<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
__X__ ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.
_____ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
COMMISSION FILE NUMBER: 0-16601 (FORMERLY 33-16164-LA)
------------------------------
FMG RITA RANCH LIMITED PARTNERSHIP
----------------------------------
(Name of issuer in its charter)
Delaware 23-2466343
- -------------------------- ----------------------------
(State of incorporation or (IRS Employer Identification
organization) Number)
250 King of Prussia Road, Radnor, Pennsylvania 19087
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone no., including area code: (610) 964-7234
- -----------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act.
Name of each exchange
Title of each Class on which registered
------------------- ---------------------
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units $1,000 Per Unit
-----------------------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
----- -----
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained in this form, and no disclosure will 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
-----
<PAGE> 2
FMG RITA RANCH LIMITED PARTNERSHIP
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM
- ----
<S> <C>
PART I
- -------
Item 1. Business
Background......................................4
Material Recent Developments ...................4
Competition ....................................4
Employees ......................................5
Trademarks and Patents .........................5
Item 2. Property ..............................................5
Item 3. Legal Proceedings .....................................6
Item 4. Submission of Matters to a Vote of Security
Holders ...............................................6
PART II
- -------
Item 5. Market for the Partnership's Units of Limited
Partnership Interest and Related Security
Holder Matters ........................................6
Item 6. Selected Financial Data ...............................7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Background .....................................8
Results of Operations ..........................8
Liquidity and Capital Resources ................8
Impact of Year 2000 ............................9
Item 8. Financial Statements and Supplementary Data ...........9
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ................9
PART III
- --------
Item 10. Directors and Executive Officers of the
Partnership ...........................................9
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
Item 11. Executive Compensation ................................10
Item 12. Security Ownership of Certain Beneficial
Owners and Management
(a) Security Ownership of Certain
Beneficial owners .........................11
(b) Security Ownership of Management ..........11
(c) Changes in Control ........................12
Item 13. Certain Relationships and Related Transactions ........12
PART IV
- -------
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ...................................12
SIGNATURES.........................................................15
</TABLE>
3
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PART I
ITEM 1. BUSINESS
Background
FMG Rita Ranch Limited Partnership (the "Partnership") was formed on
January 30, 1987, as a Delaware limited partnership with FMG Western Region
Acquisitions, Inc. (the "General Partner") as its sole general partner. On March
19, 1987, the Partnership acquired 118 acres of unimproved land (the "Property")
in Tucson, Arizona. The Partnership's primary business objectives is to realize
appreciation in the value of the Property by holding the Property for investment
and eventual sale, although there is no assurance that this will be attained.
The Partnership's public offering of 6,707 Units of limited
partnership interest ("Units") commenced on October 29, 1987 and continued until
June 10, 1988. On June 10, 1988, 6,707 Units had been sold for $6,281,295 to 105
investors, including an affiliate of the General Partner which acquired 5,008.3
Units.
The General Partner has no plans to develop the Property, except for
activities including land planning, market surveys and other activities
necessary to prepare the Property for sale. There can be no assurance that
necessary funds would be available should it be desirable for the Partnership to
improve the Property to facilitate its sale.
Because of the lack of demand for industrial and commercial land in
the Tucson area and the resulting decline in the Property's value, the
Partnership was required to reduce its carrying value on the Property in 1990
and again in 1992. Class "A" Business Park lots dominate the industrial land
sales market. Sale prices range from $1.00 to $2.15 per square foot for 5 to 20
acre parcels. There have not been any bulk sale transactions since the RTC was
disposing of it's properties. The General Partner believes that it would be
necessary for the Partnership to hold the property for several years, possibly
decades, before the Partnership may be able to sell the Property at a price
which approximates the price paid by the Partnership for the Property. Thus, it
is unlikely that the Property will be sold for a price which approximates the
original price paid by the Partnership for the Property.
Material Recent Developments
None
Competition
Rita Ranch is a 2,700 acre master planned development of which
approximately 1,200 acres are designated for industrial use. Properties within
Rita Ranch are subject to conditions, covenants, restrictions and a
master-planned layout which affects zoning and land use
4
<PAGE> 5
patterns. To date, there are only four improved industrial properties utilizing
approximately 50 acres situated within the Rita Ranch community. While Rita
Ranch contains predominately residential land uses with areas designated for
commercial and industrial development, the majority of the neighborhood is
either in use or designated for industrial related purposes, and is largely
unoccupied.
The subject property is located in Tucson's southeastern outskirts.
Development in virtually all market sectors can be expected to increase as
Tucson expands to the east. The residential market continues to show marked
signs of improvement, predominately within Rita Ranch. Limited commercial growth
serving residents staple needs is anticipated for the Rita Ranch area but
significant retail or office demand will likely continue to be served from
eastside commerce centers until the residential population reaches levels to
support pre-leased development. Additionally, the remote location of Rita Ranch,
restrictive conditions, covenants, and vast amounts of available and affordable
industrially zoned land throughout metropolitan Tucson discourages an optimistic
prediction of demand for industrial uses at the present time, but development is
anticipated to occur as population growth continues.
Employees
The Partnership has no employees. The General Partner manages and
controls the affairs of the Partnership. (See Part III, Item 10, Directors and
Executive Officers of the Partnership).
Trademarks and Patents
The Partnership has no trademarks or patents.
ITEM 2. PROPERTY
The Partnership owns 118 acres of undeveloped land situated at the
southwest corner of Old Vail and Houghton Roads in the Rita Ranch subdivision of
Tucson, Arizona. It is comprised of two contiguous parcels, one of which is 110
acres and is zoned industrial (the "Industrial Parcel") and the other of which
is eight acres and is zoned commercial (the "Commercial Parcel").
In October 1996, an appraisal was ordered on the subject property. A
summary of the site data indicates that the visibility of the site from Houghton
Road and the location near an entrance to Rita Ranch are both positive. In
addition, the fact that eight acres are zoned commercial at the corner of Old
Vail and Houghton Road could be an advantage in the future. The property
provides rail access, but the topography of the site would require an estimated
15 foot ballast height and substantial engineering/grading to make this a
reality. The presence of the gas pipeline easement and the below grade nature
along Houghton Road are negative characteristics for future development. Also,
all future site development is subject to restrictions which could lead to
significant screening and landscaping costs relevant to most industrial and
commercial uses. Properties have been marketed for a year to several years in
the area before a
5
<PAGE> 6
transaction closes. Due to the lack of demand for large vacant land parcels in
this submarket of Tucson, the appraiser has estimated the "As Is" value to be
$475,000 or approximately $4,000 per acre.
In 1997, marketing proposals were solicited from area brokerage
firms. A brokerage firm was selected and the property will be listed in 1998.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not a direct party to, nor is the Partnership's
property directly the subject of, any material legal proceedings. However, on
November 6, 1992, the Commonwealth Court of Pennsylvania issued an order placing
Fidelity, the indirect parent of the General Partner, into rehabilitation under
the control and authority of the Pennsylvania Insurance Commissioner pursuant to
the provisions of the Pennsylvania Insurance Department Act, 40 P.S. Section
221.1 et seq. The Partnership is not a direct party to the order, but ownership
of the stock of the General Partner and the stock of the majority Limited
Partner is vested in the Insurance Commissioner pursuant to the order.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fiscal year ended December 31, 1997.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S UNITS OF LIMITED PARTNERSHIP INTEREST
AND RELATED SECURITY HOLDER MATTERS
There is no established public trading market for the Units and it is
not anticipated that any will develop in the future. The Partnership commenced
an offering to the public on October 29, 1987 of 6,707 Units of limited
partnership interests. The offering continued until June 10, 1988 when all 6,707
Units had been sold to 105 investors, including an affiliate of the General
Partner which acquired 5,008.3 Units.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Year For the Year For the Year For the Year For the Year
Ended Ended Ended Ended Ended
December 31 December 31 December 31 December 31 December 31
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating
Revenues $303 $182 $ 33 $258 $285
Net Income
(Loss) $(29,852) $(33,130) $(32,560) $(19,621) $(19,470)
Net Income
(Loss) per
Unit of
Limited
Interest $(4.45) $(4.94) $(4.85) $(2.93) $(2.90)
<CAPTION>
December 31 December 31 December 31 December 31 December 31
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Assets $350,519 $350,267 $350,205 $350,292 $350,615
Long Term
Obligations -0- -0- -0- -0- -0-
Cash Distributions
Declared per Unit
of Limited
Partnership
Interest None None None None None
</TABLE>
7
<PAGE> 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Background
The Partnership was formed to acquire and realize appreciation in the
Property by holding it for investment and eventual sale. However, there can be
no assurance that the Partnership's objectives will be realized.
Results of operations
The Partnership's revenues for fiscal year 1997 consisted of interest
income of $3 and partnership transfer fees of $300. Expenses for 1997 consisted
primarily of general and administrative costs of $6,090, insurance of $111, real
estate taxes of $8,954 and management fees of $15,000.
The Partnership's revenues for fiscal year 1996 consisted of interest
income of $7 and partnership transfer fees of $175. Expenses for 1996 consisted
primarily of general and administrative costs of $8,715, insurance of $131, real
estate taxes of $9,466 and management fees of $15,000.
The Partnership's revenues for fiscal year 1995 consisted of interest
income of $8 and partnership transfer fees of $25. Expenses for 1995 consisted
primarily of general and administrative costs of $7,051, insurance of $127, real
estate taxes of $10,415 and management fees of $15,000.
The current real estate forecast for Rita Ranch is that there will
continue to be an absorption of vacant land in other Tucson submarkets, and
improvements in the immediate area, in particular the residential sector which
is one of the fastest growing in Tucson, Arizona. Unfortunately, the commercial
and industrial market growth has been limited.
Liquidity and Capital Resources
The Partnership has no cash reserve remaining at December 31, 1997.
As shown in the accompanying financial statements, the Partnership has incurred
substantial operating losses in each of the past three years. Such losses will
continue until the Partnership begins to sell land parcels. In the partnership
agreement, the General Partner has committed to contribute up to $600,000 to the
capital of the Partnership as the need for additional working capital arises.
Cumulative amounts funded by the General Partner amounted to $303,040 at
December 31, 1997. Realization of the Partnership's assets is dependent upon the
continued funding of operating deficits by the General Partner and its
affiliate. There can be no assurance, however, that the General Partner or its
affiliate will continue to fund operating deficits.
8
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During 1992 and 1990, the Partnership recorded writedowns of $830,000
and $6,261,041 respectively.
Impact of Year 2000
The Partnership's management has assessed the Year 2000 technology
issue, and has developed an action plan to address the issue. Management
believes that its action plan will be implemented and completed in a timely
fashion, and that it will not materially affect the Partnership's future
operating results or future financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Partnership's financial statements for the years ended December
31, 1997 and 1996 together with the report of the Partnership's independent
auditors, Ernst & Young LLP, is included in this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any directors or officers. The General
Partner manages and controls the affairs of the Partnership and has
responsibility for all aspects of the Partnership's operations. The current
executive officers and directors of the General Partner are identified and
described below. Officers and directors serve until their successors have been
elected.
Arthur W. Mullin is a Director, President and Treasurer of the
General Partner. Mr. Mullin is also an officer and director of various other
subsidiaries of Fidelity Mutual. Mr. Mullin was appointed senior vice President
and Director of Real Estate for Fidelity Mutual in June 1993 and served in that
capacity until January 31, 1995. He is currently President of KMR Management,
Inc., a management advisory firm which provides advice to corporations and
institutions regarding corporate, financial and real estate matters. Before
joining Fidelity Mutual,
9
<PAGE> 10
Mr. Mullin served as President of KMR Management, Inc. Mr. Mullin received a
B.S. in Political Science and a M.S. in Education from St. Joseph's University,
Philadelphia, Pennsylvania.
William S. Taylor is Director and Vice President of the General
Partner. Mr. Taylor is also an officer and director of various other
subsidiaries of Fidelity Mutual. Mr. Taylor is the Deputy Insurance Commissioner
for Liquidation's, Rehabilitation's and Special Funds for the Commonwealth of
Pennsylvania. Mr. Taylor has a bachelor's degree in Economics from Elizabethtown
College and a masters degree in Governmental Administration from the University
of Pennsylvania.
James W. Kelican, Jr., CPM, is a Director and Vice President of the
General Partner. Mr. Kelican is also an officer and director of various other
subsidiaries of Fidelity Mutual. Mr. Kelican was appointed Vice President - Real
Estate for Fidelity Mutual in July, 1993 and Senior Vice President and Director
of Real Estate in October 1994. Mr. Kelican has a B.S. in Business
Administration from Drexel University, Philadelphia, Pennsylvania and has the
title of Certified Property Manager from the Institute of Real Estate Management
of the National Association of Realtors.
Robert Bixler is Secretary of the General Partner. Mr. Bixler is also
the Secretary of various other subsidiaries of Fidelity Mutual. Mr. Bixler is a
Vice President and Associate Counsel of Fidelity Mutual. Mr. Bixler received his
A.B. degree in Economics from Temple University, and his J.D. degree from Temple
University Law School, Philadelphia, PA. He is a member of the American Bar
Association and the Philadelphia Bar Association.
Margaret Tamasitis is Assistant Secretary of the General Partner. Ms.
Tamasitis is also Assistant Secretary of various other subsidiaries. Ms.
Tamasitis is a Second Vice President of Fidelity Mutual in the Controller's
office and has been with Fidelity Mutual for 27 years. Ms. Tamasitis received
her B.S. degree in Accounting from Temple University, Philadelphia, PA.
ITEM 11. EXECUTIVE COMPENSATION
As of December 31, 1997 the Partnership did not pay remuneration to
any officers of the General Partner. Fees which have been paid or are payable to
the General Partner and affiliates are set forth in Item 13 of this report,
"Certain Relationships and Related Transactions".
10
<PAGE> 11
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
<TABLE>
<CAPTION>
Name and Amount and
Address of Nature of
Beneficial Beneficial Percent
Title of Class Owner Ownership of Class
-------------- ---------- ---------- --------
<S> <C> <C> <C>
(1) Units of Limited Equity 5,008.3 74.67
Partnership Products Units
Interest Corp.
250 King
of Prussia
Road,
Radnor, PA
19087
</TABLE>
Equity Products Corp., an affiliate of the General Partner, purchased
5,008.3 General Partnership Units for $4,582,560. The General Partnership Units
are more fully described in the Partnership Agreement. Equity Products Corp.
purchased these units for $915 per Unit, which amount is net of selling
commissions.
As of December 31, 1997, no other person or "group" (as that term is
used in Section 13(d) (3) of the Securities Exchange Act of 1934) was known by
the Partnership to beneficially own more than five percent of the units of the
Partnership.
- --------------------------------------------------------------------------------
(1) Units of limited partnership interest owned by Equity Products Corp.
are designated in the Partnership Agreement as General Partnership
Units.
(b) Security Ownership of Management
The General Partner does not own any of the Partnership's outstanding
limited partnership interests.
No individual director or officer of the General Partner nor such
directors or officers as a group, owns any of the Partnership's outstanding
securities. The General Partner owns a general partnership interest which
enables it to receive 1% of cash distributions until the Limited Partners have
received a return of their Capital Contributions plus cumulative distributions
equal to 9% non-compounded Cumulative Annual Return of their Adjusted Capital
Contributions as those terms are defined in the Partnership Agreement.
Thereafter, the General Partner will receive a 9% return on any portion of its
$600,000 capital contribution and the balance, 80% to the limited partners and
20% to the General Partner. The General Partner will
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<PAGE> 12
share in taxable income to reflect cash distributions, or to the extent there
are losses, 1% of such losses.
(c) Changes in Control
There are no arrangements known to the Partnership that would at any
subsequent date result in a change in control of the Partnership. The impact of
Fidelity's rehabilitation and rehabilitation order (as described in Part I, Item
3, Legal Proceedings) on the Partnership or the General Partner cannot be
determined at this time.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997, a management fee of $15,000 was paid to the General
Partner. This fee is computed as .2% of the cost of the land. The cumulative
amount of such fee may not exceed $128,000, and cumulative fees charged since
inception amounted to $105,000 at December 31, 1997. However, if the
Partnership's reserves are exhausted, the unpaid portion of this fee will be
paid, without interest from the proceeds of the sale of the Property after the
Limited Partners have received distributions equal to their Capital
Contributions and Unpaid Cumulative Return.
The General Partner will also receive 1% of cash distributions until
the Limited Partners have received (i) a return of their Capital Contributions
plus (ii) cumulative distributions equal to a 9% Annual Return on their Adjusted
Capital Contributions (as those terms are defined in the Limited Partnership
Agreement). Thereafter, the General Partner will receive a 9% return on any
portion of its $600,000 capital contribution and the balance, 80% to the limited
partners and 20% to the General Partner. During 1997, 1996 and 1995, the General
Partner received no cash distributions.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Index to Financial Statements Page
Report of Independent Auditors 1
Balance Sheet at December 31, 1997 and 1996 2
Statements of Operations 3
Statements of Partners' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6
12
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Schedules have been omitted because they are inappropriate, not required, or the
information is included elsewhere in the financial statements or notes thereto.
(b) Reports on Form 8-K
1. None
(c) Exhibits Incorporated by Reference (numbered in accordance with
Item 601 of Regulation S-K
Exhibit
Numbers Description
- ------- -----------
3.1 Certificate of Limited Partnership and First Amended Limited
Partnership Certificate.(2)
3.2 & 4 Amended and Restated Limited Partnership Agreement.(3)
9 not applicable
10.1(a) First Deed of Trust and Assignment of Rents dated December 31, 1985,
from South Rita Associates to Pima Service Corporation, as amended,
March 16, 1987, securing a $3,088,680 obligation.(2)
- --------------------------------------------------------------------------------
(2) Incorporated by reference to Exhibits 3.1, 10.1(a) and (b), and
10.2(a) and (b) respectively filed as part of the Exhibits to the
Partnership's Registration Statement on Form S-18, Registration No.
33-16164-LA.
(3) Incorporated by reference to Exhibit 3.2 filed as part of the
Partnership's Registration Statement on Form S-18, Registration No.
33-16164-LA.
Exhibit
Numbers Description
- ------- -----------
10.1(b) $3,088,680 Promissory Note, dated July 24, 1987, from South Rita
Associates to Pima Service Corporation.(2)
10.2(a) First Deed of Trust and Assignment of Rents dated December 31, 1985,
from South Rita Associates to Pima Service Corporation, as amended,
March 16, 1987, securing a $221,200 obligation.(2)
10.2(b) $221,200 Promissory Note, dated July 24, 1987, from South Rita
Associates to Pima service Corporation.(2)
11 not applicable
13
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12 not applicable
13 not applicable
16 not applicable
18 not applicable
19 not applicable
22 not applicable
23 not applicable
24 not applicable
25 not applicable
29 not applicable
- --------------------------------------------------------------------------------
(2) Incorporated by reference to Exhibits 3.1, 10.1(a) and (b), and
10.2(a) and (b) respectively filed as part of the Exhibits to the
Partnership's Registration Statement on Form S-18, Registration No.
33-16164-LA.
14
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
FMG RITA RANCH LIMITED PARTNERSHIP, a
Delaware limited partnership
By: FMG WESTERN REGION ACQUISITIONS, INC.,
General Partner
Dated: 3/20/98 By: /s/ ARTHUR W. MULLIN
---------------------- -----------------------------
Arthur W. Mullin
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ ARTHUR W. MULLIN President, 3/20/98 , 1998
- ------------------------ Treasurer, -----------------
Arthur W. Mullin Director of
FMG Western
Region
Acquisitions, Inc.
/s/ WILLIAM S. TAYLOR Vice President, 3-24 , 1998
- ------------------------ Director of -----------------
William S. Taylor FMG Western
Region
Acquisitions, Inc.
/s/ JAMES W. KELICAN JR. Vice President, 3-23 , 1998
- ------------------------ Director of -----------------
James W. Kelican Jr. FMG Western
Region
Acquisitions, Inc.
</TABLE>
15
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Financial Statements
FMG Rita Ranch Limited Partnership
Years ended December 31, 1997 and 1996
with Report of Independent Auditors
<PAGE> 17
Financial Statements
FMG Rita Ranch Limited Partnership
Years ended December 31, 1997 and 1996
CONTENTS
Report of Independent Auditors......................................1
Audited Financial Statements
Balance Sheets......................................................3
Statements of Operations............................................4
Statements of Partners' Equity......................................5
Statements of Cash Flows............................................6
Notes to Financial Statements.......................................7
<PAGE> 18
[ERNST & YOUNG LLP LETTERHEAD]
Report of Independent Auditors
To the Partners of
FMG Rita Ranch Limited Partnership
We have audited the accompanying balance sheets of FMG Rita Ranch Limited
Partnership (a Delaware Limited Partnership) as of December 31, 1997 and 1996,
and the related statements of operations, partners' equity, and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FMG Rita Ranch Limited
Partnership as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that FMG Rita
Ranch Limited Partnership will continue as a going concern. As more fully
discussed in Note 1, the Partnership lacks adequate working capital to meet its
future obligations as they become due and must continue to rely on the General
Partner and its ultimate parent to provide these funds. On November 6, 1992, due
to continuing significant operating
1
<PAGE> 19
difficulties, the Commonwealth Court of Pennsylvania placed Fidelity Mutual Life
Insurance Company, the ultimate parent of the General Partner, into
Rehabilitation. Because of this Rehabilitation, there is no assurance that
continued financing of the Partnership will be permitted. These conditions raise
substantial doubt about the Partnership's ability to continue as a going
concern. The financial statements of the Partnership do not include any
adjustments to reflect the possible future effects on the recoverability of
assets or the amounts of liabilities that may result from the possible inability
of FMG Rita Ranch Limited Partnership to continue as a going concern.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 2, 1998
2
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FMG Rita Ranch Limited Partnership
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
---------------------------------
<S> <C> <C>
ASSETS
Land held for sale, net $ 350,000 $ 350,000
Cash 519 267
---------------------------------
$ 350,519 $ 350,267
=================================
LIABILITIES AND PARTNERS' EQUITY
Accrued expenses $ 9,906 $ 9,661
Due to affiliates 3,750 3,750
Partners' equity:
General partner 141,814 112,254
Limited partners (6,707 units authorized, issued,
and outstanding) 195,049 224,602
---------------------------------
$ 350,519 $ 350,267
=================================
</TABLE>
See accompanying notes.
3
<PAGE> 21
FMG Rita Ranch Limited Partnership
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C>
Revenues $ 303 $ 182 $ 33
Expenses:
Real estate taxes 8,954 9,466 10,415
General and administrative 6,090 8,715 7,051
Management fee 15,000 15,000 15,000
Insurance 111 131 127
--------------------------------------------------
30,155 33,312 32,593
--------------------------------------------------
Net loss:
Allocated to General Partner (299) (331) (326)
Allocated to Limited Partners (29,553) (32,799) (32,234)
--------------------------------------------------
$ (29,852) $ (33,130) $ (32,560)
==================================================
Net loss per limited partnership unit $ (4.45) $ (4.94) $ (4.85)
==================================================
</TABLE>
See accompanying notes.
4
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FMG Rita Ranch Limited Partnership
Statements of Partners' Equity
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
----------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1995 $ 49,561 $ 289,635 $ 339,196
Capital contributions 29,977 - 29,977
Net loss (326) (32,234) (32,560)
----------------------------------------------
Balance, December 31, 1995 79,212 257,401 336,613
Capital contributions 33,373 - 33,373
Net loss (331) (32,799) (33,130)
----------------------------------------------
Balance, December 31, 1996 112,254 224,602 336,856
Capital contributions 29,859 - 29,859
Net loss (299) (29,553) (29,852)
----------------------------------------------
Balance, December 31, 1997 $ 141,814 $ 195,049 $ 336,863
==============================================
</TABLE>
See accompanying notes.
5
<PAGE> 23
FMG Rita Ranch Limited Partnership
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (29,852) $ (33,130) $ (32,560)
Adjustments to reconcile net loss to
net cash used in operating activities:
Changes in operating assets
and liabilities:
Due to affiliates - - 3,750
Accrued expenses 245 (181) (1,254)
------------------------------------------------
Net cash used in operating activities (29,607) (33,311) (30,064)
FINANCING ACTIVITIES
Cash contributions from general partner 29,859 33,373 29,977
------------------------------------------------
Net cash provided by financing activities 29,859 33,373 29,977
------------------------------------------------
Net increase (decrease) in cash 252 62 (87)
Cash, beginning of year 267 205 292
------------------------------------------------
Cash, end of year $ 519 $ 267 $ 205
================================================
</TABLE>
See accompanying notes.
6
<PAGE> 24
FMG Rita Ranch Limited Partnership
Notes to Financial Statements
December 31, 1997
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
FMG Rita Ranch Limited Partnership is a Delaware Limited Partnership. The
General Partner (FMG Western Region Acquisitions, Inc.) is an indirect wholly
owned subsidiary of The Fidelity Mutual Life Insurance Company (in
Rehabilitation). There are 6,707 limited partnership units outstanding at
December 31, 1997. Per the Partnership Agreement, the Partnership shall exist
for a term ending December 31, 2026, at which time it shall be dissolved.
The Partnership owns approximately 118 acres of unimproved land in Tucson,
Arizona. The Property is being marketed for sale and will be sold as conditions
warrant.
As the Partnership lacks working capital it has been and is dependent upon the
General Partner honoring its agreement to fund operating needs up to $600,000.
As the General Partner does not have the necessary funds to meet this obligation
it has been dependent upon its ultimate parent, Fidelity Mutual Life Insurance
Company, to provide such funds.
On November 6, 1992, the Commonwealth Court of Pennsylvania (the Court) placed
Fidelity Mutual Life Insurance Company (the Company) into Rehabilitation. The
Rehabilitator was granted immediate exclusive possession and control of, and
title to, the business and assets of the Company. The Rehabilitator has been
directed to conduct the business of the Company and to begin taking such steps
as deemed appropriate toward removing the cause and conditions that have made
the rehabilitation necessary. The Company filed its Rehabilitation Plan in June
1994 and subsequently amended it in January 1995 and again in June 1996. A third
amended Rehabilitation Plan is to be filed with the Court during the second
quarter of 1998. While the General Partner at this time does not expect the
Rehabilitation of the Company to negatively impact the operation of either the
General Partner or the Partnership, the ultimate impact of the Rehabilitation of
the Company on the Partnership cannot be determined at this time.
The Partnership's financial statements are presented on the basis of a going
concern and do not include any adjustments relating to the possible future
effects on the recoverability of assets or amount of liabilities that may result
from the possible inability of the Partnership to continue as a going concern.
7
<PAGE> 25
FMG Rita Ranch Limited Partnership
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The Partnership maintains its accounting records on the accrual basis of
accounting.
LAND HELD FOR SALE
Land is carried at the lower of cost or fair value. The carrying value of land,
as disclosed on the balance sheet, is shown net of write-downs of $7,091,041
taken in prior years.
INCOME TAXES
In conformity with the Internal Revenue Code and applicable state and local tax
statutes, taxable income or loss of the Partnership is required to be reported
in the tax returns of the partners in accordance with the terms of the
Partnership Agreement. Accordingly, no provision has been made in the
accompanying financial statements for any federal, state, or local income taxes.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect various amounts reported in the financial statements and accompanying
notes.
3. RELATED PARTY TRANSACTIONS
In 1997, 1996, and 1995 the Partnership was charged an annual management fee of
$15,000 by the General Partner. The cumulative amount of such fee may not exceed
$128,000, and cumulative fees charged since inception amounted to $105,000 at
December 31, 1997.
8
<PAGE> 26
FMG Rita Ranch Limited Partnership
Notes to Financial Statements (continued)
4. PARTNERS' EQUITY
In prior years, the Partnership received cash equity contributions totaling
$6,281,294 through the sale of limited partnership units, of which $4,583,560
was contributed by an affiliate of the General Partner.
The General Partner has agreed to contribute up to $600,000 to the capital of
the Partnership if the need for additional funding arises (see Note 1).
Cumulative amounts funded by the General Partner amounted to $303,040 at
December 31, 1997.
CASH DISTRIBUTIONS
Except for distributable proceeds from capital transactions and refinancings, as
defined in the partnership agreement, and upon liquidation of the Partnership,
cash distributions, if any, will be made 99% to the limited partners and 1% to
the General Partner. Distributable proceeds from capital transactions involving
less than all or substantially all of the Partnership's assets and distributable
proceeds from refinancings will be distributed in the following order of
priority: (i) to limited partners with positive balances in their capital
accounts as maintained for federal tax purposes ("Capital Accounts") in
proportion to and to the extent of such positive balances but not to exceed the
amount required to compensate the limited partners for federal taxes incurred as
a result of the capital transaction, (ii) to all partners with positive balances
in their Capital Accounts after the capital transaction, in proportion to and to
the extent of such positive balances; (iii) to the partners until they have
received a return of their capital contributions ($6,443,616 at December 31,
1997); (iv) to the limited partners until they have received their unpaid
cumulative (i.e., a 9% (noncompounded)) annual return on their adjusted capital
contributions ($5,583,556 at December 31, 1997), and to the General Partner
until it has received a 9% return on any portion of its $600,000 capital
contribution that it has made; and (vi) the balance, 80% to the limited partners
and 20% to the General Partner. Distributions in connection with the sale of all
or substantially all of the Partnership's assets or the Partnership's
liquidation will be made in accordance with the positive balances in the
partners' Capital Accounts.
9
<PAGE> 27
FMG Rita Ranch Limited Partnership
Notes to Financial Statements (continued)
4. PARTNERS' EQUITY (CONTINUED)
Although all cash flow from operations will be distributed (and not reinvested),
the General Partner does not anticipate that cash distributions will be made
other than from capital transactions and as a result of refinancings prior to
liquidation of the Partnership.
PROFITS AND LOSSES
Profits from capital transactions will be allocated in the following order: (i)
to those partners having negative capital accounts, pro rata, to the extent of
their negative capital accounts; and (ii) the balance in those proportions as
will produce capital account balances, which would result in distributions of
distributable proceeds from capital transactions as described above. Profits
which arise other than from capital transactions will, to the extent of cash
distributions (other than those which represent proceeds from capital
transactions), be allocated to reflect cash distributions and to the extent
those profits exceed those cash distributions, the excess will be allocated as
if it was profit from a capital transaction. Generally, losses will be allocated
99% to the limited partners in proportion to their units and 1% to the General
Partner to reduce any positive balances in the partners' capital accounts. In no
event will the General Partner be allocated less than 1% of profit or loss for
any year.
5. IMPACT OF YEAR 2000 (UNAUDITED)
The Partnership's management has assessed the Year 2000 technology issue, and
has developed an action plan to address the issue. Management believes that its
action plan will be implemented and completed in a timely fashion, and that it
will not materially affect the Partnership's future operating results or future
financial condition.
10
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000820047
<NAME> FMG RITA RANCH LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 519
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 519
<PP&E> 350,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 350,519
<CURRENT-LIABILITIES> 13,656
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 336,863
<TOTAL-LIABILITY-AND-EQUITY> 350,519
<SALES> 303
<TOTAL-REVENUES> 303
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 30,155
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (29,852)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,852)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
