U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(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, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 - For the Transition period from _____ to ____
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Commission File Number: 0-17600
Common Goal Health Care Participating Mortgage Fund L.P.
(Exact name of small business issuer as specified in its charter)
Delaware 52-1475268
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(State or other Jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
215 Main Street
Penn Yan, New York 14527
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(Address of principal executive offices) (Zip Code)
(315) 536-5985
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(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Limited
Partnership Interests
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this Form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements, incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for the fiscal year ended December 31, 1997 were $280,134.
The aggregate sales price of the units of Limited Partnership Interest held by
non-affiliates of the Registrant as of March 31, 1998 was $1,991,609 (1,559
investors). As of March 31, 1998, there was no market for these Units and no
market is expected to develop. The aggregate sales price is accordingly not
necessarily indicative of the price at which these Units would trade.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Prospectus of the Registrant dated February 20, 1987, and filed
pursuant to Rule 424(b) and Rule 424(c) under the Securities Act of 1933, as
amended, are incorporated by reference into Part III of this Annual Report on
Form 10-KSB.
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TABLE OF CONTENTS
Page
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PART I
Item 1. Description of Business...................................................1
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Item 2. Description of Property..................................................13
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Item 3. Legal Proceedings........................................................13
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Item 4. Submission of Matters to a Vote of Security Holders......................13
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PART II
Item 5. Market for Units of Limited Partnership Interest and Related
Security Holder Matters..................................................14
Item 6. Management's Discussion and Analysis or Plan of Operation................14
Item 7. Financial Statements.....................................................18
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................................18
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance With Section 16(a) of the Exchange Act........................19
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Item 10. Executive Compensation...................................................20
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Item 11. Security Ownership of Certain Beneficial Owners and Management...........21
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Item 12. Certain Relationships and Related Transactions...........................21
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Item 13. Exhibits and Reports on Form 8-K.........................................21
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FINANCIAL STATEMENTS.................................................................F-1
SIGNATURES
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(i)
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PART-I
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Item 1 Description of Business.
General.
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Common Goal Health Care Participating Mortgage Fund L.P. (the
"Partnership") was organized on August 20, 1986 as a limited partnership under
the Delaware Revised Uniform Limited Partnership Act. The Partnership's general
partners are Common Goal Capital Group, Inc. ("Common Goal" or the "Managing
General Partner") and Common Goal Limited Partnership I (the "Minority General
Partner") (collectively, the "General Partners"). With limited exceptions,
Common Goal has exclusive control over the business of the Partnership,
including the right to manage the Partnership's assets. The Partnership
commenced operations on July 21, 1987 after having accepted subscriptions for
more than the requisite minimum of 116,000 depositary units representing
beneficial assignments of limited partnership interests (the "Depositary Units")
in a public offering registered with the U.S. Securities and Exchange Commission
on Form S-11 (the "Public Offering"). The Partnership raised a total of
$19,129,110 in the Public Offering which terminated on February 20, 1989. On
June 25, 1990, the Managing General Partner caused all holders of Depositary
Units to be admitted to the Partnership as Limited Partners holding units of
limited partnership interests (the "Units").
The Partnership's primary business has been to invest in or make mortgage
loans (the "Mortgage Loans"), comprised of a mix of first and junior Mortgage
Loans, secured by health care-related real properties owned by unaffiliated
entities. The Partnership does not intend to own or acquire real property,
except in the event of foreclosure when the Managing General Partner deems such
acquisition to be in the best interest of the Partnership. The Partnership has
one Mortgage Loan which remained outstanding as of March 31, 1998. See "Existing
Mortgage Loan" below.
The Partnership's objectives in making investments of the type described
above were: (i) to preserve and protect the Partnership's capital; (ii) to
provide quarterly distributions from investment income; and (iii) to provide for
potential long-term appreciation of its Mortgage Loan investments, principally
through participation payable at maturity of the Mortgage Loan or upon the sale
or refinancing of the underlying property (the "Participation"). Because
Participation in facility appreciation is paid only upon maturity of a Mortgage
Loan or a sale of the underlying facility, cash distributions as a result of
Participation on the one remaining Mortgage Loan are not expected to commence
until repayment or maturity. It is not an objective of the Partnership to
provide tax-sheltered income.
Funds held pending distribution may be invested by the Partnership, at the
direction of the Managing General Partner, in United States government
securities, certificates of deposit of United States banks with a net worth of
at least $20,000,000, repurchase agreements covering the securities of the
United States government or governmental agencies, bankers' acceptances,
commercial paper rated A-1 or better by Moody's Investors Service, Inc., money
market funds
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having assets in excess of $100,000,000, interest-bearing time deposits in banks
and thrift institutions or any combination of these investments.
The Partnership is conducting and intends to continue to conduct its
operations so that it will not become subject to regulation under the Investment
Company Act of 1940. Generally, the term "investment company" might include the
Partnership if, after a one-year period, the Partnership, among other things,
were to be engaged primarily, or were to hold itself out as being engaged
primarily, or were to propose to engage primarily, in the business of investing,
reinvesting or trading in securities, or if it were to have more than 40% of its
total assets, excluding cash and government securities, invested in "investment
securities" as that term is defined in the Investment Company Act of 1940. The
Partnership does not currently meet this test.
Basic Policies for Mortgage Loan Investments. In making Mortgage Loans, the
Managing General Partner considers such relevant factors as (1) the geographic
area and type of facility (nursing home or intermediate care or a mix of both);
(2) the location, construction, quality, condition and design of the facility;
(3) the current and anticipated cash flow from the facility and its ability to
sufficiently cover debt service (including the Partnership's Mortgage Loan),
meet operational needs and generate revenues sufficient to provide investors
with significant Additional Interest, as defined in the Partnership's
prospectus, and potential value to the Partnership's Participation; (4) the
growth, tax and regulatory environment of the community in which a facility is
located; (5) occupancy and demand for similar health care facilities with which
the facility would compete; (6) the mix of private and government pay patients;
and (7) the quality and experience of the management operating the facility. As
a general rule, the Partnership will not make Mortgage Loans on facilities which
are located in states which do not restrict the issuance of certificates of
need, unless supported by additional factors, such as borrower guarantees.
Further, it is intended that Mortgage Loans will be made in various geographic
locations in order to achieve portfolio diversification, thereby minimizing
potential effects of changes in local economic conditions and similar risks.
Types of Mortgage Loans. The Partnership makes Mortgage Loans on fee
interests (or other beneficial interests essentially equivalent to a mortgage on
real property). All real estate underlying Mortgage Loans is used in the health
care industry, particularly real estate used as nursing home and intermediate
care facilities. The Partnership will not make construction loans except in
connection with renovation or additions to existing facilities. The Partnership
may also make Mortgage Loans to enable borrowers to acquire newly constructed
properties and may commit to invest in or make Mortgage Loans with respect to
properties under construction or prior to construction, provided any such
commitment is subject to satisfactory completion of construction (and licensure
by regulatory agencies, as applicable) by a specified date. However, in no event
will such construction loans, other than those made in connection with
renovations or additions to existing facilities, in the aggregate, exceed 20% of
the gross proceeds received from the Public Offering.
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Other Operating and Investment Policies. Affiliates of the General Partners
(including partners, officers and directors investing for their own account or
that of others) have formed, and may in the future form, limited partnerships or
other entities with the same investment objectives and policies as the
Partnership. The Managing General Partner will attempt to resolve any conflicts
of interest that may arise with respect to the Joint Venture Loan (See "Existing
Mortgage Loan" below) between the Partnership and others by exercising the good
faith required of fiduciaries. Such conflicts will be resolved in the best
judgment of the Managing General Partner. In connection therewith, in 1990,
Common Goal Health Care Pension and Income Fund L.P. II ("Common Goal II"), an
affiliated, publicly-offered limited partnership with investment objectives that
are substantially identical to those of the Partnership and the Partnership
participated in a ten-year second mortgage loan in the original principal amount
of $3,430,114 to an unaffiliated third party through a joint venture between the
Partnership and Common Goal II (the "Joint Venture Loan"). At December 31, 1997
and 1996, the Partnership's mortgage loans receivable included one loan with an
outstanding balance of approximately $1,568,000, representing the Partnership's
participation in the remaining $1,618,254 of the loan. See "Existing Mortgage
Loan" below.
Federal Income Taxes. The Partnership is not subject to federal income
taxes as the liability for such taxes is that of the Partners rather than the
Partnership.
Closed Mortgage Loans.
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The Westwood Loan. On March 10, 1988, the Partnership funded a $1,300,000
mortgage loan secured by a second mortgage on a 120-bed long term nursing care
facility (the "Westwood Facilities") in Poplar Bluff, Missouri (the "Westwood
Loan"). When the Westwood Loan was funded, the loan-to-value ratio was
approximately 91%. The Westwood Loan had a term of 10 years (maturing in March
1998). The Westwood Loan was supported by two separate guarantees; the first
provided by Westwood Hills Health Care Center, Inc. (the "Westwood Loan
Borrower") and Health Services Management Corporation (which manages the
Westwood Facility) and the second provided by John Rothert and R. William Brece,
Jr. (principals of the Westwood Loan Borrower). The guarantees were required to
be maintained until certain loan-to-value ratios and debt service coverage
ratios were met. As of November 30, 1992, the conditions for release of the
guarantees were met and the guarantees were released. The guarantees by Messrs.
Rothert and Brece were subject to reinstatement at any time during the loan term
if the State of Missouri or other regulatory agencies adjusted the reimbursement
rates such that debt service coverage was reduced to less than 1.3:1.0. Any
reinstated guarantee would have remained effective until the debt service ratio
returned to the level it was prior to the adjustment and maintained or exceeded
that level for 12 consecutive months. During 1994, $300,000 of the Westwood Loan
was paid down. On October 25, 1996, the borrower on the Westwood Loan repaid the
principal balance of $1,000,000, and paid the related prepayment penalty of
$40,000, additional interest of $1,594 based on remaining 1995 gross revenues
and $58,135 based on 1996 gross revenues through October 1996, and $4,792 in
basic interest. In addition, the borrowers paid $110,550 in additional equity
interest, $3,650 in appraisal fees and
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$4,000 in estimated legal fees. The October 25, 1996 Westwood Loan repayment
totaled $1,222,720.
The Winthrop Loan. On March 25, 1988, the Partnership funded a mortgage
loan in the principal amount of $1,000,000 (the "Winthrop Loan") which was
secured by a second mortgage on a 142-bed nursing care facility in Medford,
Massachusetts (the "Medford Facility"). The Partnership has also received
additional collateral in the form of a second mortgage on a 170-bed nursing care
facility owned by an affiliate of the borrower in Bryn Mawr, Pennsylvania (the
"Bryn Mawr Facility"). The Winthrop Loan had a term of 10 years (maturing in
March 1998). When the Winthrop Loan was funded, the loan-to-value ratio was
approximately 91%. The Winthrop Loan was the subject of a guarantee of payment
of principal and interest by Hardie Beloff (a principal of the borrower) and the
Winthrop House Associates Limited Partnership (the "Winthrop Borrower"). This
guarantee was to terminate upon the achievement of debt service coverage of at
least 1.3:1.0 for 36 consecutive months.
In December of 1991, the Partnership learned that state Medicare
authorities had notified the Winthrop Borrower that the state had discovered a
series of overpayments to the Winthrop Borrower in connection with the Medford
Facility. The Winthrop Borrower entered into an agreement with the senior lender
on the Medford Facility, the Partnership and the state Medicare authorities
whereby such funds would be repaid to the state. Pursuant to the agreement, the
Winthrop Borrower paid all past due amounts of Additional Interest. The Winthrop
Loan, which had been performing according to its original terms, was repaid in
full in February 1996. The borrower on the Winthrop Loan repaid the principal
balance of $1,000,000, and the related prepayment penalty of $55,000, $3,833 in
basic interest due, and $47,671 in interest to estimated gross revenue, and
$8,728 in fees.
Horizon Loan. On July 8, 1988, the Partnership funded a $1,400,000, ten
year mortgage loan (the "Horizon Loan") to Horizon Healthcare ("HHC"), an Oregon
general partnership (the "Horizon Borrower"), secured by a second lien on a
150-bed nursing facility in Moore, Oklahoma and an 89-bed nursing facility and a
200-bed nursing facility each in Norman, Oklahoma (the "Horizon Facilities"). At
the time of funding, the Horizon Facilities were leased on a triple-net basis to
a significant not-for-profit corporation. In November of 1989, an issue arose
between the Horizon Borrower (who is also the landlord) and the tenant (the
not-for-profit corporation), whereby the tenant sought a reduction in lease
payments and, as a countermeasure, the Horizon Borrower sought possession. The
landlord was granted an order for possession of the Horizon Facilities pursuant
to which it took possession on approximately February 1, 1990. On or about July
25, 1990, the Partnership notified the Horizon Borrower that it was in default
on this loan for failure to make payments and that the Partnership intended to
pursue all available remedies against the borrower unless the loan was brought
current. On September 7, 1990, the Partnership sent the Horizon Borrower a
notice of intent to foreclose. The Partnership was advised that the Horizon
Borrower also had been in default on the first mortgage on the Horizon
Facilities since approximately July of 1990 and that the first mortgagee (the
"Senior Lender") also sent the borrower a "notice of intent of non-judicial
foreclosure." On September 21, 1990, the Senior Lender filed a petition in the
District Court of Cleveland
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County, Oklahoma, against the Horizon Borrower, seeking, among other relief,
monetary damages in the amount owed to the Senior Lender and against the Horizon
Borrower, the Partnership and others, seeking to foreclose its lien on the
Horizon Facilities. On or about November 20, 1990, the Horizon Borrower
transferred legal title to the Horizon Facilities to an affiliated corporation
("New Owner") allegedly in violation of the mortgages of the Partnership and of
the Senior Lender, and immediately thereafter, the New Owner instituted
bankruptcy proceedings for reorganization under Chapter 11 in Federal Bankruptcy
Court in Cleveland County, Oklahoma. A plan of reorganization was approved by
all creditors of the New Owner and confirmed on May 29, 1991 (the "Plan"). Under
the terms of the Plan, the Partnership received monthly payments of $15,475.08
which was calculated by amortizing the principal amount of $1,469,000 at 12% per
annum over 25 years. After the Plan was confirmed, the Partnership received the
modified payments due it under the Plan through February, 1992. At June 30,
1992, the Horizon Loan was four months delinquent as to the principal and
interest payments required by, and therefore in default under, the Plan. On June
18, 1992, the Partnership, together with two other creditors of HHC, filed an
involuntary petition in bankruptcy against HHC, the successor in interest to the
assets of the Horizon Borrower. Common Goal intended to submit a plan of
reorganization to the bankruptcy court that would vest title to the Horizon
Facilities in an affiliate of Common Goal. On July 13, 1992, the Board of
Directors of Common Goal met and decided to proceed no further with attempts to
obtain control of the three properties collateralizing the Horizon Loan. The
decision was made because of the high risk involved, the low probability of
success and the amount of new investment required if the Partnership were to
obtain the properties. This action enabled the Senior Lender to proceed with its
foreclosure proceedings on the properties. Management of the Partnership
evaluated the exposure with respect to this mortgage loan receivable and
provided an allowance for loss of $993,495 in 1992 in order to fully reserve
against a loan balance of $1,393,495. As of December 31, 1992, the entire
mortgage loan receivable and the outstanding allowance for loss were charged
off.
At the time the Partnership entered into its loan agreement with the
Horizon Borrower in June of 1988, the Partnership received tenant estoppel
letters executed by certain officers of Adventist Living Centers, Inc., a
Wisconsin not-for-profit corporation ("ALC"). In these letters, ALC made
representations to the Partnership concerning certain leases then in effect
between the Horizon borrower and ALC.
On November 14, 1990, ALC filed a Chapter 11 bankruptcy petition in the
United States Bankruptcy Court for the Northern District of Illinois. On May 20,
1991, a proof of claim was filed on behalf of the Partnership in the ALC
bankruptcy case alleging that at the time ALC's petition was filed, ALC was
indebted to the Partnership in the amount of $1,629,405 based on ALC's breach of
its tenant estoppel letters. In March of 1993, the Partnership reached a
settlement of this claim and on March 19, 1993, the Partnership received final
payment of $42,500. Future settlements in the pending state court action may
require a return of funds to the creditors committee formed under the federal
bankruptcy court.
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On October 23, 1991, a complaint was filed on behalf of the Partnership in
the Circuit Court of DuPage County, Illinois. Named as defendants in that
complaint were ALC, the Horizon Borrower and certain individuals and entities
either currently or formerly affiliated with ALC or the Horizon Borrower,
including the Horizon Borrower's general partners. The complaint alleged that
the defendants made false representations of material fact to the Partnership.
The complaint sought recovery of damages in the amount of $1,400,000 plus
interest, costs and attorneys' fees.
On January 5, 1994, the DuPage County Circuit Court granted the Horizon
Borrower and its general partners leave to file an amended answer and
counterclaim against the Partnership. The Partnership was granted until February
2, 1994 to answer or otherwise respond to the counterclaim. The counterclaim
asserted that after ALC defaulted on lease payments to Horizon, the Partnership
interfered with Horizon's attempts to renegotiate its leases with ALC for three
Oklahoma nursing home facilities for which the Partnership provided second
mortgage financing, and also interfered with the Horizon Borrower's negotiations
with an entity the Horizon Borrower proposed as a substitute tenant for ALC. The
counterclaim also asserted that the Partnership misrepresented certain
information regarding a proposal to operate the nursing home facilities, and
breached its loan agreement with Horizon by withholding consent from proposed
rent reductions to ALC. The counterclaim sought damages from the Partnership in
the amount of approximately $6.8 million. On April 25, 1994 the Circuit Court of
DuPage County entered an order granting the Partnership's Motion to Dismiss the
counterplaintiffs' counterclaim with prejudice in the Horizon Loan Litigation.
The court found that the counterplaintiffs did not have standing to assert the
claims against the Partnership. Without determining the validity of any such
claims, the Court determined that the claims could only be asserted by HHC,
Inc., the successor to Horizon Healthcare (the original borrower) which filed a
bankruptcy petition in November 1990. Subsequently, Horizon moved to have the
above motion vacated. On July 5, 1994, the Circuit Court denied the Horizon
Motion to Vacate. Following the entry of this Order, the parties engaged in
substantial discovery. After the completion of discovery, the Partnership filed
an amended complaint on September 12, 1995. This pleading named the Lake Union
Conference of Seventh-day Adventists ("Lake Union") as an additional defendant.
Although Lake Union objected to being added as a defendant, the Court ruled, on
October 10, 1995, that it should be included in the case.
In its complaint, the Partnership sought $1,400,000 (principal amount of
the loan to Horizon) plus interest owing and punitive damages. During 1996, the
Partnership settled the Horizon loan litigation for a total of $480,000. In
December 1996 the Partnership received $353,530 as settlement to this suit, net
of $126,470 in attorneys' fees.
Existing Mortgage Loan.
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The Joint Venture Loan. On September 7, 1989, the Partnership funded a
short-term mortgage loan (the "Honeybrook Loan") in the original principal
amount of $3,370,000, to two Tennessee limited partnerships (individually, a
"Borrower" and collectively, the "Borrowers"). One of the Tennessee limited
partnerships owns a 100-bed skilled care and intermediate care
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facility and the other limited partnership owns a 101-bed retirement and
assisted care facility, both of which are located in Honeybrook, Pennsylvania
(collectively, the "Facilities"). The Honeybrook Loan was originally secured by
a second mortgage on the skilled and intermediate care facility and by
collateral assignments of 100% of the general partners' and limited partners'
interests in each Borrower. The security interest was taken in by the Borrower
that owns the retirement and assisted care facility insofar as the facility is
subject to a HUD regulatory agreement which prohibits junior encumbrances on the
facility. The security interest is subject and subordinate to all applicable HUD
regulations. When the Honeybrook Loan was funded, the loan-to-value ratio was
approximately 89%. The Partnership elected to extend the original term of the
Honeybrook Loan and assigned its obligation to make the long-term loan to a
newly created joint venture with Common Goal II (the "Joint Venture Loan"). The
Joint Venture Loan was made on or about August 1, 1990, with the Partnership
making a $3,430,114 contribution at that time to fund the Joint Venture Loan. In
1991, Common Goal II contributed $95,600, thereby decreasing the Partnership's
contribution by that amount. The Borrowers made a $30,000 repayment of principal
in 1991, bringing the Partnership's contribution down to $3,304,514 at December
31, 1991 and in December 1992 made a principal paydown of $211,514 to bring the
balance to $3,093,000 on December 31, 1992. The $211,514 was received on January
7, 1993 and reclassified as a short term receivable for year end 1992. An
additional $70,000 was paid down on the principal on March 29, 1993.
On November 3, 1993, Life Care Centers of America, Inc. ("Life Care") paid
a total of $1,746,790 in a restructuring of the Joint Venture Loan. Of the
$1,691,477 allocated to the Partnership, $1,455,336 was applied to principal and
$145,534 to a Prepayment Penalty. A Refinance Fee of $72,750 was negotiated,
while Gross Revenue, Basic Interest and Additional Interest were taken as set
forth in the loan documents. The Partnership's balance has been paid down to
$1,567,664 while the Common Goal II balance has also been paid down to $50,590.
In connection with the repayment of principal, the Partnership agreed to release
its mortgage on the skilled care and intermediate care facility. Life Care or
its affiliates operate the retirement and assisted care facility, which secures
the Joint Venture Loan.
The Joint Venture Loan is guaranteed by Life Care and by the beneficial
owner of the Borrowers. In connection with the negotiation of the Refinance Fee,
two individual guarantors who are no longer employees of the Borrowers were
released from their guaranty obligations. As of December 31, 1997, Life Care had
an audited net worth in excess of $67,000,000, a substantial amount of which was
illiquid. A substantial portion of the net worth of the individual guarantor is
also illiquid.
The table set forth below provides information concerning the basic terms
and conditions of the Mortgage Loan made and currently held by the Partnership
as of the date of this report.
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Common Goal Existing Mortgage Loans
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Joint Venture
Loan
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Date of Loan 8/1/90
Type of Loan Second Mortgage on
Facility
Outstanding 1,567,664 (1)
Principal
Amount
Base 13.7% (2)
Interest Rate
Maturity 1/1/2000
Type of Property/ Collateral assignment
Location of Property of interest in 101-bed
Securing Loan retirement and assisted
care facility in Honeybrook, PA
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Notes
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(1) This amount reflects the funding provided to the Joint Venture by the
Partnership.
(2) This loan currently requires payment of additional interest at a rate of
1.95% of gross revenues from the Facilities in excess of $1,694,000 per
annum. This provision is currently the subject of negotiation as a result
of the refinancing of this loan and the release of the Joint Venture's lien
on one of the Facilities. The Partnership believes that the negotiations
will not have a material effect on the amount of additional interest
received. The loan also provides for payment of a participation equal to
30% of the first $1,000,000 of increase in the fair market value (or gross
sales price) of the Facilities over aggregate secured indebtedness
(including the Joint Venture Loan) as of the date of funding of the Joint
Venture Loan and 17% of the balance of any such increase. As a result of
the refinancing of this loan, the fair market value of the retirement and
assisted care facility has been deemed to be $6,400,000 for the purpose of
calculating the participation. The participation would be payable upon
sale, refinancing of a senior mortgage loan or at maturity of the Joint
Venture Loan with the fair market values to be determined at that time.
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Partnership Allocation of Income and Loss and Distribution.
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Net Income and Net Loss. Net income (except with respect to a Disposition,
which includes any Partnership transaction not in the ordinary course of its
business, including, without limitation, collections of principal payments,
equity participation payments, prepayments, prepayment penalties, sales,
exchanges, foreclosures or other dispositions of Mortgage Loans held by the
Partnership, recoveries of damage awards and insurance proceeds (other than the
receipt of subscriptions for Units, all forms of interest payments when due on
Mortgage Loans or business or rental interruption insurance proceeds)) and net
loss of the Partnership are allocated 98% to Limited Partners and 2% to the
General Partners. Net income arising from a Disposition is allocated 98% to
Limited Partners and 2% to the General Partners to the extent of any negative
balances in the capital accounts of the Limited Partners, and then 100% to
Limited Partners in an amount necessary to bring the Limited Partners' capital
accounts up to an amount equal to their Original Contributions, which means the
amount of $10.00 for each Unit less the return of any amount of uninvested funds
returned, as defined in the prospectus, plus the 11% per annum preferred
cumulative return thereon (less previous distributions to the Limited Partners
in repayment of such amounts). The remainder of such net income shall be
allocated 85% to the Limited Partners and 15% to the General Partners.
Distributions of Cash From Operations. Distributions of Adjusted Cash From
Operations, defined as all receipts of interest payments on Mortgage Loans less
cash receipts used to pay operating expenses and to repurchase any Units (Cash
Flow) less any amount set aside for the restoration or creation of working
capital reserves, are distributed 98% to the Limited Partners and 2% to the
General Partners, and are apportioned quarterly among Limited Partners of record
as of the record date declared within 30 days after the end of each quarter and
are paid quarterly. No distributions of Adjusted Cash From Operations with
respect to any calendar year are made to the General Partners until the
following occurs:
First, distributions to the Limited Partners equal to the 8% annual
cumulative return on their Adjusted Contributions, defined as Original
Contributions attributable to a Unit, reduced by the total of cash
distributed from Disposition Proceeds and from working capital reserves,
for such year (plus any amounts accrued from prior years) have been made to
the Limited Partners; and
Second, payment of all previously subordinated management fees, if any,
have been made.
Thereafter, all previously subordinated amounts payable to the General
Partners with respect to their 2% interest are paid in full to the extent funds
are available, and if not available, are deferred and paid out of Disposition
Proceeds, defined as receipts from Dispositions net of related expenses, amounts
necessary for the payment of debts and obligations of the Partnership and any
amount set aside for working capital reserves. The Partnership has been making
distributions to the Limited Partners in excess of the 8% annual cumulative
return on Adjusted Contributions.
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Distributions of Disposition Proceeds. The Managing General Partner has the
right to reinvest or distribute all Disposition Proceeds, through the end of the
eleventh year after the date of the Prospectus. Non-liquidating distributions of
Disposition Proceeds are distributed in the following order of priority, except
as otherwise required by law:
First, 100% to the Limited Partners until the Limited Partners have
received an amount which, when added to prior distributions of Disposition
Proceeds and cash from reserves attributable thereto, equals the Original
Contributions of the Limited Partners;
Second, 100% to the Limited Partners until each Limited Partner has
received an amount which, when added to all prior distributions to Limited
Partners from all sources (including prior distributions in satisfaction of
the 8% annual cumulative return but excluding distributions pursuant to
above), equals the 11% per annum preferred cumulative return on their
Adjusted Contributions, (calculated from the first day of the calendar
quarter succeeding the quarter in which Capital Contributions are
received);
Third, 100% to the General Partners until they have been paid 100% of
the subordinated portion, if any, of (a) the Partnership Management Fee, if
any, and then (b) their 2% interest in Adjusted Cash From Operations; and
Fourth, the remainder, 85% to the Limited Partners and 15% to the
General Partners.
Dissolution and Returns of Principal.
- -------------------------------------
Since it was the intention of the Managing General Partner to liquidate the
Partnership's assets between 1999 and 2004, the Managing General Partner has
commenced an orderly liquidation and will not reinvest loan proceeds in new
Mortgage Loans. The Partnership's last remaining Mortgage Loan, the Joint
Venture Loan, will mature on January 1, 2000.
Proceeds from the liquidation shall be applied and distributed in the
following order:
First, to the payment of creditors of the Partnership but excluding
secured creditors whose obligations will be assumed or otherwise
transferred on the liquidation of Partnership assets; and
Second, after allowance for the expenses of liquidation and the setting
up of any reserves for contingencies which the Managing General Partner
considers necessary, to the General Partners and Limited Partners in
proportion to and to the extent of the positive balances in their capital
accounts, after net income or loss arising from a Disposition has been
allocated, with any excess being distributed in accordance with the order
of priority for non-liquidating distributions.
Notwithstanding anything to the contrary, the Managing General Partner has
the right to defer liquidation if, in the opinion of the Managing General
Partner, the sale of Partnership
11
<PAGE>
assets in liquidation would result in a material underrealization on the
Partnership's assets. The Managing Partner also has the right to determine the
rate at which returns of principal (returns of Original Contribution) are
distributed to the limited partners.
12
<PAGE>
Item 2. Description of Property.
The Partnership owned no real property as of December 31, 1997.
Item 3. Legal Proceedings.
The Partnership settled certain legal proceedings in connection with the
default of the Horizon Borrower on the Horizon Loan in 1996. See "Item 1.
Description of Business - Closed Mortgage Loans- Horizon Loan."
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the last
quarter of 1997.
13
<PAGE>
PART-II
-------
Item 5. Market for Units of Limited Partnership Interest and Related Security
Holder Matters.
The Partnership originally caused depositary receipts representing units of
limited partnership interest to be issued in its public offering which continued
from February of 1987 to February of 1989, pursuant to the terms of such
depositary receipts. On June 25, 1990, the Managing General Partner caused all
holders of depositary units to be admitted to the Partnership as Limited
Partners and distributed to such Limited Partners the units of limited
partnership interests (the "Units") represented by their depositary receipts.
The Units are not readily transferable. There is no public market for the Units
and it is not currently expected that any will develop. There are restrictions
upon the transferability of Units, including the requirement that the General
Partners consent to any transferee becoming a substituted Unitholder (which
consent may be granted or withheld at the sole discretion of the General
Partners). In addition, restrictions on transfer may be imposed under state
securities laws.
The Revenue Act of 1987 contains provisions which may have an adverse
impact on investors in certain "publicly traded partnerships." If the
Partnership were to be classified as a "publicly traded partnership," income
attributable to the Units would be characterized as portfolio income and the
gross income attributable to Units acquired by tax-exempt entities after
December 17, 1987 would be unrelated business income, with the result that the
Units could be less marketable. The General Partners will, if necessary, take
appropriate steps to ensure that the Partnership will not be deemed a "publicly
traded partnership."
At March 31, 1998, 1,911,411 Units were outstanding and were held by
approximately 1,559 holders of record.
The Partnership made distributions to Limited Partners of $829,446, or $.43
per unit during 1997, $922,965, or $.48 per unit during 1996, $1,261,461 or $.66
per Unit during 1995, $1,777,746 or $.93 per Unit during 1994, $1,866,722 or
$.98 per Unit during 1993, $1,824,848 or $.95 per Unit during 1992, $1,913,781
or $1.00 per Unit during 1991, $2,031,742 or $1.06 per Unit during 1990,
$1,812,715 or $.96 per Unit during 1989, and $843,048 or $.73 per Unit during
1988. In addition, principal distributions of $1,000,000 ($.52 per Unit),
$3,000,000 ($1.57 per Unit), $5,000,000 ($2.62 per Unit), $500,000 ($.26 per
Unit) and $1,361,360 ($.71 per Unit) were disbursed in December 1993, July 1994,
May 1995, July 1996 and January, April and October 1997, respectively. The
Partnership does not intend to make additional Mortgage Loans.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Liquidity and Capital Resources. Common Goal Health Care Participating
Mortgage Fund L.P., a Delaware limited partnership (the "Partnership"), was
formed to make mortgage loans secured by real property comprised of a mix of
first and junior Mortgage Loans, secured by
14
<PAGE>
health care related properties. The Public Offering commenced on February 20,
1987 and continued through February 20, 1989, when the Public Offering
terminated. Total gross offering proceeds raised were $19,129,110.
Partnership assets decreased to $2,204,339 at December 31, 1997 from
$4,236,513 at December 31, 1996. The decrease from 1996 to 1997 ($2,032,174 or
approximately 48%) resulted primarily from a decrease of cash and cash
equivalents by $2,060,025, ($1,361,360 of which was returned to the Limited
Partners as a principal pay back), an increase of accrued interest receivable by
$30,515, and the fact that there were no repayments of Mortgage Loan
receivables. As of December 31, 1997, the Partnership's loan portfolio consisted
of one mortgage loan, the aggregate outstanding principal balance of which was
$1,567,664.
.
The Partnership has structured its Mortgage Loans to provide for payment of
quarterly distributions from investment income. The interest derived from the
Mortgage Loans, repayments of Mortgage Loans and interest earned on short-term
investments contribute to the Partnership's liquidity. These funds are used to
make cash distributions to Limited Partners, to pay normal operating expenses as
they arise and, in the case of repayment proceeds, may, subject to certain
exceptions, be used to make additional Mortgage Loans. Reference is made to
"Item 1. Description of Business" and the "Notes to the Financial Statements" in
"Item 7. Financial Statements" for further information regarding such Mortgage
Loan investments.
The Partnership's balance of cash and cash equivalents at December 31, 1997
and 1996 was $593,842 and $2,653,867, respectively, which consisted of operating
cash and working capital reserves. The decrease in cash and cash equivalents
from December 31, 1996 resulted from a payment of $829,446 ($.43 per Unit) in
dividend distributions (which included $680,226 ($.36 per Unit) return of
capital), and $1,361,360 ($.71 per Unit) return of principal which were offset
by net income of $149,220. Dividend distributions noted as a return of capital
represent those distributions which are in excess of current year earnings. The
Partnership is required to maintain reserves not less than 1% of gross offering
proceeds (not less than $191,291), but currently maintains a reserve in excess
of that amount, $593,842 at December 31, 1997. The amount of cash and cash
equivalents currently maintained by the Partnership is primarily the result of
proceeds from the repayment of mortgage loans.
On February 12, 1996, the Partnership received $1,115,232 as a payoff on
the Winthrop Loan. $1,000,000 was applied to principal, $3,833 to basic
interest, $55,000 to a prepayment penalty, and $47,671 to estimated gross
revenue. The remaining $8,728 was used for legal fees incurred by the
transaction and to the equity participation owed in accordance with the loan
documents. At the time of payoff, the parties were not able to determine if any
additional gross revenue and equity participation were owed. Therefore, the
parties entered into two separate escrow arrangements whereby funds were
withheld pending further determination of whether said funds are owed. In
November 1996, the Partnership received $29,500, including $7,000 for
reimbursement of legal fees, of additional gross revenue from the escrowed
funds, which were agreed to by the parties. On October 25, 1996, the Partnership
received $1,222,720 as a payoff on the Westwood Loan. $1,000,000 was applied to
principal, $4,792 to basic interest,
15
<PAGE>
$40,000 to a prepayment penalty, and $59,729 to gross revenue. In addition, the
borrowers paid $110,550 in additional equity interest, $3,650 in appraisal fees,
and $4,000 in estimated legal fees.
The Partnership's success and the resultant rate of return to Unitholders
is dependent upon, among other things, the continued ability of the remaining
borrowers to pay the current interest, additional interest and principal on the
Mortgage Loans.
As a result of the loan payoffs to date (see "Item 1. Description of
Business", the Partnership's rates of return have been and will continue to be
impacted, as discussed in Results of Operations below.
Results of Operations. The Partnership was organized in August 1986. The
Partnership funded seven Mortgage Loans between 1987 and 1990, including a loan
made by a venture between the Partnership and Common Goal II in August 1990. As
of December 31, 1997, the Partnership had one remaining Mortgage Loan. Since
commencement of operations in July of 1987, the Partnership invested available
funds (funds not invested in Mortgage Loans) in short-term investments. The
interest earned on these investments has been and is expected to continue to be
less than the interest rates achievable on Mortgage Loans made by the
Partnership. Although the Partnership's earnings were expected to increase
slowly once its portfolio of Mortgage Loans was substantially completed and
borrowers commenced payments of Additional Interest, the default on the
Partnership's $1,400,000 Horizon Loan (made in July 1988) which occurred in July
of 1990 (as described above), has adversely impacted such expectation.
During the years ended December 31, 1997, 1996, and 1995, the Partnership
had net income of $149,220, $893,250 and $388,420, based on total revenues of
$280,134, $1,072,159, and $727,059, and total expenses of $130,914, $178,909,
and $338,639, respectively. The Partnership's net income per Limited Partner
Unit was $.08 per Unit in 1997, $.46 per Unit in 1996 and $.20 per Unit in 1995.
The Partnership's distributions, including returns of principal, to Limited
Partners were $1.14 per Unit in 1997, $.74 per unit in 1996 and $3.28 per Unit
in 1995. The 1997 distribution included $1,361,360 in principal payments ($.71
per Unit), the 1996 distribution included a $500,000 principal repayment ($.26
per Unit), and the 1995 distribution included a $5,000,000 principal repayment
($2.62 per Unit). Eliminating the effect of the principal repayments to the
Limited Partners, the dividend distributions to Limited Partners were $.43 per
Unit in 1997, $.48 per Unit in 1996 and $.66 per Unit in 1995. The 1997 dividend
distributions included a return of capital of $.36 per Unit. The 1996 dividend
distributions included a return of capital of $.03 per Unit. The 1995 dividend
distributions included a return of capital of $.46 per Unit.
The distributions may not remain at the present level (9.256% financial
capital) as a result of loan payoffs. The General Partners are currently
reviewing the distribution policy and the matters of the additional reserves now
being held. The Partnership receives a lesser rate of return from its short-term
investments than it would receive from the loans, thereby reducing funds
available for distribution.
16
<PAGE>
Expenses decreased in 1997 by $47,995 primarily because of a decrease in
miscellaneous expenses of $31,674 due to the elimination of the Fund Controller
and Fund Administrator positions caused by the drop in mortgage balances being
serviced. There was also a decrease of $16,357 in management fees and a decrease
in mortgage servicing fees of $2,336, also caused by the drop in mortgage
balances being serviced.
Expenses decreased in 1996 by $159,730 primarily because of a decrease in
professional fees of $102,365. In addition, there was a decrease of $44,740 in
management fees and a decrease in mortgage servicing fees of $13,435 caused by a
drop in mortgage balances being served.
Additionally, under the terms of the Partnership agreement, the Partnership
is required to reimburse the Managing General Partner for certain operating
expenses paid on behalf of the Partnership. In 1997, 1996 and 1995, the Managing
General Partner was reimbursed by the Partnership for $93,763, $105,655 and
$47,785 of these expenses, respectively. The Managing General Partner believes
that such charges have not adversely affected the current yield to the Limited
Partners.
17
<PAGE>
Item 7. Financial Statements.
See Financial Statements.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
18
<PAGE>
PART-III
--------
Item 9. Directors Executive Officers, Promoters and Control Persons, Compliance
With Section 16(a) of the Exchange Act.
The Partnership does not have directors or officers. The following is a
list of the officers and directors of the Managing General Partner as of March
31, 1998:
Name Age Position
------------------ --- ------------------------------------------
Albert E. Jenkins III 51 Chairman of the Board, Chief Executive
Officer, President, Treasurer and Director
Richard R. Wood 75 Director
William Jasper 82 Director
Albert E. Jenkins III is the President and Chief Executive Officer of the
Managing General Partner as well as the Executive Vice President and
Secretary/Treasurer of Common Goal Mortgage Company. He is also President and
Chief Executive Officer of Common Goal Capital Group, Inc. II ("CG Capital Group
II"), the managing general partner of Common Goal Health Care Pension and Income
Fund L.P. II, a Delaware limited partnership which commenced a public offering
of its securities in January 1990. Mr. Jenkins also serves on the boards of
directors of the above-referenced corporations. Mr. Jenkins is a co-general
partner of Common Goal Limited Partnership I and Common Goal Management Company.
Mr. Jenkins is also President, Chief Executive Officer and a director of St.
Catherine's of Seneca, Inc., St. Catherine's Care Center of Tiffin, St.
Catherine's Care Center of Bloomville and St. Catherine's Care Centers of
Fostoria. In addition, Mr. Jenkins is President and a director of St.
Catherine's Health Care Management, Inc. and St. Catherine's Care Centers of
Washington Court House Inc. Mr. Jenkins has been a licensed securities salesman
since 1971 and an investment advisor registered under the Investment Advisers
Act of 1940 since 1978.
Richard R. Wood is a director of the Managing General Partner and is
president, a director and owner of 80% of the outstanding stock of Renwood
Properties, Inc. Mr. Wood is also a co-general partner of Common Goal Limited
Partnership I and a director of Common Goal Capital Group Inc. II, the managing
general partner of Common Goal II. In addition, Mr. Wood is a member of the
board of directors of the St Catherine's affiliated companies which currently
own five health care facilities in Ohio. Mr. Wood has, either individually or
together with or through Renwood, sponsored 31 prior private limited
partnerships which have acquired real estate. These partnerships have raised
approximately $30,762,525, with approximately 81% of the properties acquired
being government-subsidized low income housing projects for families and the
elderly and handicapped. In addition, Mr. Wood is a controlling shareholder of
Renwood, Inc. and several of the Renwood companies, which act as co-general
partners of certain of the above-referenced syndications. He is currently a
member of the National Leased
19
<PAGE>
Housing Association, Council for Rural Housing and the Real Estate Investment
Association. Mr. Wood received a B.A. from Harvard University in 1943 and
attended Massachusetts Institute of Technology from 1947-1948.
William E. Jasper, Jr. is a director of Common Goal Capital Group, Inc. II
and has been a member of the Board of Directors of Madison Square Federal
Savings Bank since 1964. Prior to 1980, when Mr. Jasper retired, he had served
as president of a multi-line insurance agency and brokerage. Mr. Jasper is a
Deputy Regional Director for a fraternal organization that is dedicated to the
Maryland Special Olympics which provides health-care training and specialized
sports for the mentally handicapped. Mr. Jasper attended Baltimore City College
and has taken numerous extended courses at Loyola College and Johns Hopkins
University in real estate, appraisals, inspections, financial planning,
mortgages and management.
Item 10. Executive Compensation.
The Partnership has no executive officers or directors. The Partnership is
not required to pay the officers and directors of the General Partners any
current nor any proposed compensation in such capacities. However, the
Partnership is required to pay certain fees, make distributions and allocate a
share of the profits or losses of the Partnership to the General Partners as
described under the caption "Management Compensation" on pages 9 through 13 of
the Partnership's Prospectus, which description is incorporated herein by
reference. Set forth below are the fees, compensation and other reimbursements
paid or accrued to Common Goal and its Affiliates for the year ended December
31, 1997.
Capacities in
Which Compensation
Name of Affiliate was Received Remuneration
----------------- ------------------ ------------
Common Goal Management fee $30,496
Common Goal Mortgage Mortgage loan $ 3,919
Compay servicing fees
No form of non-cash remuneration was paid by the Partnership.
For further information on compensation paid to Common Goal and its Affiliates,
see "Management Compensation" on pages 9-13 of the Prospectus.
20
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The Partnership, as an entity, does not have any directors or officers. The
following is information concerning Unit ownership as of December 31, 1997.
To the best knowledge of the Partnership, no person owns more than 5% of
the outstanding Units. Messrs. Jenkins and Wood each own less than 1% of the
total outstanding Units and all officers and directors of the Managing General
Partner, as a group, own less than 1% of the total outstanding Units. No other
officer or director of the Managing General Partner owns any Units.
Item 12. Certain Relationships and Related Transactions.
The Partnership has entered into the Joint Venture Loan with Common Goal
II, an affiliated, publicly-offered limited partnership. On August 1, 1990, the
joint venture made a $3,430,114 loan to an unaffiliated third party, which loan
had a remaining principal balance of $1,618,254 at December 31, 1997. For
further information concerning this Mortgage Loan, see "Item 1. Description of
Business" - "Existing Mortgage Loan" - "The Joint Venture Loan."
The Partnership engages the services of Common Goal Mortgage Company, an
affiliate of the General Partners, in connection with servicing Mortgage Loans
for which Common Goal Mortgage Company is paid a fee. See Item 11, Executive
Compensation, for the information concerning such fees.
Item 13. Exhibits and Reports on Form 8-K.
(a) (1) Financial Statements
The response to this portion of Item 13 is submitted
as a separate section of this report, commencing on
page F-1.
(2) Financial Statement Schedules
Not applicable.
(3) Exhibits
See response to Item (c), below.
(b) Reports on Form 8-K
The Partnership did not file any reports on Form 8-K
during the quarter ended December 31, 1997.
21
<PAGE>
(c) Exhibits
The following exhibits are included herein or
incorporated by reference:
Number
3.1 Second Amended and Restated Agreement of
Limited Partnership of Registrant dated as
of February 1, 1987 (incorporated by
reference from the Registrants Registration
Statement (File No. 33- 8531) on Form S-11
filed under the Securities Act of 1933, as
amended)
3.2 Pages 9-13 of the Registrant's final
prospectus dated February 20, 1987, as filed
with the Securities and Exchange Commission
pursuant to Rule 424(b) under the Securities
Act of 1933, as amended.
(d) Financial Statement Schedules
Not applicable.
22
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COMMON GOAL HEALTH CARE
PARTICIPATING MORTGAGE FUND L.P.
By: Common Goal Capital Group, Inc.,
General Partner
By: /s/ Albert E. Jenkins
---------------------
Albert E. Jenkins III
Chairman and Chief Executive Officer
Date: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Position Date
---- -------- ----
/s/ Albert E. Jenkins
- --------------------- Chairman (Principal March 31, 1998
Albert E. Jenkins III Executive Officer),
President, Principal
Financial and
Accounting Officer
and Director of
Managing General
Partner
/s/ Richard R. Wood
- ------------------- Director of Managing March 31, 1998
Richard R. Wood General Partner
/s/ William E. Jasper, Jr.
- ---------------------------- Director of Managing March 31, 1998
William E. Jasper, Jr. General Partner
(A Majority of the Board of Directors of the Managing General
Partner)
<PAGE>
Independent Auditors' Report
----------------------------
The Partners
Common Goal Health Care
Participating Mortgage Fund L.P.:
We have audited the accompanying balance sheets of Common Goal Health Care
Participating Mortgage Fund L.P. (a Delaware limited partnership) as of December
31, 1997 and 1996, and the related statements of operations, partners' capital,
and cash flows for each of the years in the three-year period ended December 31,
1997. 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 Common Goal Health Care
Participating Mortgage Fund L.P. as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
-------------------------
Denver, Colorado KPMG Peat Marwick LLP
March 16, 1998
F-1
<PAGE>
COMMON GOAL HEALTH CARE
PARTICIPATING MORTGAGE FUND L.P.
(a Delaware limited partnership)
<TABLE>
<CAPTION>
Balance Sheets
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
Assets
Cash and cash equivalents $ 593,842 $ 2,653,867
Due from affiliates - 2,664
Accrued interest receivable 42,833 12,318
Mortgage loans receivable (note 2) 1,567,664 1,567,664
---------- -----------
$2,204,339 $ 4,236,513
========== ===========
Liabilities and Partners' Capital
Accounts payable and accrued expenses $ 4,000 $ 11,150
Due to affiliates 29,103 12,541
----------- -------------
Total liabilities 33,103 23,691
Partners' capital (note 4):
General partners 64,033 61,050
Limited partners 2,107,203 4,151,772
---------- ------------
Total partners' capital 2,171,236 4,212,822
---------- ------------
$2,204,339 $ 4,236,513
========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
COMMON GOAL HEALTH CARE
PARTICIPATING MORTGAGE FUND L.P.
(a Delaware limited partnership)
<TABLE>
<CAPTION>
Statements of Operations
Years ended December 31, 1997, 1996 and 1995
- -------------------------------------------------------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Interest income ............................... $ 280,134 513,079 727,059
Other income:
Loan prepayment penalties .................. -- 95,000 --
Equity participation received in pay-off of
mortgage loan receivable ............... -- 110,550 --
Recovery of loan receivable previously
written off ............................ -- 353,530 --
---------- ---------- ----------
Total other income ..................... -- 559,080 --
---------- ---------- ----------
280,134 1,072,159 727,059
Expenses:
Professional fees ............................. 62,219 59,847 162,212
Fees to affiliates:
Management ................................. 30,496 46,853 91,593
Mortgage servicing ......................... 3,919 6,255 19,690
Other ......................................... 34,280 65,954 65,144
---------- ---------- ----------
130,914 178,909 338,639
---------- ---------- ----------
Net income ............................. $ 149,220 893,250 388,420
========== ========== ==========
Net income allocated to general partners $ 2,983 17,865 7,768
Net income allocated to limited partners 146,237 875,385 380,652
---------- ---------- ----------
$ 149,220 893,250 388,420
---------- ========== ==========
Net income per limited partner unit .... $ .08 0.46 0.20
========== ========== ==========
Weighted average limited partner units
outstanding ......................... 1,911,411 1,911,411 1,911,411
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
COMMON GOAL HEALTH CARE
PARTICIPATING MORTGAGE FUND L.P.
(a Delaware limited partnership)
<TABLE>
<CAPTION>
Statements of Partners' Capital
Years ended December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
Total
General Limited Partners'
partners partners capital
-------- -------- -------
<S> <C> <C> <C>
Balance at December 31, 1994 .......... $ 147,247 10,580,161 10,727,408
Net income ............................ 7,768 380,652 388,420
Distributions to limited partners
($.66 per unit) .................. -- (1,261,461) (1,261,461)
Distributions to general partners ..... (111,830) -- (111,830)
Return of principal to limited partners
($2.62 per unit) ................. -- (5,000,000) (5,000,000)
----------- ----------- -----------
Balance at December 31, 1995 .......... $ 43,185 4,699,352 4,742,537
Net income ............................ 17,865 875,385 893,250
Distributions to limited partners
($.48 per unit) .................. -- (922,965) (922,965)
Return of principal to limited partners
($.26 per unit) .................. -- (500,000) (500,000)
----------- ----------- -----------
Balance at December 31, 1996 .......... $ 61,050 4,151,772 4,212,822
Net income ............................ 2,983 146,237 149,220
Distributions to limited partners
($.43 per unit) .................. -- (829,446) (829,446)
Return of principal to limited partners
($.71 per unit) .................. -- (1,361,360) (1,361,360)
----------- ----------- -----------
Balance at December 31, 1997 .......... $ 64,033 2,107,203 2,171,236
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
COMMON GOAL HEALTH CARE
PARTICIPATING MORTGAGE FUND L.P.
(a Delaware limited partnership)
<TABLE>
<CAPTION>
Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 149,220 893,250 388,420
Adjustments to reconcile net income to
net cash provided by operating activities:
Decrease (increase) in due from affiliate .. 2,664 (2,098) --
Decrease (increase) in interest
and other receivables ..................... (30,515) 156,400 10,830
Increase (decrease) in accounts
payable and accrued expenses ............ (7,150) 6,080 (17,903)
Increase in due to affiliates ............... 16,562 12,541 --
----------- ----------- -----------
Net cash provided by operating activities 130,781 1,066,173 381,347
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from mortgage loan principal
repayments ...................................... -- 2,000,000 --
----------- ----------- -----------
Net cash provided by investing activities -- 2,000,000 --
----------- ----------- -----------
Cash flows from financing activities:
Distributions and returns of principal to partners . (2,190,806) (1,422,965) (6,373,291)
----------- ----------- -----------
Net cash used in financing activities ... (2,190,806) (1,422,965) (6,373,291)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents ........................................ (2,060,025) 1,643,208 (5,991,944)
Cash and cash equivalents, beginning of year ............ 2,653,867 1,010,659 7,002,603
----------- ----------- -----------
Cash and cash equivalents, end of year .................. $ 593,842 2,653,867 1,010,659
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
COMMON GOAL HEALTH CARE
PARTICIPATING MORTGAGE FUND L.P.
(a Delaware limited partnership)
Notes to Financial Statements
December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
(1) Organization and Summary of Significant Accounting Policies
(a) Organization
Common Goal Health Care Participating Mortgage Fund L.P. (the
Partnership), a Delaware Limited Partnership, was formed on August 20,
1986 to invest in and make mortgage loans to third-parties and
affiliates involved in health care. Having sold more than the
specified minimum of 116,000 units ($1,160,000), the Partnership
commenced operations on July 21, 1987. The Partnership's offering
terminated on February 20, 1989, with the Partnership having sold the
specified maximum of 1,912,911 units ($19,129,110). There is no active
public trading market for the units. At December 31, 1997, there were
1,559 unit holders.
The General Partners include Common Goal Capital Group, Inc., the
Managing General Partner, and Common Goal Limited Partnership I, the
Minority General Partner. Under the terms of the Partnership
agreement, the General Partners are not required to make any
additional capital contributions except under certain limited
circumstances upon termination of the Partnership.
Under the terms of the Partnership agreement, the Partnership
reimbursed the General Partners for certain offering and
organizational expenses incurred in connection with the issuance and
distribution of the units in an amount fixed at 3.5% of gross offering
proceeds. These offering and organizational expenses excluded
broker/dealer selling commissions and included accountable due
diligence expense reimbursements. Broker/dealer selling commissions of
9.5% of gross proceeds were paid by the Partnership. Common Goal
Securities, Inc. (CGSI), an affiliate acting as managing dealer,
received selling commissions of 2% of the gross offering proceeds and
an additional 7.5% of the purchase price of all units sold directly by
CGSI. Additionally, CGSI was reimbursed for all expenses incurred in
connection with the offering and also received an amount equal to .5%
of the gross offering proceeds for accountable expenses. Offering and
organizational expenses were recorded as a reduction of partners'
capital.
(b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
F-6 (Continued)
<PAGE>
COMMON GOAL HEALTH CARE
PARTICIPATING MORTGAGE FUND L.P.
(a Delaware limited partnership)
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Continued
For entities investing in and making mortgage loans to businesses in
the health care industry, certain inherent risks may increase the
possibility of actual results differing from management's estimates.
These inherent risks include, among other things, the following:
o Substantial dependence on revenues derived from reimbursement by
the Federal Medicare and state Medicaid programs;
o Government regulation, government budgetary constraints and
proposed legislative and regulatory changes; and
o Lawsuits alleging malpractice and related claims.
(c) Partnership Management Fees and Operating Expenses
Under the terms of the Partnership agreement, the Partnership is
required to pay a quarterly management fee to the Managing General
Partner equal to .75% per annum of adjusted contributions, as defined.
Additionally, a mortgage servicing fee equal to .25% per annum of the
Partnership's outstanding mortgage loan principal amount is to be paid
to Common Goal Mortgage Company, an affiliate of the General Partners.
Additionally, under the terms of the Partnership agreement, the
Partnership is required to reimburse the Managing General Partner for
certain operating expenses paid on behalf of the Partnership. In 1997,
1996, and 1995, the Managing General Partner was reimbursed by the
Partnership for $93,763, $105,655 and $47,785 of these expenses,
respectively. The remaining expenses were paid directly by the
Partnership.
(d) Partnership Allocation of Income and Loss and Distributions
Net Income and Net Loss
-----------------------
Net income (except with respect to a Disposition, as defined, which
includes any Partnership transaction not in the ordinary course of its
business, including, without limitation, collections of principal
payments, equity participation payments, prepayments, prepayment
penalties, sales, exchanges, foreclosures or other dispositions of
Mortgage Loans held by the Partnership, recoveries of damage awards
and insurance proceeds (other than the receipt of subscriptions for
Units, all forms of interest payments when
F-7 (Continued)
<PAGE>
COMMON GOAL HEALTH CARE
PARTICIPATING MORTGAGE FUND L.P.
(a Delaware limited partnership)
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Continued
due on Mortgage Loans or business or rental interruption insurance
proceeds)) and net loss of the Partnership is allocated 98% to Limited
Partners and 2% to the General Partners. Net income arising from a
Disposition is allocated 98% to Limited Partners and 2% to the General
Partners to the extent of any negative balances in the capital
accounts of the Limited Partners, and then 100% to Limited Partners in
an amount necessary to bring the Limited Partners' capital accounts up
to an amount equal to their Original Contributions, as defined, which
means the amount of $10.00 for each unit less the return of any amount
of uninvested funds returned, as defined, plus the 11% per annum
preferred cumulative return thereon (less previous distributions to
the Limited Partners in repayment of such amounts). Remaining net
income is allocated 85% to the Limited Partners and 15% to the General
Partners.
Net income (loss) per limited partner unit is computed based on the
weighted average limited partner units outstanding for the year
divided into the net income (loss) applicable to the Limited Partners.
Distributions of Cash From Operations
Distributions of Adjusted Cash From Operations, defined as all
receipts of interest payments on Mortgage Loans less cash receipts
used to pay operating expenses and to repurchase any Units (Cash Flow)
less any amount set aside for the restoration or creation of working
capital reserves, are distributed 98% to the Limited Partners and 2%
to the General Partners, and are apportioned quarterly among Limited
Partners of record as of the record date declared within 30 days after
the end of each quarter and are paid quarterly. No distributions of
Adjusted Cash From Operations with respect to any calendar year are
made to the General Partners until the following occurs:
First, distributions to the Limited Partners equal to the 8%
annual cumulative return on their Adjusted Contributions, defined
as Original Contributions attributable to a Unit, reduced by the
total of cash distributed from Disposition Proceeds and from
working capital reserves, for such year (plus any amounts accrued
from prior years) have been made to the Limited Partners; and
Second, payment of all previously subordinated management fees,
if any, have been made.
Thereafter, all previously subordinated amounts payable to the General
Partners with respect to their 2% interest are paid in full to the
extent funds are available, and if not available, are deferred and
paid out of Disposition Proceeds, defined as receipts from
F-8 (Continued)
<PAGE>
COMMON GOAL HEALTH CARE
PARTICIPATING MORTGAGE FUND L.P.
(a Delaware limited partnership)
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Continued
Dispositions net of related expenses, amounts necessary for the
payment of debts and obligations of the Partnership and any amount set
aside for working capital reserves. The Partnership has been making
distributions to the Limited Partners in excess of the 8% annual
cumulative return on Adjusted Contributions.
Distributions of Disposition Proceeds
-------------------------------------
The Managing General Partner has the right to reinvest or distribute
all Disposition Proceeds, through the end of the eleventh year after
the date of the Prospectus. Non- liquidating distributions of
Disposition Proceeds are distributed in the following order of
priority, except as otherwise required by law:
First, 100% to the Limited Partners until the Limited Partners
have received an amount which, when added to prior distributions
of Disposition Proceeds and cash from reserves attributable
thereto, equals the Original Contributions of the Limited
Partners;
Second, 100% to the Limited Partners until each Limited Partner
has received an amount which, when added to all prior
distributions to Limited Partners from all sources (including
prior distributions in satisfaction of the 8% annual cumulative
return but excluding distributions pursuant to above), equals the
11% per annum preferred cumulative return on their Adjusted
Contributions, (calculated from the first day of the calendar
quarter succeeding the quarter in which capital contributions are
received);
Third, 100% to the General Partners until they have been paid
100% of the subordinated portion, if any, of (a) the Partnership
Management Fee, if any, and then (b) their 2% interest in
Adjusted Cash From Operations; and
Fourth, the remainder, 85% to the Limited Partners and 15% to the
General Partners.
Dissolution and Returns of Principal
------------------------------------
Since it was the intention of the Managing General Partner to
liquidate the Partnership's assets between 1999 and 2004, the Managing
General Partner has commenced an orderly liquidation and will not
reinvest loan proceeds in new Mortgage Loans. The Partnership's last
remaining Mortgage Loan, the Joint Venture Loan, will mature on
January 1, 2000.
F-9 (Continued)
<PAGE>
COMMON GOAL HEALTH CARE
PARTICIPATING MORTGAGE FUND L.P.
(a Delaware limited partnership)
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Continued
Proceeds from the liquidation will be applied and distributed in the
following order:
First, to the payment of creditors of the Partnership but
excluding secured creditors whose obligations will be assumed or
otherwise transferred on the liquidation of Partnership assets;
and
Second, after allowance for the expenses of liquidation and the
setting up of any reserves for contingencies which the Managing
General Partner considers necessary, to the General Partners and
Limited Partners in proportion to and to the extent of the
positive balances in their capital accounts, after net income or
loss arising from a Disposition has been allocated, with any
excess being distributed in accordance with the order of priority
for non-liquidating distributions.
Notwithstanding anything to the contrary, the Managing General Partner
has the right to defer liquidation if, in the opinion of the Managing
General Partner, the sale of Partnership assets in liquidation would
result in a material underrealization on the Partnership's assets. The
Managing General Partner also has the right to determine the rate at
which returns of principal (returns of Original Contributions) are
distributed to the limited partners.
(e) Allowance for Losses
An allowance for loan losses is provided, if necessary, at a level
which the Partnership's management considers adequate based upon an
evaluation of known and inherent risks in the loan portfolio. There
was no allowance for losses at December 31, 1997 and 1996.
(f) Federal Income Taxes
No provision for federal income taxes has been recorded as the
liability for such taxes is that of the partners rather than the
Partnership.
(g) Cash and Cash Equivalents
The Partnership classifies all short-term investments with maturities
of three months or less at the date of purchase as cash equivalents.
(h) Reclassifications
Certain 1995 amounts have been reclassified to conform with the 1996
and 1997 presentation.
F-10
<PAGE>
COMMON GOAL HEALTH CARE
PARTICIPATING MORTGAGE FUND L.P.
(a Delaware limited partnership)
Notes to Financial Statements
- --------------------------------------------------------------------------------
(2) Mortgage Loans Receivable
<TABLE>
<CAPTION>
Information concerning mortgage loans receivable as of December 31 is as
follows:
Face and carrying
amount of mortgages
Basic -------------------
interest Maturity Prior
Description rate date liens 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Westwood loan .. 11.50% March 10, 1998 $ 3,200,000 -- --
Winthrop loan .. 11.50% March 25, 1998 7,200,000 -- --
Honey Brook loan 13.70% January 1, 2000 8,810,000 1,567,664 1,567,664
----------- ----------- -----------
$19,210,000 1,567,664 1,567,664
=========== =========== ===========
</TABLE>
The loans are second mortgage loans secured by health care-related real
properties. Interest is payable monthly and the principal balances are due
at maturity. The loans generally provide for the payment of additional
interest based upon gross revenues of the properties and the payment of
participation interests ranging from 6% to 30% of the increase in the fair
value of the properties at maturity or redemption, or pursuant to any sale
of the facilities, as defined. Participation interests are recorded as
revenue when they are determinable, generally at maturity or redemption of
the loan or pursuant to any sale of the facilities. All properties are
subject to a first mortgage lien.
In 1990, Common Goal Health Care Pension and Income Fund L.P. II ("Common
Goal II"), an affiliated, publicly-offered limited partnership with
investment objectives that are substantially identical to those of the
Partnership and the Partnership participated in a ten-year second mortgage
loan in the original principal amount of $3,430,114 to an unaffiliated
third party through a joint venture between the Partnership and Common Goal
II (the "Joint Venture Loan"). At December 31, 1997 and 1996, the
Partnership's mortgage loans receivable included $1,567,664, representing
the Partnership's participation of 96.87% in the remaining $1,618,254
principle balance of the loan.
During 1996, the Westwood and Winthrop loans were paid off. Prepayment
penalties of $40,000 and $55,000, were received on the Westwood and
Winthrop loans, respectively. In addition, the Westwood borrowers paid
$110,550 as a result of equity participation interest.
F-11 (Continued)
<PAGE>
COMMON GOAL HEALTH CARE
PARTICIPATING MORTGAGE FUND L.P.
(a Delaware limited partnership)
Notes to Financial Statements
- --------------------------------------------------------------------------------
(2) Continued
A summary of activity in mortgage loans receivable for the years ended
December 31, 1997 and 1996 is as follows:
Balance at December 31, 1995 $3,567,664
Repayment of mortgage loans (2,000,000)
----------
Balance at December 31, 1996 1,567,664
Repayment of mortgage loans -
----------
Balance at December 31, 1997 $1,567,664
==========
All property securing the Partnership's mortgage loans at December 31, 1997
is located in Pennsylvania.
The fair value of the Partnership's participation in mortgage loans
receivable differed from the carrying value of the mortgage loans
receivable as follows:
Carrying Fair
Value Value
----- -----
December 31, 1997 $1,567,664 1,608,405
December 31, 1996 1,567,664 1,646,754
The Partnership estimates the fair value of its participation in mortgage
loans receivable by discounting future cash flows using an appropriate
interest rate.
The carrying amounts at December 31, 1997 and 1996 for cash and cash
equivalents, accrued interest receivable, other receivables, due from and
to affiliates, and accounts payable and accrued expenses approximated their
fair values due to the short maturity of these instruments.
In 1996, the Partnership settled certain litigation relating to a
previously charged-off mortgage loan in the amount of $480,000. These
proceeds were recorded in 1996, net of attorney fees of $126,470.
F-12
<PAGE>
COMMON GOAL HEALTH CARE
PARTICIPATING MORTGAGE FUND L.P.
(a Delaware limited partnership)
Notes to Financial Statements
- --------------------------------------------------------------------------------
(3) Federal Income Tax Information (Unaudited)
Net income for financial reporting purposes did not differ from net income
for federal income tax purposes for the years ended December 31, 1997, 1996
and 1995.
(4) Subsequent Events
On January 2, 1998, the Partnership declared and paid a distribution of
$190,316 ($.10 per Unit) to Limited Partner unitholders of record at
December 15, 1997.
F-13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 593,842
<SECURITIES> 0
<RECEIVABLES> 3,178,161
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,204,339
<CURRENT-LIABILITIES> 33,103
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,171,236
<TOTAL-LIABILITY-AND-EQUITY> 2,204,339
<SALES> 0
<TOTAL-REVENUES> 280,134
<CGS> 0
<TOTAL-COSTS> 130,914
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 149,220
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 149,220
<EPS-PRIMARY> .08
<EPS-DILUTED> .00
</TABLE>
