<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-17589
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NTS-PROPERTIES VII, LTD.
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(Exact name of registrant as specified in its charter)
Florida 61-1119232
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10172 Linn Station Road
Louisville, Kentucky 40223
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (502) 426-4800
---------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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]
Exhibit Index: See Page 38
Total Pages: 41
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGES
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PART I
<S> <C> <C>
Items 1 and 2 Business and Properties 3-9
Item 3 Legal Proceedings 9
Item 4 Submission of Matters to a Vote
of Security Holders 9
PART II
Item 5 Market for the Registrant's Limited Partnership
Interests and Related Partner Matters 10
Item 6 Selected Financial Data 11
Item 7 Management's Discussion and Analysis
of Financial Condition and Results
of Operations 12-18
Item 8 Financial Statements and Supplementary
Data 19-34
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 34
PART III
Item 10 Directors and Executive Officers of
the Registrant 35
Item 11 Management Remuneration and Transactions 36
Item 12 Security Ownership of Certain Beneficial
Owners and Management 36
Item 13 Certain Relationships and Related
Transactions 36-37
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 38-40
Signatures 41
</TABLE>
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PART I
Items 1. and 2. BUSINESS AND PROPERTIES
DEVELOPMENT OF BUSINESS
NTS-Properties VII, Ltd., a Florida limited partnership (the "Partnership"),
was formed in 1987. The General Partner is NTS-Properties Associates VII, a
Kentucky limited partnership. As of December 31, 1998 the Partnership owned
the following properties:
- The Park at the Willows, a 48-unit luxury apartment complex
located on a 2.8 acre tract in Louisville, Kentucky, acquired
complete by the Partnership.
- Park Place Apartments Phase II, a 132-unit luxury apartment
complex located on an 11 acre tract in Lexington, Kentucky,
constructed by the Partnership.
- A joint venture interest in Blankenbaker Business Center 1A, a
business center with approximately 50,000 net rentable ground
floor square feet and approximately 50,000 net rentable mezzanine
square feet located in Louisville, Kentucky, acquired complete by
the joint venture between the Partnership and NTS-Properties Plus
Ltd., an affiliate of the General Partner of the Partnership. The
Joint Venture Agreement was amended to admit NTS-Properties IV.,
Ltd., an affiliate of the General Partner of the Partnership,
("NTS-Properties IV") during 1994. The Partnership's percentage
interest in the joint venture was 31% at December 31, 1998.
The Partnership or the joint venture in which the Partnership is a partner
has a fee title interest in the above properties. In the opinion of the
Partnership's management, the properties are adequately covered by insurance.
As of December 31, 1998, the Partnership's properties were encumbered by the
mortgages as shown in the table below:
<TABLE>
<CAPTION>
Interest Maturity Balance
Property Rate Date at 12/31/98
- -------- -------- -------- -----------
<S> <C> <C> <C>
Park Place Apartments
Phase II 7.37% 10/15/12(1) $3,987,830
Blankenbaker Business
Center 1A 8.50% 11/15/05(2) 1,100,383 (3)
</TABLE>
(1) Monthly principal payments are based upon a 19-year amortization
schedule. The outstanding principal balance at maturity based on the
current rate of amortization will be $1,414,978.
(2) Current monthly principal payments are based upon an 11-year
amortization schedule. At maturity, the mortgage will have been repaid
based on the current rate of amortization.
(3) This amount represents the Partnership's proportionate interest in the
mortgage payable at December 31, 1998. The outstanding balance of the
mortgage at December 31, 1998 was $3,511,112.
The Park at the Willows is not encumbered by any outstanding mortgages at
December 31, 1998.
As of December 31, 1998, the Partnership had no material commitments for
renovations or capital improvements.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Partnership is presently engaged solely in the business of developing,
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constructing, owning and operating residential apartments and commercial real
estate. See Note 10 in Item 8 for information regarding the Partnership's
operating segments.
NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
The current business of the Partnership is consistent with the original
purpose of the Partnership which was to acquire, directly or by joint
venture, unimproved or partially improved land, to construct and otherwise
develop thereon apartment complexes or commercial properties, and to own and
operate the completed properties. The original purpose also includes the
ability of the Partnership to invest in fully improved properties, either
directly or by joint venture. The Partnership's properties are in a condition
suitable for their intended use.
The Partnership intends to hold the Properties until such time as sale or
other disposition appears to be advantageous with a view to achieving the
Partnership's investment objectives or it appears that such objectives will
not be met. In deciding whether to sell a Property, the Partnership will
consider factors such as potential capital appreciation, cash flow and
federal income tax considerations, including possible adverse federal income
tax consequences to the Limited Partners.
DESCRIPTION OF REAL PROPERTY
THE PARK AT THE WILLOWS
All units in The Park at the Willows are loft, studio or deluxe one-bedroom
apartments. All units have wall-to-wall carpeting, individually controlled
heating and air conditioning, dishwashers, ranges, refrigerators with ice
makers, garbage disposals and microwave ovens. Loft and deluxe units have
washer/dryer hook-ups. In addition, pursuant to an agreement with the Willows
of Plainview apartment community which was developed adjacent to The Park at
the Willows and is owned by NTS-Properties IV and NTS-Properties V, two
publicly registered limited partnerships sponsored by an affiliate of the
General Partner, tenants of The Park at the Willows have access to and use of
the coin-operated washer/dryer facilities, clubhouse, management offices,
swimming pool, whirlpool and tennis courts at The Willows of Plainview. The
Partnership shares proportionately in the cost of maintaining and operating
these facilities.
Monthly rental rates at The Park at the Willows start at $549 for studio
apartments, $659 for deluxe units and $719 for lofts, with additional monthly
rental amounts for special features and locations. Tenants pay all costs of
heating, air conditioning and electricity. Most leases are for a period of
one year. Units will be rented in some cases, however, on a shorter term
basis at an additional charge. The occupancy levels at the apartment complex
as of December 31 were 77% (1998), 96% (1997), 83% (1996), 96% (1995) and 83%
(1994). See item 7 for average occupancy information.
PARK PLACE APARTMENTS PHASE II
Units at Park Place Apartments Phase II include one-bedroom and two-bedroom
apartments and two-bedroom town homes. All units have wall-to-wall carpeting,
individually controlled heating and air conditioning, dishwashers, ranges,
refrigerators with ice makers, garbage disposals and microwave ovens. Each
unit has either a washer/dryer hook-up or access to coin-operated washers and
dryers. Amenities include the clubhouse with a party room, swimming pool,
tennis courts, racquetball courts, exercise facility and management offices.
The amenities are shared with Phase I of the Park Place development which
were developed and constructed by NTS-Properties VI, an affiliate of the
General Partner and with Phase III which is currently being constructed by
NTS-Properties VI. The cost to construct and operate the common amenities is
shared proportionately by each phase.
Monthly rental rates at Park Place Apartments Phase II start at $769 for
one-
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bedroom apartments, $1,029 for two-bedroom apartments and $1,159 for
two-bedroom town homes, with additional monthly rental amounts for special
features and locations. Tenants pay all costs of heating, air conditioning
and electricity. Most leases are for a period of one year. Units will be
rented in some cases, however, on a shorter term basis at an additional
charge. The occupancy levels at the apartment complex as of December 31 were
85% (1998), 92% (1997), 90% (1996), 91% (1995) and 92% (1994). See item 7 for
average occupancy information.
BLANKENBAKER BUSINESS CENTER 1A
Sykes Health Plan Service Bureau, Inc. ("Sykes")(formerly known as Prudential
Service Bureau, Inc.) has leased 100% of Blankenbaker Business Center 1A. The
annual base rent, which does not include the cost of utilities, is $7.89 per
square foot for ground floor office space and $7.10 per square foot for
second floor office space. The average base annual rental for all types of
space leased as of December 31, 1998 was $7.48. The lease term is for 11
years and expires in July 2005. Prudential Service Bureau, Inc. is a
professional service oriented organization which deals in insurance claim
processing. The lease provides for the tenant to contribute toward the
payment of common area expenses, insurance and real estate taxes. The
occupancy level at the business center as of December 31, 1998, 1997, 1996,
1995 and 1994 was 100%. See item 7 for average occupancy information.
The following table contains approximate data concerning the lease in effect on
December 31, 1998:
<TABLE>
<CAPTION>
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area(1) Rental Options
---- ---------- ------------- ---------------- --------
<S> <C> <C> <C> <C>
Sykes Health Plan
Service Bureau, Inc. 2005 48,463 (100%) $752,787 (100%) None
</TABLE>
(1) Rentable area includes only ground floor square feet.
Subsequent to December 31, 1998, SHPS, Inc., formerly known as Sykes Health
Plan Services, Inc., announced its intentions to consolidate its operations
and to build its corporate headquarters in Jefferson County, Kentucky. One of
SHPS, Inc's operations, Sykes, is already based in Louisville, Kentucky.
Sykes occupies 100% of Blankenbaker Business Center 1A. Due to the expansion
of SHPS, Inc's headquarters, it is the Partnership's understanding that SHPS,
Inc. does not intend to continue to occupy the space at Blankenbaker Business
Center 1A through the duration of its lease, July 2005. The Partnership's
proportionate share of the rental income from this property accounted for
approximately 15% of the Partnership's total revenues during 1998. The
Partnership has not yet determined the effect, if any, on the Partnership's
operations, given the fact Sykes is under lease until July 2005 and no
official notice of termination has been received.
Additional operating data regarding the Partnership's properties is furnished in
the following table.
<TABLE>
<CAPTION>
Federal Realty Annual
Tax Basis Tax Rate Realty Taxes
--------- -------- ------------
<S> <C> <C> <C>
Wholly-Owned Properties
- -----------------------
The Park at the Willows $2,576,379 $ .001111 $ 17,375
Park Place Apartments
Phase II 9,427,811 .009955 73,633
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Federal Realty Annual
Tax Basis Tax Rate Realty Taxes
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<S> <C> <C> <C>
PROPERTY OWNED IN JOINT
VENTURE WITH NTS-
PROPERTIES IV AND NTS-
PROPERTIES PLUS LTD.
Blankenbaker Business
Center 1A 7,356,545 .010910 56,482
</TABLE>
Percentage ownership has not been applied to the Blankenbaker Business Center 1A
information in the above table.
Depreciation for book purposes is computed using the straight-line method
over the estimated useful lives of the assets which are 5-30 years for land
improvements, 30 years for buildings, 5-30 years for building improvements
and 5-30 years for amenities. There are currently no planned renovations
which would have an impact on realty taxes.
INVESTMENT IN JOINT VENTURES
Blankenbaker Business Center Joint Venture - On December 28, 1990, the
Partnership entered into a joint venture agreement with NTS-Properties Plus
Ltd. to own and operate Blankenbaker Business Center 1A and to acquire an
approximately 2.49 acre parking lot that was being leased by the business
center from an affiliate of the General Partner. The use of the parking lot
is a provision of the tenant's lease agreement with the business center. On
August 16, 1994, the Blankenbaker Business Center Joint Venture agreement was
amended to admit NTS-Properties IV to the Joint Venture. The terms of the
Joint Venture shall continue until dissolved. Dissolution shall occur upon,
but not before, the first to occur of the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the assets of the Real Property and
Parking Lot and the sale and/or collection of any evidences of
indebtedness received in connection therewith;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) December 31, 2030.
In 1990 when the Joint Venture was originally formed, the Partnership
contributed $450,000 which was used for additional tenant improvements to the
business center and made a capital contribution to the Joint Venture of
$325,000 to purchase the 2.49 acre parking lot. The additional tenant
improvements were made to the business center and the parking lot was
purchased in 1991. NTS-Properties Plus Ltd. contributed Blankenbaker Business
Center 1A together with improvements and personal property subject to
mortgage indebtedness of $4,715,000. During November 1994, this note payable
was replaced with permanent financing in the amount of $4,800,000. The
outstanding balance at December 31, 1998 was $3,511,112. The mortgage is
recorded as a liability of the Joint Venture. The Partnership's proportionate
interest in the mortgage at December 31, 1998 was $1,100,383. The mortgage
bears interest at a fixed rate of 8.5% and is due November 15, 2005.
Currently monthly principal payments are based upon an 11- year amortization
schedule. At maturity, the mortgage will have been repaid based on the
current rate of amortization.
On April 28, 1994, the Joint Venture obtained $1,100,000 in debt financing to
fund a portion of the tenant finish and leasing costs which were associated
with the Sykes lease renewal and expansion. The $1,100,000 note bore interest
at the Prime Rate + 1 1/2%. In order for the Joint Venture to obtain the
$4,800,000 of
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permanent financing discussed above, it was necessary for the Joint Venture
to seek an additional Joint Venture partner to provide the funds necessary
for the tenant finish and leasing costs instead of debt financing. See the
following paragraph for information regarding the new joint venture partner.
The $1,100,000 note was retired in August 1994. This resulted in the Joint
Venture's debt being at a level where permanent financing could be obtained
and serviced.
On August 16, 1994, NTS-Properties VII, Ltd. contributed $500,000 and
NTS-Properties IV contributed $1,100,000 in accordance with the agreement to
amend the Joint Venture. The need for additional capital by the Joint Venture
was a result of the lease renewal and expansion which was signed April 28,
1994 between the Joint Venture and Sykes. NTS-Properties VII, Ltd. was not in
a position to contribute all of the capital required for the project, nor was
NTS-Properties Plus Ltd. in a position to contribute additional capital.
NTS-Properties IV was willing to participate in the Joint Venture and to
contribute, together with NTS- Properties VII, Ltd., the capital necessary
with respect to the project. NTS- Properties Plus Ltd. agreed to the
admission of NTS-Properties IV to the Joint Venture and to the capital
contributions by NTS-Properties IV and NTS-Properties VII, Ltd. with the
knowledge that its joint venture interest would, as a result, decrease. See
the following paragraph for a discussion of how the revised interests in the
Joint Venture were calculated with the admission of NTS- Properties IV. With
this expansion, Sykes occupied 100% of the business center. No future
contributions are anticipated as of December 31, 1998.
In order to calculate the revised joint venture percentage interests, the
assets of the Joint Venture were revalued in connection with the admission of
NTS-Properties IV as a joint venture partner and the additional capital
contributions. The value of the Joint Venture's assets immediately prior to
the additional capital contributions was $6,764,322 and its outstanding debt
was $4,650,042, with net equity being $2,114,280. The difference between the
value of the Joint Venture's assets and the value at which they were carried
on the books of the Joint Venture was allocated to the Partnership and
NTS-Properties Plus Ltd. in determining each Joint Venture partners's
percentage interest.
The Partnership's interest in the Joint Venture remained at 31%.
NTS-Properties Plus Ltd.'s interest in the Joint Venture decreased from 69%
to 39% as a result of the capital contributions by NTS-Properties IV and the
Partnership. NTS-Properties IV obtained a 30% interest in the Joint Venture
as a result of its capital contribution.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with their respective Percentage Interests. The term Net Cash Flow
for any period shall mean the excess, if any, of (A) the sum of (i) the gross
receipts of the Joint Venture Property for such period, other than capital
contributions, plus (ii) any funds released by the Partners from previously
established reserves (referred to in clause (B) (iv) below), over (B) the sum
of (i) all cash operating expenses paid by the Joint Venture Property during
such period in the course of business, (ii) capital expenditures paid in cash
during such period, (iii) payments during such period on account of
amortization of the principal of any debts or liabilities of the Joint
Venture property and (iv) reserves for contingent liabilities and future
expenses of the Joint Venture Property as established by the Partners;
provided, however, that the amounts referred to in (B)(i), (ii) and (iii)
above shall only be taken into account to the extent not funded by capital
contributions or paid out of previously established reserves. Percentage
Interest means that percentage which the capital contributions of a Partner
bears to the aggregate capital contributions of all the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was
31% at December 31, 1998.
COMPETITION
The Partnership's residential properties are subject to competition from
similar
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types of properties (including, in certain areas, properties owned or managed
by affiliates of the General Partner) in the respective vicinities in which
they are located. Such competition is generally for the retention of existing
tenants or for new tenants when vacancies occur. The Partnership maintains
the suitability and competitiveness of its properties primarily on the basis
of effective rents, amenities and services provided to tenants. Competition
is expected to increase in the future as a result of the construction of
additional properties. As of December 31, 1998, properties under construction
in the respective vicinities in which the properties are located are as
follows: In the vicinity near Park Place Apartments Phase II, there are 300
apartment units currently under construction which are scheduled to be
completed during the second quarter of 1999 and 280 units which are scheduled
to be completed during the fourth quarter of 1999. Also, at the Park Place
development, the construction of Phase III is currently under way with the
first units expected to be available during the second quarter of 1999. Park
Place Apartments Phase III is being built on land owned by NTS- Properties
VI, an affiliate of the General Partner of the Partnership, and consists of
152 units. All costs for the construction of Phase III will be funded by
NTS-Properties VI. At this time it is unknown the effect these new units will
have on occupancy at Park Place Apartments Phase II. In the vicinity near The
Park at the Willows, there are 664 apartment units currently under
construction which are scheduled to be completed during the second and third
quarters of 1999. The Partnership has not commissioned a formal market
analysis of competitive conditions in any market in which it owns properties,
but relies upon the market condition knowledge of the employees of NTS
Development Company who manage and supervise leasing for each property.
MANAGEMENT OF PROPERTIES
NTS Development Company, an affiliate of NTS-Properties Associates VII, the
General Partner of the Partnership, directs the management of the
Partnership's properties pursuant to a written agreement. NTS Development
Company is a wholly-owned subsidiary of NTS Corporation. Mr. J. D. Nichols
has a controlling interest in NTS Corporation and is a General Partner of
NTS-Properties Associates VII. Under the agreement, the Property Manager
establishes rental policies and rates and directs the marketing activity of
leasing personnel. It also coordinates the purchase of equipment and
supplies, maintenance activity and the selection of all vendors, suppliers
and independent contractors. As compensation for its services, the Property
Manager received a total of $101,354 for the year ended December 31, 1998.
$17,892 was received from the Partnership's commercial property and $83,462
was received from residential properties. The fee is equal to 6% of gross
revenues from commercial properties and 5% of gross revenues from residential
properties.
In addition, the management agreement requires the Partnership to purchase
all insurance relating to the managed properties, to pay the direct
out-of-pocket expenses of the Property Manager in connection with the
operation of the properties, including the cost of goods and materials used
for and on behalf of the Partnership, and to reimburse the Property Manager
for the salaries, commissions, fringe benefits, and related employment
expenses of on-site personnel.
The term of the Management Agreement between NTS Development Company and the
Partnership was for an initial term of five years, and thereafter for
succeeding one-year periods, unless canceled. The Agreement is subject to
cancellation by either party upon sixty days written notice. As of December
31, 1998, the Management Agreement is still in effect.
WORKING CAPITAL PRACTICES
Information about the Partnership's working capital practices is included in
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Part II, Item 7.
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SEASONAL OPERATIONS
The Partnership does not consider its operations to be seasonal to any
material degree.
CONFLICT OF INTEREST
Because the principals of the General Partner and/or its affiliates own
and/or operate real estate properties other than those owned by the
Partnership that are or could be in competition with the Partnership,
potential conflicts of interest exist. Because the Partnership was organized
by and is operated by the General Partner, these conflicts are not resolved
through arms-length negotiations but through the exercise of the General
Partner's good judgment consistent with its fiduciary responsibility to the
Limited Partners and the Partnership's investment objectives and policies.
The General Partner is accountable to the Limited Partners as a fiduciary and
consequently must exercise good faith and integrity in handling the
Partnership's affairs. A provision has been made in the Partnership Agreement
that the General Partner will not be liable to the Partnership except for
acts or omissions performed or omitted fraudulently, in bad faith or with
negligence. In addition, the Partnership Agreement provides for
indemnification of the General Partner by the Partnership for liability
resulting from errors in judgement or certain acts or omissions. With respect
to these potential conflicts of interest, the General Partner and its
affiliates retain a free right to compete with the Partnership's properties
including the right to develop competing properties now and in the future, in
addition to those existing properties which may compete directly or
indirectly.
NTS Development Company, the Property Manager and an affiliate of the General
Partner, acts in a similar capacity for other affiliated entities in the same
geographic region where the Partnership has property interests. The agreement
with the Property Manager is on terms no less favorable to the Partnership
than those which could be obtained from a third party for similar services in
the same geographical region in which the properties are located. The
contract is terminable by either party without penalty upon 60 days written
notice.
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates than those previously described.
EMPLOYEES
The Partnership has no employees; however, employees of an affiliate of the
General Partner are available to perform services for the Partnership. The
Partnership reimburses this affiliate for the actual costs of providing such
services. See Note 9 in Item 8 for information regarding the Partnership's
related party transactions.
GOVERNMENTAL CONTRACTS AND REGULATIONS
No portion of the Partnership's business is subject to renegotiation of
profits or termination of contracts or sub-contracts at the election of the
United States Government.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND PARTNER
MATTERS
There is no established trading market for the limited partnership interests.
The Partnership had 1,267 limited partners as of March 1, 1999. Cash
distributions and allocations of net income (loss) are made as described in
Note 1C to the Partnership's 1998 financial statements.
Annual distributions totaling $.25, $.40 and $.40 per limited partnership
Unit were paid during the years ended December 31, 1998, 1997 and 1996,
respectively. Quarterly distributions are determined based on current cash
balances, cash flow being generated by operations and cash reserves needed
for future leasing costs, tenant finish costs and capital improvements.
Distributions were paid quarterly as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -------
<S> <C> <C> <C>
First quarter $ .10 $ .10 $ .10
Second quarter .05 .10 .10
Third quarter .05 .10 .10
Fourth quarter .05 .10 .10
----- ----- ----
$ .25 $ .40 $ .40
----- ----- ----
----- ----- ----
</TABLE>
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Net Income Cash
(Loss) Distributions Return of
Allocated Declared Capital
------------- -------------- ------------
<S> <C> <C> <C>
Limited Partners:
1998 $ (30,191) $ 144,299 $ 144,299
1997 63,842 239,288 175,446
1996 (125,619) 244,707 244,707
General Partner:
1998 $ (305) $ 1,458 $ 1,458
1997 645 2,417 1,772
1996 (1,269) 2,471 2,471
</TABLE>
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Item 6. SELECTED FINANCIAL DATA
For the years ended December 31, 1998, 1997, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues $ 1,951,937 $ 2,093,752 $ 2,041,762 $ 1,972,169 $ 1,871,478
Total expenses (1,982,433) (2,001,481) (2,168,650) (2,077,195) (2,265,983)
----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary item (30,496) 92,271 (126,888) (105,026) (394,505)
Extraordinary item (1) -- (27,784) -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (30,496) $ 64,487 $ (126,888) $ (105,026) $ (394,505)
Net income (loss) allocated to:
General Partner $ (305) $ 645 $ (1,269) $ (1,050) $ (3,945)
Limited partners $ (30,191) $ 63,842 $(125,619) $(103,976) $ (390,560)
Net income (loss) per
limited partnership unit $ (.05) $ .11 $ (.20) $ (.16) $ (.61)
Weighted average number of
limited partnership units 581,622 598,526 615,384 638,265 638,265
Cumulative net loss
allocated to:
General Partner $ (26,723) $ (26,418) $ (27,063) $ (25,794) $ (24,744)
Limited partners $(2,645,666) $(2,615,475) $(2,679,317) $(2,553,698) $(2,449,722)
Cumulative taxable
income (loss)allocated
to:
General Partner $ 23,511 $ 21,995 $ 17,371 $ 14,381 $ (33,877)
Limited partners $(2,915,767) $(2,941,772) $(3,059,753) $(2,965,106) $(2,840,798)
Distributions declared:
General Partner $ 1,458 $ 2,417 $ 2,471 $ 2,579 $ 2,579
Limited Partners $ 144,299 $ 239,288 $ 244,707 $ 255,306 $ 255,306
Cumulative distributions
declared:
General Partner $ 25,467 $ 24,009 $ 21,592 $ 19,121 $ 16,542
Limited partner $ 2,521,164 $ 2,376,865 $ 2,137,577 $ 1,892,870 $ 1,637,564
At year end:
Cash and equivalents $ 398,001 $ 164,714 $ 278,620 $ 249,559 $ 515,376
Investment securities $ -- $ 338,129 $ -- $ 103,908 $ --
Land, buildings and
amenities, net $10,036,720 $10,361,786 $10,878,976 $11,405,597 $11,902,498
Total assets $10,665,976 $11,179,145 $11,474,499 $12,108,948 $12,677,879
Mortgages and notes
payable $ 5,088,213 $ 5,303,947 $ 5,358,215 $ 5,509,479 $ 5,648,524
</TABLE>
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Form 10-K
report.
(1) See Note 7 in Item 8 for information regarding the extraordinary item.
- 11 -
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations is structured in four major sections. The first section provides
information related to occupancy levels and rental and other income generated by
the Partnership's properties. The second analyzes results of operations on a
consolidated basis. The final sections address consolidated cash flows and
financial condition. Discussion of certain market risks and our cautionary
statements also follow. Management's analysis should be read in conjunction with
the financial statements in Item 8 and the cautionary statements below.
OCCUPANCY LEVELS
The occupancy levels at the Partnership's properties as of December 31 were as
follows:
<TABLE>
<CAPTION>
Percentage
Ownership at
12/31/98 1998(2) 1997 1996
----------- -------- ------ ------
<S> <C> <C> <C>
WHOLLY-OWNED PROPERTIES
The Park at the Willows (1) 100% 77% 96% 83%
Park Place Apartments
Phase II (1) 100% 85% 92% 90%
PROPERTY OWNED IN JOINT
VENTURE WITH NTS-PROPERTIES
IV AND NTS-PROPERTIES PLUS LTD.
Blankenbaker Business
Center 1A 31% 100% 100% 100%
</TABLE>
(1) In the opinion of the General Partner of the Partnership, the
decrease in year-ending occupancy is only a temporary fluctuation
and does not represent a permanent downward occupancy trend.
(2) Current occupancy levels are considered adequate to continue the
operation of the Partnership's properties.
The average occupancy levels at the Partnership properties as of December 31
were as follows:
<TABLE>
<CAPTION>
Percentage
Ownership at
12/31/98 1998 1997 1996
---------- ---- ---- ----
<S> <C> <C> <C> <C>
WHOLLY-OWNED PROPERTIES
The Park at the Willows (1) 100% 89% 91% 91%
Park Place Apartments
Phase II (1) 100% 85% 92% 92%
PROPERTY OWNED IN JOINT
VENTURE WITH NTS-PROPERTIES
IV AND NTS-PROPERTIES PLUS LTD.
Blankenbaker Business
Center 1A 31% 100% 100% 100%
</TABLE>
(1) In the opinion of the General Partner of the Partnership, the
decrease in average occupancy is only a temporary fluctuation and
does not represent a permanent downward occupancy trend.
- 12 -
<PAGE>
RENTAL AND OTHER INCOME
Rental and other income generated by the Partnership's properties for the years
ended December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Percentage
Ownership
AT 12/31/98 1998 1997 1996
----------- ---------- ---------- -------
<S> <C> <C> <C> <C>
WHOLLY-OWNED PROPERTIES
The Park at the Willows 100% $ 361,529 $ 345,490 $ 320,721
Park Place Apartments
Phase II 100% $1,274,745 $1,437,348 $1,406,777
PROPERTY OWNED IN JOINT
VENTURE WITH NTS- PROPERTIES
IV AND NTS- PROPERTIES PLUS LTD.
Blankenbaker Business
Center 1A 31%(1) $ 292,734 $ 293,939 $ 293,796
</TABLE>
(1) Revenues shown in this table represent the Partnership's share of
revenues generated by Blankenbaker Business Center 1A. The Partnership's
percentage interest in the joint venture was 31% during 1998, 1997 and
1996.
The following is an analysis of material changes in results of operations for
the periods ending December 31, 1998, 1997 and 1996. Items that did not have a
material impact on operations for the periods listed above have been eliminated
from this discussion.
RENTAL INCOME decreased approximately $140,000 or 7% from 1997 to 1998. The
decrease was driven by decreased average occupancy levels at The Park at the
Willows and Park Place Apartments Phase II partially offset by increased income
from the rental of fully furnished units at The Park at the Willows. Fully
furnished units are apartments which rent at an additional premium above base
rent. Therefore, it is possible for occupancy to decrease and revenues to
increase when the number of fully furnished units occupied has increased.
Year-ending occupancy percentages represent occupancy only on a specific date;
therefore, the above analysis considers average occupancy percentages which are
representative of the entire year's results.
RENTAL INCOME increased approximately $45,000 or 2% from 1996 to 1997. The
increase was driven by increased rental rates at The Park at the Willows and
Park Place Apartments Phase II.
If present trends continue, the Partnership will be able to continue at its
current level of operations without the need of any additional financing.
INTEREST AND OTHER INCOME includes interest income from investments made by the
Partnership with cash reserves. Interest and other income increased
approximately $6,700 or 30% in 1997 as a result of an insurance claim
reimbursement for roof damage exceeding the cost to replace the roof at The Park
at the Willows.
OPERATING EXPENSES decreased approximately $128,000 or 22% in 1997 primarily as
a result of decreased operating expenses at Park Place Apartments Phase II. The
decrease in operating expenses at Park Place Apartments Phase II is due to
decreased building repair and maintenance costs (exterior painting, patio
repairs, parking lot resurfacing and pool repairs), decreased snow removal costs
and decreased replacement costs (exterior building repairs, wallcovering and
carpet). The decrease in operating expenses is partially offset by increased
replacement and renovation expenses at The Park at the Willows and
- 13 -
<PAGE>
Blankenbaker Business Center 1A.
OPERATING EXPENSES - AFFILIATED increased approximately $24,000 or 10% in 1998
and increased approximately $16,000 or 7% in 1997 primarily due to increased
property management payroll costs. Operating expenses-affiliated are expenses
incurred for services performed by employees of NTS Development Company, an
affiliate of the General Partner.
The 1998 WRITE-OFF OF UNAMORTIZED BUILDING AND LAND IMPROVEMENT COSTS can be
attributed to Park Place Apartments Phase II. The write-off is the result of
property renovations. The write-off represents the cost of unamortized assets
which were replaced as a result of the renovations.
The 1997 WRITE-OFF OF UNAMORTIZED BUILDING AND LAND IMPROVEMENT COSTS can be
attributed to The Park at the Willows. The write-off is the result of the roof
replacement and represents the cost of the original roof that had not been fully
depreciated.
INTEREST EXPENSE decreased approximately $40,000 or 9% in 1998 and approximately
$22,000 or 5% in 1997 due primarily to a lower interest rate on the new debt
obligation obtained October 1997 (7.37% versus 8.375%) and a result of the
Partnership's decreasing debt level as a result of principal payments made.
MANAGEMENT FEES are calculated as a percentage of cash collections; however,
revenue for reporting purposes is on the accrual basis. As a result, the
fluctuations of revenues between years will differ from the fluctuations of
management fee expense.
REAL ESTATE TAXES increased approximately $9,000 or 9% in 1998 as a result of an
increased Park Place Apartments Phase II tax assessment.
PROFESSIONAL AND ADMINISTRATIVE EXPENSES increased approximately $19,000 or 32%
in 1998 as a result of costs incurred in connection with the Tender Offer (See
discussion below). Professional and administrative expenses increased
approximately $5,000 or 9% in 1997 as a result of increased outside accounting
fees.
PROFESSIONAL AND ADMINISTRATIVE EXPENSES - AFFILIATED decreased approximately
$30,000 or 28% in 1997 primarily as a result of decreased salary costs.
Professional and administrative expenses - affiliated are expenses incurred for
services performed by employees of NTS Development Company, an affiliate of the
General Partner.
DEPRECIATION AND AMORTIZATION EXPENSE decreased approximately $32,900 or 6% in
1998 as a result of a portion of the assets with shorter lives at the
Partnership's residential properties having become fully depreciated.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 10-30 years for land improvements, 30 years
for buildings, 5-30 years for building improvements and 5-30 years for
amenities. The aggregate cost of the Partnership's properties, based upon the
Partnership's ownership percentage, for Federal tax purposes is approximately
$13,800,000.
The 1997 write-off of unamortized loan costs (recorded as an EXTRAORDINARY ITEM)
relates to loan costs associated with Park Place Apartments Phase II's notes
payable. The unamortized loan costs were expensed due to the fact that the notes
were retired in 1997 prior to their maturity (October 5, 2002) as a result of
permanent financings obtained by the Partnership in October 1997.
CONSOLIDATED CASH FLOWS AND FINANCIAL CONDITION
The majority of the Partnership's cash flow is derived from operating
activities. Cash flows used in investing activities are for capital improvements
at the Partnership's properties. These improvements were funded by cash flow
from operations. Cash flows used in investing activities are also
- 14 -
<PAGE>
for the purchase of investment securities. As part of its cash management
activities, the Partnership has purchased Certificates of Deposit or
securities issued by the U.S. Government with initial maturities of greater
than three months to improve the return on its excess cash reserves. The
Partnership held the securities until maturity. Cash flows provided by
investing activities are a result of the maturity of investment securities.
Cash flows used in financing activities are for cash distributions, principal
payments on mortgages payable, payment of loan costs and repurchases of
limited partnership Units. Cash flows used in financing activities also
include cash which has been reserved by the Partnership for the repurchase of
limited partnership Units through the Interest Repurchase Program or the
Tender Offer (1998 only). Cash flows provided by financing activities
represent an increase in a mortgage payable. The Partnership does not expect
any material changes in the mix and relative cost of capital resources from
those in 1998.
Cash flows provided by (used in):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Operating activities $ 474,667 $ 599,924 $ 453,958
Investing activities 170,998 (344,790) 98,642
Financing activities (412,378) (369,040) (523,539)
--------- --------- ---------
Net increase (decrease)
in cash and equivalents $ 233,287 $(113,906) $ 29,061
--------- --------- ---------
--------- --------- ---------
</TABLE>
Net cash provided by operating activities decreased approximately $125,000 or
21% in 1998. The decrease in net cash provided by operating activities was
driven primarily by a decrease in net income.
Net cash provided by operating activities increased approximately $146,000 or
32% in 1997. The increase in net cash provided by operating expenses was driven
primarily by an increase in net income.
Net cash provided by (used in) investing activities totaled $170,998, $(344,790)
and $98,642 in 1998, 1997 and 1996 respectively. The increase in net cash
provided by investing activities in 1998 was primarily the result of the
maturity of investment securities exceeding the purchase of investment
securities partially offset by increased capital expenditures. The decrease in
net cash provided by investing activities in 1997 was primarily the result of
the purchase of investment securities exceeding the maturity of investment
securities.
Net cash used in financing activities totaled $412,378, $369,040 and $523,539 in
1998, 1997 and 1996, respectively. The increase in net cash used in financing
activities in 1998 was primarily due to increased net payments on mortgages
partially offset by decreased cash distributions and loan costs paid in 1998
compared to 1997 and decreased net Interest Repurchase Reserve activity. Net
cash used in financing activities decreased in 1997 primarily as a result of the
refinancing of a mortgage loan during 1997 net the repayment of a mortgage loan
and normal principal payments and fewer repurchases of limited partnership Units
in 1997 as compared to 1996.
During the year ended December 31, 1998, the Partnership used cash flow from
operations and cash on hand to make a 1.25% (annualized) distribution of
$145,757 (1998). During the years ended December 31, 1997 and 1996, the
Partnership used cash flow from operations and cash on hand to make a 2%
(annualized) distribution of $241,705 and $247,178, respectively. The annualized
distribution rate is calculated as a percent of the original capital
contribution. The limited partners received 99% and the General Partner received
1% of these distributions. The primary source of future liquidity and
distributions is expected to be derived from cash generated by the Partnership's
properties after adequate cash reserves are established for future leasing,
renovations and tenant finish costs. It is anticipated that the cash flow from
operations and cash reserves will be sufficient to meet the needs of the
Partnership. Cash reserves (which are unrestricted cash and equivalents and
investment securities as shown on the
- 15 -
<PAGE>
Partnership's balance sheet as of December 31) were $398,001, $502,843 and
$278,620 at December 31, 1998, 1997 and 1996, respectively.
Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of
Limited Partnership, the Partnership established an Interest Repurchase Reserve
in December 1995. During the years ended December 31, 1998, 1997 and 1996, the
Partnership funded $7,242, $38,918 and $121,270, respectively, to the reserve.
Through December 31, 1998, the Partnership has repurchased a total of 62,529
Units for $295,080 at a price ranging from $4.00 to $6.00 per Unit. The Offering
price per Unit was established by the General Partner in its sole discretion and
does not purport to represent the fair market value or liquidation value of the
Units. Repurchased Units have been retired by the Partnership, thus increasing
the percentage of ownership of each remaining limited partner investor. The
Interest Repurchase Reserve was funded from cash reserves. The funds remaining
in the Interest Repurchase Reserve at the commencement of the Tender Offer
(discussed below) were returned to unrestricted cash for utilization in the
Partnership's operations.
On December 7, 1998, the Partnership and ORIG, LLC, an affiliate of the
Partnership, commenced a Tender Offer to purchase up to 20,000 of the
Partnership's limited partnership Units at a price of $6.00 per Unit. Although
the Partnership and ORIG, LLC believe that this price is appropriate, the price
of $6.00 per Unit may not equate to the fair market value or the liquidation
value of the Unit, and is less than the book value per Unit as of the date of
the Offering. The amount of funds required by the Partnership to fund the Offer
is estimated to be approximately $78,000 ($60,000 to purchase 10,000 Units plus
approximately $18,000 for its proportionate share of the expenses associated
with administering the Offer). The Offer stated that the Partnership will
purchase the first 10,000 Units tendered and will fund its purchases and its
portion of the expenses from cash reserves. If more than 10,000 Units are
tendered, ORIG, LLC will purchase up to an additional 10,000 Units. If more than
20,000 Units are tendered, the Partnership and ORIG, LLC may choose to acquire
the additional Units on the same terms. Otherwise, tendered Units will be
purchased on a pro rata basis up to 20,000. Units that are acquired by the
Partnership will be retired. Units that are acquired by ORIG, LLC will be held
by it. The General Partner, NTS-Properties Associates VII, does not intend to
participate in the Tender Offer.
Under the terms of the Offer, the Offer expired on March 6, 1999. As of that
date, a total of 25,794 Units were tendered pursuant to the Offer. The Offerors
exercised their right under the terms of the Offer to purchase more than 20,000
Units and all 25,794 Units tendered were accepted by the Offerors, without
proration. The Partnership repurchased 10,000 Units and ORIG, LLC purchased
15,794 Units.
The Partnership had no material commitments for renovations or capital
improvements at December 31, 1998.
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Net Income Cash
(Loss) Distributions Return of
Allocated Declared Capital
----------- ------------- ---------
<S> <C> <C> <C>
Limited Partners:
1998 $ (30,191) $ 144,299 $ 144,299
1997 63,842 239,288 175,446
1996 (125,619) 244,707 244,707
General Partner:
1998 $ (305) $ 1,458 $ 1,458
1997 645 2,417 1,772
1996 (1,269) 2,471 2,471
</TABLE>
- 16 -
<PAGE>
In an effort to continue to improve occupancy at the Partnership's residential
properties, the Partnership has an on-site leasing staff, who are employees of
NTS Development Company, at each of the apartment communities. The staff handles
all on-site visits from potential tenants, coordinates local advertising with
NTS Development Company's marketing staff, makes visits to local companies to
promote fully furnished units and works with current residents on lease
renewals.
The lease at Blankenbaker Business Center 1A provides for the tenant to
contribute toward the payment of common area expenses, insurance and real estate
taxes. This lease provision, along with the fact that residential leases are
generally for a period of one year, should protect the Partnership's operations
from the impact of inflation and changing prices.
YEAR 2000
All divisions of NTS, the General Partner of the Partnership, are reviewing the
effort necessary to prepare our information systems (IT) and non-information
technology with embedded technology (ET) for the Year 2000. The information
technology solutions have been addressed separate for the Year 2000 since the
Partnership saw the need to move to more advanced management and accounting
systems made available by new technology and software developments during the
decade of the 1990's.
The PILOT software system, purchased in the early 1990's, needed to be replaced
by a windows based network system both for our headquarter functions and other
locations. The real estate accounting system developed, sold, and supported by
the Yardi Company of Santa Barbara, California has been selected to supercede
PILOT. The Yardi system has been tested and is compatible with Year 2000 and
beyond. This system is being implemented with the help of third party
consultants and should be fully operational by the third quarter of 1999. Our
system for multi-family apartment locations was converted to GEAC's Power Site
System earlier in 1998 and is Year 2000 compliant.
The few remaining systems not addressed by these conversions are being modified
by our in-house staff of programmers. The Hewlett Packard 3000 system, used for
PILOT and custom applications, was purchased in 1997 and will be part of our new
network. It will be retained as long as necessary to assure smooth operations
and has been upgraded to meet Year 2000 requirements.
All risks identified with information technology are believed to be addressed by
these plans.
The cost of these advances in our systems technology is not all attributable to
the Year 2000 issue since we had already identified the need to move to a
network based system regardless of the Year 2000. The costs involved will be
approximately $9,000 in 1998 and $36,000 in 1999. These costs include hardware
and software.
NTS property management staff has been surveying our vendors to evaluate
embedded technology in our alarm systems, HVAC controls, telephone systems and
other computer associated facilities. In a few cases, equipment is being
replaced. In some cases, circuitry is being upgraded. The cost involved is still
being evaluated. There are no known significant risks that are currently without
solutions. Management anticipates that applications involving ET will be Year
2000 compliant by the third quarter of 1999.
We are also currently addressing the Year 2000 readiness of third parties whose
business interruption could have a material negative impact on our business. All
significant vendors and tenants have indicated that they will be compliant by
the end of 1999. Such assurances are being evaluated and documented.
Management has determined that at our current state of readiness, the need does
not presently exist for a contingency plan. We will continue to evaluate the
need for such a plan.
Despite diligent preparation, unanticipated third-party failures, inability of
our tenants to pay rent when due, more general public infrastructure failures or
failure to successfully conclude our remediation efforts as planned could have
- 17 -
<PAGE>
a material adverse impact on our results of operations, financial conditions
and/or cash flows in 1999 and beyond.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposure with regards to financial instruments is to
changes in interest rates. All of the Partnership's debt bears interest at a
fixed rate. At December 31, 1998, a hypothetical 100 basis point increase in
interest rates would result in an approximately $306,340 decrease in the fair
value of debt.
CAUTIONARY STATEMENTS
Some of the statements included in Items 1 and 2, Business and Properties, and
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations, may be considered to be "forward-looking statements" since such
statements relate to matters which have not yet occurred. For example, phrases
such as "the Partnership anticipates", "believes" or "expects" indicate that it
is possible that the event anticipated, believed or expected may not occur.
Should such event not occur, then the result which the Partnership expected also
may not occur or occur in a different manner, which may be more or less
favorable to the Partnership. The Partnership does not undertake any obligations
to publicly release the result of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
Any forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, or elsewhere in this report,
which reflect management's best judgement based on factors known, involve risks
and uncertainties. Actual results could differ materially from those anticipated
in any forward-looking statements as a result of a number of factors, including
but not limited to those discussed below. Any forward-looking information
provided by the Partnership pursuant to the safe harbor established by recent
securities legislation should be evaluated in the context of these factors.
The Partnership's principal activity is the leasing and management of a
commercial business center and apartment complexes. If Sykes, the tenant that
occupies 100% of the business center, or a large number of apartment lessees
default on their lease, the Partnership's ability to make payments due under its
debt agreements, payment of operating costs and other partnership expenses would
be directly impacted. A lessee's ability to make payments are subject to risks
generally associated with real estate, many of which are beyond the control of
the Partnership, including general or local economic conditions, competition,
interest rates, real estate tax rates, other operating expenses and acts of God.
Subsequent to December 31, 1998, SHPS, Inc., formerly known as Sykes Health Plan
Services, Inc., announced its intentions to consolidate its operations and to
build its corporate headquarters in Jefferson County, Kentucky. One of SHPS,
Inc's operations, Sykes, is already based in Louisville, Kentucky. Sykes
occupies 100% of Blankenbaker Business Center 1A. Due to the expansion of SHPS,
Inc's headquarters, it is the Partnership's understanding that SHPS, Inc. does
not intend to continue to occupy the space at Blankenbaker Business Center 1A
through the duration of its lease, July 2005. The Partnership's proportionate
share of the rental income from this property accounted for approximately 15% of
the Partnership's total revenues during 1998. The Partnership has not yet
determined the effect, if any, on the Partnership's operations, given the fact
Sykes is under lease until July 2005 and no official notice of termination has
been received.
- 18 -
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NTS-Properties VII, Ltd.:
We have audited the accompanying balance sheets of NTS-Properties VII, Ltd. (a
Florida limited partnership) as of December 31, 1998 and 1997, and the related
statements of operations, partners' equity and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements and
schedules referred to below are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedules 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 NTS-Properties VII, Ltd. as of
December 31, 1998 and 1997 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules included on pages 39 and 40
are presented for purposes of complying with the Securities and Exchange
Commission's rules and regulations and are not a required part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
March 12, 1999
- 19 -
<PAGE>
NTS-PROPERTIES VII, LTD.
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and equivalents $ 398,001 $ 164,714
Cash and equivalents - restricted 100,427 176,636
Investment securities -- 338,129
Land, buildings and amenities, net 10,036,720 10,361,786
Other assets 130,828 137,880
------------ ------------
$ 10,665,976 $ 11,179,145
============ ============
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $ 5,088,213 $ 5,303,947
Accounts payable 57,319 38,815
Distributions payable 29,078 60,426
Security deposits 28,401 36,325
Other liabilities 41,265 6,787
------------ ------------
5,244,276 5,446,300
------------ ------------
Partners' equity 5,421,700 5,732,845
------------ ------------
$ 10,665,976 $ 11,179,145
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 20 -
<PAGE>
<TABLE>
<CAPTION>
NTS-PROPERTIES VII, LTD.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
----- ------ -----
<S> <C> <C> <C>
Revenues:
Rental income $ 1,922,874 $ 2,064,236 $ 2,018,993
Interest and other income 29,063 29,516 22,769
----------- ----------- -----------
1,951,937 2,093,752 2,041,762
Expenses:
Operating expenses 467,432 460,177 588,151
Operating expenses - affiliated 253,900 230,130 214,532
Write-off of unamortized building and
land improvement costs 13,008 17,797 --
Interest expense 395,180 434,680 456,642
Management fees 101,354 106,264 104,248
Real estate taxes 108,709 99,458 103,171
Professional and administrative
expenses 77,953 58,895 53,887
Professional and administrative
expenses - affiliated 82,748 79,075 109,512
Depreciation and amortization 482,149 515,005 538,507
----------- ----------- ----------
1,982,433 2,001,481 2,168,650
----------- ----------- ----------
Income (loss) before extraordinary item (30,496) 92,271 (126,888)
Extraordinary item - write-off
unamortized loan costs -- (27,784) --
----------- ------------ -----------
Net income (loss) $ (30,496) $ 64,487 $ (126,888)
=========== =========== ===========
Net income (loss) allocated to the limited partners:
Income (loss) before extraordinary item $ (30,191) $ 91,348 $ (125,619)
Extraordinary item -- (27,506) --
----------- ------------ -----------
Net income (loss) $ (30,191) $ 63,842 $ (125,619)
=========== =========== ===========
Net income (loss) per limited partnership Unit:
Income (loss) before extraordinary item $ (.05) $ .15 $ (.20)
Extraordinary item -- (.04) --
----------- ----------- -----------
Net income (loss) $ (.05) $ .11 $ (.20)
=========== =========== ===========
Weighted average number of limited
partnership units 581,622 598,526 615,384
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 21 -
<PAGE>
<TABLE>
<CAPTION>
NTS-PROPERTIES VII, LTD.
STATEMENTS OF PARTNERS' EQUITY (1)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Limited General
Partners Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
Balances at December 31, 1995 $6,489,132 $ (44,815) $6,444,317
Net loss (125,619) (1,269) (126,888)
Distributions declared (244,707) (2,471) (247,178)
Repurchase of limited partnership
Units (151,500) -- (151,500)
---------- ----------- ----------
Balances at December 31, 1996 5,967,306 (48,555) 5,918,751
Net income 63,842 645 64,487
Distributions declared (239,288) (2,417) (241,705)
Repurchase of limited partnership
Units (8,688) -- (8,688)
---------- ----------- ----------
Balances at December 31, 1997 5,783,172 (50,327) 5,732,845
Net loss (30,191) (305) (30,496)
Distributions declared (144,299) (1,458) (145,757)
Repurchase of limited partnership
Units (134,892) -- (134,892)
---------- ----------- ----------
Balances at December 31, 1998 $5,473,790 $ (52,090) $5,421,700
========== =========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
(1) For the periods presented, there are no elements of other comprehensive
income as defined by the Financial Accounting Standards Board, Statement
of Financial Accounting Standards, Standards Statement No. 130,
REPORTING COMPREHENSIVE INCOME.
- 22 -
<PAGE>
NTS-PROPERTIES VII, LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (30,496) $ 64,487 $ (126,888)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Accrued interest on investment securities 1,737 (1,737) 1,408
Write-off unamortized building and land
improvement costs 13,008 17,797 --
Write-off unamortized loan costs -- 27,784 --
Depreciation and amortization 482,149 515,005 538,507
Changes in assets and liabilities:
Cash and equivalents - restricted (51,444) 15,599 (9,568)
Accounts receivable -- 13,660 (6,420)
Other assets 14,655 2,290 10,712
Accounts payable 18,504 (51,486) 36,423
Security deposits (7,924) (3,475) 6,320
Other liabilities 34,478 -- 3,464
----------- ----------- -----------
Net cash provided by operating activities 474,667 599,924 453,958
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and amenities (165,394) (8,398) (3,857)
Purchase of investment securities (200,000) (411,392) (207,440)
Maturity of investment securities 536,392 75,000 309,939
----------- ----------- -----------
Net cash provided by (used in) investing
activities 170,998 (344,790) 98,642
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgage payable -- 4,100,000 --
Principal payments on mortgages payable (215,734) (4,154,268) (151,264)
Cash distributions (177,105) (241,924) (251,005)
Repurchase of limited partnership Units (134,892) (8,688) (151,500)
Cash and equivalents - restricted 127,653 (30,230) 30,230
Additions to loan costs (12,300) (33,930) --
----------- ----------- -----------
Net cash used in financing activities (412,378) (369,040) (523,539)
----------- ----------- -----------
Net increase (decrease) in cash and
equivalents 233,287 (113,906) 29,061
CASH AND EQUIVALENTS, beginning of year 164,714 278,620 249,559
----------- ----------- -----------
CASH AND EQUIVALENTS, end of year $ 398,001 $ 164,714 $ 278,620
=========== =========== ===========
Interest paid on a cash basis $ 396,831 $ 449,164 $ 457,410
=========== =========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 23 -
<PAGE>
NTS-PROPERTIES VII, LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. SIGNIFICANT ACCOUNTING POLICIES
A) ORGANIZATION
NTS-Properties VII, LTD. (the "Partnership") is a limited
partnership organized under the laws of the State of Florida in
April 1987. The General Partner is NTS-Properties Associates VII (a
Kentucky limited partnership). The Partnership is in the business
of developing, constructing, owning and operating apartment
complexes and commercial real estate.
B) PROPERTIES
The Partnership owns and operates the following properties:
- The Park at the Willows, a 48-unit luxury apartment complex in
Louisville, Kentucky.
- Park Place Apartments Phase II, a 132-unit luxury apartment
complex in Lexington, Kentucky.
- A 31% joint venture interest in Blankenbaker Business Center
Phase 1A, a business center with approximately 50,000 net
rentable ground floor square feet and approximately 50,000 net
rentable mezzanine square feet located in Louisville, Kentucky.
C) ALLOCATION OF NET INCOME (LOSS) AND CASH DISTRIBUTIONS
Pre-Termination Date Net Cash Receipts and Interim Net Cash
Receipts, as defined in the partnership agreement, and which are
made available for distribution, will be distributed 99% to the
limited partners and 1% to the General Partner.
Net Operating Income (excluding Net Gains from Sales and other
specially allocated items) shall be allocated to the limited
partners and the General Partner in proportion to their respective
cash distributions. Net Operating Income in excess of cash
distributions shall be allocated as follows: (1) pro rata to all
partners with a negative capital account in an amount to restore
the negative capital account to zero; (2) 99% to the limited
partners and 1% to the General Partner until the limited partners
have received an amount equal to their Original Capital less cash
distributions except distributions of Pre-Termination Date Net Cash
Receipts; (3) the balance, 80% to the limited partners and 20% to
the General Partner. Net Operating Losses shall be allocated 99% to
the limited partners and 1% to the General Partner.
D) TAX STATUS
The Partnership has received a ruling from the Internal Revenue
Service stating that the Partnership is classified as a limited
partnership for federal income tax purposes. As such, the
Partnership makes no provision for income taxes. The taxable income
or loss is passed through to the holders of the partnership
interests for inclusion on
- 24 -
<PAGE>
their individual income tax returns.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
D) TAX STATUS - CONTINUED
A reconciliation of net income (loss) for financial statement
purposes versus that for income tax reporting is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Net income (loss) $ (30,496) $ 64,487 $ (126,888)
Items handled differently
for tax purposes:
Depreciation and
amortization 4,531 31,437 9,030
Capitalized leasing costs 56,640 22,120 22,368
Rental income -- 3,833 3,833
Gain/Loss on disposal of
assets (3,154) 729 --
---------- ---------- ----------
Taxable income (loss) $ 27,521 $ 122,606 $ (91,657)
========== ========== ==========
</TABLE>
E) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F) JOINT VENTURE ACCOUNTING
The Partnership has adopted the proportionate consolidation method
of accounting for joint venture properties. The Partnership's
proportionate interest in the joint venture's assets, liabilities,
revenues, expenses and cash flows are combined on a line-by-line
basis with the Partnership's own assets, liabilities, revenues,
expenses and cash flows. All intercompany accounts and transactions
have been eliminated in consolidation.
Proportionate consolidation is utilized by the Partnership due to
the fact that the ownership of joint venture properties, in
substance, is not subject to joint control. The managing General
Partners of the sole General Partner of the NTS sponsored
partnerships which have formed joint ventures are substantially the
same. As such, decisions regarding financing, development, sale or
operations do not require the approval of different partners.
Additionally, the joint venture properties are in the same
business/industry as their respective joint venture partners and
their asset, liability, revenue and expense accounts correspond
with the accounts of such partner. It is the belief of the General
Partner of the Partnership that the financial statement disclosures
resulting
- 25 -
<PAGE>
from proportionate consolidation provides the most meaningful
presentation of assets, liabilities, revenues, expenses and cash
flows given the commonality of the Partnership's operations.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
G) CASH AND EQUIVALENTS - RESTRICTED
Cash and equivalents - restricted represents funds received for
residential security deposits, funds which have been escrowed with
mortgage companies for property taxes in accordance with the loan
agreements, funds reserved by the Partnership for the repurchase of
limited Partnership Units (December 31, 1997) and funds reserved by
the Partnership for the purchase of limited partnership Units
through the Tender Offer (December 31, 1998 - See Note 5).
H) INVESTMENT SECURITIES
Investment securities represent investments in Certificates of
Deposit or securities issued by the U.S. Government with initial
maturities of greater than three months. The Partnership intends to
hold the securities until maturity. During 1998, 1997 and 1996, the
Partnership sold no investment securities.
At December 31, 1998, the Partnership held no investment securities
with initial maturities greater than three months.
The following provides details regarding the investments held at
December 31, 1997:
<TABLE>
<CAPTION>
Amortized Maturity Value at
Type Cost Date Maturity
------ ---------- -------- ---------
<S> <C> <C> <C>
Certificate of Deposit $ 112,348 02/04/98 $ 112,908
Certificate of Deposit 100,543 03/05/98 101,492
Certificate of Deposit 125,238 03/30/98 127,336
---------- ----------
$ 338,129 $ 341,736
========== ==========
</TABLE>
I) BASIS OF PROPERTY AND DEPRECIATION
Land, building and amenities are stated at cost to the Partnership.
Costs directly associated with the acquisition, development and
construction of a project are capitalized. Depreciation is computed
using the straight-line method over the estimated useful lives of
the assets which are 30 years for land improvements, 5-30 years for
buildings and improvements and 5-7 years for amenities.
Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived
- 26 -
<PAGE>
Assets to be Disposed Of, specifies circumstances in which
certain long-lived assets must be reviewed for impairment. If
such review indicates that the carrying amount of an asset exceeds
the sum of its expected future cash flows, the asset's carrying
value must be written down to fair value. Application of this
standard during the years ended December 31, 1998, 1997 and 1996
did not result in an impairment loss.
For financial reporting purposes, the income from commercial leases
is recognized on a straight-line basis over the lease term. There
was no accrued income connected with commercial leases as of
December 31, 1998 and 1997 due to the renewal lease having no
scheduled and specified rent increases. All commissions paid to
commercial property leasing agents are deferred and amortized on a
straight-line basis over the applicable lease term.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
K) ADVERTISING
The Partnership expenses advertising-type costs as incurred.
Advertising expense was immaterial to the Partnership during the
years ended December 31, 1998, 1997 and 1996.
L) STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and equivalents include
cash on hand and short-term, highly liquid investments with initial
maturities of three months or less.
M) RECLASSIFICATIONS OF 1997 AND 1996 FINANCIAL STATEMENTS
Certain reclassifications have been made to the December 31, 1997
and 1996 financial statements to conform with December 31, 1998
classifications. These reclassifications have no effect on
previously reported operations.
2. CONCENTRATION OF CREDIT RISK
NTS-Properties VII, Ltd. owns and operates, through a joint venture, a
commercial property in Louisville, Kentucky. The sole tenant which
occupies 100% of the property is a business which has operations in the
Louisville area. The Partnership also owns and operates residential
properties in Louisville and Lexington, Kentucky. The apartment unit is
generally the principal residence of the tenant.
3. INVESTMENT IN BLANKENBAKER BUSINESS CENTER JOINT VENTURE
On December 28, 1990, the Partnership entered into a Joint Venture
Agreement with NTS-Properties Plus Ltd., an affiliate of the General
Partner of the Partnership, to complete the development of Blankenbaker
Business Center 1A, a business center located in Louisville, Kentucky.
NTS-Properties Plus Ltd. contributed Blankenbaker Business Center 1A
together with improvements and personal property (Real Property) to the
capital of the Joint Venture, subject to mortgage indebtedness in the
amount of $4,715,000. The agreed upon net fair market value of
NTS-Properties Plus Ltd.'s capital contribution was $1,700,000, being the
appraised value of the Real Property ($6,415,000) reduced by the
$4,715,000 mortgage. The Partnership contributed $450,000 which was used
for additional tenant improvements to the Real Property and made a
capital contribution to the Joint Venture of $325,000 to purchase a 2.49
acre parking lot that was leased from an affiliate of the general partner
as described in NTS-Properties Plus Ltd.'s Prospectus. NTS-
- 27 -
<PAGE>
Properties Plus Ltd. transferred to the Joint Venture its option to
purchase the parking lot, and the Joint Venture exercised the option.
The use of the parking lot is a provision of the tenant's lease agreement
with the business center. By purchasing the parking lot, the Joint
Venture's annual operating expenses were reduced approximately $35,000.
The purchase price of the parking lot was determined by an independent
appraisal.
On August 16, 1994, the Blankenbaker Business Center Joint Venture
amended its joint venture agreement to admit NTS-Properties IV (an
affiliate of the General Partner of the Partnership) to the Joint
Venture. In accordance with the Joint Venture Agreement Amendment,
NTS-Properties IV contributed $1,100,000 and the Partnership contributed
$500,000. The need for additional capital by the Joint Venture was a
result of the lease renewal and expansion which was signed April 28, 1994
between the Joint Venture and Prudential Service Bureau, Inc. [currently
known as Sykes Health Plan Service Bureau, Inc. ("Sykes")]. The lease
expanded Sykes' leased space by approximately 15,000 square feet and
extended its lease term through July 2005.
3. INVESTMENT IN BLANKENBAKER BUSINESS CENTER JOINT VENTURE - CONTINUED
Approximately 12,000 square feet of the expansion was into new space
which had to be constructed on the second level of the existing business
center. With this expansion, Sykes occupied 100% of the business center
(approximately 101,000 square feet - ground and second floor). The tenant
finish and leasing costs connected with the lease renewal and expansion
were approximately $1,400,000.
In order to calculate the revised joint venture percentage interests, the
assets of the Joint Venture were revalued in connection with the
admission of NTS-Properties IV as a joint venture partner and the
additional capital contributions. The value of the Joint Venture's assets
immediately prior to the additional capital contributions was $6,764,322
and its outstanding debt was $4,650,042, with net equity being
$2,114,280. The difference between the value of the Joint Venture's
assets and the value at which they were carried on the books of the Joint
Venture has been allocated to the Partnership and NTS-Properties Plus
Ltd. in determining each Joint Venture partner's percentage interest. The
Partnership's interest in the Joint Venture remained at 31%.
NTS-Properties Plus Ltd.'s interest in the Joint Venture decreased from
69% to 39% as a result of the capital contributions by NTS-Properties IV
and the Partnership. NTS-Properties IV obtained a 30% interest in the
Joint Venture as a result of its capital contribution.
Net income or loss is to be allocated based on the respective
contribution of each partnership as of the end of each calendar quarter.
The Partnership's ownership share was 31% at December 31, 1998.The
Partnership's share of the joint venture's revenue was $292,734 (1998),
$293,939 (1997) and $293,796 (1996). The Partnership's share of the joint
venture's expenses was $328,675 (1998), $348,783 (1997) and $342,947
(1996).
4. INTEREST REPURCHASE RESERVE
Pursuant to Section 16.4 of the Partnership's Amended and Restated
Agreement of Limited Partnership, the Partnership established an Interest
Repurchase Reserve in December 1995. During the years ended December 31,
1998, 1997 and 1996, the Partnership funded $7,242, $38,918 and $121,270,
respectively, to the reserve. Through December 31, 1998, the Partnership
has repurchased a total of 62,529 Units for $295,080 at a price ranging
from $4.00 to $6.00 per Unit. The Offering price per Unit was established
by the General Partner in its sole discretion and does not purport to
represent the fair market
- 28 -
<PAGE>
value or liquidation value of the Units. Repurchased Units have been
retired by the Partnership, thus increasing the percentage of ownership
of each remaining limited partner investor. The Interest Repurchase
Reserve was funded from cash reserves. The funds remaining in the
Interest Repurchase Reserve at the commencement of the Tender Offer
(discussed below) were returned to unrestricted cash for utilization
in the Partnership's operations.
5. TENDER OFFER
On December 7, 1998, the Partnership and ORIG, LLC, an affiliate of the
Partnership, commenced a Tender Offer to purchase up to 20,000 of the
Partnership's limited partnership Units at a price of $6.00 per Unit.
Although the Partnership and ORIG, LLC believe that this price is
appropriate, the price of $6.00 per Unit may not equate to the fair
market value or the liquidation value of the Unit, and is less than the
book value per Unit as of the date of the Offering. The amount of funds
required by the Partnership to fund the Offer is estimated to be
approximately $78,000 ($60,000 to purchase 10,000 Interests plus
approximately $18,000 for its proportionate share of the expenses
associated with administering the Offer). The Offer stated that the
Partnership will purchase the first 10,000 Units tendered and will fund
its purchases and its portion of the expenses from cash reserves. If more
than 20,000 Units are tendered, the Partnership and ORIG, LLC may choose
to acquire the additional Units on the same terms. Otherwise, tendered
Units will be purchased on a pro rata basis up to 20,000. Units that are
acquired by the Partnership will be retired. Units
5. TENDER OFFER - CONTINUED
that are acquired by ORIG, LLC will be held by it. The General Partner,
NTS- Properties Associates VII, does not intend to participate in the
Tender Offer.
Under the terms of the Offer, the Offer expired on March 6, 1999. As of
that date, a total of 25,794 Units were tendered pursuant to the Offer.
The Offerors exercised their right under the terms of the Offer to
purchase more than 20,000 Units and all 25,794 Units tendered were
accepted by the Offerors, without proration. The Partnership repurchased
10,000 Units and ORIG, LLC purchased 15,794 Units.
6. LAND, BUILDINGS AND AMENITIES
The following schedule provides an analysis of the Partnership's
investment in property held for lease as of December 31:
<TABLE>
<CAPTION>
1998 1997
------------ ----------
<S> <C> <C>
Land and improvements $ 3,793,491 $ 3,775,739
Buildings and improvements 11,767,531 11,666,627
----------- -----------
15,561,022 15,442,366
Less accumulated depreciation 5,524,302 5,080,580
----------- -----------
$10,036,720 $10,361,786
=========== ===========
</TABLE>
7. MORTGAGES PAYABLE
Mortgages payable as of December 31 consist of the following:
- 29 -
<PAGE>
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Mortgage payable to an insurance company,
bearing interest at a fixed rate of
7.37%, due October 15, 2012,
secured by land and buildings $ 3,987,830 $ 4,091,369
Mortgage payable to an insurance
company, bearing interest at a fixed
are of 8.5%, due November 15, 2005,
secured by land and buildings 1,100,383 1,212,578
----------- -----------
$ 5,088,213 $ 5,303,947
=========== ===========
</TABLE>
The mortgages are payable in monthly aggregate installments of $51,047
includes principal, interest and property taxes.
Scheduled maturities of debt are as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31, Amount
-------------------------------- ----------
<S> <C>
1999 $ 233,546
2000 252,012
2001 273,663
2002 296,285
2003 320,787
Thereafter 3,711,920
----------
$5,088,213
==========
</TABLE>
7. MORTGAGES PAYABLE - CONTINUED
Based on the borrowing rates currently available to the Partnership for
mortgages with similar terms and average maturities, the fair value of
long-term debt is approximately $5,300,000.
The 1997 write-off of unamortized loan costs (recorded as an
extraordinary item) relates to loan costs associated with the Park Place
Apartments Phase II's notes payable. The unamortized loan costs were
expensed due to the fact that the notes were retired in 1997 prior to
their maturity (October 5, 2002) as a result of permanent financings
obtained by the Partnership in October 1997.
8. RENTAL INCOME UNDER OPERATING LEASES
The following is a schedule of minimum future rental income on
noncancellable operating leases as of December 31, 1998:
<TABLE>
<CAPTION>
For the Years Ended December 31, Amount
-------------------------------- ------
<S> <C>
1999 $ 235,924
2000 235,924
2001 235,924
2002 235,924
2003 235,924
Thereafter 373,545
----------
$1,553,165
==========
</TABLE>
- 30 -
<PAGE>
9. RELATED PARTY TRANSACTIONS
Property management fees of $101,354 (1998), $106,264 (1997) and $104,248
(1996)were paid to NTS Development Company, an affiliate of the General
Partner. The fee is equal to 5% of gross revenues from the residential
properties and 6% of gross revenues from the commercial property pursuant
to an agreement with the Partnership. Also permitted by the partnership
agreement, NTS Development Company will receive a repair and maintenance
fee equal to 5.9% of costs incurred which relate to capital improvements.
The Partnership has incurred $1,410 (1998) and $3,040 (1997) as repair
and maintenance fee and has capitalized these costs as a part of land,
buildings and amenities. There was no similar fee incurred during 1996.
The Partnership also was charged the following amounts from affiliates of
the General Partner for the years ended December 31, 1998, 1997 and 1996.
These charges include items which have been expensed as operating
expenses affiliated or as professional and administrative expenses -
affiliated and items which have been capitalized as other assets or as
land, buildings and amenities.
These charges were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Administrative $106,476 $105,043 $133,746
Property manager 189,491 163,078 148,857
Leasing 46,636 39,927 39,363
Other 1,570 2,175 2,078
-------- -------- --------
$344,173 $310,223 $324,044
======== ======== ========
</TABLE>
10. SEGMENT REPORTING
The Partnership adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, during the fourth quarter of 1998.
SFAS No. 131 established standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued
to limited partners. Operating segments are defined as components of an
enterprise about which separate financial information is available that
is evaluated regularly by the chief operating decision maker, or decision
making group, in deciding how to allocate resources and in assessing
performance. The standard also allows entities to aggregate operating
segments into a single segment if the segments are similar in each of the
six criteria set forth in SFAS No. 131. The Partnership's chief operating
decision-maker is the General Partner.
The Partnership's reportable operating segments include Residential and
Commercial real estate operations. The Residential operations represent
Partnership's ownership and operating results relative to apartment
complexes known as the Park at the Willows and Park Place Apartments
Phase II. The Commercial operations represent the Partnership's ownership
and operating results relative to suburban commercial office space known
as Blankenbaker Business Center 1A.
The financial information of the operating segments have been prepared
using
- 31 -
<PAGE>
a management approach, which is consistent with the basis and
manner in which the Partnership management internally disaggregates
financial information for the purposes of assisting in making internal
operating decisions. The Partnership evaluates performance based on
stand-alone operating segment net income.
<TABLE>
<CAPTION>
1998
----
Residential Commercial Total
------------- ------------ ------------
<S> <C> <C> <C>
Rental income $ 1,630,218 $ 292,656 $ 1,922,874
Other income 6,056 78 6,134
------------ ------------ ------------
Total net revenues $ 1,636,274 $ 292,734 $ 1,929,008
============ ============ ============
Operating Expenses $ 674,552 $ 46,780 $ 721,332
Write Off of Unamortized
Building Improvements 13,008 -- 13,008
Interest Expense -- 98,275 98,275
Management Fees 83,462 17,892 101,354
Real Estate Taxes 91,008 17,701 108,709
Professional and
Administrative -- 56,417 56,417
Depreciation Expense 380,035 91,609 471,644
------------ ------------ -----------
Net Income (Loss) $ 394,209 $ (35,940) $ 358,269
============ ============ ===========
Land, Buildings and
Amenities, net $ 8,592,281 $ 1,435,642 $10,027,923
============ ============ ===========
Expenditures for Land,
Buildings and Amenities $ 156,597 $ -- $ 156,597
============ ============ ===========
Segment Liabilities $ 89,607 $ 1,167,479 $ 1,257,086
============ ============ ===========
</TABLE>
10. SEGMENT REPORTING - CONTINUED
<TABLE>
<CAPTION>
1997
----
Residential Commercial Total
------------- ------------ ------------
<S> <C> <C> <C>
Rental income $ 1,770,326 $ 293,910 $ 2,064,236
Other income 12,511 28 12,539
------------- ------------- ------------
Total net revenues $ 1,782,837 $ 293,938 $ 2,076,775
============= ============= ============
Operating Expenses $ 638,862 $ 51,445 $ 690,307
Write Off of Unamortized
Building Improvements 17,797 -- 17,797
Interest Expense -- 107,563 107,563
Management Fees 88,402 17,862 106,264
Real Estate Taxes 81,621 17,837 99,458
Professional and
Administrative -- 37,608 37,608
Depreciation Expense 385,517 116,467 501,984
------------- ------------- ------------
Net Income (Loss) $ 570,638 $ (54,844) $ 515,794
============= ============= ============
</TABLE>
- 32 -
<PAGE>
<TABLE>
<CAPTION>
1997
----
Residential Commercial Total
------------- ------------ ------------
<S> <C> <C> <C>
Land, Buildings and
Amenities, net $ 8,852,552 $ 1,509,234 $ 10,361,786
============= ============= ===========
Expenditures for Land,
Buildings and Amenities $ 8,398 $ -- $ 8,398
============= ============== ============
Segment Liabilities $ 43,600 $ 1,268,826 $ 1,312,426
============= ============== ============
</TABLE>
<TABLE>
<CAPTION>
1996
----
Residential Commercial Total
------------- ------------ ------------
<S> <C> <C> <C>
Rental income $ 1,725,124 $ 293,869 $ 2,018,993
Other income 2,374 (74) 2,300
------------- ------------- ------------
Total net revenues $ 1,727,498 $ 293,795 $ 2,021,293
------------- ------------- ------------
Operating Expenses 770,467 32,216 802,683
Interest Expense -- 115,875 115,875
Management Fees 86,375 17,873 104,248
Real Estate Taxes 81,832 21,339 103,171
Professional and
Administrative -- 39,175 39,175
Depreciation Expense 408,202 116,468 524,670
------------- ------------- ------------
Net Income (Loss) $ 380,622 $ (49,151) $ 331,471
------------- ------------- ------------
Land, Buildings and
Amenities, net $ 9,271,291 $ 1,607,685 $ 10,878,976
============= ============= ============
Expenditures for Land,
Buildings and Amenities $ 3,857 $ -- $ 3,857
============= ============= ============
Segment Liabilities $ 88,287 $ 1,366,889 $ 1,455,176
============= ============= ============
</TABLE>
10. SEGMENT REPORTING - CONTINUED
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements is necessary
given amounts recorded at the Partnership level and not allocated to the
operating properties for internal reporting purposes.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET REVENUES
Total revenues for reportable $ 1,929,008 $ 2,076,775 $ 2,021,293
segments
Other income for Partnership Level 22,929 16,977 20,469
----------- ----------- -----------
Total consolidation net revenues $ 1,951,937 $ 2,093,752 $ 2,041,762
=========== =========== ===========
INTEREST EXPENSE
Interest expense for reportable
segments $ 98,275 $ 107,563 $ 115,875
Interest expense for Partnership
level 296,905 327,117 340,767
----------- ----------- -----------
</TABLE>
- 33 -
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Total interest expense $ 395,180 $ 434,680 $ 456,642
=========== =========== ===========
PROFESSIONAL AND ADMINISTRATIVE
Total Professional and Administrative
for reportable segments $ 56,417 $ 37,608 $ 39,175
Professional and Administrative for
Partnership level 104,284 100,362 124,224
----------- ----------- -----------
Total professional and administrative $ 160,701 $ 137,970 $ 163,399
=========== =========== ===========
DEPRECIATION AND AMORTIZATION
Total depreciation and amortization
for reportable segments $ 471,644 $ 501,984 $ 524,670
Depreciation and amortization for
Partnership level 26,193 28,709 29,525
Eliminations (15,688) (15,688) (15,688)
------------ ----------- -----------
Total depreciation and amortization $ 482,149 $ 515,005 $ 538,507
============ =========== ===========
NET INCOME (LOSS)
Total reported net income (loss) for
segments $ 358,269 $ 515,794 $ 331,471
Net income (loss) for Partnership
level (388,765) (451,307) (458,359)
------------ ----------- -----------
Total net income (loss) $ (30,496) $ 64,487 $ (126,888)
============ =========== ===========
LAND, BUILDINGS AND AMENITIES
Total Land, Building and Amenities
for reportable segments $10,027,923 $10,361,786 $10,878,976
Partnership level 8,797 -- --
----------- ----------- -----------
Total Land, Building and Amenities $10,036,720 $10,361,786 $10,878,976
=========== =========== ===========
TOTAL EXPENDITURES
Total Expenditures for Land,
Buildings and Amenities for eportable
segments 156,597 8,398 3,857
Expenditures for Land, Buildings and
Amenities for Partnership level
8,797 -- --
----------- ----------- -----------
Total Expenditures for Land,
Buildings and Amenities $ 165,394 $ 8,398 $ 3,857
=========== =========== ===========
LIABILITIES
Total liabilities for reportable
segments $ 1,257,086 $ 1,312,426 $ 1,455,176
Liabilities for Partnership (1) 3,987,190 4,133,874 4,100,572
----------- ----------- -----------
Total liabilities $ 5,244,276 $ 5,446,300 $ 5,555,748
=========== =========== ===========
</TABLE>
(1) THESE AMOUNTS PRIMARILY REPRESENT THE MORTGAGES HELD BY THE PARTNERSHIP,
SECURED BY THE ASSETS OF THE OPERATING SEGMENTS.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
- 34 -
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Because the Partnership is a limited partnership and not a corporation, it has
no directors or officers as such. Management of the Partnership is the
responsibility of the General Partner, NTS-Properties Associates VII. The
Partnership has entered into a management contract with NTS Development Company,
an affiliate of the General Partner, to provide property management services.
The General Partners of NTS-Properties Associates VII are as follows:
J. D. Nichols
Mr. Nichols (age 57) is the managing General Partner of NTS-Properties
Associates VII and is Chairman of the Board of NTS Corporation (since 1985) and
NTS Development Company (since 1977).
Richard L. Good
Mr. Good (age 59), Vice Chairman of NTS Corporation and of NTS Development
Company and Chairman of the Board of NTS Securities, Inc., joined the Manager in
January 1985. From 1981 through 1984, he was Executive Vice-President of
Jacques-Miller, Inc., a real estate syndication, property management and
financial
planning firm in Nashville, Tennessee.
NTS Capital Corporation
NTS Capital Corporation is a Kentucky Corporation formed in October 1979. J.D.
Nichols is Chairman of the Board and the sole director of NTS Capital
Corporation.
The Manager of the Partnership's Properties is NTS Development Company, the
executive officers and/or directors of which are Messrs. J.D. Nichols, Richard
L. Good and Brian F. Lavin.
Brian F. Lavin
Mr. Lavin (age 45), President of NTS Corporation and NTS Development Company
joined the Manager in June 1997. Prior to joining NTS, Mr. Lavin served as
President of the Residential Division of Paragon Group, Inc., and as a Vice
President of Paragon's Midwest Division. In this capacity, he directed the
development, marketing, leasing and management operations for the firms
expanding portfolios. Mr. Lavin attended the University of Missouri where he
received his Bachelor's Degree in Business Administration. He has served as a
Director of the Louisville Apartment Association. He is a licensed Kentucky Real
Estate Broker and Certified Property Manager. Mr. Lavin is a member of the
Institute of Real Estate Management, and council member of the Urban Land
Institute. He currently serves on the University of Louisville Board of
Overseers and is on the Board of Directors of the National Multi-Housing Council
and the Louisville Science Center.
- 35 -
<PAGE>
Item 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
The officers and/or directors of the corporate General Partner receive no direct
remuneration in such capacities. The partnership is required to pay a property
management fee based on gross rentals to NTS Development Company. The
Partnership is also required to pay to NTS Development Company a repair and
maintenance fee on costs related to specific projects. In addition, NTS
Development Company provides certain other services to the Partnership. See Note
9 to the financial statements which sets forth transactions with affiliates of
the General Partner for the years ended December 31, 1998, 1997 and 1996.
The General Partner is entitled to receive cash distributions and allocations of
profits and losses from the Partnership. See Note 1C to the financial statements
which describes the methods used to determine income allocations and cash
distributions.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The General Partner is NTS-Properties Associates VII, a Kentucky Limited
Partnership, 10172 Linn Station Road, Louisville, Kentucky 40223. The Partners
of the General Partner and their total respective interests in NTS-Properties
Associates VII are as follows:
<TABLE>
<S> <C>
J. D. Nichols 31.05%
10172 Linn Station Road
Louisville, Kentucky 40223
Richard L. Good 10.00%
10172 Linn Station Road
Louisville, Kentucky 40223
NTS Capital Corporation 12.00%
10172 Linn Station Road
Louisville, Kentucky 40223
</TABLE>
The remaining 46.95% interests are owned by various limited partners of NTS-
Properties Associates VII.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Property management fees of $101,354 (1998), $106,264 (1997)and $104,248 (1996)
were paid to NTS Development Company, an affiliate of the General Partner. The
fee is equal to 5% of gross revenues from residential properties and 6% of gross
revenues from the commercial property pursuant to an agreement with the
Partnership. Also permitted by the partnership agreement, NTS Development
Company will receive a repair and maintenance fee equal to 5.9% of costs
incurred which relate to capital improvements. The Partnership has incurred
$1,410 (1998) and $3,040 (1997) as a repair and maintenance fee and has
capitalized this cost as a part of land, buildings and amenities. There was no
similar fee incurred during 1996. The partnership was also charged the following
amounts from NTS Development Company for the years ended December 31, 1998, 1997
and 1996. These charges include items which have been expensed as operating
expenses - affiliated or as professional and administrative expenses -
affiliated and items which have been capitalized as other assets or as land,
buildings and amenities.
- 36 -
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - CONTINUED
These charges were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ------
<S> <C> <C> <C>
Administrative $106,476 $105,043 $133,746
Property manager 189,491 163,078 148,857
Leasing 46,636 39,927 39,363
Other 1,570 2,175 2,078
------- ------- -------
$344,173 $310,223 $324,044
======== ======== ========
</TABLE>
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates than those previously discussed.
- 37 -
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1. Financial statements
The financial statements for the period through December 31, 1998,
together with the report of Arthur Andersen LLP dated March 12 1999, appear in
Item 8.
<TABLE>
<S> <C> <C>
2. Financial statement schedules
SCHEDULES: PAGE NO.
--------
III-Real Estate and Accumulated Depreciation 39-40
All other schedules have been omitted because they are not applicable,
or not required, or because the required information is included in the
financial statements or notes thereto.
3. Exhibits
EXHIBIT NO. PAGE NO.
--------
3. Amended and Restated Agreement and *
Certificate of Limited Partnership of
NTS-Properties VII, Ltd., a Florida
limited partnership
10. Property Management and Construction *
Agreement between NTS Development
Company and NTS-Properties VII, Ltd.
27. Financial Data Schedule Included
herewith
* Incorporated by reference to documents filed with the
Securities and Exchange Commission in connection with the
filing of the Registration Statements on Form S-11 on May 15,
1987 (effective October 29, 1987) under Commission File No.
33-14308.
</TABLE>
4. Reports on Form 8-K
None.
- 38 -
<PAGE>
<TABLE>
<CAPTION>
NTS-PROPERTIES VII, LTD.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
Park Place Blankenbaker
The Park at Apartments Business
the Willows Phase II Center 1A Total
----------- ----------- ----------- ----------
Encumbrances None (A) (A)
<S> <C> <C> <C> <C>
Initial cost to partnership:
Land $ 457,048 $ 2,616,693 $ 606,927 $ 3,680,668
Buildings and improvements 2,091,968 7,692,119 1,679,081 11,463,168
Cost capitalized subsequent to acquisition:
Improvements 27,364 76,152 309,098 412,614
Other (B) -- -- (4,225) (4,225)
Gross amount at which carried December 31, 1998 (C):
Land $ 458,028 $ 2,634,935 $ 700,529 $ 3,793,492
Buildings and improvements 2,118,352 7,750,029 1,890,352 11,758,733
----------- ----------- ----------- ----------
Total $ 2,576,380 $10,384,964 $ 2,590,881 $15,552,225(E)
=========== =========== =========== ===========
Accumulated depreciation $ 934,894 $ 3,434,169 $ 1,155,239 $ 5,524,302
=========== =========== =========== ==========
Date of construction N/A 02/90 N/A
Date Acquired 05/88 N/A 12/90
Life at which depreciation in
latest income statement is
computed (D) (D) (D)
</TABLE>
(A) First mortgage held by an insurance company.
(B) Represents NTS-Properties VII, Ltd.'s decreased interest in Blankenbaker
Business Center 1A as a result of capital contributions made by the
Partnership and NTS-Properties IV to the Blankenbaker Business Center
Joint Venture in 1994.
(C) Aggregate cost of real estate for tax purposes is $13,807,264.
(D) Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which are 10-30 years for land
improvements, 5-30 years for buildings and improvements and 5-30 years
for amenities.
(E) Reconciliation net of accumulated depreciation to consolidated financial
statements:
<TABLE>
<S> <C>
Total Gross Costs at December 31, 1998 $ 15,552,225
Additions to Partnership for computer
hardware and software in 1998 8,797
------------
Balance at December 31, 1998 15,561,022
Less Accumulated depreciation (5,524,302)
------------
Land, Buildings and Amenities, net as of
December 31, 1998 $ 10,036,720
============
</TABLE>
- 39 -
<PAGE>
NTS-PROPERTIES VII, LTD.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Real Accumulated
Estate Depreciation
------------ -----------
<S> <C> <C>
Balances at December 31, 1995 $15,456,367 $ 4,050,770
Additions during period:
Improvements (a) 3,857 --
Depreciation (b) -- 530,478
---------- ----------
Balances at December 31, 1996 15,460,224 4,581,248
Additions during period:
Improvements (a) 8,398 --
Depreciation (b) -- 507,791
Deductions during period:
Retirements (26,256) (8,459)
---------- ------------
Balances at December 31, 1997 15,442,366 5,080,580
Additions during period:
Improvements (a) 165,394 --
Depreciation (b) -- 477,452
Deductions during period:
Retirements (46,738) (33,730)
----------- -------------
Balances at December 31, 1998 $15,561,022 $ 5,524,302
=========== ===========
</TABLE>
(a) The additions to real estate on this schedule will differ from the
expenditures for land, buildings and amenities on the Statements
of Cash Flows as a result of minor changes in the Partnership's
joint venture investment ownership percentages. Changes that may
occur in the ownership percentages are less than one percent.
(b) The additions charged to accumulated depreciation on this schedule
will differ from the depreciation and amortization on the
Statements of Cash Flows due to the amortization of loan costs.
- 40 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, NTS-Properties VII, Ltd. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
NTS-PROPERTIES VII, LTD.
------------------------------
(Registrant)
BY: NTS-Properties Associates VII,
General Partner
BY: NTS Capital Corporation,
General Partner
/s/ Brian F. Lavin
------------------------------
Brian F. Lavin
President
Date: March 31, 1999
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
registrant in their capacities and on the date indicated above.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ J. D. NICHOLS General Partner of NTS-Properties
- ----------------------- Associates VII and Chairman of the
J. D. Nichols Board and Sole Director of NTS
Capital Corporation
/s/ RICHARD L. GOOD General Partner of NTS-Properties
- ----------------------- Associates VII and Vice Chairman of
Richard L. Good NTS Capital Corporation
/s/ BRIAN F. LAVIN President and Chief Operating Officer
- ----------------------- of NTS Capital Corporation (acting
Brian F. Lavin Chief Financial Officer)
</TABLE>
The Partnership is a limited partnership and no proxy material has been sent to
the limited partners.
-41-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE BALANCE SHEET AS
OF DECEMBER 31, 1998 AND FROM THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 498,428
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 10,036,720
<DEPRECIATION> 5,524,302
<TOTAL-ASSETS> 10,665,976
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 5,088,213
0
0
<COMMON> 0
<OTHER-SE> 5,421,700
<TOTAL-LIABILITY-AND-EQUITY> 10,655,976
<SALES> 1,922,874
<TOTAL-REVENUES> 1,951,937
<CGS> 0
<TOTAL-COSTS> 1,587,253
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 395,180
<INCOME-PRETAX> (30,496)
<INCOME-TAX> 0
<INCOME-CONTINUING> (30,496)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,496)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>The Partnership has an unclassified balance sheet; therefore, the value is $0.
</FN>
</TABLE>
