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
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
incorporation or organization I.R.S. Employer
Identification No.
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, 1997, 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,
1997, 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" or
"Registrant") 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 original 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") which was
secured by a second deed of trust encumbering the Property. The owner of the
Property at the time the Bond was purchased 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 included transferring the Property to a new owner, entering into a
Forbearance Agreement with the new owner, amending the second deed of trust,
and replacing the original property management company. Pursuant to the
restructuring, the current owner and borrower is ConCam Associates, LP
("ConCam" or the "New Borrower"), an unaffiliated California limited
partnership, and the current property manager is ConAm Management Corporation
("ConAm"), an affiliate of ConCam. In conjunction with this restructuring, the
Partnership also made a capital improvements loan (the "Capital Improvements
Loan") of $500,000 during 1994, which was also secured by the second deed of
trust encumbering 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, Working Capital Loan, 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,
1997, filed as an exhibit under Item 14.
During 1997, the General Partner and ConCam agreed to pursue a sale of the
Property in order to accelerate repayment of the Bond at a discount. A
detailed discussion of factors contributing to the decision to sell the
Property and information regarding the current status of efforts to sell the
Property is incorporated by reference to Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained herein.
(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
The Property is subject to competition in its renting and leasing activity from
several similar properties also located within the southeast submarket of
Fresno County. Many one and two family houses in the area are also available
for rent or purchase and compete for prospective tenants. In addition, the
owner of the Property will compete with other real estate owners, developers
and financiers in the eventual sale of the Property.
Because the Property offers amenities such as a swimming pool and tennis
courts, it demands rents that are at the upper end of its market. The General
Partner believes that the sluggish economy and a demographic shift in the
region have somewhat shifted demand for housing in Southeastern Fresno to the
lower end of the rate structure. This shift, combined with competitive forces
and modest growth in demand, has caused limited or virtually no rental rate
growth at many area properties, including the Partnership's Property.
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, Working Capital Loan, 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, 1997, 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, 1997, there were 1,061 BAC Holders.
(c) Dividend History and Restrictions.
Information on the Partnership's cash distributions is incorporated by
reference to Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained herein, and Note 6
"Distributions Payable" of the Notes to the Financial Statements in the
Partnership's Annual Report to BAC Holders for the year ended December 31,
1997, filed as an exhibit under Item 14.
Cumulative distributions to date total $4.8820 per $10 Limited Partnership
Unit. Approximately 77% of these distributions have been funded from operating
cash flow, with the remaining 23% funded from the Partnership's cash reserves.
Quarterly cash distributions per $10 Limited Partnership Unit are shown below
for the years ended December 31, 1997 and 1996.
(Based on 2,140,000 BACs outstanding)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1996 $0.1230 $0.1250 $0.1260 $0.0750 $0.4490
1997 $0.0740 $0.0370 $0.0000 $0.0000 $0.1110
Item 6. Selected Financial Data
Selected Partnership financial data for the years ended December 31, 1997,
1996, 1995, 1994 and 1993 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.
1997 1996 1995 1994 1993
Total Revenues $ 440,246 $ 646,191 $ 71,044 $ 406,502 $ 631,711
Net Income (Loss) (2,692,230) 514,121 (30,145) 211,582 441,297
Net Income (Loss)
per BAC(1) (1.25) 0.24 (0.01) 0.10 0.20
Total Assets as of
December 31 10,422,735 13,493,316 14,044,167 15,168,426 16,038,628
Total Cash Distributions
declared per BAC(1) 0.111 0.449 0.500 0.500 0.562
(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 original 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 (the "Original Borrower"), defaulting on the
November 1993 through January 1994 Bond payments. 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, LP
("ConCam"), and property management was transferred to ConAm Management
Corporation ("ConAm"), a major property management company and an affiliate of
ConCam. In addition to ownership, ConCam 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 ConCam pursuant to which the Partnership, for a limited
period, agreed to forbear from exercising certain remedies against ConCam and
the Property provided certain conditions were met.
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%. In
February 1996, ConCam indicated that the Property's operations could not
support debt service payments at the increased rate in 1996. On May 8, 1996,
as a result of negotiations with ConCam, the Partnership executed a standstill
agreement (the "Agreement") to generally allow a continuance of the terms of
the Forbearance Agreement provided that in lieu of the minimum pay rate, ConCam
pay as debt service all available cash flow generated by the Property. The
Agreement was in effect through December 31, 1996, the expiration of the
Forbearance Agreement. At such time, the parties were engaged in good faith
negotiations and therefore, the Partnership extended the Agreement with ConCam
through December 31, 1997. The Partnership is currently in the process of
extending the Agreement with ConCam until the earlier to occur of December 31,
1998 or the closing of a sale of the Property. Until such time, ConCam will
continue to make "cash-flow" debt service payments in accordance with the
Agreement. Payments made during the year ended December 31, 1997 approximated
an average pay rate of 3.3%.
The General Partner's objective is to maximize the recovery of the
Partnership's investment. Options evaluated by the General Partner include a
discounted pay-off of the Bond based on a sale of the Property prior to the
scheduled maturity date of the Bond on April 28, 1999, or a formal
restructuring of the payment terms under the Bond. Given that the Bond is
collateralized by the Property, the principal repaid on the Bond is dependent
on the value of the Property. Therefore, in determining the viability of the
possible alternatives, the General Partner considered such factors as the
potential for further change in the southeast Fresno rental market and in the
performance of the Property. Based on its evaluation of conditions in the
Fresno market, the General Partner has concluded there is little indication
that job growth, or, consequently, demand for rental units, will improve
substantially in the foreseeable future. Given these factors, the General
Partner and ConCam have agreed to pursue a sale of the Property in order to
accelerate repayment of the Bond at a discount. A broker has been selected to
market the Property, and it is expected that ConCam will enter into a brokerage
agreement in the near future. Based upon the decision to pursue a sale of the
Property in 1998 and the resulting change in the estimated holding period, the
Partnership wrote down the carrying value of its investment in the mortgage
revenue bond, working capital loan, and capital improvements loan to
$10,000,000, its estimated fair value as determined by management as of
December 31, 1997. There can be no assurance that a sale will occur in the near
term, or that a sale will result in a particular price.
In anticipation of initiating the marketing process, ConCam has been
concentrating its efforts on stabilizing Property operations and positioning
the Property in the Fresno market. To this end, the Partnership authorized
ConCam to utilize a portion of operating cash flow to make certain Property
improvements deemed necessary to increase occupancy and ensure that the
Property is well-positioned for sale. ConCam will continue to make "cash-flow"
debt service payments to the Partnership until the Property is sold. However,
as a result of this increase in capital expenses at the Property level, the
level of debt service payments made by ConCam to the Partnership continued to
decrease in the second half of 1997.
At December 31, 1997, the Partnership had cash and cash equivalents, which are
invested in tax-exempt money market accounts, of $366,144, compared with
$410,449 at December 31, 1996. The decrease is due to a decrease in net cash
flow from operations due to ConCam making lower minimum interest payments to
the Partnership.
Accounts payable and accrued expenses increased to $51,016 at December 31,
1997, compared to $48,523 at December 31, 1996. The change is primarily due to
differences in the timing of payments. Due to affiliates increased to $22,000
at December 31, 1997, compared to $0 at December 31, 1996, primarily due to
administrative reimbursement accruals due through the 1997 period. Such
expenses were not reimbursable in prior periods.
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. Beginning with the fourth quarter
of 1996, cash distributions were reduced to an annual return of 3.0%. The
level of debt service paid by ConCam declined further during the second quarter
of 1997, and consequently, the 1997 second quarter distribution was reduced to
an annual return of 1.5%. In view of the decline in cash flow available to
fund distributions, cash distributions were suspended beginning with the 1997
third quarter distribution, which would have been paid in November 1997. In
light of the decision to begin marketing the Property in 1998, quarterly
distributions will not be reinstated. However, once the Property is sold and
ConCam's obligations to the Partnership have been satisfied, the General
Partner will distribute the net proceeds received on the Bond together with the
Partnership's remaining cash reserves (after payment of or provision for, the
Partnership's liabilities and expenses). Total cash distributions declared for
1997 were $240,739, which included $238,332, or $.111 per Beneficial Assignee
Certificate, declared payable to the Limited Partners. As of December 31,
1997, 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 interest on the Bond, and interest earned on cash and
cash equivalents.
Results of Operations
1997 versus 1996
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, 1997, the Partnership had a net loss of
$2,692,230, compared with net income of $514,121 for the year ended
December 31, 1996. The change is primarily due to the loss on the
Partnership's write-down in 1997 of the investment in mortgage revenue bond,
working capital loan, and capital improvements loan by $2,892,415. Excluding
the loss on the write-down, the Partnership generated net income of $200,185
for the year ended December 31, 1997, compared with net income of $514,121 for
the year ended December 31, 1996. The decrease primarily is due to a decrease
in the Partnership's share of earnings from its investment in the Bond, an
increase in general and administrative expenses and a slight decrease in other
interest.
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, 1997 relative to 1996. The Partnership's equity interest in the
Property's earnings for the year ended December 31, 1997 was $426,352, compared
to $627,378 for the year ended December 31, 1996. The Partnership's equity
interest in the Property's earnings decreased for the 1997 period, primarily
due to lower rental income and higher expenses incurred at the Property. Total
income at Camelot Lakes Apartments was $1,993,837 for the year ended
December 31, 1997, compared to $2,056,281 for the year ended December 31, 1996.
The decrease primarily is due to a decrease in rental income as a result of
lower average rental rates and increased concessions, as well as a slight
decrease in average occupancy at the Property. Total expenses at Camelot Lakes
Apartments, net of debt service, were $1,223,351 for the year ended
December 31, 1997, compared to $1,111,401 for the year ended December 31, 1996.
The increase primarily is due to higher security, advertising and promotion and
utilities expenses, higher property taxes, and higher administrative and
repairs and maintenance expenses, which were partially offset by lower
management fees, insurance and other property expenses.
For the year ended December 31, 1997, other interest was $13,894, compared to
$18,813 for the year ended December 31, 1996. The decrease primarily is due to
lower cash balances maintained by the Partnership during 1997.
Total Partnership expenses for the year ended December 31, 1997, excluding the
loss on write-down of investment in mortgage revenue bond, working capital
loan, and capital improvements loan of $2,892,415, were $240,061, compared to
$132,070 for the year ended December 31, 1996. The increase is attributable to
higher general and administrative expenses for the 1997 period. General and
administrative expenses for the year ended December 31, 1997 were $197,261,
compared to $89,270 for the year ended December 31, 1996. Effective January 1,
1997, certain expenses incurred by the General Partner, its affiliates, and an
unaffiliated third party service provider in servicing the Partnership, which
were voluntarily absorbed by affiliates of the General Partner in prior
periods, were reimbursable to the General Partner and its affiliates. The
change is also due to an increase in other professional fees during 1997.
Interest received on the mortgage revenue bond was $517,413 for the year ended
December 31, 1997, compared with $866,258 for the year ended December 31, 1996.
The decrease is largely due to ConCam providing for debt service at a lower
rate averaging 3.3% for 1997, due to the current operating and market
constraints mentioned above.
Average occupancy at the Property for the year ended December 31, 1997 was
86.1%, compared with 86.6% for the year ended December 31, 1996. As of
December 31, 1997, the Property was 90.9% occupied, compared with 83.5% as of
December 31, 1996.
1996 versus 1995
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, 1996, the Partnership generated net income of
$514,121, compared with a net loss of $30,145 for the year ended December 31,
1995. The change from net loss to net income primarily is due to an increase
in the Partnership's share of earnings from its investment in the Bond, which
was partially offset by an increase in general and administrative expenses and
a decrease in other interest.
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, 1996 relative to 1995. The Partnership's equity interest in the
Property's earnings for the year ended December 31, 1996 was $627,378, compared
with $43,158 for the year ended December 31, 1995. The increase primarily is
due to higher expenses incurred at the Property in the first quarter of 1995.
Total income at the Property was $2,056,281 for the year ended December 31,
1996, largely unchanged from $2,083,793 for the year ended December 31, 1995.
The change primarily is due to a slight increase in rental income as a result
of increased average occupancy at the Property, which was partially offset by a
decrease in other income, consisting of laundry revenues. Total expenses at
the Property, excluding debt service, were $1,111,401 for the year ended
December 31, 1996, compared to $1,672,237 for the year ended December 31, 1995.
The decrease primarily is due to higher repairs and maintenance expense in the
first quarter of 1995.
For the year ended December 31, 1996, other interest was $18,813, compared to
$27,886, for the year ended December 31, 1995. The decrease primarily is due
to lower cash balances maintained by the Partnership during 1996.
Total Partnership expenses for the year ended December 31, 1996 were $132,070,
compared to $101,189 for the year ended December 31, 1995. The increase is
attributable to higher general and administrative expenses in 1996, primarily
as a result of increased legal expenses associated with the modification of the
Forbearance Agreement and potential debt remodification, and an increase in
Partnership administrative expenses, which were partially offset by a decrease
in audit and miscellaneous expenses. Prior to the fourth quarter of 1996,
general and administrative expense were paid out of the Partnership's cash
reserves. Effective with the fourth quarter of 1996 and going forward, general
and administrative expenses are being paid out of debt service payments being
made by ConCam to the Partnership.
Interest received on the mortgage revenue bond was $866,258 for the year ended
December 31, 1996, compared with $1,002,015 for the year ended December 31,
1995. The decrease is largely due to ConCam providing for debt service at a
lower rate of 5.5%, due to the current operating and market constraints
mentioned above.
Average occupancy at the Property for the year ended December 31, 1996 was
86.6%, compared with 85.6% for the year ended December 31, 1995. As of
December 31, 1996, the Property was 83% occupied, compared with 89% as of
December 31, 1995.
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, 1997, 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, 1997 are as follows:
Name Office
Doreen D. Odell Director, President & Chief Financial Officer
Rocco F. Andriola Director
Nicole Barr Vice President
Doreen D. Odell, 38, Senior Vice President, has worked with the Diversified
Asset Group since June 1988. Ms. Odell graduated Phi Beta Kappa and received a
B.A. in Economics summa cum laude from Wellesley College in 1981. She received
a M.S. in Real Estate Development from the Massachusetts Institute of
Technology in 1986. Prior to joining Lehman, Ms. Odell was involved in real
estate development in both the public and private sectors. As a development
manager with N.Y.C. Public Development Corporation, she structured joint
ventures with private developers. She also worked with a private development
company, The Harborside Corporation, evaluating real estate investments and
development projects. From 1981 to 1984, Ms. Odell was a construction loan
officer with Manufacturer's Hanover Trust Company.
Rocco F. Andriola, 39, is a Managing Director of Lehman Brothers Inc. in its
Diversified Asset Group and has held such position since October 1996. Since
joining Lehman in 1986, Mr. Andriola has been involved in a wide range of
restructuring and asset management activities involving real estate and other
direct investment transactions. From June 1991 through September 1996, Mr.
Andriola held the position of Senior Vice President in Lehman's Diversified
Asset Group. From June 1989 through May 1991, Mr. Andriola held the position
of First Vice President in Lehman's Capital Preservation and Restructuring
Group. From 1986-89, Mr. Andriola served as a Vice President in the Corporate
Transactions Group of Shearson Lehman Brothers' office of the general counsel.
Prior to joining Lehman, Mr. Andriola practiced corporate and securities law at
Donovan Leisure Newton & Irvine in New York. Mr. Andriola received a B.A. from
Fordham University, a J.D. from New York University School of Law, and an LL.M
in Corporate Law from New York University's Graduate School of Law.
Nicole Barr, 25, is an Associate of Lehman Brothers Inc. and is responsible for
the investment management of residential and commercial real estate. Since
joining Lehman Brothers in 1997, Ms. Barr has been involved in asset management
and the sale of residential and commercial properties. Prior to joining Lehman
Brothers, Ms. Barr worked in General Account investments, valuation and sales
for The Prudential Realty Group from 1995 through 1997. Ms. Barr received a
B.A. degree in Economics from Wellesley College in 1994.
(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, 1997 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
Effective as of January 1, 1997, the Partnership began reimbursing certain
expenses incurred by the General Partner and its affiliates in servicing the
partnership to the extent permitted by the partnership agreement. In prior
years, affiliates of the General Partner had voluntarily absorbed these
expenses.
Additional information is incorporated by reference to Note 5 "Transactions
with Related Parties" of the Notes to Financial Statements contained in the
Partnership's Annual Report to BAC Holders for the year ended December 31,
1997, 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, 1997 and 1996 (1)
Statements of Operations - For the years ended
December 31, 1997, 1996 and 1995 (1)
Statements of Partners' Capital (Deficit) - For
the years ended December 31, 1997, 1996 and 1995 (1)
Statements of Cash Flows - For the years ended
December 31, 1997, 1996 and 1995 (1)
Notes to the Financial Statements (1)
(1) Incorporated by reference to the Partnership's Annual Report to BAC
Holders for the year ended December 31, 1997, which is filed as an
exhibit under Item 14.
(a) (2) Financial Statement Schedules:
ConCam Associates, LP
Independent Auditors' Report A-1
Financial Statements:
Balance Sheets at December 31, 1997 and 1996 A-2
Statements of Operations and Partners' Capital
(Deficit) for the years ended
December 31, 1997, 1996 and 1995 A-3
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 A-4
Notes to the Financial Statements A-5
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.
(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, LP 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, LP
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.)
10.5 Standstill Agreement between Victory Tax Exempt Realty Income Fund Limited
Partnership and ConCam Associates, LP dated May 8, 1996. (Incorporated
by reference from Exhibit 10.5 to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended March 1, 1996.)
10.6 Extension Letter between Victory Tax Exempt Realty Income Fund Limited
Partnership and ConCam Associates, LP dated January 1, 1997.
(Incorporated by reference to Exhibit 10.6 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996).
13.1 Annual Report to BAC Holders for the year ended December 31, 1997.
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
1997.
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 30, 1998
BY: s/Doreen D. Odell/
Name: Doreen D. Odell
Title: President, Director 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 30, 1998
BY: s/Doreen D. Odell/
Name: Doreen D. Odell
Title: President, Director and
Chief Financial Officer
Date: March 30, 1998
BY: s/Rocco F. Andriola/
Name: Rocco F. Andriola
Title: Director
Date: March 30, 1998
BY: s/Nicole Barr/
Name: Nicole Barr
Title: Vice President
EXHIBIT 13.1
VICTORY TAX EXEMPT REALTY INCOME FUND
LIMITED PARTNERSHIP
1997 ANNUAL REPORT TO BAC HOLDERS
Victory Tax Exempt Realty Income Fund Limited Partnership
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 company. The complex consists of 64
buildings situated on 30 acres and includes a swimming
pool, tennis court and covered parking.
Contents
1 Message to Investors
3 Financial Statements
5 Notes to the Financial Statements
12 Report of Independent Auditors
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 800-223-3464
Message to Investors
Presented for your review is the 1997 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, 1997.
Current Status
As discussed in previous correspondence, after careful consideration, the
General Partner and the Property's owner, ConCam Associates, LP ("ConCam") have
agreed to pursue a sale of Camelot Lakes Apartments (the "Property"), prior to
the Bond's scheduled maturity date on April 28, 1999, in order to accelerate
repayment of the Bond at a discount. This decision is based upon the General
Partner's evaluation of the southeast Fresno rental market, and conclusion that
little potential exists for a near- term improvement in local market
conditions, and consequently, in the value of the Property. Given these
factors, the General Partner believes that a sale of the Property is the most
viable means to maximize the recovery of your investment. A broker has been
selected to market the Property, and it is expected that ConCam will enter into
a brokerage agreement in the near future.
In anticipation of initiating the marketing process, ConCam has concentrated
its efforts on stabilizing Property operations and positioning the Property in
the Fresno market in order to maximize its selling price. Specifically, ConCam
has been utilizing rental concessions, such as one month free rent, to reduce
tenant turnover and entice tenants to sign longer-term leases. As a result,
the Property's occupancy increased to 90.9% as of December 31, 1997, compared
with 87.9% as of June 30, 1997 and 83.5% as of December 31, 1996. As of
February 25, 1998, occupancy had further increased to 95.9%. In addition, the
Partnership authorized ConCam to utilize a portion of operating cash flow to
make certain improvements deemed necessary to ensure that the Property is
well-positioned for sale. Given this increase in capital expenses at the
property level, the level of "cash flow" debt service payments made by ConCam
to the Partnership continued to decrease in the second half of 1997.
Given our objective to sell the Property, quarterly distributions to the
Limited Partners will not be reinstated. However, once the Property is sold
and ConCam's obligations to the Partnership have been satisfied, the General
Partner will distribute the net proceeds received on the Bond together with the
Partnership's remaining cash reserves (after payment of, or provision for, the
Partnership's liabilities and expenses), and dissolve the Partnership. While
it is anticipated that the Property will be sold in 1998, there can be no
assurance that a sale will occur within this time frame, or that a sale will
result in a particular price. We will provide you with an update on the status
of our efforts in future investor reports.
Financial Highlights
The following chart highlights the performance of the Partnership for the year
ended December 31 of the indicated years.
1997 1996
Interest received on the Bond $ 517,413 $ 866,258
Other interest 13,894 18,813
Cash provided by operating activities 358,539 811,637
- Interest received on the Bond decreased primarily due to the payment
of debt service by ConCam at a lower rate.
- Other interest declined due to lower average cash balances maintained
by the Partnership.
- Cash provided by operating activities decreased largely due to the
decrease in interest received on the Bond and an increase in
expenses paid by the Partnership during 1997.
General Information
As you may be aware, there have been recent attempts by third parties, for
their own benefit, to purchase units of limited partnerships similar to
your Partnership. Frequently, these third parties use partial tender offers
to purchase units at inadequate prices that do not reflect the underlying
value of the partnership's assets. According to published industry sources,
in the overwhelming majority of those offers, most unitholders have rejected
these offers due to their inadequacy and have not tendered their units.
Summary
The General Partner believes that a sale of the Property and accelerated
repayment of the Bond is the most effective means for maximizing the recovery
of your investment in the Partnership. Therefore, we will continue to work
closely with ConCam to ensure that operations are stabilized and the Property
is well-positioned in order to maximize its selling price. Given that the Bond
is collateralized by the Property, we must underscore that the value of your
investment ultimately is dependent upon the value of the Property upon sale. We
will inform you of any significant developments in future investor
correspondence.
Very truly yours,
CA Victory Inc.
General Partner
s/Doreen D. Odell/
Doreen D. Odell
President
March 30, 1998
Balance Sheets
At December 31, At December 31,
1997 1996
Assets
Investment in mortgage revenue bond,
working capital loan, and capital
improvements loan (Note 2) $ 10,000,000 $ 12,983,476
Cash and cash equivalents 366,144 410,449
Mortgage acquisition fees, net of accumulated
amortization of $371,409 and $328,609 in
1997 and 1996, respectively 56,591 99,391
Total Assets $ 10,422,735 $ 13,493,316
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 51,016 $ 48,523
Due to affiliates 22,000 _
Distributions payable _ 162,105
Total Liabilities 73,016 210,628
Partners' Capital (Deficit):
General Partner (92,489) (63,160)
BAC Holders (2,140,000 BACS outstanding) 10,442,208 13,345,848
Total Partners' Capital 10,349,719 13,282,688
Total Liabilities and Partners' Capital $ 10,422,735 $ 13,493,316
Statement of Partners' Capital (Deficit)
For the years ended December 31, 1997, 1996 and 1995
General BAC
Partner Holders Total
Balance at December 31, 1994 $ (47,504) $ 14,897,514 $ 14,850,010
Net loss (301) (29,844) (30,145)
Cash distributions (10,808) (1,070,000) (1,080,808)
Balance at December 31, 1995 $ (58,613) $ 13,797,670 $ 13,739,057
Net income 5,141 508,980 514,121
Cash distributions (9,688) (960,802) (970,490)
Balance at December 31, 1996 $ (63,160) $ 13,345,848 $ 13,282,688
Net loss (26,922) (2,665,308) (2,692,230)
Cash distributions (2,407) (238,332) (240,739)
Balance at December 31, 1997 $ (92,489) $ 10,442,208 $ 10,349,719
Statements of Operations
For the years ended December 31, 1997 1996 1995
Revenue
Share of earnings from investment
in mortgage revenue bond $ 426,352 $ 627,378 $ 43,158
Other interest 13,894 18,813 27,886
Total Revenue 440,246 646,191 71,044
Expenses
Loss on write-down of investment in mortgage
revenue bond, working capital loan, and
capital improvements loan 2,892,415 _ _
General and administrative 197,261 89,270 58,389
Amortization of mortgage costs 42,800 42,800 42,800
Total Expenses 3,132,476 132,070 101,189
Net Income (Loss) $(2,692,230) $ 514,121 $ (30,145)
Net Income (Loss) Allocated:
To the General Partner $ (26,922) $ 5,141 $ (301)
To the BAC Holders (2,665,308) 508,980 (29,844)
Net Income (Loss) $(2,692,230) $ 514,121 $ (30,145)
Per BAC
(2,140,000 outstanding) $ (1.25) $ .24 $ (.01)
Statements of Cash Flows
For the years ended December 31, 1997 1996 1995
Cash Flows From Operating Activities:
Net income (loss) $ (2,692,230) $ 514,121 $ (30,145)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Loss on write-down of investment in
mortgage revenue bond, working capital
loan, and capital improvements loan 2,892,415 _ _
Share of earnings from investment
in mortgage revenue bond (426,352) (627,378) (43,158)
Interest received on mortgage revenue bond 517,413 866,258 1,002,015
Amortization of mortgage costs 42,800 42,800 42,800
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Accounts payable and accrued expenses 2,493 15,836 (13,306)
Due to affiliates 22,000 _ _
Net cash provided by operating activities 358,539 811,637 958,206
Cash Flows From Financing Activities:
Cash distributions (402,844) (1,080,808) (1,080,808)
Net cash used for financing activities (402,844) (1,080,808) (1,080,808)
Net decrease in cash and cash equivalents (44,305) (269,171) (122,602)
Cash and cash equivalents, beginning of year 410,449 679,620 802,222
Cash and cash equivalents, end of year $ 366,144 $ 410,449 $ 679,620
Notes to the Financial Statements
December 31, 1997, 1996 and 1995
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.
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
At December 31, 1997 and 1996, the Partnership completed a review of the
recoverability of the carrying amount of its investment in the Mortgage Revenue
Bond, Working Capital Loan, and Capital Improvements Loan based upon an
estimate of undiscounted cash flows expected to result from the property
underlying the investment's use and eventual disposition. Based upon the
review completed at December 31, 1997 and a change in management's estimated
holding period, the Partnership wrote down the carrying value of its investment
in accordance with Statement of Financial Accounting Standards No. 121 (See
Note 4).
Syndication Costs
During 1989, selling commissions paid in connection with the public offering,
totaling $1,070,000, and sales and registration costs, totaling $719,754, were
charged against BAC Holders' capital.
Mortgage Acquisition Fees
Mortgage acquisition fees are being amortized using the straight-line method
over the term 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 and Cash Equivalents
Cash and 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.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("FAS 107"), requires that the Partnership
disclose the estimated fair values of its financial instruments. Fair values
generally represent estimates of amounts at which a financial instrument could
be exchanged between willing parties in a current transaction other than in
forced liquidation.
Fair value estimates are subjective and are dependent on a number of
significant assumptions based on management's judgement regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors. In addition, FAS 107 allows a
wide range of valuation techniques, therefore, comparisons between entities,
however similar, may be difficult.
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. 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, Working Capital Loan, and Capital Improvements Loan
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, 476 unit apartment complex (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, LP ("ConCam" or the
"Borrower"), 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
Working Capital Loan 420,000
1989 share of Camelot Lakes earnings 488,679
1989 interest received on mortgage revenue bond (615,040)
Carrying value, December 31, 1989 15,808,639
1990 share of Camelot Lakes earnings 772,557
1990 interest received on mortgage revenue bond (1,039,505)
Carrying value, December 31, 1990 15,541,691
1991 share of Camelot Lakes earnings 805,999
1991 interest received on mortgage revenue bond (1,039,505)
Carrying value, December 31, 1991 15,308,185
1992 share of Camelot Lakes earnings 677,121
1992 interest received on mortgage revenue bond (1,202,412)
Carrying value, December 31, 1992 14,782,894
1993 share of Camelot Lakes earnings 527,857
1993 interest received on mortgage revenue bond (1,172,899)
Carrying value, December 31, 1993 14,137,852
Capital Improvements Loan 500,000
1994 share of Camelot Lakes earnings 377,211
1994 interest received on mortgage revenue bond (833,850)
Carrying value, December 31, 1994 14,181,213
1995 share of Camelot Lakes earnings 43,158
1995 interest received on mortgage revenue bond (1,002,015)
Carrying value, December 31, 1995 13,222,356
1996 share of Camelot Lakes earnings 627,378
1996 interest received on mortgage revenue bond (866,258)
Carrying value, December 31, 1996 12,983,476
1997 share of Camelot Lakes earnings 426,352
1997 interest received on mortgage revenue bond (517,413)
Carrying value, December 31, 1997, before write down 12,892,415
Loss on write-down of investment in mortgage
revenue bond, working capital loan, and
capital improvements loan (2,892,415)
Net carrying value, December 31, 1997 $ 10,000,000
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
$5,461,280 at December 31, 1997, respectively, will be payable monthly in
arrears from excess Net Cash Flow, as defined, from the Property. Supplemental
contingent interest, which totaled $2,857,346 at December 31, 1997, 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 interest, primary contingent interest or supplemental
contingent interest payments 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 interest. 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 ConCam, an
affiliate of ConAm Management Corporation ("ConAm"), a major property
management company, whereby ConCam executed a Forbearance Agreement with the
Partnership to assume the obligations under the Bond and loan documents. ConAm
manages the Property and receives fees for such services. The Forbearance
Agreement temporarily modified the interest payment terms under the Bond to
include minimum interest pay rates as follows:
Minimum Interest
Pay Rate
Per annum rate - 1995 6.50%
Per annum rate - 1996 7.00%
Per annum rate - 1997 7.50%
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 are being added to the unpaid interest as of February 1, 1994, and are
accrued and compounded monthly at the base interest rate. As of December 31,
1997 and December 31, 1996, the accrued interest differential totaled
$2,779,324 and $1,745,750, 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 ConCam 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 ConCam 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 1997 and reinstatement is at the
sole discretion of the General Partner.
The Partnership terminated its contract with CRI, Inc., the mortgage servicer,
effective July 29, 1993, to save the Partnership servicing fees. Servicing
functions are currently 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.
On May 8, 1996, as a result of negotiations with ConCam, the Partnership
executed a Letter Agreement (the "Agreement") to generally allow a continuance
of the terms of the Forbearance Agreement which originally became effective
January 31, 1994. The Agreement provided that in lieu of the minimum pay rate,
ConCam pay as debt service all available cash flow. The Agreement was in
effect through December 31, 1996, the expiration of the Forbearance Agreement.
At such time, the parties were engaged in good faith negotiations, and
therefore, the Partnership extended the Agreement with ConCam through
December 31, 1997. The Partnership is currently in the process of extending
the Agreement with ConCam until the earlier to occur of December 31, 1998 or
the closing of a sale of the Property. Until such time, ConCam will continue to
make "cash-flow" debt service payments in accordance with the Agreement.
Payments made during 1997 approximated an average pay rate of 3.3%.
Based on its evaluation of conditions in the Fresno market, the General Partner
has concluded there is little indication that job growth, or, consequently,
demand for rental units, will improve substantially in the foreseeable future.
Given these factors, the General Partner and ConCam have agreed to pursue a
sale of the Property in order to accelerate repayment of the Bond at a
discount. A broker has been selected to market the Property, and it is
expected that ConCam will enter into a brokerage agreement in the near future.
Based upon the decision to pursue a sale of the Property in the near future and
the resulting change in the estimated holding period, the Partnership wrote
down the carrying value of its investment in Mortgage Revenue Bond, Working
Capital Loan, and Capital Improvements Loan to $10,000,000, its estimated fair
value as determined by management as of December 31, 1997.
The Partnership has authorized ConCam to utilize a portion of operating cash
flow to make certain Property improvements deemed necessary to ensure that the
Property is well-positioned for sale. ConCam will continue to make "cash-flow"
debt service payments to the Partnership until the Property is sold. However,
as a result of this increase in capital expenses at the Property level, the
level of debt service payments made by ConCam to the Partnership continued to
decrease in the second half of 1997.
Working Capital and Capital Improvements Loans
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.
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, 1997 and December 31,
1996, the interest receivable on the Capital Improvements Loan totaled $102,805
and $72,723, 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 accrued 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, 1997 and December 31,
1996, the interest receivable on the Working Capital Loan totaled $111,957 and
$86,757, 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.
5. Transactions with Related Parties
The Partnership reimbursed Lehman Brothers in the amount of $557,353 for
organizational and offering expenses incurred in connection with the Public
Offering.
The Selling Agent received 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.
Effective as of January 1, 1997, the Partnership began reimbursing certain
expenses incurred by the General Partner and its affiliates in servicing the
Partnership to the extent permitted by the Partnership Agreement. These
expenses totaled approximately $43,000 in 1997, of which $22,000 is due to
affiliates at December 31, 1997. In prior years, affiliates of the General
Partner had voluntarily absorbed these expenses.
6. 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 accompanying financial statements.
Distributions
Payable at Statements of Distributions
Beginning Partners' Capital Statements of Payable at
of Period (Deficit) Cash Flows End of Period
1997 $ 162,105 $ 240,739 $ 402,844 $ _
1996 272,423 970,490 1,080,808 162,105
1995 272,423 1,080,808 1,080,808 272,423
Cash distributions were suspended beginning with the 1997 third quarter
distribution, which would have been paid in November 1997.
7. 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 the Bond is treated as a mortgage loan receivable. Primarily as a
result of this difference in accounting and the 1997 impairment loss
adjustment, income for tax purposes including tax exempt income reported to the
BAC Holders for each of the years ended December 31, 1997, December 31, 1996
and December 31, 1995 was greater than net income (loss) per the Statements of
Operations by approximately $91,000, $237,000 and $1,441,000. Tax exempt income
reported to the BAC Holders amounted to approximately $526,000, $876,000 and
$1,545,000 for 1997, 1996 and 1995, 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, 1997 and 1996, 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, 1997. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Victory Tax Exempt Realty
Income Fund Limited Partnership as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
March 17, 1998
CONCAM ASSOCIATES, LP,
A California Limited Partnership
Financial Statements
December 31, 1997 and 1996
(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, 1997 and
1996 and the related statements of operations and partners' deficit, and
cash flows for each of the years in the three-year period ended
December 31, 1997. In connection with our audits of the financial
statements, we also have audited the related financial statement schedule III.
These financial statements and the related financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and the related financial
statement schedule 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, 1997 and 1996, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also in our opinion, based on our audits, the
related financial statement schedule III, when considered in relation to the
basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
The accompanying financial statements and the related financial statement
schedule III have been prepared assuming that the Partnership will
continue as a going concern. As discussed in Note 9 to the financial
statements, the standstill letter on the Partnership's long-term debt was
not extended subsequent to December 31, 1997. As such, the Partnership is
in default on its long-term debt and the loans are callable at the
lender's discretion. This default 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 and financial statement schedule do not
include any adjustments that might result from the outcome of this
uncertainty.
KPMG Peat Marwick LLP
San Diego, California
February 19, 1998
CONCAM ASSOCIATES, LP,
A California Limited Partnership
Balance Sheets
December 31, 1997 and 1996
Assets 1997 1996
Cash held in trust by ConAm Management Corporation
including $54,762 and $53,160 in 1997 and 1996,
respectively, in interest-bearing accounts $ 170,236 158,149
Impound deposits and other assets 41,752 36,115
Prepaid expenses 8,012 13,465
Property and equipment, at cost, encumbered
(notes 3 and 4):
Land 2,380,000 2,380,000
Land improvements 913,097 1,044,163
Buildings 6,980,559 7,944,099
Furnishings and equipment 889,164 740,276
11,162,820 12,108,538
Less accumulated depreciation (1,162,820) (857,052)
Net property and equipment 10,000,000 11,251,486
Organization costs, less amortization of
$9,399 and $6,947 in 1997 and 1996, 2,859 5,311
respectively
$10,222,859 11,464,526
Liabilities and Partners' Deficit
Accounts payable and other liabilities 50,224 56,587
Due to affiliate (note 5) 27,602 28,716
Rental security deposits 139,022 121,114
First trust deed note payable, net of 12,128,111 10,478,902
discount (note 4)
Working capital loan payable, net of 328,069 283,542
discount (note 4)
Capital improvement loan payable (note 4) 500,000 500,000
Deferred and accrued interest payable, net 12,455,378 9,521,082
of discount (note 4)
Total liabilities 25,628,406 20,989,943
Partners' deficit (notes 7 and 8):
General partner (154,055) (95,255)
Limited partner (15,251,492) (9,430,162)
Total partners' deficit (15,405,547) (9,525,417)
$10,222,859 11,464,526
CONCAM ASSOCIATES, LP,
A California Limited Partnership
Statements of Operations and Partners' Deficit
For the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
Revenue:
Rent (note 4) $ 1,822,507 1,883,836 1,917,336
Laundry 14,787 12,995 28,792
Forfeited deposits 62,057 76,049 82,331
Late charges and other 59,361 47,979 48,754
Carport and garage 33,523 33,772 25,190
Interest 1,602 1,650 7,115
1,993,837 2,056,281 2,109,518
Expenses:
Salaries 234,062 229,114 213,326
Payroll taxes 50,841 53,345 49,321
Office supplies 36,822 20,108 27,690
Utilities 188,544 182,973 177,249
Repairs and maintenance 306,431 266,556 252,182
Advertising 44,567 25,885 37,116
Management fees (note 5) 79,919 82,251 84,381
Real estate taxes 145,136 131,108 167,106
Insurance 30,963 34,467 28,799
Depreciation 305,768 295,962 293,798
Interest, including $2,406,902,
$1,609,522 and $1,012,479 for
the years ended December 31,
1997, 1996 and 1995, 5,145,445 4,277,558 3,633,879
respectively, of amortization
of discount
Professional fees 35,972 39,996 35,059
Amortization of organization costs 2,452 2,452 2,452
Security services 58,843 39,121 17,273
Miscellaneous 11,251 36,558 33,566
Provision for impairment loss 1,196,951 _ _
(note 3)
7,873,967 5,717,454 5,053,197
Net loss (5,880,130) (3,661,173) (2,943,679)
Partners' deficit at beginning (9,525,417) (5,864,244) (2,920,565)
of year
Partners' deficit at end of year
(notes 7 and 8) $(15,405,547) (9,525,417) (5,864,244)
CONCAM ASSOCIATES, LP,
A California Limited Partnership
Statements of Cash Flows
For the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
Cash flows from operating activities:
Net loss $(5,880,130) (3,661,173) (2,943,679)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Depreciation 305,768 295,962 293,798
Amortization of discount on long- 2,406,902 1,609,522 1,012,479
term debt
Amortization of organization costs 2,452 2,452 2,452
Provision for impairment loss 1,196,951 _ _
Change in assets and liabilities:
Impound deposits and other assets (5,637) 11,959 (1,082)
Prepaid expenses 5,453 1,150 (3,979)
Accounts payable and other (6,363) 14 (52,352)
liabilities
Due to affiliate (1,114) (1,413) 1,385
Rental security deposits 17,908 (12,580) 2,015
Deferred and accrued interest 2,221,130 1,801,778 1,619,385
Net cash provided by (used in)
operating activities 263,320 47,671 (69,578)
Cash flows from investing activities -
purchase of fixed assets (251,233) (39,763) (15,276)
Net increase (decrease) in cash held
in trust by ConAm Management 12,087 7,908 (84,854)
Corporation
Cash held in trust by ConAm
Management Corporation at beginning 158,149 150,241 235,095
of year
Cash held in trust by ConAm
Management Corporation at end of $ 170,236 158,149 150,241
year
Supplemental disclosure of cash flow
information:
Cash paid during the year for $ 517,413 866,258 1,002,015
interest
CONCAM ASSOCIATES, LP,
A California Limited Partnership
Notes to Financial Statements
December 31, 1997, 1996 and 1995
(1) Organization and Summary of Significant Accounting Policies and Practices
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, 1997 and 1996, the tax basis of the Partnership's assets
was $222,859 and $213,040, respectively, and the tax basis of
the Partnership's liabilities was $216,848 and $206,417,
respectively.
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 of Long-Lived Assets
The Partnership assesses its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows (undiscounted and without interest)
expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the
assets.
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, the
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.
Concentration of Credit Risk
The Partnership's cash held in trust by ConAm Management Corporation is
a financial instrument that is exposed to a concentration of credit risk.
ConAm Management Corporation places the Partnership's cash balances with
high credit quality and federally insured institutions. Cash balances
with any one institution may be in excess of federally insured limits
or may be invested in a non-federally insured money-market account.
The Partnership has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk.
(2) 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, 1997, 1996 and 1995, respectively,
$2,406,902, $1,609,522 and $1,012,479 of the discount was amortized as
interest expense at an effective rate of 23.12% for 1997, 23.26% for
1996 and 23.56% for 1995. At December 31, 1997 and 1996, the tax basis
of the Partnership's Property was zero.
(3) Impairment Loss
In 1997, after the completion of the renovation of a number of the
Property's apartment units and other property improvements, management
of the Partnership reevaluated the recoverability of the carrying value
of the Property. Based on its current and projected performance,
management does not believe the Partnership will be able to recover the
carrying value of its Property. Therefore, the Partnership recorded
an impairment loss of $1,196,951. The loss represents the difference
between the carrying value and the estimated fair value of the
Property. The fair value was estimated based on discounted projected
future cash flows and comparable sales.
(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
deferred Primary Supplemental
Base base contingent contingent
interest interest interest interest
April 28, 1989 through 6.70% 5.30% 4.00% _
April 30, 1992
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%
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 was
effective from February 1, 1995 through December 31, 1996, at which time
the Lender had the option to extend the forbearance period or reinstate
the original terms of the first trust deed note agreement (Note 9).
In accordance with the forbearance agreement, the minimum base interest
pay rate in 1997, 1996 and 1995 was 7.5%, 7.0% and 6.5%, 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. Beginning in February
1996, payments of the minimum base interest were less than the amounts
required by the forbearance agreement. As such, on May 8, 1996, the Lender
issued a standstill letter effective through December 31, 1996. The
standstill letter allowed for the continuance of the forbearance
agreement however, the Partnership was required to pay debt service
based on all available cash flow, in lieu of the minimum base interest
pay rate, as required in the forbearance agreement. On February 26,
1997, the standstill letter was extended through December 31, 1997
(Note 9). Accrued base interest, deferral period deferred base interest,
primary contingent interest and supplemental contingent interest
at December 31, 1997 were $2,913,025, $2,473,737, $5,461,280 and
$2,857,346, respectively. Accrued base interest, deferral period
deferred base interest, primary contingent interest and supplemental
contingent interest at December 31, 1996 were $1,871,934, $2,473,737,
$4,840,680 and $2,353,108, 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, 1997 and 1996. The loan is secured
by a second trust deed on the Partnership's property and equipment
and an assignment of rents. 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, 1997 and
1996, accrued interest on the note was $111,957 and $86,757,
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 as
extended (at present, December 31, 1997) or April 28, 1999. At December
31, 1997 and 1996, accrued interest on the note was $102,724 and
$72,723, respectively.
Summary of Long-term Debt
A summary of long-term debt at December 31, 1997 and 1996 is as follows:
Capital Deferred
First Working Improve- and
Trust Deed Capital ment accrued
Note Loan Loan interest
Payable Payable Payable payable Total
Balance, net of discount $ 8,682,307 235,035 500,000 5,323,020 14,740,362
at December 31,1994
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 of discount at
December 31, 1995 9,376,058 253,766 500,000 7,242,402 17,372,226
Deferred and accrued interest
during the year ended
December 31, 1996 _ _ _ 1,801,778 1,801,778
Discount amortization during
the year ended
December31, 1996 1,102,844 29,776 _ 476,902 1,609,522
Balance, net of discount
at December 31, 1996 10,478,902 283,542 500,000 9,521,082 20,783,526
Deferred and accrued interest
during the year ended
December 31, 1997 _ _ _ 2,221,130 2,221,130
Discount amortization during
the year ended
December 31, 1997 1,649,209 44,527 _ 713,166 2,406,902
Balance, net of discount at
December 31, 1997 $12,128,111 328,069 500,000 12,455,378 25,411,558
(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 years ended December 31,
1997, 1996 or 1995. 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. The Property is operating under
the automatic renewal feature of the agreement in 1998 as neither
party elected to terminate the contract within the last 90 days of the
year ended December 31, 1997. Accrued management fees at December 31,
1997 and 1996 were $7,131 and $8,245, respectively.
Reimbursements to Affiliate
As of December 31, 1997 and 1996, 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.
(6) Fair Value of Financial Instruments
The carrying amount of funds held in trust, impound deposits and
other assets, 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 the 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 accrued 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) Long-term Debt In Default and Management's Plan
As discussed in Note 4, both the forbearance agreement and the standstill
letter expired on December 31, 1996. On February 26, 1997, the
standstill letter was extended through December 31, 1997. However, that
letter has not been extended to date. As such, the Partnership is in
default on its long-term debt and the loans are callable at the Lender's
discretion. The Partnership's ability to continue its operations is
dependent upon the restructuring of the long-term debt. Management is
currently negotiating with the Lender to restructure the long-term debt.
There is no assurance that these negotiations will be completed on terms
satisfactory to the Partnership, if at all.
CONCAM ASSOCIATES, LP,
A California Limited Partnership
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1997
Camelot
Residential property: Lakes Apartments
Location Fresno, Ca
Construction date 1985
Acquisition date 04/01/94
Life on which depreciation in latest income (3)
statements is computed
Encumbrances $ 30,355,069
Initial cost to the Partnership:
Land $ 2,380,000
Land improvements 952,000
Buildings 7,934,395
Furnishings and equipment 633,605
Costs capitalized subsequent to acquisition:
Land, land improvements, buildings,
furnishings and equipment 459,771
Write-down of land improvements and buildings (1,196,951)
Gross amount at which carried at close of period (1):
Land 2,380,000
Land improvements 913,097
Buildings 6,980,559
Furnishings and equipment 889,164
$ 11,162,820
Accumulated depreciation (2) $ 1,162,820
(1) Aggregate cost for federal income tax purposes is $0.
(2) The amount of accumulated depreciation for federal income tax
purposes is $0.
(3) Land improvements and buildings - 35 years; furnishings and
equipment - 10 years.
A reconciliation of the carrying amount of property and equipment and
accumulated depreciation for the years ended December 31, 1997, 1996 and
1995 follows:
1997 1996 1995
Property and equipment:
Beginning of period $ 12,108,538 12,068,775 12,053,499
Additions 251,233 39,763 15,276
Write-down of assets (1,196,951) _ _
End of period $ 11,162,820 12,108,538 12,068,775
Accumulated depreciation:
Beginning of period 857,052 561,090 267,292
Depreciation expense 305,768 295,962 293,798
End of period $ 1,162,820 857,052 561,090
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> December-31-1997
<CASH> 366,144
<SECURITIES> 000
<RECEIVABLES> 000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 000
<DEPRECIATION> 000
<TOTAL-ASSETS> 10,422,735
<CURRENT-LIABILITIES> 73,016
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 10,349,719
<TOTAL-LIABILITY-AND-EQUITY> 10,422,735
<SALES> 000
<TOTAL-REVENUES> 440,246
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 240,061
<LOSS-PROVISION> 2,892,415
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> (2,692,230)
<INCOME-TAX> 000
<INCOME-CONTINUING> (2,692,230)
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> (2,692,230)
<EPS-PRIMARY> (1.25)
<EPS-DILUTED> (1.25)
</TABLE>
