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, 1999
-----------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- --- THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
--------- ---------
Commission file number: 33-9921
-------
SENIOR INCOME FUND L. P.
------------------------
Exact name of Registrant as specified in its charter
Delaware 13-3392077
-------- ----------
State or other jurisdiction of I.R.S. Employer
incorporation or organization 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) 526-3183
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, 1999.
1
<PAGE>
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 on the sale of three of its four
Properties -- Prell Gardens, Nohl Ranch and Pacific Inn, for net proceeds of
$30,148,357. On October 13, 1998, the Partnership closed on the sale of the
remaining property, Ocean House, for a gross sales price of $5,172,750 less a
credit for cost of repairs due to earthquake damage of $4,174,171, resulting in
a net selling price of $988,579. Although the Partnership's leasehold interest
in Ocean House was sold, the ground lessor has not released the Partnership from
its continuing contingent liability associated with the ground lease. The
Partnership is not expected to be terminated until this contingent liability is
removed. Reference is made to Item 7 for a discussion of the sales.
(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 General Partner is in the process of winding up the Partnership's
affairs and expects to terminate the Partnership subsequent to its removal as
obligor of the Ocean House contingent liability.
2
<PAGE>
(d) Employees
---------
The Partnership has no employees.
Item 2. Properties
As of December 31, 1999, all four of the Partnership's properties had been sold.
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, 1999, there were 3,303 Limited Partners of record.
(c) Cash Distributions per Unit
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------
<S> <C> <C>
1st Quarter $ 0.000 $ 0.000
2nd Quarter 0.000 0.000
3rd Quarter 0.000 0.000
Special Distribution 0.000 1.111(1)
4th Quarter 0.000 0.000
-------------------------
Total $ 0.000 $ 1.111
--------------------------------------------------------
<FN>
(1) On November 17, 1998, the Partnership paid a cash distribution in the
amount of $1.11 per Unit representing proceeds from the sale of Ocean
House and a portion of the Partnership's cash reserves.
</FN>
</TABLE>
As a result of the sale of Ocean House, the Partnership made a special
distribution of $1.11 per Unit on November 17, 1998, representing net sales
proceeds and a portion of the Partnership's cash reserves. The remaining
reserves will be used to pay the Partnership's liabilities and expenses through
termination. If any proceeds remain, the Partnership intends to make another
distribution upon termination.
3
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
(Dollars in thousands,
except per Unit data) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rental Income $ -- $ 3,155 $ 8,233 $ 10,782 $ 10,838
Interest and Other Income 49 272 344 205 199
Total Income 49 3,427 8,577 13,305(2) 11,037
Income (Loss) From Operations (208) 277 931 3,154 (7,877)(3)
Gain On Sale Of Properties -- 2,072 11,840 -- --
Net Income (Loss) (208) 2,349 12,771(4) 3,154 (7,877)(3)
Income (Loss) From Operations
Per Unit(1) (.04) .06 .19 .65 (1.63)
Net Income (Loss) Per Unit(1) (.04) .49 2.58 .65 (1.63)
Cash Distributions Per Unit(1) 0.00 1.11 5.82 .90 .30
------------------------------------------------------------
Total Assets $ 839 $ 1,111 $ 5,547 $ 22,574 $ 22,976
- ----------------------------------------------------------------------------------------------
<FN>
(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.
</FN>
</TABLE>
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, 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 and a gain on the
sale of $11,839,814. The Partnership's fourth property, Ocean House, was sold on
October 13, 1998 to MBK Senior Living Communities, Ltd., formerly known as MBK
Senior Properties, Ltd. The gross selling price was $5,172,750, less a credit
for cost of repairs due to earthquake damages of $4,174,171, resulting in a net
selling price of $998,579 and a gain on the sale of $2,072,451, including the
assignment of the land lease obligation. The Partnership remains contingently
liable under the terms of the Ocean House ground lease.
As a result of the Sale, the Partnership suspended the payment of quarterly cash
distributions beginning with the second quarter 1997 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 the first three properties and cash flow from operations for
the second quarter of 1997. With the completion of the Ocean House sale, the
Partnership made a special distribution of $1.11 per Unit, on November 17, 1998,
representing the net sales proceeds and a portion of the Partnership's cash
reserves.
Although the Partnership's leasehold interest in Ocean House was sold, the
General Partner has not obtained a release from the ground lessor of the
Partnership's continuing contingent liability associated with the ground lease.
The General Partner has explored various means by which to release or protect
the Partnership from this contingent liability, and will continue to do so.
However, until this is accomplished, the General Partner expects that the
Partnership will not be terminated, and the remaining cash will continue to be
held in reserve. While the General Partner is attempting to wind up the affairs
of the Partnership and terminate it, there can be no assurance as to when the
General Partner will be successful in doing so.
At December 31, 1999, the Partnership had cash and cash equivalents of $839,125
compared to $1,060,585 at December 31, 1998. The decrease is primarily due to a
reduction in income due to the sale of Ocean House in 1998.
4
<PAGE>
Accounts payable and accrued expenses were $46,440 at December 31, 1999 compared
to $92,716 at December 31, 1998. The change is primarily due to reduced expenses
due to the sale of Ocean House in 1998.
Market Risk
- -----------
The Partnership's principal market risk exposure is interest rate risk. As a
result of the sale of Ocean House, the Partnership no longer has any properties
or debt, and its assets consist primarily of cash and cash equivalents.
Accordingly, the Partnership's interest risk exposure is primarily limited to
interest earned on the Partnership's cash and cash equivalents, which are
invested at short-term rates. Such risk is not considered material to the
Partnership's operations.
Y2K Initiatives
- ---------------
The Partnership has previously discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Partnership completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Partnership experienced no significant disruptions in mission
critical information technology and non-information technology systems and
believes those systems successfully responded to the Year 2000 date change. The
Partnership is not aware of any material problems resulting from Year 2000
issues, either with its products, its internal systems, or the products and
services of third parties. The Partnership will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
(b) Results of Operations
---------------------
1999 versus 1998
- ----------------
Partnership operations resulted in net loss of $208,442 for the year ended
December 31, 1999, compared to net income of $2,349,347 for the year ended
December 31, 1998. The decrease is primarily a result of reductions in income
due to the sale of Ocean House in 1998.
Rental income for the year ended December 31, 1999 was $-0-, compared to
$3,155,478 in 1998. The decrease is due to the sale of the last property.
Primarily as a result of the sale of Ocean House, all expense categories
decreased from the 1998 periods to the 1999 periods.
1998 versus 1997
- ----------------
Partnership operations resulted in net income of $2,349,347 for the year ended
December 31, 1998, compared to $12,770,868 for the year ended December 31, 1997.
Net income in 1997 included a $11,839,814 gain on sale of Prell Gardens, Nohl
Ranch and Pacific Inn, while net income in 1998 included a $2,072,451 gain on
the sale of Ocean House. Excluding these gains, net income from operations
totaled $276,896 in 1998 compared with $931,054 in 1997. The decrease is
primarily due to a decrease in rental income, as a result of the sale of three
of the Properties in 1997, which exceeded the decrease in all expense
categories. The decrease also reflects the sale of Ocean House in October 1998.
Primarily as a result of the sale of three of the Partnership's Properties on
August 1, 1997, rental income and all expense categories decreased from 1997 to
1998. Loss on real estate held for disposition was $-0- in 1998 compared to
$48,000 in 1997. The 1997 amount 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.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1999, which is filed as an exhibit under Item 14.
5
<PAGE>
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
---- ------
Michael T. Marron Director, President and Chief Financial Officer
Rocco F. Andriola Director, Vice President
Michael T. Marron, 36, is a Vice President of Lehman Brothers and has been a
member of the Diversified Asset Group since 1990 where he has actively
managed and restructured a diverse portfolio of syndicated limited
partnerships. Prior to joining Lehman Brothers, Mr. Marron was associated
with Peat Marwick Mitchell & Co. serving in both its audit and tax divisions
from 1985 to 1989. Mr. Marron received a B.S. degree from the State
University of New York at Albany and an M.B.A. degree from Columbia
University and is a Certified Public Accountant.
Rocco F. Andriola, 41, is a Managing Director of Lehman Brothers in its
Diversified Asset Group and has held such position since October 1996. Mr.
Andriola also serves as the Director of Global Corporate Services for
Lehman. Since joining Lehman in 1986, Mr. Andriola has been involved in a
wide range of restructuring and asset management activities involving real
estate and other direct investment transactions. From June 1991 through
September 1996, Mr. Andriola held the position of Senior Vice President in
Lehman's Diversified Asset Group. From June 1989 through May 1991, Mr.
Andriola held the position of First Vice President in Lehman's Capital
Preservation and Restructuring Group. From 1986 to 1989, Mr. Andriola served
as a Vice President in the Corporate Transactions Group of Shearson Lehman
Brothers' office of the general counsel. Prior to joining Lehman, Mr.
Andriola practiced corporate and securities law at Donovan Leisure Newton &
Irvine in New York. Mr. Andriola received a B.A. from Fordham University, a
J.D. from New York University School of Law, and an LL.M in Corporate Law
from New York University's Graduate School of Law.
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.
6
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners.
As of December 31, 1999, 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, 1999.
(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
1999, 1998 and 1997, see Note 5, "Transactions with Related Parties," to the
Financial Statements which is incorporated by reference to the Partnership's
Annual Report to Unitholders for the year ended December 31, 1999, which is
filed as an exhibit under Item 14.
7
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements:
Balance Sheets - At December 31, 1999 and 1998................. (2)
Statements of Partners' Capital (Deficit) - For the years ended
December 31, 1999, 1998 and 1997............................... (2)
Statements of Operations - For the years ended
December 31, 1999, 1998 and 1997............................... (3)
Statements of Cash Flows - For the years ended
December 31, 1999, 1998 and 1997............................... (4)
Notes to the Financial Statements.............................. (5)
Report of Independent Accountants.............................. (9)
(a) (2) Financial Statement Schedules:
No schedules are presented because the information is not applicable or
is included in the Financial Statements or the notes thereto.
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1999, 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.
13.1 Annual Report to Unitholders for the year ended December 31, 1999.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
8
<PAGE>
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 28, 2000 BY: /s/Michael T. Marron
--------------------
Name: Michael T. Marron
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 28, 2000 BY: /s/Michael T. Marron
--------------------
Name: Michael T. Marron
Title: Director, President and Chief Financial Officer
Date: March 28, 2000 BY: /s/Rocco F. Andriola
--------------------
Name: Rocco F. Andriola
Title: Director, Vice President
9
Exhibit 13.1
Senior Income Fund L.P.
1999 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
MESSAGE TO INVESTORS
- --------------------------------------------------------------------------------
Presented for your review is the 1999 Annual Report for Senior Income Fund L.P.
(the "Partnership") which includes the Partnership's audited financial
statements for the year ended December 31, 1999.
As previously reported, the Partnership sold its interest in Prell Gardens, Nohl
Ranch and Pacific Inn during 1997, and Ocean House in 1998, to MBK Senior Living
Communities, Ltd. for a net sales price of approximately $31.1 million. The
Partnership subsequently distributed the net sales proceeds and a portion of the
Partnership's cash reserves to the Limited Partners.
The land on which the Ocean House property is located was leased to the
Partnership under a ground lease. Although the Partnership's leasehold interest
in Ocean House was sold, the ground lessor has not released the Partnership from
its continuing contingent liability associated with the ground lease. The
General Partner has explored various means by which to release or protect the
Partnership from this contingent liability, and will continue to do so. Until
this is accomplished, the General Partner expects that the Partnership will not
be terminated, and the remaining cash balances will continue to be held in
reserve. Accordingly, while we are attempting to terminate the Partnership in
2000, there can be no assurance it will be terminated within this timeframe.
Questions regarding the Partnership should be directed to your Financial
Consultant or Partnership Investor Services. All requests for a change of
address or transfer should be submitted in writing to the Partnership's
administrative agent at P.O. Box 7090, Troy, MI 48007-7090. Partnership Investor
Services can be reached at (617) 342-4225, and the Partnership's administrative
agent can be reached at (248) 637-7900.
Very truly yours,
Senior Income Fund Inc.
General Partner
Michael T. Marron
President
March 28, 2000
1
<PAGE>
SENIOR INCOME FUND L.P.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
BALANCE SHEETS
At December 31, At December 31,
1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 839,125 $ 1,060,585
Accounts receivable - other 96 --
Prepaid expenses -- 50,754
- --------------------------------------------------------------------------------------
Total Assets $ 839,221 $ 1,111,339
======================================================================================
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 46,440 $ 92,716
Due to affiliates 4,600 22,000
Security deposits payable -- --
-----------------------------
Total Liabilities 51,040 114,716
-----------------------------
Partners' Capital:
General Partner -- --
Limited Partners (4,827,500 units outstanding) 788,181 996,623
-----------------------------
Total Partners' Capital 788,181 996,623
- --------------------------------------------------------------------------------------
Total Liabilities and Partners' Capital $ 839,221 $ 1,111,339
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
STATEMENT OF PARTNERS' CAPITAL
For the years ended December 31, 1999, 1998 and 1997
General Limited
Partner Partners Total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
Net income -- 2,349,347 2,349,347
Distributions -- (5,363,890) (5,363,890)
- --------------------------------------------------------------------------------------
Balance at December 31, 1998 -- 996,623 996,623
Net income (loss) -- (208,442) (208,442)
- --------------------------------------------------------------------------------------
Balance at December 31, 1999 $ -- $ 788,181 $ 788,181
======================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements. 2
<PAGE>
SENIOR INCOME FUND L.P.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the years ended December 31,
1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Rental $ -- $ 3,155,478 $ 8,232,614
Interest and other 49,460 271,562 344,439
------------------------------------------
Total Income 49,460 3,427,040 8,577,053
- --------------------------------------------------------------------------------------
Expenses
Payroll -- 916,592 2,574,322
General and administrative 257,902 602,131 1,527,054
Rent and utilities -- 925,702 1,444,213
Supplies -- 293,301 890,148
Repairs and maintenance -- 271,770 841,709
Real estate taxes -- 123,081 290,595
Travel and entertainment -- 17,567 29,958
Loss on real estate held for disposition -- -- 48,000
------------------------------------------
Total Expenses 257,902 3,150,144 7,645,999
- --------------------------------------------------------------------------------------
Income (Loss) from Operations (208,442) 276,896 931,054
- --------------------------------------------------------------------------------------
Other Income:
Gain on sale of properties -- 2,072,451 11,839,814
- --------------------------------------------------------------------------------------
Net Income (Loss) $ (208,442) $ 2,349,347 $ 12,770,868
======================================================================================
Net Income (Loss) Allocated:
To the General Partner $ -- $ -- $ 338,949
To the Limited Partners (208,442) 2,349,347 12,431,919
- --------------------------------------------------------------------------------------
$ (208,442) $ 2,349,347 $ 12,770,868
======================================================================================
Per limited partnership unit
(4,827,500 outstanding) $ (.04) $ .49 $ 2.58
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements. 3
<PAGE>
SENIOR INCOME FUND L.P.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
For the years ended December 31,
1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ (208,442) $ 2,349,347 $ 12,770,868
Adjustments to reconcile net income
(loss) to net cash provided by (used
for) operating activities:
Gain on sale of properties -- (2,072,451) (11,839,814)
Loss on real estate assets held for
disposition -- -- 48,000
Increase (decrease) in cash arising
from changes in operating assets and
liabilities:
Prepaid expenses 50,754 97,282 (36,608)
Other current assets (96) -- --
Accounts payable and accrued expenses (46,276) 145,029 (853,124)
Deferred rent payable -- 35,514 45,395
Due to affiliates (17,400) (39,973) (128,636)
Security deposits -- -- (91,869)
-------------------------------------------
Net cash provided by (used for)
operating activities (221,460) 514,748 (85,788)
- --------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from disposal of asset -- 589,410 30,148,357
Additions to real estate -- -- (77,000)
-------------------------------------------
Net cash provided by investing activities -- 589,410 30,071,357
- --------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Distributions paid to partners -- (5,363,890) (28,769,947)
-------------------------------------------
Net cash used for financing activities -- (5,363,890) (28,769,947)
- --------------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents (221,460) (4,259,732) 1,215,622
Cash and cash equivalents,
beginning of year 1,060,585 5,320,317 4,104,695
-------------------------------------------
Cash and cash equivalents, end of year $ 839,125 $ 1,060,585 $ 5,320,317
======================================================================================
Supplemental Disclosure of Non-Cash
Investing Activities:
Settlement costs funded through
accounts payable $ -- $ 232,505 $ --
======================================================================================
Supplemental Disclosure of Non-Cash
Operating Activities:
In connection with the sale of the properties, 1998 prepaid expenses, deferred
rent payable, and security deposits in the amounts of $56,831, $1,272,078, and
$56,831 were netted against gain on sale of properties.
</TABLE>
See accompanying notes to the consolidated financial statements. 4
<PAGE>
SENIOR INCOME FUND L.P.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
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 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 and a gain on the Sale of
$11,839,814. On October 13, 1998, the Partnership closed on the sale of its
remaining Property, Ocean House, to MBK Senior Living Communities, Ltd.,
formerly known as MBK Senior Properties, Ltd., for a net selling price of
$998,579 and a gain on the sale of $2,072,451, including the assignment of the
land lease obligation. The Partnership remains contingently liable under the
terms of the Ocean House ground lease. The General Partner is in the process of
winding up the Partnership's affairs and expects to terminate the Partnership
subsequent to its removal as obligor of this contingent liability.
2. Significant Accounting Policies
Basis of Accounting The financial statements of the Partnership have been
prepared on the accrual basis of accounting.
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.
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.
5
<PAGE>
SENIOR INCOME FUND L.P.
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 financial
statements since income, losses and tax credits are passed through to the
individual partners.
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 amount 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.
3. Partnership Agreement
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.
6
<PAGE>
SENIOR INCOME FUND L.P.
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, which was sold in
October 1998.
Management fees for the years ended December 31, 1999, 1998 and 1997 amounted to
$0, $172,354 and $291,660, respectively.
For the years ended December 31, 1998 and 1997, Leisure Care earned $0 and
$197,796, 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, 1999, 1998 and 1997,
the General Partner or its affiliates were reimbursed approximately $7,200,
$21,000 and $179,000, respectively. The General Partner or its affiliates were
owed approximately $4,600, $22,000 and $62,000 at December 31, 1999, 1998 and
1997, respectively.
Relating to the sale of the three properties in 1997, a brokerage commission was
received by an affiliate of the General Partner in the amount of $233,454. In
1998, the affiliate received a commission on the sale of Ocean House in the
amount of $7,489.
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, for net proceeds of
$30,148,357 and a gain on the sale of the properties of $11,839,814. On October
13, 1998, the Partnership closed on the sale of its remaining property, Ocean
House, for a gross selling price of $5,172,750, less a credit for cost of
repairs due to earthquake damage of $4,174,171, resulting in a net selling price
of $998,579. The sale resulted in a gain of $2,072,451, including the assignment
of the land lease obligation. The Partnership remains contingently liable under
the terms of the ground lease. The General Partner is in the process of winding
up the Partnership's affairs and expects to terminate the Partnership subsequent
to its removal as obligor of this contingent liability.
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 statements of partners' capital, are recorded on the
accrual basis, which recognize specific record dates for payments within each
calendar year. The statements of cash flows recognize actual cash distributions
paid during the calendar year. The following table discloses the annual amounts
as presented on the financial statements:
<TABLE>
<CAPTION>
Distributions Distributions
Payable Distributions Distributions Payable
Beginning of Year Declared Paid December 31
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 $ -- $ -- $ -- $ --
1998 -- 5,363,890 5,363,890 --
1997 365,720 28,404,227 28,769,947 --
- --------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
SENIOR INCOME FUND L.P.
8. Reconciliation of Net Income to Taxable Income (Loss)
The following is a reconciliation of the net income (loss) for financial
statement purposes to net income for federal income tax purposes for the years
ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) per financial statements $ (208,442) $ 2,349,347 $ 12,770,868
Depreciation deducted for tax purposes
in excess of depreciation expense per
financial statements -- (91,954) (590,360)
Tax basis Property Partnership net
income (loss) in excess of GAAP basis
Property Partnership net income -- -- --
Gain on sale per financial statements
in excess of tax basis gain (loss) on sale -- (4,127,111) (898,326)
Financial statement loss on write-down
of real estate over tax basis loss on
write-down of real estate -- -- 48,000
Other -- 53,424 (49,017)
- --------------------------------------------------------------------------------------
Taxable net income (loss) $ (208,442) $(1,816,294) $11,281,165
======================================================================================
</TABLE>
The following is a reconciliation of partners' capital for financial statement
purposes to partners' capital for federal income tax purposes as of December 31,
1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' capital per
financial statements $ 788,181 $ 996,623 $ 4,011,166
Adjustment for cumulative
difference between tax basis
net income and net income (loss)
per financial statements 58,979 58,979 4,224,620
- --------------------------------------------------------------------------------------
Partners' capital per tax return $ 847,160 $ 1,055,602 $ 8,235,786
======================================================================================
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Partners of
Senior Income Fund Limited Partnership:
In our opinion, the accompanying balance sheets and the related statements of
operations, partners' capital and of cash flows present fairly, in all material
respects, the financial position of Senior Income Fund Limited Partnership, a
Delaware Limited Partnership, at December 31, 1999 and 1998, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. 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 of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Notes 1 and 6 to the financial statements, the Partnership
entered into a Purchase and Sale Agreement for its four real estate properties.
The Partnership sold three of the four properties on August 1, 1997. The sale of
the fourth property occurred on October 13, 1998. The Partnership expects to
terminate subsequent to its removal as obligor under a contingent liability
described in Note 6 of the financial statements.
/s/PricewaterhouseCoopers LLP
February 22, 2000
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Dec-31-1999
<CASH> 839,125
<SECURITIES> 000
<RECEIVABLES> 96
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 839,221
<PP&E> 000
<DEPRECIATION> 000
<TOTAL-ASSETS> 839,221
<CURRENT-LIABILITIES> 51,040
<BONDS> 000
000
000
<COMMON> 000
<OTHER-SE> 788,181
<TOTAL-LIABILITY-AND-EQUITY> 839,221
<SALES> 000
<TOTAL-REVENUES> 49,460
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 257,902
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> (208,442)
<INCOME-TAX> 000
<INCOME-CONTINUING> (208,442)
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> (208,442)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
