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 [FEE REQUIRED] For the Fiscal Year Ended February 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from
______ to ______.
0-17793
(Commission File Number)
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
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(Exact name of registrant as specified in its governing instruments)
Delaware 13-3481443
(State or other jurisdiction (I.R.S. Employer
of organization) Identification No.)
Wilder Richman Historic Corporation
599 W. Putnam Avenue
Greenwich, Connecticut 06830
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (203) 869-0900
Securities registered pursuant to Section 12(b) of the Act:
None
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(Title of each Class)
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate sales price of the units of limited partnership interest held by
non-affiliates of the Registrant is $19,280,000. There is currently no public
market for the units of limited partnership interest and, accordingly, such
figure does not represent the market value for the units.
Documents incorporated by reference:
The Prospectus of the Registrant, dated May 13, 1988 and filed pursuant to Rule
424(b)(iii) under the Securities Act of 1933, is incorporated by reference into
Parts I, II and III of this Annual Report on Form 10-K.
<PAGE>
PART I
Item 1. Business
General Development of Business
Registrant (also referred to as the "Partnership") is a limited
partnership which was formed under the Delaware Revised Uniform Limited
Partnership Act on October 15, 1987. The general partner of the Partnership is
Wilder Richman Historic Corporation, a Delaware corporation (the "General
Partner" or "WRHC").
Registrant was organized to acquire all of the limited partnership
interests in Dixon Mill Associates I (Phase One), Limited Partnership, Dixon
Mill Associates II (Phase Two), Limited Partnership, and Dixon Mill Associates
III (Phase Three), Limited Partnership, each of which is a New Jersey limited
partnership (individually "Dixon Mill I," "Dixon Mill II" and "Dixon Mill III,"
respectively, and collectively the "Operating Partnerships"). Each Operating
Partnership owns one phase ("Phase") of an aggregate 433-unit residential
apartment complex (the "Complex") located in Jersey City, New Jersey, that
consists of buildings designated as certified historic structures by the U.S.
Department of the Interior. The Operating Partnerships have constructed,
substantially rehabilitated and are operating the Complex. The rehabilitation of
the Complex qualified for a rehabilitation tax credit in 1988, 1989 and 1990.
The general partner of the Operating Partnerships is Dixon Venture Corp. (the
"Operating General Partner"), which is not an affiliate of the Partnership or
WRHC.
Pursuant to the Partnership's prospectus dated May 13, 1988, (the
"Prospectus"), the Partnership offered $19,280,000 of units of limited
partnership interest in the Partnership (the "Units") at an offering price of
$24,100 per Unit. The Units were registered under the Securities Act of 1933
pursuant to a Registration Statement on Form S-11 (Registration No. 33-19646).
The Prospectus is incorporated herein by reference.
The closing of the offering of Units (the "Offering") occurred on July 15,
1988. At such closing, 800 Units were sold, representing $19,280,000 in gross
proceeds. After payment of $674,800 of organization and offering expenses,
$674,800 in an origination fee and $1,349,600 of selling commissions, the net
proceeds available for investment were $16,580,800. Of such net proceeds,
$16,388,000 was allocated to the investment in the Operating Partnerships, which
included investments in guaranteed investments contracts. The remainder of
$192,800 was designated as working capital to be used for operating expenses of
the Partnership.
Financial Information About Industry Segments
Registrant is engaged solely in the business of owning a limited
partnership interest in each of the Operating Partnerships. A presentation of
information regarding industry segments is not applicable and would not be
material to an understanding of the Partnership's business taken as a whole. See
Item 8 below for a summary of Registrant's operations.
Working Capital Reserves
As of February 29, 2000, Registrant had working capital reserves of
approximately $180,000, which were substantially invested in interest-bearing
deposits. See Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Competition
Information regarding competition, general risks, tax risks and
partnership risks is set forth under the heading "RISK FACTORS" at pages 37 - 57
of the Prospectus.
Compliance with Environmental Protection Provisions
In connection with the environmental cleanup responsibilities pertaining
to the Complex, the Operating General Partner submitted a declaration to the
State of New Jersey Department of Environmental Protection ("NJDEP") stating
that there remains no hazardous substances and wastes on the site. In August
1989, the Operating General Partner received notification from NJDEP that the
environmental testing was complete and the Complex was in compliance with NJDEP
requirements. All costs incurred in connection with the review conducted by
NJDEP were borne by The Dixon Venture, an affiliate of the Operating General
Partner. Information regarding such environmental matters is set forth under the
heading "DESCRIPTION OF THE COMPLEX ENVIRONMENTAL MATTERS" at pages 87 - 92 of
the Prospectus, which is incorporated herein by reference.
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Employees of Registrant
Registrant employs no personnel and incurs no payroll costs. An affiliate
of the General Partner employs individuals who perform accounting, secretarial,
transfer and other services on behalf of Registrant as are necessary in the
ordinary course of business. Such individuals also perform similar services for
other affiliates of the General Partner.
Tax Reform Act of 1986, Revenue Act of 1987, Technical and Miscellaneous
Revenue Act of 1988, Omnibus Budget Reconciliation Act of 1989, Omnibus
Budget Reconciliation Act of 1990, Tax Extension Act of 1991, Omnibus
Budget Reconciliation Act of 1993, Uruguay Round Agreements Act, Taxpayer
Relief Act of 1998 and Tax Relief Extension Act of 1999 (collectively the
"Tax Acts")
Registrant is organized as a limited partnership and is a pass through tax
entity which does not, itself, pay Federal income tax. However, the partners of
Registrant who are subject to Federal income tax may be affected by the Tax
Acts. Registrant will consider the effect of certain aspects of the Tax Acts on
the partners when making decisions regarding its investment. Registrant does not
anticipate that the Tax Acts will currently have a material adverse impact on
Registrant's business operations, capital resources and plans or liquidity.
Item 2. Properties
The Complex consists of approximately 34 historic mill buildings built
between 1847 and 1932, all of which are certified historic structures that have
been converted and substantially rehabilitated into a 433 unit luxury apartment
complex that has received financing exempt from Federal income taxation under
Internal Revenue Code Section 103(b)(4)(A). As a consequence of this tax exempt
financing, the Operating Partnerships are required to rent at least 15% of the
dwelling units ("D.U.'s") in the Complex to individuals or families of low or
moderate income as determined under such Code Section, currently based on their
income not exceeding 80% of the median income for the area as determined by the
United States Department of Housing and Urban Development ("HUD"). These income
limits are subject to increases pursuant to HUD guidelines. In the Complex, 68
studio and efficiency D.U.'s and 17 one-bedroom D.U.'s are set aside for rental
to low or moderate income persons. There are no rent ceilings on those D.U.'s
set aside for low or moderate income persons. Because such tax exempt financing
consists of bonds sold in 1985, the 80% of median income limit is not required
to be adjusted based on family size as would be required under the Tax Reform
Act of 1986.
The Complex is located on a 4-acre site in Jersey City, New Jersey. In
addition, one new five-story building, approximately 20 feet by 50 feet, was
built on the site. The Complex is located in the Dixon Crucible Redevelopment
Area, an area so designated pursuant to a redevelopment plan adopted in
September 1983 by ordinance of the City of Jersey City. The actual development
entails three Phases with each Phase owned by a separate New Jersey limited
partnership, respectively Dixon Mill I, Dixon Mill II and Dixon Mill III. Phase
I consists of seven industrial buildings which have been rehabilitated to
provide 134 D.U.'s, 55 underground and 77 surface parking spaces and
approximately 1,550 square feet of commercial space. Phase II consists of 11
industrial buildings which have been rehabilitated to provide 191 D.U.'s and 62
underground and 124 surface parking spaces. Phase III consists of four
industrial buildings which have been rehabilitated to provide 108 D.U.'s, 35
underground and 73 surface parking spaces and approximately 2,230 square feet of
commercial space.
The Complex features gardens, elevated walkways and brick paved walkways.
The Complex also has its own electronic security system and a free shuttle
service to the Grove Street PATH station is being provided. In addition, the
residents of the Complex have access to a private fitness facility. The
Complex's commercial space is designated for retail stores and/or professional
offices.
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As of December 31, 1999 and 1998, the occupancy and rental rates were as
follows:
December 31, 1999 December 31, 1998
----------------- -----------------
Occupancy Rate 98% 96%
Monthly Rental Rates:
Studio $ 589 - $1,044 $ 614 - $1,044
One-Bedroom $ 706 - $1,695 $ 715 - $1,395
Two-Bedroom $ 750 - $2,095 $1,001 - $1,802
Three-Bedroom $ 1,758 - $2,495 $1,658 - $2,395
The rental rates reflect significant ranges because the apartments vary as
to size and floor plans (i.e., square footage, duplex, triplex, penthouse) and
due to the low-moderate tenant income restrictions for 15% to 20% of the D.U.'s
resulting from the tax-exempt financing described above.
Item 3. Legal Proceedings
As of February 29, 2000, there were no material pending legal proceedings
to which Registrant or any of its affiliates was a party or to which any of
their property was subject except for the following:
Three complaints have been filed with the Equal Employment Opportunity
Commission against the Operating Partnerships, among others, by a former
employee, a former part-time rental agent, and a security person employed
by a private non-affiliated security company which provided service to the
Property, alleging, among other things, discrimination in connection with
advancement, hiring and termination. The Operating Partnerships intend to
vigorously defend these matters. The Operating General Partner cannot
measure the potential liability, if any, at this time.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the limited partners of
Registrant during the fourth quarter of the fiscal year covered by this report.
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PART II
Item 5. Market for Registrant's Common Equity and Related Unit Matters
a) Market
There is no developed public market for the purchase and sale of Units and
Registrant does not anticipate that such a market will develop.
b) Holders
As of February 29, 2000, there were approximately 742 record holders of
Units holding an aggregate of 800 Units in the Partnership.
c) Distributions
The Agreement of Limited Partnership of the Registrant provides that cash
available for distribution, if any, be distributed annually to the partners in
specified proportions. As a result of the mortgage modification on June 11,
1992, certain cash flow restrictions have been placed on the Operating
Partnerships. See Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Notes 3 and 5 to the Dixon Mills
Financial Statements included herein.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year End
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February February February February February
29, 2000 28, 1999 28, 1998 28, 1997 29, 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenues
(Interest income) $ 54,009 $ 52,660 $ 55,276 $ 50,994 $ 43,259
Equity in income(loss) of
investment in Operating
Partnerships $ 128,830 $ (508,146)(b) $ (358,875) $ (799,980) $ (745,393)(a)
Net income (loss) $ 146,652 $ (488,061) $ (333,793) $ (779,882) $ (736,763)
Net income (loss) per unit of
limited partnership interest $ 181 $ (604) $ (413) $ (965) $ (912)
At year end:
Total assets $ 1,511,679 $ 2,314,027 $ 2,787,088 $ 3,105,881 $ 3,870,763
</TABLE>
(a) This amount is net of an extraordinary gain of $366,499 resulting from the
forgiveness of debt of the Operating Partnerships reflected in Registrant's
financial statements.
(b) Includes extraordinary loss of $321,753 in connection with litigation
settlement. See Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The operating results of the Complex for 1999 (before extraordinary
charges) were favorable compared to 1998. During 1992, the mortgages of the
Operating Partnerships were modified pursuant to agreements among Federal
National Mortgage Association ("FNMA" or the "Lender"), Chase Manhattan Bank,
N.A. ("Chase") and the Operating General Partner. At such time, the Partnership
obtained the consent of the limited partners to utilize the proceeds from the
final distribution from the guaranteed investment contracts to assist in
modifying the mortgages. As a result of the mortgage modification, the interest
rate under the mortgages decreased from approximately 9.6% to approximately
6.74%, thereby improving the financial viability of the Complex. The mortgage
terms expired May 1, 2000, at which time the mortgages were refinanced (see
description below). Recently, there has been ongoing new construction
5
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of luxury multi-family housing in the vicinity of the Complex. Such housing
includes apartments with asking rents that are comparable and substantially
higher than rents currently charged by the Complex. It has not been determined
whether such new housing will have a positive or negative impact on the Complex
or its cash flow in the future.
The Operating General Partner has informed the Partnership that, as of
April 28, 2000, the Operating Partnerships refinanced their current respective
outstanding mortgage liabilities under the $27,545,000 Jersey City Redevelopment
Agency Multifamily Housing Revenue Bonds, Series 1992 (Fannie Mae Pass-through
Certificate Program/Dixon Mill Apartments Project). Prior to the refinancing,
the annual fixed interest rate of the mortgage was approximately 6.74%. The
total new indebtedness in the amount of $28,600,000 for a term of 30 years is
provided by (a) variable-rate tax-exempt bonds in the amount of $26,435,000, and
(b) variable-rate taxable bonds in the amount of $2,165,000. The initial
interest rates on the tax-exempt and taxable bonds are 5.1% and 6.15%,
respectively. The Operating Partnerships have purchased an interest cap which
would limit the interest rates to 6.97% for five years on the tax-exempt
portion, and 9.15% for five and one-half years on the taxable portion. Proceeds
from the new bond issue were used to pay off the existing 1992 bonds
(approximately $26,435,000), pay the costs of the transaction (approximately
$800,000), and fund reserves for capital improvements (approximately
$1,365,000).
As a result of the refinancing and the funding of reserves for capital
improvements, the Partnership understands that the Operating General Partner
intends to make approximately $1.6 million in capital improvements to the
Complex. The planned improvements include roof replacement, replacement of the
fire/smoke alarm system, elevator repairs, new entry doors and other repairs
throughout the complex.
Because of the reduction of the mortgage interest rate, there may be
greater potential for the Partnership to make cash distributions to the Limited
Partners on a regular basis. However, the Partnership's ability to make
distributions will depend on the level of interest rates and future operating
results of the Complex, which will be extremely dependent on competition and
market conditions, and therefore may be subject to significant volatility.
Accordingly, there can be no assurance as to whether or not the Partnership may
be able to make distributions, nor the timing or amount of any potential
distributions to Limited Partners. The Operating General Partners and the
General Partner plan to periodically assess the possible resumption of cash flow
distributions, on an ongoing basis, based on the results of operations, the
physical condition of the Property, the then current interest rates, and local
market conditions, among other things.
In connection with the mortgage modification in 1992, Chase and the
Partnership each provided advances of $317,713. During 1995, Chase agreed to
release the Operating Partnerships from substantially all of the outstanding
liabilities owed to Chase in connection with outstanding advances and accrued
interest thereon . Such outstanding advances owed to the Partnership and all
accrued interest thereon were repaid by the Operating Partnerships during April
1999.
Because the outstanding advance owed to the Partnership was repaid, the
Operating Partnerships are no longer subject to restrictions concerning cash
flow distributions and the payment of certain fees to affiliates. To the extent
cash flow is generated by the Operating Partnerships, such cash flow may be
retained by the Operating Partnerships or may be distributed at the discretion
of management, pursuant to the terms of the limited partnership agreements of
the Operating Partnerships. To the extent there are net proceeds from a future
sale or refinancing of the Complex, the Partnership will receive 100% of any
such proceeds available for distribution until the 7% cumulative preferred
distribution has been achieved. Through December 1999, the cumulative preferred
distribution is approximately $12,176,469. As of December 31, 1999, the
Operating Partnerships' balance in the replacement reserves account, which is
controlled by the Lender to be used for certain repairs or capital improvements,
was approximately $827,000.
As of December 31, 1999, the Operating Partnerships' net liquidity improved
compared to December 31, 1998. Although cash and cash equivalents decreased by
approximately $613,000, the replacement reserve increased by approximately
$80,000, accounts payable and accrued expenses decreased by approximately
$517,000 and amounts due to related parties decreased by approximately $744,000
due to the payment of accumulated accrued management fees and investor service
fees.
The Operating General Partner settled two complaints which were filed in
Federal Court by former employees of the Operating Partnerships (one of whom is
a relative of the principals of the Operating General Partner) claiming sexual
harassment on behalf of the Operating Partnerships during 1999, each in the
amount of $250,000 inclusive of respective legal fees. Such settlements were
conducted despite the General Partner's refusal to provide its consent upon the
request of the Operating General Partner. The Partnership referred the matter to
Partnership counsel for review and advice. The General Partner believes such
request for consent was procedurally inappropriate. The results of the
settlements were accrued in the Operating Partnerships' financial statements as
of December 31, 1998.
As discussed above, during the year ended February 29, 2000, the
Partnership received full payment of its outstanding advance
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and accrued interest thereon from the Operating Partnerships. As a result, the
Partnership made a distribution to limited partners in the amount of $964,000
($1,205 per unit) in February, 2000. During the year ended February 29, 2000,
the Partnership's investment in Operating Partnerships increased by $128,830 as
a result of the equity in income of investment in Operating Partnerships.
The annual investor service fees are payable from the operations of the
Operating Partnerships and from reserves. As of February 29, 2000 due to
affiliates includes $170,000 of accrued investor service fees, which includes
the Partnership's expense for the last eight fiscal periods and $50,000
otherwise payable from the final distribution of the guaranteed investment
contracts in January 1992.
Results of Operations
The Partnership's operating results are dependent upon the operating
results of the Operating Partnerships and are significantly impacted by the
policies of the Operating Partnerships. Registrant accounts for its investment
in Operating Partnerships in accordance with the equity method of accounting,
under which the investment is carried at cost and is adjusted for Registrant's
share of the Operating Partnerships' results of operations and by any cash
distributions received. Equity in loss of each investment in Operating
Partnership allocated to Registrant is recognized to the extent of Registrant's
investment balance in each Operating Partnership. Any equity in loss in excess
of Registrant's investment balance in an Operating Partnership is allocated to
other partners' capital in each such Operating Partnership. As a result, the
equity in loss of investment in Operating Partnerships is expected to decrease
as Registrant's investment balances in the respective Operating Partnerships
become zero.
Cumulative losses and cash distributions in excess of investment in
Operating Partnerships may result from a variety of circumstances, including the
Operating Partnerships' accounting policies, debt structure and operating
deficits, among other things. Accordingly, cumulative losses and cash
distributions in excess of the investment are not necessarily indicative of
adverse operating results of the Operating Partnerships.
Year Ended February 29, 2000
During the year ended February 29, 2000 the Partnership earned interest of
approximately $54,000 which was comparable to the previous fiscal period. The
Partnership's operating expenses (which include accrued investor service fees of
$15,000) were comparable to the year ended February 28, 1999. The operating
expenses of the Partnership are not expected to vary significantly in the near
future although interest revenue is expected to decline substantially as a
result of the distribution to limited partners. Registrant's equity in income in
Operating Partnerships does not include a 99% allocation of the income reported
by the Operating Partnerships due to the nonrecognition of previous years'
losses in excess of Registrant's investment in Dixon Mills I and II in
accordance with the equity method of accounting.
The Operating Partnerships reported net income from operations for the year
ended December 31, 1999 in the amount of approximately $239,000, inclusive of
depreciation and amortization of approximately $1,386,000. The Operating
Partnerships generated cash flow after required debt service payments and
required replacement reserve deposits of approximately $1,293,000 during 1999,
which considers principal amortization under the mortgages (approximately
$272,000) and net deposits to the replacement reserve (approximately $65,000).
Occupancy remained consistently high throughout 1999, while management has
steadily increased rental rates, resulting in an increase in rental revenues of
approximately $436,000 compared to 1998.
The Operating Partnerships did not utilize any replacement reserves during
1999. Although the results of operations have steadily improved, management
continues to examine methods to maintain healthy occupancy rates while steadily
increasing rental rates and to closely monitor its operating costs. In addition,
management is addressing the potential need for capital improvements to be
conducted in the near future. As of December 31, 1999, the occupancy rate was
approximately 98%. Although operations have significantly improved since the
mortgage modification in June 1992, the future operating results of the Complex
will be extremely dependent on market conditions (which have been very strong
but include newly developed multi-family housing in the area) and the regional
economy, and therefore may be subject to significant volatility.
Year Ended February 28, 1999
During the year ended February 28, 1999, the Partnership earned interest of
approximately $53,000 including approximately $21,000 of accrued interest on
advances provided to the Operating Partnerships. During the year ended February
28, 1999, interest earnings was comparable to the previous fiscal period. The
Partnership's operating expenses (which include accrued investor service fees of
$15,000) were comparable to the year ended February 28, 1998. Registrant's
equity in loss in Operating Partnerships does not include a 99% allocation of
the loss reported by the Operating Partnerships due to the nonrecognition of
losses in excess of Registrant's
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investment in Dixon Mills I in accordance with the equity method of accounting.
The Operating Partnerships reported a net loss for the year ended December
31, 1998 in the amount of approximately $748,000, inclusive of depreciation and
amortization of approximately $1,377,000 and the extraordinary charge in
connection with the litigation settlement of $500,000. However, the Operating
Partnerships generated cash flow after required debt service payments and
required replacement reserve deposits of approximately $549,000 during 1998,
which considers principal amortization under the mortgages (approximately
$254,000) and net deposits to the replacement reserve (approximately $85,000),
and excludes the extraordinary charge and accrued interest to the Partnership
(approximately $21,000). Occupancy remained consistently high throughout 1998,
while management steadily increased rental rates, resulting in an improvement in
operating results compared to 1997. As of December 31, 1998, the occupancy rate
was approximately 96%. The Operating Partnerships did not utilize any
replacement reserves during 1998.
Year Ended February 28, 1998
During the year ended February 28, 1998, the Partnership earned interest of
approximately $55,000 including approximately $21,000 of accrued interest on
advances provided to the Operating Partnerships. The Partnership's operating
expenses (which include accrued investor service fees of $15,000) were
comparable to the year ended February 28, 1997. Registrant's equity in loss in
Operating Partnerships does not include a 99% allocation of the loss reported by
the Operating Partnerships due to the nonrecognition of losses in excess of
Registrant's investment in Dixon Mills I in accordance with the equity method of
accounting.
The Operating Partnerships reported a net loss from operations for the year
ended December 31, 1997 in the amount of approximately $493,000, inclusive of
depreciation and amortization of approximately $1,360,000. However, the
Operating Partnerships generated cash flow after required debt service payments
and required replacement reserve deposits of approximately $476,000 during 1997,
which considers principal amortization under the mortgages (approximately
$238,000) and net deposits to required escrows (approximately $121,000) and
excludes accrued interest to the Partnership (approximately $21,000). Occupancy
remained consistently high throughout 1997, while management steadily increased
rental rates. The Operating Partnerships did not utilize any replacement
reserves during 1997. As of December 31, 1997, the occupancy rate was
approximately 99%.
Inflation
Inflation is not expected to have a material adverse impact on Registrant's
revenues during its period of equity ownership in the Operating
Partnerships except as discussed below under Quantitative and Qualitative
Disclosures About Market Risk.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two
digit year is commonly referred to as the year 2000 compliance ("Y2K") issue. As
the year 2000 unfolds, certain systems may be unable to accurately process
certain data-based information. Many businesses may need to upgrade existing
systems or purchase new ones to correct the Y2K issue. The Partnership has
performed an assessment of its computer software and hardware and believes it
has made the necessary upgrades in an effort to ensure compliance. However,
there can be no assurance that the systems of other entities on which the
Partnership relies, including the Operating Partnerships which report to the
Partnership on a periodic basis for the purpose of the Partnership's reporting
to its investors, have been or will be sufficiently converted. To date, the
Partnership is not aware of any problems caused by Y2K. The total cost
associated with Y2K implementation is not expected to materially impact the
Partnership's financial position or results of operations in any given year.
However, there can be no assurance that a failure to convert by the Partnership
or another entity would not have a material adverse impact on the Partnership.
Item 7A Quantitative and Qualitative Disclosures About Market Risk
The Partnership has market risk sensitivity with regard to financial
instruments concerning potential interest rate fluctuations in connection with
the low floater rates associated with the Operating Partnerships' mortgages as
refinanced as of April 28, 2000. Although an interest rate cap has been
purchased, an increase in the low-floater interest rates could have a material
adverse impact on the Partnership's results of operations.
Item 8. Financial Statements and Supplementary Data
The financial information required in response to this Item 8 is submitted
as part of Item 14(a) of this report.
8
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Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no directors or executive officers.
The General Partner was incorporated in Delaware on November 24, 1986. As
described below, its principals have had significant experience in various
facets of the real estate business including the development of multi-family
rental housing. The directors and officers of the General Partner, who have
served as such since inception, are as follows:
Name Age Office
---- --- ------
Richard Paul Richman 52 President and Director
Robert H. Wilder, Jr. 54 Executive Vice President, Assistant Secretary,
Treasurer and Director.
Gina S. Scotti 43 Secretary
Richard Paul Richman, 52 years old, is President and Director of WRHC. Mr.
Richman graduated from the Columbia University Law School with a Juris Doctor
degree, the Columbia University Graduate School of Business Administration with
a Master of Business Administration degree and Syracuse University with a
Bachelor of Arts degree in Political Science. Mr. Richman has over ten years of
extensive experience in both the development and management of residential
properties. From 1973 until 1979, Mr. Richman practiced corporate law in New
York City with the law firm of Greenbaum, Wolff & Ernst and then as a partner of
Shipley, Richman & Nierenberg. For over six years, Mr. Richman acted as a lawyer
in connection with the development, syndication and tax issues relating to real
estate. Since 1988, Mr. Richman has been the President and majority stockholder
of The Richman Group, Inc. and is the managing partner of The Richman Group of
Connecticut, L.L.C. In recent years, Mr. Richman has devoted full time to the
syndication and development of real estate. Mr. Richman was a vice president and
shareholder of Related Housing Companies Incorporated, New York, New York from
1978 until mid-1979 with responsibility for that company's project acquisition
and syndication activities. Mr. Richman has been a member of the National
Advisory Board of the Housing and Development Reporter, a bi-weekly publication
of the Bureau of National Affairs, Inc., a frequent speaker on real estate
syndication, and a member of the New York State Historic Credit Task Force, the
National Leased Housing Association, the Coalition to Preserve the Low-Income
Tax Credit and the Minority Developer Assistance Corporation (which was
established by the New York State Battery Park Commission).
Robert H. Wilder, Jr., 54 years old, is Executive Vice President,
Assistant Secretary, Treasurer and Director of WRHC. Mr. Wilder graduated from
the University of Michigan with a Bachelor of Arts degree in Economics and from
the Columbia University Graduate School of Business with a Master of Business
Administration degree. After graduation in 1968, Mr. Wilder joined James D.
Landauer Associates, Inc., a national real estate consulting firm, where his
account responsibilities included feasibility studies, market analyses, land use
studies, portfolio valuations and appraisals of industrial, office, commercial
and multi-family properties. From 1973 until mid-1979, Mr. Wilder was executive
vice president and shareholder of Related Housing Companies Incorporated, New
York, New York, and was responsible for mortgage financing and construction loan
placement and the supervision of the development of the company's projects.
Since 1988, Mr. Wilder has been the President and sole shareholder of Wilder
Property Companies Inc. Mr. Wilder is also a licensed real estate broker in New
York and Connecticut.
Gina S. Scotti, 43 years old, is Secretary of WRHC. Ms. Scotti, a Vice
President and Secretary of The Richman Group, Inc. and Secretary of Wilder
Richman Corporation ("WRC"), joined WRC in 1984 as a special assistant to the
President, and has been the Director of Investor Services with responsibility
for communications with investors since 1986.
10
<PAGE>
Item 11. Executive Compensation
The Partnership is not required to pay the officers, directors or partners
of the General Partner any direct compensation, and no such compensation was
paid during the year ended February 29, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
No person or group is known by the Partnership to be the owner of record
of more than 5% of the outstanding Units as of February 29, 2000.
Item 13. Certain Relationships and Related Transactions
The financial interests in Registrant of the General Partner and Special
Limited Partner are set forth under the heading "PROFITS, LOSSES and
DISTRIBUTIONS" at pages 117 - 124 of the Prospectus.
Transactions with Affiliates of Management
The General Partner and certain of its affiliates are entitled to receive
certain compensation, fees and reimbursement of expenses during the offering,
operational and termination or refinancing stages of the Partnership.
Wilder Richman Management Corporation ("WRMC"), an affiliate of the
General Partner, is a co-management agent of the Complex. In connection with
these services, WRMC earned management fees of $82,678 in 1999 and received
payment of $76,329.
Richman Asset Management, Inc. an affiliate of the General Partner, earned
compensation in the amount of $60,000 in 2000 for its performance in connection
with investor services for the Partnership and the Operating Partnerships and
received payment of $270,000 for prior years accrued investor service fees from
the Operating Partnerships in 1999.
Indebtedness of Management
No officer or director of the General Partner or any affiliate of the
foregoing was indebted to Registrant at any time during the years ended February
29, 2000 and February 28, 1999.
11
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a) Financial Statements
(i) The list of Financial Statements of Registrant appears on page F-1.
(ii) The list of Financial Statements of the Operating Partnerships
appears on page F-16.
(3) Exhibits:
(3A) Certificate of Limited Partnership of Wilder Richman Historic
Properties II, L.P., as filed with the Secretary of State of
Delaware on October 15, 1987;*
(3B) Form of Agreement of Limited Partnership of Wilder Richman Historic
Properties II, L.P. (attached to Prospectus as Exhibit A);
(4) Form of Subscription Agreement (attached to Prospectus as Exhibit
B);
(10A) Previously executed and filed Certificate of Limited Partnership and
Amended and Restated Certificate of Limited Partnership of (x) Dixon
Mill Associates I (Phase One), Limited Partnership, (y) Dixon Mill
Associates II (Phase Two), Limited Partnership and (z) Dixon Mill
Associates III (Phase Three), Limited Partnership;*
(10B) Form of Amended and Restated Agreement and Certificate of Limited
Partnership of the Dixon Mill Partnerships:
(1) Dixon Mill Associates I (Phase One), Limited Partnership Amended and
Restated Agreement and Certificate of Limited Partnership;**
(2) Dixon Mill Associates II (Phase Two), Limited Partnership Amended
and Restated Agreement and Certificate of Limited Partnership;** and
(3) Dixon Mill Associates III (Phase Three), Limited Partnership Amended
and Restated Agreement and Certificate of Limited Partnership;**
(10C) Dixon Mill Complex Financing Documents;*
(10D) Administrative Consent Order with New Jersey Department of
Environmental Protection ("NJDEP") and NJDEP Non-Applicability
Letter as to Dixon Mill Partnerships;*
(10E) Master Services Agreement, dated June 18, 1986, between Varick
Construction Corp. and IT Corporation;*
(10F) Documents related to Dixon Mill Complex historic certification;*
(10G) Form of Operating Deficit Guarantee Agreement;*
(10H) Form of Repurchase Agreement;**
(10I) Form of Investor Services Agreement;**
(10J) Form of Escrow Agreement among Wilder Richman Historic Properties
II, L.P., Wilder Richman Historic Corporation, Shearson Lehman
Hutton Inc. and FirsTier Bank, N.A., as escrow agent;**
12
<PAGE>
(10K) Form of Financial Development Consulting Agreement between Wilder
Richman Corporation and the Operating Partnerships;**
(10L) Form of Annuity Issuance Agreement between Wilder Richman Historic
Properties II, L.P. and the Issuer;**
(10M) Form of Guaranteed Investment Contract Escrow Agreement among Wilder
Richman Historic Properties II, L.P., the Dixon Mill Partnerships
and the escrow agent;**
(10N) Form of Assignment between the Dixon Mill Partnership, as Assignor,
and Wilder Richman Historic Properties II, L.P., as Assignee;**
(10O) Form of Letter from The Dixon Venture to Wilder Richman Historic
Properties II, L.P. and the Dixon Mill Partnerships, as to The Dixon
Venture's agreement to bear all costs of compliance with the New
Jersey Environmental Cleanup Responsibility Act;**
(10P) Amendment No. 1 to Agreement of Limited Partnership; ***
(10Q) Reinstatement and Modification Agreement; ***
(10R) Operating Deficit Escrow Agreement; ***
(10S) Priority Operating Deficit Escrow Agreement; ***
(10T) Amended and Restated Achievement Escrow Agreement; ***
(10U) Default Avoiding Loan Agreement; ***
(10V) Management Agreement; ***
(10W) Chase Note; ***
(10X) Letter of Intent to Reinstate and Modify the Mortgages; ****
(27) Financial Data Schedule.
* Incorporated by Reference to Registrant's Form S-11 Registration Statement
as filed with the Securities and Exchange Commission on January 15, 1988.
** Incorporated by Reference to Amendment No.1 to Registrant's Form S-11
Registration Statement as filed with the Securities and Exchange
Commission on May 9, 1988.
*** Submitted as exhibit to Form 10-K for the fiscal year ended February 29,
1992.
**** Incorporated by Reference to Proxy dated March 23, 1992.
b) Reports on Form 8-K
None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 1st day of June, 2000.
Wilder Richman Historic Properties II, L.P.
By: Wilder Richman Historic Corporation,
General Partner
By: /s/ Richard Paul Richman
---------------------------------------
Richard Paul Richman
President and Director
By: /s/ Robert H. Wilder, Jr.
---------------------------------------
Robert H. Wilder, Jr.
Executive Vice President and Director
14
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
FINANCIAL STATEMENTS FOR THE
YEARS ENDED FEBRUARY 29, 2000, FEBRUARY 28, 1999 AND 1998
AND INDEPENDENT AUDITORS' REPORT
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Financial Statements for the
Years Ended February 29, 2000, February 28, 1999 and 1998
and Independent Auditors' Report
C O N T E N T S
---------------
Page
----
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Balance sheets F-3
Statements of operations F-4
Statements of partners' equity F-5
Statements of cash flows F-6
Notes to financial statements F-7 - F-14
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Partners
Wilder Richman Historic Properties II, L.P.
Greenwich, Connecticut
We have audited the accompanying balance sheets of Wilder Richman Historic
Properties II, L.P. as of February 29, 2000 and February 28, 1999, and the
related statements of operations, partners' equity, and cash flows for the years
ended February 29, 2000, February 28, 1999 and 1998. 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 Wilder Richman Historic
Properties II, L.P. as of February 29, 2000 and February 28, 1999 and the
results of its operations, changes in partners' equity and cash flows for the
years ended February 29, 2000, February 28, 1999 and 1998 in conformity with
generally accepted accounting principles.
/s/ Rosenberg, Neuwirth & Kuchner
Certified Public Accountants, P.C.
May 30, 2000
New York, New York
F-2
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
BALANCE SHEETS
February 29, February 28,
A S S E T S 2000 1999
----------- ----------- -----------
INVESTMENTS IN OPERATING PARTNERSHIPS
(Notes 2, 3, 4 and 7) $ 1,321,566 $ 1,192,736
CASH AND CASH EQUIVALENTS (Note 2) 180,125 663,495
NOTE RECEIVABLE (Note 3) -- 317,713
ACCRUED INTEREST RECEIVABLE (Note 3) -- 140,083
OTHER ASSETS 9,988 --
----------- -----------
$ 1,511,679 $ 2,314,027
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Other liabilities $ 10,000 $ 10,000
Due to related parties (Note 4) 184,201 169,201
----------- -----------
194,201 179,201
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 7)
PARTNERS' EQUITY (Notes 2 and 5):
Limited partners' equity 1,460,972 2,279,787
General partner's deficit (143,494) (144,961)
----------- -----------
1,317,478 2,134,826
$ 1,511,679 $ 2,314,027
=========== ===========
See notes to financial statements
F-3
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
February 29, February 28, February 28,
2000 1999 1998
----------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Interest income $ 54,009 $ 52,660 $ 55,276
--------- --------- ---------
Expenses:
Operating 36,187 32,575 30,194
--------- --------- ---------
Income from operations 17,822 20,085 25,082
--------- --------- ---------
Equity in income (loss) of Operating Partnerships
from operations 128,830 (186,393) (358,875)
Extraordinary item - operating partnership
litigation setttlement (Note 7) -- (321,753) --
--------- --------- ---------
Net income (loss) from operating partnerships 128,830 (508,146) (358,875)
--------- --------- ---------
NET INCOME (LOSS) $ 146,652 $(488,061) $(333,793)
========= ========= =========
Net income (loss) attributable to:
Limited partners $ 145,185 $(483,180) $(330,455)
General partner 1,467 (4,881) (3,338)
--------- --------- ---------
$ 146,652 $(488,061) $(333,793)
========= ========= =========
Net income (loss) per unit of limited
partnership interest $ 181 $ (604) $ (413)
========= ========= =========
</TABLE>
See notes to financial statements
F-4
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
Limited General
Total partners partner
<S> <C> <C> <C>
Partners' equity (deficit), March 1, 1997 $ 2,956,680 $ 3,093,422 $ (136,742)
Net loss, year ended February 28, 1998 (333,793) (330,455) (3,338)
----------- ----------- -----------
Partners' equity (deficit), February 28, 1998 2,622,887 2,762,967 (140,080)
Net loss, year ended February 28, 1999 (488,061) (483,180) (4,881)
----------- ----------- -----------
Partners' equity (deficit) February 28, 1999 2,134,826 2,279,787 (144,961)
Distribution (964,000) (964,000) --
Net income, year ended February 29, 2000 146,652 145,185 1,467
----------- ----------- -----------
Partners equity (deficit) February 29, 2000 $ 1,317,478 $ 1,460,972 $ (143,494)
=========== =========== ===========
Limited partnership units outstanding at February 29,
2000, February 28, 1999 and 1998 800
==========
</TABLE>
See notes to financial statements
F-5
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
------------------------------------------
February 29, February 28, February 28,
2000 1999 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 146,652 $(488,061) $(333,793)
--------- --------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Equity in (income) loss of Operating Partnerships (128,830) 508,146 358,875
Changes in assets and liabilities:
Decrease (increase) in accrued interest receivable 140,083 (20,823) (20,824)
Increase in other assets (9,988) -- --
Increase in due to related parties 15,000 15,000 15,000
--------- --------- ---------
Total adjustments 16,265 502,323 353,051
--------- --------- ---------
Net cash provided by operating activities 162,917 14,262 19,258
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to partners (964,000) -- --
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Receipt of note receivable 317,713 -- --
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (483,370) 14,262 19,258
CASH AND CASH EQUIVALENTS, beginning of year 663,495 649,233 629,975
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 180,125 $ 663,495 $ 649,233
========= ========= =========
</TABLE>
See notes to financial statements
F-6
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 and 1998
--------------------------------------------------------------
1. ORGANIZATION
------------
Wilder Richman Historic Properties II, L.P. (the "Partnership") was
formed under the Delaware Revised Uniform Limited Partnership Act on
October 15, 1987 to acquire all of the limited partnership interest in
Dixon Mill Associates I (Phase One), Limited Partnership ("Dixon Mill
I"), Dixon Mill Associates II (Phase Two), Limited Partnership ("Dixon
Mill II") and Dixon Mill Associates III (Phase Three), Limited
Partnership ("Dixon Mill III") (together herein referred to as the
"Operating Partnerships") which, collectively, constructed,
rehabilitated and own and operate a 433-unit apartment complex (the
"Complex") located in Jersey City, New Jersey. Wilder Richman Historic
Corporation (the "General Partner") is the General Partner of the
Partnership. The general partner of the Operating Partnerships is Dixon
Venture Corp. (the "Operating General Partner").
The Partnership filed a Form S-11 registration statement with the
Securities and Exchange Commission, which became effective May 9, 1988,
covering an offering (the "Offering") of 800 limited partnership units
at $24,100 per unit.
On July 15, 1988, the Partnership admitted 754 limited partners
representing 800 units of limited partnership interest (the "Closing")
for $19,280,000 in cash and notes. Immediately following the Closing,
the Partnership acquired a 99% limited partnership interest in the
Operating Partnerships. The Partnership acquired its limited partnership
interest for $16,388,000 which was paid in installments.
2. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
Financial statements
The financial statements of the Partnership are prepared on the accrual
basis of accounting and include only those assets, liabilities and
results of operations related to the business of the Partnership.
Investments in Operating Partnerships
The Partnership accounts for its investment in the Operating
Partnerships on the equity method of accounting. Under the equity method
of accounting, the investment cost is adjusted by the Partnership's
share of the Operating Partnerships' results of operations, which are
limited to the respective investment balances and by distributions
received or accrued. The statements of operations includes the
Partnership's equity in the earnings of the Operating Partnerships on a
calendar year basis.
Syndication costs
Syndication costs of $2,639,200 were charged against limited partners'
capital upon the closing of the public offering, in accordance with
prevalent industry practice.
F-7
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-------------------------------------------
Income taxes
No provisions have been made for federal, state and local income taxes,
as they are the personal responsibility of the partners.
Cash and cash equivalents
For purposes of the statements of cash flows, the Partnership considers
all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents. Cash and cash equivalents are
recorded at cost which approximates fair value.
Fiscal year
The Partnership's fiscal year ends on the last day in February.
Use of estimates
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.
3. INVESTMENTS IN OPERATING PARTNERSHIPS
-------------------------------------
The Investments in Operating Partnerships are as follows:
<TABLE>
<CAPTION>
Dixon Dixon Dixon
Mill I Mill II Mill III Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, March 1,1997 $ -- $ 632,511 $ 1,427,246 $ 2,059,757
Equity in loss of Operating Partnerships -- (269,557) (89,318) (358,875)
----------- ----------- ----------- -----------
Balance, February 28, 1998 -- 362,954 1,337,928 1,700,882
Equity in loss of Operating Partnerships -- (362,954) (145,192) (508,146)
----------- ----------- ----------- -----------
Balance, February 28, 1999 -- -- 1,192,736 1,192,736
Equity in income of Operating Partnerships -- 33,326 95,504 128,830
----------- ----------- ----------- -----------
Balance, February 29, 2000 $ -- $ 33,326 $ 1,288,240 $ 1,321,566
============== =========== =========== ===========
</TABLE>
F-8
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28,1999 AND 1998
3. INVESTMENTS IN OPERATING PARTNERSHIPS (CONTINUED)
-------------------------------------------------
The combined balance sheets of the Operating Partnerships at
December 31, 1999 and 1998 are shown below.
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
Assets:
Land $ 1,150,473 $ 1,150,473
Buildings (net of accumulated depreciation
of $ 13,840,014 and $12,497,566 in 1999 and
1998, respectively) 39,205,029 40,402,992
Cash and cash equivalents 1,338,266 1,951,002
Deferred costs 449,912 493,546
Mortgage escrow deposits 1,199,642 1,134,739
Tenant security deposits 789,828 725,172
Other assets 76,687 36,594
----------- -----------
Total assets $44,209,837 $45,894,518
=========== ===========
Liabilities:
Mortgages payable $26,249,814 $26,522,146
Note payable -- 317,713
Accounts payable and accrued expenses 159,007 676,712
Accrued interest payable 132,298 269,139
Tenants' security deposits payable 789,828 725,172
Due to general partner and affiliates 1,284,524 2,028,955
----------- -----------
Total liabilities 28,615,471 30,539,837
----------- -----------
Partners' equity:
Wilder Richman Historic Properties II, L.P. 1,321,566 1,192,736
General partner 14,272,800 14,161,945
----------- -----------
Total partners' equity 15,594,366 15,354,681
----------- -----------
Total liabilities and partners' equity $44,209,837 $45,894,518
=========== ===========
</TABLE>
F-9
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
3. INVESTMENTS IN OPERATING PARTNERSHIPS (CONTINUED)
-------------------------------------------------
The combined statements of operations of the Operating Partnerships for the
years ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Rent $ 6,519,761 $ 6,083,567 $ 5,803,104
Interest 82,374 56,291 31,153
----------- ----------- -----------
6,602,135 6,139,858 5,834,257
----------- ----------- -----------
Expenses:
Administrative 993,470 997,976 958,904
Operating 2,009,050 2,018,481 2,005,544
Management fees 189,194 178,610 169,787
Interest 1,784,654 1,816,393 1,832,950
Depreciation and amortization 1,386,082 1,376,710 1,360,247
----------- ----------- -----------
6,362,450 6,388,170 6,327,432
----------- ----------- -----------
Income (loss) before extraordinary item 239,685 (248,312) (493,175)
Extraordinary item - litigation settlement -- (500,000) --
----------- ----------- -----------
NET INCOME (LOSS) $ 239,685 $ (748,312) $ (493,175)
=========== =========== ===========
Income (loss) before extraordinary item allocated to
Wilder Richman Historic Properties II, L.P. $ 128,830 $ (186,393) $ (358,875)
Extraordinary item -- (321,753) --
----------- ----------- -----------
Net income (loss) allocated to Wilder Richman Historic
Properties II, L.P. $ 128,830 $ (508,146) $ (358,875)
=========== =========== ===========
Income (loss) before extraordinary item allocated to
Dixon Venture Corp. $ 110,855 $ (61,919) $ (134,300)
Extraordinary item -- (178,247) --
----------- ----------- -----------
Net income (loss) allocated to Dixon Venture Corp. $ 110,855 $ (240,166) $ (134,300)
=========== =========== ===========
</TABLE>
F-10
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
3. INVESTMENTS IN OPERATING PARTNERSHIPS (CONTINUED)
-------------------------------------------------
In connection with the modification of the mortgages of the Operating
Partnerships on June 11, 1992, the Partnership provided (i) an advance of
$300,000 to assist in covering costs associated with such modification and
(ii) a letter of credit to Federal National Mortgage Association ("FNMA"),
the lender, in the amount of $600,000. Such letter of credit was provided
to assist in covering future operating shortfalls, if any, of the
Operating Partnerships in order to avoid default under their respective
mortgage obligations. The term of the letter of credit was the later of
(i) January 1, 1996 or (ii) the ability of the operating Partnerships to
operate at a debt service coverage ratio of 1.10 for a twelve month
period. Such condition was satisfied for the twelve-month period ended
December 31, 1994; accordingly, the Partnership's letter of credit was
released on January 1, 1996. The Partnership provided an advance of
$17,713 during 1992 to cover operating shortfalls pursuant to the terms of
the mortgage modification. Any such advances bear interest at 6.5% per
annum and are guaranteed by principals of the Operating General Partner to
the extent that such sums would have otherwise been advanced pursuant to
their operating deficit guarantee obligation. Outstanding advances as of
February 28, 1999 amounted to $317,713 with accrued interest thereon of
$140,083 at February 28, 1999. The Operating Partnerships paid the
outstanding advances in the amount of $317,713 and accrued interest in the
amount of $142,091 in April, 1999.
4. RELATED PARTY TRANSACTIONS
--------------------------
An annual investor services fee is payable to an affiliate of the general
partner of the Partnership in the amount of $15,000 from the Partnership
and each of the Operating Partnerships. At February 29, 2000 and February
28, 1999, due to related parties includes $170,000 and $155,000,
respectively of Investor Services fees payable from the Partnership and the
Operating Partnerships.
At February 29, 2000 and February 28, 1999, due to related parties also
includes $9,846 due to the Operating Partnerships.
An affiliate of the General Partner is the co-management agent of the
properties owned by the Operating Partnerships. The affiliated management
agent earned $82,678 and $78,444 in the years ended December 31, 1999 and
1998, respectively of which $76,329 was paid in 1999 and $35,004 was paid
in 1998.
F-11
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
5. PARTNERS' EQUITY
----------------
The general partner, the special limited partner and the limited
partners were allocated 1%, .01% and 98.99%, respectively, of the
losses.
Distributions
Cash flow of the Partnership available annually for distribution after
payment of Partnership expenses will be distributed 98.99% to the
investor limited partners, .01% to the special limited partner and 1.00%
to the General Partner.
Net cash proceeds resulting from a sale or refinancing by the Operating
Partnerships, to the extent available (after the discharge of debts and
obligations of the Operating Partnerships and the Partnership, including
outstanding loans from partners or affiliates), will be distributed
generally as follows:
- 98.99% to the investor limited partners, .01% to the special
limited partner and 1.00% to the General Partner, until the
investor limited partners have received an amount equal to their
adjusted contributions;
- 98.99% to the investor limited partners, .01% to the special
limited partner and 1.00% to the General Partner, until the
investor limited partners have received an amount equal to the
accrued cumulative, non-compounded rate of 7% per annum (see Note
7).
- The balance of adjusted capital contributions of the General
Partner and special limited partner, and
- The balance, if any, 97.99% to the investor limited partners,
.01% to the special limited partner and 2.00% to the General
Partner.
F-12
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
6. TAXABLE LOSS
------------
A reconciliation of the financial statement loss of the Partnership for
the years ended February 29, 2000 and February 28, 1999 and 1998 to the
net loss as shown on the tax returns for the years ended December 31,
1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Financial statement income (loss) for the year ended
February 29, 2000, February 28,1999 and 1998,
respectively $ 146,652 $ (488,061) $ (333,793)
Less transactions occurring during January 1 to
end of February of respective periods:
Interest income (3,226) (1,308) (1,426)
Fees to related party not deductible
under Internal Revenue Code Section 267 15,000 15,000 15,000
----------- ----------- -----------
158,426 (474,369) (320,219)
Financial statement to tax return difference arising
from investments in Operating Partnerships:
Fees to related party (720,068) -- --
Litigation settlement (495,000) 321,753 --
Excess of depreciation expense of the operating
partnerships for income tax purposes over
financial reporting purposes (1,089,908) (1,064,685) (1,148,570)
----------- ----------- -----------
Taxable loss $(2,146,550) $(1,217,301) $(1,468,789)
=========== =========== ===========
</TABLE>
F-13
<PAGE>
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
7. COMMITMENTS AND CONTINGENCIES
-----------------------------
Preferred return
Pursuant to the Partnership Agreement, the investor limited partners are
entitled to an annual preferred return in the amount of 7% of the
investor limited partners' adjusted contributions outstanding from time
to time, subject to cash flow available for distribution (including
lender restrictions). As of December 31, 1999, the cumulative preferred
amount due from the Operating Partnerships is $12,176,469. Any
cumulative shortfall not recovered out of future cash flow distributions
will be payable from sale or refinancing proceeds, to the extent
available.
F-14
<PAGE>
DIXON MILLS ASSOCIATES
COMBINED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
AND INDEPENDENT AUDITORS' REPORT
<PAGE>
DIXON MILLS ASSOCIATES
Combined Financial Statements for the
Years Ended December 31, 1999, 1998 and 1997
and Independent Auditors' Report
C O N T E N T S
---------------
Page
----
INDEPENDENT AUDITORS' REPORT F-17
COMBINED FINANCIAL STATEMENTS:
Combined balance sheets F-18
Combined statements of operations F-19
Combined statements of partners' equity F-20
Combined statements of cash flows F-21
Notes to combined financial statements F-22 - F-27
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors and Stockholders
Dixon Venture Corp.
Secaucus, New Jersey
and
Partners
Wilder Richman Historic Properties II, LP
Greenwich, Connecticut
We have audited the accompanying combined balance sheets of Dixon Mills
Associates as of December 31, 1999 and 1998, and the related statements of
operations, partners' equity and cash flows for the years ended December 31,
1999, 1998 and 1997. These financial statements are the responsibility of the
Partnerships' 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 Dixon Mills Associates, as of
December 31, 1999 and 1998, and the results of its operations, changes in
partners' equity and cash flows for the years ended December 31, 1999, 1998 and
1997 in conformity with generally accepted accounting principles.
/s/ Rosenberg, Neuwirth & Kuchner
Certified Public Accountants, P.C.
March 28, 2000, except for Note 9
which is dated April 28, 2000
New York, New York
F-17
<PAGE>
DIXON MILLS ASSOCIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
A S S E T S 1999 1998
----------- ----------- -----------
<S> <C> <C>
LAND (Notes 2 and 5) $ 1,150,473 $ 1,150,473
BUILDINGS (net of accumulated depreciation
of $13,840,014 and $12,497,566 in 1999 and 1998,
respectively) (Notes 2 and 5) 39,205,029 40,402,992
CASH AND CASH EQUIVALENTS (Note 2) 1,338,266 1,951,002
DEFERRED COSTS (Notes 2 and 9) 449,912 493,546
MORTGAGE ESCROW DEPOSITS (Note 5) 1,199,642 1,134,739
TENANT SECURITY DEPOSITS 789,828 725,172
OTHER ASSETS 76,687 36,594
----------- -----------
$44,209,837 $45,894,518
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Mortgages payable (Notes 5 and 9) $26,249,814 $26,522,146
Note payable (Note 6) -- 317,713
Accounts payable and accrued expenses (Note 7) 159,007 676,712
Accrued interest payable (Notes 5 and 6) 132,298 269,139
Tenants' security deposits payable 789,828 725,172
Due to general partner and affiliates (Notes 4 and 6) 1,284,524 2,028,955
----------- -----------
28,615,471 30,539,837
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' EQUITY (Note 3):
WILDER RICHMAN HISTORIC
PROPERTIES II, L.P., LIMITED PARTNER 1,321,566 1,192,736
DIXON VENTURE CORP., GENERAL PARTNER 14,272,800 14,161,945
----------- -----------
15,594,366 15,354,681
$44,209,837 $45,894,518
=========== ===========
</TABLE>
See notes to combined financial statements
F-18
<PAGE>
DIXON MILLS ASSOCIATES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended
December 31,
----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Rent $ 6,519,761 $ 6,083,567 $ 5,803,104
Interest 82,374 56,291 31,153
----------- ----------- -----------
6,602,135 6,139,858 5,834,257
----------- ----------- -----------
Expenses:
Administrative 993,470 997,976 958,904
Operating 2,009,050 2,018,481 2,005,544
Management fees (Note 4) 189,194 178,610 169,787
Interest (Notes 5 and 6) 1,784,654 1,816,393 1,832,950
Depreciation and amortization 1,386,082 1,376,710 1,360,247
----------- ----------- -----------
6,362,450 6,388,170 6,327,432
----------- ----------- -----------
Income (loss) before extraordinary item 239,685 (248,312) (493,175)
Extraordinary item - litigation settlement (Note 8) -- (500,000) --
----------- ----------- -----------
NET INCOME (LOSS) $ 239,685 $ (748,312) $ (493,175)
=========== =========== ===========
Income (loss) before extraordinary item allocated to
Wilder Richman Historic Properties II, L.P. $ 128,830 $ (186,393) $ (358,875)
Extraordinary item -- (321,753) --
----------- ----------- -----------
Net income (loss) allocated to Wilder Richman Historic
Properties II, L.P. $ 128,830 $ (508,146) $ (358,875)
=========== =========== ===========
Income (loss) before extraordinary item allocated to
Dixon Venture Corp. $ 110,855 $ (61,919) $ (134,300)
Extraordinary item -- (178,247) --
----------- ----------- -----------
Net income (loss) allocated to Dixon Venture Corp. $ 110,855 $ (240,166) $ (134,300)
=========== =========== ===========
</TABLE>
See notes to combined financial statements
F-19
<PAGE>
DIXON MILLS ASSOCIATES
COMBINED STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Limited General
Total partner partner
------------ ------------ ------------
<S> <C> <C> <C>
Partners' equity, January 1, 1997 $ 16,596,168 $ 2,059,757 $ 14,536,411
Net loss, year ended December 31, 1997 (493,175) (358,875) (134,300)
------------ ------------ ------------
Partners' equity, December 31, 1997 16,102,993 1,700,882 14,402,111
Net loss, year ended December 31, 1998 (748,312) (508,146) (240,166)
------------ ------------ ------------
Partners' equity, December 31, 1998 15,354,681 1,192,736 14,161,945
Net income, year ended December 31, 1999 239,685 128,830 110,855
------------ ------------ ------------
Partners' equity, December 31, 1999 $ 15,594,366 $ 1,321,566 $ 14,272,800
============ ============ ============
</TABLE>
See notes to combined financial statements
F-20
<PAGE>
DIXON MILLS ASSOCIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 239,685 $ (748,312) $ (493,175)
----------- ----------- -----------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 1,386,082 1,376,710 1,360,247
Change in assets:
Increase in mortgage escrow deposits (64,903) (67,005) (165,513)
Increase in tenant security deposits (64,656) (55,487) (39,685)
Increase in other assets (40,093) (2,551) (32,108)
Change in liabilities:
Increase (decrease) in accounts payable
and accrued expenses (517,705) 539,628 18,666
Increase (decrease) in accrued interest payable (136,841) 19,405 19,446
Increase in tenants security deposits payable 64,656 55,487 39,685
Increase (decrease) in due to general partner and affiliates (744,431) 188,606 179,783
----------- ----------- -----------
Total adjustments (117,891) 2,054,793 1,380,521
----------- ----------- -----------
Net cash provided by operating activities 121,794 1,306,481 887,346
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (144,485) (260,594) (52,333)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of mortgages payable (272,332) (254,748) (238,234)
Payment of note payable (317,713) -- --
----------- -----------
Net cash used in financing activities (590,045) (254,748) (238,234)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH (612,736) 791,139 596,779
CASH AND CASH EQUIVALENTS,
beginning of year 1,951,002 1,159,863 563,084
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of year $ 1,338,266 $ 1,951,002 $ 1,159,863
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for interest $ 1,921,495 $ 1,796,988 $ 1,813,502
=========== =========== ===========
</TABLE>
See notes to combined financial statements
F-21
<PAGE>
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. COMBINATION AND ORGANIZATION
----------------------------
The combined financial statements include the accounts of Dixon Mill
Associates I (Phase One), Limited Partnership ("DM I"), Dixon Mill
Associates II, (Phase Two), Limited Partnership ("DM II") and Dixon Mill
Associates III, (Phase Three), Limited Partnership ("DM III") after
elimination of all significant intercompany balances and transactions.
Description of the business
The partnerships are collectively known as "Dixon Mills Associates" or the
"Operating Partnerships", each of which owns one phase of an aggregate 433
units of residential apartments located in Jersey City, New Jersey, that
consist of buildings that are designated as "certified historic structures"
by the U.S. Department of the Interior. The Operating Partnerships have
constructed, rehabilitated, and own and operate the complex. In accordance
with the tax exempt financing of the complex, the Operating Partnerships
are required to rent 15% to 20% of the apartment units to individuals of
low or moderate income.
On July 15, 1988, the Operating Partnerships transferred their 99% limited
partnership interests to Wilder Richman Historic Properties II, L.P. (the
"Limited Partner") in connection with that limited partnership's public
offering. The remaining 1% interest remained with the Operating General
Partner, Dixon Venture Corp. ("DVC").
2. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
Financial statements
The financial statements of the Operating Partnerships are prepared on the
accrual basis of accounting and include only those assets, liabilities and
results of operations related to the business of the Operating
Partnerships.
Combined financial statements are presented as the companies are under
common control, ownership, and management.
Land and buildings
Land and buildings are stated at lower of cost or net realizable value,
("NRV"). NRV is the net cash flow necessary to recover costs exclusive of
debt service. Depreciation on buildings is computed on the straight-line
method. The depreciable life assigned is 40 years for the real property.
Income taxes
No provisions have been made for federal, state and local income taxes, as
they are the responsibility of the partners.
The partners of the Operating Partnerships were entitled to a 25% historic
rehabilitation tax credit on eligible costs as a reduction of their tax
liabilities. In addition, the tax basis of the property has been reduced by
one-half of the historic rehabilitation tax credit for income tax purposes
only.
F-22
<PAGE>
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-------------------------------------------
Cash and cash equivalents
For purposes of the statements of cash flows, the Operating Partnerships
consider all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents are recorded at cost which approximates fair value.
Deferred costs
Deferred costs represent costs incurred in connection with the mortgages
(Note 5) and are being amortized over the term of the mortgages using the
straight line method (Note 9).
Use of Estimates
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.
3. PARTNERS' EQUITY
----------------
In accordance with the Partnership Agreement, income and losses are to be
allocated 1% and 99% to the General Partner and the Limited Partner,
respectively. Any equity in loss in excess of the Limited Partner's
investment balance in an operating partnership is allocated to the General
Partner.
The Operating Partnerships did not allocate 99% of the income reported in
1999 to the Limited Partner due to the non-allocation of previous years'
losses in excess of the Limited Partner's investment in Dixon Mills I & II
in accordance with the equity method of accounting.
Distributions
The partnership agreements of the Operating Partnerships provide that cash
flow from operations will be distributed 99% to the Limited Partner and 1%
to the Operating General Partner until the Limited Partner has received a
7% preferred return (the "Preference Amount") on their initial capital
contributions. The balance, if any, would be distributed 75% to the Limited
Partner and 25% to the Operating General Partner. Any cumulative shortfall
not recovered out of subsequent cash flow distributions will be payable
from sale or refinancing proceeds, to the extent available. The cumulative
preferred amount due to the Limited Partner at December 31, 1999 is
$12,176,469. There is no assurance that all or a portion of such amount
will be paid, and no amount has been accrued.
F-23
<PAGE>
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. PARTNERS' EQUITY (CONTINUED)
----------------------------
Net cash proceeds resulting from a sale or refinancing, to the extent
available (after the discharge of debts and obligations of the Partnership,
including outstanding loans from partners or affiliates), will be
distributed generally as follows:
- 99% to the Limited Partner and 1% to the Operating General Partner,
until the Limited Partner has received an amount equal to its adjusted
contributions.
- 99% to the Limited Partner and 1% to the Operating General Partner,
until the Limited Partner has received an amount equal to the unpaid
cumulative Preference Amount.
- The balance of adjusted capital contributions of the General Partner.
- The balance, if any, 75% to the Limited Partner and 25% to the
Operating General Partner.
F-24
<PAGE>
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
4. RELATED PARTY TRANSACTIONS
--------------------------
DVC has complete authority, management and control of the Operating
Partnerships. The Operating Partnerships, in the normal course of business,
have transactions with related parties. Included in the balance sheet are
the following items:
Due to(from):
1999 1998
---- ----
Morris Property Management $ 9,524 $ 535,304
Morris Realty (5,259) (5,259)
DVC 936,830 936,830
Wilder Richman Management Corporation 298,429 292,080
RG Housing Advisors, Inc. - 90,000
Richman Asset Management, Inc. 45,000 180,000
------------ ---------
$1,284,524 $2,028,955
The Operating Partnerships incurred annual property management fees to
Wilder Richman Management Corp. ("WRMC"), an affiliate of the Limited
Partner, in the amount of $82,678 in 1999, $78,444 in 1998 and $74,915 in
1997. WRMC received payments of $76,329 and $35,004 in 1999 and 1998
respectively. In addition, property management fees of $106,516, $100,166
and $94,872 were incurred in 1999, 1998 and 1997, respectively to Morris
Property Management, an affiliate of the General Partner. Morris Property
Management received payments of $632,296 in 1999 for accumulated accrued
management fees.
The Operating Partnerships incurred investor service fees of $45,000 to
Richman Asset Management, Inc., an affiliate of the Limited Partner in
1999, 1998 and 1997 and paid Richman Asset Management, Inc.
$270,000 in 1999 for accumulated accrued investor service fees.
5. MORTGAGES PAYABLE
-----------------
On June 11, 1992, the Jersey City Redevelopment Agency provided mortgage
financing for the Operating Partnerships through the issuance of tax-exempt
Bonds (the "Bonds") guaranteed and secured by the Federal National Mortgage
Association ("FNMA") mortgage pass-through certificate ("FNMA
Certificate"). The FNMA Certificate in turn was secured by mortgages in the
amount of $27,545,000 (collectively, the "Mortgages") and letters of credit
of $4,260,000 (the "Letters of Credit") issued by Chase Manhattan Bank
("Chase"). The Letters of Credit were secured by an additional mortgage in
the same amount and the personal guarantees of certain principals of DVC.
The Mortgages provided that the Letters of Credit would remain until the
Operating Partnerships meet certain debt service ratio tests as defined in
the Mortgages (the "Debt Service Test"). The Debt Service Test was met and
the letters of credit were released in June, 1995.
F-25
<PAGE>
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
5. MORTGAGES PAYABLE (CONTINUED)
The interest rate on the Mortgages is 6.74% with a monthly payment of
$170,978. Principal amortization is based on a thirty-five year payment
period. The Mortgages are scheduled to mature as follows:
2000 290,713
2001 310,924
2002 332,540
2003 356,499
2004 381,283
Thereafter 24,577,855
-----------
$26,249,814
===========
The Mortgages were refinanced on April 28, 2000 (see Note 9).
The Replacement Reserve (included in mortgage escrow deposits) shall be
used exclusively to pay for certain repairs or replacements, subject to the
approval of the Lender. The balance in this account was $826,685 and
$747,117 at December 31, 1999 and 1998 respectively.
6. NOTE PAYABLE
------------
The Limited Partner advanced $277,500 in connection with the Mortgages
which bear interest at 6.50%. Payments of principal and interest could
commence no sooner than January 1, 1996 depending on, among other things,
cash flow generated by the Operating Partnerships. The principal balance
and unpaid interest become due upon a sale or refinancing of the property.
In addition, the Limited Partner provided FNMA with a letter of credit and
cash in the amount of $622,500 (the "Limited Partner Operating Deficit
Escrow") to provide assistance in the event the Operating Partnerships
experience future operating deficits. Pursuant to the Operating Deficit
Escrow Agreement, FNMA released the letter of credit in January 1996. Any
amount drawn on the Limited Partner Operating Deficit Escrow bears interest
at 6.50%. To the extent the Operating Partnerships make distributions of
net cash flow, all such net cash flow with respect to the applicable
distribution periods must be paid to the Limited Partner until the amounts
outstanding to the Limited Partner are satisfied. In April 1999, the
Partnership repaid the outstanding advances of $317,713 and accrued
interest of $142,091.
F-26
<PAGE>
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
7. COMMITMENTS AND CONTINGENCIES
-----------------------------
Three complaints have been filed with the Equal Employment Opportunity
Commission against the Operating Partnerships, among others, by a former
employee, a former part-time rental agent, and a security person employed
by a private non-affiliated security company which provided service to the
Property, alleging, among other things, discrimination in connection with
advancement, hiring and termination. The Operating Partnerships intend to
vigorously defend these matters. The Operating General Partner cannot
measure the potential liability, if any, at this time.
8. EXTRAORDINARY ITEM - LITIGATION SETTLEMENT, 1998
-------------------------------------------------
A civil complaint was filed in a prior year by an employee of the Operating
Partnerships against the Operating Partnerships and another employee. A
separate similar suit was initiated subsequently by a related party of the
corporate general partner against the same defendant. The defendant is no
longer employed by the Operating Partnerships. Both complaints were
settled, including legal fees, in 1999 for a total of $500,000. The
aforementioned related party's settlement was in the amount of $244,000.
The aggregate settlement is accrued in the accompanying combined financial
statements as of December 31, 1998.
9. SUBSEQUENT EVENT
----------------
The Operating Partnerships refinanced their respective outstanding mortgage
liabilities under the $27,545,000 Jersey City Redevelopment Agency
Multifamily Housing Revenue Bonds, Series 1992 (Fannie Mae pass-through
Certificate Program/Dixon Mill Apartments Project as of April 28, 2000).
The total new indebtedness in the amount of $28,600,000 for a term of 30
years is provided by (a) variable-rate tax-exempt bonds in the amount of
$26,435,000, and (b) variable-rate taxable bonds in the amount of
$2,165,000. The Operating Partnerships have purchased an interest cap which
would limit the interest rates to 6.97% for five years on the tax-exempt
portion , and 9.15% for five and one-half years on the taxable portion.
Proceeds from the new bond issue were used to pay off the existing 1992
bonds (approximately $26,435,000), pay the costs of the transaction
(approximately $800,000), and fund reserves for capital improvements
(approximately $1,365,000).
As a result of the refinancing, deferred costs of $449,912 reflected on the
Operating Partnerships' balance sheet as of December 31, 1999 will be
amortized in the year ended December 31, 2000.
The new mortgage terms require monthly payments of $6,362 to a replacement
reserve.
F-27
