UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended: December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 33-9921
SENIOR INCOME FUND L. P.
Exact name of Registrant as specified in its charter
Delaware 13-3392077
State or other jurisdiction of
incorporation or organization I.R.S. Employer Identification No.
3 World Financial Center, 29th Floor
New York, NY Attn.: Andre Anderson 10285
Address of principal executive offices zip code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
4,827,500 DEPOSITORY UNITS OF LIMITED PARTNERSHIP INTEREST
Title of Class
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of 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
State the aggregate market value of the voting stock held by non-
affiliates of the registrant: Not applicable.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of Parts I, II, III
and IV are incorporated by reference to the Partnership's Annual
Report to Unitholders for the year ended December 31, 1997.
PART I
Item 1. Business
(a) General Development of Business
Senior Income Fund L.P. (the "Partnership", formerly Shearson
Lehman Senior Income Fund Limited Partnership), a Delaware
limited partnership, was formed on October 14, 1986 pursuant to a
Limited Partnership Agreement, as amended and restated on
March 17, 1987 pursuant to an Amended and Restated Limited
Partnership Agreement (the "Partnership Agreement"). The
Partnership was formed for the purpose of acquiring a general
partnership interest in Shearson August Property Partnership, a
California general partnership (the "Property Partnership"), with
August Financial Partners II ("AFP-II") an affiliate of August
Financial Corporation ("August").
The general partner of the Partnership is Senior Income Fund Inc.
(the "General Partner", formerly Shearson Lehman Senior Income
Fund, Inc.), a Delaware corporation, and wholly owned subsidiary
of Lehman Brothers Inc. (formerly Shearson Lehman Brothers Inc.).
On November 21, 1996, the Partnership purchased the general
partnership interest of the successor to AFP-II for a purchase
price of $850,000. As a result of such purchase, all of the
Property Partnership's assets were distributed to the Partnership
and the Property Partnership was dissolved. Accordingly, all
sale proceeds received upon a sale of any property belong to the
Partnership and no amount is owed to AFP-II. The Partnership
will continue until December 31, 2036 unless terminated earlier
pursuant to the provisions of the Partnership Agreement.
The Property Partnership was formed to acquire, operate and
ultimately sell four specified residential properties for senior
citizens (the "Properties") as follows: (i) Pacific Inn, a 134-
unit apartment complex located in Torrance, California; (ii) Nohl
Ranch Inn, a 133-unit apartment complex located in Anaheim,
California; (iii) Ocean House, a 121-unit apartment complex
located in Santa Monica, California, and; (iv) Prell Gardens, a
102-unit apartment complex located in Van Nuys, California.
On August 1, 1997, the Partnership closed the sale of three of
its four Properties _ Prell Gardens, Nohl Ranch and Pacific Inn,
for net proceeds of $30,148,357. The sale of the Partnership's
fourth property, Ocean House, is subject to the satisfaction of
certain conditions of the buyer and approval of certain building
repairs by the City of Santa Monica. Reference is made to Item 7
for a discussion of the sale and the pending sale of Ocean House.
(b) Financial Information about Industry Segments
Substantially all of the Partnership's revenues, operating profit
or loss and assets relate solely to its interest as general
partner of the Property Partnership whose operating profit or
loss and assets relate to its ownership and operation of the
Properties, until November 21, 1996, at which time the
Partnership purchased AFP-II's general partner interest in the
Property Partnership, as noted in Item 1(a).
(c) Narrative Description of Business
The Partnership's principal objectives at inception were:
(1) to provide quarterly cash distributions a portion of
which will be "tax sheltered;"
(2) to preserve and protect capital;
(3) to achieve long-term appreciation in the value of the
Properties for distributions upon sale of the Properties.
Presently, the Partnership expects to sell the remaining
property, distribute the net proceeds from the sale together with
the Partnership's remaining cash reserves (after payment of, or
provision for, the Partnership's liabilities and expenses, and
establishment of a reserve for contingencies, if any) and
dissolve the Partnership in accordance with the Partnership
Agreement.
(d) Employees
The Partnership has no employees.
(e) Competition
The Property competes with a variety of retirement living
complexes within their primary geographic markets, including
continuing care and lifecare facilities, which offer higher
levels of personal care, and often skilled nursing, in addition
to independent living units. However, continuing care and
lifecare facilities usually require up-front accommodation fees,
and place greater emphasis on health and well-being rather than
on independent lifestyle and community activities.
(f) Property Management
Prior to the sale of three of the Partnership's Properties on
August 1, 1997, day-to-day management of the Properties was
provided by Leisure Care, Inc., a leading retirement center
management company. Day-to-day management includes employing
operating personnel on behalf of the Partnership and acting as
leasing agent. Commencing August 1, 1997, MBK Senior Living
Communities, Ltd was engaged to provide day-to-day management of
the Partnership's remaining Property, Ocean House. MBK Senior
Living Communities, Ltd is an affiliate of MBK Senior Properties,
Ltd., the buyer of the Properties. See Item 7 for a discussion
of the sale of Prell Gardens, Nohl Ranch and Pacific Inn, and
pending sale of Ocean House. See Note 4, "Property Management,"
to the Consolidated Financial Statements of the Partnership's
Annual Report to Unitholders for the year ended December 31, 1997
included in Item 14 of this report.
Item 2. Properties
On August 1, 1997, the Partnership closed the sale of three of
its four Properties _ Prell Gardens, Nohl Ranch and Pacific Inn.
The Partnership's remaining property, Ocean House, is a ten-story
building adjacent to Santa Monica Beach in Santa Monica,
California. Many of the property's 121 units feature balconies
and ocean views. Ocean House provides residents with various
amenities including an assisted living program. The property is
located in an upscale area with an established senior population
and faces competition from three other retirement facilities
within its market. The property competes at the higher end of
the price scale based on its location and level of service. The
property enjoys a competitive advantage due to its assisted
living program, many activity programs and community involvement.
Ocean House is currently under contract for sale, subject to the
satisfaction of certain conditions of the buyer and approval of
certain building repairs by the City of Santa Monica. Reference
is made to Item 7 for a discussion of the pending sale.
Ocean House maintains an assisted living program which requires
licensing. Accordingly, this property is subject to the periodic
licensing requirements and inspection procedures of the
California State Department of Social Services. California law
prescribes a list of services which must be provided in rental
retirement facilities such as: (i) assistance with daily living
activities in the combinations which meet the needs of residents,
(ii) helping residents gain access to appropriate supportive
services in the community, (iii) being aware of the residents'
general whereabouts, (iv) monitoring the activities of the
residents while they are under the supervision of the facility to
ensure their general health, safety and well being, and (v)
encouraging the residents to maintain and develop their maximum
functional ability through participation in planned activities.
Both criminal and civil penalties may be imposed in the event of
violation of any of these duties. Currently there are no
restrictions on the level of rent, or on rent increases.
Item 3. Legal Proceedings
The Registrant is not subject to any material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the holders of Units
("Limited Partners") during the fourth quarter of the year for
which this report is filed.
PART II
Item 5. Market for the Partnership's Limited Partnership
Interests and Related Security Holder Matters
(a) Market Price Information
There is no established trading market for the units nor is there
anticipated to be.
(b) Holders
As of December 31, 1997, there were 3,459 Limited Partners of
record.
(c) Cash Distributions per Unit
1997 1996
1st Quarter $0.075 $0.075
2nd Quarter 0.000 0.075
3rd Quarter 0.000 0.075
Special Distribution 5.7501 0.6002
4th Quarter 0.000 0.075
Total $5.825 $0.900
(1)On August 25, 1997, the Partnership paid a cash distribution
in the amount of $5.75 per Unit representing proceeds from
the sale of Prell Gardens, Nohl Ranch, and Pacific Inn and
cash flow from operations for the second quarter of 1997.
(2)Distribution from cash reserves held pending a settlement
with the Partnership's insurance carrier regarding certain
claims for earthquake damage at Prell Gardens and Ocean House.
As a result of the August 1, 1997 sale of three of the
Partnership's four Properties, the Partnership suspended the
payment of quarterly cash distributions beginning with the second
quarter distribution which would have been paid on or about
August 15, 1997. Once the sale of Ocean House is completed, the
General Partner will distribute the net proceeds from the sale
together with the Partnership's remaining cash reserves (after
payment of, or provision for, the Partnership's liabilities and
expenses, and establishment of a reserves for contingencies, if
any) and dissolve the Partnership in accordance with the
Partnership Agreement.
Item 6. Selected Financial Data
(Dollars in thousands, except
per Unit data) 1997 1996 1995 1994 1993
Rental Income $8,233 $10,782 $10,838 $10,387 $9,526
Interest Income 344 205 199 98 36
Total Income 8,577 13,305(2) 11,037 10,485 9,561
Net Income (Loss) From Operations 931 3,154 (7,877)(3) 137 518
Gain On Sale Of Properties 11,840 _ _ _` _
Net Income (Loss) 12,771(4) 3,154 (7,877)(3) 137 518
Net Income (Loss) From Operations
Per Unit (1) .19 .65 (1.63) .03 .11
Net Income (Loss) Per Unit (1) 2.58 .65 (1.63) .03 .11
Cash Distributions Per Unit (1) 5.82 .90 .30 .30 .30
Total Assets 5,547 $22,574 $22,976 $32,459 $33,465
(1)Total Units outstanding: 4,827,500.
(2)Includes net insurance settlement income of $2,318,387, in
connection with the Partnership's settlement of its
litigation with its insurance carrier in November 1996.
(3)Includes the recognition of a $8,712,292 loss on the write-
down of real estate assets in compliance with Financial
Accounting Standards No. 121 in 1995.
(4)Includes the recognition of a $11,839,814 gain on sale of
three properties.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(a) Liquidity and Capital Resources
On June 9, 1997, the Partnership executed an agreement with an
unaffiliated third party, MBK Senior Properties, Ltd. (the
"Buyer"), to sell the Partnership's four Properties (the "Sale")
for $36,300,000, subject to adjustments and prorations for
closing costs, a credit for the cost of certain improvements to
be made at the Prell Gardens property and a credit for the cost
to repair earthquake damage at the Ocean House property. On
August 1, 1997, the Partnership closed the Sale for three of the
four Properties _ Prell Gardens, Nohl Ranch and Pacific Inn, for
net proceeds of $30,148,357. The sale of the Partnership's
fourth property, Ocean House, is subject to the satisfaction of
certain conditions of the buyer and approval of certain building
repairs by the City of Santa Monica. Althouth there have been
unexpected delays, it is anticipated that the sale of Ocean House
will occur during 1998. In the meantime, the Partnership will
continue to operate the property and generate rental income from
operations.
As a result of the Sale, the Partnership suspended the payment of
quarterly cash distributions beginning with the second quarter
distribution which would have been paid on or about
August 15, 1997. On August 25, 1997, the Partnership paid a cash
distribution in the amount of $5.75 per Unit, representing proceeds
from the sale of Prell Gardens, Nohl Ranch, and Pacific Inn and
cash flow from operations for the second quarter of 1997. Since
inception, limited partners have received cash distributions
totaling $11.235 per $10.00 Unit.
Upon completion of the sale of Ocean House, the General Partner
will distribute the net proceeds from the sale together with the
Partnership's remaining cash reserves (after payment of, or
provision for, the Partnership's liabilities and expenses, and
establishment of a reserves for contingencies, if any) and
dissolve the Partnership in accordance with the Partnership
Agreement. However, the timing and amount of the final
distribution is subject to Ocean House's operations until
closing, closing adjustments and other factors, all of which
remain uncertain at this time. While it is anticipated that the
sale of Ocean House will be completed during 1998, there can be
no assurance that the sale will be consummated, or that a sale,
if completed, will result in any particular level of net sales
proceeds.
In anticipation of the Sales, the Properties were reclassified on
the consolidated balance sheet as of December 31, 1996, as "Real
estate assets held for disposition."
Prepaid expenses were $204,867 and $168,259 at December 31, 1997
and 1996, respectively. The increase is mainly due to a pre-
payment of the ground rent for the Ocean House property.
At December 31, 1997, accounts payable and accrued expenses were
$180,192 compared to $1,033,316 at December 31, 1996. The
balance in 1996 includes certain non-recurring expenses including
expenses for services rendered by the Partnership's engineering
firm in connection with earthquake related repair work at Ocean
House and Prell Gardens in the amount of $428,154, and for legal
expenses associated with the insurance litigation and various
tender offers in the amount of $344,822, as well as the timing of
payments for incentive management fees payable to Leisure Care,
Inc. in the amount of $87,133.
On November 21, 1996, the Partnership purchased the general
partnership interest of the successor to AFP-II for a purchase
price of $850,000. The Partnership's purchase of the general
partnership interest was funded from cash reserves. As a result
of such purchase, the Property Partnership's assets were
distributed to the Partnership and the Property Partnership was
dissolved. Accordingly, all sale proceeds received upon a sale
of any property belong to the Partnership and no amount is owed
to AFP-II.
Due to affiliates decreased to $61,973 at December 31, 1997 from
$190,609 at December 31, 1996, reflecting the payment of past due
fees. Security deposits payable decreased to $56,831 at December
31, 1997 from $148,700 at December 31, 1996, primarily due to the
Sale.
(b) Results of Operations
1997 versus 1996
Partnership operations for the year ended December 31, 1997
resulted in net income of $12,770,868 compared to $3,154,499 for
1996. The increase is primarily due to the gain on sale of
properties in the amount of $11,839,814. Excluding this gain, the
Partnership incurred net income from operations of $931,054 for the
year ended December 31, 1997. The decrease in net income from
operations was primarily the result of lower rental income due to
the sale of properties, partially offset by the elimination of
depreciation expense in 1997 as a result of the reclassification of
the Properties as "real estate assets held for disposition". The
1996 amount also includes the receipt of insurance settlement
proceeds.
Rental income was $8,232,614 for the year ended December 31,
1997, compared to $10,782,123 for 1996. The decrease is due to
the sale of three of the Properties on August 1, 1997, which was
partially offset by an increase in rental income from Ocean
House.
As a result of the sale of three of the Partnership's Properties
on August 1, 1997, the following expense categories decreased
from 1996 to 1997: payroll, rent and utilities, supplies,
repairs and maintenance and real estate taxes.
General and administrative expenses were $1,527,054 in 1997 as
compared with $1,774,183 in 1996. The decrease is the result of
the sale of the three properties partially offset by an increase in
management fees at Ocean House and an increase in Partnership
servicing expense. During 1997, certain expenses incurred by the
General Partner, its affiliates, and an unaffiliated third party
service provider in servicing the Partnership, which were
voluntarily absorbed by affiliates of the General Partner in prior
periods, were reimbursable to the General Partner and its
affiliates.
Loss on real estate held for disposition totaled $48,000 for the
year ended December 31, 1997. This represents costs associated
with balcony restoration at Ocean House which were expensed
through the loss provision in compliance with Statement of
Financial Accounting Standards No. 121.
For the years ended December 31, 1997 and 1996, Ocean House
reported average occupancy of 95% and 91%, respectively.
1996 versus 1995
Partnership operations for the year ended December 31, 1996
resulted in net income of $3,154,499 compared to a net loss of
$7,877,298 for 1995. The change from net loss to net income in
1996 is the result of the Partnership's net insurance settlement
income of $2,318,387 in 1996 and the recognition of a $8,712,292
loss on the write-down of real estate assets in compliance with
Financial Accounting Standards No. 121 in 1995.
Rental income was $10,782,123 for the year ended December 31,
1996, compared to $10,838,267 for 1995. The decrease is the
result of lower average occupancy at Prell Gardens as anticipated
during the earthquake repair work at the property. The decrease
in rental income at Prell Gardens was partially offset by higher
rental income from each of the other properties, notably Nohl
Ranch and Pacific Inn. Interest income for the year was
$204,526, largely unchanged from $199,078 in 1995.
Total expenses for the year ended December 31, 1996 were
$10,150,537, compared to $18,914,643 for the year ended December
31, 1996. The decrease is largely the result of the
Partnership's recognition of a $8,712,292, loss on the write-down
of Prell Gardens, Ocean House and Nohl Ranch, in compliance with
Financial Accounting Standards No. 121, in 1995. Depreciation
was $1,507,326 for the year ended December 31, 1996 compared to
$1,797,858 for the year ended December 31, 1995. The decrease
reflects the adjusted basis of the properties required at year-
end 1995 in connection with the write-down of the properties.
General and administrative expenses were $1,774,183 in 1996,
compared to $1,633,797 in 1995. The increase is the result of
legal, printing and postage expenses incurred in connection with
various tender offers, the AFP-II buyout, and other legal fees.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended
December 31, 1997, which is filed as an exhibit under Item 14.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Partnership
The Partnership has no directors or officers. The General
Partner has general responsibility for all aspects of the
Partnership's operation. Certain of the officers and directors
of the General Partner are also officers and employees of Lehman
Brothers Inc.
Certain officers and directors of the General Partner are now
serving (or in the past have served) as officers or directors of
entities which act as general partners of a number of limited
partnerships which have sought protection under the provisions of
the Federal Bankruptcy Code. The partnerships which have filed
bankruptcy petitions own assets which have been adversely
affected by the economic conditions in the markets in which that
asset is located and, consequently, the partnerships sought
protection of the bankruptcy laws to protect the partnerships'
assets from loss through foreclosure.
The directors and principal officers of the General Partner are
listed below.
Name Office
Jeffrey C. Carter Director, President and Chief Financial Officer
Moshe Braver Director and Vice President
Lawrence M. Ostow Vice President
Jeffrey C. Carter, 52, is a Senior Vice President of Lehman
Brothers in the Diversified Asset Group. Mr. Carter joined
Lehman Brothers in September 1988. From 1972 to 1988, Mr. Carter
held various positions with Helmsley-Spear Hospitality Services,
Inc. and Stephen W. Brener Associates, Inc. including Director of
Consulting Services at both firms. From 1982 through 1987, Mr.
Carter was President of Keystone Hospitality Services, an
independent hotel consulting and brokerage company. Mr. Carter
received his B.S. degree in Hotel Administration from Cornell
University and an M.B.A. degree from Columbia University.
Moshe Braver, 44, is currently a Managing Director of Lehman
Brothers and has held such position since October 1985. During
this time, he has held positions with the Business Analysis
Group, International and Capital Markets Administration and
currently, with the Diversified Asset Group. Mr. Braver joined
Shearson Lehman Brothers in August 1983 as Senior Vice President.
Prior to joining Shearson, Mr. Braver was employed by the
accounting firm of Coopers & Lybrand from January 1975 through
August 1983 as an Audit Manager. He received a Bachelor of
Business Administration degree from Bernard Baruch College in
January 1975 and is a Certified Public Accountant.
Lawrence M. Ostow, 29, is a Vice President of Lehman Brothers and
is responsible for the management of commercial real estate in
the Diversified Asset Group. Mr. Ostow joined Lehman Brothers in
September 1992. Prior to that, Mr. Ostow was a Senior Consultant
with Arthur Andersen & Co. in the Real Estate Services Group,
beginning in July 1990. Mr. Ostow earned an M.B.A. from the
Stern School of Business in 1997 and a B.A. degree in Economics
from the University of Michigan in 1990.
Item 11. Executive Compensation
The Directors and Officers of the General Partner do not receive
any salaries or other compensation from the Partnership. See
Item 13, "Certain Relationships and Related Transactions," for a
description of certain transactions of the General Partner and
its affiliates with the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners.
As of December 31, 1997, one party was known by the Partnership
to be the beneficial owner of more than five percent of the Units
of the Partnership. The owner, LAVRA, Inc., owns a total of
585,482.75 Units or 12.1% of the Units in one account. LAVRA's
address is 245 Fischer Avenue, Suite D-1, Costa Mesa, California,
92626.
(b) Security ownership of management.
Officers and Directors of the General Partner owned no units of
the Partnership as of December 31, 1997.
(c) Changes in control.
None.
Item 13. Certain Relationships and Related Transactions
For fees paid and reimbursed to the General Partner or its
affiliates during 1997, 1996 and 1995, see Note 5, " Transactions
with Related Parties," to the Consolidated Financial Statements
which is incorporated by reference to the Partnership's Annual
Report to Unitholders for the year ended December 31, 1997, which
is filed as an exhibit under Item 14.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements:
Consolidated Balance Sheets - At December 31, 1997 and 1996 (1)
Consolidated Statements of Partners' Capital (Deficit) -
For the years ended December 31, 1997, 1996 and 1995 (1)
Consolidated Statements of Operations - For the years ended
December 31, 1997, 1996 and 1995 (1)
Consolidated Statements of Cash Flows - For the years ended
December 31, 1997, 1996 and 1995 (1)
Notes to the Consolidated Financial Statements (1)
Report of Independent Accountants (1)
(a)(2) Financial Statement Schedules:
Schedule III - Real Estate and Accumulated Depreciation (F-1)
Report of Independent Accountants (F-2)
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1997, filed as an exhibit
under Item 14.
(a)(3) Exhibits
3.1 The Partnership's Amended and Restated Agreement of Limited
Partnership, Dated March 17, 1987, is hereby incorporated by
reference to Exhibit A to the Prospectus contained in
Registration Statement No. 33-9921, which registration
Statement (the "Registration Statement") was declared
effective by the Securities and Exchange Commission on
January 30, 1987.
3.2 The Capital Contribution Agreement by and among the General
Partner and Shearson Group is hereby incorporated by
reference to Exhibit 3.2 to the Registration Statement.
10.1 Form of the Management Agreement dated as of April 5, 1988
between the Partnership and the Operator is incorporated by
reference to Exhibit 10.2 to the Registration Statement.
10.2 The form of Property Partnership Agreement between the
Partnership and the Property Partner is hereby incorporated
by reference to Exhibit 10.6 to the Registration Statement.
10.3 The form of Purchase Agreement concerning the acquisition of
the Properties is hereby incorporated by reference to
Exhibit No. 10.4 to the Registration Statement.
10.4 Form of the Amended Management Agreement dated as of January
1, 1990 between the Partnership and the Operator hereby
incorporated by reference to Exhibit 10.5 to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1989, as filed with the Securities and Exchange
Commission on March 30, 1990.
10.5 Form of the Settlement Agreement Dated December 18, 1989
between the Partnership and class members hereby
incorporated by reference to Exhibit 10.6 to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1989, as filed with the Securities and Exchange
Commission on March 30, 1990.
13.1 Annual Report to Unitholders for the year ended December 31,1997.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of
the year ended December 31, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Partnership has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SENIOR INCOME FUND L.P.
BY: SENIOR INCOME FUND INC.
General Partner
Date: March 27, 1998 BY: /s/ Jeffrey C Carter
Name: Jeffrey C. Carter
Title Director, President and Chief Financial Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Partnership has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SENIOR INCOME FUND L.P.
BY: SENIOR INCOME FUND INC.
General Partner
Date: March 27, 1998 BY: /s/ Jeffrey C. Carter
Name: Jeffrey C. Carter
Title Director, President and Chief Financial Officer
Date: March 27, 1998 BY: /s/ Moshe Braver
Name: Moshe Braver
Title Director and Vice President
Date: March 27, 1998 BY: /s/ Lawrence M. Ostow
Name: Lawrence M. Ostow
Title Vice President
Exhibit 13.1
Senior Income Fund L.P.
1997 Annual Report
Senior Income Fund, L.P.
Senior Income Fund L.P. (the "Partnership") raised $48,275,000
during its offering period in 1987 and acquired four congregate
care facilities in Southern California. During 1997, three of
the Partnership's properties were sold. Please see the Message
to Investors for an update on the General Partner's efforts to
sell the remaining property and liquidate the Partnership in 1998.
Contents
1 Message to Investors
2 Consolidated Financial Statements
5 Notes to the Consolidated Financial Statements
11 Report of Independent Accountants
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn.: Financial Communications
800-223-3464 800-223-3464
Message to Investors
Presented for your review is the 1997 Annual Report for Senior
Income Fund L.P. This report includes an overview of the property
sales which occurred in 1997, an update on our efforts to sell the
remaining property, and audited financial statements for the year
ended December 31, 1997.
Update on Property Sales
On August 1, 1997, the Partnership closed on the sale of three of
its four properties_Prell Gardens, Nohl Ranch and Pacific Inn, for
net proceeds of $30,148,357 (the "Sale"). A distribution in the
amount of $5.75 per Unit was paid to the Limited Partners in
accordance with the partnership agreement on August 25, 1997. This
distribution represented the proceeds from the Sale less an amount
set aside as a contingency reserve in connection with the sale of
the Partnership's final property, Ocean House, and cash flow from
operations for the second quarter of 1997. The sale of Ocean House
is subject to the satisfaction of certain conditions of the buyer
and approval of certain building repairs by the City of Santa
Monica. Although there have been several unexpected delays, we
still anticipate that the sale of Ocean House will occur during
1998. In the interim, the Partnership will continue to operate the
property and generate rental income from operations. At
December 31, 1997, Ocean House was 98% occupied, compared with 93%
a year earlier.
Upon completion of the sale of Ocean House, the General Partner
will distribute the net proceeds from the sale together with the
Partnership's remaining cash reserves (after payment of, or
provision for, the Partnership's liabilities and expenses, and
establishment of a reserve for contingencies, if any) and
dissolve the Partnership.
Cash Distributions
Cash distributions for 1997 totaled $5.85 per $10.00 Unit. Since
inception, limited partners have received cash distributions
totaling $11.235 per Unit. As a result of the Sale, the
Partnership suspended the payment of quarterly distributions
beginning with the second quarter of 1997. The timing and amount
of the final distribution are subject to operations at Ocean
House, the timing of the closing of the Ocean House Sale, closing
adjustments and other factors, all of which remain uncertain at
this time.
General Information
As you are probably aware, several third parties have commenced
tender offers to purchase Units of the Partnership at prices
which are below the Partnership's estimate of net asset value per
Unit. In response, we recommended that limited partners reject
these offers because we believe that they do not reflect the
underlying value of the Partnership's assets. According to
published industry sources, most of the investors who hold units
of limited partnerships similar to the Partnership have rejected
these types of tender offers due to their inadequacy.
Summary
We will continue to inform Limited Partners of developments
related to the sale of Ocean House in future reports. In the
interim, any questions regarding the Partnership's performance
should be directed to your Financial Consultant or First Data
Investor Services Group. All requests for transfer of ownership
or change of address must be submitted in writing to the
Partnership's transfer agent, Service Data Corporation, 2424
South 130th Circle, Omaha, Nebraska 68144-2596. Both First Data
and Service Data Corporation can be reached at (800) 223-3464.
Very truly yours,
Senior Income Fund Inc.
The General Partner
/s/Jeffrey C. Carter
Jeffrey C. Carter
President
March 27, 1998
Consolidated Balance Sheets At December 31, At December 31,
1997 1996
Assets
Real estate assets held for disposition $ 21,542 $18,301,085
Cash and cash equivalents 5,320,317 4,104,695
Prepaid expenses 204,867 168,259
Total Assets $5,546,726 $22,574,039
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 180,192 $ 1,033,316
Deferred rent payable 1,236,564 1,191,169
Due to affiliates 61,973 190,609
Security deposits payable 56,831 148,700
Distribution payable _ 365,720
Total Liabilities 1,535,560 2,929,514
Partners' Capital (Deficit):
General Partner _ (54,910)
Limited Partners (4,827,500 units outstanding) 4,011,166 19,699,435
Total Partners' Capital 4,011,166 19,644,525
Total Liabilities and Partners' Capital $5,546,726 $22,574,039
Consolidated Statement of Partners' Capital (Deficit)
For the years ended December 31, 1997, 1996 and 1995
General Limited
Partner Partners Total
Balance at December 31, 1994 $(27,938) $30,246,779 $30,218,841
Net Loss _ (7,877,298) (7,877,298)
Distributions (14,630) (1,448,250) (1,462,880)
Balance at December 31, 1995 (42,568) 20,921,231 20,878,663
Net Income 31,545 3,122,954 3,154,499
Distributions (43,887) (4,344,750) (4,388,637)
Balance at December 31, 1996 (54,910) 19,699,435 19,644,525
Net Income 338,949 12,431,919 12,770,868
Distributions (284,039) (28,120,188) (28,404,227)
Balance at December 31, 1997 $ _ $ 4,011,166 $ 4,011,166
Consolidated Statements of Operations
For the years ended December 31, 1997 1996 1995
Income
Rental $8,232,614 $10,782,123 $10,838,267
Insurance settlement, net _ 2,318,387 _
Interest and other 344,439 204,526 199,078
Total Income 8,577,053 13,305,036 11,037,345
Expenses
Payroll 2,574,322 3,074,006 2,967,168
General and administrative 1,527,054 1,774,183 1,633,797
Rent and utilities 1,444,213 1,607,967 1,652,520
Depreciation _ 1,507,326 1,797,858
Supplies 890,148 1,136,163 1,122,448
Repairs and maintenance 841,709 627,158 616,998
Real estate taxes 290,595 380,439 375,926
Travel and entertainment 29,958 43,295 35,636
Loss on real estate held for disposition 48,000 _ _
Loss on write-down of real estate _ _ 8,712,292
Total Expenses 7,645,999 10,150,537 18,914,643
Net Income (Loss) from Operations $ 931,054 $ 3,154,499 $(7,877,298)
Other Income:
Gain on sale of properties 11,839,814 _ _
Net Income (Loss) $12,770,868 $ 3,154,499 $(7,877,298)
Net Income (Loss) Allocated:
To the General Partner $ 338,949 $ 31,545 $ _
To the Limited Partners 12,431,919 3,122,954 (7,877,298)
$12,770,868 $ 3,154,499 $(7,877,298)
Per limited partnership unit
(4,827,500 outstanding) $2.58 $.65 $(1.63)
Consolidated Statements of Cash Flows
For the years ended December 31, 1997 1996 1995
Cash Flows From Operating Activities:
Net Income (Loss) $12,770,868 $3,154,499 $(7,877,298)
Adjustments to reconcile net income
(loss) to net cash provided by (used for)
operating activities:
Gain on sale of properties (11,839,814) _ _
Insurance settlement, net _ (2,318,387) _
Depreciation _ 1,507,326 1,797,858
Loss on real estate assets held
for disposition 48,000 _ _
Loss on write-down of real estate _ _ 8,712,292
Loss on disposal of asset _ _ 6,998
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Prepaid expenses (36,608) (31,977) 18,084
Accounts payable and accrued expenses (853,124) 124,883 (223,778)
Deferred rent payable 45,395 45,395 45,395
Due to affiliates (128,636) 774 2,159
Security deposits payable (91,869) 3,225 (300)
Net provided by (cash used) for operating
activities (85,788) 2,485,738 2,481,410
Cash Flows From Investing Activities:
Proceeds from insurance settlement _ 3,200,000 _
Legal fees and payment on construction contract _ (223,593) _
Purchase of general partnership interest _ (850,000) _
Additions to real estate (77,000) (262,540) (190,674)
Proceeds from disposal of asset 30,148,357 _ 10,000
Net cash provided by (used for) investing
activities 30,071,357 1,863,867 (180,674)
Cash Flows From Financing Activities:
Distributions paid to partners (28,769,947) (4,388,637) (1,462,880)
Net cash used for financing activities (28,769,947) (4,388,637) (1,462,880)
Net increase (decrease) in cash and
cash equivalents 1,215,622 (39,032) 837,856
Cash and cash equivalents,
beginning of year 4,104,695 4,143,727 3,305,871
Cash and cash equivalents, end of year $ 5,320,317 $4,104,695 $ 4,143,727
Supplemental Disclosure of Non-Cash Investing Activities:
Settlement costs funded
through accounts payable $ _ $ 658,020 $ _
Capital expenditures funded
through accounts payable $ _ $ _ $ 33,500
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
1. Organization
Senior Income Fund L.P. (the "Partnership"), a Delaware limited
partnership (see below), was formed on October 14, 1986 for the
purpose of acquiring a general partnership interest in Shearson
August Property Partnership (the "Property Partnership"), a
California general partnership. As discussed below, through
November 21, 1996, the other general partner of the Property
Partnership was August Financial Partners II ("AFP-II"), an
affiliate of August Financial Corporation ("August"). The
Property Partnership was formed to acquire and operate four
specified senior residential properties (the "Properties", see
Note 7). The General Partner of the Partnership is Senior Income
Fund Inc., (the "General Partner"), a Delaware corporation, and
an affiliate of Lehman Brothers Inc. (see below). The
Partnership will continue until December 31, 2036, unless
terminated sooner in accordance with the terms of the Partnership
Agreement.
The initial capital contributions to the Partnership totaled
$110, representing capital contributions of $100 by the General
Partner and $10 by Senior Income Depositary Inc., formerly known
as Shearson Lehman Senior Depositary, Inc. (the Assignor Limited
Partner).
The agreement of limited partnership authorized the issuance of
4,827,500 depositary units at $10 per unit, which represent
assignments of economic and certain other rights attributable to
the partnership interests. The offering period ended on March
17, 1987, at which time 4,827,500 depositary units had been
issued.
On November 21, 1996, the Partnership purchased the general
partnership interest of the successor to AFP-II for a purchase
price of $850,000. The Partnership's purchase of the general
partnership interest was funded from cash reserves. As a result
of such purchase, the Property Partnership was dissolved in 1997
and all of its assets were distributed to the Partnership.
Accordingly, all sale proceeds received upon a sale of any
property will belong to the Partnership and no amount will be
owed to AFP-II.
On August 1, 1997, the Partnership closed the sale of three of
its four Properties, Prell Gardens, Nohl Ranch and Pacific Inn to
MBK Senior Properties, Ltd. (the "Buyer"), for net proceeds of
$30,148,357 (the "Sale") and a gain on the Sale of $11,839,814.
The sale of the Partnership's fourth property, Ocean House, is
subject to the satisfaction of certain conditions of the buyer
and approval of certain building repairs by the City of Santa
Monica. Although there have been several unexpected delays, the
General Partner anticipates that the sale of Ocean House will
occur during 1998. In the meantime, the Partnership will
continue to operate the property and generate rental income from
operations.
2. Significant Accounting Policies
Financial Statements - The consolidated financial statements
include the accounts of the Partnership and the Property
Partnership from inception through November 21, 1996. The effect
of transactions between the Partnership and the Property
Partnership have been eliminated in consolidation. As described
in Note 1, as of November 21, 1996, the Property Partnership will
be dissolved.
Cash and Cash Equivalents - Cash and cash equivalents consist of
short-term highly liquid investments, including commercial paper,
which have maturities of three months or less from the date of
purchase. The carrying value approximates fair value because of
the short maturity of these instruments. Certain cash and cash
equivalents reflected on the Partnership's balance sheet were on
deposit with an affiliate of the General Partner during a portion
of 1996. Since that point, no cash and cash equivalents were on
deposit with an affiliate of the General Partner.
Concentration of Credit Risk - Financial instruments which
potentially subject the Partnership to a concentration of credit
risk principally consist of cash and cash equivalents in excess
of the financial institutions' insurance limits. The Partnership
invests available cash with high credit quality financial
institutions.
Real Estate Investments - Real estate investments are stated at the
lower of cost, less accumulated depreciation, or fair value.
Cost includes the initial purchase price of the property, legal
fees, acquisition and closing costs. Depreciation is computed
using the straight-line method based upon the estimated useful
lives of the properties. Maintenance and repairs are charged to
operations as incurred. Significant betterments and improvements
are capitalized and depreciated over their useful lives.
For assets sold or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any
resulting gain or loss is reflected in income for the period. In
1994, (see Note 11), two of the Partnership's properties suffered
earthquake damages and consequently, a net building basis
adjustment and corresponding reduction in depreciation expense
resulted.
Accounting for Impairment - In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"),
which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. FAS
121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Partnership adopted FAS 121 in
the fourth quarter of 1995.
Real Estate Assets Held for Disposition - Real estate assets held
for disposition are carried at the lower of carrying value or
fair market value less costs to sell. During the fourth quarter
of 1996, all real estate assets were reclassified as held for
disposition and will no longer be depreciated. No adjustment to
carrying value resulted from the reclassification.
Leases - Leases are accounted for under the operating method.
Under this method, revenue is recognized as rentals are earned
and expenses (including depreciation) are charged to operations
when incurred. Leases are generally for terms of one year or
less.
Fair Value of Financial Instruments - Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments" ("FAS 107"), requires that the Partnership
disclose the estimated fair values of its financial instruments.
Fair values generally represent estimates of amounts at which a
financial instrument could be exchanged between willing parties
in a current transaction other than in forced liquidation.
Fair value estimates are subjective and are dependent on a number
of significant assumptions based on management's judgment
regarding future expected loss experience, current economic
conditions, risk characteristics of various financial
instruments, and other factors. In addition, FAS 107 allows a
wide range of valuation techniques, therefore, comparisons
between entities, however similar, may be difficult.
Income Taxes - No provision for income taxes has been made in the
consolidated financial statements since income, losses and tax
credits are passed through to the individual partners.
Use of Estimates - The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications - Certain prior year amounts have been
reclassified in order to conform to the current year's
presentation.
3. Property Partnership and Partnership Agreements
Property Partnership Agreement
With respect to the Property Partnership, the Partnership had a
100% interest, during the guaranty period (through December 31,
1989), in the income, losses and cash distributions of the
Property Partnership, other than expenses and deductions
allocable to AFP-II to the extent of its funding of the Minimum
Yield Guaranty (see Note 4). After the guaranty period, all
income, losses and cash distributions were to be allocated 100%
to the Partnership until it received its Cumulative Preferred
Return, as defined, and thereafter 99.5% to the Partnership and
.5% to AFP-II.
Distributions of Net Cash Flow from Operations, Net Proceeds from
Interim Capital Transactions and Net Proceeds upon Dissolution
were to be distributed 95% to the Partnership and 5% to AFP-II.
On November 21, 1996, the Partnership purchased AFP-II's interest
in the Property Partnership. Accordingly, all Net Cash Flow from
Operations, Net Proceeds from Interim Capital Transactions and
Net Proceeds from Dissolution will be paid to the Partnership and
no amount will be owed to AFP-II.
Partnership Agreement
The Partnership Agreement provides for the allocation of Income,
Losses, Net Cash Flow from Operations, Net Proceeds from Interim
Capital Transactions and Net Proceeds upon Dissolution, as
follows:
Income is generally allocated 99% to the Limited Partners and 1%
to the General Partner until the Limited Partners have received
their Preferred Return, as defined. The balance is allocated 95%
to the Limited Partners and 5% to the General Partner.
Losses are allocated to the General Partner and Limited Partners
in proportion to, and to the extent of their positive capital
account balances, as defined. At such time as the partners'
capital account balances are zero, losses will be allocated in
the same proportion as distributions.
Net Cash Flow from Operations with respect to each fiscal year
will generally be distributed 99% to the Limited Partners and 1%
to the General Partner, until such time as each Limited Partner
has received an amount equal to his Preferred Return, as defined.
The Partnership's share of any remaining Net Cash Flow from
Operations will be distributed 95% to the Limited Partners and 5%
to the General Partner.
Net Proceeds from Interim Capital Transactions, as defined,
generally will be distributed 99% to the Limited Partners and 1%
to the General Partner until each Limited Partner has received an
amount equal to his unpaid Cumulative Preferred Return and
Unrecovered Capital, as defined. The Partnership's share of any
excess Net Proceeds will be distributed 95% to the Limited
Partners and 5% to the General Partner.
Net Proceeds upon Dissolution will be made in proportion to
partners' capital accounts. It is anticipated that Net Proceeds
from any final liquidation of the Partnership's assets generally
will be distributed 99% to the Limited Partners and 1% to the
General Partner until each Limited Partner has received an amount
equal to any unpaid Preferred Return and his Unrecovered Capital
as defined. The Partnership's share of any excess Net Proceeds
generally will be distributed 95% to the Limited Partners and 5%
to the General Partner.
4. Property Management
From April 6, 1988 through July 31, 1997, the Partnership's
properties were managed by Leisure Care, Inc. ("Leisure Care"),
an unaffiliated third party. On August 1, 1997, simultaneous
with the sale of three of the Partnership's four properties, MBK
Senior Living Communities, Ltd., an affiliate of the Buyer, was
retained to manage Ocean House, the remaining Property.
Management fees for the years ended December 31, 1997, 1996 and
1995 amounted to approximately $291,660, $323,000 and $325,000,
respectively. Leisure Care was owed approximately, $87,000 and
$59,000 at December 31, 1996 and 1995, respectively.
For the years ended December 31, 1997, 1996 and 1995, Leisure
Care earned $197,796, $169,545 and $298,415, respectively, in
performance incentive fees.
5. Transactions with Related Parties
The Partnership reimburses the General Partner or its affiliates
for certain administrative expenses. For the years ended
December 31, 1997, 1996 and 1995, the General Partner or its
affiliates were reimbursed approximately $179,000, $27,000 and
$13,000, respectively. The General Partner or its affiliates
were owed approximately $62,000, $191,000 and $190,000 at
December 31, 1997, 1996 and 1995, respectively.
Relating to the sale of the three properties, a brokerage
commission was received by an affiliate of the General Partner in
the amount of $233,454.
6. Real Estate
On August 1, 1997, the Partnership closed the Sale of three of
its four Properties, Prell Gardens, Nohl Ranch and Pacific Inn,
to the Buyer for net proceeds of $30,148,357 and a gain on the
sale of the properties of $11,839,814. The sale of the
Partnership's fourth property, Ocean House, is subject to the
satisfaction of certain conditions of the Buyer and approval of
certain building repairs by the City of Santa Monica. Although
there have been several unexpected delays, the General Partner
anticipates that the sale of Ocean House will occur in the first
half of 1998. In the meantime, the Partnership will continue to
operate the property and generate rental income from operations.
The initial acquisition cost of Ocean House was $7,761,053 which
does not include the amount of the purchase price holdback and
other related acquisition expenses. Ocean House is a 121-unit
building in Santa Monica, California.
Pursuant to the requirements of FAS 121 and to obtain further
support in connection with the Partnership's insurance claim and
engineering studies (see Note 10), during the fourth quarter of
1995 the Partnership obtained preliminary estimates of fair
market value from an independent appraiser. Such estimates of
fair value made use of a combination of certain generally
accepted valuation techniques, including direct capitalization
and comparative sales analyses, and, in the instances of
Ocean House and Prell Gardens, have considered the structural
damage caused by the Northridge earthquake (see Note 10). As a
consequence of this valuation process, and pursuant to the
requirements of FAS 121, the Partnership recognized an impairment
loss of $8,712,292 as of December 31, 1995. The losses of $4,809,497,
$2,081,900 and $1,820,895, aggregating the $8,712,292, are
attributable to Ocean House, Prell Gardens and Nohl Ranch Inn,
respectively.
On November 21, 1996, the Partnership purchased the general
partnership interest of the successor to AFP-II for a purchase
price of $850,000. Accordingly, the purchase resulted in an
additional investment of $850,000 in the Properties.
7. Distributions Paid
Cash distributions, per the consolidated statements of partners'
capital, are recorded on the accrual basis, which recognize
specific record dates for payments within each calendar year.
The consolidated statements of cash flows recognize actual cash
distributions paid during the calendar year. The following table
discloses the annual amounts as presented on the consolidated
financial statements:
Distributions Distributions
Payable Distributions Distributions Payable
Beginning of Year Declared Paid December 31
1997 $365,720 $28,404,227 $28,769,947 $ _
1996 365,720 4,388,637 4,388,637 365,720
1995 365,720 1,462,880 1,462,880 365,720
8. Commitments
The land on which Ocean House is located is leased to the
Partnership under a ground lease which expires in 2016. The
lease carries renewal options for two 33-year periods. The
Partnership is recording ground rent expense on a straight-line
basis, at an annual amount of $921,396, resulting in deferred
ground rent payable. Future minimum rental payments to be paid
under the ground lease at December 31, 1997 are as follows:
Year Amount
1998 $ 876,000
1999 876,000
2000 876,000
2001 876,000
2002 896,667
Thereafter 13,866,667
$18,267,334
9. Reconciliation of Net Income (Loss) to Taxable Income
The following is a reconciliation of the net income (loss) for
consolidated financial statement purposes to net income for
federal income tax purposes for the years ended December 31,
1997, 1996 and 1995:
1997 1996 1995
Net income (loss) per consolidated
financial statements $12,770,868 $3,154,499 $(7,877,298)
Depreciation deducted for tax
purposes in excess of
depreciation expense per
consolidated financial statements (590,360) (172,815) (48,925)
Tax basis Property Partnership
net income (loss) in excess of
GAAP basis Property Partnership
consolidated net income _ (1,548,903) 1,228,748
Gain on sale per consolidated
financial statements in excess
of tax basis gain on sale (898,326) _ _
Consolidated financial statement
loss on write-down of real estate
over tax basis loss on write-down
of real estate 48,000 _ 8,712,292
Other (49,017) _ 861
Taxable net income $11,281,165 $1,432,781 $ 2,015,678
The following is a reconciliation of consolidated partners' capital for
consolidated financial statement purposes to partners' capital for federal
income tax purposes as of December 31, 1997, 1996 and 1995:
1997 1996 1995
Partners' capital per consolidated
financial statements $4,011,166 $19,644,525 $20,878,663
Adjustment for cumulative
difference between tax basis
net income and net income (loss)
per consolidated financial statements 4,224,620 5,714,323 7,436,041
Partners' capital per tax return $8,233,786 $25,358,848 $28,314,704
10. Insurance Settlement
As a result of the Northridge earthquake that struck the greater
Los Angeles area on January 17, 1994, damages were sustained at
two of the properties, Ocean House and Prell Gardens.
The General Partner pursued reimbursement from the insurance
carrier for the repair costs, less the deductible, under the
Partnership's insurance policy. However, the insurance carrier
refused to cover the cost to bring the buildings into compliance
with building codes enacted after the Northridge Earthquake. The
insurance carrier also disputed the amount of damage the
buildings sustained. As a result, on September 15, 1995, the
General Partner initiated litigation against the insurance
carrier and insurance broker. On November 19, 1996, the
Partnership and General Partner, executed a Mutual Release and
Settlement Agreement (the "Settlement Agreement") with the
Insurance Company of North America ("INA"), whereby the
Partnership agreed to release INA from all claims pending under
the lawsuit and to assign its remaining claim against the
insurance broker to the insurance carrier. The Partnership
received $3,200,000 from INA pursuant to the Settlement
Agreement. Costs associated with the litigation which include
legal, expert witness and engineering fees and a payment on the
construction contract for Prell Gardens were offset against the
$3,200,000 resulting in net insurance settlement income of
$2,318,387.
Report of Independent Accountants
To the Partners of
Senior Income Fund Limited Partnership:
We have audited the consolidated balance sheets of Senior Income
Fund Limited Partnership, a Delaware limited partnership, and
Consolidated Venture as of December 31, 1997 and 1996, and the
related consolidated statements of operations, partners' capital
(deficit) and cash flows for each of the three years in the
period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Senior Income Fund Limited Partnership, a
Delaware limited partnership and Consolidated Venture as of
December 31, 1997 and 1996, and the consolidated results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 6 to the financial statements, the
Partnership entered into a Purchase and Sale Agreements for its
four real estate properties. The Partnership sold three of the
four properties on August 1, 1997. The sale of the fourth
property is expected in 1998, pending determination of the extent
of certain required building repairs from earthquake damage by
applicable governmental authorities. Upon completion of the sale
of the fourth property, the Partnership will commence liquidation
shortly thereafter.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 27, 1998
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1997
Real Estate Assets held for Disposition:
Residential Property (1): Ocean House
Location Santa Monica, CA
Construction date NA
Acquisition date 03-25-87
Life on which depreciation
in latest income statements
is computed (2)
Encumbrances (3) $ _
Initial cost to Partnership:
Land _
Buildings and
improvements 7,496,394
Costs capitalized
subsequent to acquisition:
Land _
Buildings
and improvements 1,134,934
Other charges (4):
Land _
Buildings
and improvements (8,609,786)
Gross amount at which
carried at close of period:
Land $ _
Buildings and
improvements 21,542
21,542
Accumulated depreciation $ _
(1) This property is a senior residential property. Also, note that
Prell Gardens, Pacific Inn and Nohl Ranch Inn were sold in 1997.
(2) Buildings and improvements - 40 years; personal property - 10 years.
(3) The property partnership purchased the property on an all cash basis.
(4) a) In 1994, the building basis cost of Ocean House was reduced by the
provision for earthquake loss in the amount of $750,000 and increased
by earthquake repairs of $271,202, resulting in a net building basis
reduction of $478,798.
b) During 1995, the Partnership recognized a write-down of the carrying
value of Ocean House of $4,809,497. The net book value adjusted for the
write-down, becomes the new carrying value for the property.
c) The balance represents prior years accumulated depreciation.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1997, 1996, and 1995
is as follows:
1997 1996 1995
Real estate investments:
Beginning of year $18,301,085 $23,592,313 $42,664,480
Additions 77,000 1,112,540 99,636
Reclass to held for sale _ (6,403,768) _
Less disposition (18,308,543) _ (25,820)
Write down of real estate (48,000) _ (19,270,521)
Write down for earthquake _ _ 124,538
End of year $ 21,542 $18,301,085 $23,592,313
Accumulated depreciation:
Beginning of year $ _ $ 4,896,442 $13,665,635
Depreciation expense _ 1,507,326 1,797,858
Reclass to held for sale _ (6,403,768) _
Disposition _ _ (8,822)
Write down of real estate _ _ (10,558,229)
End of year $ _ $ _ $ 4,896,442
Report of Independent Accountants
Our report on the consolidated financial statements of Senior
Income Fund Limited Partnership, a Delaware limited partnership,
and Consolidated Venture has been incorporated by reference in
this Form 10-K from the Annual Report to Unitholders of Senior
Income Fund Limited Partnership for the year ended
December 31, 1997. In connection with our audit of such
financial statements, we have also audited the related financial
statement schedule listed in the index of this Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Dec-31-1997
<CASH> 5,320,317
<SECURITIES> 000
<RECEIVABLES> 000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 204,867
<PP&E> 000
<DEPRECIATION> 000
<TOTAL-ASSETS> 5,546,726
<CURRENT-LIABILITIES> 180,192
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 4,011,166
<TOTAL-LIABILITY-AND-EQUITY> 5,546,726
<SALES> 8,232,614
<TOTAL-REVENUES> 8,577,053
<CGS> 000
<TOTAL-COSTS> 6,118,945
<OTHER-EXPENSES> 1,527,054
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