- ---------------
(4,450,260) (4,189,827)
--------------- ---------------
$ 24,009,842 $ 24,519,616
=============== ===============
</TABLE>
<PAGE> - 24 -
CAPITAL SOURCE II L.P.-A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
<TABLE>
CAPITAL SOURCE II L.P.
OPERATING PARTNERSHIPS INCOME STATEMENTS
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Income
Rental income $ 5,362,460 $ 5,220,888 $ 5,105,108
Interest on temporary cash investments 27,744 19,993 13,084
Other income 214,437 351,218 198,870
--------------- --------------- ---------------
5,604,641 5,592,099 5,317,062
--------------- --------------- ---------------
Expenses
Real estate operating expenses 2,700,534 2,779,741 2,504,026
Depreciation expense 705,432 692,357 700,297
Interest expense 2,413,266 2,493,145 2,476,272
Amortization 46,010 46,008 48,768
--------------- --------------- ---------------
5,865,242 6,011,251 5,729,363
--------------- --------------- ---------------
Net loss $ (260,601) $ (419,152) $ (412,301)
=============== =============== ===============
Net loss allocated to:
General Partners (260,601) (11,934) (290,851)
Limited Partners - (407,218) (121,450)
--------------- --------------- ---------------
$ (260,601) $ (419,152) $ (412,301)
=============== =============== ===============
</TABLE>
<PAGE> - 25 -
<TABLE>
Financial Statements
CAPITAL SOURCE II L.P.
OPERATING PARTNERSHIPS STATEMENTS OF CASH FLOWS
For the For the For the
Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (260,601) $ (419,152) $ (412,301)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization 751,442 738,365 749,065
Increase in interest and other receivables (3,261) (11,995) (1,992)
Decrease (increase) in escrow deposits and property reserves 37,832 6,686 (125,385)
Decrease (increase) in other assets (69,676) 13,654 (22,669)
Increase (decrease) in accounts payable and accrued expenses 133,055 (542,762) 110,274
Increase (decrease) in interest payable (178,840) 46,735 (794)
Decrease in due to general partners and their affiliates (36,166) (41,216) (9,646)
--------------- --------------- ---------------
Net cash provided by (used in) operating activities 373,785 (209,685) 286,552
--------------- --------------- ---------------
Cash flows used in investing activities
Acquisition of buildings and personal property, net (119,055) (100,104) -
--------------- --------------- ---------------
Cash flows from financing activities
Principal payments on mortgage loan payable (167,390) (141,789) (129,902)
Capital contributions - 407,218 121,450
Other, net (28,587) 184,947 (904)
--------------- --------------- ---------------
Net cash provided by (used in) financing activities (195,977) 450,376 (9,356)
--------------- --------------- ---------------
Net increase in cash and temporary cash investments 58,753 140,587 208,377
Cash and temporary cash investments at beginning of year 632,149 491,562 283,185
--------------- --------------- ---------------
Cash and temporary cash investments at end of year $ 690,902 $ 632,149 $ 491,562
=============== =============== ===============
</TABLE>
<PAGE> - 26 -
CAPITAL SOURCE II L.P.-A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
6. Transactions with Related Parties
The General Partners, certain of their affiliates and the Operating
Partnerships' general partners have received or may receive fees,
compensation, income, distributions and payments from the Partnership in
connection with the offering and the investment, management and sale of the
Partnership's assets (other than disclosed elsewhere) as follows.
The General Partners are entitled to receive an asset management and
partnership administrative fee equal to 0.5% of invested assets per annum, the
first $50,000 of which will be paid each year with the balance payable only
during such years that a 6.5% annual return has been paid to investors on a
noncumulative basis. An additional fee equal to 0.5% of invested assets per
annum will be payable only during those years that an 11.5% annual return has
been paid to investors on a noncumulative basis. Any unpaid amounts will
accrue and be payable only after an 11.5% annual return to investors has been
paid on a cumulative basis and the investors have received the return of their
capital contributions. Asset management and partnership administration fees
amounted to $50,000, $50,000 and $166,000 for the years ended December 31,
1999, 1998 and 1997 respectively.
Substantially all of the Partnership's general and administrative expenses are
paid by a General Partner or an affiliate and reimbursed by the Partnership.
The amount of such expenses reimbursed to such General Partner for the years
ended December 31, 1999, 1998 and 1997 amounted to $585,181, $842,272 and
$494,165, respectively. These reimbursed amounts are presented on a cash
basis and do not reflect accruals made at each year end.
An affiliate of the General Partners has been retained to provide property
management services for The Ponds at Georgetown. The fees for services
provided were $42,842, $41,167 and $31,924 for 1999, 1998 and 1997,
respectively, and represented the lower of costs incurred in providing
management of the property or customary fees for such services determined on a
competitive basis.
7. Fair Value of Financial Instruments
The following methods and assumptions were used by the Partnership in
estimating the fair value of its financial instruments:
Cash and temporary cash investments, interest receivable, other assets,
accounts payable, distribution payable: Fair value approximates the carrying
value of such assets and liabilities.
Investment in FHA Loan and GNMA Certificates: Fair values are based on
prices obtained from an independent pricing source, adjusted for estimated
prepayments. Refer to the table below for carrying amounts and estimated
fair values of such instruments.
<TABLE>
<CAPTION>
At December 31, 1999 At December 31, 1998
----------------------------------- -----------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Investment in FHA Loan $ 6,470,165 $ 6,470,165 $ 6,505,857 $ 6,531,230
Investment in GNMA Certificates $ 20,367,475 $ 20,407,188 $ 20,497,706 $ 20,717,740
</TABLE>
<PAGE> - 27 -
8. Legal Proceedings
The Partnership has been named as a defendant in a purported class action
lawsuit filed in the Delaware Court of Chancery on February 3, 1999, by two
BAC holders, Alvin M. Panzer and Sandra G. Panzer, against the Partnership,
its General Partners, America First and various of their affiliates (including
Capital Source L.P., a similar partnership with general partners that are
affiliates of America First) and Lehman Brothers, Inc. The plaintiffs seek to
have the lawsuit certified as a class action on behalf of all BAC holders of
the Partnership and Capital Source L.P. The lawsuit alleges, among other
things, that a proposed merger transaction involving the Partnership and
Capital Source L.P. is deficient and coercive, that the defendants have
breached the terms of the Partnership's partnership agreement and that the
defendants have acted in manners which violate their fiduciary duties to the
BAC holders. In this complaint, the plaintiffs sought to enjoin the proposed
merger transaction and seek to appoint an independent BAC holder
representative to investigate alternative transactions. The lawsuit also
requests a judicial dissolution of the Partnership, an accounting, and
unspecified damages and costs.
The General Partners determined not to pursue the merger transaction which
was the subject of the initial lawsuit and proposed an alternative transaction
to BAC holders. A prospectus/consent solicitation statement outlining this
alternative transaction was sent to BAC holders on or about November 16,
1999. The plaintiffs amended their complaint on December 8, 1999, and again
on February 22, 2000. The second amended complaint challenges this current
prospectus/consent solicitation statement on grounds similar to those alleged
in the original complaint, as well as on other procedural grounds. The second
amended complaint does not seek to enjoin the proposed merger transaction.
On July 12, 1999, Alvin M. Panzer, one of the named plaintiffs in the action
described above, filed an additional complaint against the Partnership, its
General Partners and America First in the Delaware Court of Chancery. The
complaint seeks to compel the General Partners to supply the plaintiff with a
list of all BAC holders of the Partnership and copies of the limited
partnership agreements of the Operating Partnerships.
The General Partners have moved to dismiss these complaints, and they intend
to defend these lawsuits vigorously, but are unable to estimate the effect of
either of these lawsuits, if any, on the financial statements of the
Partnership or on the ability of the Partnership to consummate the proposed
merger with Capital Source L.P.
9. Summary of Unaudited Quarterly Results of Operations
<TABLE>
<CAPTION> First Second Third Fourth
From January 1, 1999, to December 31, 1999 Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total income $ 585,508 $ 583,429 $ 582,736 $ 581,775
Total expenses (133,446) (183,429) (224,203)(1) (339,730)(1)
--------------- --------------- --------------- ---------------
Net income $ 452,062 $ 400,000 $ 358,533 $ 242,045
=============== =============== =============== ===============
Net income, basic and diluted, per BAC $ .11 $ .10 $ .09 $ .06
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION> First Second Third Fourth
From January 1, 1998, to December 31, 1998 Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total income $ 634,350 $ 639,955 $ 296,136 (2) $ 530,887 (3)
Total expenses (417,488)(4) (273,959)(4) (158,660)(4) (370,106)(4)
--------------- --------------- --------------- ---------------
Net income $ 216,862 $ 365,996 $ 137,476 $ 160,781
=============== =============== =============== ===============
Net income, basic and diluted, per BAC $ .06 $ .09 $ .03 $ .04
=============== =============== =============== ===============
</TABLE>
(1) The Partnership incurred expenses of approximately $187,000 and $101,000
during the third and fourth quarters of 1999, respectively in conjunction
with a proposed merger under consideration during such periods.
(2) The Partnership had equity in losses of Operating Partnerships of
$359,113 for the third quarter of 1998.
<PAGE> - 28 -
(3) The Partnership earned less interest income during the quarter due
primarily to withdrawals from reserves to supplement monthly distributions
to BAC Holders, a reduction in the interest rate on The Ponds at
Georgetown GNMA Certificate (See Note 4), and an additional equity
contribution made to The Ponds at Georgetown Operating Partnership. In
addition, the Partnership had equity in losses of Operating Partnerships
of $48,105 for the quarter.
(4) The Partnership incurred expenses of approximately $186,000, $66,000,
$38,000 and $177,000 during the first, second, third and fourth quarters
of 1998, respectively, in conjunction with a proposed merger under
consideration during such time.
<PAGE> - 29 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CAPITAL SOURCE II L.P.-A
By America First Capital
Source II, L.L.C., General
Partner of the Registrant
By /s/ Michael Thesing
Michael Thesing,
Vice President and
Principal Financial Officer
Date: March 28, 2000
<PAGE> - 30 -
Pursuant to the requirements of the Securities and 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.
Date: March 28, 2000 By /s/ Michael B. Yanney*
Michael B. Yanney,
Chairman and Chief Executive Officer of
the America First General Partner
(Principal Executive Officer)
Chairman of the Board, President,
Chief Executive Officer and Manager of
America First Companies L.L.C.
Date: March 28, 2000 By /s/ Michael Thesing
Michael Thesing, Vice
President, Secretary and
Treasurer (Principal Financial Officer)
of the America First General Partner
Vice President, Secretary, Treasurer
and Manager of America First Companies L.L.C.
Date: March 28, 2000 By /s/ William S. Carter, M.D.*
William S. Carter, M.D.
Manager of America First Companies L.L.C.
Date: March 28, 2000 By /s/ Martin A. Massengale*
Martin A. Massengale
Manager of America First Companies L.L.C.
Date: March 28, 2000 By /s/ Alan Baer*
Alan Baer
Manager of America First Companies L.L.C.
Date: March 28, 2000 By /s/ Gail Walling Yanney*
Gail Walling Yanney
Manager of America First Companies L.L.C.
Date: March 28, 2000 By /s/ Mariann Byerwalter*
Mariann Byerwalter
Manager of America First Companies L.L.C.
Date: March 28, 2000 By /s/ Lisa Yanney Roskens*
Lisa Yanney Roskens
Manager of America First Companies L.L.C.
*By Michael Thesing,
Attorney in Fact
/s/ Michael Thesing
Michael Thesing
<PAGE> - 31 -
EXHIBIT 24
POWER OF ATTORNEY
<PAGE> - 32 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1999, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Apartment Investors, L.P.
America First Real Estate Investment Partners, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 2000.
/s/ Michael B. Yanney
Michael B. Yanney
<PAGE> - 33 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1999 and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Apartment Investors, L.P.
America First Real Estate Investment Partners, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 2000.
/s/ William S. Carter, M.D.
William S. Carter, M.D.
<PAGE> - 34 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1999, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Apartment Investors, L.P.
America First Real Estate Investment Partners, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 2000.
/s/ Martin A. Massengale
Martin A. Massengale
<PAGE> - 35 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1999, and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Apartment Investors, L.P.
America First Real Estate Investment Partners, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 2000.
/s/ Alan Baer
Alan Baer
<PAGE> - 36 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1999 and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Apartment Investors, L.P.
America First Real Estate Investment Partners, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 2000.
/s/ Gail Walling Yanney
Gail Walling Yanney
<PAGE> - 37 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1999 and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Apartment Investors, L.P.
America First Real Estate Investment Partners, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 2000.
/s/ Mariann Byerwalter
Mariann Byerwalter
<PAGE> - 38 -
POWER OF ATTORNEY
The undersigned hereby appoints Michael Thesing as his agent and
attorney-in-fact for the purpose of executing and filing all reports on Form
10-K relating to the year ending December 31, 1999 and any amendments
thereto, required to be filed with the Securities and Exchange Commission by
the following persons:
America First Tax Exempt Investors, L.P.
America First Apartment Investors, L.P.
America First Real Estate Investment Partners, L.P.
Capital Source L.P.
Capital Source II L.P.-A
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
on the 1st day of February, 2000.
/s/ Lisa Yanney Roskens
Lisa Yanney Roskens
<PAGE> - 39 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 278,134
<SECURITIES> 26,837,640
<RECEIVABLES> 193,934
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,348,772
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,348,772
<CURRENT-LIABILITIES> 599,470
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 26,749,302
<TOTAL-LIABILITY-AND-EQUITY> 27,348,772
<SALES> 0
<TOTAL-REVENUES> 2,333,448
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 880,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,452,640
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,452,640
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,452,640
<EPS-BASIC> .36
<EPS-DILUTED> .36
</TABLE>
