UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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
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(State of organization) (I.R.S. Employer Identification No.)
218 North Charles Street, Suite 500, Baltimore, Maryland 21201
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 962-0595
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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 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>
DOCUMENTS INCORPORATED BY REFERENCE
Part of the Document Incorporated by
Form 10-K Reference
----------- -----------------------------------------------------
I. Pages 25-30 of the Series I Prospectus of the
Registrant dated June 3, 1986 (the "Prospectus") filed
with the Commission pursuant to Rule 424(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).
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.
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.
Page 4 of the 1987 Form 10-K filed with the
Commission on March 30, 1988.
Pages 10-16 of the 1987 Annual Report to Investors.
Page 4 of the 1988 Form 10-K filed with the
Commission on March 31, 1989.
Page A-18 of the 1988 Form 10-K filed with the
Commission on March 31, 1989.
Page A-25 and A-26 of the 1989 Form 10-K filed with
the Commission on April 2, 1990.
Page A-23 through A-25 of the 1990 Form 10-K filed
with the Commission on April 1, 1991.
Page A-27 and A-28 of the 1991 Form 10-K filed with
the Commission on March 30, 1992.
Page A-36 and A-37 of the 1992 Form 10-K filed with
the Commission on March 30, 1993.
III. Pages 15-17 and 49-52 of the Prospectus.
<PAGE>
PART I
ITEM 1. BUSINESS.
Description of Business
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 Partnership was organized for the
purpose of acquiring a portfolio of tax exempt mortgage revenue
bonds issued by various state or local governments or their agencies
or authorities. The portfolio is made up of two distinct pools of
investments ("Series I and Series II"). The Partnership separately
reports the operating activity of each series by preparing separate
financial statements. SCA Realty I, Inc. is the .1% Managing General
Partner and SCA Associates 86 Limited Partnership is the .99%
Associate General Partner (collectively, the "General Partners").
The only business of the Partnership is investing in mortgage
revenue bonds. As discussed more fully herein, the Partnership has
acquired 23 mortgage revenue bonds utilizing the proceeds of its
public offering. The Partnership continues to adhere to its investment
objectives and policies as described at pages 25-30 of the Prospectus
under the caption "Business Objectives and Investment Policies,"
which is incorporated herein by reference. A general description of
the mortgage revenue bonds, a summary of the mortgage revenue
bonds owned by the Partnership, and more complete descriptions of
the specific mortgage revenue bonds together with the underlying
mortgaged properties are set forth within the following documents
which descriptions are incorporated by reference herein:
Pages S-3 to S-10 of the Supplement to the
Prospectus dated June 3, 1986
Pages 2-3 and 6-9 of the Supplement to the
Prospectus dated October 6, 1986
Pages 2-8, 10-13 and 14-18 of the Supplement to the
Prospectus dated November 28, 1986
Page 4 of the 1987 Form 10-K filed with the
Commission on March 30, 1988
Pages 10-16 of the 1987 Annual Report to Investors
Page 4 of the 1988 Form 10-K filed with the
Commission on March 31, 1989.
In addition, certain information with respect to the mortgage
revenue bonds, and the properties securing the mortgage revenue
bonds, is set forth herein.
In order to provide loan funds for transaction costs which
could not be covered within the tax-exempt mortgage revenue bonds
due to changes contained in the Tax Reform Act of 1986, the
Partnership has used a small portion of BAC proceeds, approximately
1% in Series I and 3% in Series II, to provide taxable working capital
loans to the developers of mortgaged properties. Each of the original
working capital loans is payable on the same terms and conditions as
the corresponding mortgage revenue bonds, but interest on the
working capital loans is taxable and results in a portion of the income
to be realized by the BAC Holders being included in their gross
income for federal income tax purposes.
During 1988, as a result of workout negotiations initiated by
the borrowing entity, an affiliate of the Managing General Partner
received the deed to the Barkley Place property in lieu of the
Partnership pursuing foreclosure actions against the borrower. A
discussion of this transaction is described at page A-18 of the 1988
Form 10-K filed with the Commission on March 31, 1989, and is
included herein by reference.
During 1989, the borrowing entities for both the Montclair and
the Newport Village properties initiated workout negotiations with the
Partnership due to various circumstances. These negotiations resulted
in the transfer of the properties' deeds to affiliates of the Managing
General Partner in lieu of foreclosure by the Partnership. A discussion
of these transactions is included on pages A-25 and A-26 of 1989
Form 10-K filed with the Commission on April 2, 1990 and is included
herein by reference.
In September 1989, just prior to the occurrence of a monetary
default, the borrower for the Steeplechase Falls project declared
bankruptcy. The Managing General Partner took appropriate steps to
protect the Partnership's interest in this property, and on March 18,
1993 negotiated terms of a transfer of deed-in-lieu of foreclosure. A
discussion of this transaction is included on page A-36 of 1992 Form
10-K filed with the Commission on March 30, 1993 and is included
herein by reference.
In May 1990, the Managing General Partner and the original
borrowers of Gilman Meadows, Mallard Cove I and Mallard Cove II
entered into an agreement that provided for an affiliate of the
Managing General Partner to assume management of the properties
and for the borrowers to grant deeds-in-lieu of foreclosure to affiliates
of the Managing General Partner. A discussion of these transactions
is included on page A-37 of the 1992 Form 10-K filed with the
Commission on March 30, 1993 and is included herein by reference.
During 1990 the Managing General Partner entered into
negotiations with St. Louis Park Housing Partners, the borrowing
partnership for Newport on Seven, a Series I property. These
negotiations were concluded in 1991 and are discussed on page A-28
of 1991 Form 10-K filed with the Commission on March 30, 1992
which is included herein by reference.
In December 1990, the Managing General Partner had an
affiliate accept the deed to the Nicollet Ridge property in lieu of the
Partnership pursuing foreclosure actions against the borrower. This
action resulted after a series of actions taken against the borrower
when the property came into monetary default. A discussion of these
transactions is included on pages A-24 and A-25 of 1990 Form 10-K
filed with the Commission on April 1, 1991 and is included herein by
reference.
In March 1991, at the request of the Managing General
Partner, a receiver was appointed by the court to take control of the
Creekside property from the original borrower. On February 9, 1994,
an affiliate of the Managing General Partner received the deed to the
Creekside property in lieu of the Partnership pursuing foreclosure
actions against the borrower. A more complete discussion of this
transaction is set forth in Note 4 to the financial statements included
herein.
In August 1991, the borrowing partnership for The Meadows
was declared in default for failure to pay its full base interest. After
subsequent workout discussions, the borrower transferred the deed to
the property to an affiliate of the Managing General Partner on March
2, 1992. A more complete discussion of this property is included on
page A-28 of the 1991 Form 10-K filed with the Commission on
March 30, 1992 and is included herein by reference.
In September 1991, the borrowing partnerships for North
Pointe (formerly Shandin Hills) and Whispering Lake were declared
in default for failure to pay their full base interest. After the guarantor
for each property indicated its inability to fully fund on a current basis
the operating deficits for either property, the Managing General
Partner entered into workout discussions with the guarantor and
respective borrowers. As a result of these negotiations, settlement
agreements were executed with the guarantor and respective
borrowers for each property. A more complete discussion of these
transactions are included as set forth on pages A-36 and A-37 of the
1992 Form 10-K filed with the commission on March 30, 1993 and is
included herein by reference.
During 1993, the borrowing partnerships for Willowgreen and
Hamilton Chase were declared in default for failure to pay the full base
interest, and the guarantors were unable to fully fund the deficit.
Therefore, the Managing General Partner entered into workout
discussions with the guarantors and respective borrowers. On
February 24, 1994, an agreement was reached whereby an affiliate of
the Managing General Partner replaced the managing general partner
of the original borrowing partnership for the Hamilton Chase
property. The amended partnership agreement was executed on June
13, 1994 thus completing the workout negotiations. On November
21, 1994 the deed to Willowgreen was transferred to an affiliate of the
Managing General Partner in lieu of foreclosure by the Partnership.
A more complete discussion of these properties is set forth in Note 4
to the financial statements included herein.
During 1994, property level reserves on Lakeview Gardens
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.
The Managing General Partner has the authority to extend
additional working capital loans to borrowers out of undistributed
income and, where available, Partnership reserves. The interest paid
on all such working capital loans is fully taxable. The Managing
General Partner evaluates requests for working capital loans on a
case-by-case basis, considering economic necessity in covering
project operating expenses (excluding debt service) or capital
improvements. Interest on additional working capital loans is payable
at a maximum rate of 8% per annum.
Prior to 1992, the Managing General Partner extended
additional working capital loans totalling $1,254,592 to the Montclair
and Barkley Place for the purpose of covering the operating deficits
before debt service of each project. No additional working capital
loans to cover operating deficits before debt service were made to any
property since 1991.
Currently, the Managing General Partner anticipates making
no additional working capital loans to any properties since all
properties are now able to fully pay their operating expenses out of
operational cash flow. The Managing General Partner has the ability
to make loans to cover deficits from debt service but, to date, has not
found it in the Partnership's best interest to do so.
The Managing General Partner is responsible for a full range
of loan servicing and asset management functions for each property
whose mortgage revenue bonds are held by the Partnership. A
monthly debt service collections system provides the Managing
General Partner with the ability to monitor the timely receipt of all
debt service payments and to promptly notify a Borrower of any
delinquency, deficiency or default. An extensive reporting system
allows the Managing General Partner to review and analyze the
revenue, expenses and leasing activity of each property on a monthly
basis. In addition, the Managing General Partner inspects each
property and market area at least once a year.
The loan servicing and asset management oversight is designed
to allow the Managing General Partner the ability to track the
performance of each property and to alert the Managing General
Partner of potential problems. While actions will vary depending upon
the nature of an individual problem, the Managing General Partner
generally notifies the Borrower of any problems or concerns and
recommends corrective action.
The Partnership responds to defaults on mortgage revenue
bonds on a case-by-case basis, attempting, in all instances, to structure
a resolution that is in the best interests of the Partnership. After
sending requisite default notices, discussions with the developer are
typically commenced. In the event that the Managing General Partner
determines that the developer remains committed to the project and
capable of successful operations, a workout or other forbearance
arrangement may be negotiated. Where the Managing General
Partner determines successful operations with the current developer
are not feasible, foreclosure proceedings, or negotiation of the transfer
of a deed-in-lieu of foreclosure may be undertaken. To facilitate rapid
transfer of a problem property and to preserve the tax-exempt status
of the bonds, a limited partnership with SCA Successor, Inc. ("New
Borrowers"), an affiliate of the Managing General Partner, as general
partner is typically designated to accept the deed-in-lieu of
foreclosure. New Borrowers accept the deed-in-lieu of foreclosure
subject to all of the terms of the original loan transaction as set forth
in the loan agreement and bond indenture except for the obligations
under the limited operating deficit guarantees. In the absence of
operating deficit guarantees, the Partnership may face additional risk
from operations with respect to properties for which the New
Borrowers have accepted a deed-in-lieu of foreclosure. This may
require subsidies from Partnership reserves to cover potential
operating deficits before debt service. The Partnership does not
currently anticipate that any such operating deficits before debt service
will occur.
Employees
The Partnership does not have any employees. Services are
performed for the Partnership by the Managing General Partner and
agents retained by it.
Property Performance
The portfolio of 23 bonds held by the Partnership is structured
to pay distributions from base and contingent interest payments made
by the borrowers. At the end of 1994, aggregate occupancy in Series
I properties was 92.1%, down from 93.8% a year ago. At the end of
1994, aggregate occupancy in all Series II properties was 95.5%,
having increased from 93.4% in 1993. At the end of 1994 aggregate
occupancy in retirement and elderly properties was 95.6%, having
decreased from 98.2% in 1993. Aggregate Series I and II occupancy
at the end of 1994 was 93.3% having decreased from 93.7% in 1993.
Due to a variety of factors including the favorable investment
climate for rental real estate in the early 1980s, the ready availability
of financing from thrifts and institutional lenders, and the decision of
many developers to take advantage of favorable tax treatment for
rental properties, unanticipated over building of apartments occurred
during the late 1980's in many localities throughout the country. This
oversupply affected a number of the markets in which the
Partnership's investments are located. Where this condition existed,
there was, until recently, an inability to raise rents as originally
anticipated because of the considerable competition. In addition, the
general economic recession that occurred in 1990 and continued into
1992 compounded the problems created by an oversupply of
apartment units in some markets. Consequently, the net cash flow
from most of the properties has been insufficient to pay the base
interest due causing the Managing General Partner to draw funds from
project level sources such as reserves and guarantees or to declare a
monetary default and initiate loan workout discussions in instances
where no project level sources existed.
The large capital base of the Partnership has permitted
potential risk to be spread over a relatively large number of
acquisitions to provide some protection against unanticipated
problems with a few properties. The diversity in the geographic
locations of the Partnership's properties also provides some protection
against regional economic difficulties which may impact a single
property's performance. Construction starts for new apartment units
have declined significantly throughout the United States since the mid
1980's and fell to a record low in 1993. This decline in new
construction and the economic recovery are bringing about tightening
markets, stabilized and higher occupancies and an ability to realize
greater rent increases.
Investment Summary, Series I and Series II
Certain information with respect to the income from mortgage
revenue bonds as of December 31, 1994, including Base Interest due
and paid, the source of such payments, as well as revenue and expense
information, is set forth in the Table below. The information set forth
in the table is presented by Series followed by specific property
discussions. The general loan terms for each property are set forth in
Note 3 to the financial statements included herein.
Total Expenditures as referred to in the specific property
descriptions includes normal operating expenses (excluding
depreciation) plus escrows for real estate taxes and insurance, reserve
for replacement payments, bond issuer fees and capital improvements.
<PAGE>
<TABLE>
<CAPTION>
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| | | | | Total | Total | Total | Total |
Mortgaged | | | Occupancy | Occupancy | Operating | Operating | Operating | Operating |
Property Name & | Loan | Total | as of | as of | Revenues | Revenues |Expenses (1)|Expenses (1)|
Location | Amount | Units | 12/31/94 | 12/31/93 | 1994 | 1993 | 1994 | 1993 |
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERIES I | | | | | | | | |
Alban Place | 10,500,000 | 194 | 95.4%| 84.5%| 1,547,418 | 1,512,512 | 778,511 | 708,662 |
Frederick, MD | | | | | | | | |
Barkley Place | 9,630,000 | 156 | 94.9%| 99.4%| 2,798,059 | 2,613,722 | 1,919,862 | 1,825,430 |
Fort Myers, FL | | | | | | | | |
Creekside Village | 11,985,000 | 296 | 94.6%| 97.3%| 1,561,986 | 1,456,971 | 868,484 | 786,094 |
Sacramento, CA | | | | | | | | |
Lakeview Garden | 9,307,500 | 180 | 95.0%| 91.6%| 1,173,594 | 1,289,600 | 581,569 | 510,970 |
Dade County, FL | | | | | | | | |
The Montclair | 15,465,000 | 159 | 98.1%| 98.7%| 2,438,140 | 2,269,415 | 1,294,108 | 1,191,224 |
Springfield, MO | | | | | | | | |
Newport Village | 10,880,000 | 220 | 98.2%| 95.9%| 1,457,545 | 1,353,964 | 831,817 | 773,299 |
Thornton, CO | | | | | | | | |
Newport on Seven | 10,800,000 | 167 | 98.2%| 97.6%| 1,439,834 | 1,367,704 | 845,979 | 859,945 |
St. Louis Park, MN| | | | | | | | |
Nicollet Ridge | 20,340,000 | 339 | 99.1%| 93.8%| 2,612,751 | 2,609,549 | 1,726,567 | 1,675,017 |
Burnsville, MN | | | | | | | | |
North Pointe | 25,850,000 | 540 | 70.6%| 87.2%| 2,803,023 | 2,721,534 | 1,978,376 | 2,180,432 |
San Bernardino, CA| | | | | | | | |
Northridge Park II | 8,950,000 | 128 | 94.5%| 89.1%| 975,723 | 991,756 | 430,181 | 382,779 |
Salinas, CA | | | | | | | | |
Riverset Apartments | 6,535,000 | 120 | 96.6%| 97.4%| 823,357 | 789,040 | 292,391 | 259,554 |
Memphis, TN | | | | | | | | |
Steeplechase Falls | 18,100,000 | 450 | 94.2%| 95.6%| 2,807,188 | 2,620,397 | 1,439,620 | 1,300,929 |
Knoxville, TN | | | | | | | | |
Villa Hialeah | 10,250,000 | 245 | 95.1%| 100.0%| 1,729,566 | 1,657,948 | 975,652 | 917,967 |
Hialeah, FL | | | | | | | | |
Willowgreen | 9,450,000 | 241 | 96.7%| 93.4%| 1,376,104 | 1,320,674 | 763,801 | 727,511 |
Fife, WA | | | | | | | | |
---------------------------------------------------------------|--------------|----------------------------------------------------
TOTALS: | 178,042,500 | 3,435 |--------------|--------------| 25,544,288 |24,574,786 | 14,726,918 | 14,099,813 |
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
| | | 1994 | 1994 | 1994 |
Mortgaged | 1994 | 1994 |Base Interest |Base Interest | Paid From |
Property Name & |Base Interest|Base Interest| Paid From | Paid From |Other Sources|
Location | Due ($) |Paid ($) (2) |Operations ($)| Reserves ($) |Guarantors($)|
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SERIES I | | | | | |
Alban Place | 826,875 | 826,875 | 826,875 | 0 | 0 |
Frederick, MD | | | | | |
Barkley Place | 770,404 | 912,373 | 912,373 | 0 | 0 |
Fort Myers, FL | | | | | |
Creekside Village | 898,875 | 877,056 | 742,757 | 0 | 134,299 |
Sacramento, CA | | | | | |
Lakeview Garden | 721,331 | 659,595 | 551,119 | 108,476 | 0 |
Dade County, FL | | | | | |
The Montclair | 1,217,868 | 1,211,332 | 1,203,832 | 0 | 7,500 |
Springfield, MO | | | | | |
Newport Village | 856,800 | 649,832 | 639,692 | 0 | 10,140 |
Thornton, CO | | | | | |
Newport on Seven | 877,500 | 597,611 | 597,611 | 0 | 0 |
St. Louis Park, MN| | | | | |
Nicollet Ridge | 1,601,775 | 912,202 | 912,202 | 0 | 0 |
Burnsville, MN | | | | | |
North Pointe | 2,035,688 | 1,017,271 | 922,468 | 0 | 94,803 |
San Bernardino, CA| | | | | |
Northridge Park II | 671,250 | 671,250 | 560,053 | 0 | 111,197 |
Salinas, CA | | | | | |
Riverset Apartments | 514,631 | 514,631 | 507,693 | 2,974 | 3,964 |
Memphis, TN | | | | | |
Steeplechase Falls | 1,425,375 | 1,353,755 | 1,353,755 | 0 | 0 |
Knoxville, TN | | | | | |
Villa Hialeah | 807,188 | 807,180 | 750,180 | 57,000 | 0 |
Hialeah, FL | | | | | |
Willowgreen | 756,000 | 637,105 | 637,105 | 0 | 0 |
Fife, WA | | | | | |
--------------------------------------------------------------------------------------------|
TOTALS: | 13,981,560 | 11,648,068 | 11,117,715 | 168,450 | 361,903 |
---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
| | | | | Total | Total | Total | Total |
Mortgaged | | | Occupancy | Occupancy | Operating | Operating | Operating | Operating |
Property Name & | Loan | Total | as of | as of | Revenues | Revenues |Expenses (1)|Expenses (1)|
Location | Amount | Units | 12/31/94 | 12/31/93 | 1994 | 1993 | 1994 | 1993 |
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERIES II | | | | | | | | |
Emerald Hills | 7,250,000 | 130 | 98.5%| 93.1%| 1,025,241 | 958,089 | 498,827 | 493,503 |
Issaquah, WA | | | | | | | | |
Gilman Meadows | 7,100,000 | 125 | 93.6%| 90.4%| 1,024,228 | 937,916 | 504,411 | 556,368 |
Issaquah, WA | | | | | | | | |
Hamilton Chase | 13,975,000 | 300 | 90.0%| 95.7%| 1,942,885 | 1,962,883 | 1,175,811 | 851,657 |
Chattanooga, TN | | | | | | | | |
Mallard Cove I | 2,610,000 | 63 | 95.2%| 93.7%| 356,864 | 342,076 | 244,566 | 237,562 |
Everett, WA | | | | | | | | |
Mallard Cove II | 6,740,000 | 135 | 95.6%| 91.9%| 884,739 | 848,729 | 551,307 | 489,239 |
Everett, WA | | | | | | | | |
The Meadows | 7,200,000 | 200 | 99.5%| 95.6%| 1,126,260 | 1,054,959 | 584,075 | 552,784 |
Memphis, TN | | | | | | | | |
Riverset Apartments | 12,640,000 | 232 | 96.6%| 97.4%| 1,592,597 | 1,526,224 | 565,564 | 502,048 |
Memphis, TN | | | | | | | | |
Southfork Village | 10,550,000 | 200 | 98.5%| 96.5%| 1,673,077 | 1,612,042 | 882,967 | 821,816 |
Lakeville, MN | | | | | | | | |
Whispering Lake | 18,190,000 | 384 | 95.3%| 88.3%| 2,037,730 | 1,933,572 | 1,052,173 | 1,176,884 |
Kansas City, MO | | | | | | | | |
---------------------------------------------------------------|--------------|----------------------------------------------------
TOTALS: | 86,255,000 | 1,769 |--------------|--------------| 11,663,621 |11,176,490 | 6,059,701 | 5,681,861 |
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
| | | 1994 | 1994 | 1994 |
Mortgaged | 1994 | 1994 |Base Interest |Base Interest | Paid From |
Property Name & |Base Interest|Base Interest| Paid From | Paid From |Other Sources|
Location | Due ($) |Paid ($) (2) |Operations ($)| Reserves ($) |Guarantors($)|
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SERIES II | | | | | |
Emerald Hills | 561,875 | 561,875 | 543,750 | 18,125 | 0 |
Issaquah, WA | | | | | |
Gilman Meadows | 568,000 | 520,027 | 515,282 | 0 | 4,745 |
Issaquah, WA | | | | | |
Hamilton Chase | 1,118,000 | 708,993 | 708,993 | 0 | 0 |
Chattanooga, TN | | | | | |
Mallard Cove I | 190,530 | 113,105 | 113,105 | 0 | 0 |
Everett, WA | | | | | |
Mallard Cove II | 545,536 | 336,775 | 336,775 | 0 | 0 |
Everett, WA | | | | | |
The Meadows | 549,000 | 577,908 | 577,908 | 0 | 0 |
Memphis, TN | | | | | |
Riverset Apartments | 995,400 | 995,400 | 981,980 | 5,753 | 7,667 |
Memphis, TN | | | | | |
Southfork Village | 830,813 | 830,813 | 800,813 | 30,000 | 0 |
Lakeville, MN | | | | | |
Whispering Lake | 1,386,987 | 1,153,566 | 924,000 | 0 | 229,566 |
Kansas City, MO | | | | | |
--------------------------------------------------------------------------------------------|
TOTALS: | 6,746,141 | 5,798,462 | 5,502,606 | 53,878 | 241,978 |
---------------------------------------------------------------------------------------------
<FN>
FOOTNOTES:
(1) Total Expenses include normal operating expenses (excluding depreciation)
plus escrows for real estate taxes and insurance, reserve for replacement
payments, servicing fees, bond issuer fees, and capital improvements.
Total Operating Revenues and Total Operating Expenses for 1993 as reported
in this year's annual report may differ from those reported in last year's second
annual report due to revisions to property operating statements or
reclassification of certain expenses.
(2) Base Interest Paid equals, generally, cash receipts from property operations,
property level reserves and other sources during the calendar year. For purposes of
this table, these receipts are compared to base interest due in the same calendar year.
Therefore, the cumulative base interest shortfall for a property may exceed
the shortfall for 1994.
</TABLE>
<PAGE>
<PAGE>
ALBAN PLACE - Frederick, Maryland
Borrower: Alban Place Limited Partnership
General Partner: Arthur S. Lazerow
Alban Place is located on a 19-acre site in the city of Frederick, Maryland.
The property consists of 22 buildings with a total of 194 units. This
family-oriented townhouse community is conveniently located near
shopping and business areas. Schools and day care centers are within
walking distance of the property.
Alban Place continues to be owned by the original borrowing partnership.
1994 1993 1992 1991
-----------------------------------------------------------------------
Total Revenues ($) 1,547,000 1,513,000 1,486,000 1,561,000
% Change from prior year +2.2 +1.8 -4.8 +5.0
-----------------------------------------------------------------------
Total Expenses ($) 779,000 709,000 698,000 778,000
% Change from prior year +9.9 +1.6 -10.3 +15.6
-----------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 827,000 827,000 827,000 827,000
% Change from prior year 0.0 0.0 0.0 -2.2
-----------------------------------------------------------------------
Occupancy @ Year End (%) 95.4 84.5 92.8 81.0
-----------------------------------------------------------------------
Average Occupancy (%) 96.9 95.1 93.3 93.2
Rental Housing Market - The Frederick rental housing market has
remained stable with slight increases in rents and decreased use of rental
concessions. Occupancy has also remained stable and, because mortgage
interest rates rose during the latter half of 1994, the seasonal increase in
vacancy attributable to home buying did not materialize. New
construction in the Frederick market continues to consist of single-family
detached, townhouse and condominium units. To the best of the Managing
General Partner's knowledge, no new rental communities were built in
Frederick in 1994 and no apartment construction is anticipated in 1995.
1994 Property Operating Results - Total revenues increased due to an
increase in average occupancy, small increases in market rents and fewer
rental concessions. Total expenses in 1994 reflect higher utility costs and
capital expenses. Absent these expenses, total expenses increased by only
4%. Operating cash flow continues to support 100% of the debt service
obligation.
<PAGE>
BARKLEY PLACE - Fort Myers, Florida
New Borrower: Barkley Place Limited Partnership
General Partner: SCA Successor, Inc.
Barkley Place is a 156 unit rental retirement community located off of
U.S. Route 42 in the city of Fort Myers. The apartments are in two three-
story elevator buildings which are joined by an activities building. The
property has a full service dining room, kitchen, activities and exercise
rooms, billiard lounge, community room, beauty salon and administrative
offices.
Residents receive one to three meals each day (depending upon their
chosen meal plan), all utilities, weekly maid and linen service, scheduled
transportation, planned activities and 24-hour security and nursing
response. Assisted care services are provided to residents in 30 of the
apartments. Those residents receive all of the above services plus
assistance with daily living activities, medication monitoring and case
management.
The deed to the property was transferred to a SCA Successor, Inc.
controlled partnership in September 1988.
1994 1993 1992 1991
------------------------------------------------------------------------
Total Revenues ($) 2,798,000 2,614,000 2,426,000 2,092,000
%Change from prior year +7.0 +7.7 +16.0 +28.7
------------------------------------------------------------------------
Total Expenses ($) 1,920,000 1,825,000 1,800,000 1,858,000
% Change from prior year +5.2 +1.4 -3.1 +16.3
------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 912,000 772,000 524,000 280,000
% Change from prior year +18.1 +47.3 +87.1 [1]
------------------------------------------------------------------------
Occupancy @ Year End (%) 94.9 99.4 96.8 93.6
------------------------------------------------------------------------
Average Occupancy (%) 97.5 98.1 95.5 90.1
[1] The property paid no debt service from property operations in 1990.
Rental Housing Market - There are three other full service rental
retirement communities similar to Barkley Place in Fort Myers. All were
built in the 1980's and each report high occupancy. Historically, Barkley
has had higher occupancy and market rents than its competitors--a trend
that is expected to continue based on the property's superior reputation in
the market. To the best of the Managing General Partner's knowledge,
there are no comparable properties under construction or planned for the
Fort Myers area. A large property is planned for the submarket to the east
of Fort Myers, with a projected construction start of late 1995 at the
earliest.
1994 Property Operating Results - Total revenues grew as a result of rent
increases for existing residents and increases in the property's market
rents. Market rents were increased approximately 5% in 1994. Total
operating expenses grew at a slightly higher than average rate due to the
completion of several capital improvements. Barkley Place paid its full
debt service obligation from operating cash flow in 1994, as it did in 1993.
<PAGE>
CREEKSIDE VILLAGE - Sacramento, California
New Borrower: Creekside Village Limited Partnership
General Partner: SCA Successor, Inc.
Creekside Village is located on a 17 acre site in Sacramento, California.
The property is conveniently located to Highway 99, a major
thoroughfare. Shopping and medical facilities are within walking distance
of the site. The property consists of two-story garden walkups and three-
story elevator buildings with a total of 296 units. Creekside Village's
amenities include a recreation building with a lounge, kitchen and game
rooms, swimming pool, laundry facilities, covered parking and security
gate system.
In February of 1994 the deed to the property was transferred to a SCA
Successor, Inc. controlled partnership.
1994 1993 1992 1991
--------------------------------------------------------------------------
Total Revenues ($) 1,562,000 1,457,000 1,453,000 1,285,000
% Change from prior year +7.2 +0.3 +13.1 +34.3
--------------------------------------------------------------------------
Total Expenses ($) 868,000 786,000 828,000 858,000
% Change from prior year +10.4 -5.1 -3.5 +55.7
--------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 743,000 693,000 620,000 347,000
% Change from prior year +7.2 +11.8 +78.7 -18.2
--------------------------------------------------------------------------
Occupancy @ Year End (%) 94.6 97.3 93.2 92.9
--------------------------------------------------------------------------
Average Occupancy (%) 97.2 93.5 94.9 84.0
The Rental Market - Creekside Village is designed for seniors age 55 and
older. There are only a few facilities like it in Sacramento, none of which
are located close to Creekside. Creekside's competition in 1994 came
primarily from two sources: a new, subsidized project for seniors located
in the submarket to the north of Creekside and the many family-oriented
apartment properties located nearby. One of these family-oriented
properties is being renovated and converted to "seniors only", but it has
had no negative effect on Creekside. To the best of the Managing General
Partner's knowledge, there are no properties like Creekside currently
under construction or planned for the south Sacramento area in 1995.
The Sacramento rental market showed some improvement in 1994, with
the apartment occupancy rate increasing to about 92% and market rents
increasing about 5%. By comparison, in 1993 the apartment occupancy
rate was 90% and market rents were either flat or declining. Improvement
in the rental market has occurred hand in hand with positive job growth
for the first time in three years, a decline in the unemployment rate and
continued historically low levels of new apartment construction. Only 700
multifamily units were completed in the Sacramento region in 1994.
1994 Property Operating Results - Consistent with the improvement in
the apartment market, Creekside's total revenues increased as a result of
higher occupancy, rent increases for existing residents and a small (about
2%) increase in the property's market rents. Total operating expenses
increased at an above average pace due to large increases in the costs of
utilities and services. As the year ended, Creekside's occupancy was
declining slowly and small concessions were being offered to stimulate
leasing.
<PAGE>
EMERALD HILLS - Issaquah, Washington
Borrower: Axelrod-Emerald Hills Associates Limited Partnership
General Partner: The Axelrod Company
Emerald Hills is located in Issaquah, a suburb 16 miles east of Seattle.
The property consists of two- and three-story garden-style buildings and
townhouses totaling 130 units. Property amenities include underground
and covered parking, a clubhouse with exercise equipment and meeting
rooms and an outdoor spa.
Emerald Hills continues to be owned by the original borrowing
partnership.
1994 1993 1992 1991
---------------------------------------------------------------------------
Total Revenues ($) 1,025,000 958,000 933,000 912,000
% Change from prior year +7.0 +2.7 +2.3 -1.5
---------------------------------------------------------------------------
Total Expenses ($) 499,000 494,000 488,000 504,000
% Change from prior year +1.0 +1.2 -3.2 +12.2
---------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 544,000 460,000 469,000 404,000
% Change from prior year +18.3 -1.9 +16.1 -16.5
---------------------------------------------------------------------------
Occupancy @ Year End (%) 98.5 93.1 89.2 93.9
---------------------------------------------------------------------------
Average Occupancy (%) 98.0 95.8 93.3 90.8
The Rental Market - Apartment construction in King County remained
low again in 1994 with the construction of approximately 1,460 new
apartment units. As in 1993, none of these units were constructed in
Issaquah. However, one 128-unit property began development in late
1994 and is expected to be completed in 1995. Based on the proposed
pricing of its units and proposed amenities, this property is not expected
to be a direct competitor of Emerald Hills. In 1994, the vacancy rate in
King County increased to slightly more than 5%, but declined in the
Issaquah submarket as the units completed in 1992 were absorbed.
According to published sources, the use of rental concessions in this
submarket remained the same as in 1993.
1994 Property Operating Results - Total revenues for the property
increased on the strength of higher average occupancy, elimination of
rental concessions, slightly higher market rents (2.5% increases) and rent
increases for existing residents. Total expenses remained comparable to
the previous year. Debt service payments from operations increased in
1994, minimizing the use of property-level reserves.
<PAGE>
GILMAN MEADOWS - Issaquah, Washington
New Borrower: Gilman Meadows Limited Partnership
General Partner: SCA Successor, Inc.
Gilman Meadows is located in Issaquah, a suburb 16 miles east of Seattle.
The property consists of 19 two-story buildings totaling 125 units.
Property amenities include a swimming pool, a clubhouse with an exercise
room, playground and covered parking.
The deed to the property was transferred to a SCA Successor, Inc.
controlled partnership in July 1992.
1994 1993 1992 1991
---------------------------------------------------------------------------
Total Revenues ($) 1,024,000 938,000 887,000 847,000
% Change from prior year +9.2 +5.7 +4.7 -5.6
---------------------------------------------------------------------------
Total Expenses ($) 504,000 556,000 553,000 536,000
% Change from prior year -9.4 +0.5 +3.2 +13.6
---------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 515,000 411,000 226,000 363,000
% Change from prior year +25.3 +81.9 -37.7 -15.2
---------------------------------------------------------------------------
Occupancy @ Year End (%) 93.6 90.4 91.2 87.2
---------------------------------------------------------------------------
Average Occupancy (%) 92.1 92.5 91.2 86.7
The Rental Market - Apartment construction in King County remained
low again in 1994 with the construction of approximately 1,460 new
apartment units. As in 1993, none of these units were constructed in
Issaquah. However, one 128-unit property began development in late
1994 and is expected to be completed in 1995. Based on the proposed
pricing of its units and proposed amenities, this property is not expected
to be a direct competitor of Gilman Meadows. In 1994, the vacancy rate
in King County increased to slightly more than 5%, but declined in the
Issaquah submarket as the units completed in 1992 were absorbed. The
use of rental concessions in this submarket remained the same as in 1993.
1994 Property Operating Results - Total revenues for the property
increased on the strength of higher average economic occupancy, higher
market rents (2-4% increases depending on unit type), and rent increases
for existing residents. Total expenses decreased compared with 1993
because no major capital improvements were required.
<PAGE>
HAMILTON CHASE - Chattanooga, Tennessee
Borrower: Hamilton Grove Limited Partnership
General Partner: SCA Successor, Inc.
Hamilton Chase is located approximately 13 miles from downtown
Chattanooga. The property consists of 17 two-story garden apartment
buildings totaling 300 units. The property offers a large clubhouse, a
fully-equipped exercise room, racquetball court, jacuzzi, swimming pool
and a jogging trail circling the site.
Control of the Hamilton Grove Limited Partnership and the property was
achieved when SCA Successor, Inc. replaced the general partner of the
borrower in June 1994. This action was taken as a result of the borrower's
failure to pay its full debt service obligation. Since assuming control of
the property, several physical improvements have been initiated to
improve its marketability.
1994 1993 1992 1991
--------------------------------------------------------------------------
Total Revenues ($) 1,943,000 1,963,000 1,923,000 1,810,000
% Change from prior year -1.0 +2.1 +6.2 +4.4
--------------------------------------------------------------------------
Total Expenses ($) 1,176,000 852,000 762,000 873,000
% Change from prior year +38.0 +11.8 -12.7 -7.5
--------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 709,000 948,000 1,089,000 918,000
% Change from prior year -25.2 -12.9 +18.6 +8.4
--------------------------------------------------------------------------
Occupancy @ Year End (%) 90.0 95.7 94.0 95.7
--------------------------------------------------------------------------
Average Occupancy (%) 93.2 94.7 95.8 93.1
Rental Housing Market - The construction of new rental units in the
Chattanooga region has been limited to small townhouse developments
which, due to a soft market, were converted to rental properties. To the
best of the Managing General Partner's knowledge, no new construction
of multi-family rental units is anticipated in 1995. Despite the lack of any
new apartment construction in 1994, average occupancy and market rental
rates remained stable in the region.
1994 Property Operating Results - Total revenues decreased slightly
from the previous year due to an increase in vacancy in the latter half of
1994. The large increase in expenses is attributable to an additional
$216,000 in real estate taxes (unpaid from 1993), capital improvements,
and certain non-recurring administrative costs.
<PAGE>
LAKEVIEW GARDEN APARTMENTS - Dade County, Florida
Borrower: Lakeview Garden Apartments Limited Partnership
General Partner: Madick Developers, Inc.
Located south of Miami, in the Saga Bay area, Lakeview was built on a
7.8 acre waterfront site. The property consists of 180 units in three four-
story buildings. Lakeview is conveniently located near Burger King's
World Headquarters and a major Dade County office annex. There is easy
access to the Florida Turnpike from the site. Lakeview Apartments offers
one and two bedroom units with kitchen pantries, walk-in closets,
washer/dryer facilities, open balconies and wall-to-wall carpeting.
Amenities include a swimming pool, security gate, volley ball court,
picnic pavilion and covered parking.
Lakeview continues to be owned by the original borrowing partnership;
however, deficits in base interest occurred in the fourth quarter of 1994.
As a result, the Managing General Partner began negotiations to transfer
the deed-in-lieu of foreclosure to a SCA Successor, Inc. controlled
partnership. The transfer of the deed is expected to occur in April of 1995.
1994 1993 1992 1991
--------------------------------------------------------------------------
Total Revenues ($) 1,174,000 1,290,000 1,120,000 1,028,000
% Change from prior year -9.0 +15.2 +8.9 -4.1
--------------------------------------------------------------------------
Total Expenses ($) 582,000 511,000 547,000 464,000
% Change from prior year +13.9 -6.6 +17.9 -2.7
--------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 551,000 721,000 580,000 572,000
% Change from operations -23.6 +24.3 +1.4 -0.7
--------------------------------------------------------------------------
Occupancy @ Year End (%) 95.0 91.6 0.0[1] 84.9
--------------------------------------------------------------------------
Average Occupancy (%) 91.1 [1] [1] 89.4
[1] Due to Hurricane Andrew the property was not occupied for several months in
1992 and 1993.
Rental Housing Market - 1994 was a year of adjustment for the greater
Miami market and the Cutler Ridge/Saga Bay submarket. During 1993,
the greater Miami apartment market and the Cutler Ridge/Saga Bay
submarket were stimulated by Hurricane Andrew (August 1992) as
displaced people, especially homeowners and out-of-town or out-of-state
construction workers, took temporary residence in apartments. Vacant
apartments were hard to find and rents, which had been growing only
slowly, increased very rapidly. Meanwhile, apartment construction
continued at low levels, i.e., at a pace less than one-third the rate of the
late 1980's.
By 1994, most apartments and homes had been restored, homeowners had
returned to their residences and the temporary workers had left the
region, simultaneously creating an increase in apartment supply and a
decrease in apartment demand. These factors plus an upsurge in apartment
construction contributed to a general increase in the apartment vacancy
rate, flat or declining rents and an increase in rental concessions in the
region.
As the year ended, Lakeview was feeling the effects of a soft rental
market. Its occupancy rate was declining and rental concessions were
being widely offered. Although, there were no new apartments under
construction nearby. Lakeview was receiving stiff competition from
several recently renovated projects in the area which benefit from superior
location and access.
1994 Property Operating Results - Total revenues declined due to lower
occupancy and widespread use of rental concessions to stimulate leasing.
Market rents were flat during the year, and minimal rent increases were
passed-on to residents. Total expenses increased due to increased
personnel costs and real estate taxes and insurance. The real estate taxes
were increased after the property was rebuilt and reassessed. Insurance
premiums for South Florida properties have increased following the
Hurricane. As a result of the decline in revenues and increase in expenses,
the property was able to pay only 76.4% of its debt service from property
operations.
<PAGE>
MALLARD COVE - Everett, Washington
New Borrower: Mallard I & II Limited Partnerships
General Partner: SCA Successor, Inc.
Mallard Cove is located on a 9.3-acre site in the Everett submarket, north
of Seattle. Interstate-5 is only minutes from the site, which provides easy
access to Seattle and the Boeing Aircraft Plant in Everett. The property
consists of 198 units in three-story garden style buildings. Project
amenities include a natural lake, swimming pool, exercise room,
community building, jacuzzi and covered parking.
The property (which is divided into two phases of 63 and 135 units) was
acquired through two separate bond issues. Both phases were transferred
to SCA Successor, Inc. controlled partnerships in July 1992.
1994 1993 1992 1991
---------------------------------------------------------------------------
Total Revenues ($) 1,242,000 1,191,000 1,125,000 1,059,000
% Change from prior year +4.3 +5.9 +6.2 -8.6
---------------------------------------------------------------------------
Total Expenses ($) 796,000 727,000 616,000 650,000
% Change from prior year +9.5 +18.0 -5.2 -6.1
---------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 450,000 455,000 418,000 459,000
% Change from prior year -1.1 +8.9 -8.9 +0.7
---------------------------------------------------------------------------
Occupancy @ Year End (%) 95.4 92.4 96.0 87.4
---------------------------------------------------------------------------
Average Occupancy (%) 93.1 91.9 94.0 85.3
The Rental Market - The construction of new apartments in Snohomish
County was again minimal in 1994 with fewer than 300 units completed
in the County. According to published reports, however, five new
properties are anticipated to be constructed in 1995 which could result in
as many as 570 additional rental units in Mallard Cove's submarket. The
vacancy rate in Mallard Cove's submarket remained at 6% in 1994, with
over ninety percent of the apartment properties offering some form of
rental concessions.
1994 Property Operating Results - Total revenues increased on the
strength of small increases in market rents, rent increases to existing
residents and the decreased use of rental concessions, particularly in the
last quarter of 1994. Total expenses increased due to increases in payroll,
utilities and financing costs. Because of these expenses, debt service paid
from operations decreased slightly in 1994.
<PAGE>
THE MEADOWS - Memphis, Tennessee
New Borrower: The Meadows Limited Partnership
General Partner: SCA Successor, Inc.
The Meadows is located on the northeast side of Memphis, approximately
25 miles from downtown Memphis. The property consists of ten two-story
buildings totaling 200 units. The Meadows' amenity package consists of
a swimming pool, whirlpool, tennis courts and clubhouse with tanning
bed, sauna and exercise room. Each apartment is equipped with a
fireplace, ceiling fan, microwave and a hookup for washer/dryers.
The deed to The Meadows was transferred to a SCA Successor, Inc.
controlled partnership in March 1992.
1994 1993 1992 1991
--------------------------------------------------------------------------
Total Revenues ($) 1,126,000 1,055,000 999,000 909,000
% Change from prior year +6.7 +5.6 +9.9 -0.2
--------------------------------------------------------------------------
Total Expenses ($) 584,000 553,000 541,000 491,000
% Change from prior year +5.6 +2.2 +10.2 +12.4
--------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 578,000 528,000 368,000 383,000
% Change from prior year +9.5 +43.4 -3.9 -15.8
--------------------------------------------------------------------------
Occupancy @ Year End (%) 99.5 95.6 94.0 92.0
--------------------------------------------------------------------------
Average Occupancy (%) 98.4 95.6 94.5 90.8
Rental Housing Market - New apartment construction in the Memphis
metropolitan market increased only slightly in 1994. As of 1994 year-
end, a total of 320 apartment units were built in the region. However, an
additional 1,770 units are scheduled for completion in 1995 or 1996. Of
this total, only one 238-unit property is planned for The Meadows'
submarket in 1995 and, based on its location, it is not expected to
negatively impact The Meadows. Average occupancy in the Memphis
region (for units built since 1984) remained high at 96.4% and rents
increased by 10%. In The Meadows' submarket, year-end occupancy was
97.5% and rents increased 8.5%. The Meadows' overall performance
mirrored that of its submarket.
1994 Property Operating Results - Total revenues increased as average
occupancy increased, concessions were eliminated and market rents were
increased by 8-10%, depending on unit type. Total expenses at the
property included $40,000 in capital improvements; absent these capital
expenses, operating expenses decreased by 2% compared with 1993. The
property was able to pay all of its current debt service obligation from
property operations.
<PAGE>
THE MONTCLAIR - Springfield, Missouri
New Borrower: Montclair Limited Partnership
General Partner: SCA Successor, Inc.
The Montclair is a 159 unit retirement community located near
Springfield's prestigious "Medical Mile", an area with a heavy
concentration of medical service providers. Residents of The Montclair
receive three meals each day, all utilities, biweekly maid service,
scheduled transportation, use of community rooms, planned activities, 24-
hour security and the use of an exclusive home-health program sponsored
by the area's largest medical system, St. John's Regional Health Center.
The deed to the property was transferred to a SCA Successor, Inc.
controlled partnership in February 1989.
1994 1993 1992 1991
--------------------------------------------------------------------------
Total Revenues ($) 2,438,000 2,269,000 2,103,000 1,612,000
% Change from prior year +7.4 +7.9 +30.5 +41.9
--------------------------------------------------------------------------
Total Expenses ($) 1,294,000 1,191,000 1,120,000 1,011,000
% Change from prior year +8.6 +6.3 +10.8 -4.5
--------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 1,204,000 1,098,000 954,000 551,000
% Change from prior year +9.7 +15.1 +73.1 [1]
--------------------------------------------------------------------------
Occupancy @ Year End (%) 98.1 98.7 96.9 97.0
--------------------------------------------------------------------------
Average Occupancy (%) 97.7 97.8 99.0 82.0
[1] The property paid no debt service from property operations in 1990.
Rental Housing Market - The established rental retirement communities
in Springfield which compete with The Montclair report high occupancy.
One small property consisting of 30 units was completed in 1994. This
property had no effect on The Montclair. There are no other rental
retirement communities under construction or planned for Springfield in
the near future.
1994 Property Operating Results - Total revenues increased as a result
of rent increases for existing residents and general increases in the
property's market rents. The Montclair's market rents were increased
approximately 7% during the year. Higher administrative expenses caused
the above average increase in total operating expenses; however, the
strong growth in revenues offset the increase in expenses and contributed
to another increase in debt service payments from property operations.
<PAGE>
NEWPORT-ON-SEVEN - St. Louis Park, Minnesota
Borrower: St. Louis Park Housing Partners
General Partner: SCA Successor, Inc.
Newport-On-Seven is located on a 6.7 acre site in St. Louis Park,
Minnesota, a mature first-ring suburb of Minneapolis. Downtown
Minneapolis is within ten miles of the property and the site is easily
accessed and visible from Route 7. Newport-On-Seven is a 167 unit mid-
rise elevator building. Its amenities include a large enclosed whirlpool,
exercise room, sauna, media/library room, tanning bed, sun room, a guest
suite and an entertainment room with kitchen facilities. A heated
underground garage offers convenient access to the building.
SCA Successor, Inc. took control of the property in August 1991 when it
replaced the general partner of the borrowing partnership.
1994 1993 1992 1991
---------------------------------------------------------------------------
Total Revenues ($) 1,440,000 1,368,000 1,265,000 1,292,000
% Change from prior year +5.3 +8.1 -2.1 +5.9
---------------------------------------------------------------------------
Total Expenses ($) 846,000 860,000 783,000 757,000
% Change from prior year -1.6 +9.8 +3.4 -0.4
---------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 598,000 500,000 460,000 523,000
% Change from prior year +19.6 +8.7 -12.0 +16.0
---------------------------------------------------------------------------
Occupancy @ Year End (%) 98.2 97.6 95.2 89.8
---------------------------------------------------------------------------
Average Occupancy (%) 97.2 96.8 94.6 95.0
Rental Housing Market - About 3,000 new apartments were completed
in the Minneapolis/St. Paul region in 1994, after averaging only about
2,100 units annually from 1991 to 1993. While this is a significant
increase in construction over 1993, it is still very low by historical
standards. There is estimated to be less than 1,500 multifamily units under
construction now in the metropolitan region, with none near Newport- on-
Seven. No new properties are anticipated to begin construction in the
vicinity of Newport-on-Seven in 1995.
The rental occupancy rate in the Minneapolis region increased to 96.7%
from 96.0% a year ago. In Newport-on-Seven's submarket, the rental
occupancy rate increased to 98.4% from 96.5% a year ago. Rents
increased 2.6% over the year in the region and 3.2% in Newport-on-
Seven's submarket. No rent concessions were offered at Newport-on-
Seven, and only one in ten properties in the metropolitan region were
offering rent concessions at year end.
1994 Property Operating Results - Total revenues increased due to
higher occupancy, rent increases for existing residents and higher market
rents. Newport-on-Seven's market rents were increased 9% during the
year. Total expenses declined as a result of lower real estate taxes.
<PAGE>
NEWPORT VILLAGE - Thornton, Colorado
New Borrower: Newport Village Limited Partnership
General Partner: SCA Successor, Inc.
Newport Village is located in the city of Thornton, a suburb north of
Denver. The property consists of 220 units with a mix of traditional three-
story walkups and cottage style apartments. Apartment amenities include
security systems, fireplaces, vaulted ceilings, washer/dryers and patios or
balconies.
The deed to the property was transferred to a SCA Successor, Inc.
controlled partnership in August 1989.
1994 1993 1992 1991
-------------------------------------------------------------------------
Total Revenues ($) 1,458,000 1,354,000 1,238,000 1,148,000
% Change from prior year +7.7 +9.4 +7.8 +9.4
-------------------------------------------------------------------------
Total Expenses ($) 832,000 773,000 770,000 728,000
% Change from prior year +7.6 +0.4 +5.8 +2.7
-------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 640,000 577,000 483,000 420,000
% Change from prior year +10.9 +19.5 +15.0 +18.3
-------------------------------------------------------------------------
Occupancy @ Year End (%) 98.2 95.9 99.1 95.5
-------------------------------------------------------------------------
Average Occupancy (%) 95.8 98.4 96.8 93.2
Rental Housing Market - The Denver rental market continued to be very
strong with an apartment occupancy rate of 96.3%, market rent increases
of almost 8% and apartment construction of about 2,000 units (which is
similar to 1993 and three times the average number of apartments
constructed annually between 1989 and 1992). Apartment construction in
1995 is expected to double that of 1994; however, given Denver's growing
economy and the short supply of apartments currently, the increase in
construction should not create an imbalance in the market. The submarket
in which Newport Village is located was not quite as strong as the region.
In the Northglenn/Thornton submarket, the apartment occupancy rate was
about 96.0% and market rents increased only 2%during the year. Of the
units built in the region, none were constructed in Newport Village's
submarket and none are anticipated to be built there until 1996.
1994 Property Operating Results -Total revenues increased due to rent
increases for existing residents and increased market rents. Market rents
were increased approximately 7% during the year. Total operating
expenses increased at an above average pace due to capital improvements
that were needed to preserve the asset or enhance its marketability.
<PAGE>
NICOLLET RIDGE - Burnsville, Minnesota
New Borrower: Nicollet Ridge Limited Partnership
General Partner: SCA Successor, Inc.
Nicollet Ridge is located on a 30 acre site in Burnsville, Minnesota.
Burnsville is a suburb approximately 16 miles south of downtown
Minneapolis. Regional shopping centers, schools and health and day care
facilities are in close proximity.
Nicollet Ridge consists of five three-story elevator buildings totaling 339
units. Outdoor recreational amenities include a swimming pool and tennis
courts. Apartment amenities include washer/dryers, vaulted ceilings and
security alarm systems. There is a community clubhouse with a party
room, full kitchen facilities, an exercise room, racquetball court, tanning
bed and whirlpool. Underground garage parking is available for all
residents.
The deed to the property was transferred to a SCA Successor, Inc.
controlled partnership in December 1990.
1994 1993 1992 1991
--------------------------------------------------------------------------
Total Revenues ($) 2,613,000 2,610,000 2,513,000 2,466,000
% Change from prior year +0.1 +3.9 +1.9 +11.5
--------------------------------------------------------------------------
Total Expenses ($) 1,727,000 1,675,000 1,707,000 1,627,000
% Change from prior year +3.1 -1.9 +4.9 +21.1
--------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 912,000 908,000 820,000 864,000
% Change from prior year +0.4 +10.7 -5.1 +26.5
--------------------------------------------------------------------------
Occupancy @ Year End (%) 99.1 93.8 96.5 95.9
--------------------------------------------------------------------------
Average Occupancy (%) 95.6 96.1 97.1 93.7
Rental Housing Market - About 3,000 new apartments were completed
in the Minneapolis/St. Paul region in 1994, after averaging only about
2,100 units annually from 1991 to 1993. While this is a significant
increase in construction over 1993, it is still very low by historical
standards. There is estimated to be less than 1,500 multifamily units under
construction now in the metropolitan region, with none near Nicollet
Ridge. No new properties are anticipated to begin construction in the
vicinity of Nicollet in 1995.
The rental occupancy rate in the Minneapolis region increased to 96.7%
from 96.0% a year ago. In Nicollet's submarket, the rental occupancy rate
increased to 97.9% from 96.4% a year ago. Rents increased 2.6% over
the year in the region and 3.3% in Nicollet's submarket. No rent
concessions were being offered at Nicollet at year end, and only one in ten
properties in the metropolitan region were offering rent concessions as
1995 began.
1994 Property Operating Results -Total revenues showed no growth over
1993 due primarily to lower occupancy, particularly in the first half of the
year. This lower occupancy was believed to be caused by too aggressive
rent increases and the delaying of physical improvements. The
commencement of property improvements and the focused efforts of the
Managing General Partner contributed to increased occupancy and the
elimination of rental concessions during the third quarter of 1994. The
property ended the year on a high note and strong growth in debt service
payments from property operations is expected in 1995.
<PAGE>
NORTH POINTE (formerly Shandin Hills) - San Bernardino, California
Borrower: Cal Shel Limited Partnership
General Partner: SCA Successor, Inc.
North Pointe is located 75 miles east of Los Angeles off of Interstate 215
North in San Bernardino. The property consists of 59 two-story garden
apartment buildings totaling 540 units. North Pointe's amenities include
two pools and three whirlpool spas. The clubhouse contains a sauna,
tanning bed, racquetball court and weight and exercise equipment. North
Pointe is unique in that it is one of the few communities in the area that
offers apartments with fireplaces.
SCA Successor, Inc. took control of the property in November of 1992
when it replaced the general partner of the borrowing partnership.
1994 1993 1992 1991
---------------------------------------------------------------------------
Total Revenues ($) 2,803,000 2,722,000 2,966,000 2,915,000
% Change from prior year +3.0 -8.2 +1.8 -3.4
---------------------------------------------------------------------------
Total Expenses ($) 1,978,000 2,180,000 1,717,000 1,523,000
% Change from prior year -9.3 +27.0 +12.7 -5.1
---------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 922,000 639,000 1,199,000 1,412,000
% Change from prior year +44.3 -46.7 -15.1 +6.0
---------------------------------------------------------------------------
Occupancy @ Year End (%) 70.6 87.2 80.0 81.3
---------------------------------------------------------------------------
Average Occupancy (%) 80.3 80.6 85.7 84.6
Rental Housing Market - North Pointe and its competitors continue to
feel the effects of the severe overbuilding that occurred in the late 1980's;
namely, stagnant or declining market rents, high vacancy rates and
frequent use of rental concessions to stimulate leasing activity. Market
rents in San Bernardino are roughly at the same level they were five years
ago and the vacancy rate hovers at around 10%.
California's economic conditions have exacerbated San Bernardino's weak
rental market; however, San Bernardino's unemployment rate is now
declining and the rate of job creation is increasing. An improving local
economy, combined with expected healthy increases in population and
households and continued low levels of apartment construction, should
bring about improvement in the rental market in the next several years.
Less than 1,000 new apartments were constructed in the San Bernardino
region in 1994 and little construction is expected again in 1995. No
apartments were built near North Pointe in 1994, and none are anticipated
in 1995.
1994 Property Operating Results - Total revenues grew due to lower
vacancy loss and an increase in miscellaneous (non-rental) revenues. Total
expenses declined because fewer capital improvements were necessary, as
compared to 1993. As the year ended, occupancy was declining and rents
and concessions were being adjusted to stimulate leasing activity.
<PAGE>
NORTHRIDGE PARK - Salinas, California
Borrower: Northridge Park Phase II
General Partner: A. F. Evans Co., Inc.
Northridge Park is located on a 5.4 acre site five miles north of downtown
Salinas. The property has convenient access to shopping and major
thoroughfares, specifically the Northridge Regional Mall and California
Route 101.
The property consists of two-story garden apartment buildings totaling 128
units. Northridge's popular design and comprehensive amenities include
fireplaces, cable television, washer/dryers, carports, lighted tennis courts,
and a clubhouse and recreation building with exercise equipment,
racquetball court and swimming pool.
The property continues to be owned by the original borrowing partnership.
The developer, as a requirement of the loan, has posted operating deficit
letters of credit (LOC's) which remain in place until the property achieves
a positive cash flow. In the event shortfalls in base interest occur, the
Managing General Partner will draw the LOC's to keep the loan current.
1994 1993 1992 1991
--------------------------------------------------------------------------
Total Revenues ($) 976,000 992,000 1,017,000 974,000
% Change from prior year -1.6 -2.5 +4.4 -0.4
--------------------------------------------------------------------------
Total Expenses ($) 430,000 383,000 400,000 389,000
% Change from prior year +12.3 -4.3 +2.8 -10.2
--------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 560,000 612,000 625,000 595,000
% Change from prior year -8.5 -2.1 +5.0 +8.4
--------------------------------------------------------------------------
Occupancy @ Year End (%) 94.5 89.1 94.5 90.6
--------------------------------------------------------------------------
Average Occupancy (%) 94.0 94.5 93.9 91.7
The Rental Market - In 1994, the Salinas rental market began to recover
from the ill effects of 1993's weak state and local economy. Salinas'
economy has been stimulated, in part, by the construction of a state
penitentiary in a neighboring community. Apartment occupancy rates
increased from 90% to approximately 95%, the marketing of rental
concessions was discontinued and rents were increased modestly during the
year. There were no apartments constructed in the Salinas area in 1994,
nor are any expected to be built there in 1995.
1994 Property Operating Results - Total Revenues declined due to an
increase in rent concessions and vacancy loss. Total expenses increased
at an above average rate due to increases in payroll, utilities, repairs and
maintenance and administrative expenses.
<PAGE>
RIVERSET - Memphis, Tennessee
Borrower: Auction Street Associates Limited Partnership
General Partner: Venture Technology Properties
Riverset Apartments is located on a 25-acre site on a Mississippi River
Island adjacent to downtown Memphis. It offers suburban living in an
urban location; for this reason, a high percentage of Riverset's residents
are employed in downtown Memphis. The property consists of garden-
style apartment buildings totaling 352 units. Riverset's amenity package
includes a 7,000-square foot clubhouse with an exercise and weight room,
racquetball court, jacuzzi, sauna, steam room and billiard room. There
are four swimming pools, three tennis courts, a convenience store and a
jogging trail on site. Apartment features include fireplaces, vaulted
ceilings, ceiling fans, patios, decks and sun rooms.
The property continues to be owned by the original borrowing partnership.
The success of Riverset's Phase I led the developers to build Phase II
consisting of 148 units. Both Phases share amenities and recreational
areas. Phase II is not in the Partnership's portfolio.
1994 1993 1992 1991
--------------------------------------------------------------------------
Total Revenues ($) 2,416,000 2,315,000 2,223,000 2,198,000
% Change from prior year +4.4 +4.1 +11.4 +7.9
--------------------------------------------------------------------------
Total Expenses ($) 858,000 762,000 769,000 773,000
% Change from prior year +12.6 -0.9 -0.5 -1.8
--------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 1,490,000 1,510,000 1,380,000 1,460,000
% Change from prior year -1.3 +9.4 -5.5 +21.9
--------------------------------------------------------------------------
Occupancy @ Year End (%) 96.6 97.4 96.3 90.1
--------------------------------------------------------------------------
Average Occupancy (%) 97.2 95.4 93.2 90.6
Rental Housing Market - Apartment construction in the downtown
Memphis submarket during 1994 included the rehabilitation of a 156-unit
building and the start of the rehabilitation of another 202-unit building.
In 1994, average occupancy in the entire Memphis region (for units built
after 1984) remained high at 96.4% and rents increased by 10%. In
Riverset's submarket, occupancy averaged nearly 97% and rents increased
by 6.8% during the year. Riverset's performance closely mirrored that of
its submarket.
1994 Property Operating Results - Total revenues increased due to
improved occupancy, increases in market rents (an average of 5%) and
increases in rents for existing residents. Total expenses increased due to
the completion of certain capital items. Absent these capital expenses,
operating expenses increased 5% over 1993. The property continues to
pay most of its base interest obligation from property operations, with the
balance coming from property-level reserves.
<PAGE>
SOUTHFORK VILLAGE APARTMENTS - Lakeville, Minnesota
Borrower: Southfork Apartments Limited Partnership
General Partner: HRC Company, Inc.
Southfork Village Apartments is located on a 25 acre site in Lakeville,
Minnesota, near the intersection of Interstate 354 and Minnesota Highway
50. Both are major access routes to downtown Minneapolis and St. Paul,
which are located approximately 20 miles to the north. The Interstate 494
office corridor, the new Mall of America and the Minneapolis/St. Paul
International Airport are approximately ten miles to the north. Southfork
Village Apartments consist of 25 buildings totaling 200 units. They are
designed with individual garages and a private entrance to each unit.
Project amenities include a recreation building with a fireplace and kitchen
facilities, a swimming pool, tot lot and a natural pond.
The property continues to be owned by the original borrowing partnership.
1994 1993 1992 1991
-------------------------------------------------------------------------
Total Revenues ($) 1,673,000 1,612,000 1,577,000 1,460,000
% Change from prior year +3.8 +2.2 +8.0 +6.6
-------------------------------------------------------------------------
Total Expenses ($) 883,000 822,000 817,000 844,000
% Change from prior year +7.4 +0.6 -3.2 +17.7
-------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 801,000 785,000 731,000 601,000
% Change from prior year +2.0 +7.4 +21.6 -10.7
-------------------------------------------------------------------------
Occupancy @ Year End (%) 98.5 96.5 98.0 95.5
-------------------------------------------------------------------------
Average Occupancy (%) 98.0 97.7 98.0 96.5
Rental Housing Market - About 3,000 new apartments were completed
in the Minneapolis/St. Paul region in 1994, after averaging only about
2,100 units annually from 1991 to 1993. While this is a significant
increase in construction over 1993, it is still very low by historical
standards. There is estimated to be less than 1,500 multifamily units under
construction now in the metropolitan region, with none near Southfork.
No new properties are anticipated to begin construction in the vicinity of
Southfork in 1995.
The rental occupancy rate in the Minneapolis region increased to 96.7%
from 96.0% a year ago. In Southfork's submarket, the rental occupancy
rate increased to 97.9% from 96.4% a year ago. Rents increased 2.6%
over the year in the region and 3.3% in Southfork's submarket. No rental
concessions were offered at Southfork, and only one in ten properties in
the metropolitan region were offering rent concessions at year end.
1994 Property Operating Results - Total revenues increased due to
improved occupancy, rent increases for existing residents and higher
market rents. Southfork's market rents were increased 3.5% during 1994.
Total operating expenses rose at a greater than average pace due to
increased repairs and maintenance and related supplies. The property was
able to pay almost all (i.e., 96.4%) of its base interest from property
operations, with the remainder coming from property-level reserves.
<PAGE>
STEEPLECHASE FALLS - Knoxville, Tennessee
New Borrower: Steeplechase Falls Limited Partnership
General Partner: SCA Successor, Inc.
Steeplechase Falls is located on a rolling, 48-acre site north of Knoxville
overlooking the Smokey Mountains. The property is conveniently located
off of Interstate-75, approximately 15 minutes from downtown Knoxville.
The property consists of 450 units in a combination of garden apartments
and townhouses. Steeplechase offers several creative floor plans which
feature vaulted ceilings, sunken living rooms and fireplaces. The
property's amenities include a clubhouse, a weight and exercise room, two
pools, a heated jacuzzi, tennis and volleyball courts, a lake with a fountain
and a picnic area.
The deed to the property was transferred to a SCA Successor, Inc.
controlled partnership in July 1993.
1994 1993 1992 1991
--------------------------------------------------------------------------
Total Revenues ($) 2,807,000 2,620,000 2,569,000 2,430,000
% Change from prior year +7.1 +2.0 +5.7 +10.4
--------------------------------------------------------------------------
Total Expenses ($) 1,440,000 1,301,000 1,327,000 1,289,000
% Change from prior year +10.6 -2.0 +3.0 -19.7
--------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 1,354,000 1,317,000 1,123,000 1,135,000
% Change from prior year +2.8 +17.3 -1.1 +45.9
--------------------------------------------------------------------------
Occupancy @ Year End (%) 94.2 95.6 96.0 96.9
--------------------------------------------------------------------------
Average Occupancy (%) 94.7 96.2 96.3 95.0
Rental Housing Market - To the best of the Managing General Partner's
knowledge, there was no new construction of apartment communities in
the Knoxville market in 1994 and none is anticipated in 1995. The
region's occupancy rate increased slightly from 96.5% in 1993 to 97.4%
in 1994, while the occupancy rate in Steeplechase's submarket remained
unchanged at 97% in 1994. Market rents increased in 1994 and the use of
rental concessions declined.
1994 Property Operating Results - Total revenues increased as market
rents were increased by 5% and rent increases were given to existing
residents. As a result of an aggressive rent increase policy, average
occupancy decreased slightly in 1994. Total expenses increased due to
additional capital improvements; absent these capital improvements,
expenses increased by only 3% during the year.
<PAGE>
VILLA HIALEAH - Hialeah, Florida
Borrower: Shelter Group Southeast-Hialeah, A Limited Partnership
General Partner: Shelter Group Southeast, Inc.
Villa Hialeah is located on a ten acre parcel in Hialeah, Florida. The site
is conveniently located ten miles from the Miami International Airport and
approximately 15 miles north of downtown Miami. The property is
situated between the Florida Turnpike and the Palmetto Expressway. Villa
Hialeah consists of 39 two-story townhouse units plus 206 apartments in
two, four-story elevator buildings. The complex is enclosed by a security
fence. Amenities at Villa Hialeah include a swimming pool, sundeck and
clubhouse/activity center. The clubhouse has complete kitchen facilities.
The property continues to be owned by the original borrowing partnership.
1994 1993 1992 1991
--------------------------------------------------------------------------
Total Revenues ($) 1,730,000 1,658,000 1,569,000 1,494,000
% Change from prior year +4.3 +5.7 +5.0 +2.3
--------------------------------------------------------------------------
Total Expenses ($) 976,000 918,000 939,000 961,000
% Change from prior year +6.3 -2.2 -2.3 +25.0
--------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 750,000 772,000 649,000 514,000
% Change from prior year -2.8 +19.0 +26.3 -18.2
--------------------------------------------------------------------------
Occupancy @ Year End (%) 95.1 100.0 100.0 95.9
--------------------------------------------------------------------------
Average Occupancy (%) 97.2 99.8 97.9 94.8
Rental Housing Market - At year end, Villa Hialeah was feeling the
effects of a soft rental market. Its occupancy rate was declining and small
rental concessions were being offered. Although there were several small,
new apartment properties under construction in Hialeah, they were not
affecting Villa's occupancy. Instead, it would appear that Villa's rents
(which are at the top of the Hialeah market) are now at a level comparable
to those found at similar apartment properties in the more affluent Miami
Lakes market to the north of Hialeah. That market is overbuilt, with
occupancy rates falling and rental concessions being widely marketed.
1994 Property Operating Results - Despite lower occupancy, total
revenues rose slightly on the strength of rent increases for existing
residents. Market rents were flat during the year. Total expenses
increased at a higher than average pace due to higher utility and insurance
expenses (both a byproduct of Hurricane Andrew in 1992). The property
was able to pay 92.9% of its base interest obligation from property
operations, with the remainder coming from property-level reserves.
<PAGE>
WHISPERING LAKE - Kansas City, Missouri
New Borrower: Whispering Lake Limited Partnership
General Partner: SCA Successor, Inc.
Whispering Lake is located off of Interstate 70 in a quiet suburb 15
minutes east of Kansas City. The property is only one mile east of the
Truman Sports Complex which houses two professional sports teams.
The property consists of 16 multiple story garden style buildings totaling
384 units. The property has a well equipped clubhouse which overlooks
a lake. This facility includes a health club with complete exercise
facilities, spa, weight room and sauna. A swimming pool adjacent to the
clubhouse is also available for residents' use, and tennis courts are located
nearby. Covered parking is available for 70% of the residents. Apartment
unit amenities include washer/dryers, microwaves and fireplaces.
The deed to Whispering Lake was transferred to a SCA Successor, Inc.
controlled partnership in September 1992.
1994 1993 1992 1991
-------------------------------------------------------------------------
Total Revenues ($) 2,038,000 1,934,000 1,983,000 1,826,000
% Change from prior year +5.4 -2.5 +8.6 -4.3
-------------------------------------------------------------------------
Total Expenses ($) 1,052,000 1,177,000 1,201,000 1,161,000
% Change from prior year -10.6 -2.0 +3.4 +6.4
-------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 924,000 685,000 646,000 508,000
% Change from prior year +34.9 +6.0 +27.2 -25.0
-------------------------------------------------------------------------
Occupancy @ Year End (%) 95.3 88.3 92.2 93.5
-------------------------------------------------------------------------
Average Occupancy (%) 92.5 90.8 93.5 86.2
Rental Housing Market - Rental market conditions continued to improve
in the Kansas City area during 1994. Apartment construction continued
at low levels, with about 1,000 units being completed in the region-- a
pace only slightly above that of the last several years. Occupancy was
around 95.3% and market rents increased about 2.4% in the region during
the year. By contrast, in Whispering Lake's southeast market area,
occupancy dropped compared to a year ago to 90%, while rents increased
about 3%. At year end, Whispering Lake, too, was experiencing lower
occupancy, although this is believed to be a temporary condition. There
are no apartments under construction in Whispering Lake's submarket nor
are any expected to be built there in 1995. There are approximately 2,000
apartments under construction in the rest of the Kansas City region.
1994 Property Operating Results - Total revenues increased due
primarily to rent increases for existing residents and increases in the
property's market rents. Market rents were increased 6% during the year.
Operating expenses fell sharply, largely on the strength of a successful real
estate tax appeal.
<PAGE>
WILLOWGREEN - Fife, Washington
Borrower: Willowgreen Limited Partnership
General Partner: SCA Successor, Inc.
Willowgreen Apartments is located on a ten-acre site in Fife, a suburb of
Tacoma. The property is adjacent to Interstate-5 which provides easy
access to Tacoma's port, educational and medical facilities and is only 30
minutes south of Seattle. The property consists of 18 two-story garden
apartment buildings totaling 241 units. The property has a clubhouse,
swimming pool, racquetball court and covered parking.
The deed to the property was transferred to a SCA Successor-controlled
partnership in November 1994.
1994 1993 1992 1991
--------------------------------------------------------------------------
Total Revenues ($) 1,376,000 1,321,000 1,247,000 1,166,000
% Change from prior year +4.2 +5.9 +6.9 -2.6
--------------------------------------------------------------------------
Total Expenses ($) 764,000 728,000 718,000 693,000
% Change from prior year +4.9 +1.4 +3.6 +4.5
--------------------------------------------------------------------------
Debt Service Paid ($)
(Operations) 637,000 665,000 530,000 456,000
% Change from operations -4.2 +25.5 +16.2 -16.8
--------------------------------------------------------------------------
Occupancy @ Year End (%) 96.7 93.4 94.2 95.4
--------------------------------------------------------------------------
Average Occupancy (%) 94.0 93.9 92.5 89.6
Rental Housing Market - The number of new apartment units constructed
in Pierce County increased slightly in 1994 as approximately 380 units
were completed. A significant increase in apartment construction (1,260
units) is projected in 1995 and 480 of these units will be built in the
Puyallup/Fife submarket. The vacancy rate in this submarket remained
steady at approximately 5% and market rents increased 3-4% in both
Pierce County and Willowgreen's submarket.
1994 Property Operating Results - Total revenues increased due to small
increases in market rents as well as rent increases for existing residents.
Most of the increase in revenues and expenses is due to a change in
accounting methodology that had no net effect on the amount of cash flow
available for debt service. The increases in total revenues and total
expenses reflect approximately $40,000 in housing allowances which were
reclassified from property expenses to a reduction in total revenues.
Absent this accounting change, revenues increased only slightly and
revenues decreased slightly in 1994. Approximately $22,000 in capital
expenses were not reimbursed from replacement reserves, as they had been
in 1993, which resulted in a decrease in debt service paid from operations.
<PAGE>
New Business
On February 14, 1995, the Partnership consummated a
financing transaction in which 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 financing transaction was carried out in four steps. See
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations for details.
ITEM 2. PROPERTIES:
Other than the investments in mortgage revenue bonds set
forth in Item 1 above, the Partnership does not own any property.
ITEM 3. LEGAL PROCEEDINGS.
On March 5, 1991, SCA Associates 86 Limited Partnership,
the Partnership's Associate General Partner, filed a request for the
appointment of a Receiver in the Superior Court of the State of
California for the Creekside Village property. The Partnership
presented evidence to the Court that the borrower, Creekside
Ventures, Ltd., had a monetary default totalling $119,389. On March
22, 1991, the Court ruled in favor of the Partnership and appointed
Hank Fisher, president of an experienced Sacramento property
management company, as Receiver for Creekside Village. Mr. Fisher
took over the operations of the property on March 23, 1991. The
Associate General Partner initiated foreclosure proceedings and filed
suit against the guarantors to obtain funding under their limited
operating deficit guarantee. On February 9, 1994, the Managing
General Partner successfully transferred the Creekside deed to a New
Borrower pursuant to the terms of a settlement agreement negotiated
with the original borrower. In addition, a settlement agreement was
reached with the guarantor. Under the terms of the agreement, the
guarantor will pay the Partnership $75,000, $45,000 of which was
collected in February of 1994. As collateral for the payment of the
$30,000 balance, the guarantor has consented to a voluntary judgment
which will be filed with the Court in the event of the guarantor's non-
payment or bankruptcy. In August 1994, the guarantor paid $12,400
which represents $10,000 in principal owed plus $2,400 in interest.
The remaining $20,000 owed will be paid in two installments of
$10,000 plus interest. These payments are due on or before August
31, 1995 and August 31, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.
None.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Registrant is a partnership and thus has no common stock.
There is no established public trading market for the BACs. Trading
in the BACs is sporadic and occurs solely through private
transactions. As of March 28,1995, there were 9,727 recordholders
of BACs in Series I and 4,214 recordholders of BACs in Series II.
Semi-annual distributions of cash flow (as defined in the
Partnership Amended and Restated Agreement of Limited Partnership
the "Partnership Agreement") are payable within 45 days after the end
of each six month period. All cash flow with respect to each six
month period of the calendar year is paid, first, 99% to the BAC
Holders and 1% to the General Partners until the BAC Holders
receive a noncompounded return in such calendar year equal to 8.5%
of their Adjusted Capital Contributions (as defined in the Partnership
Agreement); second, 1% to the BAC Holders and 99% to the General
Partners until the General Partners receive an amount equal to .5% per
annum of the aggregate outstanding principal amount of all mortgage
loans, commencing in and cumulative from January 1, 1990; third,
99% to the BAC Holders and 1% to the General Partners until the
BAC Holders receive a noncompounded cumulative return for each
calendar year equal to 10% per annum of their Adjusted Capital
Contributions, and fourth, thereafter during such year, 90% to the
BAC Holders and 10% to the General Partners. There are no
restrictions on the present or future ability of the Partnership to make
distributions of cash flow.
For the years ended December 31, 1994, 1993 and 1992, cash
distributions paid or accrued to the Series I BAC Holders as a group
totalled $10,000,000, $10,000,000 and $10,250,000, respectively.
In 1992, approximately $300,000 represented a return of investor
capital and thus was not subject to the cash flow distribution splits
described above. In 1994 and 1993, there were no returns of capital
included in the cash distribution. Cash distributions paid or accrued
to the Series II BAC Holders as a group for the years ended
December 31, 1994, 1993 and 1992, totalled $5,294,080, $5,775,361
and $6,016,000, respectively. Of these amounts in 1994, 1993 and
1992, approximately $300,000, $500,000 and $1,000,000,
respectively, represented a return of investor capital and thus was not
subject to the cash flow distribution splits described above.
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
For the Year For the Year For the Year For the Year For the Year
SERIES I Ended 1994 Ended 1993 Ended 1992 Ended 1991 Ended 1990
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Total Assets $155,041,254 $158,859,400 $166,088,957 $175,356,369 $179,785,460
Book Value per BAC 747.87 769.92 805.74 851.83 868.11
Investment in Mortgage Revenue Bonds 43,177,900 44,607,900 53,882,900 65,642,900 108,777,900
Investment in Real Estate 104,708,977 107,970,711 105,801,318 102,484,766 60,737,840
Interest on Mortgage Revenue Bonds 3,468,563 4,025,063 4,613,425 6,731,649 9,280,421
Interest from Temporary Investments 134,140 106,324 124,511 229,886 563,127
Total Revenues 8,565,467 8,331,372 8,306,567 9,405,926 10,033,582
Income Before Cumulative Effect
of Accounting Change* 5,647,879 2,863,913 1,043,324 7,315,525 8,227,809
Cumulative Effect of Accounting Change* - - - - (534,624)
Net Income 5,647,879 2,863,913 1,043,324 7,315,525 7,693,185
Earnings per BAC:
Income Before Cumulative Effect
of Accounting Change* 27.96 14.18 5.16 36.21 40.73
Cumulative Effect of Accounting Change* - - - - (2.65)
Net Income 27.96 14.18 5.16 36.21 38.08
Cash Distribution per BAC Distributed in August
of each year and the following February:
August 25.00 25.00 26.25 27.50 35.00
February 25.00 25.00 25.00 25.00 30.00
BACS Outstanding 200,000 200,000 200,000 200,000 200,000
Number of BAC Holders 9,739 10,491 9,935 9,920 9,876
* In 1990, the Partnership changed its accounting policy to recognize income/losses
from investments in real estate partnerships after depreciation charges. Prior to this
change, the Partnership had recognized such income/losses before depreciation charges.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA (continued)
For the Year For the Year For the Year For the Year For the Year
SERIES II Ended 1994 Ended 1993 Ended 1992 Ended 1991 Ended 1990
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Total Assets $81,738,723 $83,350,715 $86,320,952 $89,101,583 $93,364,349
Book Value per BAC 817.34 835.85 866.70 890.55 933.64
Investment in Mortgage Revenue Bonds 29,624,600 29,624,600 43,499,600 43,499,600 83,329,600
Investment in Real Estate 47,981,147 49,417,599 37,799,579 39,074,532 -
Interest on Mortgage Revenue Bonds 2,324,531 3,434,531 3,434,531 5,551,979 6,519,573
Interest from Temporary Investments 75,784 91,455 118,533 235,766 349,974
Total Revenues 4,470,563 4,665,272 4,590,142 6,210,417 7,096,115
Net Income 3,547,293 2,834,317 3,758,383 2,616,172 6,396,605
Net Income per BAC 36.48 29.15 38.66 26.91 65.79
Cash Distribution per BAC Distributed in August
of each year and the following February:
August 27.50 30.00 32.50 35.00 35.00
February 27.50 30.00 30.00 35.00 35.00
BACS Outstanding 96,256 96,256 96,256 96,256 96,256
Number of BAC Holders 4,226 4,569 4,299 4,269 4,274
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General Business
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 Partnership was organized for the
purpose of acquiring a portfolio of tax-exempt mortgage revenue
bonds issued by various state or local governments or their agencies
or authorities. The portfolio is made up of two distinct pools of
investments ("Series I" and "Series II"). The Partnership separately
reports the operating activity of each series by preparing separate
financial statements. 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").
The bonds are secured by nonrecourse participating first
mortgage loans on multi-family residential properties. The total return
to the Partnership is generally dependent upon the net cash flow and
the net capital appreciation of the underlying properties. Therefore,
the rate of return to the Partnership depends upon the economic
performance of the underlying properties collateralizing the mortgage
loans, which are in competition with other income-producing
properties of the same type in the same geographic area, and which
are affected by prevailing market conditions.
The apartment over building of the 1980s, the economic
recession and the modest recovery beginning in 1991 have
significantly affected general property performance. Most real estate
markets experienced a period of higher vacancies and stagnant or
declining market rents along with widely marketed rental concessions.
In many markets, there is evidence of recovery and increasing value
of multi-family residential real estate. However, in several of the
markets where the Partnership's bond financed properties are located,
rents have continued to be unchanged or are growing only slightly.
Unless the market conditions and property operating results begin to
improve dramatically and for an extended period of time, it is probable
that the full amount of BAC Holder invested capital may not be
recoverable on some of the bonds through net sale or refinancing
proceeds at the originally anticipated time of sale. Consequently, the
Managing General Partner will consider the feasibility of improving
the recovery of BAC Holder capital through an extension of individual
mortgage revenue bond holding periods.
The Managing General Partner periodically assesses the
performance of the individual properties which collateralize the
portfolio of mortgage revenue bonds held by the Partnership and
projects the likely revenues, expenses, net operating income and value
of the properties through the fourteenth year from the date of
purchase, the originally anticipated holding period as specified in the
Partnership's Prospectus. The results of these assessments are
reflected in the financial statements as valuation adjustments against
specific assets where appropriate. In addition, the results of these
assessments are the basis of the fair value disclosure in the notes to the
financial statements.
Although it has not previously directly provided any estimates
of current BAC value to the BAC Holders, the Managing General
Partner understands that in the past representations of value have been
reported on investor statements based upon information provided by
the Managing General Partner. These representations did not include
any explanation of the basis of the value. The methodology used was
based upon the BACs being held through the originally anticipated
holding period of the bonds and was contingent upon various
assumptions of trends in property performance, capitalization rates
and discount rates. The estimates were developed by calculating the
present value of projections of cash flow from the individual bonds
through sale or refinancing at the end of the originally anticipated
holding period. The results were not intended to represent current
market pricing (discussed below).
The Managing General Partner does not believe it is
appropriate to estimate the current fair value of the BACs or to
forecast the long-term value of BACs because the estimates are
contingent upon assumptions which are subject to variations for the
following reasons: the Partnership investment which was presumed
to be one made for a specific holding term, has been extended for
some bonds; the national economic downturn recently experienced
had a significant negative impact on real estate markets, the recovery
from which is difficult to predict; there is continuing recession in
regional markets, such as those in California; the soft real estate
markets driven by both the economy and the over building in the late
1980's resulted in a large number of loan defaults in the Partnership's
portfolio; and it has taken some time to conclude the loan workouts
and to stabilize the performance of the assets and there are several
methodologies which might be employed for predicting BAC value
but which could yield different estimates.
The secondary market for limited partnership interests is very
limited. For BAC Holders, it consists of the Merrill Lynch Limited
Partnership Secondary Market Transaction Desk and services offered
by various partnership trading groups and the trades occur
intermittently and at widely varying prices. Nonetheless, these trades
reflect the only verifiable evidence of current BAC pricing. Through
the Merrill Lynch Limited Partnership Secondary Market Transaction
Desk for the quarter ended December 31, 1994, approximately four
tenths of one percent (.4%) or 712 of the 200,000 Series I BACs
traded for an average price of $516 per BAC. For the same period,
approximately five tenths of one percent (.5%) or 527 of the 96,256
Series II BACs traded for an average price of $610 per BAC. The
Managing General Partner is not representing these market prices as
the value of the BACs, but is providing them so that BAC Holders are
informed.
The Partnership Agreement requires that the Managing
General Partner use its best effort to assure that the Partnership shall
be classified as a partnership for federal income tax purposes. In this
regard, 177061 Canada Ltd. ("Shelter Canada") , a general partner
of the Associate General Partner, represented that it would use its best
efforts to maintain a net worth of at least 15,000,000 Canadian dollars
during the Partnership's term. Unaudited internal financial information
obtained by the Managing General Partner during 1994, indicates that
Shelter Canada's net worth has declined to less than 100,000 Canadian
dollars. After consultation with legal counsel, it is the opinion of the
Managing General Partner that the deteriorated net worth of Shelter
Canada should not affect the tax classification of the Partnership. In
addition, the deterioration should not affect Shelter Canada's
repayment of its obligations under the Limited Operating Deficit
Guarantee settlements for two of the Partnership's loans, as the
payments continue to be made from a secured cash stream. See the
December 31, 1992 report on Form 10-K pages A-36 and A-37 for
additional information on the Limited Operating Deficit Guarantee
settlements.
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 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 are controlled by SCA Successor, Inc., an
affiliate of the Managing General Partner. As of 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>
The financing transaction was carried out in four steps:
The Refunding. 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. The Series A Bonds are
subject to mandatory sinking fund redemptions which commence
January 1, 2001 and continue 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.
The Trust. 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 Custody Agreement and New Investors. The Series A
Bonds were deposited by the Trust with a custodian. The additional
proceeds were raised through the sale of Receipts in the Series A
Bonds, which were issued by the custodian, 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. The Receipts were marketed by CS First
Boston which acted as underwriter and placement agent for the
Partnership in this transaction.
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 to the new investors from the interest collected on
the Series A Bonds. 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 interest rates. Also, an interest
rate cap was purchased to limit the Partnership's exposure under the
floating tax exempt interest rate obligation. Further, 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.
The cash generated from the properties collateralizing the
eleven bonds in the pool is pledged first to the new investors holding
Receipts in the A Bonds. 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.
Use of Proceeds from the Sale of the Receipts. In return for
the sale of Receipts in the Series A Bonds, the Trust, for the benefit
of the Partnership, received $67.7 million from the custodian. The
Managing General Partner expects that the net proceeds of
approximately $56.8 million will be invested in additional mortgage
revenue bonds that finance multi-family properties. The cash stream
from these investments would benefit BAC Holders in the form of
additional tax exempt distributions. Approximately $10.9 million is
being used to finance transaction costs, Partnership reserves and
interest rate cap.
In addition, the following items were implemented under the
transaction:
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 interest obligations on the eleven refunded bonds and
the Parity Working Capital Loans and interest thereon (both as of the
refunding date), were preserved through conversion to demand notes
(the "Notes") in equivalent principal amounts. The Notes bear interest
and are due on demand, but in any case not later than January 2030.
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 are subordinate in priority
and right of payment to the Series A Bonds and can only be paid from
available cash flow. Payments of principal and interest on the Notes
and the Series B Bonds are prioritized as follows: (i) interest
payments due on the Notes; (ii) principal payments due on the Notes;
(iii) interest payments due 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. Income generated from the
additional proceeds will be allocated approximately 60.1% and 39.9%
to Series I and Series II, respectively. Such percentages are based on
the face amount of the Series A Bonds related to the refunded bonds
of each respective Series.
It was anticipated that the original Partnership investment
portfolio would be held for 14 years after the purchase date for each
bond. As discussed in previous reports, because of the loss in value
of a number of assets in the portfolio, full recovery of invested
proceeds in these bonds, as required by the original bond indentures,
is not likely to be accomplished by year 14. Therefore, the holding
period would have to be extended to realize par recovery for these
bonds.
The bonds which were refunded and pledged to permit the
raising of the $67.7 million are most of the bonds which would have
had to have been extended in order to fully recover principal. The
Managing General Partner anticipates the sale of these refunded bonds
could happen earlier than would have been the case without this
transaction. Although no assurances can be given at this time as to
exactly when value will warrant disposition, the bonds can be
liquidated when it is in the best interest of BAC Holders to do so.
The Managing General Partner continues to anticipate liquidating the
bonds of the unpledged portfolio by the end of the originally intended
14 year holding period.
It is the belief of the Managing General Partner that an
expanded portfolio and growth in cash flow and distributions to BAC
Holders should result in improved value of the BACs when trades are
made on the secondary market. Moreover, the Managing General
Partner is exploring alternatives to increase the liquidity of the
investments made by the BAC Holders.
The Managing General Partner or its affiliates have not
received nor will they receive any fees for having raised the $67.7
million. Depending on subsequent events, however, the Managing
General Partner may earn additional compensation for performing
other services for the Partnership.
Although the Managing General Partner believes that
acquiring the additional proceeds will result in the benefits described
above, as with any investment involving income producing real estate,
no assurances can be given as to what the returns will be over time.
Financial Condition and Liquidity
As of December 31, 1994, the Partnership's capital remains
invested in 23 mortgage revenue bonds and related working capital
loans. Of these investments, 14 (totalling $178,042,500) were
acquired with Series I proceeds while nine (totalling $86,255,000)
were acquired with Series II proceeds. To the extent that offering
proceeds exceeded organization and offering expenses and initial
project investments, the Managing General Partner created
Partnership working capital reserves.
The Series I and Series II working capital reserves, as a result
of supplementing distributions to BAC Holders and providing
additional working capital loans to the properties, were exhausted
during 1992 and 1994, respectively. During 1992, reserves of
approximately $300,000 were used to pay distributions declared in
excess of the cash generated by Series I operations. Series II reserves
of approximately $300,000, $500,000, and $1,000,000 were used
during 1994, 1993 and 1992, respectively, to pay distributions
declared in excess of the cash generated by operations.
Distributions are affected by the Partnership's ability to collect
base and contingent interest from the cash flow of the properties
securing the mortgage revenue bonds and the ability of the Managing
General Partner to control operating expenses. Cash collected by the
Partnership does not necessarily reflect property operating results to
the extent that debt service can be paid from property reserves and/or
guarantees. Similarly, some of the cash generated by property
operations may not be available to pay debt service as it may have
been utilized for capital expenditures, escrows or prepaid expenses.
It should be noted that as available debt service payments from
secondary sources such as property reserves, guarantors and others
decrease, the level of debt service collected by the Partnership will
more closely approximate property performance.
On December 31, 1994, the Managing General Partner
declared semi-annual distributions of $25.00 and $27.50 per BAC in
Series I and Series II, respectively. These amounts, which were paid
on February 10, 1995, represent an annualized primarily tax-exempt
distribution rate of 5.00% in Series I and 5.50% in Series II. The
distribution rates in Series I remained unchanged from the previous
four semi-annual distributions. In Series II, the distribution rate was
consistent with the distribution at June 30, 1994, however, it
represents a decrease of .50% as compared to the December 31, 1993
distribution. The decrease is due to both the decrease in the amount
of property level reserves and Partnership working capital reserves
available to supplement the distribution and the increase in costs
associated with the transfer of Hamilton Chase (see discussion of
Hamilton Chase in Results of Operations below).
At December 31, 1994, the Partnership's liquid assets
approximated $5,240,000 in Series I and $2,615,000 in Series II.
These funds primarily consist of undistributed funds generated from
operations during the second half of 1994.
Results of Operations
For the years ended December 31, 1994, 1993 and 1992,
Series I properties paid $11,648,000, $10,944,000 and $10,690,000,
respectively, of interest to the Partnership. Of the above amounts,
$11,117,000, $10,614,000 and $9,622,000, respectively, were
generated from property operations. For those same periods, Series
II properties paid $5,798,000, $5,558,000 and $5,297,000,
respectively, of interest to the Partnership. Of the above amounts,
$5,503,000, $5,268,000 and $4,856,000, respectively, were
generated from property operations. The differences between interest
paid and cash generated from operations are due to payments from
property level reserves and guarantees. The table, in Item 1. Business
- Investment Summary Series I and Series II, at the beginning of this
report should be referenced for more information regarding the
specific property interest payment information.
Partnership operating expenses for 1994 have increased from
1993 by approximately $620,000 in Series I and $542,000 in Series II.
Both Series' increases reflect the cost of efforts to pursue the raising
of the additional proceeds (see discussion in Subsequent Event
above). For 1994, Series I incurred approximately $630,000 in legal
expenses related to the financing transaction as compared to $93,000
in 1993. Also, salary expenses increased by approximately $112,000
primarily due to an increase in employee time incurred working on the
financing transaction. Similarly in Series II, approximately $413,000
was spent on legal expenses related to the financing transaction in
1994 as compared to $35,000 in 1993 while salary expenses increased
by approximately $54,000 primarily due to increased employee time
spent on the financing transaction. Additionally, Series II incurred
approximately $100,000 in expenses related to the transfer of
Hamilton Chase (see discussion of Hamilton Chase below).
The lingering effect of adverse market conditions continues to
impact the revenue stream of many of the properties in each Series.
Accordingly, during 1994, 14 properties (nine from Series I and five
from Series II) were unable to pay full base interest. However,
Barkley Place (Series I) and The Meadows (Series II) have begun to
repay their delinquent base interest. Cash flows from all properties
have been insufficient to support the payment of contingent interest
during 1994.
When base interest payments cannot be fully satisfied by an
original borrower through property level cash flow, reserves or
guarantee payments, the Managing General Partner evaluates various
courses of action, including sale, refinancing, deed-in-lieu of
foreclosure or foreclosure. As discussed in previous reports, in cases
where there have been monetary defaults in the payment of full base
interest, the properties collateralizing the mortgage revenue bonds
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 1994, the Partnership adopted the provisions of Statement
No. 114, "Accounting by Creditors for Impairment of a Loan ("FAS
114"). 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. 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. 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.
Consequently, for financial reporting purposes, as reclassifications
occur, there is a corresponding decrease in interest income from
investments in mortgage revenue bonds and working capital loans.
Further, income is recorded by the Partnership as "Equity in property
net income" and the carrying value of the investment in real estate
partnerships is adjusted as income or loss (after depreciation) is
recognized by the properties. This accounting treatment is for
financial reporting purposes only and is not used to determine 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.
As of December 31, 1994, nine Series I properties and six
Series II properties which secure mortgage revenue bonds and
working capital loans totalling $132,500,000 and $55,815,000,
respectively, were classified as investments in real estate partnerships.
As of December 31, 1994, the carrying values of these investments in
real estate partnerships, net of accumulated depreciation and valuation
adjustments, approximated $104,709,000 for Series I and
$47,981,000 for Series II. During the years ended December 31,
1993 and 1992, $9,450,000 and $11,759,000, respectively, of Series
I investments in mortgage revenue bonds were reclassified to
investments in real estate partnerships. During the year ended
December 31, 1993, $13,975,000 of Series II investments in mortgage
revenue bonds were reclassified to investments in real estate
partnerships. No Series I or Series II investments in mortgage
revenue bonds were reclassified during 1994.
As of December 31, 1994 all of the investments in real estate
in both Series I and Series II had been transferred to New Borrowers.
These transfers were accomplished either through the Managing
General Partner's acceptance of deeds-in-lieu of foreclosure or
otherwise settled by SCA Successor, Inc. replacing the original
managing general partner of the original borrowing partnership.
In response to a 1991 Supreme Court case, the IRS issued
proposed regulations in connection with the modification or implied
modification of debt instruments. If the proposed regulations are
adopted in their present form, they would alter existing authority, and
limit the type and extent of modifications and implied modifications
that could be made by a bond owner/lender without adversely
affecting the tax-exempt status of the bond. It is not clear at this time
what effect the proposed regulations may have on the Partnership with
respect to bonds secured by properties transferred to New Borrowers,
as some of the terms of the transfers could be viewed by the IRS
under the proposed regulations as implied modifications to the bonds.
However, the IRS has stated that the regulations will apply only to
modifications or implied modifications made on or after thirty days
from the publication of the final regulations in the Federal Register.
As of March 30, 1995, the regulations had not appeared in their final
form in the Federal Register. The Managing General Partner will
continue in its efforts to protect the tax-exempt status of the bonds
and the interest thereon; however, there can be no assurances the
Managing General Partner will be successful in its efforts.
The Managing General Partner monitors all of the properties
in both Series of the Partnership. In addition, the Managing General
Partner periodically assesses the estimated net realizable value and fair
value of the properties to determine whether valuation adjustments are
necessary due to, among other factors, a change in market conditions
or the physical condition of the properties. In 1994, a valuation
adjustment of $1,430,000 was made to the investment in Lakeview
Gardens bond, a Series I investment (See discussion of Lakeview
Gardens below). The Managing General Partner will continue to
evaluate the need for valuation adjustments in the future as
circumstances change.
The following is a discussion of events which affect the
properties that collateralize the Partnership's investments. With the
exception of Lakeview Gardens, which continues to be classified as an
investment in mortgage revenue bonds under the provisions of FAS
114, the discussion relates to investments in real estate partnerships.
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.
Lakeview Gardens: During 1993, the greater Miami apartment
market and, particularly, the submarket in which Lakeview is located
were stimulated by Hurricane Andrew as displaced people, especially
homeowners and out-of-town or out-of -state construction workers,
took temporary residence in apartments. Vacant apartments were
hard to find and rents, which had been growing only slowly, increased
very rapidly. By 1994, most apartments and homes had been restored,
homeowners had returned to their residences and the temporary
workers had left the region, simultaneously creating an increase in
apartment supply and a decrease in apartment demand. These factors
plus an upsurge in apartment construction contributed to an increase
in the apartment vacancy rate, flat or declining rents and an increase
in rental concessions in the region and at Lakeview. Because of
Lakeview's decline in operating revenues, property level reserves had
to be drawn at a faster than anticipated rate to cover monthly
shortfalls in base interest. In November of 1994, the property level
reserves on Lakeview Gardens 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
December 1994, an agreement was reached with the borrower
whereby the deed would be transferred to a New Borrower in lieu of
foreclosure. The transfer of the deed is expected to occur in April
1995.
North Pointe (formerly Shandin Hills): As discussed in previous
reports, a settlement agreement was signed on November 23, 1992
whereby Shelter Canada and Winnipeg Financial and Management,
Inc., the third party guarantors, are to perform fully under the terms
of the limited operating deficit guarantee. During 1994, scheduled
payments totalling $119,000 were received by the Partnership as
payment in accordance with the settlement agreement. In addition,
the settlement agreement provides for the accrual of interest
compounded quarterly on the unpaid balance.
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 partnership.
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.
Whispering Lake: As discussed in previous reports, a settlement
agreement was signed on November 23, 1992 whereby Shelter
Canada, the third party guarantor, is to perform fully under the terms
of the limited operating deficit guarantee. During 1994, scheduled
payments totalling $168,000 were received by the Partnership as
payment in accordance with the settlement agreement. In addition,
the settlement agreement provides for the accrual of interest on the
unpaid balance compounded quarterly.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.
See the Financial Statements, together with the report thereon
of Price Waterhouse LLP dated March 30, 1995, which are filed as a
part of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT.
(a) and (b) Identification of directors and executive officers:
The following table sets forth the names, ages and positions
held by the directors and executive officers of the Managing General
Partner:
Position Held with
Name Managing General Partner Age
-------------------- ------------------------- -----
Garrett G. Carlson Chairman and Director 59
Mark K. Joseph President/Treasurer and
Director 56
Thomas R. Hobbs Senior Vice President,
Partnership General
Manager and Director 54
Marilynn K. Duker Vice President 39
All of these individuals have served in an executive capacity
since the organization of the Managing General Partner. Mssrs.
Carlson and Joseph have served as directors since the organization of
the Managing General Partner and Mr. Hobbs was elected as a
director effective April 5, 1994. All of these individuals will continue
to serve in their current capacities until their successors are elected
and qualified.
(c) Identification of certain significant employees:
None.
(d) Family Relationships:
None.
(e) Business Experience
SCA Realty I, Inc. was incorporated in Maryland in January
1986. The background and experience of the executive officers and
directors of SCA Realty I, Inc., the Managing General Partner, are as
follows:
Garrett G. Carlson, age 59, is Chairman of the Board of
Directors of the Managing General Partner and the Initial Limited
Partner, as well as a Vice-Chairman of the Board of Shelter
Development Corporation ("SDC"). Mr. Carlson has been in the real
estate development business since 1962. He has been responsible for
the production and acquisition of several thousand units of rental
housing over the last two decades. Prior to 1979, Mr. Carlson served
as President and Chairman of the Board of Shelter Corporation of
America, Inc., a publicly-owned company involved in all facets of real
estate development. From 1964 until 1970, Mr. Carlson was Director
of Real Estate and Development for Bor-Son Construction, Inc. and
in that capacity participated in commercial, office, retail and industrial
developments. Mr. Carlson is a graduate of the University of
Minnesota.
Mark K. Joseph, age 56, is President, Treasurer and a director
of the Managing General Partner and the Initial Limited Partner, as
well as President of SDC. He has been engaged in the development
of real estate since 1974. Previously, Mr. Joseph was Chairman of the
Executive Committee and a partner in the law firm of Gallagher,
Evelius & Jones, where he was engaged in the practice of real estate
and corporate law. Before his entry into the private sector, Mr.
Joseph served first as Baltimore's Deputy Housing Commissioner and
then as Development Director and Counsel to the Mayor. From 1975
to 1980, Mr. Joseph headed the Baltimore City Board of School
Commissioners. As President of that Board, he chaired the nation's
seventh largest school system. Mr. Joseph graduated with honors
from Brown University and the Harvard Law School. He has been a
member of the faculty and Board of Visitors of the University of
Maryland Law School. Mr. Jospeh taught seminars in law and
poverty and urban legal problems. He also authored the housing
finance law creating the Maryland Community Development
Administration.
Thomas R. Hobbs, age 54, is a Senior Vice President and
Director of the Managing General Partner and also the General
Manager of the Partnership. From 1978 until joining SCA Realty in
June 1986, Mr. Hobbs served as Manager of the Baltimore Field
Office of the United States Department of Housing and Urban
Development ("HUD"). This responsibility included the approval of
HUD loans and grants and the commitment of FHA mortgage
insurance. The multifamily mortgage insurance portfolio of the
Baltimore Field Office was $1.2 billion. Mr. Hobbs served HUD in
various other capacities since 1967, including for periods acting as
manager of the Washington, D.C. and Philadelphia offices. Mr.
Hobbs is a graduate of the University of Virginia and holds a Master's
Degree from the University of North Carolina at Chapel Hill.
Between 1987 and 1991 he served as the Chairman of the Maryland
State Housing Policy Commission and since 1987 has served as a
member of the State Housing Finance Review Committee.
Marilynn K. Duker, age 39, is a Vice President of the
Managing General Partner and Senior Vice President of SDC. Prior
to joining SDC in 1982, she served as special assistant to the Director
of the HUD area office in Baltimore. She has worked in both the
regional and central offices of HUD and for the Boston Housing
Authority as well. Ms. Duker is a graduate of the College of Wooster
and has a Master's Degree in City Planning from the Massachusetts
Institute of Technology.
(f) Involvement in certain legal proceedings:
None.
(g) Promoters and Control Person:
None.
ITEM 11. EXECUTIVE COMPENSATION.
The General Partners and their affiliates are entitled to receive
various cash distributions, allocations of taxable income or loss and
expense reimbursements from the Partnership. In addition, the
General Partners have earned and are expected to continue to earn
various fees payable by borrowers in connection with the acquisition
and servicing of the mortgage revenue bonds. The amounts of these
items and the times at which they are payable are described at pages
15-17 and 49-52 of the Prospectus under the captions "Compensation
and Fees" and "Profits, Losses and Cash Distributions," which
descriptions are incorporated herein by reference.
The following table sets forth the amounts of the fees,
commissions and cash distributions which the Partnership paid to or
accrued for the account of the General Partners and their affiliates for
the year ended December 31, 1994:
Amount of
Receiving Entity Type of Compensation Compensation
------------------ ------------------------ --------------
SCA Realty, Inc. Interest in Cash Flow $ 1,445
SCA Associates 86
Limited Partnership Interest in Cash Flow 143,005
-----------
TOTAL $144,450
========
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
(a) Security ownership of certain beneficial owners:
The General Partners own all the outstanding general
partnership interests. No person or group is known by the Partnership
to be the beneficial owner of more than 5% of the outstanding BACs
at December 31, 1994.
(b) Security ownership of management:
As of the date hereof, none of the directors and officers of the
Managing General Partner own any BACs issued by the Partnership.
Pursuant to the Partnership Agreement, the General Partners and their
affiliates and employees of their affiliates may purchase BACs
aggregating up to 1% of any additional BACs offered by the
Partnership.
(c) Changes in control:
There exists no arrangement known to the Partnership the
operation of which may at a subsequent date result in a change in
control of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
(a) Transactions with management and others:
Since the Partnership is a limited partnership, it has no
directors or officers. In addition, the registrant has had no
transactions with individual officers or directors of the Managing
General Partner other than any indirect interest such officers and
directors may have in the compensation paid to the Managing General
Partner, or its affiliates by virtue of (i) their indirect stock ownership
in the Managing General Partner, (ii) their ownership in 177061
Canada Ltd. ("Shelter Canada"), formerly Shelter Corporation of
Canada Limited Partnership , a stockholder of the Managing General
Partner, or (iii) their partnership interests in SCA Associates 86-II
Limited Partnership, a limited partner of the Associate General
Partner. Item 11 of this report which contains a discussion of the
amounts and times fees and other compensation are paid or accrued
by the Partnership to the General Partners or their affiliates is
incorporated herein by reference.
As a result of defaults under the terms of the loan agreements
by the original borrowing partnerships, the Managing General Partner
negotiated transfers of ownership of certain properties underlying the
Partnership's investments in mortgage revenue bonds to "New
Borrowers" (which are partnerships controlled by SCA Successor,
Inc., an affiliate of the Managing General Partner) for Barkley Place,
The Montclair, Newport Village, Nicollet Ridge, Newport-On-Seven,
North Pointe (formerly Shandin Hills), Mallard Cove I, Mallard Cove
II, Gilman Meadows, The Meadows, Whispering Lake, Steeplechase,
Creekside, Hamilton Chase and Willowgreen. Effective January 1,
1995, SCA Successor, Inc. withdrew as General Partner and was
replaced by SCA Successor II, Inc. for the following partnerships:
Barkley Place, The Montclair, Newport Village, Nicollet Ridge,
Mallard Cove I, Mallard Cove II, Gilman Meadows, The Meadows,
Whispering Lake, Steeplechase, Creekside, and Hamilton Chase.
Shelter Canada, was, prior to the time the Partnership
acquired the Whispering Lake Apartments, the Meadows Apartments,
and North Pointe mortgage revenue bonds, either a limited or general
partner of the developer partnership for those projects. Prior to the
time the Partnership acquired these mortgage revenue bonds, Shelter
Canada withdrew from the respective developer partnerships in return
for contingent purchase payments for its interest, payable from certain
revenue of the borrower. These revenues included a portion of the
developers' overhead allowance funded out of proceeds of the
mortgage revenue bonds to the extent such funds remain unused for
cost overruns or other obligations of the borrower upon completion
of construction and the achieving of sustaining occupancy. Payments
to Shelter Canada are fully subordinated to all payments to the
Partnership.
In addition, Shelter Canada was contractually obligated to
nonaffiliated borrowers of North Pointe and Whispering Lakes to fund
operating deficits under guarantees totalling $1,292,500 and
$1,819,000, respectively. The Managing General Partner entered into
workout negotiations with the guarantor and respective borrowers of
these properties as the guarantor had indicated its inability at this time
to fully fund operating deficits. These negotiations resulted in a
settlement agreement which provides for the payment of $1,215,143
plus interest under the guarantee obligations over a five year period.
(b) Certain business relationships:
The Partnership's response to Item 13(a) is incorporated herein
by reference. In addition, the Partnership has no business relationship
with entities of which the directors of the Managing General
Partnership are officers, directors or ten percent equity owners other
than as set forth in the Partnership's response to Item 13(a).
(c) Indebtedness of management:
None.
(d) Transactions with promoters:
None.
<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.
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 are filed as part of this 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:
P A. Pages 15-17, 25-30, and 49-52 of the
Prospectus.
P 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).
P 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.
P 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.
P E. Page 4 of the 1987 Form 10-K filed
with the Commission on March 30,
1988.
P F. Pages 10-16 of the 1987 Annual
Report to Investors.
P G. Page 4 of the Form 10-K filed with the
Commission on March 31, 1989.
P H. Page A-18 of the 1988 Form 10-K
filed with the Commission on March
31, 1989.
P I. Page A-25 and A-26 of the 1989 Form
10-K filed with the Commission on
April 2, 1990.
P J. Page A-23 through A-25 of the 1990
Form 10-K filed with the Commission
on April 1, 1991.
P K. Page A-27 and A-28 of the 1991 Form
10-K filed with the Commission on
March 30, 1992.
P 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: March 31, 1995 By: /s/ Mark K. Joseph
Mark K. Joseph
President/Treasurer, Director
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates set
forth below opposite their respective names.
Signatures Title
Date
/s/ Garrett G. Carlson Chairman of the Board March 31, 1995
Garrett G. Carlson of Directors
/s/ Mark K. Joseph President/Treasurer, March 31, 1995
Mark K. Joseph Director
<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
Statement of Cash Flows for the three years ended December 31,
1994, 1993, and 1992 - Series I
Statement 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
Statement of Cash Flows for the three years ended December 31,
1994, 1993, and 1992 - Series II
Statement 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
Price Waterhouse LLP
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) - 46,054,212 (c) 46,054,212 -
Other assets (Note 7) 503,770 (495,630)(d) 8,140 8,140
--------------- --------------- --------------- ---------------
TOTAL ASSETS $81,738,723 ($682,053) $81,056,670 $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) ($6,821) (88,167) (69,624)
Limited Partners (beneficial assignee certificates-
issued and outstanding 96,256 certificates) 78,673,704 (675,232) 77,998,472 80,455,964
--------------- --------------- --------------- ---------------
TOTAL PARTNERS' CAPITAL 78,592,358 (682,053) 77,910,305 80,386,340
--------------- --------------- --------------- ---------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 4, 5, 6 & 7)
TOTAL LIABILITIES AND PARTNERS' CAPITAL $81,738,723 ($682,053) $81,056,670 $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
SCA Tax Exempt Fund Limited Partnership (the Partnership),
was organized on January 10, 1986, under the Delaware Revised
Uniform Limited Partnership Act for the purpose of investing in a
portfolio of tax-exempt mortgage revenue bonds (the bonds) issued
by various state or local governments or their agencies or authorities,
and secured by nonrecourse participating first mortgage loans on real
estate projects. The Partnership will terminate on December 31,
2036, or sooner, in accordance with the terms of the Partnership
Agreement. SCA Realty I, Inc. is the .1% Managing General Partner
and SCA Associates 86 Limited Partnership is the .99% Associate
General Partner (collectively, the "General Partners").
The Partnership is segregated into two distinct pools of
investments, Series I and Series II, which resulted from two offerings
of Beneficial Assignee Certificates ("BACs"). 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. BACs represent the assignment of limited
partnership interests in the Partnership.
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.
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. 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.
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 of approximately $48.3 million and $12.6 million for Series I
and Series II, respectively.
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 repayment 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 unaudited financial information for the investments in real
estate partnerships are presented below. This summary includes the
results of operations of the properties 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 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
(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 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
(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 reim-
bursement 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, and are 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.
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 on the Series A Bonds. 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 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 from the
custodian. 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, on the eleven original
bonds, of approximately $15.5 million, 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 $48 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 $46.1 million, respectively.
(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 is summarized on a
proforma basis as follows:
<PAGE>
ASSETS
Short-term investments $ 56,761,654
Notes receivable from operating
partnerships 24,496,201
Investments in real estate partnerships 85,323,641
Other assets 1,790,097
-------------
TOTAL ASSETS $168,371,593
=============
LIABILITIES AND EQUITY
Accounts payable and accrued expenses $ 53,565
Custody receipts outstanding 67,700,000
-------------
TOTAL LIABILITIES 67,753,565
-------------
Equity in Joint Investment Pool
Series I 54,563,816
Series II 46,054,212
-------------
TOTAL EQUITY IN JOINT
INVESTMENT POOL 100,618,028
-------------
TOTAL LIABILITIES AND EQUITY
IN JOINT INVESTMENT POOL $168,371,593
=============
<PAGE>
Summarized Financial Information
Investment in Real Estate Partnerships. Combined, condensed, unaudited
financial information as of December 31, 1994 for the eleven
properties included in the transaction noted above is presented below.
Land, buildings and equipment, net of
accumulated depreciation $ 108,501,555
Other assets 2,444,243
-----------------------
Total assets 110,945,798
=======================
Liabilities due to Partnership
including bonds 140,855,859
Other liabilities 2,553,293
Partners' deficit (32,463,359)
-----------------------
Total liabilities and
partners' deficit $ 110,945,798
=======================
<PAGE>
BARKLEY PLACE LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 15, 1995
To the Partners of
Barkley Place Limited Partnership
In our opinion, the accompanying balance sheets and the related
statements of operations, of partners' deficit and of cash flows
present fairly, in all material respects, the financial position of
Barkley Place Limited Partnership at December 31, 1994, and the
results of its operations and its cash flows for the year 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 audit. We conducted our audit 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 audit
provides a reasonable basis for the opinion expressed above. The
financial statements of the Partnership for the year ended December
31, 1993 were audited by other independent accountants whose
report dated February 17, 1994 expressed an unqualified opinion
on those statements.
PRICE WATERHOUSE LLP
<PAGE>
BARKLEY PLACE LIMITED PARTNERSHIP
BALANCE SHEETS
December 31,
1994 1993
--------------------------
Assets
Land $ 1,126,449 $ 1,126,449
Buildings and improvements 6,857,060 6,826,358
Furniture and equipment 457,295 456,607
----------- ----------
8,440,804 8,409,414
Less accumulated depreciation (1,286,476) (1,069,321)
----------- -----------
Net property and equipment 7,154,328 7,340,093
Cash
Unrestricted 27,711 28,685
Escrow deposits 35,975 31,418
Restricted - security deposits 41,733 43,953
Receivables
Rent 4,538 -
Partners - 500
Other 4,839 2,000
Prepaid expenses 27,265 25,670
----------- -----------
Total assets $ 7,296,389 $ 7,472,319
=========== ===========
Liabilities and Partners' Deficit
Liabilities
Mortgage note (Notes 3 and 4) $ 8,830,000 $ 8,830,000
Parity working capital
loans (Notes 3 and 4) 1,252,347 1,252,347
Interest payable 1,344,238 1,456,052
Accounts payable, accrued expenses
and other liabilities 76,623 49,146
Security deposit liability 38,184 39,650
----------- -----------
Total liabilities 11,541,392 11,627,195
Commitments and contingencies (Notes 1, 3 and 5)
Partners' deficit (4,245,003) (4,154,876)
---------- ----------
Total liabilities and partners' deficit $ 7,296,389 $ 7,472,319
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
BARKLEY PLACE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Year ended December 31,
1994 1993
---------------------------
Revenue
Gross rent potential $2,616,194 $2,416,625
Less: vacancies and concessions (105,730) (75,354)
Other rental income 20,614 14,666
---------- ----------
Rental income 2,531,078 2,355,937
Interest income 3,653 7,891
Food service income 215,705 213,011
Other income 47,624 37,227
---------- ----------
Total revenue 2,798,060 2,614,066
Expenses
Interest expense 770,400 770,400
Marketing 76,323 70,194
Administrative 263,396 240,164
Assisted Living 250,419 253,058
Depreciation 217,155 215,681
Real estate taxes and insurance 203,674 211,806
Utilities 167,687 168,560
Housekeeping 120,587 115,093
Foodservice 444,337 413,923
Maintenance and repairs 166,106 139,254
Management fees 139,128 129,953
Mortgage servicing fees 68,475 68,475
---------- ----------
Total expenses 2,887,687 2,796,561
---------- ----------
Net loss $ (89,627) $ (182,495)
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
BARKLEY PLACE LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
DECEMBER 31, 1994 AND 1993
SCA Limited
Successor, Inc. Partners Total
--------------- ------------ ------------
Partners' deficit at
December 31, 1992 $ (39,724) $ (3,932,657) $ (3,972,381)
Net loss (1,825) (180,670) (182,495)
----------- ------------ ------------
Partners' deficit at
December 31, 1993 (41,549) (4,113,327) (4,154,876)
Distribution (5) (495) (500)
Net loss (896) (88,731) (89,627)
----------- ------------ -----------
Partners' deficit at
December 31, 1994 $ (42,450) $ (4,202,553) $ (4,245,003)
=========== ============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
BARKLEY PLACE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Year ended December 31,
1994 1993
-----------------------------
Cash flows from operating activities
Net loss $ (89,627) $ (182,495)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation 217,155 215,681
Changes in assets and liabilities
Increase in escrow deposits (4,557) (6,932)
(Increase) decrease in restricted cash -
security deposits 2,220 (996)
(Increase) decrease in rent receivables (4,538) 920
Decrease in partners' receivables 500 -
(Increase) decrease in other receivables (2,839) 1,500
(Increase) decrease in prepaid expenses (1,595) 2,025
Decrease in interest payable (111,814) (50,484)
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 27,477 (14,755)
Decrease in security deposit liability (1,466) (336)
--------- ---------
Net cash provided by (used in)
operating activities 30,916 (35,872)
Cash flows from investing activities
Purchase of property and equipment (31,390) (13,816)
--------- ---------
Cash used in investing activities (31,390) (13,816)
Cash flows from financing activities
Distribution to partners (500) -
--------- ---------
Cash used in financing activities (500) -
Net decrease in cash (974) (49,688)
Cash at beginning of period 28,685 78,373
--------- ---------
Cash at end of period $ 27,711 $ 28,685
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
BARKLEY PLACE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Organization
Barkley Place Limited Partnership ("Partnership") was formed July
1, 1988, for the purpose of acquiring, owning and operating
residential and commercial real estate. The Partners are SCA
Successor, Inc., the 1% General Partner, and Mark K. Joseph,
President of SCA Realty I, Inc., Garrett G. Carlson and Lount
Corporation, the 99% Limited Partners. 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 sale, exchange or other disposition
of real property in the project shall also be allocated as set forth in
the Partnership Agreement.
Acquisition of Property
As of September 8, 1988, the Partnership entered into a Transfer
Agreement with Heritage House of Ft. Myers ("Predecessor"), and
the Housing Finance Authority of Lee County, Florida, whereby the
title to the Barkley Place, a 156-unit senior living community located
in Ft. Myers, Florida, was transferred to the Partnership in lieu of
foreclosure. Through this Transfer Agreement, the Partnership
acquired all of Predecessor's rights, title and interest in the
property, and assumed all of Predecessor's obligations under the
Mortgage Note, Parity Working Capital Loans and all other mortgage
loan documents (collectively the "Mortgage Loan") and the
Regulatory Agreement.
As a result of the change in ownership, a new basis of accounting
was established. Accordingly, the aggregate acquisition cost has
been allocated among the acquired assets and assumed liabilities
giving appropriate recognition to the estimated fair value of the
assets acquired and liabilities assumed as follows:
Assumption of debt at fair market value
(including all legal obligations -
mortgage note and parity working capital loan) $ 9,130,000
============
Assets at fair market value
Land, property and equipment $ 8,026,660
Other assets 1,103,340
------------
$ 9,130,000
============
Mortgage Loan Default
At the time of its assumption by the Partnership, the Mortgage Loan
was in default for failure to pay full base interest due (Note 3).
Since that time, cash flows from operation of the property have
continued to be insufficient to bring the Mortgage Loan current.
SCA Tax Exempt Fund Limited Partnership ("SCA"), an affiliate of
the Partnership, holds the Mortgage Loan and has not waived
default thereunder. However, SCA has represented that it has no
plans or intentions to exercise its rights to accelerate the maturity of
the Mortgage Loan during the ensuing year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Partnership's financial statements are presented in accordance
with generally accepted accounting principles.
Certain prior year amounts in the accompanying financial statements
have been reclassified to conform with the current year presentation.
Property and Equipment
Property and equipment is stated at cost net of accumulated
depreciation computed using the straight-line method. Provisions for
depreciation are based on estimated useful lives of 40 years for
buildings and improvements and 10 years for furniture and
equipment.
Income Taxes
No provision for income taxes is provided in the financial statements
of the Partnership. In accordance with Federal and state income tax
regulations, the tax attributes of the Partnership accrue to the
individual partners. Each partner's allocable share of the
Partnership profit and loss is reported on the partner's tax return.
NOTE 3 - DEBT
The Partnership is obligated for a total of $8,830,000 under the
Mortgage Note. The Mortgage Note is assigned to SCA to secure the
payment of principal and interest on a tax-exempt Mortgage Revenue
Bond in a like amount. The Mortgage Note, which is collateralized
by a first priority lien on the real property and an assignment of
rents, matures in May 2011. The Mortgage Note may be prepaid in
whole but not in part, on or after September 8, 1995. Prepayment
of the Mortgage Note may be required upon the occurrence of an
event which would cause significant risk that the interest on the
Mortgage Revenue Bond would be subject to taxation.
Base interest on the original Mortgage Note is payable at a rate of
8%. Commencing on May 29, 1989, 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% (level 1 contingent interest). Any
remaining cash flow is split equally with the lender until the lender
reaches its 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 is deferred until the property is sold or the loan is repaid.
Sales 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 provide the lender a return equal
to the base interest rate plus 2.25%. Thereafter such proceeds are
split equally with the lender in order to provide a return of 16%.
The Partnership is also obligated for a $300,000 Parity Working
Capital Loan issued and held by SCA, which bears the same interest
rate and is payable on the same terms and conditions as the
Mortgage Note discussed above.
The Partnership has been unable to pay all base interest to date on
the Mortgage Loan; accordingly, it is uncertain whether project cash
flows will be sufficient to pay contingent interest. As a result, no
contingent interest has been accrued at December 31, 1994 and
1993. Aggregate unaccrued and unpaid level 1 and level 2
contingent interest is:
December 31,
1994 1993
----------------------
Level 1 $1,146,956 $ 941,531
Level 2 2,931,109 2,406,134
---------- ----------
$4,078,065 $3,347,665
========== ==========
Because of its inability to pay all base interest to date, the
Partnership is also in default of the Indenture of Trust for the
Mortgage Revenue Bond held by SCA. SCA has represented to the
General Partner that it does not, at this time, intend to exercise its
right to accelerate the maturity of the Mortgage Revenue Bond
during the ensuing year as a result of the default. 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 1994 and
1993 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. The $182,208 of unaccrued
interest on these loans at December 31, 1994 is not included in the
contingent interest amounts set forth above. These loans 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.
Cash outflows from operating activities for each of the years ended
December 31, 1994 and 1993 include interest of $882,214 and
$820,884, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
The property is managed by Shelter Properties, Inc. ("Shelter"), an
affiliate of SCA Realty I, Inc., the managing General Partner of
SCA, pursuant to a management agreement. Management fees paid
to Shelter for each of the years ended December 31, 1994 and
1993 were $139,128 and $129,953, respectively.
Under the terms of the Mortgage Note and the $300,000 Parity
Working Capital Loan, the Partnership is obligated to pay a
mortgage servicing fee to SCA Associates '86, L.P., an affiliate of
SCA Realty I, Inc. This fee is calculated at .75% of the aggregate
outstanding legal obligation of the Mortgage Note and the $300,000
Parity Working Capital Loan on January 1 of each year. Mortgage
servicing fees charged to operations for each of the years ended
December 31, 1994 and 1993 were $68,475.
NOTE 5 - REGULATORY AGREEMENT
The Partnership is subject to a Regulatory Agreement with the
Housing Finance Authority of Lee County, Florida. Under the
Regulatory Agreement, the property operated by the Partnership is
required to lease or hold available for leasing at least 20% of its
rental units to qualifying low or moderate income tenants. The
terms of the Regulatory Agreement were established in conjunction
with the Mortgage Loan to maintain the tax-exempt status of the
Mortgage Revenue Bond. At December 31, 1994 and 1993, the
Partnership was in compliance with the terms of this Regulatory
Agreement.
NOTE 6 - SUBSEQUENT EVENTS
In connection with a financing transaction consummated by SCA on
February 14, 1995, the following occurred:
Change in General Partner
As of January 1, 1995, SCA Successor, Inc., the 1% General
Partner of the Partnership, withdrew from the Partnership and was
replaced by SCA Successor II, Inc. as sole General Partner. Both
the former and the current General Partner are affiliates of SCA
Realty I, Inc.
Debt Restructuring
Effective February 14, 1995, the Partnership's obligation under the
Mortgage Note of $8,830,000 (the "Old Debt") (see Note 3) was
restructured into a Series A Mortgage Note of $5,350,000 and a
Series B Mortgage Note of $3,480,000 (collectively, the "New
Debt"). The New Debt secures the payment of principal and interest
on tax-exempt Mortgage Revenue Bonds in like amounts held by
SCA Tax Exempt Trust. The New Debt, which is collateralized by a
first priority lien on the real property and an assignment on rents,
matures in January 2030.
The Series A Mortgage Note bears interest at 7.05% per annum
which is due and payable monthly. Required monthly principal
payments commence January 1, 2001 and continue through
maturity.
The Series B Mortgage Note bears interest equal to the greater of (a)
three percent (3%) per annum or (b) the amount of Available Cash
Flow, as defined, not exceeding sixteen percent (16%) per annum.
Principal on the Series B Mortgage Note is due January 2030. To
the extent the Partnership has Available Cash Flow, interest on the
principal amount shall be due and payable monthly in accordance
with the Subordination Agreement described below.
On February 14, 1995, the unpaid accrued base interest on the Old
Debt, $1,234,819, and the Parity Working Capital Loan and
interest thereon, $1,364,321, were converted to an Accrued
Interest Note and a Working Capital Note, respectively, in equivalent
principal amounts. The Accrued Interest Note, Working Capital
Note and Load Loan Note in the amount of $331,677, incurred
primarily to purchase the interest rate cap discussed below,
(collectively, the "Notes") are held by MLPII Acquisition Limited
Partnership ("MLPII"), an affiliate of SCA. The Notes 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 Partnership has
Available Cash Flow, interest on the principal amount and scheduled
principal payments shall be due and payable monthly in accordance
with the Subordination Agreement described below.
The Notes and Series B Mortgage Note (together the "Junior Debt")
are subordinate in priority and right of payment to the Series A
Mortgage Note as described in the Subordination Agreement and
can only be paid from Available Cash Flow (including Restricted
Funds, as defined). Payments of principal and interest on the Junior
Debt are prioritized as follows: (i) interest payments due on the
Notes, prorata between the Notes; (ii) scheduled principal payments
due on the Notes, prorata between the Notes; (iii) interest payments
due on the Series B Mortgage Note; and (iv) the principal payment of
the Series B Mortgage Note due January 2030.
As part of the debt restructuring, the Partnership entered into a
cross-collateralization agreement with 11 other partnerships
controlled by SCA Successor II, Inc. ("Other Partnerships"). This
cross-collaterization agreement may result in the Partnership being
obligated under the Series A mortgage note obligations of the Other
Partnerships due to shortfalls in cash flows or Series A mortgage
note debt service coverage ratios. Based upon information currently
available, the General Partner does not anticipate that any payments
will be required under the cross-collateralization agreement.
Interest Rate Swap and Cap
The Partnership entered into an interest rate swap agreement for a
notional amount equal to the obligation under the Series A Mortgage
Note whereby a portion of the 7.05% per annum interest rate was
swapped into a floating interest rate. Under this interest rate swap,
the Partnership is obligated to pay Credit Suisse Financial Products
(the "Counterparty") a floating rate equivalent to the PSA Municipal
Swap Index, an index of weekly tax-exempt variable rate issues. In
return, the Counterparty will pay to the Partnership a fixed rate
equivalent to 6.1% per annum through January 1, 1999 and 5.15%
per annum through January 1, 2005. The Partnership utilized a
portion of the proceeds from the Load Loan Note discussed above to
purchase an interest rate cap which will serve to limit the
Partnership's obligation under the floating rate to 6.1% per annum
through January 1, 1999 and 5.15% per annum through January 1,
2005. The cost of the interest rate cap of $329,025 will be
deferred and amortized over its life. The Partnership continues to
be obligated under the Series A Mortgage Debt obligation in excess
of the fixed rate equivalent received from the Counterparty. Net
proceeds received, if any, under the interest swap are Restricted
Funds and are available only for Junior Debt obligations.
Member Interest
On January 1, 1995, the Partnership purchased a .5% member
interest in MLPI LLC ("MLPI"), an affiliate of SCA, for $200.
MLPI is a limited liability company formed under and pursuant to
the Maryland Limited Liability Company Act to act as the General
Partner in MLPII, a Maryland Limited Partnership, and to perform
the duties of General Partner under the Limited Partnership
Agreement of MLPII. MLPII intends to invest in tax-exempt bonds
or operating real estate properties. The net income or loss, capital
gains or losses, and distributions of MLPI shall be allocated to the
Partnership in accordance with the percentage of member interest
stated above. All distributions received from MLPI are classified as
Restricted Funds and are available only for Junior Debt Obligations.
<PAGE>
CREEKSIDE VILLAGE LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 15, 1995
To the Partners of
Creekside Village Limited Partnership
In our opinion, the accompanying balance sheet and the related
statements of operations, of partners' deficit and of cash flows
present fairly, in all material respects, the financial position of
Creekside Village Limited Partnership at December 31, 1994, and
the results of its operations and its cash flows for the period July 20,
1993 (date of inception) through 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 audit. We conducted our audit 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 audit
provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
<PAGE>
CREEKSIDE VILLAGE LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1994
Assets
Land $1,306,593
Buildings and improvements 10,258,249
Furniture and equipment 367,517
-----------
11,932,359
Less accumulated depreciation (268,774)
-----------
Net property and equipment 11,663,585
Cash
Unrestricted 62,706
Escrow deposits 57,101
Restricted - security deposits 70,102
Receivables 3,616
Prepaid expenses 7,739
-----------
Total assets $11,864,849
===========
Liabilities and Partners' Deficit
Liabilities
Mortgage note (Notes 3 and 4) $11,760,000
Parity working capital loan (Notes 3 and 4) 225,000
Interest payable 177,347
Accounts payable, accrued expenses
and other liabilities 102,453
Security deposit liability 69,857
-----------
Total liabilities 12,334,657
Commitments and contingencies (Notes 1, 3 and 5)
Partners' deficit (469,808)
-----------
Total liabilities and partners' deficit $11,864,849
===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
CREEKSIDE VILLAGE LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE PERIOD JULY 20, 1993 THROUGH DECEMBER 31, 1994
Revenue
Gross rent potential $1,464,065
Less: vacancies and concessions (47,731)
Other rental income 15,560
----------
Rental income 1,431,894
Interest income 4,361
----------
Total revenue 1,436,255
Expenses
Interest expense 884,403
Marketing 54,513
Administrative 132,799
Depreciation 268,774
Real estate taxes and insurance 126,813
Utilities 121,657
Maintenance and repairs 178,014
Management fees 56,690
Mortgage servicing fees 82,400
----------
Total expenses 1,906,063
----------
Net loss $(469,808)
==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
CREEKSIDE VILLAGE LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' DEFICIT
DECEMBER 31, 1994
SCA Limited
Successor, Inc. Partners Total
--------------- ---------- ---------
Contributions $ 5 $ 495 $ 500
Distributions (5) (495) (500)
Net loss (4,698) (465,110) (469,808)
--------- -------- ---------
Partners' deficit at
December 31, 1994 $ (4,698) $(465,110) $(469,808)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
CREEKSIDE VILLAGE LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIOD JULY 20, 1993 THROUGH DECEMBER 31, 1994
Cash flows from operating activities
Net loss $(469,808)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 268,774
Accretion of acquisition debt discount 60,434
Changes in assets and liabilities
Decrease in escrow deposits 81,882
Decrease in restricted cash - security deposits 148
Decrease in receivables 45,000
Decrease in prepaid expenses 12,325
Increase in interest payable 1,913
Decrease in accounts payable,
accrued expenses and other liabilities (14,618)
Decrease in security deposit liability (267)
--------
Net cash used in operating activities (14,217)
Cash flows from investing activities -
---------
Cash flows from financing activities -
---------
Net decrease in cash (14,217)
Cash at beginning of period 76,923
--------
Cash at end of period $ 62,706
========
The accompanying notes are an integral part of these financial statements.
<PAGE>
CREEKSIDE VILLAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Organization
Creekside Village Limited Partnership ("Partnership") was formed
July 20, 1993, for the purpose of acquiring, owning and operating
residential and commercial real estate. The Partnership had no
operations until the date of acquisition described below. The
Partners are SCA Successor, Inc., the 1% General Partner, SCA
Limited Partner Corporation and Mark K. Joseph, President of SCA
Realty I, Inc., the 99% Limited Partners. 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 sale, exchange or other disposition
of real property in the project shall also be allocated as set forth in
the Partnership Agreement.
Acquisition of Property
As of February 9, 1994, the Partnership entered into a Settlement
Agreement and Mutual Release with Creekside Ventures, Ltd.
("Predecessor"), and the County of Sacramento, California, whereby
the title to the Creekside Village Apartments, a 296-unit apartment
complex located in Sacramento, California, was transferred to the
Partnership in lieu of foreclosure. Through this Transfer
Agreement, the Partnership acquired all of Predecessor's rights, title
and interest in the property, and assumed all of Predecessor's
obligations under the Mortgage Note, Parity Working Capital Loan
and all other mortgage loan documents (collectively the "Mortgage
Loan") and the Regulatory Agreement.
As a result of the change in ownership, a new basis of accounting
was established. Accordingly, the aggregate acquisition cost has
been allocated among the acquired assets and assumed liabilities
giving appropriate recognition to the estimated fair value of the
assets acquired and liabilities assumed. The acquisition was
accounted for as follows:
Assumption of debt at fair market value
(including all legal obligations - mortgage note,
parity working capital loan and interest payable) $ 12,100,000
=============
Assets and liabilities at fair market value
Land, property and equipment $ 11,932,359
Other assets 354,836
Other liabilities (187,195)
-------------
$ 12,100,000
=============
Mortgage Loan Default
At the time of its assumption by the Partnership, the Mortgage Loan
was in default for failure to pay full base interest due (Note 3).
Since that time, cash flows from operation of the property have
continued to be insufficient to bring the Mortgage Loan current.
SCA Tax Exempt Fund Limited Partnership ("SCA"), an affiliate of
the Partnership, holds the Mortgage Loan and has not waived
default thereunder. However, SCA has represented that it has no
plans or intentions to exercise its rights to accelerate the maturity of
the Mortgage Loan during the ensuing year.
The Partnership's ability to continue as a going concern is
dependent upon SCA's continued forbearance. The accompanying
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Partnership's financial statements are presented in accordance
with generally accepted accounting principles.
Property and Equipment
Property and equipment is stated at cost net of accumulated
depreciation computed using the straight-line method. Provisions for
depreciation are based on estimated useful lives of 40 years for
buildings and improvements and 10 years for furniture and
equipment.
Income Taxes
No provision for income taxes is provided in the financial statements
of the Partnership. In accordance with Federal and state income tax
regulations, the tax attributes of the Partnership accrue to the
individual partners. Each partner's allocable share of the
Partnership profit and loss is reported on the partner's tax return.
NOTE 3 - DEBT
The Partnership is obligated for a total of $11,760,000 under the
Mortgage Note. The Mortgage Note is assigned to SCA to secure the
payment of principal and interest on a tax-exempt Mortgage Revenue
Bond in a like amount. The Mortgage Note, which is collateralized
by a first priority lien on the real property and an assignment of
rents, matures in November 2009. The Mortgage Note may be
prepaid in whole but not in part, on or after December 1, 1994.
Prepayment of the Mortgage Note may be required upon the
occurrence of an event which would cause significant risk that the
interest on the Mortgage Revenue Bond would be subject to taxation.
Base interest on the original Mortgage Note is payable at a rate of
7.5%. Commencing on August 1, 1989, 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% (level 1 contingent
interest). Any remaining cash flow is split equally with the lender
until the lender reaches its 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 is deferred until the property is sold or the
loan is repaid. Sales 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 provide the lender a
return equal to the base interest rate plus 2.25%. Thereafter such
proceeds are split equally with the lender in order to provide a
return of 16%.
The Partnership is also obligated for a $225,000 Parity Working
Capital Loan issued and held by SCA, which bears the same interest
rate and is payable on the same terms and conditions as the
Mortgage Note discussed above.
The Partnership has been unable to pay all base interest to date on
the Mortgage Loan; accordingly, it is uncertain whether project cash
flows will be sufficient to pay contingent interest. As a result, no
contingent interest has been accrued at December 31, 1994.
Aggregate unaccrued and unpaid level 1 and level 2 contingent
interest at December 31, 1994 is:
Level 1 $1,460,672
Level 2 4,057,423
----------
$5,518,095
==========
Because of its inability to pay all base interest to date, the
Partnership is also in default of the Indenture of Trust for the
Mortgage Revenue Bond held by SCA. SCA has represented to the
General Partner that it does not, at this time, intend to exercise its
right to accelerate the maturity of the Mortgage Revenue Bond
during the ensuing year as a result of the default.
The fair market value of all debt assumed at the date of acquisition
(Note 1) was less than the aggregate legal obligation under such debt
(including accrued interest) at that time by $1,038,042. Such
difference is being accreted via charges to interest expense over the
life of the debt.
Cash outflows from operating activities for the period ended
December 31, 1994 include interest of $822,056.
NOTE 4 - RELATED PARTY TRANSACTIONS
Under the terms of the Mortgage Loan, the Partnership and its
Predecessor are obligated to pay a mortgage servicing fee to SCA
Associates '86, L.P., an affiliate of SCA Realty I, Inc., the managing
General Partner of SCA. This fee is calculated at .75% of the
aggregate outstanding legal obligation of the Mortgage Loan on
January 1 of each year. Mortgage servicing fees charged to
operations for the period ended December 31, 1994 were $82,400,
which represents an allocation of the Partnership's share of the fees
since date of acquisition.
NOTE 5 - REGULATORY AGREEMENT
The Partnership is subject to a Regulatory Agreement with the
County of Sacramento, California. Under the Regulatory
Agreement, the property operated by the Partnership is required to
lease or hold available for leasing at least 20% of its rental units to
qualifying low or moderate income tenants. The terms of the
Regulatory Agreement were established in conjunction with the
Mortgage Loan to maintain the tax-exempt status of the Mortgage
Revenue Bond. At December 31, 1994 and 1993, the Partnership
was in compliance with the terms of this Regulatory Agreement.
NOTE 6 - SUBSEQUENT EVENTS
In connection with a financing transaction consummated by SCA on
February 14, 1995, the following occurred:
Change in General Partner
As of January 1, 1995, SCA Successor, Inc., the 1% General
Partner of the Partnership, withdrew from the Partnership and was
replaced by SCA Successor II, Inc. as sole General Partner. Both
the former and the General Partner are affiliates of SCA Realty I,
Inc.
Cross Collateralization Agreement
The Partnership entered into a cross-collateralization agreement with
11 other partnerships controlled by SCA Successor II, Inc. ("Other
Partnerships"). This cross-collaterization agreement may result in
the Partnership being obligated under mortgage note obligations of
the Other Partnerships due to shortfalls in cash flows or debt service
coverage ratios. Based upon information currently available, the
General Partner does not anticipate that any payments will be
required under the cross-collateralization agreement.
Member Interest
On January 1, 1995, the Partnership received a 4.5% member
interest in MLPI LLC ("MLPI"), an affiliate of SCA, in exchange for
agreeing to collateralize the operating shortfalls, if any, of the Other
Partnerships. MLPI is a limited liability company formed under and
pursuant to the Maryland Limited Liability Company Act to act as
the General Partner in MLPII, a Maryland Limited Partnership, and
to perform the duties of General Partner under the Limited
Partnership Agreement of MLPII. MLPII intends to invest in tax-
exempt bonds or operating real estate properties. The net income or
loss, capital gains or losses, and distributions of MLPI shall be
allocated to the Partnership in accordance with the percentage of
member interest stated above.
<PAGE>
HAMILTON GROVE LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 15, 1995
To the Partners of
Hamilton Grove Limited Partnership
In our opinion, the accompanying balance sheets and the related
statements of operations, of partners' deficit and of cash flows
present fairly, in all material respects, the financial position of
Hamilton Grove Limited Partnership at December 31, 1994, and
the results of its operations and its cash flows for the year 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 audit. We conducted our audit 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 audit
provides a reasonable basis for the opinion expressed above.
The financial statements of the Partnership for the year ended
December 31, 1993 were audited by other independent accountants
whose report dated March 4, 1994 expressed an unqualified
opinion on those statements. The report included an explanatory
paragraph expressing doubt as to whether the Partnership would
continue as a going concern based on the Partnership's net losses
from operations and accumulated deficit. As discussed in Note 6,
the Partnership's debt was restructured on February 14, 1995.
Management believes that the Partnership will meet all debt service
requirements under the terms of the new debt and, as a result, will
continue as a going concern.
PRICE WATERHOUSE LLP
<PAGE>
HAMILTON GROVE LIMITED PARTNERSHIP
BALANCE SHEETS
December 31,
1994 1993
------------------------
Assets
Land $900,000 $900,000
Buildings and improvements 9,846,708 9,846,708
Furniture and equipment 659,885 659,885
---------- ----------
11,406,593 11,406,593
Less accumulated depreciation (3,152,224) (2,736,139)
---------- ----------
Net property and equipment 8,254,369 8,670,454
Cash
Unrestricted 16,706 4,007
Escrow deposits 182,820 63,095
Restricted - security deposits 62,523 60,394
Rent receivables 8,658 1,825
Prepaid expenses 6,812 -
Debt issue costs (net of amortization) 292,713 330,235
---------- ----------
Total assets $8,824,601 $9,130,010
========== ==========
Liabilities and Partners' Deficit
Liabilities
Mortgage note (Notes 3 and 4) $13,875,000 $13,875,000
Parity working capital
loan (Notes 3 and 4) 100,000 100,000
Interest payable 600,083 263,196
Accounts payable, accrued expenses
and other liabilities 231,783 236,775
Security deposit liability 59,340 58,415
Advances from Limited Partners (Note 3) 544,135 499,415
----------- -----------
Total liabilities 15,410,341 15,032,801
Commitments and contingencies (Notes 1, 3 and 5)
Partners' deficit (6,585,740) (5,902,791)
----------- -----------
Total liabilities and
partners' deficit $ 8,824,601 $ 9,130,010
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
HAMILTON GROVE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Year ended December 31,
1994 1993
---------------------------
Revenue
Gross rent potential $1,929,631 $1,904,258
Less: vacancies and concessions (124,672) (126,470)
Other rental income 42,772 48,957
---------- ----------
Rental income 1,847,731 1,826,745
Interest income 3,622 1,489
Other income 107,107 134,648
---------- ----------
Total revenue 1,958,460 1,962,882
Expenses
Interest expense 1,118,000 1,118,000
Marketing 36,989 55,120
Administration 207,224 207,191
Depreciation and amortization 453,606 455,823
Real estate taxes and insurance 199,760 202,472
Utilities 185,309 153,747
Maintenance and repairs 265,820 155,744
Management fees 69,889 98,144
Mortgage servicing fees 104,812 104,812
---------- ----------
Total expenses 2,641,409 2,551,053
Net loss $ (682,949) $ (588,171)
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
HAMILTON GROVE LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
DECEMBER 31, 1994 AND 1993
General Limited
Partner Partners Total
--------- ---------- ---------
Partners' deficit at
December 31, 1992 $ (53,146) $(5,261,474) $(5,314,620)
Net loss (5,882) (582,289) (588,171)
--------- ----------- -----------
Partners' deficit at
December 31, 1993 (59,028) (5,843,763) (5,902,791)
Net loss (6,829) (676,120) (682,949)
--------- ----------- ----------
Partners' deficit at
December 31, 1994 $ (65,857) $(6,519,883) $(6,585,740)
========= =========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
HAMILTON GROVE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Year ended December 31,
1994 1993
-----------------------------
Cash flows from operating activities
Net loss $ (682,949) $ (588,171)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation and amortization 453,606 455,823
Changes in assets and liabilities
Increase in escrow deposits (119,725) (50,252)
Increase in restricted cash -
security deposits (2,129) (2,227)
Increase in rent receivables (6,832) (500)
Increase in prepaid expenses (6,812) -
Increase in interest payable 336,887 170,029
Decrease in accounts payable, accrued
expenses and other liabilities (4,992) (1,251)
Increase in security deposit liability 925 2,105
Increase in advances from Limited Partners 44,720 19,074
---------- ---------
Net cash provided by operating activities 12,699 4,630
Cash flows from investing activities
Purchase of property and equipment - (26,785)
---------- ---------
Cash used in investing activities - (26,785)
Net increase (decrease) in cash 12,699 (22,155)
Cash at beginning of period 4,007 26,162
---------- ---------
Cash at end of period $ 16,706 $ 4,007
========== =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
HAMILTON GROVE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Organization
Hamilton Grove Limited Partnership ("Partnership") was formed on
August 14, 1986 for the purpose of acquiring, owning and operating
residential and commercial real estate. The Partnership owns and
operates a 300 unit apartment complex located in Chattanooga,
Tennessee. Prior to February 28, 1994, the Partners were Venture
Technology Properties, the 1% General Partner, Leonard, Kinsey &
Associates, Ltd., Kenneth S. Hays, Jr., Henry L. Moise, John M.
Law and L, K & A Associates, I & II, the 99% Limited Partners.
Effective March 1, 1994, SCA Successor, Inc. replaced Venture
Technology Properties as sole General Partner, and Venture
Technology Properties became a Limited Partner. All operating
profits and losses and distributions are to be allocated in accordance
with the percentages as set forth in the Partnership Agreement. Any
gains and losses recognized upon sale, exchange or other disposition
of real property in the project shall also be allocated as set forth in
the Partnership Agreement.
Mortgage Loan Default
The Mortgage Note, Parity Working Capital Loan and all other
mortgage loan documents (collectively the "Mortgage Loan") are in
default for failure to pay full base interest due (Note 3). SCA Tax
Exempt Fund Limited Partnership ("SCA"), an affiliate of the
Partnership, holds the Mortgage Loan and has not waived default
thereunder. However, SCA has represented that it has no plans or
intentions to exercise its rights to accelerate the maturity of the
Mortgage Loan during the ensuing year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Partnership's financial statements are presented in accordance
with generally accepted accounting principles.
Certain prior year amounts in the accompanying financial statements
have been reclassified to conform with the current year presentation.
Property and Equipment
Property and equipment is stated at cost net of accumulated
depreciation computed using the straight-line method for buildings
and improvements and double-declining balance for furniture and
equipment. Provisions for depreciation are based on estimated
useful lives of 27.5 years for buildings and improvements and 7
years for furniture and equipment.
Income Taxes
No provision for income taxes is provided in the financial statements
of the Partnership. In accordance with Federal and state income tax
regulations, the tax attributes of the Partnership accrue to the
individual partners. Each partner's allocable share of the
Partnership profit and loss is reported on the partner's tax return.
Debt Issue Costs
Debt Issue Costs of $562,819 are being amortized over the life of
the related debt of the Partnership.
NOTE 3 - DEBT
The Partnership is obligated for a total of $13,875,000 under the
Mortgage Note. The Mortgage Note is assigned to SCA to secure the
payment of principal and interest on a tax-exempt Mortgage Revenue
Bond in a like amount. The Mortgage Note, which is collateralized
by a first priority lien on the real property and an assignment of
rents, matures in August 2006. The Mortgage Note may be prepaid
in whole but not in part, on or after March 1, 1994. Prepayment of
the Mortgage Note may be required upon the occurrence of an event
which would cause significant risk that the interest on the Mortgage
Revenue Bond would be subject to taxation.
Base interest on the original Mortgage Note is payable at a rate of
8%. Commencing on December 1, 1988, 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% (level 1 contingent
interest). Any remaining cash flow is split equally with the lender
until the lender reaches its 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 is deferred until the property is sold or the
loan is repaid. Sales 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 provide the lender a
return equal to the base interest rate plus 2.25%. Thereafter such
proceeds are split equally with the lender in order to provide a
return of 16%.
The Partnership is also obligated for a $100,000 Parity Working
Capital Loan issued and held by SCA, which bears the same interest
rate and is payable on the same terms and conditions as the
Mortgage Note discussed above.
The Partnership has been unable to pay all base interest to date on
the Mortgage Loan; accordingly, it is uncertain whether project cash
flows will be sufficient to pay contingent interest. As a result, no
contingent interest has been accrued at December 31, 1994 and
1993. Aggregate unaccrued and unpaid level 1 and level 2
contingent interest is:
December 31,
1994 1993
-------------------------
Level 1 $1,912,827 $1,598,390
Level 2 4,888,336 4,084,773
---------- ----------
$6,801,163 $5,683,163
========== ==========
Because of its inability to pay all base interest to date, the
Partnership is also in default of the Indenture of Trust for the
Mortgage Revenue Bond held by SCA. SCA has represented to the
General Partner that it does not, at this time, intend to exercise its
right to accelerate the maturity of the Mortgage Revenue Bond
during the ensuing year as a result of the default.
Advances from Limited Partners of $544,135 and $499,415 at
December 31, 1994 and 1993, respectively, are used to fund the
Partnership's debt service short-falls. Certain of the advances bear
interest at the lesser of the Prime Rate as established by the Bank of
America or the cost of borrowing of the Partnership. All of the
advances are subordinate to contingent interest on the Mortgage
Loan. As of December 31, 1994 and 1993, no interest has been
accrued on these advances.
Cash outflows from operating activities for each of the years ended
December 31, 1994 and 1993 include interest of $781,113 and
$947,971, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
The property was managed by Leonard, Kinsey & Associates, Ltd.,
an affiliate of the Partnership, pursuant to a management agreement
which was terminated in June 1994. Management fees paid to
Leonard, Kinsey & Associates, Ltd. for each of the years ended
December 31, 1994 and 1993 were $39,279 and $98,144,
respectively. For the remainder of 1994, the property was managed
by Shelter Properties, Inc. ("Shelter"), an affiliate of SCA Realty I,
Inc., the managing General Partner of SCA. Management fees paid
to Shelter for the year ended December 31, 1994 were $30,610.
Under the terms of the Mortgage Loan, the Partnership is obligated
to pay a mortgage servicing fee to SCA Associates '86, L.P., an
affiliate of SCA Realty I, Inc. This fee is calculated at .75% of the
aggregate outstanding legal obligation of the Mortgage Loan on
January 1 of each year. Mortgage servicing fees charged to
operations for each of the years ended December 31, 1994 and
1993 were $104,812.
NOTE 5 - REGULATORY AGREEMENT
The Partnership is subject to a Regulatory Agreement with the
Industrial Development Board of the County of Hamilton. Under
the Regulatory Agreement, the property operated by the Partnership
is required to lease or hold available for leasing at least 20% of its
rental units to qualifying low or moderate income tenants. The
terms of the Regulatory Agreement were established in conjunction
with the Mortgage Loan to maintain the tax-exempt status of the
Mortgage Revenue Bond. At December 31, 1994 and 1993, the
Partnership was in compliance with the terms of this Regulatory
Agreement.
NOTE 6 - SUBSEQUENT EVENTS
In connection with a financing transaction consummated by SCA on
February 14, 1995, the following occurred:
Change in General Partner
As of January 1, 1995, SCA Successor, Inc., the 1% General
Partner of the Partnership, withdrew from the Partnership and was
replaced by SCA Successor II, Inc. as sole General Partner. Both
the former and the General Partner are affiliates of SCA Realty I,
Inc.
Debt Restructuring
Effective February 14, 1995, the Partnership's obligation under the
Mortgage Note of $13,875,000 (the "Old Debt") (see Note 3) was
restructured into a Series A Mortgage Note of $7,625,000 and a
Series B Mortgage Note of $6,250,000 (collectively, the "New
Debt"); unamortized debt issue cost of $288,088 related to the Old
Debt were written-off to operations as of that date. The New Debt
secures the payment of principal and interest on tax-exempt
Mortgage Revenue Bonds in like amounts held by SCA Tax Exempt
Trust. The New Debt, which is collateralized by a first priority lien
on the real property and an assignment on rents, matures in January
2030.
The Series A Mortgage Note bears interest at 7.35% per annum
which is due and payable monthly. Required monthly principal
payments commence January 1, 2001 and continue through
maturity.
The Series B Mortgage Note bears interest equal to the greater of (a)
three percent (3%) per annum or (b) the amount of Available Cash
Flow, as defined, not exceeding sixteen percent (16%) per annum.
Principal on the Series B Mortgage Note is due January 2030. To
the extent the Partnership has Available Cash Flow, interest on the
principal amount shall be due and payable monthly in accordance
with the Subordination Agreement described below.
On February 14, 1995, the unpaid accrued base interest on the Old
Debt, $676,874, and the Parity Working Capital Loan and interest
thereon, $104,909, were converted to an Accrued Interest Note and
a Working Capital Note, respectively, in equivalent principal
amounts. The Accrued Interest Note, Working Capital Note and
Load Loan Note in the amount of $475,633, incurred primarily to
purchase the interest rate cap discussed below, (collectively, the
"Notes") are held by MLPII Acquisition Limited Partnership
("MLPII"), an affiliate of SCA. The Notes 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 Partnership has Available Cash Flow, interest on
the principal amount and scheduled principal payments shall be due
and payable monthly in accordance with the Subordination
Agreement described below.
The Notes and Series B Mortgage Note (together the "Junior Debt")
are subordinate in priority and right of payment to the Series A
Mortgage Note as described in the Subordination Agreement and
can only be paid from Available Cash Flow (including Restricted
Funds, as defined). Payments of principal and interest on the Junior
Debt are prioritized as follows: (i) interest payments due on the
Notes, prorata between the Notes; (ii) scheduled principal payments
due on the Notes, prorata between the Notes; (iii) interest payments
due on the Series B Mortgage Note; (iv) the principal payment of the
Series B Mortgage Note due January 2030; and (v) advances to
Limited Partners.
As part of the debt restructuring, the Partnership entered into a
cross-collateralization agreement with 11 other partnerships
controlled by SCA Successor II, Inc. ("Other Partnerships"). This
cross-collaterization agreement may result in the Partnership being
obligated under the Series A mortgage note obligations of the Other
Partnerships due to shortfalls in cash flows or Series A mortgage
note debt service coverage ratios. Based upon information currently
available, the General Partner does not anticipate that these
contingent obligations will ever be realized.
Interest Rate Swap and Cap
The Partnership entered into an interest rate swap agreement for a
notional amount equal to the obligation under the Series A Mortgage
Note whereby a portion of the 7.35% per annum interest rate was
swapped into a floating interest rate. Under this interest rate swap,
the Partnership is obligated to pay Credit Suisse Financial Products
(the "Counterparty") a floating rate equivalent to the PSA Municipal
Swap Index, an index of weekly tax-exempt variable rate issues. In
return, the Counterparty will pay to the Partnership a fixed rate
equivalent to 6.1% per annum through January 1, 1999 and 5.15%
per annum through January 1, 2005. The Partnership utilized a
portion of the proceeds from the Load Loan Note discussed above to
purchase an interest rate cap which will serve to limit the
Partnership's obligation under the floating rate to 6.1% per annum
through January 1, 1999 and 5.15% per annum through January 1,
2005. The cost of the interest rate cap of $468,938 will be
deferred and amortized over its life. The Partnership continues to
be obligated under the Series A Mortgage Debt obligation in excess
of the fixed rate equivalent received from the Counterparty. Net
proceeds received, if any, under the interest swap are Restricted
Funds and are available only for Junior Debt obligations.
Member Interest
On January 1, 1995, the Partnership purchased a 8% member
interest in MLPI LLC ("MLPI"), an affiliate of SCA, for $3,200.
MLPI is a limited liability company formed under and pursuant to
the Maryland Limited Liability Company Act to act as the General
Partner in MLPII, a Maryland Limited Partnership, and to perform
the duties of General Partner under the Limited Partnership
Agreement of MLPII. MLPII intends to invest in tax-exempt bonds
or operating real estate properties. The net income or loss, capital
gains or losses, and distributions of MLPI shall be allocated to the
Partnership in accordance with the percentage of member interest
stated above. All distributions received from MLPI are classified as
Restricted Funds and are available only for Junior Debt Obligations.
<PAGE>
GILMAN MEADOWS LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 15, 1995
To the Partners of
Gilman Meadows Limited Partnership
In our opinion, the accompanying balance sheets and the related
statements of operations, of partners' deficit and of cash flows
present fairly, in all material respects, the financial position of
Gilman Meadows Limited Partnership at December 31, 1994 and
1993, and the results of its operations and its cash flows for the
years then ended 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.
PRICE WATERHOUSE LLP
<PAGE>
GILMAN MEADOWS LIMITED PARTNERSHIP
BALANCE SHEETS
December 31,
1994 1993
----------------------------
Assets
Land $1,109,794 $1,109,794
Buildings and improvements 6,201,232 6,201,232
Furniture and equipment 161,540 161,540
---------- ----------
7,472,566 7,472,566
Less accumulated depreciation (427,278) (256,093)
---------- ----------
Net property and equipment 7,045,288 7,216,473
Cash
Unrestricted 18,913 15,646
Escrow deposits 44,026 31,832
Restricted - security deposits 34,289 32,051
Receivables
Rent 5,350 720
Partners - 500
Prepaid expenses 5,058 6,806
---------- ----------
Total assets $7,152,924 $7,304,028
========== ==========
Liabilities and Partners' Deficit
Liabilities
Mortgage note (Notes 3 and 4) $6,875,000 $6,875,000
Parity working capital loan (Notes 3 and 4) 225,000 225,000
Interest payable 707,517 667,537
Accounts payable, accrued expenses
and other liabilities 36,794 24,465
Security deposit liability 34,200 32,051
---------- ----------
Total liabilities 7,878,511 7,824,053
Commitments and contingencies (Notes 1, 3 and 5)
Partners' deficit (725,587) (520,025)
---------- ----------
Total liabilities and partners' deficit $7,152,924 $7,304,028
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
GILMAN MEADOWS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Year ended December 31,
1994 1993
--------------------------
Revenue
Gross rent potential $1,071,289 $1,024,771
Less: vacancies and concessions (89,556) (155,847)
Other rental income 50,077 49,150
---------- ----------
Rental income 1,031,810 918,074
Interest income 2,128 794
---------- ----------
Total revenue 1,033,938 918,868
Expenses
Interest expense 568,000 567,996
Marketing 11,592 16,948
Administrative 76,287 64,265
Depreciation 171,185 170,843
Real estate taxes and insurance 94,831 101,859
Utilities 104,962 92,412
Maintenance and repairs 131,583 170,799
Management fees 31,747 28,183
Mortgage servicing fees 48,813 53,250
---------- ----------
Total expenses 1,239,000 1,266,555
---------- ----------
Net loss $(205,062) $(347,687)
========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
GILMAN MEADOWS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
DECEMBER 31, 1994 AND 1993
SCA Limited
Successor, Inc. Partners Total
--------------- --------- ---------
Partners' deficit at
December 31, 1992 $(1,723) $(170,615) $(172,338)
Net loss (3,477) (344,210) (347,687)
---------------- ---------- ---------
Partners' deficit at
December 31, 1993 (5,200) (514,825) (520,025)
Distributions (5) (495) (500)
Net loss (2,051) (203,011) (205,062)
---------------- ---------- ---------
Partners' deficit at
December 31, 1994 $(7,256) $(718,331) $(725,587)
================ ========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
GILMAN MEADOWS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Year ended December 31,
1994 1993
------------------------
Cash flows from operating activities
Net loss $(205,062) $(347,687)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 171,185 170,843
Changes in assets and liabilities
(Increase) decrease in escrow deposits (12,194) 27,346
Increase in restricted cash
- security deposits (2,238) (2,121)
(Increase) decrease in rent receivables (4,630) 11,438
Decrease in partners' receivables 500 -
(Increase) decrease in prepaid expenses 1,748 (2,368)
Increase in interest payable 39,980 151,871
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 12,329 (6,277)
Increase in security deposit liability 2,149 2,121
-------- --------
Net cash provided by operating activities 3,767 5,166
Cash flows from investing activities
Purchase of property and equipment - (6,838)
-------- --------
Cash used in investing activities - (6,838)
Cash flows from financing activities
Distribution to partners (500) -
-------- --------
Cash used in financing activities (500) -
Net increase (decrease) in cash 3,267 (1,672)
Cash at beginning of period 15,646 17,318
-------- --------
Cash at end of period $18,913 $15,646
======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
GILMAN MEADOWS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Organization
Gilman Meadows Limited Partnership ("Partnership") was formed
January 22, 1992, for the purpose of acquiring, owning and
operating residential and commercial real estate. The Partners are
SCA Successor, Inc., the 1% General Partner, and Michael L.
Falcone, Thomas R. Hobbs, Vice President of SCA Successor II,
Inc., Garrett G. Carlson and Lynn Carlson-Schell, the 99% Limited
Partners. 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 sale, exchange or other disposition of real property in the
project shall also be allocated as set forth in the Partnership
Agreement.
Acquisition of Property
As of July 10, 1992, the Partnership entered into a Transfer
Agreement with Axelrod Gilman Meadows Limited Partnership
("Predecessor"), and the Washington State Housing Finance
Commission, whereby the title to the Gilman Meadows Apartments, a
125-unit apartment complex located in Issaquah, Washington, was
transferred to the Partnership in lieu of foreclosure. Through this
Transfer Agreement, the Partnership acquired all of Predecessor's
rights, title and interest in the property, and assumed all of
Predecessor's obligations under the Mortgage Note, Parity Working
Capital Loan and all other mortgage loan documents (collectively the
"Mortgage Loan") and the Regulatory Agreement.
As a result of the change in ownership, a new basis of accounting
was established. Accordingly, the aggregate acquisition cost has
been allocated among the acquired assets and assumed liabilities
giving appropriate recognition to the estimated fair value of the
assets acquired and liabilities assumed as follows:
Assumption of debt at fair market value
(including all legal obligations - mortgage note,
parity working capital loan and interest payable) $ 7,512,667
============
Assets and liabilities at fair market value
Land, property and equipment $ 7,465,728
Other assets 98,968
Other liabilities (52,029)
------------
$ 7,512,667
============
Mortgage Loan Default
At the time of its assumption by the Partnership, the Mortgage Loan
was in default for failure to pay full base interest due (Note 3).
Since that time, cash flows from operation of the property have
continued to be insufficient to bring the Mortgage Loan current.
SCA Tax Exempt Fund Limited Partnership ("SCA"), an affiliate of
the Partnership, holds the Mortgage Loan and has not waived
default thereunder. However, SCA has represented that it has no
plans or intentions to exercise its rights to accelerate the maturity of
the Mortgage Loan during the ensuing year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Partnership's financial statements are presented in accordance
with generally accepted accounting principles.
Property and Equipment
Property and equipment is stated at cost net of accumulated
depreciation computed using the straight-line method. Provisions for
depreciation are based on estimated useful lives of 40 years for
buildings and improvements and 10 years for furniture and equipment.
Income Taxes
No provision for income taxes is provided in the financial statements
of the Partnership. In accordance with Federal and state income tax
regulations, the tax attributes of the Partnership accrue to the
individual partners. Each partner's allocable share of the
Partnership profit and loss is reported on the partner's tax return.
NOTE 3 - DEBT
The Partnership is obligated for a total of $6,875,000 under the
Mortgage Note. The Mortgage Note is assigned to SCA to secure the
payment of principal and interest on a tax-exempt Mortgage Revenue
Bond in a like amount. The Mortgage Note, which is collateralized
by a first priority lien on the real property and an assignment of
rents, matures in April 2007. The Mortgage Note may be prepaid
in whole but not in part, on or after March 1, 1994. Prepayment of
the Mortgage Note may be required upon the occurrence of an event
which would cause significant risk that the interest on the Mortgage
Revenue Bond would be subject to taxation.
Base interest on the original Mortgage Note is payable at a rate of
8%. Commencing on March 1, 1988, 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% (level 1 contingent interest). Any
remaining cash flow is split equally with the lender until the lender
reaches its 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 is deferred until the property is sold or the loan is repaid.
Sales 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 provide the lender a return equal
to the base interest rate plus 2.25%. Thereafter such proceeds are
split equally with the lender in order to provide a return of 16%.
The Partnership is also obligated for a $225,000 Parity Working
Capital Loan issued and held by SCA, which bears the same interest
rate and is payable on the same terms and conditions as the
Mortgage Note discussed above.
The Partnership has been unable to pay all base interest to date on
the Mortgage Loan; accordingly, it is uncertain whether project cash
flows will be sufficient to pay contingent interest. As a result, no
contingent interest has been accrued at December 31, 1994 and
1993. Aggregate unaccrued and unpaid level 1 and level 2
contingent interest is:
December 31,
1994 1993
------------------------
Level 1 $ 1,091,093 $ 931,343
Level 2 2,788,348 2,380,098
----------- ----------
$ 3,879,441 $3,311,441
Because of its inability to pay all base interest to date, the
Partnership is also in default of the Indenture of Trust for the
Mortgage Revenue Bond held by SCA. SCA has represented to the
General Partner that it does not, at this time, intend to exercise its
right to accelerate the maturity of the Mortgage Revenue Bond
during the ensuing year as a result of the default.
Cash outflows from operating activities for each of the years ended
December 31, 1994 and 1993 include interest of $528,020 and
$416,125, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
Under the terms of the Mortgage Loan, the Partnership is obligated
to pay a mortgage servicing fee to SCA Associates '86, L.P., an
affiliate of SCA Realty I, Inc., the managing General Partner of
SCA. This fee is calculated at .75% of the aggregate outstanding
legal obligation of the Mortgage Loan on January 1 of each year.
Mortgage servicing fees charged to operations for each of the years
ended December 31, 1994 and 1993 were $48,813 and $53,250,
respectively.
NOTE 5 - REGULATORY AGREEMENT
The Partnership is subject to a Regulatory Agreement with the
Washington State Housing Finance Commission. Under the
Regulatory Agreement, the property operated by the Partnership is
required to lease or hold available for leasing at least 20% of its
rental units to qualifying low or moderate income tenants. The
terms of the Regulatory Agreement were established in conjunction
with the Mortgage Loan to maintain the tax-exempt status of the
Mortgage Revenue Bond. At December 31, 1994 and 1993, the
Partnership was in compliance with the terms of this Regulatory
Agreement.
NOTE 6 - SUBSEQUENT EVENTS
In connection with a financing transaction consummated by SCA on
February 14, 1995, the following occurred:
Change in General Partner
As of January 1, 1995, SCA Successor, Inc., the 1% General
Partner of the Partnership, withdrew from the Partnership and was
replaced by SCA Successor II, Inc. as sole General Partner. Both
the former and the current General Partner are affiliates of SCA
Realty I, Inc.
Debt Restructuring
Effective February 14, 1995, the Partnership's obligation under the
Mortgage Note of $6,875,000 (the "Old Debt") (see Note 3) was
restructured into a Series A Mortgage Note of $4,000,000 and a
Series B Mortgage Note of $2,875,000 (collectively, the "New
Debt"). The New Debt secures the payment of principal and interest
on tax-exempt Mortgage Revenue Bonds in like amounts held by
SCA Tax Exempt Trust. The New Debt, which is collateralized by a
first priority lien on the real property and an assignment on rents,
matures in January 2030.
The Series A Mortgage Note bears interest at 7.4% per annum
which is due and payable monthly. Required monthly principal
payments commence January 1, 2001 and continue through
maturity.
The Series B Mortgage Note bears interest equal to the greater of (a)
three percent (3%) per annum or (b) the amount of Available Cash
Flow, as defined, not exceeding sixteen percent (16%) per annum.
Principal on the Series B Mortgage Note is due January 2030. To
the extent the Partnership has Available Cash Flow, interest on the
principal amount shall be due and payable monthly in accordance
with the Subordination Agreement described below.
On February 14, 1995, the unpaid accrued base interest on the Old
Debt, $651,185, and the Parity Working Capital Loan and interest
thereon, $246,318, were converted to an Accrued Interest Note and
a Working Capital Note, respectively, in equivalent principal
amounts. The Accrued Interest Note, Working Capital Note and
Load Loan Note in the amount of $248,433, incurred primarily to
purchase the interest rate cap discussed below, (collectively, the
"Notes") are held by MLPII Acquisition Limited Partnership
("MLPII"), an affiliate of SCA. The Notes 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 Partnership has Available Cash Flow, interest on
the principal amount and scheduled principal payments shall be due
and payable monthly in accordance with the Subordination
Agreement described below.
The Notes and Series B Mortgage Note (together the "Junior Debt")
are subordinate in priority and right of payment to the Series A
Mortgage Note as described in the Subordination Agreement and
can only be paid from Available Cash Flow (including Restricted
Funds, as defined ). Payments of principal and interest on the
Junior Debt are prioritized as follows: (i) interest payments due on
the Notes, prorata between the Notes; (ii) scheduled principal
payments due on the Notes, prorata between the Notes; (iii) interest
payments due on the Series B Mortgage Note; and (iv) the principal
payment of the Series B Mortgage Note due January 2030.
As part of the debt restructuring, the Partnership entered into a
cross-collateralization agreement with 11 other partnerships
controlled by SCA Successor II, Inc. ("Other Partnerships"). This
cross-collaterization agreement may result in the Partnership being
obligated under the Series A mortgage note obligations of the Other
Partnerships due to shortfalls in their cash flows or Series A
mortgage note debt service coverage ratios. Based upon information
currently available, the General Partner does not anticipate that any
payments will be required under the cross-collateralization
agreement.
Interest Rate Swap and Cap
The Partnership entered into an interest rate swap agreement for a
notional amount equal to the obligation under the Series A Mortgage
Note whereby a portion of the 7.4% per annum interest rate was
swapped into a floating interest rate. Under this interest rate swap,
the Partnership is obligated to pay Credit Suisse Financial Products
(the "Counterparty") a floating rate equivalent to the PSA Municipal
Swap Index, an index of weekly tax-exempt variable rate issues. In
return, the Counterparty will pay to the Partnership a fixed rate
equivalent to 6.1% per annum through January 1, 1999 and 5.15%
per annum through January 1, 2005. The Partnership utilized a
portion of the proceeds from the Load Loan Note discussed above to
purchase an interest rate cap which will serve to limit the
Partnership's obligation under the floating rate to 6.1% per annum
through January 1, 1999 and 5.15% per annum through January 1,
2005. The cost of the interest rate cap of $246,000 will be
deferred and amortized over its life. The Partnership continues to
be obligated under the Series A Mortgage Debt obligation in excess
of the fixed rate equivalent received from the Counterparty. Net
proceeds received, if any, under the interest swap are Restricted
Funds and are available only for Junior Debt obligations.
Member Interest
On January 1, 1995, the Partnership purchased a 1.5% member
interest in MLPI LLC ("MLPI"), an affiliate of SCA, for $600.
MLPI is a limited liability company formed under and pursuant to
the Maryland Limited Liability Company Act to act as the General
Partner in MLPII, a Maryland Limited Partnership, and to perform
the duties of General Partner under the Limited Partnership
Agreement of MLPII. MLPII intends to invest in tax-exempt bonds
or operating real estate properties. The net income or loss, capital
gains or losses, and distributions of MLPI shall be allocated to the
Partnership in accordance with the percentage of member interest
stated above. All distributions received from MLPI are classified as
Restricted Funds and are available only for Junior Debt Obligations.
<PAGE>
MALLARD I LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 15, 1995
To the Partners of
Mallard I Limited Partnership
In our opinion, the accompanying balance sheets and the related
statements of operations, of partners' deficit and of cash flows
present fairly, in all material respects, the financial position of
Mallard I Limited Partnership at December 31, 1994 and 1993,
and the results of its operations and its cash flows for the years then
ended 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.
PRICE WATERHOUSE LLP
<PAGE>
MALLARD I LIMITED PARTNERSHIP
BALANCE SHEETS
December 31,
1994 1993
Assets
Land $ 361,313 $ 361,313
Buildings and improvements 2,186,708 2,186,708
Furniture and equipment 72,263 72,263
---------- ----------
2,620,284 2,620,284
Less accumulated depreciation (154,735) (92,841)
---------- ----------
Net property and equipment 2,465,549 2,527,443
Cash
Unrestricted 12,894 8,675
Escrow deposits 13,950 13,182
Restricted - security deposits 10,976 12,072
Receivables
Rent 1,047 893
Partners - 500
Other - 716
Prepaid expenses 3,705 3,821
---------- ----------
Total assets $2,508,121 $2,567,302
========== ==========
Liabilities and Partners' Deficit
Liabilities
Mortgage note (Notes 3 and 4) $2,470,000 $2,470,000
Parity working capital loan (Notes 3 and 4) 140,000 140,000
Interest payable 225,964 136,759
Accounts payable, accrued expenses
and other liabilities 11,759 11,344
Security deposit liability 10,976 12,072
---------- ----------
Total liabilities 2,858,699 2,770,175
Commitments and contingencies (Notes 1, 3 and 5)
Partners' deficit (350,578) (202,873)
---------- ----------
Total liabilities and partners' deficit $2,508,121 $2,567,302
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
MALLARD I LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Year ended December 31,
1994 1993
----------------------------
Revenue
Gross rent potential $ 376,005 $ 365,585
Less: vacancies and concessions (36,674) (30,820)
Other rental income 13,086 8,560
----------- ----------
Rental income 352,417 343,325
Interest income 771 344
----------- ----------
Total revenue 353,188 343,669
Expenses
Interest expense 202,310 190,536
Marketing 9,338 11,231
Administration 49,637 52,883
Depreciation 61,894 61,894
Real estate taxes and insurance 40,770 39,679
Utilities 36,093 34,047
Maintenance and repairs 68,534 70,647
Management fees 12,242 8,926
Mortgage servicing fees 19,575 19,572
----------- ----------
Total expenses 500,393 489,415
----------- ----------
Net loss $ (147,205) $ (145,746)
=========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
MALLARD I LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
DECEMBER 31, 1994 AND 1993
SCA Limited
Successor, Inc. Partners Total
--------------- ---------- ----------
Partners' deficit at
December 31, 1992 $ (571) $ (56,556) $ (57,127)
Net loss (1,458) (144,288) (145,746)
-------- ---------- ----------
Partners' deficit at
December 31, 1993 (2,029) (200,844) (202,873)
Distributions (5) (495) (500)
Net loss (1,472) (145,733) (147,205)
-------- ---------- ----------
Partners' deficit at
December 31, 1994 $ (3,506) $ (347,072) $(350,578)
======== ========== =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
MALLARD I LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Year ended December 31,
1994 1993
----------------------------
Cash flows from operating activities
Net loss $ (147,205) $ (145,746)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation 61,894 61,894
Accretion of acquisition debt discount 11,780 -
Changes in assets and liabilities
(Increase) decrease in escrow deposits (768) 6,498
(Increase) decrease in restricted cash -
security deposits 1,096 (340)
Increase in rent receivables (154) (893)
Decrease in partners' receivables 500 -
(Increase) decrease in other receivables 716 (716)
(Increase) decrease in prepaid expenses 116 (3,821)
Increase in interest payable 77,425 70,262
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 415 (2,290)
Increase (decrease) in security
deposit liability (1,096) 340
Net cash provided by (used in) -------- --------
operating activities 4,719 (14,812)
Cash flows from financing activities
Distribution to partners (500) -
-------- --------
Cash used in financing activities (500) -
Net increase (decrease) in cash 4,219 (14,812)
Cash at beginning of period 8,675 23,487
-------- --------
Cash at end of period $ 12,894 $ 8,675
======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
MALLARD I LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Organization
Mallard I Limited Partnership ("Partnership") was formed on
January 22, 1992 for the purpose of acquiring, owning and
operating residential and commercial real estate. For the year
ended December 31, 1993, the Partners were SCA Successor, Inc.,
the 1% General Partner, and SCA Limited Partner Corporation, the
99% Limited Partner. Effective January 1, 1994, the Limited
Partnership Agreement was amended whereby SCA Limited Partner
Corporation transferred 40.5% and 7.5% interests to Mark K.
Joseph, President, and Marilynn K. Duker, Vice President, of SCA
Realty I, Inc., respectively. All operating profits and losses and
distributions 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 sale, exchange or other disposition
of real property in the project shall be allocated as set forth in the
Partnership Agreement.
Acquisition of Property
As of July 9, 1992, the Partnership entered into a Transfer
Agreement with Mallard Cove Associates I ("Predecessor") and the
Washington State Housing Finance Commission, whereby the title to
the 63 apartment units comprising Phase I of the Mallard Cove
Apartments, located in Everett, Washington, was transferred to the
Partnership in lieu of foreclosure. Through this Transfer
Agreement, the Partnership acquired all of Predecessor's rights, title
and interest in the property, and assumed all of Predecessor's
obligations under the Mortgage Note, Parity Working Capital Loan
and all other mortgage loan documents (collectively the "Mortgage
Loan") and the Regulatory Agreement.
As a result of the change in ownership, a new basis of accounting
was established. Accordingly, the aggregate acquisition cost has
been allocated among the acquired assets and assumed liabilities
giving appropriate recognition to the estimated fair value of the
assets acquired and liabilities assumed. The acquisition was
accounted for at fair value as follows:
Assumption of debt at fair market value
(including all legal obligations - mortgage note,
parity working capital loan and interest payable) $ 2,610,000
============
Assets and liabilities at fair market value
Land, property and equipment $ 2,620,284
Other assets 29,145
Other liabilities (39,429)
------------
$ 2,610,000
============
Mortgage Loan Default
At the time of its assumption by the Partnership, the Mortgage Loan
was in default for failure to pay full base interest due (Note 3).
Since that time, cash flows from operation of the property have
continued to be insufficient to bring the Mortgage Loan current.
SCA Tax Exempt Fund Limited Partnership ("SCA"), an affiliate of
the Partnership, holds the Mortgage Loan and has not waived
default thereunder. However, SCA has represented that it has no
plans or intentions to exercise its rights to accelerate the maturity of
the Mortgage Loan during the ensuing year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Partnership's financial statements are presented in accordance
with generally accepted accounting principles.
Property and Equipment
Property and equipment is stated at cost net of accumulated
depreciation computed using the straight-line method. Provisions for
depreciation are based on estimated useful lives of 40 years for
buildings and improvements and 10 years for furniture and
equipment.
Income Taxes
No provision for income taxes is provided in the financial statements
of the Partnership. In accordance with Federal and state income tax
regulations, the tax attributes of the Partnership accrue to the
individual partners. Each partner's allocable share of the
Partnership profit and loss is reported on the partner's tax return.
NOTE 3 - DEBT
The Partnership is obligated for a total of $2,470,000 under the
Mortgage Note. The Mortgage Note is assigned to SCA to secure the
payment of principal and interest on a tax-exempt Mortgage Revenue
Bond in a like amount. The Mortgage Note, which is collateralized
by a first priority lien on the real property and an assignment of
rents, matures in January 2006. The Mortgage Note may be
prepaid in whole but not in part, on or after December 18, 1993.
Prepayment of the Mortgage Note may be required upon the
occurrence of an event which would cause significant risk that the
interest on the Mortgage Revenue Bond would be subject to taxation.
Base interest on the original Mortgage Note is payable at a rate of
7.3%. Commencing on April 1, 1988, 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% (level 1 contingent
interest). Any remaining cash flow is split equally with the lender
until the lender reaches its 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 is deferred until the property is sold or the
loan is repaid. Sales 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 provide the lender a
return equal to the base interest rate plus 2.375%. Thereafter such
proceeds are split equally with the lender in order to provide a
return of 16%.
The Partnership is also obligated for a $140,000 Parity Working
Capital Loan issued and held by SCA, which bears the same interest
rate and is payable on the same terms and conditions as the
Mortgage Note discussed above.
The Partnership has been unable to pay all base interest to date on
the Mortgage Loan; accordingly, it is uncertain whether project cash
flows will be sufficient to pay contingent interest. As a result, no
contingent interest has been accrued at December 31, 1994 and
1993. Aggregate unaccrued and unpaid level 1 and level 2
contingent interest is:
December 31,
1994 1993
----------------------------
Level 1 $ 423,582 $ 361,594
Level 2 1,128,064 962,981
--------- ---------
$1,551,646 $1,324,575
========== ==========
Because of its inability to pay all base interest to date, the
Partnership is also in default of the Indenture of Trust for the
Mortgage Revenue Bond held by SCA. SCA has represented to the
General Partner that it does not, at this time, intend to exercise its
right to accelerate the maturity of the Mortgage Revenue Bond
during the ensuing year as a result of the default.
The fair market value of all debt assumed at the date of acquisition
(Note 1) was less than the aggregate legal obligation under such debt
(including accrued interest) at that time by $63,608. Such
difference is being accreted via charges to interest expense over the
life of the debt.
Cash outflows from operating activities for each of the years ended
December 31, 1994 and 1993 include interest of $113,105 and
$120,274, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
Under the terms of the Mortgage Loan, the Partnership is obligated
to pay a mortgage servicing fee to SCA Associates '86, L.P., an
affiliate of SCA Realty I, Inc., the managing General Partner of
SCA. This fee is calculated at .75% of the aggregate outstanding
legal obligation of the Mortgage Loan at January 1 of each year.
Mortgage servicing fees charged to operations for each of the years
ended December 31, 1994 and 1993 were $19,575 and $19,572,
respectively.
NOTE 5 - REGULATORY AGREEMENT
The Partnership is subject to a Regulatory Agreement with the
Washington State Housing Finance Commission. Under the
Regulatory Agreement, the property operated by the Partnership is
required to lease or hold available for leasing at least 20% of its
rental units to qualifying low or moderate income tenants. The
terms of this agreement were established in conjunction with the
Mortgage Loan to maintain the tax-exempt status of the Mortgage
Revenue Bond. At December 31, 1994 and 1993, the Partnership
was in compliance with the terms of this Regulatory Agreement.
NOTE 6 - SUBSEQUENT EVENTS
In connection with a financing transaction consummated by SCA on
February 14, 1995, the following occurred:
Change in General Partner
As of January 1, 1995, SCA Successor, Inc., the 1% General
Partner of the Partnership, withdrew from the Partnership and was
replaced by SCA Successor II, Inc. as sole General Partner. Both
the former and the current General Partner are affiliates of SCA
Realty I, Inc.
Debt Restructuring
Effective February 14, 1995, the Partnership's obligation under the
Mortgage Note of $2,470,000 (the "Old Debt") (see Note 3) was
restructured into a Series A Mortgage Note of $800,000 and a
Series B Mortgage Note of $1,670,000 (collectively, the "New
Debt"). The New Debt secures the payment of principal and interest
on tax-exempt Mortgage Revenue Bonds in like amounts held by
SCA Tax Exempt Trust. The New Debt, which is collateralized by a
first priority lien on the real property and an assignment on rents,
matures in January 2030.
The Series A Mortgage Note bears interest at 7.4% per annum
which is due and payable monthly. Required monthly principal
payments commence January 1, 2001 and continue through
maturity.
The Series B Mortgage Note bears interest equal to the greater of (a)
three percent (3%) per annum or (b) the amount of Available Cash
Flow, as defined, not exceeding sixteen percent (16%) per annum.
Principal on the Series B Mortgage Note is due January 2030. To
the extent the Partnership has Available Cash Flow, interest on the
principal amount shall be due and payable monthly in accordance
with the Subordination Agreement described below.
On February 14, 1995, the unpaid base interest on the Old Debt,
$257,976, and the Parity Working Capital Loan and interest
thereon, $154,611, were converted to an Accrued Interest Note and
a Working Capital Note, respectively, in equivalent principal
amounts. The Accrued Interest Note, Working Capital Note and
Load Loan Note in the amount of $51,167, incurred primarily to
purchase the interest rate cap discussed described below,
(collectively, the "Notes") are held by MLPII Acquisition Limited
Partnership ("MLPII"), an affiliate of SCA. The Notes 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 Partnership has
Available Cash Flow, interest on the principal amount and scheduled
principal payments shall be due and payable monthly in accordance
with the Subordination Agreement described below.
The Notes and Series B Mortgage Note (together the "Junior Debt")
are subordinate in priority and right of payment to the Series A
Mortgage Note as described in the Subordination Agreement and
can only be paid from Available Cash Flow (including Restricted
Funds, as defined). Payments of principal and interest on the Junior
Debt are prioritized as follows: (i) interest payments due on the
Notes, prorata between the Notes; (ii) scheduled principal payments
due on the Notes, prorata between the Notes; (iii) interest payments
due on the Series B Mortgage Note; and (iv) the principal payment of
the Series B Mortgage Note due January 2030.
As part of the debt restructuring, the Partnership entered into a
cross-collateralization agreement with 11 other partnerships
controlled by SCA Successor II, Inc. ("Other Partnerships"). This
cross-collaterization agreement may result in the Partnership being
obligated under the Series A mortgage note obligations of the Other
Partnerships due to shortfalls in cash flows or Series A mortgage
note debt service coverage ratios. Based upon information currently
available, the General Partner does not anticipate that any payments
will be required under the cross-collateralization agreement.
Interest Rate Swap and Cap
The Partnership entered into an interest rate swap agreement for a
notional amount equal to the obligation under the Series A Mortgage
Note whereby a portion of the 7.4% per annum interest was
swapped into a floating interest rate. Under this interest rate swap,
the Partnership is obligated to pay Credit Suisse Financial Products
(the "Counterparty") a floating rate equivalent to the PSA Municipal
Swap Index, an index of weekly tax-exempt variable rate issues. In
return, the Counterparty will pay to the Partnership a fixed rate
equivalent to 6.1% per annum through January 1, 1999 and 5.15%
per annum through January 1, 2005. The Partnership utilized a
portion of the proceeds from the Load Loan Note discussed above to
purchase an interest rate cap which will serve to limit the
Partnership's obligation under the floating rate to 6.1% per annum
through January 1, 1999 and 5.15% per annum through January 1,
2005. The cost of the interest rate cap of $49,200 will be deferred
and amortized over its life. The Partnership continues to be
obligated under the Series A Mortgage Debt obligation in excess of
the fixed rate equivalent received from the Counterparty. Net
proceeds received, if any, under the interest swap are Restricted
Funds and are available only for Junior Debt obligations.
Member Interest
On January 1, 1995, the Partnership purchased a 4% member
interest in MLPI LLC ("MLPI"), an affiliate of SCA, for $1,600.
MLPI is a limited liability company formed under and pursuant to
the Maryland Limited Liability Company Act to act as the General
Partner in MLPII, a Maryland Limited Partnership, and to perform
the duties of General Partner under the Limited Partnership
Agreement of MLPII. MLPII intends to invest in tax-exempt bonds
or operating real estate properties. The net income or loss, capital
gains or losses, and distributions of MLPI shall be allocated to the
Partnership in accordance with the percentage of member interest
stated above. All distributions received from MLPI are classified as
Restricted Funds and are available only for Junior Debt Obligations.
<PAGE>
MALLARD II LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 15, 1995
To the Partners of
Mallard II Limited Partnership
In our opinion, the accompanying balance sheets and the related
statements of operations, of partners' deficit and of cash flows
present fairly, in all material respects, the financial position of
Mallard II Limited Partnership at December 31, 1994 and 1993,
and the results of its operations and its cash flows for the years then
ended 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.
PRICE WATERHOUSE LLP
<PAGE>
MALLARD II LIMITED PARTNERSHIP
BALANCE SHEETS
December 31,
1994 1993
----------- -----------
Assets
Land $ 799,093 $ 799,093
Buildings and improvements 6,052,426 6,052,426
Furniture and equipment 170,342 170,342
------------ ----------
7,021,861 7,021,861
Less accumulated depreciation (419,417) (251,072)
------------ ----------
Net property and equipment 6,602,444 6,770,789
Cash
Unrestricted 31,795 24,164
Escrow deposits 20,279 27,989
Restricted - security deposits 23,944 25,345
Receivables
Rent 4,523 81
Partners - 500
Other 289 -
Prepaid expenses 6,572 10,768
------------ ----------
Total assets $ 6,689,846 $6,859,636
============ ==========
Liabilities and Partners' Deficit
Liabilities
Mortgage note (Notes 3 and 4) $ 6,450,000 $6,450,000
Parity working capital loan (Notes 3 and 4) 290,000 290,000
Interest payable 790,966 582,205
Accounts payable, accrued expenses
and other liabilities 22,742 39,271
Security deposit liability 23,944 25,345
----------- ----------
Total liabilities 7,577,652 7,386,821
Commitments and contingencies (Notes 1, 3 and 5)
Partners' deficit (887,806) (527,185)
------------- -----------
Total liabilities and partners' deficit $ 6,689,846 $6,859,636
============= ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
MALLARD II LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Year ended December 31,
1994 1993
------------ -----------
Revenue
Gross rent potential $ 944,847 $ 931,447
Less: vacancies and concessions (105,121) (115,725)
Other rental income 36,470 34,968
------------ -----------
Rental income 876,196 850,690
Interest income 1,649 771
------------ -----------
Total revenue 877,845 851,461
------------ -----------
Expenses
Interest expense 545,536 545,532
Marketing 19,943 24,796
Administration 98,080 92,615
Depreciation 168,345 167,381
Real estate taxes and insurance 86,415 87,138
Utilities 80,344 76,671
Maintenance and repairs 158,246 152,620
Management fees 30,507 23,199
Mortgage servicing fees 50,550 50,544
------------ -----------
Total expenses 1,237,966 1,220,496
------------ -----------
Net loss $ (360,121) $ (369,035)
============ ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
MALLARD II LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
DECEMBER 31, 1994 AND 1993
SCA Limited
Successor, Inc. Partners Total
--------------- -------- -----
Partners' deficit at
December 31, 1992 $(1,582) $(156,568) $ (158,150)
Net loss (3,690) (365,345) (369,035)
---------- ---------- -----------
Partners' deficit at
December 31, 1993 (5,272) (521,913) (527,185)
Distributions (5) (495) (500)
Net loss (3,601) (356,520) (360,121)
---------- --------- ----------
Partners' deficit at
December 31, 1994 $(8,878) $(878,928) $(887,806)
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
MALLARD II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Year ended December 31,
1994 1993
-----------------------------
Cash flows from operating activities
Net loss $ (360,121) $ (369,035)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 168,345 167,381
Changes in assets and liabilities
Decrease in escrow deposits 7,710 13,929
Decrease in restricted cash
- security deposits 1,401 679
(Increase) decrease in rent receivables (4,442) 907
Decrease in partners' receivables 500 -
Increase in other receivables (289) -
(Increase) decrease in prepaid expenses 4,196 (10,768)
Increase in interest payable 208,761 210,317
Increase (decrease) in accounts payable,
accrued expenses and other liabilities (16,529) 6,999
Decrease in security deposit liability (1,401) (679)
--------- ---------
Net cash provided by operating activities 8,131 19,730
Cash flows from investing activities
Purchase of property and equipment - (38,547)
--------- ---------
Cash used in investing activities - (38,547)
Cash flows from financing activities
Distribution to partners (500) -
--------- ---------
Cash used in financing activities (500) -
Net increase (decrease) in cash 7,631 (18,817)
Cash at beginning of period 24,164 42,981
--------- ---------
Cash at end of period $ 31,795 $ 24,164
========== =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
MALLARD II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Organization
Mallard II Limited Partnership ("Partnership") was formed on
January 22, 1992 for the purpose of acquiring, owning and
operating residential and commercial real estate. For the year
ended December 31, 1993, the Partners were SCA Successor, Inc.,
the 1% General Partner, and SCA Limited Partner Corporation, the
99% Limited Partner. Effective January 1, 1994, the Limited
Partnership Agreement was amended, whereby SCA Limited
Partner Corporation transferred 43% and 5% interests to Mark K.
Joseph, President, and Marilynn K. Duker, Vice President, of SCA
Realty I, Inc., respectively. All operating profits and losses and
distributions 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 sale, exchange or other disposition
of real property in the project shall be allocated as set forth in the
Partnership Agreement.
Acquisition of Property
As of July 9, 1992, the Partnership entered into a Transfer
Agreement with Mallard Cove Associates II ("Predecessor") and the
Washington State Housing Finance Commission, whereby the title to
the 135 apartment units comprising Phase II of the Mallard Cove
Apartments, located in Everett, Washington, was transferred to the
Partnership in lieu of foreclosure. Through this Transfer
Agreement, the Partnership acquired all of Predecessor's rights, title
and interest in the property, and assumed all of Predecessor's
obligations under the Mortgage Note, Parity Working Capital Loan
and all other mortgage loan documents (collectively the "Mortgage
Loan") and the Regulatory Agreement.
As a result of the change in ownership, a new basis of accounting
was established. Accordingly, the aggregate acquisition cost has
been allocated among the acquired assets and assumed liabilities
giving appropriate recognition to the estimated fair value of the
assets acquired and liabilities assumed as follows:
Assumption of debt at fair market value
(including all legal obligations - mortgage note,
parity working capital loan and interest payable) $ 7,005,461
============
Assets and liabilities at fair market value
Land, property and equipment $ 6,983,314
Other assets 81,033
Other liabilities (58,886)
------------
$ 7,005,461
============
Mortgage Loan Default
At the time of its assumption by the Partnership, the Mortgage Loan
was in default for failure to pay full base interest due (Note 3).
Since that time, cash flows from operation of the property have
continued to be insufficient to bring the Mortgage Loan current.
SCA Tax Exempt Fund Limited Partnership ("SCA"), an affiliate of
the Partnership, holds the Mortgage Loan and has not waived
default thereunder. However, SCA has represented that it has no
plans or intentions to exercise its rights to accelerate the maturity of
the Mortgage Loan during the ensuing year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Partnership's financial statements are presented in accordance
with generally accepted accounting principles.
Property and Equipment
Property and equipment is stated at cost net of accumulated
depreciation computed using the straight-line method. Provisions for
depreciation are based on estimated useful lives of 40 years for
buildings and improvements and 10 years for furniture and
equipment.
Income Taxes
No provision for income taxes is provided in the financial statements
of the Partnership. In accordance with Federal and state income tax
regulations, the tax attributes of the Partnership accrue to the
individual partners. Each partner's allocable share of the
Partnership profit and loss is reported on the partner's tax return.
NOTE 3 - DEBT
The Partnership is obligated for a total of $6,450,000 under the
Mortgage Note. The Mortgage Note is assigned to SCA to secure the
payment of principal and interest on a tax-exempt Mortgage Revenue
Bond in a like amount. The Mortgage Note, which is collateralized
by a first priority lien on the real property and an assignment of
rents, matures in January 2006. The Mortgage Note may be
prepaid in whole but not in part, on or after December 18, 1993.
Prepayment of the Mortgage Note may be required upon the
occurrence of an event which would cause significant risk that the
interest on the Mortgage Revenue Bond would be subject to taxation.
Base interest on the original Mortgage Note is payable at a rate of
8.094%. Commencing on April 1, 1988, contingent interest is
payable during the year from 100% of the project cash flow after
payment of base interest, at a rate of 2.376% (level 1 contingent
interest). Any remaining cash flow is split equally with the lender
until the lender reaches its 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 is deferred until the property is sold or the
loan is repaid. Sales 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 provide the lender a
return equal to the base interest rate plus 2.376%. Thereafter such
proceeds are split equally with the lender in order to provide a
return of 16%.
The Partnership is also obligated for a $290,000 Parity Working
Capital Loan issued and held by SCA, which bears the same interest
rate and is payable on the same terms and conditions as the
Mortgage Note discussed above.
The Partnership has been unable to pay all base interest to date on
the Mortgage Loan; accordingly, it is uncertain whether project cash
flows will be sufficient to pay contingent interest. As a result, no
contingent interest has been accrued at December 31, 1994 and
1993. Aggregate unaccrued and unpaid level 1 and level 2
contingent interest is:
December 31,
1994 1993
------------------------------
Level 1 $1,094,306 $ 934,164
Level 2 2,546,934 2,174,212
---------- ----------
$3,641,240 $3,108,376
========== ==========
Because of its inability to pay all base interest to date, the
Partnership is also in default of the Indenture of Trust for the
Mortgage Revenue Bond held by SCA. SCA has represented to the
General Partner that it does not, at this time, intend to exercise its
right to accelerate the maturity of the Mortgage Revenue Bond
during the ensuing year as a result of the default.
Cash outflows from operating activities for each of the years ended
December 31, 1994 and 1993 include interest of $336,775 and
$335,215, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
Under the terms of the Mortgage Loan, the Partnership is obligated
to pay a mortgage servicing fee to SCA Associates '86, L.P., an
affiliate of SCA Realty I, Inc., the managing General Partner of
SCA. This fee is calculated at .75% of the aggregate outstanding
legal obligation of the Mortgage Loan on January 1 of each year.
Mortgage servicing fees charged to operations for each of the years
ended December 31, 1994 and 1993 were $50,550 and $50,544,
respectively.
NOTE 5 - REGULATORY AGREEMENT
The Partnership is subject to a Regulatory Agreement with the
Washington State Housing Finance Commission. Under the
Regulatory Agreement, the property operated by the Partnership is
required to lease or hold available for leasing at least 20% of its
rental units to qualifying low or moderate income tenants. The
terms of this agreement were established in conjunction with the
Mortgage Loan to maintain the tax-exempt status of the Mortgage
Revenue Bond. At December 31, 1994 and 1993, the Partnership
was in compliance with the terms of this Regulatory Agreement.
NOTE 6 - SUBSEQUENT EVENTS
In connection with a financing transaction consummated by SCA on
February 14, 1995, the following occurred:
Change in General Partner
As of January 1, 1995, SCA Successor, Inc., the 1% General
Partner of the Partnership, withdrew from the Partnership and was
replaced by SCA Successor II, Inc. as sole General Partner. Both
the former and the General Partner are affiliates of SCA Realty I,
Inc.
Debt Restructuring
Effective February 14, 1995, the Partnership's obligation under the
Mortgage Note of $6,450,000 (the "Old Debt") (see Note 3) was
restructured into a Series A Mortgage Note of $2,700,000 and a
Series B Mortgage Note of $3,750,000 (collectively, the "New
Debt"). The New Debt secures the payment of principal and interest
on tax-exempt Mortgage Revenue Bonds in like amounts held by
SCA Tax Exempt Trust. The New Debt, which is collateralized by a
first priority lien on the real property and an assignment on rents,
matures in January 2030.
The Series A Mortgage Note bears interest at 7.4% per annum
which is due and payable monthly. Required monthly principal
payments commence January 1, 2001 and continue through
maturity.
The Series B Mortgage Note bears interest equal to the greater of (a)
three percent (3%) per annum or (b) the amount of Available Cash
Flow, as defined, not exceeding sixteen percent (16%) per annum.
Principal on the Series B Mortgage Note is due January 2030. To
the extent the Partnership has Available Cash Flow, interest on the
principal amount shall be due and payable monthly in accordance
with the Subordination Agreement described below.
On February 14, 1995, the unpaid accrued base interest on the Old
Debt, $737,426, and the Parity Working Capital Loan and interest
thereon, $323,134, were converted to an Accrued Interest Note and
a Working Capital Note, respectively, in equivalent principal
amounts. The Accrued Interest Note, Working Capital Note and
Load Loan Note in the amount of $169,488, incurred primarily to
purchase the interest rate cap discussed below, (collectively, the
"Notes") are held by MLPII Acquisition Limited Partnership
("MLPII"), an affiliate of SCA. The Notes 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 Partnership has Available Cash Flow, interest on
the principal amount and scheduled principal payments shall be due
and payable monthly in accordance with the Subordination
Agreement described below.
The Notes and Series B Mortgage Note (together the "Junior Debt")
are subordinate in priority and right of payment to the Series A
Mortgage Note as described in the Subordination Agreement and
can only be paid from Available Cash Flow (including Restricted
Funds, as defined). Payments of principal and interest on the Junior
Debt are prioritized as follows: (i) interest payments due on the
Notes, prorata between the Notes; (ii) scheduled principal payments
due on the Notes, prorata between the Notes; (iii) interest payments
due on the Series B Mortgage Note; and (iv) the principal payment of
the Series B Mortgage Note due January 2030.
As part of the debt restructuring, the Partnership entered into a
cross-collateralization agreement with 11 other partnerships
controlled by SCA Successor II, Inc. ("Other Partnerships"). This
cross-collaterization agreement may result in the Partnership being
obligated under the Series A mortgage note obligations of the Other
Partnerships due to shortfalls in cash flows or Series A mortgage
note debt service coverage ratios. Based upon information currently
available, the General Partner does not anticipate that any payments
will be required under the cross-collateralization agreement.
Interest Rate Swap and Cap
The Partnership entered into an interest rate swap agreement for a
notional amount equal to the obligation under the Series A Mortgage
Note whereby a portion of the 7.4% per annum interest rate was
swapped into a floating interest rate. Under this interest rate swap,
the Partnership is obligated to pay Credit Suisse Financial Products
(the "Counterparty") a floating rate equivalent to the PSA Municipal
Swap Index, an index of weekly tax-exempt variable rate issues. In
return, the Counterparty will pay to the Partnership a fixed rate
equivalent to 6.1% per annum through January 1, 1999 and 5.15%
per annum through January 1, 2005. The Partnership utilized a
portion of the proceeds from the Load Loan Note discussed above to
purchase an interest rate cap which will serve to limit the
Partnership's obligation under the floating rate to 6.1% per annum
through January 1, 1999 and 5.15% per annum through January 1,
2005. The cost of the interest rate cap of $166,050 will be
deferred and amortized over its life . The Partnership continues to
be obligated under the Series A Mortgage Debt obligation in excess
of the fixed rate equivalent received from the Counterparty. Net
proceeds received, if any, under the interest swap are Restricted
Funds and are available only for Junior Debt obligations.
Member Interest
On January 1, 1995, the Partnership purchased a 5.5% member
interest in MLPI LLC ("MLPI"), an affiliate of SCA for $2,200.
MLPI is a limited liability company formed under and pursuant to
the Maryland Limited Liability Company Act to act as the General
Partner in MLPII, a Maryland Limited Partnership, and to perform
the duties of General Partner under the Limited Partnership
Agreement of MLPII. MLPII intends to invest in tax-exempt bonds
or operating real estate properties. The net income or loss, capital
gains or losses, and distributions of MLPI shall be allocated to the
Partnership in accordance with the percentage of member interest
stated above. All distributions received from MLPI are classified as
Restricted Funds and are available only for Junior Debt Obligations.
<PAGE>
THE MEADOWS LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 15, 1995
To the Partners of
The Meadows Limited Partnership
In our opinion, the accompanying balance sheets and the related
statements of operations, of partners' deficit and of cash flows
present fairly, in all material respects, the financial position of The
Meadows Limited Partnership at December 31, 1994 and 1993,
and the results of its operations and its cash flows for the years then
ended 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.
PRICE WATERHOUSE LLP
<PAGE>
THE MEADOWS LIMITED PARTNERSHIP
BALANCE SHEETS
December 31,
1994 1993
----------------------------
Assets
Land $ 199,951 $ 199,951
Buildings and improvements 7,159,501 7,159,501
Furniture and equipment 71,944 71,944
---------- ----------
7,431,396 7,431,396
Less accumulated depreciation (527,603) (341,422)
---------- ----------
Net property and equipment 6,903,793 7,089,974
Cash
Unrestricted 29,153 69,724
Escrow deposits 58,400 54,056
Restricted - security deposits 38,771 36,406
Receivables
Rent - net of allowance - 461
Partners - 500
Other 28,131 2,357
Prepaid expenses 6,256 5,869
---------- ----------
Total assets $7,064,504 $7,259,347
========== ==========
Liabilities and Partners' Deficit
Liabilities
Mortgage note (Notes 3 and 4) $6,635,000 $6,635,000
Parity working capital loan (Notes 3 and 4) 565,000 565,000
Interest payable 377,092 406,000
Accounts payable, accrued expenses
and other liabilities 102,963 119,788
Security deposit liability 38,627 36,406
---------- ----------
Total liabilities 7,718,682 7,762,194
Commitments and contingencies (Notes 1, 3, 5 and 6)
Partners' deficit (654,178) (502,847)
--------- ----------
Total liabilities and partners' deficit $7,064,504 $7,259,347
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE MEADOWS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Year ended December 31,
1994 1993
---------------------------
Revenue
Gross rent potential $1,139,151 $1,080,911
Less: vacancies and concessions (33,819) (40,365)
Other rental income 3,307 2,692
---------- ----------
Rental income 1,108,639 1,043,238
Interest income 2,935 2,699
Other income 12,703 18,435
---------- ----------
Total revenue 1,124,277 1,064,372
Expenses
Interest expense 549,000 549,000
Marketing 23,130 20,511
Administrative 97,390 115,151
Depreciation 186,181 186,181
Real estate taxes and insurance 93,244 153,149
Utilities 40,361 42,953
Maintenance and repairs 185,757 129,663
Management fees 46,045 41,705
Mortgage servicing fees 54,000 54,000
---------- ----------
Total expenses 1,275,108 1,292,313
---------- ----------
Net loss $ (150,831) $ (227,941)
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE MEADOWS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
DECEMBER 31, 1994 AND 1993
SCA Limited
Successor, Inc. Partners Total
-------------- ------------ ----------
Partners' deficit at
December 31, 1992 $ (2,749) $ (272,157) $ (274,906)
Net loss (2,279) (225,662) (227,941)
-------------- ------------ ----------
Partners' deficit at
December 31, 1993 (5,028) (497,819) (502,847)
Distributions (5) (495) (500)
Net loss (1,508) (149,323) (150,831)
-------------- ------------ -----------
Partners' deficit at
December 31, 1994 $ (6,541) $ (647,637) $ (654,178)
============== ============ ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE MEADOWS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Year ended December 31,
1994 1993
----------------------------
Cash flows from operating activities
Net loss $ (150,831) $ (227,941)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation 186,181 186,181
Changes in assets and liabilities
(Increase) decrease in escrow deposits (4,344) 8,689
Increase in restricted cash -
security deposits (2,365) (1,231)
Decrease in rent receivables 461 830
Increase in other receivables (25,774) (2,357)
Decrease in partners' receivables 500 -
(Increase) decrease in prepaid expenses (387) 13,308
Increase (decrease) in interest payable (28,908) 20,750
Increase (decrease) in accounts payable,
accrued expenses and other liabilities (16,825) 18,195
Increase in security deposit liability 2,221 1,231
-------- --------
Net cash provided by (used in)
operating activities (40,071) 17,655
Cash flows from investing activities - -
Cash flows from financing activities
Distribution to partners (500) -
-------- --------
Cash used in financing activities (500) -
Net increase (decrease) in cash (40,571) 17,655
Cash at beginning of period 69,724 52,069
-------- --------
Cash at end of period $29,153 $69,724
======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE MEADOWS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Organization
The Meadows Limited Partnership ("Partnership") was formed on
January 7, 1992 for the purpose of acquiring, owning and operating
residential and commercial real estate. For the year ended
December 31, 1993, the partners were SCA Successor, Inc., the
1% General Partner, and SCA Limited Partner Corporation, the
99% Limited Partner. Effective January 1, 1994, the Limited
Partnership Agreement was amended, whereby SCA Limited
Partner Corporation transferred 43% and 5% to Mark K. Joseph,
President, and Marilynn J. Duker, Vice President, of SCA Realty I,
Inc., respectively. All operating profits and losses and distributions
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 sale, exchange or other disposition of real
property in the project shall also be allocated as set forth in the
Partnership Agreement.
Acquisition of Property
As of March 2, 1992, the Partnership consummated an Agreement
of Sale with T.M. Properties Ltd. ("Predecessor"), whereby the title
to The Meadows Apartments, a 200-unit apartment complex located
in Memphis, Tennessee, was transferred to the Partnership in lieu of
foreclosure. Through this Agreement of Sale, the Partnership
acquired all of Predecessor's rights, title and interest in the
property, and assumed all of Predecessor's obligations under the
Mortgage Note, Parity Working Capital Loan and all other mortgage
loan documents (collectively the "Mortgage Loan") and the
Regulatory Agreement and the Limited Operating Deficit Guaranty
(Note 5).
As a result of the change in ownership, a new basis of accounting
was established. Accordingly, the aggregate acquisition cost has
been allocated among the acquired assets and assumed liabilities
giving appropriate recognition to the estimated fair value of the
assets acquired and liabilities assumed as follows:
Assumption of debt at fair market value
(including all legal obligations - mortgage note,
parity working capital loan and interest payable) $ 7,426,500
============
Assets and liabilities at fair market value
Land, property and equipment $ 7,431,396
Other assets 85,401
Other liabilities (90,297)
------------
$ 7,426,500
============
Mortgage Loan Default
At the time of its assumption by the Partnership, the Mortgage Loan
was in default for failure to pay full base interest due (Note 3).
Since that time, cash flows from operations of the property have
continued to be insufficient to bring the Mortgage Loan current.
SCA Tax Exempt Fund Limited Partnership ("SCA"), an affiliate of
the Partnership, holds the Mortgage Loan and has not waived
default thereunder. However, SCA has represented that it has no
plans or intentions to exercise its rights to accelerate the maturity of
the Mortgage Loan during the ensuing year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Partnership's financial statements are presented in accordance
with generally accepted accounting principles.
Property and Equipment
Property and equipment is stated at cost net of accumulated
depreciation computed using the straight-line method. Provisions for
depreciation are based on estimated useful lives of 40 years for
buildings and improvements and 10 years for furniture and
equipment.
Income Taxes
No provision for income taxes is provided in the financial statements
of the Partnership. In accordance with Federal and state income tax
regulations, the tax attributes of the Partnership accrue to the
individual partners. Each partner's allocable share of the
Partnership profit and loss is reported on the partner's tax return.
NOTE 3 - DEBT
The Partnership is obligated for a total of $6,635,000 under the
Mortgage Note. The Mortgage Note is assigned to SCA to secure the
payment of principal and interest on a tax-exempt Mortgage Revenue
Bond in a like amount. The Mortgage Note, which is collateralized
by a first priority lien on the real property and an assignment of
rents, matures in January 2008. The Mortgage Note may be
prepaid in whole but not in part, on or after January 1, 1995.
Prepayment of the Mortgage Note may be required upon the
occurrence of an event which would cause significant risk that the
interest on the Mortgage Revenue Bond would be subject to taxation.
Base interest on the original Mortgage Note is payable at a rate of
7.625%. Commencing on January 1, 1988, contingent interest is
payable during the year from 100% of the project cash flow after
payment of base interest, at a rate of 2.5% (level 1 contingent
interest). Any remaining cash flow is split equally with the lender
until the lender reaches its 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 is deferred until the property is sold or the
loan is repaid. Sales 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 provide the lender a
return equal to the base interest rate plus 2.5%. Thereafter such
proceeds are split equally with the lender in order to provide a
return of 16%.
The Partnership is also obligated for a $565,000 Parity Working
Capital Loan issued and held by SCA, which bears the same interest
rate and is payable on the same terms and conditions as the
Mortgage Note discussed above.
The Partnership has been unable to pay all base interest to date on
the Mortgage Loan; accordingly, it is uncertain whether project cash
flows will be sufficient to pay contingent interest. As a result, no
contingent interest has been accrued at December 31, 1994 and
1993. Aggregate unaccrued and unpaid level 1 and level 2
contingent interest is:
December 31,
1994 1993
-------------------------
Level 1 $1,260,000 $1,080,000
Level 2 2,961,000 2,538,000
---------- ----------
$4,221,000 $3,618,000
========== ==========
Because of its inability to pay all base interest to date, the
Partnership is also in default of the Indenture of Trust for the
Mortgage Revenue Bond held by SCA. SCA has represented to the
General Partner that it does not, at this time, intend to exercise its
right to accelerate the maturity of the Mortgage Revenue Bond
during the ensuing year as a result of the default.
Cash outflows from operating activities for each of the years ended
December 31, 1994 and 1993 include interest of $577,908 and
$528,250, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
The property is managed by Shelter American Holdings, Inc.
("SAHI"), an affiliate of SCA Realty I, Inc., the managing General
Partner of SCA. Management fees paid to SAHI for each of the
years ended December 31, 1994 and 1993 were $46,045 and
$41,705, respectively.
Under the terms of the Mortgage Loan, the Partnership is obligated
to pay a mortgage servicing fee to SCA Associates '86, L.P., an
affiliate of SCA Realty I, Inc. This fee is calculated at .75% of the
aggregate outstanding legal of the Mortgage Loan on January 1 of
each year. Mortgage servicing fees charged to operations for each of
the years ended December 31, 1994 and 1993 were $54,000.
NOTE 5 - ADVANCES FROM GUARANTOR
As a condition precedent to the issuance of the Mortgage Loan to the
Predecessor, Shelter Corporation of Canada ("Shelter Canada"), an
affiliate of SCA Realty I, Inc., entered into a Limited Operating
Deficit Guaranty ("LODG") agreement dated January 1, 1988 to
guaranty the payment of the operating deficits of the Predecessor up
to a maximum amount of $720,000. The LODG agreement expired
January 1, 1991.
The obligation to repay the guarantor for advances made to the
Predecessor under the LODG agreement was assumed by the
Partnership as a condition of the Agreement of Sale. In accordance
with the LODG agreement, the outstanding balance bears interest at
the lesser of the Prime Rate as established by the Bank of America
or the cost of borrowing of the guarantor. Advances and interest
shall be repaid from the sale or refinancing proceeds of the rental
properties after the payment of contingent interest. As the
repayment of this obligation is contingent and subordinate to all
obligations associated with the Mortgage Loan (Note 3), advances
under the guaranty and related interest are not reflected in the
Partnership's financial statements.
As of December 31, 1994 and 1993, such contingently payable
advances and interest under the LODG Agreement were $88,724
and $87,227, respectively.
NOTE 6 - REGULATORY AGREEMENT
The Partnership is subject to a Regulatory Agreement with The
Health, Educational and Housing Board of the City of Memphis,
Tennessee. Under the Regulatory Agreement, the property operated
by the Partnership is required to lease or hold available for leasing
at least 20% of its rental units to qualifying low or moderate income
tenants. The terms of the Regulatory Agreement were established in
conjunction with the Mortgage Loan to maintain the tax-exempt
status of the Mortgage Revenue Bond. At December 31, 1994 and
1993, the Partnership was in compliance with the terms of this
Regulatory Agreement.
NOTE 7 - SUBSEQUENT EVENTS
In connection with a financing transaction consummated by SCA on
February 14, 1995, the following occurred:
Change in General Partner
As of January 1, 1995, SCA Successor, Inc., the 1% General
Partner of the Partnership, withdrew from the Partnership and was
replaced by SCA Successor II, Inc. as sole General Partner. Both
the former and the current General Partner are affiliates of SCA,
Realty I, Inc.
Debt Restructuring
Effective February 14, 1995, the Partnership's obligation under the
Mortgage Note of $6,635,000 (the "Old Debt") (see Note 3) was
restructured into a Series A Mortgage Note of $3,000,000 and a
Series B Mortgage Note of $3,635,000 (collectively, the "New
Debt"). The New Debt secures the payment of principal and interest
in tax-exempt Mortgage Revenue Bonds in like amounts held by SCA
Tax Exempt Trust. The New Debt, which is collateralized by a first
priority lien on the real property and an assignment on rents,
matures in January 2030.
The Series A Mortgage Note bears interest at 7.35% per annum
which is due and payable monthly. Required monthly principal
payments commence January 1, 2001 and continue through
maturity.
The Series B Mortgage Note bears interest equal to the greater of (a)
three percent (3%) per annum or (b) the amount of Available Cash
Flow, as defined, not exceeding sixteen percent (16%) per annum.
Principal on the Series B Mortgage Note is due January 2030. To
the extent the Partnership has Available Cash Flow, interest on the
principal amount shall be due and payable monthly in accordance
with the Subordination Agreement described below.
On February 14, 1995, the unpaid accrued base interest on the Old
Debt, $294,901, and the Parity Working Capital Loan and interest
thereon, $590,122, were converted to an Accrued Interest Note and
a Working Capital Note, respectively, in equivalent principal
amounts. The Accrued Interest Note, Working Capital Note and
Load Loan Note in the amount of $187,875, incurred primarily to
purchase the interest rate cap discussed below, (collectively, the
"Notes") are held by MLPII Acquisition Limited Partnership
("MLPII"), an affiliate of SCA. The Notes 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 Partnership has Available Cash Flow, interest on
the principal amount and scheduled principal payments shall be due
and payable monthly in accordance with the Subordination
Agreement described below.
The Notes and Series B Mortgage Note (together the "Junior Debt")
are subordinate in priority and right of payment to the Series A
Mortgage Note as described in the Subordination Agreement and
can only be paid from Available Cash Flow (including Restricted
Funds, as defined). Payments of principal and interest on the Junior
Debt are prioritized as follows: (i) interest payments due on the
Notes, prorata between the Notes; (ii) scheduled principal payments
due on the Notes, prorata between the Notes; (iii) interest payments
due on the Series B Mortgage Note; (iv) the principal payment of the
Series B Mortgage Note due January 2030; and (v) advances and
interest under the LODG Agreement (Note 5).
As part of the debt restructuring, the Partnership entered into a
cross-collateralization agreement with 11 other partnerships
controlled by SCA Successor II, Inc. ("Other Partnerships"). This
cross-collaterization agreement may result in the Partnership being
obligated under the Series A mortgage note obligations of the Other
Partnerships due to shortfalls in cash flows or Series A mortgage
note debt service coverage ratios. Based upon information currently
available, the General Partner does not anticipate that any payments
will be required under the cross-collateralization agreement.
Interest Rate Swap and Cap
The Partnership entered into an interest rate swap agreement for a
notional amount equal to the obligation under the Series A Mortgage
Note whereby a portion of the 7.35% per annum interest rate was
swapped into a floating interest rate. Under this interest rate swap,
the Partnership is obligated to pay Credit Suisse Financial Products
(the "Counterparty") a floating rate equivalent to the PSA Municipal
Swap Index, an index of weekly tax-exempt variable rate issues. In
return, the Counterparty will pay to the Partnership a fixed rate
equivalent to 6.1% per annum through January 1, 1999 and 5.15%
per annum through January 1, 2005. The Partnership utilized a
portion of the proceeds from the Load Loan Note discussed above to
purchase an interest rate cap which will serve to limit the
Partnership's obligation under the floating rate to 6.1% per annum
through January 1, 1999 and 5.15% per annum through January 1,
2005. The cost of the interest rate cap of $184,500 will be
deferred and amortized over its life. The Partnership continues to
be obligated under the Series A Mortgage Debt obligation in excess
of the fixed rate equivalent received from the Counterparty. Net
proceeds received, if any, under the interest swap are Restricted
Funds and are available only for Junior Debt obligations.
<PAGE>
Member Interest
On January 1, 1995, the Partnership purchased a 5% member
interest in MLPI LLC ("MLPI"), an affiliate of SCA for $2,000.
MLPI is a limited liability company formed under and pursuant to
the Maryland Limited Liability Company Act to act as the General
Partner in MLPII, a Maryland Limited Partnership, and to perform
the duties of General Partner under the Limited Partnership
Agreement of MLPII. MLPII intends to invest in tax-exempt bonds
or operating real estate properties. The net income or loss, capital
gains or losses, and distributions of MLPI shall be allocated to the
Partnership in accordance with the percentage of member interest
stated above. All distributions received from MLPI are classified as
Restricted Funds and are available only for Junior Debt Obligations.
<PAGE>
THE MONTCLAIR LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 15, 1995
To the Partners of
The Montclair Limited Partnership
In our opinion, the accompanying balance sheets and the related
statements of operations, of partners' deficit and of cash flows
present fairly, in all material respects, the financial position of The
Montclair Limited Partnership at December 31, 1994, and the
results of its operations and its cash flows for the year 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 audit. We conducted our audit 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 audit
provides a reasonable basis for the opinion expressed above. The
financial statements of the Partnership for the year ended December
31, 1993, prior to restatement, were audited by other independent
accountants whose report dated February 17, 1994 expressed an
unqualified opinion on those statements.
As discussed in Note 3, the Partnership's 1993 financial statements
have been restated to reflect (i) the mortgage loan assumed at its fair
value at the date of assumption, and (ii) the subsequent accretion of
the acquisition debt discount. We have audited the adjustments
described in Note 3 that were applied to restate the 1993 financial
statements. In our opinion, such adjustments are appropriate and
have been properly applied to the 1993 financial statements.
PRICE WATERHOUSE LLP
<PAGE>
THE MONTCLAIR LIMITED PARTNERSHIP
BALANCE SHEETS
December 31,
1994 1993
----------------------------
Assets
Land $625,169 $625,169
Buildings and improvements 10,028,769 10,028,769
Furniture and equipment 113,261 113,261
---------- ----------
10,767,199 10,767,199
Less accumulated depreciation (1,583,596) (1,304,288)
---------- ----------
Net property and equipment 9,183,603 9,462,911
========== ==========
Cash
Unrestricted 4,500 55,547
Escrow deposits 765 13,076
Restricted - security deposits 122,806 94,338
Receivables
Rent 6,218 -
Partners - 500
Other 4,620 -
Prepaid expenses 9,346 19,996
---------- ----------
Total assets $9,331,858 $9,646,368
========== ==========
Liabilities and Partners' Deficit
Liabilities
Mortgage note (Notes 3 and 4) $11,950,418 $11,783,553
Parity working capital loan (Notes 3 and 4) 399,623 398,264
Interest payable 2,782,081 2,771,391
Accounts payable, accrued expenses
and other liabilities 68,303 53,266
Security deposit liability 125,143 98,171
---------- ----------
Total liabilities 15,325,568 15,104,645
Commitments and contingencies (Notes 1, 3 and 5)
Partners' deficit (5,993,710) (5,458,277)
---------- ----------
Total liabilities and partners' deficit $9,331,858 $9,646,368
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE MONTCLAIR LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Year ended December 31,
1994 1993
---------------------------
Revenue
Gross rent potential $2,510,055 $2,365,039
Less: vacancies and concessions (111,572) (129,522)
Other rental income 13,296 10,819
---------- ----------
Rental income 2,411,779 2,246,336
Interest income 7,987 8,033
Other income 19,253 16,379
---------- ----------
Total revenue 2,439,019 2,270,748
Expenses
Interest expense 1,386,093 1,386,093
Marketing 60,014 54,645
Administrative 223,355 230,056
Depreciation 279,308 279,144
Real estate taxes and insurance 103,475 88,064
Utilities 127,146 145,090
Housekeeping 31,282 28,965
Foodservice 413,264 382,924
Maintenance and repairs 124,613 88,112
Management fees 109,414 35,057
Mortgage servicing fees 115,988 115,981
---------- ----------
Total expenses 2,973,952 2,834,131
---------- ----------
Net loss $ (534,933) $ (563,383)
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE MONTCLAIR LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
DECEMBER 31, 1994 AND 1993
Shelter
SCA Development
Successor, Inc. Corporation Total
--------------- ----------- -----------
Partners' deficit at
December 31, 1992 $(48,949) $(4,845,945) $(4,894,894)
Net loss (5,634) (557,749) (563,383)
--------------- ----------- -----------
Partners' deficit at
December 31, 1993 (54,583) (5,403,694) (5,458,277)
Distribution (5) (495) (500)
Net loss (5,349) (529,584) (534,933)
--------------- ----------- -----------
Partners' deficit at
December 31, 1994 $(59,937) $(5,933,773) $(5,993,710)
=============== =========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE MONTCLAIR LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Year ended December 31,
1994 1993
---------------------------
Cash flows from operating activities
Net loss $ (534,933) $ (563,383)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation 279,308 279,144
Accretion of acquisition debt discount 168,224 168,224
Changes in assets and liabilities
Decrease in escrow deposits 12,311 9,256
Increase in restricted cash -
security deposits (28,468) (26,776)
Increase in rent receivables (6,218) -
Decrease in partners' receivables 500 -
Increase in other receivables (4,620) -
(Increase) decrease in prepaid expenses 10,650 (3,372)
Increase in interest payable 10,690 106,541
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 15,037 (333)
Increase in security deposit liability 26,972 38,164
--------- --------
Net cash provided by (used in)
operating activities (50,547) 7,465
Cash flows from investing activities
Purchase of property and equipment - (7,151)
-------- --------
Cash used in investing activities - (7,151)
Cash flows from financing activities
Distribution to partners (500) -
Reduction of note payable, bank - (6,713)
-------- --------
Cash used in financing activities (500) (6,713)
Net decrease in cash (51,047) (6,399)
Cash at beginning of period 55,547 61,946
-------- --------
Cash at end of period $ 4,500 $ 55,547
======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE MONTCLAIR LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Organization
The Montclair Limited Partnership ("Partnership") was formed
February 9, 1989, for the purpose of acquiring, owning and
operating residential and commercial real estate. The Partners are
SCA Successor, Inc., the 1% General Partner, and Shelter
Development Corporation, the 99% Limited Partner. 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 sale, exchange or
other disposition of real property in the project shall also be
allocated as set forth in the Partnership Agreement.
Acquisition of Property
As of February 28, 1989, the Partnership entered into a Transfer
Agreement with Independent Living Centers of Springfield and the
Independent Living Centers of North America ("Predecessors"), and
the Industrial Development Authority of Springfield, Missouri,
whereby the title to the Montclair, a 159-unit senior living
community located in Springfield, Missouri, was transferred to the
Partnership in lieu of foreclosure. Through this Transfer
Agreement, the Partnership acquired all of Predecessors' rights, title
and interest in the property, and assumed all of Predecessors'
obligations under the Mortgage Note, Parity Working Capital Loan
and all other mortgage loan documents (collectively the "Mortgage
Loan") and the Regulatory Agreement.
As a result of the change in ownership, a new basis of accounting
was established. Accordingly, the aggregate acquisition cost has
been allocated among the acquired assets and assumed liabilities
giving appropriate recognition to the estimated fair value of the
assets acquired and liabilities assumed. The acquisition was
accounted for as follows:
Assumption of debt at fair market value
(including all legal obligations - mortgage note,
parity working capital loan and interest payable) $ 11,066,489
=============
Assets and liabilities at fair market value
Land, property and equipment $ 10,494,018
Other assets 640,270
Other liabilities (67,799)
-------------
$ 11,066,489
=============
Mortgage Loan Default
At the time of its assumption by the Partnership, the Mortgage Loan
was in default for failure to pay full base interest due (Note 3).
Since that time, cash flows from operation of the property have
continued to be insufficient to bring the Mortgage Loan current.
SCA Tax Exempt Fund Limited Partnership ("SCA"), an affiliate of
the Partnership, holds the Mortgage Loan and has not waived
default thereunder. However, SCA has represented that it has no
plans or intentions to exercise its rights to accelerate the maturity of
the Mortgage Loan during the ensuing year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Partnership's financial statements are presented in accordance
with generally accepted accounting principles.
Certain prior year amounts in the accompanying financial statements
have been reclassified to conform with the current year presentation.
Property and Equipment
Property and equipment is stated at cost net of accumulated
depreciation computed using the straight-line method. Provisions for
depreciation are based on estimated useful lives of 40 years for
buildings and improvements and 10 years for furniture and
equipment.
Income Taxes
No provision for income taxes is provided in the financial statements
of the Partnership. In accordance with Federal and state income tax
regulations, the tax attributes of the Partnership accrue to the
individual partners. Each partner's allocable share of the
Partnership profit and loss is reported on the partner's tax return.
NOTE 3 - DEBT
The Partnership is obligated for a total of $15,340,000 under the
Mortgage Note. The Mortgage Note is assigned to SCA to secure the
payment of principal and interest on a tax-exempt Mortgage Revenue
Bond in a like amount. The Mortgage Note, which is collateralized
by a first priority lien on the real property and an assignment of
rents, matures in December 2015. The Mortgage Note may be
prepaid in whole but not in part, on or after November 1, 1993.
Prepayment of the Mortgage Note may be required upon the
occurrence of an event which would cause significant risk that the
interest on the Mortgage Revenue Bond would be subject to taxation.
Base interest on the original Mortgage Note is payable at a rate of
7.875%. Commencing on October 28, 1988, 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% (level 1 contingent
interest). Any remaining cash flow is split equally with the lender
until the lender reaches its 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 is deferred until the property is sold or the
loan is repaid. Sales 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 provide the lender a
return equal to the base interest rate plus 2.375%. Thereafter such
proceeds are split equally with the lender in order to provide a
return of 16%.
The Partnership is also obligated for a $125,000 Parity Working
Capital Loan issued and held by SCA, which bears the same interest
rate and is payable on the same terms and conditions as the
Mortgage Note discussed above.
The Partnership has been unable to pay all base interest to date on
the Mortgage Loan; accordingly, it is uncertain whether project cash
flows will be sufficient to pay contingent interest. As a result, no
contingent interest has been accrued at December 31, 1994 and
1993. Aggregate unaccrued and unpaid level 1 and level 2
contingent interest is:
December 31,
1994 1993
-----------------------
Level 1 $2,268,165 $1,900,871
Level 2 5,491,346 4,602,109
---------- ----------
$7,759,511 $6,502,980
========== ==========
Because of its inability to pay all base interest to date, the
Partnership is also in default of the Indenture of Trust for the
Mortgage Revenue Bond held by SCA. SCA has represented to the
General Partner that it does not, at this time, intend to exercise its
right to accelerate the maturity of the Mortgage Revenue Bond
during the ensuing year as a result of the default.
The fair market value of all debt assumed at the date of acquisition
(Note 1) was less than the aggregate legal obligation under such debt
(including accrued interest) at that time by $4,500,000. Such
difference is being accreted via charges to interest expense over the
life of the debt. The Partnership's 1993 financial statements have
been restated to reflect (i) mortgage loan assumed at its fair value at
the date of assumption, and (ii) the subsequent accretion of the
acquisition debt discount. As a result, the January 1, 1993
Partners' deficit is $3,855,141 lower, or $4,894,894, and the
1993 net loss is $168,224 higher, or $563,383.
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 available from 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. The
$132,990 of unaccrued interest on these loans at December 31,
1994 is not included in the contingent interest amounts set forth
above. The loans 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
the Mortgage Loan.
Cash outflows from operating activities for each of the years ended
December 31, 1994 and 1993 include interest of $1,207,179 and
$1,111,328, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
The property is managed by Shelter Properties, Inc. ("Shelter"), an
affiliate of SCA Realty I, Inc., the managing General Partner of
SCA, pursuant to a management agreement. Management fees paid
to Shelter for each of the years ended December 31, 1994 and
1993 were $109,414 and $35,057, respectively.
Under the terms of the Mortgage Note and the $125,000 Parity
Working Capital Loan, the Partnership is obligated to pay a
mortgage servicing fee to SCA Associates '86, L.P., an affiliate of
SCA Realty I, Inc. This fee is calculated at .75% of the aggregate
outstanding legal obligation of the Mortgage Note on January 1 of
each year. Mortgage servicing fees charged to operations for each of
the years ended December 31, 1994 and 1993 were $115,988 and
$115,981, respectively.
NOTE 5 - REGULATORY AGREEMENT
The Partnership is subject to a Regulatory Agreement with the
Industrial Development Authority of Springfield, Missouri. Under
the Regulatory Agreement, the property operated by the Partnership
is required to lease or hold available for leasing at least 20% of its
rental units to qualifying low or moderate income tenants. The
terms of the Regulatory Agreement were established in conjunction
with the Mortgage Loan to maintain the tax-exempt status of the
Mortgage Revenue Bond. At December 31, 1994 and 1993, the
Partnership was in compliance with the terms of this Regulatory
Agreement.
NOTE 6 - SUBSEQUENT EVENTS
In connection with a financing transaction consummated by SCA on
February 14, 1995, the following occurred:
Change in General Partner
As of January 1, 1995, SCA Successor, Inc., the 1% General
Partner of the Partnership, withdrew from the Partnership and was
replaced by SCA Successor II, Inc. as sole General Partner. Both
the former and the current General Partner are affiliates of SCA
Realty I, Inc.
Debt Restructuring
Effective February 14, 1995, the Partnership's obligation under the
Mortgage Note of $15,340,000 (the "Old Debt") (see Note 3) was
restructured into a Series A Mortgage Note of $8,500,000 and a
Series B Mortgage Note of $6,840,000 (collectively, the "New
Debt"). The New Debt secures the payment of principal and interest
on tax-exempt Mortgage Revenue Bonds in like amounts held by
SCA Tax Exempt Trust. The New Debt, which is collateralized by a
first priority lien on the real property and an assignment on rents,
matures in January 2030.
The Series A Mortgage Note bears interest at 7.1% per annum
which is due and payable monthly. Required monthly principal
payments commence January 1, 2001 and continue through
maturity.
The Series B Mortgage Note bears interest equal to the greater of (a)
three percent (3%) per annum or (b) the amount of Available Cash
Flow, as defined, not exceeding sixteen percent (16%) per annum.
Principal on the Series B Mortgage Note is due January 2030. To
the extent the Partnership has Available Cash Flow, interest on the
principal amount shall be due and payable monthly in accordance
with the Subordination Agreement described below.
On February 14, 1995, the unpaid base interest on the Old Debt,
$2,920,761, and the Parity Working Capital Loan and interest
thereon, $451,111, were converted to an Accrued Interest Note and
a Working Capital Note, respectively, in equivalent principal
amounts. The Accrued Interest Note, Working Capital Note and
Load Loan Note in the amount of $529,846, incurred primarily to
purchase the interest rate cap discussed below, (collectively, the
"Notes") are held by MLPII Acquisition Limited Partnership
("MPLII"), an affiliate of SCA. The Notes 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 Partnership has Available Cash Flow, interest on
the principal amount and scheduled principal payments shall be due
and payable monthly in accordance with the Subordination
Agreement described below.
The Notes and Series B Mortgage Note (together the "Junior Debt")
are subordinate in priority and right of payment to the Series A
Mortgage Note as described in the Subordination Agreement and
can only be paid from Available Cash Flow (including Restricted
Funds, as defined). Payments of principal and interest on the Junior
Debt are prioritized as follows: (i) interest payments due on the
Notes, prorata between the Notes; (ii) scheduled principal payments
due on the Notes, prorata between the Notes; (iii) interest payments
due on the Series B Mortgage Note; and (iv) the principal payment of
the Series B Mortgage Note due January 2030.
As part of the debt restructuring, the Partnership entered into a
cross-collateralization agreement with 11 other partnerships
controlled by SCA Successor II, Inc. ("Other Partnerships"). This
cross-collaterization agreement may result in the Partnership being
obligated under the Series A mortgage note obligations of the Other
Partnerships due to shortfalls in cash flows or Series A mortgage
note debt service coverage ratios. Based upon information currently
available, the General Partner does not anticipate that any payments
will be required under the cross-collateralization agreement.
Interest Rate Swap and Cap
The Partnership entered into an interest rate swap agreement for a
notional amount equal to the obligation under the Series A Mortgage
Note whereby a portion of the 7.1% per annum interest rate was
swapped into a floating interest rate. Under this interest rate swap,
the Partnership is obligated to pay Credit Suisse Financial Products
(the "Counterparty") a floating rate equivalent to the PSA Municipal
Swap Index, an index of weekly tax-exempt variable rate issues. In
return, the Counterparty will pay to the Partnership a fixed rate
equivalent to 6.1% per annum through January 1, 1999 and 5.15%
per annum through January 1, 2005. The Partnership utilized a
portion of the proceeds from the Load Loan Note discussed above to
purchase an interest rate cap which will serve to limit the
Partnership's obligation under the floating rate to 6.1% per annum
through January 1, 1999 and 5.15% per annum through January 1,
2005. The cost of the interest rate cap of $522,750 will be
deferred and amortized over its life. The Partnership continues to
be obligated under the Series A Mortgage Debt obligation in excess
of the fixed rate equivalent received from the Counterparty. Net
proceeds received, if any, under the interest swap are Restricted
Funds and are available only for Junior Debt obligations.
Member Interest
On January 1, 1995, the Partnership purchased a 8% member
interest in MLPI LLC ("MLPI"), an affiliate of SCA for $3,200.
MLPI is a limited liability company formed under and pursuant to
the Maryland Limited Liability Company Act to act as the General
Partner in MLPII, a Maryland Limited Partnership, and to perform
the duties of General Partner under the Limited Partnership
Agreement of MLPII. MLPII intends to invest in tax-exempt bonds
or operating real estate properties. The net income or loss, capital
gains or losses, and distributions of MLPI shall be allocated to the
Partnership in accordance with the percentage of member interest
stated above. All distributions received from MLPI are classified as
Restricted Funds and are available only for Junior Debt Obligations.
<PAGE>
ST. LOUIS PARK HOUSING PARTNERS,
A LIMITED PARTNERSHIP
FINANCIAL REPORT
DECEMBER 31, 1994
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
St. Louis Park Housing Partners,
A Limited Partnership
Baltimore, Maryland
We have audited the accompanying balance sheets of St. Louis Park
Housing Partners, a Limited Partnership, as of December 31, 1994
and 1993, 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 St. Louis Park
Housing Partners, a Limited Partnership, as of December 31, 1994
and 1993, 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
Bethesda, Maryland
February 13, 1995
<PAGE>
ST. LOUIS PARK HOUSING PARTNERS,
A LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1994 and 1993
1994 1993
ASSETS
Investment in Real Estate, at cost (Note 3)
Buildings - net of accumulated
depreciation of $1,492,019 in 1994 and
$1,286,900 in 1993 $ 6,712,739 $ 6,917,858
Furniture, fixtures and equipment - net
of accumulated depreciation of $557,177
in 1994 and $481,410 in 1993 200,491 268,496
Land 822,780 822,780
Other Assets
Cash 60,183 1,272
Restricted cash (Note 2) 139,131 153,195
Prepaid expenses 5,920 6,744
Other assets net of accumulated amortization
amortization of $293,157 in 1994 and
$258,681 in 1993 (Note 2) 149,651 184,127
Other 1,429 5,563
------------- ------------
TOTAL ASSETS $ 8,092,324 $ 8,360,035
============= ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgage revenue bond payable (Note 3) $ 10,800,000 $ 10,800,000
Special assessments payable 30,466 34,818
Debt service payable (Notes 3 and 4) 1,615,375 1,294,496
Accounts payable and accrued expenses 345,290 294,504
Security deposit liability 69,271 63,916
------------- ------------
TOTAL LIABILITIES $ 12,860,402 $ 12,487,734
Commitment and contingency (Note 3)
Partners' deficit
Partners' capital $ 845,406 $ 845,406
Accumulated deficit ( 5,613,484) ( 4,973,105)
------------- ------------
Total Partners' Deficit $( 4,768,078) $( 4,127,699)
TOTAL LIABILITIES AND
PARTNERS' DEFICIT $ 8,092,324 $ 8,360,035
============= ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
ST. LOUIS PARK HOUSING PARTNERS,
A LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Years Ended December 31, 1994 and 1993
1994 1993
REVENUE
Gross rent potential (Note 3) $ 1,459,381 $ 1,421,700
Less: Vacancies ( 39,885) ( 47,626)
Less: Rent concessions ( 5,426) ( 20,725)
Add: Other rental income 39,900 28,838
------------ ------------
Net rental income $ 1,453,970 $ 1,382,187
Interest 2,664 2,115
----------- ------------
TOTAL REVENUE $ 1,456,634 $ 1,384,302
EXPENSES
Debt service (Note 3) $ 877,500 $ 877,500
Marketing 82,594 84,595
Administrative (Note 4) 82,257 87,452
Depreciation and amortization 315,362 314,586
Taxes and insurance 294,865 261,353
Utilities 79,830 78,335
Maintenance 269,413 222,683
Advertising 14,192 13,895
Mortgage servicing fees (Note 4) 81,000 81,000
------------ ------------
TOTAL EXPENSES $ 2,097,013 $ 2,021,399
------------ ------------
NET LOSS $( 640,379) $( 637,097)
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
ST. LOUIS PARK HOUSING PARTNERS,
A LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
Years Ended December 31, 1994 and 1993
General Limited
Partners Partners Total
Partners' Deficit,
December 31, 1992 $( 34,986) $(3,463,587) $(3,498,573)
Contribution to Capital - 7,971 7,971
Net Loss ( 6,371) ( 630,726) ( 637,097)
------------- ------------ -----------
Partners' Deficit,
December 31, 1993 $( 41,357) $(4,086,342) $(4,127,699)
Net Loss ( 6,404) ( 633,975) ( 640,379)
------------ ----------- -----------
Partners' Deficit,
December 31, 1994 $( 47,761) $(4,720,317) $(4,768,078)
============ =========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
ST. LOUIS PARK HOUSING PARTNERS,
A LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994 and 1993
CASH FLOWS FROM OPERATING ACTIVITIES 1994 1993
Net loss $(640,379) $(637,097)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 280,886 280,110
Amortization 34,476 34,476
Changes in assets and liabilitiies:
Decrease in prepaid expenses 824 355
Decrease (increase) in other assets 4,134 ( 3,014)
Increase in debt service payable 320,879 364,271
Increase (decrease) in accounts payable
and accrued expenses 50,786 ( 19,000)
--------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 51,606 $ 20,101
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment $( 7,762) $ -
Decrease (increase) in restricted cash 14,064 ( 30,077)
---------- ---------
NET CASH PROVIDED BY
INVESTING ACTIVITIES $ 6,302 $( 30,077)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in partner contribution receivable $ - $ 7,971
Increase in security deposits 5,355 5,074
Decrease in special assessments payable ( 4,352) ( 4,353)
--------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES $ 1,003 $ 8,692
NET INCREASE (DECREASE) IN CASH $ 58,911 $( 1,284)
CASH, BEGINNING OF YEAR 1,272 2,556
--------- ---------
CASH, END OF YEAR $ 60,183 $ 1,272
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 556,621 $ 513,229
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization
St. Louis Park Housing Partners, a Limited
Partnership, was formed under the Laws of the
State of Minnesota on August 29, 1986 to construct
and operate an apartment complex of 167 units in
St. Louis Park, Minnesota.
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:
Partners Capital:
Allocation of Partnership income and loss is done
in accordance with the ownership percentages
specified in the Partnership Agreement.
Cash and Restricted Cash:
The cash balance represents cash resources which
are available to fund current operations.
Restricted cash consists of the following:
1994 1993
Real estate tax and insurance
escrow $ 59,875 $ 74,886
Security deposits 68,432 61,510
Replacement reserve 10,824 16,799
-------- ---------
$139,131 $153,195
======== ========
Replacement reserve represents amounts
available to fund future replacements and repairs
as defined in the loan agreement.
Credit Risk:
The Partnership has deposits in a financial
institution in excess of amounts insured by the
Federal Deposit Insurance Corporation.
Depreciation:
Depreciation on buildings, furniture, fixtures, and
equipment is provided for by the use of the
straight-line method over the estimated useful
lives of the assets.
Other Assets:
Other assets consist primarily of loan origination
fees of $403,107 which are being amortized on a
straight-line basis over the term of the underlying
loan.
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.
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 St. Louis
Park for a total of $10,124,832 and a $675,168
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
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 in
August 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 8.125%.
Commencing in August, 1987, 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 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 payable 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, 1994 and 1993 is $6,307,875 and
$5,457,375, respectively.
Note 4. Related Party Transactions
SCA is due a total of $1,615,375 and $1,294,496
relating to debt service at December 31, 1994 and
1993, respectively.
The Partnership paid management fees of $56,964
and $54,663 to an affiliate in 1994 and 1993,
respectively. These amounts are included in
administrative expenses in the accompanying
statement of operations.
As required by the Indenture of Trust, the
Partnership paid mortgage servicing fees of $81,000
to an affiliate in both 1994 and 1993.
<PAGE>
NEWPORT VILLAGE LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 15, 1995
To the Partners of
Newport Village Limited Partnership
In our opinion, the accompanying balance sheets and the related
statements of operations, of partners' deficit and of cash flows
present fairly, in all material respects, the financial position of
Newport Village Limited Partnership at December 31, 1994, and
the results of its operations and its cash flows for the year 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 audit. We conducted our audit 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 audit
provides a reasonable basis for the opinion expressed above. The
financial statements of the Partnership for the year ended December
31, 1993 were audited by other independent accountants whose
report dated February 16, 1994 expressed an unqualified opinion
on those statements.
PRICE WATERHOUSE LLP
<PAGE>
NEWPORT VILLAGE LIMITED PARTNERSHIP
BALANCE SHEETS
December 31,
1994 1993
-------------------------
Assets
Land $1,215,199 $1,215,199
Buildings and improvements 9,554,884 9,554,884
Furniture and equipment 177,225 177,225
---------- ----------
10,947,308 10,947,308
Less accumulated depreciation (1,370,175) (1,115,116)
---------- ----------
Net property and equipment 9,577,133 9,832,192
Cash
Unrestricted 67,383 51,441
Escrow deposits 82,830 111,515
Restricted - security deposits 62,396 50,304
Receivables
Rent 3,395 1,402
Partners - 500
Prepaid expenses 10,200 9,611
---------- -----------
Total assets $9,803,337 $10,056,965
========== ===========
Liabilities and Partners' Deficit
Liabilities
Mortgage note (Notes 3 and 4) $10,425,000 $10,425,000
Parity working capital loan (Notes 3 and 4) 455,000 455,000
Interest payable 1,993,211 1,786,243
Accounts payable, accrued expenses
and other liabilities 131,320 149,846
Security deposit liability 62,540 57,195
----------- -----------
Total liabilities 13,067,071 12,873,284
Commitments and contingencies (Notes 1, 3 and 5)
Partners' deficit (3,263,734) (2,816,319)
---------- ----------
Total liabilities and partners' deficit $9,803,337 $10,056,965
========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
NEWPORT VILLAGE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Year ended December 31,
1994 1993
---------------------------
Revenue
Gross rent potential $1,511,578 $1,362,785
Less: vacancies and concessions (103,410) (33,893)
Other rental income 46,644 26,345
---------- ----------
Rental income 1,454,812 1,355,237
Interest income 4,697 2,758
---------- ----------
Total revenue 1.459,509 1,357,995
Expenses
Interest expense 856,800 856,800
Marketing 15,392 13,232
Administrative 121,523 115,715
Depreciation 255,059 255,059
Real estate taxes and insurance 90,755 152,093
Utilities 88,917 80,612
Maintenance and repairs 338,404 276,546
Management fees 57,974 53,876
Mortgage servicing fees 81,600 81,600
---------- ----------
Total expenses 1,906,424 1,885,533
---------- ----------
Net loss $ (446,915) $ (527,538)
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
NEWPORT VILLAGE LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
DECEMBER 31, 1994 AND 1993
Shelter
SCA Development
Successor, Inc. Corporation Total
--------------- -------------- -----------
Partners' deficit at
December 31, 1992 $ (22,888) $(2,265,893) $(2,288,781)
Net loss (5,275) (522,263) (527,538)
---------- ----------- -----------
Partners' deficit at
December 31, 1993 (28,163) (2,788,156) (2,816,319)
Distributions (5) (495) (500)
Net loss (4,469) (442,446) (446,915)
---------- ----------- -----------
Partners' deficit at
December 31, 1994 $ (32,637) $(3,231,097) $(3,263,734)
The accompanying notes are an integral part of these financial statements.
<PAGE>
NEWPORT VILLAGE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Year ended December 31,
1994 1993
---------------------------
Cash flows from operating activities
Net loss $ (446,915) $ (527,538)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 255,059 255,059
Changes in assets and liabilities
(Increase) decrease in escrow deposits 28,685 (17,586)
Increase in restricted cash -
security deposits (12,092) (678)
Increase in rent receivables (1,993) -
Decrease in partners' receivables 500 -
Increase in prepaid expenses (589) (8,997)
Increase in interest payable 206,968 280,287
Increase (decrease) in accounts payable,
accrued expenses and other liabilities (18,526) 22,051
Increase in security deposit liability 5,345 6,995
---------- ---------
Net cash provided by operating activities 16,442 9,593
Cash flows from financing activities
Distribution to partners (500) -
---------- ---------
Cash used in financing activities (500) -
Net increase in cash 15,942 9,593
Cash at beginning of period 51,441 41,848
---------- ---------
Cash at end of period $ 67,383 $ 51,441
=========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
NEWPORT VILLAGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Organization
Newport Village Limited Partnership ("Partnership") was formed
August 31, 1989, for the purpose of acquiring, owning and
operating residential and commercial real estate. The Partners are
SCA Successor, Inc., the 1% General Partner, and Shelter
Development Corporation, the 99% Limited Partner. 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 sale, exchange or
other disposition of real property in the project shall also be
allocated as set forth in the Partnership Agreement.
Acquisition of Property
As of August 31, 1989, the Partnership entered into a Transfer
Agreement with Catalina Venture III, Ltd. ("Predecessors"), and the
City of Thornton, Colorado, whereby the title to the Catalina
Cottages and Apartments, a 220 apartment complex located in
Thornton, Colorado, was transferred to the Partnership in lieu of
foreclosure. Through this Transfer Agreement, the Partnership
acquired all of Predecessors' rights, title and interest in the
property, and assumed all of Predecessors' obligations under the
Mortgage Note, Parity Working Capital Loan and all other mortgage
loan documents (collectively the "Mortgage Loan") and the
Regulatory Agreement.
As a result of the change in ownership, a new basis of accounting
was established. Accordingly, the aggregate acquisition cost has
been allocated among the acquired assets and assumed liabilities
giving appropriate recognition to the estimated fair value of the
assets acquired and liabilities assumed as follows:
Assumption of debt at fair market value
(including all legal obligations - mortgage note,
parity working capital loan and interest payable) $ 10,951,400
=============
Assets and liabilities at fair market value
Land, property and equipment $ 10,913,975
Other assets 128,521
Other liabilities (91,096)
-------------
$ 10,951,400
=============
Mortgage Loan Default
At the time of its assumption by the Partnership, the Mortgage Loan
was in default for failure to pay full base interest due (Note 3).
Since that time, cash flows from operation of the property have
continued to be insufficient to bring the Mortgage Loan current.
SCA Tax Exempt Fund Limited Partnership ("SCA"), an affiliate of
the Partnership, holds the Mortgage Loan and has not waived
default thereunder. However, SCA has represented that it has no
plans or intentions to exercise its rights to accelerate the maturity of
the Mortgage Loan during the ensuing year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Partnership's financial statements are presented in accordance
with generally accepted accounting principles.
Certain prior year amounts in the accompanying financial statements
have been reclassified to conform with the current year presentation.
Property and Equipment
Property and equipment is stated at cost net of accumulated
depreciation computed using the straight-line method. Provisions for
depreciation are based on estimated useful lives of 40 years for
buildings and improvements and 10 years for furniture and
equipment.
Income Taxes
No provision for income taxes is provided in the financial statements
of the Partnership. In accordance with Federal and state income tax
regulations, the tax attributes of the Partnership accrue to the
individual partners. Each partner's allocable share of the
Partnership profit and loss is reported on the partner's tax return.
NOTE 3 - DEBT
The Partnership is obligated for a total of $10,425,0000 under the
Mortgage Note. The Mortgage Note is assigned to SCA to secure the
payment of principal and interest on a tax-exempt Mortgage Revenue
Bond in a like amount. The Mortgage Note, which is collateralized
by a first priority lien on the real property and an assignment of
rents, matures in December 2010. The Mortgage Note may be
prepaid in whole but not in part, on or after December 10, 1993.
Prepayment of the Mortgage Note may be required upon the
occurrence of an event which would cause significant risk that the
interest on the Mortgage Revenue Bond would be subject to taxation.
Base interest on the original Mortgage Note is payable at a rate of
7.875%. Commencing on December 10, 1988, 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% (level 1 contingent
interest). Any remaining cash flow is split equally with the lender
until the lender reaches its 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 is deferred until the property is sold or the
loan is repaid. Sales 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 provide the lender a
return equal to the base interest rate plus 2.375%. Thereafter such
proceeds are split equally with the lender in order to provide a
return of 16%.
The Partnership is also obligated for a $455,000 Parity Working
Capital Loan issued and held by SCA, which bears the same interest
rate and is payable on the same terms and conditions as the
Mortgage Note discussed above.
The Partnership has been unable to pay all base interest to date on
the Mortgage Loan; accordingly, it is uncertain whether project cash
flows will be sufficient to pay contingent interest. As a result, no
contingent interest has been accrued at December 31, 1994 and
1993. Aggregate unaccrued and unpaid level 1 and level 2
contingent interest is:
December 31,
1994 1993
------------------------
Level 1 $1,565,267 $1,306,867
Level 2 3,789,593 3,163,993
---------- ----------
$5,354,860 $4,470,860
========== ==========
Because of its inability to pay all base interest to date, the
Partnership is also in default of the Indenture of Trust for the
Mortgage Revenue Bond held by SCA. SCA has represented to the
General Partner that it does not, at this time, intend to exercise its
right to accelerate the maturity of the Mortgage Revenue Bond
during the ensuing year as a result of the default.
Cash outflows from operating activities for each of the years ended
December 31, 1994 and 1993 include interest of $649,832 and
$576,513, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
The property is managed by Shelter Corporation ("Shelter"), an
affiliate of SCA Realty I, Inc. the managing General Partner of SCA,
pursuant to a management agreement. Management fees paid to
Shelter for each of the years ended December 31, 1994 and 1993
were $57,974 and $53,876, respectively.
Under the terms of the Mortgage Loan, the Partnership is obligated
to pay a mortgage servicing fee to SCA Associates '86, L.P., an
affiliate of SCA Realty I, Inc. This fee is calculated at .75% of the
aggregate outstanding legal obligation of the Mortgage Loan on
January 1 of each year. Mortgage servicing fees charged to
operations for each of the years ended December 31, 1994 and
1993 were $81,600.
NOTE 5 - REGULATORY AGREEMENT
The Partnership is subject to a Regulatory Agreement with the City
of Thornton, Colorado. Under the Regulatory Agreement, the
property operated by the Partnership is required to lease or hold
available for leasing at least 20% of its rental units to qualifying low
or moderate income tenants. The terms of the Regulatory
Agreement were established in conjunction with the Mortgage Loan
to maintain the tax-exempt status of the Mortgage Revenue Bond. At
December 31, 1994 and 1993, the Partnership was in compliance
with the terms of this Regulatory Agreement.
NOTE 6 - SUBSEQUENT EVENTS
In connection with a financing transaction consummated by SCA on
February 14, 1995, the following occurred:
Change in General Partner
As of January 1, 1995, SCA Successor, Inc., the 1% General
Partner of the Partnership, withdrew from the Partnership and was
replaced by SCA Successor II, Inc. as sole General Partner. Both
the former and the current General Partner are affiliates of SCA
Realty I, Inc.
Debt Restructuring
Effective February 14, 1995, the Partnership's obligation under the
Mortgage Note of $10,425,000 (the "Old Debt") (see Note 3) was
restructured into a Series A Mortgage Note of $6,250,000 and a
Series B Mortgage Note of $4,175,000 (collectively, the "New
Debt"). The New Debt secures the payment of principal and interest
on tax-exempt Mortgage Revenue Bonds in like amounts held by
SCA Tax Exempt Trust. The New Debt, which is collateralized by a
first priority lien on the real property and an assignment on rents,
matures in January 2030.
The Series A Mortgage Note bears interest at 7.1% per annum
which is due and payable monthly. Required monthly principal
payments commence January 1, 2001 and continue through
maturity.
The Series B Mortgage Note bears interest equal to the greater of (a)
three percent (3%) per annum or (b) the amount of Available Cash
Flow, as defined, not exceeding sixteen percent (16%) per annum.
Principal on the Series B Mortgage Note is due January 2030. To
the extent the Partnership has Available Cash Flow, interest on the
principal amount shall be due and payable monthly in accordance
with the Subordination Agreement described below.
On February 14, 1995, the unpaid accrued base interest on the Old
Debt, $1,842,506, and the Parity Working Capital Loan and
interest thereon, $535,377, were converted to an Accrued Interest
Note and a Working Capital Note, respectively, in equivalent
principal amounts. The Accrued Interest Note, Working Capital
Note and Load Loan Note in the amount of $390,040, incurred
primarily to purchase the interest rate cap discussed below,
(collectively, the "Notes") are held by MLPII Acquisition Limited
Partnership ("MLPII"), an affiliate of SCA. The Notes 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 Partnership has
Available Cash Flow, interest on the principal amount and scheduled
principal payments shall be due and payable monthly in accordance
with the Subordination Agreement described below.
The Notes and Series B Mortgage Note (together the "Junior Debt")
are subordinate in priority and right of payment to the Series A
Mortgage Note as described in the Subordination Agreement and
can only be paid from Available Cash Flow (including Restricted
Funds, as defined). Payments of principal and interest on the Junior
Debt are prioritized as follows: (i) interest payments due on the
Notes, prorata between the Notes; (ii) scheduled principal payments
due on the Notes, prorata between the Notes; (iii) interest payments
due on the Series B Mortgage Note; and (iv) the principal payment of
the Series B Mortgage Note due January 2030.
As part of the debt restructuring, the Partnership entered into a
cross-collateralization agreement with 11 other partnerships
controlled by SCA Successor II, Inc. ("Other Partnerships"). This
cross-collaterization agreement may result in the Partnership being
obligated under the Series A mortgage note obligations of the Other
Partnerships due to shortfalls in cash flows or Series A mortgage
note debt service coverage ratios. Based upon information currently
available, the General Partner does not anticipate that any payments
will be required under the cross-collateralization agreement.
Interest Rate Swap and Cap
The Partnership entered into an interest rate swap agreement for a
notional amount equal to the obligation under the Series A Mortgage
Note whereby a portion of the 7.1% per annum interest rate was
swapped into a floating interest rate. Under this interest rate swap,
the Partnership is obligated to pay Credit Suisse Financial Products
(the "Counterparty") a floating rate equivalent to the PSA Municipal
Swap Index, an index of weekly tax-exempt variable rate issues. In
return, the Counterparty will pay to the Partnership a fixed rate
equivalent to 6.1% per annum through January 1, 1999 and 5.15%
per annum through January 1, 2005. The Partnership utilized a
portion of the proceeds from the Load Loan Note discussed above to
purchase an interest rate cap which will serve to limit the
Partnership's obligation under the floating rate to 6.1% per annum
through January 1, 1999 and 5.15% per annum through January 1,
2005. The cost of the interest rate cap of $384,375 will be
deferred and amortized over its life. The Partnership continues to
be obligated under the Series A Mortgage Debt obligation in excess
of the fixed rate equivalent received, if any, from the Counterparty.
Net proceeds, if any, received under the interest swap are Restricted
Funds and are available only for Junior Debt obligations.
Member Interest
On January 1, 1995, the Partnership purchased a 7.0% member
interest in MLPI LLC ("MLPI"), an affiliate of SCA, for $2,800.
MLPI is a limited liability company formed under and pursuant to
the Maryland Limited Liability Company Act to act as the General
Partner in MLPII, a Maryland Limited Partnership, and to perform
the duties of General Partner under the Limited Partnership
Agreement of MLPII. MLPII intends to invest in tax-exempt bonds
or operating real estate properties. The net income or loss, capital
gains or losses, and distributions of MLPI shall be allocated to the
Partnership in accordance with the percentage of member interest
stated above. All distributions received from MLPI are classified as
Restricted Funds and are available only for Junior Debt Obligations.
<PAGE>
NICOLLET RIDGE LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 15, 1995
To the Partners of
Nicollet Ridge Limited Partnership
In our opinion, the accompanying balance sheets and the related
statements of operations, of partners' deficit and of cash flows
present fairly, in all material respects, the financial position of
Nicollet Ridge Limited Partnership at December 31, 1994, and the
results of its operations and its cash flows for the year 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 audit. We conducted our audit 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 audit
provides a reasonable basis for the opinion expressed above. The
financial statements of the Partnership for the year ended December
31, 1993 were audited by other independent accountants whose
report dated February 16, 1994 expressed an unqualified opinion
on those statements.
PRICE WATERHOUSE LLP
<PAGE>
NICOLLET RIDGE LIMITED PARTNERSHIP
BALANCE SHEETS
December 31,
1994 1993
-----------------------------
Assets
Land $1,914,869 $1,914,869
Buildings and improvements 17,997,126 17,997,126
Furniture and equipment 66,157 66,157
---------- ----------
19,978,152 19,978,152
Less accumulated depreciation (1,851,776) (1,395,232)
---------- ----------
Net property and equipment 18,126,376 18,582,920
Cash
Unrestricted 91,047 11,271
Escrow deposits 206,932 125,478
Restricted - security deposits 84,600 65,266
Receivables
Rent 3,420 -
Partner - 500
Other 2,344 3,148
Prepaid expenses 12,631 14,799
---------- ----------
Total assets $18,527,350 $18,803,382
=========== ===========
Liabilities and Partners' Deficit
Liabilities
Mortgage note (Notes 3 and 4) $20,340,000 $20,340,000
Lien claims payable 31,979 31,979
Interest payable 3,762,408 2,981,088
Accounts payable, accrued expenses
and other liabilities 582,763 549,668
Security deposit liability 85,212 64,987
----------- -----------
Total liabilities 24,802,362 23,967,722
Commitments and contingencies (Notes 1, 3 and 5)
Partners' deficit (6,275,012) (5,164,340)
----------- -----------
Total liabilities and partners' deficit $18,527,350 $18,803,382
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
NICOLLET RIDGE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Year ended December 31,
1994 1993
----------------------------
Revenue
Gross rent potential $2,655,590 $2,631,109
Less: vacancies and concessions (199,712) (163,618)
Other rental income 148,207 136,896
---------- ----------
Rental income 2,604,085 2,604,387
Interest income 6,917 4,086
---------- ----------
Total revenue 2,611,002 2,608,473
Expenses
Interest expense 1,601,775 1,601,775
Marketing 17,776 11,871
Administrative 255,823 194,412
Depreciation 456,544 456,544
Real estate taxes and insurance 472,105 496,746
Utilities 215,492 200,013
Maintenance and repairs 444,607 413,293
Management fees 104,498 104,093
Mortgage servicing fees 152,554 152,550
---------- ----------
Total expenses 3,721,174 3,631,297
---------- ----------
Net loss $(1,110,172) $(1,022,824)
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
NICOLLET RIDGE LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
DECEMBER 31, 1994 AND 1993
SCA Limited
Successor, Inc. Partners Total
--------------- ---------- ----------
Partners' deficit at
December 31, 1992 $ (41,416) $(4,100,100) $(4,141,516)
Net loss (10,228) (1,012,596) (1,022,824)
----------- ------------ -----------
Partners' deficit at
December 31, 1993 (51,644) (5,112,696) (5,164,340)
Distribution (5) (495) (500)
Net loss (11,102) (1,099,070) (1,110,172)
---------- ----------- ------------
Partners' deficit at
December 31, 1994 $ (62,751) $(6,212,261) $(6,275,012)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
NICOLLET RIDGE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Year ended December 31,
1994 1993
-------------------------------
Cash flows from operating activities
Net loss $(1,110,172) $(1,022,824)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 456,544 456,544
Changes in assets and liabilities
Increase in escrow deposits (81,454) (39,509)
(Increase) decrease in restricted cash
- security deposits (19,334) 17,306
Increase in rent receivables (3,420) -
Decrease in partners' receivables 500 -
(Increase) decrease in other receivables 804 (3,148)
Decrease in prepaid expenses 2,168 1,094
Increase in interest payable 781,320 669,681
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 33,095 (58,484)
Increase (decrease) in security
deposit liability 20,225 (17,565)
--------- ---------
Net cash provided by operating activities 80,276 3,095
Cash flows from financing activities
Distribution to partners (500) -
--------- ---------
Cash used in financing activities (500) -
Net increase in cash 79,776 3,095
Cash at beginning of period 11,271 8,176
--------- ---------
Cash at end of period $ 91,047 $ 11,271
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
NICOLLET RIDGE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Organization
Nicollet Ridge Limited Partnership ("Partnership") was formed
October 3, 1990, for the purpose of acquiring, owning and
operating residential and commercial real estate. The Partners are
SCA Successor, Inc., the 1% General Partner, and Garrett C.
Carlson, Lynn Carlson-Schell, and the Lount Corporation, the 99%
Limited Partners. 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 sale, exchange or other disposition of real property
in the project shall also be allocated as set forth in the Partnership
Agreement.
Acquisition of Property
As of December 1, 1990, the Partnership entered into a Transfer
Agreement with Burnsville Woods Partnership ("Predecessor"), and
the City of Burnsville, Minnesota, whereby the title to Nicollet Ridge,
a 339 apartment complex located in Burnsville, Minnesota, was
transferred to the Partnership in lieu of foreclosure. Through this
Transfer Agreement, the Partnership acquired all of Predecessor's
rights, title and interest in the property, and assumed all of
Predecessor's obligations under the Mortgage Note and all other
mortgage loan documents (collectively the "Mortgage Loan") and the
Regulatory Agreement.
As a result of the change in ownership, a new basis of accounting
was established. Accordingly, the aggregate acquisition cost has
been allocated among the acquired assets and assumed liabilities
giving appropriate recognition to the estimated fair value of the
assets acquired and liabilities assumed as follows:
Assumption of debt at fair market value
(including all legal obligations - mortgage note
and interest payable) $ 21,441,220
=============
Assets and liabilities at fair market value
Land, property and equipment $ 21,676,831
Other assets 1,539,784
Other liabilities (1,775,395)
-------------
$ 21,441,220
=============
Mortgage Loan Default
At the time of its assumption by the Partnership, the Mortgage Loan
was in default for failure to pay full base interest due (Note 3).
Since that time, cash flows from operation of the property have
continued to be insufficient to bring the Mortgage Loan current.
SCA Tax Exempt Fund Limited Partnership ("SCA"), an affiliate of
the Partnership, holds the Mortgage Loan and has not waived
default thereunder. However, SCA has represented that it has no
plans or intentions to exercise its rights to accelerate the maturity of
the Mortgage Loan during the ensuing year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Partnership's financial statements are presented in accordance
with generally accepted accounting principles.
Certain prior year amounts in the accompanying financial statements
have been reclassified to conform with the current year presentation.
Property and Equipment
Property and equipment is stated at cost net of accumulated
depreciation computed using the straight-line method. Provisions for
depreciation are based on estimated useful lives of 40 years for
buildings and improvements and 10 years for furniture and equipment.
Income Taxes
No provision for income taxes is provided in the financial statements
of the Partnership. In accordance with Federal and state income tax
regulations, the tax attributes of the Partnership accrue to the
individual partners. Each partner's allocable share of the
Partnership profit and loss is reported on the partner's tax return.
NOTE 3 - DEBT
The Partnership is obligated for a total of $20,340,0000 under the
Mortgage Note. The Mortgage Note is assigned to SCA to secure the
payment of principal and interest on a tax-exempt Mortgage Revenue
Bond in a like amount. The Mortgage Note, which is collateralized
by a first priority lien on the real property and an assignment of
rents, matures in December 2010. The Mortgage Note may be
prepaid in whole but not in part, on or after December 1, 1994.
Prepayment of the Mortgage Note may be required upon the
occurrence of an event which would cause significant risk that the
interest on the Mortgage Revenue Bond would be subject to taxation.
Base interest on the original Mortgage Note is payable at a rate of
7.875%. Commencing on December 1, 1989, 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% (level 1 contingent
interest). Any remaining cash flow is split equally with the lender
until the lender reaches its 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 is deferred until the property is sold or the
loan is repaid. Sales 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 provide the lender a
return equal to the base interest rate plus 2.375%. Thereafter such
proceeds are split equally with the lender in order to provide a
return of 16%.
The Partnership has been unable to pay all base interest to date on
the Mortgage Loan; accordingly, it is uncertain whether project cash
flows will be sufficient to pay contingent interest. As a result, no
contingent interest has been accrued at December 31, 1994 and
1993. Aggregate unaccrued and unpaid level 1 and level 2
contingent interest is:
December 31,
1994 1993
------------------------
Level 1 $2,455,631 $1,972,556
Level 2 5,945,213 4,775,663
---------- ----------
$8,400,844 $6,748,219
========== ==========
Because of its inability to pay all base interest to date, the
Partnership is also in default of the Indenture of Trust for the
Mortgage Revenue Bond held by SCA. SCA has represented to the
General Partner that it does not, at this time, intend to exercise its
right to accelerate the maturity of the Mortgage Revenue Bond
during the ensuing year as a result of the default.
Cash outflows from operating activities for each of the years ended
December 31, 1994 and 1993 include interest of $820,455 and
$932,094, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
The property is managed by Shelter Corporation ("Shelter"), an
affiliate of SCA Realty I, Inc., the managing General Partner of
SCA, pursuant to a management agreement. Management fees paid
to Shelter for each of the years ended December 31, 1994 and
1993 were $104,498 and $104,093, respectively.
Under the terms of the Mortgage Loan, the Partnership is obligated
to pay a mortgage servicing fee to SCA Associates '86, L.P., an
affiliate of SCA Realty I, Inc. This fee is calculated at .75% of the
aggregate outstanding legal obligation of the Mortgage Loan on
January 1 of each year. Mortgage servicing fees charged to
operations for each of the years ended December 31, 1994 and
1993 were $152,554 and $152,550, respectively.
NOTE 5 - REGULATORY AGREEMENT
The Partnership is subject to a Regulatory Agreement with the City
of Burnsville, Minnesota. Under the Regulatory Agreement, the
property operated by the Partnership is required to lease or hold
available for leasing at least 20% of its rental units to qualifying low
or moderate income tenants. The terms of the Regulatory
Agreement were established in conjunction with the Mortgage Loan
to maintain the tax-exempt status of the Mortgage Revenue Bond. At
December 31, 1994 and 1993, the Partnership was in compliance
with the terms of this Regulatory Agreement.
NOTE 6 - SUBSEQUENT EVENTS
In connection with a financing transaction consummated by SCA on
February 14, 1995, the following occurred:
Change in General Partner
As of January 1, 1995, SCA Successor, Inc., the 1% General
Partner of the Partnership, withdrew from the Partnership and was
replaced by SCA Successor II, Inc. as sole General Partner. Both
the former and the current General Partner are affiliates of SCA
Realty I, Inc.
Debt Restructuring
Effective February 14, 1995, the Partnership's obligation under the
Mortgage Note of $20,340,000 (the "Old Debt") (see Note 3) was
restructured into a Series A Mortgage Note of $7,925,000 and a
Series B Mortgage Note of $12,415,000 (collectively, the "New
Debt"). The New Debt secures the payment of principal and interest
on tax-exempt Mortgage Revenue Bonds in like amounts held by
SCA Tax Exempt Trust. The New Debt, which is collateralized by a
first priority lien on the real property and an assignment on rents,
matures in January 2030.
The Series A Mortgage Note bears interest at 7.1% per annum
which is due and payable monthly. Required monthly principal
payments commence January 1, 2001 and continue through
maturity.
The Series B Mortgage Note bears interest equal to the greater of (a)
three percent (3%) per annum or (b) the amount of Available Cash
Flow, as defined, not exceeding sixteen percent (16%) per annum.
Principal on the Series B Mortgage Note is due January 2030. To
the extent the Partnership has Available Cash Flow, interest on the
principal amount shall be due and payable monthly in accordance
with the Subordination Agreement described below.
On February 14, 1995, the unpaid accrued base interest on the Old
Debt, $3,663,105, was converted to an Accrued Interest Note in an
equivalent principal amount. The Accrued Interest Note, Working
Capital Note and Load Loan Note in the amount of $506,052,
incurred primarily to purchase the interest rate cap discussed below,
(collectively, the "Notes") are held by MLPII Acquisition Limited
Partnership ("MLPII"), an affiliate of SCA. The Notes 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 Partnership has
Available Cash Flow, interest on the principal amount and scheduled
principal payments shall be due and payable monthly in accordance
with the Subordination Agreement described below.
The Notes and Series B Mortgage Note (together the "Junior Debt")
are subordinate in priority and right of payment to the Series A
Mortgage Note as described in the Subordination Agreement and
can only be paid from Available Cash Flow (including Restricted
Funds, as defined). Payments of principal and interest on the Junior
Debt are prioritized as follows: (i) interest payments due on the
Notes, prorata between the Notes; (ii) scheduled principal payments
due on the Notes, prorata between the Notes; (iii) interest payments
due on the Series B Mortgage Note; and (iv) the principal payment of
the Series B Mortgage Note due January 2030.
As part of the debt restructuring, the Partnership entered into a
cross-collateralization agreement with 11 other partnerships
controlled by SCA Successor II, Inc. ("Other Partnerships"). This
cross-collaterization agreement may result in the Partnership being
obligated under the Series A mortgage note obligations of the Other
Partnerships due to shortfalls in cash flows or Series A mortgage
note debt service coverage ratios. Based upon information currently
available, the General Partner does not anticipate that any payments
will be required under the cross-collateralization agreement.
Interest Rate Swap and Cap
The Partnership entered into an interest rate swap agreement for a
notional amount equal to the obligation under the Series A Mortgage
Note whereby a portion of the 7.1% per annum interest rate was
swapped into a floating interest rate. Under this interest rate swap,
the Partnership is obligated to pay Credit Suisse Financial Products
(the "Counterparty") a floating rate equivalent to the PSA Municipal
Swap Index, an index of weekly tax-exempt variable rate issues. In
return, the Counterparty will pay to the Partnership a fixed rate
equivalent to 6.1% per annum through January 1, 1999 and 5.15%
per annum through January 1, 2005. The Partnership utilized a
portion of the proceeds from the Load Loan Note discussed above to
purchase an interest rate cap which will serve to limit the
Partnership's obligation under the floating rate to 6.1% per annum
through January 1, 1999 and 5.15% per annum through January 1,
2005. The cost of the interest rate cap of $487,388 will be
deferred and amortized over its life. The Partnership continues to
be obligated under the Series A Mortgage Debt obligation in excess
of the fixed rate equivalent received from the Counterparty. Net
proceeds, if any, received under the interest swap are Restricted
Funds and are available only for Junior Debt obligations.
Member Interest
On January 1, 1995, the Partnership purchased a 37.58% member
interest in MLPI LLC ("MLPI"), an affiliate of SCA, for $15,032.
MLPI is a limited liability company formed under and pursuant to
the Maryland Limited Liability Company Act to act as the General
Partner in MLPII, a Maryland Limited Partnership, and to perform
the duties of General Partner under the Limited Partnership
Agreement of MLPII. MLPII intends to invest in tax-exempt bonds
or operating real estate properties. The net income or loss, capital
gains or losses, and distributions of MLPI shall be allocated to the
Partnership in accordance with the percentage of member interest
stated above. All distributions received from MLPI are classified as
Restricted Funds and are available only for Junior Debt Obligations.
<PAGE>
CAL-SHEL,
A CALIFORNIA LIMITED PARTNERSHIP
FINANCIAL REPORT
DECEMBER 31, 1994
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
CAL-SHEL, A California Limited Partnership
San Bernardino, California
We have audited the accompanying balance sheets of CAL-SHEL, A
California Limited Partnership as of December 31, 1994 and 1993 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 CAL-SHEL, A
California Limited Partnership as of December 31, 1994 and 1993,
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
Bethesda, Maryland
February 8, 1995
<PAGE>
CAL-SHEL, A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1994 and 1993
1994 1993
ASSETS
Investment in Real Estate, at cost (Note 3)
Building and improvements - net of accumulated
depreciation of $2,675,634 in 1994
and $2,283,584 in 1993 $ 16,936,994 $ 17,291,178
Furniture, fixtures and equipment -
net of accumulated depreciation of
$340,339 in 1994 and $287,949 in 1993 189,324 234,796
Land improvements - net of accumulated
depreciation of $27,904 in 1994 and
$22,037 in 1993 248,721 244,359
Land 4,907,725 4,907,725
Other Assets
Cash 39,443 63,108
Restricted cash (Note 2) 71,039 92,087
Prepaid expenses 27,776 1,200
Accounts receivable, net of allowance
for doubtful accounts of $20,000
in 1994 and none in 1993 5,103 16,481
------------- -------------
TOTAL ASSETS $ 22,426,125 $ 22,850,934
============= =============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities
Mortgage revenue bond payable(Note 3) $ 25,185,000 $ 25,185,000
Working capital loan payable(Note 3) 665,000 665,000
Debt service payable (Notes 3 and 5 ) 3,546,769 2,528,352
Accounts payable and accrued expenses 101,117 16,742
Security deposit liability 138,464 168,873
Deferred revenue (Note 4) 91,800 102,600
Due to related party (Note 7) 38,918 -
------------- -------------
TOTAL LIABILITIES $ 29,767,068 $ 28,666,567
Commitments and Contingency (Notes 3, 5, 6, 8, 9 and 10)
Partners' deficit $ (7,340,943) $ (5,815,633)
------------- -------------
TOTAL LIABILITIES AND
PARTNERS' DEFICIT $ 22,426,125 $ 22,850,934
============= =============
The accompanying notes are an integral part of these financial statements.
<PAGE>
CAL-SHEL, A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Years Ended December 31, 1994 and 1993
1994 1993
REVENUE
Gross rent potential (Note 3) $ 3,683,779 $ 3,514,546
Less: Vacancies ( 734,172) ( 751,975)
Less: Free rent allowance ( 326,405) ( 227,294)
-------------- --------------
Net rental income $ 2,623,202 $ 2,535,277
Interest 4,944 7,724
Other income (Note 4) 255,799 76,890
-------------- --------------
TOTAL REVENUE $ 2,883,945 $ 2,619,891
EXPENSES
Debt service (Note 3) $ 2,035,688 $ 2,035,688
Marketing and advertising 70,240 102,278
Administrative (Note 10) 354,472 201,827
Depreciation 450,307 445,869
Taxes and insurance 399,282 395,852
Utilities 271,568 219,140
Maintenance 376,547 551,896
Payroll 352,079 334,328
Mortgage servicing fees (Note 7) 193,875 193,875
-------------- --------------
TOTAL EXPENSES $ 4,504,058 $ 4,480,753
-------------- --------------
NET LOSS $( 1,620,113) $( 1,860,862)
=============== ==============
The accompanying notes are an integral part of these financial statements.
<PAGE>
CAL-SHEL, A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
Years Ended December 31, 1994 and 1993
1994 1993
Partners' deficit,
beginning of year $( 5,815,633) $( 4,039,527)
Net loss ( 1,620,113) ( 1,860,862)
Contribution to Partners' capital 94,803 84,756
-------------- -------------
Partners' deficit,
end of year $( 7,340,943) $( 5,815,633)
============== =============
The accompanying notes are an integral part of these financial statements.
<PAGE>
CAL-SHEL, A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994 and 1993
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $( 1,620,113) $( 1,860,862)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 450,307 445,869
Increase in allowance for doubtful accounts 20,000 -
Change in assets and liabilities:
(Increase) decrease in prepaid expenses ( 26,576) 59,660
Increase in accounts receivable ( 8,622) ( 9,467)
Increase in debt service payable 1,018,417 1,232,290
(Decrease) increase in accounts payable
and accrued expenses 84,375 ( 117,904)
(Decrease) increase in deferred revenue ( 10,800) 102,600
Increase in due to related party 9,918 -
NET CASH USED IN OPERATING ------------ -------------
ACTIVITIES $( 83,094) $( 147,814)
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in restricted cash $ 21,048 $ 45,753
Purchases of property and equipment ( 55,013) ( 113,557)
NET CASH USED IN INVESTING ------------ -------------
ACTIVITIES $( 33,965) $( 67,804)
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in security deposits $( 30,409) $ 16,770
Advances from related party 29,000 -
Contributions to Partners' capital 94,803 84,756
NET CASH PROVIDED BY FINANCING ------------ -------------
ACTIVITIES $ 93,394 $ 101,526
NET DECREASE IN CASH $( 23,665) $( 114,092)
CASH, BEGINNING OF YEAR 63,108 177,200
------------ -------------
CASH, END OF YEAR $ 39,443 $ 63,108
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,017,271 $ 803,398
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization
CAL-SHEL, a California Limited Partnership was formed under the
laws of the State of California to construct and operate a 540 unit
residential apartment complex. The complex is located in San
Bernardino, California and was completed in February, 1985.
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:
1994 1993
Real estate tax and insurance escrow $ 23,043 $ 91,992
Replacement reserve 47,996 95
----------- -----------
$ 71,039 $ 92,087
=========== ===========
Replacement reserve represents amount available to fund future
replacements and repairs as defined in the loan agreement. In 1993,
the Partnership, with the permission of the lender, utilized a significant
portion of the replacement reserve to fund certain enhancements to
the property.
Depreciation:
Depreciation is provided for by the use of the straight-line method
over the estimated useful lives of the assets.
Partners' Capital:
Allocation of Partnership income and loss is made in accordance with
the ownership percentages specified in the Partnership agreement.
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 San Bernardino for a total of $25,185,000 and a $665,000 working
capital loan from SCA Tax Exempt Limited Partnership ("SCA"), an
affiliate of the managing general partner. 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 August 1, 2006. The loans may be prepaid in whole, but not
in part, on or prior to the seventh anniversary of the initial purchase
of the bonds. Subsequent to the 7th anniversary of the bonds, the
bonds may be prepaid in whole or in part in accordance with certain
terms specified in the loan agreement. 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 each 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 Partnership has been unable to pay all base interest to date.
Accordingly, it is uncertain, based upon historical results, whether
project cash flows will be sufficient to pay contingent interest. As a
result, no contingent interest has been accrued. Aggregate unpaid
potential contingent interest at December 31, 1994 and 1993 is
$12,722,715 and $10,622,402, respectively.
Note. 4 Leasing Arrangements
During the year ended December 31, 1993, the Partnership, as lessor,
leased a laundry facility under a ten-year operating lease agreement.
The lease provided that the lessee make a one time rental payment of
$108,000 at the inception of the lease. The Partnership has
recognized rent income for the years ended December 31, 1994 and
1993 in amounts such that the total rent income under the lease will
be recognized ratably over the ten-year term. Deferred income under
this agreement is $91,800 and $102,600 at December 31, 1994 and
1993, respectively.
In connection with the lease mentioned in the preceding paragraph,
the Partnership also is entitled to 40% of the income collected by the
lessee from the laundry facilities.
Note 5. Second Mortgage Loan Payable
In accordance with a loan agreement between Block Bros. Industries
(Block Bros.), and the Limited Partnership, Block Bros. provided a
Letter of Credit in the amount of $1,000,000 which expired February
16, 1991 and was used to fund operating deficits of the rental
property. The total draws on the Letter of Credit of $755,644 are
repayable to Block Bros. and are collateralized by a non-recourse
second mortgage on the property. The note matures at the earlier
date of September 11, 2001 or upon the sale, refinancing, or transfer
of the property.
Interest on the second mortgage is calculated using the U.S. prime
rate according to the Bank of America. Aggregate unpaid potential
interest related to the second mortgage amounted to $227,406 and
$174,058 as of December 31, 1994 and 1993, respectively.
While the legal obligation relative to the second mortgage has not
been forgiven, the likelihood of repayment has diminished. The
second mortgage is subordinate to the mortgage revenue bond and
working capital loan, and it is uncertain whether future cash flows will
be adequate to cover any debt beyond the contingent interest related
to the priority debt (see Note 3). Accordingly, the second mortgage
liability was reclassified to equity effective January 1, 1992. As a
result, the Partnership discontinued accruing interest on the second
mortgage loan payable. The effect of not recording this interest was
to reduce the net loss for the years ended December 31, 1994 and
1993 by $53,348 and $45,339, respectively.
In March of 1987, Shelter Canada and Winnipeg Financial entered
into an indemnity agreement with SCA pursuant to which SCA
granted permission for the investment, of the Shandin Hills Project
bond proceeds, in certificates issued by the Government National
Mortgage Corporation. Pursuant to the indemnity, Shelter Canada
and Winnipeg Financial guaranteed to pay to SCA any loss resulting
from any investment of bond proceeds.
In order to satisfy the indemnity obligation, Winnipeg Financial and
Shelter Canada have agreed to indemnify SCA without limitation for
all expenses required to be paid as a result of the Block Bros. lien and
the elimination of the Block Bros. lien. At the present time the
Partnership cannot estimate the amount ultimately required to
eliminate this lien.
Note 6. Advances from Guarantors
As a condition precedent to the issuance of the mortgage revenue
bonds, Shelter Corporation of Canada (Shelter Canada) and Winnipeg
Financial and Management, Inc. (Winnipeg Financial) entered into an
operating deficit guarantee agreement dated December 17, 1986 to
guarantee the payment to SCA of the operating deficits of the
Partnership up to a maximum amount of $1,292,500.
In a settlement agreement dated November 23, 1992, SCA and both
Shelter Canada and Winnipeg Financial reached an agreement
whereby Shelter Canada and Winnipeg Financial would satisfy their
obligation under the above agreement. The aggregate amount owed
to SCA as a result of the guarantee obligation and the indemnity
obligation is $275,691 and $370,494 at December 31, 1994 and 1993,
respectively. In accordance with the terms of this agreement, Shelter
Canada assigned its distribution rights and its partnership interest in
an affiliated partnership to SCA. To the extent these distributions are
used to reduce the guarantor's obligation to SCA, they are recorded
as advances to the Partnership.
Advances to the Partnership by the guarantors' bear interest at the
lesser of the prime rate as established by the Bank of America or the
cost of borrowing of the guarantors. Advances shall be repaid from
the sale or refinancing proceeds of the rental properties after the
payment of contingent interest.
As the repayment of this obligation is contingent and subordinate to
all obligations associated with the mortgage revenue bonds and
working capital loan (See Note 3), advances and related accrued
interest are not reflected in the Partnership's financial statements. As
of December 31, 1994 and 1993, advances under this agreement were
$227,143 and $132,340, respectively, excluding potential interest of
$12,891 and $5,916 respectively.
In addition to the advances under the guarantee obligation, discussed
above and prior to the workout agreement, Shelter Canada advanced
$301,422 to the Partnership. These advances bear interest at the
prime rate as set by the Bank of America. As the repayment of this
obligation is contingent and subordinate to all obligations associated
with the mortgage revenue bonds and working capital loan (See Note
3), the entire amount was reclassified to Partner equity in 1992. As
of December 31, 1994 and 1993, potential interest on the balance was
$172,415 and $140,197, respectively.
Note 7. Related Party Transactions
SCA is due $3,468,190 and $2,449,774 relating to debt service at
December 31, 1994 and 1993, respectively.
Shelter Properties Corporation (an affiliated property management
company) is owed $38,918 relating to management fees and amounts
paid on behalf of the partnership at December 31, 1994.
As required by the Indenture of Trust, the Partnership paid mortgage
servicing fees of $193,875 to an affiliate in 1994 and 1993.
Note 8. Contingency
Under the terms of the Buyout Agreement dated September 2, 1986
and as amended by the second amended and restated Partnership
Agreement, the Partnership is contingently liable in the amount of
$4,200,000 to Winnipeg Financial and Management Inc. with respect
to the redemption of their ownership interest in the Partnership.
The contingent liability is to be repaid from net cash from operations
at such time as the managing general partner may determine as
follows:
(a) Of the first $500,000, $375,000 shall be paid to
Winnipeg Financial and $125,000 shall be paid to the
Partners in proportion to their Percentage Interest,
pursuant to the terms of the Buyout Agreement
between Winnipeg Financial and Cal-Shel, as
amended.
(b) Of the next $500,000, $425,000 shall be paid to
Winnipeg Financial and $75,000 shall be paid to the
Partners in proportion to their Percentage Interest,
pursuant to the terms of the Buyout Agreement
between Winnipeg Financial and Cal-Shel.
(c) Any additional cash distributions in excess of (a) and
(b) of this Section shall be distributed 90 percent to
Winnipeg Financial and 10 percent to the Partners in
proportion to their Percentage Interest, until all
payments required under the terms of the "Buyout
Agreement" between Winnipeg Financial and Cal-
Shel have been made.
The contingent liability is due upon sale of the rental properties or
September 10, 2001, whichever occurs first, and shall bear interest
from September 1, 1986 at the rate of 9% compounded semi-annually.
Aggregate unpaid potential interest with respect to the Winnipeg
Financial contingent liability is $4,548,773 and $3,811,514 at
December 31, 1994 and 1993, respectively.
Note 9. Retirement Plan
Effective in 1994, Shelter Property Corporation, (property
management company) adopted a 401(k) retirement plan covering all
eligible employees of the Partnership. The Partnership made no
contributions to the plan for the year ended December 31, 1994.
Note 10. Management Contract
Effective October 1, 1994, the Partnership entered into a management
agreement with a management company which is an affiliate of one of
the Partnership's general partners. The agreement provides for a
management fee of 3% of monthly gross receipts. This agreement
expires on September 30, 1995. Management fees accrued and paid
to the affiliate amounted to $18,889 for the year ended December 31,
1994. Total management fees to related and unrelated parties were
$82,344 and $73,682 for the years ended December 31, 1994 and
1993, respectively.
<PAGE>
STEEPLECHASE FALLS LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 15, 1995
To the Partners of
Steeplechase Falls Limited Partnership
In our opinion, the accompanying balance sheets and the related
statements of operations, of partners' deficit and of cash flows
present fairly, in all material respects, the financial position of
Steeplechase Falls Limited Partnership at December 31, 1994, and
the results of its operations and its cash flows for the year 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 audit. We conducted our audit 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 audit
provides a reasonable basis for the opinion expressed above. The
financial statements of the Partnership for the period ended
December 31, 1993 were audited by other independent accountants
whose report dated February 17, 1994 expressed an unqualified
opinion on those statements.
PRICE WATERHOUSE LLP
<PAGE>
STEEPLECHASE FALLS LIMITED PARTNERSHIP
BALANCE SHEETS
December 31,
1994 1993
-----------------------------
Assets
Land $ 1,782,925 $ 1,782,925
Buildings and improvements 17,284,284 17,284,284
Furniture and equipment 502,614 495,568
----------- ----------
19,569,823 19,562,777
Less accumulated depreciation (725,844) (241,478)
----------- -----------
Net property and equipment 18,843,979 19,321,299
Cash
Unrestricted 5,733 43,000
Escrow deposits 160,511 521,307
Restricted - security deposits 121,292 106,740
Receivables
Rent 5,108 6,091
Partners - 500
Prepaid expenses 15,150 14,576
----------- -----------
Total assets $19,151,773 $20,013,513
=========== ===========
Liabilities and Partners' Deficit
Liabilities
Mortgage note (Notes 3 and 4) $17,950,000 $17,950,000
Parity working capital loan (Notes 3 and 4) 150,000 150,000
Interest payable 1,649,314 1,699,358
Accounts payable, accrued expenses
and other liabilities 23,380 381,280
Security deposit liability 107,783 105,508
----------- -----------
Total liabilities 19,880,477 20,286,146
Commitments and contingencies (Notes 1, 3 and 5)
Partners' deficit (728,704) (272,633)
----------- -----------
Total liabilities and partners' deficit $19,151,773 $20,013,513
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
STEEPLECHASE FALLS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the For the Period
Year Ended July 12, 1993 Through
December 31, 1994 December 31, 1993
----------------- -----------------
Revenue
Gross rent potential $2,824,679 $1,354,333
Less: vacancies and concessions (121,843) (48,985)
Other rental income 65,143 22,403
----------- -----------
Rental income 2,767,979 1,327,751
Interest income 11,699 4,624
Other income 46,531 25,355
----------- -----------
Total revenue 2,826,209 1,357,730
Expenses
Interest expense 1,425,375 712,677
Marketing 69,127 30,800
Administrative 140,616 87,344
Depreciation 484,366 241,478
Real estate taxes and insurance 291,870 195,502
Utilities 155,576 79,845
Maintenance and repairs 468,418 163,303
Management fees 110,682 52,039
Mortgage servicing fees 135,750 67,875
----------- -----------
Total expenses 3,281,780 1,630,863
----------- -----------
Net loss $ (455,571) $ (273,133)
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
STEEPLECHASE FALLS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
DECEMBER 31, 1994 AND 1993
SCA
Limited
SCA Partner
Successor, Inc. Corporation Total
-------------- ----------- ---------
Partners' capital at
July 12, 1993 $ 5 $ 495 $ 500
Net loss (2,731) (270,402) (273,133)
--------- --------- ---------
Partners' deficit at
December 31, 1993 (2,726) (269,907) (272,633)
Distributions (5) (495) (500)
Net loss (4,556) (451,015) (455,571)
--------- --------- ---------
Partners' deficit at
December 31, 1994 $ (7,287) $(721,417) $(728,704)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
STEEPLECHASE FALLS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Period
For the July 12, 1993
Year Ended Through
December 31, December 31,
1994 1993
------------ --------------
Cash flows from operating activities
Net loss $ (455,571) $ (273,133)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation 484,366 241,478
Changes in assets and liabilities
(Increase) decrease in escrow deposits 360,796 (144,718)
Increase in restricted cash -
security deposits (14,552) (29,632)
(Increase) decrease in rent receivables 983 (3,973)
Decrease in partners' receivables 500 -
Increase in prepaid expenses (574) (9,507)
Increase (decrease) in interest payable (50,044) 54,175
Increase (decrease) in accounts payable,
accrued expenses and other liabilities (357,900) 171,180
Increase (decrease) in security deposit
liability 2,275 (2,251)
---------- ----------
Net cash provided by (used in)
operating activities (29,721) 3,619
Cash flows from investing activities
Purchase of property and equipment (7,046) (15,595)
---------- ---------
Cash used in investing activities (7,046) (15,595)
Cash flows from financing activities
Distribution to partners (500) -
---------- ---------
Cash used in financing activities (500) -
Net decrease in cash (37,267) (11,976)
Cash at beginning of period 43,000 54,976
---------- ---------
Cash at end of period $ 5,733 $43,000
========== =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
STEEPLECHASE FALLS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Organization
Steeplechase Falls Limited Partnership ("Partnership") was formed
March 18, 1993, for the purpose of acquiring, owning and
operating residential and commercial real estate. The Partners are
SCA Successor, Inc., the 1% General Partner, and SCA Limited
Partner Corporation, the 99% Limited Partner. 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 sale, exchange or other disposition
of real property in the project shall also be allocated as set forth in
the Partnership Agreement.
Acquisition of Property
As of July 12, 1993, the Partnership entered into a Transfer
Agreement with Steeplechase Falls Ventures, Ltd. ("Predecessor"),
and The Health, Educational and Housing Facilities Board of the
County of Knoxville, Tennessee, whereby the title to the
Steeplechase Falls Apartments, a 450-unit apartment complex
located in Knoxville, Tennessee, was transferred to the Partnership
in lieu of foreclosure. Through this Transfer Agreement, the
Partnership acquired all of Predecessor's rights, title and interest in
the property, and assumed all of Predecessor's obligations under the
Mortgage Note, Parity Working Capital Loan and all other mortgage
loan documents (collectively the "Mortgage Loan") and the
Regulatory Agreement.
As a result of the change in ownership, a new basis of accounting
was established. Accordingly, the aggregate acquisition cost has
been allocated among the acquired assets and assumed liabilities
giving appropriate recognition to the estimated fair value of the
assets acquired and liabilities assumed as follows:
Assumption of debt at fair market value
(including all legal obligations - mortgage note,
parity working capital loan and interest payable) $ 19,745,183
=============
Assets and liabilities at fair market value
Land, property and equipment $ 19,547,182
Other assets 515,860
Other liabilities (317,859)
-------------
$ 19,745,183
=============
Mortgage Loan Default
At the time of its assumption by the Partnership, the Mortgage Loan
was in default for failure to pay full base interest due (Note 3).
Since that time, cash flows from operation of the property have
continued to be insufficient to bring the Mortgage Loan current.
SCA Tax Exempt Fund Limited Partnership ("SCA"), an affiliate of
the Partnership, holds the Mortgage Loan and has not waived
default thereunder. However, SCA has represented that it has no
plans or intentions to exercise its rights to accelerate the maturity of
the Mortgage Loan during the ensuing year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Partnership's financial statements are presented in accordance
with generally accepted accounting principles.
Certain prior year amounts in the accompanying financial statements
have been reclassified to conform with the current year presentation.
Property and Equipment
Property and equipment is stated at cost net of accumulated
depreciation computed using the straight-line method. Provisions for
depreciation are based on estimated useful lives of 40 years for
buildings and improvements and 10 years for furniture and equipment.
Income Taxes
No provision for income taxes is provided in the financial statements
of the Partnership. In accordance with Federal and state income tax
regulations, the tax attributes of the Partnership accrue to the
individual partners. Each partner's allocable share of the
Partnership profit and loss is reported on the partner's tax return.
<PAGE>
NOTE 3 - DEBT
The Partnership is obligated for a total of $17,950,000 under the
Mortgage Note. The Mortgage Note is assigned to SCA to secure the
payment of principal and interest on a tax-exempt Mortgage Revenue
Bond in a like amount. The Mortgage Note, which is collateralized
by a first priority lien on the real property and an assignment of
rents, matures in October 2008. The Mortgage Note may be
prepaid in whole but not in part, on or after November 1, 1995.
Prepayment of the Mortgage Note may be required upon the
occurrence of an event which would cause significant risk that the
interest on the Mortgage Revenue Bond would be subject to taxation.
Base interest on the original Mortgage Note is payable at a rate of
7.875%. Commencing on May 1, 1989, 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% (level 1 contingent
interest). Any remaining cash flow is split equally with the lender
until the lender reaches its 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 is deferred until the property is sold or the
loan is repaid. Sales 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 provide the lender a
return equal to the base interest rate plus 2.375%. Thereafter such
proceeds are split equally with the lender in order to provide a
return of 16%.
The Partnership is also obligated for a $150,000 Parity Working
Capital Loan issued and held by SCA, which bears the same interest
rate and is payable on the same terms and conditions as the
Mortgage Note discussed above.
The Partnership has been unable to pay all base interest to date on
the Mortgage Loan; accordingly, it is uncertain whether project cash
flows will be sufficient to pay contingent interest. As a result, no
contingent interest has been accrued at December 31, 1994 and
1993. Aggregate unaccrued and unpaid level 1 and level 2
contingent interest is:
December 31,
1994 1993
--------------------------
Level 1 $ 2,435,958 $ 2,006,083
Level 2 5,897,583 4,856,833
----------- -----------
$ 8,333,541 $ 6,862,916
=========== ===========
Because of its inability to pay all base interest to date, the
Partnership is also in default of the Indenture of Trust for the
Mortgage Revenue Bond held by SCA. SCA has represented to the
General Partner that it does not, at this time, intend to exercise its
right to accelerate the maturity of the Mortgage Revenue Bond
during the ensuing year as a result of the default.
Cash outflows from operating activities for each of the periods ended
December 31, 1994 and 1993 include interest of $1,475,419 and
$658,502, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
The property is managed by Shelter Properties Inc. ("Shelter"), an
affiliate of SCA Realty I, Inc., the managing General Partner of
SCA, pursuant to a management agreement. Management fees paid
to Shelter for each of the periods ended December 31, 1994 and
1993 were $110,682 and $52,039, respectively.
Under the terms of the Mortgage Loan, the Partnership is obligated
to pay a mortgage servicing fee to SCA Associates '86, L.P., an
affiliate of SCA Realty I, Inc. This fee is calculated at .75% of the
aggregate outstanding legal obligation of the Mortgage Loan on
January 1 of each year. Mortgage servicing fees charged to
operations for each of the periods ended December 31, 1994 and
1993 were $135,750 and $67,875, respectively.
NOTE 5 - REGULATORY AGREEMENT
The Partnership is subject to a Regulatory Agreement with The
Health, Educational and Housing Facilities Board of the County of
Knoxville, Tennessee. Under the Regulatory Agreement, the
property operated by the Partnership is required to lease or hold
available for leasing at least 20% of its rental units to qualifying low
or moderate income tenants. The terms of the Regulatory
Agreement were established in conjunction with the Mortgage Loan
to maintain the tax-exempt status of the Mortgage Revenue Bond. At
December 31, 1994 and 1993, the Partnership was in compliance
with the terms of this Regulatory Agreement.
NOTE 6 - SUBSEQUENT EVENTS
In connection with a financing transaction consummated by SCA on
February 14, 1995, the following occurred:
Change in General Partner
As of January 1, 1995, SCA Successor, Inc., the 1% General
Partner of the Partnership, withdrew from the Partnership and was
replaced by SCA Successor II, Inc. as sole General Partner. Both
the former and the current General Partner are affiliates of SCA
Realty I, Inc.
Debt Restructuring
Effective February 14, 1995, the Partnership's obligation under the
Mortgage Note of $17,950,000 (the "Old Debt") (see Note 3) was
restructured into a Series A Mortgage Note of $12,650,000 and a
Series B Mortgage Note of $5,300,000 (collectively, the "New
Debt"). The New Debt secures the payment of principal and interest
on tax-exempt Mortgage Revenue Bonds in like amounts held by
SCA Tax Exempt Trust. The New Debt, which is collateralized by a
first priority lien on the real property and an assignment on rents,
matures in January 2030.
The Series A Mortgage Note bears interest at 7.125% per annum
which is due and payable monthly. Required monthly principal
payments commence January 1, 2001 and continue through
maturity.
The Series B Mortgage Note bears interest equal to the greater of (a)
three percent (3%) per annum or (b) the amount of Available Cash
Flow, as defined, not exceeding sixteen percent (16%) per annum.
Principal on the Series B Mortgage Note is due January 2030. To
the extent the Partnership has Available Cash Flow, interest on the
principal amount shall be due and payable monthly in accordance
with the Subordination Agreement described below.
On February 14, 1995, the unpaid accrued base interest on the Old
Debt, $1,506,851, and the Parity Working Capital Loan and
interest thereon, $162,612, were converted to an Accrued Interest
Note and a Working Capital Note, respectively, in equivalent
principal amounts. The Accrued Interest Note, Working Capital
Note and Load Loan Note in the amount of $784,773, incurred
primarily to purchase the interest rate cap discussed below,
(collectively, the "Notes") are held by MLPII Acquisition Limited
Partnership ("MLPII"), an affiliate of SCA. The Notes 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 Partnership has
Available Cash Flow, interest on the principal amount and scheduled
principal payments shall be due and payable monthly in accordance
with the Subordination Agreement described below.
The Notes and Series B Mortgage Note (together the "Junior Debt")
are subordinate in priority and right of payment to the Series A
Mortgage Note as described in the Subordination Agreement and
can only be paid from Available Cash Flow (including Restricted
Funds, as defined). Payments of principal and interest on the Junior
Debt are prioritized as follows: (i) interest payments due on the
Notes, prorata between the Notes; (ii) scheduled principal payments
due on the Notes, prorata between the Notes; (iii) interest payments
due on the Series B Mortgage Note; and (iv) the principal payment of
the Series B Mortgage Note due January 2030.
As part of the debt restructuring, the Partnership entered into a
cross-collateralization agreement with 11 other partnerships
controlled by SCA Successor II, Inc. ("Other Partnerships"). This
cross-collaterization agreement may result in the Partnership being
obligated under the Series A mortgage note obligations of the Other
Partnerships due to shortfalls in cash flows or Series A mortgage
note debt service coverage ratios. Based upon information currently
available, the General Partner does not anticipate that any payments
will be required under the cross-collateralization agreement.
Interest Rate Swap and Cap
The Partnership entered into an interest rate swap agreement for a
notional amount equal to the obligation under the Series A Mortgage
Note whereby a portion of the 7.125% per annum interest rate was
swapped into a floating interest rate. Under this interest rate swap,
the Partnership is obligated to pay Credit Suisse Financial Products
(the "Counterparty") a floating rate equivalent to the PSA Municipal
Swap Index, an index of weekly tax-exempt variable rate issues. In
return, the Counterparty will pay to the Partnership a fixed rate
equivalent to 6.1% per annum through January 1, 1999 and 5.15%
per annum through January 1, 2005. The Partnership utilized a
portion of the proceeds from the Load Loan Note discussed above to
purchase an interest rate cap which will serve to limit the
Partnership's obligation under the floating rate to 6.1% per annum
through January 1, 1999 and 5.15% per annum through January 1,
2005. The cost of the interest rate cap of $777,975 will be
deferred and amortized over its life. The Partnership continues to
be obligated under the Series A Mortgage Debt obligation in excess
of the fixed rate equivalent received from the Counterparty. Net
proceeds received, if any, under the interest swap are Restricted
Funds and are available only for Junior Debt obligations.
Member Interest
On January 1, 1995, the Partnership purchased a 2.5% member
interest in MLPI LLC ("MLPI"), an affiliate of SCA, for $1,000.
MLPI is a limited liability company formed under and pursuant to
the Maryland Limited Liability Company Act to act as the General
Partner in MLPII, a Maryland Limited Partnership, and to perform
the duties of General Partner under the Limited Partnership
Agreement of MLPII. MLPII intends to invest in tax-exempt bonds
or operating real estate properties. The net income or loss, capital
gains or losses, and distributions of MLPI shall be allocated to the
Partnership in accordance with the percentage of member interest
stated above. All distributions received from MLPI are classified as
Restricted Funds and are available only for Junior Debt Obligations.
<PAGE>
WHISPERING LAKE LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 15, 1995
To the Partners of
Whispering Lake Limited Partnership
In our opinion, the accompanying balance sheets and the related
statements of operations, of partners' deficit and of cash flows
present fairly, in all material respects, the financial position of
Whispering Lake Limited Partnership at December 31, 1994 and
1993, and the results of its operations and its cash flows for the
years then ended 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.
PRICE WATERHOUSE LLP
<PAGE>
WHISPERING LAKE LIMITED PARTNERSHIP
BALANCE SHEETS
December 31,
1994 1993
-------------------------
Assets
Land $1,187,784 $1,187,784
Buildings and improvements 13,358,532 13,358,532
Furniture and equipment 910,969 910,969
---------- ----------
15,457,285 15,457,285
Less accumulated depreciation (1,112,592) (635,767)
---------- ----------
Net property and equipment 14,344,693 14,821,518
Cash
Unrestricted 83,537 32,180
Escrow deposits 72,607 51,413
Restricted - security deposits 74,937 56,739
Receivables
Rent 9,073 3,215
Partners - 500
Prepaid expenses 10,248 9,335
----------- -----------
Total assets $14,595,095 $14,974,900
=========== ===========
Liabilities and Partners' Deficit
Liabilities
Mortgage note (Notes 3 and 4) $15,290,544 $15,058,686
Parity working capital loan (Notes 3 and 4) 694,226 683,699
Interest payable 1,260,827 811,840
Accounts payable, accrued expenses
and other liabilities 26,098 57,384
Security deposit liability 76,707 56,739
----------- -----------
Total liabilities 17,348,402 16,668,348
Commitments and contingencies (Notes 1, 3, 5 and 6)
Partners' deficit (2,753,307) (1,693,448)
----------- -----------
Total liabilities and partners' deficit $14,595,095 $14,974,900
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
WHISPERING LAKE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Year ended December 31,
1994 1993
----------------------------
Revenue
Gross rent potential $2,209,967 $2,164,554
Less: vacancies and concessions (265,244) (268,293)
Other rental income 38,307 37,996
---------- ----------
Rental income 1,983,030 1,934,257
Interest income 8,593 2,823
Other income 27,981 37,491
---------- ----------
Total revenue 2,019,604 1,974,571
Expenses
Interest expense 1,629,372 1,629,369
Marketing 41,950 63,673
Administrative 157,424 153,688
Depreciation 476,825 476,825
Real estate taxes and insurance 203,546 289,141
Utilities 104,266 106,207
Maintenance and repairs 267,697 384,280
Management fees 61,458 59,258
Mortgage servicing fees 136,425 136,425
---------- ----------
Total expenses 3,078,963 3,298,866
---------- ----------
Net loss $(1,059,359) $(1,324,295)
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
WHISPERING LAKE LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
DECEMBER 31, 1994 AND 1993
SCA Limited
Successor, Inc. Partners Total
--------------- ------------ ---------
Partners' deficit at
December 31, 1992 $ (3,692) $ (365,461) $ (369,153)
Net loss (13,243) (1,311,052) (1,324,295)
--------- ---------- ----------
Partners' deficit at
December 31, 1993 (16,935) (1,676,513) (1,693,448)
Distributions (5) (495) (500)
Net loss (10,593) (1,048,766) (1,059,359)
--------- ---------- ----------
Partners' deficit at
December 31, 1994 $ (27,533) $(2,725,774) $(2,753,307)
========= =========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
WHISPERING LAKE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Year ended December 31,
1994 1993
---------------------------
Cash flows from operating activities
Net loss $(1,059,359) $(1,324,295)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 476,825 476,825
Accretion of acquisition debt discount 242,385 242,385
Changes in assets and liabilities
Increase in restricted cash -
security deposits (18,198) (11,314)
(Increase) decrease in escrow deposits (21,194) 11,710
(Increase) decrease in rent receivables (5,858) 1,190
Decrease in partners' receivables 500 2,703
(Increase) decrease in prepaid expenses (913) 24,123
Increase in interest payable 448,987 600,225
Decrease in accounts payable, accrued
expenses and other liabilities (31,286) (11,681)
Increase in security deposit liability 19,968 11,314
--------- ---------
Net cash provided by operating activities 51,857 23,185
Cash flows from financing activities
Distribution to partners (500) -
--------- --------
Cash used in financing activities (500) -
Net increase in cash 51,357 23,185
Cash at beginning of period 32,180 8,995
--------- --------
Cash at end of period $ 83,537 $ 32,180
========= ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
WHISPERING LAKE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Organization
Whispering Lake Limited Partnership ("Partnership") was formed
on January 7, 1992 for the purpose of acquiring, owning and
operating residential and commercial real estate. For the year
ended December 31, 1993, the Partners were SCA Successor, Inc.,
the 1% General Partner, and SCA Limited Partner Corporation, the
99% Limited Partner. Effective January 1, 1994, the Limited
Partnership Agreement was amended, whereby SCA Limited
Partner Corporation transferred 48% interest to Mark K. Joseph,
President of SCA Realty I, Inc. 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 sale, exchange or other disposition of real
property in the project shall also be allocated as set forth in the
Partnership Agreement.
Acquisition of Property
As of August 26, 1992, the Partnership entered into an Agreement
of Sale with W.L. Partnership L.P. ("Predecessor"), whereby the
title to Whispering Lake Apartments, a 384-unit apartment complex
located in Kansas City, Missouri, was transferred to the Partnership
in lieu of foreclosure. Through this Agreement of Sale, the
Partnership acquired all of Predecessor's rights, title and interest in
the property, and assumed all of Predecessor's obligations under the
Mortgage Note, Parity Working Capital Loan and all other mortgage
loan documents (collectively the "Mortgage Loan") and the
Regulatory Agreement and the Limited Operating Deficit Guaranty
(Note 5).
As a result of the change in ownership, a new basis of accounting
was established. Accordingly, the aggregate acquisition cost has
been allocated among the acquired assets and assumed liabilities
giving appropriate recognition to the estimated fair value of the
assets acquired and liabilities assumed. The acquisition was
accounted for as follows:
Assumption of debt at fair market value
(including all legal obligations - mortgage note,
parity working capital loan and interest payable) $ 15,500,000
=============
Assets and liabilities at fair market value
Land, property and equipment $ 15,457,285
Other assets 366,356
Other liabilities (323,641)
-------------
$ 15,500,000
=============
Mortgage Loan Default
At the time of its assumption by the Partnership, the Mortgage Loan
was in default for failure to pay full base interest due (Note 3).
Since that time, cash flows from operation of the property have
continued to be insufficient to bring the Mortgage Loan current.
SCA Tax Exempt Fund Limited Partnership ("SCA"), an affiliate of
the Partnership, holds the Mortgage Loan and has not waived
default thereunder. However, SCA has represented that it has no
plans or intentions to exercise its rights to accelerate the maturity of
the Mortgage Loan during the ensuing year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Partnership's financial statements are presented in accordance
with generally accepted accounting principles.
Certain prior year amounts in the accompanying financial statements
have been reclassified to conform with the current year presentation.
Property and Equipment
Property and equipment is stated at cost net of accumulated
depreciation computed using the straight-line method. Provisions for
depreciation are based on estimated useful lives of 40 years for
buildings and improvements and 10 years for furniture and
equipment.
Income Taxes
No provision for income taxes is provided in the financial statements
of the Partnership. In accordance with Federal and state income tax
regulations, the tax attributes of the Partnership accrue to the
individual partners. Each partner's allocable share of the
Partnership profit and loss is reported on the partner's tax return.
NOTE 3 - DEBT
The Partnership is obligated for a total of $17,400,000 under the
Mortgage Note. The Mortgage Note is assigned to SCA to secure the
payment of principal and interest on a tax-exempt Mortgage Revenue
Bond in a like amount. The Mortgage Note, which is collateralized
by a first priority lien on the real property and an assignment of
rents, matures in December 2007. The Mortgage Note may be
prepaid in whole but not in part, on or after October 1, 1994.
Prepayment of the Mortgage Note may be required upon the
occurrence of an event which would cause significant risk that the
interest on the Mortgage Revenue Bond would be subject to taxation.
Base interest on the original Mortgage Note is payable at a rate of
7.625%. Commencing October 1, 1989, 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% (level 1 contingent
interest). Any remaining cash flow is split equally with the lender
until the lender reaches its 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 is deferred until the property is sold or the
loan is repaid. Sales 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 provide the lender a
return equal to the base interest rate plus 2.25%. Thereafter such
proceeds are split equally with the lender in order to provide a
return of 16%.
The Partnership is also obligated for a $790,000 Parity Working
Capital Loan issued and held by SCA, which bears the same interest
rate and is payable on the same terms and conditions as the
Mortgage Note discussed above.
The Partnership has been unable to pay all base interest to date on
the Mortgage Loan; accordingly, it is uncertain whether project cash
flows will be sufficient to pay contingent interest. As a result, no
contingent interest has been accrued at December 31, 1994 and
1993. Aggregate unaccrued and unpaid level 1 and level 2
contingent interest is:
December 31,
1994 1993
-------------------------
Level 1 $2,148,694 $1,739,419
Level 2 5,849,222 4,735,084
---------- ----------
$7,997,916 $6,474,503
========== ==========
Because of its inability to pay all base interest to date, the
Partnership is also in default of the Indenture of Trust for the
Mortgage Revenue Bond held by SCA. SCA has represented to the
General Partner that it does not, at this time, intend to exercise its
right to accelerate the maturity of the Mortgage Revenue Bond
during the ensuing year as a result of the default.
The fair market value of all debt assumed at the date of acquisition
(Note 1) was less than the aggregate legal obligation under such debt
(including accrued interest) at that time by $3,615,581. Such
difference is being accreted via charges to interest expense over the
life of the debt.
Cash outflows from operating activities for each of the years ended
December 31, 1994 and 1993 include interest of $938,000 and
$786,759, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
The property has been managed by Shelter Corporation ("Shelter"),
an affiliate of SCA Realty I, Inc., the managing General Partner of
SCA, since June 1, 1994, pursuant to a management agreement.
Management fees paid to Shelter for the year ended December 31,
1994 were $32,616.
Under the terms of the Mortgage Loan, the Partnership is obligated
to pay a mortgage servicing fee to SCA Associates '86, Inc., an
affiliate of SCA Realty I, Inc. This fee is calculated at .75% of the
aggregate outstanding legal obligation of the Mortgage Loan on
January 1 of each year. Mortgage servicing fees charged to
operations for each of the years ended December 31, 1994 and
1993 were $136,425.
NOTE 5 - ADVANCES FROM GUARANTOR
As a condition precedent to the issuance of the Mortgage Loan to the
original borrower, Shelter Corporation of Canada ("Shelter
Canada"), and affiliate of SCA Realty I, Inc., entered into a Limited
Operating Deficit Guaranty ("LODG") agreement dated October 1,
1987 to guaranty the payment of the operating deficits of the
Predecessor up to a maximum amount of $1,819,000. The LODG
Agreement expired in July 1992, at which time the aggregate
amount owed to the Partnership as a result of the LODG was
approximately $712,300.
In a Settlement Agreement dated November 23, 1992, SCA and
Shelter Canada reached an agreement whereby Shelter Canada
would satisfy their obligation under the LODG. In accordance with
the terms of this agreement, Shelter Canada assigned its distribution
rights and its partnership interests in SCA Associates '86, Inc. and
SCA Associates '86-II, Inc., an affiliate of SCA Realty I, Inc., in full
satisfaction of this obligation. To the extent distributions are
received, they are considered advances to the Partnership.
Advances to the Partnership bear interest at the lesser of the Prime
Rate as established by the Bank of America or the cost of borrowing
of the guarantor. Advances and interest shall be repaid from the
sale or refinancing proceeds of the rental properties after the
payment of contingent interest. As the repayment of this obligation
is contingent and subordinate to all obligations associated with the
Mortgage Loan (Note 3), advances under the LODG and related
interest are not reflected in the Partnership's financial statements.
As of December 31, 1994 and 1993, such contingently payable
advances and interest totaled $722,689 and $549,138,
respectively.
NOTE 6 - REGULATORY AGREEMENT
The Partnership is subject to a Land Use Restriction Agreement
("Regulatory Agreement") with The Industrial Development
Authority of the City of Kansas City, Missouri. Under this
Regulatory Agreement, the property operated by the Partnership is
required to lease or hold available for leasing at least 20% of its
rental units to qualifying low or moderate income tenants. The
terms of the Regulatory Agreement were established in conjunction
with the Mortgage Loan to maintain the tax-exempt status of the
Mortgage Revenue Bond. At December 31, 1994 and 1993, the
Partnership was in compliance with the terms of this Regulatory
Agreement.
NOTE 7 - SUBSEQUENT EVENTS
In connection with a financing transaction consummated by SCA on
February 14, 1995, the following occurred:
Change in General Partner
As of January 1, 1995, SCA Successor, Inc., the 1% General
Partner of the Partnership, withdrew from the Partnership and was
replaced by SCA Successor II, Inc. as sole General Partner. Both
the former and the current General Partner are affiliates of SCA
Realty I, Inc.
Debt Restructuring
Effective February 14, 1995, the Partnership's obligation under the
Mortgage Note of $17,400,000 (the "Old Debt") (see Note 3) was
restructured into a Series A Mortgage Note of $8,900,000 and a
Series B Mortgage Note of $8,500,000 (collectively, the "New
Debt"). The New Debt secures the payment of principal and interest
on tax-exempt Mortgage Revenue Bonds in the like amounts held by
SCA Tax Exempt Trust. The New Debt, which is collateralized by a
first priority lien on the real property and an assignment on rents,
matures in January 2030.
The Series A Mortgage Note bears interest at 7.1% per annum
which is due and payable monthly. Required monthly principal
payments commence January 1, 2001 and continue through
maturity.
The Series B Mortgage Note bears interest equal to the greater of (a)
three percent (3%) per annum or (b) the amount of Available Cash
Flow, as defined, not exceeding sixteen percent (16%) per annum.
Principal on the Series B Mortgage Note is due January 2030. To
the extent the Partnership has Available Cash Flow, interest on the
principal amount shall be due and payable monthly in accordance
with the Subordination Agreement described below.
On February 14, 1995, the unpaid base interest on the Old Debt,
$1,678,356, and the Parity Working Capital Loan and interest
thereon, $866,145, were converted to an Accrued Interest Note and
a Working Capital Note, respectively, in equivalent principal
amounts. The Accrued Interest Note, Working Capital Note and
Load Loan Note in the amount of $557,797, incurred primarily to
purchase the interest rate cap discussed below, (collectively, the
"Notes") are held by MLPII Acquisition Limited Partnership
("MLPII"), an affiliate of SCA. The Notes 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 Partnership has Available Cash Flow, interest on
the principal amount and scheduled principal payments shall be due
and payable monthly in accordance with the Subordination
Agreement described below.
The Notes and Series B Mortgage Note (together the "Junior Debt")
are subordinate in priority and right of payment to the Series A
Mortgage Note as described in the Subordination Agreement and
can only be paid from Available Cash Flow (including Restricted
Funds, as defined). Payments of principal and interest on the Junior
Debt are prioritized as follows: (i) interest payments due on the
Notes, prorata between the Notes; (ii) scheduled principal payments
due on the Notes, prorata between the Notes; (iii) interest payments
due on the Series B Mortgage Note; (vi) the principal payment of the
Series B Mortgage Note due January 2030; and (v) advances and
interest under the LODG agreement (Note 5).
As part of the debt restructuring, the Partnership entered into a
cross-collateralization agreement with 11 other partnerships
controlled by SCA Successor II, Inc. ("Other Partnerships"). This
cross-collaterization agreement may result in the Partnership being
obligated under the Series A mortgage note obligations of the Other
Partnerships due to shortfalls in cash flows or Series A mortgage
note debt service coverage ratios. Based upon information currently
available, the General Partner does not anticipate that any payments
will be required under the cross-collateralization agreement.
Interest Rate Swap and Cap
The Partnership entered into an interest rate swap agreement for a
notional amount equal to the obligation under the Series A Mortgage
Note whereby a portion of the 7.1% per annum interest rate was
swapped into a floating interest rate. Under this interest rate swap,
the Partnership is obligated to pay Credit Suisse Financial Products
(the "Counterparty") a floating rate equivalent to the PSA Municipal
Swap Index, an index of weekly tax-exempt variable rate issues. In
return, the Counterparty will pay to the Partnership a fixed rate
equivalent to 6.1% per annum through January 1, 1999 and 5.15%
per annum through January 1, 2005. The Partnership utilized a
portion of the proceeds from the Load Loan Note discussed above to
purchase an interest rate cap which will serve to limit the
Partnership's obligation under the floating rate to 6.1% per annum
through January 1, 1999 and 5.15% per annum through January 1,
2005. The cost of the interest rate cap of $547,350 will be
deferred and amortized over its life. The Partnership continues to
be obligated under the Series A Mortgage Debt obligation in excess
of the fixed rate equivalent received from the Counterparty. Net
proceeds received, if any, under the interest swap are Restricted
Funds and are available only for Junior Debt obligations.
Member Interest
On January 1, 1995, the Partnership purchased a 15.92% member
interest in MLPI LLC ("MLPI"), an affiliate of SCA for $6,368.
MLPI is a limited liability company formed under and pursuant to
the Maryland Limited Liability Company Act to act as the General
Partner in MLPII, a Maryland Limited Partnership, and to perform
the duties of General Partner under the Limited Partnership
Agreement of MLPII. MLPII intends to invest in tax-exempt bonds
or operating real estate properties. The net income or loss, capital
gains or losses, and distributions of MLPI shall be allocated to the
Partnership in accordance with the percentage of member interest
stated above. All distributions received from MLPI are classified as
Restricted Funds and are available only for Junior Debt Obligations.
<PAGE>
WILLOWGREEN I AND II LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 15, 1995
To the Partners of
Willowgreen I and II Limited Partnership
In our opinion, the accompanying balance sheet and the related
statements of operations, of partners' deficit and of cash flows
present fairly, in all material respects, the financial position of
Willowgreen I and II Limited Partnership at December 31, 1994,
and the results of its operations and its cash flows for the period
June 30, 1994 (date of inception) through 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 audit. We conducted our audit 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 audit
provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
<PAGE>
WILLOWGREEN I AND II LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1994
Assets
Land $1,328,979
Buildings and improvements 7,598,290
Furniture and equipment 703,010
----------
9,630,279
Less accumulated depreciation (38,557)
----------
Net property and equipment 9,591,722
Cash
Unrestricted 12,861
Escrow deposits 53,552
Restricted - security deposits 40,124
Receivables
Rent 15,177
Partners 500
Prepaid expenses 8,559
----------
Total assets $9,722,495
==========
Liabilities and Partners' Deficit
Liabilities
Mortgage note (Notes 3 and 4) $9,275,000
Parity working capital loan (Notes 3 and 4) 175,000
Interest payable 213,086
Accounts payable, accrued expenses
and other liabilities 64,159
Security deposit liability 40,124
----------
Total liabilities 9,767,369
Commitments and contingencies (Notes 1, 3 and 5)
Partners' deficit (44,874)
----------
Total liabilities and partners' deficit $9,722,495
==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
WILLOWGREEN I AND II LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE PERIOD JUNE 30, 1994 THROUGH DECEMBER 31, 1994
Revenue
Gross rent potential $168,922
Less: vacancies and concessions (13,459)
--------
Rental income 155,463
Interest income 848
Other income 4,240
--------
Total revenue 160,551
Expenses
Interest expense 84,000
Marketing 4,336
Administrative 14,240
Depreciation 38,557
Real estate taxes and insurance 13,942
Utilities 23,883
Maintenance and repairs 15,746
Management fees 3,346
Mortgage servicing fees 7,875
--------
Total expenses 205,925
--------
Net loss $(45,374)
========
The accompanying notes are an integral part of these financial statements.
<PAGE>
WILLOWGREEN I AND II LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' DEFICIT
DECEMBER 31, 1994
SCA Limited
Successor, Inc. Partners Total
--------------- ---------- ----------
Contributions $ 5 $ 495 $ 500
Net loss (454) (44,920) (45,374)
Partners' deficit at -------------- ---------- ----------
December 31, 1994 $ (449) $ (44,425) $ (44,874)
============== ========== =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
WILLOWGREEN I AND II LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIOD JUNE 30, 1994 THROUGH DECEMBER 31, 1994
Cash flows from operating activities
Net loss $(45,374)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 38,557
Changes in assets and liabilities
Increase in escrow deposi ts (12,531)
Decrease in restricted cash - security deposits 378
(Increase) decrease in rent receivable (500)
Increase in prepaid expenses 15,374
Increase in interest payable 30,883
Decrease in accounts payable, accrued expenses
and other liabilities (19,732)
Decrease in security deposit liability (378)
--------
Net cash provided by operating activities 6,677
Cash flows from financing activities
Contributions from partners 500
--------
Cash provided by financing activities 500
Net increase in cash 7,177
Cash at beginning of period 5,684
--------
Cash at end of period $ 12,861
========
The accompanying notes are an integral part of these financial statements.
<PAGE>
WILLOWGREEN I AND II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Organization
Willowgreen I and II Limited Partnership ("Partnership") was
formed June 30, 1994, for the purpose of acquiring, owning and
operating residential and commercial real estate. The Partnership
had no operations until the date of acquisition described below. The
Partners are SCA Successor, Inc., the 1% General Partner, SCA
Limited Partner Corporation and Mark K. Joseph, President of SCA
Realty I, Inc., the 99% Limited Partners. 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 sale, exchange or other disposition
of real property in the project shall also be allocated as set forth in
the Partnership Agreement.
Acquisition of Property
As of November 21, 1994, the Partnership entered into a Transfer
Agreement with Willowgreen Associates ("Predecessor"), and the
Washington State Housing Finance Commission, whereby the title to
the Willowgreen, a 241-unit apartment complex located in Fife,
Washington, was transferred to the Partnership in lieu of
foreclosure. Through this Transfer Agreement, the Partnership
acquired all of Predecessor's rights, title and interest in the
property, and assumed all of Predecessor's obligations under the
Mortgage Note, Parity Working Capital Loan and all other mortgage
loan documents (collectively the "Mortgage Loan") and the
Regulatory Agreement.
As a result of the change in ownership, a new basis of accounting
was established. Accordingly, the aggregate acquisition cost has
been allocated among the acquired assets and assumed liabilities
giving appropriate recognition to the estimated fair value of the
assets acquired and liabilities assumed as follows:
Assumption of debt at fair market value
(including all legal obligations - mortgage note,
parity working capital loan and interest payable) $ 9,632,203
============
Assets and liabilities at fair market value
Land, property and equipment $ 9,630,279
Other assets 126,265
Other liabilities (124,341)
------------
$ 9,632,203
============
Mortgage Loan Default
At the time of its assumption by the Partnership, the Mortgage Loan
was in default for failure to pay full base interest due (Note 3).
Since that time, cash flows from operation of the property have
continued to be insufficient to bring the Mortgage Loan current.
SCA Tax Exempt Fund Limited Partnership ("SCA"), an affiliate of
the Partnership, holds the Mortgage Loan and has not waived
default thereunder. However, SCA has represented that it has no
plans or intentions to exercise its rights to accelerate the maturity of
the Mortgage Loan during the ensuing year.
The Partnership's ability to continue as a going concern is
dependent upon SCA's continued forbearance. The accompanying
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Partnership's financial statements are presented in accordance
with generally accepted accounting principles.
Property and Equipment
Property and equipment is stated at cost net of accumulated
depreciation computed using the straight-line method. Provisions for
depreciation are based on estimated useful lives of 40 years for
buildings and improvements and 10 years for furniture and
equipment.
Income Taxes
No provision for income taxes is provided in the financial statements
of the Partnership. In accordance with Federal and state income tax
regulations, the tax attributes of the Partnership accrue to the
individual partners. Each partner's allocable share of the
Partnership profit and loss is reported on the partner's tax return.
NOTE 3 - DEBT
The Partnership is obligated for a total of $9,275,000 under the
Mortgage Note. The Mortgage Note is assigned to SCA to secure the
payment of principal and interest on a tax-exempt Mortgage Revenue
Bond in a like amount. The Mortgage Note, which is collateralized
by a first priority lien on the real property and an assignment of
rents, matures in December 2010. The Mortgage Note may be
prepaid in whole but not in part, on or after December 1, 1993.
Prepayment of the Mortgage Note may be required upon the
occurrence of an event which would cause significant risk that the
interest on the Mortgage Revenue Bond would be subject to taxation.
Base interest on the original Mortgage Note is payable at a rate of
8%. Commencing on February 1, 1988, 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% (level 1 contingent
interest). Any remaining cash flow is split equally with the lender
until the lender reaches its 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 is deferred until the property is sold or the
loan is repaid. Sales 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 provide the lender a
return equal to the base interest rate plus 2.25%. Thereafter such
proceeds are split equally with the lender in order to provide a
return of 16%.
The Partnership is also obligated for a $175,000 Parity Working
Capital Loan issued and held by SCA, which bears the same interest
rate and is payable on the same terms and conditions as the
Mortgage Note discussed above.
The Partnership has been unable to pay all base interest to date on
the Mortgage Loan; accordingly, it is uncertain whether project cash
flows will be sufficient to pay contingent interest. As a result, no
contingent interest has been accrued at December 31, 1994.
Aggregate unaccrued and unpaid level 1 and level 2 contingent
interest at December 31, 1994 is:
Level 1 $1,470,656
Level 2 3,758,344
----------
$5,229,000
==========
Because of its inability to pay all base interest to date, the
Partnership is also in default of the Indenture of Trust for the
Mortgage Revenue Bond held by SCA. SCA has represented to the
General Partner that it does not, at this time, intend to exercise its
right to accelerate the maturity of the Mortgage Revenue Bond
during the ensuing year as a result of the default.
Cash outflows from operating activities for the period ended
December 31, 1994 include interest of $53,117.
NOTE 4 - RELATED PARTY TRANSACTIONS
Under the terms of the Mortgage Loan, the Partnership and its
Predecessor are obligated to pay a mortgage servicing fee to SCA
Associates '86, L.P., an affiliate of SCA Realty I, Inc., the managing
General Partner of SCA. This fee is calculated at .75% of the
aggregate outstanding legal obligation of the Mortgage Loan on
January 1 of each year. Mortgage servicing fees charged to
operations for the period ended December 31, 1994 were $7,875,
which represents an allocation of the Partnership's share of the fees
since date of acquisition.
NOTE 5 - REGULATORY AGREEMENT
The Partnership is subject to a Regulatory Agreement with the
Washington State Housing Finance Commission. Under the
Regulatory Agreement, the property operated by the Partnership is
required to lease or hold available for leasing at least 20% of its
rental units to qualifying low or moderate income tenants. The
terms of the Regulatory Agreement were established in conjunction
with the Mortgage Loan to maintain the tax-exempt status of the
Mortgage Revenue Bond. At December 31, 1994, the Partnership
was in compliance with the terms of this Regulatory Agreement.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SERIES I AND SERIES II AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO BOTH THOSE FINANCIAL STATEMENTS AND THE FOOTNOTES
PROVIDED WITHIN THIS SCHEDULE.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 7,854,681<F1>
<SECURITIES> 0
<RECEIVABLES> 556,690<F2>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,411,371<F3>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 236,779,977<F4>
<CURRENT-LIABILITIES> 8,917,580<F5>
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 227,862,397<F6>
<TOTAL-LIABILITY-AND-EQUITY> 236,779,977<F7>
<SALES> 0
<TOTAL-REVENUES> 13,036,030<F8>
<CGS> 0
<TOTAL-COSTS> 3,840,858<F9>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,195,172<F10>
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,195,172<F11>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,195,172<F12>
<EPS-PRIMARY> 64.44<F13>
<EPS-DILUTED> 0
<FN>
<F1>
SERIES I SERIES II
-------- ---------
CASH 5,239,782 2,614,899
<F2>
RECEIVABLES 357,783 198,907
<F3>
CURRENT ASSETS 5,597,565 2,813,806
<F4>
TOTAL ASSETS 155,041,254 81,738,723
<F5>
CURRENT LIABILITIES 5,771,215 3,146,365
<F6>
OTHER SE 149,270,039 78,592,358
<F7>
TOTAL LIAB AND SE 155,041,254 81,738,723
<F8>
TOTAL REVENUES 8,565,467 4,470,563
<F9>
TOTAL COSTS 2,917,588 923,270
<F10>
INCOME PRE-TAX 5,647,879 3,547,293
<F11>
INCOME CONTINUING 5,647,879 3,547,293
<F12>
NET INCOME 5,647,879 3,547,293
<F13>
EPS- PRIMARY 27.96 36.48
</TABLE>
