UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
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
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.
<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.
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>
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
------------ ------------ --------------
Net operating income 7,878 6,905 5,908
Depreciation 2,988 2,788 2,434
------------ ------------ --------------
Net 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
------------ ------------ --------------
Net operating income 3,525 2,131 2,021
Depreciation 1,518 1,063 1,056
------------ ------------ --------------
Net 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
=============
