SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM l0-Q
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For Quarter Ended September 30, 1998
Commission file number O-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 office) (Zip Code)
(925) 935-3840
(Registrant's Telephone number,
including area code)
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 required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No_________
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnership)
BALANCE SHEETS
September 30, 1998 and December 31, 1997
September 30 December 31
1998 1997
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents (Note 2) $ 9,356,194 $ 3,073,115
Certificates of deposit (Note 2) 534,006 1,000,000
Commercial paper (Note 2) 3,040,867 -
Loans secured by trust deeds (Notes 2 and 3) 176,446,203 174,714,607
Less: Allowance for loan losses (Note 2) (3,500,000) (3,500,000)
----------- -----------
172,946,203 171,214,607
Real estate held for sale, net of allowance
for losses (Notes 2 and 4) 10,229,499 14,151,141
Interest receivable 2,724,432 1,773,608
Other receivables 531,399 112,583
----------- -----------
Total Assets $199,362,600 $191,325,054
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accrued distributions payable (Note 5) $ 519,376 $ 544,385
Accounts payable and accrued liabilities 1,548,353 49,534
----------- -----------
Total Liabilities 2,067,729 593,919
----------- -----------
PARTNERS' CAPITAL:
General partners (Note 5) 1,946,559 1,864,033
Limited partners (Note 5) (Units Subject to Redemption) 195,348,312 188,867,102
----------- -----------
Total Partners' Capital 197,294,871 190,731,135
----------- -----------
Total Liabilities and Partners' Capital $199,362,600 $191,325,054
=========== ===========
The accompanying notes are an integral part of these
financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnership)
STATEMENTS OF INCOME
For the Three and Nine Months Ended September 30, 1998 and 1997 (Unaudited)
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 30 September 30 September 30 September 30
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Interest income on loans secured by trust deeds $ 5,030,646 $ 4,572,435 $ 14,267,744 $ 13,251,545
(Loss) gain on sale of real estate (Note 4) (2,074) 449,015 1,251,943 2,249,142
Other income 241,070 190,892 586,927 525,130
----------- ----------- ------------ ------------
Total revenues 5,269,642 5,212,342 16,106,614 16,025,817
----------- ----------- ------------ ------------
OPERATING EXPENSES:
Management fees to General Partner (Note 7) 1,720,721 895,820 2,493,560 3,121,387
Servicing fees to General Partner (Note 7) 108,097 99,006 356,829 337,664
Promotional interest (Note 5) - 19,203 38,460 59,856
Administrative 23,480 14,299 53,220 42,557
Legal and accounting 20,629 60 79,798 77,914
Real estate operations, net 3,753 10,886 23,280 83,162
Other 59 - 13,156 8,843
----------- ----------- ------------ ------------
Total operating expenses 1,876,739 1,039,274 3,058,303 3,731,383
----------- ----------- ------------ ------------
Net income $ 3,392,903 $ 4,173,068 $ 13,048,311 $ 12,294,434
=========== =========== ============ ============
Net income allocated to general partner $ 33,593 $ 40,715 $ 129,191 $ 119,496
=========== =========== ============ ============
Net income allocated to limited partners $ 3,359,310 $ 4,132,353 $ 12,919,120 $ 12,174,938
=========== =========== ============ ============
Net income allocated to limited partners
per weighted limited partnership unit (Note 8) $.017 $.022 $.066 $.066
==== ==== ==== ====
The accompanying notes are an
integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1998 and 1997 (Unaudited)
September 30 September 30
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 13,048,311 $ 12,294,434
Adjustments to reconcile net income
to net cash provided by operating activities:
Gain on sale of real estate by limited partnership (1,227,070) (2,249,142)
Gain on sale of real estate properties (24,873) -
Changes in operating assets and liabilities:
Interest receivable (950,824) (66,888)
Other receivables (418,816) -
Accrued distributions payable (25,009) 17,682
Accounts payable and accrued liabilities 1,498,819 174
Deferred income - 132,742
----------- -----------
Net cash provided by operating activities 11,900,538 10,129,002
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of loans secured by trust deeds (62,688,044) (63,406,952)
Principal collected 1,327,576 1,495,912
Loan payoffs 60,270,185 41,632,527
Investment in real estate properties (261,451) (2,378,711)
Net proceeds from disposition of real estate properties 179,555 -
Investment in limited partnership (1,250,395) (3,203,564)
Distributions received from limited partnership 5,944,129 7,141,248
Investment in corporate joint venture (79,566) -
Unsecured loan to General Partner - 488,764
Investments in certificates of deposit (84,006) (150,000)
Proceeds from maturities of certificates of deposit 550,000 -
Investment in commercial paper (3,040,867) -
----------- -----------
Net cash provided by (used in) investing activities 867,116 (18,380,776)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of partnership Units 9,193,566 13,176,560
Partners' cash distributions (4,733,054) (4,587,638)
Partners' capital withdrawals (10,945,087) (8,704,838)
----------- -----------
Net cash used in financing activities (6,484,575) (115,916)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 6,283,079 (8,367,690)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 3,073,115 11,386,661
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 9,356,194 $ 3,018,971
=========== ===========
See notes 3, 4 and 5 for supplemental disclosure of non-cash investing and
financing activities.
The accompanying notes are an
integral part of these financial statements.
</TABLE>
<PAGE>
OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(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, participating 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 195,544,095 and 189,063,122, at September 30, 1998 and December
31, 1997, respectively.
(2) Summary of Significant Accounting Policies
(a) General
In the opinion of the management of the Partnership, the
accompanying unaudited financial statements contain all
adjustments, consisting of normal, recurring adjustments,
necessary to present fairly the financial information included
therein. These financial statements should be read in
conjunction with the audited financial statements included in
the Partnership's Form 10-K for the fiscal year ended December
31, 1997 filed with the Securities and Exchange Commission. The
results of operations for the three-month and nine-month periods
ended September 30, 1998 are not necessarily indicative of the
operating results to be expected for the full year.
(b) 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.
(2) Summary of Significant Accounting Policies, Continued
(c) 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.
The Partnership accounts for its loans in accordance with 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 Partnership does not recognize interest income on loans once
they are determined to be impaired or once they become more than
ninety days delinquent in payments until the interest is
collected in cash. 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.
(d) Allowance for Loan Losses
The Partnership maintains an allowance for loan losses equal to
$3,500,000 as of September 30, 1998 and December 31, 1997.
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.
The outstanding balance of all loans delinquent in monthly
payments greater than ninety days is $13,444,000 and $5,236,000
as of September 30, 1998 and December 31, 1997, 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 the
borrower or when the payment of principal or interest is ninety
days past due, unless OFG purchases the interest receivable from
the Partnership. OFG was purchasing the interest receivable on
delinquent Partnership loans in the total amount of $1,896,000
and $1,485,000 as of September 30, 1998 and December 31, 1997,
respectively. As of September 30, 1998 and December 31, 1997,
loans totaling $11,548,000 and $3,751,000, respectively, are
classified as non-accrual loans.
OFG advances certain payments to the Partnership on behalf of
borrowers, such as property taxes, mortgage interest pursuant to
senior indebtedness, and development costs. Purchases of
interest receivable and payments made on loans by OFG during the
nine months ended September 30, 1998 and the year ended December
31, 1997 but not collected as of September 30, 1998 and December
31, 1997, respectively, totaled approximately $179,000 and
$219,000, respectively.
(2) Summary of Significant Accounting Policies, Continued
(e) Cash and Cash Equivalents
Cash and cash equivalents include interest-bearing and
noninterest-bearing bank deposits, money market funds and
short-term certificates of deposit with original maturities of
three months or less.
(f) Marketable Securities
Marketable securities include certificates of deposit and
commercial paper with various financial institutions with
original maturities of up to one year. The Partnership
classifies its debt securities as held-to-maturity, as the
Partnership has the ability and intent to hold the securities
until maturity. These securities are recorded at amortized cost,
adjusted for the amortization or accretion of premiums or
discounts. A decline in the market value of any held-to-maturity
security below cost that is deemed to be other than temporary
results in a reduction in carrying amount to fair value. The
impairment is charged to earnings and a new costs basis for the
security is established. Premiums and discounts are amortized or
accreted over the life of the related security as an adjustment
to yield using the effective interest method. Dividend and
interest income are recognized when earned. There was no
significant difference between the carrying value and the fair
value of marketable securities as of September 30, 1998 and
December 31, 1997.
(g) 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.
Certain real estate held for sale acquired by the Partnership is
held in a limited partnership and corporate joint venture. The
Partnership accounts for its investments in the limited
partnership and corporate joint venture under the equity method
of accounting. The limited partnership and corporate joint
venture investment in real estate is carried at the lower of
cost or estimated fair value, less estimated costs to sell. The
Partnership increases its investment by advances made to the
limited partnership and corporate joint venture. Any profit or
loss generated from the investment in limited partnership and
corporate joint venture is recorded as a gain or loss on sale of
real estate.
In accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-lived Assets and
Long-lived Assets to Be Disposed Of", the Partnership
periodically compares the carrying value of real estate held for
sale to expected future cash flows for the purpose of assessing
the recoverability of the recorded amounts. If the carrying
value exceeds future cash flows, the assets are reduced to fair
value. There were no required reductions to the carrying value
of real estate held for sale made for the quarter and nine
months ended September 30, 1998 and 1997.
(2) Summary of Significant Accounting Policies, Continued
(h) 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 September 30, 1998 and
December 31, 1997 are as follows:
September 30 December 31
1998 1997
---- ----
Income-producing properties $ 157,902,115 $ 165,201,582
Single-family residences 2,159,101 2,088,606
Unimproved land 16,384,987 7,424,419
----------- -----------
$ 176,446,203 $ 174,714,607
=========== ===========
First mortgages $ 159,185,333 161,275,350
Second mortgages 16,699,954 12,744,274
Third mortgages or
all-inclusive deeds of trust 560,916 694,983
----------- -----------
$ 176,446,203 $ 174,714,607
=========== ===========
Scheduled maturities of loans secured by trust deeds as of September
30, 1998 and the interest rate sensitivity of such loans is as follows:
<TABLE>
<CAPTION>
Fixed Variable
Year ending interest interest
September 30, rate rate Total
<S> <C> <C> <C>
1998 (Past Maturity) $ 17,466,378 4,155,449 21,621,827
1999 27,954,241 8,958,250 36,912,491
2000 48,449,477 19,139,027 67,588,504
2001 4,948,481 4,984,755 9,933,236
2002 1,810,634 10,545,467 12,356,101
2003 1,011,705 3,051,760 4,063,465
Thereafter (through 2012) 7,435,357 16,535,222 23,970,579
------------- ------------- --------------
$ 109,076,273 67,369,930 176,446,203
============= ============= ==============
</TABLE>
Variable rate loans use as indices the one and five year Treasury
Constant Maturity Index (4.41% and 4.24%, respectively, as of September
30, 1998), the prime rate (8.50% as of September 30, 1998) and the
weighted average cost of funds index for Eleventh District savings
institutions (4.899% as of September 30, 1998). Premiums over these
indices have varied from 250-550 basis points depending upon market
conditions at the time the loan is made.
(3) Loans Secured by Trust Deeds, Continued
The scheduled maturities for 1998 include approximately $21,622,000 of
loans which are past maturity as of September 30, 1998, of which
$7,448,000 represents loans for which interest payments are delinquent
over ninety days. During the nine months ended September 30, 1998 and
the year ended December 31, 1997, the Partnership refinanced loans
totaling $9,941,000 and $2,741,000, respectively, thereby extending the
maturity dates of such loans.
The Partnership's total investment in loans delinquent over ninety days
is $13,444,000 and $5,236,000 as of September 30, 1998 and December 31,
1997, respectively. Of these amounts, approximately $3,893,000 and
$3,279,000 were in the process of foreclosure as of September 30, 1998
and December 31, 1997. OFG has purchased the Partnership's receivables
for delinquent interest of $82,000 and $73,000, related to delinquent
loans for the nine months ended September 30, 1998 and 1997,
respectively.
The Partnership's investment in delinquent loans as of September 30,
1998 totals approximately $13,444,000, of which $8,026,000 has a
specific related allowance for credit losses totaling approximately
$2,215,000. There is a specific and non-specific allowance for credit
losses of $1,285,000 for the remaining balance of $5,418,000 and for
other current loans. There was no additional allowance for credit
losses during the nine months ended September 30, 1998.
The average recorded investment in impaired loans was $7,074,000 and
$7,998,000 during the nine months ended September 30, 1998 and the year
ended December 31, 1997, respectively. Interest income received on
impaired loans during the nine months ended September 30, 1998 and the
year ended December 31, 1997, totaled approximately $420,000 and
$722,000, respectively, $360,000 and $670,000 of which was paid by
borrowers and 963949075$60,000 and $52,000 of which related to
purchases of interest receivable by OFG, respectively.
As of September 30, 1998 and December 31, 1997, the Partnership's loans
secured by deeds of trust on real property collateral located in
Northern California totaled approximately 54% ($95,425,000) and 67%
($117,352,000), respectively, of the loan portfolio. The Northern
California region (which includes the following counties and all
counties north: Monterey, Fresno, Kings, Tulare and Inyo) is a large
geographic area which has a diversified economic base. The ability of
borrowers to repay loans is influenced by the economic 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 on 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) Real Estate Held for Sale
Real estate held for sale includes the following components as of
September 30, 1998 and December 31, 1997:
September 30 December 31
1998 1997
---- ----
Real estate properties held for sale $ 9,165,112 $ 9,699,656
Investment in limited partnership 345,458 3,812,122
Investment in corporate joint venture 718,929 639,363
----------- -----------
$ 10,229,499 14,151,141
========== ==========
Gain on sale of real estate includes the following components for the
nine months ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
September 30 September 30
1998 1997
<S> <C> <C>
Gain on sale of real estate properties $ 24,873 -
Gain on sale of real estate by limited partnership 1,227,070 2,249,142
--------- -----------
$ 1,251,943 2,249,142
========== ===========
</TABLE>
(a) Real Estate Properties Held for Sale
Real estate properties held for sale at September 30, 1998 and
December 31, 1997 consists of the following properties acquired
through foreclosure in 1993 through 1998:
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
<S> <C> <C>
Light industrial warehouse, Merced, California,
net of valuation allowance of $350,000 $ 650,028 650,000
Commercial lot/residential development, Vallejo, California 1,039,116 1,030,566
Commercial lot, Sacramento, California,
net of valuation allowance of $250,000 299,828 299,828
Office building and undeveloped land, Monterey, California,
net of valuation allowance of $200,000 1,885,731 1,902,855
Manufactured home subdivision development, Ione, California,
net of valuation allowance of $384,000 2,565,010 2,451,286
Self storage, Oakland, California 453,815 444,063
Undeveloped land, Reno, Nevada 215,420 230,000
Manufactured home subdivision development, Sonora, California,
net of valuation allowance of $712,000 as of December 31, 1997 --- 1,149,807
Light industrial building, Paso Robles, California 1,547,422 1,541,251
Commercial building, Sacramento, California 30,000 ---
Commercial building, Gresham, Oregon 425,557 ---
22% interest in 6-unit residential building, Oakland,
California 53,185 ---
--------- ---------
$ 9,165,112 9,699,656
========= =========
</TABLE>
4) Real Estate Held for Sale, Continued
The acquisition of certain 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 $508,742 and
$3,273,258 for the nine months ended September 30, 1998 and
1997, respectively.
In February 1998, OFG purchased the manufactured home
subdivision development property located in Sonora, California
from the Partnership for $1,150,000. The Partnership carried
back a loan secured by a trust deed on the property for the full
purchase price. The note bears interest at 8% per annum and is
due on demand.
During 1997, the Partnership sold three properties for a sales
price of approximately $1,659,000. On one of the three
properties, the Partnership took back a loan secured by a trust
deed in the amount of $840,000.
During 1997, the Partnership sold two loans secured by second
deeds of trust to OFG for $600,000 (face value). The Partnership
subsequently purchased the property (located in Paso Robles,
California) securing the loans at the senior lienholder's
trustee sale for $1,350,000; thus, wiping out OFG's junior deeds
of trust. OFG recorded a loss of $600,000 as a result of this
transaction.
(b) Investment in Limited Partnership
In 1993, the Partnership foreclosed on a loan in the amount of
$600,000 secured by a junior lien on 30 residential lots located
in Carmel Valley, California, and in 1994, paid off the senior
loan in the amount of $500,000. The Partnership incurred
additional costs of $502,798 in 1994 to protect its investment,
increasing the carrying value of the lots to $1,602,798. The
Partnership began to develop the lots and incurred an additional
$671,118 in costs during 1995.
During 1995, the Partnership entered into a limited partnership,
WV-OMIF Partners, L.P. (WV-OMIF Partners) with an unrelated
developer/builder, Wood Valley Development, Inc. (Woodvalley),
for the purpose of constructing single-family homes on the 30
lots. The Partnership contributed the lots to WV-OMIF Partners
in 1996 in exchange for a limited partnership interest. The
$671,118 in capitalized costs incurred in 1995 was considered an
advance to WV-OMIF Partners pursuant to the limited partnership
agreement in 1996 when the lots were contributed. The
Partnership provides advances to WV-OMIF Partners to develop and
construct the homes. The Partnership is entitled to receive
interest at a rate of prime plus 2% on the advances to WV-OMIF
Partners.
OFG and Woodvalley exercised their option of purchasing 34
similar lots which are interspersed among the 30 lots being
developed by WV-OMIF Partners. WV-OMIF Partners incurred certain
infrastructure costs which benefit all 64 lots, including the 34
lots developed by OFG and Woodvalley. As of September 30, 1998,
OFG and Woodvalley had developed and sold 28 lots. As of
September 30, 1998, OFG and Woodvalley had reimbursed all shared
development costs in the total amount of $750,675 to WV-OMIF
Partners from the sale of homes.
(4) Real Estate Held for Sale, Continued
During the nine months ended September 30, 1998 and 1997, the
Partnership advanced an additional $1,250,395 and $3,203,564 to
WV-OMIF. WV-OMIF sold thirteen homes during the nine months
ended September 30, 1998 for proceeds of $6,443,101, and the net
gain allocable to the Partnership was $1,227,070, including
interest income of $173,203. WV-OMIF Partners distributed
$5,944,129 (including $102,579 in reimbursements from OFG and
Woodvalley) to OMIF during the nine months ended September 30,
1998. WV-OMIF Partners sold fourteen homes during the nine
months ended September 30, 1997 for proceeds of $7,545,606 and
the net gain allocable to the Partnership was $2,249,142,
including interest income of $274,557. WV-OMIF Partners
distributed $7,141,248 (including $628,980 in reimbursements
from OFG and Woodvalley) to OMIF during this period. The
Partnership's investment in WV-OMIF Partners totaled $345,458
and $3,812,122 as of September 30, 1998 and December 31, 1997,
respectively.
WV-OMIF Partners is distributing cash received from the sale of
the lots in the following priority: (1) to third parties, such
as real property taxes and assessments, lenders, contractors,
etc.; (2) to pay the Partnership the amount of $70,000 per lot,
as each lot sells; (3) to pay the Partnership the interest on
the cash advances in full, as each lot sells; (4) to reimburse
the Partnership for its out-of-pocket cash advances for each
lot, as each lot sells; and (5) the remainder to Woodvalley and
the Partnership at a rate of 30% to Woodvalley and 70% to the
Partnership.
The WV-OMIF Partners Partnership Agreement states that the
Partnership shall take no part in the conduct or control of
WV-OMIF Partner's business or in the operation, right or
authority to act for WV-OMIF Partners. Thus, the Partnership
does not have control of WV-OMIF Partners and accounts for its
investment in WV-OMIF Partners under the equity method of
accounting.
(c) Investment in Corporate Joint Venture
In 1995, the Partnership foreclosed on a loan in the amount of
$571,853 secured by a senior lien on a commercial parcel of land
located in Los Gatos, California. During 1997, the Partnership
contributed the land into 720 University, LLC (the Company), a
corporate joint venture formed between the Partnership and BGC
Properties, LLC (BGC). The purpose of the Company is to develop,
construct and operate a commercial office building or R&D
facility on the land to be held for investment and eventual
sale. The Partnership may provide loans to the Company to
develop and construct the building or the Partnership will
obtain loans from third parties for such purposes. The
Partnership is entitled to receive interest at a rate of prime
plus 2% on the loans it makes to the Company.
During 1997, the Partnership capitalized $56,889 in costs
incurred prior to the property being contributed to the Company
and advanced $10,621 to the Company for development. During the
nine months ended September 30, 1998, the Partnership advanced
an additional $79,566 to the Company for development. The total
investment in the corporate joint venture totals $718,929 and
$639,363 as of September 30, 1998 and December 31, 1997,
respectively.
(4) Real Estate Held for Sale, Continued
The net cash flows from the operations of the Company are to be
distributed in accordance with the following priorities: 1) 70%
to the Partnership and 30% to BGC until the sum of all current
and prior distributions of net cash flows equals the members'
priority return on capital as of the end of the calendar quarter
immediately preceding distribution; and 2) thereafter, 70% to
the Partnership and 30% to BGC.
The distribution upon dissolution shall be made in accordance
with the following priorities: 1) to third parties to pay all
debts; 2) to the members to pay all debts; 3) to the members in
accordance with and to the extent of their respective positive
capital account balances; 4) 70% to the Partnership and 30% to
BGC.
The Company is considered a corporate joint venture, and, thus,
the Partnership accounts for its investment in the Company under
the equity method of accounting.
(5) Partners' Capital
(a) Allocations, Distributions and Withdrawals
In accordance with the partnership agreement, the Partnership's
profits and losses are allocated to each limited partner and the
general partners in proportion to their respective capital
accounts.
Distributions of net income are made monthly to the limited
partners in proportion to their weighted average capital
accounts as of the last day of the preceding calendar month.
Accrued distributions payable represent amounts to be
distributed in January and October, 1998 based on their capital
accounts as of December 31, 1997 and September 30, 1998,
respectively.
The Partnership makes monthly net income 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
$7,789,174 and $7,550,799 for the nine months ended September
30, 1998 and 1997, respectively. Reinvested distributions are
not shown as partners' cash distributions or proceeds from sale
of partnership units in the accompanying statements of cash
flows.
<PAGE>
(5) Partners' Capital, Continued
The limited partners may withdraw, or partially withdraw, from
the Partnership and obtain the return of their outstanding
capital accounts at $1.00 per unit (book value) within 91 days
after written notices are delivered to the general partners,
subject to the following limitations:
o 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.
o 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).
o The general partners are not required to establish a reserve
fund for the purpose of funding such payments.
o No more than 10% of the outstanding limited partnership
interest may be withdrawn during any calendar year except upon
dissolution of the Partnership.
(b) 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
accounts and, together with their promotional interest, the
general partners have an interest equal to 1% of the limited
partners' capital accounts. 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
September 30, 1998, the general partners had made cash capital
contributions of $995,622 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
$38,460 and $59,856 for the nine months ended September 30, 1998
and 1997, respectively.
(6) Contingency Reserves
In accordance with the partnership agreement and to satisfy the
Partnership's liquidity requirements, the Partnership is required to
maintain contingency reserves in an aggregate amount of at least 1-1/2%
of the capital accounts of the limited partners. The cash capital
contribution of the general partners (amounting to $995,622 at
September 30, 1998), up to a maximum of 1/2 of 1% of the limited
partners' capital accounts, will be available as an additional
contingency reserve, if necessary.
The contingency reserves required at September 30, 1998 and December
31, 1997 were approximately $3,980,000 and $3,829,000, respectively.
Certificates of deposit, commercial paper and certain cash equivalents
as of the same dates were accordingly maintained as reserves.
(7) 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.
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 calculated on an annual basis. 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. Even though the fees for a month may exceed one-twelfth of the
maximum limits, at the end of the calendar year the sum of the fees
collected for each of the twelve months must be equal to or less than
the stated limits. Management fees amounted to approximately $2,494,000
and $3,121,000 for the nine months ended September 30, 1998 and 1997,
respectively, and are included in the accompanying statements of
income. Service fee payments to OFG approximated $357,000 and $338,000
for the nine months ended September 30, 1998 and 1997, respectively,
and are included 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 $292,000 and $258,000 for the nine
months ended September 30, 1998 and 1997, respectively.
OFG originates all loans the Partnership invests in and receives an
investment evaluation fee from borrowers. Such fees earned by OFG
amounted to approximately $1,341,000 and $1,983,000 for the nine months
ended September 30, 1998 and 1997, respectively.
During the nine months ended September 30, 1998, the Partnership sold
the manufactured home subdivision development in Sonora Vista to OFG at
a loss of approximately $2,000. An allowance for loss on this property
in the amount of $712,000 had been recorded in 1997; therefore, the
loss for the nine months ended September 30, 1998 was an additional
$2,000. The Partnership carried back a loan from OFG for the entire
purchase price of $1,150,000.
During the nine months ended September 30, 1997, OFG purchased one
delinquent loan secured by a trust deed from OMIF at face value in the
total amount of $273,000 for assumption of a loan of the same amount.
OFG subsequently foreclosed on the loan.
Included in loans secured by trust deeds at September 30, 1998 and
December 31, 1997 are notes totaling $2,095,332 and $2,215,549,
respectively, which are secured by properties owned by OFG. The loans
bear interest at 8% per annum and are due on demand. The Partnership
earned interest income of approximately $104,000 and $133,000 during
the nine months ended September 30, 1998 and 1997, respectively, from
OFG under loans secured by trust deeds.
(8) 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 three and
nine month periods. These amounts were approximately 195,746,000 and
188,928,000 for the three months ended September 30, 1998 and 1997,
respectively, and 194,839,000 and 185,346,000 for the nine months ended
September 30, 1998 and 1997, respectively.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Three Months Ended September 30, 1998 Compared to Three
Months Ended September 30, 1997
- -------------------------------
The net income decrease of approximately $780,000 (18.7%) for the three months
ended September 30, 1998 as compared to the three months ended September 30,
1997 was primarily attributable to the increase in management fees to the
Corporate General Partner from approximately $896,000 to $1,721,000 ($825,000 or
92.1%) for the three months ended September 30, 1997 and 1998, respectively.
Management fees are in accordance with the Partnership Agreement (maximum of
2.75% annually of average mortgage loans). Although interest income on loans
secured by trust deeds increased approximately $458,000 (10%) for the three
months ended September 30, 1998 as compared to the three months ended September
30, 1997 as a result of the growth in the loan portfolio, total revenues only
increased by $57,000 (1.1%) due to a loss on sale of real estate of
approximately $2,000 during the three months ended September 30, 1998 as
compared to gain on sale of real estate of $449,000 during the three months
ended September 30, 1997. The loss on sale of real estate was a result of
increased construction costs and fewer homes being sold, one and three,
respectively, in the three months ended September 30, 1998 compared to the three
months ended September 30, 1997 from the development limited partnership between
the Partnership and Wood Valley Development, Inc. (see "Investment in
Development Limited Partnership" below).
Results of Operations - Nine Months Ended September 30, 1998 Compared to Nine
Months Ended September 30, 1997
- -------------------------------
The net income increase of approximately $754,000 (6.1%) for the nine months
ended September 30, 1998 as compared to the nine months ended September 30, 1997
was primarily attributable to the decrease in management fees paid to the
Corporate General Partner pursuant to the Partnership Agreement from
approximately $3,121,000 to $2,494,000 ($627,000 or 20.1%) for the nine months
ended September 30, 1997 and 1998, respectively. Although interest income on
loans secured by trust deeds increased approximately $1,016,000 (7.7%) for the
nine months ended September 30, 1998 as compared to the nine months ended
September 30, 1997 as a result of the growth in the loan portfolio, total
revenues only increased by $81,000 (.05%) due to a decrease in gain on sale of
real estate of $997,000 (44.3%). The decrease in gain on sale of real estate was
a result of a decrease in the gain on sales of homes from the development
limited partnership between the Partnership and Wood Valley Development, Inc.
(see "Investment in Development Limited Partnership" below). This decrease was a
result of increased construction costs, the homes sold in the nine months ended
September 30, 1998 were generally less expensive homes with smaller profit
margins, and one fewer home was sold during the nine months ended September 30,
1998 compared to the nine months ended September 30, 1997.
Loan Portfolio
The number of Partnership mortgage investments decreased from 215 to 199 and the
average loan balance increased from approximately $813,000 to $887,000 as of
December 31, 1997 and September 30, 1998, respectively. The average mortgage
investment made by the Partnership during the period of December 31, 1997 to
September 30, 1998 was approximately $1,379,000 showing a trend of increasing
average mortgage investments. These average loan increases reflect the
Partnership's ability to invest in larger mortgage loans meeting the
Partnership's objectives.
The Corporate General Partner had previously purchased all interest receivable
of the Partnership on all delinquent loans made or invested in by the
Partnership. However, on loans originated by the Corporate General Partner on or
after May 1, 1993, and effective November 1, 1994, for certain other loans
originated prior to May 1, 1993, the Corporate General Partner has adopted the
policy to not purchase delinquent interest or principal. As of September 30,
1998 and December 31, 1997, there were approximately $11,548,000 and $3,751,000,
respectively, in loans held by the Partnership on which payments were more than
90 days delinquent and on which such delinquent interest was not being purchased
by the Corporate General Partner. The Corporate General Partner purchased
approximately $82,000 and $73,000 in delinquent interest receivables of the
Partnership during the nine months ended September 30, 1998 and 1997,
respectively, that had not been collected from borrowers by the Corporate
General Partner as of September 30, 1998 or 1997.
Approximately $13,444,000 (7.6%) and $5,236,000 (3.0%) of the loans invested in
by the Partnership were more than 90 days delinquent in payment as of September
30, 1998 and December 31, 1997, respectively. Of these amounts, approximately
$3,893,000 (2.2%) and $3,279,000 (1.9%) were in the process of foreclosure as of
September 30, 1998 and December 31, 1997, respectively. Loans more than 90 days
delinquent increased by $8,208,000 (157%) from December 31, 1997 to September
30, 1998 primarily due to two large loans which became delinquent during 1998.
Management believes that there is adequate security in one of the loans with an
outstanding principal balance of approximately $3,760,000, and that an
additional loan loss reserve for this loan is not needed. The other loan with an
outstanding principal balance of approximately $4,247,000 may result in a loss
of principal to the Partnership, and, therefore, management has established a
loan loss reserve for this loan in the amount of $550,000.
A loan loss reserve in the amount of $3,500,000 was maintained on the books of
the Partnership as of September 30, 1998 and December 31, 1997. The Corporate
General Partner believes that this loan loss reserve is adequate.
As of September 30, 1998 and December 31, 1997 approximately 54% and 67%,
respectively, of the mortgage loans made or invested in by the Partnership are
secured by real property located in Northern California. The decrease in the
percentage of loans secured by real property in Northern California has
primarily been due to the payoff of several loans secured by properties in
Northern California and the purchase of new loans secured by properties outside
of Northern California during the nine months ended September 30, 1998. In
particular, the Partnership made one loan in the amount of $10,600,000 during
the nine months ended September 30, 1998 which is secured by two
income-producing properties located in the states of Washington and Montana.
Also, as the real estate market in Southern California has gradually improved
over the past six to eighteen months, more loans secured by real estate in
Southern California have been invested in by the Partnership. In general, there
has been increased competition in the lending business in Northern California,
particularly in the San Francisco Bay Area, which has required the Corporate
General Partner to expand its pursuit of loans in areas outside of this region.
The Partnership's investment in loans secured by unimproved land has increased
by 121% since December 31, 1997 primarily due to an overall improvement in real
estate market conditions in the past year which have made development and, thus,
loans on unimproved land more attractive. All of the Partnership's loans secured
by unimproved land or land in the process of being developed are first trust
deeds. In addition, only one of these loans in the amount of $802,200 is more
than 90 days delinquent in payment as of September 30, 1998.
The following amount of delinquent loans held by the Partnership have been
acquired and foreclosed upon by the Corporate General Partner from January 1,
1994 through September 30, 1998:
Delinquent Year
Principal Interest Foreclosed
58,000 4,417 1994
1,184,223 252,810 1995
2,320,000 86,981 1996
613,400 50,625 1997
-- -- 1998
The Corporate General Partner has purchased all delinquent interest receivable
from the Partnership on the loans foreclosed on in 1994 and 1995. The delinquent
interest on the loans foreclosed on in 1996 and 1997 was not purchased from the
Partnership by the Corporate General Partner. Of these foreclosed loans, the
Partnership held three mortgages totaling $765,332 as of September 30, 1998 on
which the Corporate General Partner was making payments which were current. In
addition, the Partnership held a mortgage in the amount of $1,150,000 secured by
a property sold to the Corporate General Partner during the nine months ended
September 30, 1998, on which the payments were current.
Real Estate Properties Held for Sale
The Partnership currently holds title to eleven properties which were foreclosed
on from January 1, 1993 through September 30, 1998. Since 1993, the
Partnership's investment in real estate held for sale has increased due to the
Corporate General Partner's policy to generally not acquire property subject to
foreclosure on which the Partnership has a trust deed investment. During the
nine months ended September 30, 1998, the Partnership acquired through
foreclosure a 22% interest in a multi-unit residential building in Oakland,
California, a commercial building located in Sacramento, California and a
commercial building located in Gresham, Oregon on which it had trust deed
investments of $53,185, $30,000 and $425,000, respectively. In addition, in
February 1998, the Partnership sold the manufactured home subdivision
development property located in Sonora, California to the Corporate General
Partner for $1,150,000, resulting in a loss of approximately $2,000.
The properties located in Merced, Vallejo and Sacramento, California, Reno,
Nevada and Gresham, Oregon do not currently generate revenue. Although expenses
from rental properties have increased from approximately $323,000 to $499,000
(54%) for the nine months ended September 30, 1997 and 1998, respectively,
revenues associated with these properties have also increased from $240,000 to
$476,000 (98%) for the nine months ended September 30, 1997 and 1998,
respectively, thus generating a small net loss from real estate held for sale of
$23,000 during the nine months ended September 30, 1998. The increase in
expenses is primarily attributable to the increased number of real estate
properties owned. The increase in rental revenues is attributable to the
increased number of properties held which are generating income as of September
30, 1998 as compared to September 30, 1997.
Investment in Development Limited Partnership
The development limited partnership is building single-family residences of
between approximately 2,200 and 2,800 square feet on the lots. During the three
months ended September 30, 1998 and 1997, one and three homes, respectively,
were sold for aggregate proceeds of $470,991 and $1,635,346, respectively, and
the development limited partnership distributed $486,665 and $2,574,940,
respectively, (including $15,002 and $186,411, respectively, from the joint
venture formed between the Corporate General Partner and Wood Valley, Inc.) to
the Partnership, $81,631 and $449,015, respectively, of which represented profit
and interest. During the nine months ended September 30, 1998 and 1997, thirteen
and fourteen homes, respectively, were sold for aggregate proceeds of $6,443,101
and $7,545,606, respectively, and the development limited partnership
distributed $5,944,129 and $7,141,248, respectively, (including $102,579 and
$628,980, respectively, from the joint venture formed between the Corporate
General Partner and Wood Valley, Inc.) to the Partnership, $1,227,070 and
$2,249,142, respectively, of which represented profit and interest. As of
September 30, 1998, a total of 29 homes had been completed and sold and escrow
closed on the remaining home in October 1998.
During the nine months ended September 30, 1998, the Partnership had advanced
additional development costs aggregating $1,250,395 to WV-OMIF Partners. The
Partnership's investment in WV-OMIF Partners totaled $345,458 and $3,812,122 as
of September 30, 1998 and December 31, 1997, respectively.
As of September 30, 1998, OFG and Woodvalley had reimbursed all shared
development costs in the total amount of $750,675 to WV-OMIF Partners (an
additional $102,579 since December 31, 1997).
Investment in Corporate Joint Venture
During the nine months ended September 30, 1998, the Partnership advanced an
additional $79,566 to the corporate joint venture for development. The total
investment in the corporate joint venture was $718,929 and $639,363 as of
September 30, 1998 and December 31, 1997, respectively. The Company received all
development approvals in the third quarter of 1998 and expects to begin
construction in the Spring of 1999.
Interest Receivable and Accounts Payable and Accrued Liabilities
Interest receivable increased from approximately $1,774,000 as of December 31,
1997 to $2,724,000 as of September 30, 1998 ($950,000 or 53.6%) due primarily to
interest income accrued on one large loan which was paid at the maturity date of
the loan and also due to the growth in the loan portfolio in general. Accounts
payable and accrued liablities increased from approximately $50,000 as of
December 31, 1997 to $1,548,000 as of September 30, 1998 ($1,498,000 or 2996%)
due primarily to accrued management fees for the months of August and September
which are in accordance with the Partnership Agreement.
Cash and Cash Equivalents, Certificates of Deposit and Commercial Paper
Cash and cash equivalents, certificates of deposit and commercial paper have
increased from approximately $4,073,000 as of December 31, 1997 to $12,931,000
as of September 30, 1998, respectively ($8,858,000 or 217%). This increase is
primarily attributable to distributions received from the development limited
partnership during the nine months ended September 30, 1998 without the
investment in new loans of the same amount during the period and from continuing
limited partner contributions (including rollover of limited partner income)
during the period.
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.
There has been little variation in the percentage of capital withdrawals to
total capital invested by the limited partners in recent years excluding
distributions of net income to limited partners. This withdrawal percentage has
been 7.37%, 6.11%, 7.85% and 6.63% for the years ended December 31, 1994, 1995,
1996 and 1997 and 7.48% (annualized) for the nine months ended September 30,
1998. These percentages are calculated by averaging, on an annual basis, the sum
of the capital withdrawals for each calendar quarter divided by the total
limited partner capital as of the end of each quarter. Management of the
Partnership does not expect the trend of capital withdrawals in relation to
total capital invested to change substantially in subsequent periods.
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:
o 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.
o 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).
o The general partners are not required to establish a reserve fund for
the purpose of funding such payments.
o No more than 10% of the outstanding limited partnership interest may be
withdrawn during any calendar year except upon dissolution of the Partnership.
Contingency Reserves
The Partnership maintains cash, certificates of deposit and commercial paper as
contingency reserves in an aggregate amount of at least 2% of the aggregate
capital accounts of the Limited Partners. To the extent that such funds are not
sufficient to pay expenses in excess of revenues or to meet any 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.
Current Economic Conditions
Although the current economic climate in Northern California and the Western
United States is generally strong, many areas outside of the San Francisco Bay
Area and throughout the Western United States continue to experience depressed
values created by the real estate recession of the early 1990's. Other than the
loss incurred in February 1998 on the sale to the Corporate General Partner of
the Sonora property acquired by the Partnership through foreclosure, the
Partnership has not sustained any material losses to date due primarily to the
Corporate General Partner's prior practice of purchasing delinquent interest and
purchasing loans prior to foreclosure. The Corporate General Partner has ceased
such practices, with very limited exceptions. Assuming the Corporate General
Partner continues in this manner, the Partnership is likely to sustain losses
with respect to loans secured by properties located in areas of declining real
estate values.
Despite the Partnership's ability to purchase mortgage loans with relatively
strong yields during 1997 and 1998 from the Corporate General Partner, there is
increased competition from a variety of lenders that has had the effect of
reducing mortgage yields in the past twelve months and could have the affect of
reducing mortgage yields further in the future. As such, current loans with
relatively high yields could be replaced with loans with lower yields, which in
turn could reduce the net yield paid to the Limited Partners. In addition, when
there is a reduction in the demand by borrowers for loans originated by the
Corporate General Partner and, thus, fewer loans for the Partnership to invest
in, the Partnership will invest its excess cash in shorter term investments
yielding considerably less than the current investment portfolio.
Effective May 1, 1998, the Partnership became generally closed to new
investments on a temporary basis and remained closed as of September 30, 1998.
However, when the Partnership is open, additional investments from new and
existing Limited Partners are received on a monthly basis which provide capital
for loans, purchases of existing notes and redemption of existing Limited
Partnership Units.
Year 2000 Readiness
Many computer systems may experience difficulty processing dates beyond the year
1999; as a consequence, some computer hardware and software at most companies
will need to be modified or replaced prior to the year 2000 in order to remain
functional. The Corporate General Partner depends on the use of computers and
related systems to provide timely, accurate information essential to the
management and operation of the Partnership. These systems include both
information technology (IT) and non-information technology (non-IT) systems. For
IT and non-IT systems developed by independent third parties
(externally-developed), the Corporate General Partner has obtained
representations from their vendors and suppliers that these systems are Year
2000 compliant; however, internal testing of these systems has not yet been
completed. The computer programs used by the Corporate General Partner to
account for mortgage loan investments, investments in Units and other items are
internally-developed IT systems. These IT systems have been reviewed by
independent consultants engaged to determine whether these programs are able to
recognize the year 2000 and the consultants are in the process of modifying all
internally-developed IT systems to make them Year 2000 compliant. Completion of
remediation efforts and testing are expected to take place in early 1999.
Although not anticipated by the Corporate General Partner, a failure to
adequately address the Year 2000 issue could result in the misstatement of
reported information, the inability to accurately track mortgage investments and
payments due or other operational problems. If IT systems are not operational in
the Year 2000, the Corporate General Partner has determined that they can
operate manually for several months while correcting the system problems before
experiencing material adverse effects on the Partnership's and the Corporate
General Partner's business and results of operations. However, shifting portions
of daily operations to manual processes may result in time delays and increased
processing costs. Additionally, the Partnership and Corporate General Partner
may not be able to provide borrowers and investors with timely and pertinent
information, which may negatively affect customer relations and lead to the
potential loss of new loans and limited partner investments.
The Corporate General Partner is in the process of assessing Year 2000 issues
with third parties, comprised primarily of certain financial institutions and
other vendors, with whom the Partnership has a material business relationship
(Third Parties). Currently, the Partnership believes that if a significant
portion of these financial institutions is non-compliant for a substantial
length of time, the Partnership's operations and financial condition would be
materially adversely affected. Non-compliance by other Third Parties is not
expected to have a material effect on the Partnership's results of operations
and financial condition. The Corporate General Partner is in the process of
sending letters to these and other Third Parties requesting representations of
their Year 2000 readiness.
Based on the preliminary results of the consultants' testing and remediation,
the Corporate General Partner does not anticipate significant costs,
uncertainties or problems associated with becoming Year 2000 compliant. The
total costs to remedy Year 2000 issues will be paid by the Corporate General
Partner. None of such costs will be reimbursed by the Partnership.
Forward Looking Statements and Other Risk Factors
The foregoing analysis of Year 2000 issues includes forward-looking statements
and predictions about possible or future events, results of operations and
financial condition. As such, this analysis may prove to be inaccurate because
of the assumptions made by the Corporate General Partner or the actual
development of future events. No assurance can be given that any of these
forward-looking statements and predictions will ultimately prove to be correct
or even substantially correct.
Various other risks and uncertainties could also affect the Partnership and
could affect the Year 2000 analysis causing the effect on the Partnership to be
more severe than discussed above. The Corporate General Partner's Year 2000
compliance testing cannot guarantee that all computer systems will function
without error beyond the Year 2000. Risks also exist with respect to Year 2000
compliance by Third Parties, such as the risk that an external party, who may
have no relationship to the Partnership or the Corporate General Partner, but
who also has a significant relationship with one or more Third Parties, may have
a system failure that adversely affects the Partnership's ability to conduct
business. While the Corporate General Partner is attempting to identify such
external parties, no assurance can be given that they will be able to do so.
Furthermore, Third Parties with direct relationships with the Partnership, whose
systems have been identified as likely to be Year 2000 compliant, may suffer a
breakdown due to unforeseen circumstances. It is also possible that the
information collected by the Corporate General Partner for these Third Parties
regarding their compliance with Year 2000 issues may be incorrect. Finally, it
should be noted that the foregoing discussion of Year 2000 issues assumes that
to the extent the Corporate General Partner's systems fail, whether because of
unforeseen complications or because of Third Parties failure, switching to
manual operations will allow the Partnership to continue to conduct its
business. While the Corporate General Partner believes this assumption to be
reasonable, if it is incorrect, the Partnership's results of operations would
likely be adversely affected.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership is not presently involved in any material legal proceedings.
Item 6(b). Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which this report
is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 15, 1998 OWENS MORTGAGE INVESTMENT FUND
a California Limited Partnership
(Registrant)
By: Owens Financial Group, Inc.
a General Partner
By: \s\ William C. Owens
William C. Owens
President
By: \s\ Bryan H. Draper
Bryan H. Draper
Chief Financial Officer
Principal Financial Officer
By: \s\ Melina A. Platt
Melina A. Platt
Controller
Principal Accounting Officer
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 9,356,194
<SECURITIES> 3,574,873
<RECEIVABLES> 3,255,831
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,186,898
<PP&E> 10,229,499
<DEPRECIATION> 0
<TOTAL-ASSETS> 199,362,600
<CURRENT-LIABILITIES> 2,067,729
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 197,294,871
<TOTAL-LIABILITY-AND-EQUITY> 199,362,500
<SALES> 0
<TOTAL-REVENUES> 5,269,642
<CGS> 0
<TOTAL-COSTS> 1,876,739
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,392,903
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<NET-INCOME> 3,392,903
<EPS-PRIMARY> .017
<EPS-DILUTED> .017
</TABLE>
