SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------
FORM 10-K
Annual Report Pursuant to Section 13 or
15(d) of The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995 Commission file number
0-17248
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership
(Exact Name of Registrant as specified in its charter)
California 68-0023931
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2221 Olympic Boulevard
Walnut Creek, California 94595
(Address of principal executive (Zip Code)
Offices)
Registrant's Telephone number,
including area code (510) 935-3840
Securities to be registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Not applicable Not applicable
Securities to be registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was reguired to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
<PAGE>
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]
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits filed with Registrant's Registration Statement No.33-81896 are
incorporated by reference into Part IV.
Exhibit Index at page 45.
<PAGE>
Part I
Item 1. Business
Owens Mortgage Investment Fund, a California Limited Partnership, (the
"Partnership") was organized on June 14, 1984 and invests in first, second,
third, wraparound and construction mortgage loans and loans on leasehold
interest mortgages. In June, 1985, the Partnership became the
successor-in-interest to, and acquired the assets and limited partners of Owens
Mortgage Investment Fund I, a California limited partnership formed in June 1983
with the same policies and objectives as the Partnership. In September, 1992 the
Partnership changed its name from Owens Mortgage Investment Fund II to Owens
Mortgage Investment Fund.
Most of the loans invested in by the Partnership are originated by
Owens Financial Group, Inc. , the corporate general partner of the Partnership
(the "Corporate General Partner") although the Partnership will occasionally
invest in loans purchased by the Corporate General Partner. In connection with
the investment in such loans, the Partnership may in some instances seek to
acquire an equity interest in the underlying real property in the form of a
shared appreciation interest. To date, no shared appreciation interests have
been acquired by the Partnership. The Partnership's mortgage loans are secured
by mortgages on unimproved as well as improved real property and non-income
producing as well as income producing real property such as apartments, shopping
centers, office buildings, and other commercial or industrial properties. No
single Partnership loan may exceed 10% of the total Partnership assets as of the
date the loan is made.
The following table shows the total Partnership capital, mortgage
investments and net income as of or for the years ended December 31, 1991, 1992,
1993, 1994 and 1995:
Mortgage Net
Capital Investment Income
1991 $105,362,027 $ 99,524,068 $ 10,552,451
1992 $124,304,467 $119,224,512 $ 11,749,283
1993 $137,583,163 $133,549,495 $ 9,318,645
1994 $151,846,728 $145,050,213 $ 12,709,424
1995 $164,744,443 $151,350,591 $ 13,491,375
<PAGE>
As of December 31, 1995, the Partnership held investments in 240
mortgage loans, secured by real property, almost all of which is situated in
Northern California. The following table sets forth the types and maturities of
mortgage loan investments held by the Partnership:
Number
of Loans Amount Percent
1st Mortgages 186 $136,110,802 89.93%
2nd Mortgages 50 14,660,759 9.69
3rd Mortgages or all-inclusive
deeds of trust 2 579,030 .38
-------- ------------ ----------
238 $151,350,591 100.00%
======== ============ ==========
Maturing between January 1, 1996
and December 31, 1997 132 $ 71,236,724* 47.09%
Maturing between January 1, 1998
and December 31, 2000 71 55,608,921 36.74
Maturing between January 1, 2001
and October 31, 2010 35 24,504,946 16.17
--------- -------------- ----------
238 $151,350,591 100.00%
========= ============ ==========
* Approximately $14,700,000 is past maturity as of December 31, 1995.
Income-producing properties 210 $142,597,751 94.24%
Single-family residences 14 2,249,616 1.49
Unimproved land 14 6,503,224 4.27
--------- ------------ ----------
238 $151,350,591 100.00%
========= ============ ==========
Although the average mortgage balance has increased substantially in
recent years, the average loan balance of the mortgage loan portfolio of
$635,927 is considered by the General Partners to be a reasonable
diversification of investments concentrated in mortgages secured by commercial
properties. Approximately 45% of such investments earn a fixed rate of interest
with the remainder earning a variable rate of interest.
Due to general economic conditions, the commercial real estate market
has recently experienced decreases in both values and rental rates and an
increase in vacancy rates. As a result of these conditions, the Corporate
General Partner has developed stricter underwriting standards in relation to the
financial strength of tenants, vacancy rates of comparable properties, existence
and amounts of senior mortgages, general area economic development and growth,
and other factors. The Corporate General Partner has continued to use relatively
low loan-to-value ratios as a major criteria in making mortgage loans.
As of December 31, 1995, the Partnership had invested in construction
loans in the aggregate amount of approximately $1,655,000, and in loans in the
amount of $11,981,000 that are secured by a leasehold interest.
The Partnership has other assets in addition to its mortgage
investments, comprised principally of funds held in conjunction with contingency
reserve requirements and cash held for investment. As of December 31, 1995,
$5,056,358 (approximately $3,324,000 representing contingency reserve funds) was
invested in certificates of deposit (with staggered maturity dates to a maximum
of one year), money market accounts and general banking accounts as required to
transact the business of the Partnership.
The Partnership intends to continue to invest primarily invest in first
deeds of trust secured by commercial properties.
Delinquencies
The Corporate General Partner does not regularly examine the
maintenance of accepatable loan-to-value ratios for the existing portfolio. This
is due to the fact that the majority of loans in the Partnership's portfolio
mature in a relatively short period of 1-7 years. In the event that payments on
a loan securing a property become delinquent, the loan is past maturity, or the
General Partners learn of physical changes to the property securing the loan,
changes in the area in which the property is located, changes in the economic
condition of the borrower or in leased space in the property securing the loan,
the General Partners will perform an internal review on the property. Such
review includes, but is not limited to, a physical evaluation of the property as
well as for the area in which the property is located, the financial stability
of the borrower and the property's tenant mix.
Although the Corporate General Partner is not obligated to do so, it
has chosen to make interest payments to the Partnership with respect to certain
delinquent loans (i.e. when the borrower has not made timely payments) with
principal balances totaling $6,065,000 as of December 31, 1995 invested in by
the Partnership and which were originated by the Corporate General Partner prior
to May 1, 1993. For this purpose, delinquency is defined as any loan thirty days
or more delinquent. For making such payments, the Corporate General Partner is
entitled to a higher maximum management fee. See "Item 11. Executive
Compensation". Such payments have been recorded by the Partnership as interest
payments as if made by the borrower, and have not been classified as
contributions by the Corporate General Partner or as loans made by the Corporate
General Partner. The Partnership has no obligation to repay such amounts to the
Corporate General Partner.
Through October 31, 1994, the Corporate General Partner made all
delinquent interest payments on loans originated prior to May 1, 1993. However,
effective November 1, 1994, the Corporate General Partner discontinued its
practice of making such payments for certain loans. The Corporate General
Partner was not advancing delinquent interest payments on Partnership mortgage
investments totaling $4,923,000 and $8,309,000 as of December 31, 1994 and 1995,
respectively. The Partnership discontinues the accrual of interest on loans
when, in the opinion of management, there is significant doubt as to the
collectibility of interest or principal from either the borrower or the
Corporate General Partner or when the payment of principal or interest is ninety
days past due, unless the Corporate General Partner continues to advance
interest payments to the Partnership.
As of December 31, 1995, the Partnership's portfolio included
$12,037,000 (compared with $12,849,000 as of December 31, 1994) of delinquent
loans representing 8% of the Partnership's investments in mortgage loans. This
amount includes $3,199,000 (compared with $7,963,000 as of December 31, 1994)
which was invested in loans which were in the process of foreclosure of which
$854,000 (compared with $1,387,000 as of December 31, 1994) involves loans to
borrowers who are in bankruptcy. The majority of loans invested in by the
Partnership are secured by first trust deeds on real property and, therefore,
are subject to priority treatment under applicable bankruptcy laws. Of the
$12,837,000 that was delinquent as of December 31, 1994, $4,127,000 remained
delinquent as of December 31, 1995. Of the $8,722,000 that was removed from
delinquency during 1995, $1,850,000 became Real Estate Owned of the Partnership
(see "Properties"). The Partnership was foreclosed out of an additional mortgage
loan of $377,272 by a senior lienholder that was included in the delinquent
balance at December 31, 1994. In addition, the Corporate General Partner assumed
the obligation to the Partnership for a shortfall of $525,000 on the payoff of a
Partnership loan that was included in the delinquent balance at December 31,
1994. As such, $7,910,000 of the delinquent balance as of December 31, 1995 was
added subsequent to December 31, 1994. The Corporate General Partner believes
that there could be partial losses of principal on these loans; therefore, an
additional allowance for loan losses of $500,000 was provided for in the books
of the Partnership in 1995. An allowance for loan losses of $3,250,000 and
$2,750,000 is maintained in the financial statements of the Partnership as of
December 31, 1995 and 1994, respectively.
Since interest payments on such delinquent loans are not being made
currently by the borrowers, the Corporate General Partner has chosen to advance
interest payments on certain loans originated by the Corporate General Partner
prior to May 1, 1993. However, for loans originated by the Corporate General
Partner on or subsequent to May 1, 1993, which totaled approximately
$106,865,000 as of December 31, 1995, the Corporate General Partner has adopted
the policy to not advance delinquent interest or principal. In addition, the
Corporate General Partner has chosen to cease advancing interest payments on
certain loans originated by the Corporate General Partner prior to May 1, 1993.
The Partnership held non-performing mortgage loan investments totaling
$8,309,000 and $4,923,000 as of December 31, 1995 and 1994, respectively.
Advances for delinquent interest payments and other payments, such as
property taxes and mortgage interest pursuant to senior indebtedness, made to or
on behalf of the Partnership by the Corporate General Partner during 1995 and
1994, but not collected as of December 31, 1995 and 1994, totaled approximately
$1,218,000 and $1,149,000, respectively. The Partnership has no obligation to
repay these advances to the Corporate General Partner.
Following is a table representing the Partnerships investment in loans
delinquent more than ninety days as of December 31, 1991, 1992, 1993, 1994 and
1995:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Delinquent Loans $ 11,518,500 $ 11,064,500 $ 10,621,000 $ 12,837,000 $12,037,000
Total Mortgage Investments $99,524,068 $119,224,512 $133,549,495 $145,050,213 $151,350,591
Percent of Delinquent Loans
to Total Loans 11.57% 9.28% 7.95% 8.85% 7.95%
</TABLE>
To date, the Partnership has suffered no material losses on
delinquencies, defaults or foreclosures partially due to the practice of the
Corporate General Partner to advance payments on certain loans originated prior
to May 1, 1993 that are not timely made by the borrowers and to the prior
practice of the Corporate General Partner to purchase loans from the Partnership
which were at risk of causing a loss to the Partnership. There is no assurance
that the Corporate General Partner will continue to make payments to the
Partnership on any delinquent loan. If delinquent loan balances were to increase
substantially on loans originated prior to May 1, 1993, the Corporate General
Partner may decide to further suspend or reduce advances of delinquent interest
to the Partnership with material adverse consequences to the Partnership and a
material decrease in distributions to the Limited Partners. In addition, if a
substantial portion of the loans originated on or after May 1, 1993 became
delinquent, the effect would be materially adverse to the Partnership with
material decreases in distributions to Limited Partners. However, the General
Partners do not expect the current portfolio of delinquent loans to have a
material adverse effect on the Partnership, partially due to the Corporate
General Partner's voluntary practice of advancing interest payments on certain
delinquent loans originated prior to May 1, 1993.
The Corporate General Partner has in the past chosen to purchase
certain loans from the Partnership at the time of foreclosure of such loans, for
the unpaid principal amount thereof and accrued interest, in order to prevent
the Partnership from suffering a potential loss upon such foreclosure. However,
as of May 1, 1993, the Corporate General Partner adopted the policy to cease
acquiring properties through foreclosure of Partnership loans, thus allowing the
Partnership to acquire title to real property through foreclosure. During 1995,
the Corporate General Partner acquired no properties through foreclosure which
secure Partnership loans. However, during 1995, the Corporate General Partner
did assume the obligations to the Partnership for a shortfall of $525,000 on the
payoff of a Partnership in addition to the loss sustained by the Partnership of
$377,000 due to a foreclosure of a mortgage loan by a senior lienholder.
As of December 31, 1995, the Partnership held title to eleven separate
properties on which it had loans totaling $6,016,000 prior to foreclosure. Only
one of these properties generated revenue during 1995, and, as such, the
properties operated at an aggregate deficit.
Allowance for Loan Losses
An allowance for loan losses of $3,250,000 and $2,750,000 is maintained
in the financial statements of the Partnership as of December 31, 1995 and 1994,
respectively. The General Partners believe that, based on historical experience
and a review of the loans and their respective collateral, the allowance for
loan losses as of December 31, 1995 is adequate in amount.
Unsecured Loans to Corporate General Partner
During 1995, the Corporate General Partner assumned the obligation to
the Partnership for a shorfall on the discounted payoff of a mortgage and was
foreclosed out of the second position by the holder of the first deed of trust
on a Partnership loan assumed in 1995. Though under no obligation to do so, the
Corporate General Partner assumed the loss on these transactions of $902,000 and
added this amount to the outstanding balance of the unsecured note payable to
the Partnership.
The balance of the unsecured loan due from the Corporate General
Partner totals $1,023,232 and $1,249,989 as of December 31, 1995 and 1994,
respectively. The note bears interest at 8% annum and is due on demand. The
Corporate General Partner continues to make monthly payments of principal and
interest on this loan, and it is current.
Although the terms of the loans between the Partnership and the
Corporate General Partner may or may not be at market, they are considered fair
and reasonable.
Fee Structure
Management Fee's are payable to the Corporate General Partner on a
monthly basis at a maximum annual rate of 2 3/4% per annum on the average unpaid
balance of the Partnership's mortgage loans at the end of each of the 12 months
in the then current calendar year. This fee is reduced to 1 3/4% per annum if
the Corporate General Partner has not provided during the preceding calendar
year any of the following discretionary services: (1) advanced its own funds to
the Partnership to cover delinquent interest and/or principal payments on
mortgage loans held by the Partnership; (2) advanced its own funds to cover any
other costs associated with delinquent loans held by the Partnership, such as
property taxes, insurance and legal expenses; or (3) purchased any such
defaulted loans from the Partnership. The Corporate General Partner is entitled
to collect the Management Fee on all loans, including those that are delinquent.
This is due to the added costs to the Corporate General Partner associated with
such loans including legal fees.
Servicing Fees charged for the twelve months ended December 31, 1995
were $371,000. Management Fees charged to the Partnership for the twelve months
ended December 31, 1995 were $1,432,000. During this same period, the maximum
Servicing Fees and Management Fees that could have been collected by the
Corporate General Partner were $374,000 and $4,117,000, respectively.
Principal Investment Objectives
The Partnership invests primarily in mortgage loans on commercial,
industrial and residential income producing real property, single-family
residences and land. The terms of each loan are negotiated on a loan-by-loan
basis by the Corporate General Partner.
The Partnership's two principal investment objectives in making
investments of the type described above are to: (i) preserve the capital of the
Partnership; and (ii) provide monthly cash distributions to the Limited
Partners. It is not an objective of the Partnership to provide tax-sheltered
income. The General Partners have the authority, subject to the provisions of
the Partnership Agreement, to change the Partnership's investment objectives.
The Corporate General Partner locates and identifies virtually all
mortgages in which the Partnership invests and makes all investment decisions on
behalf of the Partnership in its sole discretion. In evaluating prospective
investments, the Corporate General Partner considers such factors as the ratio
of the amount of the investment to the value of the property by which it is
secured, the property's potential for capital appreciation, expected levels of
rental and occupancy rates, current and projected cash flow of the property,
potential for rental increases, the degree of liquidity of the investment,
geographic location of the property, the condition and use of the property, its
income-producing capacity, the quality, experience and creditworthiness of the
borrower, general economic conditions in the area where the property is located,
and any other factors which the Corporate General Partner believes are relevant.
Almost all loans made or invested in by the Partnership are originated
by the Corporate General Partner. During the course of its business, the
Corporate General Partner is continuously evaluating prospective investments.
The Corporate General Partner will originate loans from referrals, brokerage
organizations, additional lending to previous borrowers and personal
solicitations of new borrowers. All potential mortgage loans to be made or
invested in are evaluated to determine if the mortgage loan is the type made by
the Partnership, if the security for the loan and the loan-to-value ratio meets
the standards established by the Partnership, and if the loan may be structured
in a manner to meet the Partnership's investment criteria and objectives. If the
Corporate General Partner approves the loan as presented, an appraisal will be
ordered on the property securing the loan, and the property will be inspected by
an officer, director, agent or employee of the Corporate General Partner.
The Partnership requires that the borrower obtain a title insurance
policy as to the priority of the mortgage and the condition of title. The
Partnership receives independent, on-site appraisals for each property in which
it invests. All independent appraisers used by the Partnership are licensed or
qualified as independent fee appraisers and are certified as one or more of the
following: State Certified General Real Estate Appraiser, State Certified
Residential Real Estate Appraiser and/or State Licensed Real Estate Appraiser.
Such appraisals will ordinarily take into account the following factors, among
others: the property; estimated building cost; community and site data;
valuation of land; valuation by cost; economic market analysis and income; and
correlation of the foregoing valuation methods. However, the General Partners
generally rely on their own independent analysis and not exclusively on such
appraisals in determining whether or not to arrange a particular mortgage loan
if the General Partner's independent analysis provides for a lower valuation.
Types of Mortgage Loans
As more fully described below, the Partnership makes and invests in
first, second, third and wraparound mortgage loans, construction loans on real
property, and loans on leasehold interests. The Partnership does not ordinarily
make or invest in mortgage loans with a maturity of more than 15 years. All
loans provide for monthly payments of interest and some also provide for
principal amortization, although many Partnership loans provide for payments of
interest only, with a payment of principal in full at the end of the loan term.
The General Partners or their Affiliates do not originate loans with negative
amortization provisions.
First Mortgage Loans
First mortgage loans are secured by first deeds of trust on real
property. Such loans are generally for terms of from one year to 10 years. In
addition, such loans do not usually exceed 80% of the appraised value of
improved residential real property, 50% of the appraised value of unimproved
real property, and 70% of the appraised value of commercial property.
Second and Wrapround Mortgage Loans
Second and wraparound mortgage loans are invested in by the Partnership
on real property which is already subject to prior mortgage indebtedness, in an
amount which, when added to the existing indebtedness, does not generally exceed
80% of the appraised value of the mortgaged property, unless it is commercial
property, in which case said amount does not generally exceed 70% of the
appraised value of the mortgaged property. A wraparound loan is a junior
mortgage loan having a principal amount equal to the outstanding balance under
the existing mortgage loans plus the amount actually to be advanced under the
wraparound mortgage loan. Under a wraparound loan, the Partnership generally
makes principal and interest payments on behalf of the borrower to the holders
of the prior mortgage loans.
Third Mortgage Loans
Third mortgage loans are invested in by the Partnership on real
property which is already subject to prior first and second mortgage
indebtedness, in an amount which, when added to the existing indebtedness, does
not generally exceed 70% of the appraised value of the mortgaged property unless
it is commercial property, in which case said amount does not generally exceed
65% of the appraised value of the mortgaged property.
Construction Loans
Construction loans are loans made for the renovation of developed
property and for the development of undeveloped property. Construction loans
invested in by the Partnership are secured by first deeds of trust on real
property. Such loans are generally for terms of from six months to 2 years. In
addition, if the property secured by the deed of trust is being developed, the
amount of such loans does not generally exceed 70% of the appraised value of the
secured property.
Generally the Partnership will not disburse funds with respect to a
particular construction loan until work in the previous phase of the project on
which the loan is made has been completed and an independent inspector has
verified the quality of construction and adherence to the construction plans,
and reviewed the estimated cost of completing the project. In addition, the
Partnership requires the submission of signed labor and material lien releases
by the borrower in connection with each completed phase of the project prior to
rnaking any periodic disbursements of proceeds of the loan to the borrower.
Leasehold Interest Loans
Loans on leasehold interests are secured by the borrower's leasehold
interest in the particular real property. Such loans are generally for terms of
from six months to 10 years. In addition, these loans do not generally exceed
70% of the appraised value of the leasehold interest. The Partnership has made
very few loans on leasehold interests. The aggregate of construction loans and
loans on leasehold interests will not exceed at any time 7% of the aggregate
loans outstanding of the Partnership.
Variable Rate Loans
Approximately $82,691,000 of the Partnership's loan portfolio as of
December 31, 1995 contain a variable interest rate feature. The variable rate
loans originated by the General Partners use as indices the one and five year
Treasury Constant Maturity Index, the Prime Rate Index and the Monthly Weighted
Average Cost of Funds Index for Eleventh District Savings Institutions (Federal
Home Loan Bank Board).
Premiums over the above described indices have varied from 250-550
basis points over the indices depending upon market conditions at the time the
loan is made. Generally, an index based upon the prime rate or Treasury Bill is
the most volatile, while an index based upon the cost of funds is the most
stable. From January 1, 1995 through December 31, 1995 the one year Treasury
Constant Maturity Index has decreased from 7.21% to 5.21%, the five year
Treasury Constant Maturity Index has decreased from 7.81% to 5.44%, the Prime
Rate Index remained at 8.50% and the Monthly Weighted Average Cost of Funds
Index for the Eleventh District Savings Institutions has increased from 4.747%
to 5.12%.
It is possible that the interest rate index used in a variable rate
loan will rise (or fall) more slowly than the rate of competing investments
available to the Partnership. The General Partners attempt to minimize such
differential by tying variable rate loans to indices that are more sensitive to
fluctuations in market rates.
Interest Rate Caps
Interest rate caps are found in all variable rate loans originated by
the Corporate General Partner. The interest rate cap most frequently used is a
ceiling of 4-6 percent over a floor equal to the starting interest rate. The
inherent risk in interest rate caps occurs when the general market interest
rates exceed the cap rate.
Assumability
Variable rate loans of 5 to 10 year maturities, are generally not
assumable without the prior consent of the General Partners. The Partnership
does not typically make or invest in other assumable loans. To minimize risk to
the investors, any borrower assuming a loan is subject to the same stringent
underwriting criteria as the original borrower.
Prepayment Penalties
The prepayment penalty provisions are rarely found in loans made or
invested in by the Partnership. If the Partnership's loans are at a high rate of
interest in a market of falling interest rates, the failure to have a prepayment
penalty provision in the loan allows the borrower to refinance the loan at a
lower rate of interest, thus providing a lower yield to the Partnership on the
reinvestment of the prepayment proceeds.
Balloon Payment
A majority of the loans made or invested in by the Partnership require
the borrower to make a "balloon payment" on the principal amount upon maturity
of the loan. To the extent that a borrower has an obligation to pay a mortgage
loan in a large lump sum payment, its ability to satisfy this obligation may be
dependent upon its ability to obtain suitable refinancing or otherwise raise a
substantial cash amount. As a result, such loans involve a higher risk of
default than fully amortizing loans.
Equity Interests and Participation in Real Property
Historically the Partnership has not acquired an equity interest in any
of the properties securing the loans in which it has invested. As part of
investing in or making a mortgage loan, the Partnership may, however, acquire an
equity interest in the real property securing the loan in the form of a shared
appreciation interest or other equity participation.
The Partnership foreclosed on five mortgage loans during 1995 and
obtained title to the properties through such action. As of December 31, 1995,
the Partnership continued to own all of these properties in addition to six
other properties that it owned outright as of December 31, 1994 (see
"Properties"). The Partnership may continue to acquire equity interests in real
property in the future as a result of foreclosure of mortgage loans.
Standards for Mortgage Loans
In arranging mortgage loans, the Corporate General Partner considers
relevant real property and financial factors, including the condition and use of
the property, its income-producing capacity and the quality, experience, and
creditworthiness of the borrower.
The Partnership does not normally invest in mortgage loans secured by
multifamily residential property or commercial property unless the net annual
estimated cash flow after vacancy, operating expense, and mortgage debt service
deductions equals or exceeds the annual payments required on the mortgage loan.
In addition, the Partnership limits the amount of its investment in any single
mortgage loan, and the amount of its investment in mortgage loans to any one
borrower, to 10% of the total Partnership assets as of the date the loan is
made.
Mortgage Loans to Affiliates
The Partnership will generally not invest in mortgage loans to any of
the General Partners, affiliates of the General Partners, or any limited
partnership or entity affiliated with or organized by the General Partners.
However, the Corporate General Partner may become the obligor on a trust deed
held by the Partnership in the event of foreclosure on the property securing the
trust deed. As of December 31, 1995 the Partnership had loans outstanding to the
Corporate General Partner secured by real property of $907,549. In addition, the
Corporate General Partner had unsecured loans from the Partnership totaling
$1,023,232 as of December 31, 1995 (see "Unsecured Loans to Corporate General
Partner").
Purchase of Loans from Affiliates
Although the Partnership has never done so, the Partnership may
purchase loans from the General Partners or their affiliates that were
originated by the General Partners or their affiliates and held for such party's
own portfolio, as long as any such loan is not in default and as long as such
loan otherwise satisfies all of the requirements set forth above. In addition,
if such loan was not originated within the 90 days prior to its purchase by the
Partnership from the General Partners or their affiliates, the General Partners
or their affiliates, respectively, shall retain a minimum of a 10% interest in
such loan. No such loans were purchased in 1995.
Borrowing
The Partnership has not incurred indebtedness for the purpose of
investing in mortgage loans. However, the Partnership may incur indebtedness in
order to prevent default under mortgage loans which are senior to the
Partnership's loans or to discharge such senior mortgage loans if this becomes
necessary to protect the Partnership's investments in mortgage loans. Such short
term indebtedness may be with recourse to the Partnership's assets. In addition,
although the Partnership has not historically had to do so, the Partnership may
incur indebtedness in order to assist in the operation of any property securing
a mortgage loan that the Partnership takes over as a result of default on the
loan or foreclosure.
Sale and Repayment of Mortgages
The Partnership invests in mortgage loans and does not generally engage
in real estate operations (other than when such operations are required when the
Partnership forecloses on a loan in which it has made an investment or takes
over management of such foreclosed property) or real estate development, and
does not invest in mortgage loans primarily for sale or other disposition in the
ordinary course of business. The Partnership may require a borrower to repay the
mortgage loan upon sale of the mortgaged property, or when the General Partners
determine that such repayment appears to be advantageous to the Partnership
based upon then-current interest rates, the length of time that the loan has
been held by the Partnership, and the objectives of the Partnership. The net
proceeds to the Partnership from any such sale or repayment are invested in new
mortgage loans or distributed to the Partners at such times and in such
intervals as the General Partners in their sole discretion determine.
No Trust or Investment Company Activities
The Partnership has not qualified as a real estate investment trust
under the Internal Revenue Code of 1986, as amended, and, therefore, is not
subject to the restrictions on its activities imposed on real estate investment
trusts. The Partnership is not subject to registration as an investment company
under the Investment Company Act of 1940. It is the intention of the Partnership
to conduct its business in such manner as not to be deemed a dealer in mortgage
loans for federal income tax purposes.
Miscellaneous Policies and Procedures
The Partnership will not (i) issue securities senior to the Units or
issue any Units or other securities for other than cash; (ii) invest in the
securities of other issuers for the purpose of exercising control; (iii)
underwrite the securities of other issuers; or (iv) offer securities in exchange
for property.
Competition and General Economic Conditions
The Partnership's major competitors in providing mortgage loans secured
by deeds of trust on income producing and residential property are banks,
savings and loan associations, thrifts, and other entities both larger and
smaller than the Partnership. The principal methods of competition include the
quality of the property securing the loan, the cost of borrowing funds, the
response time in providing funds, the reputation and recognition of the lender,
and loan servicing provided by the lender. The Partnership is in a good
competitive position primarily because the Corporate General Partner generates
virtually all of its loans. The Corporate General Partner has been in the
business of making or investing in mortgage loans in Northern California for
more than 40 years, and has developed a quality reputation and recognition
within the field.
Due to general economic conditions, the commercial real estate market in
California has experienced decreases in both values and rental rates and an
increase in vacancy rates in the past few years. These conditions prompted the
Corporate General Partner to apply stricter underwriting standards to the
financial strength of tenants, vacancy rates in comparable properties, existence
and amounts of senior mortgages, area economic development and growth, and other
factors. The Corporate General Partner continues to use relatively low
loan-to-value ratios as a major factor in making mortgage loans.
Item 2. Properties
As of May 1, 1993, the Corporate General Partner changed its policy
regarding the purchase of mortgage loans from the Partnership prior to
foreclosure, and, as a result, the Corporate General Partner does not generally
purchase mortgage loans from the Partnership prior to foreclosure. Subsequent to
this change in policy, the Partnership acquired title to five properties through
foreclosure during the twelve months ended December 31, 1995 in which it had
loans totaling $2,511,000. The Partnership continues to hold title to the
following eleven properties as of December 31, 1995:
<TABLE>
<CAPTION>
Partnership Additional Delinquent
Loan Capitalized Interest at
Description Amount Costs Foreclosure
50,000 s.f. Light
Industrial Warehouse
<S> <C> <C> <C>
Merced, CA $1,000,000 $ 0 $175,333
Residential Lots
Carmel Valley, CA $1,100,000(1) $1,173,916 $141,750
Live/Work Industrial
Emeryville, CA $ 925,000 $ 0 $246,435
Residential Lots (70% Interest)
Vallejo, CA $ 525,000 $ 43,569 $ 83,949
Commercial Lot
Sacramento, CA $ 500,000 $ 49,828 $137,470
Residential Lot
Grass Valley, CA $ 55,000 $ 380 $ 6,302
Retail Lot/Residence
Milpitas, CA/Campbell, CA $ 661,531 $ 0 $ 0
Commercial Property
Sacramento, CA $ 850,000 $ 0 $ 28,156
Developed Land
Los Gatos, CA $ 557,050 $ 14,803 $137,170
Office Building and
Undeveloped Land
Monterey, CA $ 413,000 $1,713,426 $ 30,077
Office Building
Oakland, CA $ 29,856 $ 0 $ 31,708
<FN>
(1) Of this amount, $600,000 represented the Partnership's loan on the property.
As of December 31, 1993 this property was encumbered by a $500,000 senior
mortgage loan payable to various investors and arranged and serviced by the
Corporate General Partner. This senior loan was repaid during 1994 due to the
fact that the interest rate on the note was greater than current investment
yields to the Partnership.
</FN>
</TABLE>
The Partnership has entered into a joint venture agreement with an
unrelated developer/builder for the development and buildout of thirty
residential lots located in Carmel Valley, California which are to be
contributed to the joint venture at a future time. The joint venture agreement
provides for the Partnership to receive a priority return of principal and
interest on any development capital contributed to the venture in addition to a
priority return of $70,000 per lot. 70 percent of any profits from the joint
venture will inure to the Partnership. Most all infrastructure work including
roads, drainage and utility tie-ins have been completed in the development for
which the Partnership has advanced all development capital totaling
approximately $900,000. Construction and sale of residential units is
anticipated to begin in 1996.
The Partnership leased out the majority of the office building located
in Monterey, California to a publicly traded company at the end of 1995 with
lease payments to begin the first part of 1996 The Corporate General Partner
expects to be able to operate this property at a substantial profit, lease up
the remaining space and place the property on the market for sale.
All delinquent interest with respect to the loans which were secured by
the Real Estate Held for Sale prior to foreclosure was advanced to the
Partnership and to the senior lienholder, if applicable, by the Corporate
General Partner. The Partnership has no obligation to reimburse the Corporate
General Partner for such advances. There are no loans currently secured by any
of the properties.
Only one of these properties generated revenue during 1995, and, as
such, the properties operated at an aggregate deficit. Advances of delinquent
interest to the Partnership by the Corporate General Partner ceased at the date
of foreclosure. Based upon reviews by the Corporate General Partner of the
expected net realizable values of the properties, the Partnership has recorded a
provision for losses of $600,000 on real estate held for sale as of December 31,
1995 ($250,000 on the property located in Sacramento and $350,000 on the
property located in Merced).
Item 3. Legal Proceedings
The Partnership is not presently involved in any material pending legal
proceedings other than ordinary routine litigation incidental to the business.
Item 4. Submission of Matters to a Vote of the Security Holders
None.
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information
a. There is no established public trading market for the trading of Units.
b. Holders: As of February 28, 1996, approximately 2,517 Limited Partners
held 166,400,000 Units of limited partnership interest in the Partnership.
c. The Partnership generally distributes all net income of the Partnership
to Unit holders on a monthly basis. The Partnership made distributions to
the Limited Partners of $12,981,698 and $14,055,791 during 1994 and 1995,
respectively. It is the intention of the Corporate General Partner to
continue to distribute all income earned by the Partnership to the Unit
holders.
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnership)
Selected Financial Data
December 31
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans secured by trust deeds $151,350,591 $145,050,213 $133,549,495 $119,224,512 $ 99,524,068
less: Allowance for loan losses (3,250,000) (2,750,000) (2,750,000) 0 0
Real estate held for sale (net) 9,012,359 4,628,325 2,608,000 0 0
Cash, cash equivalent and
other assets 8,288,818 5,697,459 5,202,246 5,540,580 6,334,896
----------- ----------- ----------- ----------- -----------
Total assets $165,401,768 $152,625,997 $138,609,741 $124,765,092 $105,858,964
=========== =========== =========== =========== ===========
Liabilities $ 657,325 $ 779,269 $ 1,026,578 $ 460,625 $ 496,937
Partners' Capital
General Partners 1,623,526 1,488,360 1,342,578 1,228,400 1,032,547
Limited Partners 163,120,917 150,358,368 136,240,585 123,076,067 104,329,480
----------- ----------- ----------- ----------- -----------
$164,744,443 $151,846,728 $137,583,163 $124,304,467 $105,362,027
----------- ----------- ----------- ----------- -----------
Liabilities/Partners' Capital $165,401,768 $152,625,997 $138,609,741 $124,765,092 $105,858,964
=========== =========== =========== =========== ===========
Revenues $ 16,044,301 $ 15,165,534 $ 14,656,065 $ 12,581,067 $ 10,766,853
Operating Expenses
Management Fee 1,431,616 1,475,155 2,234,968 535,540 0
Promotional 69,255 72,984 72,359 97,694 97,328
Provision for Loan Losses 500,000 0 2,750,000 0 0
Provision for Losses on Real
Estate held for sale 200,000 400,000 0 0 0
Other 352,055 507,971 280,093 198,550 117,074
----------- ----------- ----------- ----------- -----------
Net Income $ 13,491,375 $ 12,709,424 $ 9,318,645 $ 11,749,283 $ 10,552,451
=========== =========== =========== =========== ===========
Net income allocated to
general partner $ 135,584 $ 127,726 $ 90,218 $ 113,750 $ 102,020
=========== =========== =========== =========== ===========
Net income allocated to
limited partners $ 13,355,791 $ 12,581,698 $ 9,228,427 $ 11,635,533 $ 10,450,431
=========== =========== =========== =========== ===========
Net income per limited
partnership unit $.08 $.09 $.07 $.10 $.11
==== ==== ==== ==== ====
</TABLE>
This information should be read in conjunction with the
accompanying audited financial statements and notes to financial
statements.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The net income increase of $782,000 (6.2%) for 1995 as compared to 1994
was primarily attributable to the increase in mortgage investments held by the
Partnership from $145,050,213 to $151,350,591 as of December 31, 1994 and 1995,
respectively. The net income increase by the Partnership was negatively affected
by the addition to reserves for loan losses of $500,000 and losses on real
estate held of sale of $200,000 in its financial statements for the year ended
December 31, 1995 The net income increase was further negatively affected by the
increase in non-performing loans from $4,923,000 to $8,309,000 as of December
31, 1994 and 1995, respectively. Non-performing loans for this purpose is
defined as those loans that are more than ninety days delinquent and on which
the Corporate General Partner has chosen not to advance delinquent interest
payments to the Partnership. The net income increase of $3,391,000 (36.4%) for
1994 as compared to 1993 was primarily attributable to the $2,750,000 loan loss
reserve established in the financial statements of the Partnership as of
December 31, 1993. In addition, the Partnership increased its mortgage
investments from $133,549,495 to $145,050,213 as of December 31, 1993 and 1994,
respectively. The net income increase of the Partnership was negatively affected
by the establishment of a reserve for losses on real estate held for sale of
$400,000 in its financial statements for the year ended December 31, 1994. Prior
to 1994, the Partnership did not have a loss reserve for real estate held for
sale in its financial statements. All income was derived from investments in
mortgage loans and short-term interest-bearing accounts, notes receivable from
the Corporate General Partner and rental income from real estate owned.
The Partnership has experienced a decrease in its average yield per
Unit from 9.15% in 1993 to 8.88% and 8.79% in 1994 and 1995, respectively. The
net yield represents the net income of the Partnership after all expenses, other
than the provision for losses on loans or real estate held for sale. These
decreases have been the result of the overall decrease in general market rates
and changes in the Corporate General Partner's policies regarding advancing
delinquent interest and purchasing properties which provide security for
Partnership loans at foreclosure sale. The amount of non-performing loans held
by the Partnership has increased from $4,923,000 (3.39% of loan portfolio) to
$8,309,000 (5.49% of loan portfolio) as of December 31, 1994 and 1995,
respectively due to the diminishing amount of loans that the Corporate General
Partner advances delinquent interest on. Non-performing loans for this purpose
is defined as those loans delinquent ninety days or more on which the Corporate
General Partner has chosen not to advance interest. In addition, the sum of
servicing and management fees paid to the Corporate General Partner decreased
from $2,558,000 for 1993 to $1,813,000 and $1,803,000 for 1994 and 1995,
respectively. These represent decreases in the annualized rate of servicing and
management fees to total trust deed investments of the Partnership from 2.00%
1993 to 1.32% and 1.22% for 1994 and 1995, respectively. Due to the increase in
non-performing loans and the general decrease in market interest rates, the
Corporate General Partner has chosen to reduce the fees it collects in order to
maximize the yield to investors. These fees are well within the limitations on
such fees as imposed by the Partnership Agreement.
Loan Portfolio
The number of Partnership mortgage investments decreased from 267 in as
of December 31, 1993 to 254 as of December 31, 1994. The average loan balance in
this period increased from $500,185 in 1993 to $571,064 in 1994. The number of
Partnership mortgage investments decreased from 254 as of December 31, 1994 to
238 as of December 31, 1995. The avearage loan balance in this period increased
from $521,064 in 1994 to $635,927 in 1995. These average loan increases reflect
the Partnership's increased ability to invest in larger mortgage loans meeting
the Partnership's objectives. In addition, the competition from thrifts and
certain other lending institutions is greater for loans less than $1,000,000. As
such, in order to maximize the yield to the Partnership, the Corporate General
Partner has chosen to invest in larger loans on the average.
The Partnership's loan portfolio consists primarily of short-term (1-7)
years, fixed and variable rate loans secured by real estate. As of December 31,
1995, the Partnership's loans secured by deeds of trust on real property
collateral located in Northern California totaled approximately 79%
($120,744,000) of the loan portfolio.
As of December 31, 1995, approximately 94% of the loan portfolio was
invested in loans on income-producing property, 4% in land loans and 2% in
residential loans. Also, as of December 31, 1995, approximately 90% of the loan
portfolio was invested in first deeds of trust, 9% in second deeds of trust and
1% in third and all-inclusive deeds of trust.
The following table sets forth the principal amount of mortgage
investments, by classification of property securing each loan, held by the
Partnership as of December 31, 1995, 1994, 1993, 1992 and 1991, respectively:
<TABLE>
<CAPTION>
LOAN PORTFOLIO
(dollars in thousands)
Principal Amount
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Single Family Residences $ 2,250 $ 3,180 $ 3,004 $ 4,184 $ 4,213
Unimproved Land 6,503 6,742 7,953 10,244 8,743
Income Producing Properties 142,598 135,128 122,592 104,797 86,568
------- ------- ------- ------- --------
Total $ 151,351 $ 145,050 $ 133,549 $ 119,225 $ 99,524
======= ======= ======= ======= ========
</TABLE>
The Partnership had $8,309,000 (5.5%) in non-performing loans as of
December 31, 1995. Non-performing loans for this purpose are defined as those
loans over ninety days delinquent on which the Corporate General Partner does
not advance delinquent interest payments to the Partnership. As of December 31,
1995, the Partnership held $12,037,000 in loans which were more than ninety days
delinquent. The Corporate General Partner was advancing delinquent interest on
$3,553,000 of such loans.
Concentrations of credit risk arise when a number of borrowers are
engaged in similar business activities or activities in the same geographic
region, or when a number of loans are secured by property in the same geographic
region that would cause the ability of the borrowers to meet contractual
obligations to be similarly affected by changes in economic conditions. As of
December 31, 1995, the Partnership's loans secured by deeds of trust on real
property collateral located in Northern California totaled approximately 79%
($120,744,000) of the loan portfolio as compared to 82% ($118,462,000) as of
December 31, 1994. The Northern California region is a large geographic area
which has a diversified economic base. The ability of borrowers to repay loans
is influenced by the strength of the region and the impact of prevailing market
conditions on the value of real estate. Such loans are secured by deeds of trust
in real estate properties and are expected to be repaid from the cash flow of
the properties or proceeds from the sale or refinancing of the properties. The
policy of the Partnership is to require real property collateral with a value,
net of senior indebtedness, that exceeds the carrying amount of the loan balance
and to record a deed of trust on the underlying property.
As of December 31, 1995, the Partnership's loans secured by deeds of
trust on income producing properties totaled approximately 94% ($142,598,000) of
the loan portfolio. However, no particular industry represents a significant
portion of such loans.
Asset Quality
A consequence of lending activities is that losses will be experienced
and that the amount of such losses will vary from time to time depending upon
the risk characteristics of the loan portfolio as affected by economic
conditions and the financial experiences of borrowers. There is no precise
method of predicting specific losses of amounts that ultimately may be charged
off on particular segments of the loan portfolio, especially in light of the
current economic environment. The conclusion that a loan may become
uncollectible, in whole or in part, is a matter of judgment.
Prior to May 1, 1993, the Corporate General Partner had made all
payments to the Partnership on all delinquent loans made or invested in by the
Partnership and had purchased from the Partnership all such loans that have been
foreclosed. However, the Corporate General Partner changed its policy to not
advance interest on delinquent loans originated on or after May 1, 1993. In
addition, the Corporate General Partner changed its policy to not purchase loans
from the Partnership subject to foreclosure as of May 1, 1993 although it may on
occasion continue to purchase such loans. Furthermore, effective November 1,
1994, the Corporate General Partner discontinued its prior practice of advancing
on all delinquent loans originated prior to May 1, 1993. As of December 31,
1995, the Corporate General Partner was not making advances of interest on
$8,309,000 of the delinquent loans held by the Partnership. As of December 31,
1995, the Corporate General Partner was advancing delinquent interest on
$3,728,000 (31%) of the total delinquent loans held by the Partnership.
As of December 31, 1995 loans secured by trust deeds include $3,199,000
invested in loans which were in the process of foreclosure and $907,549 secured
by properties acquired by the Corporate General Partner through foreclosure
proceedings subject to these notes. In connection with the periodic closing of
the accounting records of the Partnership and the preparation of the financial
statements, an evaluation of the mortgage loan portfolio of the Partnership is
performed by management. Based upon this evaluation, a determination is made as
to whether the allowance for loan losses is adequate to cover potential loan
losses of the Partnership. As of December 31, 1995, management has determined
that the allowance for loan losses of $3,250,000 is adequate in amount.
The adequacy of the allowance for loan losses to cover possible loan
losses can be determined only on a judgmental basis, after full review,
including consideration of
Economic conditions;
Borrower's financial condition;
Evaluation of industry trends;
Review and evaluation of potential problem loans identified
as having loss potential; and Quarterly review by Board of
Directors.
Nonperforming Loans
The Partnership had nonperforming loans totaling $8,309,000 and
$4,923,000 as of December 31, 1995 and 1994, respectively. Partially due to the
prior practice of the Corporate General Partner to advance delinquent interest
payments to the Partnership on loans originated by the Corporate General Partner
on or after May 1, 1993, there were no nonperforming loans as of December 31,
1993, 1992 or 1991. See "Item 1.
Business-Delinquencies".
The Partnership has the following amount of loans delinquent in payment
by greater than 90 days:
<TABLE>
<CAPTION>
DELINQUENT LOANS
(dollars in thousands)
Loan Amount as of December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Delinquent Loans $ 12,037 $ 12,837 $ 10,621 $ 11,065 $ 11,519
========= ========= ========= ========= =========
Total Nonperforming
Loans $ 8,309 $ 4,923 $ 0 $ 0 $ 0
========= ========= ========= ========= =========
Total Mortgage
Investment $ 151,351 $ 145,050 $ 133,549 $ 119,235 $ 99,524
======== ========= ========= ========= ========
Percent of
Delinquent Loans
to Total Loans 7.95% 8.85% 9.95% 9.28% 11.57%
===== ===== ===== ===== ======
Percent of
Nonperforming Loans
to Total Loans 5.49% 3.39% 0% 0% 0%
===== ===== == == ==
</TABLE>
During 1995 the Corporate General Partner foreclosed on and acquired
title to a property which provided security to the Partnership for a loan in the
amount of $415,000. During 1995, the Partnership was foreclosed out of a loan in
the amount of $377,000 by a senior lienholder. In addition, the Corporate
General Partner assumed the obligation to the Partnership due to a shortfall of
$525,000 on the payoff of a Partnership loan. The Corporate General Partner
assumed these losses of $902,000 and increased its unsecured loan balance
payable to the Partnership in the same amount to protect the Partnership from
sustaining any principal loss.
Liquidity and Capital Resources
The Partnership relies upon purchases of limited partnership interests
and loan payoffs for the creation of capital for mortgage investments. The
Partnership has not and does not intend to borrow money for investment purposes.
The Partnership maintains cash and cash equivalents as contingency
reserves in an aggregate amount of at least 2% of the gross proceeds of the net
sales of limited partners' Units. To the extent that such funds are not
sufficient to pay expenses in excess of revenues, or to meet any other
obligation of the Partnership, it may be necessary for the Partnership to sell
or otherwise liquidate certain of its investments on terms which may not be
favorable to the Partnership.
Item 8. Financial Statements and Supplementary Data See pages 28-40 and page 47
of this Form 10-K report.
<PAGE>
OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnership)
Financial Statements
December 31, 1995, 1994 and 1993
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Partners
Owens Mortgage Investment Fund:
We have audited the accompanying balance sheets of Owens Mortgage Investment
Fund, a California limited partnership, as of December 31, 1995 and 1994 and the
related statements of income, partners' capital and cash flows for each of the
years in the three-year period ended December 31, 1995. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Owens Mortgage Investment Fund
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
-------- KPMG Peat Marwick
February 16, 1996
<PAGE>
OWENS MORTGAGE INVESTMENT FUND
(a California limited partnership)
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
------ ---- ----
Cash and cash equivalents $ 5,056,358 2,153,706
Certificates of deposit 850,000 1,100,000
Loans secured by trust deeds 151,350,591 145,050,213
Less allowance for loan losses (3,250,000) (2,750,000)
------------- -----------
148,100,591 142,300,213
Unsecured loans due from general partner 1,023,232 1,249,989
Interest receivable 1,359,228 1,193,764
Real estate held for sale, net 9,012,359 4,628,325
----------- -----------
$ 165,401,768 152,625,997
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accounts payable and accrued liabilities 16,168 ---
Accrued distributions payable 489,157 446,625
Due to general partner 152,000 332,644
--------------- -----------
Total liabilities 657,325 779,269
-------------- -----------
Partners' Capital:
General partners: Authorized 2,475,248 units in
1995 and 1994; 1,628,897 and 1,490,390 units
issued and 1,625,507 and 1,490,341 units
outstanding in 1995 and 1994, respectively 1,623,526 1,488,360
Limited partners: Authorized 247,524,752 units in
1995 and 1994; 224,117,641 and 208,998,326
units issued and 163,316,937 and 150,554,388
units outstanding in 1995 and 1994, respectively 163,120,917 150,358,368
----------- -----------
Total partners' capital 164,744,443 151,846,728
----------- -----------
$ 165,401,768 152,625,997
=========== ===========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
OWENS MORTGAGE INVESTMENT FUND
(a California limited partnership)
Statements of Income
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
Revenues:
Interest income on loans secured by
<S> <C> <C> <C>
trust deeds $ 15,761,544 14,859,276 14,512,044
Other interest income 282,757 306,258 144,021
------------ ------------ ------------
Total revenues 16,044,301 15,165,534 14,656,065
---------- ---------- ----------
Operating expenses:
Management fees 1,431,616 1,475,155 2,234,968
Promotional interest 69,255 72,984 72,359
Administrative 56,516 56,516 56,516
Legal and accounting 60,254 137,118 102,267
Net real estate operations 224,108 270,038 75,844
Other 11,177 44,299 45,466
Provision for loan losses 500,000 -- 2,750,000
Provision for losses on real estate held for sale 200,000 400,000 --
----------- ----------- ------------
Total operating expenses 2,552,926 2,456,110 5,337,420
----------- ----------- -----------
Net income $ 13,491,375 12,709,424 9,318,645
========== ========== ===========
Net income allocated to
general partners $ 135,584 127,726 90,218
========== ========== ===========
Net income allocated to
limited partners $ 13,355,791 12,581,698 9,228,427
========== ========== ===========
Net income per weighted average
limited partner unit $ .08 .09 .07
========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
OWENS MORTGAGE INVESTMENT FUND
(a California limited partnership)
Statements of Partners' Capital
Years ended December 31, 1995, 1994 and 1993
Total
General Partners Limited Partners Partners'
Units Amount Units Amount Capital
Balances,
<S> <C> <C> <C> <C> <C>
December 31, 1992 1,230,381 $ 1,228,400 123,272,087 $ 123,076,067 124,304,467
Net income 90,218 90,218 9,228,427 9,228,427 9,318,645
Sale of partnership
units 142,297 142,297 19,221,666 19,221,666 19,363,963
Partners' withdrawals -- -- (10,444,380) (10,444,380) (10,444,380)
Partners' distributions (118,337) (118,337) (4,841,195) (4,841,195) (4,959,532)
------------ ------------ ----------- ----------- -----------
Balances,
December 31, 1993 1,344,559 1,342,578 136,436,605 136,240,585 137,583,163
Net income 127,726 127,726 12,581,698 12,581,698 12,709,424
Sale of partnership
units 145,970 145,970 17,580,479 17,580,479 17,726,449
Partners' withdrawals -- -- (10,925,360) (10,925,360) (10,925,360)
Partners' distributions (127,914) (127,914) (5,119,034) (5,119,034) (5,246,948)
------------ ------------ ----------- ----------- -----------
Balances,
December 31, 1994 1,490,341 1,488,360 150,554,388 150,358,368 151,846,728
Net income 135,584 135,584 13,355,791 13,355,791 13,491,375
Sale of partnership
units 138,507 138,507 15,119,315 15,119,315 15,257,822
Partners' withdrawals -- -- (10,090,062) (10,090,062) (10,090,062)
Partners' distributions (138,925) (138,925) (5,622,495) (5,622,495) (5,761,420)
------------ ------------ ----------- ----------- -----------
Balances,
December 31, 1995 1,625,507 $ 1,623,526 163,316,937 $ 163,120,917 164,744,443
=========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
OWENS MORTGAGE INVESTMENT FUND
(a California limited partnership)
Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 13,491,375 12,709,424 9,318,645
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for losses on real estate held for
sale 200,000 400,000 --
Provision for loan losses 500,000 -- 2,750,000
Changes in operating assets and liabilities:
Due from general partner -- -- 1,971,444
Interest receivable (165,464) (146,964) (60,828)
Deferred interest -- (39,845) 39,845
Accrued distributions payable 42,532 18,801 13,131
Accounts payable 16,168 -- --
Due to general partner (180,644) 273,735 12,977
---------- ---------- ----------
Net cash provided by operating
activities 13,903,967 13,215,151 14,045,214
---------- ---------- ----------
Cash flows from investing activities:
Purchases of loans secured by trust deeds (63,029,067) (66,337,750) (51,074,287)
Principal collected 2,513,912 2,193,668 1,572,187
Loan payoffs 51,918,735 50,403,003 32,054,489
Additions to real estate held for sale (2,638,630) (415,325) --
Disposition of real estate held for sale 577,395 -- --
Investment in certificates of deposit, net 250,000 400,000 (1,000,000)
----------- ---------- -----------
Net cash used in investing
activities (10,407,655) (13,756,404) (18,447,611)
----------- ----------- -----------
Cash flows from financing activities:
Repayment of mortgage payable -- (500,000) --
Proceeds from sale of partnership units 15,257,822 17,726,449 19,363,963
Cash distributions (5,761,420) (5,246,948) (4,959,532)
Capital withdrawals (10,090,062) (10,925,360) (10,444,380)
----------- ----------- -----------
Net cash (used in) provided by
financing activities (593,660) 1,054,141 3,960,051
----------- ---------- -----------
Net increase (decrease) in cash and cash
equivalents 2,902,652 512,888 (442,346)
Cash and cash equivalents at beginning of year 2,153,706 1,640,818 2,083,164
------------ ------------ ------------
Cash and cash equivalents at end of year $ 5,056,358 2,153,706 1,640,818
============ ============ ============
</TABLE>
See notes 4 and 5 for supplemental disclosure of non-cash investing activities.
See accompanying notes to financial statements.
<PAGE>
OWENS MORTGAGE INVESTMENT FUND
(a California limited partnership)
Notes to Financial Statements
December 31, 1995, 1994 and 1993
(1) Organization
Owens Mortgage Investment Fund (the Partnership), a California
limited partnership, was formed on June 14, 1984 to invest in
loans secured by first, second and third trust deeds, wraparound
and construction mortgage loans and leasehold interest mortgages.
The Partnership commenced operations on the date of formation and
will continue until December 31, 2034 unless dissolved prior
thereto under the provisions of the partnership agreement.
The general partners include Owens Financial Group, Inc. (OFG) and
certain individuals who are OFG's shareholders and officers. The
individual partners have assigned to OFG their interest in any
present or future promotional allowance from the Partnership. OFG
is a California corporation engaged in the origination of real
estate mortgage loans for eventual sale and the subsequent
servicing of those mortgages for the Partnership and other
third-party investors.
The general partners are authorized to offer and sell units in the
Partnership up to an aggregate of 250,000,000 units outstanding at
$1.00 per unit, representing $250,000,000 of limited partnership
interests in the Partnership. Limited partnership units
outstanding were 163,316,937, 150,554,388 and 136,436,605 at
December 31, 1995, 1994 and 1993, respectively.
(2) Summary of Significant Accounting Policies
(a) Management 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.
(b) Loans Secured by Trust Deeds
Loans secured by trust deeds are acquired from OFG and are
recorded at cost. Interest income on loans is accrued by the
simple interest method.
Effective january 1, 1995, the partnership adopted the
financial accounting standards board's statement no. 114,
Accounting by creditors for impairment of a loan, and no. 118,
Accounting by creditors for impairment of a loan-income
recognition and disclosures. Under statement no. 114, A loan
is impaired when, based on current information and events, it
is probable that a creditor will be unable to collect the
contractual interest and principal payments of a loan
according to the contractual terms of the loan agreement.
Statement no. 114 Requires that impaired loans be measured on
the present value of expected future cash flows discounted at
the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent.
Statement no. 118 Clarifies interest income recognition and
disclosure provisions of statement no. 114. The adoption of
these statements did not have a material effect on the
financial statements of the partnership. The partnership
recognizes interest income on impaired loans using the
cash-basis method of accounting. Cash receipts are allocated
to interest income, except when such payments are specifically
designated as principal reduction or when management does not
believe the Partnership's investment in the loan is fully
recoverable.
(c) Allowance for Loan Losses
The Partnership maintains an allowance for loan losses equal
to $3,250,000 and $2,750,000 as of December 31, 1995 and 1994,
respectively. Management of the Partnership believes that
based on historical experience and a review of the loans and
their respective collateral, the allowance for loan losses is
adequate in amount.
Through October 31, 1994, OFG made all delinquent interest
payments on loans originated prior to May 1, 1993 on a
non-recourse basis. However, effective November 1, 1994, OFG
discontinued its practice of making such payments for certain
loans which it periodically identifies. The outstanding
balance of all loans delinquent greater than ninety days is
$8,309,000 and $4,923,000 as of December 31, 1995 and 1994,
respectively. The Partnership discontinues the accrual of
interest on loans when, in the opinion of management, there is
significant doubt as to the collectibility of interest or
principal from either the borrower or OFG or when the payment
of principal or interest is ninety days past due, unless OFG
continues to advance interest payments to the Partnership. As
of December 31, 1995 and 1994, the aforementioned loans
totaling $8,309,000 and $4,923,000, respectively, are
classified as non-accrual loans.
The Partnership's investment in loans for which OFG has
provided advances for delinquent interest payments is
$3,921,739 and $6,566,000 at December 31, 1995 and 1994,
respectively. The outstanding balance of loans originated
prior to May 1, 1993 which is eligible to receive advances
totals approximately $39,100,000 as of December 31, 1995.
Advances for delinquent interest payments and other payments,
such as property taxes, mortgage interest pursuant to senior
indebtedness, and development costs made to or on behalf of
the Partnership by OFG during 1995 and 1994, but not collected
as of December 31, 1995 and 1994, totaled approximately
$1,218,000 and $1,149,000, respectively. The Partnership has
no obligation to repay these advances to OFG. In addition,
during 1995, OFG assumed the obligation to the Partnership for
a shortfall of $525,000 on the pay-off of a Partnership loan.
In 1995 and 1994, OFG assumed the Partnership's interest in
loans in the amount of $377,000 and $591,000, respectively,
and was foreclosed out of the loans by the holders of the
first deeds of trust (see note 4). During 1994, OFG assumed
through foreclosure a Partnership loan of $58,000.
(d) Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash
equivalents include interest-bearing and noninterest-bearing
bank deposits and short-term certificates of deposit with
original maturities of three months or less.
(e) Certificates of Deposit
Certificates of deposit are held with various financial
institutions with original maturities of up to one year.
(f) Real Estate Held for Sale
Real estate held for sale includes real estate acquired
through foreclosure and is carried at the lower of the
recorded investment in the loan, inclusive of any senior
indebtedness, or the property's estimated fair value, less
estimated costs to sell.
(g) Income Taxes
No provision is made for income taxes since the Partnership is
not a taxable entity. Accordingly, any income or loss is
included in the tax returns of the partners.
(3) Loans Secured by Trust Deeds
Loans secured by trust deeds as of December 31, 1995 and 1994
are as follows:
1995 1994
---- ----
Income-producing properties $ 142,597,751 135,128,661
Single-family residences 2,249,616 3,179,945
Unimproved land 6,503,224 6,741,607
------------ ------------
$ 151,350,591 145,050,213
============ ============
First mortgages 136,110,802 131,139,007
Second mortgages 14,660,759 13,228,818
Third mortgages or all-inclusive
deeds of trust 579,030 682,388
------------ ------------
$ 151,350,591 145,050,213
============ ============
Scheduled maturities of loans secured by trust deeds as of
December 31, 1995 and the interest rate sensitivity of such loans
is as follows:
<TABLE>
<CAPTION>
Fixed Variable
Year ending interest interest
December 31, rate rate Total
<S> <C> <C> <C> <C>
1996 $ 34,488,381 7,010,470 41,498,851
1997 21,959,710 7,778,163 29,737,873
1998 3,889,083 14,759,620 18,648,703
1999 1,250,000 19,009,068 20,259,068
2000 1,494,863 15,206,287 16,701,150
Thereafter (through 2011) 5,577,589 18,927,357 24,504,946
----------- ----------- -----------
$ 68,659,626 82,690,965 151,350,591
=========== =========== ===========
</TABLE>
Variable rate loans use as indices the one and five year Treasury
Constant Maturity Index (5.21% and 5.44%, respectively, as of
December 31, 1995), the prime rate (8.5% as of December 31, 1995)
and the weighted average cost of funds index for Eleventh District
savings institutions (5.12% as of December 31, 1995). Premiums
over these indices have varied from 250-550 basis points depending
upon market conditions at the time the loan is made.
The scheduled maturities for 1996 include approximately
$14,700,000 in loans which are past maturity as of December 31,
1995, of which $6,553,476 represents loans for which interest
payments are delinquent over 90 days. During the years ended
December 31, 1995 and 1994, the Partnership refinanced loans
totaling $19,466,491 and $11,266,000, respectively, thereby
extending the maturity dates of such loans.
The Partnership's total investment in loans delinquent over 90
days is $12,037,000 and $12,849,000 as of December 31, 1995 and
1994, respectively. As of December 31, 1995 and 1994, OFG is
providing non-recourse advances for the delinquent interest
payments on $3,553,000 and $4,432,000 of such loans, respectively.
The Partnership's investment in impaired loans as of December 31,
1995 totals approximately $12,037,000, of which $7,290,000 has a
specific related allowance for credit losses totaling
approximately $2,250,000, while there is no specific allowance for
credit losses for the remaining balance of $4,747,000. The only
activity in the allowance for credit losses during the year ended
December 31, 1995 was an addition to the allowance of $500,000.
Interest income recognized on impaired loans during the year ended
December 31, 1995 totaled approximately $896,000, $440,000 of
which was paid by borrowers and $456,000 of which was advanced on
a non-recourse basis to the Partnership by OFG.
As of December 31, 1995 and 1994, the Partnership's loans secured
by deeds of trust on real property collateral located in Northern
California totaled approximately 79% ($120,744,304) and 82%
($118,462,000), respectively, of the loan portfolio. The Northern
California region is a large geographic area which has a
diversified economic base. The ability of borrowers to repay loans
is influenced by the strength of the region and the impact of
prevailing market conditions on the value of real estate. Such
loans are secured by deeds of trust in real estate properties and
are expected to be repaid from the cash flow of the properties or
proceeds from the sale or refinancing of the properties. The
policy of the Partnership is to require real property collateral
with a value, net of senior indebtedness, that exceeds the
carrying amount of the loan balance and to record a deed of trust
on the underlying property.
(4) Unsecured Loan Due from General Partner
During 1993, OFG sold three properties acquired from the
Partnership through foreclosure proceedings on Partnership loans
assumed in 1991 and 1992. The sales proceeds were insufficient to
repay the Partnership's investment in the related mortgage notes;
accordingly, OFG executed an unsecured note payable to the
Partnership in the aggregate amount of $1,411,112 to satisfy OFG's
obligation pursuant to the Limited Indemnification Agreement.
During 1994, OFG sold one property acquired through foreclosure
proceedings on a Partnership loan assumed in 1993 and was
foreclosed out of the second position by the holder of the first
deed of trust on a Partnership loan assumed in 1994. The proceeds
from these transactions were insufficient to repay the
Partnership's investment in the related mortgage notes. Though
under no obligation to do so, OFG assumed the loss of $960,512 and
added this amount to the outstanding balance of the unsecured note
payable.
During 1995, OFG assumed the obligation to the Partnership for a
shortfall on the discounted pay-off of a mortgage and was
foreclosed out of the second position by the holder of the first
deed of trust on a Partnership loan assumed in 1995. Though under
no obligation to do so, OFG assumed the loss on these transactions
of $902,000 and added this amount to the outstanding balance of
the unsecured note payable.
The balance of the unsecured loan due from the general partner has
been reduced by payments and totals $1,023,232 and $1,249,989 as
of December 31, 1995 and 1994, respectively. The note bears
interest at 8% and is due on demand.
(5) Real Estate Held for Sale
Real estate held for sale at December 31, 1995 and 1994 consists
of the following properties acquired through foreclosure in 1993
through 1995:
<TABLE>
<CAPTION>
1995 1994
---- ----
Warehouse, Merced, California, net of valuation
allowance of $350,000 and $200,000 as of
<S> <C> <C>
December 31, 1995 and 1994, respectively $ 650,000 800,185
Light industrial, Emeryville, California 925,000 925,000
70% interest in undeveloped land, Vallejo,
California 568,569 538,705
Commercial lot, Sacramento, California, net of
valuation allowance of $250,000 and
$200,000 as of December 31, 1995 and
1994, respectively 299,828 358,407
Undeveloped land, Grass Valley, California 55,380 55,000
Retail lot, Milpitas, California, and residence,
Campbell, California 661,531 --
Commercial property, Sacramento, California 850,000 --
Developed land, Los Gatos, California 571,853 --
Office building and undeveloped land,
Monterey, California 2,126,426 --
Commercial building, Oakland, California 29,856 --
Residential lots, Carmel, California 2,273,916 1,373,633
38.5% interest in residential lots, Belmont,
California -- 577,395
---------- ---------
$ 9,012,359 4,628,325
========== =========
</TABLE>
The acquisition of these properties resulted in non-cash increases
in real estate held for sale and non-cash decreases in loans
secured by trust deeds of $2,501,308 and $2,005,000 for the years
ended December 31, 1995 and 1994, respectively.
The Partnership has entered into a joint venture agreement with an
unrelated developer/builder for the development and buildout of
thirty residential lots located in Carmel Valley, California which
are to be contributed to the joint venture at a future time. The
joint venture agreement provides for the Partnership to receive a
priority return of principal and interest on any development
capital contributed to the venture in addition to a priority
return of $70,000 per lot. Seventy percent of any profits from the
joint venture will inure to the Partnership. Most all
infrastructure work including roads, drainage and utility tie-ins
have been completed in the development for which the Partnership
has advanced approximately $900,000. Construction and sale of
residential units is anticipated to begin in 1996.
(6) Partners' Capital
(a) Contributions
Limited partners of the Partnership contributed $1.00 for each
unit subscribed. Registration costs incurred by the
Partnership have been offset against contributed capital. Such
costs, which were incurred in 1989, amounted to approximately
$198,000.
(b) Allocations, Distributions and Withdrawals
In accordance with the partnership agreement, the
Partnership's profits, gains and losses are allocated to each
limited partner and the general partners in proportion to
their respective capital contributions.
Distributions are made monthly to the limited partners in
proportion to their respective units as of the last day of the
preceding calendar month. Accrued distributions payable
represent amounts to be paid to the partners in January of the
subsequent year based on their capital balances at December
31.
The Partnership makes cash distributions to those limited
partners who elect to receive such distributions. Those
limited partners who elect not to receive cash distributions
have their distributions reinvested in additional limited
partnership units. Such reinvested distributions totaled
$8,395,180, $7,863,379 and $7,074,392 for the years ended
December 31, 1995, 1994 and 1993, respectively.
The limited partners may withdraw, or partially withdraw, from
the Partnership and obtain the return of their outstanding
capital accounts within 91 days after written notices are
delivered to the general partners, subject to the following
limitations:
Any such payments are required to be made only from cash
available for distribution, net proceeds and capital
contributions (as defined) during said 91-day period.
A maximum of $75,000 per partner may be withdrawn during any
calendar quarter (or $100,000 in the case of a deceased
limited partner).
The general partners are not required to establish a reserve
fund for the purpose of funding such payments.
No more than 10% of the outstanding limited partnership
interest may be withdrawn during any calendar year except upon
dissolution of the Partnership.
(c) Promotional Interest of General Partners
The general partners contributed capital to the Partnership in
the amount of 0.5% of the limited partners' aggregate capital
contributions and, together with their promotional interest,
the general partners have an interest equal to 1% of the
limited partners' contributions. This promotional interest of
the general partners of up to 1/2 of 1% is recorded as an
expense of the Partnership and credited as a contribution to
the general partners' capital account as additional
compensation. As of December 31, 1995, the general partners
had made cash capital contributions of $829,028 to the
Partnership. The general partners are required to continue
cash capital contributions to the Partnership in order to
maintain their required capital balance.
The promotional interest expense charged to the Partnership
was $69,255, $72,984 and $72,359 for the years ended December
31, 1995, 1994 and 1993, respectively.
(7) Contingency Reserves
In accordance with the partnership agreement and to satisfy the
Partnership's liquidity requirements, the Partnership is required
to maintain cash as contingency reserves (as defined) in an
aggregate amount of at least 1-1/2% of the gross proceeds of the
sale of limited partnership units. The cash capital contribution
of the general partners (amounting to $829,028 at December 31,
1995), up to a maximum of 1/2 of 1% of the limited partners'
capital contributions, will be available as an additional
contingency reserve, if necessary.
The contingency reserves required at December 31, 1995 and 1994
were approximately $3,324,000 and $3,056,000, respectively.
Certificates of deposit and certain cash equivalents as of the
same dates were accordingly maintained as reserves.
(8) Income Taxes
The net difference between partners' capital per the Partnership's
federal income tax return and these financial statements is
comprised of the following components:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Partners' capital per financial statements $ 164,744,443 151,846,728
Accrued interest income (1,359,228) (1,193,764)
Allowance for loan losses 3,250,000 2,750,000
Valuation allowance - real estate held for sale 600,000 400,000
Accumulated depreciation 4,830 --
Accrued expenses due to general partner 152,000 59,011
Accrued distributions 489,157 446,625
------------ ------------
Partners' capital per federal income tax return $ 167,881,202 154,308,600
============ ============
</TABLE>
(9) Transactions with Affiliates
OFG is entitled to receive from the Partnership a management fee
of up to 2.75% per annum of the average unpaid balance of the
Partnership's mortgage loans at the end of each of the preceding
twelve months for services rendered as manager of the Partnership.
The maximum management fee is reduced to 1.75% per annum if OFG
has not provided during the preceding calendar year any of the
certain services defined in the limited partnership agreement.
All of the Partnership's loans are serviced by OFG, in
consideration for which OFG receives up to .25% per annum of the
unpaid principal balance of the loans. Servicing fees are paid
from the interest income of the loans collected from the
borrowers.
Interest income on loans secured by trust deeds is collected by
OFG and, along with advances on delinquent loans, is remitted
monthly to the Partnership, net of servicing fees received by OFG.
Interest receivable from OFG amounted to $1,359,228 and $1,193,764
at December 31, 1995 and 1994, respectively.
OFG, at its sole discretion may, on a monthly basis, adjust the
management and servicing fees as long as they do not exceed the
allowable limits of 2.75% and .25%, respectively. In determining
the management and servicing fees and hence the yield to the
Partnership, OFG may consider a number of factors, including the
then-current market yields. Management fees amounted to
approximately $1,432,000, $1,475,000 and $2,235,000 for the years
ended December 31, 1995, 1994 and 1993, respectively, and are
included in the accompanying statements of income. Service fee
payments to OFG approximated $371,000, $338,000 and $323,000 for
the years ended December 31, 1995, 1994 and 1993, respectively,
and is recognized as a reduction in interest income on loans
secured by trust deeds in the accompanying statements of income.
OFG receives late payment charges from borrowers who make
delinquent payments. Such charges are in addition to the normal
monthly loan payments and totaled approximately $152,000, $447,000
and $247,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
OFG originates all loans the Partnership invests in and receives
an investment evaluation fee payable from payments made by
borrowers. Such fees earned by OFG amounted to approximately
$1,865,000, $2,261,000 and $2,235,000 for the years ended December
31, 1995, 1994 and 1993, respectively.
Included in loans secured by trust deeds at December 31, 1995 and
1994 are notes totaling $907,549 and $490,332, respectively, which
are secured by properties acquired by OFG through foreclosure
proceedings subject to these notes. The Partnership received
interest income of $131,482, $300,245 and $385,060 during the
years ended December 31, 1995, 1994 and 1993, respectively, from
OFG under loans secured by trust deeds and the unsecured loan due
from OFG.
Due to general partner at December 31, 1995 and 1994 consists of
unreimbursed costs and expenses payable to OFG.
(10) Net Income Per Limited Partner Unit
Net income per limited partnership unit is computed using the
weighted average of limited partnership units outstanding during
the year, which was 160,636,164, 146,237,145 and 132,117,787 for
the years ended December 31, 1995, 1994 and 1993, respectively.
(11) Fair Value of Financial Instruments
Effective December 31, 1995, the Partnership adopted the Financial
Accounting Standards Board's Statement No. 107, Disclosures about
Fair Value of Financial Instruments. This statement requires the
determination of fair value for certain of the Partnership's
assets. The following methods and assumptions were used to
estimate the value of the financial instruments included in the
following categories:
(a) Cash and Cash Equivalents and Certificates of Deposit
The carrying amount approximates fair value because of the
relatively short maturity of these instruments.
(b) Loans Secured by Trust Deeds
The fair value of these instruments of approximately
$151,759,000 as of December 31, 1995 is estimated based upon
projected cash flows discounted at the estimated current
interest rates at which similar loans would be made. The
allowance for loan losses of $3,250,000 at December 31, 1995
should also be considered in evaluating the fair value of
loans secured by trust deeds.
<PAGE>
ltem 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no changes in or disagreements on any items dealing with
accounting or financial disclosure with the accountants during the fiscal year.
Part IIl
Item 10. Directors and Executive Officers of the Registrant
The following information is provided about the General Partners of
the Partnership, who are responsible for the management of the Partnership. The
General Partners of the Partnership are David Adler, Milton N. Owens, William C.
Owens, Larry R. Schultz, David K. Machado, and Owens Financial Group, Inc. , the
Corporate General Partner. The Corporate General Partner's principal place of
business is located at 2221 Olympic Boulevard, Walnut Creek, CA 94595. Its
telephone number is (510) 935-3840.
Set forth below is certain information about the General Partners and
other employees of the Corporate General Partner that are actively involved in
the administration and investment activity of the Partnership:
David Adler, General Partner, age 74, became President of Owens
Financial Group in 1981, having been the Executive Vice President since 1966. He
has had extensive experience in real estate financing and partnership
management.
Mr. Adler is a former director of Fairmont Foods Company and, for many
years, was Chairman of its Executive Committee. He also served on the Northern
California Advisory Board of Union Bank. As a Presidential appointee, he was a
member of the Postmaster Selection Committee under Postmaster General Winston
Blount. Mr. Adler continues to be active in various civic and philanthropic
enterprises.
Bryan H. Draper, age 38, has been Chief Financial Officer and
Controller of the Corporate General Partner since December, 1987. Mr. Draper is
a Certified Public Accountant who previously worked as a public accountant for
Deloitte, Haskins & Sells from 1981 to 1982, Arthur Andersen & Co. from 1982 to
1986 and finally with a closely held public accounting firm in Walnut Creek,
California from 1986 to 1987. Mr. Draper is responsible for all accounting,
regulatory agency filings and tax matters for the Partnership and the Corporate
General Partner.
William E. Dutra, age 34, is a member of the Loan Committee of the
Corporate General Partner and has been an employee of the Corporate General
Partner since February, 1986. As a Vice President in charge of loan production,
Mr. Dutra has responsibility for loan committee review, loan underwriting and
loan production.
David K. Machado, General Partner, age 53, is a licensed real estate
broker with extensive experience as a loan officer. He was a loan officer with
Mason-McDuffie Investment Company from 1970 to 1975 and with American Savings &
Loan Association from 1975 to 1980. Mr. Machado joined the Corporate General
Partner in 1980 and served as its Vice President and Manager in charge of
corporate loan production until May, 1989. He has served as a commissioned
broker with Owens Financial Group from December 1, 1989 to the present.
Milton N. Owens, General Partner, age 84, is a licensed real estate broker
and has been Chairman of the Board of the Corporate General Partner since
October 1981. Mr. Owens is a member of the American Institute of Real Estate
Appraisers (MAl) and holds other professional designations. Mr. Owens has
conducted real estate appraisal courses at the University of California,
Berkeley. Prior to his formation of Owens Mortgage Company, Mr. Owens was
employed with the mortgage loan division of the Travelers Insurance Company from
1936 to 1951. Mr. Owens is the father of William C. Owens, also a General
Partner of the Partnership.
William C. Owens, General Partner, age 45, has been active in real
estate construction, development, and mortgage financing since 1973. Prior to
joining Owens Mortgage Company in 1979, Mr. Owens was involved in mortgage
banking and held the position of Project Manager for Wilson Construction
Company.
As a Senior Vice President of the Corporate General Partner since 1989,
he has had responsibility for: loan production, underwriting and review, the
development and servicing of various pension accounts, and is involved with
corporate investment, operating policy and planning. Mr. Owens is a licensed
real estate broker, and is the son of Milton Owens, also a general partner of
the Partnership.
Larry R. Schultz, General Partner, age 53, is a licensed real estate
broker and has been Executive Vice President of the Corporate General Partner
since October 1981. Mr. Schultz began working at the Corporate General Partner
in 1964, and has experience in all aspects of its operations.
Currently, Mr. Schultz is responsible for loan committee review, loan
underwriting, loan servicing, and legal review of the Corporate General Partner.
In addition to his responsibilities with the Corporate General Partner,
Mr. Schultz has on numerous occasions acted as a court appointed receiver. He
has also acted as a general partner in various limited partnerships owning
California real estate.
Owens Financial Group, Inc. is the Corporate General Partner of the
Partnership. Its predecessor, Owens Mortgage Company (later changed to Owens
Financial Group), was formed in 1951 by Milton N. Owens for the purpose of
arranging and servicing real estate loans secured by deeds of trust on
California real estate for private and institutional lenders. Except for a brief
period from 1961-1963 when the servicing portfolio and six branch offices were
sold to Palomar Mortgage Company, Milton N. Owens controlled the operations of
Owens Mortgage Company. In October 1981, the predecessor Owens Mortgage Company
was reorganized into Owens Financial Group, Inc. As of December 31, 1995, Owens
Financial Group, Inc. was servicing approximately $197,783,000 of loans for
private individuals, corporate pension plans, IRA and individual pension
accounts, institutional investors and the Partnership. Owens Financial Group,
Inc. serves as loan originator for the Partnership and also services all
mortgage loans held by the Partnership.
The persons identified above constitute all the persons who manage or
control the business of the Partnership. None of these persons, or any other
person who owns Units, directly or indirectly, owns more than 10% of the total
outstanding Units. Based solely on review of Forms 3, 4 and 5, and any
amendments thereto furnished to the Partnership during or with respect to its
most recent fiscal year, the Partnership is not aware of any late reports,
unreported transactions or failures to file a required form.
Item 11. Executive Compensation
The Partnership does not pay any compensation to any persons other than
the Corporate General Partner. The Partnership has not issued, awarded or
otherwise paid to any General Partner, any options, SAR's, securities, or any
other direct or indirect form of compensation other than the managment fees
permitted under the Partnership's governing documents.
The following table summarizes the forms and amounts of compensation
paid to the General Partners or their affiliates for the year ended December 31,
1995. Such fees were established by the General Partners and were not determined
by arms-length negotiation.
Year Ended
Form of Compensation December 3l, 1995
PAID BY PARTNERSHIP
Management Fees $ 1,431,616
Promotional Interest 69,255
----------
Subtotal $ 1,500,871
----------
Reimbursement of Operating Expenses $ 352,055
----------
Total $ 1,852,926
==========
<PAGE>
PAID BY BORROWERS
Investment Evaluation Fees $ 1,865,000
Servicing Fees 371,000
Late Payment Charges 152,000
----------
Total $ 2,388,000
==========
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth the beneficial ownership interests in
the Partnership as of December 31, 1995, held by (i) each General Partner of the
Partnership, and (ii) all General Partners as a group. The address of each
General Partner is 2221 Olympic Blvd., Walnut Creek, California 94595.
<TABLE>
<CAPTION>
Title of Amount of beneficial Percent
class Name ownership (1) of class
----- ---- ------------- --------
<S> <C> <C> <C>
Limited Partnership Units David Adler (2) $ 792,447 .48%
Limited Partnership Units David K. Machado (2) 155,160 .09%
Limited Partnership Units Milton N. Owens (2) 148,836 .09%
Limited Partnership Units William C. Owens (2) 3,244 .00%
Limited Partnership Units Larry R. Schultz (2) 31,754 .02%
Limited Partnership Units Owens Financial Group 2,017,879 1.21%
--------- -----
All General Partners as a Group
(6 Persons) $ 3,149,320 1.89%
========== =====
<FN>
(1) All interests are subject to the named person's sole voting and investment
power unless otherwise indicated.
(2) The ownership of the Corporate General Partner is held as follows: 16.78%
each by David Adler, William C. Owens and Larry Schultz, 26.84% by Milton Owens;
6.71% by David Machado and Bryan H. Draper and an aggregate of 9.40% by 4
unrelated individuals.
</FN>
</TABLE>
Item 13. Certain Relationships and Related Transactions
Transactions with Management and others.
Management Fee.
The Corporate General Partner manages all aspects of the Partnership. The
Corporate General Partner receives a fee for such services in an amount of up to
2 3/4% per annum of the total value of mortgages loans invested in by the
Partnership. The arnount of management fees paid to the Corporate General
Partner for the year ended December 31, 1995 was $1,431,616.
<PAGE>
Promotional Interest.
The Corporate General Partner is required to maintain an ongoing
interest in the Partnership equal to 1 percent of the Limited Partners'
interests. To achieve this, the Corporate General Partner makes monthly cash
contributions equal to one-half of this obligation. The other half of the
obligation is funded through a promotional interest expense allocated to the
Partnership on a monthly basis. During 1995, the Partnership incurred
promotional interest costs of $69,255 which increased the Corporate General
Partners interest in the Partnership in the same amount.
See also Item 12 for a discussion of the interest in the Coroporate
General Partner held by each individual General Partner.
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
Form 10-K Pg.
(a)(1) List of Financial Statements:
Report of Independent Auditors.................................p. 28
Balance Sheets - December 31, 1995 and 1994....................p. 29
Statements of Income for the years ended
December 31, 1995, 1994 and 1993........................................p. 30
Statements of Partners Capital for the
years ended December 31, 1995, 1994 and 1993............................p. 31
Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993..................................p. 32
Notes to Financial Statements................................ pp. 33-40
(2) Schedule IV - Mortgage Loans on Real Estate....................p. 47
(3) Exhibits:
3. Amended and Restated Limited Partnership Agreement, incorporated
by reference to Exhibit A to Prospectus filed with Registration Statement
33-81896 filed July 6, 1995.
4. Amended and Restated Limited Partnership Agreement, incorporated
by reference to Exhibit A to Prospectus filed with Registration Statement
33-81896 filed July 6, 1995.
10(a). Subscription Agreement and Power of Attorney, incorporated
by reference to Exhibit B To Prospectus filed with Registration Statement
33-81896 filed July 6, 1995.
27. Financial Data Schedule.
(b) Reports on Form 8-K - None
(c) Exhibits:
3. Amended and Restated Limited Partnership Agreement, incorporated
by reference to Exhibit A to Prospectus filed with Registration Statement
33-81896 filed July 6, 1995.
4. Amended and Restated Limited Partnership Agreement, incorporated
by reference to Exhibit A to Prospectus filed with Registration Statement
33-81896 filed July 6, 1995.
10(a). Subscription Agreement and Power of Attorney, incorporated
by reference to Exhibit B To Prospectus filed with Registration Statement
33-81896 filed July 6, 1995.
27. Financial Data Schedule.
(d) Schedules:
Schedule IV - Mortgage Loans on Real Estate
<PAGE>
<TABLE>
<CAPTION>
OWENS MORTGAGE INVESTMENT FUND
SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE
Principal Amount of Loans
Mortgage Subject to Delinquent
Description Interest Rate Maturity Date Balances Principal or Interest
TYPE OF LOAN
<S> <C> <C> <C> <C> <C>
Income Producing 6.62 - 14.50% Current to Oct., 2010 $142,597,751 $10,622,750
S.F.R. 8.00 - 15.00% Current to April, 2000 2,249,616 184,000
Land 10.00 - 15.00% Current to July, 1998 6,503,224 1,230,170
----------- ----------
Total $151,350,591 $12,036,920
=========== ==========
AMOUNT OF LOAN
$0 - 250,000 6.81 - 15.00% Current to Aug., 2005 $ 10,852,336 $ 688,987
$250,001 - 500,000 8.00 - 14.00% Current to Aug., 2010 19,392,222 2,447,415
$500,001 - 1,000,000 7.62 - 14.50% Current to Feb., 2010 27,942,137 3,289,455
Over $1,000,000 6.62 - 14.50% Current to Oct., 2010 93,163,896 5,611,063
------------ ----------
Total $151,350,591 $12,036,920
=========== ==========
POSITION OF LOAN
First 6.62 - 15.00% Current to Oct., 2010 $136,110,802 $10,437,920
Second 9.50 - 14.50% Current to Dec., 2004 14,660,759 1,599,000
Third or all-inclusive
deeds of trust 10.50% Current to Feb., 1996 579,030 0
----------- ----------
Total $151,350,591 $12,036,920
=========== ==========
<FN>
NOTE 1: All loans acquired are from an affiliate of the partnership, namely
Owens Financial Group, Inc. the Corporate General Partner.
NOTE 2: Reconciliation of carrying amount of mortgages
Balance at beginning of period (1/1/95) $ l45,050,213
Additions during period
New mortgage loans 63,029,067
------------
Subtotal $208,079,280
Deductions During Period
Collection of principal 53,325,022
Real Estate Owned Foreclosures 2,501,308
Conversion to Unsecured Loan to
Corporate General Partner 902,357
------------
Balance at end of period (12/31/95) $151,350,593
============
NOTE 3: There is one loan of $5,344,002 which exceeds 3% of the total
Partnership loans as of December 31, 1995.
</FN>
</TABLE>
See accompanying independent auditors report
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: March 28, 1996 OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership
By: Owens Financial Group, Inc.
a General Partner
Dated: March 28, 1996 By: /s/David Adler
-------------- ----------------------
David Adler, Director
Dated: March 28, 1996 By: /s/Larry R. Schultz
-------------- ----------------------
Larry R. Schultz, Director
Dated: March 28, 1996 By: /s/William C. Owens
--------------- ----------------------
William C. Owens, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 841501
<NAME> OWENS MORTGAGE INVESTMENT FUND
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 5906358
<SECURITIES> 0
<RECEIVABLES> 1359228
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 149123823
<PP&E> 9012359
<DEPRECIATION> 0
<TOTAL-ASSETS> 165401768
<CURRENT-LIABILITIES> 657325
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 164744443
<TOTAL-LIABILITY-AND-EQUITY> 165401768
<SALES> 16044301
<TOTAL-REVENUES> 16044301
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1852926
<LOSS-PROVISION> 700000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13491375
<INCOME-TAX> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13491375
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
