UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A- AMENDMENT #2
Annual Report Pursuant to Section 13 or 15(d) of
Securities Exchange Act of 1934
For the period ended: December 31, 1994 Commission file number: 0-15725
----------------- -------
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 52-1449733
----------------------- ------------------------------------
(State of organization) (I.R.S. Employer Identification No.)
218 North Charles Street, Suite 500, Baltimore, Maryland 21201
- ----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 962-0595
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
None None
-------------------- --------------------
Securities registered pursuant to Section 12(g) of the Act: None
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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 such
shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The Registrant is a partnership. Accordingly, no voting stock is
held by non-affiliates of the Registrant.
DESCRIPTION OF AMENDMENTS:
AMENDMENT #1 (Changes included herein):
A) The Series II December 31, 1994 Proforma Joint Investment Pool amount
has been adjusted by approximately $300,000 to record the write off of
debt costs related to the original Hamilton Chase debt.
B) The proforma combined balance sheet of the joint investment pool at
December 31, 1994 was revised to show the components of the underlying
properties that was originally shown as an investment in real estate
partnerships.
AMENDMENT #2:
The following changes were made pursuant to SEC Comments dated August 18,
1995.
A) In Note 4, Investment in Real Estate Partnerships, summarized financial
information has been adjusted to reflect depreciation as a charge
against operating income.
B) Attached are the 1993 Financial Statements and Audit Reports of the
properties that had a change of accountants in 1994:
Barkley Place Limited Partnership
Montclair Limited Partnership
Newport Village Limited Partnership
Nicollet Ridge Limited Partnership
Steeplechase Falls Limited Partnership
Hamilton Grove Limited Partnership
C) In accordance with SAB Topic 1I, attached is the 1994 Financial
Statements and Audit Report for Auction Street Associates Limited
Partnership.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements - The Financial Statements listed on the
accompanying Index to Financial Statements and Schedule are filed as a
part of this Annual Report on Form 10-K/A- AMENDMENT #2.
2. Financial Statement - Schedule. Note 3 to the Financial
Statements included herein includes the information required to be
included in Schedule of Mortgage Loans on Real Estate as of
December 31, 1994 pursuant to Rule 12-29 of Regulation S-X at Note 3.
3. Exhibits - The Exhibits listed in the accompanying Index to
Exhibits were filed as part of the Annual Report on Form 10-K.
(b) Reports on Form 8-K:
1. There were no reports on Form 8-K filed during the quarter
ended December 31, 1994.
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Title of Document
2. Not applicable.
3. Amended and Restated Agreement of Limited
Partnership of SCA Tax Exempt Fund Limited
Partnership, dated as of June 3, 1986 (incorporated
herein by reference to Exhibit A of the Prospectus
of the Registrant dated June 3, 1986 (the
"Prospectus") filed with the Commission pursuant
to Rule 424 (b)).
4. Amended and Restated Agreement of Limited
Partnership of SCA Tax Exempt Fund Limited
Partnership, dated as of June 3, 1986 (incorporated
herein by reference to Exhibit A of the Prospectus
of the Registrant dated June 3, 1986 (the
"Prospectus") filed with the Commission pursuant
to Rule 424(b)).
9. Not applicable.
10. Not applicable.
11. Not applicable.
12. Not applicable.
13. Not applicable.
16. Not applicable.
18. Not applicable.
21. Not applicable.
22. Not applicable.
23. Not applicable.
24. Not applicable.
27. Financial Data Schedules.
28. Not applicable.
99. Documents incorporated by reference pursuant to
Rule 12b-23:
A. Pages 15-17, 25-30, and 49-52 of the
Prospectus.
B. Pages S-3 through S-10 of the Supplement
to the Prospectus dated June 3, 1986 filed
with the Commission pursuant to Rule
424(b).
C. Pages 2-3 and 6-9 of the Supplement to the
Prospectus dated October 6, 1986 included
in Post-Effective Amendment No. 1 to the
Partnership's Registration Statement on
Form S-11, filed with the Commission on
November 3, 1986.
D. Pages 2-8, 10-13, and 14-18 of the
Supplement to the Prospectus dated
November 28, 1986 included in
Post-Effective Amendment No. 3 to the
Partnership's Registration Statement on
Form S-11, filed with the Commission on
February 3, 1987.
E. Page 4 of the 1987 Form 10-K filed with the
Commission on March 30, 1988.
F. Pages 10-16 of the 1987 Annual Report to
Investors.
G. Page 4 of the Form 10-K filed with the
Commission on March 31, 1989.
H. Page A-18 of the 1988 Form 10-K filed with
the Commission on March 31, 1989.
I. Page A-25 and A-26 of the 1989 Form 10-K
filed with the Commission on April 2, 1990.
J. Page A-23 through A-25 of the 1990 Form
10-K filed with the Commission on April 1,
1991.
K. Page A-27 and A-28 of the 1991 Form 10-K
filed with the Commission on March 30,
1992.
L. Page A-36 and A-37 of the 1992 Form 10-K
filed with the Commission on March 30,
1993.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP
By: SCA REALTY I, INC.
Date: October 6, 1995 By: /s/ Thomas R. Hobbs
Thomas R. Hobbs
Senior Vice President
Signing on behalf o fthe registrant and as acting chief financial
officer.
<PAGE>
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants
Balance Sheets as of December 31, 1994 and 1993 - Series I
Statements of Income for the three years ended December 31, 1994, 1993,
and 1992 - Series I
Statements of Cash Flows for the three years ended December 31, 1994,
1993, and 1992 - Series I
Statements of Changes in Partners' Capital for the three years ended
December 31, 1994
Balance Sheets as of December 31, 1994 and 1993 - Series II
Statements of Income for the three years ended December 31, 1994, 1993,
and 1992 - Series II
Statements of Cash Flows for the three years ended December 31, 1994,
1993, and 1992 - Series II
Statements of Changes in Partners' Capital for the three years ended
December 31, 1994 - Series II
Notes to Financial Statements - The footnotes include the information
required to be included in the Schedule of Mortgage Loans on Real Estate
as of December 31, 1994 pursuant to Rule 12-29 of Regulation S-X at
Note 3
Financial Statements of Various Properties including reports of
Independent Accountants.
All schedules prescribed by Regulation S-X have been omitted as the
required information is inapplicable or the information is presented
elsewhere in the financial statements or related notes.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Partners of SCA Tax Exempt Fund Limited Partnership:
In our opinion, the accompanying balance sheets (including the proforma
balance sheets as of December 31, 1994) and the related statements of
income, of cash flows and of changes in partners' capital present fairly, in all
material respects, the financial position of SCA Tax Exempt Fund Limited
Partnership (the "Partnership"), Series I and Series II, at December 31, 1994
and 1993, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. 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 generally
accepted auditing standards 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 described more fully in Note 7, on February 14, 1995, the Partnership
consummated a financing transaction. The proforma balance sheets reflect
the effect of this transaction on the Partnership's financial position had the
transaction occurred on December 31, 1994.
Price Waterhouse LLP
Baltimore, Maryland
March 30, 1995
<PAGE>
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP
BALANCE SHEETS
SERIES I
<TABLE>
<CAPTION>
Proforma (Note 7)
---------------------------------
December 31, December 31, December 31,
1994 Adjustments 1994 1993
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $5,239,782 $2,619,488 (a) $7,859,270 $5,032,089
Interest receivable 357,783 357,783 296,040
Investment in mortgage revenue bonds, net of valuation
allowance of $1,430,000 in 1994 and $0 in 1993 (Note 3) 43,177,900 43,177,900 44,607,900
Investment in parity working capital loans (Note 3) 934,600 934,600 934,600
Investment in real estate partnerships (Note 4) 104,708,977 (57,605,914)(b) 47,103,063 107,970,711
Joint investment pool (Note 7) - 54,563,816 (c) 54,563,816
Other assets (Note 7) 622,212 (603,887)(d) 18,325 18,060
--------------- --------------- --------------- ---------------
TOTAL ASSETS $155,041,254 ($1,026,497) $154,014,757 $158,859,400
=============== =============== =============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $663,087 - $663,087 $71,793
Distributions payable 5,044,283 5,044,283 5,052,141
Due to affiliates (Note 6) 63,845 63,845 16,051
--------------- --------------- --------------- ---------------
TOTAL LIABILITIES 5,771,215 - 5,771,215 5,139,985
--------------- --------------- --------------- ---------------
Partners' Capital
General Partners (304,746) ($10,265) (315,011) (263,970)
Limited Partners (beneficial assignee certificates-
issued and outstanding 200,000 certificates) 149,574,785 (1,016,232) 148,558,553 153,983,385
--------------- --------------- --------------- ---------------
TOTAL PARTNERS' CAPITAL 149,270,039 (1,026,497) 148,243,542 153,719,415
--------------- --------------- --------------- ---------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 4, 5, 6 & 7)
TOTAL LIABILITIES AND PARTNERS' CAPITAL $155,041,254 ($1,026,497) $154,014,757 $158,859,400
=============== =============== =============== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP
STATEMENTS OF INCOME
SERIES I
<TABLE>
<CAPTION>
For the For the For the
year ended year ended year ended
December 31, December 31, December 31,
1994 1993 1992
--------------- --------------- ---------------
<S> <C> <C> <C>
INCOME
Interest on mortgage revenue bonds $3,468,563 $4,025,063 $4,613,425
Interest on parity working capital loans 72,712 83,212 94,653
Non-taxable interest on short-term investments 27,087 38,534 46,721
Taxable interest on short-term investments 107,053 67,790 77,790
Equity in property net income 4,890,052 4,116,773 3,473,978
--------------- --------------- ---------------
TOTAL INCOME 8,565,467 8,331,372 8,306,567
--------------- --------------- ---------------
EXPENSES
Operating expenses (Note 6) 1,487,588 867,459 913,243
Valuation adjustment related to investment in mortgage revenue
bonds and real estate partnerships (Notes 3 & 4) 1,430,000 4,600,000 6,350,000
--------------- --------------- ---------------
TOTAL EXPENSES 2,917,588 5,467,459 7,263,243
--------------- --------------- ---------------
NET INCOME $5,647,879 $2,863,913 $1,043,324
=============== =============== ===============
NET INCOME ALLOCATED TO GENERAL PARTNERS $56,479 $28,639 $10,433
=============== =============== ===============
NET INCOME ALLOCATED TO LIMITED PARTNERS $5,591,400 $2,835,274 $1,032,891
=============== =============== ===============
NET INCOME PER BAC $27.96 $14.18 $5.16
=============== =============== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
SERIES I
<TABLE>
<CAPTION>
For the For the For the
year ended year ended year ended
December 31, December 31, December 31,
1994 1993 1992
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $5,647,879 $2,863,913 $1,043,324
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in property net income (4,890,052) (4,116,773) (3,473,978)
Interest receivable transferred to investment
in real estate partnerships - (63,949) - -
Other changes in investment in real
estate partnerships 144 (448) 712
Valuation adjustments related to investment
in real estate partnerships - 4,600,000 6,350,000
Valuation adjustments related to investment
in mortgage revenue bonds 1,430,000 - - -
Interest distributions from investment in
real estate partnerships 8,151,642 6,861,779 5,791,714
(Increase) decrease in interest receivable (61,743) 29,264 251,803
(Increase) decrease in other assets (604,152) 20,320 51,304
Increase (decrease) in accounts payable
and accrued expenses 591,294 22,690 7,929
Increase (decrease) in due to affiliates 47,794 (12,346) 25,009
--------------- --------------- ---------------
Net cash provided by operating activities 10,312,806 10,204,450 10,047,817
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of short-term investments - - 900,000
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution to partners (10,105,113) (10,103,816) (10,343,674)
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 207,693 100,634 604,143
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 5,032,089 4,931,455 4,327,312
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $5,239,782 $5,032,089 $4,931,455
=============== =============== ===============
DISCLOSURE OF NON-CASH ACTIVITIES:
Transfer of investment in mortgage revenue
bonds and working capital loans to
investment in real estate partnerships - $9,450,000 $11,985,000
=============== =============== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
SCA TAX EXEMPT LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
SERIES I
FOR THE PERIOD DECEMBER 31, 1991 THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
LIMITED PARTNERS
BENEFICIAL
ASSIGNEE GENERAL
CERTIFICATES PARTNERS TOTAL
---------------- --------------- ---------------
<S> <C> <C> <C>
Balance, December 31, 1991 $170,365,220 ($102,125) $170,263,095
Net income 1,032,891 10,433 1,043,324
Distribution to partners (10,250,000) (98,581) (10,348,581)
---------------- --------------- ---------------
Balance, December 31, 1992 161,148,111 (190,273) 160,957,838
Net income 2,835,274 28,639 2,863,913
Distribution to partners (10,000,000) (102,336) (10,102,336)
---------------- --------------- ---------------
Balance, December 31, 1993 153,983,385 (263,970) 153,719,415
Net income 5,591,400 56,479 5,647,879
Distribution to partners (10,000,000) (97,255) (10,097,255)
---------------- --------------- ---------------
Balance, December 31, 1994 $149,574,785 ($304,746) $149,270,039
================ =============== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP
BALANCE SHEETS
SERIES II
<TABLE> Proforma (Note 7)
<CAPTION> ---------------------------------
December 31, December 31, December 31,
1994 Adjustments 1994 1993
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $2,614,899 $1,740,512 (a) $4,355,411 $3,284,869
Interest receivable 198,907 198,907 200,107
Investment in mortgage revenue bonds (Note 3) 29,624,600 29,624,600 29,624,600
Investment in parity working capital loans (Note 3) 815,400 815,400 815,400
Investment in real estate partnerships (Note 4) 47,981,147 (47,981,147)(b) - 49,417,599
Joint investment pool (Note 7) - 45,761,499 (c) 45,761,499 -
Other assets (Note 7) 503,770 (495,630)(d) 8,140 8,140
--------------- --------------- --------------- ---------------
TOTAL ASSETS $81,738,723 ($974,766) $80,763,957 $83,350,715
=============== =============== =============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $447,072 - $447,072 $41,804
Distributions payable 2,668,631 2,668,631 2,915,280
Due to affiliates (Note 6) 30,662 30,662 7,291
--------------- --------------- --------------- ---------------
TOTAL LIABILITIES 3,146,365 - 3,146,365 2,964,375
--------------- --------------- --------------- ---------------
Partners' Capital
General Partners (81,346) ($9,748) (91,094) (69,624)
Limited Partners (beneficial assignee certificates-
issued and outstanding 96,256 certificates) 78,673,704 (965,018) 77,708,686 80,455,964
--------------- --------------- --------------- ---------------
TOTAL PARTNERS' CAPITAL 78,592,358 (974,766) 77,617,592 80,386,340
--------------- --------------- --------------- ---------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 4, 5, 6 & 7)
TOTAL LIABILITIES AND PARTNERS' CAPITAL $81,738,723 ($974,766) $80,763,957 $83,350,715
=============== =============== =============== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP
STATEMENTS OF INCOME
SERIES II
<TABLE>
<CAPTION>
For the For the For the
year ended year ended year ended
December 31, December 31, December 31,
1994 1993 1992
--------------- --------------- ---------------
<S> <C> <C> <C>
INCOME
Interest on mortgage revenue bonds $2,324,531 $3,434,531 $3,434,531
Interest on parity working capital loans 63,557 71,557 71,557
Non-taxable interest on short-term investments 20,380 44,784 86,214
Taxable interest on short-term investments 55,404 46,671 32,319
Equity in property net income 2,006,691 1,067,729 965,521
--------------- --------------- ---------------
TOTAL INCOME 4,470,563 4,665,272 4,590,142
--------------- --------------- ---------------
EXPENSES
Operating expenses (Note 6) 923,270 380,955 381,759
Valuation adjustment related to investment in mortgage revenue
bonds and real estate partnerships (Notes 3 & 4) - 1,450,000 450,000
--------------- --------------- ---------------
TOTAL EXPENSES 923,270 1,830,955 831,759
=============== =============== ===============
NET INCOME $3,547,293 $2,834,317 $3,758,383
=============== =============== ===============
NET INCOME ALLOCATED TO GENERAL PARTNERS $35,473 $28,343 $37,584
=============== =============== ===============
NET INCOME ALLOCATED TO LIMITED PARTNERS $3,511,820 $2,805,974 $3,720,799
=============== =============== ===============
NET INCOME PER BAC $36.48 $29.15 $38.66
=============== =============== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
SERIES II
<TABLE>
<CAPTION>
For the For the For the
year ended year ended year ended
December 31, December 31, December 31,
1994 1993 1992
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,547,293 $2,834,317 $3,758,383
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in property net income (2,006,691) (1,067,729) (965,521)
Interest receivable transferred to investment in
real estate partnerships - (263,600) -
Valuation adjustment related to investment in
real estate partnerships - 1,450,000 450,000
Interest distributions from investment in
real estate partnerships 3,443,143 2,238,308 1,790,474
Amortization expense 1,149
(Increase) decrease in interest receivable 1,200 94,360 14,814
(Increase) in other assets (495,630) - -
Increase (decrease) in accounts payable
and accrued expenses 405,268 26,015 (2,040)
Increase (decrease) in due to affiliates 23,371 (3,824) 9,484
--------------- --------------- ---------------
Net cash provided by operating activities 4,917,954 5,307,847 5,056,743
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution to partners (5,587,924) (5,826,744) (6,546,458)
--------------- --------------- ---------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (669,970) (518,897) (1,489,715)
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 3,284,869 3,803,766 5,293,481
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,614,899 $3,284,869 $3,803,766
=============== =============== ===============
The accompanying notes are an integral part of these financial statements.
DISCLOSURE OF NON-CASH ACTIVITIES:
Transfer of investment in mortgage revenue
bonds and working capital loans to
investment in real estate partnerships - $13,975,000 -
=============== =============== ===============
</TABLE>
<PAGE>
SCA TAX EXEMPT LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
SERIES II
FOR THE PERIOD DECEMBER 31, 1991 THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
LIMITED PARTNERS
BENEFICIAL
ASSIGNEE GENERAL
CERTIFICATES PARTNERS TOTAL
---------------- --------------- ---------------
<S> <C> <C> <C>
Balance, December 31, 1991 $85,720,552 ($32,191) $85,688,361
Net income 3,720,799 37,584 3,758,383
Distribution to partners (6,016,000) (50,224) (6,066,224)
---------------- --------------- ---------------
Balance, December 31, 1992 83,425,351 (44,831) 83,380,520
Net income 2,805,974 28,343 2,834,317
Distribution to partners (5,775,361) (53,136) (5,828,497)
---------------- --------------- ---------------
Balance, December 31, 1993 80,455,964 (69,624) 80,386,340
Net income 3,511,820 35,473 3,547,293
Distribution to partners (5,294,080) (47,195) (5,341,275)
---------------- --------------- ---------------
Balance, December 31, 1994 $78,673,704 ($81,346) $78,592,358
================ =============== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(SERIES I AND SERIES II)
NOTE 1 - THE PARTNERSHIP
The SCA Tax Exempt Fund Limited Partnership (the
"Partnership"), was organized in 1986 and had two public offerings of
Beneficial Assignee Certificates ("BACs") representing the assignment of
limited partnership interests. The net proceeds from these offerings were
used to acquire two separate portfolios ("Series I" and "Series II") of tax-
exempt mortgage revenue bonds issued by various state or local
governments or their agencies or authorities. The Partnership separately
reports the operating activity of each Series by preparing separate financial
statements. A total of 200,000 BACs in Series I and 96,256 BACs in
Series II were issued at a stated value of $1,000 each. SCA Realty I, Inc.
is the 0.1% Managing General Partner and SCA Associates 86 Limited
Partnership is the 0.99% Associate General Partner (collectively, the
"General Partners").
Cash flow, as defined in the Partnership Agreement, is distributable
and net income is allocable 1% to the Partnership's general partnership
interests and 99% to its limited partnership interests until the BAC holders
have received an 8.5% non-cumulative return on their adjusted capital
contribution as defined. Thereafter, cash flow is distributable and income
is allocable based on varying percentages as defined in the Partnership
Agreement. The Partnership is not, however, precluded from making
distributions to BAC holders in excess of annual cash flow. The
Partnership is required to pay distributions declared within 45 days
following the end of each six-month period of the calendar year. Proceeds
from sale, repayment or liquidation, as defined in the Partnership
Agreement, are distributable substantially in the same manner as other cash
flow, after repayment of the partners' adjusted capital contributions.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The financial statements of the Partnership are prepared on the
accrual basis of accounting in accordance with generally accepted
accounting principles.
Cash and Cash Equivalents and Short-Term Investments
Cash and cash equivalents consist principally of investments in
money market mutual funds and short-term marketable securities which
are readily convertible to known amounts of cash in seven days or less.
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities ("Statement No. 115"). Statement No. 115 is effective
for fiscal years beginning after December 15, 1993, with earlier adoption
permitted. The Partnership adopted Statement No. 115 in 1994; there was
no cumulative effect and no effect in the current year. The Partnership,
through its joint investment pool, has invested in various short-term
investments. These investments are classified as trading securities and are
recorded at fair value in accordance with Statement No. 115 in the
proforma information described in Note 7.
Investments in Mortgage Revenue Bonds and Parity Working Capital
Loans
Investments in mortgage revenue bonds and parity working capital
loans are carried at the lower of cost or estimated net realizable value.
Estimated net realizable value is based upon the anticipated net sale or
refinancing proceeds. The Managing General Partner periodically evaluates
the carrying values of investments in mortgage revenue bonds and working
capital loans. In 1994, the Partnership adopted the provisions of FASB
Statement No. 114, "Accounting by Creditors for Impairment of a Loan"
("FAS 114"). FAS 114 amends FASB Statement No. 5, "Accounting for
Contingencies," to clarify that a creditor should evaluate the collectibility
of both interest and principal receivable when assessing the need for a loss
provision. FASB Statement No. 15, "Accounting by Debtors and Creditors
for Troubled Debt Restructurings" was also amended to require a creditor
to measure all loans that are restructured in a troubled debt restructuring
involving a modification of terms. Accordingly, the provisions of FAS 114
require a creditor to base its measure of loan impairment on the present
value of expected future cash flows discounted at the loan's effective
interest rate. A valuation allowance is provided to record the loan
impairment with a corresponding charge to net income. There was no
cumulative effect and no effect in the current year except for the
classification of Lakeview Gardens discussed in Note 3.
Base interest on the bonds and the parity working capital loans is
recognized as revenue as it accrues; contingent interest is recognized as
property performance meets the criteria for payment. Although no debt
service obligations have been forgiven, delinquent bonds and parity working
capital loans are placed on nonaccrual status for financial reporting
purposes when collection of interest is in doubt. Interest payments on
nonaccrual loans are applied first to previously recorded accrued interest
and then recognized as income when received. The accrual of interest
income is reinstated once a property's ability to perform is adequately
demonstrated. For tax purposes, the Partnership recognizes interest
income on both the bonds and the loans at rates negotiated at the time such
investments were made. Interest recognized on the bonds is exempt for
federal income tax purposes while interest on the working capital loans is
taxable to the partners.
Investments in Real Estate Partnerships
Prior to the adoption of FAS 114, the Partnership reclassified
investments in mortgage revenue bonds to investments in real estate
partnerships whenever it became apparent that the underlying properties
were unable to continue to support their entire debt service obligation, and
that the other sources of debt service, including property level reserves and
operating deficit guarantees, were considered insufficient to meet mortgage
loan obligations. After the adoption of FAS 114, mortgage revenue bonds
are not reclassified to investments in real estate partnerships until the deed
to the properties collateralizing the mortgage revenue bonds has been
transferred to New Borrowers. Once reclassified to investment in real
estate partnerships, the investment is accounted for using the equity method
of accounting. Subsequent to deed transfer, valuation adjustments are
recorded for investments in real estate partnerships if the carrying values
exceed estimated net sale or refinancing proceeds. The carrying value of
these investments is increased or decreased, and income or loss is
recognized, for the Partnership's share of the underlying property's income
or loss. Interest collected from investment in real estate partnerships is
recorded not as interest income, but as a distribution which decreases the
investment's carrying value.
Earnings per BAC
Earnings per BAC have been calculated based on 200,000 and
96,256 BACs outstanding for the three years ended December 31, 1994,
1993 and 1992 for Series I and Series II, respectively.
Income Taxes
No recognition has been given to income taxes in the accompanying
financial statements as the distributive share of the Partnership's income,
deductions and credits is included in each partner's income tax returns. The
Managing General Partner believes that the Partnership is not subject to
income taxes. The tax basis of the Partnership's net assets exceeds the
carrying value for book purposes by approximately $48.3 million and $12.6
million for Series I and Series II, respectively, at December 31, 1994.
Reclassifications
Certain amounts in 1993 and 1992 have been reclassified to
conform to the 1994 presentation.
NOTE 3 - INVESTMENT IN MORTGAGE REVENUE BONDS
AND PARITY WORKING CAPITAL LOANS
As of December 31, 1994, Series I held 14 mortgage revenue
bonds. Five of the bonds are treated as investments in mortgage revenue
bonds and have a carrying value of $43,177,900, net of a valuation
allowance of $1,430,000. Series II held nine mortgage revenue bonds at
December 31, 1994, three of which are treated as investments in mortgage
revenue bonds aggregating $29,624,600. The remaining Series I and Series
II mortgage revenue bonds are treated as investments in real estate
partnerships as required by generally accepted accounting principles (see
also Note 4).
General Mortgage Loan Terms
The proceeds from the issuance of the bonds were used to make
nonrecourse participating first mortgage loans on multi-family housing
developments. The Partnership's rights under the mortgage revenue bonds
are defined by and dependent on the terms and conditions of the mortgage
loans. The mortgage loans are assigned to the Partnership to secure the
payment of principal and interest on the mortgage revenue bonds. This
assignment includes an assignment of a first mortgage on the property and
an assignment of rents. Additional collateral was provided in the form of
property level operating reserves funded from construction period cash
flow, and by operating deficit guarantees. Of the additional collateral
originally provided, the property level operating reserves have been
exhausted on all but four of the loans, and all but one of the operating
deficit guarantees have expired.
The terms of the mortgage loans provide for the payment of base
interest and additional contingent interest. In addition, they provide for
the Partnership to hold the mortgage revenue bonds and the related
mortgage loans for 14 years. Principal on the mortgage loans will not be
amortized while held by the Partnership, but will be required to be repaid
or refinanced in a lump sum payment at the end of the holding period or
at such earlier time as the Partnership may require. The mortgage loans
are nonassumable except with the consent of the Partnership. Prepayment
is prohibited during the first seven years of the mortgage loan. Between
years eight and eleven, the mortgage may be prepaid at the option of the
borrower subject to a declining penalty. Prepayments after the twelfth year
are allowed without regard to whether or not the mortgaged property is
sold or refinanced.
The Partnership may also require prepayment of the mortgage loan
upon the occurrence of an event which would cause significant risk that
the interest on the mortgage revenue bonds would be subject to federal
income taxation.
The mortgage loans bear interest at base rates determined by arms
length negotiations that reflect market conditions at the time the mortgage
revenue bonds were purchased by the Partnership. Each loan provides for
contingent interest in an amount equal to the difference between the stated
base interest rate and 16%. During the construction period, each bond bore
interest at base rates that were separately negotiated, and payment of any
construction period contingent interest was deferred until the project is sold
or refinanced. Contingent interest (other than contingent interest during
the construction period) is payable during the year from 100% of the
project cash flow until the Partnership's aggregate non-compounded
interest rate equals the base interest rate plus 1.5% to 2.5% (first tier
contingent interest), as the case may be, on each mortgage loan. Any
remaining cash flow is split equally with the owner until the Partnership
reaches its 16% per annum limit. To the extent that the aggregate of all
interest payments, including contingent interest, for any year does not equal
16% per annum, the difference is deferred until the mortgaged property
is sold or the mortgage loan is repaid. Sale or refinancing proceeds
remaining after the repayment of principal and other specified payments
are paid 100% to the Partnership to the extent necessary for the Partnership
to recover the base rate plus first tier contingent interest previously
deferred; thereafter, 50% of any excess sale or repayment proceeds is paid
to the Partnership until it reaches its 16% per annum limit. Accordingly,
the ability of the Partnership to collect contingent interest on the mortgage
revenue bonds is dependent upon the level of project cash flow and sale
or repayment proceeds.
Descriptions of the various mortgage revenue bonds and working
capital loans owned by the Partnership at December 31, 1994 are provided
in the following table. In addition, the table provides the dates of in-
substance foreclosure/reclassification for those mortgage revenue bonds
and working capital loans that are classified as investments in real estate
partnerships. See Note 4 for additional discussion of investments in real
estate partnerships.
<PAGE>
<TABLE>
<CAPTION>
Series I
Investment in Mortgage Base First Tier
Revenue Bonds and Parity Interest Contingent Maturity Face Carrying
Working Capital Loans (Note 3) Rate Rate Date Amount Amount
- ----------------------------------- --------------- ---------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Alban Place Apartments 7.875 2.375 Oct. 2008 $10,500,000 $10,500,000
Frederick, MD
Alban Place Limited Partnership
Northridge Park Apartments 7.500 2.000 June 2012 8,950,000 8,950,000
Salinas, CA
Northridge Park Phase II
Lakeview Garden Apartments 7.750 2.500 Aug. 2007 9,307,500 7,877,500
Dade Co., FL
Lakeview Garden Apartments
Limited Partnership
Riverset Apartments 7.875 2.100 Nov. 1999 6,535,000 6,535,000
Memphis, TN
Auction Street Associates
Limited Partnership
Villa Hialeah 7.875 2.375 Oct. 2009 10,250,000 10,250,000
Hialeah, FL
Shelter Group South East -
Hialeah, A Limited Partnership
------------ ---------------
Series I Mortgage Revenue
Bond and Parity Working
Capital Loan Investment Total $45,542,500 $44,112,500 (1)
============ ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date of In- Base First Tier
Series I Investment in Real Substance Interest Contingent Maturity Face Carrying
Estate Partnerships (Note 4) Foreclosure Rate Rate Date Amount Amount
- ----------------------------------- --------------- ---------- ---------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Barkley Place Sept. 7, 1988 8.000 2.250 May 2011 9,630,000 7,246,644
Fort Myers, FL
Barkley Place Limited Partnership
The Montclair Mar. 3, 1989 7.875 2.375 Dec. 2015 15,465,000 9,233,040
Springfield, MO
Montclair Limited Partnership
Newport Village Aug. 31, 1989 7.875 2.375 Dec. 2010 10,880,000 8,760,497
Thornton, CO
Newport Village Limited
Partnership
Nicollet Ridge Sept. 1, 1990 7.875 2.375 Dec. 2010 20,340,000 15,578,276
Burnsville, MN
Nicollet Ridge Limited
Partnership
Newport-on-Seven Dec. 1, 1991 8.125 2.375 Aug. 2008 10,800,000 7,600,916
St. Louis Park, MN
St. Louis Park Housing Partners,
A Limited Partnership
Steeplechase Falls Apartments Feb. 1, 1991 7.875 2.375 Dec. 2008 18,100,000 16,787,457
Knoxville, TN
Steeplechase Falls Limited
Partnership
North Pointe Apartments Dec. 31, 1991 7.875 2.375 Aug. 2006 25,850,000 19,965,765
San Bernardino, CA
Cal-Shel Limited Partnership
Creekside Village Apartments Dec. 31, 1992 7.500 2.250 Nov. 2009 11,985,000 10,328,030
Sacramento, CA
Creekside Village Limited
Partnership
Willowgreen Apartments Sep. 30, 1993 8.000 2.250 Dec. 2010 9,450,000 9,208,352
Tacoma, WA
Willowgreen Associates
Limited Partnership --------------- ---------------
Series I Investment in
Real Estate Partnerships Total 132,500,000 104,708,977
--------------- ---------------
Series I Total $178,042,500 $148,821,477
=============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Series II
Investment in Mortgage Base First Tier
Revenue Bonds and Parity Interest Contingent Maturity Face Carrying
Working Capital Loans (Note 3) Rate Rate Date Amount Amount
- ----------------------------------- --------------- ---------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Riverset Apartments 7.875 2.100 Nov. 1999 $12,640,000 $12,640,000
Memphis, TN
Auction Street Associates
Limited Partnership
Southfork Village Apartments 7.875 2.375 Jan. 2009 10,550,000 10,550,000
Lakeville, MN
Southfork Apartments
Limited Partnership
Emerald Hills Apartments 7.750 2.500 Apr. 2008 7,250,000 7,250,000
Issaquah, WA
Axelrod Emerald Hills Association
Limited Partnership ------------ ---------------
Series II Mortgage Revenue
Bond and Working Capital
Loan Investment Total $30,440,000 $30,440,000 (2)
============ ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date of In- Base First Tier
Series II Investment in Real Substance Interest Contingent Maturity Face Carrying
Estate Partnerships (Note 4) Foreclosure Rate Rate Date Amount Amount
- ----------------------------------- --------------- ---------- ---------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Mallard Cove I June 1, 1991 7.300 2.375 Jan. 2006 2,610,000 2,146,507
Everett, WA
Mallard Cove I Limited
Partnership
Mallard Cove II June 1, 1991 8.094 2.376 Jan. 2006 6,740,000 6,225,791
Everett, WA
Mallard Cove II Limited
Partnership
Gilman Meadows Apartments June 1, 1991 8.000 2.250 Apr. 2007 7,100,000 6,640,994
Issaquah, WA
Gilman Meadows Limited
Partnership
The Meadows Apartments Sept. 30, 1991 7.625 2.500 Jan. 2008 7,200,000 6,808,705
Memphis, TN
Meadows Limited Partnership
Whispering Lake Dec. 31, 1991 7.625 2.250 Dec. 2007 18,190,000 13,394,493
Kansas City, MO
Whispering Lake Limited Partnership
Hamilton Chase Dec. 31, 1993 8.000 2.250 Aug. 2006 13,975,000 12,764,657
Chattanooga, TN
Hamilton Grove Limited
Partnership --------------- ---------------
Series II Investment in
Real Estate Partnerships Total 55,815,000 47,981,147
--------------- ---------------
Series II Total $86,255,000 $78,421,147
=============== ===============
<FN>
(1) Amount includes $43,177,900 of mortgage revenue bonds and $934,600 of parity working capital loans.
(2) Amount includes $29,624,600 of mortgage revenue bonds and $815,400 of parity working capital loans.
</TABLE>
<PAGE>
Interest income of approximately $488,000 in Series I was not
recognized for the year ended December 31, 1992 because of bonds on
nonaccrual status. During 1994 and 1993 there were no bonds in either
series on nonaccrual status, and there were no Series II bonds on
nonaccrual status during 1992.
During 1994, the property level reserves on Lakeview Gardens
(Series I) were exhausted, and the original borrower refused to fund the
operating deficits of the property. The Managing General Partner, in
anticipation of the pending default, initiated workout discussions with the
original borrower in the fourth quarter of 1994. The transfer of the deed
is expected to take place in April 1995. As a result, the Partnership
recorded a valuation adjustment of $1,430,000 on the Lakeview Gardens
bond in the fourth quarter of 1994. No other adjustments were recorded
to investments in mortgage revenue bonds during 1994. In 1993, a
valuation adjustment of $1,200,000 was recorded on the Hamilton Chase
bond (Series II). In 1992, a mortgage revenue bond valuation adjustment
of $900,000 was recorded for Creekside Village, a Series I investment.
These valuation adjustments do not affect the cash flow generated from
property operations, the characterization of the tax-exempt income stream
nor the financial obligations under the mortgage revenue bonds. The
Managing General Partner will continue to evaluate the need for valuation
allowances in the future as circumstances change.
NOTE 4 - INVESTMENT IN REAL ESTATE PARTNERSHIPS
The Partnership accounts for certain investments in mortgage
revenue bonds as investments in real estate partnerships. This accounting
treatment is for financial reporting purposes only and does not affect the
income reported for federal income tax purposes, the amount of
distributions to investors or the Managing General Partner's intentions
related to other matters including ongoing legal actions, if any.
Properties classified as investments in real estate partnerships
typically have been or are expected to be transferred by foreclosure or deed
in lieu of foreclosure to "New Borrowers". These New Borrowers are
partnerships whose general partner is SCA Successor, Inc., a corporation
which is an affiliate of the Managing General Partner. In certain instances,
instead of the formal transfer of the property to a New Borrower, SCA
Successor, Inc. has been designated as the general partner of the original
borrowing entity.
The Partnership continues to share in earnings of properties treated
as investments in real estate partnerships in accordance with the original
terms of the mortgage loans collateralizing the mortgage revenue bonds.
For those properties owned by partnerships controlled by SCA Successor,
Inc., although the Partnership has not waived default, the Managing
General Partner has no plans or intentions to accelerate the maturity of the
mortgage loans. In addition, the Partnership is responsible for the post-
transfer operating deficits of New Borrowers. No operating deficits were
funded for the three years ended December 31, 1994, 1993 and 1992.
The Managing General Partner has taken the position that these
transactions do not affect the tax-exempt nature of the income received
by the Partnership on any of the loans, nor does it change the character of
the Partnership's income for tax purposes. This position is consistent with
industry practice, and the Managing General Partner is not aware of any
contrary rulings. As with all federal income tax matters, the Internal
Revenue Service may choose to review and rule on the subject at a later
date.
For investments accounted for as investments in real estate
partnerships, Series I recognized operating income of approximately
$4,890,000, $4,117,000 and $3,474,000 and collected approximately
$8,152,000, $6,862,000 and $5,792,000 in interest payments for the years
ended December 31, 1994, 1993 and 1992, respectively. For those same
periods, Series II recognized operating income of approximately
$2,007,000, $1,068,000 and $965,000 and collected approximately
$3,443,000, $2,238,000 and $1,790,000 in interest payments, respectively.
During 1994, no valuation adjustments were made to investments
in real estate partnerships. In 1993, valuation adjustments were recorded
for North Pointe ($4,600,000), (formerly Shandin Hills), a Series I property
and for Mallard Cove I ($250,000), a Series II property. The Partnership
recorded valuation adjustments in 1992 for three properties, Newport on
Seven ($1,750,000) and Nicollet Ridge ($3,700,000) in Series I and
Whispering Lake ($450,000) in Series II.
Summarized Financial Information
Combined financial information for the investments in real estate
partnerships is presented below. This summary has been derived from the
financial records of the individual partnerships and does not reflect related
valuation adjustments and other basis differences recorded by the
Partnership in its financial statements. Results of operations of the
properties are included subsequent to their respective effective dates for
reclassification to investments in real estate partnerships. In Series I, the
combined results of operations includes nine properties for 1994, eight for
1993 and eight for 1992 while in Series II it includes six, five and five for
1994, 1993 and 1992, respectively. The table in Note 3 should be
referenced for the effective dates of reclassification.
<PAGE>
<TABLE>
<CAPTION>
Series I
Combined Financial Position- (unaudited) December 31, December 31,
(in 000's) 1994 1993
------------ ------------
<S> <C> <C>
Land, buildings and equipment,
net of accumulated depreciation $114,160 $116,212
Other assets 2,057 2,342
------------ ------------
Total Assets $116,217 $118,554
============ ============
Liabilities due to the Partnership
including bonds $146,996 $148,070
Other liabilities 2,351 2,566
Partners' deficit (33,130) (32,082)
------------ ------------
Total liabilities and partners' deficit $116,217 $118,554
============ ============
</TABLE>
<TABLE>
<CAPTION>
Combined Results of Operations -(unaudited)
(in 000's) For the year For the year For the year
ended ended ended
December 31, December 31, December 31,
1994 1993 1992
------------ ------------ --------------
<S> <C> <C> <C>
Revenues $19,421 $17,314 $15,032
Operating expenses 11,543 10,409 9,124
Depreciation 2,988 2,788 2,434
------------ ------------ --------------
Net Operating Income $4,890 $4,117 $3,474
============ ============ ==============
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Series II
Combined Financial Position- (unaudited) December 31, December 31,
(in 000's) 1994 1993
------------ ------------
<S> <C> <C>
Land, buildings and equipment,
net of accumulated depreciation $45,616 $47,097
Other assets 1,219 998
------------ ------------
Total Assets $46,835 $48,095
============ ============
Liabilities due to the Partnership
including bonds $57,572 $55,729
Other liabilities 1,220 1,473
Partners' deficit (11,957) (9,107)
------------ ------------
Total liabilities and partners' deficit $46,835 $48,095
============ ============
</TABLE>
<TABLE>
<CAPTION>
Combined Results of Operations- (unaudited)
(in 000's) For the year For the year For the year
ended ended ended
December 31, December 31, December 31,
1994 1993 1992
------------ ------------ --------------
<S> <C> <C> <C>
Revenues $7,368 $5,153 $5,150
Operating expenses 3,843 3,022 3,129
Depreciation 1,518 1,063 1,056
------------ ------------ --------------
Net Operating Income $2,007 $1,068 $965
============ ============ ==============
<PAGE>
Legal and Other
The following summarizes the status of legal and other matters
relating to the properties as of December 31, 1994.
Series I
Creekside Village: As a culmination of the workout negotiations initiated
by the Managing General Partner during 1993, the transfer of Creekside
Village was executed on February 9, 1994. Thus, the New Borrower
assumed the mortgage.
Willowgreen: As a culmination of the workout negotiations initiated by
the Managing General Partner during 1993, the transfer of Willowgreen
was executed on November 21, 1994. Thus, the New Borrower assumed
the mortgage.
Series II
Hamilton Chase: On June 13, 1994, workout negotiations were
completed and the New Borrower assumed the role of the General Partner
in the original borrowing entity.
During 1994, the Managing General Partner spent approximately
$100,000 in legal expenses related to the transfer of the property.
Additionally, upon the transfer of the property, the New Borrower
determined that approximately $150,000 needed to be spent on physical
improvements. As of December 31, 1994, approximately $25,000 of these
repairs had been completed. The remaining repairs will be funded by
property operations and are to be completed by the Summer of 1995.
NOTE 5 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS
In December 1991, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 107 (SFAS No.
107), "Disclosures about Fair Value of Financial Instruments." SFAS No.
107 extends existing fair value disclosure practices for some instruments
by requiring the Partnership to disclose the fair value of all financial
instruments for which it is practicable to estimate value.
A description of the methods and assumptions used to estimate the
fair value of each class of the Partnership's financial instruments for which
it is practicable to estimate fair value follows:
Cash and Cash Equivalents: The carrying value is a reasonable estimate
of fair value.
Short-term Investments: Fair value is based on currently quoted market
prices.
Investment in Mortgage Revenue Bonds and Working Capital Loans:
Because no active market exists for the Partnership's investment in
mortgage revenue bonds and working capital loans, fair value is estimated
by discounting the expected future cash flows from the borrowers' payment
of debt service and ultimate repayment of debt based on the projected
performance of the underlying property using the interest rates
commensurate with the tax exempt nature of the financing. Fair values for
these investments are based on judgments regarding future expected
repayment, current economic conditions, risk characteristics and other
factors. These estimates involve uncertainties and matters of judgment,
and therefore cannot be determined with precision. Changes in assumptions
could significantly affect estimates. Management will continue to assess
the methodology utilized and the assumptions employed and revise them
as appropriate in future years.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
Carrying Value Fair Value Carrying Value Fair Value
------------------------------- --------------------------------
<C> <C> <C> <C>
Series I
Cash and cash equivalents $ 5,239,782 $ 5,239,782 $ 5,032,089 $ 5,032,089
Investments in mortgage revenue bonds
and parity working capital loans $ 44,112,500 $ 46,099,809 $ 45,542,500 $ 48,370,000
Series II
Cash and cash equivalents $ 2,614,899 $ 2,614,899 $ 3,284,869 $ 3,284,869
Investments in mortgage revenue bonds
and parity working capital loans $ 30,440,000 $ 32,494,273 $ 30,440,000 $ 32,074,000
</TABLE>
<PAGE>
NOTE 6 - RELATED PARTY TRANSACTIONS
The Managing General Partner and its affiliates are entitled to
reimbursement for all costs and expenses paid by them on behalf of the
Partnership for administrative services necessary for the prudent operation
of the Partnership. The Partnership does not employ any personnel. All
staff required by the Partnership are employees of the Managing General
Partner or its affiliates which receive direct reimbursement from the
Partnership for all costs related to such personnel including payroll taxes,
workers' compensation and health insurance and other fringe benefits, as
summarized in the table below.
<TABLE>
<CAPTION>
For the year For the year For the year
ended ended ended
December 31, December 31, December 31,
1994 1993 1992
--------------- --------------- ---------------
<S> <C> <C> <C>
Series I
Salaries of noncontrolling persons &
related expenses $439,589 $326,718 $339,772
Other administrative expenses 108,674 91,775 95,944
--------------- --------------- ---------------
Expenses reimbursed $548,263 $418,493 $435,716
=============== =============== ===============
Series II
Salaries of noncontrolling persons &
related expenses $211,664 $157,237 $163,701
Other administrative expenses 52,301 43,753 46,746
--------------- --------------- ---------------
Expenses reimbursed $263,965 $200,990 $210,447
=============== =============== ===============
</TABLE>
The accompanying balance sheets include amounts payable to the
Managing General Partner and its affiliates at December 31 as follows:
1994 1993
-------- --------
Series I $ 63,845 $ 16,051
Series II $ 30,662 $ 7,291
As previously detailed in the Partnership's Prospectus, affiliates of the
Managing General Partner receive fees for mortgage servicing from the
limited partnerships owning the mortgaged properties. With respect to the
investments in real estate partnerships (See Note 4), the payment of these
fees has continued after the reclassification from investments in mortgage
revenue bonds, since the bonds are still owned by the Partnership and there
has been no modification of the individual loan terms. The fees paid by all
borrowing partnerships approximated $1,479,000 for the years ended
December 31, 1994, 1993 and 1992 irrespective of any ownership changes
in the underlying partnership.
As a result of their general partnership interests, the General Partners
are entitled to an allocation of the Fund's profits, losses and cash
distributions as specified in the Partnership Agreement. As of December
31, 1994, the Partnership declared its cash distributions for the six months
then ended to the General Partners of Series I and Series II in the amounts
of $44,283 and $21,591, respectively. These amounts represent the
General Partners' portion of the $5,044,283 and $2,668,631 semi-annual
distributions in Series I and Series II declared at December 31, 1994.
The operating expenses for various properties accounted for as
investments in real estate partnerships include property management fees
paid to affiliates of the Managing General Partner. During the years ended
December 31, 1994, 1993 and 1992, these fees approximated $707,000
for 10 properties, $539,000 for 8 properties and $785,000 for 11
properties, respectively.
In addition, 177061 Canada Ltd. (formerly Shelter Corporation of
Canada Limited Partnership), a general partner of the Associate General
Partner, is contractually obligated to the nonaffiliated borrowers of North
Pointe (formerly Shandin Hills) and Whispering Lake to fund operating
deficits under guarantees. The unpaid balances due under the limited
operating deficit guarantees, including accrued interest as of December 31,
1994, totalled $276,000 and $387,000 for North Pointe and Whispering
Lake, respectively. Scheduled payments totalling $119,000 and $115,000
were received on the North Pointe obligation during 1994 and 1993,
respectively. Under the Whispering Lake obligation, $168,000 and
$163,000 were received during 1994 and 1993, respectively.
NOTE 7 - SUBSEQUENT EVENT
As discussed in previous reports, the Managing General Partner has
continued to pursue actively a means to provide BAC Holders with
additional current income while enhancing investment value with a prudent
level of risk. On February 14, 1995, the Partnership consummated a
financing transaction which the Managing General Partner believes can
achieve these goals.
Additional proceeds were raised through the offering of $67,700,000
in aggregate principal amount of Multifamily Mortgage Revenue Bond
Receipts, (collectively, the "Receipts"). The Receipts are collateralized
by a pool of eleven of the original mortgage revenue bonds held by the
Partnership. These eleven bonds all relate to properties that defaulted on
their original debt obligation. The cash stream from one additional
property, Creekside Village ("Creekside"), which also defaulted on its
original debt obligation, has been pledged as further security for the
transaction. These bonds, including Creekside, are currently classified as
investments in real estate and the operating partnerships for the underlying
properties that collateralize the bonds were controlled by SCA Successor,
Inc., an affiliate of the Managing General Partner. On January 1, 1995,
SCA Successor, Inc., the General Partner of these operating partnerships,
withdrew and was replaced by SCA Successor II, Inc., an affiliate of the
Managing General Partner, as sole General Partner. The other bonds in
the Partnership are unaffected. The specific bonds are as follows:
<PAGE>
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP
MORTGAGE REVENUE REFUNDING BONDS
<TABLE>
<CAPTION>
A Bond
Interest A Bond B Bond Total
Rate Face Amount Face Amount Face Amount
------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Montclair 7.10% $ 8,500,000 $ 6,840,000 $ 15,340,000
Newport Village 7.10% 6,250,000 4,175,000 10,425,000
Nicollet Ridge 7.10% 7,925,000 12,415,000 20,340,000
Steeplechase Falls 7.125% 12,650,000 5,300,000 17,950,000
Barkley Place 7.05% 5,350,000 3,480,000 8,830,000
---------------- ---------------- ----------------
Total Series I 40,675,000 32,210,000 72,885,000
---------------- ---------------- ----------------
Mallard Cove I 7.40% 800,000 1,670,000 2,470,000
Mallard Cove II 7.40% 2,700,000 3,750,000 6,450,000
Whispering Lake 7.10% 8,900,000 8,500,000 17,400,000
Gilman Meadows 7.40% 4,000,000 2,875,000 6,875,000
Hamilton Chase 7.35% 7,625,000 6,250,000 13,875,000
Meadows 7.35% 3,000,000 3,635,000 6,635,000
---------------- ---------------- ----------------
Total Series II 27,025,000 26,680,000 53,705,000
---------------- ---------------- ----------------
TOTAL 67,700,000 58,890,000 126,590,000
Creekside Village N/A N/A 11,760,000
---------------- ---------------- ----------------
TOTAL with Creekside $ 67,700,000 $ 58,890,000 $ 138,350,000
================ ================ ================
</TABLE>
<PAGE>
As stated above, eleven bonds, in the aggregate principal amount of
$126,590,000, were refunded by the issuers of such bonds. As a result,
a Series A Bond and a Series B Bond (whose aggregate principal amount
equals that of the original bonds) were exchanged for each of the original
bonds. The aggregate principal amount of the Series A Bonds and Series
B Bonds is $67,700,000 and $58,890,000, respectively. Each Series B
Bond is subordinate to the related issue of Series A Bonds. In addition,
the maturity date for each bond has been extended as part of the refunding
to January 2030.
The Series A Bonds bear interest at various fixed rates per annum, as
detailed on the schedule above, which is due and payable monthly. The
Series A Bonds are subject to mandatory sinking fund redemptions
commencing January 1, 2001 and continuing through maturity.
The Series B Bonds bear interest equal to the greater of (a) three
percent (3%) per annum or (b) the amount of available cash flow not
exceeding 16% per annum. Principal on the Series B Bonds will not be
amortized, but will be required to be repaid or refinanced in a lump sum
payment at maturity, January 2030. To the extent the operating
partnerships have available cash flow, interest on the principal amount shall
be due and payable monthly.
The Partnership deposited each of the Series A Bonds and Series B
Bonds with the SCA Tax Exempt Trust (the "Trust") which was created
to hold these assets. A Certificate of Participation in the corpus and the
income of the Trust was issued representing interests in the two series of
bonds. The Partnership is the sole holder of the Certificate of Participation.
The Series A Bonds were then deposited by the Trust with a custodian
and the additional proceeds were raised through the sale of Receipts in the
Series A Bonds to new investors. The Receipts are credit enhanced by
Financial Security Assurance Inc. ("FSA") and are rated AAA and Aaa by
Standard and Poors and Moody's, respectively.
Through the Series A Bonds, the Receipt Holders have a fixed interest
rate and preferred return position so that a guaranteed, preferred, fixed rate
tax exempt return will be paid from the interest collected. The operating
partnerships entered into an interest rate swap agreement whereby a portion
of the fixed interest rate under the Series A Bonds was swapped for a
floating tax exempt interest rate. This mechanism will allow the
Partnership to realize the potential benefit of traditionally lower floating
interest rates. Under this interest rate swap, the operating partnerships are
obligated to pay a floating rate equivalent to the PSA Municipal Swap
Index, an index of weekly tax exempt variable rate issues. Also, an interest
rate cap was purchased by the operating partnerships to limit their exposure
resulting from the floating tax exempt interest rate obligation.
In order to obtain credit enhancement and an investment grade rating
of the Receipts, the Partnership was required to pledge the eleven bonds,
as well as the cash stream from the eleven properties collateralizing the
bonds to FSA. In addition, the cash stream from Creekside has been
pledged to FSA as further security. Any cash in excess of the amount
needed to pay interest on the Receipts is then paid for the benefit of BAC
Holders. The cash flow generated on assets acquired with the new
proceeds, as discussed below, and any net proceeds received under the
swap agreement also will be for the benefit of BAC Holders. These cash
streams are not pledged to the new investors.
In return for the sale of Receipts in the Series A Bonds, the Trust, for
the benefit of the Partnership, received $67.7 million. The proceeds from
the sale of the Receipts have been invested in MLP III Investment Limited
Partnership ("MLP III"), a Maryland limited partnership. MLP III is owned
by the Partnership through a 99% general partner interest and SCA Limited
Partner Corporation, an affiliate of the Managing General Partner, through
a one percent (1%) limited partner interest. MLP III invested the net
proceeds from the sale of the Receipts, approximately $56.8 million, in
MLP II Acquisition Limited Partnership ("MLP II"), a Maryland limited
partnership. MLP II is owned by MLP III through a 98.99% limited
partner interest (40% annual profits and distributions interest), MLP I LLC
("MLP I"), a Maryland limited liability company, through a one percent
(1%) general partner interest (60% annual profits and distributions interest)
and SCA Limited Partner Corp., an affiliate of the Managing General
Partner, through a .01% limited partner interest. MLP I is owned
collectively by the operating partnerships. MLP III and MLP II are both
affiliates of the Managing General Partner. The net proceeds held by MLP
II are currently invested in various short-term investments; the Managing
General Partner expects that they will be invested in additional mortgage
revenue bonds that finance multi-family properties. The cash stream from
these investments will benefit BAC Holders in the form of additional tax
exempt or tax deferred distributions. Approximately $10.9 million was used
to finance transaction costs, Partnership reserves and the interest rate cap.
As part of the financing transaction, the operating partnerships entered
into a cross-collateralization agreement among themselves. This cross-
collateralization agreement may result in the operating partnerships being
obligated under the Series A Bond obligations of the other operating
partnerships due to shortfalls in their cash flows or required debt service
coverage ratios. Based upon information currently available, the Managing
General Partner does not anticipate that any payments will be required
under the cross-collateralization agreement.
Unpaid accrued base interest receivable of approximately $15.5 million
on the eleven original bonds and the Parity Working Capital Loans, and
interest thereon, of approximately $4.8 million, were converted to Accrued
Interest Notes and Working Capital Notes, respectively, in equivalent
principal amounts. The Partnership contributed the Accrued Interest Notes
and Working Capital Notes to MLP III who contributed them, in turn, to
MLP II. In addition, MLP II loaned the operating partnerships
approximately $4.2 million (the "Load Loan Notes") to purchase an
interest rate cap which will serve to limit the operating partnerships'
obligation under the floating rate obligations discussed above. The
Accrued Interest Notes, Working Capital Notes and Load Loan Notes,
(collectively the "Notes") in the aggregate principal amount of
approximately $24.5 million, are due on demand, but in any case not later
than January 2030. The Notes bear interest at a compound annual rate
equal to the Blended Annual Rate in effect for that calendar year as
published by the Internal Revenue Service. To the extent the operating
partnerships have available cash flow, interest on the principal amount and
scheduled principal payments shall be due and payable monthly.
The Notes and the Series B Bonds (collectively the "Junior
Obligations") are subordinate in priority and right of payment to the Series
A Bonds and payable only to the extent of cash flow. Payments of principal
and interest on the Junior Obligations are prioritized as follows:
(i) interest payments due to MLP II on the Notes, prorata between the Notes;
(ii) principal payments due to MLP II on the Notes, prorata between the Notes;
(iii) interest payments due to Trust on the Series B Bonds; and (iv) the
principal payment of the Series B Bonds due January 2030.
The Partnership will continue to report Series I and Series II separately
after the financing transaction with each Series having an interest in the
joint investment pool as described below. Income generated from the
additional proceeds will be allocated approximately 60.1% to Series I and
approximately 39.9% to Series II. Such percentages are based on the face
amount of the Series A Bonds related to the refunded bonds of each
respective Series.
The proforma balance sheets for Series I and Series II include the
results of the financing transaction as if it had occurred on December 31,
1994. The proforma adjustments are summarized as follows:
(a) Cash and cash equivalents. Represents amounts
transferred to the Partnership from the additional
proceeds to fund additional working capital reserves
of approximately $2.6 million and $1.7 million for
Series I and Series II, respectively.
(b) Investments in real estate partnerships. Represents the
carrying value at December 31, 1994, which the
Managing General Partner believes approximates the
carrying value at February 14, 1995, of the original
eleven bonds refunded as part of the financing
transaction of approximately $57.6 million and $47.7
million for Series I and Series II, respectively.
(c) Joint investment pool. Represents the interest in the
investments jointly held by Series I and Series II after
the financing transaction of approximately $54.6 million
and $45.8 million, respectively. Series II's interest in
the joint investment pool reflects the write-off of
approximately $292,000 in unamortized debt issue
costs related to the original mortgage note for the
Hamilton Chase property.
(d) Other assets. In connection with the financing
transaction, approximately $4.5 million of costs were
incurred. As of December 31, 1994, approximately $1
million was expensed and approximately $1.1 million
was capitalized. In the first quarter of 1995,
approximately $1.7 million was expensed and
approximately $.7 million was capitalized. Capitalized
costs include organizational costs, debt issue costs and
costs associated with obtaining the credit enhancement.
All capitalized costs have been included in the joint
investment pool after the financing transaction was
consummated.
As discussed above, the joint investment pool comprises the operating
partnerships, MLP I, MLP II, MLP III and the Trust. The proforma
combined balance sheet of the joint investment pool at December 31, 1994
shown below reflects all related valuation adjustments and other basis
differences recorded by the Partnership in its financial statements through
that date. All significant intercompany balances and transactions have been
eliminated.
<PAGE>
ASSETS
Land & land improvements $ 10,844,584
Buildings & improvements 103,912,818
Furniture & fixtures 3,457,926
-------------
Subtotal 118,215,328
Less accumulated depreciation (12,611,716)
Total land, building and furniture -------------
& fixtures 105,603,612
Cash and cash equivalents 2,095,391
Short-term investments 56,761,654
Accounts receivable 91,553
Prepaid expenses 114,135
Other assets 5,953,648
-------------
TOTAL ASSETS $170,619,993
=============
LIABILITIES AND EQUITY
Accounts payable and accrued expenses $ 2,594,678
Custody receipts outstanding 67,700,000
-------------
TOTAL LIABILITIES 70,294,678
-------------
Equity:
Series I 54,563,816
Series II 45,761,499
-------------
TOTAL EQUITY 100,325,315
-------------
TOTAL LIABILITIES AND EQUITY $170,619,993
=============
<PAGE>
BARKLEY PLACE LIMITED PARTNERSHIP
FINANCIAL REPORT
DECEMBER 31, 1993
<PAGE>
C O N T E N T S
PAGE
INDEPENDENT AUDITOR'S REPORT 3
FINANCIAL STATEMENTS
Balance Sheets 4
Statements of Operations 5
Statements of Partners' Deficit 6
Statements of Cash Flows 7
Notes to Financial Statements 8 - 10
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
Barkley Place Limited Partnership
Baltimore, Maryland
We have audited the accompanying balance sheets of Barkley Place Limited
Partnership as of December 31, 1993 and 1992, and the related statements of
operations, partners' deficit, and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Barkley Place Limited
Partnership as of December 31, 1993 and 1992, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
C.W. Amos and Company
Bethesda, Maryland
February 17, 1994
<PAGE>
BARKLEY PLACE LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1993 and 1992
ASSETS 1993 1992
Investment in Real Estate, at cost (Note 3)
Building - net of accumulated depreciation
of $881,738 in 1993 and $711,079 in 1992 $ 5,944,621 $ 6,115,281
Furniture, fixtures and equipment - net of
accumulated depreciation of $187,583 in 1993
and $142,561 in 1992 269,024 300,229
Land 1,126,448 1,126,448
Other Assets
Cash 28,685 78,373
Restricted cash (Note 2) 75,371 67,443
Prepaid expenses 16,727 18,751
Other 11,443 13,864
------------ ------------
TOTAL ASSETS $ 7,472,319 $ 7,720,389
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgage revenue bond payable (Note 3) $ 8,830,000 $ 8,830,000
Working capital loans payable (Notes 3 and 4) 1,252,347 1,252,347
Debt service payable (Notes 3 and 4) 1,456,052 1,506,536
Accounts payable and accrued expenses 44,182 43,499
Security deposit liability 39,650 39,986
Due to affiliates (Note 4) 4,964 20,402
------------ ------------
TOTAL LIABILITIES $ 11,627,195 $ 11,692,770
Commitment and contingencies (Note 3)
Partners' deficit (Note 4) $( 4,154,876) $( 3,972,381)
TOTAL LIABILITIES AND ------------ ------------
PARTNERS' DEFICIT $ 7,472,319 $ 7,720,389
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
BARKLEY PLACE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Years ended December 31, 1993 and 1992
1993 1992
REVENUE
Gross rent potential (Note 3) $ 2,416,625 $ 2,289,971
Less: Vacancies (75,354) (120,227)
Add: Other rental income 15,526 14,683
----------- -----------
Net rental income $ 2,356,797 $ 2,184,427
Interest 7,892 6,357
Other income 249,377 240,860
----------- -----------
TOTAL REVENUE $ 2,614,066 $ 2,431,644
EXPENSES
Debt service (Notes 3 and 4) $ 770,400 $ 770,400
Marketing 70,195 85,713
Administrative (Note 4) 403,082 395,817
Depreciation 215,681 216,946
Taxes and insurance 303,188 274,093
Utilities 168,560 158,677
Assisted living 203,297 188,689
Maintenance 45,918 53,795
Restaurant 413,924 419,270
Operating 133,841 124,128
Mortgage servicing fees (Note 4) 68,475 68,475
----------- -----------
TOTAL EXPENSES $ 2,796,561 $ 2,756,003
----------- -----------
NET LOSS $ (182,495) $ (324,359)
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
BARKLEY PLACE LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1993 and 1992
General Limited
Partner Partners Total
Partners' Deficit,
December 31, 1991 $( 36,480) $(3,611,542) $(3,648,022)
Net Loss ( 3,244) ( 321,115) ( 324,359)
Partners' Deficit, ----------- ----------- -----------
December 31, 1992 $( 39,724) $(3,932,657) $(3,972,381)
Net Loss ( 1,825) ( 180,670) ( 182,495)
Partners' Deficit, ----------- ----------- -----------
December 31, 1993 $( 41,549) $(4,113,327) $(4,154,876)
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE>
BARKLEY PLACE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Years ended December 31, 1993 and 1992
1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $( 182,495) $( 324,359)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation 215,681 216,946
Change in assets and liabilities:
Decrease (increase) in prepaid expenses 2,024 ( 9,053)
Decrease in other assets 2,421 4,754
(Decrease) increase in debt service payable ( 50,484) 264,231
Increase (decrease) in accounts payable
and accrued expenses 683 ( 40,339)
NET CASH (USED IN) PROVIDED BY ----------- -----------
OPERATING ACTIVITIES $( 12,170) $ 112,180
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in restricted cash $( 7,928) $ 2,782
Purchases of furniture, fixtures and equipment ( 13,816) ( 11,038)
NET CASH USED IN INVESTING ----------- -----------
ACTIVITIES $( 21,744) $( 8,256)
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in security deposits $( 336) $ 1,836
Decrease in due to affiliates ( 15,438) (101,449)
NET CASH USED IN FINANCING ----------- -----------
ACTIVITIES $( 15,774) $ ( 99,613)
NET (DECREASE) INCREASE IN CASH $( 49,688) $ 4,311
CASH, BEGINNING OF YEAR 78,373 74,062
----------- -----------
CASH, END OF YEAR $ 28,685 $ 78,373
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 820,884 $ 506,169
The accompanying notes are an integral part of these financial statements.
- 7 -
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization
Barkley Place Limited Partnership (the "Partnership") was organized on
July 1, 1988 pursuant to the Laws of the State of Maryland for the purpose
of acquiring and operating a residential rental project in Ft. Myers, Florida.
All operating profits and losses are allocated in accordance with the
percentage of partnership interest, as set forth in the Partnership
Agreement. Any gains or losses recognized upon the sale, exchange, or
other disposition of real property in the project shall also be allocated as
set forth in the Partnership Agreement.
As of September 8, 1988, the Partnership entered into a Transfer
Agreement with the Heritage House of Ft. Myers Limited Partnership
("Heritage House"), whereby the title to Barkley Place, a senior living
community located in Ft. Myers, Florida, was transferred from Heritage
House to the Partnership in lieu of foreclosure. Through this Agreement,
the Partnership acquired all of Heritage House's right, title, and interest in
the property and assumed all of Heritage House's obligations under the
Mortgage Note, the Parity Working Capital Loan Note, all other mortgage
loan documents and the Regulatory Agreement. The Partnership did not,
however, assume any of the obligations relating to the guarantors of
Heritage House.
The acquisition was accounted for as a purchase in conformity with
Opinion No. 16 of the Accounting Principles Board. Accordingly, the
aggregate acquisition consideration was allocated to the assets acquired
and the liabilities assumed based on their estimated fair values. This
estimate was based upon the projected net operating income before the
costs of financing plus the estimated proceeds at sale or refinancing
discounted at 8.0%. This rate was determined to be an appropriate tax-
exempt rate commensurate with the tax-exempt financing attached thereto.
Note 2. Summary of Significant Accounting Policies
A summary of the Partnership's significant accounting policies not
disclosed elsewhere in the financial statements is as follows:
Cash and Restricted Cash:
The cash balance represents cash resources which are
available to fund current operations.
Restricted cash consists of the following:
1993 1992
Real estate tax and insurance escrow $ 30,118 $ 24,486
Security deposits 43,953 42,957
Replacement reserve 1,300 -
-------- --------
$ 75,371 $ 67,443
Replacement reserves represent amounts available to fund
future replacements and repairs as defined in the loan
agreement.
Depreciation:
Depreciation is provided for by the use of the straight-line
method over the estimated useful lives of the assets.
Income Taxes:
No benefit for income taxes has been included in these
financial statements since the tax loss passes through to,
and is reported by, the partners individually.
Note 3. Debt
The project was originally financed with the proceeds from the issuance
and sale of tax-exempt mortgage revenue bonds by the Housing Finance
Authority of Lee County, Florida for a total of $8,830,000 and a $300,000
working capital loan from SCA Tax Exempt Fund Limited Partnership
("SCA"), an affiliate of the Partnership. The provisions of this working
capital loan are identical to those of the mortgage revenue bonds. Both
loans are collateralized by a first mortgage on the real property and an
assignment of rents. Principal payments on the loans are due in May,
2011. The loans may be prepaid in whole, but not in part, on or after the
seventh anniversary of the initial purchase of the bonds. Interest on the
original loans is unconditionally payable at a base rate of 8%.
Commencing on May 29, 1989, the second anniversary date of the
mortgage revenue bonds, contingent interest is payable during the year
from 100% of the project cash flow after payment of base interest, at a rate
of 2.25%. Any remaining cash flow is split equally with the lender until the
lender reaches its 16% per annum limit. To the extent the aggregate of all
interest payments, including contingent interest, for any year does not
equal 16%, the interest is deferred until the mortgaged property is sold or
the mortgage loan is repaid. Sale or repayment proceeds remaining after
the repayment of principal and other specified payments are paid 100% to
the lender to the extent necessary in order to pay the base rate of interest
on the original mortgage revenue bonds and working capital loan plus
2.25% per annum. Fifty (50) percent of any excess sale or redemption
proceeds after payment of the base rate plus 2.25% are paid to the lender
to satisfy any previously unpaid amounts from the 16% per annum interest
rate previously deferred.
The Partnership has been unable to pay all base interest to date,
accordingly, it is uncertain, based upon historical results, whether project
cash flows would be sufficient to pay contingent interest. As a result, no
contingent interest has been accrued at December 31, 1993. Aggregate
unpaid potential contingent interest at December 31, 1993 and 1992 is
$3,347,666 and $2,617,266, respectively.
SCA provided the Partnership with an additional $500,000 loan on
November 8, 1988. This loan carries an annual base interest rate of 8%
simple interest. Interest expense charged to operations in both 1993 and
1992 on this loan was $40,000. This loan does not, however, carry any
contingent interest provisions and can be paid back from project cash flows
at any time prior to June, 2011.
In addition, the Partnership realized operating deficits (exclusive of debt
service) prior to 1992 and consequently required additional funding from
SCA in the form of additional working capital loans. These loans totalled
$452,347 and carry a rate of 8% simple interest which is payable to the
extent that excess sale or refinancing proceeds exceed the sum of the
aggregate principal and unpaid base interest on the original debt. To date,
there has not been any accrual of interest on these loans. These loans are
not included within the contingent interest provisions described above and
are due upon remarketing, redemption, or acceleration of the related
outstanding bonds to the extent not previously called by SCA. The
repayment of these loans and any interest thereon is subordinate to the base
interest outstanding on both original loans and the $500,000 SCA loan.
Note 4. Related Party Transactions
Additional amounts due to SCA are as follows:
1993 1992
Working capital loans $1,252,347 $1,252,347
Debt service payable 1,456,052 1,506,536
Out of pocket expenses 4,964 20,402
---------- ----------
$2,713,363 $2,779,285
The Partnership is due $495 from the Limited Partners and $5 from the
General Partner based upon their capital contribution percentages.
The Partnership paid property management fees of $129,953 and $121,177
to an affiliate in 1993 and 1992, respectively. These amounts are included
in administrative expenses in the accompanying statements of operations.
As required by the Indenture of Trust, the Partnership paid mortgage
servicing fees of $68,475 to an affiliated partnership in both 1993 and
1992.
Note 5. Retirement Plan
Effective in 1992, Shelter Properties Corporation Limited, the managing
agent, adopted a 401(k) retirement plan covering all eligible employees of
the Partnership. Employer contributions are at the discretion of the
Partnership. The Partnership elected not to make contributions to the plan
for the years ended December 31, 1993 and 1992.
<PAGE>
MONTCLAIR LIMITED PARTNERSHIP
FINANCIAL REPORT
DECEMBER 31, 1993
<PAGE>
C O N T E N T S
PAGE
INDEPENDENT AUDITOR'S REPORT 3
FINANCIAL STATEMENTS
Balance Sheets 4
Statements of Operations 5
Statements of Partners' Deficit 6
Statements of Cash Flows 7
Notes to Financial Statements 8 - 11
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
Montclair Limited Partnership
Baltimore, Maryland
We have audited the accompanying balance sheets of Montclair Limited
Partnership as of December 31, 1993 and 1992, and the related statements of
operations, partners' deficit, and cash flows, for the years then ended. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Montclair Limited Partnership
as of December 31, 1993 and 1992, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
C.W. Amos and Company
Bethesda, Maryland
February 17, 1994
<PAGE>
MONTCLAIR LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1993 and 1992
1993 1992
ASSETS
Investment in Real Estate, at cost (Note 3)
Building - net of accumulated
depreciation of $1,215,262 in 1993
and $954,903 in 1992 $ 8,737,284 $ 8,997,644
Furniture, fixtures and equipment - net of
accumulated depreciation of $62,337 in
1993 and $51,175 in 1992 (Note 4) 50,925 54,936
Land improvements - net of accumulated
depreciation of $26,689 in 1993
and $19,067 in 1992 49,533 57,155
Land 625,169 625,169
Other Assets
Cash 55,547 61,946
Restricted cash (Note 2) 107,414 89,894
Partners capital contributions due (Note 5) 500 500
Other 19,996 16,624
------------ ------------
TOTAL ASSETS $ 9,646,368 $ 9,903,868
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgage revenue bonds payable (Note 3) $ 15,340,000 $ 15,340,000
Working capital loans payable (Notes 3 and 5) 427,245 427,245
Debt service payable (Notes 3 and 5) 2,872,880 2,766,339
Accounts payable and accrued expenses 53,266 53,599
Note payable, bank (Note 4) - 6,713
Security deposit liability 98,171 60,007
------------ ------------
TOTAL LIABILITIES $ 18,791,562 $ 18,653,903
Commitments and Contingencies (Notes 3 and 6)
Partners' Deficit (Note 5) $( 9,145,194) $( 8,750,035)
TOTAL LIABILITIES AND ------------ -------------
PARTNERS' DEFICIT $ 9,646,368 $ 9,903,868
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
MONTCLAIR LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Years Ended December 31, 1993 and 1992
1993 1992
REVENUE
Gross rent potential (Note 3) $ 2,327,371 $ 2,133,127
Less: Vacancies (55,437) (18,998)
Less: Concessions and allowances (74,085) (77,141)
Add: Other rental income 42,401 26,130
----------- -----------
Net rental income $ 2,240,250 $ 2,063,118
Interest 8,033 8,518
Other income 22,465 25,288
----------- -----------
TOTAL REVENUE $ 2,270,748 $ 2,096,924
EXPENSES
Debt service (Note 3) $ 1,217,869 $ 1,217,869
Marketing 54,645 44,372
Administrative (Note 5) 306,349 267,203
Depreciation 279,144 278,076
Taxes and insurance 134,225 147,815
Utilities 135,135 118,423
Maintenance 39,637 35,079
Restaurant 382,922 381,399
Mortgage servicing fees (Note 5) 115,981 115,990
----------- -----------
TOTAL EXPENSES $ 2,665,907 $ 2,606,226
----------- -----------
NET LOSS $ (395,159) $ (509,302)
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
MONTCLAIR LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
Years Ended December 31, 1993 and 1992
General Limited
Partner Partner Total
Partners' Deficit,
December 31, 1991 $ (82,407) $(8,158,326) $(8,240,733)
Net Loss (5,093) (504,209) (509,302)
Partners' Deficit, ------------ ----------- -----------
December 31, 1992 $ (87,500) $(8,662,535) $(8,750,035)
Net Loss (3,952) (391,207) (395,159)
Partners' Deficit, ------------ ----------- ----------
December 31, 1993 $ (91,452) $(9,053,742) $9,145,194)
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE>
MONTCLAIR LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1993 and 1992
CASH FLOWS FROM OPERATING ACTIVITIES 1993 1992
Net loss $ (395,159) $ (509,302)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 279,144 278,076
Changes in assets and liabilities:
Increase in other assets (3,372) (7,355)
Increase in debt service payable 106,541 202,709
(Decrease) increase in accounts payable
and accrued expenses (333) 27,111
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES $ (13,179) $ (8,761)
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in restricted cash $ (17,520) $ 4,475
Purchase of furniture, fixtures
and equipment (7,151) (7,060)
Purchase of land improvements - (10,408)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES $ (24,671) $ (12,993)
CASH FLOWS FROM FINANCING ACTIVITIES
Reduction of note payable, bank $ (6,713) $ (6,182)
Increase (decrease) in security deposits 38,164 (1,976)
NET CASH PROVIDED BY (USED IN) ----------- -----------
FINANCING ACTIVITIES $ 31,451 $ (8,158)
NET DECREASE IN CASH $ (6,399) $ (29,912)
CASH, BEGINNING OF YEAR 61,946 91,858
----------- -----------
CASH, END OF YEAR $ 55,547 $ 61,946
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,111,328 $ 1,015,860
The accompanying notes are an integral part of these financial statements.
- 7 -
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization
Montclair Limited Partnership (the "Partnership") was organized on
February 9, 1989 pursuant to the Laws of the State of Maryland for the
purpose of acquiring and operating a residential rental project in
Springfield, Missouri.
All operating profits and losses are allocated in accordance with the
percentage of partnership interest, as set forth in the Partnership
Agreement. Any gains and losses recognized upon the sale, exchange, or
other disposition of real property in the project are also allocated as set
forth in the Partnership Agreement.
As of February 28, 1989, the Partnership entered into a Transfer
Agreement with Independent Living Centers of Springfield ("ILC") and
Independent Living Centers of North America ("ILCNA"), whereby the
title to the Montclair, an adult congregate rental living community located
in Springfield, Missouri, was transferred from ILC and ILCNA to the
Partnership in lieu of foreclosure. Through this Agreement, the
Partnership acquired all of ILC's and ILCNA's rights, title, and interest in
the property, and assumed all of ILC's and ILCNA's obligations under, the
Mortgage Note, the Parity Working Capital Loan Note, all other
mortgage loan documents and the Regulatory Agreement. The
Partnership did not, however, assume any of the obligations relating to the
guarantors of ILC or ILCNA.
The acquisition was accounted for as a purchase in conformity with
Opinion No. 16 of the Accounting Principles Board. Accordingly, the
aggregate acquisition consideration was allocated to the assets acquired
and the liabilities assumed, based on their estimated fair values. This
estimate was based upon the projected net operating income before the
costs of financing plus the estimated proceeds at sale or refinancing
discounted at 8.0%. This rate was determined to be an appropriate tax-
exempt rate commensurate with the tax-exempt financing attached
thereto.
Note 2. Summary of Significant Accounting Policies
A summary of the Partnership's significant accounting policies not
disclosed elsewhere in the financial statements is as follows:
Cash and Restricted Cash:
The cash balance represents cash resources which are
available to fund current operations.
Restricted cash consists of the following:
1993 1992
Real estate tax and insurance escrow $ 13,076 $ 22,332
Security deposits 94,338 67,562
------- -------
$107,414 $ 89,894
Credit Risk:
As of December 31, 1993, the Partnership has funds on
deposit in a financial institution in excess of amounts
insured by the Federal Insurance Corporation.
Depreciation:
Depreciation is provided for by the use of the straight-
line method over the estimated useful lives of the assets.
Income Taxes:
No benefit for income taxes has been included in these
financial statements since the tax loss passes through to,
and is reported by, the partners individually.
Note 3. Debt
The project was originally financed with the proceeds from the issuance
and sale of tax-exempt mortgage revenue bonds by The Industrial
Development Authority of the City of Springfield, Missouri for a total of
$15,340,000 and a $125,000 working capital loan from SCA Tax Exempt
Fund Limited Partnership ("SCA"), an affiliate of the Partnership. The
provisions of this working capital loan are identical to those of the
mortgage revenue bonds. Both loans are collateralized by a first mortgage
on the real property and an assignment of rents. Principal payments on
the loans are due in December, 2015. The loans may be prepaid in whole,
but not in part, on or after the seventh anniversary of the initial purchase
of the bonds. Interest on the original loans is unconditionally payable at
a base rate of 7.875%.
Commencing on October 28, 1988, the second anniversary date of the
mortgage revenue bonds, contingent interest is payable during the year
from 100% of the project cash flow after payment of base interest, at a
rate of 2.375%. Any remaining cash flow is split equally with the lender
until the lender reaches its 16% per annum limit. To the extent the
aggregate of all interest payments, including contingent interest, for any
year does not equal 16%, the interest is deferred until the mortgaged
property is sold or the mortgage loan is repaid. Sale or repayment
proceeds remaining after the repayment of principal and other specified
payments are paid 100% to the lender to the extent necessary in order to
pay the base rate of interest on the original mortgage revenue bonds and
working capital loan plus 2.375% per annum. Fifty (50) percent of any
excess sale or redemption proceeds after payment of the base rate plus
2.375% are paid to the lender to satisfy any previously unpaid amounts
from the 16% per annum interest rate previously deferred.
The Partnership has been unable to pay all base interest to date.
Accordingly, it is uncertain, based upon historical results, whether project
cash flows would be sufficient to pay contingent interest. As a result, no
contingent interest has been accrued. Aggregate unpaid potential
contingent interest at December 31, 1993 and 1992 is $6,492,078 and
$5,235,546, respectively.
In addition, the Partnership realized operating deficits (exclusive of debt
service) during 1989 and consequently required additional funding from
SCA in the form of additional working capital loans. These loans totalled
$302,245 and carry a rate of 8% simple interest to the extent of excess
sale or refinancing proceeds over the sum of the aggregate principal and
unpaid base interest on the original debt.
To date, there has not been any accrual of interest on the additional
working capital loans of $302,245. These loans are not included within
the contingent interest provisions described above and are due upon
remarketing, redemption, or acceleration of the related outstanding bonds
to the extent not previously called by SCA. The repayment of these loans
and any interest thereon is subordinate to any base interest outstanding on
both original loans.
Note 4. Note Payable, Bank
Note payable, bank represents a vehicle loan which was repaid in full in
1993.
Note 5. Related Party Transactions
Additional amounts due to SCA are as follows:
1993 1992
Working capital loans $ 427,245 $ 427,245
Debt service payable 2,872,880 2,766,339
---------- ----------
$3,300,125 $3,193,584
The Partnership is due $495 from the Limited Partner and $5 from the
General Partner based upon their capital contribution percentages.
As required by the Indenture of Trust, the Partnership paid mortgage
servicing fees of $115,981 and $115,990 to an affiliated Partnership in
1993 and 1992, respectively.
Management services for the year ended December 31, 1992 and for the
six months ended June 30, 1993 were provided by an affiliate of the
Partnership at no charge to the Partnership. For the six months ended
December 31, 1993, the Partnership paid property management fees of
$35,057 to an affiliate. This amount is included in administrative expenses
in the accompanying statements of operations for the year ended
December 31, 1993.
Note 6. Retirement Plan
Effective in 1992, Shelter Properties Corporation Limited, adopted a
401(k) retirement plan covering all eligible employees of the Partnership.
Employer contributions are at the discretion of the Company. The
Partnership elected not to make contributions to the plan for the years
ended December 31, 1993 and 1992.
<PAGE>
NEWPORT VILLAGE LIMITED PARTNERSHIP
FINANCIAL REPORT
DECEMBER 31, 1993
<PAGE>
C O N T E N T S
PAGE
INDEPENDENT AUDITOR'S REPORT 3
FINANCIAL STATEMENTS
Balance Sheets 4
Statements of Operations 5
Statements of Partners' Deficit 6
Statements of Cash Flows 7
Notes to Financial Statements 8 - 10
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
Newport Village Limited Partnership
Baltimore, Maryland
We have audited the accompanying balance sheets of Newport Village
Limited Partnership as of December 31, 1993 and 1992, and the related
statements of operations, partners' deficit, and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Newport Village Limited
Partnership as of December 31, 1993 and 1992, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
C.W. Amos and Company
Bethesda, Maryland
February 16, 1994
<PAGE>
NEWPORT VILLAGE LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1993 and 1992
1993 1992
ASSETS
Investment in Real Estate, at cost (Note 3)
Buildings - net of accumulated
depreciation of $1,038,777 in 1993 and
$801,334 in 1992 $ 8,516,107 $ 8,753,550
Furniture, fixtures and equipment - net
of accumulated depreciation of $76,339
in 1993 and $58,723 in 1992 100,886 118,502
Land 1,215,199 1,215,199
Other Assets
Cash 51,441 41,848
Restricted cash (Note 2) 161,819 143,555
Other 11,013 2,016
Partners' capital contributions
receivable (Note 4) 500 500
------------ ------------
TOTAL ASSETS $ 10,056,965 $ 10,275,170
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgage revenue bonds payable (Note 3) $ 10,425,000 $ 10,425,000
Working capital loans payable (Notes 3 and 4) 455,000 455,000
Debt service payable (Notes 3 and 4) 1,786,243 1,505,956
Accounts payable and accrued expenses 148,881 126,830
Security deposit liability (Note 2) 57,195 50,200
Due to affiliates (Note 4) 965 965
------------ ------------
TOTAL LIABILITIES $ 12,873,284 $ 12,563,951
Commitments and contingencies (Note 3)
Partners' deficit (Note 4) (2,816,319) (2,288,781)
TOTAL LIABILITIES ------------ ------------
AND PARTNERS' DEFICIT $ 10,056,965 $ 10,275,170
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
NEWPORT VILLAGE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Years Ended December 31, 1993 and 1992
1993 1992
REVENUE
Gross rent potential (Note 3) $ 1,362,785 $ 1,254,425
Less: Vacancies (7,860) (19,415)
Less: Concessions and allowances (20,410) (26,665)
----------- -----------
Net rental income $ 1,334,515 $ 1,208,345
Interest 2,758 3,367
Other income 20,722 16,201
----------- -----------
TOTAL REVENUE $ 1,357,995 $ 1,227,913
EXPENSES
Debt Service (Note 3) $ 856,800 $ 856,800
Marketing 84,629 86,050
Administrative (Note 4) 84,962 81,924
Depreciation 255,059 255,059
Taxes and insurance 152,093 115,272
Utilities 80,612 73,749
Maintenance 276,546 273,804
Advertising 13,232 11,756
Mortgage servicing fees (Note 4) 81,600 81,600
----------- -----------
TOTAL EXPENSES $ 1,885,533 $ 1,836,014
NET LOSS $ (527,538) $ (608,101)
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
NEWPORT VILLAGE LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
Years Ended December 31, 1993 and 1992
General Limited
Partner Partner Total
Partners' Deficit,
December 31, 1991 $ (16,807) $(1,663,873) $(1,680,680)
Net Loss (6,081) (602,020) (608,101)
Partners' Deficit, ----------- ----------- -----------
December 31, 1992 $ (22,888) $(2,265,893) $(2,288,781)
Net Loss (5,275) (522,263) (527,538)
Partners' Deficit, ----------- ----------- -----------
December 31, 1993 $ (28,163) $(2,788,156) $(2,816,319)
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE>
NEWPORT VILLAGE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1993 and 1992
1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (527,538) $ (608,101)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 255,059 255,059
Changes in assets and liabilities:
Increase in debt service payable 280,287 373,801
Increase (decrease) in accounts
payable and accrued expenses 22,051 (2,604)
Increase in other assets (8,997) (75)
NET CASH PROVIDED BY ----------- -----------
OPERATING ACTIVITIES $ 20,862 $ 18,080
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in restricted cash $ ( 18,264) $ ( 29,530)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in security deposits $ 6,995 $ 1,250
----------- -----------
NET INCREASE (DECREASE) IN CASH $ 9,593 $( 10,200)
CASH, BEGINNING OF YEAR 41,848 52,048
----------- -----------
CASH, END OF YEAR $ 51,441 $ 41,848
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 576,513 $ 482,999
The accompanying notes are an integral part of these financial statements.
- 7 -
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization
Newport Village Limited Partnership (the "Partnership") was
organized on August 31, 1989 pursuant to the Laws of the State
of Maryland for the purpose of acquiring and operating a
residential rental project in Denver, Colorado.
The Partnership was formed through initial capital contributions
totalling $500 from SCA Successor, Inc., (the 1% General
Partner) and Shelter Development Corporation (the 99% Limited
Partner). All operating profits and losses are allocated in
accordance with the percentage of partnership interest, as set forth
in the Partnership Agreement. Any gains and losses recognized
upon the sale, exchange, or other disposition of real property in
the project are also allocated as set forth in the Partnership
Agreement.
As of August 31, 1989, the Partnership entered into a Transfer
Agreement with Catalina Venture III, Ltd. (Catalina), whereby the
title to Catalina Cottages and Apartments located in Denver,
Colorado, was transferred from Catalina to the Partnership in lieu
of foreclosure. Through this Agreement, the Partnership acquired
all of Catalina's rights, title, and interest in the property, and
assumed all of Catalina's obligations under the Mortgage Note, the
Parity Working Capital Loan Note, all other mortgage loan
documents, and the Regulatory Agreement. The Partnership did
not, however, assume any of the obligations relating to the
guarantors of Catalina.
The acquisition was accounted for as a purchase in accordance
with Opinion No. 16 of the Accounting Principles Board.
Accordingly, the aggregate consideration was allocated to the
assets acquired and the liabilities assumed, based on their
estimated fair values. This estimate was based upon the projected
net operating income before the costs of financing plus the
estimated proceeds at sale or refinancing discounted at 8.0%.
This rate was determined to be an appropriate tax-exempt rate
commensurate with tax-exempt financing attached thereto.
Note 2. Summary of Significant Accounting Policies
A summary of the Partnership's significant accounting policies not
disclosed elsewhere in the financial statements are as follows:
Cash and Restricted Cash:
The cash balance represents cash resources which are
available to fund current operations.
Restricted cash consists of the following:
1993 1992
Real estate tax and insurance escrow $ 69,880 $ 75,012
Security deposits 50,304 49,626
Replacement reserve 41,635 18,917
--------- ---------
$ 161,819 $ 143,555
Replacement reserve represents amounts available to
fund future replacements and repairs as defined in the
loan agreement.
Depreciation:
Depreciation on buildings and equipment is provided for
by the use of the straight-line method over the estimated
useful lives of the assets.
Income Taxes:
No benefit for income taxes has been included in these
financial statements since the tax loss passes through to,
and is reported by, the partners individually.
Credit Risk:
As of December 31, 1993, the Partnership had funds on
deposit in financial institutions in excess of amounts
insured by the Federal Deposit Insurance Corporation.
Reclassification:
Certain amounts in the prior year's financial statements
have been reclassified to conform with the current year
presentation.
Note 3. Debt
The project was originally financed with the proceeds from the
issuance and sale of tax-exempt mortgage revenue bonds by the
City of Thornton, Colorado for a total of $10,425,000 and a
$455,000 working capital loan from SCA Tax Exempt Fund
Limited Partnership ("SCA"), an affiliate of the Partnership. The
provisions of this working capital loan are identical to those of the
mortgage revenue bonds. All loans are collateralized by a first
mortgage on the real property and an assignment of rents.
Principal payments on the loans are due in December, 2010. The
loans may be prepaid in whole, but not in part, on or after the
seventh anniversary of the initial purchase of the bonds. Interest
on the original loans is unconditionally payable at a base rate of
7.875%.
Commencing on December 10, 1988, the second anniversary date
of the mortgage revenue bonds, contingent interest is payable
during the year from 100% of the project cash flow after payment
of base interest, at a rate of 2.375%. Any remaining cash flow is
split equally with the lender until the lender reaches its 16% per
annum limit. To the extent the aggregate of all interest payments,
including contingent interest, for any year does not equal 16%, the
interest is deferred until the mortgaged property is sold or the
mortgage loan is repaid. Sale or repayment proceeds remaining
after the repayment of principal and other specified payments are
paid 100% to the lender to the extent necessary in order to pay the
base rate of interest on the original mortgage revenue bonds and
working capital loan plus 2.375% per annum.
Fifty (50) percent of any excess sale or redemption
proceeds after payment of the base rate plus 2.375% are
paid to the lender to satisfy any previously unpaid
amounts from the 16% per annum interest rate
previously deferred. The Partnership has been unable to
pay all base interest to date. Accordingly, it is uncertain,
based upon historical results, whether project cash flows
would be sufficient to pay contingent interest. As a
result, no contingent interest has been accrued.
Aggregate unpaid potential contingent interest as of
December 31, 1993 and 1992 is $4,456,833 and
$3,572,833, respectively.
Note 4. Related Party Transactions
Additional amounts due to SCA are as follows:
1993 1992
Working Capital loans $ 455,000 $ 455,000
Debt service payable 1,786,243 1,505,956
Other 965 965
---------- ----------
$2,242,208 $1,961,921
The Partnership is due $495 from the Limited Partner and $5 from
the General Partner based upon their capital contribution
percentages.
The Partnership paid property management fees of $53,876 and
$54,003 to an affiliate in 1993 and 1992, respectively. These
amounts are included in administrative expenses in the
accompanying statements of operations.
As required by the Indenture of Trust, the Partnership paid
mortgage servicing fees of $81,600 to an affiliate in 1993 and
1992.
<PAGE>
NICOLLET RIDGE LIMITED PARTNERSHIP
FINANCIAL REPORT
DECEMBER 31, 1993
<PAGE>
C O N T E N T S
PAGE
INDEPENDENT AUDITOR'S REPORT 3
FINANCIAL STATEMENTS
Balance Sheets 4
Statements of Operations 5
Statements of Partners' Deficit 6
Statements of Cash Flows 7
Notes to Financial Statements 8 - 10
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
Nicollet Ridge Limited Partnership
Baltimore, Maryland
We have audited the accompanying balance sheets of Nicollet Ridge Limited
Partnership as of December 31, 1993 and 1992, and the related statements of
operations, partners' deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nicollet Ridge Limited
Partnership as of December 31, 1993 and 1992, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
C.W. Amos and Company
Bethesda, Maryland
February 16, 1994
<PAGE>
NICOLLET RIDGE LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1993 and 1992
ASSETS
1993 1992
Investment in Real Estate, at cost (Note 3)
Building - net of accumulated
depreciation of $1,370,110 in 1993
and $920,182 in 1992 $ 16,627,016 $ 17,076,944
Furniture, fixtures and equipment - net
of accumulated depreciation of $25,122
in 1993 and $18,506 in 1992 41,035 47,651
Land 1,914,869 1,914,869
Other Assets
Cash 11,271 8,176
Restricted cash (Note 2) 190,744 168,541
Partners' capital contributions
receivable (Note 4) 500 500
Prepaid expenses 14,799 15,893
Other assets 3,148 -
------------ ------------
TOTAL ASSETS $ 18,803,382 $ 19,232,574
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgage revenue bond payable (Note 3) $ 20,340,000 $ 20,340,000
Lien claims payable 31,979 31,979
Debt service payable (Notes 3 and 4) 2,981,088 2,311,407
Accounts payable and accrued expenses 544,621 603,105
Security deposit liability 64,987 82,552
Due to affiliates (Note 4) 5,047 5,047
------------ ------------
TOTAL LIABILITIES $ 23,967,722 $ 23,374,090
Commitment and contingency (Note 3)
Partners' deficit (Note 4) (5,164,340) (4,141,516)
TOTAL LIABILITIES ------------ ------------
AND PARTNERS' DEFICIT $ 18,803,382 $ 19,232,574
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
NICOLLET RIDGE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Years Ended December 31, 1993 and 1992
1993 1992
REVENUE
Gross rent potential (Note 3) $ 2,623,282 $ 2,531,845
Less: Vacancies (68,311) (63,602)
Less: Concessions and allowances (87,480) (91,340)
Add: Other rental income 123,617 117,209
----------- -----------
Net rental income $ 2,591,108 $ 2,494,112
Interest 4,086 4,216
Other income 13,279 4,712
----------- -----------
TOTAL REVENUE $ 2,608,473 $ 2,503,040
EXPENSES
Debt service (Note 3) $ 1,601,775 $ 1,601,577
Payroll 237,104 221,422
Administrative (Note 4) 210,365 221,955
Depreciation 456,544 456,544
Taxes and insurance 496,746 589,494
Utilities 200,013 194,690
Maintenance 276,200 368,561
Mortgage servicing fees (Note 4) 152,550 152,550
----------- -----------
TOTAL EXPENSES $ 3,631,297 $ 3,806,793
NET LOSS $(1,022,824) $(1,303,753)
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
NICOLLET RIDGE LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
Years Ended December 31, 1993 and 1992
General Limited
Partner Partners Total
Partners' Deficit,
December 31, 1991 $( 28,378) $(2,809,385) $(2,837,763)
Net Loss ( 13,038) (1,290,715) (1,303,753)
Partners' Deficit, ----------- ----------- -----------
December 31, 1992 $( 41,416) $(4,100,100) $(4,141,516)
Net Loss ( 10,228) (1,012,596) (1,022,824)
Partners' Deficit, ----------- ----------- -----------
December 31, 1993 $( 51,644) $(5,112,696) $(5,164,340)
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE>
NICOLLET RIDGE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1993 and 1992
1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(1,022,824) $(1,303,753)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 456,544 456,544
Change in assets and liabilities:
Increase in rent receivable - 7,797
Decrease (increase) in prepaid expenses 1,094 (7,860)
Increase in debt service payable 669,681 795,170
(Decrease) increase in accounts payable
and accrued expenses (58,484) 52,791
Increase in other assets (3,148) -
NET CASH PROVIDED BY ---------- ----------
OPERATING ACTIVITIES $ 42,863 $ 689
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in restricted cash $ (22,203) $ 1,333
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in security deposits (17,565) (98)
---------- ----------
NET INCREASE IN CASH $ 3,095 $ 1,924
CASH, BEGINNING OF YEAR 8,176 6,252
---------- ---------
CASH, END OF YEAR $ 11,271 $ 8,176
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 932,094 $ 806,407
The accompanying notes are an integral part of these financial statements.
- 7 -
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization
Nicollet Ridge Limited Partnership (the "Partnership") was
organized on October 3, 1990 pursuant to the Laws of the State
of Maryland for the purpose of acquiring, owning and operating
a multifamily residential apartment project located in Burnsville,
Minnesota.
All operating profits and losses are to be allocated in accordance
with the percentage of partnership interest, as set forth in the
Partnership Agreement. Any gains and losses recognized upon the
sale, exchange or other disposition of real property in the project
shall also be allocated as set forth in the Partnership Agreement.
As of December 1, 1990, the Partnership entered into a Transfer
Agreement with Burnsville Woods Partnership ("Burnsville"),
whereby the title to Nicollet Ridge, a 339 unit apartment project
located in Burnsville, Minnesota, was transferred to the
Partnership in lieu of foreclosure. Through this agreement, the
Partnership acquired all of Burnsville's rights, title and interest in
the property, and assumed all of Burnsville's obligations under the
Mortgage Note, all other mortgage loan documents and the
Regulatory Agreement. The Partnership did not, however,
assume any of the obligations relating to the guarantors of
Burnsville.
The acquisition was accounted for as a purchase in conformity
with Opinion No. 16 of the Accounting Principles Board.
Accordingly, the aggregate consideration was allocated to the
assets acquired and the liabilities assumed, based on their
estimated fair values. This estimate was based upon the projected
net operating income before the costs of financing plus the
estimated proceeds at sale or refinancing discounted at 8.0%.
This rate was determined to be an appropriate tax-exempt rate
commensurate with tax-exempt financing attached thereto.
Note 2. Summary of Significant Accounting Policies
A summary of the Partnership's significant accounting policies not
disclosed elsewhere in the financial statements are as follows:
Cash and Restricted Cash:
The cash balance represents cash resources which are
available to fund current operations.
Restricted cash consists of the following:
1993 1992
Real estate tax and insurance escrow $ 91,342 $ 85,969
Security deposits 65,266 82,572
Replacement reserve 34,136 -
--------- ---------
$ 190,744 $ 168,541
Replacement reserve represents amounts available to
fund future replacements and repairs as defined in the
loan agreement.
Credit risk:
As of December 31, 1993, the Partnership had funds on
deposit in a financial institution in excess of amounts
insured by the Federal Deposit Insurance Corporation.
Depreciation:
Depreciation on buildings and equipment is provided for
by the use of the straight-line method over the estimated
useful lives of the assets.
Income Taxes:
No benefit for income taxes has been included in these
financial statements since the tax loss passes through to,
and is reported by, the partners individually.
Reclassification:
Certain amounts in the prior year's financial statements
have been reclassified to conform with the current year
presentation.
Note 3. Debt
The project was originally financed with the proceeds from the
issuance and sale of tax-exempt mortgage revenue bonds by the
City of Burnsville, Minnesota for a total of $20,340,000. The
mortgage revenue bonds, are collateralized by a first mortgage on
the real property and an assignment of rents. Principal payments
on the bonds are due in December, 2010. The bonds may be
prepaid in whole, but not in part, on or after the seventh
anniversary of the initial purchase of the bonds. Interest on the
original bonds is payable at a base rate of 7.875%.
Commencing on December 1, 1988, the second anniversary date
of the mortgage revenue bonds, contingent interest is payable
during the year from 100% of the project cash flow after payment
of base interest, at a rate of 2.375%. Any remaining cash flow is
split equally with the lender until the lender reaches its 16% per
annum limit. To the extent the aggregate of all interest payments,
including contingent interest, for any year does not equal 16%, the
interest is deferred until the mortgaged property is sold or the
mortgage loan is repaid. Sale or repayment proceeds remaining
after the repayment of principal and other specified payments are
paid 100% to the lender to the extent necessary in order to pay the
base rate of interest on the original mortgage revenue bond plus
2.375% per annum. Fifty (50) percent of any excess sale or
redemption proceeds after payment of the base rate plus 2.375%
are paid to the lender to satisfy any previously unpaid amounts
from the 16% per annum interest rate previously deferred.
The Partnership has been unable to pay all base interest to date,
accordingly, it is uncertain, based upon historical results, whether
project cash flows would be sufficient to pay contingent interest.
As a result, no contingent interest has been accrued. Aggregate
unpaid potential contingent interest as of December 31, 1993 and
1992 is $8,400,844 and $6,748,219, respectively.
Note 4. Related Party Transactions
Additional amounts due to SCA Tax Exempt Fund limited
partnership are as follows:
1993 1992
Debt service payable $2,981,088 $2,311,407
Other 5,047 5,047
---------- ----------
$2,986,135 $2,316,454
The Partnership is due $495 from the Limited Partners and $5
from the General Partner based upon their capital contribution
percentages.
The Partnership paid property management fees of $104,093 and
$101,176 to an affiliate in 1993 and 1992, respectively. These
amounts are included in administrative expenses in the
accompanying statements of operations.
As required by the Indenture of Trust, the Partnership paid
mortgage servicing fees of $152,550 to an affiliate in 1993 and
1992.
<PAGE>
STEEPLECHASE FALLS
LIMITED PARTNERSHIP
FINANCIAL REPORT
DECEMBER 31, 1993
<PAGE>
C O N T E N T S
PAGE
INDEPENDENT AUDITOR'S REPORT 3
FINANCIAL STATEMENTS
Balance Sheet 4
Statement of Operations 5
Statement of Partners' Deficit 6
Statement of Cash Flows 7
Notes to Financial Statements 8 - 11
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
Steeplechase Falls Limited Partnership
Baltimore, Maryland
We have audited the accompanying balance sheet of Steeplechase Falls
Limited Partnership as of December 31, 1993, and the related statements of
operations, partners' deficit, and cash flows for the period July 12, 1993
through December 31, 1993. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Steeplechase Falls Limited
Partnership as of December 31, 1993, and the results of its operations and its
cash flows for the period July 12, 1993 through December 31, 1993 in
conformity with generally accepted accounting principles.
C.W. Amos and Company
Bethesda, Maryland
February 17, 1994
<PAGE>
STEEPLECHASE FALLS LIMITED PARTNERSHIP
BALANCE SHEET
December 31, 1993
ASSETS
Investment in Real Estate, at cost (Note 3)
Building - net of accumulated depreciation
of $215,838 $ 17,051,209
Furniture, fixtures and equipment - net of
accumulated depreciation of $24,778 470,790
Land improvements - net of accumulated
depreciation of $862 16,375
Land 1,782,925
Other Assets
Cash 43,000
Restricted cash (Note 2) 628,047
Partners' capital contributions due (Note 4) 500
Other assets 20,667
------------
TOTAL ASSETS $ 20,013,513
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgage revenue bonds payable (Note 3) $ 17,950,000
Working capital loan payable (Notes 3 and 4) 150,000
Debt service payable (Notes 3 and 4) 1,699,358
Accounts payable and accrued expenses 377,782
Security deposit liability 105,508
Due to affiliate (Note 4) 3,498
------------
TOTAL LIABILITIES $ 20,286,146
Commitments and Contingencies (Notes 3 and 5)
Partners' deficit $ (272,633)
TOTAL LIABILITIES AND ------------
PARTNERS' DEFICIT $ 20,013,513
The accompanying notes are an integral part of this financial statement.
- 4 -
<PAGE>
STEEPLECHASE FALLS LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
Period July 12, 1993 through December 31, 1993
REVENUES
Gross rent potential (Note 3) $ 1,354,333
Less: Vacancies (42,175)
Less: Concessions and allowances (6,810)
Add: Other rental income 14,178
Net rental income $ 1,319,526
Interest 4,624
Other income 33,580
------------
TOTAL REVENUE $ 1,357,730
EXPENSES
Debt service (Note 3) $ 712,677
Marketing 30,800
Administrative (Note 4) 217,278
Depreciation 241,478
Taxes and insurance 212,142
Utilities 79,845
Maintenance 68,768
Mortgage servicing fees (Note 4) 67,875
------------
TOTAL EXPENSES $ 1,630,863
------------
NET LOSS $ (273,133)
The accompanying notes are an integral part of this financial statement.
- 5 -
<PAGE>
STEEPLECHASE FALLS LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' DEFICIT
Period July 12, 1993 through December 31, 1993
General Limited
Partner Partner Total
Partners' Capital,
Beginning of period $ 5 $ 495 $ 500
Net Loss (2,731) (270,402) (273,133)
Partners' Deficit, --------- --------- ----------
End of period $ (2,726) $(269,907) $ (272,633)
The accompanying notes are an integral part of these financial statements.
- 6-
<PAGE>
STEEPLECHASE FALLS LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
Period July 12, 1993 through December 31, 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (273,133)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 241,478
Change in assets and liabilities:
Increase in other assets (13,480)
Increase in debt service payable 54,175
Decrease in due to affiliate (4,009)
Increase in accounts payable and
accrued expenses 175,189
NET CASH PROVIDED BY ----------
OPERATING ACTIVITIES $ 180,220
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in restricted cash $ (174,350)
Purchases of furniture, fixtures and equipment (15,595)
NET CASH USED IN ----------
INVESTING ACTIVITIES (189,945)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in security deposit liability $ (2,251)
----------
NET DECREASE IN CASH $ (11,976)
----------
CASH, BEGINNING OF PERIOD 54,976
----------
CASH, END OF PERIOD $ 43,000
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 658,502
The accompanying notes are an integral part of this financial statement.
- 7 -
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization
Steeplechase Falls Limited Partnership was organized pursuant to the
Laws of the State of Maryland for the purpose of acquiring and operating
a residential rental project in Knoxville, Tennessee.
The project of Steeplechase Falls Apartments was deeded to Steeplechase
Falls Ventures Ltd., the original borrower, who on September 29, 1989
filed for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code.
Through this filing, Steeplechase Falls Ventures Ltd. attempted through
special provisions of the bankruptcy code (section 363(C)) to relieve the
guarantors of their obligation under the operating deficit guarantee. The
lender filed a motion to dismiss the bankruptcy filing, but the court upheld
the bankruptcy filing. While the action was upheld, the original borrower
continued to hold the title to the property as no attempt was made to
transfer the title.
Subsequent to the above and through July 12, 1993, Shelter Properties
Corporation Limited, was appointed by a trustee of the U.S. Bankruptcy
Court to manage the property until transfer of title was allowed. In
addition, the bond trustee and lender retained Shelter Properties
Corporation Limited as the managing agent.
On March 18, 1993, an affiliate of the Partnership, negotiated the terms
of a transfer of the deed in lieu of foreclosure to Steeplechase Falls
Limited Partnership (the Partnership). On July 12, 1993, the Partnership
recorded the deed and acquired all of Steeplechase Falls Ventures Ltd. right,
title and interest in the property and assumed all of Steeplechase Falls
Ventures Ltd. obligations under the Mortgage Note, the Parity Working
Capital Loan Note, all other mortgage loan documents and the Regulatory
Agreement. The assets and liabilities of the project as of July 12, 1993,
were transferred to and recorded on the Partnership's opening balance sheet.
The Partnership did not, however, assume any of the obligations relating to
the guarantors of Steeplechase Falls Ventures Ltd..
The acquisition was accounted for as a purchase in conformity with
Opinion No. 16 of the Accounting Principles Board. Accordingly, the
aggregate acquisition consideration was allocated to the assets acquired
and the liabilities assumed based on their estimated fair values. This
estimate was based upon the projected net operating income before the
costs of financing plus the estimated proceeds at sale or refinancing
discounted at 9.5%. This rate was determined to be an appropriate tax-
exempt rate commensurate with the tax-exempt financing attached
thereto.
All operating profits and losses are allocated in accordance with the
percentage of partnership interest, as set forth in the Partnership
Agreement. Any gains or losses recognized upon the sale, exchange, or
other disposition of real property in the project shall also be allocated as
set forth in the Partnership Agreement.
Note 2. Summary of Significant Accounting Policies
A summary of the Partnership's significant accounting policies not
disclosed elsewhere in the financial statements is as follows:
Credit Risk:
The Partnership has deposits in financial institutions in
excess of amounts insured by the Federal Deposit
Insurance Corporation.
Cash:
The cash balance represents cash resources which are
available to fund current operations.
Restricted cash consists of the following:
1993
Real estate tax and insurance escrow $ 287,102
Security deposits 106,740
Replacement reserve 84,373
Trust fund 149,832
----------
$ 628,047
Replacement reserve represents amounts available to
fund future replacements and repairs as defined in the
loan agreement.
Trust fund represents amounts which are held in trust by
the lender for payment of debt service.
Depreciation:
Depreciation is provided for by the use of the straight-
line method over the estimated useful lives of the assets.
Income Taxes:
No provision or benefit for income taxes has been
included in these financial statements since the tax loss
passes through to, and is reported by, the partners
individually.
Note 3. Debt
The project was financed with proceeds from the issuance and sale of tax
exempt mortgage revenue bonds by The Health, Educational and Housing
Facilities Board of the County of Knox, Tennessee, for a total of
$17,950,000 and a $150,000 working capital loan from SCA Tax Exempt
Fund Limited Partnership ("SCA"), an affiliate of the managing agent.
The provisions of this working capital loan are identical to those of the
mortgage revenue bond. Both loans are collateralized by a first mortgage
on the real property and an assignment of rents. Principal payments on the
loans are due October, 2008. The loans may be prepaid in whole, but not
in part, on or after the seventh anniversary of the initial purchase of the
bonds. Interest on the original loans is unconditionally payable at a base
rate of 7.875%.
Commencing on October 17, 1988, the second anniversary date of the
mortgage revenue bonds, contingent interest is payable during the year
from 100% of the project cash flow after payment of base interest, at a
rate of 2.375%. Any remaining cash flow is split equally with the lender
until the lender reaches it's 16% per annum limit. To the extent the
aggregate of all interest payments, including contingent interest, for any
year does not equal 16%, the interest is deferred until the mortgaged
property is sold or the mortgage loan is repaid. Sale or repayment
proceeds remaining after the repayment of principal and other specified
payments are paid 100% to the lender to the extent necessary in order to
pay the base rate of interest on the original mortgage revenue bonds and
working capital loan plus 2.375% per annum. Fifty (50) percent of any
excess sale or redemption proceeds, after payment of the base rate plus
2.375%, are paid to the lender to satisfy any previously unpaid amounts
from the 16% per annum interest rate previously deferred.
The Project has been unable to pay all base interest to date, accordingly,
it is uncertain whether project cash flows would ever be sufficient to pay
contingent interest. As a result, no contingent interest has been accrued.
Aggregate unpaid potential contingent interest from 1988 through
December 31, 1993 is $7,659,505.
Note 4. Related Party Transactions
Additional amounts due to SCA are as follows:
Working capital loan $ 150,000
Debt service payable 1,699,358
------------
$ 1,849,358
The Partnership is due $495 from the Limited Partner and $5 from the
General Partner based upon their capital contribution percentages.
The project paid property management fees of $52,039 to an affiliate for
the period ended December 31, 1993. This amount is included in
administrative expenses in the accompanying statement of operations.
As required by the Indenture of Trust, the project paid mortgage servicing
fees of $67,875 to an affiliate partnership in 1993.
Note 5. Retirement Plan
Shelter Properties Corporation Limited, the managing agent, has a 401(k)
retirement plan covering all eligible employees of the property. Employer
contributions are at the discretion of the Company. The Partnership
elected not to make a contribution to the plan for the period ended
December 31, 1993.
<PAGE>
HAMILTON GROVE LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND AUDIT REPORT
December 31, 1993
<PAGE>
HAMILTON GROVE LIMITED PARTNERSHIP
CONTENTS
REPORT OF INDEPENDENT ACCOUNTANTS 1
BALANCE SHEETS 2
STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIT 3
STATEMENTS OF CASH FLOWS 4
NOTES TO FINANCIAL STATEMENTS 5/8
SUPPLEMENTARY INFORMATION
Report of Independent Accountants 10
Schedules of Project Cash Flows 11
<PAGE>
Member AICPA Division for CPA Firms
Private Companies Practice
Section
SEC Practice Section
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Hamilton Grove Limited Partnership
Chattanooga, Tennessee
We have audited the accompanying balance sheets of Hamilton Grove Limited
Partnership as of December 31, 1993 and 1992, and the related statements of
operations and partners' deficit and cash flows for each of the three years in
the period ended December 31, 1993. These financial statements are the
responsibility of the partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hamilton Grove Limited
Partnership as of December 31, 1993 and 1992, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1993, in conformity with generally accepted accounting principles.
The financial statements have been prepared assuming that the partnership will
continue as a going concern. As discussed in the notes to the financial
statements, the partnership has had net losses from operations and has an
accumulated deficit that raises substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
described in the notes to the financial statements. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Joseph Decosimo and Company
Chattanooga, Tennessee
March 4, 1994, except for the
notes payable footnote, as to
which the date is March 15, 1994
<PAGE>
HAMILTON GROVE LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1993 and 1992
1993 1992
ASSETS
Property and Equipment, net $ 8,670,454 $ 9,061,971
Cash and Cash Equivalents, including
restricted cash of $123,489 for 1993 and
$71,010 for 1992 127,496 97,172
Tenant Receivables 1,825 1,325
Intangibles, net 330,235 367,756
------------ ------------
TOTAL ASSETS $ 9,130,010 $ 9,528,224
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Notes Payable $ 13,975,000 $ 13,975,000
Accounts Payable 26,160 27,858
Accrued Interest 263,196 93,167
Accrued Property Taxes 178,689 181,773
Accrued Management Fees 8,322 7,859
Tenant Security Deposits 58,415 56,310
Rents Received in Advance 23,604 20,536
Advances from Partners and
Management Company 499,415 480,341
------------ ------------
Total Liabilities 15,032,801 14,842,844
PARTNERS' DEFICIT ( 5,902,791) ( 5,314,620)
------------ ------------
TOTAL LIABILITIES AND PARTNERS' DEFICIT $ 9,130,010 $ 9,528,224
The accompanying notes are an integral part of the financial statements.
<PAGE>
HAMILTON GROVE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIT
Years Ended December 31, 1993, 1992 and 1991
1993 1992 1991
REVENUES
Gross Rent Potential $ 1,904,258 $ 1,858,651 $ 1,812,723
Less: Vacancies 81,952 66,706 101,881
Concessions 7,627 25,212 38,583
Quarters Allowance 23,743 34,972 26,502
Model 13,148 10,250 8,095
Net Rental Income 1,777,788 1,721,511 1,637,662
Other 185,094 199,646 172,605
----------- ----------- -----------
1,962,882 1,921,157 1,810,267
EXPENSES
Administrative 263,961 251,364 229,557
Management Fees 98,144 103,889 90,513
Advertising and Promotion 8,185 9,633 13,993
Insurance 24,189 25,025 22,553
Outside Services 39,477 43,882 48,074
Payroll and Related Expenses 168,580 160,349 153,055
Repairs and Maintenance 3,750 9,024 15,845
Supplies 39,660 22,285 24,274
Utilities 153,747 144,022 150,490
----------- ---------- -----------
799,693 769,473 748,354
INCOME FROM OPERATIONS 1,163,189 1,151,684 1,061,913
OTHER INCOME (EXPENSE)
Interest Income 746 1,648 5,550
Interest Expense (1,118,000) (1,118,000) (1,118,000)
Amortization ( 37,521) ( 91,670) ( 109,717)
Depreciation ( 418,302) ( 415,454) ( 428,090)
Real Estate Taxes ( 178,283) ( 184,239) ( 166,280)
----------- ----------- -----------
(1,751,360) (1,807,715) (1,816,537)
----------- ----------- -----------
NET LOSS ( 588,171) ( 656,031) ( 754,624)
PARTNERS' DEFICIT -
beginning of year (5,314,620) (4,658,589) (3,903,965)
PARTNERS' DEFICIT - ----------- ----------- -----------
end of year $(5,902,791) $(5,314,620) $(4,658,589)
The accompanying notes are an integral part of the financial statements.
<PAGE>
HAMILTON GROVE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1993, 1992 and 1991
1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Tenants $ 1,958,442 $ 1,911,327 $ 1,818,912
Cash Paid to Employees and Suppliers ( 973,182) ( 911,092) ( 896,329)
Interest Received 746 1,648 5,550
Interest Paid ( 947,971) (1,118,000) (1,118,000)
Net Cash Provided (Used) by ----------- ---------- ----------
Operating Activities 38,035 ( 116,117) ( 189,867)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures ( 26,785) ( 9,050) ( 14,603)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from Partners 19,074 21,530 198,971
Bank Overdraft - - ( 5,400)
Net Cash Provided by
Financing Activities 19,074 21,530 193,571
NET INCREASE (DECREASE) IN CASH ----------- ---------- ----------
AND CASH EQUIVALENTS 30,324 ( 103,637) ( 10,899)
CASH AND CASH EQUIVALENTS - beginning
of year 97,172 200,809 211,708
---------- ---------- ----------
CASH AND CASH EQUIVALENTS - end of year $ 127,496 $ 97,172 $ 200,809
RECONCILIATION OF NET LOSS TO NET
CASH PROVIDED (USED) BY
OPERATING ACTIVITIES
Net Loss $( 588,171) $( 656,031) $( 754,624)
Depreciation 418,302 415,454 428,090
Amortization 37,521 91,670 109,717
Bad Debt Expense 9,113 10,139 6,723
Changes in Operating Assets
and Liabilities -
Decrease (Increase) in -
Tenant Receivables ( 9,613) ( 10,871) 218
Increase (Decrease) in -
Accounts Payable ( 1,698) 7,867 15,601
Accrued Interest 170,029 - -
Accrued Property Taxes ( 3,084) 16,755 ( 4,019)
Accrued Management Fees 463 7,859 -
Tenant Security Deposits 2,105 1,840 3,715
Rents Received in Advance 3,068 ( 799) 4,712
NET CASH PROVIDED (USED) BY ----------- ----------- -----------
OPERATING ACTIVITIES $ 38,035 $( 116,117)$( 189,867)
The accompanying notes are an integral part of the financial statements.
<PAGE>
HAMILTON GROVE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by the partnership
are as follows:
ORGANIZATION - Hamilton Grove Limited Partnership (the "partnership") was
organized under the laws of the state of Tennessee on August 14, 1986, for the
purpose of acquiring and developing a 300-unit apartment complex in
Chattanooga, Tennessee known as Hamilton Chase Apartments. The partnership
commenced operations on October 1, 1987.
Venture Technology Properties is the general partner and manages the
partnership and is allocated 94% of net operating losses and profits and gains.
On March 15, 1994, the partnership signed a letter of intent with its bondholder
and fiscal agent (see notes payable footnote) which will admit an affiliate of
the fiscal agent as sole general partner. The new general partner shall have
exclusive authority over all partnership decisions.
CASH EQUIVALENTS - The partnership considers all money market accounts
and highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Expenditures for repairs and maintenance are charged to expense as incurred and
additions and improvements that significantly extend the lives of assets are
capitalized. Upon sale or other retirement of depreciable property, the cost and
accumulated depreciation are removed from the related accounts and any gain or
loss is reflected in operations.
Depreciation is provided on the straight-line method for real property and
accelerated methods for personal property over the estimated useful lives of the
depreciable assets.
INTANGIBLE ASSETS - Intangible assets consist of organization and start-up
costs which are amortized using the straight-line method over five years and
bond issue and financing costs which are amortized over the term of the bonds.
INCOME TAXES - No provision for income taxes is reflected in the financial
statements since the tax effects of the partnership's income or loss are passed
through to the individual partners.
OPERATIONS
From inception through December 31, 1993, the partnership has had net losses
of $5,902,891 and negative cash flows from operations of $1,980,254.
The partnership's ability to continue as a going concern depends on the
satisfaction of certain conditions established by the letter of intent signed
with the bondholder and fiscal agent (see notes payable footnote) and the
willingness of certain partners to fund partnership losses.
RESTRICTED CASH
Restricted cash consists of the following:
1993 1992
Taxes and Insurance Escrow Accounts $ 63,095 $ 12,843
Tenant Security Deposit Escrow Account 60,394 58,167
--------- ---------
$ 123,489 $ 71,010
PROPERTY AND EQUIPMENT
Property and equipment consist of the following major classifications:
1993 1992
Land $ 900,000 $ 900,000
Buildings 9,846,708 9,844,945
Furniture and Equipment 656,995 631,972
Vehicles 2,890 2,890
11,406,593 11,379,807
Accumulated Depreciation ( 2,736,139) ( 2,317,836)
------------ ------------
$ 8,670,454 $ 9,061,971
INTANGIBLES
Intangibles consist of the following:
1993 1992
Organization and Start-Up Costs $ 360,976 $ 360,976
Bond Issue and Financing Costs 562,819 562,819
--------- ---------
923,795 923,795
Accumulated Amortization (593,560) (556,039)
--------- ---------
$ 330,235 $ 367,756
NOTES PAYABLE
Notes payable consist of the following:
1993 1992
Industrial Revenue Bonds Series 1986A $ 13,875,000 $ 13,875,000
Working Capital Loan 100,000 100,000
------------ ------------
$ 13,975,000 $ 13,975,000
The Industrial Revenue Bonds were issued by the Industrial Development Board
of the County of Hamilton, Tennessee and are assigned to SCA Tax Exempt
Fund. Base interest is payable monthly at 8%. Commencing December 1, 1988,
contingent interest was payable at a rate of 2.25% from 100% of the project cash
flow after the payment of base interest (level 1 contingent interest). Any
remaining cash flow is split equally with the bondholder until the bondholder
reaches a 16% per annum limit (level 2 contingent interest). To the extent that
the aggregate of all interest payments, including contingent interest, for any
year does not equal 16% per annum, the difference less priority contingent
interest is deferred until the property is sold or the loan is repaid. Priority
contingent interest for any given year is the lesser of unpaid level 1
contingent interest or .5%. Priority contingent interest is payable from 100%
of cash flow before level 1 or 2 contingent interest as future cash flows
permits. Sale or repayment proceeds remaining after the repayment of the
principal and other specified payments are paid 100% to the bondholder to the
extent necessary to provide the bondholder a return equal to the base interest
rate plus 2.25%. Thereafter, such proceeds are split equally with the
bondholder in order to provide a return of 16%.
The partnership has been unable to pay all base interest to date; accordingly,
it is uncertain whether cash flows would be sufficient to pay contingent
interest. As a result, no contingent interest has been accrued at December
31, 1993 and 1992. Aggregate unpaid interest at December 31, 1993 and 1992, is
$5,683,127 and $4,573,127, respectively.
The bonds are redeemable after December 1, 1993, at the option of the
partnership and are subject to remarketing on or after December 1, 1998. The
bonds currently mature August 15, 2006; however, if previously remarketed, the
maturity may be extended to August 15, 2008. The bonds are collateralized by
the real property and an assignment of rents.
Provisions of the working capital loan are identical to those of the Industrial
Revenue Bonds.
As of December 31, 1993, the partnership was in default of the terms of the loan
agreement with the Industrial Development Board of Hamilton County,
Tennessee.
On March 15, 1994, the partnership signed a letter of intent with the bondholder
and fiscal agent of the bonds whereby an affiliate of the fiscal agent will
become the sole general partner and have sole and exclusive authority over all
partnership decisions. The letter of intent becomes binding upon the
satisfaction of certain conditions by the partnership. If these changes to the
partnership structure are accomplished, the fiscal agent has no plans or
intentions to exercise its rights to accelerate the maturity of the bonds during
the ensuing year provided the terms of the agreement are fully satisfied.
RELATED PARTY TRANSACTIONS
Transactions and outstanding balances with partners are summarized as follows:
1993 1992 1991
Management Fees $ 98,144 $ 103,889 $ 90,513
Advance from Partners $ 499,415 $ 480,341 $ 458,811
Accrued Management Fees $ 8,322 $ 7,859 $ -
The advances from partners shall be repaid from the partnership's share of sale
or refinancing proceeds in accordance with the loan agreement related to the
Industrial Development Bonds.
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
Member AICPA Division for CPA Firms
Private Companies Practice Section
SEC Practice Section
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Hamilton Grove Limited Partnership
Chattanooga, Tennessee
Our report on our audits of the basic financial statements of Hamilton Grove
Limited Partnership as of December 31, 1993 and 1992, and for each of the three
years in the period ended December 31, 1993, appears on page 1. Those audits
were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplementary information is presented for
purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
Joseph Decosimo and Company
Chattanooga, Tennessee
March 4, 1994
<PAGE>
HAMILTON GROVE LIMITED PARTNERSHIP
SCHEDULES OF PROJECT CASH FLOWS
Years Ended December 31, 1993, 1992 and 1991
1993 1992 1991
SOURCES OF CASH
Cash Received from Tenants $ 1,958,442 $1,911,327 $1,818,912
Interest Received 746 1,648 5,550
Developer Contribution 19,074 21,530 198,971
----------- ---------- ----------
1,978,262 1,934,505 2,023,433
USES OF CASH
Operating Expenses Paid (973,182) (911,092) (896,329)
Debt Service (947,971) (1,118,000) (1,118,000)
----------- ---------- ----------
(1,921,153) (2,029,092) (2,014,329)
Project Cash Flow 57,109 (94,587) 9,104
OTHER USES OF CASH
Capital Expenditures (26,785) (9,050) (14,603)
Bank Overdraft - - (5,400)
----------- ---------- ---------
NET INCREASE (DECREASE) IN CASH $ 30,324 $ (103,637) $ (10,899)
No contingent interest is payable for 1991 because project cash flow is the
result of loans from the developer corporation and draws from reserves. No
contingent interest is payable for 1993 because project cash flow is the result
of loans from the developer corporation and the timing of interest payments.
<PAGE>
AUCTION STREET ASSOCIATES LIMITED
PARTNERSHIP
FINANCIAL STATEMENTS AND AUDIT REPORT
December 31, 1994
<PAGE>
AUCTION STREET ASSOCIATES LIMITED PARTNERSHIP
CONTENTS
REPORT OF INDEPENDENT ACCOUNTANTS 1
BALANCE SHEETS 2
STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIT 3
STATEMENTS OF CASH FLOWS 4/5
NOTES TO FINANCIAL STATEMENTS 6/11
SUPPLEMENTARY INFORMATION
Combining Balance Sheets 13/14
Combining Statements of Operations 15/17
Schedules of Project Cash Flow for Phase I 18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Auction Street Associates Limited Partnership
Chattanooga, Tennessee
We have audited the accompanying balance sheets of Auction Street Associates
Limited Partnership as of December 31, 1994 and 1993, and the related statements
of operations and partners' deficit and cash flows for each of the three years
in the period ended December 31, 1994. These financial statements are the
responsibility of the partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Auction Street Associates
Limited Partnership as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Joseph Decosimo and Company
Chattanooga, Tennessee
February 22, 1995
<PAGE>
AUCTION STREET ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1994 and 1993
1994 1993
ASSETS
Property and Equipment, net $ 17,045,468 $ 17,741,544
Cash and Cash Equivalents, including
restricted cash of $1,440,186 for 1994
and $1,336,610 for 1993 1,483,130 1,344,621
Tenant Receivables 7,135 5,929
Partner Receivables 76,640 142,796
Prepaid Insurance 9,232 -
Intangibles, net 802,606 962,094
------------ ------------
TOTAL ASSETS $ 19,424,211 $ 20,196,984
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Notes Payable $ 28,304,000 $ 28,304,000
Accounts Payable 14,100 18,730
Partner Payables - 90,582
Accrued Interest 1,434,505 1,068,331
Other Accrued Expenses 3,695 180
Tenant Security Deposits 148,348 136,432
Rents Received in Advance 22,723 10,560
------------ ------------
Total Liabilities 29,927,371 29,628,815
PARTNERS' DEFICIT (10,503,160) ( 9,431,831)
------------ ------------
TOTAL LIABILITIES AND PARTNERS' DEFICIT $ 19,424,211 $ 20,196,984
The accompanying notes are an integral part of the financial statements.
<PAGE>
AUCTION STREET ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIT
Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
REVENUES
Gross Rent Potential $ 3,410,464 $ 3,338,578 $ 3,270,175
Convenience Store Income 6,303 9,100 8,062
Less: Vacancies 85,129 139,522 235,033
Concessions - - 19,053
Quarters Allowance 13,384 13,271 15,379
Model 14,365 13,760 13,560
Net Rental Income 3,303,889 3,181,125 2,995,212
Other 120,232 101,062 107,626
------------ ------------ -----------
3,424,121 3,282,187 3,102,838
OPERATING EXPENSES
Payroll and Related Expenses 218,110 210,459 229,034
Administrative 106,606 115,005 90,144
Real Estate Taxes and Insurance 34,830 49,486 48,755
Management Fee 169,936 163,523 150,744
Advertising and Promotion 22,732 22,168 24,962
Utilities 110,453 106,264 101,110
Repairs and Maintenance 17,484 40,499 22,190
Supplies 77,109 67,082 53,520
Services 99,175 108,136 118,981
------------ ------------ -----------
856,435 882,622 839,440
OPERATING INCOME 2,567,686 2,399,565 2,263,398
OTHER INCOME (EXPENSE)
Depreciation ( 782,649) ( 780,405) ( 778,218)
Amortization ( 159,488) ( 178,372) ( 197,255)
Servicing Fee ( 143,812 ) ( 143,813) ( 155,797)
Interest Expense (2,599,154) (2,452,021) (2,434,905)
Interest Income 46,088 41,626 54,207
------------ ------------ -----------
(3,639,015) (3,512,985) (3,511,968)
NET LOSS (1,071,329) (1,113,420) (1,248,570)
PARTNERS' DEFICIT -
beginning of year (9,431,831) (8,318,411) (7,571,971)
Capital Contribution - - 502,130
PARTNERS' DEFICIT - ------------ ----------- -----------
end of year $(10,503,160) $(9,431,831)$(8,318,411)
The accompanying notes are an integral part of the financial statements.
<PAGE>
AUCTION STREET ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Tenants $ 3,446,749 $ 3,275,233 $ 3,119,297
Cash Paid to Employees and Suppliers (866,537) (900,351) (891,680)
Interest Received 46,088 41,626 54,207
Interest Paid (2,232,980) (2,258,114) (2,243,968)
Servicing Fee (143,812) (143,813) (155,797)
Net Cash Provided (Used) by ----------- ----------- -----------
Operating Activities 249,508 14,581 (117,941)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (86,573) (50,022) (55,611)
Net Partner Repayments (Advances) 66,156 (119,203) (23,593)
Net Cash Used by Investing ----------- ----------- -----------
Activities (20,417) (169,225) (79,204)
CASH FLOWS FROM FINANCING ACTIVITIES
Bank Overdraft - - (17,766)
Capital Contribution - - 502,130
Repayment of Revenue Bonds - (50,000) (37,000)
Repayment of Development Fee (90,582) (199,168) -
Net Cash Provided (Used) by ----------- ----------- -----------
Financing Activities (90,582) (249,168) 447,364
NET INCREASE (DECREASE) IN CASH AND ----------- ----------- -----------
CASH EQUIVALENTS 138,509 (403,812) 250,219
CASH AND CASH EQUIVALENTS - beginning
of year 1,344,621 1,748,433 1,498,214
CASH AND CASH EQUIVALENTS - ----------- ----------- -----------
end of year $ 1,483,130 $ 1,344,621 $ 1,748,433
The accompanying notes are an integral part of the financial statements.
<PAGE>
AUCTION STREET ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
RECONCILIATION OF NET LOSS TO NET
CASH PROVIDED (USED) BY OPERATING
ACTIVITIES
Net Loss $(1,071,329) $(1,113,420)$(1,248,570)
Depreciation 782,649 780,405 778,218
Amortization 159,488 178,372 197,255
Bad Debt Expense 245 670 14,786
Changes in Operating Assets and
Liabilities -
Increase in -
Tenant Receivables ( 1,451) ( 4,322) ( 11,426)
Prepaid Insurance ( 9,232) - -
Increase (Decrease) in -
Accounts Payable and Accrued
Expenses ( 1,115) ( 18,399) ( 67,026)
Accrued Interest 366,174 193,907 190,937
Tenant Security Deposits 11,916 9,478 18,610
Rents Received in Advance 12,163 ( 12,110) 9,275
NET CASH PROVIDED (USED) BY ----------- ----------- -----------
OPERATING ACTIVITIES $ 249,508 $ 14,581 $( 117,941)
The accompanying notes are an integral part of the financial statements.
<PAGE>
AUCTION STREET ASSOCIATES LIMITED
PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and practices followed by the partnership
are as follows:
ORGANIZATION - Auction Street Associates Limited Partnership was organized
under the laws of the state of South Carolina on November 1, 1985, for the
purpose of acquiring, developing and operating a 500-unit apartment complex in
Memphis, Tennessee known as Riverset Apartments. The partnership commenced
operations on July 1, 1988. Phase I, which contains 352 apartment units, was
completed prior to December 31, 1988. Phase II, which contains 148 apartment
units, was completed prior to December 31, 1990.
Venture Technology Properties is the general partner and manages the partnership
and is allocated 97% of net operating losses and profits and gains.
CASH EQUIVALENTS - The partnership considers all money market accounts and
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. The partnership maintains at various financial
institutions cash equivalents which may at times exceed federally insured
amounts.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Expenditures for repairs and maintenance are charged to expense as incurred and
additions and improvements that significantly extend the lives of assets are
capitalized. Upon sale or other retirement of depreciable property, the cost and
accumulated depreciation are removed from the related accounts and any gain or
loss is reflected in operations.
Depreciation is provided on the straight-line basis for real property and
accelerated basis for personal property over the estimated useful lives of the
depreciable assets.
INTANGIBLE ASSETS - Intangible assets consist of organization and start-up
costs which are amortized using the straight-line method over five years and
bond issue and financing costs which are amortized over the term of the bonds.
INCOME TAXES - No provision for income taxes is reflected in the financial
statements since the tax effects of the partnership's income or loss are passed
through to the individual partners.
PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
1994 1993
Land $ 983,986 $ 983,986
Buildings 13,496,795 13,485,166
Furniture and Equipment 984,431 925,340
Land - Phase II 1,497,283 1,497,283
Buildings - Phase II 4,848,690 4,848,690
Furniture and Equipment - Phase II 174,441 158,588
------------ ------------
21,985,626 21,899,053
Accumulated Depreciation ( 4,940,158) ( 4,157,509)
------------ ------------
$ 17,045,468 $ 17,741,544
RESTRICTED CASH
Restricted cash consists of the following:
1994 1993
Debt Service Reserve $ 391,427 $ 384,814
Replacement Reserve 79,611 54,865
Revenue Fund 8,782 13,046
Tenant Security Deposit Escrow Account 96,538 61,551
Taxes and Insurance Escrow Accounts 2,393 2,184
Project Fund - Phase II 7,601 6,467
Tenant Security Deposit Escrow
Account - Phase II 42,454 40,728
Debt Service Reserve - Phase II 619,883 625,439
Replacement Reserve - Phase II 16,533 15,943
Revenue Fund - Phase II - 168
Taxes and Insurance Escrow Accounts - Phase II 461 328
Bond Fund - A - Phase II 159,753 121,124
Bond Fund - B - Phase II 14,750 9,953
----------- -----------
$ 1,440,186 $ 1,336,610
The debt service reserve was funded from the initial proceeds of permanent
financing of the project and is equal to 2% of permanent financing and a working
capital loan. The reserve may be increased by unexpended financeable
development costs as defined by the Indenture of Trust between the issuer of the
permanent financing bonds and the purchaser. At no time will the reserve exceed
$1,900,000 nor be less than 2% of the aggregate of the outstanding
permanent financing and the working capital loan. The reserve will be used to
pay any base interest which operations cannot pay.
The Bond Proceeds Fund and Revenue Fund were created by the permanent loan
agreement and are restricted by the loan agreement.
INTANGIBLES
Intangibles consist of the following:
1994 1993
Organization and Start-Up Costs $ 188,838 $ 188,838
Bond Issue and Financing Costs 644,450 644,450
Organization and Start-Up Costs - Phase II 296,238 296,238
Bond Issue and Financing Costs - Phase II 719,807 719,807
----------- -----------
1,849,333 1,849,333
Accumulated Amortization (1,046,727) ( 887,239)
----------- -----------
$ 802,606 $ 962,094
NOTES PAYABLE
Notes payable consist of the following:
1994 1993
Industrial Revenue Bonds - Phase I $ 19,000,000 $ 19,000,000
Working Capital Loan - Phase I 175,000 175,000
Series 1989 A Industrial Revenue Bonds - Phase II 7,610,000 7,610,000
Series 1989 B Industrial Revenue Bonds - Phase II 1,519,000 1,519,000
------------ ------------
$ 28,304,000 $ 28,304,000
The Industrial Revenue Bonds on Phase I issued by Memphis City Revenue
Finance Corporation and held by The Shelter/CAN-American Group are at a base
interest rate of 10.5% with a contingent rate of 5.5% through August 2, 1989,
with base interest payable monthly. After that date, base interest at 7.875% is
due monthly and contingent interest totaling 8.125% is due quarterly. Contingent
interest after August 2, 1989, is payable at the lesser of 2.1% plus the
aggregate amount of unpaid priority contingent interest for all previous years
to the extent the partnership has positive cash flow and an additional 6.025%
limited to one half of positive cash flow after payment of contingent interest
payable from 100% of cash flow. Priority interest for any given year is
calculated based upon the lesser of unpaid contingent interest of 2.1% for such
year or .5%. Upon any sale or any refinancing of the property, the net proceeds
from the sale or refinancing are allocated to pay the loan, then to pay the
bondholder cumulative deferred interest up to 10.75% from August 3, 1989.
Any excess proceeds then repay any operating loans made by the general partner,
then fifty percent of such remaining excess is allocated to the bondholder
to pay cumulative deferred interest up to 16% from the inception of the loan.
Contingent interest is $399,000 for 1994, 1993 and 1992. As of December 31,
1994, contingent interest payable to the extent of positive cash
flow was $137,087. Total unpaid priority contingent interest totaled $3,015,114
and an additional $6,200,729 must be paid to the extent of fifty percent of any
positive cash flow from operations or future sale of the property. The bonds are
redeemable after an initial seven year period at the option of the partnership
and are subject to remarketing on or after August 3, 1998. The bonds mature
November 1, 1999. The bonds are collateralized by the real property and an
assignment of rents.
Provisions of the working capital loan are identical to those of the Phase I
Industrial Revenue Bonds.
The Series 1989 A and Series 1989 B Industrial Revenue Bonds are held by Union
Planters National Bank and bear interest at 9.5% and 10%, respectively. Interest
on the Series 1989 A Bonds is payable on April 1 and October 1 of each year and
the bonds mature on October 1, 2019. Principal and interest on the Series 1989
B Bonds is due on April 1 and October 1 of each year with final payment due on
April 1, 2019.
Aggregate maturities of the Series B Industrial Revenue Bonds for the five years
subsequent to December 31, 1994, are as follows:
December 31, December 31, December 31, December 31, December 31,
1995 1996 1997 1998 1999
$ 68,000 $ 78,000 $ 88,000 $ 85,000 $ 101,000
Interest expense for Phase I and Phase II totaled $1,647,118 and $952,036,
respectively, for 1994, $1,510,031 and $941,990, respectively, for 1993 and
$1,510,031 and $924,874, respectively, for 1992.
PROPERTY TAXES
The partnership is required to pay only a minimal amount of property taxes
because it received a tax abatement on most of its property taxes through 2001.
RELATED PARTY TRANSACTIONS
Transactions and outstanding balances with partners are summarized as follows:
1994 1993 1992
Accounts Receivable $ 11,676 $ 27,623 $ 2,447
Management Fee Expense $ 117,811 $ 114,522 $ 109,279
Accrued Management Fees $ - $ - $ 9,490
Development Fee Payable $ - $ 90,582 $ 289,750
Accounts Receivable - Phase II $ 64,964 $ 115,173 $ 21,146
Management Fee Expense - Phase II $ 52,125 $ 49,001 $ 41,465
Accrued Management Fees - Phase II $ - $ - $ 3,940
Capital Contribution $ - $ - $ 502,130
Management fees are paid to the managing partner for services rendered based on
a percentage of revenue.
The development fee payable is to be paid when all aspects of the Phase I
Development are formally completed. During 1993, the partnership paid $199,168
of the fee to the developer and the remaining $90,582 was payable at
year end. During 1994, the remaining fee of $90,582 was paid.
During 1992, an additional capital contribution was made by the general partner
from proceeds of a life insurance policy and was paid in accordance with a
guarantee agreement for Phase II.
CONTINGENCY
The partnership is a defendant in a lawsuit filed by the trustee of the 1989
Series A and B Industrial Revenue Bonds. The suit was filed to enforce guaranty
agreements signed by the general partner and managing general partner. It
is the trustee's position that the guarantors should be required to replenish
monies used from the debt service fund. The partnership contends that the
guaranty has expired and there is no obligation on the part of the guarantors to
replenish the funds paid by the trustee from the debt service reserve fund. If
the suit is decided in favor of the plaintiff, management and counsel estimate
he judgment against the partnership and general partner would not exceed
$525,000.
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
AUCTION STREET ASSOCIATES LIMITED PARTNERSHIP
COMBINING BALANCE SHEET
December 31, 1994
Combined
After
Phase I Phase II Eliminations
ASSETS
Property and Equipment, net $ 11,441,633 $ 5,603,835 $ 17,045,468
Cash and Cash Equivalents 595,597 887,533 1,483,130
Due from Phase II 11,059 - -
Tenant Receivables 1,779 5,356 7,135
Partner Receivables 11,676 64,964 76,640
Prepaid Insurance 7,386 1,846 9,232
Intangibles, net 304,807 497,799 802,606
------------ ----------- ------------
TOTAL ASSETS $ 12,373,937 $ 7,061,333 $ 19,424,211
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Notes Payable $ 19,175,000 $ 9,129,000 $ 28,304,000
Accounts Payable 10,753 3,347 14,100
Accrued Interest 262,923 1,171,582 1,434,505
Other Accrued Expenses 3,695 - 3,695
Due to Phase I - 11,059 -
Tenant Security Deposits 103,833 44,515 148,348
Rents Received in Advance 16,748 5,975 22,723
------------ ----------- ------------
Total Liabilities 19,572,952 10,365,478 29,927,371
PARTNERS' DEFICIT ( 7,199,015)( 3,304,145) (10,503,160)
TOTAL LIABILITIES AND ------------ ----------- ------------
PARTNERS' DEFICIT $ 12,373,937 $ 7,061,333 $ 19,424,211
<PAGE>
AUCTION STREET ASSOCIATES LIMITED PARTNERSHIP
COMBINING BALANCE SHEET
December 31, 1993
Combined
After
Phase I Phase II Eliminations
ASSETS
Property and Equipment, net $ 11,960,060 $ 5,781,484 $ 17,741,544
Cash and Cash Equivalents 517,519 827,102 1,344,621
Due from Phase II 57,977 - -
Tenant Receivables 3,403 2,526 5,929
Partner Receivables 27,623 115,173 142,796
Intangibles, net 357,060 605,034 962,094
------------ ----------- ------------
TOTAL ASSETS $ 12,923,642 $ 7,331,319 $ 20,196,984
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Notes Payable $ 19,175,000 $ 9,129,000 $ 28,304,000
Accounts Payable 10,210 8,520 18,730
Partner Payables 90,582 - 90,582
Accrued Interest 125,835 942,496 1,068,331
Other Accrued Expenses 180 - 180
Due to Phase I - 57,977 -
Tenant Security Deposits 95,204 41,228 136,432
Rents Received in Advance 8,139 2,421 10,560
------------ ----------- ------------
Total Liabilities 19,505,150 10,181,642 29,628,815
PARTNERS' DEFICIT ( 6,581,508)( 2,850,323) ( 9,431,831)
TOTAL LIABILITIES AND ------------ ----------- ------------
PARTNERS' DEFICIT $ 12,923,642 $ 7,331,319 $ 20,196,984
<PAGE>
AUCTION STREET ASSOCIATES LIMITED PARTNERSHIP
COMBINING STATEMENT OF OPERATIONS
Year Ended December 31, 1994
Phase I Phase II Total
REVENUES
Gross Rent Potential $ 2,401,569 $ 1,008,895 $ 3,410,464
Convenience Store Income - 6,303 6,303
Less: Vacancies 54,978 30,151 85,129
Quarters Allowance 9,163 4,221 13,384
Model 14,365 - 14,365
Net Rental Income 2,323,063 980,826 3,303,889
Other 78,599 41,633 120,232
----------- ----------- -----------
2,401,662 1,022,459 3,424,121
OPERATING EXPENSES
Payroll and Related Expenses 153,469 64,641 218,110
Administrative 66,223 40,383 106,606
Real Estate Taxes and Insurance 27,279 7,551 34,830
Management Fee 117,811 52,125 169,936
Advertising and Promotion 16,058 6,674 22,732
Utilities 77,699 32,754 110,453
Repairs and Maintenance 14,818 2,666 17,484
Supplies 56,460 20,649 77,109
Services 71,931 27,244 99,175
---------- ----------- -----------
601,748 254,687 856,435
OPERATING INCOME 1,799,914 767,772 2,567,686
OTHER INCOME (EXPENSE)
Depreciation ( 589,147) ( 193,502) ( 782,649)
Amortization ( 52,253) ( 107,235) ( 159,488)
Servicing Fee ( 143,812) - ( 143,812)
Interest Expense (1,647,118) ( 952,036) (2,599,154)
Interest Income 14,909 31,179 46,088
----------- ----------- -----------
(2,417,421) (1,221,594) (3,639,015)
----------- ----------- -----------
NET LOSS $( 617,507)$( 453,822) $(1,071,329)
<PAGE>
AUCTION STREET ASSOCIATES LIMITED PARTNERSHIP
COMBINING STATEMENT OF OPERATIONS
Year Ended December 31, 1993
Phase I Phase II Total
REVENUES
Gross Rent Potential $ 2,347,606 $ 990,972 $ 3,338,578
Convenience Store Income - 9,100 9,100
Less:
Vacancies 93,159 46,363 139,522
Quarters Allowance 9,778 3,493 13,271
Model 13,760 - 13,760
Net Rental Income 2,230,909 950,216 3,181,125
Other 66,613 34,449 101,062
----------- ----------- -----------
2,297,522 984,665 3,282,187
OPERATING EXPENSES
Payroll and Related Expenses 149,093 61,366 210,459
Administrative 61,914 53,091 115,005
Real Estate Taxes and Insurance 37,387 12,099 49,486
Management Fee 114,522 49,001 163,523
Advertising and Promotion 15,976 6,192 22,168
Utilities 75,656 30,608 106,264
Repairs and Maintenance 21,622 18,877 40,499
Supplies 45,568 21,514 67,082
Services 78,147 29,989 108,136
----------- ----------- -----------
599,885 282,737 882,622
OPERATING INCOME 1,697,637 701,928 2,399,565
OTHER INCOME (EXPENSE)
Depreciation ( 584,080) ( 196,325) ( 780,405)
Amortization ( 71,137) ( 107,235) ( 178,372)
Servicing Fee ( 143,813) - ( 143,813)
Interest Expense (1,510,031) ( 941,990) (2,452,021)
Interest Income 17,736 23,890 41,626
----------- ----------- -----------
(2,291,325) (1,221,660) (3,512,985)
----------- ----------- -----------
NET LOSS $( 593,688)$( 519,732) $(1,113,420)
<PAGE>
AUCTION STREET ASSOCIATES LIMITED PARTNERSHIP
COMBINING STATEMENT OF OPERATIONS
Year Ended December 31, 1992
Phase I Phase II Total
REVENUES
Gross Rent Potential $ 2,292,601 $ 977,574 $ 3,270,175
Convenience Store Income - 8,062 8,062
Less: Vacancies 137,182 97,851 235,033
Concessions 17,382 1,671 19,053
Quarters Allowance 7,759 7,620 15,379
Model 13,560 - 13,560
Net Rental Income 2,116,718 878,494 2,995,212
Other 82,202 25,424 107,626
----------- ----------- -----------
2,198,920 903,918 3,102,838
OPERATING EXPENSES
Payroll and Related Expenses 161,094 67,940 229,034
Administrative 57,075 33,069 90,144
Real Estate Taxes and Insurance 27,700 21,055 48,755
Management Fee 109,279 41,465 150,744
Advertising and Promotion 17,743 7,219 24,962
Utilities 72,652 28,458 101,110
Repairs and Maintenance 12,270 9,920 22,190
Supplies 34,919 18,601 53,520
Services 84,025 34,956 118,981
----------- ----------- -----------
576,757 262,683 839,440
OPERATING INCOME 1,622,163 641,235 2,263,398
OTHER INCOME (EXPENSE)
Depreciation ( 574,874) ( 203,344) ( 778,218)
Amortization ( 90,020) ( 107,235) ( 197,255)
Servicing Fee ( 155,797) - ( 155,797)
Interest Expense (1,510,031) ( 924,874) (2,434,905)
Interest Income 28,590 25,617 54,207
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(2,302,132) (1,209,836) (3,511,968)
----------- ----------- -----------
NET LOSS $( 679,969)$( 568,601) $(1,248,570)
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AUCTION STREET ASSOCIATES LIMITED PARTNERSHIP
SCHEDULES OF PROJECT CASH FLOW FOR PHASE I
Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
SOURCES OF CASH
Cash Received from Tenants $ 2,420,295 $ 2,297,354 $ 2,209,370
Interest Received 14,909 17,736 28,590
Draws from Reserves - 185,867 137,282
Net Phase II Collections 46,918 - 32,339
Net Partner Collections 15,947 - -
----------- ----------- -----------
2,498,069 2,500,957 2,407,581
USES OF CASH
Operating Expenses Paid 748,657 755,727 776,837
Debt Service 1,510,031 1,510,031 1,510,031
Net Partner Advances - 25,176 2,447
Net Phase II Advances - 27,416 -
Additions to Reserves 62,291 - -
----------- ----------- -----------
2,320,979 2,318,350 2,289,315
Project Cash Flow 177,090 182,607 118,266
OTHER USES (SOURCES) OF CASH
Capital Expenditures 70,720 45,035 55,611
Uses of Reserves ( 62,291) 185,867 137,282
Development Fee Payment 90,582 199,168 -
99,011 430,070 192,893
----------- ----------- -----------
INCREASE (DECREASE) IN CASH $ 78,079 $( 247,463) $( 74,627)
