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OFFERING OF LIMITED PARTNERSHIP INTERESTS
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REDWOOD MORTGAGE INVESTORS VIII
$30,000,000
$100 per Unit - Minimum Purchase Twenty (20) Units ($2,000)
Redwood Mortgage Investors VIII, a California limited partnership (the
"Partnership"), is engaged in business as a mortgage lender, for the primary
purpose of making mortgage investments secured primarily by first and second
deeds of trust on California real estate ("Mortgage Investments"). Approximately
ninety-eight percent (98%) of the Partnership's Mortgage Investments are secured
by first and second deeds of trust. Mortgage Investments are arranged and
serviced by Redwood Home Loan Company doing business as Redwood Mortgage
("Redwood Mortgage"), an affiliate of the General Partners. The Partnership's
objectives are to make investments that will: (i) yield a high rate of return
from mortgage lending; and (ii) preserve and protect the Partnership's capital.
Investors should not expect the Partnership to provide tax benefits of the type
commonly associated with limited partnership tax shelter investments. The
Partnership is intended to serve as an investment alternative for investors
seeking current income. However, unlike other investments which are intended to
provide current income, an investment in the Partnership will be less liquid,
not readily transferable, and not provide a guaranteed return over its
investment life.
A maximum of 300,000 Units ($30,000,000) are being offered on a "best
efforts" basis, which means that no one is guaranteeing that any minimum number
of Units will be sold, through broker dealer member firms of the National
Association of Securities Dealers, Inc. (See "TERMS OF THE OFFERING" and "PLAN
OF DISTRIBUTION"). As this is not the Partnership's first offering of units, all
proceeds from the sale of Units will be immediately available to the Partnership
for investment. The offering of Units will terminate one year from the effective
date of this Prospectus unless fully subscribed at an earlier date or terminated
on an earlier date by the General Partners, or extended for additional one-year
periods at the General Partners' election. Of the proceeds from the sales of
Units of the Partnership, a minimum of 84% (in the event the maximum proceeds of
300,000 Units ($30,000,000) is raised) will be invested in, or reserved for, the
Partnership's activities. The balance of 16% (if 300,000 Units ($30,000,000) is
raised) will be used for public offering expenses, the formation loan to Redwood
Mortgage and working capital reserves. Upon the repayment of the formation loan,
approximately ninety-six percent (96%) (if the maximum of 300,000 Units
($30,000,000) is raised) will be invested in, or reserved for Partnership
activities.
There are risks associated with an investment in the Partnership (See "RISK
FACTORS") including the following:
The Partnership will be subject to various conflicts of interest arising
out of its relationship to the General Partners and their affiliates.
Due to the speculative nature of the investment, there is a risk that an
investor could lose his entire investment.
The Formation Loan to be made to Redwood Mortgage will be unsecured and
non-interest bearing, and repayment is not guaranteed.
An investment in Units involves material tax risks.
There are substantial restrictions on the transferability of Units and it
is not anticipated that a public market for the Units will develop.
Purchasers of Units will have a limited ability to liquidate their
investment and will be subject to early withdrawal penalties and other
restrictions and may be required to accept less than they paid for their Units.
The Partnership's use of leverage, if any, may reduce the Partnership's
profitability or cause losses through liquidation.
The Partnership will rely on appraisals which may not be accurate to
determine the fair market value of the real property used to secure loans made
by the Partnership.
Loan defaults and foreclosures may adversely affect the Partnership.
Limited Partners have no right to participate in the management of the
Partnership and may only vote on those matters which are set forth in the
Limited Partnership Agreement; all decisions with respect to the management of
the Partnership will be made exclusively by the General Partners.
The Date of This Prospectus is December 4, 1996
<PAGE>
Upon admission to the Partnership, each Limited Partner will be required to
make a one-time, irrevocable election, except as described below, either (i) to
receive monthly, quarterly or annual distributions of Earnings in cash, or (ii)
to receive distributions of Earnings in the form of additional Units valued at
$100 per Unit. This election, once made is irrevocable for investors who elect
to receive monthly, quarterly or annual distributions of earnings. However,
investors may change whether such distributions are received on a monthly,
quarterly or annual basis. If a Limited Partner initially elected to receive
additional Units, he may, after three (3) years, change his election and receive
monthly, quarterly or annual cash distributions. Earnings from investors who
elect to receive additional Units will be retained by the Partnership for making
further Mortgage Investments or other proper Partnership purposes. The earnings
from these further Mortgage Investments, will be allocated among all investors,
but investors who receive distributions in the form of Units will receive more
Units than investors who receive cash distributions. (See "PLAN OF DISTRIBUTION
- - Election to Receive Periodic Cash Distributions").
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Price to Public Underwriting Proceeds to
commission (1)(2) Partnership(3)
- --------------------------------------------------- ---------------------------
Per Unit (Minimum
Investment 20 units) $100 $0 $100
Total Maximum (4) $30,000,000 $0 $30,000,000
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(1) The Units are being offered to the public by selected broker dealers
who are members of the National Association of Securities Dealers
("Participating Broker Dealers"). Neither the General Partners, the Partnership
nor the Participating Broker Dealers are guaranteeing that any minimum number of
Units will be sold. A Participating Broker Dealer may receive sales commissions
based upon a percentage of the sales price of the Units as set forth below.
Sales commissions will be higher if investors elect to receive distributions of
Earnings in the form of additional Units rather than electing to receive cash
distributions. Participating Broker Dealers may elect to receive sales
commissions as follows: at a rate of five (5%) if an investor elects to receive
cash distributions or at a rate of nine (9%) if the investor elects to receive
additional Units in lieu of cash distributions. An investor's initial election
to receive cash distributions is irrevocable; an investor's election to receive
additional Units may not be changed for a period of three (3) years. Although
total sales commissions could equal (9%), the Partnership anticipates, based on
historical experience, that the total sales commissions payable will not exceed
(7.6 %). This number is based upon the General Partners' assumption, that
sixty-five percent (65%) of investors will elect to receive additional Units in
lieu of cash distributions and thirty-five percent (35%) of investors will elect
to receive cash distributions. In no event will the total of all compensation
payable to Participating Broker Dealers, including sales commissions, expense
reimbursements, sales seminars and/or due diligence expenses exceed ten percent
(10%) of the program proceeds received plus an additional (0.5%) for bona fide
due diligence expenses as set forth in Rule 2810 of the NASD Conduct Rules. In
no event shall any individual Participating Broker Dealer receive total
compensation including sales commissions, expense reimbursements, sales seminar
and/or due diligence expenses in excess of (10%) of the sales proceeds plus an
additional (0.5%) for bona fide due diligence expenses as set forth in Rule 2810
of the NASD Conducts Rules (the Compensation Limitation).
<PAGE>
(2) Sales commissions will not be paid directly by the Partnership out of
the offering proceeds. Instead, the Partnership will loan to Redwood Mortgage,
an affiliate of the General Partners, funds from the offering proceeds equal to
the amount of the sales. For ease of reference, this loan shall be referred to
as the "Formation Loan." Thus, all sales commissions and all amounts payable in
connection with unsolicited orders received by the General Partners will be paid
by Redwood Mortgage. Redwood Mortgage will also act as the mortgage loan broker
for all Mortgage Investments. (See "RISK - Formation Loan" and PLAN OF
DISTRIBUTION - Formation Loan"). The Formation Loan will be unsecured, will not
bear interest and will be repaid in annual installments. Upon the commencement
of this offering, Redwood Mortgage shall make annual installments of one-tenth
of the principal balance of the Formation Loan as of December 31 of each year.
Such payment shall be due and payable by December 31 of the following year with
the first payment due by December 31, 1997, assuming this Offering commences in
1996. The principal balance of the Formation Loan will increase as additional
sales of Units are made each year. The amount of the annual installment payment
to be made by Redwood Mortgage, during the offering stage, will be determined by
the principal balance of the Formation Loan on December 31 of each year. Upon
the completion of this Offering the balance of the Formation Loan will be repaid
in ten (10) equal annual installments of principal, without interest, commencing
on December 31 of the year following the year the offering terminates. Redwood
Mortgage at its option may prepay all or any part of Formation Loan. The
Formation Loan is being made to Redwood Mortgage in order to permit an increased
percentage of the offering proceeds, to be used for Mortgage Investments.
Initially, the Formation Loan will not allow an increased percentage of the
offering proceeds to be used for Mortgage Investments, but as the Formation Loan
is repaid, such amounts will be available for making Mortgage Investments
(3) The Partnership shall reimburse Participating Broker Dealers for
bona-fide due diligence expenses in an amount up to one-half of one percent
(.5%) of the gross proceeds. Units may also be offered or sold directly by the
General Partners. No sales commissions will be paid on any such solicited or
unsolicited Units sold directly by the General Partner. (See "PLAN OF
DISTRIBUTION" and "TERMS OF THE OFFERING").
(4) Such proceeds are calculated before deducting Organizational and
Offering Expenses (including, without limitation, printing costs, attorneys' and
accountants' fees, registration and filing fees and other expenses) payable by
the Partnership in connection with this Offering. The aggregate Organizational
and Offering Expenses payable by the Partnership are estimated to be $1,200,000
if the maximum is sold. The General Partners may prepay these items and may be
reimbursed by the Partnership in an amount not to exceed the lesser of ten
percent (10.0%) of the Gross Proceeds or $1,200,000. The General Partners will
pay any offering expenses (excluding selling commissions) in excess of ten
percent (10.0%) of the Gross Proceeds or $1,200,000. (See "TERMS OF THE
OFFERING").
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. INVESTORS ARE REQUIRED TO GIVE CERTAIN WARRANTIES IN THEIR SUBSCRIPTION
AGREEMENTS (SEE "PLAN OF DISTRIBUTION - SUBSCRIPTION AGREEMENT WARRANTIES").
THE USE OF PROJECTIONS IN THIS OFFERING IS PROHIBITED. ANY REPRESENTATION
TO THE CONTRARY AND PREDICTIONS, WRITTEN OR ORAL, AS TO THE AMOUNT OR CERTAINTY
OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE WHICH MAY FLOW FROM AN
INVESTMENT IN THE PARTNERSHIP ARE NOT PERMITTED.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY OF THE OFFERING..................................................1
The Partnership..........................................................1
General Partners.........................................................1
Risk Factors. ...........................................................1
Investor Suitability Standards...........................................3
Terms Of The Offering....................................................3
Estimated Use Of Proceeds................................................3
Compensation Of The General Partners And Affiliates .....................4
Conflicts Of Interest....................................................5
Fiduciary Responsibility Of The General Partners.........................6
Prior Performance Summary................................................6
Management...............................................................6
Investment Objectives And Criteria.......................................6
Certain Legal Aspects Of Mortgage Investments............................7
Management's Discussion And Analysis Of Financial Condition Of The
Partnership..............................................................7
Business.................................................................7
Federal Income Tax Consequences..........................................7
ERISA Considerations.....................................................8
Description Of Units.....................................................8
Summary Of Limited Partnership Agreement ................................8
Transfer Of Units........................................................9
Distribution Policies....................................................9
Reports To Limited Partners..............................................10
Plan Of Distribution.....................................................10
Supplemental Sales Material..............................................10
Legal Opinion............................................................10
Experts..................................................................10
Additional Information...................................................11
Tabular Information Concerning Prior Programs............................11
Glossary.................................................................11
Subscription Procedures..................................................11
RISK FACTORS.............................................................11
REAL ESTATE AND OPERATING RISKS..........................................11
Unspecified Investments Increase Uncertainty To Investors And Investors
Must.....................................................................11
Rely On Judgments Of General Partners In Investing Proceeds of The
Offering................................................................11
Loan Defaults And Foreclosures By Borrowers May Adversely Affect
Partnership.............................................................12
Risks Associated With Reliance on Appraisals Which May Be Affected By Subsequent
Events..................................................................12
Risks Associated with Junior Encumbrances And Construction
Loans..................................................................12
Bankruptcy And Limitations On Personal Judgments May Prevent Recovery Of Loan
Thereby Resulting In A Loss To The Partnership.........................12
Risks Associated With Unintended Violations Of The Usury Statute.......12
Loan-To-Value Ratio Are Determined By Appraisals Which May Be In Excess Of The
Ultimate Purchase Price Of The Underlying Property.....................13
Use Of Leverage May Reduce The Partnership's Profitability Or Cause Losses
Through Liquidation....................................................13
Fluctuations In Interest Rates May Effect Return On Investment.........13
Marshaling Of Assets Could Delay Or Reduce Recovery Of
Mortgage Investment....................................................13
Potential Liability For Toxic Or Hazardous Substances If Partnership Is
Considered Owner Of Real Property......................................14
<PAGE>
Potential Conflicts And Risks If Partnership Invests In Mortgage
Investments With General Partners Or Affiliates........................14
INVESTMENT RISKS.......................................................15
No Assurance Of Cash Distributions To Partners.........................15
Partner's Ability To Recover Investment On Dissolution And Termination
Will Be Limited........................................................15
Risk Of Losses As A Result Of Losses Not Insurable Or Not
Economically Insurable.................................................15
Investors Must Rely On Management For Decisions With Respect To
Management Of The Partnership..........................................15
Investors Will Be Bound By Decision Of Majority Vote...................15
Net Worth Of The General Partners May Effect Ability Of General
Partners To Fulfil Their Obligations To The Partnership ...............16
Operating History Of The Partnership...................................16
Risks Regarding Formation Loan And Repayment Thereof...................16
Delays In Investment Could Adversely Affect Return To Investor.........16
Subscriptions For Less Than The Maximum Number of Units Could Effect.
Potential Profitability Of Partnership.................................16
No Assurance Of Guaranteed Payment For Offering Period.................16
Possible Extension Of Offering Will Allow Subsequent Investors To Review
Partnership's Mortgage Investment Portfolio............................17
No Assurance Of Limitation Of Liability Of Limited Partners............17
Compensation To General Partners And Affiliates Cannot Be Estimated....17
No Assurance That Reserves Will Be Adequate............................17
Limited Transferability Of Units Requires That Investment Be
Considered Long Term...................................................17
Partnership May Be Required To Forego More Favorable Investment To Avoid
Regulation Under Investment Company Act of 1940........................18
TAX RISKS..............................................................18
Material Tax Risks Associated With Investment In Units.................18
Risks Associated With Partnership Status For Federal Income Tax
Purposes...............................................................18
Risks Associated With Characterization Of Partnership Income As
Portfolio Income.......................................................18
Risks Of Partnership Characterization As A Publicly Traded Partnership.19
Risks Relating To Taxation Of Undistributed Revenues...................19
Risks Relating To Creation Of Unrelated Business Taxable Income........19
Risks Of Applicability Of Alternative Minimum Tax......................19
Risks Of Audit And Adjustment..........................................19
Risks Of Effects Of State And Local Taxation...........................20
ERISA RISKS............................................................20
Risks Of Investment By Tax-Exempt Investors............................20
INVESTOR SUITABILITY STANDARDS.........................................21
Subscription Agreement Warranties......................................21
Subscription Procedure.................................................22
NOTICE TO CALIFORNIA RESIDENTS.........................................22
TERMS OF THE OFFERING..................................................22
Guaranteed Payment For Offering Period.................................23
Election To Receive Periodic Cash Distributions........................23
ESTIMATED USE OF PROCEEDS..............................................24
CAPITALIZATION OF THE PARTNERSHIP......................................25
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES....................26
CONFLICTS OF INTEREST..................................................30
Conflicts Arising As A Result Of The General Partners' Legal and Financial
Obligations to Other Partnerships......................................30
Conflicts Arising From the General Partners' Allocation Of Time Between
The Partnership and Other Activities...................................30
Amount Of Loan Brokerage Commissions Effects Rate Of Return To Limited
Partners...............................................................31
Terms Of Formation Loan Are Not Result Of Arms Length Negotiations.....31
<PAGE>
Potential Conflicts If Partnership Invests In Mortgage Investments With
General Partners Or Affiliates.........................................31
General Partners Will Represent Both Parties In Sales Of Real Estate Owned to
Affiliates.............................................................32
Professionals Hired By General Partners Do Not Represent Limited
Partners...............................................................32
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS.......................33
PRIOR PERFORMANCE SUMMARY..............................................33
Experience And Background Of General Partners And Affiliates...........34
Additional Information.................................................35
No Major Adverse Developments..........................................35
Prior Public Partnerships..............................................35
Three Year Summary Of Mortgage Investments Originated By Prior
Limited Partnership...................................................36
MANAGEMENT............................................................38
General ..............................................................38
D. Russell Burwell....................................................38
Michael R.Burwell.....................................................38
Gymno Corporation.....................................................38
Redwood Mortgage......................................................38
The Redwood Group, Ltd................................................38
Theodore J. Fischer...................................................38
SELECTED OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SELECTED FINANCIAL DATA...............................................39
ORGANIZATIONAL CHART..................................................40
INVESTMENT OBJECTIVES AND CRITERIA....................................41
Principal Objectives..................................................41
General Standards For Mortgage Investments............................41
Priority Of Mortgages.................................................41
Geographic Area Of Lending Activity...................................41
Construction Mortgage Investments.....................................42
Loan-To-Value Ratios..................................................42
Terms Of Mortgage Investments.........................................43
Equity Interests In Real Property.....................................43
Escrow Conditions.....................................................43
Loans To General Partners And Affiliates..............................43
Purchase Of Mortgage Investments From Affiliates And Other Third
Parties...............................................................43
Note Hypothecation....................................................43
Joint Venturers.......................................................44
Diversification.......................................................44
Reserve Fund..........................................................44
Credit Evaluations....................................................44
Loan Brokerage Commissions............................................44
Loan Servicing........................................................44
Sale Of Mortgage Investments..........................................44
Borrowing.............................................................44
Other Policies........................................................44
CERTAIN LEGAL ASPECTS OF Mortgage Investments.........................45
Foreclosure...........................................................45
Tax Liens.............................................................45
Anti-Deficiency Legislation...........................................45
Special Considerations In Connection With Junior Encumbrances.........46
"Due-On-Sale" Clauses.................................................46
Due-On-Sale...........................................................47
Due-On-Encumbrance....................................................47
Prepayment Charges....................................................47
Real Property Mortgage Investments....................................47
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE
PARTNERSHIP...........................................................47
BUSINESS..............................................................51
FEDERAL INCOME TAX CONSEQUENCES.......................................52
Summary Of Material Tax Aspects.......................................53
Opinion Of Counsel....................................................53
Partnership Tax Status..............................................53
Publicly Traded Partnerships........................................54
Portfolio Income And Unrelated Business Taxable Income..............54
Basis................................................................54
Allocations To The Limited Partners.................................54
Tax Status Of The Partnership.........................................55
Revenue Procedure 89-12...............................................55
Publicly Traded Partnerships..........................................56
Result If Partnership Is Taxable As Association.......................57
Taxation Of Partners -General.........................................57
Partnership Basis.....................................................57
Allocations Of Profits And Losses.....................................58
Sale Of Partnership Interest..........................................58
Character Of Income Or Loss...........................................59
Treatment Of Mortgage Investments Containing Participation Features...60
Repayment or Sale Mortgage Investments................................60
Property Held Primarily For Sale; Potential Dealer Status.............60
Tax Consequences Of Reinvestment In Mortgage Investments..............61
Partnership Organization, Syndication Fees And Acquisition Fees.......61
Original Issue Discount...............................................61
Deduction Of Investment Interest......................................61
Section 754 Election..................................................62
Termination Of The Partnership........................................62
Tax Returns...........................................................62
Audit Of Tax Returns..................................................63
Investment By Tax-Exempt Investors....................................63
State And Local Taxes.................................................64
ERISA CONSIDERATIONS..................................................65
General...............................................................65
Fiduciaries Under ERISA...............................................65
Prohibited Transactions Under ERISA And The Code......................65
Plan Assets...........................................................66
Potential Consequences Of Treatment As Plan Assets....................67
DESCRIPTION OF UNITS..................................................67
SUMMARY OF LIMITED PARTNERSHIP AGREEMENT..............................68
Rights And Liabilities Of Limited Partners............................68
Capital Contributions.................................................68
Rights, Powers And Duties Of General Partners.........................68
Profits And Losses....................................................68
Cash Distributions....................................................68
Meeting...............................................................68
Accounting And Reports................................................69
Restrictions On Transfer..............................................69
General Partners' Interest............................................69
Term Of Partnership...................................................69
Winding Up............................................................70
Dissenting Limited Partners' Rights...................................70
<PAGE>
TRANSFER OF UNITS.....................................................70
Restrictions On The Transfer Of Units.................................70
Withdrawal From Partnership...........................................71
DISTRIBUTION POLICIES.................................................72
Distributions To The Limited Partners.................................72
Cash Distributions....................................................72
Allocation Of Net Income And Net Losses...............................73
REPORTS TO LIMITED PARTNERS...........................................73
PLAN OF DISTRIBUTION..................................................73
Formation Loan........................................................74
Escrow Arrangements...................................................75
Subscription Account..................................................75
SUPPLEMENTAL SALES MATERIAL.......................................... 76
LEGAL PROCEEDINGS.....................................................76
LEGAL OPINION.........................................................76
EXPERTS...............................................................76
ADDITIONAL INFORMATION................................................77
TABULAR INFORMATION CONCERNING PRIOR PROGRAMS.........................77
GLOSSARY..............................................................78
INDEX TO THE FINANCIAL STATEMENTS.....................................80
APPENDIX I - PRIOR PERFORMANCE TABLES
EXHIBIT A - LIMITED PARTNERSHIP AGREEMENT
EXHIBIT B - SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
<PAGE>
SUMMARY OF THE OFFERING
The following summarizes the material contained in this Prospectus. It is
qualified in its entirety by the detailed information and financial statements
appearing elsewhere in this Prospectus.
The Partnership. Redwood Mortgage Investors VIII (the "Partnership") is a
limited partnership formed on May 27, 1992, pursuant to the California Revised
Limited Partnership Act. The Partnership commenced operations on or about April
12, 1993. The Partnership's principal business office is located at 650 El
Camino Real, Suite G, Redwood City, California 94063 and its telephone number is
(415) 365-5341.
The Partnership is engaged in business as a mortgage lender for the primary
purpose of making Mortgage Investments secured by deeds of trust (the "Mortgage
Investment" or "Mortgage Investments") on California real estate (See
"INVESTMENT OBJECTIVES AND CRITERIA"). As of June 30, 1996, approximately
forty-two percent (42%) of the Partnership's Mortgage Investments are secured by
first deeds of trust ($5,917,837), fifty-six percent (56%) are secured by second
deeds of trust ($7,979,116) and two percent (2%) by the third deeds of trust
($300,000). The aggregate principal amount of these Mortgage Investments total
$14,196,953. Of these loans approximately eighty percent (80%) are loans secured
by properties located in the San Francisco Bay Area.
General Partners. The General Partners of the Partnership are D. Russell
Burwell, Michael R. Burwell and Gymno Corporation, a California corporation. The
principal offices of the General Partners are located at 650 El Camino Real,
Suite G, Redwood City, California 94063, and the telephone number is (415)
365-5341. The General Partners may maintain additional offices in the areas
where the properties securing the Mortgage Investments are located. The General
Partners will manage and control the Partnership affairs and have general
responsibility and ultimate authority in all matters affecting its business. The
Mortgage Investments are arranged and serviced by an Affiliate of the General
Partners, Redwood Home Loan Company doing business as Redwood Mortgage ("Redwood
Mortgage") (See "MANAGEMENT").
Risk Factors. An investment in the Partnership involves certain risks. The
"RISK FACTORS" section of the Prospectus discusses in more detail the most
important risks associated with an investment in the Units, including risks
associated with mortgage lending on real estate, risks associated with
investments in limited partnerships such as the Partnership, and tax risks.
These risks include:
Although prospective investors will have an opportunity to review the
Partnership's existing portfolio, initial investors will not have an opportunity
to review Mortgage Investments to be acquired by the Partnership from the
proceeds of this Offering nor will they have the opportunity to evaluate whether
the Partnership should make an investment, or to provide input of any kind into
such decisions which will be made exclusively by the General Partners. (See
INVESTMENT OBJECTIVES AND CRITERIA).
As this is not the Partnership's first offering of Units, no escrow will be
established and all proceeds from the sale of Units will be immediately
available to the Partnership for investment. In the event less than $30,000,000
is raised, the Partnership will make fewer Mortgage Investments and the
Partnership will achieve less diversification in the types and amounts of
Mortgage Investments. (See "TERMS OF THE OFFERING").
The Partnership will pay certain fees to the General Partners and their
Affiliates some of which may be paid regardless of the economic return to the
Limited Partners. The compensation to be received by the General Partners and
their Affiliates is based, in large part, upon the principal balances of the
Mortgage Investments which during the term of the Partnership will be
continually maturing and "turning over" and cannot be precisely determined. (See
"COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES").
The transferability of Units is restricted and the marketability of Units
is extremely limited. Accordingly, investors may not be able to sell their Units
quickly or profitably if the need arises (See "INVESTOR SUITABILITY STANDARDS,"
"SUMMARY OF LIMITED PARTNERSHIP AGREEMENT" and "TRANSFER OF UNITS").
<PAGE>
An investment in the Partnership involves certain income tax risks
discussed in the Section entitled "FEDERAL INCOME TAX CONSEQUENCES." Certain
income tax benefits will not be available to investors unless the Partnership is
classified as a partnership for federal income tax purposes. In addition,
investors may be required to report taxable income in an amount which exceeds
cash distributed to them. Potential investors should consult with their own tax
advisers concerning the federal, state and local tax consequences associated
with an investment in the Units in light of their own unique tax situations.
The Partnership is subject to various conflicts of interest arising out of
its relationship to the General Partners and their affiliates including
conflicts relating to compensation arrangements, the Formation Loan, allocation
of time between the Partnership and other activities and the legal and financial
obligations of the General Partners to the Partnership and to other partnerships
in which they serve as general partners. (See "CONFLICTS OF INTEREST").
The Partnership relies on appraisals, prepared by non-affiliated third
persons, to determine the fair market value of real property used to secure
Mortgage Investments made by the Partnership. No assurance can be given that
such appraisals will, in any or all cases, be accurate. Moreover, since an
appraisal fixes the value of real property at a given point in time, subsequent
events could adversely affect the value of real property used to secure a loan.
The Partnership may borrow funds for the purpose of making Mortgage
Investments on any terms commercially available and may assign all or a portion
of its Mortgage Investment portfolio as security for such loans. The Partnership
has established a line of credit with a commercial bank secured by its Mortgage
Investments to a limit of $3,000,000. As of June 30, 1996, the Partnership has
borrowed $2,892,000 at an interest rate of nine percent (9%). Such borrowed
money bears interest at a variable rate, whereas the Partnership's Mortgage
Investments bear interest at a fixed rate. Thus, if prevailing interest rates
rise, the Partnership's cost of money could exceed the income earned from that
money, thus reducing the Partnership's profitability or causing losses through
liquidation of loans in order to repay the debt on the borrowed money or default
if the Partnership cannot cover the debt on the borrowed money.
Approximately fifty-six percent (56%) of the Partnership's Mortgage
Investments are secured by second deeds of trust and two percent (2%) by third
deeds of trust both of which are subject to greater risks than first deeds of
trust. The General Partners anticipate that the Partnership will continue to
make approximately the same percentage amount of loans secured by second and
third deeds of trust. In the event that real estate is acquired through
foreclosure under a junior deed of trust the debt secured by the senior deed(s)
of trust must be satisfied before any proceeds from the sale of the property can
be applied toward the amounts owed to the Partnership. Furthermore, to protect
its junior security interest, the Partnership may be required to make
substantial cash outlays for such items as loan payments to senior lienholders
to prevent their foreclosure, property taxes, insurance, repairs, etc.
Many Mortgage Investments will be interest only loans or partially
amortizing loans providing for relatively small monthly payments with a large
"balloon" payment of principal due at the end of the term. As of June 30, 1996,
ninety-eight percent (98%) ($13,934,817) of the Mortgage Investments were
interest only loans or partially amortizing loans. Borrowers may be unable to
repay such loans out of their own funds and may be compelled to refinance or
sell their property. Fluctuations in interest rates and the unavailability of
mortgage funds could adversely affect the ability of borrowers to refinance
their loans at maturity or sell their property, thereby adversely affecting the
Partnership's profitability.
If a borrower defaults on a loan, the Partnership may be forced to purchase
the property at a foreclosure sale. If the Partnership cannot quickly sell such
property, and the property does not produce any significant income, the
Partnership's profitability will be adversely affected. As of June 30, 1996 the
Partnership has been forced to purchase only one property which was sold at a
price that exceeded the Partnership's net basis in the property.
The Partnership will loan to Redwood Mortgage funds in an amount equal to
the sales commissions payable to the Participating Broker Dealers. The Formation
Loan will be unsecured, and will be paid in annual installments of principal,
without interest. Upon the commencement of this Offering, Redwood Mortgage shall
make annual installments of one-tenth of the principal balance of the Formation
Loan as of December 31 of each year. Such payment shall be due and payable by
December 31 of the following year. Prior to the termination of this offering,
the principal balance of the Formation Loan will increase as additional sales of
Units are made each year. The amount of the annual installment payment to be
made by Redwood Mortgage, during the offering stage, will be determined by the
principal balance of the Formation Loan on December 31 of each year with the
first payment due by December 31, 1997, assuming the Offering commences in 1996.
Upon the completion of this Offering, the balance of the Formation Loan will be
repaid in ten (10) equal annual installments
<PAGE>
of principal, without interest, commencing on December 31 of the year
following the year the offering terminates. Redwood Mortgage at its option may
prepay all or any part of the Formation Loan. Redwood Mortgage intends to repay
the Formation Loan principally from loan brokerage commissions earned on
Mortgage Investments and other fees paid by the Partnership.
Investor Suitability Standards. Investment in the Partnership involves some
degree of risk. The Partnership has established a minimum suitability standard
for an investor contemplating investing in Units. This minimum suitability
standard requires that an investor have either: (i) a net worth (exclusive of
home, furnishings and automobiles) of at least $30,000 plus an annual gross
income of at least $30,000; or (ii) irrespective of annual gross income, a net
worth of $75,000 (determined with the same exclusions). Alternatively, the
standard requires that the investor is purchasing in a fiduciary capacity for a
person who (or for an entity which) meets such conditions. (See "INVESTOR
SUITABILITY STANDARDS").
Terms of the Offering. Up to 300,000 Units ($30,000,000) of limited
partnership interest in the Partnership will be offered in Units of $100 each.
The Units are being offered by selected registered broker dealers who are
members of the National Association of Securities Dealers, Inc. (the
"Participating Broker Dealers") on a "best efforts" basis, which means that no
one is guaranteeing that any minimum number of Units will be sold (See "PLAN OF
DISTRIBUTION"). As the Partnership has commenced operations, no escrow will be
established and all proceeds from sale of Units will be immediately available to
the Partnership. A minimum investment of 20 Units ($2,000 by each investor) is
required (See "INVESTOR SUITABILITY STANDARDS").
The Limited Partners shall receive a guaranteed payment from the Earnings
of the Partnership during the Guaranteed Payment Period. The guaranteed payment
period is the period commencing on the day an investor is admitted to the
Partnership and ending three (3) months after the offering terminates. The
guaranteed payment shall not be made over the life of the Partnership. The
guaranteed payment, calculated on a monthly basis, shall be equal to the greater
of (i) the Partnership's Earnings, which equals all revenues earned by the
Partnership less all expenses incurred by the Partnership; or (ii) the interest
rate established by the Monthly Weighted Average Cost of Funds for the 11th
District Savings Institutions, as announced by the Federal Home Loan Bank of San
Francisco during the last week of the preceding month, plus two points, up to a
maximum interest rate of twelve percent (12%). The Weighted Average Cost of
Funds is derived from interest paid on savings accounts, Federal Home Loan Bank
advances, and other borrowed money adjusted for variation in the number of days
in each month. The adjustment factors are 1.086 for February, 1.014 for the 30
day months and 0.981 for 31 day months. As of the date of this Prospectus, the
Monthly Weighed Average Cost of Funds for the 11th District as announced August
30, 1996, for the period ended July 30, 1996 and in effect until September 30,
1996 is 4.819%. To the extent the payment to be paid is in excess of the
Partnership's Earnings, the General Partners shall contribute sufficient capital
to the Partnership so that the guaranteed payment can be made (See "RISK FACTORS
- - Guaranteed Payment for Offering Period"). Since the offering period may be for
a period of one year, with additional one year periods, or such shorter period
as when all the Units are sold, there is uncertainty regarding the exact length
of the guaranteed payment.
Estimated Use of Proceeds. The Partnership will use the proceeds from the
sale of its Units to make Mortgage Investments and pay expenses relating to the
organization and operation of the Partnership. Initially, upon the formation of
the Partnership, a minimum of 84% of each dollar invested will be available for
investment in Mortgage Investments if 300,000 Units ($30,000,000) are sold. If
total sales commissions payable to participating Broker Dealers are less than
9%, as anticipated, the amount of the Formation Loan will correspondingly be
reduced and the amount of proceeds available for Mortgage Investments will be
increased. If the offering is not fully funded, the amount available for
investment will be less. As Redwood Mortgage repays the Formation Loan,
approximately ninety-six percent (96%), if 300,000 Units ($30,000,000) are sold,
will be available for investment in Mortgage Investments. However, because of
the time value of money, the amount of proceeds available for Mortgage
Investments (ninety-six percent (96%) if 300,000 Units ($30,000,000) are sold)
upon repayment of the Formation Loan, are not indicative of the actual amount of
proceeds that will be available for investment over the life of the Partnership.
Additionally, as the Formation Loan is unsecured, there can be no assurance,
other than the fiduciary obligations of the General Partners, that the Formation
Loan will be repaid on a timely basis, if ever. To date, the average size of the
Mortgage Investments is approximately $50,000 to $250,000 on single family homes
and $300,000 to $750,000 on commercial property. The General Partners anticipate
that the average size of the Mortgage Investments will continue to remain
approximately the same. No Mortgage Investments, whether residential or
commercial, shall exceed the greater of $50,000 or ten percent (10%) of the
Partnership's assets at the time the Mortgage Investment is made. The foregoing
amounts are based upon historical experience and are subject to change. (See
"ESTIMATED USE OF PROCEEDS" and "INVESTMENT OBJECTIVES AND CRITERIA").
<PAGE>
Compensation of the General Partners and Affiliates. The General Partners
and their Affiliates have received and will continue to receive substantial
compensation in connection with the Offering and the investment and management
of the Partnership's assets which is not the result of arms length negotiations
(See "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES"). The amount of
compensation to be paid to the General Partners and their Affiliates, as set
forth below, are estimates and actual amounts paid may vary. Except as noted,
there is no limit on the dollar amount of compensation and fees to be paid to
the General Partners and their Affiliates. The most significant items of
compensation assuming the Maximum Offering is raised, are as follows:
In connection with the selection and arrangement of the Mortgage
Investments, Redwood Mortgage will receive Loan Brokerage Commissions which
amounts are negotiated with prospective borrowers on a case by case basis. Based
upon the historical experience of the General Partners, it is estimated that
such commissions will be approximately three percent (3%) to six percent (6%) of
the principal amount of each Mortgage Investment made during that year
(approximately $285,000 per year).
Redwood Mortgage will receive processing and escrow fees for services in
connection with notary, document preparation, credit investigation and escrow
fees in an amount equal to the fees customarily charged by Redwood Mortgage for
comparable services in the geographical area where the property securing the
Mortgage Investments are located, which amounts are paid by the borrower and
estimated to be approximately $19,200 per year.
Redwood Mortgage is entitled receive a monthly servicing fee of up to
one-eighth of one percent (.125%) or one and one-half percent (1 and 1/2%) per
year of the total unpaid principal balance of each Mortgage Investment, except
for the Formation Loan, serviced in connection with their collection efforts.
However, Redwood Mortgage has elected at this time only to receive Monthly
Servicing Fees equal to one percent (1%) per year, estimated to be approximately
$310,000 per year.
The General Partners will receive a monthly fee for managing the
Partnership's Loan portfolio and general business operations in an amount up to
1/32 of one percent (.03125%) of the "net asset value" of the Partnership which
equals the Partnership's assets less its liabilities, estimated to be
approximately $119,000 per year.
The General Partners will receive one percent (1%) of the Cash Available
for Distribution, estimated to be approximately $28,000 per year.
There are a number of other, lesser items of compensation and expense
reimbursements that the General Partners and their Affiliates may receive during
the operation of the Partnership, including reimbursement of the actual costs to
General Partners or their Affiliates of goods and materials, provided such
reimbursement will be lesser of (i) the actual costs to the General Partners or
their Affiliates of providing such services; or (ii) ninety percent (90%) of the
amount the Partnership would be required to pay to non-affiliated persons
rendering similar services in the same or comparable geographical location (as
determined by the General Partners based on an analysis of the costs incurred by
similar lenders, data collected from trade association meetings, relevant
periodicals and conversations with other professionals in the industry), a
reconveyance fee to be paid to Gymno Corporation in an amount equal to
approximately $65 per deed of trust, and an assumption fee and/or extension fee
all payable by the borrower as a percentage of the loan balance, which amounts
are not determinable, and any interest earned, if any, between the date of
deposit of the borrowers funds into Redwood Mortgage's trust account and the
date of payment of such funds by Redwood Mortgage, which amount is not
determinable at this time.
<PAGE>
The following table summarizes compensation and reimbursements paid to the
General Partners for the year ended December 31, 1995, and the period of January
1, 1996 to June 30, 1996 showing approximate actual amounts and the maximum
allowable amounts for management and servicing fees:
<TABLE>
Year Ended Period End
December 31, 1995 January 1, 1996
to June 30, 1996
<CAPTION>
Maximum Maximum Amount
Amount Allowable
Form Actual Allowable Actual for Period
- ------------------------------------------------ ----------------------- ------------------ -------------------- ------------------
PAID BY PARTNERSHIP
<S> <C> <C> <C> <C>
Servicing Fee (1) ...................................... $ 85,457 $128,186 $ 67,389 $101,084
Management Fee (2) ..................................... $ 11,587 $ 34,773 $ 7,760 $ 23,280
Reimbursement of Operating Expenses .................... $ 22,769 $ 22,769 $ 17,647 $ 17,647
1% interest in profits, losses and ..................... $ 8,368 $ 8,368 $ 5,606 $ 5,606
distributions
PAID BY BORROWERS
Loan Brokerage Fees (3) ................................ $265,890 $265,890 $236,435 $236,435
Processing and Servicing Fees .......................... $ 7,957 $ 7,957 $ 6,950 $ 6,950
<FN>
_________________________
(footnotes to table)
(1) Redwood Mortgage is entitled to receive a monthly servicing fee of
one-eighth of one percent(.125%) or 1 1/2% per year of the total unpaid
principal balance of each loan, except for the Formation Loan. However, Redwood
Mortgage elected only to receive Monthly Servicing Fees equal to one percent
(1%) per year.
(2) The General Partners are entitled to receive a monthly fee for managing
the Partnership's Mortgage Investment Portfolio in an amount up to 1/32 of one
percent (.03125%) or 3/8 of one percent (.375%) per year of the "net asset
value" of the Partnership which equals the Partnership's assets less its
liabilities. However, the General Partners elected only to receive Asset
Management Fees in an amount equal to 1/8 of one percent (.125%) per year.
(3) Although Redwood Mortgage can receive loan brokerage fees of up to six
percent (6%) or higher, if such fees could have been negotiated with borrowers,
the figures reflect actual loan brokerage fees charged on the Mortgage
Investments.
</FN>
</TABLE>
Conflicts of Interest. The Partnership is subject to various conflicts of
interest arising out of its relationships with the General Partners and their
Affiliates including conflicts related to the arrangements pursuant to which the
General Partners will be compensated by the Partnership. The conflicts include:`
The General Partners and their Affiliates serve as general partners of
other limited partnerships and accordingly have legal and financial obligations
with respect to those partnerships which are similar to their obligations with
respect to the Partnership.
As a result of their possible future interests in other partnerships and
other business activities, the General Partners and their Affiliates will have
conflicts of interest in allocating their time between the Partnership and other
activities in which they are involved.
The amount of the loan brokerage commission payable to Affiliates of the
General Partners will effect the overall rate of return to the Limited Partners.
<PAGE>
The terms of the Formation Loan are not the result of arms-length
negotiations and accordingly, in the event of default, a conflict of interest
would arise on the General Partners part in connection with the enforcement of
the Formation Loan and continued payment of other fees and compensation to
Redwood Mortgage, including, but not limited to, the Loan Servicing Fee and the
Loan Brokerage Fee.
In the event the Partnership becomes the owner of real property by reason
of foreclosure, conflicts of interest could arise in connection with the General
Partners sale of the Property by their Affiliates.
The professionals retained by the General Partners do not represent the
Limited Partners.
Fiduciary Responsibility of the General Partners. The General Partners are
accountable to the Partnership as fiduciaries, and consequently are under a
fiduciary duty to exercise good faith and integrity in conducting Partnership
affairs and to conduct such affairs in the best interest of the Partnership,
subject to certain limitations set forth in the Partnership Agreement.
Prior Performance Summary. The Partnership commenced operations in April,
1993. The General Partners and their Affiliates have also sponsored eight prior
partnerships with investment objectives similar to the Partnership. The General
Partners and their Affiliates have been engaged in mortgage lending in the San
Francisco Bay Area since 1977 (See "MANAGEMENT" and "PRIOR PERFORMANCE
SUMMARY"). For a description of operations of the Partnership and prior programs
of the General Partners and their Affiliates, see "PRIOR PERFORMANCE SUMMARY."
Management. The General Partners are responsible for the management of the
proceeds of the Offering and the investments of the Partnership. Services
performed by the General Partners include, but are limited to: implementation of
the Partnership investment policies; identification, selection and extension of
Mortgage Investments, preparation and review of budgets, cash flow and taxable
income or loss projections and working capital requirements; periodic physical
inspections and market surveys, supervision and review of Partnership state and
federal tax returns; and supervision and review of professionals employed by the
Partnership in connection with any of the foregoing, including attorneys and
accountants.
Investment Objectives and Criteria. The Partnership has and intends to
continue to make and seek Mortgage Investments with the objectives of: (1)
yielding a high rate of return from mortgage lending, after the payment of
certain fees and expenses to the General Partners and their Affiliates, which
Limited Partners may elect to (a) receive as monthly, quarterly or annual cash
distributions ("Periodic Cash Distributions") or (b) receive additional Units
the proceeds of which will be applied to Partnership activities; and (2)
preserving and protecting the Partnership's capital. It is anticipated that
first distributions of cash or additional Units, depending upon the Investors
elections, shall be made 60-90 days from the time the Investor is accepted as a
limited partner. (See "PRIOR PERFORMANCE SUMMARY").
The Partnership is engaged in the business of making loans to the general
public secured by real property deeds of trust (the "Mortgage Investments").
Such real property will include single family residences, multi-unit residential
property, commercial property and unimproved land. As of June 30, 1996, the
Partnership had made Mortgage Investments in the aggregate principal balance of
$24,206,030 of which $7,722,200 is secured by single family residence,
$4,482,280 is secured by multi-unit residential property, $11,251,550 is secured
by commercial property and $750,000 by unimproved land. As of June 30, 1996, the
Partnership had outstanding Mortgage Investments in the principal amount of
$14,196,953 of which $4,091,433 is secured by single family residences,
$2,389,966 is secured by multi-unit residential property, $7,415,554 is secured
by commercial property and $300,000 by unimproved land. It is anticipated that
the Partnership's deeds of trust will not generally be junior to more than two
other encumbrances (a first, and in some instances, a second or third deed of
trust) on the real property securing the Mortgage Investments. As of June 30,
1996, the Partnership had made in the aggregate eighty-eight (88) loans,
including forty-four (44) secured by first deeds of trust, forty one (41)
secured by second deeds of trust and three (3) secured by third deeds of trust.
It is anticipated that such real property securing the Mortgage Investments will
be located primarily in Northern California and that approximately eighty
percent (80%) of the Partnership's loans will be secured by Deeds of Trust on
properties located in six counties surrounding the San Francisco Bay. The
Partnership may make construction loans up to a maximum of ten percent (10%) of
the Partnership's Mortgage Investment portfolio.
The average size of the Mortgage Investments has and is anticipated to
continue to be approximately $50,000 to $250,000 on single family homes and
approximately $300,000 to $750,000 on commercial loans. However, the actual size
of Mortgage Investments will vary depending on a number of factors including
among other things, the general economic conditions, the specific property
securing the investment, the credit worthiness of the borrower, and the size of
the Partnership's portfolio.
<PAGE>
However, no Mortgage Investments, whether residential or commercial, shall
exceed the greater of $50,000 or ten percent (10%) of the Partnership's assets
when the investment is made. Most Mortgage Investments will generally be for
periods of between one and ten years.
The amount of each Mortgage Investment by the Partnership combined with any
outstanding debt secured by a senior deed of trust on the security property will
generally not exceed a specified percentage of the appraised value of the
security property according to the following table:
Type of Security Property Loan-to-Value Ratio
Residential 80%
Commercial Property 70%
Unimproved Property 50%
In certain circumstances, based upon, among other factors, a positive
change in the credit criteria of the borrower, previous experience with
borrower, the availability of additional collateral, an expected inheritance
an/or an increase in the credit rating of the borrower the above loan-to-value
ratios may be increased. However, in no event shall the loan-to-value ratio on
construction loans exceed eighty percent (80%) of the independently appraised
completed value of the property. The target loan-to-value for Partnership
Mortgage Investments as a whole is approximately seventy percent (70%). (See
"INVESTMENT OBJECTIVES AND CRITERIA" and "PRIOR PERFORMANCE").
Certain Legal Aspects of Mortgage Investments. Each of the Partnership's
investments (except the Formation Loan to Redwood Mortgage) will be secured by a
deed of trust, the most commonly used real property security device in
California. The parties to a deed of trust are: the debtor-trustor, a third
party guarantor called the "trustee," the lender creditor called the
"beneficiary." The trustor grants the property, irrevocably until the debt is
paid, "in trust, with power of sale" to the trustee to secure payment of the
obligation. The trustee has the authority granted by law, by the express
provisions of the deed of trust and by the directors of the beneficiary. The
Partnership will be a beneficiary under all deeds of trust securing the Mortgage
Investments.
Management's Discussion and Analysis of Financial Condition of the
Partnership. The Partnership commenced operations in April, 1993. The proceeds
received from this public offering of Units will enable the Partnership to
continue to carry on its activities and further expand and diversify its
portfolio. The Partnership intends to utilize the net proceeds of this Offering
principally to make Mortgage Investments. To the extent that the net proceeds
received by the Partnership are less than the maximum amount of the offering,
the Partnership will have less diversification of investments. Although the
Partnership has an existing portfolio of over $14,000,000 in Mortgage
Investments, as of the date of this Prospectus, the Partnership has no
outstanding commitments to make or acquire any investment with the proceeds of
this Offering.
Business. The Partnership, formed on May 27, 1992, is engaged in the
business as a mortgage lender, for the primary purpose of making mortgaged
investments secured primarily by first and second deeds of trust on California
real estate ("Mortgage Investments"). Approximately ninety-eight percent (98%)
of the Partnership's Mortgage Investments are secured by first and second deeds
of trust. The Partnership commenced operations in April, 1993. The Partnership's
address is 650 El Camino Real, Suite G, Redwood City, California 94063 and its
telephone number is (415) 365-5341.
Mortgage Investments are arranged and serviced by Redwood Mortgage, an
affiliate of the General Partners. As of June 30, 1996 approximately forty-two
percent (42%) of the Partnership's Mortgage Investments are secured by first
deeds of trust ($5,917,837), fifty-six percent (56%) are secured by second deeds
of trust ($7,979,116) and two percent (2%) by third deeds of trust ($300,000).
The aggregate principal balance of these Mortgage Investments total $14,196,953.
Of these loans approximately eighty percent (80%) are secured by properties
located in the San Francisco Bay Area. As of June 30, 1996, of the Partnership's
Mortgage Investment portfolio twenty-nine percent (29%) is secured by single
family residences, fifty-two percent (52%) by commercial properties, seventeen
percent (17%) by multi-unit properties and two percent (2%) by unimproved
property. No Mortgage Investment may exceed the greater of $50,000 or ten
percent (10%) of the Partnership's total assets at the time the investment is
made.
Federal Income Tax Consequences. The section of this Prospectus entitled
"FEDERAL INCOME TAX CONSEQUENCES" contains a discussion of the most significant
federal income tax issues pertinent to the Partnership. It also contains a
description of Stephen C. Ryan & Associates, counsel to the Partnership, legal
opinion as to federal income tax issues which are expected to be of relevance to
U.S. taxpayers who are individuals. Other tax issues of relevance to other
taxpayers should be reviewed carefully by such investors to determine special
tax consequences of an investment prior to their subscription.
<PAGE>
In general, the material federal income tax issues, as to which the
Partnership has received an opinion from its tax counsel, the Law Offices of
Stephen C. Ryan & Associates (Stephen C. Ryan & Associates) are: (i) the tax
status of the Partnership; (ii) the likelihood that the Partnership will not be
treated as a publicly traded partnership under the publicly traded partnership
rules; (iii) the likelihood that income of the Partnership will not constitute,
or will not constitute any significant amount of unrelated business taxable
income to investing qualified pension, profit-sharing, and stock bonus plans and
IRAs; (iv) the likelihood that allocations of tax items from the Partnership to
a Limited Partner will be respected; and (v) whether, and to what extent, net
income of the Partnership will constitute portfolio income. Subject to the
conditions described in more detail in "FEDERAL INCOME TAX CONSEQUENCES
Opinion of Counsel," the Partnership has received a favorable opinion from its
tax counsel, Stephen C. Ryan & Associates, on each of these matters.
ERISA Considerations. The Partnership's objectives and policies are
designed to make an investment in Units appropriate for Tax-Exempt Investors.
The Partnership and its policies have been structured to meet the standards for:
(i) excluding the assets of the Partnership from the assets of the Limited
Partners which are employee benefit plans for purposes of the Employee
Retirement Income Security Act of 1974 ("ERISA") in accordance with the
exemptions contained in regulations of the Department of Labor; and (ii)
minimizing any allocation of "unrelated business taxable income" to tax-exempt
entities. However, see "RISK FACTORS-Investment by Tax-Exempt Investors",
"FEDERAL INCOME TAX CONSEQUENCES Investment by Tax-Exempt Investors" and "ERISA
CONSIDERATIONS" herein.
Description of Units. The Units will represent a Limited Partnership
Interest in the Partnership. Units will be evidenced by a certificate of Limited
Partnership Interest. Each Unit will represent a Limited Partnership Interest of
$100. The Limited Partners representing a majority of the outstanding Limited
Partnership Interests, may without the concurrence of the General Partners, vote
to take the certain actions including terminating the Partnership, amending the
Partnership Agreement, subject to certain limitations, and remove or replace one
or all of the General Partners. (See "SUMMARY OF THE LIMITED PARTNERSHIP
AGREEMENT").
Summary of Limited Partnership Agreement. The Partnership's limited
partnership agreement (the "Partnership Agreement") governs the relationship
between the Limited Partners and the General Partners. Please refer to the
"SUMMARY OF LIMITED PARTNERSHIP AGREEMENT" section for more detailed information
concerning the terms of the Partnership Agreement, including:
Meetings and Voting Rights. Limited Partners holding a majority of Units
may vote to: (i) amend or terminate contracts for services or goods between the
Partnership and the General Partners; (ii) remove the General Partners and elect
substitute General Partners; (iii) approve or disapprove the sale of all or
substantially all of the Partnership's assets; (iv) amend the Partnership
Agreement (subject to the limitation that no amendment shall be permitted if the
effect of such amendment would be to increase the duties or liabilities of any
Partner or materially change any Partner's interest in the Partnership without
the consent of such Partner); or (v) dissolve the Partnership. Limited Partners
who do not vote with the majority in interest of the Limited Partners
nonetheless will be bound by the majority vote. There are no regularly scheduled
meetings of the Limited Partners. The General Partners shall have the right to
increase the size of this Offering or conduct an additional Offering of
securities without obtaining the consent of the Limited Partners. The General
Partners or Limited Partners representing ten percent (10%) of the outstanding
Limited Partnership Interest may call a meeting of the Partnership. The General
Partners have the power, subject to the provisions of the Partnership Agreement,
to change the Partnership's investment objectives.
Restrictions on Transferability of Units. The Units will be transferable,
but only with the consent of the General Partners, who may withhold their
consent to any transfer that could cause or contribute to the characterization
of the Partnership as a "publicly traded partnership" (in general, a partnership
with frequent transfers of its Units), cause or contribute to the Partnership's
violation of federal and state securities laws, otherwise adversely affect the
Partnership's tax status, including cause a termination of the Partnership for
federal or California tax purposes, or if the assignee and/or assignor fails to
comply with certain procedural requirements of transfer, including the failure
of the assignee to accept, adopt and approve in writing all the terms and
conditions of the Partnership Agreement. It is not anticipated that a public
market for the Units will develop.
Indemnification. The Partnership will indemnify the General Partners and
their Affiliates who perform services for the Partnership against all losses and
expenses incurred by them as a result of actions the General Partners determined
in good faith were in the best interests of the Partnership, except for any
liability arising out of misconduct, negligence, or breach of fiduciary duty to
the Limited Partners of the Partnership.
Fiscal Year and Termination. The Partnership's fiscal year is the calendar
year. The Partnership Agreement provides that the Partnership will terminate on
December 31, 2032, unless sooner terminated pursuant to any provision of the
Partnership Agreement.
<PAGE>
All statements made here or elsewhere in this Prospectus are qualified in
their entirety by reference to the copy of the form of the Partnership Agreement
attached hereto as Exhibit A.
Transfer of Units. There are substantial restrictions upon transferability
of Units and accordingly an investment in the Partnership is illiquid (See
"SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT - Restrictions on Transfer" and
"TRANSFER OF UNITS"). Limited Partners will have no right to withdraw or obtain
a return of any capital contributions (or reinvested earnings) for a period of
one year from the date of purchase of Units. In order to provide a certain
degree of liquidity to the Limited Partners after the one-year period, Limited
Partners may withdraw all or part of their Capital Accounts from the Partnership
in four (4) equal quarterly installments beginning the quarter following the
quarter in which the notice of withdrawal was given, provided that such notice
was received thirty (30) days prior to the end of the preceding quarter, subject
to a ten percent (10%) early withdrawal penalty. The ten percent (10%) penalty
is applicable to the amount withdrawn as stated in the Notice of Withdrawal. The
entire ten percent (10%) penalty will be deducted, pro rata, from each of the
four quarterly installments. Withdrawal after the one-year holding period and
before the five-year holding period will be permitted only upon the terms set
forth above. Limited Partners will also have the right after five years from the
date of purchase of the Units to withdraw from the Partnership on an installment
basis, generally over a five year period in twenty (20) equal installments or
such longer period of time as the Limited Partner may desire or as may be
required, as determined by the General Partners, if there is insufficient cash
to make such installment payments. The Partnership will not establish a reserve
from which to fund withdrawals, and accordingly the Partnership's capacity to
return a Limited Partner's capital account is restricted to the availability of
Partnership cash flow. For this purpose, cash flow is considered to be available
only after all current Partnership expenses have been paid (including
compensation to the General Partners and Affiliates) and adequate provision has
been made for the payment of all monthly cash distributions on a pro rata basis
which must be paid to Limited Partners who elected to receive distributions upon
subscription for Units. No penalty will be imposed if withdrawal is made in
twenty (20) installments or such longer period as requested by the Limited
Partner or determined by the General Partners. Notwithstanding the five (5) year
withdrawal period, the General Partners may liquidate all or a part of a Limited
Partner's capital account in four quarterly installments beginning on the
quarter following the quarter in which the notice of withdrawal is given,
provided that such notice was received thirty (30) days prior to the end of the
preceding quarter subject to a ten percent (10%) early withdrawal penalty
applicable to any sums withdrawn prior to the time when such sums could have
been withdrawn pursuant to the five (5) year withdrawal period in the Notice of
Withdrawal (See "SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT - Withdrawal from
Partnership").
Distribution Policies. Upon admission to the Partnership, each Limited
Partner will be required to make a one-time, irrevocable election, except as
described below, either: (i) to receive monthly, quarterly or annual cash
distributions of Earnings ("Periodic Cash Distributions"); or (ii) to receive
distributions of Earnings in the form of additional Units. The term "Earnings"
means all revenues earned by the Partnership less all expenses incurred by the
Partnership. This election, once made is irrevocable for investors who elect to
receive Periodic Cash Distributions. However, an investor may change whether
such distributions are received on a monthly, quarterly or annual basis. If a
Limited Partner initially elected to receive additional Units in lieu of
Periodic Cash Distributions, he may, after three (3) years, change his election
and receive Periodic Cash Distributions. Earnings from investors who elect to
acquire additional Units will be used by the Partnership for making further
Mortgage Investments or other proper Partnership purposes. The Earnings from
these further Mortgage Investments, will be allocated among all investors, but
investors who do not elect to receive Periodic Cash Distributions will receive
additional Units. (See "PLAN OF DISTRIBUTION - Election to Receive Periodic Cash
Distributions").
All cash flow attributable to principal reductions of Mortgage Investments
will be reinvested by the Partnership in Partnership activities by the extension
of additional Mortgage Investments until December 31, 2032. By not later than
such date, all cash flow attributable to principal reduction will be distributed
to the Limited Partners as a return of capital contributions.
Upon acceptance into the Partnership, each Partner who acquires his Units
through a Participating Broker Dealer will receive a capital account in the
Partnership which initially will be equal to the purchase price of the Units. A
Partner who acquires a Unit directly from the Partnership in an unsolicited sale
will receive a capital account in the Partnership which initially will be equal
to the purchase price of Units plus an amount equal to the amount of sales
commissions that would otherwise have been payable had the Partner acquired his
Unit through a Participating Broker Dealer assuming no Continuing Servicing Fee
is paid. Capital accounts can be described simply as the "net equity" of
Partners in the Partnership. The capital accounts of the Limited Partner are,
under the applicable tax code provisions and regulations, increased by any other
capital contributions of the Limited Partners and net income allocated to the
Limited Partners. The capital account balances of the Limited Partners are
decreased by the cash distributions made to the Limited Partners and by net
losses allocated to the Limited Partners. Those Limited Partners who elect to
receive Periodic Cash Distributions will have their capital account balances
remain static while those who elect to receive additional Units will have their
capital accounts increased. Accordingly, over time, Limited Partners who elect
to reinvest their Earnings by electing to receive additional Units will see
their capital accounts increase relative to those Limited Partners who
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elect to receive Periodic Cash Distributions. Accordingly, upon liquidation
a Limited Partner who elected to receive additional Units in lieu of Periodic
Cash Distributions will receive a larger distribution at that time than a
Limited Partner electing to receive Periodic Cash Distributions.
Partnership Net Income and Net Loss will be allocated one percent (1%) to
the General Partners and ninety-nine percent (99%) to the Limited Partners in
accordance with their respective capital accounts provided however that taxable
loss will not be allocated to Limited Partners in excess of their positive
capital accounts. The term "Net Income or Net Loss" means for each fiscal year
or any other period, an amount equal to the Partnership taxable income or loss
for such fiscal year or other given period, determined in accordance with the
applicable sections of the Internal Revenue Code. While unlikely, a taxable loss
could occur for example, in the event the Partnership realized a loss of
principal of its Mortgage Investments (through foreclosure or otherwise) and
that loss was in excess of the income generated by the Partnership for that
fiscal period. Cash flow, which means cash funds available from Earnings and
from principal repayments received in connection with Mortgage Investments or
the sale of a property underlying the Mortgage Investment at a foreclosure sale
less the Partnership's costs associated with such sale, attributable to periodic
interest payments on loans extended by the Partnership will be allocated to the
Limited Partners and to the General Partners in accordance with their interest
in Net Income and Net Loss. As among Limited Partners, cash flow will be
allocated pro rata in accordance with their capital accounts.
Prospective investors should note that, under the Partnership Agreement and
the policies of the Partnership, cash distributions are not expected to be made
unless cash flow from operations sufficient therefor has been received.
Reports to Limited Partners. Within ninety (90) days after the end of each
fiscal year of the Partnership, the General Partners will deliver to each
Limited Partner such information as is necessary for the preparation of such
Limited Partner of his federal income tax return, and state income or other tax
returns. Within 120 days after the end of each Partnership fiscal year, the
General Partners will deliver to each Limited Partner an annual report which
includes audited financial statements of the Partnership prepared in accordance
with generally accepted accounting principals, and which contains a
reconciliation of amounts shown therein with amounts shown on the method of
accounting used for tax reporting purposes.
Plan of Distribution. The Partnership is offering through qualified broker
dealers on a best efforts basis, a maximum of 300,000 Units ($30,000,000) of
Limited Partnership Interest at $100 per Unit. The minimum subscription is
twenty (20) Units ($2,000). Participating Broker Dealers will receive
commissions as follows: at the rate of either five percent (5%) or nine percent
(9%) (depending upon the investor's election to receive cash distributions or to
reinvest Earnings in the Partnership and acquire additional Units) of the gross
proceeds on their sales. Although the General Partners may purchase Units (less
applicable sales commissions), the General Partners do not anticipate that such
purchases will be made by them or their affiliates. In no event will the total
of all compensation payable to Participating Broker Dealers, including sales
commissions, expense reimbursements, sales seminars and/or due diligence
expenses exceed ten percent (10%) of the program proceeds received plus an
additional (0.5%) for bona fide due diligence expenses as set forth in Rule 2810
of the NASD Conduct Rules. Further, in no event shall any individual
Participating Broker Dealer receive total compensation including sales
commissions, expense reimbursements, sales seminar or expense reimbursements
exceed (10%) of the gross proceeds of their sales plus an additional (0.5%) for
bona fide due diligence expenses as set forth in Rule 2810 of the NASD Conduct
Rules (the Compensation Limitation).
Supplemental Sales Material. Sales material in addition to this Prospectus
which may be used in connection with this offering include a sales brochure
which will highlight and simplify certain information contained herein. If
additional sales material is prepared for use in connection with the offering,
use of such material will be conditioned on filing with and, if required,
clearing by appropriate regulatory authorities.
Legal Opinion. Legal matters in connection with the Units offered hereby
will be passed upon for the Partnership by the Law Offices of Stephen C. Ryan &
Associates, 115 Sansome Street, Suite 400, San Francisco, California 94104,
counsel for the Partnership and the General Partners. Such counsel has not
represented the Limited Partners in connection with the Units offered hereby.
Experts. The balance sheet of the Partnership at December 31, 1995 and
balance sheet at June 30, 1995 and 1996 of Gymno Corporation, a General Partner,
included in this Prospectus have been examined by Parodi & Cropper, independent
certified public accountants, as set forth in their report thereon appearing
elsewhere herein and have been included herein in reliance on such reports and
the authority of such firm as experts in accounting and auditing.
<PAGE>
Additional Information. The Partnership has filed with the Securities and
Exchange Commission, Washington, D.C. 20549, a Registration Statement under the
Securities Act of 1933, as amended, with respect to the Units offered pursuant
to this Prospectus. For further information, reference is made to the
Registration Statement and to the Exhibits thereto which are available for
inspection at no fee in the Office of the Commission in Washington, D.C. 20549.
Additionally, the Commission maintains a website that contains reports, proxy
information statements and other information regarding registrants such as the
Partnership that file electronically. The address of the Commission website is
http://www.sec.gov.
Tabular Information Concerning Prior Programs Appendix I contains prior
performance and investment information regarding this program and for the
General Partners' previous programs. Tables I through III of Appendix I contain
unaudited information relating to the prior programs and their experience in
raising and investing funds, compensation of the General Partners and their
Affiliates and operating results of prior programs. Table V of Appendix I
contains unaudited information relating to the prior programs' payment of
mortgage loans. Table IV is not included because none of the Partnerships has
completed its operations or disposed of all of its loans.
Glossary. This Prospectus includes simplified terms and definitions to make
the Prospectus easier to understand. These simplified terms and conditions do
not include all of the details of the terms, however, and investors therefore
should review the "GLOSSARY" section for a more complete understanding.
Subscription Procedures. In order to subscribe for Units, each Investor
should cause the following to be delivered to the Participating Broker Dealers
or to the General Partner in the case of unsolicited sales:
1. One executed copy of the Subscription Agreement, which incorporates a
power of attorney to the General Partners.
2. A check in the amount of $100 per Unit subscribed for. All checks should
be made payable to "Redwood Mortgage Investors VIII," and should be delivered to
the Partnership's offices.
The General Partners have the right to accept subscriptions for fractional
units at any time.
The subscription documents referred to above are contained in the Investor
Subscription Documents provided to
prospective investors under separate cover herewith.
RISK FACTORS
The purchase of the Units offered hereby involves a high degree of risk and
is suitable only for persons with the financial capability of making and holding
long-term investments not readily reducible to cash. Prospective investors must,
therefore, have adequate means of providing for their current needs and personal
contingencies. Prospective investors should also consider the following factors:
REAL ESTATE AND OPERATING RISKS
1. Unspecified Investments Increase Uncertainty To Investors And Investors
Must Rely On Judgment Of General Partners In Investing Proceeds Of The Offering.
The Partnership's current Mortgage Investment portfolio is summarized in the
Sections of the Prospectus entitled "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF THE PARTNERSHIP" and "BUSINESS." However the General
Partners have not yet identified any specific investments with respect to the
proceeds from this Offering and thus, this Offering presents increased
uncertainties to investors. The Prospective Investors must rely entirely on the
judgment of the General Partners in investing the proceeds of this Offering and
will be unable to evaluate, in advance, the selection of borrowers, and the
terms of the Mortgage Investments which will be made. Additionally, investors
have no information to assist them in their investment decision as to the
identification or location of, or as to other relevant economic and financial
data pertaining to, the assets which will serve as collateral for Mortgage
Investments. Thus, no assurance can be given that the Partnership will be
successful in obtaining suitable investments or that, if investments are made,
the objectives of the Partnership will be realized.
2. Loan Defaults And Foreclosures By Borrowers May Adversely Affect
Partnership. The Partnership is in the business of lending money and, as such,
takes the risk of defaults by borrowers. Most Mortgage Investments will be
interest only or partially amortizing Mortgage Investments providing for
relatively small monthly payments with a large "balloon" payment of principal
due at the end of the term. Many borrowers are unable to repay such loans out of
their own funds and are compelled to refinance or sell their property.
Fluctuations in interest rates and the unavailability of mortgage funds coudd
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adversely affect the ability of borrowers to refinance their loans at maturity
or sell their property. If the borrower defaults, the Partnership may be forced
to purchase the property at a foreclosure sale. If the Partnership cannot
quickly sell or refinance such property, and the property does not produce any
significant income, the Partnership's profitability will be adversely affected.
As of June 30, 1996, the Partnership's Mortgage Investment portfolio included
two (2) loans delinquent over 90 days representing 2.49% of the total portfolio.
These same two loans are in foreclosure.
3. Risks Associated With Reliance On Appraisals Which May Not Be Accurate
Or Which May Be Affected By Subsequent Events. Since the Partnership is an
"asset" rather than a "credit" lender, the Partnership is relying primarily on
the real property securing the Mortgage Investments to protect its investment.
Thus, the Partnership will rely on appraisals, prepared by non-affiliated third
parties, to determine the fair market value of real property used to secure
Mortgage Investments made by the Partnership. No assurance can be given that
such appraisals will, in any or all cases, be accurate. Moreover, since an
appraisal fixes the value of real property at a given point in time, subsequent
events could adversely affect the value of real property used to secure a loan.
Such subsequent events may include general or local economic conditions,
neighborhood values, interest rates and new construction. Moreover, subsequent
changes in applicable governmental laws and regulations may have the effect of
severely limiting the permitted uses of the property, thereby drastically
reducing its value. Accordingly, if an appraisal is not accurate or subsequent
events adversely effect the value of the property, the Mortgage Investment would
not be as secure as anticipated, and, in the event of foreclosure, the
Partnership may not be able to recover its entire investment.
4. Risks Associated With Junior Encumbrances And Construction Loans. As of
June 30, 1996, the Partnership's outstanding portfolio included Mortgage
Investments of which forty-two percent (42%) were secured by first deeds by
trust ($5,917,837), fifty-six percent (56%) by second deeds of trust
($7,979,116) and two percent (2%) by third deeds of trust ($300,000). In the
event of foreclosure under a junior deed of trust the debt secured by a senior
deed(s) of trust must be satisfied before any proceeds from the subsequent sale
of the property can be applied toward the debt owed to the Partnership.
Furthermore, to protect its junior security interest, the Partnership may be
required to make substantial cash outlays for such items as loan payments to
senior lienholders to prevent their foreclosure, property taxes, insurance,
repairs, maintenance and any other expenses associated with the property. The
Partnership may make construction loans up to a maximum of ten percent (10%) of
the Partnership's Mortgage Investment portfolio. As of June 30, 1996
construction loans accounted for nine percent (9%) of the Company's portfolio.
Investing in construction loans will subject the Partnership to greater risk
than loans related to properties with operating histories. Where the Partnership
forecloses on property under construction, construction will generally have to
be completed before the property can begin to generate an income stream. The
Partnership may not have adequate cash reserves on hand with respect to
junior-encumbrances and/or construction loans at all times to protect its
security in which event the Partnership could suffer a loss of its investment in
such Mortgage Investment (See "CERTAIN LEGAL ASPECTS OF MORTGAGE INVESTMENTS").
5. Bankruptcy And Limitations On Personal Judgments May Prevent Recovery Of
Loan Thereby Resulting In A Loss To The Partnership. The recovery of sums
advanced by the Partnership in making Mortgage Investments and protecting its
security may also be delayed or impaired by the operation of the federal
bankruptcy laws or by irregularities in the manner in which the loan was made.
Any borrower has the ability to delay a foreclosure sale by the Partnership for
a period ranging from several months to several years or more by filing a
petition in bankruptcy, which automatically stays any actions to enforce the
terms of the loan. The length of this delay and the costs associated therewith
will generally have an adverse impact on the Partnership's profitability.
Certain provisions of California law applicable to all real estate loans may
prevent the Partnership from obtaining a personal judgment against a borrower if
the proceeds from a foreclosure sale were insufficient to pay the Mortgage
Investments in full resulting in a loss to the Partnership. (See "CERTAIN LEGAL
ASPECTS OF MORTGAGE INVESTMENTS"). As of the effective date of this Prospectus
no borrowers are currently in bankruptcy.
6. Risks Associated With Unintended Violations Of The Usury Statute Or
Other Statutes. Subject to the exemptions provided by law, interest, including
"additional interest" or "reconveyance fees", on Mortgage Investments made by
the Partnership will be subject to state usury laws imposing restrictions on the
maximum interest charges. Potential penalties for violation of the usury law may
generally include restitution of actual usurious interest paid by the borrower,
damages in an amount equal to treble interest collected by the lender and
unenforceability of the loan. Since Redwood Mortgage, a licensed California real
estate broker, will arrange the Partnership's Mortgage Investments, such loans
should be exempt from applicable state usury provisions. Under California Law, a
loan arranged by a licensed California real estate broker will be exempt from
applicable California usury provisions. Nevertheless, there can be no assurance
that, in determining the legality of interest rates and other charges by the
Partnership,
<PAGE>
unintended violations of the usury statutes may not occur. In such
an event, the Partnership may have insufficient cash to pay any damages thereby
adversely effecting the operations of the Partnership and may lose its entire
investment. In March 1995, the Federal Reserve Board issued final regulations
governing high cost mortgages. A high cost mortgage is any consumer loan secured
by the consumer's principal residence if either (i) the annual percentage rate
exceeds by more than ten points the yield on Treasury securities having
comparable periods of maturity or (ii) the total fees payable by a consumer at
or before closing exceeds the greater of eight percent (8%) of the total loan
amount or $400. The new regulations primarily focus on additional disclosure
with respect to the terms of the loan to the borrower, the timing of such
disclosures and the prohibition of certain terms in the loan including balloon
payments and negative amortization. The failure to comply with the new
regulations even the unintended failure will render the loan rescindable for up
to three (3) years and the lender could be held liable for attorney fees,
finance charges and fees paid by the borrower and certain other money damages.
Although the Partnership anticipates making relatively few Mortgage Investments
that would qualify as high cost mortgages, the failure to comply with the new
regulations could adversely affect the Partnership.
7. Loan-To-Value Ratio Are Determined By Appraisals Which May Be In Excess
Of The Ultimate Purchase Price Of The Underlying Property. The General Partners
will determine the principal amount of each loan. Generally, the amount of the
loan combined with the outstanding debt secured by a senior deed of trust on the
security property will not exceed eighty percent (80%) of the appraised value
for residential properties, seventy percent (70%) of the appraised value for
commercial property and fifty percent (50%) of the appraised value for
unimproved land. Any of the foregoing loan-to-value ratios may be increased if,
in the sole discretion of the General Partners, a given loan is supported by
credit adequate to justify a higher loan-to-value ratio. To date, there have
been no adjustments to the foregoing loan-to-value ratios. The factors to be
considered by the General Partners include, but are not limited to, their
previous experience with the borrower, the availability of additional
collateral, an expected inheritance an/or an increase in the credit rating of
the borrower. In addition, such loan-to-value ratios may be increased by ten
percent (10%) to the extent mortgage insurance is obtained. The foregoing
loan-to-value ratios will not apply to purchase-money financing offered by the
Partnership to sell any Partnership real estate acquired through foreclosure or
to refinancing of an existing loan in default upon maturity. Notwithstanding the
foregoing, in no event will the loan-to-value ratio for construction loans
exceed eighty percent (80%) of the independently appraised completed value of
the property. The loan-to-value ratios set forth above relate to the appraised
value of a property which may be in excess of the ultimate purchase price of the
underlying property. No assurance can be given that such appraisals will reflect
that actual amount buyers will pay for the property. Further, if the value of
the property declines to a value below the amount of the loan, together with all
senior loans, the loan could become under-collateralized. This would result in a
risk of loss for the Partnership if the borrower defaults on the loan.
8. Use Of Leverage May Reduce The Partnership's Profitability Or Cause
Losses Through Liquidation. The Partnership may borrow funds for the purpose of
making Mortgage Investments or for any other proper partnership purpose on any
terms commercially available and may assign all or a portion of its Mortgage
Investment portfolio as security for such loans. The maximum aggregate
indebtedness which may be incurred by the Partnership is fifty percent (50%) of
the value of the Mortgage Investment portfolio. The Partnership has obtained
from a commercial bank a line of credit in the amount of $3,000,000. As of June
30, 1996 the Partnership has borrowed $2,892,000 which represents 20.37% of the
outstanding principal balance of the Mortgage Investment portfolio. The General
Partners anticipate engaging in such borrowing when the interest rate at which
the Partnership can borrow funds is somewhat less than the rate that can be
earned by the Partnership on its Mortgage Investments (See "INVESTMENT
OBJECTIVES AND CRITERIA - Borrowing"). Interest rate fluctuations may have a
particularly adverse effect on the Partnership if it is using such borrowed
money to fund Mortgage Investments. Such borrowed money will bear interest at a
variable rate, whereas the Partnership may be making fixed rate loans.
Therefore, if prevailing interest rates rise, the Partnership's cost of money
could exceed the income earned from that money, thus reducing the Partnership's
profitability or causing losses through liquidation of Mortgage Investments in
order to repay the debt on the borrowed money or default if the Partnership
cannot cover the debt on the borrowed money.
9. Fluctuations In Interest Rates May Effect Return On Investment. Recent
years have demonstrated that mortgage interest rates are subject to abrupt and
substantial fluctuations. The Partnership intends to make a large number of
medium to long range term (three to fifteen year) Mortgage Investments, and the
purchase of Units is a relatively illiquid investment. If prevailing interest
rates rise above the average interest rate being earned by the Partnership's
Mortgage Investment portfolio, investors may be unable to quickly liquidate
their investment in order to take advantage of higher returns available from
other investments. In addition, an increase in interest rates accompanied by
tight supply of mortgage funds may cause refinancing by borrowers with balloon
payments to be difficult or impossible, regardless of the market value of the
collateral at the time such balloon payments are due. In such event, the
property may be foreclosed upon (See "LOAN DEFAULTS AND FORECLOSURES").
10. Marshaling Of Assets Could Delay Or Reduce Recovery Of Mortgage
Investments. As security for a single Mortgage Investment, the Partnership may
require a borrower to execute deeds of trust on other properties owned by the
borrower in addition to the property the borrower is purchasing or refinancing
in order to further secure the borrower's obligation to the Partnership. In the
event of a default by the borrower, the Partnership may be required to "marshal"
the assets of the borrower, if there are lienholders junior to the Partnership.
Marshaling is an equitable doctrine used to protect a junior
<PAGE>
lienholder with a security interest in a single property from being
"squeezed out" by a senior lienholder, such as the Partnership, with security
interest not only in the property, but in one or more additional properties.
Accordingly, if another creditor of the borrower forced the Partnership to
marshal the borrower's assets, foreclosure, and eventual recovery of the
Mortgage Investment, could be delayed or reduced, and the Partnership's costs
associated therewith could be increased.
11. Potential Liability For Toxic Or Hazardous Substances If Partnership Is
Considered Owner Of Real Property. If the Partnership takes an equity interest
in, management control of, or forecloses on any of the Mortgage Investments, it
may be considered the owner of the real property securing such Mortgage
Investments. If foreclosure on any loan becomes necessary, and the Partnership
acquires record ownership of the property through foreclosure sale to protect
its investment, the Partnership will conduct its management of the property
primarily to protect its security interest in the property. The Partnership will
not participate in the management of any facility on the property in order to
minimize the potential for liability for cleanup of any environmental
contamination under applicable federal, state, or local laws. There can be no
assurance that the Partnership would not incur full recourse liability for the
entire cost of any such removal and cleanup, or that the cost of such removal
and cleanup would not exceed the value of the property. Full recourse liability
means that property of the Partnership in addition to the contaminated property
could be sold in order to pay the costs of cleanup in excess of the value of the
property at which such contamination occurred. In addition, the Partnership
could incur liability to tenants and other users of the affected property, or
users of neighboring property, including liability for consequential damages.
Consequential damages are damages which are a consequence of the contamination
but are not costs required to clean up the contamination, such as lost profits
of a business. The Partnership would also be exposed to risk of lost revenues
during any cleanup, and to the risk of lower lease rates or decreased occupancy
if the existence of such substances or sources on the property become known. If
the Partnership fails to remove the substances or sources and clean up the
property, it is possible that federal, state, or local environmental agencies
could perform such removal and cleanup, and impose and subsequently foreclose
Liens on the property for the cost thereof. A "Lien" is a charge against the
property of which the holder may cause the property to be sold and use the
proceeds in satisfaction of the Lien. The Partnership may find it difficult or
impossible to sell the property prior to or following any such cleanup. If such
substances are discovered after the Partnership sells the property, the
Partnership could be liable to the purchaser thereof if the General Partners
knew or had reason to know that such substances or sources existed. In such
case, the Partnership could also be subject to the costs described above. If
toxic or hazardous substances are present on real property, the owner may be
responsible for the costs of removal or treatment of the substance. The owner
may also incur liability to users of the property or users of neighboring
property for bodily injury arising from exposure to such substances. If the
Partnership is required to incur such costs or satisfy such liabilities, this
could have a material adverse effect on Partnership profitability. Additionally,
if a borrower is required to incur such costs or satisfy such liabilities, this
could result in the borrower's inability to repay its loan from the Partnership.
If the Partnership anticipates that it may become the owner of property that may
be subject to toxic or hazardous clean-up, the General Partners may, in their
discretion, seek to transfer or sell the Mortgage Investment to an affiliated or
unaffiliated entity.
12. Potential Conflicts And Risks If Partnership Invests In Mortgage
Investments With General Partners Or Affiliates. The Partnership may invest in
mortgages acquired by the General Partners or Affiliates. The Partnership's
portion of the total mortgage loan may be smaller or greater than the portion of
the loan made by the General Partners or Affiliates, but will generally be on
terms substantially similar to the terms of the Partnership's investment. Such
an investment would be made after a determination by the General Partners that
the entire loan is in an amount greater than would be suitable for the
Partnership to make on its own or that the Partnership will benefit through
broader diversification of its Mortgage Investment portfolio. However, investors
should be aware that investing with the General Partners or Affiliates could
result in a conflict of interest between the Partnership and the General
Partners or Affiliates in the event that the borrower defaults on the loan and
both the Partnership and the General Partners or Affiliates protect their own
interest in the loan and in the underlying security. In order to minimize the
conflicts of interest which may arise if the Partnership invests in Mortgage
Investments with the General Partners or Affiliates, the Partnership will
acquire its interest in the loan on the same terms and conditions as does the
General Partners or Affiliates and the terms of the loan will conform to the
investment criteria established by the Partnership for the origination of
Mortgage Investments. By investing in a loan on the same terms and conditions as
does the General Partners or an Affiliate, the Partnership will be entitled to
enforce the same rights as the General Partners or Affiliate in such loan and
the General Partners and Affiliate will not have greater rights in the loan than
does the Partnership. As a result, in the event of a default by the borrower,
any efforts by the General Partners, an Affiliate or the Partnership to enforce
the terms of the loan will benefit those persons with interests in the loan
based upon their respective ownership interests. (See "CONFLICTS OF INTEREST").
<PAGE>
INVESTMENT RISKS
13. No Assurance Of Cash Distributions To Partners. The General Partners
and their Affiliates are paid and reimbursed by the Partnership for certain
services performed for the Partnership and expenses paid on behalf of the
Partnership (See "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES"). The
General Partners may retain other firms to perform other services. The
Partnership bears all other expenses incurred in its operations. All of these
fees and expenses are deducted from cash funds generated by the operations of
the Partnership prior to computing the amount which is available for
distribution to the General and Limited Partners. Therefore, the General
Partners and Affiliates may benefit as a result of the Partnership's activities,
irrespective of any cash distributions to the Limited Partners. The General
Partners, in their discretion, may also retain any portion of cash funds
generated from operations for working capital purposes of the Partnership.
Accordingly, there is no assurance as to when or whether cash will be available
for Distributions to the Limited Partners from Cash Available for Distribution.
Further, Limited Partners who elect to acquire additional Units in lieu of
receiving Periodic Cash Distributions will be entitled to receive a larger
portion of the Cash Available for Distribution solely because of their election
to acquire additional Units than those Limited Partners who elect to receive
monthly, quarterly or annual distributions of Earnings.
14. Partner's Ability To Recover Investment On Dissolution And Termination
Will Be Limited. In the event of a dissolution or termination of the
Partnership, the proceeds realized from the liquidation of assets, if any, will
be distributed to the Partners but only after the satisfaction of claims of
creditors. Accordingly, the ability of a Partner to recover all or any portion
of his investment under such circumstances will depend on the amount of funds so
realized and claims to be satisfied therefrom.
15. Risk Of Losses As A Result Of Losses Not Insurable Or Not Economically
Insurable. The Partnership will require comprehensive insurance, including fire
and extended coverage, which is customarily obtained for or by a mortgagee or
creditor on properties or other assets in which it acquires a security interest
(generally, such insurance will be obtained by and at the cost of the Borrower).
However, there are certain types of losses (generally of a catastrophic nature,
such as civil disturbances and acts of God) which are either uninsurable or not
economically insurable. Should such a disaster occur to, or cause the
destruction of, any property serving as collateral for a Mortgage Investment,
the Partnership could lose both its invested capital and anticipated profits
from such investment. In addition, on certain real estate owned by the
Partnership as a result of foreclosure, the Partnership may require homeowner's
liability insurance. However, insurance may not be available for theft,
vandalism, land or mud slides, hazardous substances or earthquakes on all real
estate owned and losses may result from destruction or vandalism of the property
thereby adversely effecting the profitability of the Partnership.
16. Investors Must Rely On Management For Decisions With Respect To
Management Of The Partnership. All decisions with respect to the management of
the Partnership will be made exclusively by the General Partners. The success of
the Partnership will, to a large extent, depend on the quality of the management
of the Partnership, particularly as it relates to lending decisions. Limited
Partners have no right or power to take part in the management of the
Partnership. Accordingly, no person should purchase any of the Units offered
hereby unless he is willing to entrust all aspects of the management of the
Partnership to the General Partners and has evaluated the General Partners'
capabilities to perform such functions (See "MANAGEMENT").
17. Investors Will Be Bound By Decision Of Majority Vote. Subject to
certain limitations including notice, procedure and the inability to amend the
Partnership Agreement if any such amendment would have the effect of increasing
the duties or liabilities of any Partner or materially changing any Partner's
interest in the Partnership, Limited Partners holding a majority of Units may
vote to, among other things, amend or terminate contracts for services and goods
between the General Partners and the Partnership, remove the General Partners,
dissolve the Partnership, approve or disapprove of all or substantially all of
the Partnership's assets and amend the Partnership Agreement. Limited Partners
who do not vote with the majority in interest of the Limited Partners
nonetheless will be bound by the majority vote. The General Partner shall have
the right to increase this offering or conduct an additional offering of
securities without obtaining the consent of the Limited Partners. Because of the
limitations on transfer of Units, a Limited Partner may not be able to liquidate
his investment in the event he disagrees with the majority vote. (See "SUMMARY
OF THE LIMITED PARTNERSHIP AGREEMENT" and "TRANSFER OF UNITS").
<PAGE>
18. Net Worth Of The General Partners May Effect Ability Of General
Partners To Fulfill Their Obligations To The Partnership. The General Partners
have represented that they have an aggregate net worth on a GAAP basis in excess
of $1,000,000, a significant portion of which consists of assets which are
illiquid. This may be relevant in evaluating the ability of the General Partners
to fulfill their obligations and responsibilities to the Partnership (See
"MANAGEMENT").
19. Operating History Of The Partnership. In addition to the Partnership,
the General Partners have been the general partners of eight prior partnerships
with similar investment objectives. The continued success of the Partnership
depends on the extent to which the Partnership will continue to operate in
accordance with the expectations and assumptions set forth in this Prospectus
(See "PRIOR PERFORMANCE SUMMARY").
20. Risks Regarding Formation Loan And Repayment Thereof. The Partnership
will loan to Redwood Mortgage funds in an amount equal to the sales (See "PLAN
OF DISTRIBUTION - Formation Loan"). The Formation Loan will be unsecured, will
not bear interest and will be repaid in annual installments. Commencing with
this Offering, Redwood Mortgage shall make annual installments of one-tenth of
the principal balance of the Formation Loan as of December 31 of each year. Such
payment shall be due and payable by December 31 of the following year. Prior to
the termination of this offering, the principal balance of the Formation Loan
will increase as additional sales of Units are made each year. The amount of the
annual installment payment to be made by Redwood Mortgage, during the offering
stage, will be determined by the principal balance of the Formation Loan on
December 31 of each year with the first payment due by December 31, 1997,
assuming this Offering commences in 1996. Upon completion of this Offering the
balance of the Formation Loan will be repaid in ten (10) equal annual
installments of principal, without interest, commencing on December 31 of the
year following the year this offering terminates. Redwood Mortgage at its option
may prepay all or any part of the Formation Loan. Redwood Mortgage intends to
repay the Formation Loan principally from loan brokerage commissions earned on
Mortgage Investments and other fees paid by the Partnership. Furthermore, the
Partnership shall apply a portion of the amount it receives from withdrawing
Limited Partners as early withdrawal penalties first to reduce the principal
balance of the Formation Loan, which shall have the effect of reducing the
amount owed by Redwood Mortgage to the Partnership. Since Redwood Mortgage will
use the proceeds from loan brokerage commissions on Mortgage Investments to
repay the Formation Loan, if all or any one of the initial General Partners are
removed as a General Partner by the vote of a majority of Limited Partners and a
successor or additional General Partner(s) is thereafter designated, and if such
successor or additional General Partner(s) begins using any other loan brokerage
firm for the placement of Mortgage Investments or loan servicing, Redwood
Mortgage will be immediately released from any further payment obligation under
the Formation Loan (except for a proportionate share of the principal
installment due at the end of that year, pro rated according to the days
elapsed). If all of the General Partners are removed, no other General Partners
are elected, the Partnership is liquidated and Redwood Mortgage is no longer
receiving payments for services rendered, the debt on the Formation Loan shall
be forgiven by the Partnership and Redwood Mortgage will be immediately released
from any further obligations under the Formation Loan. As noted above, the
Formation Loan will not bear interest. The non-interest bearing feature of the
Formation Loan will have the effect of slightly diluting the rate of return to
Limited Partners, but to a much lesser extent than if the Partnership were
required to bear all of its own syndication expenses out of the offering
proceeds.
21. Delays In Investment Could Adversely Affect Return To Investors. A
delay will occur between the time investors purchase their Units and the time
the net proceeds of the Offering are invested. This delay could adversely affect
the return paid to the Limited Partners. In order to mitigate this risk, pending
the investment of the proceeds of this Offering, funds will be placed in such
highly liquid, short-term investments as the General Partners shall designate.
The interest earned on such interim investments is expected to be less than the
interest earned by the Partnership on Mortgage Investments. The General Partners
estimate, based upon their historical experience in previous, similar offerings,
that it will be no longer than ninety (90) days from the time an investor's
funds are received by the Partnership until they are invested in Mortgage
Investments.
22. Subscriptions For Less Than The Maximum Number Of Units Could Effect
Potential Profitability Of Partnership. The Partnership will begin making
Mortgage Investments which will become part of the existing Mortgage Investment
portfolio as soon as it receives subscriptions from investors. The potential
profitability of the Partnership and its continued ability to diversify Mortgage
Investments could be adversely affected if significantly less than the maximum
offering is raised.
23. No Assurance Of Guaranteed Payment For Offering Period. The Limited
Partners shall receive a guaranteed payment from the Earnings of the Partnership
during the Guaranteed Payment Period (See "TERMS OF THE OFFERING - Guaranteed
Payment for Offering Period"). The Guaranteed Payment Period is the period
commencing on the day an investor is admitted to the Partnership and ending
three (3) months after the offering terminates. The Guaranteed Payment shall not
be made over the life of the Partnership. The Guaranteed Payment for Offering
Period, calculated on a monthly basis, shall be equal to the greater of (i) the
Partnership's Earnings or (ii) the interest rate established by the Monthly
Weighted Average Cost of
<PAGE>
Funds for the Eleventh District Savings Institutions, as announced by the
Federal Home Loan Bank of San Francisco during the last week of the preceding
month, plus two points, up to a maximum interest rate of twelve percent (12%).
To the extent the payment to be paid is in excess of the Partnership's Earnings,
the General Partners will contribute sufficient capital to the Partnership so
that the Guaranteed Payment can be made. Section 5.07 of the Partnership
Agreement provides that the General Partners shall not be obligated to make such
Capital Contribution if such amounts would be subject to claims of creditors
such that the payments would not be available to be made to the Limited
Partners. The General Partners believe that such event is unlikely. In such
event, Section 5.07 provides that the General Partners will pay the guaranteed
payment from fees which are payable to the General Partners or Redwood Mortgage
as set forth above.
24. Possible Extension Of Offering Will Allow Subsequent Investors To
Review Partnership's Mortgage Investment Portfolio. The General Partners
anticipate that the offering will terminate one year from the effective date of
the Prospectus. However, the General Partners, in their sole discretion, may
elect to extend the offering for additional one year periods. Prospective
investors who invest in the later stages of the offering will have a greater
opportunity to review information regarding the Partnership's Mortgage
Investment portfolio that will not be available to early investors. Although
early investors will have the opportunity to review the Partnership's existing
portfolio of Mortgage Investments, they will not have an opportunity to review
any Mortgage Investments to be made with the proceeds of this Offering. In this
regard, later investors may have an advantage in initially deciding whether to
invest in the Partnership. Earlier investors will receive allocations of cash
distributions from net proceeds already invested in mortgage loans and may
receive a higher rate of return from such investments than could be earned on
alternative investment by those who invest at a later stage. Except as noted
above, there will be no investment advantages to investors who invest in the
early stage of the offering versus investors who invest during the later stage
of the offering during an extended offering period.
25. No Assurance Of Limitation Of Liability Of Limited Partners. A Limited
Partner has no right to, and takes no part in, control and management of the
Partnership business. However, the Partnership Agreement authorizes Limited
Partners to exercise the right to vote on certain matters, including the right
to remove the General Partners and elect a successor General Partner(s) (See
"SUMMARY OF PARTNERSHIP AGREEMENT - Rights and Liabilities of Limited
Partners"). The California Revised Limited Partnership Act expressly provides
that the right to vote on those matters will not cause the Limited Partners to
have personal liability for Partnership obligations in excess of the amount of
their Capital contributions which have not been previously returned to them
(except that the Limited Partners may be required to return amounts distributed
to them as a return of their Capital Contributions if the Partnership is unable
to pay creditors who extended credit to the Partnership prior to the date of
such return of capital). Stephen C. Ryan & Associates, counsel for the
Partnership, has advised that strong arguments may be made in support of the
conclusion that California law governs in all states as to the liability of the
Limited Partners and that neither the possession nor the exercise of such rights
should affect the liability of the Limited Partners. However, Stephen C. Ryan &
Associates, counsel for the Partnership, has also advised that since there is no
authoritative precedent on this issue, a question exists as to whether the
exercise, or perhaps even the existence, of such rights might provide a basis on
which a court in a state other than California could hold that the Limited
Partners are not entitled to the limitation on liability for which the
Partnership Agreement provides.
26. Compensation To General Partners And Affiliates Cannot Be Precisely
Determined. The General Partners and their Affiliates are unable to predict the
amounts of compensation to be paid to them as set forth under "COMPENSATION OF
THE GENERAL PARTNERS AND AFFILIATES. Any such prediction would necessarily
involve assumptions of future events and operating results which cannot be made
at this time.
27. No Assurance That Reserves Will Be Adequate. The Partnership intends to
maintain working capital reserves to meet the Partnership obligations, including
carrying costs and operating expenses of the Partnership (See "ESTIMATED USE OF
PROCEEDS"). The General Partners believe such reserves are reasonably sufficient
for the contingencies of the Partnership. If for any reason those reserves are
insufficient, the General Partners will have to borrow the required funds or
require the Partnership to liquidate some or all of its Mortgage Investments. In
the event the General Partners deem it necessary to borrow funds, there can be
no assurance that such borrowing will be on acceptable terms or even available
to the Partnership. Such a result might require the Partnership to liquidate its
investments and abandon its activities.
28. Limited Transferability Of Units Requires That Investment Be Considered
Long Term. It is highly unlikely that a public trading market will develop for
the Units offered hereby. Article VII of the Partnership Agreement imposes
substantial restrictions upon transferability of Units (See "SUMMARY OF LIMITED
PARTNERSHIP AGREEMENT and "TRANSFER OF UNITS"). In addition, the Partnership
Agreement does not provide for the buy-back or repurchase of Units by the
Partnership or the General Partners, although it does provide for a limited
right to withdraw capital from the Partnership after one year from the date of
purchase if a ten percent (10%) early withdrawal penalty is paid on the sum
withdrawn or after five years
<PAGE>
from the date of purchase without penalty if the capital is withdrawn over
twenty (20) equal quarterly installments or longer as requested by the Limited
Partner or as determined by the General Partners in light of available cash
flow. Notwithstanding the five (5) years (or longer) withdrawal period, the
General Partners may liquidate all or part of a Limited Partner's capital
account in four equal quarterly installments subject to a ten percent (10%)
withdrawal penalty applicable to any sums withdrawn prior to the time when such
sums could have been withdrawn pursuant to the five (5) year or longer
withdrawal period (See "SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT -
Withdrawal from Partnership"). Limited Partners may not, therefore, be able to
liquidate their investments in the event of an emergency before the five year
period without the ten percent (10%) penalty and any such liquidation is subject
to certain restrictions, including the availability of cash. There is no
assurance that the value of Units for purposes of this withdrawal in any way
reflects the fair market value of the Units. In addition, Units may not be
readily accepted as collateral for a loan. Consequently, the purchase of Units
should be considered only as a long-term investment.
29. Partnership May Be Required To Forego More Favorable Investment To
Avoid Regulation Under Investment Company Act Of 1940. The General Partners
intend to conduct the operations of the Partnership so that it will not be
subject to regulation under the Investment Company Act of 1940. Among other
things, they will monitor the proportions of the Partnership's funds which are
placed in various investments and the form of such investments so that the
Partnership does not come within the definition of an investment company under
such Act. As a result, the Partnership may have to forego certain investments
which would produce a more favorable return to the Partnership.
TAX RISKS
30. Material Tax Risks Associated With Investment In Units. An investment
in Units involves material tax risks. Each prospective purchaser of Units is
urged to consult his own tax adviser with respect to the federal (as well as
state and local) income tax consequences of such an investment. For a more
detailed description of the tax consequences of an investment in Units, see
"FEDERAL INCOME TAX CONSEQUENCES."
31. Risks Associated With Partnership Status For Federal Income Tax
Purposes. No ruling has been sought (nor would one likely be obtained) from the
Internal Revenue Service that, for federal income tax purposes, the Partnership
will be treated as a partnership and not as an association taxable as a
corporation. While an opinion of Stephen C. Ryan & Associates, counsel to the
Partnership, has been received that the Partnership should be treated as a
partnership for federal income tax purposes, there is no assurance that such
treatment will, in fact, be accorded the Partnership. An opinion of Stephen C.
Ryan & Associates, counsel to the Partnership represents only their best legal
judgment, and has no binding effect on the Internal Revenue Service or any
court, and no assurance can be given that the conclusions reached in said
opinion would be sustained by a court if contested. Any such contest to a
determination by the Internal Revenue Service may impose representation expense
on the Limited Partners. If the Partnership is taxed as a corporation it would,
among other things, pay income tax on its earnings in the same manner and at the
same rate as a corporation, and losses, if any, would not be deductible by the
Limited Partners. Also, Limited Partners would be taxed upon Distributions
substantially in the manner that corporate shareholders are taxed on dividends.
Thus, if a Partnership were treated as an association taxable as a corporation
many of the tax benefits that would otherwise be realized by the Limited
Partners would be lost (See "FEDERAL INCOME TAX CONSEQUENCE - Tax Status of the
Partnership").
32. Risks Associated With Characterization Of Partnership Income As
Portfolio Income. The General Partners anticipate, based upon the advice of
Stephen C. Ryan & Associates, counsel to the Partnership, that the Partnership
will be engaged in the trade or business of mortgage lending, and accordingly,
based upon the advice of Stephen C. Ryan & Associates, counsel to the
Partnership (See "FEDERAL INCOME TAX CONSEQUENCES - Character of Income of
Loss") anticipate that the Partnership will likely be considered an "equity
financed lending activity" such that substantially all of the Partnership's
income will not be considered passive income but rather will be considered
portfolio income. Since such treatment is dependent upon a number of factors not
yet determinable, such as whether the Partnership is engaged in a trade or
business, whether the Partnership incurs liabilities in connection with its
activities, and the proper matching of the allocable expenses incurred in the
production of Partnership income, there can be no assurance that the Partnership
will be treated as an equity financed lending activity. If not, it is possible
that the Partnership would be unable to allocate expenses to the income
produced, in which case Limited Partners might find their ability to offset
income with allocable expenses limited by the two percent (2%) floor on
miscellaneous investment expenses.
Furthermore, the Partnership's Guaranteed Payment for Offering Period will
likely be treated as a guaranteed payment to Limited Partners. As such, it
should be treated as a payment to partners for the use of capital and, to that
extent, will be treated as a payout of interest which again should be treated as
portfolio income. If such Guaranteed Payment for Offering Period were treated as
a Partnership distributive share, it is possible, although unlikely that such
payment would constitute passive income.
<PAGE>
The determination of whether Partnership income will constitute passive,
non-passive, or portfolio income is a technical one subject to the
interpretation of recent and complex regulations whose full impact has not yet
been determined. It is possible that the treatment of Partnership income will be
different than what is currently anticipated by the General Partners.
33. Risks Of Partnership Characterization As A Publicly Traded Partnership.
Based on representations by the General Partners regarding their compliance with
certain safe harbors provided by the IRS, Stephen C. Ryan & Associates, counsel
for the Partnership has opined that is it more likely than not that the
Partnership will not be treated as a "publicly traded partnership" for federal
income tax purposes. Classification of the Partnership as a "publicly traded
partnership" could result in: (i) taxation of the Partnership as a corporation;
(ii) application of the passive activity loss rules in a manner that could
adversely affect the Limited Partners; and (iii) taxation of a tax-exempt
organization's share of the gross income of the Partnership as taxable unrelated
trade or business income (See "FEDERAL INCOME TAX CONSEQUENCES Publicly Traded
Partnerships").
34. Risks Relating To Taxation Of Undistributed Revenues. The General
Partners do not anticipate that the Partnership will be subject to the risk of
generating so-called "phantom income" which is commonly associated with
leveraged real estate investment programs. Whereas a leveraged real estate
program would typically provide for tax sheltered cash flow in its early years,
such a program generally reaches a cross-over point when the taxable income from
the program exceeds the cash distributions (due to decreasing depreciation and
increasing non-deductible principal payments under the typical amortization
schedule for real estate loans). As the Partnership will not generally be
claiming depreciation or interest deductions on real estate, except in the case
of a foreclosure of one of the Partnership's loans, the General Partners
anticipate based upon historical experience that the Partnership's taxable
income will not differ substantially from the cash flow generated by the
Partnership's lending activities. It is possible that during certain taxable
years a Limited Partner's taxable income resulting from his ownership of Units
will exceed the cash distributions attributable thereto. It is possible that
this may occur because in any given year otherwise excess cash may have to be
utilized to meet Partnership obligations. It is also possible that the tax
payable by such Limited Partner may exceed the cash distributed to him, and
accordingly, to the extent of such excess, the payment of taxes would constitute
an out-of-pocket expenditure to the Limited Partner. In any year in which the
Partnership reports income in excess of expenses, a Limited Partner will be
required to report his allocable share of such income on his personal income tax
return even though he may have received total cash distributions less than the
amount of reportable income or even the resultant federal income tax. For
example, a Limited Partner who elects to have Earnings credited to his capital
account will be allocated his share of Partnership Net Income and Gain even
though such Partner may receive no cash distributions from the Partnership.
35. Risks Relating To Creation Of Unrelated Business Taxable Income. A
Tax-Exempt Limited Partner (such as an employee pension benefit plan or an IRA)
may be subject to tax to the extent that income from the Partnership is treated
as unrelated business taxable income ("UBTI"). Stephen C. Ryan & Associates,
counsel to the Partnership has opined that it is more likely than not that the
income of the Partnership will not constitute UBTI. The General Partners
currently intend to cause the Partnership to borrow funds on a limited basis.
The General Partners do not currently intend to cause the Partnership to own and
lease personal property. In the event the Partnership borrows funds or leases
personal property, the General Partners have represented that they will use
reasonable efforts to do so in a manner that does not cause Partnership income,
in any significant amount, to be treated as UBTI. As a result of the possibility
that some portion, although likely an insignificant portion, of Partnership
income may be treated as UBTI, Prospective Investors must consult their own tax
advisors. An investment in Units may not be suitable for charitable remainder
trusts.
36. Risks Of Applicability Of Alternative Minimum Tax. The application of
the alternative minimum tax to a Limited Partner could reduce certain tax
benefits associated with the purchase of an Interest in the Partnership. The
effect of the alternative minimum tax upon a Limited Partner depends on his
particular overall tax situation, and each Limited Partner should consult with
his own tax adviser regarding the possible application of this tax.
37. Risks Of Audit And Adjustment. A private letter ruling from the Service
has not been obtained with respect to any of the federal income tax
considerations associated with an investment in the Partnership. Certain federal
income tax positions taken by the Partnership may be challenged upon audit by
the Service. Any adjustment to the Partnership's return resulting from an audit
by the Service would result in adjustments to the tax returns of each Limited
Partner and might result in an examination of items in such returns unrelated to
the Partnership or an examination of tax returns for prior or later years.
Moreover, the Partnership and Limited Partners could incur substantial legal and
accounting costs in contesting any Service challenge, regardless of the outcome.
The General Partners generally will have the authority and power to act for and
bind the Partnership in connection with any such audit or adjustment for
administrative or judicial proceedings in connection therewith.
<PAGE>
38. Risks Of Effects Of State And Local Taxation. The state in which a
Limited Partner is a resident may impose an income tax upon his share of the
taxable income of the Partnership. Furthermore, states in which the Partnership
will own property generally imposes income tax upon each partner's share of a
partnership's taxable income considered allocable to such states. Differences
may exist between federal income tax laws and state and local income tax laws.
Prospective Limited Partners are urged to consult with their own tax advisers
with respect to state and local taxation. The Partnership may be required to
withhold state taxes from distributions to Limited Partners in certain
instances.
ERISA RISKS
39. Risks Of Investment By Tax-Exempt Investors. In considering an
investment in the Partnership of a portion of the assets of a trust of a pension
or profit-sharing plan qualified under Section 401(a) of the Code and exempt
from tax under Section 501(a), a fiduciary should consider (i) whether the
investment satisfies the diversification requirements of Section 404(a)(3) of
the Employee Retirement Income Security Act of 1974 ("ERISA"); (ii) whether the
investment is prudent, since Units are not freely transferable and there may not
be a market created in which he can sell or otherwise dispose of the Units; and
(iii) whether interests in the Partnership or the underlying assets owned by the
Partnership constitute "Plan Assets" for purposes of Section 4975 of the Code.
ERISA requires that the assets of a plan be valued at their fair market value as
of the close of the plan year, and it may not be possible to adequately value
the Units from year to year, since there will not be a market for those Units
and the appreciation of any property may not be shown in the value of the Units
until the Partnership sells or otherwise disposes of its investments (See "ERISA
CONSIDERATIONS").
<PAGE>
INVESTOR SUITABILITY STANDARDS
Investment in the Partnership involves some degree of risk. No public
market for the Units is likely to develop, and the transfer of Units by a holder
could result in adverse tax consequences (See "RISKS AND OTHER FACTORS" and
"FEDERAL INCOME TAX CONSEQUENCES"). Accordingly, the Units are suitable only for
persons who have adequate financial means and desire a relatively long term
investment with respect to which they do not anticipate any need for liquidity.
The Partnership has established a minimum suitability standard which
requires that an investor have either: (i) a net worth (exclusive of home,
furnishings and automobiles) of at least $30,000 plus an annual gross income of
at least $30,000, or (ii) irrespective of annual gross income, a net worth of
$75,000 (determined with the same exclusions). Alternatively, the standard
requires that the investor is purchasing in a fiduciary capacity for a person
who (or for an entity which) meets such conditions. In the case of sales to
fiduciary accounts, such conditions must be met by the fiduciary, by the
fiduciary account or by the donor who directly and indirectly supplied the funds
for the purchase of Units. The Partnership has established these standards for
the purchase of Units based upon the relative lack of liquidity of such Units
and the fact that the relative financial benefit of an investment therein may
depend upon the tax bracket of the investor. All prospective investors will be
required to represent in writing that: (1) they comply with the applicable
standards; or (ii) they are purchasing in a fiduciary capacity for a person
meeting such standards; or (iii) the standards are met by a donor who directly
or indirectly supplies the funds for the purchase of Units. The Participating
Broker Dealers will make reasonable inquiry to assure that every prospective
investor complies with the investor suitability standards and the General
Partners will not accept subscriptions from any persons who do not represent in
their Subscription Agreements that they meet such standards. Under the laws of
certain states, transferees may be required to comply with the suitability
standards set forth herein as a condition to substitution as a Limited partner.
Accordingly, the Partnership will require certain assurances that such standards
are met before agreeing to any transfer of the Units.
The General Partners have established the minimum purchase at twenty (20)
Units ($2,000). The General Partners may accept subscriptions in excess of
$2,000 in increments of one Unit ($100) or fractional Units. No person may
become an Assignee of Record or a substituted Limited Partner unless he is the
owner of a minimum of twenty (20) Units ($2,000). An Assignor of Units must
continue to hold at least ten (10) Units ($1,000) if he holds any Units. As well
as restrictions on transfer imposed by the Partnership, an investor seeking to
transfer his Units subsequent to his initial investment may be subject to the
securities or "blue sky" laws of the state in which the transfer is to take
place (See "DESCRIPTION OF UNITS" and "SUMMARY OF THE LIMITED PARTNERSHIP
AGREEMENT -Restrictions on Transfer").
A minimum of 20 Units ($2,000) may be purchased, transferred, assigned or
retained by an Individual Retirement Account ("IRA") and incremental amounts in
excess thereof for spousal IRA's established under Section 408 of the Internal
Revenue Code of 1986, as amended ("Code"). It should be noted, however, that an
investment in the Partnership will not, in and of itself, create an IRA for any
investor and that, in order to create an IRA, an investor must himself comply
with the provisions of Section 408 of the Code.
If the Partnership applies to have the Units qualified for sale in states
which have established suitability standards and minimum purchase requirements
different from those set by the Partnership, such suitability standards and
minimum purchase requirements shall be set forth in a supplement to this
Prospectus.
The investment objectives and policies of the Partnership have been
designed to make the Units suitable investments for employee benefit plans under
current law. In this regard, the Employee Retirement Income Security Act of 1974
("ERISA") provides a comprehensive regulatory scheme for "plan assets." In
accordance with final Regulations published by the Department of Labor in the
Federal Register on November 13, 1986, the General Partners intend to manage the
Partnership is such a way so as to assure that an investment in the Partnership
by a Qualified Plan will not, solely by reason of such investment, be considered
to be an investment in the underlying assets of the Partnership so as to make
the assets of the Partnership "plan assets." The final Regulations are also
applicable to an IRA. (See "RISK FACTORS--Investment by Tax-Exempt Entities."
The General Partners are not permitted to allow the purchase of Units with
assets of any Qualified Plans if the General Partners (i) have investment
discretion with respect to the assets of the Qualified Plan invested in the
Partnership, or (ii) regularly give individualized investment advice that serves
as the primary basis for the investment decisions made with respect to such
assets. This prohibition is designed to prevent violation of certain provisions
of ERISA.
<PAGE>
Subscription Agreement Warranties. The Subscription Agreement requires each
of the subscribers to warrant that: he received, read and understood the
Prospectus and is relying on it for his investment; he meets the applicable
suitability standards set forth in the Prospectus; he is aware that the
subscription may be rejected by the General Partners, the investment is subject
to certain risks described in the Prospectus and there will be no public market
for the Units; he has been informed by the Participating Broker Dealer of all
facts relating to lack of liquidity or marketability; he understands the
restrictions on transferability; he has sufficient liquid assets to provide for
current needs and personal contingencies or, if a trustee, that limited
liquidity will not affect its ability to make timely distributions; he has the
power, capacity and authority to make the investment; he is capable of
evaluating the risks and merits of the investment; and he is making the
investment for his own account or his family or in his fiduciary capacity and
not as an agent for another. The purpose of the warranties is to ensure that the
subscriber fully understands the terms of the offering and the risks of an
investment and he has the capacity to enter into a Subscription Agreement. The
General Partners on behalf of the Partnership intend to rely on the warranties
in accepting a Subscription. In any claim or action against the General Partners
or Partnership, the General Partners or Partnership may use the warranties as a
defense or basis for seeking indemnity from the subscriber.
The General Partners anticipate, based upon their past experience and
knowledge of professionals in the industry, that approximately thirty-five
percent (35%) of the Units issued by the Partnership will be purchased by
investors who elect to receive monthly, quarterly or annual distributions, and
approximately sixty-five percent (65%) by investors who elect to allow their
share of Earnings to be retained by the Partnership and credited to their
capital accounts. The General Partners may reject Subscription Agreements
tendered by investors electing to receive monthly, quarterly or annual
distributions, to the extent necessary to maintain these proportions. Therefore,
a prospective investor's Subscription Agreement may be rejected by the General
Partners, even though such person meets the suitability and eligibility
requirements of this offering.
Subscription Procedure. In order to subscribe to Units in the Partnership,
investors must read carefully and execute the "SUBSCRIPTION AGREEMENT AND POWER
OF ATTORNEY." For each Unit subscribed, investors must tender the sum of $100
per Unit. The minimum investment is twenty (20) Units ($2,000).
NOTICE TO CALIFORNIA RESIDENTS
All Certificates of Limited Partnership Interests resulting from any offer
and/or sale in California will bear the following legend restricting transfer:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFORE, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
TERMS OF THE OFFERING
A maximum of 300,000 Units ($30,000,000) are being offered on a "best
efforts" basis, which means no one is guaranteeing that any minimum number of
Units will be sold, through selected broker dealers (the "Participating Broker
Dealers") who are members of the National Association of Securities Dealers,
Inc. ("NASD"), at a price of $100 per Unit. The minimum subscription is twenty
(20) Units ($2,000). The General Partners have the option to accept
subscriptions for fractional units in excess of the minimum subscription. For
purposes of meeting this minimum investment requirement, an investor may
cumulate Units he or she purchased individually with those Units purchased by
his or her spouse or Units purchased by his or her pension or profit sharing
plan, IRA or Keogh plan. Purchasers of Units will pay $100 cash for each Unit
upon subscription. The Offering will terminate one year from the effective date
of this Prospectus, unless the General Partners, in their discretion, terminate
the Offering earlier, or unless the General Partners, in their sole discretion,
extend the Offering for additional one-year periods.
As this is not the Partnership's first offering of Units, all proceeds from
the sale of Units will be immediately available to the Partnership for
investment and will not be held in an escrow account.
Subscriptions received will be deposited into a subscription account at a
federally insured commercial bank or other depository selected by the General
Partner and invested in short-term certificates of deposit, a money market or
other liquid asset account. Prospective investors whose subscriptions are
accepted will be admitted into the Partnership only when their subscription
funds are required by the Partnership to fund a Mortgage Investment, or the
Formation Loan, to create appropriate reserves or to pay organizational expenses
or other proper Partnership purposes. During the period prior to admittance of
investors as Limited Partners, proceeds of the sale are irrevocable and will be
held by the General Partners for the account of the Limited Partner in the
subscription account. Investors' funds will be transferred from the subscription
account into the Partnership's operating account on a first-in, first-out basis.
Upon admission of the Limited Partners to the Partnership, subscription funds
will be released to the Partnership and Units will be issued at the rate of $100
per Unit or fraction thereof. Interest earned on subscription funds while in the
subscription account will be returned to the subscriber, or if the subscriber
elects to compound earnings, the amount equal to such interest will be added to
his investment in the Partnership. If a subscriber elects to have such amount
added to his investment in the Partnership, the number of Units actually issued
shall be increased accordingly.
<PAGE>
The General Partners and their Affiliates may, in their discretion,
purchase Units for their own account. Any Units so purchased will be counted for
the purpose of obtaining the required maximum subscriptions and will not be
included in reaching the minimum subscriptions. The maximum amount of Units that
may be purchased by the General Partners or their Affiliates is 500 Units
($50,000). However, it is not anticipated that such purchases will be made by
the General Partners and their Affiliates. Purchases of such Units by the
General Partners or their Affiliates will be made for investment purposes only
on the same terms, conditions and prices as to unaffiliated parties.
Guaranteed Payment for Offering Period. The Limited Partners shall receive
a guaranteed payment from the Earnings of the Partnership for Offering Period,
calculated on a monthly basis, equal to the greater of (i) the Partnership's
Earnings or (ii) the interest rate established by the Monthly Weighted Average
Cost of Funds for the 11th District Savings Institutions, as announced by the
Federal Home Loan Bank of San Francisco during the last week of the preceding
month, plus two points, up to a maximum interest rate of twelve percent (12%).
The Weighted Average Cost of Funds is derived from interest paid on savings
accounts, Federal Home Loan Bank advances, and other borrowed money adjusted for
valuation in the number of days in each month. The adjustment factors are 1.086
for February, 1.024 for 30 day months and 0.981 for 31 day months. As of the
date of this Prospectus, the Monthly Weighted Average Cost of Funds for the 11th
District as announced August 30, 1996, for the period ended July 30, 1996, and
in effect until September 30, 1996, is 4.819%. The Guaranteed Payment Period is
the period commencing on the day a Limited Partner is admitted to the
Partnership and ending three (3) months after the Offering Termination Date. The
Guaranteed Payment Period shall not be made over the life of the Partnership. To
the extent the payment to be paid is in excess of the Partnership's Earnings,
the General Partners will contribute sufficient capital to the Partnership so
that the Guaranteed Payment may be made. (See "RISK FACTORS - Guaranteed Payment
for Offering Period"). Since the offering period may be for a period of one
year, with additional one year periods, or such shorter period as when all the
Units are sold, there is uncertainty regarding the exact length of the
Guaranteed Payment Period.
Election to Receive Periodic Cash Distributions. Upon subscription for
Units, an investor must elect whether to receive Periodic Cash Distributions
from the Partnership or to receive additional Units in lieu of Periodic Cash
Distributions. This election, once made, is irrevocable for investors who choose
to receive Periodic Cash Distributions from the Partnership. However, investors
may change whether such distributions are received on a monthly, quarterly or
annual basis. An investor who initially elects to receive additional Units in
lieu of Periodic Cash Distributions may, after three (3) years, elect to receive
Periodic Cash Distributions. Earnings allocable to investors who elect to
compound their earnings will be retained by the Partnership for making further
Mortgage Investments or other proper Partnership purposes. The Earnings from
these further Mortgage Investments will be allocated among all investors;
however; investors who receive additional Units will be credited with an
increasingly larger proportionate share of such earnings than investors who
receive Periodic Cash Distributions, since their capital accounts will increase
over time. Annual cash distributions will be made shortly after the calendar
year end.
<PAGE>
ESTIMATED USE OF PROCEEDS
The following table sets forth the estimated application of the Gross
Proceeds of the sale of the maximum number of Units being offered hereby.
Initially, upon the formation of the Partnership, after deduction of the Public
Offering Expenses, the General Partners estimate that approximately eighty-four
percent (84%) if the maximum offering of 300,000 Units ($30,000,000) is
subscribed of the gross offering proceeds will be used for making Mortgage
Investments. However, as Redwood Mortgage repays the Formation Loan and working
capital reserves are applied to Mortgage Investments, as has occurred in prior
programs approximately ninety-six percent (96%) of the maximum offering of
300,000 Units ($30,000,000) will be used for making loans. Many of the figures
set forth are estimated, cannot be precisely calculated at this time and
consequently should not be relied upon as being definitive.
<TABLE>
Maximum Offering(6) Maximum Offering(7)
300,000 Units ($45,000,000) sold 300,000 Units ($30,000,000) sold
with leveraged funds
<CAPTION>
============================================= ========================================== ======================================
Dollar Amount Percent Dollar Amount Percent
- ------------------------------------------- ----------------------- ----------------- ----------------------- -----------------
<S> <C> <C> <C> <C>
Gross Proceeds ....................................... $30,000,000 100.00% $30,000,000 66.67%
Leveraged Funds ...................................... 0 0 $15,000,000 33.33%
Total Partnership Funds ...............................$30,000,000 100.00% $45,000,000 100.00%
Less Public Offering Expenses (1)
Organizational and Offering Expenses ..................$ 1,200,000 4.00% $ 1,200,000 2.67%
Total Offering Expenses ...............................$ 1,200,000 4.00% $ 1,200,000 2.67%
Amount Available for Investment (2) ...................$28,800,000 96.00% $43,800,000 97.35%
Less:
Formation Loan (3) ....................................$ 2,700,000 9.00% $ 2,700,000 6.00%
Working Capital Reserves (4) ..........................$ 900,000 3.00% $ 900,000 2.00%
Cash Available for Extension of Loans (5) .............$25,200,000 84.00% $40,200,000 89.33%
<FN>
(1) Consists of expenses incurred in connection with the organization and formation of the Partnership, including the
legal, accounting and escrow holder fees and expenses, the printing costs, the filing fees and other disbursements
in connection with the sale and distribution of Units including reimbursements to Participating Broker Dealers for
bona fide expenses incurred for due diligence purposes in a maximum amount of one-half of one percent (.5%) of
Gross Proceeds (See footnote 3 below). The General Partners may prepay such expenses and will be reimbursed by
the Partnership in an amount not to exceed the lesser of ten percent (10%) of the Gross Proceeds or $1,200,000.
The General Partners will pay any amount of such expenses in excess of ten percent (10%) of the Gross Proceeds or
$1,200,000 (See "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES").
(2) Pending utilization of the Net Proceeds in the extension of Mortgage Investments and the operations of the
Partnership, all of the Net Proceeds and, thereafter, the working capital reserves, may be invested in short-term,
highly liquid investments, including government obligations, bank certificates of deposit, short-term debt
obligations and interest bearing accounts (See "TERMS OF THE OFFERING" and "PLAN OF DISTRIBUTION").
(3) Participating Broker Dealers may receive commissions as follows: at the rate of either five percent (5%) or nine
percent (9%) (depending upon the investor's election to receive cash distributions or to compound earnings in the
Partnership) of the Gross Proceeds on sales. The Partnership will loan to Redwood Mortgage funds in an amount
equal to the sales commissions as a Formation Loan. The Formation Loan is to be used for the purpose of paying
sales commissions to
<PAGE>
Participating Broker Dealers. The amount of the Formation Loan set forth in this table is based upon the maximum sales
commissions allowable. The Formation Loan will not exceed nine percent (9%) of the total Gross Proceeds of the
Offering based upon the maximum sales commissions payable, (See "PLAN OF DISTRIBUTION - Formation Loan").
However, the General Partners anticipate, based upon historical experience and knowledge of professionals in the
industry, that the Formation Loan will be in the amount of (7.6%) of Gross Proceeds if the maximum is raised
assuming that sixty-five percent (65%) of the investors elect to reinvest their Earnings and acquire additional
Units and thirty-five percent (35%) and elect to receive distributions. In no event will the total of all
compensation payable to Participating Broker Dealers, including sales commissions, expense reimbursements, sales
seminars and/or due diligence expenses exceed ten percent (10%) of the program proceeds received plus an
additional (0.5%) for bona fide due diligence expenses as set forth in Rule 2810 of the NASD Conduct Rules.
Further, in no event shall any individual Participating Broker Dealer receive total compensation including sales
commissions, expense reimbursements, sales seminar or expense reimbursement exceed (10%) of the gross proceeds of
their sales plus an additional (0.5%) for bona fide due diligence expenses as set forth in Rule 2810 of the NASD
Conduct Rules (the Compensation Limitation). To the extent the actual amount of the Formation Loan is less than
the amount stated in the table, the cash available for extension of loans will be increased proportionately. The
Formation Loan will be unsecured and will be repaid, without interest, in annual installments. (See "PLAN OF
DISTRIBUTION"). Except for the Formation Loan made to Redwood Mortgage, and reimbursement of Organizational and
Offering Expenses, no other Offering proceeds will be paid to the General Partners or their Affiliates (See
"COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES").
(4) The Partnership anticipates maintaining an average balance of working capital reserve equal to three percent (3%)
of the Gross Proceeds of the Offering.
(5) These proceeds will be used to make Mortgage Investments (See "INVESTMENT OBJECTIVES AND CRITERIA"). The exact
amount of the cash available for extension of Mortgage Investments will depend upon the amount of the Formation
Loan, organization and operating expenses and cash reserves. (See Footnote (6) below).
(6) Does not include a capital contribution of the General Partners in the amount of 1/10th of 1% of the Gross
Proceeds (See "SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT - Capital Contributions").
(7) This assumes that the General Partners can leverage approximately fifty percent (50%) of the Gross Offering
Proceeds.
</FN>
</TABLE>
CAPITALIZATION OF THE PARTNERSHIP
The capitalization of the Partnership as of June 30, 1996, and as adjusted
to give effect to the sale of the maximum number of Units offered hereby,
excluding any contributions of the General Partners is as follows:
Actual As Adjusted (1)
Units ($100.00 per Unit) $12,944,388 $42,944,388
_______________________
(1) Amount determined after deduction of certain offering expenses
aggregating $900,000. (See "USE OF PROCEEDS").
<PAGE>
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES
Set forth below in tabular form is a description of compensation that may
be received by the General Partners and their Affiliates from the Partnership or
in connection with the investment of the proceeds of this Offering. Other than
as set forth herein, no compensation will be paid to the General Partners or any
Affiliate. These compensation arrangements have been established by the General
Partners and are not the result of arms-length negotiations. The General
Partners have reviewed the compensation arrangements among unrelated parties for
the same services and have accordingly determined the following compensation
levels, based upon that review as well as a determination of what is fair to the
Partnership, are fair and reasonable. In their review, the General Partners have
analyzed the compensation arrangements in other offerings, spoken to other
professionals in the industry including issuers, promoters and broker dealers,
examined "rate sheets" from banks and savings & loans which set forth the rates
being charged by those institutions for the same or similar services as well as
collected data regarding compensation from trade association meetings and/or
other relevant periodicals. Thus, the amounts are approximately equivalent to
those which would customarily be paid to unrelated parties for the same
services. The compensation to be received by the General Partners, as set forth
below, is based upon the loan balances of the Mortgage Investments which during
the term of the Partnership will be continually maturing and "turning over" or
the net asset value of the Partnership. Accordingly, the exact amount of fees to
be paid to the General Partners and their Affiliates cannot be determined.
However, based upon the General Partners' prior experience with this Partnership
and in similar programs and upon certain assumptions made as a result of that
experience as set forth below, the General Partners can estimate on an annual
average basis, assuming a minimum partnership life of twelve (12) years, the
amount of fees they and their Affiliates will receive. Except as noted below,
there is no limit on the dollar amount of compensation and fees paid to the
General Partners and their Affiliates. The amount of fees to be paid will vary
from those estimated below due to varying economic factors, over which the
General Partners have no control, including, but not limited to, the state of
the economy, lending competition in the area where partnership Mortgage
Investments are made, interest rates and Partnership earnings. Because the
Partnership is subject to public reporting requirements, the Partnership will
file with the Securities and Exchange Commission quarterly and annual reports,
which reports will be available to investors, setting forth, among other things,
the exact amount of compensation and/or fees being paid to the General Partners
and the Affiliates. Moreover, the General Partners' or their Affiliates' ability
to effect the nature of the compensation by undertaking different actions is
extremely limited. The amount of fees paid to the General Partners and/or their
Affiliates are competitive within the industry, and reflect what others,
including some lending institutions, are charging for the same or similar
services. Because the Partnership is only one of many lenders in their industry,
the General Partners' ability to effect fees charged is virtually non-existent.
Additionally, to a large extent the amount of fees paid to the General Partners
and their Affiliates is based upon decisions made by the borrower regarding,
among other things, type and amount of loan, prepayment on the loan and possible
default on the loan. Certain terms used in this table are defined under the
caption "GLOSSARY," and the relationships with the General Partners of the
various entities referred to herein are described under the caption
"MANAGEMENT."
OFFERING STAGE
Entity Receiving
Compensation Form and Method of Estimated Amount
Compensation
General Partners Reimbursement of organization Maximum of $1,200,000.
and/or Affiliates and offering expenses including,
but not limited to, attorneys fees,
accounting fees, printing costs and other
selling expenses (other than underwriting
commissions) equal to the lesser of ten
percent (10%)of the Gross proceeds of the Offering
or $1,200,000. The General Partners will pay any
offering and organization expenses in excess
of this amount.(1)
<PAGE>
OPERATING STAGE
Entity Receiving
Compensation Form and Method of Estimated Amount
Compensation
Redwood Mortgage Loan Brokerage Commissions average $285,000 per year(5)
approximately three to six percent
(3-6%)of the principal amount of each
Mortgage Investment, but may be
higher or lower depending upon market
conditions. Loan Brokerage Commissions
will be limited to an amount not to
exceed four percent (4%) of the
total Partnership assets per year.
Such Commissions are payable solely
by the borrower and not by the
Partnership. (See "TERMS OF THE OFFERING").
Redwood Mortgage Processing and Escrow Fees for $19,200 per year(5)
services in connection with notary,
document preparation, credit investigation,
and escrow fees in an amount equal to
the fees customarily charged by
Redwood Mortgage for comparable services
in the geographical area where the property
securing the Mortgage Investment is located,
payable solely by the borrower and not
by the Partnership.
Redwood Mortgage Loan Servicing Fee payable monthly $310,000 per year(5)
in an amount up to 1/8 of 1% of the
outstanding principal amount of each
Mortgage Investment. (2) (3)
General Partners Asset Management Fee payable $119,000 per year(5)
monthly in an amount up to 1/32
of 1% of the "net asset value."(2)
General Partners Reimbursement of expenses relating $92,000 per year(5)
and/or Affiliates to administration of the Partnership,
subject to certain limitations, see
Article 10 of the Partnership Agreement.(1)(4)
Gymno Corporation Reconveyance Fee for Approximately $65 per
reconveyance of property upon full deed of trust or
payment of loan, payable by borrower. market rate.
Redwood Mortgage Assumption Fee for assumption $5,000 per year(5)
of loans payable by borrower
as either a set fee or a percentage
of the loan.
Redwood Mortgage Extension Fee for extending the $2,500 per year(5)
loan period payable by borrower
as a percentage of the loan.
Redwood Mortgage Interest earned, if any, $0 per year(5)
between the date of deposit of
borrower's funds into Redwood Mortgage's
trust account and date of payment
of such funds by Redwood Mortgage
General Partners One percent (1%) interest in $28,000 per year(5)
Profits, Losses and Distributions
of Earnings and Cash Available for
Distribution.
<PAGE>
LIQUIDATING STAGE
Entity Receiving
Compensation Form and Method of Estimated Amount
Compensation
Redwood Mortgage Early withdrawal penalty equal $36,516 per year(5)
to a percentage of the sums
withdrawn by an early withdrawing
Limited Partner, a portion of which
will be paid, based upon the ratio
between the Formation Loan and the
total amount of organizational and
syndication costs, to the Partnership
as an early withdrawal penalty, to
reduce the principal amount owed by
Redwood Mortgage for the Formation
Loan and the balance of which
will be retained by the Partnership
for its own account. After the Formation
Loan has been paid, amounts received
from the early withdrawal penalty
will be retained by the Partnership for
its own account (See "SUMMARY OF
THE LIMITED PARTNERSHIP AGREEMENT
Withdrawal from Partnership").
_________________________________
(1) The General Partners will endeavor to minimize such expenses to the
extent possible and to the extent consistent with the terms of the offering.
(See "TERMS OF THE OFFERING").
(2) The General Partners have assumed that the estimated amount of the Loan
Servicing Fee payable will be approximately one percent (1%) per year. The
General Partners are entitled to receive a Loan Servicing Fee of up to one and
one-half percent (1 1/2%) per year. The General Partners and their Affiliates,
in their sole discretion, may elect to lower the Loan Servicing Fee or Asset
Management Fee for any period of time and thereafter raise the fees up to the
stated limits.
(3) On any property foreclosed upon, the Loan Servicing Fee is payable by
the borrower up until the time of foreclosure. If, at the time of foreclosure,
the Loan Servicing Fee has not been paid out of the trustee's sale of the
foreclosed property, the Loan Servicing Fee will be payable by the Partnership.
(4) The Partnership shall reimburse the General Partners or their
Affiliates for the actual cost of goods and materials used for or by the
Partnership and obtained from unaffiliated parties. In addition, the Partnership
shall reimburse the General Partners or their Affiliates for the cost of
administrative services necessary to the prudent operation of the Partnership
provided that such reimbursement will be the lesser of (a) the actual cost of
such services or (b) ninety percent (90%) of the amount which the Partnership
would be required to pay independent parties for comparable services. The
Partnership's annual report to Limited Partners will provide a breakdown of the
services performed and the amount reimbursed to the General Partners or
Affiliates.
(5) The amount of fees to be paid to the General Partners and their
Affiliates are based on certain assumptions made in light of the General
Partners' past experience with similar programs. In determining the average
annual fees to be paid to the General Partners and their Affiliates the General
Partners have assumed, based upon their historical experience the following: (i)
a minimum Partnership life of twelve (12) years assuming $15,000,000 is raised
in year one (1) and $15,000,000 is raised in year two (2); (ii) sixty percent
(60%) of the investors elect to reinvest Earnings and forty percent (40%) elect
to receive Periodic Cash Distributions; (iii) a nine percent (9%) yield in the
first three (3) years of operation, an eight percent (8%) yield in years four
(4), five (5) and six (6) and a nine percent (9%) yield thereafter; (iv)
withdrawal rates similar to those experienced by past partnerships; (v) a
turnover rate on Mortgage Investments of ten percent (10%) in year three (3),
fifteen percent (15%) in year four (4) and twenty percent (20%) thereafter; and
(vi) no leveraging of the portfolio has been considered. However, because the
estimated amount of fees to be paid to the General Partners and their Affiliates
are based on certain assumptions and conditions, including, historical
experience, which may not provide an exact measurement of the fees to be paid,
the general state of the economy, interest rates, the turnover rate of Mortgage
Investments, Partnership Earnings, the duration and type of loans the
Partnership will make, and the election of investors to receive Periodic Cash
Distributions or additional Units, the actual amount of fees paid will vary from
those set forth above.
<PAGE>
The following table summarizes the forms and amounts of compensation and
reimbursed expenses paid to the General Partners or their affiliates for the
year ended December 31, 1995, and the Period January 1, 1996, through June 30,
1996, showing actual amounts and the maximum allowable amounts for management
and servicing fees. No other compensation was paid to the General Partners
during such periods. Such fees were established by the General Partners and were
not determined by the arms-length negotiation.
<TABLE>
Year Ended December 31, 1995 Period Ended January 1, 1996
June 30, 1996
<CAPTION>
Maximum
Maximum Amount
Amount Allowable
Form Actual Allowable Actual for Period
PAID BY PARTNERSHIP
<S> <C> <C> <C> <C>
Servicing Fee (1) ..................................................... $ 85,457 $128,186 $ 67,389 $101,084
Management Fee (2) .................................................... $ 11,587 $ 34,773 $ 7,760 $ 23,280
Reimbursement of Operating Expenses ................................... $ 22,769 $ 22,769 $ 17,647 $ 17,647
1% of Profits, Losses and Disbursements ............................... $ 8,368 $ 8,368 $ 5,606 $ 5,606
PAID BY BORROWERS
Loan Brokerage Fees (3) ............................................... $265,890 $265,890 $236,435 $236,435
Processing and Servicing Fees ......................................... $ 7,957 $ 7,957 $ 6,950 $ 6,950
<FN>
________________________
(footnotes to table)
(1) Redwood Mortgage is entitled to receive a monthly servicing fee of one-eighth of one percent (.125%) or 1 1/2% per
year of the total unpaid principal balance of each loan, except for the Formation Loan. However, Redwood Mortgage
elected only to receive Monthly Servicing Fees equal to one percent (1%) per year.
(2) The General Partners are entitled to receive a monthly fee for managing the Partnership's Mortgage Investment
Portfolio in an amount up to 1/32 of one percent (.03125%) or 3/8 of one percent (.375%) per year of the "net
asset value" of the Partnership which equals the Partnership's assets less its liabilities. However, the General
Partners elected only to receive Asset Management Fees in an amount equal to 1/8 of one percent (.125%) per year.
(3) Although Redwood Mortgage can receive loan brokerage fees of up to six percent (6%) or higher if such fees could
have been negotiated with borrowers, the figures reflect actual loan brokerage fees charged on the Mortgage
Investments.
</FN>
</TABLE>
<PAGE>
CONFLICTS OF INTEREST
The Partnership is subject to various conflicts of interest arising out of
its relationships with the General Partners and their Affiliates, including
conflicts related to the arrangements pursuant to which the General Partners
will be compensated by the Partnership (See "COMPENSATION OF THE GENERAL
PARTNERS AND AFFILIATES"). Because the Partnership was organized and is operated
by the General Partners, these conflicts will not be resolved through arms
length negotiations but through the exercise of the General Partners' judgment
consistent with their fiduciary responsibility to the Limited Partners and the
Partnership's investment objectives and policies. In this regard, the General
Partners are, and will be subject to, public reporting requirements for prior
public programs and for this program and thus will continue to have an
obligation to keep investors appraised of material developments with respect to
all partnerships in which they are the general partners, including material
developments or events which give rise to a conflict of interest. (See "PRIOR
PERFORMANCE SUMMARY"). Additionally, the Amended and Restated Limited
Partnership Agreement also imposes upon the General Partners an obligation to
disclose and keep investors appraised of any developments that would otherwise
be disclosed in accordance with public reporting requirements, including those
developments which would give rise to a conflict of interest. The powers of the
Limited Partners with respect to any such developments including the power to
amend the Partnership Agreement, remove the General Partners and/or amend or
terminate contracts for services or goods between the General Partners and the
Partnership act as a check to the actions of General Partners including their
ability to resolve a conflict of interest, or to avoid a potential conflict of
interest consistent with and in accordance with their fiduciary duty. (See
"FIDUCIARY DUTY OF THE GENERAL PARTNERS" and "INVESTMENT OBJECTIVES AND
CRITERIA"). These conflicts include, but are not limited to, the following:
1. Conflicts Arising As A Result Of The General Partners' Legal And
Financial Obligations To Other Partnerships. The General Partners and their
Affiliates serve as the general partners of other limited partnerships,
including real estate mortgage limited partnerships with investment objectives
similar to those of the Partnership. They may also organize other real estate
mortgage limited partnerships in the future, including partnerships which may
have investment objectives similar to those of the Partnership. The General
Partners and such Affiliates have legal and financial obligations with respect
to these partnerships which are similar to their obligations with respect to the
Partnership. As general partners, they may have contingent liability for the
obligations of such partnerships as well as those of the Partnership. The level
of compensation payable to the General Partners or their Affiliates in
connection with the organization and operation of other partnerships may exceed
that payable in connection with the organization and operation of the
Partnership. However, the General Partners and their Affiliates do not intend to
offer for sale interests in any public programs (but not private programs) with
investment objectives similar to the Partnership before substantially all
initial proceeds of this Offering are invested or committed. Further, the
General Partners believe that they have sufficient financial and legal resources
to meet and discharge their obligations to the Partnership and to the other
partnerships. In the event that a conflict were to arise, however, the General
Partners will undertake the following steps: (i) they will seek the advice of
counsel with respect to the conflict; (ii) in the event of a short fall of
resources, they will seek to allot their financial and legal resources on a pro
rata basis among the partnerships; (iii) in the event a pro rata allotment would
materially adversely effect the operations of any partnership, the General
Partners will use their best efforts to apply available resources to that
partnership so as to attempt to prevent a material adverse effect, and the
remainder of the resources, if any, would be applied on a pro rata basis.
2. Conflicts Arising From The General Partners' Allocation Of Time Between
The Partnership And Other Activities. As a result of their possible future
interests in other partnerships and the fact that they have also engaged and
will continue to engage in other business activities, the General Partners and
their Affiliates will have conflicts of interests in allocating their time
between the Partnership and other activities in which they are involved.
However, the General Partners believe that they, and their Affiliates, have
sufficient personnel to discharge fully their responsibilities to other
affiliated partnerships and ventures in which they are involved. Redwood
Mortgage also provides loan brokerage services to other investors beside the
Partnership. As a result, there will then exist conflicts of interest on the
part of the General Partners between the Partnership and the other partnerships
or investors with which they are affiliated at such time. The General Partners
will decide which Mortgage Investments are appropriate for funding by the
Partnership or by such other partnerships and investors after consideration of
all relevant factors, including the size of the loan, portfolio diversification,
and amount of uninvested funds and the length of time that excess funds have
remained uninvested. To date, the General Partners have each allocated
approximately 12-17 hours per week, exclusively on Partnership activities and
estimate that they will continue to allocate approximately the same amount of
time in the future. This amount may be higher during the initial offering and
marketing stages and may be lower after several years of operations. The General
Partners believe that they will have sufficient time, based upon the
organization and personnel that they have built and retained over the last
eighteen (18) years, to discharge fully their obligations to the Partnership. In
the event that a conflict were to arise, however, the General Partners will take
the following action: (i) they will seek the advice of counsel with respect to
the conflict; (ii) in the event of a short fall of resources, they would seek to
allot their financial and legal resources on a pro rata basis among the
partnerships; (iii) in the event a pro rata allotment would materially adversely
effect the operations of any partnership, the General Partners will use their
best efforts to apply resources to that partnership so as to attempt to prevent
a material adverse effect, and the remainder of the resources, if any, would be
applied on a pro rata basis.
<PAGE>
3. Amount Of Loan Brokerage Commissions Effects Rate Of Return To Limited
Partners. None of the compensation set forth under "COMPENSATION OF THE GENERAL
PARTNERS AND AFFILIATES" was determined by arms length negotiations. Redwood
Mortgage anticipates that the loan brokerage commissions charged to borrowers by
Redwood Mortgage will average approximately three to six percent (3-6%) of the
principal amount of each loan, but may be higher or lower depending upon market
conditions. The Loan Brokerage Commission shall be capped at four percent (4%)
per annum of the Partnership's assets. Any increase in the Loan Brokerage
Commission charged on loans may have a direct, adverse effect upon the interest
rates charged by the Partnership on loans and thus the overall rate of return to
Limited Partners. Conversely, if the General Partners reduced the loan brokerage
commissions charged by Redwood Mortgage a higher rate of return might be
obtained for the Partnership and the Limited Partners. This conflict of interest
will exist in connection with every Mortgage Investment transaction, and Limited
Partners must rely upon the fiduciary duties of the General Partners to protect
their interests. In an effort to partially resolve this conflict, Redwood
Mortgage has agreed that Loan Brokerage Commissions shall be limited to four
percent (4%) per annum of the Partnership assets (See "COMPENSATION OF THE
GENERAL PARTNERS AND AFFILIATES" and "INVESTMENT OBJECTIVES AND CRITERIA - Loan
Brokerage Commissions"). As set forth in the Section of the Prospectus entitled
"Compensation of the General Partners and Affiliates" the loan brokerage
commissions to be paid to Redwood Mortgage are approximately equivalent to that
fee which would customarily be paid to unrelated parties for the same service.
However, in the event of a conflict with respect to the payment of the loan
brokerage commissions or the quality or type of loan, the General Partners will
resolve the conflict in favor of the Partnership.
The General Partners have reserved the right to retain the services of
other firms, in addition to or in lieu of Redwood Mortgage, to perform the
brokerage services, loan servicing and other activities in connection with the
Partnership's Mortgage Investment portfolio that are described in this
Prospectus. Any such other firms may also be affiliated with the General
Partners.
4. Terms Of Formation Loan Are Not A Result Of Arms Length Negotiations.
Upon commencement of this offering, Redwood Mortgage will borrow from the
Partnership an amount equal to not more than nine percent (9%) of the Gross
Proceeds of this Offering. This loan (the "Formation Loan") will not bear
interest. Accordingly, the Partnership's rate of return on the Formation Loan
will be below the rate obtainable by the Partnership on its Mortgage
Investments. The terms of the Formation Loan were not the result of arm's length
negotiations. Moreover, this loan will be an unsecured obligation of Redwood
Mortgage (See "PLAN OF DISTRIBUTION - Formation Loan"). The amount of any early
withdrawal penalties received by the Partnership from Investors shall reduce the
principal balance of the Formation Loan, thus reducing the amount owed from
Redwood Mortgage to the Partnership. In the event of default in the payment of
such loan a conflict of interest would arise on the General Partners part in
connection with the enforcement of the loan and the continued payment of other
fees and compensation, including the Loan Brokerage Fee and Loan Servicing Fee,
to Redwood Mortgage. If the General Partners are removed, no other General
Partners are elected, the Partnership is liquidated and Redwood Mortgage is no
longer receiving payments for services rendered, the debt on the Formation Loan
shall be forgiven by the Partnership and Redwood Mortgage shall be immediately
released from any further obligation under the Formation Loan. In the event of a
conflict with respect to the repayment of the Formation Loan, or a default
thereof or the continued payment of other fees and compensation to Redwood
Mortgage, the Partnership, at the Partnership's expense, will retain independent
counsel, who has not previously represented the General Partners to represent
the Partnership in connection with such conflict.
5. Potential Conflicts if Partnerships Invests in Mortgage Investments With
General Partners or Affiliates. The Partnership may invest in mortgages acquired
by the General Partners or Affiliates. The Partnership's portion of the total
Mortgage Investment may be smaller or greater than the portion of the Mortgage
Investment made by the General Partners or Affiliates, but will generally be on
terms substantially similar to the terms of the Partnership's investment. Such
an investment would be made after a determination by the General Partners that
the entire Mortgage Investment is in an amount greater than would be suitable
for the Partnership to make on its own or that the Partnership will benefit
through broader diversification of its Mortgage Investment portfolio. However,
investors should be aware that investing with the General Partners or Affiliates
could result in a conflict of interest between the Partnership and the General
Partners or Affiliates in the event that the borrower defaults on the Mortgage
Investment and both the Partnership and the General Partners or Affiliates
protect their own interest in the Mortgage Investment and in the underlying
security. In order to minimize the conflicts of interest which may arise if the
Partnership invests in Mortgage Investments with the General Partners or
Affiliates, the Partnership will acquire its interest in the loan on the same
terms and conditions as does the General Partners or Affiliates and the terms of
the loan will conform to the investment criteria established by the Partnership
for the origination of Mortgage Investments. By investing in a Mortgage
Investment on the same terms and conditions as does the General Partners or an
Affiliate, the Partnership will be entitled to enforce the same rights as the
General Partners or Affiliate in such Mortgage Investment and the General
Partners and Affiliate will not have greater rights in the loan than does the
Partnership.
<PAGE>
6. General Partners Will Represent Both Parties In Sales Of Real Estate
Owned to Affiliates. In the event the Partnership becomes the owner of any real
property by reason of foreclosure on a Mortgage Investment, the General
Partners' first priority will be to arrange the sale of the property for a price
that will permit the Partnership to recover the full amount of its invested
capital plus accrued but unpaid interest and other charges, or so much thereof
as can reasonably be obtained in light of current market conditions. In order to
facilitate such a sale, the General Partners may, but are not required to,
arrange a sale to persons or entities controlled by them, e.g., to another
partnership formed by one of the General Partners for the express purpose of
acquiring foreclosure properties from lenders such as the Partnership. The
General Partners will be subject to conflicts of interest in arranging such
sales since they will represent both parties to the transaction. For example,
the Partnership and the potential buyer will have conflicting interests in
determining the purchase price and other terms and conditions of sale. The
General Partners decision will not be subject to review by any outside parties.
The General Partners have undertaken to resolve these conflicts as follows:
(a) No foreclosed property will be sold to the General Partners or an
Affiliate unless the General Partners have first used their best efforts to sell
the property at a fair price on the open market for at least 60 days.
(b) In the event the property will be sold to an Affiliate, the net
purchase price must be more favorable to the Partnership than any third party
offer received. The purchase price will also be no lower than the independently
appraised value of such property at the time of sale, and (2) no lower than the
total amount of the Partnership's "investment" in the property. The
Partnership's investment includes without limitation the following: the unpaid
principal amount of the Partnership's Mortgage Investment, unpaid interest
accrued to the date of foreclosure, expenditures made to protect the
Partnership's interest in the property such as payments to senior lienholders
and for insurance and taxes, costs of foreclosure (including attorneys' fees
actually incurred to prosecute the foreclosure or to obtain relief from a stay
in bankruptcy), and any advances made by the General Partners on behalf of the
Partnership for any of the foregoing less any income or rents received,
condemnation proceeds or other awards received or similar monies received. A
portion of the purchase price may be paid by the affiliate executing a
promissory note in favor of the Partnership. Any such note will be secured by a
deed of trust on the subject property. The principal amount of such a note, plus
any obligations secured by senior liens, will not exceed ninety percent (90%) of
the purchase price of the property. The terms and conditions of such a note will
be comparable to those the Partnership requires when selling foreclosed
properties to third parties.
(c) Neither the General Partners nor any of their Affiliates would receive
a real estate commission in connection with such a sale.
It is the General Partners' opinion that these undertakings will yield a
price which is fair and reasonable for all parties, but no assurance can be
given that the Partnership could not obtain a better price from an unaffiliated
third party purchaser.
7. Professionals Hired By General Partners Do Not Represent Limited
Partners. The attorneys, accountants and other experts who perform services for
the Partnership also perform services for the General Partners and their
Affiliates. It is anticipated that such representation will continue in the
future. Such professionals, including, Stephen C. Ryan & Associates, counsel for
the Partnership and the General Partners, do not represent the Limited Partners.
Under the Partnership Agreement, each of the Limited Partners acknowledges and
agrees that such professionals, including, Stephen C. Ryan & Associates, counsel
for the Partnership and the General Partners, representing the Partnership and
the General Partners and their Affiliates do not represent, and shall not be
deemed under applicable codes of professional conduct and responsibility to have
represented or be representing, any or all of the Limited Partners in any
respect. Such professionals, however, are obligated under those codes not to
engage in unethical or improper professional conduct. In the event of a conflict
regarding services performed by attorneys, accountants and other experts, with
respect to the General Partners and/or the Partnership and Limited Partners,
then the Partnership, at Partnership expense, will retain independent counsel,
who has not previously represented the Partnership or the General Partners to
represent the interests of the Limited Partners solely with respect to the issue
of a conflict regarding the services performed by professionals.
<PAGE>
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS
The General Partners are accountable to the Partnership as fiduciaries, and
consequently are under a fiduciary duty to exercise good faith and integrity in
conducting the Partnership's affairs and to conduct such affairs in the best
interest of the Partnership. The California Revised Limited Partnership Act
provides that a limited partner may institute legal action on behalf of himself
and all other similarly situated limited partners (a class action) to recover
damages for a breach by a general partner of its fiduciary duty, or on behalf of
the partnership (a partnership derivative action) to recover damages from a
general partner or third parties where the general partner has failed or refused
to enforce the obligation.
Based upon the present state of the law and federal statutes, regulations,
rules and relevant judicial and administrative decisions, it appears that (1)
the Limited Partners of the Partnership have the right, subject to the
provisions of applicable procedural rules and statutes to: (a) bring Partnership
class actions, (b) enforce rights of all Limited Partners similarly situated,
and (c) bring Partnership derivative actions to enforce rights of the
Partnership including, in each case, rights under certain rules and regulations
of the Securities and Exchange Commission; and (2) Limited Partners who have
suffered losses in connection with the purchase or sale of their Units due to a
breach of fiduciary duty by the General Partners in connection with such
purchase or sale, including misapplication by the General Partners of the
proceeds from the sale of Units, may have a right to recover such losses from
the General Partners in an action based on Rule 10b-5 under the Securities and
Exchange Act of 1934. In addition, where an employee benefit plan has acquired
Units, case law applying the fiduciary duty concepts of ERISA could be viewed to
apply to the General Partners. The General Partners will provide quarterly and
annual reports of operations and must, on demand, give any Limited Partner or
his/her legal representative a copy of the Form 10-K and true and full
information concerning the Partnership's affairs. Further, the Partnership's
books and records may be inspected or copied by its Limited Partners or their
legal representatives at any time during normal business hours.
This is a rapidly developing and changing area of the law and this summary,
describing in general terms the remedies available to Limited Partners for
breaches of fiduciary duty by the General Partners, is based on statutes and
judicial and administrative decisions as of the date of this Prospectus. Limited
Partners who have questions concerning the duties of the General Partners or who
believe that a breach of fiduciary duty by a General Partner has occurred should
consult their own counsel.
Provision has been made in the Partnership Agreement that the General
Partners shall have no liability to the Partnership for loss arising out of any
act or omission by the General Partners, provided that the General Partners
determine in good faith that their conduct was in the best interest of the
Partnership and, provided further, that their conduct did not constitute gross
negligence or gross misconduct. As a result, purchasers of Units may have a more
limited right of action in certain circumstances than they would in the absence
of such a provision in the Partnership Agreement.
The Partnership Agreement also provides that, to the extent permitted by
law, the Partnership shall indemnify the General Partners against liability and
related expenses (including attorneys' fees) incurred in dealings with third
parties, provided that the conduct of the General Partners are consistent with
the standards described in the preceding paragraph. Notwithstanding the
foregoing, neither the General Partners nor their Affiliates shall be
indemnified for any liability imposed by judgment (including costs and attorneys
fees) arising from or out of a violation of state or federal securities laws
associated with the offer and sale of Units offered hereby. However,
indemnification will be allowed for settlements and related expenses of lawsuits
alleging securities law violations and for expenses incurred in successfully
defending such lawsuits provided that (a) a court either approves
indemnification of litigation costs if the General Partners are successful in
defending the action; or (b) the settlement and indemnification is specifically
approved by the court of law which shall have been advised as to the current
position of the Securities and Exchange Commission (as to any claim involving
allegations that the Securities Act of 1933 was violated) and California
Commissioner of Corporations or the applicable state authority (as to any claim
involving allegations that the applicable state's securities laws were
violated). Any such indemnification shall be recoverable out of the assets of
the Partnership and not from Limited Partners. A successful claim for such
indemnification would deplete Partnership assets by the amount paid.
<PAGE>
PRIOR PERFORMANCE SUMMARY
THE INFORMATION PRESENTED IN THIS SECTION REPRESENTS THE HISTORICAL
EXPERIENCE OF REAL ESTATE MORTGAGE PROGRAMS MANAGED BY THE GENERAL PARTNERS AND
THEIR AFFILIATES. INVESTORS IN THE PARTNERSHIP SHOULD NOT ASSUME THAT THEY WILL
EXPERIENCE RETURNS IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN SUCH
PRIOR REAL ESTATE MORTGAGE PROGRAMS.
Experience and Background of General Partners and Affiliates. The General
Partners and their Affiliates have, since 1978, sponsored and managed eight (8)
real estate mortgage limited partnerships not including the Partnership. All
partnerships have investment objectives similar to the Partnership. Six of these
partnerships were offered without registration under the Securities Act of 1933
in reliance upon the intrastate offering exemption from the registration
requirements thereunder and/or the exemption for transactions not involving a
public offering. Three of these partnerships including the Partnership were
registered under Securities Act of 1933. The effect of not registering six of
the prior partnerships is that the partners in the respective partnerships have
differing rights with respect to the transfer of their interests in the
partnerships. When securities are issued without registration under the
Securities Act of 1933, either in reliance upon the intrastate exemption or the
exemption for transactions not involving a public offering, those securities may
not be transferred without registration under, or an exemption from, the
Securities Act of 1933. On the other hand, securities issued pursuant to a
registration statement under the Securities Act of 1933 generally may be sold
without such registration. In general, securities issued pursuant to
registration under the Securities Act of 1933 are more freely transferable than
those which are issued without registration under the Securities Act of 1933.
However, even securities issued pursuant to a registration statement are subject
to restrictions on transfer under the securities laws of the states in which
they are issued and under the terms of their respective partnership agreements.
Not including the initial offering by the Partnership, as of June 30, 1996,
the eight previous partnerships had raised aggregate capital contributions of
approximately $47,637,000 from approximately 3,098 investors and had total
current net assets under management of $43,805,044. As of June 30, 1996, the
number of loans made by these partnerships was approximately 1,798 and the
number of outstanding Mortgage Investments made by these earlier partnerships
was approximately 304 ($38,834,738) which are secured by properties principally
located in Northern California. Of these loans, approximately 139 which
represents twenty-two percent (22%) of the Partnerships portfolio ($8,673,500)
are secured by single family residences, 30, which represents eleven percent
(11%) of the Partnerships portfolio ($4,171,500) are secured by multi-family
units, 120 which represents fifty-eight percent (58%) of the Partnerships
portfolio ($22,391,210) are secured by commercial properties and 15 which
represents nine percent (9%) of the Partnerships portfolio ($3,598,428) are
secured by unimproved property.
Redwood Mortgage Investors VII ("RMI VII") is a California limited
partnership of which D. Russell Burwell, Michael R. Burwell and Gymno
Corporation are the Co-General Partners. RMI VII was registered under the
Securities Act of 1933. As of June 30, 1996, RMI VII had made 221 Mortgage
Investments totaling $31,158,361. Of these Mortgage Investments, approximately
71 (thirty-seven percent (37%) of the total principal balance of all Mortgage
Investments) are first mortgages, 117 (fifty-nine percent (59%) of the total
principal balance of all Mortgage Investments) are second mortgages, 33 (four
percent (4%) of the total principal balance of all Mortgage Investments) are
third and fourth mortgages. Two are construction loans. The average size of the
Mortgage Investment is $140,988.
Redwood Mortgage Investors VI ("RMI VI") is a California limited
partnership of which D. Russell Burwell, Michael R. Burwell and Gymno
Corporation are the Co-General Partners. RMI VI was registered under the
Securities Act of 1933. As of December 31, 1995, RMI VI had a total
capitalization of $11,040,895 and 774 investors.
Redwood Mortgage Investors V ("RMI V") is a California limited partnership
of which D. Russell Burwell, Michael R. Burwell and Gymno Corporation are the
Co-General Partners. RMI V was qualified under California securities laws and a
permit allowing RMI V to offer and sell Units was issued by the Commissioner of
Corporations on September 15, 1986. As of June 30, 1996, RMI V had a total
capitalization of $4,525,792 and 399 investors.
Redwood Mortgage Investors IV ("RMI IV") is a California limited
partnership of which D. Russell Burwell, Michael R. Burwell and Gymno
Corporation are General Partners. RMI IV was qualified under California
securities laws and a permit allowing RMI IV to offer and sell units was issued
by the Commissioner of Corporations on October 2, 1984. The Commissioner of
Corporations subsequently extended the effectiveness of the RMI IV offering
permit until September 18, 1986. As of June 30, 1996, RMI IV had a total
capitalization of $8,168,440 and 711 investors.
<PAGE>
Redwood Mortgage Investors ("RMI") and Redwood Mortgage Investors II ("RMI
II") are California limited partnerships of which D. Russell Burwell, Michael R.
Burwell and Gymno Corporation are General Partners. Redwood Mortgage Investors
III ("RMI III") is also a California limited partnership of which D. Russell
Burwell, Michael R. Burwell and Gymno Corporation are General Partners. All
three of these partnerships were sold only to a limited number of selected
California residents in compliance with applicable federal and state securities
laws. As of June 30, 1996, RMI had 30 investors, RMI II had 36 investors and RMI
III had 87 investors. The RMI offering terminated on July 31, 1982, at which
time it had a total capitalization of approximately $1,090,916. The RMI II
offering terminated on June 30, 1983, at which time it had a total
capitalization of approximately $1,282,802. The RMI III offering terminated on
June 30, 1984, at which time it had a total capitalization of approximately
$1,429,624. This Partnership was re-offered in July, 1992, and as of June 30,
1996, additional contributions of $838,800, were received.
Corporate Mortgage Investors ("CMI") is a California limited partnership of
which D. Russell Burwell and A & B Financial Services, Inc. are the Co-General
Partners. The offering period for CMI commenced August 1, 1978, and interests in
CMI have been closed. The interest in CMI was offered and sold exclusively to
qualified pension and profit sharing plans and other institutional investors.
Commencing January 1, 1984, a segregated portfolio was created within CMI, into
which all new subscriptions received by CMI were placed. The two (2) Portfolios
within CMI were designated Portfolio I and Portfolio II, respectively. As of
June 30, 1996, the two portfolios that had been merged had total assets of
$1,735,506 and 134 investors.
The funds raised by these partnerships have been used to make loans secured
solely by deeds of trust. All loans are arranged and serviced by Redwood
Mortgage, for which it receives substantial compensation. All of these
partnerships will have funds to invest in loans at the same time as this
Partnership (See "CONFLICTS OF INTEREST - Interest in Other Partnerships").
Copies of audited financial statements for all prior partnerships are
available from the General Partners upon request and may be obtained upon
payment of a fee sufficient to cover copying costs. Any investor or prospective
investor who would like to receive such information, should contact D. Russell
Burwell, a General Partner of the Partnership at 650 El Camino Real, Suite G,
Redwood City, California 94063; (415) 365-5341. All of the foregoing
Partnerships have achieved their stated goals to date.
Additional Information. Certain additional information regarding the eight
partnerships whose investment objectives are similar to the Partnership's is set
forth in Appendix I in the Prior Performance Tables:
TABLE I Experience in Raising and Investing Funds.
TABLE II Compensation to General Partners and Affiliates.
TABLE III Operating Results of Prior Limited Partnerships.
TABLE V Payment of Mortgage Investments.
Table IV is not included herein because none of the partnerships
has completed its operations or disposed of all of its loans.
Table VI (Descriptions of Open Mortgage Investments of Prior Limited
Partnerships) is contained in Part II of the Registration Statement.
Upon request, the General Partners shall provide without charge a copy of
the most recent Form 10-K Annual Report filed with the Securities and Exchange
Commission by any prior public program that has reported to the Securities and
Exchange Commission within the last twenty-four months. Exhibits to any Annual
Report on Form 10-K may be obtained upon payment of a fee sufficient to cover
the copying costs.
<PAGE>
No Major Adverse Developments. There have been no major adverse business
developments or conditions experienced by any of the prior limited partnerships
that would be material to prospective investors in the Partnership. While the
Tax Reform Act of 1986 made a number of changes to the tax laws, some dealing
with limitations on interest deductions, it is not expected to have a material
adverse effect upon the performance of the prior limited partnerships. In fact,
since the deductibility of residential mortgage interest is one of the few
deductible items of interest remaining, the Tax Reform Act of 1986 may in fact
enhance the utility of residential mortgage loans of the type offered by these
limited partnerships.
Prior Public Partnerships. In addition to the Partnership, the General
Partners have previously sponsored two public partnership registered under the
Securities Act of 1933. These partnerships are RMI VI and RMI VII.
Three Year Summary of Mortgage Investments Originated by Prior Limited
Partnerships. During the three-year period ending June 30, 1996, Mortgage
Investments were made by prior programs with investment objectives similar to
those of the Partnership. The following table provides a summary of the Mortgage
Investments originated for the three-year period as of June 30, 1996. The last
column of the following chart reflects total Mortgage Investment balances on all
loans for each prior program including those which originated prior to the three
(3) year period ending June 30, 1996. The following tables do not include
information regarding the Partnership and its existing Mortgage Investment
portfolio.
<TABLE>
- ------------------------- ---------------- ---------------------------- -------
Name of Number of Estimated Total Outstanding Mortgage Total
Partnership Mortgage Amount of Investment Balances Outstanding
Investments Mortgage Originated 7/1/93 to Mortgage
Investment 6/30/96 Investments
as of
06/30/96
<CAPTION>
- ------------------------- ---------------- ---------------------------- -------
<S> <C> <C> <C> <C>
CMI ................ 20 $ 1,833,266.67 $ 1,227,711.55 $ 1,647,476.61
- --------------------- --- -------------- -------------- --------------
RMI ................ 17 $1,308,542.94 $ 863,255.49 $ 1,138,168.22
- -------------------- --- -------------- -------------- --------------
RMI II ............. 15 $1,088,733.18 $ 445,064.77 $ 725,978.94
- -------------------- --- -------------- -------------- --------------
RMI III ............ 10 $ 820,383.27 $ 796,568.73 $ 1,244,106.12
- -------------------- --- -------------- -------------- --------------
RMI IV ............. 28 $6,515,657.58 $ 4,839,848.80 $ 8,344,059.66
- -------------------- --- -------------- -------------- --------------
RMI V .............. 20 $1,984,598.35 $ 1,507,214.52 $ 3,698,939.83
- -------------------- --- -------------- -------------- --------------
RMI VI ............. 33 $7,835,488.84 $ 5,328,453.81 $ 9,879,967.86
- -------------------- --- -------------- -------------- --------------
RMI VII ............ 48 $14,858,725.21 $ 7,944,672.89 $ 12,156,040.77
- -------------------- --- -------------- -------------- --------------
TOTAL .............. 191 $36,245,396.04 $ 22,952,790.56 $ 38,834,738.01
- -------------------- --- -------------- -------------- --------------
</TABLE>
<PAGE>
A further breakdown of these Mortgage Investments according to the type of
deed of trust, the location of the property securing the Mortgage Investments,
and the type of property securing the Mortgage Investment is provided below:
Loans
First Trust Deeds $17,771,450.00
Second Trust Deeds 17,519,946.04
Third Trust Deeds 554,000.00
Fourth Trust Deeds 400,000.00
Total $36,245,396.04
==================
Location of Loans
Santa Clara County $10,010,312.62
San Mateo County 5,883,925.00
Alameda County 5,430,458.42
San Francisco County 4,587,750.00
Stanislaus 3,478,750.00
Contra Costa County 3,088,000.00
Santa Barbara 525,000.00
Sonoma 409,500.00
Marin 400,500.00
Monterey 397,000.00
Sacramento County 355,000.00
Mendocino 300,000.00
San Joaquin 275,000.00
Yuba 269,000.00
Shasta 225,000.00
San Luis Obispo 200,000.00
Santa Cruz County 100,000.00
Solano 60,000.00
Other Counties * 250,200.00
------------------
Total $36,245,396.04
==================
Type of Property
Owner Occupied Homes $4,273,069.04
Non-Owner Occupied 3,044,000.00
Commercial 20,482,077.00
Raw Land 3,250,500.00
Apartments 5,195,750.00
------------------
Total $36,245,396.04
==================
*El Dorado
*Napa
*Mariposa
*Amador
<PAGE>
MANAGEMENT
General. The General Partners will be responsible for the management of the
proceeds of the offering and the investments of the Partnership. Services
performed by the General Partners include, but are not limited to:
implementation of Partnership investment policies; identification, selection and
extension of Mortgage Investments, preparation and review of budgets, cash flow
and taxable income or loss projections and working capital requirements;
periodic physical inspections and market surveys, supervision of any necessary
litigation; preparation and review of Partnership reports, communications with
Limited Partners; supervision and review of Partnership bookkeeping, accounting
and audits; supervision and review of Partnership state and federal tax returns;
and supervision of professionals employed by the Partnership in connection with
any of the foregoing, including attorneys and accountants. The General Partners
may be removed by a majority of the Limited Partners (See "SUMMARY OF THE
LIMITED PARTNERSHIP AGREEMENT - Rights and Liabilities of the Limited
Partners").
D. Russell Burwell. D. Russell Burwell, age 64, General Partner, Director
(1978-present) and President (1979-present) of Redwood Home Loan Co.; Director
(1978-present) and President (1979-present) of A & B Financial Services, Inc., a
finance company; Director (since 1986) and president (since 1986) of Gymno
Corporation. Mr. Burwell is licensed as a real estate sales person and is the
majority owner of The Redwood Group, Ltd. (described below). Mr. Burwell is the
father of Michael R. Burwell (described below).
Michael R. Burwell. Michael R. Burwell, age 40, General Partner, past
member of Board of Trustees and Treasurer, Mortgage Brokers Institute
(1984-1986); Director, Chief Financial Officer, Secretary, and Treasurer Redwood
Home Loan Co. (1979-present); Director, Secretary and Treasurer A & B Financial
Services, Inc. (1980-present); Director, Chief Financial Officer and Secretary
(since 1986) of Gymno Corporation; Director, Secretary and Treasurer of The
Redwood Group, Ltd. (1979-present). Mr. Burwell is licensed as a real estate
sales person. He is the son of D. Russell Burwell (described above).
Gymno Corporation. Gymno Corporation, General Partner, is a California
corporation formed in 1986 for the purpose of acting as a general partner of
this Partnership and of other limited partnerships formed by the individual
General Partners. D. Russell Burwell and Michael R. Burwell are equal (i.e.,
50-50) shareholders of Gymno Corporation. D. Russell Burwell and Michael R.
Burwell are Gymno's Directors; D. Russell Burwell is its President and Michael
R. Burwell is its Chief Financial Officer and Secretary.
The General Partners have represented that they have a combined net worth
of in excess of $1,000,000 determined on a GAAP basis. Audited financial
statements for Gymno Corporation are set forth hereafter. (See "CONFLICTS OF
INTEREST - Interest in other Partnerships" and "RISK FACTORS - Net Worth of
General Partners").
Redwood Mortgage. Redwood Mortgage is a licensed real estate broker
incorporated in 1978 under the laws of the State of California, and is engaged
primarily in the business of arranging and servicing mortgage loans. Redwood
Mortgage will act as the loan broker and servicing agent in connection with
Mortgage Investments, as it has done on behalf of several other limited
partnerships formed by the General Partners (See "PRIOR PERFORMANCE SUMMARY").
Redwood Mortgage is a subsidiary of The Redwood Group, Ltd.
The Redwood Group, Ltd. The Redwood Group, Ltd., a California corporation,
is a diversified financial services company specializing in various aspects of
the mortgage lending and investment business. Its various subsidiaries have
arranged over $400,000,000 in loans secured in whole or in part by first, second
and third deeds of trust. Its subsidiaries include Redwood Mortgage and A & B
Financial Services, Inc. D. Russell Burwell, one of the General Partners, is the
majority shareholder of The Redwood Group, Ltd.
Theodore J. Fischer. Theodore J. Fischer, age 47, Director and Vice
President of Redwood Home Loan Co. (1980-present); licensed real estate broker
(1979-present); Assistant Vice President, Western Title Insurance Co.
(1977-1980); Business Development representative, Transamerica Title Insurance
Co. (1976-1977).
<PAGE>
SELECTED OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person or entity owns beneficially more than five percent (5%) of the
ownership interest in the Partnership. The following tables sets forth the
beneficial ownership interests in the Partnership as of June 30, 1996, by (i)
each General Partner of the Partnership and (ii) all General Partners as a
group.
Amount of
Beneficial Percent
Title of Class Name and Address Ownership of Class
Units Gymno Corporation, $12,578 1/10 of 1%
650 El Camino Real,
Suite G, Redwood City,
California 94063(1)
D. Russell Burwell, $0 0%
650 El Camino Real,
Suite G, Redwood City,
California 94063
Michael R. Burwell, $0 0%
650 El Camino Real,
Suite G, Redwood City,
California 94063
All General Partners $12,578 1/10 of 1%
as a group
(1) Gymno Corporation is owned fifty percent (50%) by D. Russell Burwell
and fifty percent (50%) by Michael R. Burwell (See "MANAGEMENT").
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
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As of and for the Year ended December 31
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1996 1995 1994 1993
As of June 30, 1996
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Loans secured by trust deeds ............................ $ 14,196,953 12,047,252 6,484,707 2,336,674
Less: Allowance for loan losses ......................... $ (86,505) (39,152) (13,120) 0
Real estate held for Sale ............................... 0 0 0 0
Cash, cash equivalents and other assets ................. $ 1,754,518 1,376,237 1,008,205 414,178
Total assets ............................................ $ 15,864,966 13,384,337 7,479,792 2,750,852
Liabilities ............................................. $ 2,908,000 1,914,010 189,300 128,772
Partners capital
General partners ...................................... $ 12,578 11,325 7,737 2,887
Limited partners ...................................... $ 12,944,388 11,459,002 7,282,755 2,619,193
Total partners capital ............................... $ 12,956,966 11,470,327 7,290,492 2,622,080
Total liabilities/partners capital ................... $ 15,864,966 13,384,337 7,479,792 2,750,852
Revenues ................................................ $ 744,289 964,780 468,546 113,476
Operating expenses
Promotional interest ................................. 0 0 0 0
Management fee ....................................... $ 7,760 11,587 5,906 192
Provisions for losses on loans ....................... $ 19,085 26,032 13,120 0
Provisions for losses on real estate held for
sale ............................................... $ 0 0 0
0
Other ................................................ $ 156,810 90,328 39,651 8,269
Net income ............................................ $ 560,634 836,833 409,869 105,015
Net income allocated to General Partners ............. $ 5,606 8,368 4,099 1,050
Net income allocated to Limited Partners ............. $ 555,028 828,465 405,770 103,965
Net income per $1,000 invested by Limited
Partners for entire period:
- where income in reinvested and compounded ........... $ 41 83 81 85
- where partner receives income in monthly
distributions .................................... $ 40 80 79 83
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ORGANIZATIONAL CHART
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THE REDWOOD GROUP, INC.
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D. RUSSELL BURWELL (1)
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REDWOOD MORTGAGE (2) A & B FINANCIAL
SERVICES, INC. (2)
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GYMNO CORPORATION
(Corporate General Partner)
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D. RUSSELL BURWELL (3) MICHAEL R. BURWELL (3)
(Individual General Partner) (Individual General Partner)
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PARTNERSHIPS WE MANAGE
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CORPORATE MORTGAGE INVESTORS
REDWOOD MORTGAGE INVESTORS
REDWOOD MORTGAGE INVESTOR II
REDWOOD MORTGAGE INVESTORS III
REDWOOD MORTGAGE INVESTORS IV
REDWOOD MORTGAGE INVESTOR V
REDWOOD MORTGAGE INVESTORS VI
REDWOOD MORTGAGE INVESTORS VII
REDWOOD MORTGAGE INVESTOR VIII
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(1) D. Russell Burwell is the majority shareholder of The Redwood Group,
Inc.
(2) Redwood Mortgage and A&B Financial Services, Inc. Are subsidiaries of
The Redwood Group, Inc.
(3) D. Russell Burwell and Michael R. Burwell are the sole shareholders of
Gymno Corporation.
<PAGE>
INVESTMENT OBJECTIVES AND CRITERIA
Principal Objectives. The Partnership is in the business of extending loans
to the general public secured by first and junior deeds of trust on real
property. The Partnership has been operating for three years and has made
Mortgage Investments in the aggregate in excess of $22,000,000. The General
Partners have not yet identified nor committed to make any Mortgage Investments
from the proceeds of this Offering and, as of the date of the Prospectus, have
not entered into any negotiations with respect to extending any Mortgage
Investments. The Partnership's primary objectives are to:
1. Yield a high rate of return from mortgage lending; and
2. Preserve and protect the Partnership's capital.
Investors should not expect the Partnership to provide tax benefits of the
type commonly associated with limited partnership tax shelter investments. The
Partnership is intended to serve as an investment alternative for investors
seeking current income. However, unlike other investments which are intended to
provide current income, an investment in the Partnership will be less liquid,
not readily transferable, and not provide a guaranteed return over its
investment life. The foregoing objectives of the Partnership will not change,
however, the Limited Partnership Agreement does provide that the General
Partners shall have sole and complete charge of the affairs of the Partnership
and shall operate the business for the benefit of all partners.
General Standards for Mortgage Investments. The Partnership is engaged in
the business of making loans to members of the general public which will
generally be secured by deeds of trust on real property, including single-family
residences (including homes, condominiums and townhouses), multiple unit
residential property (such as apartment buildings), commercial property (such as
stores, shops and offices), and unimproved land. Based on prior experience, the
General Partners anticipate that of the number of Mortgage Investments made,
approximately forty percent to sixty percent (40%-60%) of the total dollar
amount of Mortgage Investments will be secured by single family residences,
twenty percent to fifty percent (20%-50%) by commercial properties, ten percent
to twenty percent (10%-20%) by apartments, and one percent to ten percent
(1%-10%) by unimproved land. As of June 30, 1996, of the Partnership's
outstanding Mortgage Investment portfolio twenty-nine percent (29%) is secured
by single family residences, fifty-two percent (52%) by commercial properties,
seventeen percent (17%) by multi-unit properties and two percent (2%) by
unimproved land. The Partnership will also make Mortgage Investments secured by
promissory notes which will be secured by deeds of trust and shall be assigned
to the Partnership. The Partnership's Mortgage Investments will not be insured
by the Federal Housing Administration or guaranteed by the Veterans
Administration or otherwise guaranteed or insured. With the exception of the
Formation Loan to be made to Redwood Mortgage for the purpose of paying certain
of the Partnership's syndication expenses, Mortgage Investments will be made
pursuant to a set of guidelines designed to set standards for the quality of the
security given for the Mortgage Investments, as follows:
1. Priority of Mortgages. The lien securing each Mortgage Investment will
not be junior to more than two other encumbrances (a first and, in some cases a
second deed of trust) on the real property (the "security property") which is to
be used as security for the loan. Although the Partnership may also make
wrap-around (or "all-inclusive") Mortgage Investment, those wrap-around Mortgage
Investments will include no more than two (2) underlying obligations (See
"CERTAIN LEGAL ASPECTS OF Mortgage Investments - Special Considerations in
Connection with Junior Encumbrances"). The General Partners anticipate that the
Partnership's Mortgage Investments will be diversified as to priority
approximately as follows: first mortgages - thirty-five percent (35%); second
mortgages - sixty percent (60%); third mortgages - five percent (5%). As of June
30, 1996, of the Partnership's outstanding Mortgage Investment portfolio,
forty-two percent (42%) were secured by first mortgages, fifty-six percent (56%)
by second mortgages and two percent (2%) by third mortgages.
2. Geographic Area of Lending Activity. The Partnership will continue to
generally limit lending to Deeds of Trust on properties located in California.
Approximately eighty percent (80%) of the Partnership's Mortgage Investments are
secured by Deeds of Trust on properties in six San Francisco Bay Area counties
and the General Partners anticipate that this will continue in the future. These
counties, which have an aggregate population of over 3.5 million, are Santa
Clara, San Mateo, San Francisco, Alameda , Contra Costa and Marin. The economy
of the area where the security is located is important in protecting market
values. Therefore, the General Partners will limit the largest percentage of its
lending activity principally to the San Francisco Bay Area since it has a broad
diversified economic base, an expanding working population and a minimum of
buildable sites. The General Partners believe these factors contribute to a
stable market for residential property. Although, the real estate market in
Northern California, like most of the country, had fallen off during the early
1990's, the market appears to be recovering, the General Partners believe the
strength of the economy of Northern California, especially in the Bay Area, will
continue to protect market values. Although the General Partners anticipate that
the Partnership's primary area of lending will continue to be Northern
California, as the remainder of California economy continues its recovery the
General Partners may elect to make Mortgage Investments secured by real property
located throughout California.
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A wide variety of indicators suggest that economic growth in California was
strong in the first half of 1996. Statistics on the California labor market,
personal income, consumer spending, firm formation and housing markets all point
to large gains in economic activity this year. Strength in business and real
estate loan demand contributed to a large increase in lending by California
banks in April and May. This increase is reflected in a 16.5% increase in home
sales volume in California on the first quarter, relative to a year earlier. The
largest gains were in the San Francisco Bay Area, where sales were almost
twenty-five percent (25%) higher than a year earlier. Home sales in San Mateo
County were sixty-four percent (64%) higher in May over the same month last
year. Sales in Alameda County were up 21.7% over the year. In the San Francisco
Bay Area, the median single-family home price increased about three percent (3%)
over the year ending in the first quarter. Although it is too early to declare
that the California housing industry has recovered completely, rapid economic
growth, job growth, decrease in unemployment rates, increase retail sales
suggest that the California real estate market will remain strong.
3. Construction Mortgage Investments. The Partnership may make construction
loans (other than home improvement loans on residential property) up to a
maximum of ten percent (10%) of the Partnership's Mortgage Investment portfolio.
As of June 30, 1996, nine percent (9%) of the Partnership's Mortgage Investment
consisted of construction loans. In no event will the loan-to-value ratio on
construction loans exceed eighty percent (80%) of the independently appraised
completed value of the property. The Partnership will not make loans secured by
properties determined by the General Partners to be Special-Use Properties.
4. Loan-to-Value Ratio. The amount of the Partnership's Mortgage Investment
combined with the outstanding debt secured by a senior deed of trust on the
security property generally will not exceed a specified percentage of the
appraised value of the security property as determined by independent written
appraisal at the time the loan is made, according to the following table:
Type of Security Property Loan to-Value Ratio
Residential 80%
Commercial Property 70%
(including retail stores and office buildings)
Unimproved Land 50%
Any of the above loan-to-value ratios may be increased if, in the sole
discretion of the General Partners, a given loan is supported by credit adequate
to justify a higher loan-to-value ratio. In addition, such loan-to-value ratios
may be increased by ten percent (10%) (e.g., to ninety percent (90%) for
residential property), to the extent mortgage insurance is obtained; however,
the General Partners do not anticipate obtaining mortgage insurance. Finally,
the foregoing loan-to-value ratios will not apply to purchase-money financing
offered by the Partnership to sell any real estate owned (acquired through
foreclosure) or to refinance an existing loan that is in default at the time of
maturity. In such cases, the General Partners shall be free to accept any
reasonable financing terms that they deem to be in the best interests of the
Partnership, in their sole discretion. Notwithstanding the foregoing, in no
event will the loan-to-value ratio on construction loans exceed eighty percent
(80%) of the independently appraised completed value of the property. The target
loan-to-value ratio for Partnership Mortgage Investments as a whole is
approximately seventy percent (70%).
The Partnership will receive an independent appraisal for such security
property on which it will make a mortgage loan. Generally, appraisers retained
by the Partnership shall be licensed or qualified as independent appraisers and
be certified by or hold designations from one or more of the following
organizations: The Federal National Mortgage Association ("FNMA"), the Federal
Home Loan Mortgage Corporation ("FHLMC"), the National Association of Review
Appraisers, the Appraisal Institute, the Society of Real Estate Appraisers,
M.A.I., Class IV Savings and Loan appraisers or other qualifications acceptable
to the General Partners. The General Partners will review each appraisal report
and will conduct a "drive-by" for each property on which an appraisal is made. A
"drive by" means the General Partners or their Affiliates will drive to the
property and assess the front exterior of the subject property, the adjacent
properties and the neighborhood. A "drive by" does not include entering any
structures on the property, however, in most cases the General Partners do enter
the structures on the property.
<PAGE>
5. Terms of Mortgage Investments. Most Mortgage Investments will be for a
period of one to ten years, but in no event more than fifteen (15) years. Most
Mortgage Investments will provide for monthly payments of principal and/or
interest, with many Mortgage Investments providing for payments of interest only
or are only partially amortizing with a "balloon" payment of principal payable
in full at the end of the term. Some Mortgage Investments will provide for the
deferral and compounding of all or a portion of accrued interest for various
periods of time.
6. Equity Interests in Real Property. Most Mortgage Investments will
provide for interest rates comparable to second mortgage rates prevailing in the
geographical area where the security property is located. However, the General
Partners reserve the right to make Mortgage Investments (up to a maximum of
twenty-five percent (25%) of the Partnership's Mortgage Investment portfolio)
bearing a reduced stated interest rate in return for an interest in the
appreciation in value of the security property during the term of the Mortgage
Investment (See "CONFLICTS OF INTEREST - Loan Brokerage Commissions").
7. Escrow Conditions. Mortgage Investments will be funded through an escrow
account handled by a title insurance company or by Redwood Mortgage, subject to
the following conditions:
(a) Satisfactory title insurance coverage will be obtained for all loans,
with the title insurance policy naming the Partnership as the insured and
providing title insurance in an amount at least equal to the principal amount of
the loan. (Title insurance insures only the validity and priority of the
Partnership's deed of trust, and does not insure the Partnership against loss by
reason of other causes, such as diminution in the value of the security
property, over appraisals, etc.).
(b) Satisfactory fire and casualty insurance will be obtained for all
loans, naming the Partnership as loss payee in an amount equal to cover the
replacement cost of improvements (See "RISK FACTORS - Uninsured Losses").
(c) The General Partners do not intend to arrange for mortgage insurance,
which would afford some protection against loss if the Partnership foreclosed on
a loan and there were insufficient equity in the security property to repay all
sums owed. If the General Partners determine in their sole discretion to obtain
such insurance, the minimum loan-to-value ratio for residential property loans
will be increased (See Paragraph 4 above).
(d) All loan documents (notes, deeds of trust, escrow agreements, and any
other documents needed to document a particular transaction or to secure the
loan) and insurance policies will name the Partnership as payee and beneficiary.
Mortgage Investments will not be written in the name of the General Partners,
Redwood Mortgage or any other nominee.
8. Loans to General Partners and Affiliates. Although the Partnership may
loan funds to the General Partners or their Affiliates, no such loans have been
made to date. However, the Partnership will make the Formation Loan (see below)
to Redwood Mortgage and may, in certain limited circumstances, loan funds to
Affiliates, to among other things, purchase real estate owned by the Partnership
as a result of foreclosure.
9. Purchase of Mortgage Investments from Affiliates and Other Third
Parties. Existing Mortgage Investments may be purchased, from the General
Partners, their affiliates or other third parties, only so long as any such
Mortgage Investment is not in default and otherwise satisfies all of the
foregoing requirements; provided, the General Partners and their affiliates will
sell no more than a ninety percent (90%) interest and retain a ten percent (10%)
interest in any Mortgage Investment sold to the Partnership which they have held
for more than 180 days. In such case, the General Partners and affiliates will
hold their ten percent (10%) interest and the Partnership will hold its ninety
percent (90%) interest in the Mortgage Investment as tenants in common. The
purchase price to the Partnership for any such Mortgage Investment will not
exceed the par value of the note or its fair market value, whichever is lower.
10. Note Hypothecation. The Partnership also may make Mortgage Investments
which will be secured by assignments of secured promissory notes. The amount of
a Mortgage Investment secured by an assigned note will satisfy the loan-to-value
ratios set forth in Paragraph 4 above (which are determined as a specified
percentage of the appraised value of the underlying property) and also will not
exceed eighty percent (80%) of the principal amount of the assigned note. For
example, if the property securing a note is commercial property, the total
amount of outstanding debts secured by such property, including the debt
represented by the assigned note and any senior mortgages, must not exceed
seventy percent (70%) of the appraised value of such property, and the Mortgage
Investment will not exceed eighty percent (80%) of the principal amount of the
assigned note. For purposes of making Mortgage Investments secured by promissory
notes, the Partnership shall rely on the appraised value of the underlying
property, as determined by an independent written appraisal which was conducted
within the last twelve (12) months, or if such appraisal was not conducted
within the last twelve months, then the Partnership will arrange for a new
appraisal to be prepared for the property. All such appraisals will satisfy the
standards described in Paragraph 4 above. Any Mortgage Investment evidenced by a
note assigned to the Partnership will also satisfy all other lending standards
and policies described herein. Concurrently with the Partnership's making of the
Mortgage Investment, the borrower of Partnership funds, i.e., the holder of the
promissory note, shall execute a written assignment which shall assign to the
Partnership his/its interest in the promissory note. No more than twenty percent
(20%) of the Partnership's portfolio at any time will be secured by promissory
notes.
<PAGE>
11. Joint Venturers. The Partnership may also participate in loans with
other lenders (including certain Affiliates or other limited partnerships
organized by the General Partners), other individuals and pension funds, by
providing funds for or purchasing a fractional undivided interest in a loan
meeting the requirements set forth above. Because the Partnership will not
participate in a loan in which would not otherwise meet its requirements, the
risk of such participation is minimized.
12. Diversification. The maximum investment by the Partnership in a
Mortgage Investment will not exceed the greater of (a) $50,000, or (b) ten
percent (10%) of the then total Partnership assets (See Joint Venturers, above).
13. Reserve Fund. A contingency reserve fund equal to three percent (3%) of
the Gross Proceeds of the offering will be established for the purpose of
covering unexpected cash needs of the Partnership.
Credit Evaluations. The General Partners may consider the income level and
general creditworthiness of a borrower to determine his ability to repay the
Mortgage Investment according to its terms, but such considerations are
subordinate to a determination that a borrower has sufficient equity in the
security property to satisfy the loan-to-value ratios described above.
Therefore, Mortgage Investments may be made to borrowers who are in default
under other of their obligations (e.g., to consolidate their debts) or who do
not have sources of income that would be sufficient to qualify for loans from
other lenders such as banks or savings and loan associations.
Loan Brokerage Commissions. Redwood Mortgage, an affiliate of the General
Partners, will receive Loan Brokerage Commissions for services rendered in
connection with the review, selection, evaluation, negotiation and extension of
the Mortgage Investments from borrowers. Redwood Mortgage anticipates that Loan
Brokerage Commissions will average approximately three to six percent (3-6%) of
the principal amount of each Mortgage Investment, but may be higher or lower
depending upon market conditions. The Loan Brokerage Commission will be limited
to four percent (4%) per annum of the Partnership's total assets. The Loan
Brokerage Commissions will be paid by the borrower through the title company or
escrow agent at the close of escrow.
Loan Servicing. It is anticipated that all Mortgage Investments will be
"serviced" (i.e., loan payments will be collected) by Redwood Mortgage, an
affiliate of the General Partners which will also act as a loan broker in the
initial placement of Mortgage Investments. Redwood Mortgage will be compensated
for such loan servicing activities (See "COMPENSATION TO GENERAL PARTNERS AND
AFFILIATES"). Both Redwood Mortgage and the Partnership have the right to cancel
this servicing agreement and any other continuing business relationships that
may exist between them upon 30 days notice.
Borrowers will make interest payments in arrears, i.e., with respect to the
preceding 30-day period, and will make their checks payable to Redwood Mortgage.
Checks will be deposited in Redwood Mortgage's trust account, and, after checks
have cleared, funds will be transferred to the Partnership's bank or money
market account.
Sale of Mortgage Investments. Although, the Partnership has not done so in
the past, the Partnership or its Affiliates may sell Mortgage Investments to
third parties including affiliated parties (or fractional interests therein) if
and when the General Partners determine that it appears to be advantageous to do
so.
Borrowing. The Partnership will borrow funds for Partnership activities and
may assign all or a portion of its Mortgage Investment portfolio as security for
such loan(s). As of September 30, 1996, the Partnership has borrowed up to
$2,892,000 pursuant to $3,000,000 line of credit. The General Partners
anticipate engaging in this type of transaction when the interest rate at which
the Partnership can borrow funds is somewhat less than the rate that can be
earned by the Partnership on its Mortgage Investments, giving the Partnership
the opportunity to earn a profit on this "spread." Such a transaction involves
certain elements of risk and also entails possible adverse tax consequences (See
"RISK FACTORS - Use and Risk of Leverage" and "FEDERAL INCOME TAX CONSEQUENCES -
Investment by Tax-Exempt Investors"). It is the General Partners present
intention to finance no more than fifty percent (50%) of the Partnership's
investments with borrowed funds. (See "RISK FACTORS - Risks Relating to Creation
of Unrelated Business Taxable Income").
Other Policies. The Partnership shall not: (i) issue senior securities,
(ii) invest in the securities of other issuers for the purpose of exercising
control, (iii) underwrite securities of other issuers, or (iv) offer securities
in exchange for property. If the Partnership anticipates that it will become,
through foreclosure or otherwise, the owner of property that is subject to a
high degree of risk, including without limitation, property subject to hazardous
or toxic cleanup, prolonged construction or other risk, the General Partners
may, in their discretion, seek to transfer or sell the Mortgage Investment to an
affiliated or unaffiliated entity with the expertise to manage the attendant
risk.
<PAGE>
CERTAIN LEGAL ASPECTS OF MORTGAGE INVESTMENTS
Each of the Partnership's Mortgage Investments (except the Formation Loan
to Redwood Mortgage) will be secured by a deed of trust, the most commonly used
real property security device in California. The following discusses certain
legal aspects of the Mortgage Investments with respect to Federal and California
law only. The deed of trust (also commonly referred to as a mortgage) creates a
lien on the real property. The Parties to a deed of trust are: the
debtor-trustor, a third-party grantee called the "trustee", and the
lender-creditor called the "beneficiary." The trustor grants the property,
irrevocably until the debt is paid, "in trust, with power of sale" to the
trustee to secure payment of the obligation. The trustee has the authority
granted by law, by the express provisions of the deed of trust and by the
directions of the beneficiary. The Partnership will be a beneficiary under all
deeds of trust securing Mortgage Investments.
Foreclosure. Foreclosure of a deed of trust is accomplished in most cases
by a nonjudicial trustee's sale under the power-of-sale provision in the deed of
trust. Prior to such sale, the trustee must record a notice of default and send
a copy to the trustor, to any person who has recorded a request for a copy of a
notice of default and notice of sale, to any successor in interest to the
trustor and to the beneficiary of any junior deed of trust. The trustor or any
person having a junior lien or encumbrance of record may, until five business
days before the date a foreclosure sale is held, cure the default by paying the
entire amount of the debt then due, exclusive of principal due only because of
acceleration upon default, plus costs and expenses actually incurred in
enforcing the obligation and statutory limited attorneys and trustee's fees.
After the notice of default is recorded and following a three (3) month notice
period and at least 20 days before the trustee's sale, notice of sale must be
posted in a public place and published once a week over such period. A copy of
the notice of sale must be posted on the property, and sent to the trustor, to
each person who has requested a copy, to any successor in interest to the
trustor and to the beneficiary of any junior deed of trust, at least 20 days
before the sale. Following the sale, neither the debtor-trustor nor a junior
lienholder has any right of redemption, and the beneficiary may not obtain a
deficiency judgment against the trustor.
A judicial foreclosure (in which the beneficiary's purpose is usually to
obtain a deficiency judgment where otherwise available in the case of
non-residential or commercial property) is subject to most of the delays and
expenses of other lawsuits, sometimes requiring up to several years to complete.
Following a judicial foreclosure sale, the trustor or his successors in interest
will have certain rights to redeem the Property. However, such redemption rights
will not be available if the creditor waives the right to any deficiency.
Foreclosed junior lienholders do not have a right to redeem the Property after a
Judicial foreclosure sale. The Partnership generally will not pursue a judicial
foreclosure to obtain a deficiency judgment, except where, in the sole
discretion of the General Partners, such a remedy is warranted in light of the
time and expense involved.
Tax Liens. Any liens for federal or state taxes filed after a loan is made
which is secured by a junior deed of trust will be junior in priority to rights
of the senior lienholder and any junior lienholders. Accordingly, the filing of
federal or state tax lien will not effect the priority of the Partnership's deed
of trust, regardless of whether it is a senior or junior deed of trust. Real
property tax liens will be in all instances a lien senior to any deed of trust
given by borrowers. Accordingly, even if the Partnership is the senior
lienholder, if a real property tax lien is filed, the Partnership's deed of
trust will be junior to the real property tax lien. For a discussion of the
effect of a junior lien see "SPECIAL CONSIDERATIONS IN CONNECTION WITH JUNIOR
ENCUMBRANCES".
Anti-Deficiency Legislation. California has four principal statutory
prohibitions which limit the remedies of a beneficiary under a deed of trust.
Two statutes limit the beneficiary's right to obtain a deficiency judgment
against the trustor following foreclosure of a deed of trust, one based on the
method of foreclosure and the other on the type of debt secured. Under one
statute, a deficiency judgment is barred where the foreclosure was accomplished
by means of a nonjudicial trustee's sale. It is anticipated that most of the
Partnership's Mortgage Investments will be enforced by means of a nonjudicial
trustee's sale, if foreclosure becomes necessary, and, therefore, a deficiency
judgment may not be obtained. However, it is possible that some of the
Partnership's Mortgage Investments will be enforced by means of judicial
trustee's sale. Under the other statute, a deficiency judgment is barred in any
event where the foreclosed deed of trust secured a "purchase money" obligation.
With respect to Mortgage Investments, a promissory note evidencing a loan used
to pay all or a part of the purchase price of a residential property occupied,
at least in part, by the purchaser, will be a purchase money obligation. Thus,
under either statute, the Partnership will not be able to seek a deficiency
judgment.
<PAGE>
Another statute, commonly know as the "one form of action" rule, provides
that the beneficiary commence an action to exhaust the security under the deed
of trust by foreclosure before a personal action may be brought against the
borrower. The fourth statutory provision limits any deficiency judgment obtained
by the beneficiary following a judicial sale to the excess of the outstanding
debt over the fair market value of the property at the time of sale, thereby
preventing a beneficiary from obtaining a large deficiency judgment against the
debtor as a result of low bids at the judicial sale.
Other matters, such as litigation instituted by a defaulting borrower or
the operation of the federal bankruptcy laws, may have the effect of delaying
enforcement of the lien of a defaulted loan and may in certain circumstances
reduce the amount realizable from sale of a foreclosed property.
Special Considerations in Connection with Junior Encumbrances. In addition
to the general considerations concerning trust deeds discussed above, there are
certain additional considerations applicable to second and third deeds of trust
("junior encumbrances). By its very nature, a junior encumbrance is less secure
than more senior ones. Only the holder of a first trust deed is permitted to bid
in the amount of his credit at his foreclosure sale; junior lienholders must bid
cash. If a senior lienholder forecloses on its loan, unless the amount of the
bid exceeds the senior encumbrances, the junior lienholders will receive
nothing. However, in that event the junior lienholder may have a personal action
against the borrower to enforce the promissory note.
Accordingly, a junior lienholder (such as the Partnership) will in most
instances be required to protect its security interest in the property by taking
over all obligations of the trustor with respect to senior encumbrances while
the junior lien holder commences his foreclosure, making adequate arrangements
either to (i) find a purchaser of the property at a price which will recoup the
junior lienholders interest or (ii) to pay off the senior encumbrances so that
his encumbrance achieves first priority. Either alternative will require the
Partnership to make substantial cash expenditures to protect its interest (See
"RISK FACTORS - Loan Defaults and Foreclosures").
The Partnership may also make wrap-around mortgage loans (sometimes called
"all-inclusive loans"), which are junior encumbrances to which all the
considerations discussed above will apply. A wrap-around loan is made when the
borrower desires to refinance his property but does not wish to retire the
existing indebtedness for any reason, e.g., a favorable interest rate or a large
prepayment penalty. A wrap-around loan will have a principal amount equal to the
outstanding principal balance of the existing debts plus the amount actually to
be advanced by the Partnership. The borrower will then make all payments
directly to the Partnership, and the Partnership in turn will pay the holder of
the senior encumbrance(s). The actual yield to the Partnership under a
wrap-around mortgage loan will exceed the stated interest rate to the extent
that such rate exceeds the interest rate on the underlying senior loan, since
the full principal amount of the wrap-around loan will not actually be advanced
by the Partnership.
The Partnership will record a Request For Notice of Default at the time its
trust deed is recorded. This procedure entitles the Partnership to notice when
any senior lienholder files a Notice of Default and will provide more time to
make alternate arrangements to protect its security interest.
In the event the borrower defaults solely upon his debt to the Partnership
while continuing to perform with regard to the senior lienholder, the
Partnership (as junior lienholder) will foreclose upon its security interest in
the manner discussed above in connection with deeds of trust generally. Upon
foreclosure by a Junior Lienholder, the property remains subject to all liens
senior to the foreclosed lien. Thus, were the Partnership to purchase the
security property at its own foreclosure sale, it would acquire the property
subject to all senior encumbrances.
The standard form of deed of trust used by most institutional lenders, like
the one that will be used by the Partnership, confers on the beneficiary the
right both to receive all proceeds collected under any hazard insurance policy
and all awards made in connection with any condemnation proceedings, and to
apply such proceeds and awards to any indebtedness secured by the deed of trust,
in such order as the beneficiary may determine. Thus, in the event improvements
on the property are damaged or destroyed by fire or other casualty, or in the
event the property is taken by condemnation, the beneficiary under the
underlying first deed of trust will have the prior right to collect any
insurance proceeds payable under a hazard insurance policy and any award of
damages in connection with the condemnation, and to apply the same to the
indebtedness secured by the first deed of trust before any such proceeds are
applied to repay the Partnership's Mortgage Investment. Applicable case law,
however, has imposed upon the lender the good faith obligation to apply those
proceeds towards the repair of the Property in those situations.
"Due-on-Sale" Clauses. The Partnership's forms of promissory notes and
deeds of trust, like those of many lenders generally, contain "due-on-sale"
clauses permitting the Partnership to accelerate the maturity of a loan if the
borrower sells the property although some forms of the Partnership's promissory
notes and deeds of trust will permit assumption by a subsequent
<PAGE>
buyer, but do not usually contain "due-on-encumbrance" clauses which would
permit the same action if the borrower further encumbers the property (i.e.,
executes further deeds of trust). The enforceability of these types of clauses
has been the subject of several major court decisions and Congressional
legislation in recent years.
1. Due-on-Sale. Federal law now provides that, notwithstanding any contrary
preexisting state law, due-on-sale clauses contained in mortgage loan documents
are enforceable in accordance with their terms by any lender after October 15,
1985. Stephen C. Ryan & Associates, counsel for the Partnership, has advised
that under the Garn-St. Germain Act the Partnership will probably be entitled to
enforce the "due-on-sale" clause anticipated to be used in the deeds of trust
given to secure the Mortgage Investments. On the other hand, acquisition of a
property by the Partnership by foreclosure on one of its loans, may also
constitute a "sale" of the property, and would entitle a senior lienholder to
accelerate its loan against the Partnership. This would be likely to occur if
then prevailing interest rates were substantially higher than the rate provided
for under the accelerated loan. In that event, the Partnership may be compelled
to sell or refinance the property within a short period of time, notwithstanding
that it may not be an opportune time to do so.
2. Due-on-Encumbrance. With respect to mortgage loans on residential
property containing four or less units, federal and California law prohibits
acceleration of the loan merely by reason of the further encumbering of the
property (e.g., execution of a junior deed of trust). This prohibition does not
apply to mortgage loans on other types of property. Although most of the
Partnership's second mortgages will be on properties that qualify for the
protection afforded by federal law, some Mortgage Investments will be secured by
apartment buildings or other commercial properties. Second mortgage loans made
by the Partnership may trigger acceleration of senior loans on such properties
if the senior loans contain due-on-encumbrance clauses, although both the number
of such instances and the actual likelihood of acceleration is anticipated to be
minor. Failure of a borrower to pay off the accelerated senior loan would be an
event of default and subject the Partnership (as junior lienholder) to the
attendant risks (See "RISK FACTORS - Special Considerations in Connection with
Junior Encumbrances").
Prepayment Charges. Some Mortgage Investments originated by the Partnership
provide for certain prepayment charges to be imposed on the borrowers in the
event of certain early payments on the Mortgage Investments. Any prepayment
charges collected on Mortgage Investments will be retained by the Partnership.
Mortgage Investments secured by deeds of trust encumbering single-family
owner-occupied dwellings may be prepaid at any time, regardless of whether the
note and deed of trust so provides, but prepayments made in any 12-month period
during the first five years of the term of the loan which exceed twenty percent
(20%) of the original balance of the loan may be subject to a prepayment charge.
The law limits the prepayment charge in such loans to an amount equal to six
months advance interest on the amount prepaid in excess of the permitted twenty
percent (20%), or interest to maturity, whichever is less. If a loan that is
secured by residential property is being repaid because the lender has
accelerated the loan upon the sale of the property, California law does not
allow a prepayment penalty to be charged.
Real Property Mortgage Investments. California statutory law imposes
certain disclosure requirements with respect to loans arranged by a California
real estate broker and secured by residential property. However, those
requirements are applicable to loans that are in a lesser amount than the
anticipated Mortgage Investments. Notwithstanding the preceding, the Partnership
intends to make disclosures to borrowers that would satisfy these statutes to
the extent reasonably practicable, regardless of whether the statutes are
applicable to the relevant Mortgage Investments.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE PARTNERSHIP
Results of Operations. For the years ended December 31, 1994, and 1995,
and the six months ended June 30, 1996
The net income increase of $304,854 (290%) for the year ended December 31,
1994, $426,964 (104%) for the year ended December 31, 1995, and $197,540 (54%)
for the six month period ended June 30, 1996, as compared to the six month
period ended June 30, 1995, was primarily attributable to the increase in
Mortgage Investments held by the Partnership from $2,336,679 on December 31,
1993, to $6,484,707 as of December 31, 1994, and $12,047,252 as of December 31,
1995, and to $14,196,953 as of June 30, 1996, respectively. Net income was
reduced by $13,120 and $26,032 for the years ended December 31, 1994, and 1995,
respectively and by $19,085 for the six months ended June 30, 1996, so as to
provide a provision for doubtful accounts. The Partnership did not own any real
estate as of December 31, 1994, and 1995, or as of June 30, 1996. The
Partnership did allow a senior mortgage to foreclose out its secured position on
a Deed of Trust held by the Partnership as security for one of its Mortgage
Investments. The General Partners, in reviewing the Partnership's security at
the time of the senior lender's foreclosure, felt that the Partnership would
have a better chance to recover all or a portion of sums owed the Partnership in
a suit under the promissory note. As of June 30, 1996, the Partnership had
obtained a judgment against the borrower and was pursuing a collection action to
recover sums owed of approximately $72,866.
<PAGE>
The Partnership's ability to increase its Mortgage Investments was due to
an increase in the capital raised, the compounding of earnings by those Limited
Partners who have chosen to reinvest and by leveraging the Mortgage Investments
through the use of a credit line from a commercial bank. During the years ended
December 31, 1994 and 1995, and the six month period ended June 30, 1996, the
Partnership received new Capital Contributions of $4,508,824, $3,834,799, and
$1,254,945, respectively. Earnings compounded by Limited Partners totaled
$239,956, $525,551 and $341,223 for the years ended December 31, 1994, and 1995,
and the six months ended June 30, 1996. The Partnership obtained a line of
credit in 1995 and increased its ability to fund Mortgage Investments by
$3,000,000 at that time. As of December 31, 1995, and June 30, 1996, the
outstanding balance on the line of credit was $1,910,000 and $2,892,000,
respectively. The credit line has a fluctuating interest rate of 3/4 of one
percent (.75%) over the commercial bank's reference rate. At December 31, 1995,
and as of June 30, 1996, the interest rate on the credit line was nine and one
quarter percent (9.25%) and nine percent (9%), respectively. The Partnership's
average Mortgage Investment coupon rate, after reduction for loan servicing
fees, was 10.68% and 10.77% on December 31, 1995, and June 30, 1996, thereby
providing the Partnership with a borrowed funds spread of 1.43% and 1.77%
respectfully. The Partnership's average yield has remained relatively consistent
at 8.1%, 8.3% and 8.4% (annualized) for Limited Partners who elect to reinvest
Earnings for the years ending December 31, 1994, and 1995, and the six months
ended June 30, 1996. Limited Partners who have chosen to liquidate their
Earnings monthly have received a somewhat lower yield as they do not receive the
benefit of reinvested Earnings. Non-compounding Limited Partner yields were
7.9%, 8.0% and 8.1% (annualized) for the years ended December 31, 1994, and
1995, and the six months ended June 30, 1996. The yield represents the net
income of the Partnership after all expenses.
The Partnership is in the business of lending money secured by real
property. As a lender, the Partnership anticipates that it will experience
Mortgage Investment delinquencies. These delinquencies are anticipated to be at
a higher level than at banks and thrifts as these lenders are primarily credit
lenders while the Partnership is primarily an asset lender basing its loan
decisions primarily on the equity available to secure the mortgage investment.
Additionally, the Partnership began funding loans in the midst of a significant
economic downturn which caused significant value reductions in California real
estate. The Partnership's primary source of repayment, the Partnership's
securing real estate values, were adversely affected by the recent recession. In
some of the Partnership's lending areas, and on specific types of properties,
real estate values declined by as much as fifty percent (50%). Nevertheless, the
Partnership is experiencing loan delinquencies below the anticipated expected
range. The General Partners believe that the favorable delinquency rate being
experienced by the Partnership is in part due to diligent underwriting of the
Mortgage Investments funded by the Partnership. As of December 31, 1994, and
1995, and June 30, 1996, the Partnership's delinquency rate on loans late over
90 days was .96% ($62,486), 0% ($0.00) and 2.49% ($353,829), respectively. As of
December 31, 1994, and 1995, and June 30, 1996, the Partnership had outstanding
filed Notices of Default on one (1) Mortgage Investment ($62,486), no (0)
Mortgage Investments ($0.00), and two (2) Mortgage Investments ($353,829). As of
June 30, 1996, the Partnership had only completed one foreclosure wherein the
Partnership became the owner of the property at the Trustee's Sale. This
property was subsequently sold within the same quarter and at a net price
greater than the Partnership's net basis in the property.
Redwood Mortgage, the General Partner's affiliate which services the
Mortgage Investments charged monthly loan servicing fees of $85,456 and $67,389
for the year ended December 31, 1995, and the six months ended June 30, 1996.
These fees were at 1/12 of 1% (1% annually) and were less than the maximum
amount allowable. For the year ended December 31, 1994, the loan servicing fees
based upon a rate of 1/12 of 1% (1% annually) would have amounted to $44,405.
The actual charged loan servicing fees were $15,278, with the remainder waived.
These fees were less than the amount allowable. The General Partners may receive
a monthly Asset Management Fee equal to 1/32 of 1% (.03125% annually) of the
Partnership's net asset value. The charged fees of $5,906, $11,587, and $7,760
were less than the allowed Asset Management Fees of $17,718, $34,773, and
$23,280 for the years ended December 31, 1994, and 1995, and the six months
ended June 30, 1996, respectively. If the maximum fees allowed had been charged
the effect would have been a reduction in the Partnership's income and therefor
a reduction in the Limited Partner's yield. The General Partner has chosen to
reduce its fees in order to increase the yield to the Limited Partners. Income
has also been affected by the continuing heavy competition for good lending
opportunities, which has reduced borrowers' acceptable interest rates and fees.
PORTFOLIO REVIEW - For the years ended December 31, 1994, and 1995,
and the six months ended June 30, 1996
Loan Portfolio
The Partnership has placed a total of 88 Mortgage Investments since it
began investing in Mortgage Investments in April of 1993. The outstanding number
of Mortgage Investments increased to $6,484,707, $12,047,252 and $14,196,953 as
of the years ended December 31, 1994, and 1995, and the six months ended June
30, 1996. The average loan balance increased to $231,678 as of December 31,
1995, and $262,907 as of June 30, 1996. The average loan balance increases
reflect the Partnership's increased
<PAGE>
ability to invest in larger Mortgage Investments, meeting the Partnership's
objectives. By investing in somewhat larger mortgages the number of other
mortgage brokers capable of funding larger equity loans is greatly diminished
therefore reducing competition and increasing interest rates paid by the
borrower..
The Partnership's loan portfolio consists primarily of short-term (one to
five years), fixed rate loans secured by real estate. As of December 31, 1994,
and 1995, and June 30, 1996, the Partnership's Mortgage Investments secured by
real property collateral in the six San Francisco Bay Area Counties (San
Francisco, San Mateo, Santa Clara, Alameda, Contra Costa, and Marin) represented
84.5%, ($5,480,742), 81.3%, ($9,799,123), and 80.4% ($11,414,218) of the
outstanding Mortgage Investment portfolio. The remainder of the portfolio
represented Mortgage Investments in Northern California.
As of December 31, 1994, approximately 35.9% ($2,325,223) of the Mortgage
Investment portfolio was invested in single family homes (1-4 units),
approximately 13.3% ($861,936), of the Mortgage Investment portfolio was
invested in multi-family dwellings, (apartments over 1-4 units), and
approximately 50.8% ($3,297,549), of the Mortgage Investment portfolio was
invested in commercial properties. As of December 31, 1995, approximately, 34.4%
($4,145,083), of the Mortgage Investment portfolio was invested in single family
homes (1-4 units) approximately 22.1% ($2,664,963), of the Mortgage Investment
portfolio was invested in multi-family dwellings, (apartments over 4 units), and
approximately 43.5%, ($5,237,206), of the Mortgage Investment portfolio was
invested in commercial properties. As of June 30, 1996, approximately, 28.8%,
($4,091,433), was invested in single family homes (1-4 units), approximately
16.9%, ($2,389,966), was invested in multi-family dwellings (apartments over 4
units) approximately, 52.2%, ($7,415,554) was invested in commercial properties,
and approximately 2.1%, ($300,000) was invested in unimproved land.
As of June 30, 1996, the Partnership held 54 Mortgage Investments secured
by Deeds of Trust. The following table sets forth the priorities, asset
concentrations and maturities of the Mortgage Investments held by the
Partnership as of June 30, 1996.
PRIORITIES, ASSET CONCENTRATIONS AND MATURITIES OF MORTGAGE INVESTMENTS
(As of June 30, 1996)
Number of Mortgage Investments Amount Percent
============================================ ==================================
1st Mortgages 30 $5,917,837 41.7%
2nd Mortgages 23 7,979,116 56.2%
3rd Mortgages 1 300,000 2.1%
------ ----------------------- --------
Total 54 14,196,953 100.0%
Maturing prior to 1/1/98 21 5,704,299 40.2%
Maturing prior to 1/1/00 14 4,388,332 30.9%
Maturing prior to 1/1/02 7 1,714,421 12.1%
Maturing after 1/1/02 12 2,389,901 16.8%
--------- --------------------- ---------
Total 54 14,196,953 100.0%
Average Mortgage Investment 262,907 1.8%
Largest Mortgage Investment 1,050,000 7.4%
Smallest Mortgage Investment 40,000 .3%
Average Loan-to-Value 62.4%
The average loan-to-value ratio of 62.4%, and the largest mortgage
investment of $1,050,000 are within the parameters set forth in the Prospectus.
The diversification of Mortgage Investments, with approximately eighty
percent (80%) of the Mortgage Investments being placed in the six counties
making up the San Francisco Bay Area, and the remaining Mortgage Investments
spread over Northern California are also within the parameters set forth in the
Prospectus. The average loan-to-value ratio of 62.4% is lower than that
originally contemplated in the offering circular by approximately (7.6%). This
lower loan-to-value ratio helps to ensure a greater degree of equity to protect
the Partnership's Mortgage Investments.
<PAGE>
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 mortgage investment portfolio as affected by
economic conditions and the financial experiences of borrowers. Many of these
factors are beyond the control of the General Partners. There is no precise
method of predicting specific losses or 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 Mortgage Investment may become uncollectible, in
whole or in part, is a matter of judgment. Although institutional lenders are
subject to requirements and regulations that, among other things, require them
to perform ongoing analyses of their portfolios, loan-to-value ratios, reserves,
etc., and to obtain and maintain current information regarding their borrowers
and the securing properties, the Partnership is not subject to these regulations
and has not adopted these practices. Rather, the General Partners, in connection
with the periodic closing of the accounting records of the Partnership and the
preparation of the financial statements, causes an evaluation, and a
determination is made as to whether the allowance for loan losses is adequate to
cover potential mortgage investment losses of the Partnership. As of June 30,
1996, the General Partners have determined that the allowance for loan losses of
$86,505 is adequate in amount. Because of the number of variables involved, the
magnitude of the swings possible and the General Partners' inability to control
many of these factors, actual results may and do sometimes differ significantly
from estimates made by the General Partners. As of June 30, 1996, Mortgage
Investments delinquent over 90 days amounted to $353,829, of which all $353,829
had notices of default filed. Additionally, the Partnership has obtained a
judgment of $72,866 against a borrower, which the Partnership is attempting to
collect. This judgment resulted from the General Partners' determination that
the most likely recovery of sums owed the Partnership, in whole or in part, was
through a lawsuit based on the terms of the Promissory Note. The Partnership
allowed the senior note holder to foreclose rather than reinstate the senior
mortgage holder to protect the Partnership's security interest in the property.
The Partnership does not own any real estate acquired through foreclose, as of
June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership relies upon purchases of Units, Mortgage Investment
payoffs, borrowers' mortgage payments, and, to a lesser degree, its line of
credit for the source of funds for Mortgage Investments. Currently, mortgage
interest rates have declined somewhat from those available at the inception of
the Partnership. If interest rates were to increase substantially, the yield of
the Partnership's Mortgage Investments may provide lower yields than other
comparable debt-related investments. As such, additional Limited Partner Unit
purchases could decline, which would reduce the overall liquidity of the
Partnership. Additionally, since the Partnership has made Mortgage Investments
in primarily fixed rate loans, if interest rates were to rise, the likely result
would be a slower prepayment rate for the Partnership. This could cause a lower
degree of liquidity as well as a slowdown in the ability of the Partnership to
invest in Mortgage Investments at the then current rate. Conversely, in the
event interest rates were to decline, the Partnership could see both or either
of a surge of unit purchases by prospective Limited Partners, and significant
borrower prepayments, which, if the Partnership can only obtain the then
existing lower rates of interest may cause a dilution of the Partnership's yield
on Mortgage Investments, thereby lowering the Partnership's overall yield to the
Limited Partners. The Partnership to a lessor degree relies upon its line of
credit to fund Mortgage Investments. Generally, the Partnership's Mortgage
Investments are fixed rate, whereas the credit line is a variable rate loan. In
the event of a significant increase in overall interest rates, the credit line
rate of interest could increase to a rate above the average portfolio rate of
interest. Should such an event occur, the General Partners would desire to pay
off the line of credit. Retirement of the line of credit would reduce the
overall liquidity of the Partnership.
CURRENT ECONOMIC CONDITIONS
The Partnership has been affected by the current regional economic
downturn; however the Partnership has not suffered any material losses to date.
As of June 30, 1996, the Partnership did not own any real estate acquired
through foreclosure and is experiencing delinquencies at the low end of General
Partners expectations. It is now clear that the Northern California recession
reached bottom in 1993. Since then, the California economy has been improving,
slowly at first, but now, more vigorously. A wide variety of indicators suggest
that the economy in California was strong in the first half of 1996, and the
state is well positioned for fast growth in the second half of the year. This
improvement is reflective in increasing property values, in job growth, personal
income growth, etc., all of which translates into more loan activity. These
positive factors for the California economy have also enticed many lenders with
excess capital to invest in the residential and commercial lending markets. The
entrance of new lenders, and an increase in capital devoted to mortgage lending
by existing mortgage lenders, has created significant lending competition and
demand for high quality loans. The competition is fiercest in the residential
lending markets. This competition has led to a downward trend in both interest
rates and fees charged to borrowers as well as liberalizing underwriting
standards by the Partnership's competition. The result is a reduction in the
residential loans available for the Partnership to invest in and a greater
concentration of commercial loans.
<PAGE>
BUSINESS
The Partnership, formed on May 27, 1992, is engaged in the business as a
mortgage lender, for the primary purpose of making Mortgage Investments secured
primarily by first and second deeds of trust on California real estate
("Mortgage Investments"). Approximately ninety-eight percent (98%) of the
Partnership's Mortgage Investments are secured by first and second deeds of
trust. The Partnership commenced operations in April, 1993. The Partnership's
address is 650 El Camino Real, Suite G, Redwood City, California 94063 and its
telephone number is (415) 365-5341.
Mortgage Investments are arranged and serviced by Redwood Mortgage, an
affiliate of the General Partners. As of June 30, 1996, approximately forty-two
percent (42%) of the Partnership's Mortgage Investments are secured by first
deeds of trust ($5,917,837), fifty-six percent (56%) are secured by second deeds
of trust ($7,979,116) and two percent 2% by third deeds of trust ($300,000). The
aggregate principal balance of these Mortgage Investments total $14,196,953. Of
these loans approximately eighty percent (80%) are secured by properties located
in the San Francisco Bay Area. As of June 30, 1996, of the Partnership's
Mortgage Investment portfolio, twenty-nine percent (29%) is secured by single
family residences, fifty-two percent (52%) by commercial properties, seventeen
percent (17%) by multi-unit properties and two percent (2%) by unimproved
property. No Mortgage Investment may exceed the greater of $50,000 or ten
percent (10%) of the Partnership's total assets at the time the investment is
made.
The following table shows the growth in total Partnership capital, Mortgage
Investments and net income as of June 30, 1996, and for the years ended December
31, 1995, 1994, 1993:
Capital Mortgage Investments Net Income
1996 (as of 6/30/96) 12,956,966 14,196,953 560,634
1995 11,470,327 12,047,252 836,833
1994 7,290,492 6,484,707 409,869
1993 (April - December) 2,622,080 2,336,674 105,015
As of June 30, 1996, the Partnership had made eighty-eight (88) Mortgage
Investments, including forty-four (44) first deeds of trust, forty (40) second
deeds of trust and four (4) third deeds of trust. The following table sets forth
the types and maturities of these Mortgage Investments.
TYPES AND MATURITIES OF MORTGAGE INVESTMENTS (As of June 30, 1996)
Number of Mortgage
Investments Amount Percent
------------- ------------ --------
First Mortgage 44 $10,222,573 42.2%
Second Mortgage 41 $13,524,957 55.9%
Third Mortgage 3 $458,500 1.9%
======== =========== =====
88 $24,206,030 100.0%
======== =========== ======
Maturing before 1/1/98 42 $11,929,825 49.3%
Maturing after 1/1/98
and before 1/1/2000 25 $ 5,760,155 23.8%
Maturing after 1/1/2000
and before 1/1/2002 8 $ 1,733,000 7.1%
Maturing after 1/1/2002 13 $ 4,783,050 19.8%
====== =========== =======
88 $24,206,030 100.0%
====== =========== =======
Single Family Residences 42 $ 7,722,200 31.9%
Commercial Residences 30 $11,251,550 46.5%
Multi-Unit Property 12 $ 4,482,280 18.5%
Unimproved Land 4 $ 750,000 3.1%
------- ------------ ------
88 $24,206,030 100.0%
======= ============ ======
<PAGE>
DELINQUENCIES
As of June 30, 1996, the Partnership had two Mortgage Investments
($350,292) which were delinquent over 90 days. Both of these Mortgage
Investments were in foreclosure. The Mortgage Investments delinquent and in
foreclosure represented 2.5% ($350,929) of the total Mortgage Investment
portfolio as of June 30, 1996.
REAL ESTATE OWNED
As of June 30, 1996, the Partnership did not own any real estate. During
the term of the Partnership, the Partnership has completed one foreclosure
wherein the Partnership became the owner of the secured property. The property
was subsequently sold at a net price greater than the Partnerships basis in
that property.
ALLOWANCE FOR LOSSES
Mortgage Investments and the related accrued interest, fees and advances
are analyzed on a continuous basis for recoverability. Delinquencies are
identified and followed as part of the Mortgage Investment system. A provision
is made for doubtful accounts to adjust the allowance for doubtful accounts to
an amount considered by Management to be adequate to provide for unrecoverable
accounts receivable. At June 30, 1996, $86,505 was provided as an allowance for
possible losses.
FEDERAL INCOME TAX CONSEQUENCES
CAUTION: THE PARTNERSHIP IS NOT INTENDED TO PROVIDE TAX BENEFITS OF THE
TYPE COMMONLY ASSOCIATED WITH LIMITED PARTNERSHIP TAX SHELTERS. NONETHELESS THE
INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE PARTNERSHIP ARE COMPLEX.
ACCORDINGLY PROSPECTIVE INVESTORS SHOULD NOT CONSIDER THIS DISCUSSION AS A
SUBSTITUTE FOR CAREFUL INDIVIDUAL TAX PLANNING. PROSPECTIVE INVESTORS SHOULD
CONSULT WITH THEIR TAX ADVISORS, ATTORNEYS OR ACCOUNTANTS ON MATTERS RELATING TO
AN INVESTMENT IN THE PARTNERSHIP WITH SPECIAL REFERENCE TO THEIR OWN SITUATION.
The following is a summary of federal income tax considerations material to
an investment in the Partnership by prospective Limited Partners. This summary
is based upon the Code, effective and proposed administrative regulations (the
"Regulations"), judicial decisions, published and private rulings and procedural
announcements issued by the Treasury Department as in effect as of the date of
this Prospectus, any of which may be subject to change, possibly with adverse
retroactive effect. Many provisions of the Code that significantly affect the
tax consequences of investments in real estate limited partnerships have not yet
been the subject of court decisions or authoritative interpretation by the IRS.
It is impossible to predict what tax legislation, if any, will be enacted, and
there can be no assurance that proposals that would adversely affect an
investment in the Units will not be enacted into law.
In considering the tax aspects of the Offering, Prospective Investors
should note that the Partnership is not intended to be a so-called "tax shelter"
and that, accordingly, many of the tax aspects commonly associated with a "tax
shelter" are inapplicable to the Partnership or are of minor importance. The
Partnership does not expect to generate tax losses that can be used to offset
Limited Partners' income from sources other than the Partnership and, if the
Partnership's investment objectives are met, the Partnership's operations will
generate taxable income, as opposed to taxable loss, for investors.
The availability and amount of tax benefits that will be claimed by the
Partnership will depend not only upon the general legal principles described
below, but also upon certain decisions and factual determinations which will be
made in the future by the General Partners as to which no legal opinion is
expressed and which are subject to potential controversy on factual or other
grounds. Such determinations include the proper characterization and purpose of
various fees, commissions and other expenses of the Partnership, the
reasonableness and timing of fees, the dates on which the Partnership commences
business, whether loans made by the Partnership are for investment purposes, the
terms of the loans, whether the loans will have equity participation or original
issue discount features, whether the Partnership is engaged in a trade or
business and other matters of a factual nature which will only be determined
based upon the future operations of the Partnership.
No rulings have been or will be requested from the IRS concerning any of
the tax matters described herein. Accordingly, there can be no assurance that
the IRS or a court will not disagree with the following discussion or with any
of the positions taken by the Partnership for federal income tax purposes.
<PAGE>
This summary provides a discussion of tax consequences deemed material by
counsel but is not, and is not intended to be, a complete or exhaustive analysis
of all possible applicable provisions of the Code, the Regulations, and judicial
and administrative interpretations thereof. The income tax considerations
discussed below are necessarily general and will vary with the individual
circumstances of each prospective Limited Partner. In particular, this summary
assumes that the Limited Partners will be U.S. Taxpayers who are individuals or
tax-exempt pension or profit-sharing trusts or IRAs. It does not generally
discuss the federal income tax consequences of an investment in the Partnership
peculiar to corporate taxpayers, foreign taxpayers, estates, taxable trusts, or
to a transferee of Limited Partners. Other tax issues of relevance to other
taxpayers should be reviewed carefully by such investors to determine special
tax consequence of an investment prior to their subscription.
FOR THE FOREGOING REASONS, EACH PROSPECTIVE LIMITED PARTNER IS URGED TO
CONSULT HIS OWN TAX ADVISER WITH RESPECT TO THE FEDERAL AND STATE CONSEQUENCES
TO SUCH LIMITED PARTNER RESULTING FROM THE PURCHASE OF UNITS AND FROM FUTURE
CHANGES IN TAX LAWS AND REGULATIONS.
Summary of Material Tax Aspects. The following summarizes the primary
material tax aspects for an investment in the Partnership. The very nature of an
investment in the Partnership involves complex issues of taxation, and
accordingly, investors are urged to review the entire discussion of tax matters
in "FEDERAL INCOME TAX CONSEQUENCES" and "RISK FACTORS - Tax Risks" in the
Prospectus. With respect to these issues, the Partnership has received an
opinion of counsel as to the material tax aspects ("FEDERAL INCOME TAX
CONSEQUENCES - Opinion of Counsel").
The principal tax aspect likely to be material to an investor is the "flow
through" of net income and net loss for tax purposes to Limited Partners. Unlike
a corporation, the Partnership will not be liable for income taxes on net income
generated by the Partnership. Rather, such income and loss will be allocated
among the Limited Partners and reported individually by the Limited Partners on
their income tax returns. If for any reason, as such possibilities are described
in the balance of this section, the Partnership was not treated as a partnership
for tax purposes it could result in the Partnership being taxed on its net
income as well as Limited Partners being taxed for any distributions to them.
The manner in which net income and net loss are allocated to the Partners
will also likely be a material consideration. In general, the General Partners
are allocated one percent (1%) of the net income and net loss and the Limited
Partners are allocated ninety-nine percent (99%) of such items. Among the
Limited Partners such items are allocated according to their capital accounts.
While counsel is opining that such allocations will be respected, in the event
such allocations were recharacterized for tax purposes it could involve a shift
in the income or loss from the Limited Partners to the General Partners.
The character of the Partnership's income may also be material to
investors. The Partnership's income will generally be characterized as passive
income or portfolio income for tax purposes. Counsel is opining that the
Partnership's income should be treated as a portfolio income for tax purposes
and not as unrelated business taxable income. Portfolio income is generally
income from interest, dividends, royalties or certain rentals. Such income
generally cannot be offset by passive losses generated from other passive
investments. The Partnership is not anticipated to generate taxable losses or
passive losses.
Other aspects of an investment in the Partnership may be considered
material to Limited Partners based upon unique circumstances applicable to
individual partners. Accordingly, investors are urged to review the balance of
the discussion of tax consequences in this section.
Opinion of Counsel. The Partnership has obtained an opinion from the Law
Offices of Stephen C. Ryan & Associates ("Counsel") which states that the
sections of the Prospectus which discuss the material tax risks and the section
of the Prospectus entitled "FEDERAL INCOME TAX CONSEQUENCES" accurately
described each of the material tax issues and reflect Counsel's opinion
regarding such matters referred to therein. Counsel has also opined that in the
aggregate, the significant tax benefits anticipated to result from an investment
in the Partnership are more likely than not to be realized by an investor.
However, the significant tax benefits should not be considered a primary
investment feature of the Partnership. The Partnership is intended to serve as
an investment vehicle for investors seeking current income, and possibly,
appreciation through Earnings compounding. Counsel has opined herein that,
subject to certain conditions and based upon certain representations, that:
1. Partnership Tax Status. It is more likely than not that the Partnership
will be treated as a partnership as defined in Sections 7701(a)(2) and 761(a) of
the Code and not as an association taxable as a corporation, and that the
Limited Partners will be subject to tax as partners pursuant to Sections 701-706
of the Code.
<PAGE>
2. Publicly Traded Partnerships. Based upon Notice 88-75, the
representations of the General Partners, and the provisions of the Partnership
Agreement, it is more likely than not that the Partnership will not constitute a
publicly traded partnership for purposes of Sections 7704, 469(k) and 512(c) of
the Code.
3. Portfolio Income and Unrelated Business Taxable Income. Assuming that
the Partnership makes the Mortgage Investments on substantially the terms and
conditions described in "INVESTMENT OBJECTIVES AND CRITERIA" it is more likely
than not that the income of the Partnership will be treated as portfolio income
and not constitute unrelated business taxable income.
4. Basis. It is more likely than not a Limited Partner's basis for his or
her Units will equal the Purchase Price of the Units.
5. Allocations to the Limited Partners. It is more likely than not that all
material allocations to the Limited Partners of income, gain, loss and
deductions, as provided for in the Partnership Agreement and as discussed in the
Prospectus, will be respected under Section 704(b) of the Code, or in the
alternative, will be deemed to be in accordance with the Partners' interests in
the Partnership.
Counsel's opinion is based upon the facts described in this Prospectus and
upon facts and assumptions as they have been represented by the General Partners
to Counsel or determined by them as of the date of the opinion. Counsel has not
independently audited or verified the facts represented to it by the General
Partners. The material assumptions and representations are summarized below:
(i) The Partnership will be organized and operated in accordance with the
Revised Uniform Limited Partnership Act, as adopted by, and in effect in, the
State of California.
(ii) The Partnership will be operated in accordance with the Partnership
Agreement, and the Partnership will have the characteristics described in the
Prospectus and will be operated as described in the Prospectus.
(iii) The Partnership will not participate in any Mortgage Investment on
terms other than those described in "INVESTMENT OBJECTIVES AND CRITERIA" without
first receiving certain advice of Counsel.
(iv) The Mortgage Investments will be made by on substantially the terms
and conditions described in the Prospectus in "INVESTMENT OBJECTIVES AND
CRITERIA."
(v) The net worth of the individual General Partners will continue to
exceed an amount that is intended to assure that the Partnership may qualify as
a partnership for federal income tax purposes.
(vi) The General Partners will take certain steps in connection with the
transfer of Units to decrease the likelihood that the Partnership will be
treated as a publicly traded partnership for purposes of Sections 7704, 469(k),
and 512(c) of the Code.
Any alteration of the facts may adversely affect the opinion rendered.
Furthermore, the opinion of Counsel is based upon existing law and applicable
Regulations and Proposed Regulations, current published administrative positions
of the Service contained in Revenue Rulings and Revenue Procedures, and Judicial
decisions, which are subject to change either prospectively or retroactively.
Counsel does not prepare or review the Partnership's income tax information
return, which is prepared by the General Partners and independent accountants
for the Partnership. The Partnership will make a number of decisions on tax
matters in preparing its Partnership tax return and such matters and such
Partnership tax return will be handled by the Partnership, often with the advice
of independent accountants retained by the Partnership, and usually is not
reviewed with Counsel.
Each Prospective Investor should note that the opinion described herein
represents only Counsel's best legal judgment and has no binding effect or
official status of any kind. Thus, in the absence of a ruling from the Service,
there can be no assurance that the Service will not challenge the conclusion or
propriety of any of Counsel's opinions and that such challenge would not be
upheld by the courts.
<PAGE>
Tax Status of the Partnership. The Partnership has not requested and does
not intend to request a ruling from the Service that the Partnership will be
treated for federal income tax purposes as a partnership and not as an
association taxable as a corporation. It is more likely than not, in Counsel's
opinion, that the Partnership will be treated for federal income tax purposes as
a partnership and not as an association taxable as a corporation.
The General Partners have been advised by Counsel that for federal income
tax purposes an organization is treated, under the currently applicable
Regulations, as a partnership and not as an association taxable as a corporation
as long as the organization does not have a preponderance of the corporate
characteristics described in such regulations. In the opinion of Counsel, the
Partnership will not have a preponderance of those corporate characteristics set
forth in the Regulations as those Regulations are currently interpreted by the
Service and, consequently, the Partnership will not be an association taxable as
a corporation for federal income tax purposes, provided that the General
Partners have "substantial assets" as that term is used in Section
301.7701-2(d)(2) of the Regulations, and provided that the Partnership meets the
conditions outlined in the following paragraphs. That opinion expressly assumes
that (i) the Partnership has been duly formed and will operate in conformity
with the requirements of California law and the provisions of the Limited
Partnership Agreement; (ii) the net worth of the General Partners is sufficient
and will remain sufficient to satisfy the requirements of "substantial assets"
within the meaning of the Regulations at all times during the existence of the
Partnership; (iii) no lender on a nonrecourse basis will obtain or have the
right to obtain a proprietary interest in the Partnership or its assets other
than as a creditor; (iv) the General Partners will at all times have at least a
one percent (1%) interest in the profits, losses and each specially allocated
item of income, credit or deduction of the Partnership; (v) the Partnership and
the Partners will enter into the transactions described herein with a reasonable
expectation of profit; and (vi) criteria or standards other than those specified
in the Regulations will not be applied in determining such classifications.
At present, no specific criteria have been established by the Service
(other than procedural guidelines) as to the minimum net worth or other
characteristics that general partners must maintain to qualify a limited
partnership for federal tax classification as such, other than that the General
Partners must have substantial assets and not be a mere "dummy." Based on the
current net worth of the General Partners, it is likely that the General
Partners would be deemed to have "economic substance" within the meaning of the
Regulations.
In 1976, the Tax Court, with six judges dissenting, in Phillip G. Larson,
66 T.C. 159 (1976), held that two California limited partnerships met the
criteria contained in the currently applicable Regulations to be taxed as
partnerships. The Service has acquiesced in this case. The Tax Court, in the
course of its opinion, suggested that the Commissioner of Internal Revenue
modify the currently applicable Regulations. On January 5, 1977, the
Commissioner issued Proposed Regulations that would have altered drastically the
criteria for determining the tax status of partnerships, with the result that
the Partnership would be treated as an association taxable as a corporation
rather than as a partnership. In that case, Partners would not be entitled to
the deductions for tax purposes available to Limited Partners with respect to
their investments in the Partnership. The Proposed Regulations were withdrawn by
the Secretary of the Treasury on the same day they were proposed for comment,
and on January 14, 1977, the then Secretary of the Treasury, William E. Simon,
announced that the Proposed Regulations would not be reissued. However, there
can be no assurance that this decision will not be reversed and that the
Proposed Regulations will not be reissued. A similar proposal has been included
in certain tax bills being considered by Congress.
Revenue Procedure 89-12. The Service recently issued Revenue Procedure
89-12 which specifies certain conditions that must be present before it will
consider issuing an advance ruling on the classification of a limited
partnership for federal income tax purposes. The conditions set forth in the
Revenue Procedure are as follows:
(1) The general partners interest in each item of income gain, deduction
and loss must, in the aggregate, equal at least one percent (1%) of each such
item throughout the existence of the partnership.
(2) The general partners, in the aggregate, must maintain a minimum capital
account balance equal to the lesser of (a) one percent (1%) of the total
positive capital account balances for the partnership or (b) $300,000. An
exception to this condition, however, provides that the minimum capital account
balance need not be met if at least one general partner will contribute
substantial services as a partner to the partnership which are not compensated
by guaranteed payments and the partnership agreement provides that, upon the
dissolution and termination of the partnership, the general partners will
contribute to the partnership an amount equal to the lesser of (a) the deficit
balance, if any, in their capital accounts or (b) the excess of 1.01% of the
total capital contributions of the limited partners over the capital previously
contributed by the general partners.
(3) The net worth of corporate general partners (if a partnership has only
corporate general partners) must equal at least ten percent (10%) of the total
capital contributions to the partnership throughout the life of the partnership.
<PAGE>
(4) The partnership agreement may not permit, in the case of the removal of
a general partner, less than a majority in interest of limited partners to elect
a new general partner to continue the partnership.
(5) Limited partner interest may not exceed eighty percent (80%) of the
total interest in the partnership or the Service will not rule that the
partnership lacks the corporate characteristic of centralized management.
The Partnership will not satisfy all the conditions (1) through (5) set
forth above. It should be emphasized that the Revenue Procedure 89-12
specifically states that it is to be applied only in determining whether advance
ruling letters will be issued and that its provisions are not intended to be
substantive rules for determining whether an organization should be classified
as a partnership. Similarly, these rules are not to be applied as criteria for
audits of a taxpayer's returns. Nonetheless, if the Service should at some
future time adopt these rules at the audit level and such a position were to be
upheld in the courts, the Partnership could be treated as an association taxable
as a corporation for federal income tax purposes.
Publicly Traded Partnerships. Certain limited partnerships are subject to
the risk of being reclassified as a "publicly traded partnerships" which are
taxed as corporations for certain federal income tax purposes. The term
"publicly traded partnerships for this purpose means any partnership if the
interests in such partnership are: (i) traded on an established securities
market; or (ii) readily tradable on a secondary market (or the substantial
equivalent of a secondary market). This second test includes partnerships that
are not traded on an established securities market, but whose partners are
nevertheless readily able to buy, sell or exchange their partnership interests
in a manner that is comparable, economically, to trading on an established
securities market.
In the event that the Partnership is deemed to be a "publicly traded
partnership" and the Partnership does not meet the ninety percent (90%) or more
gross income exception (described below), then the Partnership shall be treated
as a corporation. In the event the Partnership were treated as a corporation,
there would be several adverse tax consequences to the Partners. In addition,
the Partnership will be regarded as having transferred all of its assets
(subject to all of its liabilities) to a newly formed corporation in exchange
for stock which will be deemed distributed to the Partners in liquidation of
their interests in the Partnership. (See "Results if Partnership Taxed as a
Corporation" below). In addition, if the Partnership is deemed to be a "publicly
traded partnership," then special rules under Section 469 govern the treatment
of losses and income of the Partnership.
There is an exception from treatment as a corporation for a "publicly
traded partnership" if ninety percent (90%) or more of its gross income consists
of "qualifying income" for such taxable year and each preceding taxable year
beginning after December 31, 1987, during which the partnership (or any
predecessor) was in existence. Qualifying income includes interest. Even if the
Partnership meets the ninety percent (90%) exception rule, its income and losses
will still be subject to special rules under Section 469.
Units in the Partnership will not be traded on a national securities
exchange, a local exchange or an over-the-counter market. The prospectus and
sales material for the Partnership states that there is no public market for the
Units and it is not expected that any market will develop; and (ii) all
potential investors should be aware that the Units should be purchased only as a
long-term investment. The Conference Committee Report to the 1987 Act provides
several factors to look at in determining whether a partnership should be
classified as a publicly traded partnership. The major factors are whether
trades in the partnership interests are frequent, whether a regular plan of
redemption exists, whether a partnership interest can be traded in a time frame
similar to a secondary market, and what types of restrictions are placed on the
transferability of interests.
No regulations have been issued under Sections 469(k)(2) or 7704(b) to
clarify when interests in a partnership that are not traded on an established
securities market will be treated as readily tradable on a secondary market or
the substantial equivalent thereof. However, on June 17, 1988, the IRS recently
issued Advance Notice 88-75 ("Advance Notice") providing guidance with respect
to whether interests in a partnership are considered readily tradable on a
secondary market or the substantial equivalent thereof within the meaning of
Sections 469(k)(2), 512(c)(2), and 7704(b). Interests in a partnership will not
be considered readily tradable on a secondary market or the substantial
equivalent thereof within the meaning of Sections 469(k)(2), 513(c)(2) and
7704(b) of the Code for a taxable year of the partnership if the sum of the
percentage interests in partnership capital or profits represented by
partnership interests that are sold or otherwise disposed of (including
purchases by a partnership of its own interests ("redemptions") during the
taxable year does not exceed five percent (5% in the case of a partnership that
also relies on a separate matching service safe harbor described below) of the
total interest in partnership capital or profits ("Five Percent Safe Harbor").
In addition, certain types of transfers will be disregarded for purposes of the
Five Percent Safe Harbor. The Advance Notice also provides that sales thorough a
matching Service ("Matched Sales") will be disregarded (the "Matching Service
Safe Harbor") for purposes of determining whether partnership interests are to
be considered readily tradable on a secondary market or the substantial
equivalent thereof.
<PAGE>
The Partnership Agreement provides that Limited Partners must obtain the
consent of at least the General Partners to transfer a Unit in the Partnership,
which consent can be withheld if such transfer in counsel to the Partnership's
opinion or the General Partners' opinion may cause the Partnership to be treated
as a "publicly traded partnership" or would not satisfy the Five Percent Safe
Harbor or Matching Service Safe Harbor contained in IRS Advance Notice 88-75 or
Regulations subsequently issued. The restrictions have been placed in the
Partnership Agreement to prevent the Units from being able to be bought or sold
in a manner that is comparable, economically to trading on an established
securities market.
The General Partners have represented that they will use their best efforts
to assure that the Partnership is not treated as a "publicly traded
partnership." The General Partners have also represented that they will not take
any affirmative action on behalf of the Partnership to intentionally establish a
market for the Partnership interests. Based on IRS Advance Notice 88-75, the
General Partners representations contained herein and the terms contained in
the Partnership Agreement, Counsel is of the opinion that the Partnership, more
likely than not, will not be treated as a "publicly traded partnership" as
defined above. Although the General Partners will use their best efforts to make
sure that a secondary market or substantial equivalent thereof does not develop
for interests in the Partnership, there can be no assurance that a secondary
market for the Units will not develop, or that the IRS may take the position
that the Partnership should be classified as a "publicly traded partnership" for
this purpose. In addition, regulations may be adopted that would cause the
Partnership to be treated as a publicly traded partnership.
Results if Partnership is Taxable as an Association. If the Partnership
were classified as an association taxable as a corporation, the Partnership
itself would be subject to a federal income tax on any taxable income at regular
corporate tax rates. The Limited Partners would not be entitled to take into
account their distributive share of the Partnership's deductions or credits, and
would not be subject to tax on their distributive share of the Partnership's
income. Distributions to the Partners would be treated as dividends to the
extent of accumulated and current earnings and profits; as a return of capital
to the extent of basis; and thereafter, as taxable income, perhaps as ordinary
income, to the extent Distributions were in excess of the tax basis. In
addition, if the loss of partnership status occurred at a time when the
Partnership's indebtedness exceeded the tax basis of its assets and such
corporate status was prospective only, it could be argued that a constructive
incorporation occurred, and that the Limited Partners realized gain under
Section 357(c) of the Code, measured by the difference between such indebtedness
and the Partnership's tax basis of its assets. If the Regulations proposed on
January 5, 1977, are reissued and do become applicable to the Partnership at a
future date such that the Partnership becomes taxable as a corporation
prospectively, a constructive incorporation may be deemed to have occurred and
Partners may be required to recognize income as described in this Section.
Taxation of Partners - General. If the Partnership is treated for federal
income tax purposes as a partnership and not as an association taxable as a
corporation, it will file an annual informational income tax return, but will
not be subject as an entity to the payments of federal income tax. On his
personal income tax return, each Limited Partner will be required to report his
share of Partnership income or loss without regard to the amount, if any, of
cash or other distributions made to him. Thus, each Limited Partner will be
taxed on his share of income even though the amount of cash distributed to him
may be more or less than the resulting tax liability.
Subject to various limitations referred to herein, each Limited Partner may
deduct his share of the Partnership losses if any, to the extent of his tax
basis in his Partnership interest. Any losses in excess of basis may be carried
forward indefinitely to offset future taxable income of the Partnership. In
computing income or losses, the Partnership will include appropriate deductions
for non-capital costs and the depreciation portion of capital costs. If
Distributions in any one year exceed the Partnership's taxable income (whether
in liquidation or otherwise), the amount of such excess will be treated as a
return of capital reducing the tax basis of the Limited Partner in his interest.
Any cash distributions in excess of the recipient's basis are treated as a sale
or exchange of the Limited Partnership Interest resulting in taxable income to
the recipient.
Within 90 days after the end of each fiscal year, the General Partners will
provide each Partner with a report containing such information as is necessary
for the completion of the Partner's federal income tax return with respect to
his share of the Partnership's income, gains, losses, and deductions for the
previous calendar year.
Partnership Basis. A Limited Partner's adjusted tax basis for federal
income tax purposes includes the cost of his Partnership interest. Investors in
the Partnership will pay the $100 purchase price for each Unit in cash upon
subscription. Based on these facts, it is Counsel's opinion that the Limited
Partners basis for their Units will initially be the cash purchase price of
their Units. A Limited Partner's basis will be increased by any subsequent cash
contribution he makes to the Partnership, by his distributive share of
Partnership taxable income, by any income exempt from taxation, and by his
share, equal to his proportionate share of Partnership profits, of non-recourse
loans (i.e., neither the General nor Limited Partners are personally liable for
the repayment of the loan) made to the Partnership.
<PAGE>
A Limited Partner's basis will be decreased (but not below zero) by actual
distributions to him from the Partnership, by his distributive share of
Partnership losses, by an actual or deemed decrease in his share of Partnership
nonrecourse borrowings, and by his share of nondeductible expenses of the
Partnership which are not properly chargeable to his capital account. In the
event that cash distributions to a Limited Partner exceed the adjusted basis of
his Units, a Limited Partner must recognize gain equal to such excess.
Pursuant to the 1984 Act, the Treasury has issued regulations regarding the
conditions under which recourse and non-recourse liabilities may be reflected on
partner's bases in their partnership interests. Such regulations permit an
increase in a limited partner's basis for non-recourse debts and an increase
where the limited partner assumes or guarantees or otherwise bears the "economic
risk" for the partnership debt.
Allocation of Profits and Losses. The net profits and net losses of the
Partnership will be allocated as specified in Article V of the Limited
Partnership Agreement (See "SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT").
For federal income tax purposes, each Partner's distributive share of
specific items of income, gain, loss, deduction and credit is determined by
reference to the general ratio for sharing profits and losses as provided in the
Partnership Agreement. In general, the allocation provided in a partnership
agreement will control unless such allocation does not have "substantial
economic effect." If an allocation provision of a partnership agreement is found
to lack "substantial economic effect" partnership items will be allocated in
accordance with a partner's interest in the partnership based on all the facts
and circumstances.
Under the Regulations which are extremely complex, one of three alternative
tests must be met in order for an allocation to be valid under Section 704(b).
Allocations are valid if: (i) the allocation has substantial economic effect; or
(ii) the partners can show that, taking into account all facts and
circumstances, the allocation is in accordance with the partners interests in
the partnership; or (iii) the allocation can be deemed to be in accordance with
the partners interests in the partnership in accordance with special rules set
forth in the Regulations.
Counsel believes that the allocations of the income and loss of the
Partnership has "substantial economic effect" based upon the fact that the
allocations affect the dollar amount of each Partner's share of total
Partnership income or loss independent of tax consequences; the capital accounts
of the Partners will reflect the allocation; and the economic risk of loss will
be borne by the Limited Partners, or that in the alternative, the allocations,
if held to lack substantial economic effect, would nonetheless be deemed to be
in accordance with the Partners interests in the Partnership. This would result
in the same treatment as if the allocations were held to have substantial
economic effect.
Sale of Partnership Interest. A Limited Partner may be unable to sell his
Limited Partnership interest as there may be no public market for it. Gain or
loss recognized on the sale of an interest in the Partnership by a Limited
Partner who is not a "dealer" with respect to such interest and who has held it
for more than one year, will ordinarily result in the recognition of long-term
capital gain or loss. Gain or loss will be recognized by a Partner measured by
the difference between the consideration received including the Partner's pro
rata share of the Partnership's liabilities and the Partner's adjusted basis of
the Units being sold. Notwithstanding this general rule, the 1986 Act taxes
capital gains at the same rate as ordinary income beginning January 1, 1988. If,
at the time of the sale of the Partnership interest, the Partnership has
"unrealized receivables" (which includes accelerated depreciation of real
property) or substantially appreciated inventory items," that portion of the
amount realized from the sale of the interest that is attributable to the value
of such items will give rise to ordinary income to the extent such amount
exceeds the basis to the Partnership of the selling Partner's share of such
"unrealized receivables" and "inventory items." Any Partner desiring to sell his
interest should consult his personal tax advisor for proper planning in regard
to these provisions.
The Revenue Act of 1978 increased the amount of ordinary income of a
non-corporate taxpayer against which net capital losses may be deducted to
$3,000 in 1978 and subsequent years (or in the case of a husband and wife filing
separate returns, to $1,500 respectively). As was the case prior to the
enactment of the Act within these dollar limitations, only fifty percent (50%)
of the net long-term capital losses in excess of net short-term capital gains
may be deducted from ordinary income, while all of the excess of the net
short-term capital loss over net long-term capital gain may be so deducted.
<PAGE>
Section 706 of the Code, as amended by the 1984 Act, provides special rules
for the allocation of income and loss, and items thereof, to any partner whose
interest in the partnership changes during a taxable year, whether by the sale
of all or a part of such interest, the entry of a new partner or otherwise. In
determining the income, loss and special items allocable to the partners whose
interests have changed, a partnership is required to allocate certain "allocable
cash basis items" (generally interest, taxes and payments for services or for
the use of property) to the days in the taxable year to which they are
attributable. Other items may be allocated on any basis approved in Regulations
to be issued, which Regulations are expected to follow the guidelines set out in
the Committee Reports on the 1984 Act. The general purpose of the 1984 Act
amendments to Section 706 is to prevent retroactive allocations of economically
accrued deductions to partners who enter a partnership after such accrual.
The Partnership's taxable year will close on the date of sale with respect
to a Limited Partner (but not the remaining Partners) who sells his entire
interest in the Partnership. In such a case the Partnership items would be
prorated pursuant to Section 706. In the event of a sale of less than the entire
interest of a Limited Partner, the Partnership year will not terminate with
respect to the selling Partner, but his proportionate share of items of income,
gain, loss, deduction and credit will also be determined pursuant to Section
706.
In the case of either the sale of the Properties or a sale of a Partner's
interest in the Partnership, a Limited Partner may realize taxable income
substantially in excess of the cash, if any, he receives as a result of such
sale. Further, a Partner who sells an interest in the Partnership may be
required to report a share of Partnership income for the year of such sale even
though he received no cash Distribution during the year or the amount of cash
Distribution was less than his share of income required to be reported.
Character of Income or Loss. The 1986 Act distinguishes between income from
a "passive" activity and portfolio income. A passive activity includes (1) trade
or business activities in which the taxpayer does not materially participate,
and (2) rental activities where payments are primarily for the use of tangible
property. In general, losses generated by a passive activity will only be
allowed to offset income from a passive activity.
Portfolio income generally includes interest, dividends, royalty or annuity
income and gain from sales of portfolio assets, for example, property held for
investment. Portfolio income is not treated as passive income and must be
accounted for separately. Portfolio income is reduced by deductible expenses
(other than interest) that are clearly and directly allocable to such income.
Properly allocable interest expenses also reduces portfolio income. With regard
to interest, the Treasury has issued Temporary Regulations which adopt a tracing
rule. Interest attributable to indebtedness which is used to purchase an
interest in a passive activity will be regarded as passive and subject to the
passive loss rules. Thus, if a Limited Partner borrowed all or a portion of the
funds used to purchase his Unit(s), interest paid on such borrowing could be
used to offset income attributable to a passive activity.
The distinction between passive income and portfolio income thus has a
material effect on the Partnership and the Limited Partners. If the Partnership
is engaged in a passive activity, any income from the Partnership is deemed
"passive income" which is available to be offset by any other passive losses
which the Limited Partner has from other sources. Portfolio income cannot be
offset by such passive losses. Specifically, passive losses from the Partnership
net of taxable income from the Partnership may be used to offset passive income
from other sources, with any unused losses carried over into the next tax year,
where they are available to offset passive income from the Partnership and other
sources. In the year that the Unit is disposed of, or the Partnership is
dissolved, any unused passive loss is available to offset any gain upon the
disposition or dissolution, as the case may be, then to offset any passive
income from other sources and, finally, to offset ordinary income.
The Treasury has promulgated certain Temporary Regulations which provide
that the lesser of the Partnership's net passive income or the Partnership's
equity financed interest income shall be treated as not from a passive activity.
Such income is in turn treated as interest income, or in other words, portfolio
income.
The Partnership's equity financed interest income is that portion of its
net interest income derived by excluding interest income allocable to
liabilities incurred in the activity. It is determined by multiplying net
interest income by a fraction whose numerator is the excess of the average
outstanding balance for the year of interest bearing assets less the average
outstanding balance for the year of the liabilities incurred in the activity and
whose denominator is the average outstanding balance for the year of the
interest bearing assets held in the activity. Net interest income is the gross
interest income less expenses from the activity reasonably allocable to the
gross interest income.
<PAGE>
The Partnership does not currently anticipate that it will have significant
liabilities incurred in connection with its lending activities. Accordingly, its
equity financed interest income should equal its net passive income and such
amount should be treated as portfolio income. To the extent that the Partnership
does incur liabilities, it would require a portion of income between passive and
portfolio income.
The treatment of the Partnership's equity financed interest income as
portfolio income is premised upon the Partnership being engaged in a trade or
business.
Whether the Partnership is engaged in the trade or business of lending
money will depend on the facts and circumstances. Such facts and circumstances
include the manner in which the Partnership conducts its affairs and the nature
of its dealings with borrowers and other third parties and the number of loans
made by the Partnership in any one year. For example, the courts have held that
a person who makes one or two loans in a year is not engaged in a trade or
business even though that person made many loans in preceding years. Similarly,
making up to five loans did not constitute a trade or business. On the other
hand, the making of twenty loans was deemed to be a trade or business. It is not
possible under the circumstances to determine whether the Partnership will be
deemed to be engaged in a trade or business.
The Partnership may also make payments to Limited Partners under its
Guaranteed Payment for Offering Period. The Guaranteed Payment for Offering
Period is likely to constitute a guaranteed payment as provided under Section
707(c). As such, these payments should be considered interest payments treated
as portfolio income.
Treatment of Mortgage Investments Containing Participation Features. The
Partnership may extend Mortgage Investments with an equity interest in the
property securing the Mortgage Investments (See "INVESTMENT OBJECTIVES AND
CRITERIA- Equity Interests in Real Property"). With respect to Mortgage
Investments containing participation features, an issue may arise as to whether
the relationship between the Partnership and the mortgagor is that of debtor and
creditor or whether the Partnership is engaged in a partnership or joint
venturer with the mortgagor. If the Partnership is a creditor of the mortgagor,
a Limited Partner's distributive share of income derived from the mortgagor will
be treated in full as interest income. If the Partnership is a partner or a
joint venture with the mortgagor, the income from the participation feature of
the Mortgage Investments and/or the stated interest may be treated as a
distribution of profits of the Partnership or Joint Venture. This would result
in the receipt of unrelated business taxable income for certain Tax-Exempt
Investors investing in the Partnership and would have material adverse effects
for certain trusts.
In analyzing whether a partner's unsecured loan to a partnership should be
treated as a loan or a capital contribution (See Joseph Hambuechen, 43 T.C. 90
(1964)) and whether an unsecured loan constitutes a joint venture (See Hyman
Podell, 55 T.C. 429 (1970)), courts have considered all the facts and
circumstances surrounding the transactions and at times both lines of authority
consider the same factors. Counsel believes that in determining whether the
relationship between the Partnership and a mortgagor is that of a debtor paying
interest or a joint venturer distributing net profits, a Court would consider
the following factors: (1) the names given to the certificates evidencing the
indebtedness; (2) the presence or absence of a maturity date; (3) the source of
the payments; (4) the right to enforce the payment of principal and interest;
(5) participation in management; (6) a status equal to or inferior to that of
regular creditors; (7) the intent of the parties; (8) "thin" or adequate
capitalization; (9) identity of or interest between creditor and borrower; (10)
payment of interest only out of net proceeds; and (11) the ability of the entity
to obtain loans from outside lending institutions.
Under relevant case law, whether a partnership or joint venture exists for
federal income tax purposes, turns on the intent of the parties, as evidenced by
their conduct, relevant agreements, and their respective abilities and capital
contributions. (See Commissioner v. Culbertson, 337 U.S. 733 (1949) Podell,
supra; Utility Trailer Mfg. Co. v. U.S., 212 F.Supp. 733 (D. Cal. 1963)).
Repayment or Sale of Mortgage Investments. No gain or loss will be
recognized by the Partnership upon the full repayment of principal of a Mortgage
Investment. Any gain recognized by the Partnership on the sale or exchange of a
Mortgage Investment will be treated as a capital gain unless the Partnership is
deemed to be a "dealer" in Mortgage Investments for federal income tax purposes
(See "Property Held Primarily for Sale; Potential Dealer Status" below). In such
case, the entire gain, if any, would constitute ordinary income.
Property Held Primarily for Sale; Potential Dealer Status. The Partnership
has been organized to invest in Mortgage Investments. However, if the
Partnership were at any time deemed for tax purposes to be holding one or more
Mortgage Investments primarily for sale to customers in the ordinary course of
business, any gain or loss realized upon the disposition of those loans would be
taxable as ordinary gain or loss rather than as capital gain or loss.
Furthermore, such income would also constitute unrelated business taxable income
to any investors which are tax-exempt entities (See "Investment by Tax-Exempt
Investors"). Under existing law, whether property is held primarily for sale to
customers in the ordinary course of business must be determined from all the
facts and circumstances surrounding the particular property and sale in
question. The Partnership intends to hold the Mortgage Investments for
investment purposes and to make such occasional dispositions thereof as in the
opinion of the General Partners are consistent with the Partnership's investment
objectives. Accordingly, the Partnership does not anticipate that it will be
treated as a "dealer" with respect to any of its properties. However, there is
no assurance that the Service will not take the contrary position.
<PAGE>
Tax Consequences of Reinvestment in Mortgage Investments. Limited Partners
may avail themselves of a plan pursuant to which Limited Partners may forego
current distributions of Cash Available for Distribution and have said amounts
credited to their capital accounts and used by the Partnership in conducting
Partnership activities. Limited Partners who avail themselves of such an option
may incur a tax liability on their pro rata share of Partnership income with no
corresponding cash with which to pay such tax liability. However, Unit Holders
which are Tax-Exempt Investors should not incur any such tax liability, to the
extent said income is interest income and not UBTI (See "Property Held Primarily
for Sale; Potential Dealer Status" and "Investment by Tax-Exempt Investors").
Partnership Organization, Syndication Fees and Acquisition Fees. Under
Section 709 of the Code, all Organization, Syndication Fees and Acquisition Fees
must be capitalized. Organization fees and expenses paid or incurred after
December 31, 1976, may be amortized over a five year period. Amortization is not
allowed with respect to syndication expenses paid by a partnership. The
Regulations under Section 709 state that syndication costs include commissions,
professional fees and printing costs in marketing sales of Partnership
interests, brokerage fees and legal and accounting fees regarding disclosure
matters. A portion of the fees incurred will be allocated to organizational
costs. The Partnership intends to amortize all organization expenses ratably
over a five year period. The Service may challenge the deductibility of these
organization fees on the basis that these are fees paid in connection with the
syndication of the Limited Partners Interests rather than organization fees. If
the Service were successful in taking these or other positions on such fees, the
Partnership's and therefore the Limited Partners deductions during 1996 through
2001 or such longer period as necessitated by this offering would be less than
projected although not substantially so.
Original Issue Discount. The Partnership may be subject to the original
issue discount rules with respect to interest to be received with respect to
Mortgage Investments. Original issue discount may arise with respect to Mortgage
Investments if (a) the interest rate varies according to fixed terms; (b) the
borrower is permitted to defer interest payments to years after such interest
accrues; and (c) the amount of the Partnership's share of interest income with
respect to additional interest or deferred interest related to the income
appreciation from the mortgage property under a right of participation is
determined in a year prior to the year in which payment of such amount is due.
The Partnership anticipates extending mortgage loans under some or all of the
proceeding terms, and to the extent it does, the original discount rules may be
applicable. Counsel cannot opine as to the applicability of these rules
prospectively since the Partnership has not identified as Mortgage Investments
as of the date of this Prospectus.
The amount of original issue discount under a mortgage loan containing any
of the foregoing terms is to be computed based upon the compound interest method
of calculation, resulting in the reporting of interest income in increasing
amounts each taxable year. Recognition by the Partnership of original issue
discount with respect to a Mortgage Investment will increase the Partnership's
basis in that loan, thereby reducing in like amount the income the Partnership
must recognize in the year payment of the amount giving rise to the original
issue discount is actually received or upon disposition of the Mortgage
Investment. The reporting of the recognition by the Partnership of original
issue discount as income in any particular tax year will have the effect of
increasing the amount of income which the Limited Partners must report from the
Partnership, without the concurrent receipt of the cash distribution with which
to pay tax, if any, resulting from the reporting of such income. However, to the
extent such original issue discount constitutes "interest" tax exempt investors
may exclude such original issue discount in computing their unrelated business
taxable income liability.
Deduction of Investment Interest. The Code imposes substantial limitations
upon the deductibility of interest on funds borrowed by an investor to purchase
or to carry investment assets. Code Section 163(d) provides that a deduction for
"investment interest" may be taken by an individual only to the extent of such
individual's net investment income for the taxable year. Investment interest
generally is any interest that is paid or accrued on indebtedness incurred or
continued to purchase or carry investment property. Investment interest includes
interest expenses allocable to portfolio income and investment and interest
expenses allocable to an activity in which the taxpayer does not materially
participate, if such activity is not treated as a passive activity under the
passive loss rules. Investment interest does not include any interest that is
taken into account in determining a taxpayer's income or loss from a passive
activity or a rental activity in which a taxpayer actively participates.
Therefore, an investment expense attributable to an investment as a Limited
Partner in the Partnership, will be subject to the investment interest
limitations. This exclusion will not apply for interest expenses, if any,
allocable to portfolio income. See "Limitations on Losses and Credits from
Passive Activities."
<PAGE>
Net investment income consists of the excess of investment income over
investment expenses. Investment income generally includes gross income from
property held for investment, gain attributable to property held for investment
and amounts treated as portfolio income under the passive loss rules. Investment
income does not include income taken into account in computing gain or loss from
a passive activity. Passive losses allowable solely as a result of the passive
activity loss phase-in rules may, however, reduce investment income. Investment
expenses are deductible expenses (other than interest) directly connected with
the production of investment income. Generally, in calculating investment
expenses, however, only those expenses in excess of two percent (2%) of adjusted
gross income are included.
It is not anticipated the Partnership will incur any material amount of
"investment interest" that will be significantly limited by these rules.
However, investment interest that cannot be deducted for any year because of
these limitations may be carried over and deducted in succeeding taxable years,
subject to certain limitations.
Section 754 Election. Because of the complexities of the tax accounting
required, the Partnership does not presently intend to file under Section 754 of
the Code an election to adjust the basis of the properties in the case of a
transfer of a Limited Partnership Interest, although the General Partners have
the authority to make such an election. The effect of such an election would be
that, with respect to the transferee Limited Partner only, the basis of the
Partnership's properties would either be increased or decreased by the
difference between the transferee's basis for his Limited Partnership Interest
and his proportionate share of the Partnership's adjusted basis for all
properties. A substitute Limited Partner would have to account separately in his
personal income tax return for the special basis (and the deductions in
connection therewith) in his Partnership interest attributable to the election
made pursuant to Section 754. Any increase or decrease resulting from such an
adjustment would be allowable among the Partnership's assets in accordance with
rules established under the Code. After such adjustment has been made, the
transferee Limited Partner's share of the adjusted basis of the Partnership's
properties would equal the adjusted basis of his Limited Partnership Interest.
If (as presently anticipated) the Partnership does not make such an election,
upon a sale of the properties subsequent to a transfer of a Limited Partnership
Interest, taxable gain or loss to the transferee will be measured by the
difference between his share of the gross proceeds of such sale and his share of
the Partnership's tax basis in the properties (which, in the absence of a
Section 754 election, will be unchanged by the transfer of the Limited
Partnership Interest to him), rather than by the difference between his share of
such proceeds and the portion of the purchase price for his interest that was
allocable to the properties. As a consequence, such transferee will be subject
to a tax upon a portion of the proceeds which represents as to him a return of
capital, if the purchase price for his interest exceeds his share of the
adjusted basis for all properties. However, in the event of a taxable sale or
other disposition of his Limited Partnership Interest, the purchase price paid
by the transferee is important since, notwithstanding the Partnership's failure
to make a Section 754 election, such purchase price will be taken into account
in determining such transferee's basis for such interest. The absence of a right
to have such election made by the Partnership may inhibit transferability of a
Limited Partnership Interest since a potential transferee may consider this
factor as reducing the value of the interest.
Termination of the Partnership. A partnership is terminated for tax
purposes only (i) if no part of the partnership business, financial operation or
venture continues to be carried on by any of its partners, or (ii) if, within
any 12-month period, there is a sale or exchange of fifty percent (50%) or more
of the total interest in partnership capital and profits. If, upon such
termination, the partnership business is continued by the partners, they are
deemed to have received a distribution in liquidation of the partnership and to
have recontributed the distributed property to a successor entity. The original
partnership's taxable year closes with respect to all partners as the result of
such a "constructive" liquidating distribution and recontribution.
Upon a termination of a partnership for federal income tax purposes, a
partner generally will recognize a capital gain to the extent cash distributed,
and the reduction, if any, in his pro rata share of partnership debt) exceeds
his adjusted tax basis for his Units immediately before the distribution, and
will recognize capital loss to the extent his adjusted tax basis of unrealized
receivables and substantially appreciated inventory distributed to him (if no
other property is distributed). However, if substantially appreciated inventory
or unrealized receivables are distributed non-pro rata in liquidation, such
distribution would be treated as a sale or exchange, with the result that the
distributee partners could be required to recognize both ordinary income and
capital gain on the distribution. Furthermore, depending upon the partnership
election, there may be a recapture of any investment tax credit taken.
<PAGE>
Tax Returns. The Partnership will furnish annually to the Limited Partners
(but not to assignees of Limited Partners unless they become substituted Limited
Partners) sufficient information from the Partnership's tax return for the
Limited Partners to prepare their own federal, state and local tax returns. The
Partnership's tax returns will be prepared by accountants to be selected by the
General Partners. The Revenue Act of 1978 provides a substantial additional
penalty for failure to timely file the federal information tax return of the
Partnership and/or filing of such a return that fails to show the information
required under Section 6031 of the Code.
Audit of Tax Returns. The General Partners understand that the Service is
paying increased attention to the proper application of the tax laws to
partnerships. While the Partnership is not being formed so as to allow investors
to avail themselves of losses or deductions generated by the Partnership, the
Service still may choose to audit the Partnership's information returns. An
audit of the Partnership's information returns may precipitate an audit of the
income tax returns of Limited Partners. Any expense involved in an audit of a
Limited Partner's returns must be borne by such Limited Partner. Prospective
investors should also be aware that if the Service successfully asserts a
position to adjust any item of income, gain, deduction or loss reported on a
Partnership information return, corresponding adjustments would be made to the
income tax returns of Limited Partners. Further, any such audit might result in
Service adjustments to items of non-Partnership income or loss.
If a tax deficiency is determined, the taxpayer is liable for interest on
such deficiency from the due date of the return. Interest on underpayment is
payable at the federal short-term rate plus three percentage points, rounded to
the nearest full percent (rounding up in the case of a multiple of one-half of
one percent). The federal short-term rate is determined for the first month of
each quarter, and the rate so determined governs the calculation of the rate of
interest on underpayment for calendar quarter after the quarter during the first
month of which the rate is so determined. The "federal short-term rate" for a
month is determined by the Service based on the average market yield on
outstanding marketable obligations of the United States with remaining periods
to maturity of three years or less. In the case of any "substantial
underpayment" attributable to a "tax motivated transaction," the interest rate
on underpayment is one hundred twenty percent (120%) of the interest rate that
otherwise apply. A "substantial underpayment" is any underpayment of tax in
excess of $1,000 attributable to one or more "tax motivated transaction," which
is defined to include (among other things) certain valuation overstatements, any
use which may result in a substantial distortion of income for any period, and
any sham or fraudulent transaction.
The tax treatment of items of partnership income, gain, loss, deductions or
credit is to be determined at the partnership level in a unified partnership
proceeding, rather than in separate proceedings with the partners. However, any
partner has the right to participate in any administrative proceeding at the
partnership level. Generally, the "tax matters partner," Michael R. Burwell,
would represent the Partnership before the Service and may enter into a
settlement with the Service as to partnership tax issues which generally will be
binding on all of the partners, unless a partner timely files a statement with
the Service providing that tax matters partner shall not have the authority to
enter into a settlement agreement on his behalf. Similarly, only one judicial
proceeding contesting a Service determination may be filed on behalf of a
partnership and all partners. However, if the tax matters partner fails to file
such an action, then any partner, unless such partner owns less than one percent
(1%) interest in a partnership having more than 100 partners) or a group of
partners owning five percent (5%) or more of the profits interest in the
partnership may file such an action. The tax matters partner may consent to an
extension of the statute of limitation period for all partners with respect to
partnership items.
Investment by Tax-Exempt Investors. Tax-Exempt Investors, including
Employee Trusts and Individual Retirement Accounts ("IRAs"), are generally
exempt from federal income taxation. However, such organizations are subject to
taxation on their "unrelated business taxable income," as defined in Section 512
of the Code. Unrelated business taxable income does not, in general, include
interest, dividends, rents from real property, gain from the sale of property
other than inventory or property held primarily for sale to customers in the
ordinary course of business, and certain other types of passive investment
income, unless such income is derived from "debt-financed property" as defined
in Section 514 of the Code.
In addition to receiving interest income (which will comprise substantially
all of its income), the Partnership may also receive payments in the nature of
points or loan servicing or origination fee at the time funds are advanced under
a Mortgage Investment. The fees paid for services rendered in connection with
the making or securing of Mortgage Investments, as opposed to fees paid merely
for the use of money, will not be treated as interest income and will most
likely constitute unrelated business taxable income.
Any Partnership borrowing for the purpose of making additional loans may
result in "debt financed property" and, therefore, unrelated business taxable
income to tax-exempt Limited Partners to the extent that the Service concludes
that such borrowings are allocable to the Limited Partners for this purpose (see
Rev. Rule 76-354, 1976-2 C.B. 179). Furthermore, any borrowings by a Limited
Partner for the purpose of financing his investment in the Partnership can
result in "debt-financed property" and, therefore, unrelated business taxable
income.
<PAGE>
As a consequence of the exercise of a default remedy under a Partnership,
the Partnership may be forced to foreclose and hold real or other property
(which secures the Mortgage Investment) for a short period of time. The
Partnership is permitted to borrow funds to assist in the operation of any
property on the security of which it has previously made a Mortgage Investment
and the operations of which it has subsequently taken over as a result of a
default. Furthermore, the foreclosed properties may be subject to other existing
mortgages. Consequently, any such acquired property may be deemed to be
"debt-financed property." In such event, net income and gain from any such
property may constitute unrelated business taxable income, although Employee
Trusts (but not most other tax-exempt organizations, including IRAs) may
nevertheless qualify for an exception, found in Code Section 514(c)(9), which
would exempt them from taxation on such net income in the case of the real
property.
The Partnership intends to hold its Mortgage Investments for investment
and, therefore, no unrelated business taxable income should result from the
disposition of these assets. Such may not be the case, however, if the
Partnership does not act in accordance with this intention and it is determined
that the Partnership is a dealer in the business of buying and selling Mortgage
Investments. The General Partners have represented that they intend to conduct
the activities of the Partnership in a manner so as to minimize or eliminate the
risk of having the Partnership classified as a "dealer" for federal income tax
purposes (See "PROPERTY HELD PRIMARILY FOR SALE/POTENTIAL DEALER STATUS.")
In computing unrelated business taxable income, a Tax-Exempt Investor,
including an Employee Trust or IRA, may deduct a proportionate share of all
expenses which are directly connected with the activities generating such income
or with the "debt-financed property," as the case may be, and is also entitled
to an annual exclusion of $1,000 with respect to unrelated business taxable
income. Even though a portion of the income of a Tax-Exempt Investor is
unrelated business taxable income, income from other sources which is not
unrelated business taxable income will not be subject to federal income
taxation. In addition, the receipt of unrelated business taxable income by a
Tax-Exempt Investor generally will not affect its tax-exempt status if the
investment is not otherwise inconsistent with the nature of its tax exemption.
In addition to the general tax treatment of unrelated business taxable
income received by tax-exempt investors, special rules apply to charitable
remainder trusts. In general, a charitable remainder trust is a trust in which a
portion of an asset will be transferred to a charitable organization through the
use of a trust and the trust itself will not be subject to taxation on its
income. If a charitable remainder trust (which includes charitable remainder
annuity trusts, charitable remainder unitrusts and charitable remainder net
income trusts) receives any unrelated business taxable income for any taxable
year, the trust is taxable on all of its income as a complex trust. The
remainder trust is taxable on its accumulated income to the extent the income is
not distributed to beneficiaries and to the extent the income exceeds the amount
deductible under Section 661(a). The Partnership does not anticipate that it
will generate any significant unrelated business taxable income. However,
Prospective Investors which are charitable remainder trusts should review their
individual tax situation with their tax advisors to determine the effect of the
receipt of unrelated business taxable income to the trust.
A Prospective Investor which is a Tax-Exempt Investor is strongly urged to
consult its own tax adviser with regard to the foregoing unrelated business
taxable income aspects of an investment in the Partnership. Furthermore, with
regard to certain non-tax aspects of an investment in the Partnership, (see
"RISK FACTOR - Investments by Tax-Exempt Investors" and "ERISA CONSIDERATIONS.")
State and Local Taxes. In addition to the federal income tax consequences
described above, prospective investors may be subject to state and local tax
consequences by reason of investment in the Partnership. A Limited Partner's
distributive share of the taxable income or loss of the Partnership generally
will be required to be included in determining his reportable income for state
or local income tax purposes in the jurisdiction in which he is a resident.
Further, upon his death, estate or inheritance taxes might be payable in such
Jurisdictions based upon his interest in the Partnership. In addition, a Limited
Partner might be subjected to income tax, estate or inheritance tax, or both.
Depending upon the applicable state and local laws, tax benefits which are
available to Limited Partners for federal income tax purposes may not be
available to Limited Partners for state or local income tax purposes. Potential
investors are urged to consult their personal tax advisor regarding the impact
of state and local taxes upon an investment in the Partnership. A discussion of
state and local tax law is beyond the scope of this Prospectus.
<PAGE>
ERISA CONSIDERATIONS
General. The law governing retirement plan investment in the Partnership is
the Employee Retirement Income Security Act of 1974 ("ERISA") and the Code.
Persons or organizations that exercise discretion or control over plan assets
are deemed to be fiduciaries under ERISA. Section 404 of ERISA provides that a
fiduciary is subject to a series of specific responsibilities and prohibitions
and is required to manage plan assets "solely in the interest of plan
participants." Section 404 of ERISA requires that plan fiduciaries discharge
their duty with care, skill, prudence and diligence (the so called "prudent man
rule") and that the fiduciary diversify the investments of the plan unless under
the circumstances it is clearly not prudent to do so. Regulations issued by the
Department of Labor ("DOL") under these statutory provisions require that in
making investments, the fiduciary consider numerous factors, current return of
the portfolio relative to the anticipated cash flow requirements of the plan,
and the projected return of the portfolio relative to the funding objectives of
the plan. In addition, before the enactment of ERISA, the Internal Revenue
Service, proceeding under a statutory mandate that all qualified plans be for
the exclusive benefit of participants and beneficiaries, issued a similar set of
investment considerations for plan fiduciaries. That Internal Revenue Service
position has not been modified since ERISA. Consequently, a "Tax-Exempt
Investor", which is defined as a qualified profit-sharing, pension or retirement
trust, an HR-10 (Keogh) Plan, or an Individual Retirement Account (IRA), should,
in general, purchase Units of Limited partnership interest only when,
considering all assets held by such plans, those prudence, liquidity and
diversification requirements are satisfied.
Fiduciaries Under ERISA. A fiduciary of a Qualified Plan is subject to
certain requirements under ERISA, including the duty to discharge of
responsibilities solely in the interest of, and for the benefit of the Qualified
Plan's participants and beneficiaries. A fiduciary is required to (a) perform
its duties with the skill, prudence and diligence of a prudent man acting in
like capacity, (b) diversify investments so as to minimize the risk of large
losses and (c) act in accordance with the Qualified Plan's governing documents.
Fiduciaries with respect to a Qualified Plan include any persons who
exercise or possess any discretionary power of control, management or
disposition over the funds or other property of the Qualified Plan. For example,
any person who is responsible for choosing a Qualified Plan's investments, or
who is a member of a committee that is responsible for choosing a Qualified
Plan's investments, is a fiduciary of the Qualified Plan. Also, an investment
professional whose advice will serve as one of the primary basis for a Qualified
Plan's investment decisions may be a fiduciary of the Qualified Plan, as may any
other person with special knowledge or influence with respect to a Qualified
Plan's investment or administrative activities.
While the beneficiary "owner" or "account holder" of an IRA is generally
treated as a fiduciary of the IRA under the Code, IRAs generally are not subject
to ERISA's fiduciary duty rules. Where a participant in a Qualified Plan
exercises control over such participant's individual account in the Qualified
Plan in a "self-directed investment" arrangement that meets the requirements of
Section 404(c) of ERISA, such Participant (rather than the person who would
otherwise be a fiduciary of such Qualified Plan) will generally be held
responsible for the consequences of his investment decisions under
interpretations of applicable regulations of the Department of Labor. Certain
Qualified Plans of sole proprietorships, partnerships and closely-held
corporations of which the owners of one hundred percent (100%) of the equity of
such business and their respective spouses are the sole participants in such
Plans at all times generally not subject to ERISA's fiduciary duty rules,
although they are subject to the Code's prohibited transaction rules, explained
below.
A person subject to ERISA's fiduciary rules with respect to a Qualified
Plan should consider those rules in the context of the particular circumstances
of the Qualified Plan before authorizing an investment of a portion of the
Qualified Plan's assets in Units.
Prohibited Transactions Under ERISA and the Code. Section 4975 of the Code
(which applies to all Qualified Plans and IRAs) and Section 406 of ERISA (which
does not apply to IRAs or to certain Qualified Plans that, under the rules
summarized above, are not subject to ERISA's fiduciary rules) prohibit Qualified
Plans and IRAs from engaging in certain transactions involving "plan assets"
with parties that are "disqualified persons" under the Code or "parties in
interest" under ERISA ("disqualified persons" and "parties in interest" are
hereafter referred to as "Disqualified Persons"). Disqualified Persons include
fiduciaries of the Qualified Plan or IRA, officers, directors, shareholders and
other owners of the company sponsoring the Qualified Plan and natural persons
and legal entities sharing certain family or ownership relationships with other
Disqualified Persons.
"Prohibited transactions" include any direct or indirect transfer or use of
a Qualified Plan's or IRA's assets to or for the benefit of a Disqualified
Person, any act by a fiduciary that involves the use of a Qualified Plan's or
IRA's assets in the fiduciary's individual interest or for the fiduciary's own
account, and any receipt by a fiduciary of consideration for his or her own
personal account from any party dealing with a Qualified Plan or IRA in
connection with a transaction involving the assets of the Qualified Plan or the
IRA. Under ERISA, a Disqualified Person that engages in a prohibited transaction
will be required to disgorge any profits made in connection with the transaction
and for any losses sustained by the Qualified Plan. In addition, ERISA
authorizes additional penalties and further relief from such transaction.
Section 4975 of the Code imposes excise taxes on a Disqualified Person that
engages in a prohibited transaction with a Qualified Plan or IRA.
<PAGE>
In order to avoid the occurrence of a prohibited transaction under Section
4975 of the Code and/or Section 406 of ERISA, Units may not be purchased by a
Qualified Plan or IRA from assets as to which the General Partners or any of
their Affiliates are fiduciaries. Additionally, fiduciaries of, and other
Disqualified Persons with respect to, Qualified Plans and IRAs should be alert
to the potential for prohibited transactions that may occur in the context of a
particular Qualified Plan's or IRA's decision to purchase Units.
Plan Assets. If the Partnership's assets were determined under ERISA or the
Code to be "plan assets" of Qualified Plans and/or IRAs holding Units,
fiduciaries of such Qualified Plans and IRAs might under certain circumstances
be subject to liability for actions taken by the General Partners or their
Affiliates. In addition, certain of the transactions described in the Prospectus
in which the Partnership might engage, including certain transactions with
Affiliates, might constitute prohibited transactions under the Code and ERISA
with respect to such Qualified Plans and IRAs, even if their acquisition of
Units did not originally constitute a prohibited transaction. Moreover,
fiduciaries with responsibilities to Qualified Plans (other than IRAs) might be
deemed to have improperly delegated their fiduciary responsibilities to the
General Partner in violation of ERISA.
Although under certain circumstances ERISA and the Code, as interpreted by
the Department of Labor in currently effective regulations, apply a
"look-through" rule under which the assets of an entity in which a Qualified
Plan or IRA has made an equity investment may generally constitute "plan
assets," the applicable regulations except investments in certain publicly
registered securities from the application of the "look-through" principle.
In order to qualify for the exception described above, the securities in
question must be "publicly-offered securities." Publicly-offered securities are
defined as freely transferable, owned by at least 100 investors independent of
the issuer and of one another, and registered either (a) under Section 12(b) or
12(g) of the Securities Exchange Act of 1934, or (b) sold as part of a public
offering pursuant to an effective registration statement under the Securities
Act of 1933 and registered under the Securities Exchange Act of 1934 within 120
days (or such later time as may be allowed by the Securities and Exchange
Commission) after the end of the issuer's fiscal year during which the offering
occurred.
The Partnership's Units should constitute "publicly-offered securities"
because (a) the General Partners have represented that it is highly likely that
substantially more than 100 independent investors will purchase and hold Units
in the Partnership, and the Regulation states that, when 100 or more investors
independent of the issuer and of one another purchase a class of securities, the
class will be deemed to be widely held; (b) the General Partners have
represented that the Partnership's offering the Units is registered under the
Securities Act of 1933 and that the General Partners intend to register the
Units in the Partnership under the Securities Exchange Act of 1934; and (c)
although whether a security is freely transferable is a factual determination,
the limitations on the assignment of Units and substitution of Limited Partners
contained in the Partnership Agreement, with the possible exception for
publicly-traded partnership discussed below, fall within the scope of certain
restrictions enumerated in the Regulation that ordinarily will not affect a
determination that securities are freely transferable when the minimum
investment is $10,000 or less. The Partnership Agreement prohibits the
assignment or other transfer of Units without the General Partners' written
consent if the General Partners determine in good faith that such transfer might
result in a change in the status of the Partnership to a publicly-traded
partnership within the meaning of Section 7704 of the Code, as currently or
hereafter interpreted by the Service in rulings, regulations or other
publications, or by the courts, and such status would have a material adverse
impact on the Limited Partners or their assignees. In order to prevent the
Partnership from being classified as a publicly-traded partnership, the General
Partner has represented that it intends to prohibit transfers of Units only to
the extent necessary to comply with the safe harbors contained in IRS Notice
88-75, under which certain levels of trading are permissible (See "FEDERAL
INCOME TAX CONSEQUENCES Publicly Traded Partnerships"). The Regulation permits
restrictions that prohibit any transfer or assignment that would result in a
reclassification of the entity for federal income tax purposes. In Advisory
Opinion 89-14A, dated August 2, 1989, the Department of Labor expressed its
opinion that a restriction against transfer of partnership interests that is
drafted to avoid reclassification of a partnership as a publicly-traded
partnership would qualify as the type of restriction contemplated by the
Regulation. Therefore, the restriction in the Partnership Agreement should not,
absent unusual circumstances, affect the free transferability of the Units
within the meaning of the Regulation.
<PAGE>
Potential Consequences of Treatment as Plan Assets. In the event that the
Units do not constitute "publicly-offered securities," the underlying assets of
the Partnership are treated as plan assets under the regulations. If the
Partnership's underlying assets are deemed to be plan assets, the Partnership
may be required to take steps which could affect Partners who are subject to
income tax, as well as Qualified Plans which may invest in the Partnership. In
such event, the fiduciary duties, including compliance with the exclusive
benefit rule and the diversification and prudence requirements, must be
considered with respect to the investment in the Partnership. Each Partner of
the Partnership who has authority or control with respect to the management or
disposition of the assets of the Partnership, or who renders investment advice
for a fee or other compensation, direct or indirect, with respect to the assets
of the Partnership would be treated as a fiduciary and therefore would be
personally liable for any losses to a Qualified Plan which invests in the
Partnership resulting from a breach of fiduciary duty.
The prohibited transaction restrictions would apply to any transactions in
which the Partnership engages involving the assets of the Partnership and a
party-in-interest. Such restrictions could, for example, require that the
Partnership and the General Partners avoid transactions with entities that are
affiliated with the Partnership or the General Partners or that Qualified Plan
investors be given the opportunity to withdraw from the Partnership. Also, the
General Partners who participate in a prohibited transaction may be subject to
an excise tax. Finally, entering into a prohibited transaction may result in
loss of the Qualified Plan's tax-exempt status.
DESCRIPTION OF UNITS
The Units will represent a Limited Partnership Interest in the Partnership.
Units will be evidenced by a Certificate of Limited Partnership Interest. Each
Unit will represent a Limited Partnership Interest of $100.
The Limited Partners representing a majority of the outstanding Limited
Partnership Interests may, without the concurrence of the General Partners, vote
to take the following actions: (a) terminate the Partnership; (b) amend the
Limited Partnership Agreement, subject to certain limitations described in
Section 12.4 of the Limited Partnership Agreement; (c) approve or disapprove the
sale of all or substantially all of the assets of the Partnership; or (d) remove
or replace one or all of the General Partners. In addition, Limited Partners
representing ten percent (10%) of the Limited Partner Interests may call a
meeting of the Partnership. (See "SUMMARY OF THE LIMITED PARTNERSHIP
AGREEMENT").
An assignee of Units shall not become a substituted Limited Partner in
place of his assignor unless the written consent of the General Partners to such
substitution shall have been obtained, which consent shall not be unreasonably
withheld. An assignee who does not become a substituted Limited Partner shall be
entitled to receive allocations and distributions attributable to the Unit
properly transferred to him, but shall not have any of the other rights of a
Limited Partner, including the right to vote as a Limited Partner and the right
to inspect and copy the Partnership's books.
It is not anticipated that there will be a public trading market for the
Units and the transferability of the Units will be subject to a number of
restrictions. Accordingly, the liquidity of the Units will be limited and
holders of the Units may not be able to liquidate their investment in the event
of an emergency, except as permitted in the withdrawal provisions described
below. Any transferee must be a person that would have been qualified to
purchase Units in this offering and no transferee may acquire less than 20
Units. No Unit may be transferred if, in the judgment of the General Partners, a
transfer would jeopardize the status of the Partnership or cause a termination
of the Partnership for federal income tax purposes. Transfers of the Units will
generally require the consent of the California Commissioner of Corporations,
except as permitted in the Commissioner's Rules. The certificates representing
the Units will bear a legend setting forth this restriction. Additional
restrictions on transfers of Units may be imposed under the securities laws of
other states upon transfers occurring in or involving the residents of such
states. In addition, no Limited Partner will be permitted to make any transfer
or assignment of his Limited Partnership Interest if the General Partners
determine such transfer or assignment would result in the Partnership being
classified as a "publicly traded partnership" within the meaning of Section
7704(b) of the Code or any rules, regulations or safe-harbor guidelines
promulgated thereunder.
The Partnership will not repurchase any Units from the Limited Partners.
However, the Limited Partners may withdraw from the Partnership after one year
from the date of purchase in four quarterly installments subject to a ten
percent (10%) early withdrawal penalty being deducted from their Capital
Account. Limited Partners may also withdraw after five years on an installment
basis, generally a five year period in twenty installments or longer, without
the imposition of any penalty (See "SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT
- - Withdrawal from Partnership").
<PAGE>
SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT
The following is a summary of the Limited Partnership Agreement for the
Partnership, and is qualified in its entirety by the terms of the Agreement
itself. Potential investors are urged to read the entire Agreement, which is set
forth as Exhibit A to this Prospectus.
Rights and Liabilities of Limited Partners. The rights, duties and powers
of Limited Partners are governed by the Limited Partnership Agreement and
Sections 15611, et seq. of the California Corporations Code (the California
Revised Limited Partnership Act (the "Partnership Act")) and the discussion
herein of such rights, duties and powers is qualified in its entirety by
reference to such Agreement and Partnership Act.
Investors who become Limited Partners in the Partnership in the manner set
forth herein will not be responsible for the obligations of the Partnership.
However, they will be liable to the extent of any deficit in their capital
accounts upon dissolution, and may also be liable for any return of capital plus
interest if necessary to discharge liabilities existing at the time of such
return. Any cash distributed to Limited Partners may constitute, wholly or in
part, return of capital.
Limited Partners will have no control over the management of the
Partnership, except that Limited Partners representing a majority of the
outstanding Limited Partnership interests may, without the concurrence of the
General Partners, take the following actions: (a) terminate the Partnership
(including merger or reorganization with one or more other partnerships); (b)
amend the Limited Partnership Agreement; (c) approve or disapprove the sale of
all or substantially all of the assets of the Partnership; or (d) remove and
replace one or all of the General Partners. The approval of all Limited Partners
is required to elect a new General Partner to continue the business of the
Partnership where there is no remaining General Partner after a General Partner
ceases to be a general partner other than by removal. The General Partners shall
have the right to increase the size of this Offering or conduct an additional
offering of securities without obtaining the consent of the Limited Partners.
Limited Partners representing ten percent (10%) of the Limited Partnership
interests may call a meeting of the Partnership.
Capital Contributions. Interests in the Partnership will be sold in Units
of $100, and no person may acquire less than 20 Units ($2,000). The General
Partners have the discretion to accept subscriptions for fractional units in
excess of the minimum subscription. The General Partners, collectively, will
contribute the sum of l/10th of 1% of the Gross Proceeds to the capital of the
Partnership.
Rights, Powers and Duties of General Partners. Subject to the right of the
Limited Partners to vote on specified matters, the General Partners will have
complete charge of the business of the Partnership. The General Partners are not
required to devote full time to Partnership affairs but only such time as is
required for the conduct of Partnership business. Any one of the General
Partners acting alone has the power and authority to act for and bind the
Partnership. The General Partners are granted the special power of attorney of
each Limited Partner for the purpose of executing any document which the Limited
Partners have agreed to execute and deliver.
Profits and Losses. Profits and losses of the Partnership will be allocated
among the Limited Partners according to their respective outstanding capital
accounts on a daily basis. Upon transfer of Units (if permitted under the
Limited Partnership Agreement and applicable law), profit and loss will be
allocated to the transferee beginning with the next succeeding calendar month.
One percent (1%) of all Partnership profit and loss will be allocated to the
General Partners.
Cash Distributions. Upon his subscription for Units, each Limited Partner
will be required to elect either (i) to receive monthly, quarterly or annual
distributions ("Periodic Distributions"); or (ii) to acquire additional Units
with his allocable share of Earnings. The election to receive Periodic Cash
Distributions is irrevocable although an investor may change whether such
distributions are received on a monthly, quarterly or annual basis. If a Limited
Partner initially elected to receive additional Units, he may, after three (3)
years, change his election and receive Periodic Cash Distributions. The General
Partners will also receive cash distributions equal to one percent (1%) of total
Partnership income.
As a result, the relative percentage of Partnership interests of
non-electing Partners (including voting rights and shares of future income) will
gradually increase due to the compounding effect of crediting income to their
capital accounts, while the percentage interests of Partners who receive cash
distributions will decrease during the term of the Partnership.
Meeting. A General Partner, or Limited Partners representing ten percent
(10%) of the Limited Partnership interests, may call a meeting of the
Partnership on at least 30 days written notice. Unless the notice otherwise
specifies, all meetings will be held at 2:00 P.M. at the office of the
Partnership. Limited Partners may vote in person or by proxy at the Partnership
meeting. A majority of the outstanding Limited Partnership interests will
constitute a quorum at Partnership meetings. There are no regularly scheduled
meetings of the Limited Partners.
<PAGE>
Accounting and Reports. The General Partners will cause to be prepared and
furnished to the Limited Partners an annual report of the Partnership's
operation, which will be audited by an independent accounting firm. Within 120
days after the close of the year covered by the report, a copy or condensed
version will be furnished to the Limited Partners. The Limited Partners shall
also be furnished such detailed information as is reasonably necessary to enable
them to complete their own tax returns within 90 days after the end of the year.
The General Partners presently intend to maintain the Partnership's books
and records on the accrual basis for bookkeeping and accounting purposes, and
also intend to use the accrual basis method of reporting income and losses for
federal income tax purposes. The General Partners reserve the right to change
such methods of accounting, upon written notice to Limited Partners. Any Limited
Partners may inspect the books and records of the Partnership at all reasonable
times.
Restrictions on Transfer. The Limited Partnership Agreement places
substantial limitations upon transferability of Limited Partnership interests.
Any transferee must be a person that would have been qualified to purchase a
Limited Partnership Unit in this offering and no transferee may acquire or hold
less than 20 Limited Partnership Units. No Limited Partnership Unit may be
transferred if, in the judgment of the General Partners, and/or their counsel a
transfer would jeopardize the status of the Partnership as a partnership or
cause a termination of the Partnership for federal income tax purposes. The
written consent of the California Commissioner of Corporations is also required
prior to any sale or transfer of Units except as permitted. In addition, no
Limited Partner will be permitted to make any transfer or assignment of his
Limited Partnership Interest if the General Partners and/or their counsel
determine such transfer or assignment would result in the Partnership being
classified as a "publicly traded partnership" within the meaning of Section
7704(b) of the Code or any rules, regulations or safe-harbor guidelines
promulgated thereunder.
A transferee may not become a substituted Limited Partner without the
consent of the General Partners. A transferee who does become a substituted
Limited Partner has no right to any information regarding the Partnership or to
inspect the Partnership's books, but is entitled only to the share of income or
return of capital to which the transferor would be entitled.
General Partners' Interest. Any General Partner, or all of them, may retire
from the Partnership at any time upon six months written notice to all Limited
Partners, in which event a retiring General Partner would not be entitled to any
termination or severance payment from the Partnership, except for the return of
his capital account balance. A General Partner may also sell and transfer his
general partner interest in the Partnership (including all powers and
authorities associated therewith) for such price as he shall determine in his
sole discretion, and neither the Partnership nor the Limited Partners will have
any interest in the proceeds of such sale. However, the successor General
Partner must be approved by Limited Partners holding a majority of the
outstanding Limited Partnership interests. In the event that all or any one of
the initial General Partners are removed by the vote of a majority of Limited
Partners and a successor General Partner(s) is thereafter designated, prior to
becoming a successor or additional General Partner, such designated General
Partner shall sign a written document (i) acknowledging that Redwood Mortgage,
an affiliate of the initial General Partners, was repaying the Formation Loan
with the proceeds it earned from loan brokerage commissions on Mortgage
Investments and other fees paid by the Partnership; and (ii) agreeing that in
the event such successor General Partner(s) elects to use another loan brokerage
firm for the placement of Mortgage Investments, Redwood Mortgage shall
immediately be released from all further obligation under the Formation Loan
(except for a proportionate share of the principal installment due at the end of
that year, prorated according to the days elapsed). If all of the General
Partners are removed, no other General Partners are elected, the Partnership is
liquidated and Redwood Mortgage is no longer receiving payments for services
rendered, the debt on the Formation Loan shall be forgiven by the Partnership
and Redwood Mortgage will be immediately released from any further obligation
under the Formation Loan.
Term of Partnership. The term of the Partnership commenced on the day the
Limited Partnership Agreement was executed, and will continue until December 31,
2032. The Partnership will dissolve and terminate if any one of the following
occurs: (1) upon the removal, death, retirement, insanity, dissolution or
bankruptcy of a General Partner, unless the business of the Partnership is
continued by a remaining General Partner, if any, or if there is no remaining
General Partner, by a new General Partner elected to continue the business of
the Partnership by all the Limited Partners (or by a majority-in-interest of the
Limited Partners, in the case of removal); (2) upon the affirmative vote of a
majority-in interest of the Limited Partners; (3) upon the sale of all or
substantially all (i.e., at least seventy percent (70%)) of the Partnership's
assets; or (4) otherwise by operation of law.
<PAGE>
Winding Up. The Partnership will not terminate immediately upon the
occurrence of an event of dissolution, but will continue until its affairs have
been wound up. Upon dissolution of the Partnership, the General Partners will
wind up the Partnership's affairs by liquidating the Partnership's assets as
promptly as is consistent with obtaining the fair current value thereof, either
by sale to third parties or by collecting loan payments under the terms of the
loan. All funds received by the Partnership shall be applied to satisfy or
provide for Partnership debts and the balance shall be distributed to partners
in accordance with the terms of the Limited Partnership Agreement.
Dissenting Limited Partners' Rights. If the Partnership participates in any
acquisition of the Partnership by another entity, any combination of the
Partnership with another entity through a merger or consolidation, or any
conversion of the Partnership into another form of business entity through (such
as a corporation) that requires the approval of the outstanding limited
partnership interests, the result of which would cause the other entity to issue
securities to the Limited Partners, then each Limited Partner who does not
approve such reorganization (the "Dissenting Limited Partner") may require the
Partnership to purchase for cash, at its fair market value, his or her interest
in accordance with Section 15679.2 of the California Corporations Code. The
Partnership, however, may itself convert to another form of business entity
(such as a corporation, trust or association) if the conversion will not result
in a significant adverse change in (i) the voting rights of the Limited
Partners, (ii) the termination date of the Partnership (currently, December 31,
2032, unless terminated earlier in accordance with the Partnership Agreement),
(iii) the compensation payable to the General Partners or their Affiliates, or
(iv) the Partnership's investment objectives.
The General Partners will make the determination as to whether or not any
such conversion will result in a significant adverse change in any of the
provisions listed in the preceding paragraph based on various factors relevant
at the time of the proposed conversion, including an analysis of the historic
and projected operations of the Partnership; the tax consequences (from the
standpoint of the Limited Partners) of the conversion of the Partnership to
another form of business entity and of an investment in a limited partnership as
compared to an investment in the type of business entity into which the
Partnership would be converted; the historic and projected operating results of
the Partnership's Mortgage Investments, and the then-current value and
marketability of the Partnership's Mortgage Investments. In general, the General
Partners would consider any material limitation on the voting rights of the
Limited Partners or any substantial increase in the compensation payable to the
General Partners or their Affiliates to be a significant adverse change in the
listed provisions.
It is anticipated that, under the provisions of the Partnership Agreement,
the consummation of any such conversion of the Partnership into another form of
business entity (whether or not approved by the General Partners) would require
the approval of Limited Partners holding a majority of the Units.
TRANSFER OF UNITS
Restrictions on the Transfer of Units. There is no public or secondary
market for the Units and none is expected to develop. Moreover, a Unit may only
be transferred if certain requirements are satisfied, and transferees may become
Limited Partners only with the consent of the General Partners. Under Article 7
of the Partnership Agreement, the assignment or other transfer of Units will be
subject to compliance with the minimum investment and suitability standards
imposed by the Partnership. (See "INVESTOR SUITABILITY STANDARDS"). Under
presently applicable state securities law ("Blue Sky") guidelines, except in the
case of a transfer by gift or inheritance or upon family dissolution or an
intra-family transfer, each transferee of Units of the Partnership must
generally satisfy minimum investment and investor suitability standards similar
to those which were applicable to the original offering of Units and, following
a transfer of less than all of his Units, each transferor must generally retain
a sufficient number of Units to satisfy the minimum investment standards
applicable to his initial purchase of Units. In the case of a transfer in which
a member firm of the National Association of Securities Dealers, Inc., is
involved, that firm must be satisfied that a proposed transferee of Units
satisfies the suitability requirements as to financial position and net worth
specified in Section 3(b) of Appendix F to the NASD's Conduct Rules and must
inform the proposed transferee of all pertinent facts relating to the liquidity
and marketability of the Units during the term of the investment.
Unless the General Partners shall give their express written approval, no
Units may be assigned or otherwise transferred (i) to a minor or incompetent
(unless a guardian, custodian or conservator has been appointed to handle the
affairs of such Person); (ii) to any Person not permitted to be a transferee
under applicable law, including, in particular but without limitation,
applicable federal and state securities laws; (iii) to any Person if, in the
opinion of Tax Counsel, such assignment would result in the termination under
the Code of the Partnership's taxable year of its status as a partnership for
federal income tax purposes; (iv) to any Person if such assignment would affect
the Partnership's existence or qualification as a limited partnership under the
California Act or the applicable laws of any other jurisdiction in which the
Partnership is then conducting business.
<PAGE>
Any such attempted assignment without the express written approval of the
General Partners shall be void and ineffectual and shall not bind the
Partnership. In the case of a proposed assignment, which is prohibited solely
under clause (iii) above, however, the Partnership shall be obligated to permit
such assignment to become effective if and when, in the opinion of Counsel, such
assignment would no longer have either of the adverse consequences under the
Code which are specified in that clause.
Section 7.03 of the Partnership Agreement provides that so long as there
are adverse federal income tax consequences from being treated as a "publicly
traded partnership" for federal income tax purposes, the General Partners shall
not permit any interest in a Unit to be Assigned on a secondary public market
(or a substantial equivalent thereof) as defined under the Code and any
regulations promulgated thereunder (a "Secondary Market") and, if the General
Partners determine in their sole discretion, that a proposed assignment was
affected on a Secondary Market, the Partnership and the General Partners have
the right to refuse to recognize any such proposed Assignment and to take any
action deemed necessary or appropriate in the General Partners' reasonable
discretion so that such assignment is not in fact recognized. For the purposes
of Section 7.3 of the Partnership Agreement, any assignment which results in a
failure to meet the "safe harbor" provisions of Notice 88-75 (July 5, 1988)
issued by the Service or any substitute safe-harbor provisions subsequently
established by Treasury Regulations shall be treated as causing the Units to be
publicly traded. The Limited Partners agree to provide all information
respecting assignments which the General Partners deem necessary in order to
determine whether a proposed transfer occurred on a secondary market. The
General Partners shall incur no liability to any investor or prospective
investor for any action or inaction by them in connection with the foregoing,
provided it acted in good faith.
Consequently, holders of Units may not be able to liquidate their
investments in the event of emergencies or for any other reasons. In addition,
Units may not be readily accepted as collateral for loans.
Withdrawal from Partnership. A Limited Partner has no right to withdraw
from the Partnership or to obtain the return of all or any portion of sums paid
for the purchase of Units (or reinvested earnings with respect thereto) for one
(1) year after the date such Units are purchased. In order to provide a certain
degree of liquidity to the Limited Partners, after the one year period, Limited
Partners may withdraw all or part of their Capital Accounts from the Partnership
in four equal quarterly installments beginning the calendar quarter following
the quarter in which the notice of withdrawal is given, provided notice is given
thirty (30) days prior to the end of the preceding quarter subject to a ten
percent (10%) early withdrawal penalty. The ten percent (10%) penalty is
applicable to the amount withdrawn as stated in the Notice of Withdrawal. The
ten percent (10%) penalty will be deducted, pro rata, from the four quarterly
installments paid to the Limited Partner. Withdrawal after the one year holding
period and before the five year holding period will be permitted only upon the
terms set forth above.
Limited Partners will also have the right after five years from the date of
purchase of the Units to withdraw from the Partnership on an installment basis,
generally, over a five-year period (in 20 equal quarterly installments), or over
such longer period of time as the Limited Partner may desire or as may be
required in light of Partnership cash flow. During this five-year (or longer)
period, the Partnership will pay any distributions with respect to Units being
liquidated directly to the withdrawing Limited Partner. No penalty will be
imposed on withdrawals made in twenty quarterly installments or longer.
Notwithstanding the five-year (or longer) withdrawal period, the General
Partners may liquidate all or part of a Limited Partners Capital Account in four
quarterly installments beginning the calendar quarter following the quarter in
which the notice of withdrawal is given, provided that such notice was received
thirty (30) days prior to the end of the preceding quarter. Such liquidations
shall, however, be subject to a ten percent (10%) early withdrawal penalty
applicable to any sums withdrawn prior to the time when such sums could have
been withdrawn pursuant to the five year (or longer) withdrawal period. The ten
percent (10%) penalty will be deducted from the Limited Partners' Capital
Account.
The ten percent (10%) early withdrawal penalty will be received by the
Partnership, and a portion of the sums collected as such penalty will be applied
toward the next installment(s) of principal, under the Formation Loan owed to
the Partnership by Redwood Mortgage thereby reducing the amount owed to the
Partnership from Redwood Mortgage. Such portion shall be determined by the ratio
between the initial amount of the Formation Loan and the total amount of
organization and syndication costs incurred by the Partnership in this offering.
After the Formation Loan has been paid, any withdrawal penalties will be
retained by the Partnership for its own account. (See "PLAN OF DISTRIBUTION").
Limited Partners may commence withdrawal (or partial withdrawal) from the
Partnership in installments by surrendering Units as of the end of any calendar
quarter. The amount that a withdrawing Limited Partner will receive from the
Partnership is based on the withdrawing Limited Partner's capital account. A
capital account is a sum calculated for tax and accounting purposes, and may be
greater than or less than the fair market value of such investor's Limited
Partnership Interest in the Partnership. The fair market value of a Limited
Partner's interest in the Partnership will generally be irrelevant in
determining amounts to be paid upon withdrawal, except to the extent that the
current fair market value of the Partnership's loan portfolio is realized by
sales of existing Mortgage Investments (which sales are not required to be
made).
<PAGE>
The Partnership will not establish a reserve from which to fund withdrawals
and, accordingly, the Partnership's capacity to return a Limited Partner's
capital account is restricted to the availability of Partnership cash flow. For
this purpose, cash flow is considered to be available only after all current
Partnership expenses have been paid (including compensation to the General
Partners and affiliates) and adequate provision has been made for the payment of
all periodic cash distributions on a pro rata basis which must be paid to
Limited Partners who elected to receive such distributions upon subscription for
Units. Furthermore, no more than twenty percent (20%) of the total Limited
Partners' Capital Accounts outstanding for the beginning of any calendar year
shall be liquidated during any calendar year. Notwithstanding the twenty percent
(20%) limitation, the General Partners shall have the discretion to further
limit the percentage of the total Limited Partners' Capital Accounts that may be
withdrawn in order to comply with any regulation to be enacted by the IRS
pursuant to Section 7704 of the Code and the safe harbor provisions set forth in
Notice 88-75 to avoid the Partnership being taxed as a corporation. If Notices
of Withdrawal in excess of these limitations are received by the General
Partners, the priority of distributions among Limited Partners shall be
determined as follows: first to those Limited Partners withdrawing Capital
Accounts according to the 20 quarter or longer installment liquidation period,
then ERISA plan Limited Partners withdrawing Capital Accounts after five (5)
years, over four (4) quarterly installments (which need such sums to pay
retirement benefits), then to Limited Partners withdrawing after one (1) year
over four (4) quarterly installments. Except as provided above, withdrawal
requests will be considered by the General Partners in the order received.
Upon dissolution and termination of the Partnership, a five-year winding-up
period is provided for liquidating the Partnership's loan portfolio and
distributing cash to Limited Partners. Due to high prevailing interest rates or
other factors, the Partnership could suffer reduced earnings (or losses) if a
substantial portion of its loan portfolio remains and must be liquidated quickly
at the end of such winding-up period. Limited Partners who complete a withdrawal
from the Partnership prior to any such liquidation will not be exposed to this
risk. Conversely, if prevailing interest rates have declined at a time when the
loan portfolio must be liquidated, unanticipated profits could be realized by
those Limited Partners who remained in the Partnership until its termination.
DISTRIBUTION POLICIES
Distributions to the Limited Partners. The Partnership will make monthly,
quarterly or annual distributions of all Earnings to those Limited Partners
affirmatively electing to receive cash distributions upon subscription. All
other Limited Partners will not receive current Distributions of Earnings.
Rather, they will acquire additional Units with their pro rata portion of
Earnings the value of which will be credited to their Capital Accounts and will
be applied to Partnership Operations. For every $100 of cash available for
distribution, such Investor will acquire an additional Unit or fraction thereof.
However, there is no assurance as to the timing or amount of any Distribution to
the holders of the Units.
Cash Available for Distribution will be allocated to the Limited Partners
and their assignees in the ratio which the capital accounts of the number of
Units owned by each of them bears to the capital accounts of the total number of
Units then outstanding, subject to adjustment with respect to Units issued by
the Partnership during the quarter. For such purposes, a transferee of Units
will be deemed to be the owner thereof as of the first day following the day the
transfer is completed and will therefore not participate in distributions for
the period prior to which the transfer occurs.
Earnings means cash funds available from operations from interest payments,
early withdrawal penalties not applied to the Formation Loan, late and
prepayment charges, interest on short-term investments and Working Capital
Reserve, after deducting funds used to pay or provide for the payment of
Partnership expenses and appropriate reserves.
Subject to the right of the General Partners to terminate the right of
Investors to acquire additional Units in lieu of receipt of Periodic Cash
Distributions, such option to acquire additional Units will continue unless
prohibited by applicable federal or state law. Units acquired in lieu of
Periodic Cash Distributions will have the same rights and obligations of Units
acquired initially.
Cash Distributions. Cash Available for Distribution will be determined by
computing the net income during the calendar month on an accrual basis and in
accordance with generally accepted accounting principles. The term "Cash
Available for Distribution" means an amount of cash equal to the excess of
accrued income from operations and investment of, or the sale or refinancing or
other disposition of, Partnership assets during any calendar month over the
accrued operating expenses of the Partnership during such month, including any
adjustments for bad debt reserves or deductions as the General Partners may deem
appropriate, all determined in accordance with generally accepted accounting
principles; provided, that such operating expenses shall not include any general
overhead expenses of the General Partners not specifically related to, billed to
or reimbursable by the Partnership as specified in Sections 10.15 through 10.17
of the Limited Partnership Agreement. All Cash Available for Distribution will
be allocated one percent (1%) to the General Partners and ninety-nine percent
(99%) to the Limited Partners.
<PAGE>
Allocation of Net Income and Net Losses. Net Income and Net Loss for
accounting purposes for each fiscal quarter and all items of net profits or net
losses and credits for tax purposes for each quarter shall be allocated to the
Partners as set forth in Article V of the Limited Partnership Agreement. Net
Income and Net Loss will be allocated one percent (1%) to the General Partners
and ninety-nine percent (99%) to the Limited Partners.
REPORTS TO LIMITED PARTNERS
Within 90 days after the end of each fiscal year of the Partnership, the
General Partners will deliver to each Limited Partner such information as is
necessary for the preparation by such Limited Partner of his federal income tax
return, and state income or other tax returns. Within 120 days after the end of
each Partnership fiscal year, the General Partners will deliver to each Limited
Partner an annual report which includes audited financial statements of the
Partnership prepared in accordance with generally accepted accounting
principles, and which contains a reconciliation of amounts shown therein with
amounts shown on the method of accounting used for tax reporting purposes. Such
financial statements include a profit and loss statement, a balance sheet of the
Partnership, a Cash Flow statement and a statement of changes in financial
position. The annual report for each year reports on the Partnership's
activities for that year, identifies the source of Partnership Distributions,
sets forth the compensation paid to the General Partners and their Affiliates
and a statement of the services performed in consideration therefor and contains
such other information as is deemed reasonably necessary by the General Partners
to advise the Limited Partners of the affairs of the Partnership.
For as long as the Partnership is required to file quarterly reports on
Form 10-Q with the Securities and Exchange Commission, the information contained
in each such report for a quarter shall be sent to the Limited Partners within
60 days after the end of such quarter. If and when such reports are not required
to be filed, each Limited Partner will be furnished, within 60 days after the
end of each of the first three quarters of each Partnership fiscal year, an
unaudited financial report for that period including a profit and loss
statement, a balance sheet and a Cash Flow statement. The foregoing reports for
any period in which fees are paid to the General Partners or their Affiliates
for services shall set forth the fees paid and the services rendered.
PLAN OF DISTRIBUTION
Subject to the conditions set forth in this Prospectus and in accordance
with the terms and conditions of the Partnership Agreement, the Partnership
offers through qualified broker dealers on a best efforts basis, a maximum of
300,000 Units ($30,000,000) of Limited Partnership Interest at $100 per Unit.
The minimum subscription is twenty (20) Units ($2,000). Participating Broker
Dealers will receive sales commissions of five percent (5%) of Gross Proceeds
for subscriptions where investors elect to receive cash distributions and sales
commissions of nine percent (9%) of Gross Proceeds will be paid for
subscriptions where investors elect to reinvest their Earnings and acquire
additional Units in the Partnership. Additionally, Participating Broker Dealers
may be entitled to receive up to one-half of one percent (.5%) of the Gross
Proceeds for bona fide due diligence expenses, and certain other expense
reimbursements and sales seminar expenses payable by the Partnership. Although
total sales commissions payable could equal nine percent (9%), the Partnership
anticipates, based on historical experience, that the total sales commissions
payable will not exceed (7.6%). This number is based upon the General Partners'
assumption, based on historical experience, that sixty-five percent (65%) of
investors will elect to compound earnings and receive additional Units,
thirty-five percent (35%) of investors will elect to receive distributions,. In
no event will the total of all compensation payable to Participating Broker
Dealers, including sales commissions, expense reimbursements, sales seminars
and/or due diligence expenses exceed ten percent (10%) of the program proceeds
received plus an additional (0.5%) for bona fide due diligence expenses as set
forth in Rule 2810 of the NASD Conduct Rules. Further, in no event shall any
individual Participating Broker Dealer receive total compensation including
sales commissions, expense reimbursements, sales seminar or expense
reimbursement exceed (10%) of the gross proceeds of their sales plus an
additional (0.5%) for bona fide due diligence expenses as set forth in Rule 2810
of the NASD Conduct Rules (the Compensation Limitation). Units may also be
offered or sold directly by the General Partners for which they will receive no
sales commissions. No commissions will be paid on any Units acquired by Partners
in lieu of Periodic Cash Distributions
The Partnership will not pay referral or similar fees to any accountants,
attorneys or other persons in connection with the distribution of the Units.
Participating Broker Dealers are not obligated to obtain any subscriptions, and
there is no assurance that any Units will be sold.
The Participating Broker Dealers shall not directly or indirectly finance
or arrange for the financing of, purchase of any Units, nor shall the proceeds
of this Offering be used either directly or indirectly to finance the purchase
of any Units.
<PAGE>
The Selling Agreement provides that with respect to any liabilities arising
out of the Securities Act of 1933, as amended, the General Partners shall
indemnify the Participating Broker Dealer. To the extent that indemnification
provisions purport to include indemnification for liabilities arising under the
Securities Act of 1933, such indemnification, in the opinion of the Securities
and Exchange Commission is contrary to public policy and therefore
unenforceable.
Each subscriber will be required to comply with (i) the minimum purchase
requirement and investor suitability standard of his state of residence or (ii)
the investor suitability standard imposed by the Partnership in the event that
his state of residence does not impose such a standard (See "INVESTOR
SUITABILITY STANDARDS").
In order to purchase any Units, the subscriber must complete and execute
the Signature Page for the Subscription Agreement. Any subscription for Units
must be accompanied by tender of the sum of $100 per Unit. The Signature Page is
set forth at the end of this Prospectus at Exhibit B-l. By executing the
Signature Page for the Subscription Agreement, the subscriber agrees to all of
the terms of the Partnership Agreement including the grant of a power of
attorney under certain circumstances. Limited Partnership Interests will be
evidenced by a written Partnership Agreement and each Limited Partner will
receive a Certificate of Limited Partnership Interest indicating the extent of
his interest in the Partnership.
Subscription Agreements from prospective investors will be accepted or
rejected by the General Partners within thirty (30) days after their receipt.
Subscriptions will be effective only on acceptance by the General Partners and
the right is reserved to reject any subscription in whole or in part" for any
reason.
The General Partners and their Affiliates may, in their discretion,
purchase Units for their own. The maximum amount of Units that may be purchased
by the General Partners or their Affiliates is $50,000 (500 Units). Purchases of
such Units by the General Partners or their Affiliates will be made for
investment purposes only on the same terms, conditions and prices as to
unaffiliated parties. It is not anticipated that the General Partners or their
Affiliates will purchase Units for their own accounts.
Formation Loan. All selling commissions incurred in connection with the
offer and sale of Units and all amounts paid in connection with unsolicited
orders will be paid by Redwood Mortgage. Initially, upon the formation of the
Partnership, approximately eighty four percent (84%) of each dollar invested
will be available for Mortgage Investments if 300,000 Units ($30,000,000) are
sold. However, as Redwood Mortgage repays the Formation Loan, and if working
capital reserves are applied to Mortgage Investments as has occurred in prior
programs, approximately ninety-six percent (96%) if 300,000 Units ($30,000,000)
are sold, will be available for investment in Mortgage Investments.
One of the Partnership's loans will be made to Redwood Mortgage, to be used
exclusively to pay certain selling expenses of the Partnership. Although it is
possible that the amount of this loan (the "Formation Loan") could be nine
percent (9%) of the Gross Proceeds, it is anticipated that the Formation Loan
will average approximately (7.6%). Thus it is anticipated that the Formation
Loan will not exceed (7.6%) of the total gross proceeds of this Offering for the
maximum offering amount assuming, based upon the General Partners' historical
experience and knowledge of professionals in the industry, that sixty-five
percent (65%) of the investors elect to compound their earnings and acquire
additional Units and thirty-five percent (35%) elect to receive distributions or
the actual amount of selling commissions incurred by Redwood Mortgage, whichever
is less. The Formation Loan will be unsecured, will not bear interest and will
be repaid in annual installments. Upon commencement of this Offering, Redwood
Mortgage shall make annual installments of one-tenth of the principal balance of
the Formation Loan as of December 31 of each year. Such payment shall be due and
payable by December 31 of the following year with the first payment due by
December 31, 1997, assuming this Offering commences in 1996. The principal
balance of the Formation Loan will increase as additional sales of Units are
made each year. The amount of the annual installment payment to be made by
Redwood Mortgage, during the offering stage, will be determined by the principal
balance of the Formation Loan on December 31 of each year. Upon the completion
of this offering the balance of the Formation Loan will be repaid in ten (10)
equal annual installments of principal, without interest, commencing on December
31 of the year following the year this offering terminates. Redwood Mortgage at
its option may prepay all or any part of the Formation Loan. Redwood Mortgage
intends to repay the Formation Loan principally from loan brokerage commissions
earned on Mortgage Investments, and the receipt of a portion of the early
withdrawal penalties and other fees paid by the Partnership. Since Redwood
Mortgage will use the proceeds from loan brokerage commissions on Mortgage
Investments to repay the Formation Loan, if all or any one of the initial
General Partners is removed as a General Partner by the vote of a majority of
Limited Partners and a successor or additional General Partner(s) is thereafter
designated, and if such successor or additional
<PAGE>
General Partner(s) begins using any other loan brokerage firm for the
placement of Mortgage Investments, Redwood Mortgage will be immediately released
from any further obligation under the Formation Loan (except for a proportionate
share of the principal installment due at the end of that year, pro rated
according to the days elapsed). In addition, if all of the General Partners are
removed, no successor General Partners are elected, the Partnership is
liquidated and Redwood Mortgage is no longer receiving any payments for services
rendered, the debt on the Formation Loan shall be forgiven and Redwood Mortgage
will be immediately released from any further obligation under the Formation
Loan.
The Formation Loan will not bear interest. Thus, the Formation Loan will
have the effect of slightly diluting the rate of return to Limited Partners, but
to a much lesser extent than if the Partnership were required to bear all of its
own syndication expenses as is the case with certain other publicly offered
mortgage pools.
Escrow Arrangements. Commencing on the effective date of this Prospectus,
funds received by the Participating Broker Dealers from subscriptions for Units
will be immediately available to the Partnership for investment. As this is not
the Partnership's first offering, no escrow will be established. Subscription
Proceeds will be released to the Partnership and deposited into the
Partnership's operating account.
The Offering will terminate one (1) year from the effective date of the
Prospectus unless terminated earlier by the General Partners, or unless extended
by the General Partners for additional one year periods.
Upon acceptance of subscription agreements, the subscribers will be
admitted promptly as Limited Partners and Certificates of Limited Partnership
Interests will be delivered to such Limited Partners. In addition, the Formation
Loan will be made to Redwood Mortgage, the Organization and Offering Expenses
incurred by the Partnership will be paid and the General Partners will be
reimbursed for any Organizational and Offering Expenses previously paid on
behalf of the Partnership.
Subscription Account. Subscriptions will be deposited into a subscription
account at a federally insured commercial bank or depository and invested in
short-term certificates of deposit, a money market or other liquid asset
account. Prospective investors whose subscriptions are accepted will be admitted
into the Partnership only when their subscription funds are required by the
Partnership to fund a mortgage loan, or the Formation Loan, to create
appropriate reserves, or pay organizational expenses or other proper Partnership
activities (See "ESTIMATED USE OF PROCEEDS"). During the period prior to
admittance of investors as Limited Partners, proceeds from the sale of Units are
irrevocable, and will be held by the General Partners for the account of Limited
Partners in the subscription account. Investors funds will be transferred from
the subscription account into the Partnership on a first-in, first-out basis.
Upon admission to the Partnership, subscription funds will be released to the
Partnership and Units will be issued at the rate of $100 per Unit or fraction
thereon. Interest earned on subscription funds while in the subscription account
will be returned to the subscriber, or if the subscriber elects to compound
earnings (see below), the amount equal to such interest will be added to his
investment in the Partnership, and the number of Units actually issued shall be
increased accordingly.
By executing the Subscription Agreement, a subscriber agrees to purchase
the number of Units shown thereon on a "when issued basis." Accordingly, when he
executes the Subscription Agreement, he is not yet an owner of the Units for
which he has subscribed. Units will be issued when the subscriber is admitted to
the Partnership, i.e., when the sums representing the purchase for such Units
are transferred from the subscription account into the Partnership. The General
Partners anticipate that the delay between delivery of a Subscription Agreement
and admission to the Partnership will be approximately 90 days, during which
time investors will earn interest at pass book savings account rates.
Subscription Agreements are non-cancelable and subscription funds are
non-refundable for any reason. After having subscribed for at least 20 Units
($2,000), a subscriber may at any time, and from time to time subscribe to
purchase additional Units in the Partnership so long as the offering is open.
Each purchaser is liable for the payment of the full purchase price of all Units
for which he has subscribed.
<PAGE>
SUPPLEMENTAL SALES MATERIAL
Sales material in addition to this Prospectus which may be used in
connection with this offering include a sales brochure which will highlight and
simplify certain information contained herein. If additional sales material is
prepared for use in connection with the Offering, use of such material will be
conditioned on filing with and, if required, clearance by appropriate regulatory
authorities.
As of the date of this Prospectus, it is anticipated that the following
sales material will be authorized for use by the Partnership in connection with
this Offering: (i) a brochure entitled Redwood Mortgage Investors VIII; (ii) a
brochure describing Redwood Mortgage Company and its affiliated entities; (iii)
a fact sheet describing the general features of Redwood Mortgage Investors VIII;
(iv) a cover letter transmitting the Prospectus; (v) a summary description of
the Offering; (vi) a slide presentation; (vii) broker updates; (viii) an audio
cassette presentation; (ix) a video presentation; (x) seminar advertisements and
invitations; and (xi) certain third-party articles.
The General Partners and their Affiliates may also respond to specific
questions from Participating Broker Dealers and prospective investors. Business
reply cards, introductory letters or similar materials may be sent to
Participating Broker Dealers for customer use, and other information relating to
the offering may be made available to Participating Broker Dealers for their
internal use. However, the Offering is made only by means of this Prospectus.
Except as described herein or in Supplements hereto, the Partnership has not
authorized the use of other sales materials in connection with the Offering.
Although the information contained in such material does not conflict with any
of the information contained in this Prospectus, such material does not purport
to be complete and should not be considered as a part of this Prospectus or the
Registration Statement of which this Prospectus is a part, or as incorporated in
this Prospectus or the Registration Statement by reference or as forming the
basis of the Offering of the Units described herein.
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus or in Supplements hereto or in supplemental sales literature issued
by the Partnership and referred to in this Prospectus or in Supplements thereto,
and, if given or made, such information or representations must not be relied
upon. This Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, any securities other than the Units to which it relates or any
of such Units to any person in any jurisdiction in which such offeror
solicitation is unlawful. The delivery of this Prospectus at any time does not
imply that the information contained herein is correct as of any time subsequent
to its date.
LEGAL PROCEEDINGS
In the normal course of business the Partnership may become involved in
various types of legal proceedings such as assignments of rents, bankruptcy
proceedings, appointments of receivers, unlawful detainers, judicial
foreclosures, etc, to enforce the provisions of the deeds of trust, collect the
debt owed under the promissory notes or to protect/recoup its investment from
the real property secured by the deeds. None of these actions would typically be
of any material importance. As of the date hereof, the Partnership is not
involved in any legal proceedings other than those that would be considered part
of the normal course of business.
LEGAL OPINION
Legal matters in connection with the Units offered hereby will be passed
upon for the Partnership the Law Offices of Stephen C. Ryan & Associates, 115
Sansome Street, Suite 400, San Francisco, California 94104, counsel for the
Partnership and the General Partners. Such counsel has not represented the
Limited Partners in connection with the Units offered hereby.
EXPERTS
The balance sheet of the Partnership and the balance sheet at June 30,
1995, and 1996, of Gymno Corporation, a General Partner, included in this
Prospectus have been examined by Parodi & Cropper, independent certified public
accountants, as set forth in their report thereon appearing elsewhere herein and
have been included herein in reliance on such reports and the authority of such
firm as experts in accounting and auditing. The statements under the caption
"FEDERAL INCOME TAX CONSEQUENCES" and "ERISA CONSIDERATIONS" as they relate to
the matters referenced therein have been reviewed by the Law Offices of Stephen
C. Ryan & Associates, and are included herein in reliance upon the authority of
that firm as experts thereon.
<PAGE>
ADDITIONAL INFORMATION
The Partnership has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the Securities Act of
1933, as amended, with respect to the Units offered pursuant to this Prospectus.
For further information, reference is made to the Registration Statement and to
the Exhibits thereto which are available for inspection at no fee in the office
of the Commission in Washington, D.C., 450 Fifth Street, N.W., Washington, D.C.
20549. Photostatic copies of the material containing this information may be
obtained from the Commission upon paying of the fees prescribed by the rules and
regulations at the Washington office only. Additionally, the Commission
maintains a website that contains reports, proxy and information statements and
other information regarding registrants, such as the Partnership, that file
electronically. The address of the Commissions website is http://www.sec.gov.
TABULAR INFORMATION CONCERNING PRIOR PROGRAMS
Appendix I contains prior performance and investment information for the
General Partners' previous programs. Tables I through III of Appendix I contain
unaudited information relating to the prior programs and their experience in
raising and investing funds, compensation of the General Partners and their
Affiliates and operating results of prior programs. Table V of Appendix I
contains unaudited information relating to the prior programs' payment of
mortgage loans. Table IV is not included because none of the partnerships has
completed its operations or disposed of all of its loans. PURCHASERS OF THE
UNITS OFFERED BY THIS PROSPECTUS WILL NOT ACQUIRE ANY OWNERSHIP IN INTEREST IN
ANY PRIOR PROGRAM AND SHOULD NOT ASSUME THAT THE RESULTS OF THE PRIOR PROGRAMS
WILL BE INDICATIVE OF THE FUTURE RESULTS OF THIS PARTNERSHIP. MOREOVER, THE
OPERATING RESULTS FOR THE PRIOR PROGRAMS SHOULD NOT BE CONSIDERED INDICATIVE OF
FUTURE RESULTS OF THE PRIOR PROGRAMS OR WHETHER THE PRIOR PROGRAMS WILL ACHIEVE
THEIR INVESTMENT OBJECTIVES WHICH WILL IN LARGE PART DEPEND ON FACTS WHICH
CANNOT NOW BE DETERMINED.
<PAGE>
GLOSSARY
The following are definitions of certain terms used in the Prospectus and
not otherwise defined herein:
Affiliate. The term "Affiliate" means (a) any person directly or indirectly
controlling, controlled by or under common control with another person, (b) any
person owning or controlling ten percent (10%) or more of the outstanding voting
securities of such other person, (c) any officer, director or partner of such
person, and (d) if such other person is an officer, director or partner, any
company for which such person acts in any such capacity.
Assignee. The term "Assignee" shall mean a person who has acquired a
beneficial interest in one or more Units but who is neither a Limited Partner
nor an Assignee of Record.
Capital Account. The term "Capital Account, means, with respect to any
Partner, the Capital Account maintained for such Partner in accordance with the
following provisions:
(a) To each Partner's Capital Account there shall be credited, such
Partner's Capital Contribution, such Partners distributive share of profits,
and any items in the nature of income and gain (from unexpected adjustments,
allocations or distributions) that are specially allocated to a Partner and the
amount of any Partnership liabilities that are assumed by such Partner or that
are secured by any Partnership property distributed to such Partner.
(b) To each Partners Capital Account there shall be debited the amount of
cash and the Gross Asset Value of any partnership property distributed to such
Partner pursuant to any provision of this Agreement, such Partners distributive
share of Losses, and any items in the nature of expenses and losses that
specially allocated to a Partner and the amount of any liabilities of such
Partner that are assumed by the Partnership or that are secured by any property
contributed by such Partner to the Partnership.
Closing Date. The term "Closing Date" means the date designated by the
General Partners but not later than one year from the date of the Prospectus,
unless extended for additional one (1) year periods at the General Partners'
election.
Code. The term "Code" means the Internal Revenue Code of 1986, as amended
to the date of this Prospectus.
Deed of Trust. The term "Deed of Trust" means the lien or liens created on
the real property or properties of the borrower securing the borrower's
obligation to the Partnership to repay the Mortgage Investment.
Distributions. The term "Distributions" means any cash or other property
distributed to Holders and the General Partners arising from their interests in
the Partnership, but shall not include any payments to the General Partners
under the provisions of Article 10 of the Partnership Agreement.
Earnings. The term "Earnings" means all revenues earned by the Partnership
less all expenses incurred by the Partnership.
Formation Loan. The term "Formation Loan" means a loan to Redwood Mortgage,
an affiliate of the General Partners, equal to the amount of the sales
commissions. Redwood Mortgage will pay all sales commissions from the Formation
Loan. The Formation Loan will be unsecured, will not bear interest and will be
repaid in annual installments.
General Partners. The term "General Partners" means D. Russell Burwell,
Michael R. Burwell and Gymno Corporation, a California corporation, the General
Partners of Redwood Mortgage Investors VIII, a limited partnership formed under
the California Revised Limited Partnership Act.
Gross Proceeds. The term "Gross Proceeds" shall be deemed to mean the sum
of $100 for each Unit subscribed and paid for during the Offering.
<PAGE>
Guaranteed Payment for Offering Period. The term "Guaranteed Payment for
Offering Period" means the interest rate guaranteed to Limited Partners by the
General Partners during the Guaranteed Payment Period. The Guaranteed Payment
Offering Period, calculated on a monthly basis, shall be equal to the greater of
(i) the Partnership's Earnings or (ii) the interest rate established by the
Monthly Weighted Average Cost of Funds for the 11th District Savings
Institutions, as announced by the Federal Home Loan Bank of San Francisco during
the last week of the preceding month, plus two points, up to a maximum interest
rate of twelve percent (12%). The Guaranteed Payment Period is the period
commencing on the day a Limited Partner is admitted to the Partnership and
ending three months after the Offering Termination Date. To the extent the
return to be paid is in excess of the Partnership's Earnings, the Guaranteed
Payment for Offering Period shall be payable by the General Partners out of a
Capital Contribution to the Partnership and/or fees payable to the General
Partners or Redwood Mortgage which are lowered or waived.
Holders. The term "Holders" means the owners of Units who are either
Partners or Assignees of Record, and reference to a "Holder" shall be to any one
of them.
Initial Closing Date. The term "Initial Closing Date" means the date on
which subscribers for Units offered pursuant to this Prospectus are first
admitted to the Partnership as Limited Partners.
Initial Limited Partner. The term "Initial Limited Partner" means Gymno
Corporation.
Limited Partners. The term "Limited Partners" means the purchasers of Units
in Redwood Mortgage Investors VIII who are admitted thereto and whose names are
included on the Certificate and Agreement of Limited Partnership of Redwood
Mortgage Investors VIII.
Limited Partnership Interest. The term "Limited Partnership Interest" means
a limited partnership interest in Redwood Mortgage Investors VIII, acquired
pursuant to the purchase of a Unit and thereafter means the percentage ownership
interest of any Limited Partner in the Partnership determined at any time by
dividing a Limited Partner's current Capital Account by the total outstanding
Capital Accounts of all Limited Partners.
Mortgage Investment(s). The term "Mortgage Investment(s)" means the loan(s)
and/or an undivided interest in the loans the Partnership intends to extend to
the general public secured by real property deeds of trust.
NASD. The acronym "NASD" means the National Association of Securities
Dealers, Inc.
Net Asset Value. The term "Net Asset Value" means the Partnership's total
assets less its total liabilities.
Net Income or Net Loss. The term "Net Income or Net Loss" means for each
Fiscal Year or any other period, an amount equal to the Partnership's taxable
income or loss for such Fiscal Year or other given period, determined in
accordance with Section 703(a) of the Code (for this purpose, all items of
income, gain, loss, or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) Any income of the Partnership that is exempt from federal income tax
and not otherwise taken into account in computing Profits or Losses shall be
added to such taxable income or loss;
(b) Any expenditures of the Partnership described in Section 105(a)(2)(B)
of the Code or treated as Section 105(a)(2)(B) expenditures pursuant to Treasury
Regulation Section 1.7041(b)(2)(iv)(i), and not otherwise taken into account in
computing Profits or Losses pursuant to Section 10.16 of the Partnership
Agreement, shall be subtracted from such taxable income or loss;
(c) Gain or loss resulting from any disposition of Partnership property
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of, notwithstanding that the adjusted tax basis of such property differs from
its Gross Asset Value;
(d) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account depreciation, amortization or other cost recovery
deductions for such Fiscal Year or other period, computed such that if the Gross
Asset Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of a Fiscal Year or other period, depreciation,
amortization or other cost recovery deductions shall be an amount which bears
the same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization or other cost recovery deductions for such Fiscal
Year or other period bears to such beginning adjusted tax basis; and
<PAGE>
(e) Notwithstanding any other provision of Section 10.16 of the Partnership
Agreement, any items in the nature of income or gain or expenses or losses,
which are specially allocated, shall not be taken into account in computing
Profits or Losses.
Net Proceeds. The term "Net Proceeds" means the total Gross Proceeds less
expenses incurred and to be paid by the Partnership in organizing the
Partnership and in offering Units to the public.
Organizational and Offering Expenses. The term "Organizational and Offering
Expenses" means the expenses incurred in connection with the organization of
Redwood Mortgage Investors VIII and the offer and sale of Units therein,
including all expenses and fees for qualifying such Units and Limited
Partnership interests under federal and state laws, all legal and accounting
fees, all printing and mailing expenses, all escrow and depository fees and
charges, and all other expenses, fees, and charges incurred and related to the
offer and sale of such Units and Limited Partnership interests, but excluding
all sales commissions paid in connection with this Offering.
Participating Broker Dealers. The term Participating Broker Dealers means
broker dealer member firms of the NASD and any related persons which enter into
selling agreements with the Partnership.
Partners. The term "Partners" means the General Partners and the Limited
Partners, and reference to a "Partner" shall be to any one of the Partners.
Partnership. The term "Partnership" means Redwood Mortgage Investors VIII,
a limited partnership formed pursuant to the California Revised Limited
Partnership Act.
Partnership Agreement. The term "Partnership Agreement" means the Agreement
of Limited Partnership of Redwood Mortgage Investors VIII, attached to this
Prospectus as Exhibit A.
Prospectus. The term "Prospectus" means the final prospectus in the
registration of Units filed with the Securities and Exchange Commission on Form
S-11, as amended.
Sales Commissions. The term "Sales Commissions" means the amount of
compensation to be paid to Participating Broker Dealers in connection with the
sale of Units.
Special-Use Properties. The term "Special-Use Properties" shall mean
bowling alleys, churches and gas stations.
Subscription Agreement. The term "Subscription Agreement" means the
agreement, attached to this Prospectus as Exhibit B, in which a prospective
investor agrees to purchase Units in Redwood Mortgage Investors VIII.
Tax-Exempt Investors. The term "Tax-Exempt Investor(s)" means qualified
pension, profit sharing and other private retirement trusts, bank funds for such
trusts, government pension and retirement trusts, HR-10 (Keogh) plans and
Individual Retirement Accounts (IRAs).
UBTI. The acronym "UBTI" means Unrelated Business Taxable Income as defined
in the Code.
Unit. The term "Unit" means a Capital Contribution of $100 to the
Partnership which shall entitle the Holder thereof to an interest in the Net
Income, Net Loss, and Distributions of the Partnership without regard to capital
accounts.
Working Capital Reserve. The term "Working Capital Reserve" shall mean a
portion of the Invested Capital which the General Partners, in their discretion,
determine is prudent to be maintained by the Partnership to pay for operating,
and other costs and expenses the Partnership may incur with respect to its
activities.
<PAGE>
INDEX TO THE FINANCIAL STATEMENTS
Page
Redwood Mortgage Investors VIII
Financial Statements, December 31, 1995 with Auditors Report Thereon 82
Independent Auditors Report 83
GYMNO Corporation
Financial Statements, June 30, 1996 and 1995 with Auditors
Report Thereon 92
Independent Auditors Report 93
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 1995
(With Auditors Report Thereon)
<PAGE>
PARODI & CROPPER
CERTIFIED PUBLIC ACCOUNTANTS
3658 Mount Diablo Blvd., Suite #205
Lafayette CA 94549
(510) 284-3590
Fax (510-284-3593)
INDEPENDENT AUDITORS REPORT
THE PARTNERS
REDWOOD MORTGAGE INVESTORS VIII
We have audited the financial statements and related schedules of REDWOOD
MORTGAGE INVESTORS VIII (A California Limited Partnership) listed in Item 8 on
Form 10-K including balance sheets as of December 31, 1995, and 1994, and the
statements of income, changes in partners capital and cash flows for the period
from inception, April 14, 1993, to December 31, 1993, and the two years ended
December 31, 1995, and 1994. These financial statements are the responsibility
of the Partnerships management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 provided 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 REDWOOD MORTGAGE INVESTORS
VIII as of December 31, 1995, and 1994, and the results of its operations and
cash flows for the two years and period then ended in conformity with generally
accepted accounting principles. Further, it is our opinion that the schedules
referred to above present fairly the information set forth therein in compliance
with the applicable accounting regulations of the Securities and Exchange
Commission.
PARODI & CROPPER
Lafayette, California
February 28, 1996
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash ................................................$ 380,318 $ 397,176
----------- -----------
Accounts receivable:
Mortgage loans, secured by deeds of trust ......... 12,047,252 6,484,707
Accrued Interest on mortgage loans ................ 113,301 75,345
Advances on mortgage loans ........................ 8,431 1,053
Accounts receivable, unsecured .................... 71,316 0
----------- ----------
12,240,300 6,561,105
Less allowance for doubtful accounts .............. 39,152 13,120
----------- -----------
12,201,148 6,547,985
----------- -----------
Formation loan due from Redwood Home
Loan Co. ........................................... 775,229 525,256
Organization costs, net of accumulated
amortization of $5,625 and $3,125 respectively ..... 6,875 9,375
Due from related companies ......................... 3,049 0
Prepaid expense-deferred loan fee .................. 17,718 0
----------- -----------
$13,384,337 $ 7,479,792
=========== ===========
LIABILITIES AND PARTNERS CAPITAL
Liabilities:
Accounts payable and accrued expenses ............ $ 4,010 $ 0
Notes payable - Pacific Bank ..................... 1,910,000 0
Subscriptions to partnership in applicant status .. 0 189,300
----------- -----------
1,914,010 189,300
Partners Capital .................................. 11,470,327 7,290,492
----------- -----------
$13,384,337 $ 7,479,792
=========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENT OF INCOME
FOR THE PERIOD FROM INCEPTION, APRIL 14, 1993,
THROUGH DECEMBER 31, 1993
AND THE TWO YEARS ENDED DECEMBER 31, 1995
<CAPTION>
1995 1994 1993
---------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Interest on mortgage loans .......................................... $945,573 $450,983 $107,129
Interest on bank deposits ........................................... 13,120 15,739 5,690
Late charges ......................................................... 3,876 1,704 606
Miscellaneous ....................................................... 2,211 120 51
-------- -------- --------
-------- -------- --------
964,780 468,546 113,476
-------- -------- --------
Expenses:
Interest on note payable ............................................ 25,889 0 0
Amortization of loan origination fees ............................... 2,531 0 0
Provision for doubtful accounts ..................................... 26,032 13,120 0
Asset management fee - General Partners ............................. 11,587 5,906 192
Amortization of organization costs .................................. 2,500 2,500 625
Clerical costs through Redwood Home Loan Co. ........................ 22,769 10,664 2,692
Professional fees ................................................... 16,178 10,244 200
Printing, supplies and postage ...................................... 92 917 34
Other ............................................................... 1,461 883 77
-------- -------- --------
109,039 44,234 3,820
-------- -------- --------
Income before interest credited to partners in
applicant status .................................................... 855,741 424,312 109,656
Interest credited to partners in applicant status ...................... 18,908 14,443 4,641
-------- -------- --------
Net Income ...................................................... $836,833 $409,869 $105,015
======== ======== ========
Net income: To General Partners(1%) ................................... $ 8,368 $ 4,099 $ 1,050
To Limited Partners (99%) ......................... 828,465 405,770 103,965
-------- -------- --------
Total- net income ............................................. $836,833 $409,869 $105,015
======== ======== ========
Net income per $1,000 invested by Limited
Partners for entire period after admission
to partnership:
-Where income is reinvested and compounded ........................... $ 83 $ 81 $ 85
======== ======== ========
-Where partner receives income in monthly
distributions ....................................................... $ 80 $ 79 $ 83
======== ======== ========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS CAPITAL
FOR THE PERIOD FROM INCEPTION, APRIL 14, 1993,
THROUGH DECEMBER 31, 1993
AND THE TWO YEARS ENDED DECEMBER 31, 1995
<CAPTION>
PARTNERS CAPITAL
---------------------------------------------------------------------------
PARTNERS IN UNALLOCATED
APPLICANT GENERAL LIMITED SYNDICATION
STATUS PARTNERS PARTNERS COSTS TOTAL
--------------- ------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Contributions on application .... $2,890,530 0 0 0 0
Interest credited to Partners
in applicant status.............. 4,641 0 0 0 0
Upon admission to partnership:
Interest withdrawn .............( 1,956) 0 0 0 0
Transfers to Partners capital....(2,764,443) 2,887 2,761,556 0 2,764,443
Net income ...................... 0 1,050 103,965 0 105,015
Syndication costs incurred ..... 0 0 0 (199,564) ( 199,564)
Allocation of syndication costs . 0 ( 92) ( 9,130) 9,222 0
Partners withdrawals ............ 0 ( 958) ( 46,856) 0 ( 47,814)
Balances at December 31, 1993 .. 128,772 2,887 2,809,535 ( 190,342) 2,622,080
Contributions on application ... 4,560,683 0 0 0 0
Interest credited to partners
in applicant status............. 14,443 0 0 0 0
Upon admission to partnership:
Interest withdrawn .......... ( 5,774) 0 0 0 0
Transfers to Partners capital... (4,508,824) 4,542 4,504,282 0 4,508,824
Net income ..................... 0 4,099 405,770 0 409,869
Syndication costs incurred .... 0 0 0 ( 81,023) ( 81,023)
Allocation of syndication costs 0 ( 347) ( 34,349) 34,696 0
Partners withdrawals .......... 0 ( 3,444) ( 165,814) 0 ( 169,258)
---------- ---------- ---------- ----------- ----------
Balances at December 31, 1994 . 189,300 7,737 7,519,424 ( 236,669) 7,290,492
Contributions on application .. 3,634,264 0 0 0 0
Interest credited to partners
in applicant status............ 18,908 0 0 0 0
Upon admission to Partnership:
Interest withdrawn ......... ( 7,673) 0 0 0 0
Transfers to Partners capital. (3,834,799) 3,588 3,831,211 0 3,834,799
Net income ..................... 0 8,368 828,465 0 836,833
Syndication costs incurred .... 0 0 0 ( 175,334) ( 175,334)
Allocation of syndication costs . 0 ( 859) ( 85,045) 85,904 0
Partners withdrawals ........... 0 ( 7,509) ( 308,554) 0 ( 316,063)
Early withdrawal penalties .... 0 0 ( 564) 164 ( 400)
---------- ---------- ---------- ----------- ----------
Balances at December 31, 1995 . $ 0 11,325 11,784,937 ( 325,935) 11,470,327
========== ========== ========== =========== ==========
<FN>
See accompanying notes to Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION, APRIL 14, 1993,
THROUGH DECEMBER 31, 1993
AND THE TWO YEARS ENDED DECEMBER 31, 1995
<CAPTION>
1995 1994 1993
---------- --------- ----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income ...................................... $ 836,833 $ 409,869 $ 105,015
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of organization costs ............ 2,500 2,500 625
Increase in allowance for doubtful accounts ... 26,032 13,120 0
Increase in accounts payable .................. 4,010 0 0
(Increase) in accrued interest and advances ... ( 45,334) ( 63,008) ( 13,390)
(Increase) decrease in amount due from
related companies ......................... ( 3,049) 2,493 ( 2,493)
(Increase) in deferred loan fee ............... ( 17,718) 0 0
Organization costs incurred ................... 0 0 ( 12,500)
---------- ------- --------
Net cash provided by operating activities 803,274 364,974 77,257
--------- - ---------- --------
Cash flows from investing activities:
Net (increase) in:
Mortgage loans ............................. (5,562,545) (4,148,033) ( 2,336,674)
Formation loan ............................. ( 249,973) ( 319,302) ( 205,954)
Accounts receivable, unsecured ............. ( 71,316) 0 0
---------- ---------- ---------
Net cash used in investing activities ... (5,883,834) (4,467,335) ( 2,542,628)
Cash flows from financing activities:
Increase in notes payable bank .................. 1,910,000 0 0
Contributions by partner applicants ............. 3,634,264 4,560,683 2,890,530
Interest credited to partners in applicant status 18,908 14,443 4,641
Interest withdrawn by partners in applicant status ( 7,673) ( 5,774) ( 1,956)
Partners withdrawals ............................ ( 316,063) ( 169,258) ( 47,814)
Early withdrawal penalties, net ................. ( 400) 0 0
Syndication costs incurred ...................... ( 175,334) ( 81,023) ( 199,564)
---------- ---------- ---------
Net cash provided by financing activities ... 5,063,702 4,319,071 2,645,837
---------- ---------- ----------
Net increase in cash and cash equivalents .........( 16,858) 216,710 180,466
Cash - beginning of period ........................ 397,176 180,466 0
---------- ---------- ----------
Cash - end of period .............................. $ 380,318 $ 397,176 $ 180,466
========== ========== ==========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 - ORGANIZATION AND GENERAL Redwood Mortgage Investors VIII, (the
Partnership) is a California Limited Partnership, of which the General Partners
are D. Russell Burwell, Michael R. Burwell and Gymno Corporation, a California
corporation owned and operated by the individual General Partners. The
partnership was organized to engage in business as a mortgage lender for the
primary purpose of making loans secured by Deeds of Trust on California real
estate. Partnership loans are being arranged and serviced by Redwood Home Loan
Co., dba Redwood Mortgage, an affiliate of the General Partners. At December 31,
1995, the Partnership was in the offering stage, wherein contributed capital
totaled $11,074,460 in limited partner contributions of an approved $15,000,000
issue, in units of $100 each. All applicants had been admitted to the
partnership at December 31, 1995.
A minimum of 2,500 units ($250,000) and a maximum of 150,000 units
($15,000,000) were offered through qualified broker-dealers. As mortgage loans
are identified, partners are transferred from applicant status to admitted
partners participating in mortgage loan operations. Each months income is
distributed to partners based upon their proportionate share of partners
capital. Some partners have elected to withdraw income on a monthly, quarterly
or annual basis.
A. Sales Commission - Formation Loan Sales commissions ranging from 0%
(units sold by General Partners) to 10% of the gross proceeds are being paid by
RHL Co., an affiliate of the General Partners that arranges and services the
mortgage loans. To finance the sales commissions, the Partnership will loan to
Redwood Mortgage an amount not to exceed 9.1% gross proceeds provided that the
Formation Loan for the minimum offering period (which has lapsed) could have
been 10% of the gross proceeds The General Partners have estimated that the
Formation Loan will approximate 7.1% of the gross proceeds. The Formation Loan
will be unsecured, and will be repaid, without interest, in ten annual
installments of principal, which will commence on January 1, following the year
the offering closes. At December 31, 1995, Redwood Mortgage had borrowed
$775,229 from the Partnership to cover sales commissions relating to $11,074,460
limited partner contributions to date.
B. Other Organizational and Offering Expenses Organizational and offering
expenses, other than sales commissions, (including printing costs, attorney and
accountant fees, registration and filing fees, and other costs), will be paid by
the Partnership up to 10% of the gross proceeds of the offering or $600,000
whichever is less. The General Partners will pay any amount of such expenses in
excess of 10% of the gross proceeds or $600,000.
At December 31, 1995, organization costs of $12,500 and syndication costs
of approximately $455,921 had been incurred by the Partnership, which is less
than the 10% of the gross proceeds limitation indicated above. It is anticipated
that ultimately the sum of organization and syndication costs will be less than
4.00% of the gross proceeds contributed by the Partners.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenues and expenses are accounted for on the accrual basis of accounting.
The Partnership bears its own organization and syndication costs (other
than certain sales commissions and fees described above) including legal and
accounting expenses, printing costs, selling expenses, and filing fees.
Organizational costs have been capitalized and will be amortized over a five
year period. Syndication costs were charged against partners capital and will
be allocated to individual partners consistent with the partnership agreement.
If property is acquired through foreclosure, it will be held for prompt
sale to return the funds to the loan portfolio. Such property will be recorded
at cost, which includes the principal balance of the former loan made by the
Partnership, plus accrued interest, payments made to keep the senior loans
current, costs of obtaining title and possession, less rental income, or at
estimated net realizable value, if less. The difference between such costs and
estimated net realizable value will be included in an allowance for losses and
deducted from cost in the Balance Sheet to arrive at the carrying value of such
property. At December 31, 1995, there was no property acquired through
foreclosure.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Mortgage loans and the related accrued interest, fees and advances are
analyzed on a continuous basis for recoverability. Delinquencies are identified
and followed as part of the mortgage loan system. A provision is made for
doubtful accounts to adjust the allowance for doubtful accounts to an amount
considered by management to be adequate to provide for unrecoverable accounts
receivable.
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported amounts of
assets and liabilities as of the balance sheet date and revenues and expenses
for the related periods. Such estimates relate principally to the determination
of the allowance for doubtful accounts and the valuation of real estate acquired
through foreclosure. Actual results could differ significantly from these
estimates.
No provision for Federal and State income taxes will be made in the
financial statements since income taxes are the obligation of the partners if
and when income taxes apply.
Amounts reflected in the statement of income as net income per $1,000
invested by Limited Partners for the entire period are actual amounts allocated
to Limited Partners who have their investment throughout the period and have
elected to either leave their earnings to compound or have elected to receive
monthly distributions of their net income. Individual income is allocated each
month based on the Limited partners pro rata share of Partners capital.
Because the net income percentage varies from month to month, amounts per $1,000
will vary for those individuals who made or withdrew investments during the
period, or selected other options. However, the net income per $1,000 average
invested has approximated those reflected for those whose investments and
options have remained constant.
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES The following are commissions
and/or fees which will be paid to the General Partners and/or related parties.
A. Loan Brokerage Commissions For fees in connection with the review,
selection, evaluation, negotiation and extension of Partnership loans in an
amount up to 12% of loans until 6 months after the termination date of the
offering. Thereafter, loan brokerage commissions will be limited to an amount
not to exceed 4% of the total Partnership assets per year. The loan brokerage
commissions are paid by the borrowers, and thus, not an expense of the
partnership.
B. Loan Servicing Fees Monthly loan servicing fees of up to 1/8 of 1% (1.5%
annual) of the unpaid principal is paid to Redwood Mortgage, or such lesser
amount as is reasonable and customary in the geographic area where the property
securing the loan is located. Currently, such servicing fees are at 1/12 of 1%
per month (1% annually). Amounts remitted to the Partnership and recorded as
interest on mortgage loans is net of such fees. In 1993, $3,028 of the total
loan servicing fees of $8,528 were waived by Redwood Mortgage. In 1994, $15,278
of the total loan servicing fees of $44,405 were waived. In 1995, Redwood
Mortgage received the total loan servicing fees earned of $85,456.
C. Asset Management Fee The General Partners will receive a monthly fee for
managing the Partnerships loan portfolio and operations equal to 1/32 of 1% of
the net asset value (3/8 of 1% per year). Such fees were reduced from $4,331 to
$192 in 1993 with the difference being waived by the General Partners. Fees were
reduced from $17,718 to $5,906 in 1994 with the difference being waived. In
1995, fees were reduced from $34,773 to $11,587 with the difference being waived
by the General Partners.
D. Other Fees The Partnership Agreement provides for other fees such as
reconveyance, loan assumption and loan extension fees. Such fees are incurred by
the borrowers and are paid to parties related to the General Partners.
E. Income and Losses All income will be credited or charged to partners in
relation to their respective partnership interests. The partnership interest of
the General Partners (combined) shall be a total of 1%.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
F. Operating Expenses The General Partners or their affiliate (Redwood Home
Loan Co.) are reimbursed by the Partnership for all operating expenses actually
incurred by them on behalf of the Partnership, including without limitation,
out-of-pocket general and administration expenses of the Partnership, accounting
and audit fees, legal fees and expenses, postage and preparation of reports to
Limited Partners. Such reimbursements are reflected as expenses in the Statement
of Income.
The General Partners collectively or severally are to contribute 1/10 of 1%
in cash contributions as proceeds from the offering and admitted to Limited
Partner capital. As of December 31, 1995, a General Partner, GYMNO Corporation,
contributed $11,017 as capital in accordance with Section 4.02(a) of the
Partnership Agreement.
NOTE 4 - OTHER PARTNERSHIP PROVISIONS
A. Applicant Status Subscription funds received from purchasers of units
are not admitted to the Partnership until appropriate lending opportunities are
available. During the period prior to the time of admission, which is
anticipated to be between 1 and 120 days in most cases, purchasers
subscriptions will remain irrevocable and will earn interest at money market
rates, which are lower than the anticipated return on the Partnerships loan
portfolio.
During the periods ending December 31, 1995, 1994, and 1993, interest
totaling $18,908, $14,443 and $4,641, respectively, was credited to partners in
applicant status. As loans were made and partners were transferred to regular
status to begin sharing in income from loans secured by deeds of trust, the
interest credited was either paid to the investors or transferred to partners
capital along with the original investment.
B. Term of the Partnership The term of the Partnership is approximately 40
years, unless sooner terminated as provided. The provisions provide for no
capital withdrawal for the first five years, subject to the penalty provision
set forth in (E) below. Thereafter, investors have the right to withdraw over a
five-year period, or longer.
C. Election to Receive Monthly, Quarterly or Annual Distributions Upon
subscriptions, investors elect either to receive monthly, quarterly or annual
distributions of earnings allocations, or to allow earnings to compound. Subject
to certain limitations, an investor may subsequently change his election..
D. Profits and Losses Profits and losses are allocated among the Limited
Partners according to their respective capital accounts after 1% is allocated to
the General Partners.
E. Liquidity, Capital Withdrawals and Early Withdrawals There are
substantial restrictions on transferability of Units and accordingly an
investment in the Partnership is illiquid. Limited Partners have no right to
withdraw from the partnership or to obtain the return of their capital account
for at least one year from the date of purchase of Units. In order to provide a
certain degree of liquidity to the Limited Partners after the one-year period,
Limited Partners may withdraw all or part of their Capital Accounts from the
Partnership in four quarterly installments beginning on the last day of the
calendar quarter following the quarter in which the notice of withdrawal is
given, (30 days notice is required), subject to a 10% early withdrawal penalty.
The 10% penalty is applicable to the amount withdrawn and will be deducted from
the Capital Account and the balance distributed in four quarterly installments.
Withdrawal after the one-year holding period and before the five-year holding
period will be permitted only upon the terms set forth above.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Limited Partners will also have the right after five years from the date of
purchase of the Units to withdraw from the partnership on an installment basis,
generally over a five year period in twenty (20) quarterly installments or
longer. No penalty will be imposed if withdrawal is made in twenty (20)
quarterly installments or longer. Notwithstanding the five-year (or longer)
withdrawal period, the General Partners will liquidate all or part of a Limited
Partners capital account in four quarterly installments beginning on the last
day of the calendar quarter following the quarter in which the notice of
withdrawal in given, subject to a 10% early withdrawal penalty applicable to any
sums withdrawn prior to the time when such sums could have been withdrawn
pursuant to the five-year (or longer) withdrawal period.
The Partnership will not establish a reserve from which to fund withdrawals
and, accordingly, the Partnerships capacity to return a Limited Partners
capital is restricted to the availability of Partnership cash flow.
F. Guaranteed Interest Rate For Offering Period During the period
commencing with the day a Limited Partner is admitted to the Partnership and
ending 3 months after the offering termination date, the General Partners shall
guarantee an earnings rate equal to the greater of actual earnings from mortgage
operations or 2% above The Weighted Average Cost of Funds Index for the Eleventh
District Savings Institutions (Savings & Loan & Thrift Institutions) as computed
by the Federal Home Loan Bank of San Francisco, up to a maximum interest rate of
12%. In 1993, 1994, and 1995, actual realization exceeded the guaranteed amount
each month.
NOTE 5 - LEGAL PROCEEDINGS The Partnership is not a defendant in any legal
actions.
NOTE 6 - ASSET CONCENTRATIONS AND CHARACTERISTICS The mortgage loans are
secured by recorded deeds of trust. At December 31, 1995, there were 52 loans
outstanding with the following characteristics:
Number of loans outstanding 52
Total loans outstanding $12,047,252
Average loan outstanding $ 231,677
Average loan as percent of total 1.92%
Average loan as percent of Partners Capital 2.02%
Largest loan outstanding $1,073,721
Largest loan as percent of total 8.91%
Largest loan as percent of Partners Capital 9.36%
Number of counties where security is
located (all California) 15
Largest percentage of loans in one county 23.47%
Average loan to appraised value
at time loan was consummated 63.59%
Number of loans in foreclosure status 0
Amount of loans in foreclosure 0
The cash balance at December 31, 1995, of $380,318 was in four banks with
interest bearing balances totaling $372,262. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $279,653.
<PAGE>
GYMNO CORPORATION
FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(With Auditors Report Thereon)
<PAGE>
PARODI & CROPPER
CERTIFIED PUBLIC ACCOUNTANTS
3658 MOUNT DIABLO BOULEVARD, SUITE #205
LAFAYETTE, CALIFORNIA 94549
-----------------
(510) 284-3590
FAX (510) 284-3593
INDEPENDENT AUDITORS REPORT
BOARD OF DIRECTORS
GYMNO CORPORATION
We have audited the accompanying balance sheets of GYMNO Corporation as of
June 30, 1996, and 1995, and the related statements of income, stockholders
equity and cash flows for the two years then ended. These financial statements
are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentations.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GYMNO Corporation as of June
30, 1996, and 1995, and the results of its operations and cash flows for the
years then ended in conformity with generally accepted accounting principles.
PARODI & CROPPER
Lafayette, California
July 31, 1996
<PAGE>
<TABLE>
GYMNO CORPORATION
BALANCE SHEETS
JUNE 30, 1996 AND 1995
ASSETS
<CAPTION>
1996 1995
------------ --------
<S> <C> <C>
Cash and equivalents ..............................$ 398 $ 1,376
Deferred income tax benefits ..................... 120 120
Recoverable income taxes ......................... 0 922
------- -------
Total current assets .......................... 518 2,418
------- -------
Investment in partnerships, at net equity:
Redwood Mortgage Investors IV ................... 7,500 8,281
Redwood Mortgage Investors V .................... 5,000 5,000
Redwood Mortgage Investors VI ................... 9,773 9,773
Redwood Mortgage Investors VII .................. 12,748 12,998
Redwood Mortgage Investors VIII ................. 12,270 7,429
------- -------
47,291 43,481
====== =======
$47,809 $45,899
======= =======
LIABILITIES AND STOCKHOLDERS EQUITY
Liabilities:
Accounts payable - Stockholders .................$ 436 $ 436
Accounts payable ................................ 1,000 1,000
Accrued income taxes ............................ 357 0
Loan from Redwood Home Loan Co., at 8% interest . 4,000 4,000
------- -------
Total current liabilities: .................... 5,793 5,436
------- -------
Stockholders Equity:
Common Stock at stated value:
Authorized 1,000,000 shares of no par value
issued and outstanding 500 shares ............. 5,000 5,000
Paid-in surplus .................................. 7,500 7,500
Retained earnings ................................29,516 27,963
------ -------
Total stockholders equity ..................... 42,016 40,463
======= =======
$47,809 $45,899
======= =======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
GYMNO CORPORATION
STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1996 AND 1995
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
REVENUE
Partnership earnings - ........................... $11,275 $10,347
as General Partner
Reconveyance fees ................................ 3,360 3,990
Other partnership earnings ....................... 74 355
------- -------
14,709 14,692
------- -------
EXPENSES
Management services - Stockholders ............... 7,516 6,898
Contracted services - ............................ 672 798
Redwood Mortgage ............................
Professional Services ............................ 3,421 4,015
Interest expense ................................. 320 321
Other ............................................ 10 247
------- -------
11,939 12,279
------- -------
Income before provision for income taxes ........... 2,770 2,413
------- -------
Provision for income taxes:
California ....................................... 800 800
Federal .......................................... 417 58
------- -------
1,217 858
------- -------
Net income ......................................... $ 1,553 $ 1,555
======= =======
Per share (500 shares) ............................. $ 3.11 $ 3.11
======= =======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
GYMNO CORPORATION
STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED JUNE 30, 1996 AND 1995
<CAPTION>
COMMON STOCK PAID-IN RETAINED
----------------------
SHARES AMOUNT SURPLUS EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
Balances - June 30, 1994 ................................... 500# $ 5,000 $ 7,500 $26,408 $38,908
Net income for the year ended June 30, ..................... 0 0 0 1,555 1,555
1995
---- ------- ------- ------- -------
Balances - June 30, 1995 ................................... 500# $ 5,000 $ 7,500 $27,963 $40,463
Net income for the year ended June 30, ..................... 0 0 0 1,553 1,553
1996
---- ------- ------- ------- -------
Balances - June 30, 1996 ................................... 500# $ 5,000 $ 7,500 $29,516 $42,016
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
GYMNO CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996 AND 1995
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 1,553 $ 1,555
Adjustments to reconcile net income to net
cash provided by operating activities:
(Increase) decrease in recoverable
income taxes................................... 922 (922)
Mark investment to current value ................ 0 (100)
Increase (decrease) in accounts payable
and accrued liabilities ........................ 357 746
------- -------
2,832 1,279
------- -------
Cash flows from investing activities:
(Increase) decrease in:
Cash invested in partnership .................... (3,810) (1,563)
------- -------
Net increase (decrease) in cash equivalents .......... (978) (284)
Cash equivalents at beginning of year ................ 1,376 1,660
------- -------
Cash equivalents at end of year
(consisting of cash in banks) ...................... $ 398 $ 1,376
======= =======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
GYMNO CORPORATION
NOTES TO BALANCE SHEETS
JUNE 30, 1996 AND 1995
NOTE 1 - ORGANIZATION
GYMNO Corporation (the Company) was formed in July, 1986, by D. Russell
Burwell and Michael R. Burwell, each owning 250 shares, for the purpose of
serving as corporate General Partner of California limited partnerships,
(presently Redwood Mortgage Investors I, II, III, IV, V, VI, VII and VIII) which
invest in high-yield debt instruments, primarily promissory notes secured by
deeds of trust on California real estate.
As corporate General Partner, the Company receives management fees and/or a
small percentage of income for its services which are performed by the
stockholders. In addition, the Company receives reconveyance fees for which it
contracts with Redwood Home Loan Company, dba Redwood Mortgage at 20% of such
fees. Redwood Mortgage is controlled by D. Russell Burwell.
The Company has also acquired limited partnership interest in Redwood
Mortgage Investors IV and VII. The Company receives investment income from such
limited partnership interests. At June 30, 1996, the limited partnership
interest in Redwood Mortgage Investors IV had been liquidated.
<PAGE>
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
The accompanying financial statements were prepared on the accrual basis of
accounting wherein revenue is recognized when earned and expenses are recognized
when incurred.
Earnings per share, included in the statements of income, were calculated
by dividing net income by the weighted average of common stock shares
outstanding during the period. There is only one class of shares (common stock)
and there are no provisions or agreements which could dilute earnings per share.
NOTE 3 - INCOME TAXES
The following reflects the income taxes for the two years ending June 30,
1996 and 1995:
<TABLE>
GYMNO CORPORATION
NOTES TO BALANCE SHEETS
YEARS 1996 AND 1995
<CAPTION>
1996 1995
CALIFORNIA FEDERAL CALIFORNIA FEDERAL
<S> <C> <C> <C> <C>
Income before provision for income taxes ................... $ 2,770 $ 2,770 $ 2,413 $ 2,413
Nondeductible expenses ..................................... 0 0 1 1
State Tax Deduction:
Prior fiscal year tax ................................... 0 (800) 0 (800)
Taxable income differential-partnerships ................... 832 812 (1,227) (1,227)
------- ------- ------ -------
Taxable income ............................................. 3,602 2,782 1,187 387
------- ------- ------ -------
Tax rate (California $800 minimum) ......................... 9.3% 15% 9.3% 15%
------- -------- ------ -------
Income tax expense ......................................... $ 800 417 $ 800 $ 58
======= ======= ====== =======
Above tax liability ........................................ $ 800 417 $ 800 $ 58
Estimated tax payments ..................................... 800 60 800 980
-------- ------- ------ -------
Income tax liability (recoverable) ......................... $ 0 357 $ 0 $ (922)
======= ======= ====== =======
Total liability (recoverable) .............................. $ 357 $ (922)
======= =======
</TABLE>
California income taxes were determined at the greater of 9.3% of taxable
income or the minimum tax ($800) and Federal income taxes were determined at the
applicable Federal rate (15%).
Deferred income taxes are based on timing differences in deductions for
California income taxes which are deductible in the year after they apply (i.e.
- - fiscal year 1996 taxes are deductible in 1997). At both June 30, 1996, and
1995, there were deferred income tax benefits of $120 relating to the $800
California Franchise Tax deductible in the following year.
<PAGE>
PRIOR PERFORMANCE TABLES
The prior performance tables as referenced in the Prior Performance Summary
of the Prospectus present information on programs previously sponsored by the
General Partners.
The purpose of the tables is to provide information on the performance of
these partnerships to assist prospective investors in evaluating the experience
of the General Partners as sponsors of such partnerships. While none of the
information represents activities of an entity whose investment objectives and
criteria are identical to the Partnership, in the opinion of the General
Partners, all of the partnerships included in the tables had investment
objectives which were similar to those of the Partnership. Factors considered in
making such determination included the type of investments, expected benefits
from investment and structure of the programs. Each of such prior programs had
the following objectives: (i) annual distributions of cash or credits to a
Partner's capital account for additional Mortgage Investments; and (ii)
preservation of the Partnership's capital. Redwood Mortgage Investors VI,
Redwood Mortgage Investors VII and the Partnership differ from the prior
programs in that they will amortize organizational costs over a five (5) year
period instead of a ten (10) year period and will invest in a greater percentage
of first deeds of trust. In addition, the Partnership's Loan Servicing Fees may
be slightly higher and interest earned on the loans made by the Partnership will
differ due to economic considerations and other factors at the present time.
Accordingly, such prior programs differed in certain respects from the
Partnership, and inclusion of these tables does not imply that investors of the
Partnership will experience results comparable to those experienced in the
partnerships referred to in the tables.
The tables consist of:
Table I Experience in Raising and Investing Funds.
Table II Compensation to General Partners and Affiliates.
Table III Operating Results of Prior Limited Partnerships.
Table V Payment of Mortgage Investments.
Persons who purchase Interests in the Partnership will not thereby acquire
any ownership interest in any of the partnerships to which these tables relate.
The inclusion of the following tables in the Prospectus does not imply that the
Partnership will make investments comparable to those reflected in the tables
with respect to cash flow, income tax consequences available to investors, or
other factors, nor does it imply that they will experience returns, if any,
comparable to those experienced by investors in the partnerships referred to
below.
The General Partners have sponsored only two (2) other public programs
registered with the Securities and Exchange Commission. Therefore, the following
tables include information about prior non-public programs whose investment
objectives are similar to those of the Partnership. These partnerships were
offered without registration under the Securities Act of 1933 in reliance upon
the intrastate offering exemption from the registration requirements thereunder
and/or the exemption for transactions not involving a public offering.
Additional information regarding the Description of Open Mortgage
Investments of Prior Limited Partnerships is provided in Table VI in Part II of
this Registration Statement. The Partnership will furnish without charge to each
person to whom this Prospectus is delivered, upon request, a copy of Table VI.
<PAGE>
DEFINITIONS AND GLOSSARY OF TERMS
The following terms used in the Tables have the following meanings:
"Cash Generated From Operations" shall mean excess or deficiency of
operating cash receipts over operating cash expenditures.
"GAAP" shall mean generally accepted accounting principles.
"Months To Invest 90% Of Amount Available For Investment" shall mean the
time period from commencement of the offering to date of close of escrow of
initial Mortgage Investments.
The following is a brief description of the Tables:
TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS
Table I summarizes, as a percentage basis, all funds through June 30, 1996,
for partnerships which completed funding during the three (3) years ending on
such date.
TABLE II - COMPENSATION TO GENERAL PARTNERS AND AFFILIATES
Table II summarizes the compensation paid the General Partners and
Affiliates by those partnerships which completed funding during the three (3)
years ended June 30, 1996.
TABLE III - OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
Table III summarizes the annual operating results through December 31, 1995
for partnerships which closed their offering during the seven (7) years ending
June 30, 1996.
TABLE V - PAYMENT OF MORTGAGE INVESTMENTS
Table V presents information on the payment of the partnerships' mortgages
within the three (3) years ending June 30, 1996.
About one-third of the loans to the partnerships are fractionalized loans
and held as undivided interests with other partnerships and third parties. The
information presented in Table V as to fractionalized loans represents only that
partnership's interest in a certain loan.
<PAGE>
<TABLE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
RMI VII
------------------------
<S> <C>
Dollar Amount Offered ................................... $ 12,000,000
Dollar Amount Raised .................................... $ 11,998,359
Percentage of Amount Raised ............................. 100.0%
Less Offering Expenses:
Organization Expense ............................... 3.55%
Percentage Available for Investment
Net of Offering Expenses ......................... 96.45%
Loans Funded from Offering Proceeds
Secured by Mortgage .............................. 86.85%
Formation Loan (1): ................................ 7.62%
Selling Commissions Paid to
Non-Affiliates ................................... 1.00%
Selling Commissions Paid to
Affiliates ....................................... -0-
Loan Commitments (2): .............................. -0-
Loan Application or Loan
Processing Fees .................................. -0-
Funds Available for Future
Commitments ...................................... -0-
Reserve ............................................ 0.98%
==============
Total.................................................... 96.45%
==============
Date Offering Commenced ................................. 10/20/89
Length of Offering ...................................... 36 months
Months to Commit 90% of Amount
Available for Investment
(Measured from Beginning of
Offering) .......................................... 38 months
</TABLE>
<PAGE>
<TABLE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)~
<CAPTION>
RMI VI
------------------------
<S> <C>
Dollar Amount Offered ................................... $ 12,000,000
Dollar Amount Raised .................................... $ 9,772,594
Percentage of Amount Raised ............................. 100.0%
Less Offering Expenses:
Organization Expense ............................... 2.63%
Selling Commissions Paid to
Non-Affiliates ................................... 1.0%
Selling Commissions Paid to
Affiliates ....................................... -0-
Percentage Available for Investment,
Net of Offering Expenses ......................... 96.37%
Loans Funded from Offering Proceeds
Secured by Mortgage .............................. 86.04%
Formation Loan (1): ................................ 6.27%
Loan Commitments ................................... -0-
Loan Application or Loan
Processing Fees .................................. -0-
Funds Available for Future
Commitments ...................................... 1.06%
Reserve ............................................ 3.00%
=============
Total ................................................... 96.37%
==============
Date Offering Commenced ................................. 09/03/87
Length of Offering ...................................... 24 months
Months to Commit 90% of Amount
Available for Investment
(Measured from Beginning of
Offering) ........................................ 25 months
</TABLE>
<PAGE>
<TABLE>
TABLE II
COMPENSATION TO GENERAL PARTNERS AND AFFILIATES
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS)
<CAPTION>
RMI VII
-----------------------
<S> <C>
Date Offering Commenced .................................... 10/20/89
Dollar Amount Raised ....................................... $11,998,359
Amount Paid to General Partners
and Affiliates from:
Offering Proceeds ................................... -0-
Selling Commissions ................................. -0-
Loan Application or Loan
Processing Fees ................................... -0-
Reimbursement of Expenses, at Cost .................. 86,082
Acquisition Fees .................................... -0-
Advisory Fees ....................................... -0-
Other ............................................... -0-
Loan Points, Processing and
Other Fees Paid by the Borrowers to
Affiliates:
Points (1) ....................................... $ 1,197,309
Processing Fees (1) .............................. 39,777
Other (1) ........................................ 6,181
Dollar Amount of Cash Generated
from Operations Before Deducting
Payments to General Partners and
Affiliates: ......................................... $ 7,918,165
Amount Paid to General Partners and
Affiliates from Operations:
Partnership Management Fees ......................... $ 53,246
Earnings Distribution ............................... 49,331
Mortgage Servicing Fee .............................. 234,906
Late Charges .......................................... -0-
Reimbursement of Expenses, at Cost .................. 127,090
Prepayment Fee ........................................ -0-
<FN>
(1) These sums were paid by borrowers of partnership funds, and were not
expenses of the partnership.
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE II
COMPENSATION TO GENERAL PARTNERS AND AFFILIATES
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
RMI VI
-----------------------
<S> <C>
Date Offering Commenced .................................... 9/03/87
Dollar Amount Raised ....................................... $ 9,772,594
Amount Paid to General Partners
and Affiliates from:
Offering Proceeds ................................... -0-
Selling Commissions ................................. -0-
Loan Application or Loan
Processing Fees ................................... -0-
Reimbursement of Expenses, at Cost .................. 103,708
Acquisition Fees .................................... -0-
Advisory Fees ....................................... -0-
Other ............................................... -0-
Loan Points, Processing and
Other Fees Paid by the Borrowers to
Affiliates:
Points (1) ............................................ $ 1,451,286
Processing Fees (1) ................................... 58,376
Other (1) ............................................. 7,985
Dollar Amount of Cash Generated
from Operations Before Deducting
Payments to General Partners and
Affiliates: ......................................... $11,676,002
Amount Paid to General Partners and
Affiliates from Operations:
Partnership Management Fees ......................... $ 74,296
Earnings Fee .......................................... 70,076
Mortgage Servicing Fee ................................ 543,892
Reimbursement of Expenses, at Cost .................... 202,043
<FN>
(1) These sums were paid by borrowers of partnership funds, and were not
expenses of the partnerships.
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
RMI VII
------------------------
<S> <C>
Dollar Amount Offered ................................... $ 12,000,000
Dollar Amount Raised .................................... $ 11,998,359
Percentage of Amount Raised ............................. 100.0%
Less Offering Expenses:
Organization Expense ............................... 3.55%
Percentage Available for Investment
Net of Offering Expenses ......................... 96.45%
Loans Funded from Offering Proceeds
Secured by Mortgage .............................. 86.85%
Formation Loan (1): ................................ 7.62%
Selling Commissions Paid to
Non-Affiliates ................................... 1.00%
Selling Commissions Paid to
Affiliates ....................................... -0-
Loan Commitments (2): .............................. -0-
Loan Application or Loan
Processing Fees .................................. -0-
Funds Available for Future
Commitments ...................................... -0-
Reserve ............................................ 0.98%
==============
Total.................................................... 96.45%
==============
Date Offering Commenced ................................. 10/20/89
Length of Offering ...................................... 36 months
Months to Commit 90% of Amount
Available for Investment
(Measured from Beginning of
Offering) .......................................... 38 months
</TABLE>
<PAGE>
<TABLE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)~
<CAPTION>
RMI VI
------------------------
<S> <C>
Dollar Amount Offered ................................... $ 12,000,000
Dollar Amount Raised .................................... $ 9,772,594
Percentage of Amount Raised ............................. 100.0%
Less Offering Expenses:
Organization Expense ............................... 2.63%
Selling Commissions Paid to
Non-Affiliates ................................... 1.0%
Selling Commissions Paid to
Affiliates ....................................... -0-
Percentage Available for Investment,
Net of Offering Expenses ......................... 96.37%
Loans Funded from Offering Proceeds
Secured by Mortgage .............................. 86.04%
Formation Loan (1): ................................ 6.27%
Loan Commitments ................................... -0-
Loan Application or Loan
Processing Fees .................................. -0-
Funds Available for Future
Commitments ...................................... 1.06%
Reserve ............................................ 3.00%
=============
Total ................................................... 96.37%
==============
Date Offering Commenced ................................. 09/03/87
Length of Offering ...................................... 24 months
Months to Commit 90% of Amount
Available for Investment
(Measured from Beginning of
Offering) ........................................ 25 months
</TABLE>
<PAGE>
<TABLE>
TABLE II
COMPENSATION TO GENERAL PARTNERS AND AFFILIATES
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS)
<CAPTION>
RMI VII
-----------------------
<S> <C>
Date Offering Commenced .................................... 10/20/89
Dollar Amount Raised ....................................... $11,998,359
Amount Paid to General Partners
and Affiliates from:
Offering Proceeds ................................... -0-
Selling Commissions ................................. -0-
Loan Application or Loan
Processing Fees ................................... -0-
Reimbursement of Expenses, at Cost .................. 86,082
Acquisition Fees .................................... -0-
Advisory Fees ....................................... -0-
Other ............................................... -0-
Loan Points, Processing and
Other Fees Paid by the Borrowers to
Affiliates:
Points (1) ....................................... $ 1,197,309
Processing Fees (1) .............................. 39,777
Other (1) ........................................ 6,181
Dollar Amount of Cash Generated
from Operations Before Deducting
Payments to General Partners and
Affiliates: ......................................... $ 7,918,165
Amount Paid to General Partners and
Affiliates from Operations:
Partnership Management Fees ......................... $ 53,246
Earnings Distribution ............................... 49,331
Mortgage Servicing Fee .............................. 234,906
Late Charges .......................................... -0-
Reimbursement of Expenses, at Cost .................. 127,090
Prepayment Fee ........................................ -0-
<FN>
(1) These sums were paid by borrowers of partnership funds, and were not
expenses of the partnership.
</FN>
</TABLE>
<TABLE>
TABLE II
COMPENSATION TO GENERAL PARTNERS AND AFFILIATES
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
RMI VI
-----------------------
<S> <C>
Date Offering Commenced .................................... 9/03/87
Dollar Amount Raised ....................................... $ 9,772,594
Amount Paid to General Partners
and Affiliates from:
Offering Proceeds ................................... -0-
Selling Commissions ................................. -0-
Loan Application or Loan
Processing Fees ................................... -0-
Reimbursement of Expenses, at Cost .................. 103,708
Acquisition Fees .................................... -0-
Advisory Fees ....................................... -0-
Other ............................................... -0-
Loan Points, Processing and
Other Fees Paid by the Borrowers to
Affiliates:
Points (1) ............................................ $ 1,451,286
Processing Fees (1) ................................... 58,376
Other (1) ............................................. 7,985
Dollar Amount of Cash Generated
from Operations Before Deducting
Payments to General Partners and
Affiliates: ......................................... $11,676,002
Amount Paid to General Partners and
Affiliates from Operations:
Partnership Management Fees ......................... $ 74,296
Earnings Fee .......................................... 70,076
Mortgage Servicing Fee ................................ 543,892
Reimbursement of Expenses, at Cost .................... 202,043
<FN>
(1) These sums were paid by borrowers of partnership funds, and were not
expenses of the partnerships.
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI VII
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1989 1990 1991
----------- ------------ ------------
5 days in December 1989
<S> <C> <C> <C>
Gross Revenues ........................................................... $ 1,682 $ 238,949 $ 759,828
Less: General Partners' Management Fee ................................... -0- 4,795 7,506
Mortgage Servicing Fee ................................................. -0- 14,172 42,177
Administrative Expenses ................................................ 191 5,304 36,595
Provision for Uncollected Accounts ..................................... -0- 3,000 19,398
Amortization of Organization and Syndication Costs ..................... 3 773 894
Offering Period Interest Expense to Limited Partners ................... 1,241 14,616 23,114
Interest Expense .......................... ............................ -0- -0- -0-
----------- ----------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ....................... $ 247 $ 196,289 $ 630,144
----------- ----------- -----------
Sources of Funds - Net Income ............................................ $ 247 $ 196,289 $ 630,144
Reduction in Assets ...................................................... -0- -0- -0-
Increase in Liabilities .................................................. 28,696 -0- 13,531
Early Withdrawal Penalties Applied to Synd. Costs ........................ -0- -0- 370
Increase in Applicant's Deposit .......................................... 163,632 27,290 134,278
Increase in Partners' Capital ............................................ 135,743 2,866,189 4,957,724
----------- ----------- -----------
Cash generated from Operations ........................................... $ 328,318 $ 3,089,768 $ 5,736,047
Use of Funds-Increase in Assets .......................................... $ 287,117 $ 2,720,557 $ 5,549,077
Reduction in Liabilities ................................................. -0- 27,876 -0-
Decrease in Applicant's Deposit .......................................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners ..................... 188 5,094 9,379
Investment Income Pd to LP's ........................................... 52 58,001 228,039
Return of Capital to LP's .............................................. -0- -0- 10,893
----------- ----------- -----------
Net Increase (Decrease) in Cash .......................................... $ 40,961 $ 278,240 $ (61,341)
Cash at the beginning of the year ........................................ -0- $ 40,961 $ 319,201
Cash at the end of the year .............................................. $ 40,961 $ 319,201 $ 257,860
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ............................ $ 1.46 $ 108.02 $ 102.02
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) .............................. $ 1.46 $ 102.99 $ 97.51
Cash Distribution to Investors for $1,000 Invested
Income (1) ............................................................. $ 0.38 $ 35.41(1) $ 39.22(1)
Capital (1) ............................................................ -0- -0- $ 1.87
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ......................................... $ 9.10 $ 119.03 $ 109.67
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ....................... $ 8.33 $ 113.40 $ 104.83
<FN>
NOTES:
(1) Based upon year's average capital balances.
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI VII
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1992 1993 1994
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ....................................................... $ 1,468,593 $ 1,711,092 $ 1,489,882
Less: General Partners' Management Fee ............................... 14,202 16,735 10,008
Mortgage Servicing Fee ............................................. 53,628 58,802 -0-
Administrative Expenses ............................................ 95,526 152,782 78,822
Provision for Uncollected Accounts.................................. 125,618 235,423 335,955
Amortization of Organization and Syndication Costs ................. 2,016 2,016 2,016
Offering Period Interest Expense to Limited Partners ............... 13,361 -0- -0-
Interest Expense ................................................... 68,226 119,351 135,790
----------- ----------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ................... $ 1,096,016 $ 1,125,983 927,291
----------- ----------- -----------
Sources of Funds - Net Income ........................................ $ 1,096,016 $ 1,125,983 $ 927,291
Reduction in Assets .................................................. -0- 883,182 -0-
Increase in Liabilities .............................................. 1,999,649 -0- 956,846
Early Withdrawal Penalties Applied to Synd. Costs .................... 1,173 7,195 10,635
Increase in Applicant's Deposit ...................................... -0- -0- -0-
Increase in Partners' Capital ........................................ 4,091,481 -0- -0-
----------- ----------- -----------
Cash generated from Operations ....................................... $ 7,188,319 $ 2,016,360 $ 1,894,772
Use of Funds-Increase in Assets ...................................... $ 6,239,730 -0- $ 1,316,184
Reduction in Liabilities ............................................. -0- 1,032,580 -0-
Decrease in Applicant's Deposit ...................................... 310,539 -0- -0-
Offering Period Interest Expense to Limited Partners ................. 5,202 -0- -0-
Investment Income Pd to LP's ....................................... 360,641 339,746 263,206
Return of Capital to LP's .......................................... 456,787 230,004 340,011
----------- ----------- -----------
Net Increase (Decrease) in Cash ...................................... $ (184,580) $ 414,030 $ (24,629)
Cash at the beginning of the year .................................... $ 257,860 $ 73,280 $ 487,310
Cash at the end of the year .......................................... $ 73,280 $ 487,310 $ 462,681
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ........................ $ 93.03 $ 80.06 $ 62.85
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) .......................... $ 89.27 $ 77.76 $ 61.09
Cash Distribution to Investors for $1,000 Invested
Income (1) ......................................................... $ 42.48 $ 26.43 $ 19.61
Capital (1) ........................................................ $ 53.80 $ 17.89 $ 25.34
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ..................................... $ 100.70 $ 92.76 $ 76.88
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ................... $ 96.64 $ 89.52 $ 74.67
<FN>
NOTES:
(1) Based upon year's average capital balances.
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI VII
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1995 06/30/96
------------ ------------
<S> <C> <C>
Gross Revenues ....................................................................... $1,483,881 $ 764,258
Less: General Partners' Management Fee ............................................... -0- -0-
Mortgage Servicing Fee ............................................................. 33,394 32,733
Administrative Expenses ............................................................ 66,371 48,562
Provision for Uncollected Accounts ................................................. 306,779 157,661
Amortization of Organization and Syndication Costs ................................. 2,016 368
Offering Period Interest Expense to Limited Partners ............................... -0- -0-
Interest Expense ................................................................... 163,361 88,659
---------- ----------
Net Income (GAAP Basis) distr. to Limited Partners ................................... $ 911,960 $ 436,275
---------- ----------
Sources of Funds - Net Income ........................................................ $ 911,960 $ 436,275
Reduction in Assets .................................................................. -0- 151,779
Increase in Liabilities .............................................................. 63,206 -0-
Early Withdrawal Penalties Applied to Synd. Costs .................................... 3,344 -0-
Increase in Applicant's Deposit ...................................................... -0- -0-
Increase in Partners' Capital ........................................................ -0- -0-
---------- ----------
Cash generated from Operations ....................................................... $ 978,510 $ 588,054
Use of Funds-Increase in Assets ...................................................... $ 471,434 -0-
Reduction in Liabilities ............................................................. -0- 500
Decrease in Applicant's Deposit ...................................................... -0- -0-
Offering Period Interest Expense to Limited Partners ................................. -0- -0-
Investment Income Pd to LP's ....................................................... 270,760 148,420
Return of Capital to LP's .......................................................... 184,157 245,910
---------- ----------
Net Increase (Decrease) in Cash ...................................................... $ 52,159 $ 193,224
Cash at the beginning of the year .................................................... $ 462,681 $ 514,840
Cash at the end of the year .......................................................... $ 514,840 $ 708,064
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ........................................ $ 60.01 $ 29.64
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) .......................................... $ 58.43 $ 29.28
Cash Distribution to Investors for $1,000 Invested
Income (1) ......................................................................... $ 19.69 $ 10.44
Capital (1) ........................................................................ $ 13.39 $ 17.30
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ..................................................... $ 65.75 N/A
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ................................... $ 64.01 N/A
<FN>
NOTES:
(1) Based upon years average capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI VI
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1987 1988 1989(2)
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ....................................................... $ 35,485 $ 600,194 $ 1,284,180
Less: General Partners' Management Fee ............................... 833 15,726 -0-
Mortgage Servicing Fee ............................................. 2,659 46,393 90,434
Administrative Expenses ............................................ 494 19,837 53,083
Provision for Uncollected Accounts ................................. -0- -0- 50,631
Amortization of Organization and Syndication Costs ................. 102 2,196 2,952
Offering Period Interest Expense to Limited Partners ............... 8,072 44,871 18,976
Interest Expense ................................................... -0- -0- 108,883
----------- ----------- -----------
Net Income (GAAP Basis) dist. to Limited Partners .................... $ 23,325 $ 471,171 $ 959,221
----------- ----------- -----------
Sources of Funds - Net Income ........................................ $ 23,325 $ 471,171 $ 959,221
Reduction in Assets .................................................. -0- -0- -0-
Increase in Liabilities .............................................. 44,060 -0- 1,580,600
Early Withdrawal Penalties Applied to Synd. Costs .................... -0- -0- -0-
Increase in Applicant's Deposit ...................................... 1,114,238 -0- -0-
Increase in Partners' Capital ........................................ 1,158,336 5,811,540 2,537,274
----------- ----------- -----------
Cash generated from Operations ....................................... $ 2,339,959 $ 6,282,711 $ 5,077,095
Use of Funds-Increase in Assets ...................................... $ 1,342,112 $ 5,836,269 $ 4,438,494
Reduction in Liabilities ............................................. -0- 37,472 -0-
Decrease in Applicant's Deposit ...................................... -0- 567,520 546,718
Offering Period Interest Expense to Limited Partners ................. 1,585 16,691 9,802
Investment Income Pd to LP's ....................................... 7,864 144,038 326,195
Return of Capital to LP's .......................................... -0- -0- 8,369
----------- ----------- -----------
Net Increase (Decrease) in Cash ...................................... $ 988,398 $ (319,279) $ (252,483)
Cash at the beginning of the year .................................... -0- $ 988,398 $ 669,119
Cash at the end of the year .......................................... $ 988,398 $ 669,119 $ 416,636
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ........................ $ 24.33 $ 101.64 $ 100.56
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) .......................... $ 20.78 $ 97.18 $ 96.18
Cash Distribution to Investors for $1,000 Invested
Income (1) ......................................................... $ 18.41(1) $ 29.19(1) $ 44.76(1)
Capital (1) ........................................................ -0- -0- $ 1.15
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ..................................... $ 26.07 $ 109.34 $ 107.58
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ................... $ 22.50 $ 104.50 $ 102.92
<FN>
NOTES:
(1) Based upon years average capital balances
(2) The offering terminated in September, 1989.
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI VI
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1990 1991 1992
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues .......................................................... $ 1,527,697 $ 1,587,354 $ 1,661,779
Less: General Partners' Management Fee .................................. 3,496 14,489 15,287
Mortgage Servicing Fee ................................................ 105,405 54,390 79,326
Administrative Expenses ............................................... 113,610 76,692 93,282
Provision for Uncollected Accounts .................................... 13,687 174,290 266,786
Amortization of Organization and Syndication Costs .................... 3,167 3,167 3,166
Offering Period Interest Expense to Limited Partners .................. -0- -0- -0-
Interest Expense ...................................................... 154,187 142,442 145,395
----------- ----------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ...................... $ 1,134,145 $ 1,121,884 $ 1,058,537
----------- ----------- -----------
Sources of Funds - Net Income ........................................... $ 1,134,145 $ 1,121,884 $ 1,058,537
Reduction in Assets ..................................................... -0- -0- -0-
Increase in Liabilities ................................................. -0- -0- 1,401,613
Early Withdrawal Penalties Applied to Synd. Costs ....................... 3,813 1,345 5,518
Increase in Applicant's Deposit ......................................... -0- -0- -0-
Increase in Partners' Capital ........................................... -0- -0- -0-
----------- ----------- -----------
Cash generated from Operations .......................................... $ 1,137,958 $ 1,123,229 $ 2,465,668
Use of Funds-Increase in Assets ......................................... $ 500,209 $ 380,888 $ 2,073,362
Reduction in Liabilities ................................................ 232,193 293,099 -0-
Decrease in Applicant's Deposit ......................................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners .................... -0- -0- -0-
Investment Income Pd to LP's .......................................... 375,864 341,505 323,037
Return of Capital to LP's ............................................. 100,628 41,254 232,370
----------- ----------- -----------
Net Increase (Decrease) in Cash ......................................... $ (70,936) $ 66,483 $ (163,101)
Cash at the beginning of the year ....................................... $ 416,636 $ 345,700 $ 412,183
Cash at the end of the year ............................................. $ 345,700 $ 412,183 $ 249,082
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ........................... $ 100.09 $ 93.40 $ 82.87
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) ............................. $ 95.75 $ 89.62 $ 79.88
Cash Distribution to Investors for $1,000 Invested
Income (1) ............................................................ $ 36.01 $ 30.74 $ 27.26
Capital (1) ........................................................... $ 9.64 $ 3.71 $ 19.61
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ........................................ $ 108.29 $ 99.00 $ 91.00
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ...................... $ 103.60 $ 95.00 $ 87.71
<FN>
NOTES:
(1) Based upon years average capital balances
(2) The offering terminated in September, 1989.
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI VI
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ............................................................. $1,713,378 $ 1,391,088 $ 1,277,782
Less: General Partners' Management Fee ..................................... 15,523 8,942 -0-
Mortgage Servicing Fee ................................................... 94,306 -0- 42,056
Administrative Expenses .................................................. 123,473 59,346 59,656
Provision for Uncollected Accounts ....................................... 420,583 472,967 344,807
Amortization of Organization and Syndication Costs ....................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners ..................... -0- -0- -0-
Interest Expense ......................................................... 161,705 185,131 212,915
---------- ----------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ......................... $ 897,788 $ 664,702 $ 618,348
----------- ----------- -----------
Sources of Funds - Net Income .............................................. $ 897,788 $ 664,702 $ 618,348
Reduction in Assets ........................................................ 676,847 18,749 749,375
Increase in Liabilities .................................................... -0- 374,511 -0-
Early Withdrawal Penalties Applied to Synd. Costs .......................... 3,700 -0- -0-
Increase in Applicant's Deposit ............................................ -0- -0- -0-
Increase in Partners' Capital .............................................. -0- -0- -0-
----------- ----------- -----------
Cash generated from Operations ............................................. $1,578,335 $ 1,057,962 $ 1,367,723
Use of Funds-Increase in Assets ............................................ -0- -0- -0-
Reduction in Liabilities ................................................... 498,663 -0- 335,500
Decrease in Applicant's Deposit ............................................ -0- -0- -0-
Offering Period Interest Expense to Limited Partners ....................... -0- -0- -0-
Investment Income Pd to LP's ............................................. 377,712 303,014 303,098
Return of Capital to LP's ................................................ 528,737 729,449 892,953
---------- ----------- -----------
Net Increase (Decrease) in Cash ............................................ $ 173,223 $ 25,499 $ (163,828)
Cash at the beginning of the year .......................................... $ 249,082 $ 422,305 $ 447,804
Cash at the end of the year ................................................ $ 422,305 $ 447,804 $ 283,976
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) .............................. $ 72.01 $ 54.95 $ 53.03
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) ................................ $ 69.74 $ 53.62 $ 51.79
Cash Distribution to Investors for $1,000 Invested
Income (1) ............................................................... $ 30.57 $ 24.53 $ 25.29
Capital (1) .............................................................. $ 42.79 $ 59.06 $ 74.51
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ........................................... $ 92.72 $ 49.87 $ 59.39
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ......................... $ 89.90 $ 48.66 $ 58.00
<FN>
NOTES:
(1) Based upon years average capital balances
(2) The offering terminated in September, 1989.
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI VI
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
06/30/96
------------
<S> <C>
Gross Revenues .................................................. $ 597,065
Less: General Partners' Management Fee .......................... -0-
Mortgage Servicing Fee ........................................ 28,923
Administrative Expenses ....................................... 42,217
Provision for Uncollected Accounts ............................ 135,588
Amortization of Organization and Syndication Costs ............ -0-
Offering Period Interest Expense to Limited Partners .......... -0-
Interest Expense .............................................. 90,206
-----------
Net Income (GAAP Basis) distr. to Limited Partners .............. $ 300,131
-----------
Sources of Funds - Net Income ................................... $ 300,131
Reduction in Assets ............................................. 645,182
Increase in Liabilities ......................................... -0-
Early Withdrawal Penalties Applied to Synd. Costs ............... -0-
Increase in Applicant's Deposit ................................. -0-
Increase in Partners' Capital ................................... -0-
-----------
Cash generated from Operations .................................. $ 945,313
Use of Funds-Increase in Assets ................................. -0-
Reduction in Liabilities ........................................ 326,000
Decrease in Applicant's Deposit ................................. -0-
Offering Period Interest Expense to Limited Partners ............ -0-
Investment Income Pd to LP's .................................. 145,281
Return of Capital to LP's ..................................... 520,437
-----------
Net Increase (Decrease) in Cash ................................. $ (46,405)
Cash at the beginning of the year ............................... $ 283,976
Cash at the end of the year ..................................... $ 237,571
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ................... $ 26.46
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) ..................... $ 26.18
Cash Distribution to Investors for $1,000 Invested
Income (1) .................................................... $ 12.74
Capital (1) ................................................... $ 45.63
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ................................ N/A
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions .............. N/A
<FN>
NOTES:
(1) Based upon years average capital balances
(2) The offering terminated in September, 1989.
</FN>
</TABLE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI V
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1986 1987 1988
------------ ------------ ------------
(1 month only)
<S> <C> <C> <C>
Gross Revenues ........................................................... $ 20,794 $ 460,522 $ 627,223
Less: General Partners' Management Fee ................................... 342 7,922 5,260
Mortgage Servicing Fee ................................................. 1,052 40,010 50,274
Administrative Expenses ................................................ 753 16,702 44,802
Provision for Uncollected Accounts ..................................... 1,740 -0- 22,119
Amortization of Organization and Syndication Costs ..................... 271 502 606
Offering Period Interest Expense to Limited Partners ................... 7,114 23,135 -0-
Interest Expense ....................................................... -0- -0- -0-
---------- ---------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ....................... $ 9,522 $ 372,251 $ 504,162
---------- ---------- ------------
Sources of Funds - Net Income ............................................ $ 9,522 $ 372,251 $ 504,162
Reduction in Assets ...................................................... -0- -0- -0-
Increase in Liabilities .................................................. 7,815 -0- -0-
Early Withdrawal Penalties Applied to Synd. Costs ........................ -0- -0- -0-
Increase in Applicant's Deposit .......................................... 515,356 -0- -0-
Increase in Partners' Capital ............................................ 1,369,469 3,540,065 -0-
----------- ---------- -----------
Cash generated from Operations ........................................... $1,902,162 $3,912,316 $ 504,162
Use of Funds-Increase in Assets .......................................... $1,743,843 $2,842,678 $ 566,387
Reduction in Liabilities ................................................. -0- 5,169 834
Decrease in Applicant's Deposit .......................................... -0- 515,356 -0-
Offering Period Interest Expense to Limited Partners ..................... 1,790 9,119 -0-
Investment Income Pd to LP's ........................................... 2,962 137,682 178,902
Return of Capital to LP's .............................................. -0- -0- -0-
---------- ---------- -----------
Net Increase (Decrease) in Cash .......................................... $ 153,567 $ 402,312 $ (241,961)
Cash at the beginning of the year ........................................ -0- $ 153,567 $ 555,879
Cash at the end of the year .............................................. $ 153,567 $ 555,879 $ 313,918
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ............................ $ 110 $ 101 $ 95
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) .............................. $ 106 $ 96 $ 91
Cash Distribution to Investors for $1,000 Invested
Income (1) ............................................................. $ 26 $ 39 $ 35
Capital (1) ............................................................ -0- -0- -0-
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ......................................... $ 114 $ 103 $ 97
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ....................... $ 109 $ 99 $ 93
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI V
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1989 1990 1991
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ........................................................... $ 755,856 $ 775,058 $ 745,102
Less: General Partners' Management Fee ................................... 9,395 7,323 7,487
Mortgage Servicing Fee ................................................. 47,501 57,395 29,117
Administrative Expenses ................................................ 46,129 46,319 67,569
Provision for Uncollected Accounts ..................................... 63,984 51,770 61,411
Amortization of Organization and Syndication Costs ..................... 631 631 631
Offering Period Interest Expense to Limited Partners ................... -0- -0- -0-
Interest Expense ....................................................... 61,600 67,569 24,462
----------- ----------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ....................... $ 526,616 $ 544,051 $ 554,425
----------- ----------- -----------
Sources of Funds - Net Income ............................................ $ 526,616 $ 544,051 $ 554,425
Reduction in Assets ...................................................... -0- 591,879 36,728
Increase in Liabilities .................................................. 808,466 -0- -0-
Early Withdrawal Penalties Applied to Synd. Costs ........................ -0- 8,003 4,658
Increase in Applicant's Deposit .......................................... -0- -0- -0-
Increase in Partners' Capital ............................................ -0- -0- -0-
----------- ----------- -----------
Cash generated from Operations ........................................... $ 1,335,082 $ 1,143,933 $ 595,811
Use of Funds-Increase in Assets .......................................... $ 1,272,177 -0- -0-
Reduction in Liabilities ................................................. -0- 586,933 17,593
Decrease in Applicant's Deposit .......................................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners ..................... -0- -0- -0-
Investment Income Pd to LP's ........................................... 178,180 191,970 172,259
Return of Capital to LP's .............................................. 78,120 283,253 170,711
----------- ----------- -----------
Net Increase (Decrease) in Cash .......................................... $ (193,395) $ 81,777 $ 235,248
Cash at the beginning of the year ........................................ $ 313,918 $ 120,523 $ 202,300
Cash at the end of the year .............................................. $ 120,523 $ 202,300 $ 437,548
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ............................ $ 93 $ 94 $ 94
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) .............................. $ 89 $ 91 $ 90
Cash Distribution to Investors for $1,000 Invested
Income (1) ............................................................. $ 33 $ 34 $ 30
Capital (1) ............................................................ $ 14 $ 49 $ 29
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ......................................... $ 107 $ 106 $ 99
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ....................... $ 102 $ 101 $ 95
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI V
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1992 1993 1994
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues .......................................................... $ 840,592 $ 826,774 $ 557,036
Less: General Partners' Management Fee .................................. 14,746 12,084 2,333
Mortgage Servicing Fee ................................................ 42,526 42,609 -0-
Administrative Expenses ............................................... 59,495 80,006 39,594
Provision for Uncollected Accounts .................................... 114,162 141,059 140,499
Amortization of Organization and Syndication Costs .................... 631 631 629
Offering Period Interest Expense to Limited Partners .................. -0- -0- -0-
Interest Expense ...................................................... 68,662 79,848 79,951
----------- ----------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ...................... $ 540,370 $ 470,537 $ 294,030
----------- ----------- -----------
Sources of Funds - Net Income ........................................... $ 540,370 $ 470,537 $ 294,030
Reduction in Assets ..................................................... -0- 554,553 418,962
Increase in Liabilities ................................................. 945,442 -0- 9,731
Early Withdrawal Penalties Applied to Synd. Costs ....................... 1,833 1,617 634
Increase in Applicant's Deposit ......................................... -0- -0- -0-
Increase in Partners' Capital ........................................... -0- -0- -0-
----------- ----------- -----------
Cash generated from Operations .......................................... $ 1,487,645 $ 1,026,707 $ 723,357
Use of Funds-Increase in Assets ......................................... $ 1,389,730 -0- -0-
Reduction in Liabilities ................................................ -0- 62,234 -0-
Decrease in Applicant's Deposit ......................................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners .................... -0- -0- -0-
Investment Income Pd to LP's .......................................... 179,048 233,928 139,550
Return of Capital to LP's ............................................. $ 280,929 $ 546,248 $ 640,685
----------- ----------- -----------
Net Increase (Decrease) in Cash ......................................... $ (362,062) $ 184,297 $ (56,878)
Cash at the beginning of the year ....................................... $ 437,548 $ 75,486 $ 259,783
Cash at the end of the year ............................................. $ 75,486 $ 259,783 $ 202,905
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ........................... $ 89 $ 77 $ 50
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) ............................. $ 85 $ 75 $ 49
Cash Distribution to Investors for $1,000 Invested
Income (1) ............................................................ $ 30 $ 38 $ 24
Capital (1) ........................................................... $ 47 $ 89 $ 110
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ........................................ $ 97 $ 93 $ 10
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ...................... $ 93 $ 90 $ 10
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI V
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1995 06/30/96
------------ ------------
<S> <C> <C>
Gross Revenues ........................................................................ $ 567,540 $200,344
Less: General Partners' Managment Fee ................................................. -0- -0-
Mortgage Servicing Fee .............................................................. -0- -0-
Administrative Expenses ............................................................. 30,593 23,798
Provision for Uncollected Accounts .................................................. 182,162 18,419
Amortization of Organization and Syndication Costs .................................. 627 314
Offering Period Interest Expense to Limited Partners ................................ -0- -0-
Interest Expense .................................................................... 95,941 45,253
----------- --------
Net Income (GAAP Basis) distr. to Limited Partners .................................... $ 258,217 $112,560
----------- --------
Sources of Funds - Net Income ......................................................... 258,217 112,560
Reduction in Assets ................................................................... 464,011 380,552
Increase in Liabilities ............................................................... -0- -0-
Early Withdrawal Penalties Applied to Synd. Costs ..................................... -0- -0-
Increase in Applicant's Deposit ....................................................... -0- -0-
Increase in Partners' Capital ......................................................... -0- -0-
----------- --------
Cash generated from Operations ........................................................ $ 722,228 $493,112
Use of Funds-Increase in Assets ....................................................... -0- -0-
Reduction in Liabilities .............................................................. 69,000 124,499
Decrease in Applicant's Deposit ....................................................... -0- -0-
Offering Period Interest Expense to Limited Partners .................................. -0- -0-
Investment Income Pd to LP's ........................................................ 124,329 51,539
Return of Capital to LP's ........................................................... 689,307 296,716
----------- --------
Net Increase (Decrease) in Cash ....................................................... $ (160,408) $ 20,358
Cash at the beginning of the year ..................................................... $ 202,905 $ 42,497
Cash at the end of the year ........................................................... $ 42,497 $ 62,855
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ......................................... $ 50 $ 24
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) ........................................... $ 49 $ 24
Cash Distribution to Investors for $1,000 Invested
Income (1) .......................................................................... $ 23 $ 11
Capital (1) ......................................................................... $ 130 $ 62
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ...................................................... $ 51 N/A
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions .................................... $ 50 N/A
<FN>
NOTES:(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI IV
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1985 1986 1987
----------- ------------ ------------
<S> <C> <C> <C>
Gross Revenues .......................................................... $ 236,437 $ 870,719 $ 1,104,423
Less: General Partners' Management Fee .................................. 5,253 21,185 30,732
Mortgage Servicing Fee ................................................ 11,375 44,077 93,423
Administrative Expenses ............................................... 3,384 49,905 66,321
Provision for Uncollected Accounts .................................... 7,441 22,830 (5,457)
Amortization of Organization and Syndication Costs .................... 3,510 13,429 3,953
Offering Period Interest Expense to Limited Partners .................. 22,680 43,310 -0-
Interest Expense ...................................................... -0- 35,242 94,461
----------- ----------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ...................... $ 182,794 $ 640,741 $ 820,990
----------- ----------- -----------
Sources of Funds - Net Income ........................................... $ 182,794 $ 640,741 $ 820,990
Reduction in Assets ..................................................... -0- -0- 559,202
Increase in Liabilities ................................................. 7,669 1,012,556 -0-
Early Withdrawal Penalties Applied to Synd. Costs ....................... -0- -0- -0-
Increase in Applicant's Deposit ......................................... 605,351 -0- -0-
Increase in Partners' Capital ........................................... 3,323,145 4,238,412 -0-
----------- ----------- -----------
Cash generated from Operations .......................................... $ 4,118,959 $ 5,891,709 $ 1,380,192
Use of Funds-Increase in Assets ......................................... $ 3,327,257 $ 5,131,576 -0-
Reduction in Liabilities ................................................ -0- -0- 277,205
Decrease in Applicant's Deposit ......................................... -0- 605,351 -0-
Offering Period Interest Expense to Limited Partners .................... 20,118 45,713 -0-
Investment Income Pd to LP's .......................................... 73,959 279,521 322,880
Return of Capital to LP's ............................................. -0- -0- -0-
----------- ----------- -----------
Net Increase (Decrease) in Cash ......................................... $ 697,625 $ (170,452) $ 780,107
Cash at the beginning of the year ....................................... -0- $ 697,625 $ 527,173
Cash at the end of the year ............................................. $ 697,625 $ 527,173 $ 1,307,280
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ........................... $ 137 $ 120 $ 101
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) ............................. $ 126 $ 114 $ 97
Cash Distribution to Investors for $1,000 Invested
Income (1) ............................................................ $ 28 $ 88 $ 41
Capital (1) ........................................................... -0- -0- -0-
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ........................................ $ 138 $ 122 $ 104
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ...................... $ 128 $ 116 $ 100
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI IV
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1988 1989 1990
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues .......................................................... $ 1,129,031 $ 1,211,845 $ 1,277,106
Less: General Partners' Management Fee .................................. 29,706 34,382 23,258
Mortgage Servicing Fee ................................................ 88,759 75,527 86,746
Administrative Expenses ............................................... 63,560 60,693 73,780
Provision for Uncollected Accounts .................................... 53,594 76,840 31,384
Amortization of Organization and Syndication Costs .................... 405 1,974 1,975
Offering Period Interest Expense to Limited Partners .................. -0- -0- -0-
Interest Expense ...................................................... 85,230 121,043 160,574
----------- ----------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ...................... $ 807,777 $ 841,386 $ 899,389
----------- ----------- -----------
Sources of Funds - Net Income ........................................... $ 807,777 $ 841,386 $ 899,389
Reduction in Assets ..................................................... -0- -0- -0-
Increase in Liabilities ................................................. -0- 506,746 567,797
Early Withdrawal Penalties Applied to Synd. Costs ....................... -0- -0- -0-
Increase in Applicant's Deposit ......................................... -0- -0- -0-
Increase in Partners' Capital ........................................... -0- -0- -0-
----------- ----------- -----------
Cash generated from Operations .......................................... $ 807,777 $ 1,348,132 $ 1,467,186
Use of Funds-Increase in Assets ......................................... $ 1,346,774 $ 1,282,363 $ 826,609
Reduction in Liabilities ................................................ 136,669 -0- -0-
Decrease in Applicant's Deposit ......................................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners .................... -0- -0- -0-
Investment Income Pd to LP's .......................................... 290,113 259,531 293,775
Return of Capital to LP's ............................................. -0- 353 94,721
----------- ----------- -----------
Net Increase (Decrease) in Cash ......................................... $ (965,779) $ (194,115) $ 252,081
Cash at the beginning of the year ....................................... $ 1,307,280 $ 341,501 $ 147,386
Cash at the end of the year ............................................. $ 341,501 $ 147,386 $ 399,467
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ........................... $ 92 $ 93 $ 94
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) ............................. $ 91 $ 89 $ 90
Cash Distribution to Investors for $1,000 Invested
Income (1) ............................................................ $ 35 $ 29 $ 31
Capital (1) ........................................................... $ -0- $ -0- $ 10
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ........................................ $ 94 $ 101 $ 94
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ...................... $ 90 $ 97 $ 90
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI IV
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1991 1992 1993
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues .......................................................... $ 1,261,526 $ 1,329,074 $ 1,186,369
Less: General Partners' Management Fee .................................. 12,644 6,306 12,315
Mortgage Servicing Fee ................................................ -0- 44,638 71,037
Administrative Expenses ............................................... 90,490 70,546 62,545
Provision for Uncollected Accounts .................................... 165,786 295,550 367,250
Amortization of Organization and Syndication Costs .................... 1,975 1,975 1,975
Offering Period Interest Expense to Limited Partners .................. -0- -0- -0-
Interest Expense ...................................................... 118,355 122,990 -0-
----------- ----------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ...................... $ 872,276 $ 787,069 $ 671,247
----------- ----------- -----------
Sources of Funds - Net Income ........................................... $ 872,276 $ 787,069 $ 671,247
Reduction in Assets ..................................................... -0- 1,548,510 607,766
Increase in Liabilities ................................................. 3,732 -0- -0-
Early Withdrawal Penalties Applied to Synd. Costs ....................... 2,329 958 118
Increase in Applicant's Deposit ......................................... -0- -0- -0-
Increase in Partners' Capital ........................................... -0- -0- -0-
----------- ----------- -----------
Cash generated from Operations .......................................... $ 878,337 $ 2,336,537 $ 1,279,131
Use of Funds-Increase in Assets ......................................... $ 103,300 -0- -0-
Reduction in Liabilities ................................................ -0- 1,670,953 9,828
Decrease in Applicant's Deposit ......................................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners .................... -0- -0- -0-
Investment Income Pd to LP's .......................................... 327,082 331,750 292,590
Return of Capital to LP's ............................................. 454,911 613,524 742,194
----------- ----------- -----------
Net Increase (Decrease) in Cash ......................................... $ (6,956) $ (279,690) $ 234,519
Cash at the beginning of the year ....................................... $ 399,467 $ 392,511 $ 112,822
Cash at the end of the year ............................................. $ 392,511 $ 112,821 $ 347,341
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ........................... $ 87 $ 79 $ 68
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) ............................. $ 84 $ 76 $ 66
Cash Distribution to Investors for $1,000 Invested
Income (1) ............................................................ $ 33 $ 33 $ 30
Capital (1) ........................................................... $ 45 $ 61 $ 75
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ........................................ $ 87 $ 90 $ 82
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ...................... $ 83 $ 87 $ 79
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI IV
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1994 1995 06/30/96
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ........................................................... $ 994,076 $ 1,016,152 $ 479,203
Less: General Partners' Management Fee ................................... 11,687 10,959 5,224
Mortgage Servicing Fee ................................................. 88,072 73,032 27,942
Administrative Expenses ................................................ 56,734 54,789 39,063
Provision for Uncollected Accounts ..................................... 243,856 189,026 88,001
Amortization of Organization and Syndication Costs ..................... 1,975 1,241 -0-
Offering Period Interest Expense to Limited Partners ................... -0- -0- -0-
Interest Expense ....................................................... 9,585 139,708 68,478
----------- ----------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ....................... $ 582,167 $ 547,397 $ 250,495
----------- ----------- -----------
Sources of Funds - Net Income ............................................ $ 582,167 $ 547,397 250,495
Reduction in Assets ...................................................... -0- -0- 270,537
Increase in Liabilities .................................................. 1,111,875 396,156 -0-
Early Withdrawal Penalties Applied to Synd. Costs ........................ 1,400 -0- -0-
Increase in Applicant's Deposit .......................................... -0- -0- -0-
Increase in Partners' Capital ............................................ -0- -0- -0-
----------- ----------- -----------
Cash generated from Operations ........................................... $ 1,695,442 $ 943,553 $ 521,032
Use of Funds-Increase in Assets .......................................... $ 520,319 $ 74,528 -0-
Reduction in Liabilities ................................................. -0- -0- 11,875
Decrease in Applicant's Deposit .......................................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners ..................... -0- -0- -0-
Investment Income Pd to LP's ........................................... 261,074 233,353 102,816
Return of Capital to LP's .............................................. 907,454 864,922 370,500
----------- ----------- -----------
Net Increase (Decrease) in Cash .......................................... $ 6,595 $ (229,250) 35,841
Cash at the beginning of the year ........................................ $ 347,341 $ 353,936 124,686
Cash at the end of the year .............................................. $ 353,936 $ 124,686 160,527
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ............................ $ 62 $ 63 $ 30
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) .............................. $ 60 $ 61 $ 30
Cash Distribution to Investors for $1,000 Invested
Income (1) ............................................................. $ 27 $ 26 $ 12
Capital (1) ............................................................ $ 95 $ 97 $ 44
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ......................................... $ 44 $ 67 N/A
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ....................... $ 43 $ 66 N/A
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI III
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1984 1985 1986
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ........................................................... $ 121,765 $ 215,150 $ 200,934
Less: General Partners' Management Fee ................................... 5,878 11,488 12,240
Mortgage Servicing Fee ................................................. 5,384 9,421 12,118
Administrative Expenses ................................................ 4,001 7,368 16,210
Provision for Uncollected Accounts ..................................... 1,228 10,420 7,612
Amortization of Organization and Syndication Costs ..................... 789 1,051 1,051
Offering Period Interest Expense to Limited Partners ................... 4,501 -0- -0-
---------- ---------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ....................... $ 99,984 $ 175,402 $ 151,703
----------- ---------- ----------
Sources of Funds - Net Income ............................................ $ 99,984 $ 175,402 $ 151,703
Decrease in Assets ....................................................... -0- -0- 73,219
Increase in Liabilities .................................................. 15,080 -0- 914
Increase in Applicant's Deposit .......................................... -0- -0- -0-
Increase in Partners' Capital ............................................ 1,429,624 -0- -0-
----------- ---------- -----------
Cash generated from Operations ........................................... $1,544,688 $ 175,402 $ 225,836
Use of Funds-Increase in Assets .......................................... $1,476,990 $ 47,801 -0-
Decrease in Liabilities .................................................. -0- 14,848 -0-
Decrease in Applicant's Deposit .......................................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners ..................... -0- -0- -0-
Investment Income Pd to LP's ........................................... 40,333 77,652 58,391
Return of Capital to LP's .............................................. -0- -0- -0-
---------- ---------- -----------
Net Increase (Decrease) in Cash .......................................... $ 27,365 $ 35,101 $ 167,445
Cash at the beginning of the year ........................................ -0- $ 27,365 $ 62,466
Cash at the end of the year .............................................. $ 27,365 $ 62,466 $ 229,911
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ............................ $ 123 $ 119 $ 97
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) .............................. $ 121 $ 114 $ 93
Cash Distribution to Investors for $1,000 Invested
Income (1) ............................................................. $ 27 $ 52 $ 37
Capital (1) ............................................................ -0- -0- -0-
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ......................................... $ 124 $ 120 $ 96
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ....................... $ 121 $ 113 $ 92
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI III
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1987 1988 1989
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ............................................................. $ 165,951 $ 190,856 $ 211,062
Less: General Partners' Management Fee ..................................... 1,050 -0- 3,408
Mortgage Servicing Fee ................................................... 3,989 8,678 11,179
Administrative Expenses .................................................. 14,664 16,186 16,281
Provision for Uncollected Accounts ....................................... 13,886 22,486 30,612
Amortization of Organization and Syndication Costs ....................... 462 578 990
Offering Period Interest Expense to Limited Partners ..................... -0- -0- -0-
--------- --------- ---------
Net Income (GAAP Basis) distr. to Limited Partners ......................... $ 131,900 $ 142,928 $ 148,592
--------- --------- ---------
Sources of Funds - Net Income .............................................. $ 131,900 $ 142,928 $ 148,592
Decrease in Assets ......................................................... 48,139 -0- -0-
Increase in Liabilities .................................................... 2,656 1,580 -0-
Increase in Applicant's Deposit ............................................ -0- -0- -0-
Increase in Partners' Capital .............................................. -0- -0- -0-
--------- --------- ---------
Cash generated from Operations ............................................. $ 182,695 $ 144,508 $ 148,592
Use of Funds-Increase in Assets ............................................ -0- $ 290,071 $ 5,767
Decrease in Liabilities .................................................... -0- -0- 4,532
Decrease in Applicant's Deposit ............................................ -0- -0- -0-
Offering Period Interest Expense to Limited Partners ....................... -0- -0- -0-
Investment Income Pd to LP's ............................................. 53,836 61,267 94,559
Return of Capital to LP's ................................................ -0- -0- 116,362
--------- --------- ---------
Net Increase (Decrease) in Cash ............................................ $ 128,859 $(206,830) $ (72,628)
Cash at the beginning of the year .......................................... $ 229,911 $ 358,770 $ 151,940
Cash at the end of the year ................................................ $ 358,770 $ 151,940 $ 79,312
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) .............................. $ 78 $ 81 $ 83
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) ................................ $ 76 $ 78 $ 80
Cash Distribution to Investors for $1,000 Invested
Income (1) ............................................................... $ 32 $ 35 $ 51
Capital (1) .............................................................. $ -0- $ -0- $ 63
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ........................................... $ 79 $ 82 $ 83
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ......................... $ 76 $ 79 $ 80
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI III
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1990 1991 1992
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ............................................................ $ 196,540 $ 169,921 $ 177,555
Less: General Partners' Management Fee .................................... 12,833 11,454 7,915
Mortgage Servicing Fee .................................................. 9,561 8,008 9,842
Administrative Expenses ................................................. 12,596 12,399 22,371
Provision for Uncollected Accounts ...................................... 5,828 4,040 9,977
Amortization of Organization and Syndication Costs ...................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners .................... -0- -0- $ 57
Net Income (GAAP Basis) distr. to Limited Partners ........................ $ 155,722 $ 134,020 $ 127,393
--------- ----------- ----------
Sources of Funds - Net Income ............................................. $ 155,722 $ 134,020 $ 127,393
Decrease in Assets ........................................................ 124,828 229,739 -0-
Increase in Liabilities ................................................... -0- 735 764
Increase in Applicant's Deposit ........................................... -0- -0- 80,000
Increase in Partners' Capital ............................................. -0- -0- 345,151
----------- --------- -----------
Cash generated from Operations ............................................ $ 280,550 $ 364,494 $ 553,308
Use of Funds-Increase in Assets ........................................... -0- -0- 206,184
Decrease in Liabilities ................................................... 1,279 -0- -0-
Decrease in Applicant's Deposit ........................................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners ...................... -0- -0- -0-
Investment Income Pd to LP's ............................................ 123,195 96,512 84,590
Return of Capital to LP's ............................................... 219,305 238,846 230,697
--------- --------- -----------
Net Increase (Decrease) in Cash ........................................... $ (63,229) $ 29,136 $ 31,837
Cash at the beginning of the year ......................................... $ 79,312 $ 16,083 $ 45,219
Cash at the end of the year ............................................... $16,083 $ 45,219 $ 77,056
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ............................. $ 94 $ 90 $ 88
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) ............................... $ 90 $ 87 $ 85
Cash Distribution to Investors for $1,000 Invested
Income (1) .............................................................. $ 69 $ 61 $ 61
Capital (1) ............................................................. $ 123 $ 150 $ 166
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner .......................................... $ 98 $ 111 $ 97
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ........................ $ 107 $ 93 $ 94
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI III
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ............................................................. $ 236,762 $ 165,126 $ 166,111
Less: General Partners' Management Fee ..................................... 2,993 6,065 6,399
Mortgage Servicing Fee ................................................... 11,917 12,068 11,267
Administrative Expenses .................................................. 23,634 15,883 16,954
Provision for Uncollected Accounts ....................................... 66,633 683 43
Amortization of Organization and Syndication Costs ....................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners ..................... $ 242 $ 396 $ 54
--------- --------- ---------
Net Income (GAAP Basis) distr. to Limited Partners ......................... $ 131,343 $ 130,031 $ 131,394
--------- --------- ---------
Sources of Funds - Net Income .............................................. $ 131,343 $ 130,031 $ 131,394
Decrease in Assets ......................................................... 128,311 -0- -0-
Increase in Liabilities .................................................... -0- 3,818 324
Increase in Applicant's Deposit ............................................ 10,000 -0- -0-
Increase in Partners' Capital .............................................. 110,242 290,396 25,054
--------- --------- ---------
Cash generated from Operations ............................................. $ 379,896 $ 424,245 $ 156,772
Use of Funds-Increase in Assets ............................................ -0- 192,646 67,506
Decrease in Liabilities .................................................... 1,099 -0- -0-
Decrease in Applicant's Deposit ............................................ -0- 90,000 -0-
Offering Period Interest Expense to Limited Partners ....................... 173 283 54
Investment Income Pd to LP's ............................................. 85,197 77,734 81,250
Return of Capital to LP's ................................................ 236,366 129,391 65,478
--------- --------- ---------
Net Increase (Decrease) in Cash ............................................ $ 57,061 $(65,809) $ (57,516)
Cash at the beginning of the year .......................................... $ 77,056 $ 134,117 $ 68,308
Cash at the end of the year ................................................ $ 134,117 $ 68,308 $ 10,792
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) .............................. $ 82 $ 80 $ 77
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) ................................ $ 79 $ 77 $ 74
Cash Distribution to Investors for $1,000 Invested
Income (1) ............................................................... $ 55 $ 53 $ 48
Capital (1) .............................................................. $ 153 $ 88 $ 39
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ........................................... $ 116 $ 81 $ 71
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ......................... $ 112 $ 79 $ 69
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI III
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
06/30/96
------------
<S> <C>
Gross Revenues ................................................ $ 82,767
Less: General Partners' Management Fee ........................ 1,089
Mortgage Servicing Fee ...................................... 4,368
Administrative Expenses ..................................... 9,429
Provision for Uncollected Accounts .......................... 3,275
Amortization of Organization and Syndication Costs .......... 1,658
Offering Period Interest Expense to Limited Partners ..... $ -0-
--------
Net Income (GAAP Basis) distr. to Limited Partners............. $ 62,948
--------
Sources of Funds - Net Income ................................. $ 62,948
Decrease in Assets ............................................ 60,689
Increase in Liabilities ....................................... -0-
Increase in Applicant's Deposit ............................... -0-
Increase in Partners' Capital ................................. 50,000
--------
Cash generated from Operations ................................ $173,637
Use of Funds-Increase in Assets ............................... -0-
Decrease in Liabilities ....................................... 4,266
Decrease in Applicant's Deposit ............................... -0-
Offering Period Interest Expense to Limited Partners .......... -0-
Investment Income Pd to LP's ................................ 38,421
Return of Capital to LP's ................................... 13,493
--------
Net Increase (Decrease) in Cash ............................... $117,457
Cash at the beginning of the year ............................. $ 10,792
Cash at the end of the year ................................... $128,249
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ................. $ 36
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) ................... $ 35
Cash Distribution to Investors for $1,000 Invested
Income (1) .................................................. $ 23
Capital (1) ................................................. $ 8
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner .............................. N/A
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ............ N/A
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI II
(AS OF JUNE 30,1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1984 1985 1986
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ............................................................ $ 207,656 $ 218,404 $ 210,308
Less: General Partners' Management Fee .................................... 13,621 14,712 15,480
Mortgage Servicing Fee .................................................. 9,591 11,334 13,950
Administrative Expenses ................................................. 6,089 7,500 13,922
Provision for Uncollected Accounts ...................................... 8,282 12,056 4,132
Amortization of Organization and Syndication Costs ...................... 755 831 584
Offering Period Interest Expense to Limited Partners .................... 211 -0- -0-
--------- --------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ........................ $ 169,107 $ 171,971 $ 162,240
---------- --------- -----------
Sources of Funds - Net Income ............................................. $ 169,107 $ 171,971 $ 162,240
Decrease in Assets ........................................................ -0- -0- -0-
Increase in Liabilities ................................................... -0- 217 -0-
Increase in Applicant's Deposit ........................................... -0- -0- -0-
Increase in Partners' Capital ............................................. 116,982 10,320 -0-
----------- --------- -----------
Cash generated from Operations ............................................ $ 286,089 $ 182,508 $ 162,240
Use of Funds-Increase in Assets ........................................... $ 221,005 $ 44,365 $ 10,802
Decrease in Liabilities ................................................... 1,277 -0- 340
Decrease in Applicant's Deposit ........................................... 113,968 -0- -0-
Offering Period Interest Expense to Limited Partners ...................... -0- -0- -0-
Investment Income Pd to LP's ............................................ 65,285 75,311 50,444
Return of Capital to LP's ............................................... -0- -0- 70,043
--------- --------- -----------
Net Increase (Decrease) in Cash ........................................... $(115,446) $ 62,832 $ 30,612
Cash at the beginning of the year ......................................... $ 177,223 $ 61,777 $ 124,609
Cash at the end of the year ............................................... $ 61,777 $ 124,609 $ 155,221
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ............................. $ 130 $ 122 $ 109
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) ............................... $ 123 $ 116 $ 104
Cash Distribution to Investors for $1,000 Invested
Income (1) .............................................................. $ 54 $ 53 $ 33
Capital (1) ............................................................. $ -0- $ -0- $ 46
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner .......................................... $ 130 $ 122 $ 109
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ........................ $ 123 $ 116 $ 104
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI II
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1987 1988 1989
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ..................................................................... $ 208,807 $ 232,361 $ 190,156
Less: General Partners' Management Fee ............................................. 16,238 16,619 14,306
Mortgage Servicing Fee ........................................................... 16,558 17,876 10,740
Administrative Expenses .......................................................... 16,116 16,759 10,208
Provision for Uncollected Accounts ............................................... -0- 19,946 4,666
Amortization of Organization and Syndication Costs ............................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners ............................. -0- -0- -0-
--------- --------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ................................. $ 159,895 $ 161,161 $ 150,236
----------- --------- -----------
Sources of Funds - Net Income ...................................................... $ 159,895 $ 161,161 $ 150,236
Decrease in Assets ................................................................. 55,985 -0- 258,519
Increase in Liabilities ............................................................ -0- 6,421 -0-
Increase in Applicant's Deposit .................................................... -0- -0- -0-
Increase in Partners' Capital ...................................................... -0- -0- -0-
----------- --------- -----------
Cash generated from Operations ..................................................... $ 215,880 $ 167,582 $ 408,755
Use of Funds-Increase in Assets .................................................... -0- $ 123,504 -0-
Decrease in Liabilities ............................................................ 8,607 -0- 7,854
Decrease in Applicant's Deposit .................................................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners ............................... -0- -0- -0-
Investment Income Pd to LP's ..................................................... 45,516 66,746 70,915
Return of Capital to LP's ........................................................ -0- 264,015 327,020
--------- --------- -----------
Net Increase (Decrease) in Cash .................................................... $ 161,757 $(286,683) $ 2,966
Cash at the beginning of the year .................................................. $ 155,221 $ 316,978 $ 30,295
Cash at the end of the year ........................................................ $ 316,978 $ 30,295 $ 33,261
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ...................................... $ 100 $ 100 $ 109
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) ........................................ $ 97 $ 96 $ 104
Cash Distribution to Investors for $1,000 Invested
Income (1) ....................................................................... $ 29 $ 40 $ 47
Capital (1) ...................................................................... $ -0- $ 156 $ 215
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ................................................... $ 102 $ 115 $ 109
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ................................. $ 97 $ 110 $ 106
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI II
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1990 1991 1992
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ............................................................. $ 131,811 $ 93,683 $ 892,67
Less: General Partners' Management Fee ..................................... 11,221 -0- -0-
Mortgage Servicing Fee ................................................... 5,395 -0- 2,156
Administrative Expenses .................................................. 10,146 10,950 12,948
Provision for Uncollected Accounts ....................................... 5,434 57,690 16,886
Amortization of Organization and Syndication Costs ....................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners ..................... -0- -0- -0-
--------- --------- ----------
Net Income (GAAP Basis) distr. to Limited Partners ......................... $ 99,615 $ 25,043 $ 60,688
---------- ---------- ----------
Sources of Funds - Net Income .............................................. $ 99,615 $ 25,043 $ 60,688
Decrease in Assets ......................................................... 58,107 69,363 -0-
Increase in Liabilities .................................................... -0- 11,604 -0-
Increase in Applicant's Deposit ............................................ -0- -0- -0-
Increase in Partners' Capital .............................................. -0- -0- -0-
---------- --------- ----------
Cash generated from Operations ............................................. $ 157,722 $ 106,010 $ 60,688
Use of Funds-Increase in Assets ............................................ -0- -0- 11,908
Decrease in Liabilities .................................................... 845 -0- 9,935
Decrease in Applicant's Deposit ............................................ -0- -0- -0-
Offering Period Interest Expense to Limited Partners ....................... -0- -0- -0-
Investment Income Pd to LP's ............................................. 40,172 27,856 5,765
Return of Capital to LP's ................................................ 130,796 54,362 66,267
--------- --------- ----------
Net Increase (Decrease) in Cash ............................................ $ (14,091) $ 23,792 $ (33,187)
Cash at the beginning of the year .......................................... $ 33,261 $ 19,170 $ 42,962
Cash at the end of the year ................................................ $ 19,170 $ 42,962 $ 9,775
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) .............................. $ 83 $ 20 $ 53
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) ................................ $ 80 $ 20 $ 53
Cash Distribution to Investors for $1,000 Invested
Income (1) ............................................................... $ 32 $ 23 $ 5
Capital (1) .............................................................. $ 103 $ 45 $ 58
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ........................................... $ 88 $ 15 $ 67
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ......................... $ 85 $ 16 $ 67
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI II
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ........................................................... $ 130,958 $ 102,122 $ 100,734
Less: General Partners' Management Fee ................................... 1,523 3,533 9,858
Mortgage Servicing Fee ................................................. 8,626 7,131 6,124
Administrative Expenses ................................................ 10,950 14,130 10,232
Provision for Uncollected Accounts ..................................... 68,644 33,851 27,874
Amortization of Organization and Syndication Costs ..................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners ................... -0- -0- -0-
--------- --------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ....................... $ 41,215 $ 43,477 $ 46,646
----------- --------- -----------
Sources of Funds - Net Income ............................................ $ 41,215 $ 43,477 $ 46,646
Decrease in Assets ....................................................... 213,667 -0- 121,620
Increase in Liabilities .................................................. -0- 535 4,723
Increase in Applicant's Deposit .......................................... -0- -0- -0-
Increase in Partners' Capital ............................................ -0- -0- -0-
---------- --------- -----------
Cash generated from Operations ........................................... $ 254,882 $ 44,012 $ 172,989
Use of Funds-Increase in Assets .......................................... -0- $ 99,062 -0-
Decrease in Liabilities .................................................. 355 -0- -0-
Decrease in Applicant's Deposit .......................................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners ..................... -0- -0- -0-
Investment Income Pd to LP's ........................................... 16,423 19,630 21,689
Return of Capital to LP's .............................................. 78,361 87,614 100,673
--------- --------- -----------
Net Increase (Decrease) in Cash ......................................... $ 159,743 $(162,294) $ 50,627
Cash at the beginning of the year ........................................ $ 9,775 $ 169,518 $ 7,224
Cash at the end of the year .............................................. $ 169,518 $ 7,224 $ 57,851
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ............................ $ 37 $ 41 $ 48
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) .............................. $ 37 $ 41 $ 47
Cash Distribution to Investors for $1,000 Invested
Income (1) ............................................................. $ 15 $ 18 $ 21
Capital (1) ............................................................ $ 69 $ 81 $ 99
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ......................................... $ 100 $ (6) $ 77
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ....................... $ 98 $ (6) $ 75
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
<PAGE>
</TABLE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI II
(AS OF JUNE 30,1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
06/30/96
-----------
<S> <C>
Gross Revenues ................................................... $ 46,905
Less: General Partners' Management Fee ........................... 1,557
Mortgage Servicing Fee ......................................... 1,921
Administrative Expenses ........................................ 8,664
Provision for Uncollected Accounts ............................. 10,888
Amortization of Organization and Syndication Costs ............. -0-
Offering Period Interest Expense to Limited Partners ........... -0-
--------
Net Income (GAAP Basis) distr. to Limited Partners ............... $ 23,875
--------
Sources of Funds - Net Income .................................... $ 23,875
Decrease in Assets ............................................... -0-
Increase in Liabilities .......................................... -0-
Increase in Applicant's Deposit .................................. -0-
Increase in Partners' Capital .................................... -0-
--------
Cash generated from Operations ................................... $ 23,875
Use of Funds-Increase in Assets .................................. $ 7,068
Decrease in Liabilities .......................................... 6,572
Decrease in Applicant's Deposit .................................. -0-
Offering Period Interest Expense to Limited Partners ............. -0-
Investment Income Pd to LP's ................................... 10,465
Return of Capital to LP's ...................................... 42,291
--------
Net Increase (Decrease) in Cash .................................. $(42,521)
Cash at the beginning of the year ................................ $ 57,851
Cash at the end of the year ...................................... $ 15,330
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) .................... $ 26
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) ...................... $ 26
Cash Distribution to Investors for $1,000 Invested
Income (1) ..................................................... $ 11
Capital (1) .................................................... $ 45
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ................................. N/A
Federal Income Tax Results for $1,000 Invested for a Limited
Partner Receiving Monthly Earnings Distributions ............... N/A
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1984 1985 1986
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ............................................................ $ 188,289 $ 205,116 $ 206,710
Less: General Partners' Management Fee .................................... 1,539 1,434 1,491
Mortgage Servicing Fee .................................................. 10,735 11,808 13,240
Administrative Expenses ................................................. 2,734 8,476 15,253
Provision for Uncollected Accounts ...................................... 22,278 51,508 15,498
Amortization of Organization and Syndication Costs ...................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners .................... -0- -0- -0-
--------- --------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ........................ $ 151,003 $ 131,890 $ 161,228
----------- --------- -----------
Sources of Funds - Net Income ............................................. $ 151,003 $ 131,890 $ 161,228
Decrease in Assets ........................................................ -0- -0- -0-
Increase in Liabilities ................................................... -0- 591 4,677
Increase in Applicant's Deposit ........................................... -0- -0- -0-
Increase in Partners' Capital ............................................. -0- -0- -0-
----------- --------- -----------
Cash generated from Operations ............................................ $ 151,003 $ 132,481 $ 165,905
Use of Funds-Increase in Assets ........................................... $ 209,076 $ 8,249 $ 42,076
Decrease in Liabilities ................................................... 952 -0- -0-
Decrease in Applicant's Deposit ........................................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners ...................... -0- -0- -0-
Investment Income Pd to LP's ............................................ 2,205 15,746 14,701
Return of Capital to LP's ............................................... 53,363 100,073 76,449
--------- --------- -----------
Net Increase (Decrease) in Cash ........................................... $(114,593) $ 8,413 $ 32,679
Cash at the beginning of the year ......................................... $ 187,939 $ 73,346 $ 81,759
Cash at the end of the year ............................................... $ 73,346 $ 81,759 $ 114,438
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ............................. $ 107 $ 87 $ 105
Cash Distribution to Investors for $1,000 Invested
Income (1) .............................................................. $ 2 $ 10 $ 9
Capital (1) ............................................................. $ 37 $ 65 $ 49
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner .......................................... $ 107 $ 87 $ 105
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1987 1988 1989
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues .......................................................... $ 207,133 $ 217,668 $ 209,477
Less: General Partners' Management Fee .................................. 9,278 12,359 12,504
Mortgage Servicing Fee ................................................ 13,099 14,742 12,654
Administrative Expenses ............................................... 15,674 15,015 12,971
Provision for Uncollected Accounts .................................... 16,734 23,499 7,993
Amortization of Organization and Syndication Costs .................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners .................. -0- -0- -0-
--------- --------- ---------
Net Income (GAAP Basis) distr. to Limited Partners ...................... $ 152,348 $ 152,053 $ 163,355
--------- --------- ---------
Sources of Funds - Net Income ........................................... $ 152,348 $ 152,053 $ 163,355
Decrease in Assets ...................................................... 34,814 -0- -0-
Increase in Liabilities ................................................. -0- 4,608 -0-
Increase in Applicant's Deposit ......................................... -0- -0- -0-
Increase in Partners' Capital ........................................... -0- -0- -0-
--------- --------- ---------
Cash generated from Operations .......................................... $ 187,162 $ 156,661 $ 163,355
Use of Funds-Increase in Assets ......................................... -0- $ 85,795 $ 86,738
Decrease in Liabilities ................................................. 1,142 -0- 6,916
Decrease in Applicant's Deposit ......................................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners .................... -0- -0- -0-
Investment Income Pd to LP's .......................................... 16,331 25,710 37,745
Return of Capital to LP's ............................................. 112,317 113,029 119,469
--------- --------- ---------
Net Increase (Decrease) in Cash ......................................... $ 57,372 $ (67,873) $ (87,513)
Cash at the beginning of the year ....................................... $ 114,438 $ 171,810 $ 103,937
Cash at the end of the year ............................................. $ 171,810 $ 103,937 $ 16,424
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ........................... $ 96 $ 95 $ 101
Cash Distribution to Investors for $1,000 Invested
Income (1) ............................................................ $ 10 $ 16 $ 23
Capital (1) ........................................................... $ 69 $ 69 $ 72
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ........................................ $ 96 $ 95 $ 101
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1990 1991 1992
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ............................................................ $ 187,920 $ 152,401 $ 143,619
Less: General Partners' Management Fee .................................... 12,398 11,129 -0-
Mortgage Servicing Fee .................................................. 10,551 -0- 3,562
Administrative Expenses ................................................. 10,999 12,481 20,051
Provision for Uncollected Accounts ...................................... 5,681 56,012 52,860
Amortization of Organization and Syndication Costs ...................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners .................... -0- -0- -0-
--------- --------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ........................ $ 148,291 $ 72,779 $ 67,146
--------- --------- -----------
Sources of Funds - Net Income ............................................. $ 148,291 $ 72,779 $ 67,146
Decrease in Assets ........................................................ 226,219 -0- -0-
Increase in Liabilities ................................................... -0- 11,215 -0-
Increase in Applicant's Deposit ........................................... -0- -0- -0-
Increase in Partners' Capital ............................................. -0- -0- -0-
----------- --------- -----------
Cash generated from Operations ............................................ $ 374,510 $ 83,994 $ 67,146
Use of Funds-Increase in Assets ........................................... -0- $ 67,263 $ 51,385
Decrease in Liabilities ................................................... 2,500 -0- 10,129
Decrease in Applicant's Deposit ........................................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners ...................... -0- -0- -0-
Investment Income Pd to LP's ............................................ 51,260 25,014 7,600
Return of Capital to LP's ............................................... 149,425 93,506 66,017
--------- --------- -----------
Net Increase (Decrease) in Cash ........................................... $ 171,325 $(101,789) $ (67,985)
Cash at the beginning of the year ......................................... $ 16,424 $ 187,749 $ 85,960
Cash at the end of the year ............................................... $ 187,749 $ 85,960 $ 17,975
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ............................. $ 92 $ 45 $ 43
Cash Distribution to Investors for $1,000 Invested
Income (1) .............................................................. $ 31 $ 15 $ 5
Capital (1) ............................................................. $ 90 $ 58 $ 42
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner .......................................... $ 98 $ 40 $ 77
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ........................................................... $ 214,168 $ 151,237 $ 153,757
Less: General Partners' Management Fee ................................... 1,942 3,819 5,597
Mortgage Servicing Fee ................................................. 12,231 9,961 9,579
Administrative Expenses ................................................ 31,039 23,433 11,724
Provision for Uncollected Accounts ..................................... 96,493 37,822 48,471
Amortization of Organization and Syndication Costs ..................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners ................... -0- -0- -0-
--------- --------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ....................... $ 72,463 $ 76,202 $ 78,386
----------- --------- -----------
Sources of Funds - Net Income ............................................ $ 72,463 $ 76,202 $ 78,386
Decrease in Assets ....................................................... 207,128 -0- 41,320
Increase in Liabilities .................................................. 9,332 -0- 16
Increase in Applicant's Deposit .......................................... -0- -0- -0-
Increase in Partners' Capital ............................................ -0- -0- -0-
----------- --------- -----------
Cash generated from Operations ........................................... $ 288,923 $ 76,202 $ 119,722
Use of Funds-Increase in Assets .......................................... -0- $ 75,654 -0-
Decrease in Liabilities .................................................. -0- 9,152 -0-
Decrease in Applicant's Deposit .......................................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners ..................... -0- -0- -0-
Investment Income Pd to LP's ........................................... 18,867 28,658 28,580
Return of Capital to LP's .............................................. 78,090 69,512 124,513
--------- --------- -----------
Net Increase (Decrease) in Cash ......................................... $ 191,966 $(106,774) $ (33,371)
Cash at the beginning of the year ........................................ $ 17,975 $ 209,941 $ 103,167
Cash at the end of the year .............................................. $ 209,941 $ 103,167 $ 69,796
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ............................ $ 47 $ 50 $ 53
Cash Distribution to Investors for $1,000 Invested
Income (1) ............................................................. $ 12 $ 19 $ 19
Capital (1) ............................................................ $ 50 $ 45 $ 82
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner ......................................... $ 109 $ (18) $ 80
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
06/30/96
------------
<S> <C>
Gross Revenues ............................................ $61,611
Less: General Partners' Management Fee .................... 1,795
Mortgage Servicing Fee .................................. 3,208
Administrative Expenses ................................. 9,526
Provision for Uncollected Accounts ...................... 9,087
Amortization of Organization and Syndication Costs ...... -0-
Offering Period Interest Expense to Limited Partners .... -0-
----
Net Income (GAAP Basis) distr. to Limited Partners ........ $37,995
----
Sources of Funds - Net Income ............................. $37,995
Decrease in Assets ........................................ -0-
Increase in Liabilities ................................... -0-
Increase in Applicant's Deposit ........................... -0-
Increase in Partners' Capital ............................. -0-
----
Cash generated from Operations ............................ $37,995
Use of Funds-Increase in Assets ........................... $31,251
Decrease in Liabilities ................................... 1,865
Decrease in Applicant's Deposit ........................... -0-
Offering Period Interest Expense to Limited Partners ...... -0-
Investment Income Pd to LP's ............................ 11,936
Return of Capital to LP's ............................... 46,578
----
Net Increase (Decrease) in Cash ........................... $(53,635)
Cash at the beginning of the year ......................... $69,796
Cash at the end of the year ............................... $16,161
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) ............. $ 27
Cash Distribution to Investors for $1,000 Invested
Income (1) .............................................. $ 8
Capital (1) ............................................. $ 32
Federal Income Tax Results for $1,000 Invested Capital
for a Compounding Ltd. Partner .......................... N/A
<FN>
NOTES:
(1) Based upon years initial capital balances
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
CMI (CONSOLIDATED)
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1984 1985 1986
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues .......................................................... $ 592,783 $ 567,307 $ 515,812
Less: General Partners' Management Fee .................................. 28,027 5,366 5,336
Mortgage Servicing Fee ................................................ 28,169 33,756 42,630
Administrative Expenses ............................................... 28,900 34,833 58,759
Provision for Uncollected Accounts .................................... 77,966 155,408 171,844
Amortization of Organization and Syndication Costs .................... 2,123 1,132 1,877
Offering Period Interest Expense to Limited Partners .................. 3,529 2,997 1,849
----------- ----------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ...................... $ 424,069 $ 333,815 $ 233,518
----------- ----------- -----------
Sources of Funds - Net Income ........................................... $ 424,069 $ 333,815 $ 233,518
Decrease in Assets ...................................................... 274,181 873,340 919,823
Increase in Liabilities ................................................. 1,323 3,129 6,384
Increase in Applicant's Deposit ......................................... 42,433 -0- -0-
Increase in Partners' Capital ........................................... 233,005 228,018 223,959
----------- ----------- -----------
Cash generated from Operations .......................................... $ 975,011 $ 1,438,302 $ 1,383,684
Use of Funds-Increase in Assets ......................................... -0- -0- -0-
Decrease in Liabilities ................................................. -0- -0- -0-
Decrease in Applicant's Deposit ......................................... -0- 44,725 15,712
Offering Period Interest Expense to Limited Partners .................... -0- -0- -0-
Investment Income Pd to LP's .......................................... 95,851 123,166 125,074
Return of Capital to LP's ............................................. 969,496 1,521,375 1,171,920
----------- ----------- -----------
Net Increase (Decrease) in Cash ......................................... $ (90,336) $ (250,964) $ 70,979
Cash at the beginning of the year ....................................... $ 432,118 $ 341,782 $ 90,818
Cash at the end of the year ............................................. $ 341,782 $ 90,818 $ 161,797
Income & Distribution Data for $1,000 Invested Net Income
CMI (Original Portfolio) (GAAP Basis) ................................ $ 59 $ 47 $ 32
Net Income CMI II (New Portfolio of CMI) (GAAP Basis) .................. $ 128 $ 122 $ 108
Cash Distribution to Investors for $1,000 Invested: CMI
(Original Portfolio)
Income (1) .......................................................... $ 13 $ 18 $ 23
Capital (1) ......................................................... $ 130 $ 224 $ 216
CMI II (New Portfolio of CMI)
Income (1) .......................................................... -0- -0- -0-
Capital (1) ......................................................... -0- -0- -0-
Federal Income Tax Results for $1,000 Invested Capital
Ordinary Income from Operations CMI (Original Portfolio) .............. $ 59 $ 47 $ 32
Ordinary Income from Operations CMI II (New Portfolio of CMI .......... $ 130 $ 123 $ 110
<FN>
NOTES:
(1) Based upon years initial capital balances
(2) CMI II (New Portfolio of CMI I) commenced operation on January 1, 1984
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
CMI (CONSOLIDATED)
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1987 1988 1989
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ........................................................... $ 454,722 $ 327,040 $ 355,951
Less: General Partners' Management Fee ................................... 6,884 7,631 8,223
Mortgage Servicing Fee ................................................. 26,258 25,206 9,007
Administrative Expenses ................................................ 45,785 40,102 27,002
Provision for Uncollected Accounts ..................................... 140,639 75,443 170,176
Amortization of Organization and Syndication Costs ..................... 800 793 -0-
Offering Period Interest Expense to Limited Partners ................... 255 -0- -0-
----------- ----------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ....................... $ 234,101 $ 177,865 $ 141,543
----------- ----------- -----------
Sources of Funds - Net Income ............................................ $ 234,101 $ 177,865 $ 141,543
Decrease in Assets ....................................................... 977,963 963,036 423,042
Increase in Liabilities .................................................. -0- 4,680 -0-
Increase in Applicant's Deposit .......................................... -0- -0- -0-
Increase in Partners' Capital ............................................ 70,223 1 -0-
----------- ----------- -----------
Cash generated from Operations ........................................... $ 1,282,287 $ 1,145,582 $ 564,585
Use of Funds-Increase in Assets .......................................... -0- -0- -0-
Decrease in Liabilities .................................................. 9,039 -0- 6,543
Decrease in Applicant's Deposit .......................................... 56,068 -0- -0-
Offering Period Interest Expense to Limited Partners ..................... -0- -0- -0-
Investment Income Pd to LP's ........................................... 50,657 59,413 33,471
Return of Capital to LP's .............................................. 1,249,210 765,486 604,010
----------- ----------- -----------
Net Increase (Decrease) in Cash .......................................... $ (82,687) $ 320,683 $ (79,439)
Cash at the beginning of the year ........................................ $ 161,797 $ 79,110 $ 399,793
Cash at the end of the year .............................................. $ 79,110 $ 399,793 $ 320,354
Income & Distribution Data for $1,000 Invested Net Income
CMI (Original Portfolio) (GAAP Basis) ................................. $ 37 $ 28 $ 18
Net Income CMI II (New Portfolio of CMI) (GAAP Basis) ................... $ 100 $ 98 $ 92
Cash Distribution to Investors for $1,000 Invested: CMI
(Original Portfolio)
Income (1) ........................................................... $ 12 $ 17 $ 10
Capital (1) .......................................................... $ 292 $ 243 $ 243
CMI II (New Portfolio of CMI)
Income (1) ........................................................... -0- $ 6 $ 9
Capital (1) .......................................................... -0- $ 6 $ 21
Federal Income Tax Results for $1,000 Invested Capital
Ordinary Income from Operations CMI (Original Portfolio) ............... $ 37 $ 28 $ 19
Ordinary Income from Operations CMI II (New Portfolio of CMI ........... $ 102 $ 101 $ 96
<FN>
NOTES:
(1) Based upon years initial capital balances
(2) CMI II (New Portfolio of CMI I) commenced operation on January 1, 1984
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
CMI (CONSOLIDATED)
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1990 1991 1992
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ............................................................ $ 294,299 $ 310,196 $ 279,365
Less: General Partners' Management Fee .................................... 9,821 18,751 17,149
Mortgage Servicing Fee .................................................. 12,034 18,904 21,171
Administrative Expenses ................................................. 22,840 23,084 24,763
Provision for Uncollected Accounts....................................... 129,980 80,123 32,831
Amortization of Organization and Syndication Costs ...................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners .................... -0- -0- -0-
--------- --------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ........................ $ 119,624 $ 169,334 $ 183,451
----------- --------- -----------
Sources of Funds - Net Income ............................................. $ 119,624 $ 169,334 $ 183,451
Decrease in Assets ........................................................ 287,077 298,408 -0-
Increase in Liabilities ................................................... -0- 14,202 -0-
Increase in Applicant's Deposit ........................................... -0- -0- -0-
Increase in Partners' Capital ............................................. -0- -0- -0-
----------- --------- -----------
Cash generated from Operations ............................................ $ 406,701 $ 481,944 $ 183,451
Use of Funds-Increase in Assets ........................................... -0- -0- 74,593
Decrease in Liabilities ................................................... 1,718 -0- 2,981
Decrease in Applicant's Deposit ........................................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners ...................... -0- -0- -0-
Investment Income Pd to LP's ............................................ 28,704 46,573 48,497
Return of Capital to LP's ............................................... 477,549 356,864 259,493
--------- --------- -----------
Net Increase (Decrease) in Cash ........................................... $(101,270) $ 78,507 $ (202,113)
Cash at the beginning of the year ......................................... $ 320,354 $ 219,084 $ 297,591
Cash at the end of the year ............................................... $ 219,084 $ 297,591 $ 95,478
Income & Distribution Data for $1,000 Invested Net Income
CMI (Original Portfolio) (GAAP Basis) .................................. $ 7 $ 58 $ 82
Net Income CMI II (New Portfolio of CMI) (GAAP Basis) .................... $ 93 $ 81 $ 82
Cash Distribution to Investors for $1,000 Invested: CMI
(Original Portfolio)
Income (1) ............................................................ $ 3 $ 18 $ 18
Capital (1) ........................................................... $ 249 $ 204 $ 142
CMI II (New Portfolio of CMI)
Income (1) ............................................................ $ 20 $ 18 $ 22
Capital (1) ........................................................... $ 20 $ 63 $ 81
Federal Income Tax Results for $1,000 Invested Capital
Ordinary Income from Operations CMI (Original Portfolio) ................ $ 7 $ 105 $ 75
Ordinary Income from Operations CMI II (New Portfolio of CMI ............ $ 100 $ 101 $ 75
<FN>
NOTES:
(1) Based upon years initial capital balances
(2) CMI II (New Portfolio of CMI I) commenced operation on January 1, 1984
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
CMI (CONSOLIDATED)
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Gross Revenues ............................................................... $258,338 $204,608 $ 210,590
Less: General Partners' Management Fee ....................................... 16,318 15,274 14,180
Mortgage Servicing Fee ..................................................... 18,665 12,451 18,193
Administrative Expenses .................................................... 17,943 16,687 14,485
Provision for Uncollected Accounts ......................................... 72,551 74,215 69,692
Amortization of Organization and Syndication Costs ......................... -0- -0- -0-
Offering Period Interest Expense to Limited Partners ....................... -0- -0- -0-
-------- -------- -----------
Net Income (GAAP Basis) distr. to Limited Partners ........................... $132,861 $ 85,981 $ 94,040
-------- -------- -----------
Sources of Funds - Net Income ................................................ $132,861 $ 85,981 $ 94,040
Decrease in Assets ........................................................... 220,577 140,444 29,224
Increase in Liabilities ...................................................... -0- -0- -0-
Increase in Applicant's Deposit .............................................. -0- -0- -0-
Increase in Partners' Capital ................................................ -0- -0- -0-
-------- ----------- -----------
Cash generated from Operations ............................................... $353,438 $226,425 $ 123,264
Use of Funds-Increase in Assets .............................................. -0- -0- -0-
Decrease in Liabilities ...................................................... 2,954 2,600 -0-
Decrease in Applicant's Deposit .............................................. -0- -0- -0-
Offering Period Interest Expense to Limited Partners ......................... -0- -0- -0-
Investment Income Pd to LP's ............................................... 37,370 26,841 33,554
Return of Capital to LP's .................................................. 235,477 188,064 214,560
-------- -------- -----------
Net Increase (Decrease) in Cash .............................................. $ 77,637 $ 8,920 $ (124,850)
Cash at the beginning of the year ............................................ $ 95,478 $173,115 $ 182,035
Cash at the end of the year .................................................. $173,115 $182,035 $ 57,185
Income & Distribution Data for $1,000 Invested Net Income
CMI (Original Portfolio) (GAAP Basis) ..................................... $ 61 $ 42 $ 50
Net Income CMI II (New Portfolio of CMI) (GAAP Basis) ....................... $ 61 $ 42 $ 50
Cash Distribution to Investors for $1,000 Invested: CMI
(Original Portfolio)
Income (1) ............................................................... $ 18 $ 17 $ 24
Capital (1) .............................................................. $ 138 $ 122 $ 137
CMI II (New Portfolio of CMI)
Income (1) ............................................................... $ 14 $ 10 $ 12
Capital (1) .............................................................. $ 77 $ 64 $ 89
Federal Income Tax Results for $1,000 Invested Capital
Ordinary Income from Operations CMI (Original Portfolio) ................... $ 23 $ 53 $ 93
Ordinary Income from Operations CMI II (New Portfolio of CMI ............... $ 23 $ 53 $ 93
<FN>
NOTES:
(1) Based upon years initial capital balances
(2) CMI II (New Portfolio of CMI I) commenced operation on January 1, 1984
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
CMI (CONSOLIDATED)
(AS OF JUNE 30, 1996)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
<CAPTION>
06/30/96
------------
<S> <C>
Gross Revenues ................................................ $ 98,061
Less: General Partners' Management Fee ........................ 6,667
Mortgage Servicing Fee ...................................... 7,758
Administrative Expenses ..................................... 11,755
Provision for Uncollected Accounts .......................... 23,906
Amortization of Organization and Syndication Costs .......... -0-
Offering Period Interest Expense to Limited Partners ........ -0-
---
Net Income (GAAP Basis) distr. to Limited Partners ............ $ 47,975
---
Sources of Funds - Net Income ................................. $ 47,975
Decrease in Assets ............................................ 176,268
Increase in Liabilities ....................................... -0-
Increase in Applicant's Deposit ............................... -0-
Increase in Partners' Capital ................................. -0-
---
Cash generated from Operations ................................ $224,243
Use of Funds-Increase in Assets ............................... $ -0-
Decrease in Liabilities ....................................... -0-
Decrease in Applicant's Deposit ............................... -0-
Offering Period Interest Expense to Limited Partners .......... -0-
Investment Income Pd to LP's ................................ 13,642
Return of Capital to LP's ................................... 93,296
------
Net Increase (Decrease) in Cash ............................... $117,305
Cash at the beginning of the year ............................. $ 57,185
Cash at the end of the year ................................... $174,490
Income & Distribution Data for $1,000 Invested Net Income
CMI (Original Portfolio) (GAAP Basis) ...................... $ 27
Net Income CMI II (New Portfolio of CMI) (GAAP Basis) ........ $ 27
Cash Distribution to Investors for $1,000 Invested: CMI
(Original Portfolio)
Income (1) ................................................ $ 11
Capital (1) ............................................... $ 72
CMI II (New Portfolio of CMI)
Income (1) ................................................ $ 5
Capital (1) ............................................... $ 38
Federal Income Tax Results for $1,000 Invested Capital
Ordinary Income from Operations CMI (Original Portfolio) .... N/A
Ordinary Income from Operations CMI II (New Portfolio of CMI. N/A
<FN>
NOTES:
(1) Based upon years initial capital balances
(2) CMI II (New Portfolio of CMI I) commenced operation on January 1, 1984
</FN>
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE LOANS
REDWOOD MORTGAGE INVESTORS VIII
FOR THE THREE YEARS ENDING
JUNE 30,1996
<CAPTION>
SINGLE FAMILY 1-4 UNITS (county)
================= =========== ============ ================== ==============
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= =========== ============ ================== ==============
<S> <C> <C> <C> <C> <C>
San Francisco .......04/01/93 05/21/93 38500.98 672.45 39173.43
San Mateo ...........04/01/93 10/07/93 46400.00 3072.32 49472.32
San Mateo ...........06/09/93 01/21/94 65000.00 4463.41 69463.41
San Mateo .......... 10/26/93 03/21/94 40000.00 1565.51 41565.51
San Francisco ...... 05/14/93 03/22/94 65000.00 5891.09 70891.09
Sonoma ............. 05/18/93 05/17/94 65000.00 6388.70 71388.70
San Mateo .......... 02/24/94 06/01/94 225000.00 6091.16 231091.16
San Mateo ...........11/10/93 07/01/94 196800.00 12643.73 209443.73
San Mateo ...........06/28/94 09/27/94 132000.00 3719.50 135719.50
San Mateo ...........08/25/94 09/29/94 50000.00 493.15 50493.15
Contra Costa ........05/01/93 10/14/94 50000.00 8069.18 58069.18
Sonoma ..............03/15/94 11/04/94 151875.00 11638.07 163513.07
Santa Clara .........06/01/93 03/13/95 99000.00 17191.42 116191.42
San Mateo ...........07/19/94 06/20/95 40000.00 3076.20 43076.20
Santa Clara .........06/04/93 12/31/95 100000.00 26825.94 126825.94
Santa Clara .........05/31/95 02/09/96 278207.20 17412.44 295619.64
San Mateo ...........10/08/93 02/15/96 130000.00 28518.49 159428.49
Santa Clara .........12/29/94 03/13/96 250000.00 17232.38 267232.38
San Mateo ...........02/21/96 05/20/96 58500.00 1770.24 60270.20
San Mateo ...........11/15/94 05/30/96 213717.85 17458.48 231176.33
San Mateo ...........09/15/95 05/31/96 300000.00 21446.57 321446.57
Marin ...............05/05/94 06/14/96 300000.00 63479.64 363479.64
MULTIPLE 5+ UNITS (county)
===============================================================================
PROPERTY ............ FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================================================================================
<S> <C> <C> <C> <C> <C>
Alameda .............04/28/93 . 12/01/95 50000.00 9239.47 59239.47
San Francisco .......07/20/94 . 01/19/96 175000.00 12052.07 187052.07
Contra Costa ........01/06/94 . 01/19/96 1073720.93 145782.30 1219503.23
Alameda .............03/17/95 . 05/31/96 13000.00 1664.76 14664.76
COMMERCIAL (county)
===============================================================================
PROPERTY ............ FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
===============================================================================
<S> <C> <C> <C> <C> <C>
Nevada ..............04/01/93 .... 12/09/93 59500.00 4963.60 64463.60
San Mateo ...........09/30/93 .... 01/01/94 400000.00 10466.61 410466.61
Merced ..............06/02/93 .... 10/31/94 45000.00 7163.32 52163.32
Alameda .............01/14/94 .... 03/17/95 300000.00 34922.50 334922.50
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE LOANS
REDWOOD MORTGAGE INVESTORS VIII
FOR THE THREE YEARS ENDING
JUNE 30,1996
<CAPTION>
COMMERCIAL (county) CONTINUED
================================================================================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= =========== ============ =====================================
<S> <C> <C> <C> <C> <C>
Alameda ............. 10/14/94 05/31/95 310000.00 20774.14 330774.14
Santa Clara ......... 01/26/96 03/21/96 1125000.00 18882.96 1143882.96
San Francisco ....... 03/19/93 06/28/96 116500.00 36540.57 153040.57
Santa Clara ......... 12/30/94 06/30/96 95000.00 14691.62 109691.62
-------- -------- ---------- -------- ----------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE LOANS
REDWOOD MORTGAGE INVESTORS VII
FOR THE THREE YEARS ENDING
JUNE 30, 1996
<CAPTION>
SINGLE FAMILY 1-4 UNITS (county)
================= =========== ============ ================== ==================
PROPERTY ............... FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================================================================================
<S> <C> <C> <C> <C> <C>
San Mateo ............ 07/23/91 01/07/93 90000.00 18151.56 108151.56
San Mateo ............ 07/09/90 01/22/93 25000.00 9072.49 34072.46
San Mateo ............ 02/21/92 02/09/93 115000.00 13384.11 128384.11
Santa Clara .......... 05/17/91 02/10/93 78000.00 12285.25 90285.25
San Mateo ............ 06/19/92 02/16/93 30000.00 2561.85 32561.85
Santa Clara .......... 11/27/91 03/31/93 40000.00 9101.44 49101.44
Contra Costa ......... 07/24/91 04/01/93 70500.00 16709.15 87209.15
Contra Costa ......... 01/27/91 04/01/93 60000.00 11922.82 71922.82
Santa Cruz ........... 07/02/91 04/27/93 105000.00 26745.68 131745.68
San Francisco ........ 12/14/92 05/21/93 65000.00 2871.63 67871.63
Santa Clara .......... 04/22/91 05/24/93 150000.00 41469.24 191469.24
Santa Clara .......... 06/17/92 05/27/93 84000.00 6156.26 90156.26
San Mateo ............ 12/09/91 06/30/93 363000.00 72136.40 435136.40
Sonoma ............... 02/19/92 07/02/93 130000.00 22780.57 152780.57
San Mateo ............ 04/10/92 07/15/93 220000.00 33470.96 253470.96
San Mateo ............ 05/14/91 07/28/93 194400.00 5733.85 200133.85
San Francisco ........ 08/21/91 07/28/93 166875.00 46179.49 213054.49
Sonoma ............... 02/19/92 07/30/93 212500.00 40314.47 252814.47
Sacramento ........... 07/23/91 08/02/93 66000.00 18102.51 84102.51
San Mateo ............ 11/13/90 08/19/93 150000.00 55926.93 205926.93
Santa Clara .......... 12/26/91 08/20/93 150000.00 31008.87 181008.87
Sacramento ........... 04/13/90 08/27/93 55000.00 29505.32 84505.32
Contra Costa ......... 11/30/90 08/29/93 129000.00 45968.36 174968.36
Marin ................ 08/31/92 09/10/93 300000.00 37076.60 337076.60
Napa ................. 12/03/90 10/01/93 53500.00 22856.40 76356.40
Alameda .............. 09/01/92 10/29/93 91500.00 4006.15 95506.15
Marin ................ 03/25/91 11/10/93 202500.00 15359.92 217859.92
Monterey ............. 08/26/92 11/24/93 285000.00 45098.17 330098.17
Contra Costa ......... 08/12/92 12/10/93 80000.00 3975.47 83975.47
Monterey ............. 01/24/92 12/30/93 100000.00 19876.07 119876.07
San Mateo ............ 05/05/92 01/14/94 40000.00 8029.79 48029.79
Santa Clara .......... 08/10/90 03/16/94 75000.00 40842.82 115842.82
San Francisco ........ 05/14/93 03/22/94 15000.00 1359.48 16359.48
San Mateo ............ 05/18/92 04/01/94 32000.00 3432.74 35432.74
San Mateo ............ 06/16/92 04/15/94 60000.00 12607.41 72607.41
San Mateo ............ 03/02/93 04/19/94 100000.00 12205.41 112205.41
San Mateo ............ 06/01/90 04/22/94 91000.00 -13609.71 77390.29
Santa Clara .......... 09/01/93 04/29/94 156750.00 6524.50 163274.50
San Mateo ............ 08/07/92 05/04/94 70000.00 14318.42 84318.42
Sonoma ............... 10/02/91 05/13/94 22000.00 7643.20 29643.20
Solano ............... 03/29/90 06/28/94 44600.00 27937.99 72537.99
---------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE LOANS
REDWOOD MORTGAGE INVESTORS VII
FOR THE THREE YEARS ENDING
JUNE 30, 1996
<CAPTION>
SINGLE FAMILY 1-4 UNITS (county) (continued)
- ----------------- ----------- ------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C>
Alameda .............. 09/30/91 08/05/94 68987.44 24341.28 93328.72
Sonoma ............... 12/03/90 08/16/94 57000.00 29283.93 86283.93
San Mateo ............ 12/07/92 08/24/94 250000.00 29890.13 279890.13
San Mateo ............ 04/25/90 08/25/94 33000.00 17769.20 50769.20
Alameda .............. 04/28/92 08/31/94 145000.00 3768.21 148768.21
Alameda .............. 08/31/92 09/19/94 77000.00 17401.80 94401.80
Contra Costa ......... 05/01/93 10/14/94 50000.00 8069.18 58069.18
Contra Costa ......... 09/23/92 11/30/94 50000.00 12841.91 62841.91
Mendocino ............ 08/04/92 10/19/94 100000.00 25951.11 125951.11
Solano ............... 09/21/91 02/22/95 294500.00 -19094.98 275405.02
Alameda .............. 08/07/92 03/31/95 135000.00 39743.01 174743.01
San Mateo ............ 08/12/91 03/10/95 196000.00 -17431.30 178568.70
San Mateo ............ 12/11/91 04/18/95 95000.00 -16923.29 78076.71
San Mateo ............ 07/28/93 07/14/95 60000.00 12275.08 72275.08
Alameda .............. 02/23/93 06/13/95 104000.00 27469.23 131469.23
San Mateo ............ 07/26/91 08/21/95 71000.00 -25231.62 45768.38
Monterey ............. 09/18/92 09/27/95 110000.00 -72503.76 37496.24
San Mateo ............ 11/09/93 09/29/95 153000.00 25546.76 178546.76
San Mateo ............ 12/07/93 09/29/95 25000.00 4467.56 29467.56
San Mateo ............ 03/10/95 11/29/95 200000.00 11018.65 211018.65
Santa Clara .......... 06/04/93 12/31/95 25000.00 6858.86 31858.86
Mendocino ............ 08/06/93 03/31/96 300000.00 92035.16 392035.16
San Mateo ............ 02/21/96 05/20/96 58500.00 1770.20 60270.20
San Mateo ............ 11/15/94 05/30/96 213717.85 17819.23 231537.08
Marin ................ 05/05/94 06/14/96 150000.00 32728.99 182728.99
MULTIPLE 5+ UNITS (county)
================================================================================
PROPERTY ........ FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================================================================================
<S> <C> <C> <C> <C> <C>
San Mateo ........02/05/90 06/29/93 30000.00 10465.27 40465.27
San Francisco ....08/28/91 07/19/93 95000.00 24399.89 119399.89
Alameda ..........10/15/91 08/12/93 70000.00 17313.79 87313.79
Santa Clara .... 01/03/92 10/08/93 159375.00 35199.68 194574.68
Santa Cruz ..... 04/22/92 12/14/93 142000.00 29222.72 171222.72
San Francisco .. 05/29/90 01/11/95 75000.00 -21412.94 53587.06
San Francisco .. 12/09/91 10/31/95 25000.00 9554.33 34554.33
Alameda ........ 04/28/93 12/01/95 150000.00 28283.23 178283.23
Contra Costa ... 01/06/94 01/19/96 1226744.19 193722.14 1420466.33
Alameda ........ 03/17/95 05/31/96 28166.67 3798.22 31964.89
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE LOANS
REDWOOD MORTGAGE INVESTORS VII
FOR THE THREE YEARS ENDING
JUNE 30, 1996
<CAPTION>
COMMERCIAL (county)
================================================================================
PROPERTY ........... FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
===============================================================================
<S> <C> <C> <C> <C> <C>
Alameda ........... 03/06/90 03/09/93 80000.00 32361.69 112361.68
San Francisco ..... 03/10/93 05/01/93 91200.00 1150.41 92350.41
San Mateo ......... 06/13/90 09/03/93 100000.00 30969.62 130969.62
Stanislaus ........ 12/29/89 11/18/93 24999.92 16838.16 41838.08
Alameda ........... 12/29/89 11/18/93 93750.00 14626.49 108376.49
Alameda ........... 11/30/90 11/18/93 27083.33 10928.32 38011.65
San Francisco ..... 10/07/92 12/10/93 200000.00 32675.55 232675.55
San Mateo ......... 02/28/94 01/01/94 690000.00 171369.86 861369.86
San Mateo ......... 07/29/91 02/09/94 105000.00 31793.88 136793.88
Alameda ........... 05/31/93 03/29/94 200000.00 -111073.87 88926.13
Sonoma ............ 07/03/91 06/20/94 117500.00 47064.41 164564.41
Stanislaus ........ 09/10/91 12/19/94 399941.72 118615.34 518557.06
Stanislaus ........ 06/30/94 12/19/94 60000.11 3229.61 63229.72
Stanislaus ........ 09/10/91 12/19/94 399941.72 118615.34 518557.06
San Francisco ..... 07/15/93 12/31/94 10000.00 1007.71 11007.71
Alameda ........... 01/14/94 03/17/95 650000.00 87376.02 737376.02
Shasta ............ 06/06/90 05/10/95 100000.00 3005.47 103005.47
Alameda ........... 02/12/92 11/03/95 240000.00 62538.96 320296.01
Solano ............ 04/30/92 11/30/95 200000.00 37668.49 237904.59
San Francisco ..... 01/25/91 12/15/95 80000.00 50960.94 130960.94
San Mateo ......... 08/28/95 03/19/96 375000.00 48000.00 423000.00
Santa Clara ....... 01/26/96 03/21/96 1125000.00 18882.96 1143882.96
San Francisco ..... 03/19/93 06/28/96 129800.00 45175.68 174975.68
Santa Clara ....... 01/22/92 06/30/96 325000.00 116200.42 441200.42
-------- ---------- ---------- ----------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE LOANS
REDWOOD MORTGAGE INVESTORS VI
FOR THE THREE YEARS ENDING
JUNE 30, 1996
<CAPTION>
SINGLE FAMILY 1-4 UNITS (county)
================= ============ ============= ================ ==================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============= ================ ==================
<S> <C> <C> <C> <C> <C>
San Mateo ........... 10/16/92 01/03/93 330000.00 14976.62 344976.62
Santa Clara ......... 05/17/91 02/10/93 78000.00 12285.26 90285.26
Santa Clara ......... 08/19/92 02/12/93 55750.00 3334.26 59084.26
San Francisco ....... 01/28/91 03/09/93 155000.00 22757.37 177757.37
San Mateo ........... 08/23/89 04/14/93 60000.00 32739.27 92739.27
San Mateo ........... 04/20/88 04/30/93 72000.00 49494.89 121494.89
Sonoma .............. 02/29/88 05/03/93 60000.00 41103.80 101103.80
Santa Clara ......... 04/22/91 05/24/93 150000.00 41469.24 191469.24
San Mateo ........... 09/08/89 06/07/93 120000.00 14438.23 134438.23
Contra Costa ........ 01/30/91 06/22/93 67500.00 13981.40 81481.40
San Francisco ....... 08/21/91 07/28/93 166875.00 46179.47 213054.47
Sonoma .............. 02/19/92 07/30/93 212500.00 40314.47 252814.47
Contra Costa ........ 11/13/89 08/04/93 38000.00 35070.34 73070.34
San Mateo ........... 11/13/90 08/19/93 150000.00 54354.05 204354.05
Santa Clara ......... 12/26/91 08/20/93 150000.00 31008.87 181008.87
Contra Costa ........ 08/30/90 08/24/93 150000.00 25529.86 175529.86
Alameda ............. 03/12/93 08/26/93 45000.00 2589.03 47589.03
Contra Costa ........ 06/14/88 08/29/93 22000.00 15789.89 37789.89
Marin ............... 08/31/92 09/10/93 70000.00 8651.21 78651.21
San Mateo ........... 01/06/93 10/07/93 116000.00 8378.50 124378.50
Santa Clara ......... 11/01/89 12/31/93 168000.00 -123155.57 49943.93
San Francisco ....... 01/15/93 01/28/94 45000.00 5374.32 50374.32
Santa Cruz .......... 07/31/91 03/10/94 51000.00 16959.98 67959.98
San Mateo ........... 03/02/93 04/19/94 75000.00 9154.06 84154.06
San Mateo ........... 06/01/90 04/22/94 91000.00 -13570.25 77429.75
Sonoma .............. 05/18/93 05/17/94 25000.00 2457.47 27457.47
Contra Costa ........ 07/26/90 06/06/94 95000.00 50888.89 145888.89
Marin ............... 03/11/93 08/19/94 45000.00 7614.65 52614.65
San Mateo ........... 12/07/92 08/24/94 200000.00 23912.10 223912.10
Contra Costa ........ 05/01/93 10/14/94 62500.00 10086.48 72586.48
Sonoma .............. 12/24/91 11/04/94 168750.00 56286.16 225036.16
Contra Costa ........ 12/19/90 11/10/94 22000.00 10517.42 32517.42
Stanislaus .......... 08/26/92 06/27/94 87500.00 17713.96 105213.96
Alameda ............. 11/23/88 02/10/95 50000.00 37945.22 87945.22
Solano .............. 09/21/92 02/22/95 190016.46 -13169.40 176847.06
Contra Costa ........ 10/30/92 03/02/95 89500.00 15442.55 104942.55
Contra Costa ........ 11/20/90 04/14/95 50000.00 330.88 50330.88
San Mateo ........... 12/11/91 04/18/95 95000.0 16246.05 111246.05
Contra Costa ........ 04/02/91 07/18/95 72000.00 -30261.48 41738.52
Napa ................ 12/22/88 08/31/95 200000.00 160662.42 360662.42
Monterey ............ 09/18/92 09/27/95 100000.00 -65098.70 34901.30
San Mateo ........... 10/17/88 12/08/95 91400.00 79779.21 171179.21
-------- -------- --------- ---------- ---------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE LOANS
REDWOOD MORTGAGE INVESTORS VI
FOR THE THREE YEARS ENDING
JUNE 30, 1996
<CAPTION>
SINGLE FAMILY 1-4 UNITS (county)(continued)
================= ============ ============= ================ ==================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============= ================ ==================
<S> <C> <C> <C> <C> <C>
Santa Clara .......... 06/04/93 12/31/95 25000.00 6858.86 31858.86
San Mateo ............ 10/08/93 02/15/96 57425.00 13083.50 70508.50
San Mateo ............ 03/03/89 03/31/96 160000.00 138007.09 298007.09
Marin ................ 05/05/94 06/14/96 200000.00 43638.72 243638.72
MULTIPLE 5+ UNITS (county)
================================================================================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================================================================================
<S> <C> <C> <C> <C> <C>
San Francisco ....... 06/02/89 02/25/93 75000.00 41236.25 116236.25
Marin ............... 09/17/90 06/18/93 340000.00 47489.63 387489.63
Alameda ............. 05/06/88 04/01/94 50000.00 33567.33 83567.33
Sacramento .......... 03/20/92 12/31/94 356750.00 -318741.07 38008.93
San Francisco ....... 05/29/90 01/11/95 75000.00 -21792.60 53207.40
San Francisco ....... 01/13/93 02/03/95 30000.00 7430.37 37430.37
Alameda ............. 04/28/93 12/01/95 100000.00 18853.45 118853.45
Contra Costa ........ 01/06/94 01/19/96 516279.07 89938.48 606217.55
San Mateo ........... 08/12/92 05/15/96 175000.00 42482.37 217482.37
Alameda ............. 03/17/95 05/31/96 9750.00 1279.92 11029.92
-------- --------- ---------- ---------
COMMERCIAL (county)
================================================================================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================================================================================
<S> <C> <C> <C> <C> <C>
Alameda .............. 03/06/90 03/09/93 20000.00 8089.69 28089.69
San Francisco ........ 03/10/93 05/01/93 22800.00 287.60 23087.60
Sonoma ............... 05/09/88 05/25/93 225000.00 154627.26 379627.26
Stanislaus ........... 01/05/89 11/18/93 205000.00 133410.75 338410.75
Stanislaus ........... 12/29/89 11/18/93 75000.00 43121.09 118121.09
Alameda .............. 11/30/90 11/18/93 81249.94 32784.92 114034.86
Alameda .............. 12/29/89 11/18/93 187500.00 29253.00 216753.00
San Francisco ........ 10/07/92 12/10/93 100000.00 16337.77 116337.77
San Mateo ............ 01/17/89 12/16/93 60000.00 38626.36 9862636
San Mateo ............ 02/28/92 01/01/94 750000.00 214212.33 964212.33
Alameda .............. 05/31/91 03/29/94 150000.00 -79044.10 70955.90
Sonoma ............... 07/03/91 06/20/94 117500.00 47549.42 165049.42
Sonoma ............... 07/07/89 11/11/94 110000.00 17084.40 127084.40
-------- --------- --------- ---------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE LOANS
REDWOOD MORTGAGE INVESTORS VI
FOR THE THREE YEARS ENDING
JUNE 30, 1996
<CAPTION>
COMMERCIAL (county) (continued)
================= ============ ============= ================ =================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============= ================ ==================
<S> <C> <C> <C> <C> <C>
Stanislaus ........... 09/10/91 12/19/94 299955.53 92990.31 392945.84
Stanislaus ........... 06/30/94 12/19/94 44999.97 2422.20 47422.17
Sonoma ............... 07/06/89 12/31/94 135000.00 93057.01 228057.01
Alameda .............. 01/14/94 03/17/95 225000.00 29899.40 254899.40
Shasta ............... 06/06/90 05/10/95 100000.00 2637.03 102637.03
San Mateo ............ 01/25/91 08/03/95 162500.00 95276.39 257776.39
San Francisco ........ 01/25/91 12/15/95 100000.00 63892.44 163892.44
Alameda .............. 08/03/90 01/30/96 200000.00 141515.95 341515.95
Santa Clara .......... 02/01/96 03/21/96 392829.43 6722.72 399552.15
San Francisco ........ 03/19/93 06/28/96 110000.00 6234.61 116234.61
Santa Clara .......... 09/10/92 06/30/96 100000.00 44430.51 144430.51
Santa Clara .......... 01/22/92 06/30/96 175000.00 86246.63 261246.63
- ----------------- ------------ ------------- ---------------- -----------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE LOANS
REDWOOD MORTGAGE INVESTORS V
FOR THE THREE YEARS ENDING
JUNE 30, 1996
<CAPTION>
SINGLE FAMILY 1-4 UNITS (county)
================= ============ ============= ================ ==================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============= ================ =================
<S> <C> <C> <C> <C> <C>
San Mateo ............ 10/16/92 01/08/93 90000.00 4084.52 94084.52
Contra Costa ......... 04/03/91 04/01/93 120000.00 22553.37 142553.37
Alameda .............. 04/09/92 05/21/93 81000.00 11899.69 92899.69
San Mateo ............ 11/13/90 08/19/93 75000.00 27431.21 102431.21
Monterey ............. 01/24/92 12/30/93 100000.00 19876.06 119876.06
Alameda .............. 05/29/90 02/02/94 156600.00 80234.17 236834.17
Alameda .............. 09/30/91 08/05/94 138000.00 27330.74 165330.74
San Mateo ............ 12/07/92 08/24/94 50000.00 5978.03 55978.03
Sonoma ............... 12/24/91 11/04/94 168750.00 44608.09 213358.09
San Francisco ........ 11/11/92 12/21/94 54000.00 12943.80 66943.80
Contra Costa ......... 02/14/92 04/27/95 264500.00 -44659.84 219840.16
San Mateo ............ 11/04/92 05/22/95 30000.00 9458.37 39458.37
-------- -------- --------- --------- ---------
MULTIPLE 5+ UNITS (county)
================= ============ ============ ================= ==================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============ ================= ==================
<S> <C> <C> <C> <C> <C>
Sacramento .......... 04/23/87 06/14/93 300000.00 244473.02 544473.02
Santa Clara ......... 01/03/92 10/08/93 159375.00 35199.69 194574.69
Sacramento .......... 03/20/92 12/31/94 178375.00 -159360.07 19014.93
Santa Clara ......... 09/21/88 06/19/95 100000.00 74156.73 174156.73
Alameda ............. 04/28/93 12/01/95 100000.00 19070.91 119070.91
Contra Costa ........ 01/06/94 01/19/96 187116.28 7265.70 194381.98
Alameda ............. 03/17/95 05/31/96 3250.00 438.26 3688.26
-------- -------- --------- ---------- ---------
COMMERCIAL (county)
================= ============ ============ ================= ==================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============ ================= ==================
<S> <C> <C> <C> <C> <C>
Contra Costa ......... 10/09/87 04/08/93 130000.00 95053.76 225053.79
Stanislaus ........... 12/29/89 11/18/93 24999.90 14373.61 39373.51
Alameda .............. 12/29/89 11/18/93 62500.00 10779.97 73279.97
Alameda .............. 11/30/90 11/18/93 27083.33 10928.31 38011.64
Nevada ............... 11/05/92 12/09/93 119000.00 10740.82 129740.82
San Francisco ........ 10/07/92 12/10/93 70000.00 11436.44 81436.44
San Mateo ............ 02/28/92 01/01/94 500000.00 132341.61 632341.61
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE LOANS
REDWOOD MORTGAGE INVESTORS V
FOR THE THREE YEARS ENDING
JUNE 30, 1996
<CAPTION>
COMMERCIAL (county) (continued)
================= ============ ============ ================= ==================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============ ================= ==================
<S> <C> <C> <C> <C> <C>
San Mateo ............ 07/29/91 02/09/94 105000.00 32152.51 137152.51
Alameda .............. 05/31/91 03/29/94 100000.00 -60648.08 38351.92
Sonoma ............... 07/07/89 11/11/94 100000.00 15500.18 115500.18
Stanislaus ........... 09/10/91 12/19/94 236759.66 42103.49 278863.15
Stanislaus ........... 06/30/94 12/19/94 18749.99 1009.25 19759.24
Alameda .............. 01/14/94 03/17/95 75000.00 9966.47 84966.47
Shasta ............... 06/06/90 05/10/95 70000.00 2831.72 72831.72
San Francisco ........ 03/19/93 06/28/96 90000.00 6288.17 96288.17
Santa Clara .......... 09/10/92 06/30/96 150000.00 67251.67 217251.67
Santa Clara .......... 01/22/92 06/30/96 100000.00 42945.81 142945.81
-------- -------- --------- --------- ---------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE LOANS
REDWOOD MORTGAGE INVESTORS IV
FOR THE THREE YEARS ENDING
JUNE 30, 1996
<CAPTION>
SINGLE FAMILY 1-4 UNITS (county)
================= ============ ============ ================= ==================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============ ================= ==================
<S> <C> <C> <C> <C> <C>
Santa Clara ......... 08/09/89 03/31/93 80000.00 44091.08 124091.08
San Francisco ....... 12/31/91 09/27/93 408139.54 31892.39 440031.93
Marin ............... 03/25/91 11/10/93 202500.00 15359.93 217859.93
Alameda ............. 11/04/86 11/11/93 60000.00 42940.91 102940.91
San Francisco ....... 09/24/93 01/14/94 272093.02 5648.72 277741.74
Contra Costa ........ 05/29/91 03/09/94 80000.00 -144614.39 -64614.39
San Francisco ....... 05/14/93 03/22/94 20000.00 1812.66 21812.66
San Mateo ........... 12/02/93 06/24/94 326500.00 0.00 326500.00
Stanislaus .......... 08/26/92 06/27/94 87500.00 17713.96 105213.96
Alameda ............. 04/06/90 08/26/94 56000.00 32820.64 88820.64
San Francisco ....... 03/29/91 09/30/94 126000.00 -26456.30 99543.70
Contra Costa ........ 09/23/92 11/30/94 51500.00 13227.17 64727.17
San Mateo ........... 03/03/93 12/08/94 52500.00 9372.86 61872.86
Alameda ............. 03/01/91 12/14/94 35000.00 8275.11 43275.11
Marin ............... 04/29/88 06/02/95 67000.00 55264.42 122264.42
Alameda ............. 03/01/91 12/14/94 35000.00 8275.11 43275.11
Contra Costa ........ 02/14/92 04/27/95 259094.66 -45346.45 213748.21
San Mateo ........... 12/30/94 07/03/95 328583.63 13353.36 341936.99
-------- -------- --------- ---------- ---------
MULTIPLE 5+ UNITS (county)
================= ============ ============ ================= =================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============ ================= ==================
<S> <C> <C> <C> <C> <C>
Alameda ............ 04/01/86 06/10/94 27193.39 19547.55 46740.94
San Francisco ...... 04/05/89 09/28/94 120000.00 85295.94 205295.94
Contra Costa ....... 10/03/85 11/18/94 46281.93 25250.22 71532.15
Mendocino .......... 06/29/90 12/23/94 353097.43 119341.00 472438.43
San Francisco ...... 05/29/90 01/11/95 50000.00 -13804.88 36195.12
Santa Clara ........ 09/21/88 06/19/95 100000.00 74222.65 174222.65
Sacramento ......... 12/16/87 07/03/95 102000.00 -203272.80 -101272.80
San Francisco ...... 03/06/91 11/29/95 60000.00 39835.76 99835.76
Alameda ............ 04/28/93 12/01/95 100000.00 18472.90 118472.90
Contra Costa ....... 01/06/94 01/19/96 418604.65 69271.80 487876.45
Alameda ............ 03/17/95 05/30/96 6500.00 832.37 7332.37
-------- -------- --------- ---------- ----------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE LOANS
REDWOOD MORTGAGE INVESTORS IV
FOR THE THREE YEARS ENDING
JUNE 30, 1996
<CAPTION>
COMMERCIAL(county)
================= ============ ============ ================= =================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============ ================= ==================
<S> <C> <C> <C> <C> <C>
Alameda .............. 03/06/90 03/09/93 150000.00 60680.00 210680.00
Contra Costa ......... 10/09/87 04/08/93 130000.00 95053.82 225053.82
Sonoma ............... 05/09/88 05/25/93 225000.00 154627.25 379627.25
San Mateo ............ 06/13/90 08/01/93 100000.01 30969.63 130969.64
Alameda .............. 09/10/91 09/30/93 81000.00 22903.01 103903.01
Stanislaus ........... 01/05/89 11/18/93 205000.00 133410.76 338410.76
Stanislaus ........... 12/29/89 11/18/93 75000.00 43121.09 118121.09
Alameda .............. 12/29/89 11/18/93 187500.00 32339.98 219839.98
Alameda .............. 11/30/90 11/18/93 81250.00 32784.93 114034.93
San Mateo ............ 02/28/92 01/01/94 650000.00 185650.68 835650.68
Santa Barbara ........ 05/10/94 06/30/94 150000.00 1857.19 151857.19
Stanislaus ........... 09/10/91 12/19/94 499925.87 154983.84 654909.71
Stanislaus ........... 06/30/94 12/19/94 74999.94 4037.00 79036.94
Alameda .............. 01/14/94 03/17/95 250000.00 23414.86 273414.86
Fresno ............... 05/31/85 07/11/95 160000.00 196652.27 356652.27
San Mateo ............ 01/25/91 08/03/95 162500.00 62530.67 225030.67
-------- -------- --------- --------- ---------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE LOANS
REDWOOD MORTGAGE INVESTORS III
FOR THE THREE YEARS ENDING
JUNE 30, 1996
<CAPTION>
SINGLE FAMILY 1-4 UNITS (county)
================= ============ ============ ================= ==================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============ ================= ==================
<S> <C> <C> <C> <C> <C>
San Mateo ........ 10/16/92 01/08/93 76000.00 2514.48 78541.48
Santa Clara ...... 08/19/92 02/12/93 68000.00 4066.90 72066.90
Santa Clara ...... 08/09/89 03/31/93 80000.00 35052.17 115052.17
San Mateo ........ 03/30/89 09/15/93 21000.00 13430.26 34430.26
San Mateo ........ 03/06/87 03/22/94 53000.00 36681.38 89681.38
San Mateo ........ 03/03/93 12/08/94 52500.00 9372.86 61872.86
Santa Clara ...... 03/31/93 03/13/95 110000.00 3733.39 113733.39
Napa ............. 08/31/90 08/31/95 73281.93 44487.64 117769.57
-------- -------- --------- -------- ---------
MULTIPLE 5+ UNITS (county)
- ----------------- ------------ ------------ ----------------- ------------------
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
- ----------------- ------------ ------------ ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Alameda ....... 05/11/84 06/10/94 33000.00 10860.90 43860.90
-------- -------- -------- -------- --------
COMMERCIAL (county)
================= ============ ============= ================ ==================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============= ================ ==================
<S> <C> <C> <C> <C> <C>
Alameda .......... 08/15/91 02/24/93 42500.00 6734.79 49234.79
Alameda .......... 12/20/89 10/14/93 55400.00 24598.94 79998.94
Stanislaus ....... 12/29/89 11/18/93 37500.00 21560.54 59060.54
Alameda .......... 12/29/89 11/18/93 75000.00 12833.09 87833.09
Alameda .......... 11/30/90 11/18/93 40625.00 16392.52 57017.52
Stanislaus ....... 09/10/91 12/19/94 142055.79 25262.10 167319.89
Stanislaus ....... 06/30/94 12/19/94 11249.99 605.55 11855.54
San Mateo ........ 09/30/92 08/03/95 81250.00 31562.66 112812.66
Santa Clara ...... 12/22/92 09/29/95 40000.00 13206.65 53206.65
Alameda .......... 09/30/95 01/30/96 138015.68 6304.19 144319.87
Santa Clara ...... 09/10/92 06/30/96 75000.00 33322.88 108322.88
-------- -------- --------- -------- ---------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE LOANS
REDWOOD MORTGAGE INVESTORS II
FOR THE THREE YEARS ENDING
JUNE 30, 1996
<CAPTION>
SINGLE FAMILY 1-4 UNITS (county)
================= ============ ============ ================= ==================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============ ================= ==================
<S> <C> <C> <C> <C> <C>
San Francisco ......... 12/31/91 09/27/93 470930.23 36798.91 507729.14
San Francisco ......... 09/24/93 01/14/94 313953.49 6517.76 320471.25
San Mateo ............. 02/24/94 06/01/94 100000.00 2707.18 102707.18
San Mateo ............. 11/04/94 10/24/95 119000.00 13294.21 132294.21
-------- -------- --------- -------- ---------
MULTIPLE 5+ UNITS (county)
================= ============ ============ ================= =================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============ ================= ==================
<S> <C> <C> <C> <C> <C>
Sacramento ......... 03/20/92 12/31/94 89187.50 -80131.24 9056.26
-------- -------- -------- --------- -------
COMMERCIAL (county)
================= ============ ============ ================ ===================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============ ================ ==================
<S> <C> <C> <C> <C> <C>
Stanislaus ......... 12/29/89 11/18/93 25000.18 11909.30 36909.48
Alameda ............ 12/29/89 11/18/93 50000.00 8623.99 58623.99
Alameda ............ 11/30/90 11/18/93 27083.34 10928.31 38011.65
-------- -------- -------- -------- --------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE LOANS
REDWOOD MORTGAGE INVESTORS
FOR THE THREE YEARS ENDING
JUNE 30, 1996
<CAPTION>
SINGLE FAMILY 1-4 UNITS (county)
================= ============ ============ =============== ===================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============ =============== ===================
<S> <C> <C> <C> <C> <C>
Contra Costa .......... 06/14/88 08/29/93 30000.00 21531.72 51531.72
San Francisco ......... 12/31/91 09/27/93 470930.23 36798.91 507729.14
San Francisco ......... 09/24/93 01/14/94 313953.49 6517.76 320471.25
Alameda ............... 09/23/92 05/27/94 22000.00 3985.55 25985.55
San Mateo ............. 02/24/94 06/01/94 100000.00 2707.18 102707.18
Solano ................ 02/22/91 07/07/94 30800.00 14120.56 44920.56
San Mateo ............. 03/08/91 11/11/94 20000.00 -9009.44 10990.56
Napa .................. 12/22/88 08/31/95 50000.00 40203.57 90203.57
-------- -------- --------- -------- ---------
MULTIPLE 5+ UNITS (county)
================= ============= ============ ================ =================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============= ============ ================ =================
<S> <C> <C> <C> <C> <C>
Mendocino ......... 06/29/90 12/23/94 39233.05 13260.11 52493.16
Sacramento ........ 03/20/92 12/31/94 89187.50 -80146.80 9040.70
Alameda ........... 03/17/95 05/31/96 2166.67 277.46 2444.13
-------- -------- -------- --------- --------
COMMERCIAL (county)
================= =========== ============ ================== =================-
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= =========== ============ ================== ==================
<S> <C> <C> <C> <C> <C>
Stanislaus ....... 12/29/89 11/18/93 37500.00 21560.54 59060.54
Alameda .......... 11/30/90 11/18/93 40625.09 16392.52 57017.61
Alameda .......... 05/31/91 03/29/94 50000.00 -30324.05 19675.95
Alameda .......... 01/14/94 03/17/95 50000.00 6481.93 56481.93
Fresno ........... 05/31/85 07/11/95 75000.00 92143.53 167143.53
Santa Clara ...... 12/22/92 09/29/95 30000.00 9905.00 39905.00
-------- -------- -------- --------- ---------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE LOANS
CORPORATE MORTGAGE INVESTORS I & II
FOR THE THREE YEARS ENDING
JUNE 30, 1996
<CAPTION>
SINGLE FAMILY 1-4 UNITS (county)
================= ============ ============ ================= ==================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============ ================= =================
<S> <C> <C> <C> <C> <C>
San Francisco ........ 06/18/92 01/22/93 55000.00 6208.83 61208.83
Alameda .............. 01/01/92 03/15/93 2834.03 303.56 3137.59
Solano ............... 01/01/92 03/31/93 27685.22 3477.50 31162.72
Contra Costa ......... 03/02/93 04/01/93 62500.00 741.40 63241.40
Alameda .............. 01/01/92 04/21/93 35125.84 6653.32 41779.16
San Mateo ............ 02/18/93 06/14/93 45500.00 1752.44 47252.44
Alameda .............. 06/13/90 03/04/94 65000.00 33159.13 98159.13
Alameda .............. 06/21/88 03/21/94 23000.00 17133.40 40133.40
San Francisco ........ 02/28/84 04/28/94 23000.00 21022.24 44022.24
San Mateo ............ 09/01/86 05/24/94 254000.00 106221.19 360221.19
Alameda .............. 10/19/92 07/20/94 25000.00 5038.21 30038.21
Contra Costa ......... 05/01/93 10/14/94 75000.00 12103.77 87103.77
San Francisco ........ 03/05/85 04/12/95 172624.22 127435.71 300059.93
San Francisco ........ 05/23/90 07/28/95 50000.00 7856.50 57856.58
San Mateo ............ 01/10/92 08/29/95 130000.00 57349.62 187349.62
Mariposa ............. 01/27/95 09/18/95 77000.00 4351.26 81351.26
Santa Clara .......... 03/31/90 12/04/95 80262.02 56152.77 136414.79
Alameda .............. 01/31/95 01/25/96 80000.00 8745.08 88745.08
San Mateo ............ 01/31/96 04/29/96 175000.00 4790.52 179790.52
-------- -------- --------- --------- ---------
MULTIPLE 5+ UNITS(county)
================= ============ ============ ================= ==================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============ ================= ==================
<S> <C> <C> <C> <C> <C>
San Francisco ....... 05/23/90 05/15/94 140000.00 -121491.06 18508.94
Alameda ............. 12/06/84 05/20/94 106000.00 34326.10 140326.10
Contra Costa ........ 01/06/94 01/19/96 239534.88 25835.30 265370.18
Sacramento .......... 12/15/87 05/30/96 102000.00 -24018.43 77981.57
Alameda ............. 03/17/95 05/31/96 2166.67 277.46 2444.13
-------- -------- --------- ---------- ---------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE LOANS
CORPORATE MORTGAGE INVESTORS I & II
FOR THE THREE YEARS ENDING
JUNE 30, 1996
<CAPTION>
COMMERCIAL (county)
================= ============ ============= ================ ==================
PROPERTY FUNDED CLOSED ON LOAN AMOUNT INTEREST/ PROCEEDS
LATE/MISC TO DATE
================= ============ ============= ================ ==================
<S> <C> <C> <C> <C> <C>
Unsecured ............ 01/01/92 07/08/93 29325.88 2420.93 31746.81
Sacramento ........... 07/20/90 08/26/93 125000.00 54148.23 179148.23
Alameda .............. 12/29/89 11/18/93 300000.00 144407.41 444407.41
Marin ................ 09/15/92 10/27/94 30000.00 8321.27 38321.29
San Mateo ............ 12/30/93 01/01/94 100000.00 0.00 100000.00
San Mateo ............ 04/12/90 02/20/95 100000.00 45757.46 145757.46
Alameda .............. 01/14/94 03/17/95 50000.00 6481.93 56481.93
San Francisco ........ 03/19/93 06/28/96 35000.00 9588.97 44588.97
-------- -------- --------- --------- ---------
</TABLE>
<PAGE>
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
REDWOOD MORTGAGE INVESTORS VIII
A California Limited Partnership
THIS LIMITED PARTNERSHIP AGREEMENT was made and entered into as of the 4th
day of December, 1996, by and among D. RUSSELL BURWELL, an individual, MICHAEL
R. BURWELL, an individual, and GYMNO CORPORATION, a California corporation
(collectively, the "General Partners"), and such other persons who have become
Limited Partners ("Existing Limited Partners") and as may be added pursuant to
the terms hereof (the "New Limited Partners") (collectively the "Limited
Partners").
RECITALS
A. On or about October 1993, the General Partners and the Limited Partners
entered into an agreement of limited partnership for the Partnership.
B. In order to increase the Partnership's capital base and permit the
Partnership to further diversify its portfolio, in September, 1996, the General
Partners elected to offer an additional 300,000 Units.
C. In connection with the additional offering of Units and in order to
correct some ambiguities and supplement some provisions of the Partnership
Agreement the General Partners have elected to amend and restate the agreement
of limited partnership (the "Partnership Agreement").
ARTICLE 1
DEFINITIONS
Unless stated otherwise, the terms set forth in this Article I shall, for
all purposes of this Agreement, have the meanings as defined herein:
1.1 "Affiliate" means (a) any person directly or indirectly controlling,
controlled by or under common control with another person, (b) any person owning
or controlling ten percent (10%) or more of the outstanding voting securities of
such other person, (c) any officer, director or partner of such person, or (d)
if such other person is an officer, director or partner, any company for which
such person acts in any such capacity.
1.2 "Agreement" means this Limited Partnership Agreement, as amended from
time to time.
1.3 "Capital Account" means, with respect to any Partner, the Capital
Account maintained for such Partner in accordance with the following provisions:
(a) To each Partner's Capital Account there shall be credited, such
Partner's Capital Contribution, such Partner's distributive share of Profits and
any items in the nature of income or gain (from unexpected adjustments,
allocations or distributions) that are specially allocated to a Partner and the
amount of any Partnership liabilities that are assumed by such Partner or that
are secured by any Partnership property distributed to such Partner.
(b) To each Partner's Capital Account there shall be debited the amount of
cash and the Gross Asset Value of any Partnership property distributed to such
Partner pursuant to any provision of this Agreement, such Partner's distributive
share of Losses, and any items in the nature of expenses or losses that are
specially allocated to a Partner and the amount of any liabilities of such
Partner that are assumed by the Partnership or that are secured by any property
contributed by such Partner to the Partnership.
In the event any interest in the Partnership is transferred in accordance
with Section 7.2 of this Agreement, the transferee shall succeed to the Capital
Account of the transferor to the extent it relates to the transferred interest.
EXHIBIT A
<PAGE>
In the event the Gross Asset Values of the Partnership assets are adjusted
pursuant to Section 1.9, the Capital Accounts of all Partners shall be adjusted
simultaneously to reflect the aggregate net adjustment as if the Partnership
recognized gain or loss equal to the amount of such aggregate net adjustment.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Treasury Regulation Section 1.704-1(b), and shall be interpreted and applied in
a manner consistent with such Regulation. In the event the General Partners
shall determine that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto, are computed in order to comply with
the then existing Treasury Regulation, the General Partners may make such
modification, provided that it is not likely to have a material effect on the
amounts distributable to any Partner pursuant to Article IX hereof upon the
dissolution of the Partnership. The General Partners shall adjust the amounts
debited or credited to Capital Accounts with respect to (a) any property
contributed to the Partnership or distributed to the General Partners, and (b)
any liabilities that are secured by such contributed or distributed property or
that are assumed by the Partnership or the General Partners, in the event the
General Partners shall determine such adjustments are necessary or appropriate
pursuant to Treasury Regulation Section 1.704-l(b)(2)(iv) as provided for in
Section 5.4. The General Partners shall make any appropriate modification in the
event unanticipated events might otherwise cause this Agreement not to comply
with Treasury Regulation Section 1.704-l(b) as provided for in Sections 5.6 and
12.4(k).
1.4 "Cash Available for Distribution" means an amount of cash equal to the
excess of accrued income from operations and investment of, or the sale or
refinancing or other disposition of, Partnership assets during any calendar
month over the accrued operating expenses of the Partnership during such month,
including any adjustments for bad debt reserves or deductions as the General
Partners may deem appropriate, all determined in accordance with generally
accepted accounting principles; provided, that such operating expenses shall not
include any general overhead expenses of the General Partners not specifically
related to, billed to or reimbursable by the Partnership as specified in
Sections 10.13 through 10.15.
1.5 "Code" means the Internal Revenue Code of 1986 and corresponding
provisions of subsequent revenue laws.
1.6 "Continuing Servicing Fee" means an amount equal to approximately
(0.25%) of the Limited Partnerships capital account which amount shall be paid
to certain participating Broker Dealers payable only in connection with the
initial offering of 150,000 Units pursuant to the Prospectus dated May 19, 1993.
1.7 "Deed of Trust" means the lien or liens created on the real property or
properties of the borrower securing the borrower's obligation to the Partnership
to repay the Mortgage Investment.
1.8 "Earnings" means all revenues earned by the Partnership less all
expenses incurred by the Partnership.
1.9 "Fiscal Year" means a year ending December 31st.
1.10 "First Formation Loan" means a loan to Redwood Mortgage, an affiliate
of the General Partners, in connection with the initial offering of 150,000
Units pursuant to the Prospectus dated May 19, 1993, equal to the amount of the
sales commissions (excluding any Continuing Servicing Fees) and all amounts
payable in connection with any unsolicited sales. Redwood Mortgage will pay all
sales commissions (excluding any Continuing Servicing Fees) and all amounts
payable in connection with any unsolicited sales from the First Formation Loan.
The First Formation Loan will be unsecured, and will be repaid in ten (10) equal
annual installments of principal, without interest commencing on December 31 of
the year in which the initial offering terminates.
1.11 "Formation Loans" means collectively the First and Second Formation
Loan.
1.12 "General Partners" means D. Russell Burwell, Michael R. Burwell and
Gymno Corporation, a California corporation, or any Person substituted in place
thereof pursuant to this Agreement. "General Partner" means any one of the
General Partners.
1.13 "Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a Partner to
the Partnership shall be the gross fair market value of such asset, as
determined by the contributed Partner and the Partnership;
<PAGE>
(b) The Gross Asset Values of all Partnership assets shall be adjusted to
equal their respective gross fair market values, as determined by the General
Partners, as of the following times: (a) the acquisition of an additional
interest in the Partnership (other than pursuant to Section 4.2) by any new or
existing Partner in exchange for more than a de minimis Capital Contribution;
(b) the distribution by the Partnership to a Partner of more than a de minimis
amount of Partnership property other than money, unless all Partners receive
simultaneous distributions of undivided interests in the distributed property in
proportion to their Interests in the Partnership; and (c) the termination of the
Partnership for federal income tax purposes pursuant to Section 708(b)(1)(B) of
the Code; and
(c) If the Gross Asset Value of an asset has been determined or adjusted
pursuant to clause (a) or (b) above, such Gross Asset Value shall thereafter be
adjusted by the depreciation, amortization or other cost recovery deduction
allowable which is taken into account with respect to such asset for purposes of
computing Profits and Losses.
1.14 "Guaranteed Payment for Offering Period" means the payment guaranteed
to Limited Partners by the General Partners during the Guaranteed Payment
Period. The Guaranteed Payment for Offering Period calculated on a monthly
basis, shall be equal to the greater of (i) the Partnership's Earnings or (ii)
the interest rate established by the Monthly Weighted Average Cost of Funds for
the 11th District Savings Institutions, as announced by the Federal Home Loan
Bank of San Francisco during the last week of the preceding month, plus two
points, up to a maximum interest rate of 12%. The Weighted Average Cost of Funds
is derived from interest paid on savings accounts, Federal Home Loan Bank
advances, and other borrowed money adjusted from valuation in the number of days
in each month. The adjustment factors are 1.086 for February, 1.024 for 30 day
months and 0.981 for 31 day months. As of the date of the Prospectus, the
Monthly Weighted Average Funds for the 11th District as announced August 30,
1996, for the period ended July 30, 1996, and in effect until September 30,
1996, is 4.819%. The Guaranteed Payment Period is the period commencing on the
day a Limited Partner is admitted to the Partnership and ending three months
after the Offering Termination Date. To the extent the return to be paid is in
excess of the Partnership's Earnings, the Guaranteed Payment for Offering Period
shall be payable by the General Partners out of a Capital Contribution to the
Partnership and/or fees payable to the General Partners or Redwood Mortgage
which are lowered or waived.
1.15 "Limited Partners" means the Initial Limited Partner until it shall
withdraw as such, and the purchasers of Units in Redwood Mortgage Investors
VIII, who are admitted thereto and whose names are included on the Certificate
and Agreement of Limited Partnership of Redwood Mortgage Investors VIII.
Reference to a "Limited Partner" shall be to any one of them.
1.16 "Limited Partnership Interest" means the percentage ownership interest
of any Limited Partner in the Partnership determined at any time by dividing a
Limited Partner's current Capital Account by the total outstanding Capital
Accounts of all Limited Partners.
1.17 "Majority of the Limited Partners" means Limited Partners holding a
majority of the total outstanding Limited Partnership Interests as of the first
day of the current calendar month.
1.18 "Mortgage Investment(s)" means the loan(s) and/or an undivided
interest in the loans the Partnership intends to extend to the general public
secured by real property deeds of trust.
1.19 "Net Asset Value" means the Partnership's total assets less its total
liabilities.
1.20 "Partners" means the General Partners and the Limited Partners,
collectively. "Partner" means any one of the Partners.
1.21 "Partnership" means Redwood Mortgage Investors VIII, a California
limited partnership, the limited partnership created pursuant to this Agreement.
1.22 "Partnership Interest" means the percentage ownership interest of each
Partner in the partnership as defined in Section 5.1.
1.23 "Person" means any natural person, partnership, corporation,
unincorporated association or other legal entity.
<PAGE>
1.24 "Profits" and "Losses" mean, for each Fiscal Year or any other period,
an amount equal to the Partnership's taxable income or loss for such Fiscal Year
or other given period, determined in accordance with Section 703(a) of the Code
(for this purpose, all items of income, gain, loss, or deduction required to be
stated separately pursuant to Code Section 703(a)(1) shall be included in
taxable income or loss), with the following adjustments:
(a) Any income of the Partnership that is exempt from federal income tax
and not otherwise taken into account in computing Profits or Losses pursuant to
this Section 1.21 shall be added to such taxable income or loss;
(b) Any expenditures of the Partnership described in Section 705(a)(2)(B)
of the Code or treated as Section 705(a)(2)(B) of the Code expenditures pursuant
to Treasury Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken
into account in computing Profits or Losses pursuant to this Section 1.21, shall
be subtracted from such taxable income or loss.
(c) Gain or loss resulting from any disposition of Partnership property
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of, notwithstanding that the adjusted tax basis of such property differs from
its Gross Asset Value;
(d) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account depreciation, amortization or other cost recovery
deductions for such Fiscal Year or other period, computed such that if the Gross
of an Asset Value of an asset differs from its adjusted basis for federal income
tax purposes at the beginning of a Fiscal Year or other period, depreciation,
amortization or other cost recovery deductions shall be an amount which bears
the same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization or other cost recovery deductions for such Fiscal
Year or other period bears to such beginning adjusted tax basis; and
(e) Notwithstanding any other provision of this Section 1.21, any items in
the nature of income; or gain or expenses or losses, which are specially
allocated, shall not be taken into account in computing Profits or Losses.
1.25 "Sales Commissions" means the amount of compensation, which may be
paid under one of two options, to be paid to Participating Broker Dealers in
connection with the sale of Units.
1.26 "Second Formation Loan" means the loan to Redwood Mortgage, an
affiliate of the General Partners, in connection with the second offering of
300,000 Units pursuant to the Prospectus dated December 4, 1996 equal to the
amount of the sales commissions and the amounts payable in connection with
unsolicited sales. Redwood Mortgage will pay all sales commissions and amounts
due in connection with unsolicited sales from the Second Formation Loan. The
Second Formation Loan will be unsecured, will not bear interest and will be
repaid in annual installments.
1.27 "Units" mean the shares of ownership of the Partnership issued to
Limited Partners upon their admission to the Partnership, pursuant to the
Partnership's Prospectuses dated February 2, 1993, and December 4, 1996, and any
supplements or amendments thereto (the "Prospectus").
ARTICLE 2
ORGANIZATION OF THE LIMITED PARTNERSHIP
2.1 Formation. The parties hereto hereby agree to form a limited
partnership, pursuant to the provision of Chapter 3, Title 2, of the California
Corporations Code, as in effect on the date hereof, commonly known as the
California Revised Limited Partnership Act (the "California Act").
2.2 Name. The name of the Partnership is REDWOOD MORTGAGE INVESTORS VIII, a
California limited partnership.
2.3 Place of Business. The principal place of business of the Partnership
shall be located at 650 El Camino Real, Suite G, Redwood City, California 94063,
until changed by designation of the General Partners, with notice to all Limited
Partners.
2.4 Purpose. The primary purpose of this Partnership is to engage in
business as a mortgage lender for the primary purpose of making Mortgage
Investments secured by deeds of trust (the "Mortgage Investments") on California
real estate.
<PAGE>
2.5 Substitution of Limited Partner. A Limited Partner may assign all or a
portion of his Partnership Interest and substitute another person in his place
as a Limited Partner only in compliance with the terms and conditions of Section
7.2.
2.6 Certificate of Limited Partnership. The General Partners shall duly
execute and file with the Office of the Secretary of State of the State of
California, a Certificate of Limited Partnership pursuant to the provisions of
Section 15621 of the California Corporations Code. Thereafter, the General
Partners shall execute and cause to be filed Certificates of Amendment of the
Certificate of Limited Partnership whenever required by the California Act or
this Agreement. At the discretion of the General Partners, a certified copy of
the Certificate of Limited Partnership may also be filed in the Office of the
Recorder of any county in which the Partnership shall have a place of business
or in which real property to which it holds title shall be situated.
2.7 Term. The Partnership shall be formed and its term shall commence as of
the date on which this Limited Partnership Agreement is executed and the
Certificate of Limited Partnership referred to in Section 2.6 is filed with the
Office of the Secretary of State, and shall continue until December 31, 2032,
unless earlier terminated pursuant to the provisions of this Agreement or by
operation of law.
2.8 Power of Attorney. Each of the Limited Partners irrevocably constitutes
and appoints the General Partners, and each of them, any one of them acting
alone, as his true and lawful attorney-in-fact, with full power and authority
for him, and in his name, place and stead, to execute, acknowledge, publish and
file:
(a) This Agreement, the Certificate of Limited Partnership and any
amendments or conciliation thereof required under the laws of the State of
California;
(b) Any certificates, instruments and documents, including, without
limitation, Fictitious Business Name Statements, as may be required by, or may
be appropriate under, the laws of any state or other jurisdiction in which the
Partnership is doing or intends to do business; and
(c) Any documents which may be required to effect the continuation of the
Partnership, the admission of an additional or substituted Partner, or the
dissolution and termination of the Partnership.
Each Limited Partner hereby agrees to execute and deliver to the General
Partners within five (5) days after receipt of the General Partners' written
request therefore, such other and further statements of interest and holdings,
designations, and further statements of interest and holdings, designations,
powers of attorney and other instruments that the General Partners deem
necessary to comply with any laws, rules or regulations relating to the
Partnership's activities.
2.9 Nature of Power of Attorney. The foregoing grant of authority is a
special power of attorney coupled with an interest, is irrevocable, and survives
the death of the undersigned or the delivery of an assignment by the undersigned
of a Limited Partnership Interest; provided, that where the assignee thereof has
been approved by the General Partners for admission to the Partnership as a
substituted Limited Partner, the Power of Attorney survives the delivery of such
assignment for the sole purpose of enabling the General Partners to execute,
acknowledge and file any instrument necessary to effect such substitution.
ARTICLE 3
THE GENERAL PARTNERS
3.1 Authority of the General Partners. The General Partners shall have all
of the rights and powers of a partner in a general partnership, except as
otherwise provided herein.
3.2 General Management Authority of the General Partners. Except as
expressly provided herein, the General Partners shall have sole and complete
charge of the affairs of the Partnership and shall operate its business for the
benefit of all Partners. Each of the General Partners, acting alone or together,
shall have the authority to act on behalf of the Partnership as to any matter
for which the action or consent of the General Partners is required or
permitted. Without limitation upon the generality of the foregoing, the General
Partners shall have the specific authority:
(a) To expend Partnership funds in furtherance of the business of the
Partnership and to acquire and deal with assets upon such terms as they deem
advisable, from affiliates and other persons;
(b) To determine the terms of the offering of Units, including the right to
increase the size of the offering or offer additional securities, the amount for
discounts allowable or commissions to be paid and the manner of complying with
applicable law;
(c) To employ, at the expense of the Partnership, such agents, employees,
independent contractors, attorneys and accountants as they deem reasonable and
necessary;
(d) To effect necessary insurance for the proper protection of the
Partnership, the General Partners or Limited Partners;
(e) To pay, collect, compromise, arbitrate, or otherwise adjust any and all
claims or demands against the Partnership;
(f) To bind the Partnership in all transactions involving the Partnership's
property or business affairs, including the execution of all loan documents and
the sale of notes and to change the Partnership's investment objectives,
notwithstanding any other provision of this Agreement; provided, however, the
General Partners may not, without the consent of a Majority of the Limited
Partners, sell or exchange all or substantially all of the Partnership's assets,
as those terms are defined in Section 9.1;
(g) To amend this Agreement with respect to the matters described in
Subsections 12.4(a) through (k) below;
(h) To determine the accounting method or methods to be used by the
Partnership, which methods may be changed at any time by written notice to all
Limited Partners;
(i) To open accounts in the name of the Partnership in one or more banks,
savings and loan associations or other financial institutions, and to deposit
Partnership funds therein, subject to withdrawal upon the signature of the
General Partners or any person authorized by him;
(j) To borrow funds for the purpose of making Mortgage Investments,
provided that the amount of borrowed funds does not exceed fifty percent (50%)
of the Partnership's Mortgage Investment portfolio and in connection with such
borrowings, to pledge or hypothecate all or a portion of the assets of the
Partnership as security for such loans; and
(k) To invest the reserve funds of the Partnership in cash, bank accounts,
certificates of deposits, money market accounts, short-term bankers acceptances,
publicly traded bond funds or any other liquid assets.
3.3 Limitations. Without a written consent of or ratification by all
Limited Partners, the General Partners shall have no authority to do any act
prohibited by law; or to admit a person as a Limited Partner other than in
accordance with the terms of this Agreement.
3.4 No Personal Liability. The General Partners shall have no personal
liability for the original invested capital or any Limited Partner or to repay
the Partnership any portion or all of any negative balance in their capital
accounts, except as otherwise provided in Article 4.
3.5 Compensation to General Partners. The General Partners shall be
entitled to be compensated and reimbursed for expenses incurred in performing
its management functions in accordance with the provisions of Article 10
thereof, and may receive compensation from parties other than the Partnership.
3.6 Fiduciary Duty. The General Partners shall have the fiduciary
responsibility for the safekeeping and use of all funds and assets of the
Partnership, and they shall not employ such funds or assets in any manner except
for the exclusive benefit of the Partnership.
3.7 Allocation of Time to Partnership Business. The General Partners shall
not be required to devote full time to the affairs of the Partnership, but shall
devote whatever time, effort and skill they deem to be reasonably necessary for
the conduct of the Partnership's business. The General Partners may engage in
any other businesses or activities, including businesses related to or
competitive with the Partnership.
3.8 Assignment by a General Partner. A General Partner's interest in
income, losses and distributions of the Partnership shall be assignable at the
discretion of a General Partner, which, if made, may be converted, at a General
Partner's option, into a limited partnership interest to the extent of the
assignment.
3.9 Partnership Interest of General Partners. The General Partners shall be
allocated a total of one percent (1%) of all items of Partnership income, gains,
losses, deductions and credits as described in Section 5.1, which shall be
shared equally among them.
3.10 Removal of General Partners. A General Partner may be removed upon the
following conditions:
(a) By written consent of a majority of the Limited Partners. Limited
Partners may exercise such right by presenting to the General Partner a notice,
with their acknowledged signatures thereon, to the effect that the General
Partner is removed; the notice shall set forth the grounds for removal and the
date on which removal is become effective;
(b) Concurrently with such notice or within thirty (30) days thereafter by
notice similarly given, a majority of the Limited Partners may also designate a
successor as General Partner;
(c) Substitution of a new General Partner, if any, shall be effective upon
written acceptance of the duties and responsibilities of a General Partner by
the new General Partner. Upon effective substitution of a new General Partner,
this Agreement shall remain in full force and effect, except for the change in
the General Partner, and business of the Partnership shall be continued by the
new General Partner. The new General Partner shall thereupon execute, file and
record an amendment to the Certificate of Limited Partnership in the manner
required by law.
(d) Failure of the Limited Partners giving notice of removal to designate a
new General Partner within the time specified herein or failure of the new
General Partner so designated to execute written acceptance of the duties and
responsibilities of a General Partner hereunder within ten (10) days after such
designation shall dissolve and terminate the Partnership, unless the business of
the Partnership is continued by the remaining General Partners, if any.
In the event that all of the General Partners are removed, no other General
Partners are elected, the Partnership is liquidated and Redwood Mortgage is no
longer receiving payments for services rendered, the debt on the Formation Loan
shall be forgiven by the Partnership and Redwood Mortgage will be immediately
released from any further obligation under the Formation Loan.
3.11 Commingling of Funds. The funds of the Partnership shall not be
commingled with funds of any other person or entity.
3.12 Right to Rely on General Partners. Any person dealing with the
Partnership may rely (without duty of further inquiry) upon a certificate signed
by the General Partners as to:
(a) The identity of any General Partner or Limited Partner;
(b) The existence or nonexistence of any fact or facts which constitute a
condition precedent to acts by a General Partner or which are in any further
manner germane to the affairs of the Partnership;
(c) The persons who are authorized to execute and deliver any instrument or
document of the Partnership; or
(d) Any act or failure to act by the Partnership or any other matter
whatsoever involving the Partnership or any Partner.
3.13 Sole and Absolute Discretion. Except as otherwise provided in this
Agreement, all actions which any General Partner may take and all determinations
which any General Partner may take and all determinations which any General
Partners may make pursuant to this Agreement may be taken and made at the sole
and absolute discretion of such General Partner.
<PAGE>
3.14 Merger or Reorganization of the General Partners. The following is not
prohibited and will not cause a dissolution of the Partnership: (a) a merger or
reorganization of the General Partners or the transfer of the ownership interest
of the General Partners; and (b) the assumption of the rights and duties of the
General Partners by the transferee of the rights and duties of the General
Partners by the transferee entity so long as such transferee is an affiliate
under the control of the General Partners.
3.15 Dissenting Limited Partners' Rights. If the Partnership participates
in any acquisition of the Partnership by another entity, any combination of the
Partnership with another entity through a merger or consolidation, or any
conversion of the Partnership into another form of business entity (such as a
corporation) that requires the approval of the outstanding limited partnership
interest, the result of which would cause the other entity to issue securities
to the Limited Partners, then each Limited Partner who does not approve of such
reorganization (the "Dissenting Limited Partner") may require the Partnership to
purchase for cash, at its fair market value, the interest of the Dissenting
Limited Partner in the Partnership in accordance with Section 15679.2 of the
California Corporations Code. The Partnership, however, may itself convert to
another form of business entity (such as a corporation, trust or association) if
the conversion will not result in a significant adverse change in (i) the voting
rights of the Limited Partners, (ii) the termination date of the Partnership
(currently, December 31, 2032, unless terminated earlier in accordance with the
Partnership Agreement), (iii) the compensation payable to the General Partners
or their Affiliates, or (iv) the Partnership's investment objectives.
The General Partners will make the determination as to whether or not any
such conversion will result in a significant adverse change in any of the
provisions listed in the preceding paragraph based on various factors relevant
at the time of the proposed conversion, including an analysis of the historic
and projected operations of the Partnership; the tax consequences (from the
standpoint of the Limited Partners) of the conversion of the Partnership to
another form of business entity and of an investment in a limited partnership as
compared to an investment in the type of business entity into which the
Partnership would be converted; the historic and projected operating results of
the Partnership's Mortgage Investments, and the then-current value and
marketability of the Partnership's Mortgage Investments. In general, the General
Partners would consider any material limitation on the voting rights of the
Limited Partners or any substantial increase in the compensation payable to the
General Partners or their Affiliates to be a significant adverse change in the
listed provisions.
3.16 Exculpation and Indemnification. The General Partners shall have no
liability whatsoever to the Partnership or to any Limited Partner, so long as a
General Partner determined in good faith, that the course of conduct which
caused the loss or liability was in the best interests of the Partnership, and
such loss or liability did not result from the gross negligence or gross
misconduct of the General Partner being held harmless. The General Partners or
any Partnership employee or agent shall be entitled to be indemnified by the
Partnership, at the expense of the Partnership, against any loss or liability
(including attorneys' fees, which shall be paid as incurred) resulting from
assertion of any claim or legal proceeding relating to the activities of the
Partnership, including claims, or legal proceedings brought by a third party or
by Limited Partners, on their own behalf or as a Partnership derivative suit, so
long as the party to be indemnified determined in good faith that the course of
conduct which gave rise to such claim or proceeding was in the best interests of
the Partnership and such course of conduct did not constitute gross negligence
or gross misconduct; provided, however, any such indemnification shall only be
recoverable out of the assets of the Partnership and not from Limited Partners.
Nothing herein shall prohibit the Partnership from paying in whole or in part
the premiums or other charge for any type of indemnity insurance by which the
General Partners or other agents or employees of the Partnership are indemnified
or insured against liability or loss arising out of their actual or asserted
misfeasance or nonfeasance in the performance of their duties or out of any
actual or asserted wrongful act against the Partnership including, but not
limited to judgments, fines, settlements and expenses incurred in the defense of
actions, proceedings and appeals therefrom. Notwithstanding the foregoing,
neither the General Partners nor their affiliates shall be indemnified for any
liability imposed by judgment (including costs and attorneys' fees) arising from
or out of a violation of state or federal securities laws associated with the
offer and sale of Units offered hereby. However, indemnification will be allowed
for settlements and related expenses of lawsuits alleging securities law
violations and for expenses incurred in successfully defending such lawsuits
provided that (a) a court either approves indemnification of litigation costs if
the General Partners are successful in defending the action; or (b) the
settlement and indemnification is specifically approved by the court of law
which shall have been advised as to the current position of the Securities and
Exchange Commission (as to any claim involving allegations that the Securities
Act of 1933 was violated) and California Commissioner of Corporations or the
applicable state authority (as to any claim involving allegations that the
applicable state's securities laws were violated).
ARTICLE 4
CAPITAL CONTRIBUTIONS; THE LIMITED PARTNERS
4.1 Capital Contribution by General Partners. The General Partners,
collectively, shall contribute to the Partnership an amount in cash equal to
1/10 of 1% of the aggregate capital contributions of the Limited Partners.
<PAGE>
4.2 Other Contributions.
(a) Capital Contribution by Initial Limited Partner. Upon the execution of
this Agreement, the Initial Limited Partner made a cash capital contribution to
the Partnership of $1,000. Upon the admission of additional Limited Partners to
the Partnership pursuant to Section 4.2(b) of this Agreement, the Partnership
promptly refunded to the Initial Limited Partner its $1,000 capital contribution
and upon receipt of such sum the Initial Limited Partner was withdrawn from the
Partnership as its Initial Limited Partner.
(b) Capital Contributions of Existing Limited Partners. The Existing
Limited Partners have contributed in the aggregate to the capital of the
Partnership an amount equal to $12,350,741 as of June 30, 1996.
(c) Capital Contributions of New Limited Partners. The New Limited Partners
shall contribute to the capital of the Partnership an amount equal to one
hundred dollars ($100) for each Unit subscribed for by each such New Limited
Partners, with a minimum subscription of twenty (20) Units per Limited Partner
(including subscriptions from entities of which such limited partner is the sole
beneficial owner). The total additional capital contributions of the New Limited
Partners will not exceed $30,000,000.
(d) Escrow Account. No escrow account will be established and all proceeds
from the sale of Units will be remitted directly to the Partnership.
Subscription Agreements shall be accepted or rejected within 30 days of
their receipt. All subscription monies deposited by persons whose subscriptions
are rejected shall be returned to such subscribers forthwith after such
rejection without interest. The public offering of Units shall terminate one
year from the effective date of the Prospectus unless fully subscribed at an
earlier date or terminated on an earlier date by the General Partners, or unless
extended by the General Partners for additional one year periods.
(e) Subscription Account. Subscriptions received after the activation of
the Partnership will be deposited into a subscription account at a federally
insured commercial bank or other depository and invested in short-term
certificates of deposit, a money market or other liquid asset account.
Prospective investors whose subscriptions are accepted will be admitted into the
Partnership only when their subscription funds are required by the Partnership
to fund a Mortgage Investment, or the Formation Loan, to create appropriate
reserves or to pay organizational expenses or other proper Partnership purposes.
During the period prior to admittance of investors as Limited Partners, proceeds
from the sale of Units are irrevocable, and will be held by the General Partners
for the account of Limited Partners in the subscription account. Investors'
funds will be transferred from the subscription account into the Partnership on
a first-in, first-out basis. Upon admission to the Partnership, subscription
funds will be released to the Partnership and Units will be issued at the rate
of $100 per unit or fraction thereof. Interest earned on subscription funds
while in the subscription account will be returned to the subscriber, or if the
subscriber elects to compound earnings, the amount equal to such interest will
be added to his investment in the Partnership, and the number of Units actually
issued shall be increased accordingly. In the event only a portion of a
subscribing Limited Partner's funds are required, then all funds invested by
such subscribing Limited Partners at the same time shall be transferred. Any
subscription funds remaining in the subscription account after the expiration of
one (1) year from the date any such subscription funds were first received by
the General Partners shall be returned to the subscriber.
(f) Admission of Limited Partners. Subscribers shall be admitted as Limited
Partners when their subscription funds are required by the Partnership to fund a
Mortgage Investment, or the Formation Loan, to create appropriate reserves or to
pay organizational expenses, as described in the Prospectus. Subscriptions shall
be accepted or rejected by the General Partners on behalf of the Partnership
within 30 days of their receipt. Rejected subscriptions and monies shall be
returned to subscribers forthwith.
The Partnership shall amend Schedule A to the Limited Partnership Agreement
from time to time to effect the substitution of substituted Limited Partners in
the case of assignments, where the assignee does not become a substituted
Limited Partner, the Partnership shall recognize the assignment not later than
the last day of the calendar month following acceptance of the assignment by the
General Partners.
<PAGE>
No person shall be admitted as a Limited Partner who has not executed and
filed with the Partnership the subscription form specified in the Prospectus
used in connection with the public offering, together with such other documents
and instruments as the General Partners may deem necessary or desirable to
effect such admission, including, but not limited to, the execution,
acknowledgment and delivery to the General Partners of a power of attorney in
form and substance as described in Section 2.8 hereof.
(g) Names, Addresses, Date of Admissions, and Contributions of Limited
Partners. The names, addresses, date of admissions and Capital Contributions of
the Limited Partners shall be set forth in Schedule A attached hereto, as
amended from time to time, and incorporated herein by reference.
4.3 Election to Receive Monthly, Quarterly or Annual Cash Distributions.
Upon subscription for Units, a subscribing Limited Partner must elect whether to
receive monthly, quarterly or annual cash distributions from the Partnership or
to receive additional Units in lieu of cash distributions. If the Limited
Partner initially elects to receive monthly, quarterly or annual distributions,
such election, once made, is irrevocable. However, a Limited Partner may change
his election regarding whether he wants to receive such distributions on a
monthly, quarterly or annual basis. If the Limited Partner initially elects to
receive additional Units in lieu of cash distributions, he may after three (3)
years, change his election and receive monthly, quarterly or annual cash
distributions. Earnings allocable to Limited Partners who elect to receive
additional Units will be retained by the Partnership for making further Mortgage
Investments or for other proper Partnership purposes, and such amounts will be
added to such Limited Partners' Capital Accounts. The Earnings from such further
Mortgage Investments will be allocated among all Partners; however, Limited
Partners who elect to receive additional Units will be credited with an
increasingly larger proportionate share of such Earnings than Limited Partners
who receive monthly, quarterly or annual distributions since Limited Partners'
Capital Accounts who elect to receive additional Units will increase over time.
Annual distributions will be made after the calendar year.
4.4 Interest. No interest shall be paid on, or in respect of, any
contribution to Partnership Capital by any Partner, nor shall any Partner have
the right to demand or receive cash or other property in return for the
Partner's Capital Contribution.
4.5 Loans. Any Partner or Affiliate of a Partner may, with the written
consent of the General Partners, lend or advance money to the Partnership. If
the General Partners or, with the written consent of the General Partners, any
Limited Partner shall make any loans to the Partnership or advance money on its
behalf, the amount of any such loan or advance shall not be treated as a
contribution to the capital of the Partnership, but shall be a debt due from the
Partnership. The amount of any such loan or advance by a lending Partner or an
Affiliate of a Partner shall be repayable out of the Partnership's cash and
shall bear interest at a rate of not in excess of the greater of (i) the prime
rate established, from time to time, by any major bank selected by the General
Partners for loans to the bank's most creditworthy commercial borrowers, plus 5%
per annum, or (ii) the maximum rate permitted by law. None of the Partners or
their Affiliates shall be obligated to make any loan or advance to the
Partnership.
4.6 No Participation in Management. Except as expressly provided herein,
the Limited Partners shall take no part in the conduct or control of the
Partnership business and shall have no right or authority to act for or bind the
Partnership.
4.7 Rights and Powers of Limited Partners. In addition to the matters
described in Section 3.10 above, the Limited Partners shall have the right to
vote upon and take any of the following actions upon the approval of a Majority
of the Limited Partners, without the concurrence of the General Partners.
(a) Dissolution and termination of the Partnership prior to the expiration
of the term of the Partnership as stated in Section 2.7 above
(b) Amendment of this Agreement, subject to the limitations set forth in
Section 12.4;
(c) Disapproval of the sale of all or substantially all the assets of the
Partnership (as defined in Subsection 9.1(c) below); or
(d) Removal of the General Partners and election of a successor, in the
manner and subject to the conditions described in Section 3.10 above.
Except as expressly set forth above or otherwise provided for in this
Agreement, the Limited Partners shall have no other rights as set forth in the
California Act.
4.8 Meetings. The General Partners, or Limited Partners representing ten
percent (10%) of the outstanding Limited Partnership Interests, may call a
meeting of the Partnership and, if desired, propose an amendment to this
Agreement to be considered at such meeting. If Limited Partners representing the
requisite Limited Partnership Interests present to the General Partners a
statement requesting a Partnership meeting, the General Partners shall fix a
date for such meeting and shall, within twenty (20) days after receipt of such
statement, notify all of the Limited Partners of the date of such meeting and
the purpose for which it has been called. Unless otherwise specified, all
meetings of the Partnership shall be held at 2:00 P.M. at the office of the
Partnership, upon not less than ten (10) and not more than sixty (60) days
written notice. At any meeting of the Partnership, Limited Partners may vote in
person or by proxy. A majority of the Limited Partners, present in person or by
proxy, shall constitute a quorum at any Partnership meeting. Any question
relating to the Partnership which may be considered and acted upon by the
Limited Partners hereunder may be considered and acted upon by vote at a
Partnership meeting, and any consent required to be in writing shall be deemed
given by a vote by written ballot. Except as expressly provided above,
additional meeting and voting procedures shall be in conformity with Section
1563 of the California Corporations Code, as amended.
4.9 Limited Liability of Limited Partners. Units are non-assessable, and no
Limited Partner shall be personally liable for any of the expenses, liabilities,
or obligations of the Partnership or for any of the losses thereof beyond the
amount of such Limited Partners' capital contribution to the Partnership and
such Limited Partners' share of any undistributed net income and gains of the
Partnership, provided, that any return of capital to Limited Partners (plus
interest at the legal rate on any such amount from the date of its return) will
remain liable for the payment of Partnership debts existing on the date of such
return of capital; and, provided further, that such Limited Partner shall be
obligated upon demand by the General Partners to pay the Partnership cash equal
to the amount of any deficit remaining in his Capital Account upon winding up
and termination of the Partnership.
4.10 Representation of Partnership. Each of the Limited Partners hereby
acknowledges and agrees that the attorneys representing the Partnership and the
General Partners and their Affiliates do not represent and shall not be deemed
under the applicable codes of professional responsibility to have represented or
be representing any or all of the Limited Partners in any respect at any time.
Each of the Limited Partners further acknowledges and agrees that such attorneys
shall have no obligation to furnish the Limited Partners with any information or
documents obtained, received or created in connection with the representation of
the Partnership, the General Partners and/or their Affiliates.
ARTICLE 5
PROFITS AND LOSSES; CASH DISTRIBUTIONS
5.1 Income and Losses. All Income and Losses of the Partnership shall be
credited to and charged against the Partners in proportion to their respective
"Partnership Interests", as hereafter defined. The Partnership Interest of the
General Partners shall at all times be a total of one percent (1%), to be shared
equally among them and the Partnership Interest of the Limited Partners
collectively shall be ninety-nine percent (99%), which shall be allocated among
them according to their respective Limited Partnership Interests. Income and
Losses realized by the Partnership during any month shall be allocated to the
Partners as of the close of business on the last day of each calendar month, in
accordance with their respective Limited Partnership Interests and in proportion
to the number of days during such month that they owned such Limited Partnership
Interests, without regard to Income and Losses realized with respect to time
periods within such month.
5.2 Cash Earnings. Earnings as of the close of business on the last day of
each calendar month shall be allocated among the Partners in the same proportion
as Income and Losses as described in Section 5.1 above. Earnings allocable to
those Limited Partners who elect to receive cash distributions as described
below shall be distributed to them in cash as soon as practicable after the end
of each calendar month. The General Partners' allocable share of Earnings shall
also be distributed concurrently with cash distributions to Limited Partners.
Earnings allocable to those Limited Partners who elected to receive additional
Units shall be retained by the Partnership and credited to their respective
Capital Accounts as of the first day of the succeeding calendar month. Earnings
to Limited Partners shall be distributed only to those Limited Partners who
elect in writing, upon their initial subscription for the purchase of Units or
after three (3) years to receive such distributions during the term of the
Partnership. Each Limited Partner's decision whether to receive such
distributions shall be irrevocable, except as set forth in paragraph 4.3 above.
5.3 Cash Distributions Upon Termination. Upon dissolution and termination
of the Partnership, Cash Available for Distribution shall thereafter be
distributed to Partners in accordance with the provisions of Section 9.3 below.
<PAGE>
5.4 Special Allocation Rules.
(a) For purposes of this Agreement, a loss or allocation (or item thereof)
is attributable to non-recourse debt which is secured by Partnership property to
the extent of the excess of the outstanding principal balance of such debt
(excluding any portion of such principal balance which would not be treated as
an amount realized under Internal Revenue Code Section 1001 and Paragraph (a) of
Section 1.1001-2 if such debt were foreclosed upon over the adjusted basis of
such property. This excess is herein defined as "Minimum Gain (whether taxable
as capital gain or as ordinary income) as more explicitly set forth in Treasury
Regulation T.704 l(b)(4)(iv)(c). Notwithstanding any other provision of Article
V, the allocation of loss or deduction (or item thereof, attributable to
non-recourse debt which is secured by Partnership property will be allowed only
to the extent that such allocation does not cause the sum of the deficit capital
account balances of the Limited Partners receiving such allocations to exceed
the minimum gain determined at the end of the Partnership able year to which the
allocations relate. The balance of such losses shall be allocated to the General
Partners. Any Limited Partner with a deficit capital account balance resulting
in whole or in part from allocations of loss or deduction (or item thereof)
attributable to non-recourse debt which is secured by Partnership property
shall, to the extent possible, be allocated income or gain (or item thereof) in
an amount not less than the minimum gain at a time no later than the time at
which the minimum gain is reduced below the sum if such deficit capital account
balances. This section is intended and shall be interpreted to comply with the
requirements of Treasury Regulation Section 1.704-l(b)(4)(iv)(e).
(b) In the event any Limited Partner receives any adjustments, allocations
or distributions, not covered by Section 75.4(a), so as to result in a deficit
capital account, items of Partnership income and gain shall be specially
allocated to such Limited Partners in an amount and manner sufficient to
eliminate the deficit balances in their Capital Accounts created by such
adjustments, allocations or distributions as quickly as possible. This Section
shall operate a qualified income offset as utilized in Treasury Regulation
Section 1.704-1(b)(23)(ii)(d).
(c) Syndication expenses for any fiscal year or other period shall be
specially allocated to the Limited Partners in proportion to their Units,
provided that if additional Limited Partners are admitted to the Partnership on
different dates, all Syndication Expenses shall be divided among the Persons who
own Units from time to time so that, to the extent possible, the cumulative
Syndication Expenses allocated with respect to each Unit at any time is the same
amount. In the event the General Partners shall determine that such result is
not likely to be achieved through future allocations of Syndication Expenses,
the General Partners may allocate a portion of Net Income or Losses so as to
achieve the same effect on the Capital Accounts of the Unit Holders,
notwithstanding any other provision of this Agreement.
(d) For purposes of determining the Net Income, Net Losses, or any other
items allocable to any period, Net Income, Net Losses, and any such other items
shall be determined on a daily, monthly, or other basis, as determined by the
General Partners using any permissible method under Code Section 706 and the
Treasury Regulations thereunder.
(e) Notwithstanding Section 5.1 and 5.2 hereof, (i) Net Losses allocable to
the period prior to the admission of any additional Limited Partners pursuant to
Section 4.2(b) and (e) hereof shall be allocated 99% to the General Partners and
1% to the Initial Limited Partner and Net Income during that same period, if
any, shall be allocated to the General Partners, and (ii) Profits or Losses
allocable to the period commencing with the admission of any additional such
Limited Partners and all subsequent periods shall be allocated pursuant to
Section 5.1.
(f) Except as otherwise provided in this Agreement, all items of
Partnership income, gain, loss, deduction, and any other allocations not
otherwise provided for shall be divided among the Partners in the same
proportions as they share Net Income or Net Losses, as the case may be, for the
year.
5.5 704(c) Allocations. In accordance with Code 704(c) and the Treasury
Regulations thereunder income, gain, loss, and deduction with respect to any
property contributed to the capital of the Partnership shall, solely for tax
purposes, be allocated among the Partners so as to take account of any variation
between the adjusted basis of such property to the Partnership for federal
income tax purposes and its initial fair market value.
Any elections or other decisions relating to such allocations shall be made
by the General Partners in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 5.5 are solely
for purposes of federal, state, and local taxes and shall not affect, or in any
way be taken into account in computing, any Person's Capital Account or share of
Profits, Losses, other items, or distributions pursuant to any provision of this
Agreement.
5.6 Intent of Allocations. It is the intent of the Partnership that this
Agreement comply with the safe harbor test set out in Treasury Regulation
Sections 1.704-1(b)(2)(ii)(D) and 1.704-l(b)(4)(iv)(D) and the requirements of
those Sections, including the qualified income offset and minimum gain
chargeback, which are hereby incorporated by reference. If, for whatever
reasons, the Partnership is advised by counsel or its accountants that the
allocation provisions of this Agreement are unlikely to be respected for federal
income tax purposes, the General Partners are granted the authority to amend the
allocation provisions of this Agreement, to the minimum extent deemed necessary
by counsel or its accountants to effect the plan of Allocations and
Distributions provided in this Agreement. The General Partners shall have the
discretion to adopt and revise rules, conventions and procedures as it believes
appropriate with respect to the admission of Limited Partners to reflect
Partners' interests in the Partnership at the close of the years.
5.7 Guaranteed Payment for Offering Period. The Limited Partners shall
receive a guaranteed payment from the Earnings of the Partnership during the
Guaranteed Payment Period. The Guaranteed Payment for Offering Period,
calculated on a monthly basis, shall be equal to the greater of (i) the
Partnership's Earnings or (ii) the interest rate established by the Monthly
Weighted Average Cost of Funds for the 11th District Savings Institutions, as
announced by the Federal Home Loan Bank of San Francisco during the last week of
the preceding month, plus two points, up to a maximum interest rate of 12%. The
Weighted Average Cost of Funds is derived from the interest paid on savings
accounts, Federal Home Loan Bank advances, and other borrowed money adjusted for
valuation in the number of days in each month. The adjustment factors are 1.086
for February, 1.024 for 30 day months and 0.981 for 31 day months. As of the
date of the Prospectus the Monthly Weighted Average Cost of Funds for the 11th
District as announced August 30, 1996, for the period ended May 30, 1996, and in
effect until September 30, 1996, is 4.819%. The Guaranteed Payment Period is the
period commencing on the day a Limited Partner is admitted to the Partnership
and ending three months after the Offering Termination Date. To the extent the
interest rate to be paid is in excess of the Partnership's Earnings, the
Guaranteed Payment for Offering Period shall be payable by the General Partners
out of a Capital Contribution, to the Partnership and/or fees payable to the
General Partners or Redwood Mortgage which are lowered or waived.
Amounts paid pursuant to this Section 5.7 are intended to constitute
guaranteed payments within the meaning of I.R.C. Code Section 707(c) and shall
not be treated as distributions for purposes of computing the recipient's
Capital Accounts. In the event the Partnership is unable to make any payments
required to be made pursuant to this Section 5.7, the General Partners shall
promptly make additional Capital Contributions sufficient to enable the
Partnership to make such payments on a timely basis; provided however, that the
General Partners shall not be obligated to make such Capital Contribution if
such amounts would be subject to claims of creditors such that the guaranteed
payments would not be available to be made to the Limited Partners. In such
event, the General Partners shall pay the interest out of its fees as set forth
above.
ARTICLE 6
BOOKS AND RECORDS, REPORTS AND RETURNS
6.1 Books and Records. The General Partners shall cause the Partnership to
keep the following:
(a) Complete books and records of account in which shall be entered fully
and accurately all transactions and other matters relating to the Partnership.
(b) A current list setting forth the full name and last known business or
residence address of each Partner which shall be listed in alphabetical order
and stating his respective Capital Contribution to the Partnership and share in
Profits and Losses.
(c) A copy of the Certificate of Limited Partnership and all amendments
thereto.
(d) Copies of the Partnership's federal, state and local income tax returns
and reports, if any, for the six (6) most recent years.
(e) Copies of this Agreement, including all amendments thereto, and the
financial statements of the Partnership for the three (3) most recent years.
All such books and records shall be maintained at the Partnership's
principal place of business and shall be available for inspection and copying
by, and at the sole expense of, any Partner, or any Partner's duly authorized
representatives, during reasonable business hours.
<PAGE>
6.2 Annual Statements. The General Partners shall cause to be prepared at
least annually, at Partnership expense, financial statements prepared in
accordance with generally accepted accounting principles and accompanied by a
report thereon containing an opinion of an independent certified public
accounting firm. The financial statements will include a balance sheet,
statements of income or loss, partners' equity, and changes in financial
position. The General Partners shall have prepared at least annually, at
Partnership expense: (i) a statement of Cash Flow; (ii) Partnership information
necessary in the preparation of the Limited Partners' federal and state income
tax returns; (iii) a report of the business of the Partnership; (iv) a statement
as to the compensation received by the General Partners and their Affiliates,
during the year from the Partnership which shall set forth the services rendered
or to be rendered by the General Partners and their Affiliates and the amount of
fees received; and (v) a report identifying distributions from (a) Earnings of
that year, (b) Earnings of prior years, (c) Working Capital Reserves and other
sources, and (d) a report on the costs reimbursed to the General Partners, which
allocation shall be verified by independent public accountants in accordance
with generally accepted auditing standards. Copies of the financial statements
and reports shall be distributed to each Limited Partner within 120 days after
the close of each taxable year of the Partnership; provided, however, all
Partnership information necessary in the preparation of the Limited Partners'
federal income tax returns shall be distributed to each Limited Partner not
later than 90 days after the close of each fiscal year of the Partnership.
6.3 Semi-Annual Report. Until the Partnership is registered under Section
12(g) of the Securities Exchange Act of 1934, the General Partners shall have
prepared, at Partnership expense, a semi-annual report covering the first six
months of each fiscal year, commencing with the six-month period ending after
the Initial Closing Date, and containing unaudited financial statements (balance
sheet, statement of income or loss and statement of Cash Flow) and a statement
of other pertinent information regarding the Partnership and its activities
during the six-month period. Copies of this report shall be distributed to each
Limited Partner within 60 days after the close of the six-month period.
6.4 Quarterly Reports. The General Partners shall cause to be prepared
quarterly, at Partnership Expense: (i) a statement of the compensation received
by the General Partners and Affiliates during the quarter from the Partnership,
which statement shall set forth the services rendered by the General Partners
and Affiliates and the amount of fees received, and (ii) other relevant
information. Copies of the statements shall be distributed to each Limited
Partner within 60 days after the end of each quarterly period. The information
required by Form 10-Q (if required to be filed with the Securities and Exchange
Commission) will be supplied to each Limited Partner within 60 days of each
quarterly period. If the Partnership is registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended, the General Partners shall cause to
be prepared, at Partnership expense, a quarterly report for each of the first
three quarters in each fiscal year containing unaudited financial statements
(consisting of a balance sheet, a statement of income or loss and a statement of
Cash Flow) and a statement of other pertinent information regarding the
Partnership and its activities during the period covered by the report. Copies
of the statements and other pertinent information shall be distributed to each
Limited Partner within 60 days after the close of the quarter covered by the
report of the Partnership. The quarterly financial statements shall be
accompanied by the report thereon, if any, of the independent accountants
engaged by the Partnership or, if there is no such report, the certificate of
the General Partners that the financial statements were prepared without audit
from the books and records of the Partnership. Copies of the financial
statements, if any, filed with the Securities and Exchange Commission shall be
distributed to each Limited Partner within 60 days after the close of the
quarterly period covered by the report of the Partnership.
6.5 Filings. The General Partners, at Partnership expense, shall cause the
income tax returns for the Partnership to be prepared and timely filed with the
appropriate authorities. The General Partners, at Partnership expense, shall
also cause to be prepared and timely filed, with appropriate federal and state
regulatory and administrative bodies, all reports required to be filed with
those entities under then current applicable laws, rules and regulations. The
reports shall be prepared by the accounting or reporting basis required by the
regulatory bodies. Any Limited Partner shall be provided with a copy of any of
the reports upon request without expense to him. The General Partners, at
Partnership expense, shall file, with the securities administrators for the
various states in which this Partnership is registered, as required by such
states, a copy of each report referred to this Article VI.
6.6 Suitability Requirements. The General Partners, at Partnership expense,
shall maintain for a period of at least four years a record of the information
obtained to indicate that a Limited Partner complies with the suitability
standards set forth in the Prospectus.
6.7 Fiscal Matters.
(a) Fiscal Year. The Partnership shall adopt a fiscal year beginning on the
first day of January of each year and ending on the last day of December;
provided, however, that the General Partners in their sole discretion may,
subject to approval by the Internal Revenue Service and the applicable state
taxing authorities at any time without the approval of the Limited Partners
change the Partnership's fiscal year to a period to be determined by the General
Partners.
<PAGE>
(b) Method of Accounting. The accrual method of accounting shall be used
for both income tax purposes and financial reporting purposes.
(c) Adjustment of Tax Basis. Upon the transfer of an interest in the
Partnership, the Partnership may, at the sole discretion of the General
Partners, elect pursuant to Section 754 of the Internal Revenue Code of 1986, as
amended, to adjust the basis of the Partnership property as allowed by Sections
734(b) and 743(b) thereof.
6.8 Tax Matters Partner. In the event the Partnership is subject to
administrative or judicial proceedings for the assessment or collection of
deficiencies for federal taxes for the refund of overpayments of federal taxes
arising out of a Partner's distributive share of profits, Michael R. Burwell,
for so long as he is a General Partner, shall act as the Tax-Matters Partner
("TMP") and shall have all the powers and duties assigned to the TMP under
Sections 6221 through 6232 of the Code and the Treasury Regulations thereunder.
The Partners agree to perform all acts necessary under Section 6231 of the Code
and Treasury Regulations thereunder to designate Michael R. Burwell as the TMP.
ARTICLE 7
TRANSFER OF PARTNERSHIP INTERESTS
7.1 Interest of General Partners. A successor or additional General Partner
may be admitted to the Partnership as follows:
(a) With the consent of all General Partners and a Majority of the Limited
Partners, any General Partner may at any time designate one or more Persons to
be successors to such General Partner or to be additional General Partners, in
each case with such participation in such General Partner's Partnership Interest
as they may agree upon, provided that the Limited Partnership Interests shall
not affected thereby; provided, however, that the foregoing shall be subject to
the provisions of Section 9.1(d) below, which shall be controlling in any
situation to which such provisions are applicable.
(b) Upon any sale or transfer of a General Partner's Partnership Interest,
the successor General Partner shall succeed to all the powers, rights, duties
and obligations of the assigning General Partner hereunder, and the assigning
General Partner shall thereupon be irrevocably released and discharged from any
further liabilities or obligations of or to the Partnership or the Limited
Partners accruing after the date of such transfer. The sale, assignment or
transfer of all or any portion of the outstanding stock of a corporate General
Partner, or of any interest therein, or an assignment of a General Partner's
Partnership Interest for security purposes only, shall not be deemed to be a
sale or transfer of such General Partner's Partnership interest subject to the
provisions of this Section 7.1.
(c) In the event that all or any one of the initial General Partners are
removed by the vote of a majority of Limited Partners and a successor or
additional General Partner(s) is designated pursuant to Section 3.10, prior to a
Person's admission as a successor or additional General Partner pursuant to this
Section 7.1, such Person shall execute in writing (i) acknowledging that Redwood
Mortgage, an Affiliate of the General Partners, has been repaying the Formation
Loans, which are discussed in Section 10.9, with the proceeds it receives from
loan brokerage commissions on Mortgage Investments, fees received from the early
withdrawal penalties and fees for other services paid by the Partnership, and
(ii) agreeing that if such successor or additional General Partner(s) begins
using the services of another mortgage loan broker or loan servicing agent, then
Redwood Mortgage shall immediately be released from all further obligations
under the Formation Loans (except for a proportionate share of the principal
installment due at the end of that year, prorated according to the days
elapsed).
7.2 Transfer of Limited Partnership Interest. No assignee of the whole or
any portion of a Limited Partnership Interest in the Partnership shall have the
right to become a substituted Limited Partner in place of his assignor, unless
the following conditions are first met.
(a) The assignor shall designate such intention in a written instrument of
assignment, which shall be in a form and substance reasonably satisfactory to
the General Partners;
(b) The written consent of the General Partners to such substitution shall
be obtained, which consent shall not be unreasonably withheld, but which, in any
event, shall not be given if the General Partners determine that such sale or
transfer may jeopardize the continued ability of the Partnership to qualify as a
"partnership" for federal income tax purposes or that such sale or transfer may
violate any applicable securities laws (including any investment suitability
standards);
(c) The assignor and assignee named therein shall execute and acknowledge
such other instruments as the General Partners may deem necessary to effectuate
such substitution, including, but not limited to, a power of attorney with
provisions more fully described in Sections 2.8 and 2.9 above;
(d) The assignee shall accept, adopt and approve in writing all of the
terms and provisions of this Agreement as the same may have been amended;
(e) Such assignee shall pay or, at the election of the General Partners,
obligate himself to pay all reasonable expenses connected with such
substitution, including but not limited to reasonable attorneys' fees associated
therewith; and
The Partnership has received, if required by the General Partners, a legal
opinion satisfactory to the General Partners that such transfer will not violate
the registration provisions of the Securities Act of 1933, as amended, which
opinion shall be furnished at the Limited Partner's expense.
7.3 Further Restrictions on Transfers. Notwithstanding any provision to the
contrary contained herein, the following restrictions shall also apply to any
and all proposed sales, assignments and transfer of Limited Partnership
Interests, and any proposed sale, assignment or transfer in violation of same to
void ab initio.
(a) No Limited Partner shall make any transfer or assignment of all or any
part of his Limited Partnership Interest if said transfer or assignment would,
when considered with all other transfers during the same applicable twelve month
period, cause a termination of the Partnership for federal or California state
income tax purposes.
(b) Instruments evidencing a Limited Partnership Interest shall bear and be
subject to legend conditions in substantially the following forms:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OR CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
(c) No Limited Partner shall make any transfer or assignment of all or any
of his Limited Partnership Interest if the General Partners determine such
transfer or assignment would result in the Partnership being classified as a
"publicly traded partnership" with the meaning of Section 7704(b) of the Code or
any regulations or rules promulgated thereunder.
ARTICLE 8
WITHDRAWAL FROM PARTNERSHIP
8.1 Withdrawal by Limited Partners. No Limited Partner shall have the right
to withdraw from the Partnership, receive cash distributions or otherwise obtain
the return of all or any portion of his Capital Account balance for a period of
one year after such Limited Partner's initial purchase of Units, except for
monthly, quarterly or annual distributions of Cash Available for Distribution,
if any, to which such Limited Partner may be entitled pursuant to Section 5.2
above. Withdrawal after a minimum one year holding period and before the five
year holding period as set forth below shall be permitted in accordance with
subsection (a) below. If a Limited Partner elects to withdraw either after the
one (1) year holding period or the five (5) year withholding period, he will
continue to receive distributions or have those Earnings compounded depending
upon his initial election, based upon the balance of his capital account during
the withdrawal period. Limited Partners may also withdraw after a five year
holding period in accordance with subsection b(i) and (ii). A Limited Partner
may withdraw or partially withdraw from the Partnership upon the following
terms:
(a) A Limited Partner who desires to withdraw from the Partnership after
the expiration of the above referenced one year period shall give written notice
of withdrawal ("Notice of Withdrawal") to the General Partners, which Notice of
Withdrawal shall state the sum or percentage interests to be withdrawn. Subject
to the provisions of subsections (e) and (f) below, such Limited Partner may
liquidate part or all of his entire Capital Account in four equal quarterly
installments beginning the quarter following the quarter in which the Notice of
Withdrawal is given, provided that such notice was received thirty (30) days
prior to the end of the quarter. An early withdrawal under this subsection (a)
shall be subject to a 10% early withdrawal penalty applicable to the sum
withdrawn as stated in the Notice of Withdrawal. The 10% penalty shall be
subject to and payable upon the terms set forth in subsection (c) below.
<PAGE>
(b) A Limited Partner who desires to withdraw from the Partnership after
the expiration of the above referenced five year period shall give written
notice of withdrawal ("Notice of Withdrawal") to the General Partners, and
subject to the provisions of subsections (e) and (f) below such Limited
Partner's Capital Account shall be liquidated as follows:
(i) Except as provided in subsection (b)(ii) below, the Limited Partner's
Capital Account shall be liquidated in twenty (20) equal quarterly installments
each equal to 5% of the total Capital Account beginning the calendar quarter
following the quarter in which the Notice of Withdrawal is given, provided that
such notice is received thirty (30) days prior to the end of the preceding
quarter. Upon approval by the General Partners, the Limited Partner's Capital
Account may be liquidated upon similar terms over a period longer than twenty
(20) equal quarterly installments.
(ii) Notwithstanding subsection (b)(i) above, any Limited Partner may
liquidate part or all of his entire outstanding Capital Account in four equal
quarterly installments beginning of the calendar quarter following the preceding
quarter in which Notice of Withdrawal is given, provided that such notice was
received thirty (30) days prior to the end of the preceding quarter. An early
withdrawal under this subsection 8.1(b)(ii) shall be subject to a 10% early
withdrawal penalty applicable to any sums prior to the time when such sums could
have been withdrawn pursuant to the withdrawal provisions set forth in
subsection (a)(i) above.
(c) The 10% early withdrawal penalty will be deducted pro rata from the
Limited Partner's Capital Account. The 10% early withdrawal penalty will be
received by the Partnership, and a portion of the sums collected as such early
withdrawal penalty shall be applied by the Partnership toward the next
installment(s) of principal under the Formation Loan owed to the Partnership by
Redwood Mortgage, an Affiliate of the General Partners and any successor firm,
as described in Section 10.9 below. This portion shall be determined by the
ratio between the initial amount of the Formation Loan and the total amount of
the organizational and syndication costs incurred by the Partnership in this
offering of Units. The balance of such early withdrawal penalties shall be
retained by the Partnership for its own account. After the Formation Loan has
been paid, the 10% early withdrawal penalty will be used to pay the Continuing
Servicing Fee, as set forth in Section 10.13 below. The balance of such early
withdrawal penalties shall be retained by the Partnership for its own account.
(d) Commencing with the end of the calendar month in which such Notice of
Withdrawal is given, and continuing on or before the twentieth day after the end
of each month thereafter, any Cash Available for Distribution allocable to the
Capital Account (or portion thereof) with respect to which Notice of Withdrawal
has been given shall also be distributed in cash to the withdrawing Limited
Partner in the manner provided in Section 5.2 above.
(e) During the liquidation period described in subsections 8.1(a) and (b),
the Capital Account of a withdrawing Limited Partner shall remain subject to
adjustment as described in Section 1.3 above. Any reduction in said Capital
Account by reason of an allocation of Losses, if any, shall reduce all
subsequent liquidation payments proportionately. In no event shall any Limited
Partner receive cash distributions upon withdrawal from the Partnership if the
effect of such distribution would be to create a deficit in such Limited
Partner's Capital Account.
(f) Payments to withdrawing Limited Partners shall at all times be subject
to the availability of sufficient cash flow generated in the ordinary course of
the Partnership's business, and the Partnership shall not be required to
liquidate outstanding Mortgage Investments prior to their maturity dates for the
purposes of meeting the withdrawal requests of Limited Partners. For this
purpose, cash flow is considered to be available only after all current
Partnership expenses have been paid (including compensation to the General
Partners and Affiliates) and adequate provision has been made for the payment of
all monthly or annual cash distributions on a pro rata basis which must be paid
to Limited Partners who elected to receive such distributions upon subscription
for Units pursuant to Section 4.3 or who changed their initial election to
compound Earnings as set forth in Section 4.3. Furthermore, no more than 20% of
the total Limited Partners' Capital Accounts outstanding for the beginning of
any calendar year shall be liquidated during any calendar year. Notwithstanding
the 20% limitation, the General Partners shall have the discretion to further
limit the percentage of the total Limited Partners' Capital Accounts that may be
withdrawn in order to comply with any Regulations to be enacted pursuant to
Section 7704 of the Code and the safe harbor provisions set forth in Notice
88-75 to avoid the Partnership being taxed as a corporation. If Notices of
Withdrawal in excess of these limitations are received by the General Partners,
the priority of distributions among Limited Partners shall be determined as
follows: first, to those Limited Partners withdrawing Capital Accounts according
to the 20 quarter or longer installment liquidation period described under
subsection (b)(i) above, then to ERISA plan Limited Partners withdrawing Capital
Accounts under subsection (b)(ii) above, then to all other Limited Partners
withdrawing Capital Accounts under subsection (b)(ii) above, and finally to all
other Limited Partners withdrawing Capital Accounts under subsection (a) above.
<PAGE>
8.2 Retirement by General Partners. Any one or all of the General Partners
may withdraw ("retire") from the Partnership upon not less than six (6) months
written notice of the same to all Limited Partners. Any retiring General Partner
shall not be liable for any debts, obligations or other responsibilities of the
Partnership or this Agreement arising after the effective date of such
retirement.
8.3 Payment to Terminated General Partner. If the business of the
Partnership is continued as provided in Section 9.1(d) or 9.1(e) below upon the
removal, retirement, death, insanity, dissolution, or bankruptcy of a General
Partner, then the Partnership shall pay to such General Partner, or his/its
estate, a sum equal to such General Partner's outstanding Capital Account as of
the date of such removal, retirement, death, insanity, dissolution or
bankruptcy, payable in cash within thirty (30) days after such date. If the
business of the Partnership is not so continued, then such General Partner shall
receive from the Partnership such sums as he may be entitled to receive in the
course of terminating the Partnership and winding up its affairs, as provided in
Section 9.3 below.
ARTICLE 9 DISSOLUTION OF THIS PARTNERSHIP; MERGER OF THE
PARTNERSHIP
9.1 Events Causing Dissolution. The Partnership shall dissolve upon
occurrence of the earlier of the following events:
(a) Expiration of the term of the Partnership as stated in Section 2.7
above.
(b) The affirmative vote of a majority of the Limited Partners.
(c) The sale of all or substantially all of the Partnership's assets;
provided, for purposes of this Agreement the term "substantially all of the
Partnership's assets" shall mean assets comprising not less than seventy percent
(70%) of the aggregate fair market value of the Partnership's total assets as of
the time of sale.
(d) The retirement, death, insanity, dissolution or bankruptcy of a General
Partner unless, within ninety (90) days after any such event (i) the remaining
General Partners, if any, elect to continue the business of the Partnership, or
(ii) if there are no remaining General Partners, all of the Limited Partners
agree to continue the business of the Partnership and to the appointment of a
successor General Partner who executes a written acceptance of the duties and
responsibilities of a General Partner hereunder.
(e) The removal of a General Partner, unless within ninety (90) days after
the effective date of such removal (i) the remaining General Partners, if any,
elect to continue the business of the Partnership, or (ii) if there are no
remaining General Partners, a successor General Partner is approved by a
majority of the Limited Partners as provided in Section 3.7 above, which
successor executes a written acceptance as provided therein and elects to
continue the business of the Partnership.
(f) Any other event causing the dissolution of the Partnership under the
laws of the State of California.
9.2 Winding Up and Termination. Upon the occurrence of an event of
dissolution, the Partnership shall immediately be terminated, but shall continue
until its affairs have been wound up. Upon dissolution of the Partnership,
unless the business of the Partnership is continued as provided above, the
General Partners will wind up the Partnership's affairs as follows:
(a) No new Mortgage Investments shall be made or purchased;
(b) Except as may be agreed upon by a majority of the Limited Partners in
connection with a merger or consolidation described in Sections 9.5, 9.6 or 9.7,
the General Partners shall liquidate the assets of the Partnership as promptly
as is consistent with recovering the fair market value thereof, either by sale
to third parties or by servicing the Partnership's outstanding Mortgage
Investments in accordance with their terms; provided, however, the General
Partners shall liquidate all Partnership assets for the best price reasonably
obtainable in order to completely wind up the Partnership's affairs within five
(5) years after the date of dissolution;
(c) Except as may be agreed upon by a majority of the Limited Partners in
connection with a merger or consolidation described in Sections 9.5, 9.6 or 9.7,
all sums of cash held by the Partnership as of the date of dissolution, together
with all sums of cash received by the Partnership during the winding up process
from any source whatsoever, shall be distributed in accordance with Section 9.3
below.
<PAGE>
9.3 Order of Distribution of Assets. In the event of dissolution as
provided in Section 9.1 above, the cash of the Partnership shall be distributed
as follows:
(a) All of the Partnership's debts and liabilities to persons other than
Partners shall be paid and discharged;
(b) All of the Partnership's debts and liabilities to Partners shall be
paid and discharged;
(c) The balance of the cash of the Partnership shall be distributed to the
Partners in proportion to their respective outstanding Capital Accounts.
Upon dissolution, each Limited Partner shall look solely to the assets of
the Partnership for the return of his Capital Contribution, and if the
Partnership assets remaining after the payment or discharge of the debts and
liabilities of the Partnership is insufficient to return the Capital
Contribution of each Limited Partner, such Limited Partner shall have no
recourse against the General Partners or any other Limited Partner. The
winding-up of the affairs of the Partnership and the distribution of its assets
shall be conducted exclusively by the General Partners. It is hereby authorized
to do any and all acts and things authorized by law for these purposes. In the
event of insolvency, dissolution, bankruptcy or resignation of all of the
General Partners or removal of the General Partners by the Limited Partners, the
winding up of the affairs of the Partnership and the distribution of its assets
shall be conducted by such person or entity as may be selected by a vote of a
majority of the outstanding Units, which person or entity is hereby authorized
to do any and all acts and things authorized by law for such purposes.
9.4 Compliance With Timing Requirements of Regulations. In the event the
Partnership is "liquidated" within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(g), (a) distributions shall be made pursuant to this Article 9
(if such liquidation constitutes a dissolution of the Partnership) or Article 5
hereof (if it does not) to the General Partners and Limited Partners who have
positive Capital Accounts in compliance with Treasury Regulation Section
1.704-1(b)(2)(ii)(b)(2) and (b) if the General Partners' Capital Accounts have a
deficit balance (after giving effect to all contributions, distributions, and
allocations for all taxable years, including the year during which such
liquidation occurs), such General Partners shall contribute to the capital of
the Partnership the amount necessary to restore such deficit balance to zero in
compliance with Treasury Regulation Section 1.704-1(b)(2)(ii)(b)(3);
9.5 Merger or Consolidation of the Partnership. The Partnership's business
may be merged or consolidated with one or more limited partnerships that are
Affiliates of the Partnership, provided the approval of the required percentage
in interest of Partners is obtained pursuant to Section 9.6. Any such merger or
consolidation may be effected by way of a sale of the assets of, or units in,
the Partnership or purchase of the assets of, or units in, another limited
partnership(s), or by any other method approved pursuant to Section 9.6. In any
such merger or consolidation, the Partnership may be either a disappearing or
surviving entity.
9.6 Vote Required. The principal terms of any merger or consolidation
described in Section 9.5 must be approved by the General Partners and by the
affirmative vote of a Majority of the Limited Partners.
9.7 Sections Not Exclusive. Sections 9.5 and 9.6 shall not be interpreted
as setting forth the exclusive means of merging or consolidating the Partnership
in the event that the California Revised Limited Partnership Act, or any
successor statute, is amended to provide a statutory method by which the
Partnership may be merged or consolidated.
ARTICLE 10
TRANSACTIONS BETWEEN THE PARTNERSHIP,
THE GENERAL PARTNERS AND AFFILIATES
10.1 Loan Brokerage Commissions. The Partnership will enter into Mortgage
Investment transactions where the borrower has employed and agreed to compensate
the General Partners or an Affiliate of the General Partners to act as a broker
in arranging the loan. The exact amount of the Loan Brokerage Commissions are
negotiated with prospective borrowers on a case by case basis. It is estimated
that such commissions will be approximately three percent (3%) to six percent
(6%) of the principal amount of each Mortgage Investment made during that year.
The Loan Brokerage Commissions shall be capped at 4% of the Partnership's total
assets per year.
10.2 Loan Servicing Fees. A General Partner or an Affiliate of a General
Partner may act as servicing agent with respect to all Mortgage Investments, and
in consideration for such collection efforts he/it shall be entitled to receive
a monthly servicing fee up to one-eighth of one percent (.125%) of the total
unpaid principal balance of each Mortgage Investment serviced, or such higher
amount as shall be customary and reasonable between unrelated Persons in the
geographical area where the property securing the Mortgage Investment is
located. The General Partners or an Affiliate may lower such fee for any period
of time and thereafter raise it up to the limit set forth above.
<PAGE>
10.3 Escrow and Other Loan Processing Fees. The General Partners or an
Affiliate of a General Partner may act as escrow agent for Mortgage Investments
made by the Partnership, and may also provide certain document preparation,
notarial and credit investigation services, for which services the General
Partners shall be entitled to receive such fees as are permitted by law and as
are generally prevailing in the geographical area where the property securing
the Mortgage Investment is located.
10.4 Asset Management Fee. The General Partners shall receive a monthly fee
for managing the Partnership's Mortgage Investment portfolio and general
business operations in an amount up to 1/32 of one percent (.03125%) of the
total "net asset value" of all Partnership assets (as hereafter defined),
payable on the first day of each calendar month until the Partnership is finally
wound up and terminated. "Net asset value" shall mean total Partner's capital,
determined in accordance with generally accepted accounting principles as of the
last day of the preceding calendar month. The General Partners, in their
discretion, may lower such fee for any period of time and thereafter raise it up
to the limit set forth above.
10.5 Reconveyance Fees. The General Partners may receive a fee from a
borrower for reconveyance of a property upon full payment of a loan in an amount
as is generally prevailing in the geographical area where the property is
located.
10.6 Assumption Fees. An Affiliate of the General Partners may receive a
fee payable by a borrower for assuming a loan in an amount equal to a percentage
of the loan or a set fee.
10.7 Extension Fee. An Affiliate of the General Partners may receive a fee
payable by a borrower for extending the loan period in an amount equal to a
percentage of the loan.
10.8 Prepayment and Late Fees. Any prepayment and late fees collected by an
Affiliate of the General Partners in connection with Mortgage Investments shall
be paid by the Affiliate to the Partnership.
10.9 Formation Loans to Affiliate of General Partners. The Partnership may
lend to Redwood Mortgage, an Affiliate of the General Partners, a sum not to
exceed 10% of the total amount of Capital Contributions to the Partnership by
the Limited Partners, the proceeds of which shall be used solely for the purpose
of paying selling commissions. The Formation Loans shall be unsecured and shall
be evidenced by a non-interest bearing promissory note executed by Redwood
Mortgage in favor of the Partnership. The First Formation Loan will be repaid in
ten (10) equal annual installments of principal without interest, commencing on
December 31 of the year in which the offering terminates. The Second Formation
Loan will be repaid as follows: Upon the commencement of this offering, Redwood
Mortgage shall make annual installments of one-tenth of the principal balance of
the Formation loan as of December 31 of each year. Such payment shall be due and
payable by December 31 of the following year with the first payment due by
December 31, 1997, assuming this offering commences in 1996. The principal
balance of the Second Formation Loan will increase as additional sales of Units
are made each year. The amount of the annual installment payment to be made by
Redwood Mortgage during the offering stage, will be determined by the principal
balance of the Second Formation Loan on December 31 of each year. Upon the
completion of this offering the balance of the Second Formation Loan will be
repaid in ten (10) equal annual installments of principal, without interest,
commencing on December 31 of the year following the year this offering
terminates. Redwood Mortgage at its option may prepay all or any part of the
Formation Loans. Redwood Mortgage will repay the Formation Loans principally
from loan brokerage commissions earned on Mortgage Investments, early withdrawal
penalties and other fees paid by the Partnership. Since Redwood Mortgage will
use the proceeds from loan brokerage commissions on Mortgage Investments to
repay the Formation Loans and, with respect to the initial offering of 150,000
Units, for the continued payment of the Continuing Servicing Fees, if all or any
one of the initial General Partners is removed as a General Partner by the vote
thereafter designated, and if such successor or additional General Partner(s)
begins using any other loan brokerage firm for the placement of Mortgage
Investments, Redwood Mortgage will be immediately released from any further
obligation under the Formation Loans (except for a proportionate share of the
principal installment due at the end of that year, pro rated according to the
days elapsed and for the continued payment of the Continuing Servicing Fees with
respect to the initial offering of 150,000 Units.) In addition, if all of the
General Partners are removed, no successor General Partners are elected, the
Partnership is liquidated and Redwood Mortgage is no longer receiving any
payments for services rendered, the debt on the Formation Loans shall be
forgiven and Redwood Mortgage will be immediately released from any further
obligations under the Formation Loans or Continuing Servicing Fees with respect
to the initial offering of 150,000 Units.
<PAGE>
10.10 Sale of Mortgage Investments and Loans Made to General Partners or
Affiliates. The Partnership may sell existing Mortgage Investments to the
General Partners or their Affiliates, but only so long as the Partnership
receives net sales proceeds from such sales in an amount equal to the total
unpaid balance of principal, accrued interest and other charges owing under such
Mortgage Investment, or the fair market value of such Mortgage Investment,
whichever is greater. Notwithstanding the foregoing, the General Partners shall
be under no obligation to purchase any Mortgage Investment from the Partnership
or to guarantee any payments under any Mortgage Investment. Generally, Mortgage
Investments will not be made to the General Partners or their Affiliates.
However, the Partnership may make the Formation Loans to Redwood Mortgage and
may in certain limited circumstances, loan funds to Affiliates to purchase real
estate owned by the Partnership as a result of foreclosure.
10.11 Purchase of Mortgage Investments from General Partners or Affiliates.
The Partnership may purchase existing Mortgage Investments from the General
Partners or Affiliates, provided that the following conditions are met:
(a) At the time of purchase the borrower shall not be in default under the
Mortgage Investment;
(b) No brokerage commissions or other compensation by way of premiums or
discounts shall be paid to the General Partners or their Affiliates by reason of
such purchase; and
(c) If such Mortgage Investment was held by the seller for more than 180
days, the seller shall retain a ten percent (10%) interest in such Mortgage
Investment.
10.12 Interest. Redwood Mortgage shall be entitled to keep interest if any,
earned on the Mortgage Investments between the date of deposit of borrower's
funds into Redwood Mortgage's trust account and date of payment of such funds by
Redwood Mortgage.
10.13 Sales Commissions. The Units are being offered to the public on a
best efforts basis through the Participating Broker-Dealers. The Participating
Broker-Dealers may receive commissions as follows: at the rate of either (5%) or
(9%) (depending upon the investor's election to receive cash distributions or to
compound earnings and acquire additional Units in the Partnership) of the Gross
Proceeds on all of their sales. In no event will the total of all compensation
payable to Participating Broker Dealers, including sales commissions, expense
reimbursements, sales seminars and/or due diligence expenses exceed ten percent
(10%) of the program proceeds received plus an additional (0.5%) for bona fide
due diligence expenses as set forth in Rule 2810 of the NASD Conduct Rules.
Further, in no event shall any individual Participating Broker Dealer receive
total compensation including sales commissions, expense reimbursements, sales
seminar or expense reimbursement exceed (10%) of the gross proceeds of their
sales plus an additional (0.5%) for bona fide due diligence expenses as set
forth in Rule 2810 of the NASD Conduct Rules (the Compensation Limitation).
Sales commissions will not be paid by the Partnership out of the offering
proceeds. All sales commissions will be paid by Redwood Mortgage, an affiliate
of the General Partners, which will also act as the mortgage loan broker for all
Mortgage Investments as set forth in Section 10.7 above. With respect to the
initial offering of 150,000 Units, the Continuing Servicing Fee will be paid by
Redwood Mortgage, but will not be included in the first Formation Loan. The
Partnership will loan to Redwood Mortgage funds in an amount equal to the sales
commissions. With respect to the initial offering of 150,000 Units, Redwood
Mortgage will use the proceeds from loan brokerage commissions on Mortgage
Investments to pay the Continuing Servicing Fees, and if all or any one of the
initial General Partners is removed as a General Partner by the vote thereafter
designated, if such successor or additional General Partner(s) use any other
loan brokerage firm for the placement of Mortgage Investments, Redwood Mortgage
will be immediately released from any further obligation to continue to pay any
Continuing Servicing Fees. In addition, if all of the General Partners are
removed, no successor General Partners are elected, the Partnership is
liquidated and Redwood Mortgage is no longer receiving any payments for services
rendered, Redwood Mortgage will be immediately released from any further
obligation to continue to pay any Continuing Servicing Fee in connection with
the initial offering of 150,000 Units. Units may also be offered or sold
directly by the General Partners for which they will receive no sales
commissions. The Partnership shall reimburse Participating Broker-Dealers for
bona fide due diligence expenses in an amount up to (.5%) of the Gross Proceeds.
<PAGE>
10.14 Reimbursement of Organizational Expenses. The General Partners may be
reimbursed for, or the Partnership may pay directly, all expenses in connection
with the organization or offering of the Units including, without limitation,
attorneys fees, accounting fees, printing costs and other selling expenses
(other than underwriting commissions) in an amount equal to the lesser of ten
percent (10%) of the gross proceeds of the Offering or $1,200,000. The General
Partners may pay, at their election, any offering and organization expenses in
excess of this amount.
10.15 Reimbursement. The Partnership shall reimburse the General Partners
or their Affiliates for the actual cost to the General Partners or their
Affiliates (or pay directly), the cost of goods and materials used for or by the
Partnership and obtained from entities unaffiliated with the General Partners or
their Affiliates. The Partnership shall also pay or reimburse the General
Partners or their Affiliates for the cost of administrative services necessary
to the prudent operation of the Partnership, provided that such reimbursement
will be at the lower of (A) the actual cost to the General Partners or their
Affiliates of providing such services, or (B) 90% of the amount the Partnership
would be required to pay to non affiliated persons rendering similar services in
the same or comparable geographical location. The cost of administrative
services as used in this subsection shall mean the pro rata cost of personnel,
including an allocation of overhead directly attributable to such personnel,
based on the amount of time such personnel spent on such services, or other
method of allocation acceptable to the program's independent certified public
accountant.
10.16 Non-reimbursable Expenses. The General Partners will pay and will not
be reimbursed by the Partnership for any general or administrative overhead
incurred by the General Partners in connection with the administration of the
Partnership which is not directly attributable to services authorized by
Sections 10.16 or 10.17.
10.17 Operating Expenses. Subject to Sections 10.14 and 10.15 and 10.16 all
expenses of the Partnership shall be billed directly to and paid by the
Partnership which may include, but are not limited to: (i) all salaries,
compensation, travel expenses and fringe benefits of personnel employed by the
Partnership and involved in the business of the Partnership. including persons
who may also be employees of the General Partners or Affiliates of the General
Partners, but excluding control persons of either the General Partners or
Affiliates of the General Partners, (ii) all costs of borrowed money, taxes and
assessments on Partnership properties foreclosed upon and other taxes applicable
to the Partnership, (iii) legal, audit, accounting, and brokerage fees, (iv)
printing, engraving and other expenses and taxes incurred in connection with the
issuance, distribution, transfer, registration and recording of documents
evidencing ownership of an interest in the Partnership or in connection with the
business of the Partnership, (v) fees and expenses paid to leasing agents,
consultants, real estate brokers, insurance brokers, and other agents, (vi)
costs and expenses of foreclosures, insurance premiums, real estate brokerage
and leasing commissions and of maintenance of such property, (vii) the cost of
insurance as required in connection with the business of the Partnership, (viii)
expenses of organizing, revising, amending, modifying or terminating the
Partnership, (ix) expenses in connection with Distributions made by the
Partnership, and communications, bookkeeping and clerical work necessary in
maintaining relations with the Limited Partners and outside parties, including
the cost of printing and mailing to such persons certificates for Units and
reports of meetings of the Partnership, and of preparation of proxy statements
and solicitations of proxies in connection therewith, (x) expenses in connection
with preparing and mailing reports required to be furnished to the Limited
Partners for investor, tax reporting or other purposes, or other reports to the
Limited Partners which the General Partners deem to be in the best interests of
the Partnership, (xi) costs of any accounting, statistical or bookkeeping
equipment and services necessary for the maintenance of the books and records of
the Partnership including, but not limited to, computer services and time, (xii)
the cost of preparation and dissemination of the information relating to
potential sale, refinancing or other disposition of Partnership property, (xiii)
costs incurred in connection with any litigation in which the Partnership is
involved, as well as in the examination, investigation or other proceedings
conducted by any regulatory agency with jurisdiction over the Partnership
including legal and accounting fees incurred in connection therewith. (xiv)
costs of any computer services used for or by the Partnership, (xv) expenses of
professionals employed by the Partnership in connection with any of the
foregoing, including attorneys, accountants and appraisers. For the purposes of
Sections 10.17(i), a control person is someone holding a 5% or greater equity
interest in the General Partners or affiliate or a person having the power to
direct or cause the direction of the General Partners or Affiliate, whether
through the ownership of voting securities, by contract or otherwise.
10.18 Deferral of Fees and Expense Reimbursement. The General Partners may
defer payment of any fee or expense reimbursement provided for herein. The
amount so deferred shall be treated as a non-interest bearing debt of the
Partnership and shall be paid from any source of funds available to the
Partnership, including cash available for Distribution prior to the
distributions to Limited Partners provided for in Article 5.
<PAGE>
10.19 Payment upon Termination. Upon the occurrence of a terminating event
specified in Article 9 of the termination of an affiliate's agreement, any
portion of any reimbursement or interest in the Partnership payable according to
the provisions of this Agreement if accrued, but not yet paid, shall be paid by
the Partnership to the General Partners or Affiliates in cash, within thirty
(30) days of the terminating event or termination date set forth in the written
notice of termination.
ARTICLE 11
ARBITRATION
11.1 Arbitration. As between the parties hereto, all questions as to rights
and obligations arising under the terms of this Agreement are subject to
arbitration, including any question concerning any right or duty under the
Securities Act of 1933, the Securities Exchange Act of 1934 and the securities
laws of any state in which Units are offered, and such arbitration shall be
governed by the rules of the American Arbitration Association.
11.2 Demand for Arbitration. If a dispute should arise under this
Agreement, any Partner may within 60 days make a demand for arbitration by
filing a demand in writing for the other.
11.3 Appointment of Arbitrators. The parties may agree upon one arbitrator,
but in the event that they cannot agree, there shall be three, one named in
writing by each of the parties within five (5) days after demand for arbitration
is given and a third chosen by the two appointed. Should either party refuse or
neglect to join in the appointment of the arbitrator(s) or to furnish the
arbitrator(s) with any papers or information demanded, the arbitrator(s) are
empowered by both parties to proceed ex parte.
11.4 Hearing. Arbitration shall take place in San Mateo, California, and
the hearing before the arbitrator(s) of the matter to be arbitrated shall be at
the time and place within said city as is selected by the arbitrator(s). The
arbitrator(s) shall select such time and place promptly after his (or their)
appointment and shall give written notice thereof to each party at least sixty
(60) days prior to the date so fixed. At the hearing any relevant evidence may
be presented by either party, and the formal rules of evidence applicable to
judicial proceedings shall not govern. Evidence may be admitted or excluded in
the sole discretion of the arbitrator(s). Said arbitrator(s) shall hear and
determine the matter and shall execute and acknowledge their award in writing
and cause a copy thereof to be delivered to each of the parties.
11.5 Arbitration Award. If there is only one arbitrator, his decision shall
be binding and conclusive on the parties, and if there are three arbitrators the
decision of any two shall be binding and conclusive. The submission of a dispute
to the arbitrator(s) and the rendering of his (or their) decision shall be a
condition precedent to any right of legal action on the dispute. A judgment
confirming the award of the arbitrator(s) may be rendered by any Court having
Jurisdiction; or such Court may vacate, modify, or correct the award in
accordance with the prevailing sections of California State Law.
11.6 New Arbitrators. If three arbitrators are selected under the foregoing
procedure but two of the three fail to reach an Agreement in the determination
of the matter in question, the matter shall be decided by three new arbitrators
who shall be appointed and shall proceed in the same manner, and the process
shall be repeated until a decision is finally reached by two of the three
arbitrators selected.
11.7 Costs of Arbitration. The costs of such arbitration shall be borne by
the losing party or in such proportions as the arbitrators shall determine.
<PAGE>
ARTICLE 12
MISCELLANEOUS
12.1 Covenant to Sign Documents. Without limiting the power granted by
Sections 2.8 and 2.9, each Partner covenants, for himself and his successors and
assigns, to execute, with acknowledgment or verification, if required, any and
all certificates, documents and other writings which may be necessary or
expedient to form the Partnership and to achieve its purposes, including,
without limitation, the Certificate of Limited Partnership and all amendments
thereto, and all such filings, records or publications necessary or appropriate
laws of any jurisdiction in which the Partnership shall conduct its business.
12.2 Notices. Except as otherwise expressly provided for in this Agreement,
all notices which any Partner may desire or may be required to give any other
Partners shall be in writing and shall be deemed duly given when delivered
personally or when deposited in the United States mail, first-class postage
pre-paid. Notices to Limited Partners shall be addressed to the Limited Partners
at the last address shown on the Partnership records. Notices to the General
Partners or to the Partnership shall be delivered to the Partnership's principal
place of business, as set forth in Section 2.3 above or as hereafter charged as
provided herein. Notice to any General Partner shall constitute notice to all
General Partners.
12.3 Right to Engage in Competing Business. Nothing contained herein shall
preclude any Partner from purchasing or lending money upon the security of any
other property or rights therein, or in any manner investing in, participating
in, developing or managing any other venture of any kind, without notice to the
other Partners, without participation by the other Partners, and without
liability to them or any of them. Each Limited Partner waives any right he may
have against the General Partners for capitalizing on information received as a
consequence of the General Partners management of the affairs of this
Partnership.
12.4 Amendment. This Agreement is subject to amendment by the affirmative
vote of a Majority of the Limited Partners in accordance with Section 4.5;
provided, however, that no such amendment shall be permitted if the effect of
such amendment would be to increase the duties or liabilities of any Partner or
materially change any Partner's interest in Profits, Losses, Partnership assets,
distributions, management rights or voting rights, except as agreed by that
Partner. In addition, and notwithstanding anything to the contrary contained in
this Agreement the General Partners shall have the right to amend this
Agreement, without the vote or consent of any of the Limited Partnership, when:
(a) There is a change in the name of the Partnership or the amount of the
contribution of any Limited Partner;
(b) A Person is substituted as a Limited Partner;
(c) An Additional Limited Partner is admitted;
(d) A Person is admitted as a successor or additional General Partner in
accordance with the terms of this Agreement;
(e) A General Partner retires, dies, files a petition in bankruptcy,
becomes insane or is removed, and the Partnership business is continued by a
remaining or replacement General Partner;
(f) There is a change in the character of the business of the Partnership;
(g) There is a change in the time as stated in the Agreement for the
dissolution of the Partnership, or the return of a Partnership contribution;
<PAGE>
(h) To cure any ambiguity, to correct or supplement any provision which may
be inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under this Agreement which will not be
inconsistent with the provisions of this Agreement;
(i) To delete or add any provision of this Agreement required to be so
deleted or added by the Staff of the Securities and Exchange Commission or by a
State "Blue Sky" Administrator or similar official, which addition or deletion
is deemed by the Administrator or official to be for the benefit or protection
of the Limited Partners;
(j) To elect for the Partnership to be governed by any successor California
statute governing limited partnerships; and
(k) To modify provisions of this Agreement as noted in Sections 1.3 and 5.6
to cause this Agreement to comply with Treasury Regulation Section 1.704-1(b).
The General Partners shall notify the Limited Partners within a reasonable
time of the adoption of any such amendment.
12.5 Entire Agreement. This Agreement constitutes the entire Agreement
between the parties and supersedes any and all prior agreements and
representations, either oral or in writing, between the parties hereto with
respect to the subject matter contained herein.
12.6 Waiver. No waiver by any party hereto of any breach of, or default
under, this Agreement by any other party shall be construed or deemed a waiver
of any other breach of or default under this Agreement, and shall not preclude
any party from exercising or asserting any rights under this Agreement with
respect to any other.
12.7 Severability. If any term, provision, covenant or condition of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the provisions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
12.8 Application of California law; Venue. This Agreement and the
application or interpretation thereof shall be governed, construed, and enforced
exclusively by its terms and by the law of the State of California and the
appropriate Courts in the County of San Mateo, State of California shall be the
appropriate forum for any litigation arising hereunder.
12.9 Captions. Section titles or captions contained in this Agreement are
inserted only as a matter of convenience and for reference and in no way define,
limit, extend or describe the scope of this Agreement.
12.10 Number and Gender. Whenever the singular number is used in this
Agreement and when required by the context, the same shall include the plural,
and the masculine gender shall include the feminine and neuter genders.
12.11 Counterparts. This Agreement may be executed in counterparts, any or
all of which may be signed by a General Partner on behalf of the Limited
Partners as their attorney-in-fact.
12.12 Waiver of Action for Partition. Each of the parties hereto
irrevocably waives during the term of the Partnership any right that it may have
to maintain any action for partition with respect to any property of the
Partnership.
12.13 Defined Terms. All terms used in this Agreement which are defined in
the Prospectus of Redwood Mortgage Investors VIII, dated December 4, 1996 shall
have the meanings assigned to them in said Prospectus, unless this Agreement
shall provide for a specific definition in Article 2.
<PAGE>
12.14 Assignability. Each and all of the covenants, terms, provisions and
arguments herein contained shall be binding upon and inure to the benefit of the
successors and assigns of the respective parties hereto, subject to the
requirements of Article 7.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hand the day
and year first above written.
GENERAL PARTNERS:
--------------------------------------------------
D. Russell Burwell
--------------------------------------------------
Michael R. Burwell
GYMNO CORPORATION
A California Corporation
By:
--------------------------------------------------
D. Russell Burwell, President
LIMITED PARTNERS:
By: Gymno Corporation,
(General Partner and Attorney-in-Fact)
By:
-------------------------------------------------
D. Russell Burwell, President
<PAGE>
SCHEDULE A
LIMITED PARTNERS OF
REDWOOD MORTGAGE INVESTORS VIII,
A California Limited Partnership
Name and Address Date of Admission Capital Contribution
<PAGE>
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
REDWOOD MORTGAGE INVESTORS VIII,
A California Limited Partnership
The undersigned hereby applies to become a Limited Partner in REDWOOD
MORTGAGE INVESTORS VIII, a California limited partnership (the "Partnership"),
and subscribes to purchase the number of Units specified herein in accordance
with the terms and conditions of the Limited Partnership Agreement attached as
Exhibit A to the Prospectus dated December 4, 1996.
1. Representations and Warranties. The undersigned represents and warrants
to the Partnership and its General Partners as follows:
(a) I have received, read and understand the Prospectus dated December 4,
1996, and in making this investment I am relying only on the information
provided therein. I have not relied on any statements or representations
inconsistent with those contained in the Prospectus.
(b) I, or the fiduciary account for which I am purchasing, meet the
applicable suitability standards and financial requirements set forth in the
Prospectus under "INVESTOR SUITABILITY STANDARDS" as they pertain to the state
of my primary residence and domicile.
(c) I am aware that this Subscription may be rejected in whole or in part
by the General Partners in their sole and absolute discretion; that my
investment, if accepted, is subject to certain risks described in part in "RISKS
AND OTHER FACTORS" set forth in the Prospectus; and that there will be no public
market for Units, and accordingly, it may not be possible for me to readily
liquidate my investment in the Partnership.
(d) I have been informed by the Participating Broker-Dealer firm specified
herein, if any, of all pertinent facts relating to the lack of liquidity or
marketability of this investment. I understand that Units may not be sold or
otherwise disposed of without the prior written consent of the General Partners,
which consent may be granted or withheld in their sole discretion, that any
transfer is subject to numerous other restrictions described in the Prospectus
and in the Limited Partnership Agreement, and that if I am a resident of
California or if the transfer occurs in California, any such transfer is also
subject to the prior written consent of the California Commissioner of
Corporations. I have liquid assets sufficient to assure myself that such
purchase will cause me no undue financial difficulties and that I can provide
for my current needs and possible personal contingencies, or if I am the trustee
of a retirement trust, that the limited liquidity of the Units will not cause
difficulty in meeting the trusts obligations to make distributions to plan
participants in a timely manner.
(e) I am of the age of majority (as established in the state in which I am
domiciled) if I am an individual, and in any event, I have full power, capacity,
and authority to enter into a contractual relationship with the Partnership. If
acting in a representative or fiduciary capacity for a corporation, partnership
or trust, or as a custodian, or agent for any person or entity. I have full
power or authority to enter into this Subscription Agreement in such capacity
and on behalf of such corporation, partnership, trust, person or entity;
(f) By virtue of my own investment acumen and experience or financial
advice from my independent advisors (other than a person receiving commissions
by reason of my purchase of Units), I am capable of evaluating the risks and
merits of an investment in the Partnership.
EXHIBIT B
<PAGE>
(g) I am buying the Units solely for my own account, or for the account of
a member or members of my immediate family or in a fiduciary capacity for the
account of another person or entity and not as an agent for another.
(h) I acknowledge and agree that counsel representing the Partnership, the
General Partners and their Affiliates does not represent me and shall not be
deemed under the applicable codes of professional responsibility to have
represented or to be representing me or any of the Limited Partners in any
respect.
(i) If I am buying the Units in a fiduciary capacity or as a custodian for
the account of another person or entity, I have been directed by that person or
entity to purchase the Unit(s), and such person or entity is aware of my
purchase of Units on their behalf, and consents thereto and is aware of the
merits and risks involved in the investment in the Partnership.
By making these representations, the subscriber has not waived any right of
action available under applicable federal or state securities laws.
2. Power of Attorney. The undersigned hereby irrevocably constitutes and
appoints the General Partners, and each of them, either one acting alone, as his
true and lawful attorney-in-fact, with full power and authority for him, and in
his name, place and stead, to execute, acknowledge, publish and file:
(a) The Limited Partnership Agreement, the Certificate of Limited
Partnership and any amendments thereto or cancellations thereof required under
the laws of the State of California;
(b) Any other certificates, instruments, and documents as may be required
by, or may be appropriate under, the laws of any state or other jurisdiction in
which the Partnership is doing or intends to do business; and
(c) Any documents which may be required to effect the continuation of the
Partnership, the admission of an additional or substituted Limited Partner, or
the dissolution and termination of the Partnership.
The power of attorney granted above is a special power of attorney coupled
with an interest, is irrevocable, and shall survive the death or incapacity of
the undersigned or, if the undersigned is a corporation, partnership, trust or
association, the dissolution or termination thereof. The power of attorney shall
also survive the delivery of an assignment of Units by a Limited Partner;
provided, that where the assignee thereof has been approved by the General
Partners for admission to the Partnership as a substituted Limited Partner, such
power of attorney shall survive the delivery of such assignment for the sole
purpose of enabling the General Partners to execute, acknowledge, file and
record any instrument necessary to effect such substitution.
3. Acceptance. This Subscription Agreement will be accepted or rejected by
a General Partner within thirty (30) days of its receipt by the Partnership.
Upon acceptance, this subscription will become irrevocable, and will obligate
the undersigned to purchase the number of Units specified herein, for the
purchase price of $100 per Unit. The General Partners will return a
countersigned copy of this Subscription Agreement to accepted subscribers, which
copy (together with my canceled check) will be evidence of my purchase of Units.
4. Payment of Subscription Price. The full purchase price for Units is $100
per Unit, payable in cash concurrently with delivery of this Subscription
Agreement. I understand that my subscription funds will be held by the General
Partners, until my funds are needed by the Partnership to fund a mortgage
investment or for other proper Partnership purposes, and only then will I
actually be admitted to the Partnership. In the interim, my
<PAGE>
subscription funds will earn interest at passbook savings accounts rates.
If I elect to receive monthly, quarterly or annual cash distributions, then such
interest will be returned to me when I am admitted to the Partnership. If I
elect to allow my share of Partnership income in the form of additional Units
that will be reinvested by the Partnership, then such interest will be invested
in the Partnership in which case I understand that the number of Units I
initially subscribed for will be increased accordingly. If I initially elect to
receive additional Units and reinvest my share of Partnership income, I may
after three (3) years change my election and receive monthly, quarterly or
annual cash distributions. I understand that if I initially elect to receive
monthly, quarterly or annual cash distributions, my election to receive cash
distributions is irrevocable. However, I understand that I may change whether I
receive such distributions on a monthly, quarterly or annual basis.
5. THE UNDERSIGNED AGREES TO INDEMNIFY AND HOLD REDWOOD MORTGAGE INVESTORS
VIII, A CALIFORNIA LIMITED PARTNERSHIP, AND ITS GENERAL PARTNERS AND OTHER
AGENTS AND EMPLOYEES HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS,
LIABILITIES, AND DAMAGES, INCLUDING, WITHOUT LIMITATION, ALL ATTORNEYS' FEES
WHICH SHALL BE PAID AS INCURRED) WHICH ANY OF THEM MAY INCUR, IN ANY MANNER OR
TO ANY PERSON, BY REASON OF THE FALSITY, INCOMPLETENESS OR MISREPRESENTATION OF
ANY INFORMATION FURNISHED BY THE UNDERSIGNED HEREIN OR IN ANY DOCUMENT SUBMITTED
HEREWITH.
6. Signature. The undersigned represents that: (a) I have read the
foregoing and that all the information provided by me is accurate and complete;
and (b) I will notify the General Partners immediately of any material adverse
change in any of the information set forth herein which occurs prior to the
acceptance of my subscription.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
SUBSCRIPTION AGREEMENT
PLEASE READ BOTH SIDES OF THIS AGREEMENT BEFORE SIGNING
- -------------------------------------------------------------------------------
Type Of Ownership: (check one)
1. [ ] SINGLE PERSON (I) 10. [ ](IRA) INDIVIDUAL RETIREMENT ACCOUNT
(Beneficiary & Plan Administrator must sign)
2. [ ] MARRIED PERSON-SEPARATE PROPERTY (I-2)
11. [ ] (SEP) IRA/SEP
(Beneficiary & Plan Administrator must sign)
*3. [ ] COMMUNITY PROPERTY (COM)
12. [ ] ROLLOVER IRA (ROI)
*4. [ ] TENANTS IN COMMON (T) (Beneficiary & Plan Administrator must sign)
(All parties must sign)
13. [ ] KEOGH (H.R.10) (K)
*5. [ ] JOINT TENANTS WITH RIGHTS OF (Custodian signature required)
SURVIVORSHIP (J)
(All parties must sign)
14. [ ] PARTNERSHIP (P)
6. [ ] CORPORATION: Authorized Party must
sign on behalf of the corporation. (C)
15. [ ] NON-PROFIT ORGANIZATION (NP)
7. [ ] TRUST (TR) 16.[ ] CUSTODIAN (CU)
(Trustee signature required) (Custodian signature required)
(Print trustee name(s) here; sign in
signature section) 17.[ ] CUSTODIAN/UGMA (UGM)
[ ] Taxable (TRT)______________ (Custodian signature required)
[ ] Tax Exempt (TRE)_____________
18.[ ] OTHER (Explain)
8. [ ] PENSION PLAN (PP)
(Trustee signature required)
-------------------------
9. [ ] PROFIT SHARING PLAN (PSP)
-------------------------
(Trustee signature required)
-------------------------
* Two or more signatures required. If using Ownership Boxes 7 through 18,
Complete Sections 1 through 6.
===============================================================================
1. INVESTOR NAME AND ADDRESS
Type or print your name(s) exactly as they should appear in the account
records of the Partnership. Include the name of the trustee, custodian and
administrator when applicable. All checks and correspondence will go to this
address unless another address is listed in Sections 2 or 5 below.
---------------------------------------
Individual Name
----------------------------------------
(Additional Name(s) if held in joint
tenancy, community property,
tenants-in-common)
<PAGE>
----------------------------------------
Street Address
--------------- ----------- -------------
City State Zip Code
-------------------- ----------------
Daytime Phone Number Home Phone Number
-------------------- ------------------
Taxpayer ID# Social Security #
A social security number or taxpayer identification number is required for
each individual investor. (For IRAs, Keoghs (HR10) and Qualified Plans, the
taxpayer identification number is your plan or account tax or employer
identification number. For most individual taxpayers, it is your social security
number. NOTE: If the Units are to be held in more than one name, the number
should be that of the first person listed. For IRAs and Keoghs enter both the
social security number and the taxpayer identification number.)
-----------------------------------------
State of Residence
(IRA and KEOGH accounts:
state of residence of plan beneficiary;all
others, state of residence of investor)
2. TRUST COMPANY Name of Trust:
REGISTRATION ---------------------------
Please print here the exact name of Trust
and Trustee, Custodian or Administrator
-------------------------------
Address
---------------- ------------- ----------
City State Zip Code
------------------ ----------------
Taxpayer ID# Tax Year End #
3. INVESTMENT Number of Units to be purchased _________
Minimum Subscription is 20 Units
at $100 per Unit ($2,000), with Amount of payment enclosed ______________
additional investments of any amount.
Make check payable to "Redwood Mortgage Investors VIII".
If the investor has elected to compound his share of monthly, quarterly or
annual income (see 4 below), then the interest earned on subscription funds
until admission to the Partnership will be invested in additional Units on
behalf of the investor; therefore, the actual number of Units to be issued to
the investor upon admission to the Partnership will be increased.
Check one: [ ] Initial Investment
[ ] Additional Investment
<PAGE>
4. DISTRIBUTIONS Does the investor wish to receive
additional Units that will be reinvested
in lieu of cash distributions?
[ ] YES [ ] NO
If "NO", income shall be distributed:
[ ] Monthly [ ] Quarterly [ ] Annually.
The election to compound income may only
be changed after three (3) years.
5. SPECIAL ADDRESS FOR
------------------------------------------
CASH DISTRIBUTIONS Name
(If the Same as in 2, Please
Disregard)
------------------------------------------
Address
--------------- ------------- -----------
City State Zip Code
If cash distributions are to be sent to a money market or other account at
an address other than that listed, please enter that account number and address
here. All other communications will be mailed to the investor's registered
address of record under Sections 2 or 3, or to the alternate address listed in
Section 6 above. In no event will the Partnership or its Affiliates be
responsible for any adverse consequences of direct deposits.
6. SIGNATURES IN WITNESS WHEREOF, the undersigned has
executed below this __________
day of _______________, __________
at ____________
Investor's primary residence is in ____
------------------------------------------
(Investor Signature and Title)
------------------------------------------
(Investor Signature and Title)
------------------------------------------
(Investor Signature and Title)
------------------------------------------
(Investor Signature and Title)
<PAGE>
7. BROKER-DEALER DATA The undersigned Broker-Dealer hereby certifies that
(i) a copy of the Prospectus, as (To Be Completed By Selling amended and/or
supplemented to date, has been delivered to the above investor; and (ii)
Broker-Dealer) that the appropriate suitability determination as set forth in
the Prospectus has been made and that the appropriate records are being
maintained.
------------------------------------------
Broker-Dealer Authorized Signature
(Required on all Orders)
Registered Representative
Last Name First: _________________________
Registered Representative No.: ___________
Registered Representative Phone No.: _____
Broker-Dealer Name: ______________________
Street Address: __________________________
City, State, Zip Code: ___________________
The registered representative, by signing below, certifies that he has
reasonable grounds to believe, on the basis of information obtained from the
investor concerning his investment objectives, other investments, financial
situation and needs and any other information known by the selling
Broker-Dealer, that investment in the Units is suitable for the investor and
that suitability records are being maintained; and (2) that he has informed the
investor of all pertinent facts relating to the liquidity and marketability of
the Units.
Registered Representative's Signature:
-----------------------------------------
Print or Type Name:
-----------------------------------------
8. ACCEPTANCE This subscription accepted
This Subscription will not be an
effective Agreement until it or a REDWOOD MORTGAGE INVESTORS VIII,
facsimile is signed by a General A California Limited Partnership
Partner of Redwood Mortgage P.O. Box 5096
Investors VIII, a California Redwood City, California 94063
limited partnership (415) 365-5341
By:_______________________________________
(Office Use Only)
Account #:
-------------------
Investor Check Date:
-------------------
Check Amount:
-------------------
Check #:
-------------------
Entered By: Checked By:
-------------- ---------------
Date Entered:
------------------------------------------
<PAGE>
SPECIAL NOTICE FOR CALIFORNIA RESIDENTS ONLY
COMMISSIONERS RULE 260.141.11
260.141.11 Restriction on Transfer
(a) The issuer of any security upon which a restriction on transfer has
been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a
copy of this section to be delivered to each issuee or transferee of such
security.
(b) It is unlawful for the holder of any such security to consummate a sale
or transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the Code
or Section 260.105.14 of these rules;
(4) to the transferors ancestors, descendants or spouse or any custodian
or trustee for the account of the transferor or the transferors ancestors,
descendants or spouse; or to a transferee by a trustee or custodian for the
account of the transferee or the transferees ancestors, descendants or spouse;
(5) to the holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting as
such or as a finder) to a resident of a foreign state, territory or country who
is neither domiciled in this state to the knowledge of the broker-dealer, nor
actually present in this state if the sale of such securities is not in
violation of any securities law of the foreign state, territory or country
concerned;
(8) to a broker-dealer licensed under the Code in a principal transaction,
or as an underwriter or member of an underwriting syndicate or group;
(9) if the interest sold or transferred is a pledge or other lien given by
the purchaser to the seller upon a sale of the security for which the
Commissioners written consent is obtained or under this rule is not required;
(10) by way of a sale qualified under Sections 25111, 25112, or 25113, or
25121 of the Code, of the securities to be transferred, provided that no order
under Section 25140 or Subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or
by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112, or 25113
of the Code, provided that no order under Section 25140 or Subdivision (a) of
Section 25148 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are
neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or to
the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law or to
the administrator of the unclaimed property law of another state, if, in either
such case, such person (i) discloses to potential purchasers at the sale that
transfer of the securities is restricted under this rule, (ii) delivers to each
purchaser a copy of this rule, and (iii) advises the Commissioner of the name of
each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities, provided that
any such transfer is on the condition that any certificate evidencing the
security issued to such transferee shall contain the legend required by this
section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONERS RULES.
<PAGE>
==============================================================================
REDWOOD MORTGAGE INVESTORS VIII
----------------------------------------
300,000 Units of Limited Partnership Interest
----------------------------------------
General Partners:
D. Russell Burwell
Michael R. Burwell
Gymno Corporation
Dated: December 4, 1996
===============================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information and representations must not
be relied upon. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
state to any person to whom it is unlawful to make such offer. Neither the
delivery of this Prospectus nor any sale made herunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Partnership since the respective dates at which information is
given herein, or the date hereof; however, if any material change occurs while
this Prospectus is required by law to be delivered, this Prospectus will be
amended or supplemented accordingly.
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
<PAGE>
