UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (fee required)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (no fee required)
Commission file number: 0-18333
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
Exact name of registrant as specified in its charter
Delaware 13-3516912
State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization
ATTN: Andre Anderson
3 World Financial Center, 29th Floor,
New York, New York 10285
Address of principal executive offices zip code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Beneficial Assignee Certificates (BACs)
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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 the 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
As of December 31, 1995, 2,140,000 beneficial assignee certificates (BACs) had
been issued at a subscription price of $10 per BAC. The BACs are not currently
being traded in any market and as such, the BACs have neither a market selling
price nor an average bid or asked price.
Documents Incorporated by Reference:
Portions of Parts I, II, III and IV are incorporated by reference to the
Partnership's Annual Report to BAC Holders for the year ended December 31,
1995, filed as an exhibit under Item 14.
PART I
Item 1. Business
(a) General Development of Business
Victory Tax Exempt Realty Income Fund Limited Partnership (the "Partnership")
was organized January 15, 1988 under the Delaware Revised Uniform Limited
Partnership Act and will continue until December 31, 2018, unless dissolved
earlier in accordance with the Agreement of Limited Partnership (the
"Partnership Agreement"). The Partnership was formed for the purpose of
acquiring tax-exempt mortgage revenue bonds issued by one or more states or
local governments or their agencies or authorities, the proceeds of which are
used to make participating first mortgage loans on multifamily residential
rental developments and to make, in limited circumstances, taxable working
capital loans to owners of such developments.
The general partner of the Partnership is CA Victory Inc. (the "General
Partner"), formerly Shearson/Victory Inc., a Delaware corporation and an
affiliate of Lehman Brothers Inc. ("Lehman"), formerly Shearson Lehman Brothers
Inc. (see section entitled "Certain Matters Involving Affiliates contained in
"Item 10. "Directors and Executive Officers of the Registrant"). The assignor
limited partner is CA Victory Assignor Corp. (the "Assignor Limited Partner"),
formerly Shearson/Victory Assignor Corp. (see section entitled "Certain Matters
Involving Affiliates contained in "Item 10. "Directors and Executive Officers
of the Registrant"), which is an affiliate of Lehman.
The Assignor Limited Partner has assigned certain of the ownership attributes
of its limited partnership interests, including rights to a percentage of the
income, gains, losses, deductions and distributions of the Partnership to the
BAC Holders on the basis of one unit of limited partnership for one BAC.
The business objectives of the Partnership are:
(1) to preserve and protect the Partnership's capital;
(2) to provide quarterly cash distributions from payments
of base interest on the mortgage revenue bond, which has been
acquired by the Partnership, that are excludable from gross
income for federal income tax purposes, and in certain
instances, nontaxable distributions from the Partnership's
Interest Reserve Account;
(3) to provide additional cash distributions from payments
of contingent interest on the mortgage revenue bond that are
excludable from gross income for federal income tax purposes
which are derived to the extent allocable from participation in
project cash flow and sale or repayment proceeds; and
(4) to provide additional cash distributions from payments
of taxable interest pursuant to working capital loans, which
will constitute no more than 10% of the Partnership's invested
assets.
On April 28, 1989, the Partnership acquired a mortgage revenue bond (the
"Bond") issued by the city of Fresno, California in the principal amount of
$15,515,000. The Bond is secured by a first mortgage loan on Camelot Lakes
Apartments (the "Property") located in Fresno. In conjunction with the
investment in the Bond, the Partnership also made a working capital loan on the
Property in the amount of $420,000 (the "Working Capital Loan"). The original
owner of the Property was Camelot Lakes Associates ("Camelot Lakes"), an
unaffiliated California Limited Partnership. On February 1, 1994, the General
Partner finalized a restructuring with Camelot Lakes, which consisted of
changing the ownership of the Property, entering into a Forbearance Agreement
with a new borrower, amending the second mortgage, and replacing the original
property management company. The new owner and borrower under the mortgage
loan is ConCam Associates (the "ConCam Owner" or the "New Borrower"), an
unaffiliated C alifornia limited partnership, which replaced the original
borrower. The new property manager is ConAm Management Corporation ("ConAm"),
an affiliate of the ConCam Owner. In conjunction with this restructuring, the
Partnership also made a capital improvements loan (the "Capital Improvements
Loan") of $500,000 during 1994, which was secured by a second mortgage on the
Property. Additional information regarding the Bond, the Working Capital Loan
and the Capital Improvements Loan is incorporated by reference to Note 4
"Mortgage Revenue Bond" and Note 5 "Working Capital and Capital Improvements
Loan" of the Notes to the Financial Statements contained in the Partnership's
Annual Report to BAC Holders for the year ended December 31, 1995, filed as an
exhibit under Item 14.
(b) Employees
The Partnership does not have any employees. Services are performed for the
Partnership by affiliates of the General Partner and agents retained by them.
(c) Competition
Incorporated by reference to the section entitled Message to Investors
contained in the Partnership's Annual Report to BAC Holders for the year ended
December 31, 1995, filed as an exhibit under Item 14.
Item 2. Properties
The Partnership does not own any property. The Partnership has, however,
invested in the Bond for which an underlying first mortgage on the Property has
been assigned to the Partnership as collateral and has made the initial Working
Capital Loan and the Capital Improvements Loan to the Borrower. Additional
information regarding the Bond, Working Capital Loan, the Capital Improvements
Loan and the Property is incorporated by reference to Note 4 "Mortgage Revenue
Bond" and Note 5 "Working Capital and Capital Improvements Loan" of the Notes
to the Financial Statements contained in the Partnership's Annual Report to BAC
Holders for the year ended December 31, 1995, filed as an exhibit under Item
14.
Item 3. Legal Proceedings
The Partnership is not the subject of any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the BAC Holders to be voted on during the fourth
quarter of the year for which this report was filed.
Part II
Item 5. Market for Registrant's Limited Partnership Units and Related
Unitholder Matters
(a) Market Information.
There is no established public market in which the BACs are currently traded.
(b) Approximate Number of Security Holders.
As of December 31, 1995, there were 1,066 BAC Holders.
(c) Dividend History and Restrictions.
Information on the Partnership's cash distributions is incorporated by
reference to Note 7 "Distributions Payable" of the Notes to the Financial
Statements and the section entitled Message to Investors in the Partnership's
Annual Report to BAC Holders for the year ended December 31, 1995, filed as an
exhibit under Item 14.
As set forth in the Partnership's Agreement of Limited Partnership, the
Partnership has maintained an Interest Reserve Account which has been used to
supplement distributions to the Limited Partners. The Interest Reserve Account
was established to supplement such payments until the end of the period in
which base interest on the Bond has been deferred (the "Deferral Period").
Following the Deferral Period (April 28, 1989 to April 30, 1992), the funds
from the Interest Reserve Account were transferred in mid-1993 to a Working
Capital Reserve Account (The Working Capital Reserve Account and Interest
Reserve Account are hereinafter referred to collectively as the "Working
Capital Reserve Account.").
Item 6. Selected Financial Data
Selected Partnership financial data for the years ended December 31, 1995, 1994,
1993, 1992 and 1991 are shown below. This data should be read in conjunction
with the Partnership's financial statements and the related notes included
herein, filed as an exhibit under Item 14.
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
Total Revenues $ 71,044 $ 406,502 $ 631,711 $ 802,387 $ 955,190
Net Income (Loss) (30,145) 211,582 441,297 646,365 815,024
Net Income (Loss)
per BAC (1) (0.01) 0.10 0.20 0.30 0.38
Total Assets as of
December 31 14,044,167 15,168,426 16,038,628 16,942,937 17,918,010
Total Cash Distributions
declared per
BAC (1) 0.500 0.500 0.562 0.750 0.750
- -------------------------------------------------------------------------------
(1) 2,140,000 BACs outstanding.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership's operating income is derived from its investment in a mortgage
revenue bond (the "Bond") in the principal amount of $15,515,000 secured by a
first deed of trust on Camelot Lakes Apartments (the "Property").
Operating difficulties at the Property resulted in Camelot Lakes Associates, an
unaffiliated limited partnership ("Camelot Lakes" or the "Original Borrower"),
defaulting on the November 1993 through January 1994 Bond payments.
Consequently, on February 1, 1994, the General Partner reached a restructuring
agreement with the Original Borrower, whereby the ownership of the Property was
transferred to ConCam Associates (the "ConCam Owner or the "New Borrower"), and
property management was transferred to the ConAm Management Corporation
("ConAm"), a major property management company. In addition to ownership, the
ConCam Owner, an affiliate of ConAm, assumed the obligations under the Bond and
loan documents on a nonrecourse basis. Pursuant to the restructuring, the
Partnership entered into a Forbearance Agreement (the "Forbearance Agreement")
with the ConCam Owner, which modified the terms of the Bond and amended the
second mortgage. The Forbearance Agreement will expire on December 31, 1996
and is subject to renewal at the Partnership's sole option. Pursuant to the
Forbearance Agreement, the minimum interest payment on the Bond increased to
7.0% on February 1, 1996 from the previous rate of 6.5%. Given the
difficulties confronting multifamily property owners in Fresno, ConCam
indicated that it was unlikely that the Property's operations could support
debt service payments at the increased rate in 1996. Although the ConCam Owner
provided debt service at the 7% minimum pay rate (partially from its cash
reserves) on February 1, 1996, it was only able to provide for debt service at
a 5% annualized pay rate on the Bond on March 1, 1996. In view of these
circumstances, the General Partner is currently engaged in discussions with
ConCam to negotiate a modification of the Forbearance Agreement. There can be
no assurance that the ConCam Owner will be able to satisfy increased future
payments.
At December 31, 1995, the Partnership had cash and cash equivalents, which are
invested in tax-exempt money market accounts, of $679,620, compared with
$802,222 at December 31, 1994. The decrease is due to net cash used to fund
cash distributions exceeding net cash provided by operating activities.
Due to the Property's operating difficulties, the General Partner reduced the
cash distribution paid to the partners from an annual return of 7.5% to 5.0%,
effective with the second quarter of 1993. Total cash distributions declared
for 1995 were $1,080,808, which included $1,070,000, or $.50 per Beneficial
Assignee Certificate, declared payable to the Limited Partners. As of December
31, 1995, total cash distributions paid to the Limited Partners since inception
have been funded 77% from operating cash flow and 23% from the Partnership's
cash reserves. The sources of the Partnership's future cash flows are expected
to be from payments of Base Interest on the Bond, interest earned on cash and
cash equivalents. Although the ConCam Owner has been able to meet its debt
service obligations to date, its ability to service the new pay rate of 7.0%
may be impeded should the adverse market conditions in Fresno continue.
Depending on the outcome of negotiations with the ConCam Owner, it ma y be
necessary to reduce the level of cash distributions during 1996.
On February 16, 1996, based upon, among other things, the advice of Partnership
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partner adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partner may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change
of Control" means any purchase or offer to purchase more than 10% of the BACs
that is not approved in advance by the General Partner. In determining the
amount of the distribution, the General Partner may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner and no partner will be entitled to receive any
distribution until the General Partner has declared the distribution and
established a record date and distribution date for the distribution. The
Partnership filed a Form 8-K disclosing this resolution on February 29, 1996.
Results of Operations
1995 versus 1994
The Partnership accounts for its investment in the Bond using the equity method
of accounting. Accordingly, the Partnership reports as income its share of the
Property's results of operations.
For the year ended December 31, 1995, the Partnership generated a net loss of
$30,145, on total revenues of $71,044, compared with net income of $211,582 on
total revenues of $406,502 for the year ended December 31, 1994. The change
from net income to net loss primarily is due to a decrease in the Partnership's
share of earnings from its investment in the Bond, which was partially offset
by a decrease in general and administrative expenses.
The Partnership's share of earnings from investment in the Bond is based on the
Property's earnings before debt service, which increased for the year ended
December 31, 1995 relative to the same period in 1994. The Partnership's
equity interest in the Property's earnings for the year ended December 31, 1995
was $43,158, compared with $377,211 for the year ended December 31, 1994. The
decrease primarily is due to higher expenses at the Property in the first
quarter of 1995. Total income at Camelot Lakes Apartments was $2,109,518 for
the year ended December 31, 1995, compared with $1,806,488 for the year ended
December 31, 1994. The increase largely is due to higher average occupancy in
1995. Total expenses at Camelot Lakes Apartments, net of debt service, were
$1,657,939 for the year ended December 31, 1995, compared to $1,138,498 for the
year ended December 31, 1994. The increase primarily is due to higher repairs
and maintenance expense partially offset by lower advertising and promotion
expenses and other expenses.
Total expenses for the year ended December 31, 1995 were $101,189, compared to
$194,920 for the year ended December 31, 1994. The decrease largely is
attributable to higher general and administrative expenses in 1994, primarily
as a result of increased legal expenses and closing costs incurred related to
the restructuring and higher amortization of organization costs in 1994. These
costs were fully amortized in 1994.
Net cash provided by the Partnership's operating activities for the year ended
December 31, 1995 was $958,206, compared with $729,103 for the corresponding
period in 1994. The increase primarily is attributable to an increase in
interest received from the Property on the mortgage revenue bond. Interest
received on the mortgage revenue bond increased to $1,002,015 for the year
ended December 31, 1995, from $833,850 for the year ended December 31, 1994.
The increase for the 1995 period is largely due to the increase in the minimum
pay rate effective with the January 1995 payment. The lower interest received
for the 1994 period was also due to the January 1994 default on debt service by
Camelot Lakes.
As of December 31, 1995, occupancy at the Property increased to 89%, compared
with 83% as of December 31, 1994.
1994 versus 1993
For the year ended December 31, 1994, the Partnership earned net income of
$211,582, on total revenue of $406,502, compared with net income of $441,297 on
total revenue of $631,711 for the year ended December 31, 1993. The decrease
in net income is primarily due to a reduction in the Partnership's share of
earnings from its investment in the Bond. The change is also due to the
decline in interest on the Working Capital Loan in 1994, which is no longer
being accrued, since the collectibility of such interest is unlikely.
The Partnership's equity interest in the Property's earnings for the year ended
December 31, 1994 was $377,211 compared with $527,857 for the year ended
December 31, 1993. The Partnership's share of earnings from investment in the
Bond is based on the Property's earnings before debt service, which decreased
for the year ended December 31, 1994 relative to the same period in 1993.
Total income at Camelot Lakes Apartments was $1,806,488 for the year ended
December 31, 1994 compared to $1,846,989 for the year ended December 31, 1993.
Property operating expenses were $1,138,498 for the year ended December 31,
1994 compared to $891,292 for the year ended December 31, 1993. Increased
property operating expenses consist primarily of higher safety and security
expenses, repair and maintenance expenses and advertising and promotion
expenses.
Other interest declined to $29,291 for the year ended December 31, 1994 from
$32,479 for the year ended December 31, 1993, due to lower cash balances
maintained by the Partnership. Interest on the Working Capital Loan for the
year ended December 31, 1994 decreased to $0, compared with $53,025 for the
year ended December 31, 1993. Interest is no longer being accrued, since the
collectibility of such interest is unlikely. Effective February 1, 1994, the
rate of interest on the Working Capital Loan was reduced from 12.625% to 6%,
simple, non-compounding interest.
Total expenses for the year ended December 31, 1994 totaled $194,920 compared
with $190,414 for the year ended December 31, 1993. The change is primarily
due to higher general and administrative expenses in 1994, largely as a result
of increased legal expenses and closing costs incurred related to the
restructuring, which were partially offset by a decrease in amortization of
organization costs, which were fully amortized in 1994.
Net cash provided by the Partnership's operating activities for the year ended
December 31, 1994 was $729,103 compared with $1,159,989 for the year ended
December 31, 1993. The decrease is primarily attributable to a reduction in
interest received from $1,172,899 to $833,850 on the mortgage revenue bond as a
result of the Forbearance Agreement and the January 1994 default in debt
service by Camelot Lakes Associates. Approximately $232,780 of the $1,172,899
was funded from the Borrower Operating Reserve.
As of December 31, 1994, occupancy at the Property increased to 83%, compared
with 71% at December 31, 1993.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to BAC Holders for
the year ended December 31, 1995, filed as an exhibit under Item 14.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a), (b) and (c)
The Partnership has no directors, executive officers or employees of its own.
(a), (b), (c) and (e)
The names, ages and business experience for the directors and executive
officers of the General Partner as of December 31, 1995 are as follows:
Name Office
Paul L. Abbott Director, President and Chief
Financial Officer
Gregory M. Mayer Vice President
Paul L. Abbott, 50, is a Managing Director of Lehman Brothers. Mr. Abbott
joined Lehman Brothers in August 1988, and is responsible for investment
management of residential, commercial and retail real estate. Prior to joining
Lehman Brothers, Mr. Abbott was a real estate consultant and a senior officer
of a privately held company specializing in the syndication of private real
estate limited partnerships. From 1974 through 1983, Mr. Abbott was an officer
of two life insurance companies and a director of an insurance agency
subsidiary. Mr. Abbott received his formal education in the undergraduate and
graduate schools of Washington University in St. Louis.
Gregory M. Mayer, 30, is a Vice President of Lehman Brothers Inc. in the
Diversified Asset Group. Mr. Mayer is responsible for investment management of
residential and commercial real estate. Prior to joining a predecessor of
Lehman in 1988, Mr. Mayer worked in the investment banking division of Smith
Barney, Harris Upham and Company. Mr. Mayer received a B.A. degree in computer
science from Iona College in 1986 and an MBA degree from Cornell University in
1992.
(d) There is no family relationship between any of the foregoing directors
and executive officers.
(e) Involvement in certain legal proceedings.
Certain officers and directors of CA Victory Inc., formerly Shearson/Victory,
Inc. (see below) are now serving as officers or directors of entities which act
as general partners of a number of real estate limited partnerships which have
sought protection under the provisions of the Federal Bankruptcy Code. The
Partnerships which have filed bankruptcy petitions own real estate which has
been adversely affected by the economic conditions in the markets in which that
real estate is located and, consequently, the Partnerships sought the
protection of the bankruptcy laws to protect the Partnerships' assets from loss
through foreclosure.
(g) Promoters and control persons.
None.
Certain Matters Involving Affiliates
On July 31, 1993, Shearson sold certain of its domestic retail brokerage and
asset management businesses to Smith Barney, Harris Upham & Co. Incorporated
("Smith Barney"). Subsequent to the sale, Shearson changed its name to Lehman
Brothers Inc. The transaction did not affect the ownership of the Partnership's
General Partner. However, the assets acquired by Smith Barney included the
name "Shearson." Consequently, the General Partner changed its name to CA
Victory Inc. and Shearson/Victory Assignor Corp. changed its name to CA Victory
Assignor Corp. to delete any reference to "Shearson."
Item 11. Executive Compensation
Neither the General Partner nor any of its directors and officers received any
compensation from the Registrant. See Item 13 below with respect to a
description of certain transactions of the General Partner and its affiliates
with the Registrant.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners
To the knowledge of the General Partner, no person or group owns more than 5%
of the outstanding BACs.
(b) Security ownership of management
As of December 31, 1995 none of the officers and directors of the General
Partner owned any BACs.
(c) Changes in control
None.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference to Note 6 "Transactions with General Partner and
Affiliates" of the Notes to Financial Statements contained in the Partnership's
Annual Report to BAC Holders for the year ended December 31, 1995, filed as an
exhibit under Item 14.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements: Page Number
Report of Independent Auditors
Report of KPMG Peat Marwick LLP (1)
Balance Sheets - As of December 31, 1995 and 1994 (1)
Statements of Operations - For the years ended
December 31, 1995, 1994 and 1993 (1)
Statements of Partners' Capital (Deficit) - For the
years ended December 31, 1995, 1994 and 1993 (1)
Statements of Cash Flows - For the years ended
December 31, 1995, 1994 and 1993 (1)
Notes to Financial Statements (1)
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
(1) Incorporated by reference to the Partnership's Annual Report to BAC
Holders for the year ended December 31, 1995, which is filed as an exhibit
under Item 14.
(a) (2) Financial Statement Schedules:
ConCam Associates, L.P.
Independent Auditors' Report A-1
Financial Statements:
Balance Sheets at December 31, 1995 and 1994 A-2
Statements of Operations and Partners' Capital (Deficit) for
the year ended December 31, 1995 and the period from
January 28, 1994 (inception) through December 31, 1994 A-3
Statements of Cash Flows for the year ended December 31, 1995
and the period from January 28, 1994 (inception) through
December 31, 1994 A-4
Notes to Financial Statements A-5
(a) (3) Exhibits:
3.1 Certificate of Limited Partnership of Victory Tax Exempt Realty
Income Fund Limited Partnership. (Incorporated by reference from
Exhibit 3 to the Registrant's Post-Effective Amendment No. 2, dated
February 14, 1989, to the Registration Statement on Form S-11.)
3.2 Agreement of Limited Partnership of Victory Tax Exempt Realty
Income Fund Limited Partnership. (Incorporated by reference from
Exhibit 3 to the Registrant's Post-Effective Amendment No. 2, dated
February 14, 1989, to the Registration Statement on Form S-11.)
3.3 Beneficial Assignee Certificate. (Incorporated by reference
from Exhibit 3 to the Registrant's Registration Statement on Form
S-11.)
10.1 Forbearance Agreement between Victory Tax Exempt Realty Income
Fund Limited Partnership and ConCam Associates, L.P. dated January 31,
1994. (Incorporated by reference from Exhibit 10.1 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993.)
10.2 First Amendment to Working Capital Loan Agreement between
Victory Tax Exempt Realty Income Fund Limited Partnership and ConCam
Associates, L.P. dated February 1, 1994. (Incorporated by reference
from Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993.)
10.3 Property Management Agreement between ConCam Associates, L.P.
and ConAm Management Corporation dated January 31, 1994. (Incorporated
by reference from Exhibit 10.3 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993.)
10.4 Termination and Release Agreement between Victory Tax Exempt
Realty Income Fund Limited Partnership, Camelot Lakes Associates and
James Hendricks and Associates, Inc. dated February 1, 1994.
(Incorporated by reference from Exhibit 10.4 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993.)
13.1 Annual Report to BAC Holders for the year ended December 31, 1995.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of fiscal
1995.
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.
VICTORY TAX EXEMPT REALTY INCOME FUND
LIMITED PARTNERSHIP
BY: CA Victory Inc.,
General Partner
Date: March 29, 1996
BY: s/Paul L. Abbott/
Name: Paul L. Abbott
Title: Director, President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report to be signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated:
CA VICTORY INC.
General Partner
Date: March 29, 1996
BY: s/Paul L. Abbott/
Name: Paul L. Abbott
Title: Director, President and
Chief Financial Officer
Date: March 29, 1996 BY: s/Gregory M. Mayer/
Name: Gregory M. Mayer
Title: Vice President
EXHIBIT 13.1
VICTORY TAX EXEMPT REALTY INCOME FUND L.P.
1995 ANNUAL REPORT
Victory Tax Exempt Realty Income Fund Limited Partnership was formed in 1989
to acquire a $15,515,000 Mortgage Revenue Bond issued by the city of Fresno,
California. Securing the Bond is a first mortgage on Camelot Lakes Apartments,
a 476-unit complex owned by an unaffiliated management corporation. The
complex consists of 64 buildings situated on 30 acres and includes a swimming
pool, tennis court and covered parking.
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 (select option 1) 800-223-3464 (select option 2)
Contents
1 Message to Investors
3 Financial Statements
6 Notes to Financial Statements
12 Report of Independent Auditors
Presented for your review is the 1995 Annual Report for Victory Tax Exempt
Realty Income Fund Limited Partnership (the "Partnership"). This report
includes a discussion of the Partnership's operations and audited financial
statements for the year ended December 31, 1995. The Partnership's primary
asset is a $15,515,000 tax-exempt Mortgage Revenue Bond (the "Bond") that is
secured by a first mortgage on Camelot Lakes Apartments (the "Property"), in
Fresno, California.
Overview
Although operating conditions for multifamily housing nationwide improved
in 1995, real estate continues to experience significant regional
fluctuations in demand. The Fresno, California market experienced little
growth in 1995 due to persistent sluggishness in the local economy. As a
result, overall occupancy levels and rental rates were stagnant for multifamily
properties in the city. Moreover, the use of concession packages, including
reduced rental rates and rent-free periods, remains necessary to attract and
retain tenants. Conditions are particularly competitive in the southeastern
section of the city, where the Property is located, as the area is faced with
an oversupply of apartment units. Further, the shifting demographics of the
neighborhood have encouraged an increasing number of higher income residents to
relocate to the northern section of Fresno, causing a decline in demand from
higher paying tenants in the southeastern section of the city. Although the
Property is performing better than its competition, it has not been immune to
the challenges of the immediate market.
In an effort to offset these unfavorable operating conditions and improve the
Property's performance, the Property's management company, ConAm Management
Corporation ("ConAm"), implemented strategies during 1995 aimed at increasing
the number of long-term, creditworthy tenants. A community outreach program
was initiated in 1995 to search proactively for tenants. ConAm also instituted
a more rigid screening process to help identify prospective tenants who are
most likely to remain at the Property on a long-term basis. Furthermore, ConAm
hired additional personnel to give the Property a heightened sense of security
for its tenants. These strategies, combined with the capital improvements
completed in late 1994 to improve the aesthetic appeal and security of the
Property, were moderately successful and the occupancy level increased to 89%
as of December 31, 1995, from 83% as of December 31, 1994. As a result, the
Property's owner, ConCam Associates ("ConCam"), an affiliate of ConAm, was able
to meet its required 1995 debt service payments to the Partnership at the
minimum interest pay rate of 6.5%. However, commencing February 1, 1996, the
minimum interest pay rate increased to 7.0% pursuant to the terms of the 1994
restructuring. Although the February 1 payment was made at the 7.0% rate, a
portion of it was made from ConCam's cash reserves. Given the difficulties
confronting multifamily property owners in Fresno, ConCam indicated that it was
unlikely that the Property's operations could support debt service payments at
the increased rate during 1996. Consequently, on March 1, 1996, ConCam
provided debt service at a 5.0% annualized rate on the Bond. In view of these
circumstances, the General Partner is currently engaged in discussions with
ConCam to negotiate a modification of the Forbearance Agreement. We will
closely monitor the situation and will keep you apprised of developments in
future investor reports.
Cash Distributions
For the year ended December 31, 1995, limited partners received cash
distributions totalling $500 per $10,000 investment, including a fourth quarter
distribution of $126 per $10,000 investment paid on February 14, 1996. Due to
the tax-exempt status of the Bond and short-term money market investments,
approximately 97% of the Partnership's income for 1995 was tax-exempt.
Cumulative distributions to date total $4,322 per $10,000 investment.
Approximately 77% of these distributions were funded from operating cash flow,
with the remaining 23% funded from the Partnership's cash reserves.
Depending on the outcome of negotiations with ConCam, it may be necessary to
reduce the level of cash distributions during 1996.
Quarterly Cash Distributions Per $10 Limited Partnership Unit
(Based on 2,140,000 BACs outstanding)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
---------------------------------------------------------------------
1994 $ 0.1230 $ 0.1250 $ 0.1260 $ 0.1260 $ 0.5000
1995 $ 0.1230 $ 0.1250 $ 0.1260 $ 0.1260 $ 0.5000
---------------------------------------------------------------------
Financial Highlights
The following chart highlights the performance of the Partnership for the year
ended December 31 of the indicated years.
1995 1994
-----------------------------------------------------------------------
Interest received on the Bond $ 1,002,015 $ 833,850
Other interest 27,886 29,291
Cash provided by operating activities 958,206 729,103
-----------------------------------------------------------------------
* Interest received on the Bond and cash provided by operating activities
increased primarily due to the January 1994 default on debt service
by Camelot Lakes Associates. Additionally, the minimum interest pay
rate increased to 6.5% on February 1, 1995, from the previous rate of
6.0% which became effective with the restructuring on February 1, 1994.
Pursuant to the Forbearance Agreement, the minimum interest pay rate
increased to 7.0% on February 1, 1996.
* Other interest declined slightly due to lower average cash balances
maintained by the Partnership.
Summary
Although the improvement in operations since the restructuring is encouraging,
the economic and demographic difficulties in the Fresno market continue to
affect ConAm's efforts to increase the Property's revenues. Consequently,
the Property's performance to date has not met our initial expectations.
Given the relatively high prevailing vacancy rate citywide, we must underscore
the uncertainty regarding ConCam's ability to fund future debt service payments
at the higher interest pay rate. The continuation of cash distributions at
the current level ultimately depends on ConCam's capacity to meet its debt
service payments to the Partnership. We will keep you informed of developments
in future reports.
Very truly yours,
CA Victory Inc. General Partner
s/Paul L. Abbott/
Paul L. Abbott President
March 29, 1996
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Investment in mortgage revenue bond,
working capital loan, and capital
improvements loan $ 13,222,356 $ 14,181,213
Cash and cash equivalents 679,620 802,222
Mortgage acquisition fees, net of
accumulated amortization of $285,809
and $243,009 in 1995 and 1994, respectively 142,191 184,991
____________ ____________
Total Assets $ 14,044,167 $ 15,168,426
============ ============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 26,187 $ 26,093
Due to affiliates 6,500 19,900
Distributions payable 272,423 272,423
------------ ------------
Total Liabilities 305,110 318,416
============ ============
Partners' Capital (Deficit):
General Partner (58,613) (47,504)
BAC Holders (2,140,000 BACS outstanding) 13,797,670 14,897,514
------------ ------------
Total Partners' Capital 13,739,057 14,850,010
------------ ------------
Total Liabilities and Partners' Capital $ 14,044,167 $ 15,168,426
============ ============
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1995, 1994 and 1993
General BAC
Partner Holders Total
Balance at December 31, 1992 $ (31,084) $ 16,523,082 $ 16,491,998
Net income 4,413 436,884 441,297
Cash distributions to partners (12,141) (1,201,918) (1,214,059)
----------- ------------ ------------
Balance at December 31, 1993 (38,812) 15,758,048 15,719,236
Net income 2,116 209,466 211,582
Cash distributions to partners (10,808) (1,070,000) (1,080,808)
----------- ------------ ------------
Balance at December 31, 1994 (47,504) 14,897,514 14,850,010
Net loss (301) (29,844) (30,145)
Cash distributions to partners (10,808) (1,070,000) (1,080,808)
----------- ------------ ------------
Balance at December 31, 1995 $ (58,613) $ 13,797,670 $ 13,739,057
=========== ============ ============
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Revenue 1995 1994 1993
Share of earnings from investment
in mortgage revenue bond $ 43,158 $ 377,211 $ 527,857
Other interest 27,886 29,291 32,479
Interest on working capital loan 0 0 53,025
Other income 0 0 18,350
----------- ------------ ------------
Total Revenue 71,044 406,502 631,711
Expenses
General and administrative 58,389 141,900 115,894
Amortization of mortgage costs 42,800 42,800 42,800
Amortization of organization costs 0 10,220 31,720
----------- ------------ ------------
Total Expenses 101,189 194,920 190,414
----------- ------------ ------------
Net Income (Loss) $ (30,145) $ 211,582 $ 441,297
=========== ============ ============
Net Income (Loss) Allocated:
To the General Partner $ (301) $ 2,116 $ 4,413
To the BAC Holders (29,844) 209,466 436,884
----------- ------------ ------------
$ (30,145) $ 211,582 $ 441,297
=========== ============ ============
Per BAC outstanding (2,140,000 BACS) $(.01) $.10 $.20
=========== ============ ============
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from Operating Activities: 1995 1994 1993
Net income (loss) $ (30,145) $ 211,582 $ 441,297
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Share of earnings from investment
in mortgage revenue bond (43,158) (377,211) (527,857)
Interest received on mortgage
revenue bond 1,002,015 833,850 1,172,899
Amortization 42,800 53,020 74,520
Increase (decrease) in cash
arising from changes in operating
assets and liabilities:
Interest receivable 0 8,838 (4,418)
Accounts payable 94 (13,301) 11,197
Due to affiliates (13,400) 12,325 (7,649)
----------- ------------ ------------
Net cash provided by operating
activities 958,206 729,103 1,159,989
----------- ------------ ------------
Cash Flows from Investing Activities:
Funding of capital improvements loan 0 (500,000) 0
----------- ------------ ------------
Net cash used for investing activities 0 (500,000) 0
----------- ------------ ------------
Cash Flows from Financing Activities:
Cash distributions to partners (1,080,808) (1,080,808) (1,349,154)
----------- ------------ ------------
Net cash used for financing
activities (1,080,808) (1,080,808) (1,349,154)
----------- ------------ ------------
Net decrease in cash and cash
equivalents (122,602) (851,705) (189,165)
Cash and cash equivalents at beginning
of year 802,222 1,653,927 1,843,092
----------- ------------ ------------
Cash and cash equivalents at
end of year $ 679,620 $ 802,222 $ 1,653,927
=========== ============ ============
Notes to Financial Statements December 31, 1995, 1994 and 1993
1. Organization and the Public Offering
Victory Tax Exempt Realty Income Fund L. P. (the "Partnership") was formed
under the Delaware Revised Uniform Limited Partnership Act on January 15, 1988
and will continue until December 31, 2018, unless dissolved earlier under the
provisions of the Agreement of Limited Partnership. The Partnership was formed
for the purpose of acquiring a pool of tax-exempt Mortgage Revenue Bonds issued
by various state or local governments or their agencies or authorities, and
secured by participating first mortgage loans on multifamily residential rental
developments and/or retirement complexes. The Partnership is also authorized
to have up to ten percent of its invested assets consist of taxable working
capital loans from the Partnership to borrowers of the mortgage loans to cover
certain expenses that are not financed from Mortgage Revenue Bond proceeds.
A Registration Statement on Form S-11 was filed with the Securities and
Exchange Commission and became effective on May 26, 1988 for a maximum offering
of 20,000,000 Beneficial Assignee Certificates (the "BACs") at $10 per BAC (the
"Public Offering"). The Public Offering commenced on November 1, 1988 and
terminated on April 28, 1989. Gross proceeds of $21,400,000 were received
representing 2,140,000 BACs. On April 28, 1989, the subscribers of the BACs
were admitted to the Partnership as BAC Holders. The related limited
partnership interests are held by the Assignor Limited Partner, which has
assigned certain ownership attributes of the limited partnership interests to
the BAC holders on the basis of one unit of limited partnership interest for
one BAC.
The General Partner is CA Victory Inc., formerly Shearson/Victory Inc. (see
below), which is a Delaware corporation and is an affiliate of Lehman Brothers
Inc. (the "Selling Agent"), formerly Shearson Lehman Brothers Inc., (see
below). The Assignor Limited Partner is CA Victory Assignor Corp., formerly
Shearson/Victory Assignor Corp. (see below), which is wholly-owned by Lehman
Brothers.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management business to Smith Barney, Harris Upham &
Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson Lehman
Brothers Inc. changed its name to Lehman Brothers Inc. ("Lehman Brothers").
The transaction did not affect the ownership of the General Partner. However
the assets acquired by Smith Barney included the name "Shearson".
Consequently, effective October 29, 1993, the Shearson/Victory Inc. General
Partner and the Shearson/Victory Assignor Corp. Assignor Limited Partner
changed their names to CA Victory Inc. and CA Victory Assignor Corp.,
respectively.
On February 16, 1996, based upon, among other things, the advice of Partnership
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partner adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partner may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change
of Control" means any purchase or offer to purchase more than 10% of the BACs
that is not approved in advance by the General Partner. In determining the
amount of the distribution, the General Partner may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner and no partner will be entitled to receive any
distribution until the General Partner has declared the distribution and
established a record date and distribution date for the distribution. The
Partnership filed a form 8-K disclosing this resolution on February 29, 1996.
2. Significant Accounting Policies
Investment in Mortgage Revenue Bond, Working Capital Loan and Capital
Improvements Loan
The Partnership accounts for its investment in the Mortgage Revenue Bond, the
Working Capital Loan and the Capital Improvements Loan (the "Investment") using
the equity method in accordance with AICPA Statement of Position 78-9. The
Partnership is not obligated to fund net operating losses of the property
underlying the Investment. The Partnership generally receives a special
allocation of income equal to the mortgage loan interest due under the bond and
loan agreements, which payments are funded by property operations. Depreciation
on the building and personal property funded by the bond and loans is provided
using the straight-line method over 40 years and 5-7 years, for the amounts
allocable to buildings and personal property, respectively.
Accounting for Impairment
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"),
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. FAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Partnership adopted FAS 121 during
the fourth fiscal quarter of 1995. Based on current circumstances, the
adoption of FAS 121 had no impact on the financial statements.
Syndication Costs
During 1989, selling commissions paid in connection with the public offering,
totalling $1,070,000, and sales and registration costs, totalling $719,754,
were charged against BAC Holders' capital.
Deferred Charges
Organization costs incurred in connection with the formation of the Partnership
were amortized using the straight-line method over a five-year period. Mortgage
acquisition fees are being amortized using the straight-line method over the
life of the Bond.
Income Taxes
No provision for income taxes has been made in the financial statements since
such taxes are the responsibility of the individual partners rather than that
of the Partnership.
Cash Equivalents
Cash equivalents consist of short-term highly liquid investments which have
maturities of three months or less from the date of purchase. The carrying
value approximates fair value because of the short maturity of these
instruments.
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.
Reclassifications
Certain balances in the 1994 financial statements have been reclassified to
conform to the 1995 presentation.
3. Partnership Agreement
Pursuant to the terms of the Partnership Agreement,
cash available for distribution from operations will be distributed 99% to the
BAC Holders and 1% to the General Partner for each year until the BAC Holders
receive an amount equal to the Preferred Cash Flow Return, as defined, and,
thereafter, 90% to the BAC Holders and 10% to the General Partner.
Proceeds arising from a sale or other disposition of the mortgaged property or
the repayment of the Bond will be distributed as follows:
(1) to repay all debts and obligations of the Partnership and to increase
the working capital reserve as the General Partner deems necessary;
(2) to each BAC Holder equal to the unpaid portion of any Preferred Cash
Flow Return up to the amount of income allocated to each BAC holder;
(3) to the General Partner and to each BAC Holder up to the amount of their
Adjusted Capital Contributions, as defined; and
(4) to the General Partner and to each BAC Holder, in accordance with their
respective capital accounts.
All profits and losses not arising from a sale of a mortgaged property or
repayment of a mortgage loan shall be allocated 99% to the BAC Holders and 1%
to the General Partner until the BAC Holders realize an amount equal to the
Preferred Cash Flow Return. Thereafter, such profits and losses shall be
allocated 90% to the BAC Holders and 10% to the General Partner.
Profits arising from a sale of a mortgaged property or repayment of a mortgage
loan will be allocated to the General Partner and BAC Holders as follows:
first, in proportion to the negative balances in their capital accounts, up to
the amount of the negative balance; second, in proportion to any unpaid portion
of Preferred Cash Flow Return to realize an amount equal to the Preferred Cash
Flow Return; third, in proportion to their Adjusted Capital Contributions up to
their Adjusted Capital Contributions; and fourth, 90% to the BAC Holders and
10% to the General Partner.
Losses from such sale or repayment will be allocated to the General Partner and
BAC Holders as follows: first, an amount of loss to the General Partner or BAC
Holders to adjust their capital accounts to 1% and 99%, respectively, of total
Partners' Capital; second, 1% to the General Partner and 99% to the BAC Holders
until the BAC Holders capital account is zero; third, to the General Partner.
4. Mortgage Revenue Bond
On April 28, 1989, the Partnership acquired an investment in a mortgage revenue
bond (the "Bond") from the City of Fresno, California in the principal amount of
$15,515,000 secured by a mortgage loan on Camelot Lakes Apartments (the
"Property"). Until February 1, 1994, the original owner of the Property was
Camelot Lakes Associates ("Camelot Lakes"), an unaffiliated California Limited
Partnership. The current owner of the Property is ConCam Associates (the
"ConCam Owner"), an unaffiliated California Limited Partnership. The mortgage
loan is payable on April 28, 1999 (the "Maturity Payment Date").
The Partnership has accounted for the Bond using the equity method of
accounting. Under this method, the carrying value of the Bond is (i) reduced
for the interest received from Camelot Lakes and (ii) increased or decreased by
the Partnership's share of earnings or losses of Camelot Lakes. The following
schedule represents the changes made to the carrying value of the mortgage
revenue bond:
Original issue value $ 15,515,000
1989 share of Camelot Lakes earnings 488,679
1989 interest received on mortgage revenue bond (615,040)
-----------------------------------------------------------------
Carrying value, December 31, 1989 15,388,639
1990 share of Camelot Lakes earnings 772,557
1990 interest received on mortgage revenue bond (1,039,505)
-----------------------------------------------------------------
Carrying value, December 31, 1990 15,121,691
1991 share of Camelot Lakes earnings 805,999
1991 interest received on mortgage revenue bond (1,039,505)
-----------------------------------------------------------------
Carrying value, December 31, 1991 14,888,185
1992 share of Camelot Lakes earnings 677,121
1992 interest received on mortgage revenue bond (1,202,412)
-----------------------------------------------------------------
Carrying value, December 31, 1992 14,362,894
1993 share of Camelot Lakes earnings 527,857
1993 interest received on mortgage revenue bond (1,172,899)
-----------------------------------------------------------------
Carrying value, December 31, 1993 13,717,852
1994 share of Camelot Lakes earnings 377,211
1994 interest received on mortgage revenue bond (833,850)
-----------------------------------------------------------------
Carrying value, December 31, 1994 13,261,213
1995 share of Camelot Lakes earnings 43,158
1995 interest received on mortgage revenue bond (1,002,015)
-----------------------------------------------------------------
Carrying value, December 31, 1995 $ 12,302,356
=============
Under the original loan documents, the interest rates during the term of the
mortgage loan are as follows:
Base Primary Supplemental
Interest Deferred Base Contingent Contingent
Rate Interest Rate Interest Rate Interest Rate
- -------------------------------------------------------------------------------
April 28, 1989 to
April 30, 1992 6.70% 5.30% 4.00% --
May 1, 1992 to
April 30, 1994 8.50% -- 4.25% 3.25%
May 1, 1994 to
April 28, 1999 8.75% -- 4.00% 3.25%
- -------------------------------------------------------------------------------
Base interest accrued monthly and was payable in arrears. Deferred base
interest and primary contingent interest which totaled $2,473,737 and
$4,220,080 at December 31, 1995, respectively, will be payable monthly in
arrears from excess Net Cash Flow, as defined, from the Property. Supplemental
contingent interest, which totaled $1,848,871 at December 31, 1995, will be
payable monthly in arrears to the extent of 65% of Net Cash Flow remaining
after the payment of deferred base interest and primary contingent interest.
Should the Net Cash Flow of the Property in any year be insufficient to pay any
primary or supplemental contingent interest, the unpaid amounts will be
deferred and payable from future cash flows or upon maturity of the mortgage
loan. Based on the current performance of the Property, it is unlikely that
any deferred base, primary or supplemental contingent interest will be received
by the Partnership.
To address the possibility of available cash from Property operations being
insufficient to provide the necessary funds for payments of base interest, the
Partnership required at closing that the Borrower establish a Borrower
Operating Reserve in the original amount of $337,326, consisting of cash of
$112,326 and an irrevocable letter of credit of $225,000. In addition, net
interim income, equal to net cash flow from the Property less one month's
anticipated operating expenses, was deposited into the reserve account on a
monthly basis, provided the Property generated sufficient cash flow. In
November 1992, the cash balance in the account reached approximately $187,000,
through the addition of net interim income and the accrued interest income. In
November 1992, the Partnership began withdrawing funds from the Borrower
Operating Reserve in order that Camelot Lakes meet its interest payments. In
1993, funds in the amount of $232,780 were withdrawn and applied to the payment
of base i nterest. As of December 31, 1993, a balance of $50,000 remained on
the letter of credit; the Partnership agreed to waive its right to draw on the
remaining balance.
Operating difficulties at the Property resulted in Camelot Lakes defaulting on
the November 1993 through January 1994 Bond payments. On February 1, 1994, the
Partnership executed a Termination and Release Agreement with the original
owner of the Property, Camelot Lakes, to relinquish the ownership of the
Property and its cash reserves of approximately $400,000 in return for the
Partnership's agreement to waive its right to draw on the remaining $50,000 of
the Borrower's undrawn letter of credit with the Partnership. Camelot Lakes
agreed to transfer its ownership and management of the Property to the ConCam
Owner, an affiliate of ConAm Management Corporation ("ConAm"), a major property
management company, whereby the ConCam Owner executed a Forbearance Agreement
with the Partnership to assume the obligations under the Bond and loan
documents. ConAm will manage the Property and will receive fees for these
services. The Forbearance Agreement will temporarily modify the interest
paymen t terms under the Bond to include minimum interest pay rates as follows:
Minimum Interest
Pay Rate
Per annum rate - 1994 6.00%
Per annum rate - 1995 6.50%
Per annum rate - 1996 7.00%
The unpaid interest from the difference between the original base interest rate
(8.5% through April 30, 1994 and 8.75% thereafter) and the minimum interest
pay rate will be added to the unpaid interest as of February 1, 1994, and will
accrue and compound monthly at the base interest rate. As of December 31,
1995 and December 31, 1994, the accrued interest differential totaled
$1,128,529 and $692,331, respectively. Any excess Property cash flow after
payment of the minimum interest payment will be allocated to reducing such
accrued interest. During the forbearance period, an annual deposit into the
reserve fund for replacements is required in the amount of $130,900,
increasing 3% per annum beginning in January, 1995. On April 22, 1994, the
General Partner and the ConCam Owner modified the Forbearance Agreement to
redirect the monthly deposits for 1994 to the Partnership as payment of Base
Interest, beginning with the April 1994 payment. Monthly deposits into the
replacement reserve were scheduled to resume effective January 1, 1995,
subject to the original terms of the Forbearance Agreement. However, on
October 24, 1994, the Partnership agreed to allow the ConCam owner to
discontinue monthly payments into the reserve fund, including the remaining
1994 payments that, pursuant to the agreement dated April 22, 1994, were to be
redirected as payment of Base Interest. Such payments have remained
discontinued throughout 1995 and reinstatement is at the sole discretion of
the General Partner. As of December 31, 1995 and December 31, 1994, the
Partnership received $134,827 and $76,356, respectively, in interest as a
result of these additional payments. Due to a cash shortfall at the property
during the month of December 1994, the General Partners agreed to accept a
reduced amount of $1,219 in lieu of the monthly minimum interest payment of
$77,575 for the November debt service payment. The reduced amount was
computed so that the total payments remitted to the Partn ership by the ConCam
Owner for 1994 debt service, including the redirected replacement reserve
fundings, equalled the 6% minimum pay rate required by the Forbearance
Agreement.
The Partnership terminated its contract with CRI, Inc., the mortgage servicer,
effective July 29, 1993, to save the Partnership servicing fees. In the future,
servicing functions will be provided by First Data Investor Services Group, Inc.
("First Data"), formerly The Shareholder Services Group, and by the General
Partner. Both the General Partner and First Data do not anticipate charging a
fee for such services. According to the terms of the Forbearance Agreement,
the Partnership retains the right to appoint a mortgage servicer. The
Forbearance Agreement will expire on December 31, 1996 and is subject to
renewal at the Partnership's sole option.
5. Working Capital and Capital Improvements Loan
In conjunction with the investment in the mortgage revenue bond, the Partnership
made a working capital loan to Camelot Lakes in the amount of $420,000, maturing
on April 28, 1999 and bearing interest at the rate of 12.625% per annum. The
loan is secured by a Second Deed of Trust on the Property, which is subordinate
to the first mortgage loan on the Bond (see Note 4).
On February 1, 1994, the Partnership executed a First Amendment to the Working
Capital Loan Agreement (the "Amendment") with the current owner of the
Property. Under the Amendment, the Partnership will lend the Property up to
the aggregate amount of $500,000 (the "Capital Improvements Loan") for capital
improvements to be made to the Property in 1994. The Capital Improvements Loan
shall bear simple interest, non-compounding, at the per annum rate of 6.0% and
all interest shall be due and payable, together with the principal balance of
the Capital Improvements Loan, upon the earlier of the end of the forbearance
period or the Maturity Payment Date. As of December 31, 1995 and December 31,
1994, the interest receivable on the Capital Improvements Loan totaled $42,723
and $12,723, respectively. The Amendment also provides that the principal
balance and accrued interest balance of the Working Capital Loan, $420,000 and
$13,256, respectively as of February 1, 1994, plus all future accru ed working
capital loan base interest is due and payable on the Maturity Payment Date.
All working capital loan base interest shall continue to accrue at the per
annum rate of 6.0%, a reduction in the previous rate of 12.625%. The Borrower
shall not be obligated to pay working capital loan base interest or any other
interest payments that may be required under the Working Capital Loan Agreement
until the Maturity Payment Date. As of December 31, 1995 and December 31,
1994, the interest receivable on the Working Capital Loan totaled $61,556 and
$36,356, respectively. Based on the Property's performance, it is unlikely
that any interest on Capital Improvements Loan and the Working Capital Loan
will be received by the Partnership. Consequently, the interest receivable
amounts are not recorded on the accompanying financial statements. The
obligation to repay all loans, including the Bond, and interest thereon, is a
nonrecourse obligation of the Borrower and will be repaid only to the extent
excess cash flow from Property operations or proceeds from the sale of the
Property are available.
6. Transactions with General Partner and Affiliates
The Partnership reimbursed Lehman Brothers in the amount of $557,353 for
organizational and offering expenses incurred in connection with the offering
of the Units during the period ended December 31, 1989.
The Selling Agent was entitled to receive selling commissions equal to 5% of
the gross proceeds from the Public Offering. The Selling Agent received
$1,070,000 for selling commissions and $321,000 for additional sales and
registration costs.
The General Partner was paid a nonrecurring bond acquisition fee equal to 2% of
gross proceeds of the Public Offering in the amount of $428,000 in
consideration for its services in connection with selecting, evaluating and
negotiating the terms of the investment in the Bond.
The General Partner or its affiliates earned fees for administrative expenses
of approximately $22,000, $39,000 and $24,000 for the years ended December 31,
1995, 1994 and 1993, respectively. The General Partner or its affiliates were
owed approximately $6,500 and $20,000 at December 31, 1995 and 1994,
respectively.
7. Distributions Payable
Cash distributions, per the Statements of Partners' Capital (Deficit), are
recorded on the accrual basis, which recognizes specific record dates for
payments within each fiscal year; the Statements of Cash Flows recognize actual
cash paid during the period. The following table discloses the annual
differences as presented on the Financial Statements:
Distributions
Payable at Distributions
Beginning Statements of Statements of Payable at
of Period Partners' Capital Cash Flows End of Period
- ------------------------------------------------------------------------------
1995 $ 272,423 $ 1,080,808 $ 1,080,808 $ 272,423
1994 272,423 1,080,808 1,080,808 272,423
1993 407,518 1,214,059 1,349,154 272,423
- ------------------------------------------------------------------------------
In accordance with the Partnership Agreement, the distributions payable were
paid within 45 days after the years ended December 31, 1995, 1994 and 1993.
8. Reconciliation of Financial Statement Net Income (Loss) to Federal Income
Tax Net Income
As discussed in Note 4, the investment in the Bond is accounted for using the
equity method for financial reporting purposes. However, for tax
purposes, the investment in mortgage revenue bond is treated as a mortgage loan
receivable. Primarily as a result of this difference in accounting, income for
tax purposes including tax exempt income reported to the BAC Holders for each
of the years ended December 31, 1995, December 31, 1994 and December 31, 1993
was greater than net income (loss) per the Statements of Operations by
approximately $1,441,000, $1,169,000, and $989,000. Tax exempt income reported
to the BAC Holders amounted to approximately $1,545,000, $1,527,000 and
$1,536,000 for 1995, 1994 and 1993, respectively.
Report of Independent Auditors
The Partners Victory
Tax Exempt Realty Income Fund Limited Partnership
We have audited the accompanying balance sheets of Victory Tax Exempt Realty
Income Fund Limited Partnership (a Delaware limited partnership) as of
December 31, 1995 and 1994, and the related statements of operations, partners'
capital (deficit) and cash flows for each of the years in the three-year period
ended December 31, 1995. 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 Victory Tax Exempt Realty
Income Fund Limited Partnership as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
February 16, 1996
CONCAM ASSOCIATES, LP,
A California Limited Partnership
Financial Statements
December 31, 1995 and 1994
(With Independent Auditors Report Thereon)
----------------------------
Independent Auditors Report
---------------------------
The General Partner
ConCam Associates, LP,
A California Limited Partnership:
We have audited the accompanying balance sheets of ConCam Associates, LP, a
California Limited Partnership as of December 31, 1995 and 1994 and the related
statements of operations and partners capital (deficit), and cash flows for
the year ended December 31, 1995 and the period from January 28, 1994
(inception) through December 31, 1994. 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 ConCam Associates, LP, a
California Limited Partnership as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for the year ended December 31,
1995 and the period from January 28, 1994 (inception) through December 31,
1994, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 9 to the
financial statements, the ability of the Partnership to meet its obligations as
they come due has been adversely affected by cash flow deficits from
operations. This condition raises substantial doubt about the Partnership s
ability to continue as a going concern. Management s plans in regard to this
matter are also described in Note 9 to the financial statements. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
San Diego, California
February 23, 1996
CONCAM ASSOCIATES, LP,
A California Limited Partnership
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Funds held in trust by ConAm Management $ 150,241 $ 235,095
Corporation including $91,509 and $131,679
in 1995 and 1994, respectively, in
interest-bearing accounts
Impound deposits 48,074 46,992
Prepaid expenses 14,615 10,636
Property and equipment, at cost,
encumbered (note 4):
Land 2,380,000 2,380,000
Land improvements 1,044,163 1,044,163
Buildings 7,944,099 7,934,395
Furnishings and equipment 700,513 694,941
12,068,775 12,053,499
Less accumulated depreciation (561,090) (267,292)
Net property and equipment 11,507,685 11,786,207
Organization costs, less amortization 7,763 10,215
of $4,495 and $2,043 in 1995
and 1994, respectively
----------- -----------
Total Assets $11,728,378 $12,089,145
Liabilities and Partners Capital (Deficit):
Accounts payable and other liabilities 56,573 108,925
Due to affiliate (note 5) 30,129 28,744
Rental security deposits 133,694 131,679
Deferred and accrued interest payable, 7,242,402 5,323,020
net of discount (note 4)
First trust deed note payable, 9,376,058 8,682,307
net of discount (note 4)
Working capital loan payable, 253,766 235,035
net of discount (note 4)
Capital improvement loan payable (note 4) 500,000 500,000
---------- ----------
Total liabilities 17,592,622 15,009,710
Partners capital (deficit) (notes 2, 7 and 8):
General partner (58,643) (29,206)
Limited partner (5,805,601) (2,891,359)
----------- -----------
Total partners capital (deficit) (5,864,244) (2,920,565)
----------- -----------
Total Liabilities and Partners Capital $11,728,378 $12,089,145
=========== ===========
See accompanying notes to financial statements.
CONCAM ASSOCIATES, LP,
A California Limited Partnership
Statements of Operations and Partners Capital (Deficit)
For the year ended December 31, 1995 and
the period from January 28, 1994 (inception) through December 31, 1994
1995 1994
Revenue:
Rent (note 4) $1,917,336 $1,664,914
Laundry 28,792 7,993
Forfeited deposits 82,331 67,908
Late charges and other 48,754 35,518
Carport and garage 25,190 24,991
Interest 7,115 5,164
--------- ---------
Total Revenue 2,109,518 1,806,488
Expenses:
Salaries 213,326 236,840
Payroll taxes 49,321 70,411
Office supplies 27,690 31,679
Utilities 177,249 164,021
Repairs and maintenance:
Routine 252,182 274,377
Non-routine -- 455,995
Advertising 37,116 75,398
Management fees (note 5) 84,381 72,260
Supervisory fees (note 5) -- 22,800
Real estate taxes 167,106 143,007
Insurance 28,799 29,694
Depreciation 293,798 267,292
Interest, including $1,012,479 and $477,428 3,633,879 2,808,844
for the year ended December 31, 1995 and
the period from January 28, 1994
(inception) through December 31, 1994,
respectively, of amortization of discount
Professional fees 35,059 60,175
Amortization of organization costs 2,452 2,043
Security services 17,273 984
Miscellaneous (note 5) 33,566 31,233
--------- ---------
5,053,197 4,747,053
--------- ---------
Net loss (2,943,679) (2,940,565)
========= =========
Partners capital (deficit) at (2,920,565) --
beginning of period
Capital contributions (note 2) -- 20,000
Partners capital (deficit) at end
of period (notes 2, 7 and 8) $(5,864,244) (2,920,565)
CONCAM ASSOCIATES, LP,
A California Limited Partnership
Statements of Cash Flows
For the year ended December 31, 1995 and
the period from January 28, 1994 (inception) through December 31, 1994
1995 1994
Cash flows from operating activities:
Net loss $(2,943,679) (2,940,565)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 293,798 267,292
Amortization of discount on long-term debt 1,012,479 477,428
Amortization of organization costs 2,452 2,043
Change in assets and liabilities:
(Increase) decrease in prepaid expenses (5,016) 162,632
and impound deposits
(Decrease) increase in accounts payable (52,352) 108,925
and other liabilities
Increase in due to affiliate 1,385 17,583
Increase in rental security deposits 2,015 22,967
Increase in deferred and accrued interest 1,619,385 1,568,408
--------- ---------
Net cash used in operating activities (69,578) (313,287)
--------- ---------
Cash flows from investing activities:
Purchase of fixed assets (15,276) (153,498)
Payment of organizational costs -- (1,097)
Cash received in connection with -- 182,977
acquisition of Camelot Lakes
------- ------
Net cash provided by (used in) (15,276) 28,382
investing activities ------- ------
Cash flows from financing activities:
Proceeds from note payable -- 500,000
Partners capital contributions -- 20,000
------- -------
Net cash provided by financing activities -- 520,000
------- -------
Net (decrease) increase in funds held in (84,854) 235,095
trust by ConAm Management Corporation
Funds held in trust by ConAm Management 235,095 --
Corporation at beginning of period ------- -------
Funds held in trust by ConAm Management 150,241 235,095
Corporation at end of period ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $1,002,015 782,821
---------- -------
CONCAM ASSOCIATES, LP,
A California Limited Partnership
Statements of Cash Flows, Continued
For the year ended December 31, 1995 and
the period from January 28, 1994 (inception) through December 31, 1994
1994
Supplemental disclosure of noncash investing activities:
In 1994, the Partnership purchased the property for $1 plus assumption of the
related debt. The assets and liabilities acquired in conjunction with this
purchase, excluding $182,977 of cash, are as follows:
Property and equipment $11,900,000
Impound deposits 61,992
Replacement reserve 158,269
First trust deed note payable, net of discount (8,355,193)
Working capital loan payable, net of discount (226,180)
Deferred and accrued interest payable, net of discount (3,613,153)
Rental security deposits (108,712)
Net cash acquired $ (182,977)
Due to affiliate includes unpaid organization costs $ 11,161
CONCAM ASSOCIATES, LP,
A California Limited Partnership
Notes to Financial Statements
December 31, 1995 and 1994
(1) Organization and Summary of Significant Accounting Policies
General
ConCam Associates, LP (the Partnership ) a partnership between ConCam, Inc.,
as the general partner, and Continental American Properties, Ltd., as the
limited partner, was formed January 28, 1994 for the purpose of acquiring and
operating Camelot Lakes Apartments (the Property ), a 476-unit apartment
complex located in Fresno, California. The Partnership acquired the property
on February 1, 1994. The Partnership generally leases its apartment units with
lease terms of one year or less.
Basis of Accounting
The accompanying financial statements are prepared on the accrual basis of
accounting. Revenue is recognized when earned and expenses are recognized when
incurred in accordance with generally accepted accounting principles.
Depreciation
Depreciation has been provided over the estimated useful lives of the related
assets (buildings and improvements - 35 years; furniture - ten years) using the
straight-line method with an estimated residual value equal to 10% of the
original cost.
Organization Costs
Organization costs are amortized using the straight-line method over a
five-year period.
Income Taxes
No provision for income taxes has been made as the liability for such taxes is
that of the partners, rather than the Partnership. At December 31, 1995, the
tax basis of the Partnership s assets was $220,693 and the tax basis of the
Partnership s liabilities was $220,396.
Discount on Long-term Debt
The discount on long-term debt is amortized over the life of the related
liabilities using the interest method.
Impairment
Provision is made for impairment losses if estimated future operating cash
flows (undiscounted and without interest charges) over a long-term holding
period plus estimated disposition proceeds (undiscounted) are less than current
book value.
Loss Per Unit
The Partnership did not issue units to the limited partner, therefore, loss per
unit is not applicable.
Use of Estimates
Management of the Partnership has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
(2) Partners Capital Contributions
In 1994, the limited partner contributed $19,800 and the general partner
contributed $200 to the Partnership. No contributions were made in 1995.
(3) Acquisition of Property
The Partnership acquired the Property for $1 plus the assumption of existing
debt, and discounted the debt and related deferred and accrued interest payable
in order to value the liabilities at the fair value of the assets acquired in
accordance with APB Opinion No. 21, Interest on Receivables and Payables. The
Property was valued at $11,900,000 on February 1, 1994. The $10,449,842
difference between the face amount of the notes and the value of the property
is shown as a discount. As of December 31, 1995 and 1994, respectively,
$1,012,479 and $477,428 of the discount was amortized as interest expense at an
effective rate of 23.56%. At December 31, 1995 and 1994, respectively, the tax
basis of the Partnership s Property was zero.
(4) Long-term Debt
On February 1, 1994, the Partnership executed an assignment and assumption
agreement with the original owner of the property, Camelot Lakes Associates,
whereby, in conjunction with the acquisition of the property, the Partnership
assumed the first and second trust deed notes payable. First Trust Deed Note
Payable The funds for the first trust deed were made available to the lender
through the issuance of revenue bonds, with the stipulation that 20% of the
project s units must be reserved for low or very low income tenants, as
defined. The first trust deed note payable in the amount of $15,515,000, is
secured by property and equipment and an assignment of rents. The note bears
interest at 16% per annum consisting of base interest, deferral period deferred
base interest, primary contingent interest and supplemental contingent
interest. Under the original loan agreement, interest rates during the term of
the note are as follows:
Deferral
period Supple-
deferred Primary mental
Base base contingent contingent
interest interest interest interest
April 28, 1989 through April 30, 1992 6.70% 5.30% 4.00% --
May 1, 1992 through April 30, 1994 8.50% -- 4.25% 3.25%
May 1, 1994 through April 28, 1999 8.75% -- 4.00% 3.25%
At February 1, 1994, accrued base interest, deferral period deferred base
interest, primary contingent interest and supplemental contingent interest were
$319,062, $2,473,737, $3,020,900 and $882,416, respectively.
In conjunction with the acquisition of the Property, the Partnership executed a
forbearance agreement with Victory Tax Exempt Realty Income Fund Limited
Partnership (the Lender ). The forbearance agreement is effective February 1,
1994 through December 31, 1996, at which time the Lender has the option to
extend the forbearance period or reinstate the original terms of the first
trust deed note agreement.
In accordance with the forbearance agreement, the minimum base interest pay
rate in 1994, 1995 and 1996 is 6.0%, 6.5% and 7.0%, respectively. The unpaid
interest from the difference between the original base interest rate and the
minimum base interest pay rate is to be added to the unpaid interest as of
February 1, 1994, and compounds monthly at the base interest rate. Deferral
period deferred base interest is payable on April 28, 1999. Primary contingent
interest is payable in arrears from excess Net Cash Flow, as defined.
Supplemental contingent interest is payable from 65% of Net Cash Flow remaining
after the payment of deferred base interest and primary contingent interest.
Interest only payments are scheduled until April 28, 1999, at which time all
outstanding principal and interest are payable. Accrued base interest,
deferral period deferred base interest, primary contingent interest and
supplemental contingent interest at December 31, 1995 were $1,250,193,
$2,473,737, $4,220,080 and $1,848,871, respectively. Accrued base interest,
deferral period deferred base interest, primary contingent interest and
supplemental contingent interest at December 31, 1994 were $810,846,
$2,473,737, $3,599,480 and $1,344,634, respectively.
In accordance with the forbearance agreement, monthly deposits were required to
be made to a replacement reserve. In April 1994, the lender agreed to allow
the Partnership to redirect the funds to payment of base interest. The
reinstatement of monthly replacement reserve deposits is at the sole discretion
of the Lender.
Working Capital Loan Payable
The working capital loan payable has an outstanding principal amount of
$420,000 at December 31, 1995 and 1994. The loan is secured by a second trust
deed on the Partnership s property and equipment and an assignment of rents.
On February 1, 1994, accrued interest was $13,253. Based on the original terms
of the note, interest only payments are due until April 28, 1999, at which time
all outstanding principal and interest are payable. The note was amended on
February 1, 1994, resulting in a reduction of the interest rate from 12.625% to
6.00%, simple interest. In addition, no interest payments are due until April
28, 1999. At December 31, 1995 and 1994, accrued interest on the note was
$61,557 and $36,356, respectively.
Capital Improvement Loan Payable
In conjunction with the amendment to the second trust deed note payable, the
lender agreed to lend the Partnership an additional $500,000 for capital
improvements to be made to the Property in 1994. The loan is secured by a
second trust deed on the Partnership s property and equipment and an assignment
of rents. The capital improvement loan bears simple interest at 6.0% per
annum. Principal and interest are due and payable, at the earlier of the end
of the forbearance period (at present, December 31, 1996) or April 28, 1999. At
December 31, 1995 and 1994, accrued interest on the note was $42,723 and
$12,723, respectively.
Summary of Long-term Debt
A summary of long-term debt at December 31, 1995 and 1994 is as follows:
Capital Deferred
Working Improv- and
First Trust Capital ment accrued
Deed Note Loan Loan interest
Payable Payable Payable Payable Total
Balance at
February 1, 1994 $15,515,000 420,000 -- 6,709,368 22,644,368
Discount,
February 1, 1994 (7,159,807) (193,820) -- (3,096,215) (10,449,842)
Proceeds from
notes payable -- -- 500,000 -- 500,000
Deferred and
accrued interest
during the period
ended December 31,
1994 -- -- -- 1,568,408 1,568,408
Discount
amortization
during the
period ended
December 31, 1994 327,114 8,855 -- 141,459 477,428
Balance, net
discount at
December 31, 1994 8,682,307 235,035 500,000 5,323,020 14,740,362
Deferred and
accrued interest
during the year
ended December 31,
1995 -- -- -- 1,619,385 1,619,385
Discount
amortization
during the
year ended
December 31, 1995 693,751 18,731 -- 299,997 1,012,479
Balance, net
discount at
December 31, 1995 $9,376,058 $253,766 $500,000 $7,242,402 $17,372,226
(5) General Partner and Management Services
Management Agreement
A management agreement between the Partnership and ConAm Management
Corporation, an affiliate of ConCam, Inc., the general partner, provides for
base management fees of 4% of gross revenue and an incentive management fee,
which ranges from 0.5% to 1.5% of gross rental revenue, based on annual cash
flow, as defined. If however, annual cash flow, as defined, does not exceed
$1,200,000, the incentive fee will not be earned. No incentive management fee
was earned for the year ended December 31, 1995 or the period ended December
31, 1994. The agreement has an initial term of thirty-five months, terminating
on December 31, 1996, and is automatically renewable for successive one-year
terms unless either party elects to terminate upon written notice given at
least 90 days prior to the end of the current contract year. Accrued
management fees at December 31, 1995 and 1994 were $9,658 and $8,273,
respectively.
In addition, the management agreement provides for a construction supervision
fee of 5% of certain capital improvement costs approved by the lender. The fee
is payable at the time the capital improvement costs are funded. Construction
supervision fees paid during the period ended December 31, 1994 were $28,244,
of which $5,444 were capitalized as property and equipment.
Reimbursements to Affiliate
As of December 31, 1995 and 1994, the Partnership had accrued a total of
$20,471 of reimbursable expenses payable to an affiliate of the general partner
for costs incurred on behalf of the Partnership, of which $11,161 were
capitalized as organization costs in 1994. The remaining balance has been
recorded as miscellaneous expenses incurred in 1994.
(6) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 Disclosures About Fair
Value of Financial Instruments, requires that fair values be disclosed for the
Partnership s financial instruments. The carrying amount of funds held in
trust, impound deposits, accounts payable and other liabilities, due to
affiliate and rental security deposits are reasonable estimates of their fair
values due to the short-term nature of those instruments. Management has
determined that it is not practicable to estimate fair value of the Partnership
s long-term debt and the related deferred and accrued interest payable, based
primarily on the difficulty of predicting the timing of future cash flows.
Also, it is unlikely that the Partnership could refinance its debt and repay
the existing principal and related deferred and accred interest payable.
(7) Allocations of Earnings and Losses
(1) Net loss of the Partnership is to be allocated 99% to the limited
partner and 1% to the general partner.
(2) Net income of the Partnership is to be allocated as follows:
(i) First, to each partner, an amount equal to (or in proportion to
if less than) the excess, if any, of the aggregate amount of net
loss allocated to such partner over the aggregate amount of net
income allocated to such partner; and
(ii) Second, the balance, 99% to the limited partner and 1% to the
general partner.
Notwithstanding anything to the contrary, the partnership agreement requires
that the general partner s interest in each material item of partnership
income, gain, loss, deduction or credit shall be equal to at least 1% of each
item at all times during the existence of the Partnership.
(8) Distributions
Cash Available for Distribution, as defined, is to be distributed 99% to the
limited partner and 1% to the general partner. Cash Available for Distribution
in Liquidation, as defined, is to be distributed to the partners, pro rata, in
accordance with each partner s capital account balance, to the extent thereof,
after allocation of income, loss and other appropriate capital account
adjustments.
(9) Ability to Meet Current Obligations and Management's Plans
The liquidity of the Partnership has been adversely affected by cash flow
deficits from operations, due mainly to high vacancy. The operating deficits
have prevented the Partnership from meeting its current obligations under the
forbearance agreement (Note 4).
In April 1994, the lender agreed to allow the Partnership to redirect the
payment of monthly replacement reserve deposits, as required by the forbearance
agreement, to the payment of base interest. The reinstatement of such payments
is at the sole discretion of the Lender.
The Partnership's ability to continue its operations is dependent upon an
extension of the forbearance period or improved cash flow from operations of
the Project.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<FISCAL-YEAR-END> DEC-31-1995
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