As filed with the Securities and Exchange Commission on April 28, 2000
Registration No. 333-13113
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
POST-EFFECTIVE AMENDMENT NO 10 TO FORM S-11
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
REDWOOD MORTGAGE INVESTORS VIII, a California Limited Partnership
(Exact name of registrant as specified in its charter)
CALIFORNIA 6611 94-3158788
- ---------- ---- ----------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification
organization) Code Number)
650 El Camino Real, Suite G, Redwood City, California 94063 (650) 365-5341
(Address and telephone number of principal executive offices)
650 El Camino Real, Suite G, Redwood City, California 94063 (650) 365-5341
(Address of principal place of business or intended principal
place of business)
D. Russell Burwell
650 El Camino Real, Suite G, Redwood City, California 94063 (650) 365-5341
(Name, address, including zip code and telephone number,
including area code of agent for service)
Copies to:
Stephen C. Ryan, Esq.
Anne R. Knowles, Esq.
McCutchen, Doyle, Brown & Enersen, LLP
Three Embarcadero Center, Twenty-Fifth Floor
San Francisco, California 94111
Approximate date of commencement
of proposed sale to public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: X
<PAGE>
Supplement No. 1 dated April 28, 2000
to the Prospectus dated February 28, 2000
Redwood Mortgage Investors VIII,
A California Limited Partnership
The following information updates the Prospectus of Redwood Mortgage
Investors VIII, a California limited partnership (the "Partnership") dated
February 28, 2000 (the "Prospectus").
Because this is a supplement, it only updates the operations and
activities of the Partnership to date. Important additional information
regarding the business of the Partnership and the risks involved in investing in
the Partnership are contained in the Prospectus. You should carefully read the
Prospectus along with this Supplement.
1. Summary of Partnership Activities. We are engaged in business as a
mortgage lender. We make loans to individuals and business entities secured by
residential, investment or commercial property. In order to ensure repayment of
the loans, the loans are secured by first and second, and in some limited cases,
third deeds of trust on the property. For a more detailed discussion of deeds of
trust and other factors affecting the loans made by us, you should carefully
review the Section of the Prospectus entitled "CERTAIN LEGAL ASPECTS OF
PARTNERSHIP LOANS."
Initial Offering. In February, 1993, we initially offered $15,000,000 of
limited partnership units. For ease of reference, we shall refer to limited
partnership units as "Units." All Units in the initial Offering were sold and
the Offering was closed in October, 1996. We received total proceeds from the
sale of Units in an amount equal to $14,932,017. In order to sell the Units, we
incurred approximately $12,500 in organizational costs that included certain
costs and expenses of organizing and forming the Partnership. We also incurred
$569,865 in syndication costs which include certain legal, accounting and
broker-dealer fees. Overall, total organization and syndication costs were less
than anticipated.
Current Offering. In September, 1996, we elected to continue offering Units
in the Partnership in order to increase our Loan Investment Portfolio. By
increasing our Loan Portfolio, we could increase diversity and add additional
safety to the portfolio. In December we began selling Units in the partnership's
second offering of $30,000,000 of Units. This offering is still ongoing. All
proceeds from the sale of Units are paid directly to the partnership. As a
result, no escrow was established.
Status of Current Offering. As of December 31, 1999, we had sold
$20,178,924 of Units. This brings the total proceeds received from the initial
Offering and the current Offering to $35,110,941, as of December 31, 1999. As of
December 31, 1999 we had outstanding loans with a total principal balance of
$35,693,148. As of December 31, 1999, we had, in connection with its second
Offering of $30,000,000 of Units, incurred no organizational costs and $597,784
in syndication costs.
No Adverse Business Development. As of the date of this Supplement, there
have been no adverse business developments or conditions in the Partnership, or
any prior limited partnerships in which the General Partners are involved, that
would be material to a prospective investor.
<PAGE>
2. Financial Statements.
|X| Financial Statements of Partnership. The Financial Statements of the
Partnership included in this Supplement have been audited by Caporicci, Cropper
& Larson, independent auditors, as of December 31, 1999 and are included herein
as part of this supplement.
|X| Financial Statements of Gymno Corporation. The financial statements of Gymno
Corporation, a corporate General Partner, have been updated to December 31, 1999
and 1998, and are included herein as part of this supplement. The audited
financial statements of Redwood Mortgage Corp. as of September 30, 1999, the end
of its fiscal year, are included in the prospectus.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(With Auditor's Report Thereon)
<PAGE>
Caporicci, Cropper & Larson, LLP
CERTIFIED PUBLIC ACCOUNTANTS
1575 Treat Blvd. Ste. 208
Walnut Creek, CA 94598
(925) 932-3860
INDEPENDENT AUDITOR'S 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, 1999 and 1998 and the
statements of income, changes in partners' capital and cash flows for the three
years ended December 31, 1999. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of REDWOOD MORTGAGE INVESTORS VIII
as of December 31, 1999 and 1998, and the results of its operations and cash
flows for the three years ended December 31, 1999, 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.
/s/ A. Bruce Cropper
Caporicci, Cropper & Larson, LLP
Walnut Creek, California
March 15, 2000
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
<S> <C> <C>
1999 1998
-------------- --------------
Cash $1,602,568 $528,688
-------------- --------------
Accounts receivable:
Mortgage Investments, secured by deeds of trust 35,693,148 31,905,958
Accrued Interest on Mortgage Investments 711,521 459,418
Advances on Mortgage Investments 33,251 211,145
Accounts receivables, unsecured 49,090 48,849
-------------- --------------
36,487,010 32,625,370
Less allowance for doubtful accounts 834,359 414,073
-------------- --------------
35,652,651 32,211,297
-------------- --------------
Real Estate owned, acquired through foreclosure,
held for sale 0 66,000
Investment in limited liability corporation, at cost which
approximates market 373,358 304,139
Prepaid expense-deferred loan fee 6,332 11,835
-------------- --------------
$37,634,909 $33,121,959
============== ==============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C>
1999 1998
-------------- --------------
Liabilities:
Accounts payable and accrued expenses $29,413 $2,500
Note payable - bank line of credit 0 5,947,000
Deferred interest income 213,529 124,805
Investors in applicant status 330,000 0
-------------- --------------
572,942 6,074,305
-------------- --------------
Partners' Capital:
Limited partners' capital, subject to redemption (note 4E):
Net of unallocated syndication costs of $342,334 and
$353,875 for 1999 and 1998, respectively:
and formation loan receivable of $2,158,674 and $1,640,904
for 1999 and 1998, respectively 37,030,017 27,025,331
General Partners' Capital, net of unallocated syndication costs
of $3,458 and $3,574 for 1999 and 1998, respectively 31,950 22,323
-------------- --------------
Total Partners' Capital 37,061,967 27,047,654
-------------- --------------
Total Liabilities and Partners' Capital $37,634,909 $33,121,959
============== ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
YEARS ENDED DECEMBER 31,
----------------------------------------------------
<S> <C> <C> <C>
1999 1998 1997
-------------- ------------- ---------------
Revenues:
Interest on Mortgage Investments $4,337,427 $3,376,293 $2,613,008
Interest on bank deposits 8,197 8,946 9,487
Late charges 27,859 19,384 6,432
Miscellaneous 52,762 1,398 530
-------------- ------------- ---------------
4,426,245 3,406,021 2,629,457
-------------- ------------- ---------------
Expenses:
Mortgage servicing fees 359,464 295,052 189,692
Interest on note payable - bank 526,697 513,566 340,633
Amortization of loan origination fees 10,503 11,415 16,819
Provision for doubtful accounts and losses on real estate
acquired through foreclosure 408,890 162,969 139,804
Asset management fee - General Partner 42,215 31,651 24,966
Amortization of organization costs 0 1,875 2,500
Clerical costs through Redwood Mortgage Corp. 85,171 67,453 54,549
Professional services 31,814 27,462 36,717
Printing, supplies and postage 7,102 7,089 9,584
Other 10,195 8,907 5,673
------------- ------------- ---------------
1,482,051 1,127,439 820,937
-------------- ------------- ---------------
Income before interest credited to partners in applicant status 2,944,194 2,278,582 1,808,520
Interest credited to partners in applicant status 1,914 4,454 9,562
-------------- ------------- ---------------
Net Income $2,942,280 $2,274,128 $1,798,958
============== ============= ===============
Net income: To General Partners(1%) $29,423 $22,741 $17,990
To Limited Partners (99%) 2,912,857 2,251,387 1,780,968
-------------- ------------- ---------------
Total - net income $2,942,280 $2,274,128 $1,798,958
============== ============= ===============
Net income per $1,000 invested by Limited Partners for entire period:
- -where income is reinvested and compounded $84 $84 $84
============== ============= ===============
- -where partner receives income in monthly distributions $81 $81 $81
============== ============= ===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
PARTNERS' CAPITAL
---------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital
Partners In Account Unallocated Formation
Applicant Limited Syndication Loan
Status Partners Costs Receivable Total
--------------- ------------ ------------- ------------- -------------
Balances at December 31, 1996 $310,937 $16,181,189 $ (414,190) $ $14,693,293
Contributions on Application 5,251,969 0 0 0 0
Formation Loan increases 0 0 0 (420,510) (420,510)
Formation Loan payments 0 0 0 98,999 98,999
Interest credited to partners in
Applicant Status 9,562 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (1,849) 0 0 0 0
Transfers to Partners' capital (5,570,619) 5,565,372 0 0 5,565,372
Net Income 0 1,780,968 0 0 1,780,968
Syndication costs incurred 0 0 (188,517) 0 (188,517)
Allocation of syndication costs 0 (166,023) 166,023 0 0
Partners' withdrawals 0 (614,837) 0 0 (614,837)
Early withdrawal penalties 0 (13,261) 4,690 8,524 (47)
--------------- ------------ ------------- ------------- -------------
Balances at December 31, 1997 $0 $22,733,408 $(431,994) $(1,386,693) $20,914,721
Contributions on Application 5,105,559 0 0 0 0
Formation Loan increases 0 0 0 (403,518) (403,518)
Formation Loan payments 0 0 0 133,580 133,580
Interest credited to partners in
Applicant Status 4,454 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (1,553) 0 0 0 0
Transfers to Partners' capital (5,108,460) 5,103,359 0 0 5,103,359
Net Income 0 2,251,387 0 0 2,251,387
Syndication costs incurred 0 0 (126,453) 0 (126,453)
Allocation of syndication costs 0 (196,317) 196,317 0 0
Partners' withdrawals 0 (847,661) 0 0 (847,661)
Early withdrawal penalties 0 (24,066) 8,255 15,727 (84)
--------------- ------------ ------------- ------------- -------------
Balances at December 31, 1998 $0 $29,020,110 $(353,875) $(1,640,904) $27,025,331
Contributions on Application 9,530,318 0 0 0 0
Formation Loan increases 0 0 0 (708,461) (708,461)
Formation Loan payments 0 0 0 164,731 164,731
Interest credited to partners in
Applicant Status 1,914 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (1,002) 0 0 0 0
Transfers to Partners' capital (9,201,230) 9,191,719 0 0 9,191,719
Net Income 0 2,912,857 0 0 2,912,857
Syndication costs incurred 0 0 (177,099) 0 (177,099)
Allocation of syndication costs 0 (175,012) 175,012 0 0
Partners' withdrawals 0 (1,378,924) 0 0 (1,378,924)
Early withdrawal penalties 0 (39,725) 13,628 25,960 (137)
--------------- ------------ ------------- ------------- -------------
Balances at December 31, 1999 $330,000 $39,531,025 $(342,334) $(2,158,674) $37,030,017
=============== ============ ============= ============= =============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
PARTNERS' CAPITAL
------------------------------------------------------------------------------
GENERAL PARTNERS' CAPITAL
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Unallocated Total
Account Syndication Total Partners'
General Costs Capital
Partners
---------------- ----------------- ------------------ ----------------
Balances at December 31, 1996 $15,549 $ (4,184) $11,365 $14,704,658
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (420,510)
Formation Loan payments 0 0 0 98,999
Interest credited to partners in
Applicant Status 0 0 0 0
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners' capital 5,247 0 5,247 5,570,619
Net Income 17,990 0 17,990 1,798,958
Syndication costs incurred 0 (1,904) (1,904) (190,421)
Allocation of syndication costs (1,677) 1,677 0 0
Partners' withdrawals (16,313) 0 (16,313) (631,150)
Early withdrawal penalties 0 47 47 0
---------------- ----------------- ------------------ ----------------
Balances at December 31, 1997 $20,796 $(4,364) $16,432 $20,931,153
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (403,518)
Formation Loan payments 0 0 0 133,580
Interest credited to partners in
Applicant Status 0 0 0 0
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners' capital 5,101 0 5,101 5,108,460
Net Income 22,741 0 22,741 2,274,128
Syndication costs incurred 0 (1,277) (1,277) (127,730)
Allocation of syndication costs (1,983) 1,983 0 0
Partners' withdrawals (20,758) 0 (20,758) (868,419)
Early withdrawal penalties 0 84 84 0
---------------- ----------------- ------------------ ----------------
Balances at December 31, 1998 $25,897 $(3,574) $22,323 $27,047,654
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (708,461)
Formation Loan payments 0 0 0 164,731
Interest credited to partners in
Applicant Status 0 0 0 0
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners' capital 9,511 0 9,511 9,201,230
Net Income 29,423 0 29,423 2,942,280
Syndication costs incurred 0 (1,789) (1,789) (178,888)
Allocation of syndication costs (1,768) 1,768 0 0
Partners' withdrawals (27,655) 0 (27,655) (1,406,579)
Early withdrawal penalties 0 137 137 0
---------------- ----------------- ------------------ ----------------
Balances at December 31, 1999 $35,408 $(3,458) $31,950 $37,061,967
================ ================= ================== ================
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
<S> <C> <C> <C>
1999 1998 1997
--------------- --------------- --------------
Cash flows from operating activities:
Net income $2,942,280 $2,274,128 $1,798,958
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of organization costs 0 1,875 2,500
Provision for doubtful accounts. 420,286 156,573 139,804
Provision for losses (gains) on real estate held for sale (11,396) 6,396 0
Increase (decrease) in accounts payable 26,913 (855) (17,270)
(Increase) in accrued interest & advances (74,209) (122,783) (342,571)
(Increase) decrease in amount due from related companies (241) 2,999 (2,688)
(Increase) decrease in deferred loan fee 5,503 (1,684) 10,569
Increase (decrease ) in deferred interest income 88,724 41,739 (134,414)
--------------- --------------- --------------
--------------
Net cash provided by operating activities 3,397,860 2,358,388 1,454,888
--------------- --------------- --------------
Cash flows from investing activities:
Principal collected on Mortgage Investments 20,243,729 14,262,838 10,279,337
Mortgage Investments made (24,030,919) (20,863,807) (19,941,336)
Disposition of real estate held for sale 79,282 0 0
Additions to real estate held for sale (1,886) (2,258) (3,254)
Additions to Limited Liability Corporation (69,219) (53,000) (60,000)
Accounts receivables, unsecured - (disbursements) receipts 0 13,995 12,490
--------------- --------------- --------------
Net cash used in investing activities (3,779,013) (6,642,232) (9,712,763)
--------------- --------------- --------------
Cash flows from financing activities
Increase (decrease) in note payable-bank (5,947,000) 307,000 4,140,000
Contributions by partner applicants 9,530,318 5,105,559 5,251,969
Interest credited to partners in applicant status 1,914 4,454 9,562
Interest withdrawn by partners in applicant status (1,002) (1,553) (1,849)
Partners withdrawals (1,406,579) (868,419) (631,150)
Syndication costs incurred (178,888) (127,730) (190,421)
Formation Loan increases (708,461) (403,518) (420,510)
Formation Loan collections 164,731 133,580 98,999
--------------- ---------------
--------------
Net cash provided by financing activities 1,455,033 4,149,373 8,256,600
--------------- --------------- --------------
Net increase (decrease) in cash and cash equivalents 1,073,880 (134,471) (1,275)
Cash - beginning of period 528,688 663,159 664,434
--------------- --------------- --------------
Cash - end of period $1,602,568 $528,688 $663,159
=============== =============== ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 Mortgage
Investments secured by Deeds of Trust on California real estate. Mortgage
Investments are being arranged and serviced by Redwood Mortgage Corp., an
affiliate of the General Partners. At December 31, 1999, the Partnership was in
the offering stage, wherein contributed capital totalled $35,110,941 in limited
partner contributions of an approved aggregate offering of $45,000,000, in units
of $100 each (351,109.41). As of December 31, 1999, $330,000 remained in
applicant status.
A minimum of 2,500 units ($250,000) and a maximum of 150,000 units ($15,000,000)
were initially offered through qualified broker-dealers. This initial offering
was closed in October, 1996. In December 1996, the Partnership commenced a
second offering of an additional 300,000 Units ($30,000,000) As Mortgage
Investments are identified, partners are transferred from applicant status to
admitted partners participating in Mortgage Investment operations. Each month's
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 Commissions - Formation Loan
Sales commissions are not paid directly by the Partnership out of the offering
proceeds. Instead, the Partnership loans to Redwood Mortgage Corp., an affiliate
of the General Partners, amounts to pay all sales commissions and amounts
payable in connection with unsolicited orders. This loan is referred to as the
"Formation Loan". It is unsecured and non-interest bearing.
The Formation Loan relating to the initial $15,000,000 offering totalled
$1,074,840, which was 7.2% of limited partners contributions of $14,932,017
(under the limit of 9.1% relative to the initial offering). It is to be repaid,
without interest, in ten annual installments of principal, which commenced on
January 1, 1997, following the year the initial offering closed, which was in
1996.
The Formation Loan relating to the second offering ($30,000,000) totalled
$1,547,875 at December 31, 1999, which was 7.7% of the limited partners
contributions of $20,178,924. Sales commissions range from 0% (units sold by
General Partners) to 9% of gross proceeds. The Partnership anticipates that the
sales commissions will approximate 7.6% based on the assumption that 65% of
investors will elect to reinvest earnings, thus generating 9% commissions. 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 Corp., during the offering stage, will be determined at
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 such payment beginning December
31, 1997. Upon completion of the offering, the balance will be repaid in ten
equal annual installments.
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
The following summarizes Formation Loan transactions to December 31, 1999:
<S> <C> <C> <C>
Initial Subsequent
Offering of Offering of
$15,000,000 $30,000,000 Total
-------------- --------------- ----------------
Limited Partner contributions $14,932,017 $20,178,924 $35,110,941
============== =============== ================
Formation Loan made $1,074,840 1,547,875 2,622,715
Payments to date (281,701) (124,569) (406,270)
Early withdrawal penalties applied (57,771) 0 (57,771)
-------------- --------------- ----------------
Balance December 31, 1999 $735,368 $1,423,306 $2,158,674
============== =============== ================
Percent loaned of Partners' contributions 7.2% 7.7% 7.5%
============== =============== ================
</TABLE>
The Formation Loan, which is receivable from Redwood Mortgage Corp., an
affiliate of the General Partners, has been deducted from Limited Partners'
Capital in the balance sheet. As amounts are collected from Redwood Mortgage
Corp., the deduction from capital will be reduced.
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.
Through December 31, 1999, organization costs of $12,500 and syndication costs
of $1,167,649 had been incurred by the Partnership with the following
distribution:
<TABLE>
<S> <C> <C> <C>
Syndication Organization
Costs Costs Total
----------------- -------------- ------------
Costs incurred $1,167,649 $12,500 $1,180,149
Early withdrawal penalties applied (31,555) 0 (31,555)
Allocated and amortized to date (790,302) (12,500) (802,802)
----------------- -------------- ------------
December 31, 1999 balance $345,792 0 $345,792
================= ============== ============
</TABLE>
Organization and syndication costs attributable to the initial offering
($15,000,000) were limited to the lesser of 10% of the gross proceeds or
$600,000 with any excess being paid by the General Partners. Applicable gross
proceeds were $14,932,017. Related expenditures totalled $582,365 ($569,865
syndication costs plus $12,500 organization expense) or 3.90%.
As of December 31, 1999 syndication costs attributable to the subsequent
offering ($30,000,000) totalled $597,784, (3.0% of contributions), with the
costs of the offering being greater at the initial stages due to professional
and filing fees related to formulating the offering documents. The syndication
costs payable by the Partnership are estimated to be $1,200,000 if the maximum
is sold (4% of $30,000,000). The General Partners will pay any syndication
expenses (excluding selling commissions) in excess of ten percent of the gross
proceeds or $1,200,000.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
Once a Mortgage Investment is categorized as impaired, interest is no longer
accrued thereon.
B. Management Estimates
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, including the valuation of impaired mortgage
investments, and the valuation of real estate acquired through foreclosure.
Actual results could differ significantly from these estimates.
C. Mortgage Investments, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the Mortgage Investments
to maturity, i.e., held for long-term investment. Therefore they are valued at
cost for financial statement purposes with interest thereon being accrued by the
simple interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118 (effective
January 1, 1995) provide that if the probable ultimate recovery of the carrying
amount of a Mortgage Investment, with due consideration for the fair value of
collateral, is less than the recorded investment and related amounts due and the
impairment is considered to be other than temporary, the carrying amount of the
investment (cost) shall be reduced to the present value of future cash flows.
The adoption of these statements did not have a material effect on the financial
statements of the Partnership because that was the valuation method previously
used on impaired loans.
At December 31, 1999, 1998, and 1997, there were no Mortgage Investments
categorized as impaired by the Partnership. Had there been a computed amount for
the reduction in carrying values of impaired loans, the reduction would have
been included in the allowance for doubtful accounts.
As presented in Note 10 to the financial statements, the average Mortgage
Investment to appraised value of security at the time the losses were
consummated was 60.90%. When a loan is valued for impairment purposes, an
updating is made in the valuation of collateral security. However, such a low
loan to value ratio has the tendency to minimize reductions for impairment.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents include
interest bearing and non-interest bearing bank deposits.
E. Real Estate Owned, Held for Sale
Real Estate owned, held for sale, includes real estate acquired through
foreclosure and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the property's estimated fair
value, less estimated costs to sell. At December 31, 1999, there were no
properties acquired by the Partnership as real estate owned (REO).
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
Effective January 1, 1996, the Partnership adopted the provisions of Statement
No 121 (SFAS 121) of the Financial Accounting Standards Board, "Accounting for
the Impairment of Long Lived Assets and for Long Lived Assets to be disposed
of". The adoption of SFAS 121 did not have a material impact on the
Partnership's financial position because the methods indicated were essentially
those previously used by the Partnership.
F. Investment in Limited Liability Corporation (see Note 7)
The Partnership carries its investment in a Limited Liability Corporation as
investment in real estate, which is at the lower of costs or fair value, less
estimated costs to sell.
G. Income Taxes
No provision for Federal and State income taxes is made in the financial
statements since income taxes are the obligation of the partners if and when
income taxes apply.
H. Organization and Syndication Costs
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 were amortized over a five year
period. Syndication costs are charged against partners' capital and are being
allocated to individual partners consistent with the partnership agreement.
I. Allowance for Doubtful Accounts
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, with due consideration to collateral
values, to provide for unrecoverable accounts receivable, including impaired
Mortgage Investments, other Mortgage Investments, accrued interest and advances
on Mortgage Investments, and other accounts receivable (unsecured). The
composition of the allowance for doubtful accounts as of December 31, 1999, and
1998 was as follows:
December 31,
--------------------------------------------
1999 1998
--------------- ----------------
Impaired mortgage investments $0 $0
Unspecified mortgage investments 795,268 370,073
Amounts receivable, unsecured 39,091 44,000
--------------- ----------------
$834,359 $414,073
=============== ================
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
J. Net Income Per $1,000 Invested
Amounts reflected in the statements 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 select 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 are paid to the General Partners
and/or related parties.
A. Mortgage Brokerage Commissions
For fees in connection with the review, selection, evaluation, negotiation and
extension of Partnership Mortgage Investments in an amount up to 12% of the
Mortgage Investments until 6 months after the termination date of the offering.
Thereafter, Mortgage Investment brokerage commissions will be limited to an
amount not to exceed 4% of the total Partnership assets per year. The Mortgage
Investment brokerage commissions are paid by the borrowers, and thus, are not an
expense of the Partnership. In 1999 and 1998, Mortgage Investment brokerage
commissions paid by the borrowers were $682,118 and $604,836, respectively.
B. Mortgage Servicing Fees
Monthly mortgage servicing fees of up to 1/8 of 1% (1.5% annual) of the unpaid
principal, is paid to Redwood Mortgage Corp., or such lesser amount as is
reasonable and customary in the geographic area where the property securing the
mortgage is located. Mortgage servicing fees of $359,464, $295,052 and $189,692
were incurred for years 1999, 1998 and 1997, respectively.
C. Asset Management Fee
The General Partners receive monthly fees for managing the Partnership's
Mortgage Investment portfolio and operations up to 1/32 of 1% of the "net asset
value" (3/8 of 1% annual). Management fees of $42,215, $31,651 and $24,966 were
incurred for years 1999, 1998 and 1997, respectively.
D. Other Fees
The Partnership Agreement provides for other fees such as reconveyance, mortgage
assumption and mortgage 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, 1999
F. Operating Expenses
The General Partners or their affiliate (Redwood Mortgage Corp.) 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 were to contribute 1/10 of 1% in
cash contributions as proceeds from the offering are admitted to Limited Partner
capital. As of December 31, 1999 a General Partner, GYMNO Corporation, had
contributed $35,100, 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 1-120
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 Partnership's Mortgage Investment portfolio.
During the periods ending December 31, 1999, 1998 and 1997, interest totaling
$1,914, $4,454 and $9,562, respectively, was credited to partners in applicant
status. As Mortgage Investments were made and partners were transferred to
regular status to begin sharing in income from Mortgage Investments 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
At subscription, investors elect either to receive monthly, quarterly or annual
distributions of earnings allocations, or to allow earnings to compound. Subject
to certain limitations, a compounding investor may subsequently change his
election, but an investor's election to have cash distributions is irrevocable.
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.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
E. Liquidity, Capital Withdrawals and Early Withdrawals
There are substantial restrictions on transferability of Units and accordingly
an investment in the Partnership is non-liquid. 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, subject to a 10% early withdrawal penalty. The 10% penalty is applicable
to the amount withdrawn as stated in the Notice of Withdrawal and will be
deducted from the Capital Account.
After five years from the date of purchase of the Units, Limited Partners have
the right to withdraw from the Partnership on an installment basis. Generally
this is done over a five year period in twenty (20) quarterly installments. Once
a Limited Partner has been in the Partnership for the minimum five year period,
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 may liquidate all or part of a Limited Partner's
capital account in four quarterly installments beginning on the last day of the
calendar quarter following the quarter in which the notice of withdrawal is
given. This withdrawal is subject to a 10% early withdrawal penalty applicable
to any sums withdrawn prior to the time when such sums could have been withdrawn
without penalty.
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 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 on a
monthly basis, up to a maximum interest rate of 12%. To date, actual realization
exceeded the guaranteed amount for each month.
NOTE 5- LEGAL PROCEEDINGS
The Partnership is not a defendant in any legal actions.
NOTE 6 - NOTE PAYABLE - BANK LINE OF CREDIT
The Partnership has a bank line of credit expiring September 30, 2000, of up to
$9,000,000 at .25% over prime secured by its Mortgage Investment portfolio. The
note payable balances were $0 and $5,947,000 at December 31, 1999, and 1998,
respectively, and the interest rate was 8.75% at December 31, 1999, (8.50% prime
plus .25%).
NOTE 7 - INVESTMENT IN LIMITED LIABILITY CORPORATION
As a result of acquiring real property through foreclosure, the Partnership has
contributed its interest (principally land) to a Limited Liability Corporation,
which is owned 100% by the Partnership, and which will complete the construction
and sell the property. The Partnership expects to realize a profit from the
venture.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 8 - INCOME TAXES
The following reflects a reconciliation from net assets (Partners' Capital)
reflected in the financial statements to the tax basis of those net assets:
December 31,
--------------------------------------
1999 1998
--------------- ----------------
Net Assets - Partners' Capital per
financial statements $37,061,967 $27,047,654
Non-amortized syndication costs 345,792 357,449
Allowance for doubtful accounts 834,359 414,073
Formation loans receivable 2,158,674 1,640,904
--------------- ----------------
Net assets tax basis $40,400,792 $29,460,080
=============== ================
In 1999 and 1998, approximately 58% and 61% of taxable income was allocated to
tax exempt organizations, i.e., retirement plans, respectively. Such plans do
not have to file income tax returns unless their "unrelated business income"
exceeds $1,000. Applicable amounts become taxable when distribution is made to
participants.
NOTE 9 - FAIR VALUE OF FINANCIAL INVESTMENTS
The following methods and assumptions were used to estimate the fair value of
financial instruments:
(a) Cash and Cash Equivalents. The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.
(b) The Carrying Value of Mortgage Investments (see note 2(c)) is $35,693,148.
The fair value of these investments of $35,825,175 is estimated based upon
projected cash flows discounted at the estimated current interest rates at which
similar loans would be made. The applicable amount of the allowance for doubtful
accounts along with accrued interest and advances related thereto should also be
considered in evaluating the fair value versus the carrying value.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At December 31,
1999, there were 53 Mortgage Investments outstanding with the following
characteristics:
Number of Mortgage Investments outstanding 53
Total Mortgage Investments outstanding $35,693,148
Average Mortgage Investment outstanding $673,456
Average Mortgage Investment as percent of total 1.89%
Average Mortgage Investment as percent of Partners' Capital 1.82%
Largest Mortgage Investment outstanding 2,600,000
Largest Mortgage Investment as percent of total 7.28%
Largest Mortgage Investment as percent of Partners' Capital 7.02%
Number of counties where security is located (all California) 13
Largest percentage of Mortgage Investments in one county 33.40%
Average Mortgage Investment to appraised value of security at
time loan was consummated 60.90%
Number of Mortgage Investments in foreclosure status 1
Amount of Mortgage Investments in foreclosure $2,600,000
The following categories of mortgage investments are pertinent at December 31,
1999 and 1998:
December 31,
----------------------------------------
1999 1998
------------------ ------------------
First Trust Deeds $19,388,394 $22,349,185
Second Trust Deeds 16,082,803 8,469,460
Third Trust Deeds 221,951 1,087,313
------------------ ------------------
Total mortgage investments 35,693,148 31,905,958
Prior liens due other lenders 23,719,420 26,411,096
------------------ ------------------
Total debt $59,412,568 $58,317,054
================== ==================
Appraised property value at time of loan $97,556,330 $98,011,150
================== ==================
Total investments as a percent of appraisals 60.90% 59.50%
================== ==================
Investments by Type of Property
Owner occupied homes $7,336,276 $6,450,199
Non-Owner occupied homes 10,957,622 8,789,445
Apartments 302,797 3,256,602
Commercial 17,096,453 13,409,712
------------------ ------------------
$35,693,148 $31,905,958
================== ==================
The interest rates on the mortgage investments range from 8.00% to 14.00% at
December 31, 1999.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
Scheduled maturity dates of mortgage investments as of December 31, 1999 are as
follows:
Year Ending
December 31,
-------------------
2000 $16,579,436
2001 14,365,526
2002 962,638
2003 308,957
2004 950,000
Thereafter 2,526,591
----------------
$35,693,148
================
The scheduled maturities for 2000 include approximately $4,984,651 in Mortgage
Investments which are past maturity at December 31, 1999. Interest payment on
only four of these loans was delinquent.
The cash balance at December 31, 1999 of $1,602,568 was in one bank with
interest bearing balances totalling $1,481,699. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $1,502,568. This bank is the same
financial institution that has provided the Partnership with the $9,000,000
limit line of credit. At December 31, 1999, draw down against this facility was
$0. As and when deposits in the Partnership's bank accounts increase
significantly beyond the insured limit, the funds are either placed on new
Mortgage Investments or used to pay-down on the line of credit balance.
<PAGE>
GYMNO CORPORATION
(A California Corporation)
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(With Auditor's Report Thereon)
<PAGE>
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
GYMNO CORPORATION
We have audited the accompanying balance sheets of GYMNO Corporation as of
December 31, 1999 and 1998 and the related statements of income, stockholders'
equity and cash flows for the two yeas ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on test basis evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GYMNO Corporation as of
December 31, 1999 and 1998, and the results of its operations and cash flows for
the years then ended in conformity with generally accepted accounting
principles.
CAPORICCI, CROPPER & LARSON, LLP
Walnut Creek, CA
March 7, 2000
<PAGE>
GYMNO CORPORATION
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
------------- ---------------
Cash and equivalents $ 2,508 $ 427
Deferred income tax benefits 174 143
------------- ---------------
Total current assets 2,682 570
------------- ---------------
Investment in partnerships, at net equity:
Redwood Mortgage Investors IV 7,500 7,500
Redwood Mortgage Investors V 5,000 5,000
Redwood Mortgage Investors VI 9,773 9,773
Redwood Mortgage Investors VII 12,048 12,248
Redwood Mortgage Investors VIII 35,099 25,589
------------- --------------
69,420 60,110
------------- --------------
$ 72,102 $ 60,680
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable - Stockholders $ 436 $ 436
Accrued income taxes 535 232
Loan from Redwood Mortgage, at 8% interest 11,985 8,598
------------- --------------
Total current liabilities 12,956 9,266
------------- --------------
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 46,646 38,914
-------------- --------------
Total stockholders' equity 59,146 51,414
-------------- --------------
$ 72,102 $ 60,680
============== ==============
See accompanying notes to financial statements
<PAGE>
GYMNO CORPORATION
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
--------------- ----------------
REVENUE
Partnership earnings - as General Partner $ 17,030 $ 14,458
Reconveyance fees 7,075 4,391
Other partnership earnings 13 24
--------------- ---------------
24,118 18,873
--------------- ---------------
EXPENSES
Management services - Stockholders 7,569 6,443
Professional Services 3,617 3,750
Interest expense 671 656
Reconveyance fees 1,176 867
Other 405 37
--------------- ---------------
13,438 11,753
--------------- ---------------
Income before provision for income taxes 10,680 7,120
Provision for income taxes:
California 1,158 953
Federal 1,790 1,480
--------------- ---------------
2,948 2,433
--------------- ---------------
Net income $ 7,732 $ 4,687
Per share (500 shares) $ 15.46 $ 9.37
See accompanying notes to financial statements
<PAGE>
<TABLE>
GYMNO CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
COMMON STOCK
--------------------- PAID-IN RETAINED
<S> <C> <C> <C> <C> <C>
SHARES AMOUNT SURPLUS EARNINGS TOTAL
--------------- ----------------------------------------------------------
--------------- ----------------------------------------------------------
Balances - December 31, 1997 500# $ 5,000 $7,500 $ 34,227 $ 46,727
Net income for the year
ended December 31, 1998 - - - 4,687 4,687
--------------- ----------------------------------------------------------
Balances - December 31, 1998 500# $ 5,000 $ 7,500 $ 38,914 $ 51,414
--------------- ----------------------------------------------------------
Net income for the year
ended December 31, 1999
- - - 7,732 7,732
--------------- ----------------------------------------------------------
Balances - December 31, 1999 500# $ 5,000 $ 7,500 $ 46,646 $ 59,146
=============== ==========================================================
See accompanying notes to financial statements
</TABLE>
<PAGE>
GYMNO CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- -------------
Cash flows from operating activities:
Net income $ 7,732 $ 4,687
Adjustments to reconcile net income to net
cash provided by operating activities:
(Increase) decrease in deferred
income taxes (31) (7)
Increase (decrease) in accounts payable
and accrued liabilities 303 (150)
------------ ------------
8,004 4,530
------------ ------------
Cash flows from investing activities:
(Increase) decrease in:
Cash invested in Partnerships (9,310) (4,901)
------------ ------------
Cash flows for financing activities:
Increase (decrease) in:
Loan from Redwood Mortgage Corp. 3,387 (540)
------------ ------------
Net increase (decrease) in cash equivalents 2,081 (911)
Cash equivalents at beginning of year 427 1,338
------------ ------------
Cash equivalents at end of year
(consisting of cash in bank) $ 2,508 $ 427
============ ============
See accompanying notes to financial statements
<PAGE>
GYMNO CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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.
The Company has also acquired a limited partnership interest in Redwood Mortgage
Investors VII. The Company receives investment income from such limited
partnership interests.
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 - RELATED PARTY FINANCING
Redwood Mortgage Corp., a related party, receives fees from the various
limited partnerships for managing the portfolios and servicing the loans. Gymno
Corporation had a loan balance from Redwood Mortgage Corp. of $11,985 at
December 31, 1999 with interest thereon calculated at 8%.
<PAGE>
<TABLE>
GYMNO CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 4 - INCOME TAXES
The following reflects the income taxes for the periods ending December 31, 1999
and 1998:
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------------- -----------------------------
CALIFORNIA FEDERAL CALIFORNIA FEDERAL
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before provision for income taxes $ 10,680 $ 10,680 $ 7,120 $ 7,120
Nondeductible expenses
State Tax deduction:
Prior fiscal year tax - (953) - (863)
Taxable income differential-partnerships 2,415 2,415 3,655 3,655
------------------------------ --------------------------------
Taxable income 13,095 12,142 10,775 9,912
------------------------------ --------------------------------
Tax rate (California $800 minimum) 8.84% 15.00% 8.84% 15.00%
------------------------------ --------------------------------
Income tax thereon 1,158 1,821 953 1,487
Change in deferred income tax benefit - (31) - (7)
------------------------------ --------------------------------
Income tax expense $ 1,158 $ 1,790 $ 953 $ 1,480
============================== ================================
</TABLE>
California income taxes were determined at the greatest of 8.84% 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 1999 taxes are deductible in 2000). At December 31, 1999, there
was a deferred income tax benefit of $174 relating to the $1,158 California
Franchise Tax deductible in the following year.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
$30,000,000 Units of Limited Partnership Interest
$1 per Unit
We are engaged in business as a mortgage lender. We make loans to
individuals and business entities secured primarily by first and second deeds of
trust on California real estate. Loans are arranged and serviced by Redwood
Mortgage Corp.
Our investment objectives are to make investments that:
- Yield a high rate of return from mortgage lending
- Preserve and protect our capital
A maximum of 30,000,000 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. We have sold $18,893,383.13 as of November
30, 1999. As this is not our first offering of units, all proceeds from the sale
of units will be immediately available to us for investment.
There are risks associated with an investment in the partnership (See "RISK
FACTORS") including the following:
- We will be subject to various conflicts of interest arising out of our
relationship to the general partners and their affiliates.
- Due to the speculative nature of the investment, there is a risk that you
could lose your entire investment.
- The formation loan to be made to Redwood Mortgage Corp. will be unsecured
and non-interest bearing, and repayment is not guaranteed.
- An investment in units involves material tax risks.
- Transfer of units is restricted; no public market for the units exists
and none is likely to develop.
- You will have a limited ability to liquidate your investment; you will be
subject to early withdrawal penalties and other restrictions and may be required
to accept less than you paid for your units.
- Our use of leverage may reduce the partnership's profitability or cause
losses through liquidation.
- We 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.
- You 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.
---------------------------------------------
================================================================================
Price to Public Underwriting Proceeds to
commission (1) partnership
- --------------------------------------------------------------------------------
Per Unit (Minimum
Investment 2,000 units) $1 $0 $1
Total Maximum 30,000,000 $0 $30,000,000
================================================================================
[FN]
(1) Underwriting commissions will be paid by Redwood Mortgage Corp. from
proceeds borrowed from the partnership. This loan is called the formation loan
and will be repaid by Redwood Mortgage Corp. over time.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if the
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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 is not permitted.
</FN>
The date of this prospectus is February 28, 2000
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY OF THE OFFERING........................................................1
The Partnership................................................................1
General Partners...............................................................1
Risk Factors...................................................................1
Terms Of The Offering..........................................................1
Estimated Use Of Proceeds......................................................2
Compensation Of The General Partners And Affiliates............................2
Conflicts Of Interest..........................................................2
Prior Performance Summary......................................................2
Investment Objectives And Criteria.............................................2
Federal Income Tax Consequences................................................3
Liquidity, Capital Withdrawal And Early Withdrawals............................3
Summary Of Limited Partnership Agreement.......................................3
Additional Information.........................................................3
Subscription Procedures........................................................3
RISK FACTORS...................................................................4
REAL ESTATE AND OPERATING RISKS................................................4
We Have Not Identified Any New Loans From Additional Proceeds Of
This Offering................................................................4
Loan Defaults And Foreclosures By Borrowers May Adversely Affect
Partnership..................................................................4
We Must Rely On Appraisals Which May Not Be Accurate Or May Be
Affected By Subsequent Events................................................4
Risks Associated With Junior Encumbrances......................................5
Risks Associated With Construction Loans.......................................5
Risk Of Real Estate Ownership After Foreclosure................................5
Risks Of Real Estate Development On Property Acquired By Us....................5
Bankruptcy And Legal Limitations On Personal Judgements May
Adversely Affect Our Profitability...........................................6
Risks Associated With Unintended Violations Of Usury Statutes..................6
Risks Associated With High Cost Mortgages......................................6
Loan- To-Value Ratios Are Determined By Appraisals Which May Be
In Excess Of The Ultimate Purchase Price Of The Underlying Property..........7
Use Of Borrowed Money May Reduce Our Profitability Or Cause Losses
Through Liquidation..........................................................7
Changes In Interest Rates May Affect Your Return On Your Investment............7
Marshaling Of Assets Could Delay Or Reduce Recovery Of Loans...................8
Potential Liability For Toxic Or Hazardous Substances If We Are
Considered Owner Of Real Property............................................8
Potential Loss Of Revenue In The Event Of The Presence Of Hazardous
Substances...................................................................8
Potential Conflicts And Risks If We Invest In Loans With General
Partners Or Affiliates.......................................................9
INVESTMENT RISKS...............................................................9
There Is No Assurance You Will Receive Cash Distributions......................9
Your Ability To Recover Your Investment On Dissolution And
Termination Will Be Limited..................................................9
Certain Kinds Of Losses Can Not Be Insured Against.............................9
Risks Related To Concentration Of Mortgages In The San Francisco
Bay Area....................................................................10
You Must Rely On General Partners For Management Decisions....................10
You Will Be Bound By Decision Of Majority Vote................................10
Net Worth Of The General Partners May Affect Ability Of General
Partners To Fulfill Their Obligations To The Partnership....................10
Operating History Of The Partnership..........................................10
Risks Regarding Formation Loan And Repayment Thereof..........................11
Delays In Investment Could Adversely Affect Your Return.......................11
No Assurance Of Limitation Of Liability Of Limited Partners...................11
No Assurance That California Law Will Apply With Respect To Limitation
Of Liability Of Limited Partners............................................12
We Cannot Precisely Determine Compensation To Be Paid To General
Partners And Affiliates.....................................................12
Working Capital Reserves May Not Be Adequate..................................12
Purchase Of Units Is A Long Term Investment...................................12
We May Be Required To Forego More Favorable Investment To Avoid Regulation
Under Investment Company Act of 1940........................................12
Use Of Forward Looking Statements.............................................13
TAX RISKS.....................................................................13
Material Tax Risks Associated With Investment In Units........................13
Risks Associated With Partnership Status For Federal Income Tax Purposes......13
Risks Associated With Characterization Of Partnership Income As Portfolio
Income......................................................................13
Risks Of Partnership Characterization As A Publicly Traded Partnership........14
Risks Relating To Taxation Of Undistributed Revenues And Gain.................14
Risks Relating To Creation Of Unrelated Business Taxable Income...............14
Risks Of Applicability Of Alternative Minimum Tax.............................14
Risks Of Audit And Adjustment.................................................14
Risks Of Effects Of State And Local Taxation..................................14
ERISA RISKS...................................................................15
Risks Of Investment By Tax-Exempt Investors...................................15
INVESTOR SUITABILITY STANDARDS................................................16
Minimum Suitability Standards.................................................16
Minimum Purchase Amount.......................................................16
IRA Investors.................................................................16
ERISA Investors...............................................................16
Blue Sky Requirements.........................................................16
Subscription Agreement Warranties.............................................17
Subscription Procedure........................................................17
NOTICE TO CALIFORNIA RESIDENTS................................................17
TERMS OF THE OFFERING.........................................................17
No Escrow Established.........................................................17
Investment Of Subscriptions...................................................17
Purchase By General Partners And Affiliates...................................18
Guaranteed Payment For Offering Period........................................18
Election To Receive Periodic Cash Distributions...............................18
ESTIMATED USE OF PROCEEDS.....................................................19
CAPITALIZATION OF THE PARTNERSHIP.............................................20
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES...........................20
OFFERING STAGE................................................................21
OPERATING STAGE...............................................................21
LIQUIDATION STAGE.............................................................22
CONFLICTS OF INTEREST.........................................................23
Conflicts Arising As A Result Of The General Partners' Legal and Financial
Obligations to Other Partnerships...........................................24
Conflicts Arising From The General Partners' Allocation Of Time Between
The Partnership And Other Activities........................................24
Amount Of Loan Brokerage Commissions Affects Rate Of Return To
Limited Partners............................................................25
Terms Of Formation Loan Are Not A Result Of Arms Length Negotiations..........25
Potential Conflicts If We Invest In Loans With General Partners
Or Affiliates............................................................25
General Partners Will Represent Both Parties In Sales Of Real Estate
Owned to Affiliates.........................................................25
Professionals Hired By General Partners Do Not Represent You Or Any
Other Limited Partner.......................................................26
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS..............................26
Present State Of The Law......................................................27
Terms Of The Partnership Agreement............................................27
PRIOR PERFORMANCE SUMMARY.....................................................27
Experience And Background Of General Partners.................................27
PUBLICLY OFFERED MORTGAGE PROGRAMS............................................28
PRIVATELY OFFERED MORTGAGE PROGRAMS...........................................28
Corporate Mortgage Investors..................................................29
Additional Information........................................................29
No Major Adverse Developments.................................................29
Prior Public Partnerships.....................................................29
Three Year Summary Of Loans Originated By Prior Limited Partnerships..........30
MANAGEMENT....................................................................31
General.......................................................................31
The General Partners..........................................................31
D. Russell Burwell............................................................31
Michael R. Burwell............................................................31
Gymno Corporation.............................................................31
Redwood Mortgage Corp.........................................................31
The Redwood Group, Ltd........................................................31
Theodore J. Fischer...........................................................32
SELECTED OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................32
SELECTED FINANCIAL DATA.......................................................33
ORGANIZATIONAL CHART..........................................................34
INVESTMENT OBJECTIVES AND CRITERIA............................................35
Principal Objectives..........................................................36
General Standards For Loans...................................................35
Priority Of Mortgages.........................................................35
Geographic Area Of Lending Activity...........................................35
Construction Loans............................................................36
Loan-To-Value Ratios..........................................................36
Terms Of Loans................................................................36
Equity Interests In Real Property.............................................36
Escrow Conditions.............................................................37
Loans To General Partners And Affiliates......................................37
Purchase Of Loans From Affiliates And Other Third Parties.....................37
Note Hypothecation............................................................37
Joint Ventures................................................................37
Diversification...............................................................37
Reserve Fund..................................................................38
Credit Evaluations............................................................38
Loan Brokerage Commissions....................................................38
Loan Servicing................................................................38
Sale Of Loans.................................................................38
Borrowing.....................................................................38
Other Policies................................................................38
CERTAIN LEGAL ASPECTS OF LOANS................................................38
Foreclosure...................................................................39
Tax Liens.....................................................................39
Anti-Deficiency Legislation...................................................39
Special Considerations In Connection With Junior Encumbrances.................39
"Due-On-Sale" Clauses.........................................................40
Due-On-Sale...................................................................40
Due-On-Encumbrance............................................................40
Prepayment Charges............................................................41
Real Property Loans...........................................................41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION OF THE PARTNERSHIP.............................................41
BUSINESS......................................................................46
FEDERAL INCOME TAX CONSEQUENCES...............................................50
Summary Of Material Tax Aspects...............................................50
Opinion Of Counsel............................................................51
Partnership Tax Status...................................................52
Publicly Traded Partnerships.............................................52
Results If Partnership Is Taxable As An Association......................53
Anti-Abuse Rules.........................................................54
Taxation Of Partners - General................................................54
Allocation Of Profits And Losses..............................................54
Sale Of Partnership Units.....................................................54
Character Of Income Or Loss...................................................55
Treatment Of Loans Containing Participation Features..........................56
Repayment Or Sale Of Loans....................................................56
Property Held Primarily For Sale; Potential Dealer Status.....................56
Tax Consequences Of Reinvestment In Loans.....................................57
Partnership Organization, Syndication Fees And Acquisition Fees...............57
Original Issue Discount.......................................................57
Deduction Of Investment Interest..............................................57
Section 754 Election..........................................................58
Termination Of The Partnership................................................58
Tax Returns...................................................................58
Audit Of Tax Returns..........................................................58
Investment By Tax-Exempt Investors............................................59
Investment By Charitable Remainder Trusts.....................................60
Foreign Investors As Limited Partners.........................................60
State And Local Taxes.........................................................60
ERISA CONSIDERATIONS..........................................................61
General.......................................................................61
Fiduciaries Under ERISA.......................................................61
Prohibited Transactions Under ERISA And The Code..............................61
Plan Assets...................................................................62
Annual Valuation..............................................................62
Potential Consequences Of Treatment As Plan Assets............................63
DESCRIPTION OF UNITS..........................................................63
SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT..................................64
Rights And Liabilities Of Limited Partners....................................64
Capital Contributions.........................................................64
Rights, Powers And Duties Of General Partners.................................64
Profits And Losses............................................................64
Cash Distributions............................................................65
Meeting.......................................................................65
Accounting And Reports........................................................65
Restrictions On Transfer......................................................65
General Partners' Interest....................................................65
Term Of Partnership...........................................................65
Winding Up....................................................................66
Dissenting Limited Partners' Rights...........................................66
TRANSFER OF UNITS.............................................................66
Restrictions On The Transfer Of Units.........................................66
Withdrawal From Partnership...................................................67
DISTRIBUTION POLICIES.........................................................68
Distributions To The Limited Partners.........................................68
Cash Distributions............................................................68
Allocation Of Net Income And Net Losses.......................................69
REPORTS TO LIMITED PARTNERS...................................................69
PLAN OF DISTRIBUTION..........................................................69
Sales Commissions.............................................................69
Sales By Registered Investment Advisors.......................................69
Payment Of Sales Commission...................................................70
Payment Of Other Fees To Participating Broker Dealers.........................70
Suitability Requirements......................................................70
Formation Loan................................................................71
Escrow Arrangements...........................................................72
Termination Date Of Offering..................................................72
Subscription Account..........................................................72
SUPPLEMENTAL SALES MATERIAL...................................................72
LEGAL PROCEEDINGS.............................................................73
LEGAL OPINION.................................................................73
EXPERTS.......................................................................73
ADDITIONAL INFORMATION........................................................73
TABULAR INFORMATION CONCERNING PRIOR PROGRAMS.................................74
GLOSSARY......................................................................74
INDEX TO THE FINANCIAL STATEMENTS.............................................76
APPENDIX I - PRIOR PERFORMANCE TABLES
EXHIBIT A - AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
EXHIBIT B - AMENDED AND RESTATED SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
<PAGE>
SUMMARY OF THE OFFERING
This summary highlights selected information contained elsewhere in this
prospectus. It does not contain all the information that is important to your
decision to invest in the partnership. To understand this offering fully, you
should read the entire prospectus carefully, including the "Risk Factors"
section and the financial statements.
The Partnership We are Redwood Mortgage Investors VIII and we commenced
operations on or about April 12, 1993. We are located at 650 El Camino Real,
Suite G, Redwood City, California 94063 and our telephone number is (650)
365-5341.
We are engaged in business as a mortgage lender. We make loans to
individuals and business entities secured by residential, investment or
commercial property. In order to secure repayment of the loans, the loans are
secured by first and second, and in some limited cases, third deeds of trust on
the property.
General Partners The general partners of the partnership are D. Russell
Burwell, Michael R. Burwell and Gymno Corporation, a California corporation and
Redwood Mortgage Corp., a California corporation. Redwood Mortgage Corp. was
admitted as a general partner on February 7, 2000. The general partners manage
and control the partnership affairs and will make all investment decisions for
us. The loans are arranged and serviced by Redwood Mortgage Corp.
Risk Factors An investment in the partnership involves certain risks. The
following are the most significant risks relating to an investment in the
partnership:
-Although you will have an opportunity to review the partnership's existing
portfolio, you will not have an opportunity to review loans to be made by the
partnership from the proceeds of this offering until after the loans have been
made. Such decisions will be made exclusively by the general partners.
-No escrow will be established. All proceeds from the sale of units will be
immediately available for investment in loans.
-The general partners and their affiliates will receive fees from the
partnership. Most fees will be paid regardless of the economic return to you and
other limited partners or how successful the partnership is. The compensation to
be received by the general partners and their affiliates is based, in large
part, upon the principal balances of the loans. The principal balances of the
loans will be continually changing as new investments are made.
-There are limits on your ability to transfer units. No public market
exists for units and none is likely to develop. Thus you may not be able to sell
your units quickly or profitably if the need arises.
-Before you invest in the partnership, you should see the complete
discussion of the "Risk Factors" beginning on page 4 of this prospectus.
Terms of the Offering Up to 30,000,000 units ($30,000,000) of limited
partnership interest in the partnership are offered in units of $1 each. As of
November 30, 1999, we had sold $18,893,383.13 in units. 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").
They are being offered on a "best efforts" basis, which means that no one is
guaranteeing that any minimum number of units will be sold. We may also accept
orders from you if you utilize the services of a registered investment advisor.
Estimated Use of Proceeds. The partnership will use the proceeds from the
sale of its units to make loans and pay expenses relating to the organization
and operation of the partnership. After the repayment of the formation loan, we
estimate that approximately 96% of the proceeds of this offering will be used to
make loans. The remaining proceeds will be used to pay expenses relating to the
organization and operation of the partnership. Until the formation loan is
repaid, a minimum of 84% of the proceeds will be used to make loans. However,
because of the time value of money, the amount of proceeds available to make
loans (96%) upon the repayment of the formation loan may be less than if 96% of
the proceeds of this offering were available to make loans today. If all of the
units we are offering are not sold, the amount of proceeds available to make
loans will be less.
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. An affiliate of a general partner includes
generally any entity in which a general partner owns 10% or more or otherwise
controls any person owning directly or indirectly, 10% or more, of a general
partner and any officer, director or partner or a general partner. The receipt
of this compensation is not the result of arms length negotiations (See
"COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES" at page 20). The amount of
compensation to be paid to the general partners and their affiliates 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.
Conflicts of Interest The general partners and their affiliates will
experience conflicts of interest in connection with the management of the
partnership, including the following:
-The general partners and their affiliates have legal and financial
obligations with respect to other partnerships which are similar to their
obligations with respect to the partnership.
-The general partners and their affiliates have to allocate their time
between the partnership and other activities, including other real estate
partnerships in which they are involved.
-The amount of the loan brokerage commission payable to affiliates of the
general partners will affect the overall rate of
return to the limited partners.
In the event of default of the formation loan, 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 Corp., including, but not limited to, the loan servicing fee and the
loan brokerage fee.
Prior Performance Summary We have previously sponsored 8 prior partnerships
with investment objectives similar to the partnership. We have been engaged in
mortgage lending in the San Francisco Bay Area since 1977. For a description of
operations of the partnership and prior programs of the general partners and
their affiliates, see "PRIOR PERFORMANCE SUMMARY" at page 27. Certain
statistical data relating to prior partnerships with investment objectives
similar to ours is also provided in the "Prior Performance Tables" included at
the end of this prospectus.
Investment Objectives and Criteria
Our investment objectives are:
-To yield a high rate of return from mortgage lending, after the payment of
certain fees and expenses to the general partners and their affiliates, and
-Preserve and protect the partnership's capital.
Federal Income Tax Consequences The section of this prospectus entitled
"FEDERAL INCOME TAX CONSEQUENCES" at page 50 contains a discussion of the most
significant federal income tax issues pertinent to the partnership. 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.
Liquidity, Capital Withdrawals and Early Withdrawals You have 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, after the one year period, you may
withdraw all or part of your 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. Such notice must be 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.
You will also have the right after five years from the date of purchase of
the units to withdraw from the partnership. This will be done 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, we 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. There is also a
limited right of liquidation for your heirs upon death.
Summary of Limited Partnership Agreement Your rights and obligations in the
partnership and your relationship with the general partners will be governed by
the partnership agreement. Please refer to the "SUMMARY OF LIMITED PARTNERSHIP
AGREEMENT" section at page 64 of this prospectus for more detailed information
concerning the terms of the partnership agreement. A complete copy of the
partnership agreement is attached as Exhibit A to this prospectus.
Additional Information We have filed a registration statement under the
Securities Act of 1933, as amended. The partnership has filed with the
Securities and Exchange Commission, Washington, D.C. 20549, as amended, with
respect to the units offered pursuant to this prospectus. For further
information regarding the partnership, the general partners and their
activities, you should review 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 who file
electronically. The address of the Commission website is http://www.sec.gov.
Subscription Procedures In order to subscribe for units, you will be required to
deliver the following:
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 $1 for each unit subscribed for. The minimum
purchase is 2,000 units ($2,000). All checks should be made payable to "Redwood
Mortgage Investors VIII," and should be delivered to the partnership's offices.
The subscription documents referred to above are contained in the "Investor
Subscription Documents" provided to prospective investors under separate cover
herewith.
RISK FACTORS
Investing in units involves a high degree of risk. You should specifically
consider the following risks:
Real Estate And Operating Risks
We Have Not Identified Any New Loans From Additional Proceeds of This
Offering We have not yet identified any specific investments with respect to the
additional proceeds we will receive from this offering. Thus, this offering
presents increased uncertainties to you. You must rely entirely on the judgment
of the general partners in investing the proceeds of this offering. This means
you will be unable to evaluate, in advance, any of the terms of the loans
including the selection of borrowers, and the terms of the loans that will be
made.
Additionally, you will have no ability to evaluate the identification or
location of, or any other important economic and financial data pertaining to,
the underlying properties that secure the loans. No assurance can be given that
we will be successful in obtaining investments that meet our goals or that, if
investments are made, our objectives will be realized. Our current loan
portfolio is summarized in the sections of the prospectus entitled "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE PARTNERSHIP" at page 41
and "BUSINESS" at page 46 of this prospectus.
Loan Defaults and Foreclosures By Borrowers May Adversely Affect
Partnership We are in the business of lending money and, as such, take the risk
that borrowers may be unable to repay the loan we have made to them. Most loans
will be interest only or interest with small repayments of principal. This means
the loans are structured to provide 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 at maturity out of their own funds and are
compelled to refinance or sell their property. Fluctuations in interest rates
and the unavailability of money could make it difficult for borrowers to
refinance their loans at maturity or sell their property. If a borrower is
unable to repay the loan and defaults, we may be forced to purchase the property
at a foreclosure sale. If we cannot quickly sell or refinance such property, and
the property does not produce any significant income, the partnership's
profitability will be adversely affected. The partnership may be required to
spend substantial funds if it is required to foreclose on a borrower. As of
September 30, 1999, the partnership's loan portfolio included four (4) loans
delinquent over 90 days representing 4.29% of the total portfolio and no loans
had a filed notice of default.
We Must Rely On Appraisals Which May Not Be Accurate or May Be Affected By
Subsequent Events We are an "asset" rather than a "credit" lender. We are
relying primarily on the real property securing the loans to protect our
investment and not the credit worthiness of the borrower. We rely on appraisals,
prepared by unrelated third parties, to determine the fair market value of real
property used to secure loans made by the partnership. We cannot guarantee that
such appraisals will, in any or all cases, be accurate. Additionally, 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.
These subsequent events may include general or local economic conditions,
neighborhood values, interest rates and new construction. Subsequent changes in
applicable governmental laws and regulations may also have the effect of
severely limiting the permitted uses of the property. This could also
drastically reduce the property's value. Accordingly, if an appraisal is not
accurate or subsequent events adversely effect the value of the property, the
loan would not be as secure as anticipated. In the event of foreclosure, we may
not be able to recover our entire investment.
Risks Associated With Junior Encumbrances In the event of foreclosure under
a second or third deed of trust the debt secured by a senior deed(s) of trust
must be satisfied before any proceeds from the sale of the property can be
applied toward the debt owed to us. Furthermore, to protect our junior security
interest, we 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.
Risks Associated With Construction Loans
We may make construction loans up to a maximum of ten percent (10%) of the
partnership's loan portfolio. Investing in construction loans subjects us to
greater risk than loans related to properties with operating histories. If the
partnership forecloses on property under construction, construction will
generally have to be completed before the property can begin to generate an
income stream or could be sold. We may not have adequate cash reserves on hand
with respect to junior-encumbrances and/or construction loans at all times to
protect our security. If we did not have adequate cash reserves, we could suffer
a loss of our investment. (See "CERTAIN LEGAL ASPECTS OF LOANS" at page 38).
Risks of Real Estate Ownership After Foreclosure If a borrower is unable to
pay our loan or refinance it when it is due, we will be required to institute
foreclosure proceedings against the borrower. Although we may immediately be
able to sell the property, sometimes we will be required to own the property for
a period of time. Regardless of how long we own the property, we will be subject
to certain economic and liability risks attendant to all property ownership.
Depending of the type of property (whether it is a single family, multifamily or
commercial property, land, or a property under construction), the risks of
ownership will include the following:
-It is possible that the property could generate less income for us when we
could have earned interest on the loan
-If it is a rental property (either residential or commercial) we will be
required to find and keep tenants
-We will be required to oversee and control operating expenses
-We will be subject to general and local real estate and economic market
conditions which could adversely affect the value of the property
-We will be subject to any change in laws or regulations regarding taxes,
use, zoning and environmental protection and hazards
-We will be potentially liable for any injury that occurs on or to the
property
-We will obtain the type of insurance customarily held by owners of real
property. The type and nature of the insurance will vary depending on the type
of property, the use of the property and the anticipated length of ownership.
Risks of Real Estate Development On Property Acquired By Us Although we
have not done so in the past, if we have acquired property through foreclosure
or otherwise, there may be circumstances in which it would be in the best
interest of the partnership not to immediately sell the property, but to develop
it ourselves. Depending upon the location of the property and market conditions,
the development done by us could be either residential (single or multifamily)
or commercial. It is likely that any development done by us would be done in
combination with other affiliated or nonaffiliated parties including a general
contractor. Development of any type of real estate involves certain additional
risks including the following:
-We will be required to rely on the skill and financial stability of third
party developers and contractors
-Any development or construction will involve obtaining local government
permits. We will be subject to the risk that our project does not meet the
requirements necessary to obtain those permits
-Any type of development and construction is subject to delays and cost
overruns
-There can be no guarantee that upon completion of the development that we
will be able to sell the property or realize a profit from the sale
-Economic factors and real estate market conditions could adversely affect
the value of the property
Bankruptcy and Legal Limitations On Personal Judgments May Adversely Affect
Our Profitability Any borrower has the ability to delay a foreclosure sale for a
period ranging from several months to several years or more by filing a petition
in bankruptcy. The filing of a petition in bankruptcy automatically stops or
"stays" any actions to enforce the terms of the loan. The length of this delay
and the costs associated with it will generally have an adverse impact on our
profitability. Certain provisions of California law applicable to all real
estate loans may prevent us from obtaining a personal judgment against a
borrower if the proceeds from a foreclosure sale are insufficient to pay the
loans in full. This would result in a loss to the partnership. (See "CERTAIN
LEGAL ASPECTS OF LOANS" at page 38). As of the date of this prospectus, no
borrowers are currently in bankruptcy.
Risks Associated With Unintended Violations of Usury Statutes Usury laws
impose restrictions on the maximum interest that may be charged on our loans.
Potential penalties for violation of the usury law generally include restitution
of actual usurious interest paid by the borrower, damages in an amount equal to
three times the interest collected by the lender and unenforceability of the
loan. Under California law, a loan arranged by a licensed California real estate
broker will be exempt from applicable California usury provisions. Since Redwood
Mortgage Corp., a licensed California real estate broker, will arrange our
loans, our loans should be exempt from applicable state usury provisions.
Nevertheless, unintended violations of the usury statutes may occur. In such an
event, the partnership may have insufficient cash to pay any damages, thereby
adversely affecting the operations of the partnership. We could also lose our
entire investment.
Risks Associated With High Cost Mortgages In March 1995, the Federal
Reserve Board issued final regulations governing high cost mortgages. A high
cost mortgage is any loan made to a consumer 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. These
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 regulations, even the unintended failure
will render the loan rescindable for up to three (3) years. The lender could
also be held liable for attorneys' fees, finance charges and fees paid by the
borrower and certain other money damages. Although the partnership anticipates
making relatively few loans that would qualify as high cost mortgages, the
failure to comply with the new regulations could adversely affect the
partnership.
Loan-To-Value Ratios 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, the so-called "loan to value ratio" will not exceed the
following:
-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 or other
factors adequate to justify a higher loan-to-value ratio. These factors include
high net worth, previous borrowing experience with us, and additional
collateral. To date, there have been no adjustments to the foregoing
loan-to-value ratios.
The foregoing loan-to-value ratios will not apply in the event we agree to
help finance the purchase of property we have acquired through foreclosure. They
will also not apply in the event we refinance a loan in default upon maturity.
However, 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
the 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, the loan could become
under-collateralized. This would result in a risk of loss for the partnership if
the borrower defaults on the loan.
Use Of Borrowed Money May Reduce Our Profitability or Cause Losses Through
Liquidation We may and have borrowed funds for the purpose of making loans, for
increased liquidity, reducing cash reserve needs or for any other proper
partnership purpose on any terms commercially available. We may assign all or a
portion of our loan portfolio as security for such loans. The maximum amount we
may borrow is fifty percent (50%) of the outstanding principal balance of our
total loan portfolio. We anticipate engaging in such borrowing when the interest
rate at which we can borrow funds is somewhat less than the rate that can be
earned on our loans (See "INVESTMENT OBJECTIVES AND CRITERIA - Borrowing" at
page 38).
Changes in the interest rate have a particularly adverse effect on us if we
have borrowed money to fund loans. Borrowed money will bear interest at a
variable rate, whereas we are likely to be making fixed rate loans. Thus, if
prevailing interest rates rise, we may have to pay more in interest on the
borrowed money than we make on loans to our borrowers. This will reduce our
profitability or cause losses through liquidation of loans in order to repay the
debt on the borrowed money. It is possible that we could default on our
obligation if we cannot cover the debt on the borrowed money.
Changes in interest rates may affect your return on your investment
Mortgage interest rates are subject to abrupt and substantial fluctuations. We
have made, and anticipate to continue to make a large number of medium to long
range term (three to fifteen year) loans. Your purchase of units is an illiquid
investment. If prevailing interest rates rise above the average interest rate
being earned by our loan portfolio, you may be unable to quickly sell your units
in order to take advantage of higher returns available from other investments.
In addition, an increase in interest rates accompanied by a tight supply of
mortgage funds may make refinancing by borrowers with balloon payments difficult
or impossible. This is true regardless of the market value of the underlying
property at the time such balloon payments are due. In such event, the property
may be foreclosed upon (See "CERTAIN LEGAL ASPECTS OF LOANS" at page 38).
Marshaling of Assets Could Delay Or Reduce Recovery of Loans As security
for a single loan, we 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. This provides us with additional security for the
borrower's loan. In the event of a default by the borrower, we may be required
to "marshal" the assets of the borrower, if there are lienholders junior to us.
Marshaling is an equitable doctrine used to protect a junior lienholder with a
security interest in a single property from being "squeezed out" by a senior
lienholder, such as us, with security interest not only in the property, but in
one or more additional properties. Accordingly, if another creditor of the
borrower forced us to marshal the borrower's assets, foreclosure and eventual
recovery of the loan could be delayed or reduced, and our costs associated
therewith could be increased.
Potential Liability For Toxic Or Hazardous Substances If We Are Considered
Owner of Real Property If we take an equity interest in, management control of,
or foreclose on any of the loans, we may be considered the owner of the real
property securing such loans. If foreclosure on any loan becomes necessary and
we acquire record ownership of the property through a foreclosure sale to
protect our investment, we will conduct our management of the property primarily
to protect our security interest in the property.
We will oversee 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. In the event of
any environmental contamination, there can be no assurance that we would not
incur full recourse liability for the entire cost of any such removal and
cleanup, even if we did not know about or participate in the contamination. Full
recourse liability means that any of our property, including 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. Additionally, we
would have to bear the cost of such removal and cleanup which may exceed the
value of the property. In addition, we 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.
Potential Loss Of Revenue In The Event Of The Presence of Hazardous
Substances If we became the "owner" of any real property, we would also be
exposed to risk of lost revenues during any cleanup, the risk of lower lease
rates or decreased occupancy if the existence of such substances or sources on
the property were a health risk. If we fail 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. Such agencies
would 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. We may
find it difficult or impossible to sell the property prior to or following any
such cleanup. If such substances are discovered after we sell the property, we
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, we 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 we are required to incur such costs or
satisfy such liabilities, this could have a material adverse effect on our
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 us. If we anticipate that we 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 loan to an affiliated or
unaffiliated entity.
Potential Conflicts and Risks If We Invest In Loans With General Partners
or Affiliates We may invest in loans acquired by the general partners or
affiliates. Our portion of the total 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 our 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 we will benefit through broader
diversification of our loan portfolio. However, you 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 we invest
in loans with the general partners or affiliates, we will acquire our 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 loans. By investing in a
loan on the same terms and conditions as do the general partners or an
affiliate, we will be entitled to enforce the same rights as the general
partners or affiliate in such a loan and the general partners and affiliate will
not have greater rights in the loan than do we. As a result, in the event of a
default by the borrower, any efforts by the general partners, an affiliate, or
us 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" at page 23).
Investment Risks
There Is No Assurance You Will Receive Cash Distributions 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" at
page 2). 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 that is available for
distribution to the general and limited partners. Therefore, the general
partners and affiliates may benefit as a result of our activities, irrespective
of any cash distributions to you. 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 you. Further, if you
elect to acquire additional units in lieu of receiving periodic cash
distributions you will be entitled to receive a larger portion of the cash
available for distribution solely because of your election to acquire additional
units.
Your Ability To Recover Your Investment On Dissolution and Termination Will
Be Limited In the event of dissolution or termination of the partnership, the
proceeds realized from the liquidation of assets, if any, will be distributed to
the partners only after the satisfaction of claims of creditors. Accordingly,
your ability to recover all or any portion of your investment under such
circumstances will depend on the amount of funds so realized and claims to be
satisfied therefrom.
Certain Kinds of Losses Cannot Be Insured Against We will require
comprehensive insurance, including fire and extended coverage, which is
customarily obtained for or by a lender, on properties 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 such as
earthquakes, floods and slides) 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 loan, we could lose both our invested
capital and anticipated profits from such investment. In addition, on certain
real estate owned by us as a result of foreclosure, we 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 our profitability.
Risks Related To Concentration of Mortgages in the San Francisco Bay Area
As of September 1999, 73.1% ($27,366,247) of our loans are secured by properties
located in 6 counties that comprise the San Francisco Bay Area. While the San
Francisco Bay Area economy has recently enjoyed strong growth and low
unemployment, there is no guarantee that economic and real estate market
conditions will not change in the future. Our concentration of loans in the San
Francisco Bay Area exposes us to greater risk of loss if the economy in the San
Francisco Bay Area should change than if our loans were spread throughout
California or the nation. The San Francisco Bay Area economy and/or real estate
market conditions could be weakened by:
-An economic recession in the area
-Overbuilding of commercial and residential properties
-Relocation of businesses outside of the area due to economic factors such
as high cost of living and of doing business within the region
If the economy were to weaken it is likely that there would be more
property available for sale, values would fall, and lending opportunities would
decrease. In addition, a weak economy and increased unemployment could adversely
affect borrowers resulting in an increase in the number of loans in default.
You Must Rely on the General Partners For Management Decisions All
decisions with respect to the management of the partnership will be made
exclusively by the general partners. Our success will, to a large extent, depend
on the quality of the management of the partnership, particularly as it relates
to lending decisions. You have no right or power to take part in the management
of the partnership. Accordingly, you should not purchase any of the units
offered hereby unless you are willing to entrust all aspects of the management
of the partnership to the general partners. You should carefully evaluate the
general partners' capabilities to perform such functions (See "MANAGEMENT" at
page 31).
You Will Be Bound By Decision of Majority Vote Subject to certain
limitations, 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 the sale of all or substantially all of the
partnership's assets and amend the partnership agreement.
If you do not vote with the majority in interest of the other limited
partners, you nonetheless will be bound by the majority vote. The general
partners shall have the right to increase this offering or conduct an additional
offering of securities without obtaining your consent or the consent of any
other limited partner. (See "SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT at
page 64" and "TRANSFER OF UNITS" at page 66).
Net Worth of the General Partners May Affect Ability of the 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" at page 31).
Operating History of the Partnership
In addition to the partnership, the general partners have been the general
partners of 8 prior partnerships with similar investment objectives. Our
continued success depends on the extent to which we will continue to operate in
accordance with the expectations and assumptions set forth in this prospectus
(See "PRIOR PERFORMANCE SUMMARY" at page 27).
Risks Regarding Formation Loan and Repayment Thereof The partnership will
loan to Redwood Mortgage Corp. funds in an amount equal to the sales commissions
(See "PLAN OF DISTRIBUTION - Formation Loan" at page 71). The formation loan
will be unsecured, will not bear interest and will be repaid in annual
installments. Redwood Mortgage Corp. 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.
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 Corp., at its option may prepay all or any part of
the formation loan. Redwood Mortgage Corp. intends to repay the formation loan
principally from loan brokerage commissions earned on loans and other fees paid
by the partnership.
A portion of the amount we receive from withdrawing limited partners as
early withdrawal penalties may first be applied to reduce the principal balance
of the formation loan. This will have the effect of reducing the amount owed by
Redwood Mortgage Corp. to the partnership. 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) begins using
any other loan brokerage firm for the placement of loans or loan servicing,
Redwood Mortgage Corp. 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 Corp.
is no longer receiving payments for services rendered, the debt on the formation
loan shall be forgiven by the partnership. Redwood Mortgage Corp. 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 your
rate of return, 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.
Delays In Investment Could Adversely Affect Your Return A delay will occur
between the time you purchase your units and the time the net proceeds of the
offering are invested. This delay could adversely affect the return paid to you.
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 loans. The general partners estimate, based upon their historical experience,
that it will be no longer than ninety (90) days from the time your funds are
received by us until they are invested in loans.
No Assurance of Limitation of Liability of Limited Partners As a limited
partner, you have no right to, and you take no part in, control and management
of the partnership's business. However, the partnership agreement authorizes all
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" at page 64). The California Revised Limited Partnership Act expressly
provides that the right to vote on those matters will not cause you or any other
limited partner to have personal liability for partnership obligations in excess
of the amount of your capital contributions which have not been previously
returned to you. However, you may be required to return amounts distributed to
you as a return of your capital contribution if we are unable to pay creditors
who extended credit to us prior to the date of such return of capital.
No Assurance That California Law Will Apply With Respect To Limitation Of
Liability Of Limited Partners Landels, Ripley & Diamond, LLP, 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, Landels, Ripley &
Diamond, LLP, 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 voting rights might provide a
basis on which a court in a state other than California could hold that you are
not entitled to the limitation on liability for which the partnership agreement
provides. This is only a concern if you are not a California resident.
We Cannot Precisely Determine Compensation To Be Paid General Partners and
Affiliates 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" at page 20. Any such prediction would
necessarily involve assumptions of future events and operating results which
cannot be made at this time.
Working Capital Reserves May Not Be Adequate We intend to maintain working
capital reserves to meet our obligations, including carrying costs and operating
expenses of the partnership (See "ESTIMATED USE OF PROCEEDS" at page 19). The
general partners believe such reserves are reasonably sufficient for our
contingencies. 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 our loans. 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 us. Such a result might require us to
liquidate our investments and abandon our activities.
Purchase of Units is a Long Term Investment No public trading market for
the units exists. It is highly unlikely that a public trading market will ever
develop. Article VII of the partnership agreement imposes substantial
restrictions upon your ability to transfer units (See "SUMMARY OF LIMITED
PARTNERSHIP AGREEMENT" at page 64 and "TRANSFER OF UNITS" at page 66). In
addition, the partnership agreement does not provide for the buy-back or
repurchase of units by the partnership or the general partners. It does however,
provide you with a limited right to withdraw capital from the partnership after
one year from the date of purchase subject to an early withdrawal penalty of 10%
of the amount withdrawn. You may also withdraw after five years from the date of
purchase without penalty subject to certain limitations. (See "SUMMARY OF THE
LIMITED PARTNERSHIP AGREEMENT - Withdrawal from Partnership" at page 67). You
may not, therefore, be able to liquidate your investment 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, you should consider the purchase of units only as a long-term
investment.
We May Be Required to Forego More Favorable Investments to Avoid Regulation
Under Investment Company Act of 1940 The general partners intend to conduct the
operations of the partnership so that we will not be subject to regulation under
the Investment Company Act of 1940. Among other things, they will monitor the
proportions of our funds which are placed in various investments and the form of
such investments so that we do not come within the definition of an investment
company under such Act. As a result, we may have to forego certain investments
which would produce a more favorable return.
Use of Forward Looking Statements Some of the information in this
prospectus contains forward-looking statements that involve substantial risks
and uncertainties. You can identify these statements by forward-looking words
such as "may," "will," "expect," "anticipate," "believe," "estimate" and
"continue" or similar words. You should read statements that contain these words
carefully because they: (1) discuss our future expectations; (2) contain
projections of our future results of operations or of our financial condition;
or (3) state other "forward-looking" information. We believe that it is
important to communicate our future expectations to our investors. However,
there may be events in the future that we are not able to accurately predict or
over which we have no control. These events may include future operating
results, our efforts to address year 2000 issues and potential competition among
other things. The risk factors listed in this section, as well as any cautionary
language in this prospectus, provide examples of risks, uncertainties and events
that may cause our actual results to differ materially from the expectations we
describe in our forward-looking statements. Before you invest in the
partnership, you should be aware that the occurrence of events described in
these risk factors and elsewhere in this prospectus could have a material
adverse effect on our business, operating results and financial condition.
Tax Risks
Material Tax Risks Associated With Investment In Units An investment in
units involves material tax risks for you. You are urged to consult your 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, you should review the section of this
prospectus entitled "FEDERAL INCOME TAX CONSEQUENCES at page 50."
Risks Associated With Partnership Status For Federal Income Tax Purposes We
will not seek a ruling from the Internal Revenue Service that the partnership
will be treated as a partnership for federal income tax purposes. We have
received an opinion from Landels, Ripley & Diamond, LLP, (counsel) that the
partnership should be treated as a partnership for federal income tax purposes.
Counsel's opinion represents only its best legal judgment, and has no binding
effect on the IRS 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 IRS may impose an additional
litigation expense on the limited partners. If we are taxed as a corporation we
would, among other things, pay income tax on our 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 we 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 -
Partnership Status" at page 52).
Risks Associated With Characterization of Partnership Income as Portfolio
Income We are engaged in the trade or business of mortgage lending (See "FEDERAL
INCOME TAX CONSEQUENCES - Character of Income or Loss" at page 55) and we
anticipate that we will likely be considered an "equity financed lending
activity" such that most of our income will be considered portfolio income not
passive income. Since such treatment is dependent upon a number of factors not
yet determined such as whether we are engaged in a trade or business, whether we
incur liabilities in connection with our activities, and the proper matching of
the allocable expenses incurred in the production of partnership income, there
can be no assurance that we will be treated as an equity financed lending
activity. If we are not, it is possible that we would be unable to allocate
expenses to the income produced, in which case investors 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 period will likely be
treated as a guaranteed payment to investors. 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 period were treated as a partnership distributive share,
it is possible although unlikely, that such payment would constitute passive
income.
The determination of whether investors' share of 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 we currently anticipate.
Risks of Partnership Characterization As a Publicly Traded Partnership
Landels, Ripley & Diamond, LLP, counsel for the partnership has given its
opinion that it is more likely than not that the partnership will not be treated
as a "publicly traded partnership" for federal income tax purposes. If the
partnership were classified as a "publicly traded partnership" it could result
in:
-taxation of the partnership as a corporation;
-application of the passive activity loss rules in a manner that could
adversely affect investors; and
-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" at page 52).
Risks Relating to Taxation of Undistributed Revenues and Gain We do not
anticipate that we will generate so-called "phantom income." The problem of
phantom income 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 our lending activities.
Risks Relating to Creation of Unrelated Business Taxable Income A
tax-exempt investor (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"). Landels, Ripley & Diamond, LLP,
counsel to the partnership, has opined that it is more likely than not that the
income of the partnership will not constitute UBTI. We may borrow funds on a
limited basis. We do not currently intend to own and lease personal property. If
we borrow funds or lease personal property, we will use reasonable efforts to do
so in a manner that does not cause any significant amount of partnership income
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, if you are a tax-exempt investor you should consult your own tax
advisors. An investment in units may not be suitable for charitable remainder
trusts.
Risks of Applicability of Alternative Minimum Tax The application of the
alternative minimum tax to an investor could reduce certain tax benefits
associated with the purchase of units. The effect of the alternative minimum tax
upon an investor depends on his particular overall tax situation, and you should
consult with your own tax adviser regarding the possible application of this
tax.
Risks of Audit and Adjustment The IRS could challenge certain federal
income tax positions taken by the partnership if we are audited. Any adjustment
to the partnership's return resulting from an audit by the IRS would result in
adjustments to the tax returns of each investor 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 investors could incur substantial legal and accounting costs in contesting
any IRS 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.
Risks of Effects of State and Local Taxation The state in which you reside
may impose an income tax upon your share of the taxable income of the
partnership. Furthermore, states in which the partnership will own property
generally impose 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. You are urged to
consult with your own tax advisers with respect to state and local taxation. The
partnership may be required to withhold state taxes from distributions to
investor in certain instances.
Erisa Risks
Risks of Investment By Tax-Exempt Investors. In considering an investment
in the partnership, a pension or profit-sharing plan qualified under Section
401(a) of the Code and exempt from tax under Section 501(a), 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" at page 61).
INVESTOR SUITABILITY STANDARDS
You should only purchase units if you have adequate financial means, desire
a relatively long term investment, and do not anticipate any need for immediate
liquidity.
Minimum Suitability Standards. We have established a minimum suitability
standard which requires that an investor have either:
-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
-irrespective of annual gross income, a net worth of $75,000 (determined
with the same exclusions). 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.
We have established these standards for two reasons: (1) the purchase of
units based upon the lack of liquidity of the units and (2) the fact that the
relative financial benefit of an investment with us may depend upon your tax
bracket. You will be required to represent in writing to us that: you comply
with the applicable standards; or you are purchasing in a fiduciary capacity for
a person meeting such standards; or 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. The
general partners will not accept subscriptions from you if you are unable to
represent in your subscription agreement that you 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. We will require certain assurances that such standards are met
before agreeing to any transfer of the units.
Minimum Purchase Amount. The general partners have established the minimum
purchase at 2,000 units ($2,000). The general partners may accept subscriptions
in excess of $2,000 in increments of one unit ($1). No person may become an
assignee of record or a substituted limited partner unless he is the owner of a
minimum of 2,000 units ($2,000). In addition to the transfer restrictions
imposed by the partnership, any investor seeking to transfer his units will be
subject to the securities or "blue sky" laws of the state in which the transfer
is to take place (See "DESCRIPTION OF UNITS" at page 63 and "SUMMARY OF THE
LIMITED PARTNERSHIP AGREEMENT -Restrictions on Transfer" at page 65).
IRA Investors. A minimum of 2,000 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"). You
should be aware, however, that an investment in the partnership will not, in and
of itself, create an IRA for you and that, in order to create an IRA, you must
comply with the provisions of Section 408 of the Code.
ERISA Investors. 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 will
manage the partnership 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 "TAX RISKS -Investment by Tax-Exempt Entities." at
page 15)
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.
Blue Sky Requirements. If we qualify units 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. No
such additional requirements exist at this time.
Subscription Agreement Warranties. The subscription agreement requires that
you warrant that:
-you have received, read and understood the prospectus and that you are
relying on it for your investment;
-you meet the applicable suitability standards set forth in the prospectus;
-you are 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;
-you have been informed by the participating broker dealer of all facts
relating to lack of liquidity or marketability;
-you understand the restrictions on transferability;
-you have 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;
-you have the power, capacity and authority to make the investment;
-you are capable of evaluating the risks and merits of the investment; and
-you are making the investment for your own account or your family's or in
your fiduciary capacity and not as an agent for another.
The purpose of the warranties is to ensure that you fully understand the
terms of our offering, the risks of an investment with us and that you have 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 against
you as a defense or basis for seeking indemnity from you.
Subscription Procedure. In order to subscribe to units in the partnership,
you must read carefully and execute the "SUBSCRIPTION AGREEMENT AND POWER OF
ATTORNEY." For each unit subscribed, you must tender the sum of $1 per unit. The
minimum investment is 2,000 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
We are offering a maximum of 30,000,000 units ($30,000,000) on a "best
efforts" basis. A best efforts basis means no one is guaranteeing that any
minimum number of units will be sold. The units are being 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 $1 per
unit. The minimum subscription is 2,000 units ($2,000). We may also accept
orders directly from you if you utilize the services of a registered investment
advisor. 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, you may cumulate units you purchased
individually with those units purchased by your spouse or units purchased by
your pension or profit sharing plan, IRA or Keogh plan. You must pay $1 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.
No Escrow Established. There is no escrow. As this is not our first
offering of units in this partnership, all proceeds from the sale of units will
be immediately available to us for investment and will not be held in an escrow
account.
Investment of Subscriptions. Your subscription proceeds will be deposited
into a subscription account at a federally insured commercial bank or other
depository selected by the general partners. They will be invested in short-term
certificates of deposit, money market or other liquid asset accounts. You will
be admitted into the partnership only when your subscription funds are required
by us to fund a loan, or the formation loan, to create appropriate reserves or
to pay organizational expenses or other proper partnership purposes. During the
period prior to your admittance as a limited partner, proceeds of the sale are
irrevocable and will be held by the general partners for your account in the
subscription account. Your funds will be transferred from the subscription
account into the partnership's operating account on a first-in, first-out basis.
Upon your admission as a limited partner to the partnership, your subscription
funds will be released to the partnership and units will be issued to you at the
rate of $1 per unit or fraction thereof. Interest earned on subscription funds
while in the subscription account will be returned to you, or if you elect to
compound earnings, the amount equal to such interest will be added to your
investment in the partnership. If you elect to have such amount added to your
investment, the number of units actually issued shall be increased accordingly.
Purchase by General Partners and Affiliates. 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. The maximum amount of units that may be purchased by the
general partners or their affiliates is 50,000 units ($50,000). However, it is
not anticipated that such purchases will be made by the general partners and
their affiliates. To date, no purchases have been made. Purchases of 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 the 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 31, 1999, for the period ended
July, 1999, and in effect until September 30, 1999, is 4.50%. The guaranteed
payment period is the period commencing on the day you are 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" at page 18). 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. To date, we have provided
you with an election to receive periodic cash distributions from the partnership
or to have earnings retained in your capital account that will increase it in
lieu of receiving periodic cash distributions. This election, once made, is
irrevocable for investors who choose to receive periodic cash distributions from
the partnership. However, you may change whether such distributions are received
on a monthly, quarterly or annual basis. If you initially elect to retain
earnings to increase your capital account in lieu of periodic cash distributions
you may, after three (3) years, elect to receive periodic cash distributions. If
you elect to retain your earnings in your capital account, we will use those
earnings for making further loans or other proper partnership purposes. The
earnings from these further loans will be allocated among all investors;
however; if you elected to retain your earnings, you will be credited with an
increasingly larger proportionate share of such earnings than investors who
receive periodic cash distributions, since your capital account will be
increasing over time. Annual cash distributions will be made shortly after the
calendar year end.
In order to provide you greater flexibility if you initially elect to
receive cash distributions and subsequently change your mind, we are going to
register with the SEC, a dividend reinvestment plan. The dividend reinvestment
plan will be on substantially the same terms as our current election to receive
distributions. However, it will provide plan participants with greater
flexibility. We anticipate that the dividend reinvestment plan will be filed in
the first half of 2000 and take effect immediately. Until that time, you will
still have the election to receive cash distributions or to receive additional
units as described herein.
ESTIMATED USE OF PROCEEDS
The following table sets forth our use of the proceeds received from this
offering and estimated application of the gross proceeds of the sale of the
maximum number of units being offered hereby. Upon the repayment of the
formation loan, we estimate that approximately 96% of the proceeds of this
offering will be used to make loans. Until the formation loan is repaid, we
estimate that after deduction of the public offering expenses, that
approximately eighty-four percent (84%) of the proceeds of this offering will be
used for making loans assuming all units are sold. Currently, 88.48% of the
gross offering proceeds received to date are being used to make 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>
Use of Proceeds Maximum Offering(1) Maximum Offering(2)
As of September 30, 1999 30,000,000 Units 30,000,000 Units
($30,000,000) sold ($30,000,000) sold
with leveraged funds
=================================== ====================================== ============================ ============================
Dollar Amount Percent Dollar Amount Percent Dollar Amount Percent
- --------------------------------------------- ---------------- ----------- ------------------ ----------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gross Proceeds $16,828,969 79.08% $30,000,000 100.00% $30,000,000 66.67%
Leveraged Funds $4,452,000 20.92 0 0 $15,000,000 33.33%
Total Partnership Funds $21,280,969 100.00% $30,000,000 100.00% $45,000,000 100.00%
Less Public Offering Expenses: (3)
Organizational and Offering Expenses 548,179 2.58% $1,200,000 4.00% $1,200,000 2.67%
Total Offering Expenses $548,179 2.58% $1,200,000 4.00% $1,200,000 2.67%
Amount Available for Investment $20,732,790 97.42% $28,800,000 96.00% $43,800,000 97.35%
Less:
Formation Loan (4) $1,306,185 6.14% $2,700,000 9.00% $2,700,000 6.00%
Working Capital Reserves (5) $595,000 2.80% $900,000 3.00% $900,000 2.00%
Cash Available for Extension of Loans (6) $14,379,605 88.48% $25,200,000 84.00% $40,200,000 89.33%
</TABLE>
_________________________
[FN]
(1) 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" at page 64).
(2) This assumes that the general partners can leverage approximately fifty
percent (50%) of the gross offering proceeds.
(3) Consists of expenses incurred in connection with the organization and
formation of the partnership. These expenses include legal and accounting fees
and expenses, printing costs, filing fees and other disbursements in connection
with the sale and distribution of units. These expenses also include
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 "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES"
at page 20).
(4) 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" at page
71). 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. 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. Except for the formation loan made to Redwood
Mortgage Corp., and reimbursement of organizational and offering expenses, no
other offering proceeds will be paid to the general partners or their
affiliates.
(5) The partnership anticipates maintaining an average balance of working
capital reserve equal to three percent (3%) of the gross proceeds of the
offering.
(6) These proceeds will be used to make loans (See "INVESTMENT OBJECTIVES
AND CRITERIA" at page 35). The exact amount of the cash available for extension
of loans will depend upon the amount of the formation loan, organization and
operating expenses, use of leveraged funds and cash reserves. (See Footnote (1)
</FN>
<PAGE>
CAPITALIZATION OF THE PARTNERSHIP
The capitalization of the partnership as of September 30, 1999, and as
adjusted to give effect to the sale of the balance of the maximum number of
units offered hereby, excluding any contributions of the general partners is as
follows:
Actual As Adjusted (1)
Units ($1.00 per unit) $ 16,280,790 $ 29,100,000
_______________________
[FN]
(1) Amount determined after deduction of certain offering expenses
aggregating $900,000. (See "Estimated Use of Proceeds" at page 2).
</FN>
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES
Set forth below in tabular form is a description of compensation that we
may pay the general partners and their affiliates. No other compensation will be
paid to the general partners or any affiliates from the partnership. These
compensation arrangements have been established by the general partners and are
not the result of arms-length negotiations. The general partners have compared
their compensation arrangements to those of unrelated parties providing the same
services. They have determined the following compensation levels 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
-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.
Exact compensation payable cannot be determined. The compensation to be
received by the general partners is based primarily upon the net asset value of
the partnership and the loan balances. The net asset value of the partnership is
the partnership's total assets less its total liabilities. The net asset value
will fluctuate due to the reinvestment of income, earnings distributions and the
level of liquidations. Loan balances outstanding will fluctuate during the term
of the partnership because loans will be continually maturing and "turning
over". 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 loans are made, interest rates and partnership
earnings. We are subject to public reporting requirements and the partnership
will file quarterly and annual reports with the Securities and Exchange
Commission. These reports will be available to you and will set forth, among
other things, the exact amount of compensation and/or fees being paid to the
general partners and their affiliates.
<PAGE>
The general partners' or their affiliates' ability to effect the nature of
the compensation by undertaking different actions is extremely limited. Because
we are only one of many lenders in the industry, the general partners' ability
to affect 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. The
relationships with the general partners of the various entities referred to
herein are described under the caption "MANAGEMENT" at page 31.
OFFERING STAGE
Entity Receiving Estimated
Compensation Form and Method of Compensation Amount
General Partners Reimbursement of organization and offering Maximum of
and/or Affiliates expenses including, but not limited to, $1,200,000
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)
OPERATING STAGE
Entity Receiving Form and Method of Compensation Estimated
Compensation Amount
Redwood Loan brokerage commissions average $285,000 per
Mortgage Corp. approximately three to six percent (3-6%) of year(5)
General Partner the principal amount of each loan, but may
be higher or lower depending upon market
conditions. Loan brokerage commissions
are 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 us. (See
"TERMS OF THE OFFERING" at page 17).
Redwood Processing and escrow fees for services in $19,200 per
Mortgage Corp connection with notary, document year(5)
General Partner preparation, credit investigation, and escrow
fees in an amount equal to the fees
customarily charged by Redwood Mortgage
Corp. for comparable services in the
geographical area where the property
securing the loan is located, payable solely
by the borrower and not by the partnership
Redwood Loan servicing fee payable monthly in an $310,000 per
Mortgage Corp amount up to 1/8 of 1% of the outstanding year(5)
General Partner principal amount of each loan. (2) (3)
General Partners Asset management fee payable monthly in $119,000 per
an amount up to 1/32 of 1% of the "net asset year(5)
value."(2)
Redwood Reimbursement of expenses relating to $92,000 per
Mortgage Corp. administration of the partnership, subject to year(5)
General Partner certain limitations, see Article 10 of the
partnership agreement.(1)(4)
Gymno Reconveyance fee for reconveyance of Approximately
Corporation property upon full payment of loan, payable $65 per deed
General Partner by borrower of trust or
market rate.
<PAGE>
Redwood Assumption fee for assumption of loans $5,000 per
Mortgage Corp. payable by borrower as either a set fee or year(5)
General Partner a percentage of the loan.
Redwood Extension fee for extending the loan period $2,500 per
Mortgage Corp. payable by borrower as a percentage of the year(5)
General Partner loan.
Redwood Interest earned, if any, between the date $0 per year(5)
Mortgage Corp. of deposit of borrower's funds into Redwood
General Partner Mortgage Corp.'s trust account and date of
payment of such funds by Redwood
Mortgage Corp.
General Partners One percent (1%) interest in profits, $28,000 per
losses and distributions of earnings year(5)
and cash available for distribution.
LIQUIDATING STAGE
Entity Receiving Estimated
Compensation Form and Method of Compensation Amount
Redwood Early withdrawal penalty equal to a $36,516 per
Mortgage Corp. percentage of the sums withdrawn by an year(5)
General Partner 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 Corp.
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" at
page 67).
[FN]
(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" at page 17).
(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 cash proceeds from a
trustee's sale of the foreclosed property, the loan servicing fee will be
payable by the partnership.
(4) We 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, we 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.
<PAGE>
(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 loans 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 loans, 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.
</FN>
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, 1998, and the period January 1, 1999, through September
30, 1999, 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 arms-length negotiation.
<TABLE>
Year Ended December 31, 1998 Period Ended January 1, 1999
September 30, 1999
Maximum
Maximum Amount
Amount Allowable
Form Actual Allowable Actual For Period
PAID BY PARTNERSHIP
<S> <C> <C> <C> <C>
Servicing Fee $295,052 $442,578 $295,354 $443,031
Management Fee $31,651 $94,953 $30,248 $90,744
Reimbursement of Operating Expenses $67,453 $67,453 $60,541 $60,541
1% of Profits, Losses and Disbursements $20,758 $20,758 $19,831 $19,831
PAID BY BORROWERS
Loan Brokerage Fees (1) $604,836 $604,836 $492,343 $492,343
Processing and Servicing Fees $13,813 $13,813 $9,181 $9,181
</TABLE>
________________________
(footnotes to table)
[FN]
(1) Although Redwood Mortgage Corp. 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 loans.
</FN>
CONFLICTS OF INTEREST
The partnership is subject to various conflicts of interest arising out of
its relationship with the general partners and their affiliates. These conflicts
include conflicts related to the arrangements pursuant to which the general
partners will be compensated by the partnership. Because the partnership was
organized and is operated by the general partners, these conflicts will not be
<PAGE>
resolved through arms length negotiations but through the exercise of the
general partners' judgment consistent with their fiduciary responsibility to you
and the other limited partners and the partnership's investment objectives and
policies.
The general partners are, and will be subject to, public reporting
requirements for prior public programs and for this program. They will continue
to have an obligation to keep you 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" at page 27).
Additionally, the partnership agreement also imposes upon the general
partners an obligation to disclose and keep you 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. Your power as a limited partner with respect to any such
developments including the power, subject to a majority vote 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. (See "FIDUCIARY
RESPONSIBILITY OF THE GENERAL PARTNERS" at page 26 and "INVESTMENT OBJECTIVES
AND CRITERIA" at page 35). 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. These
partnerships include 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.
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 the partnerships' financial and legal
resources on a pro rata basis among the partnerships; (iii) in the event a pro
rata allotment would materially adversely affect 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. The general partners and their affiliates
have conflicts of interest 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 the partnership and to other affiliated
partnerships and ventures in which they are involved. Redwood Mortgage Corp.
also provides loan brokerage services to investors other than the partnership.
As a result, there will 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
loans 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,
-quality and credit worthiness of borrower,
-amount of uninvested funds,
-the length of time that excess funds have remained uninvested.
To date, the individual 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 offering and marketing stages and
may be lower thereafter. 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 twenty-two (22) years, to fully discharge 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 the partnership's financial and
legal resources on a pro rata basis among the partnerships; (iii) in the event a
pro rata allotment would materially adversely affect the operations of any
partnership, the general partners will use their best efforts to apply resources
to that partnership to attempt to prevent a material adverse effect, and the
remainder of the resources, if any, would be applied on a pro rata basis.
3. Amount Of Loan Brokerage Commissions Affects Rate Of Return To You. None
of the compensation payable to the general partners was determined by arms
length negotiations. We anticipate that the loan brokerage commissions charged
to borrowers by Redwood Mortgage Corp. 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 you. Conversely, if the general partners reduced the loan
brokerage commissions charged by Redwood Mortgage Corp. 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 loan transaction, and you must rely
upon the fiduciary duties of the general partners to protect their interests. In
an effort to partially resolve this conflict, Redwood Mortgage Corp. has agreed
that loan brokerage commissions shall be limited to four percent (4%) per annum
of the partnership's assets. 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 Corp., to perform the
brokerage services, loan servicing and other activities in connection with the
partnership's loan 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.
Redwood Mortgage Corp. 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 loans. The terms of the formation loan were not the result of
arms length negotiations. This loan will be an unsecured obligation of Redwood
Mortgage Corp. (See "PLAN OF DISTRIBUTION - Formation Loan" at page 71). The
amount of any early withdrawal penalties received by the partnership from
investors will reduce the principal balance of the formation loan, thus reducing
the amount owed from Redwood Mortgage Corp. to the partnership. In the event of
default in the payment of such loan a conflict of interest would arise on our
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 Corp. If the general partners are removed, no other
general partners are elected, the partnership is liquidated and Redwood Mortgage
Corp. is no longer receiving payments for services rendered, the debt on the
formation loan shall be forgiven by the partnership and Redwood Mortgage Corp.
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 Corp., 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 We Invest in Loans With General Partners Or
Affiliates. We may invest in loans acquired by the general partners or
affiliates. The partnership's portion of the total loan may be smaller or
greater than the portion of the loan made by the general partners or affiliates.
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 loan portfolio. However, you 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. Both the partnership and the
general partners or affiliates will 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 loans 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 loans. 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.
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 loan, the general partners' first
priority will be to arrange the sale of the property. The general partners will
attempt to obtain 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 or entity 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 (1) 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 loan,
-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,. However, 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 You Or Any
Other 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, Landels Ripley & Diamond, LLP,
counsel for the partnership and the general partners, do not represent you or
any other limited partner. Under the partnership agreement, you must acknowledge
and agree that such professionals, including, Landels Ripley & Diamond, LLP,
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.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS
The general partners are accountable to the partnership as fiduciaries. As
such, they are under a fiduciary duty to exercise good faith and integrity in
conducting the partnership's affairs. They must 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. He may also
institute an action, 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.
Present State of the Law. Based upon the present state of the law and
federal statutes, regulations, rules and relevant judicial and administrative
decisions, it appears that
(1) as a limited partner of the partnership you have the right, subject to
the provisions of applicable procedural rules and statutes to:
-bring partnership class actions,
-enforce rights of all limited partners similarly situated, and
-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) if you are a limited partner who has suffered losses in connection with
the purchase or sale of your 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,
you 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, if you are an employee benefit plan who 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 you or 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 you or your 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. If you
have questions concerning the duties of the general partners or believe that a
breach of fiduciary duty by a general partner has occurred, you should consult
your own counsel.
Terms of the Partnership Agreement. Provision has been made in the
partnership agreement that the general partners shall have no liability to the
partnership for a 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, you may have a more limited right of action in certain circumstances
than you 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 will indemnify the general partners against liability and
related expenses (including attorneys' fees) incurred in dealings with third
parties. Such indemnification will apply, provided that the conduct of the
general partners is 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 sponsored and managed by the general
partners and their affiliates. You should not assume that you will experience
returns, if any, comparable to those experienced by other investors' programs.
Experience and Background of General Partners and Affiliates. Since 1978,
the general partners and their affiliates have sponsored and managed nine (9)
real estate mortgage limited partnerships including this partnership. All
partnerships have investment objectives similar to this 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 this 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 September 30,
1999, the 8 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 $34,624,572. As of September 30, 1999,
the number of loans made by these partnerships was approximately 1,956 and the
number of outstanding loans made by these earlier partnerships was approximately
248 ($33,349,123) which are secured by properties principally located in
Northern California. Of these loans,
-approximately 98, which represents twenty percent (20%) of the
partnership's portfolio ($6,814,995) are secured by single family residences,
-34, which represents ten percent (10%) of the partnership's portfolio
($3,272,826) are secured by multi-family units,
-97 which represents fifty three percent (53%) of the partnership's
portfolio ($17,544,951) are secured by commercial properties and
-19 which represents seventeen percent (17%) of the partnership's portfolio
($5,716,351) are secured by unimproved property.
PUBLICLY OFFERED MORTGAGE PROGRAMS
Redwood Mortgage Investors VII ("RMI VII"). RMI VII is a California limited
partnership of which D. Russell Burwell, Michael R. Burwell and Gymno
Corporation are the general partners. RMI VII was registered under the
Securities Act of 1933. As of September 30, 1999, RMI VII had a total
capitalization of $11,259,262 and 818 investors.
Redwood Mortgage Investors VI ("RMI VI"). RMI VI is a California limited
partnership of which D. Russell Burwell, Michael R. Burwell and Gymno
Corporation are the general partners. RMI VI was registered under the Securities
Act of 1933. As of September 30, 1999, RMI VI had a total capitalization of
$8,239,984 and 675 investors.
PRIVATELY OFFERED MORTGAGE PROGRAMS
Redwood Mortgage Investors V ("RMI V"). RMI V is a California limited
partnership of which D. Russell Burwell, Michael R. Burwell and Gymno
Corporation are the 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 September 30,
1999, RMI V had a total capitalization of $3,000,177 and 318 investors.
Redwood Mortgage Investors IV ("RMI 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 September 30, 1999, RMI IV had a total
capitalization of $6,941,264 and 510 investors.
Redwood Mortgage Investors ("RMI"). RMI, Redwood Mortgage Investors II
("RMI II") and Redwood Mortgage Investors III ("RMI III") are California limited
partnerships of which D. Russell Burwell, Michael R. Burwell and Gymno
Corporation are general partners. All 3 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 September 30, 1999, RMI had 18
investors, RMI II had 20 investors and RMI III had 56 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 December 31, 1996, additional contributions
of $858,800, were received and the offering was subsequently closed.
Corporate Mortgage Investors ("CMI"). CMI is a California limited
partnership of which D. Russell Burwell and A & B Financial Services, Inc. are
the 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 September 30, 1999, the two portfolios had
been merged and had total assets of $1,411,349 and 41 investors.
The funds raised by these partnerships have been used to make loans secured
by deeds of trust. All loans are arranged and serviced by Redwood Mortgage
Corp., 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" at page 23).
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. If you would like to receive
such information, you should contact the general partners at 650 El Camino Real,
Suite G, Redwood City, California 94063; (650) 365-5341. All of the foregoing
partnerships have achieved their stated goals to date.
Additional Information. Certain additional information regarding some of
the partnerships' discussed objectives are similar to the partnership's and are
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 Loans.
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 Loans of Prior Limited Partnerships) is
contained in Part II of the Registration Statement.
Upon request, the general partners shall provide to you 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. You may review, read and copy all of our
filings at the SEC's Public Reference Room located at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. You can call the SEC at 1 800 SEC-0330 for
further information on the public reference room. Our SEC filings are also
available on the SEC's website at "http://www.sec.gov."
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 this partnership, the general
partners have previously sponsored two public partnerships registered under the
Securities Act of 1933. These partnerships are RMI VI and RMI VII.
Three Year Summary of Loans Originated by Prior Limited Partnerships.
During the three-year period ending September 30, 1999, loans were made by prior
programs with investment objectives similar to those of the partnership. The
following table provides a summary of the loans originated for the three-year
period as of September 30, 1999. The last column of the following chart reflects
total loan balances on all loans for each prior program including those which
originated prior to the three (3) year period ending September 30, 1999. The
following tables do not include information regarding the partnership and its
existing loan portfolio.
- --------------------------------------------------------------------------------
Name of Number Estimated Total Outstanding Total Outstanding
partnership of Amount of Loans Loan Balances Loans as of
Loans Made 10/01/96 Originated 09/30/96
to 09/30/99 10/01/96 to 09/30/99
- --------------------------------------------------------------------------------
CMI 14 $1,365,250.00 $849,292.67 $1,466,018.17
- --------------------------------------------------------------------------------
RMI 12 $901,362.43 $571,257.24 $1,068,166.75
- --------------------------------------------------------------------------------
RMI II 7 $438,430.77 $159,518.82 $471,454.98
- --------------------------------------------------------------------------------
RMI III 16 $1,310,002.04 $1,041,423.33 $1,616,315.43
- --------------------------------------------------------------------------------
RMI IV 26 $5,414,071.08 $3,103,140.20 $7,293,259.99
- --------------------------------------------------------------------------------
RMI V 12 $1,404,354.42 $926,254.58 $2,848,255.85
- --------------------------------------------------------------------------------
RMI VI 20 $3,385,499.09 $1,289,454.49 $7,003,801.12
- --------------------------------------------------------------------------------
RMI VII 42 $20,209,906.54 $7,983,062.07 $11,581,880.86
- --------------------------------------------------------------------------------
TOTAL 149 $34,428,876.37 $15,923,403.40 $33,349,123.15
- --------------------------------------------------------------------------------
A further breakdown of these loans according to the type of deed of trust,
the location of the property securing the loans, and the type of property
securing the loan is provided below:
Loans
First Trust Deeds $19,006,750.00
Second Trust Deeds 13,172,626.37
Third Trust Deeds 2,249,500.00
------------------
$34,428,876.37
==================
Location of Loans Stanislaus 7,609,000.00
San Francisco County 7,608,754.34
San Mateo County 6,280,272.03
Alameda County 5,601,500.00
Marin 1,510,000.00
Solano 1,430,000.00
Ventura 1,131,000.00
Sacramento County 855,000.00
Monterey 775,000.00
Santa Clara County 544,500.00
Contra Costa County 382,500.00
Riverside 300,000.00
Santa Cruz County 277,000.00
Sonoma 69,350.00
Placer 55,000.00
Total $34,428,876.37
==================
Type of Property Owner Occupied Homes $3,261,110.81
Non-Owner Occupied 5,589,805.61
Commercial 9,516,404.78
Land 11,226,400.00
Apartments 4,834,155.17
------------------
Total $34,428,876.37
==================
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 loans
-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
-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" at page 64).
The General Partners.
D. Russell Burwell. D. Russell Burwell, age 67, General Partner, Director
(1978-present) and President (1979-present) of Redwood Mortgage Corp.; 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 43, General Partner, past
member of Board of Trustees and Treasurer, Mortgage Brokers Institute
(1984-1986); Director, Chief Financial Officer, Secretary, and Treasurer Redwood
Mortgage Corp. (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.
Redwood Mortgage Corp. Redwood Mortgage Corp. 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 Corp. will act as the loan broker and servicing agent in
connection with loans, as it has done on behalf of several other limited
partnerships formed by the general partners (See "PRIOR PERFORMANCE SUMMARY" at
page 27). Redwood Mortgage Corp. is a subsidiary of The Redwood Group, Ltd.
Redwood Mortgage Corp. was admitted as a general partner of the partnership on
February 7, 2000.
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 and unaudited
balance sheets for Gymno Corporation and Redwood Mortgage Corp. are set forth
hereafter.
Affiliates of the General Partners.
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 1 billion in loans secured in whole or in part by first, second
and third deeds of trust. Its subsidiaries include Redwood Mortgage Corp. 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 50, Director and Vice
President of Redwood Mortgage Corp. (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 September 30, 1999, by
(i) each general partner of the partnership and (ii) all general partners as a
group.
Amount of
Beneficial Percent
Title of Name and Address Ownership of Class
Class
Units Gymno Corporation, 650 El Camino Real, $31,759 1/10 of 1%
Suite G, Redwood City, CA 94063 (1)
D. Russell Burwell, 650 El Camino Real, $0 0%
Suite G, Redwood City, CA 94063
Michael R. Burwell, 650 El Camino Real, $0 0%
Suite G, Redwood City, CA 94063
Redwood Mortgage Corp, 650 El Camino Real, $0 0%
Suite P, Redwood City, CA 94063
All general partners as a group $31,759 1/10 of 1%
_______________________________________________________
[FN]
(1) Gymno Corporation is owned fifty percent (50%) by D. Russell Burwell
and fifty percent (50%) by Michael R. Burwell
(2) Redwood Mortgage Corp. is owned 100% by The Redwood Group Ltd, an
affiliate of the general partners.
</FN>
<TABLE>
SELECTED FINANCIAL DATA
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
As of and for the Year ended December 31
-------------------------------------------------------------------------
1999 1998 1997 1996
As of Sept. 30, 1999
<S> <C> <C> <C> <C>
Loans secured by trust deeds $37,428,246 $31,905,958 $25,304,989 $15,642,990
Less: Allowance for loan losses $(799,607) $(414,073) $(257,500) $(117,803)
Real estate held for Sale 0 $66,000 $70,138 $66,991
Cash, cash equivalents and other assets $2,010,916 $1,564,074 $1,539,947 $1,161,522
Total assets $38,639,555 $33,121,959 $26,657,574 $16,753,700
Liabilities $4,793,978 $6,074,305 $5,726,421 $2,049,042
Partners' capital
General partners $28,261 $22,323 $16,432 $11,365
Limited partners $33,817,316 $27,025,331 $20,914,721 $14,693,293
Total partners' capital $33,845,577 $27,047,654 $20,931,153 $14,704,658
Total liabilities/partners' capital $38,639,555 $33,121,,959 $26,657,574 $16,753,700
Revenues $3,349,738 $3,406,021 $2,629,457 $1,726,635
Operating expenses
Promotional interest $0 $0 $0 $0
Management fee $30,248 $31,651 $24,966 $17,053
Provisions for losses on loans $374,138 $162,969 $139,804 $55,383
Provisions for losses on real estate held for sale $0 $0 $0 $0
Other $867,191 $937,273 $665,729 $423,292
Net income $2,078,161 $2,274,128 $1,798,958 $1,230,907
Net income allocated to general partners $20,782 $22,741 $17,990 $12,309
Net income allocated to Limited Partners $2,057,379 $2,251,387 $1,780,968 $1,218,598
Net income per $1,000 invested by Limited
Partners for entire period:
- where income is reinvested and compounded $62 $84 $84 $84
- where partner receives income in monthly
Distributions $61 $81 $81 $81
</TABLE>
<PAGE>
ORGANIZATIONAL CHART
---------------------------------------------------------------
THE REDWOOD GROUP, LTD.
---------------------------------------------------------------
------------------------------------
D. RUSSELL BURWELL (1)
------------------------------------
--------------------------------------- -------------------------
REDWOOD MORTGAGE CORP. (Corporate A & B FINANCIAL
General Partner) (2) SERVICES, INC. (2)
--------------------------------------- -------------------------
------------------------------------
GYMNO CORPORATION
(Corporate General Partner)
------------------------------------
----------------------------------- --------------------------------
D. RUSSELL BURWELL (3) MICHAEL R. BURWELL (3)
(Individual General Partner) (Individual General Partner)
----------------------------------- --------------------------------
------------------------------------
PARTNERSHIPS WE MANAGE
------------------------------------
-------------------------------------
CORPORATE MORTGAGE INVESTORS
REDWOOD MORTGAGE INVESTORS
REDWOOD MORTGAGE INVESTORS II
REDWOOD MORTGAGE INVESTORS III
REDWOOD MORTGAGE INVESTORS IV
REDWOOD MORTGAGE INVESTORS V
REDWOOD MORTGAGE INVESTORS VI
REDWOOD MORTGAGE INVESTORS VII
REDWOOD MORTGAGE INVESTORS VIII
-------------------------------------
(1) D. Russell Burwell is the majority shareholder of The Redwood Group, Ltd.
(2) Redwood Mortgage Corp. and A&B Financial Services, Inc. are subsidiaries
of The Redwood Group, Ltd.
(3) D. Russell Burwell and Michael R. Burwell are the sole shareholders of Gymno
Corporation.
<PAGE>
INVESTMENT OBJECTIVES AND CRITERIA
Principal Objectives. We are engaged in business as a mortgage lender. We
make loans to individuals and business entities secured primarily by first and
second deeds of trust on California real estate. We have been operating for 7
years and have made loans in the aggregate in excess of $84,000,000. We have not
yet identified nor committed to make any loans from any additional proceeds of
this offering and, as of the date of the prospectus, have not entered into any
negotiations with respect to extending any loans.
Our partnership's primary objectives are to:
-Yield a high rate of return from mortgage lending; and
-Preserve and protect the partnership's capital.
You 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, your 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 Loans. The partnership is engaged in the business of
making loans to members of the general public. These loans will generally be
secured by deeds of trust on the following types of real property, including:
-single-family residences (including homes, condominiums and townhouses,
including 1-4 unit residential buildings),
-multiple unit residential property (such as apartment buildings),
-commercial property (such as stores, shops, offices, warehouses and retail
strip centers), and
-unimproved land.
Based on prior experience, we anticipate that of the number of loans made,
approximately 30% to 60% of the total dollar amount of loans will be secured by
single family residences, 20% to 50% by commercial properties, 1% to 20% by
apartments, and 1% to10% by unimproved land.
As of September 30, 1999, of the partnership's outstanding loan portfolio
50% is secured by single family residences, 30% by commercial properties, 7% by
multi-unit properties and 13% by unimproved land. At September 30, 1999, the
percentage of land loans was slightly above our original predictions. Several
land loan opportunities became available which the general partners believed to
be good investments for the partnership. The partnership continues to raise
capital which, as raised and invested in loans, will reduce the outstanding land
loan balance in proportion to the total. The general partners estimate that when
all capital is raised that the percentage of land loans will lie within the
anticipated range. We will also make loans secured by promissory notes which
will be secured by deeds of trust and shall be assigned to the partnership. The
partnership's loans 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 Corp.,
loans will be made pursuant to a set of guidelines designed to set standards for
the quality of the security given for the loans, as follows:
-Priority of Mortgages. The lien securing each loan 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 which is to be used as security for the loan.
Although we may also make wrap-around or "all-inclusive" loans, those
wrap-around loans will include no more than two (2) underlying obligations (See
"CERTAIN LEGAL ASPECTS OF LOANS - Special Considerations in Connection with
Junior Encumbrances" at page 39). We anticipate that the partnership's loans
will eventually be diversified as to priority approximately as follows: first
mortgages - 40-60%; second mortgages - 40-60%; third mortgages - 0-10%. As of
September 30, 1999, of the partnership's outstanding loan portfolio, fifty eight
percent (58%) were secured by first mortgages, forty two percent (42%) by second
mortgages and zero percent (0%) by third mortgages.
-Geographic Area of Lending Activity. We will continue to generally limit
lending to properties located in California. Currently, we have made no loans
outside of California. Approximately 80% of our loans are secured by deeds of
trust on properties in the six San Francisco Bay Area counties. We 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 our 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 we anticipate that the partnership's primary area of lending
will continue to be Northern California, we may elect to make loans secured by
real property located throughout California.
-Construction Loans. We may make construction loans (other than home
improvement loans on residential property) up to a maximum of 10% of our loan
portfolio. As of September 30, 1999, 7% of our loans consisted of construction
loans. In no event will the loan-to-value ratio on construction loans exceed 80%
of the independently appraised completed value of the property. We will not make
loans secured by properties determined by the general partners to be special-use
properties. Special use properties are bowling alleys, churches and gas
stations.
-Loan-to-Value Ratios. The amount of the partnership's loan 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 an independent written appraisal at the time
the loan is made. These loan-to-value ratios are as follows:
Type of Security Property Loan to-Value Ratio
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Residential (including apartments) 80%
Commercial Property (including retail stores, office buildings, warehouses 70%
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 10% (e.g., to 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 us 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 loans as a whole is
approximately 70%.
We will receive an independent appraisal for such security property on
which we will make a mortgage loan. Generally, appraisers retained by us shall
be licensed or qualified as independent appraisers by state certification or
national organization 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. In many cases the general partners do enter the structures on the
property.
-Terms of Loans. Most of our loans will be for a period of 1 to 10 years,
but in no event more than 15 years. Most loans will provide for monthly payments
of principal and/or interest. Many loans will provide 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 loans will provide for the deferral
and compounding of all or a portion of accrued interest for various periods of
time.
-Equity Interests in Real Property. Most of our loans will provide for
interest rates comparable to second mortgage rates prevailing in the
geographical area where the security property is located. However, we reserve
the right to make loans (up to a maximum of 25% of the partnership's loan
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 loan
(See "CONFLICTS OF INTEREST - Loan Brokerage Commissions" at page 25).
-Escrow Conditions. Loans will be funded through an escrow account handled
by a title insurance company or by Redwood Mortgage Corp., subject to the
following conditions:
-Satisfactory title insurance coverage will be obtained for all loans. The
title insurance policy will name the partnership as the insured and provide
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.
-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.
-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 was 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.
-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.
Loans will not be written in the name of the general partners or any other
nominee.
-Loans to General Partners and Affiliates. Although we 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 to Redwood Mortgage Corp.
and may, in certain limited circumstances, loan funds to affiliates, to among
other things, purchase real estate owned by us as a result of foreclosure.
-Purchase of Loans from Affiliates and Other Third Parties. Existing loans
may be purchased, from the general partners, their affiliates or other third
parties, only so long as any such loan 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 90% interest and retain a 10% interest in
any loan sold to the partnership which they have held for more than 180 days. In
such case, the general partners and affiliates will hold their 10% interest and
the partnership will hold its 90% interest in the loan as tenants in common. The
purchase price to the partnership for any such loan will not exceed the par
value of the note or its fair market value, whichever is lower.
-Note Hypothecation. We also may make loans which will be secured by
assignments of secured promissory notes. The amount of a loan secured by an
assigned note will satisfy the loan-to-value ratios set forth above (which are
determined as a specified percentage of the appraised value of the underlying
property) and also will not exceed 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 debt secured by such property, including the debt
represented by the assigned note and any senior mortgages, must not exceed 70%
of the appraised value of such property, and the loan will not exceed 80% of the
principal amount of the assigned note. For purposes of making loans secured by
promissory notes, we 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. If such appraisal was not conducted within
the last twelve months, then we will arrange for a new appraisal to be prepared
for the property. All such appraisals will satisfy our loan-to-value ratios set
forth above. Any loan evidenced by a note assigned to the partnership will also
satisfy all other lending standards and policies described herein. Concurrently
with our making of the loan, 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 20% of our
portfolio at any time will be secured by promissory notes. As of the date
hereof, none of our portfolio is secured by promissory notes.
-Joint Ventures. We 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 we will not participate in a loan in which would not
otherwise meet its requirements, the risk of such participation is minimized.
-Diversification. The maximum investment by the partnership in a loan will
not exceed the greater of (1) $50,000, or (2) 10% of the then total partnership
assets (See Joint Ventures, above).
-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. We may consider the income level and general
creditworthiness of a borrower to determine his ability to repay the loan
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, loans 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 Corp. will receive loan
brokerage commissions for services rendered in connection with the review,
selection, evaluation, negotiation and extension of the loans from borrowers.
Redwood Mortgage Corp. anticipates that loan brokerage commissions 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 will be limited to four percent (4%) per annum of the partnership's
total assets.
Loan Servicing. It is anticipated that all loans will be "serviced" (i.e.,
loan payments will be collected) by Redwood Mortgage Corp. Redwood Mortgage
Corp. will be compensated for such loan servicing activities (See "COMPENSATION
TO GENERAL PARTNERS AND AFFILIATES" at page 20). Both Redwood Mortgage Corp. 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
Corp. Checks will be deposited in Redwood Mortgage Corp.'s trust account, and,
after checks have cleared, funds will be transferred to the partnership's bank
or money market account.
Sale of Loans. Although we have not done so in the past, the general
partners or their affiliates may sell loans 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. We will borrow funds for partnership activities including: (1)
making loans; (2) increasing the liquidation of the partnership; and (3)
reducing cash reserve needs. We may assign all or a portion of our loan
portfolio as security for such loan(s). As of September 30, 1999, we have
borrowed up to $4,452,000 pursuant to $9,000,000 line of credit. We 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 us on our loans, giving us 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 of Borrowed Money May Reduce
Our Profitablilty Or Cause Losses Through Liquidation" at page 7 and "FEDERAL
INCOME TAX CONSEQUENCES - Investment by Tax-Exempt Investors" at page 59). It is
our intention to finance no more than fifty percent (50%) of the partnership's
investments with borrowed funds. (See "TAX RISKS - Risks Relating to Creation of
Unrelated Business Taxable Income" at page 14).
Other Policies. We shall not:
-issue senior securities
-invest in the securities of other issuers for the purpose of exercising
control
-underwrite securities of other issuers, or
-offer securities in exchange for property.
If we anticipate that we 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 loan to an affiliated or unaffiliated entity with the
expertise to manage the attendant risk.
CERTAIN LEGAL ASPECTS OF LOANS
Each of our loans (except the formation loan to Redwood Mortgage Corp.)
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 loans 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 called the "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 to exercise the powers provided in the
deed of trust including non-judicial foreclosure of the property, and acts upon
the directions of the beneficiary. We will be a beneficiary under all deeds of
trust securing loans.
Foreclosure. Foreclosure of a deed of trust is accomplished in most cases
by a trustee's sale through a non-judicial foreclosure 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. Such amount does not
include principal due only because of acceleration upon default, plus costs and
expenses actually incurred in enforcing the obligation and statutory limited
attorney's 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, a notice of sale must be posted in a public place and published
once a week over the 20 day period. A copy of the notice of sale must be posted
on the property, and sent to the trustor and 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 trustor nor a junior lienholder has any further interest in the
property. A judgment may not be sought against the trustor for the difference
between the amount owed on the debt and the amount the beneficiary received upon
sale of the property.
A judicial foreclosure (in which the beneficiary's purpose is usually to
obtain a deficiency judgment), is subject to many of the delays and expenses of
other types of 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. We 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 recorded deed of trust will be junior in priority to the
loan. Accordingly, the filing of federal or state tax liens will not affect 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" at page 39.
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 trustee's sale. Most of our loans will be enforced by means of a
trustee's sale, if foreclosure becomes necessary, and, therefore, a deficiency
judgment may not be obtained. However, it is possible that some of our loans
will be enforced by means of judicial foreclosure sales. 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 loans, 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, we will not be
able to seek a deficiency judgment.
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 foreclosure 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 foreclosure 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 lienholder's interest or (ii) to pay off the senior encumbrances so that
his encumbrance achieves first priority. Either alternative will require us to
make substantial cash expenditures to protect our interest (See "RISK FACTORS -
Loan Defaults and Foreclosures" at page 4).
We 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 us. 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.
We will record a request for notice of default at the time the 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 for the partnership 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. The
standard form also confers upon us the power 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 loan. 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. Our 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. Some forms of the partnership's promissory notes and deeds of trust
will permit assumption by a subsequent 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.
-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. Landels, Ripley & Diamond, LLP, counsel for the partnership, has advised
that under the Garn-St. Germain Act we will probably be entitled to enforce the
"due-on-sale" clause anticipated to be used in the deeds of trust given to
secure the loans. On the other hand, acquisition of a property by us by
foreclosure on one of our loans, may also constitute a "sale" of the property,
and would entitle a senior lienholder to accelerate its loan against us. 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, we
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.
-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 our second mortgages
will be on properties that qualify for the protection afforded by federal law,
some loans will be secured by apartment buildings or other commercial properties
which may contain due on encumbrance provisions. Second mortgage loans made by
us 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 us (as junior lienholder) to the attendant risks (See
"CERTAIN LEGAL ASPECTS OF LOANS - Special Considerations in Connection with
Junior Encumbrances" at page 39).
-Prepayment Charges. Some loans originated by the partnership provide for
certain prepayment charges to be imposed on the borrowers in the event of
certain early payments on the loans. Any prepayment charges collected on loans
will be retained by the partnership. Loans 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
20% of the original balance of the loan may be subject to a prepayment charge
provided the note and deed of trust so provided. 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 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 Loans. 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 loans. 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 loans.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE PARTNERSHIP
On September 30, 1999, the partnership was in the offering stage of its
second offering, ($30,000,000). Contributed capital totalled $14,932,017 for the
first offering and $16,828,969 for the second offering an aggregate of
$31,760,986 as of September 30, 1999. Of this amount, none remained in applicant
status. Accordingly, together with the initial approved offering of $15,000,000
the partnership has approval for an aggregate offering of $45,000,000.
Results of Operations. For the years ended December 31, 1997, and 1998, and
the nine months ended September 30, 1999
The net income increase of $1,798,958 (46%) for the year ended December 31,
1997, $2,274,128 (26%) for the year ended December 31, 1998, and $2,078,161
(26%) for the nine month period ended September 30, 1999, as compared to the
nine month period ended September 30, 1998, was primarily attributable to the
increase in loans held by the partnership from:
9 months through
Dec 31, 1996 Dec 31, 1997 Dec 31, 1998 Sept 30, 1999
------------ ------------ ------------ -------------
Loans outstanding $15,642,990 $25,304,989 $31,905,958 $37,428,246
The partnership's ability to increase its loans 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 loans through the use of a credit
line from a commercial bank. During the years ended December 31, 1996, 1997,
1998 and the nine month period ended September 30, 1999, the partnership
received new capital contributions and reinvested compounding limited partner
earnings of:
9 months
through
Dec 31, 1996 Dec 31, 1997 Dec 31, 1998 Sept 30, 1999
- --------------------------------------------------------------------------------
Capital contribution $3,863,536 $5,565,372 $5,100,458 $6,170,851
Reinvestment of earnings $800,218 $1,119,465 $1,440,687 $1,472,257
To a lesser extent, loans outstanding have also increased through the
utilization of the partnership's line of credit. The effect of more outstanding
loans raised the interest earned on loans for the years ended:
9 months
through
Dec 31, 1996 Dec 31, 1997 Dec 31, 1998 Sept 30, 1999
------------------------------------------------------------
Interest earned
on loans $1,718,208 $2,613,008 $3,376,293 $3,268,965
The partnership began funding loans on April 14, 1993 and as of September
30, 1999, distributed earnings at an average
annualized yield of 8.36%.
Mortgage interest rates have varied only slightly since the program
started. In the immediate future, interest rates are expected to fluctuate only
slightly. The general partners cannot at this time predict at what levels
interest rates will be in the future. Although the rates charged by the
partnership are influenced by the level of interest rates in the market, the
general partners do not anticipate that rates charged by the partnership to its
borrowers will change significantly. Based upon the rates payable in connection
with existing loans and expected interest rates which will be charged by the
partnership, the general partners anticipate an annualized yield that will range
between eight & nine percent (8% - 9%).
In 1995, the partnership established a line of credit with a commercial
bank secured by its loans and since it's inception has increased the limit from
$3,000,000 to $9,000,000. For the years ended December 31, 1996, 1997, 1998, and
nine months through September 30, 1999, interest on note payable-bank was
$188,638, $340,633, $513,566 and $459,433 respectively. From 1997 through
September 30, 1999, the increase in interest on notes payable-bank has been
attributed to a higher overall credit facility utilization. As of September 30,
1999 the partnership borrowed $4,452,000 at an interest rate of prime +.25%
(8.50%). This facility could again increase as the partnership's capital
increases. This added source of funds will help in maximizing the partnership's
yield by allowing the partnership to minimize the amount of funds in lower yield
investment accounts when appropriate loans are not available. Additionally, the
loans made by the partnership bear interest at a rate in excess of the rate
payable to the bank which extended the line of credit. The amount to be retained
by the partnership, after payment of the line of credit cost, will be greater
than those without the use of the line of credit. As of September 30, 1999, the
balance remained at $4,452,000 and in accordance with the line of credit, the
partnership paid all accrued interest as of that date. As of December 31, 1996,
1997, 1998 and the nine months ended September 30, 1999, the outstanding balance
on the line of credit was $1,500,000, $5,640,000, $5,947,000 and $4,452,000
respectively. The credit line has a fluctuating interest rate of .25% over the
commercial bank's reference rate. At December 31, 1998, and as of September 30,
1999, the interest rate on the credit line was 8.25% and 8.50%, respectively.
The partnership's income and expenses, accruals and delinquencies are
within the normal range of the general partners' expectations, based upon their
experience in managing similar partnerships over the last twenty-two years.
Mortgage servicing fees increased from $155,912 to $189,692 to $295,052 and to
$295,354 for the years ended December 31, 1996, 1997, 1998 and nine months
through September 30, 1999. The mortgage servicing fees increased primarily due
to increase in the outstanding loan portfolio. Asset management fees increased
from $17,053 to $24,966 to $31,651 and to $30,248 for the years ended December
31, 1996, 1997, 1998, and nine months through September 30, 1999 respectively.
The asset management fee increase was due primarily to the increase in partners'
capital which the general partners are managing. All other partnership expenses
fluctuated within a narrow range commonly expected to occur, except for interest
on note payable - bank which was discussed earlier in the Management Discussion
and Analysis of Financial Condition and Results of Operations. Borrower's
foreclosures are a normal aspect of partnership operations and the general
partners anticipate that they will not have a material effect on liquidity.
Currently no foreclosures exist. Cash is constantly being generated from
interest earnings, late charges, pre-payment penalties, amortization of
principal and pay-off on loans. Currently, cash flow exceeds partnership
expenses and earnings requirements. Excess cash flow will be invested in new
loan opportunities, when available, and will be used to reduce the partnership
credit line or for other partnership business.
Allowance for Losses. The general partners regularly review the loan
portfolio, examining the status of delinquencies, the underlying collateral
securing these loans, borrowers' payment records, etc. Data from the local real
estate market and of the national and local economy are reviewed. Based upon
this information and other data, loss reserves are increased or decreased. In
1996, 1997, 1998 and nine months through September 30, 1999, the partnership
made provisions for doubtful accounts of $55,383, $139,804, $162,969 and
$374,138 respectively. These provisions for doubtful accounts were made to guard
against collection losses. Total cumulative provision for doubtful accounts as
of September 30, 1999, of $799,607 is considered by the general partners to be
adequate. 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.
At the time of subscription to the partnership, limited partners must elect
whether to receive monthly, quarterly or annual cash distributions from the
partnership, or to compound earnings in their capital account. If you initially
elect to receive monthly, quarterly or annual distributions, such election, once
made, is irrevocable. However you may change your election regarding whether you
want to receive such distributions on a monthly, quarterly or annual basis. If
you initially elect to compound earnings in your capital account, in lieu of
cash distributions, you may, after three (3) years, change the election and
receive monthly, quarterly or annual cash distributions. Earnings allocable to
limited partners who elect to compound earnings in their capital account, will
be retained by the partnership for making further loans or for other proper
partnership purposes, and such amounts will be added to such limited partners'
capital accounts.
During the periods stated below, the partnership, after allocation of
syndication costs, made the following allocation of earnings both to the limited
partners who elected to compound their earnings, and those that chose to
distribute:
Nine months through
1996 1997 1998 Sept 30, 1999
-----------------------------------------------------------------
-----------------------------------------------------------------
Compounding $800,218 $1,119,465 $1,440,687 $1,472,257
Distributing $418,380 $495,480 $614,383 $585,122
As of December 31, 1996, December 31, 1997, December 31, 1998, and nine
months ending September 30, 1999, limited partners electing to withdraw earnings
represented 34%, 30%, 30% and 30% respectively of the limited partners'
outstanding capital accounts. The decrease in the percentage of limited partners
electing to withdraw earnings is due to an increase of new limited partners
choosing to compound earnings and the dilution effect which occurs when
compounding limited partners' capital accounts grow through earnings
reinvestment.
The partnership also allows the limited partners to withdraw their capital
account subject to certain limitations (see Withdrawal From Partnership in the
Limited Partnership Agreement). Once a limited partner's initial five year hold
period has passed, the general partners expect to see an increase in
liquidations due to the ability of limited partners to withdraw without penalty.
This affects the partnership by growing primarily through reinvestment of
earnings in years one through five. The general partners expect to see
increasing numbers of limited partner withdrawals in years five through eleven,
at which time the bulk of those limited partners who have sought withdrawal have
been liquidated. After year eleven, liquidation generally subsides and the
partnership capital again tends to increase through earnings reinvestment. Since
the five year hold period for most of the investors has yet to expire, as of
September 30, 1999, many limited partners may not as yet avail themselves of
this provision for liquidation. Earnings and capital liquidations including
early withdrawals since inception, 1993 through September 30, 1999 were:
<TABLE>
9 months
through
Sept. 30,
1993 1994 1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings liquidation $46,855 $165,814 $303,477 $418,380 $495,480 $614,383 $585,122
Capital liquidation* 0 0 $5,640 $146,755 $132,619 $257,344 $409,669
----------- ----------- ----------- ----------- ----------- ----------- -------------
Total $46,855 $165,814 $309,117 $565,135 $628,099 $871,727 $994,791
=========== =========== =========== =========== =========== =========== =============
* These amounts represent gross of early withdrawal penalties.
</TABLE>
Additionally, limited partners may liquidate their investment over a one
year period subject to certain limitations and penalties. During the past three
years, and nine months through September 30, 1999, capital liquidated subject to
the 10% penalty for early withdrawal was:
Nine months
through Sept 30,
1996 1997 1998 1999
------------------ ------------------ ----------------- ------------------
$146,755 $132,619 $244,213 $329,989
This represents only 1.00%, 0.63%, 0.90% and 0.63% of the limited partners
ending capital for the years ended December 31, 1996, 1997, 1998, and nine
months ending September 30, 1999 respectively. These withdrawals are within the
normally anticipated range and represent a small percentage of limited partner
capital.
Current Economic Conditions. The September 23, 1999 issue of the San Mateo
Times published a new UCLA Anderson forecast which focused on the California
economy. The general partners agree with the observations and predictions.
The UCLA forecast stated, "The California economy will grow at a healthy
pace over the next two decades, but there is little chance of returning to the
sustained economic boom that carried the state during the first four decades
following World War II.
<PAGE>
California's economic growth will be limited by the consequences of
population growth: high housing costs, traffic congestion and long commute
times, according to the quarterly forecast released Tuesday. Looking at the
national scene, the forecast predicted the Federal Reserve Board will raise
interest rates another half percent over the next few months and then hold
steady at 5.75 percent through 2000 to further curb inflation risks. The
increase will slow economic growth from 3.9 percent in 1999 to 2.5 percent.
"This forecast is for a very soft landing", the forecast said. In
California, employment will grow by about 2.1 percent annually through 2020,
good for a cumulative increase of 50 percent.
That rate contrasts with an average growth rate of 3.5 percent from 1950 to
1990, when the California economy depended heavily on the Cold War arms race and
expanding government space programs, said Tom Lieser, executive director of the
Anderson Forecast and author of the report's California section.
"A lot of that basically fell from the sky so to speak", Lieser said. "It
came from the defense budget right to our doorstep. California was blessed with
conditions that made this the capital of the aerospace industry".
That market changed in 1990 when the Cold War ended and defense spending
fell sharply.
The United States fell into recession, with California suffering more than
most other states. What eventually emerged, Lieser said, is an economy that is
more diverse and less vulnerable to the federal budget.
"Now we have a market-driven economy, which was built on the technological
specialization that we had from aerospace and our universities. We build on
that, but we don't have to worry about that going away". he said.
Aerospace employment peaked in the 1980s at 380,000, and fell to 165,000 by
1996 in the wake of the downsizing. Aerospace employment has stabilized, but
growth will be limited, the report said.
The challenge of the next two decades will be to build housing, roads and
other infrastructure that sustained growth will require".
To the partnership, the above evaluation of the California economy means an
increase in property values, job growth, personal income growth, etc. This
translates into more loan activity, which is beneficial to the partnership.
The Year 2000 was considered by most to be a challenge for the entire world
with respect to the conversion of existing computerized operations. The
partnership relies on Redwood Mortgage Corp., third parties and various software
vendors for its hardware and software needs. Since year 2000 has come, we have
not experienced any computer hardware breakdowns. We assume that our testing and
upgrading of computer hardware prior to year 2000 identified all hardware areas
of concern. Computer software programs are all operational with only minor
problems being experienced with some programs. These problems are being
addressed by the appropriate software vendors or software programmers. All
month-end, quarterly, and annual computerized functions have not yet been run,
however testing of the operations has taken place. We do not expect any
significant problems.
The costs of updating our computer systems were substantially borne by the
non affiliated software vendors and the in house system conversion costs to the
partnership were marginal.
Year 2000 issues do not appear to have affected, in any significant manner,
any industries or businesses in the marketplace in which the partnership places
its loans. We believe that year 2000 issues are a non-event and will have little
if any future effect on the partnership, its affiliates or the people and
businesses with which it associates.
The foregoing analysis of year 2000 issues includes forward-looking
statements and predictions about possible or future events, results of
operations, and financial condition. As such, this analysis may prove to be
inaccurate because of assumptions made by the general partners or the actual
development of future events. No assurance can be given that any of these
statements or predictions will ultimately prove to be correct or substantially
correct.
PORTFOLIO REVIEW - For the years ended December 31, 1996, 1997, 1998 and
the nine months ended September 30, 1999
Loan Portfolio
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, 1996,
1997, 1998 and September 30, 1999, the partnership's loans 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 74.5%
($11,652,323), 84.4% ($21,357,375), 74.7% ($23,839,166), and 73.1%.
($27,366,247) of the outstanding loan portfolio. The remainder of the portfolio
represented loans primarily in Northern California.
As of December 31, 1999, approximately) 26.2% ($4,096,957) of the loan
portfolio was invested in single family homes (1-4 units), approximately 16.1%
($2,521,515), of the loan portfolio was invested in multi-family dwellings,
(apartments over 1-4 units), and approximately 57.7% ($9,024,518), of the loan
portfolio was invested in commercial properties. As of December 31, 1997,
approximately, 30.7% ($7,764,145), of the loan portfolio was invested in single
family homes (1-4 units) approximately 23.6% ($5,982,649), of the loan portfolio
was invested in multi-family dwellings, (apartments over 4 units), and
approximately 45.7% ($11,558,195), of the loan portfolio was invested in
commercial properties. As of December 31, 1998, approximately 47.8%
($15,239,644) of the loan portfolio was invested in single family homes (1-4
units), approximately 10.2% ($3,256,602) of the loan portfolio was invested in
multi family dwellings (apartments over 4 units), and approximately 42.0%
($13,409,712) of the loan portfolio was invested in commercial properties. As of
September 30, 1999, approximately, 49.5% ($18,541,964), was invested in single
family homes (1-4 units), approximately 6.6% ($2,466.030) was invested in
multi-family dwellings (apartments over 4 units), approximately, 30.9%
($11,550,252) was invested in commercial properties, and approximately 13.0%
($4,870,000) was invested in unimproved land.
As of September 30, 1996, the partnership held 56 loans secured by deeds of
trust. The following table sets forth the priorities, asset concentrations and
maturities of the loans held by the partnership as of September 30, 1999.
PRIORITIES, ASSET CONCENTRATIONS AND MATURITIES OF LOANS
(As of September 30, 1999)
Number of Loans Amount Percent
================================================================================
1st Mortgages 30 $21,539,375 58%
2nd Mortgages 26 15,888,871 42%
---------------------------------------------
Total 56 37,428,246 100.0%
Maturing prior to 1/1/00 14 7,557,325 20.19%
Maturing prior to 1/1/01 17 11,775,549 31.46%
Maturing prior to 1/1/02 13 13,750272 36.74%
Maturing after 1/1/02 12 4,345,100 11.61%
---------------------------------------------
Total 56 37,428,246 100.0%
Average Loan 668,362 1.79%
Largest Loan 2,600,000 6.95%
Smallest Loan 15,265 0.04%
Average Loan-to-Value 61.09%
ASSET QUALITY
A consequence of lending activities is that losses will be experienced and
that the amount of such losses will vary from time to time, depending upon the
risk characteristics of the loan portfolio as affected by economic conditions
and the financial experiences of borrowers. 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 loan 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, determine whether the allowance for
loan losses is adequate to cover potential loan losses of the partnership. As of
September 30, 1999, the general partners have determined that the allowance for
loan losses of $799,607 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 September 30, 1999, four loans were delinquent over 90 days amounting to $
1,605,176
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The partnership relies upon purchases of units, loan payoffs, borrowers'
mortgage payments, and, to a lesser degree, its line of credit for the source of
funds for loans. 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 loans 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 loans
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 loans 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 loans,
thereby lowering the partnership's overall yield to the limited partners. The
partnership to a lesser degree relies upon its line of credit to fund loans.
Generally, the partnership's loans 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.
BUSINESS
We are engaged in business as a mortgage lender for the primary purpose of
making loans secured primarily by first and second deeds of trust on California
real estate. One hundred percent (100%) of the partnership's loans are secured
by first and second deeds of trust. We commenced operations in April, 1993. We
are located at 650 El Camino Real, Suite G, Redwood City, California 94063 and
our telephone number is (650) 365-5341.
Loans are arranged and serviced by Redwood Mortgage Corp., a general
partner of the partnership. As of September 30, 1999, approximately 58% of the
partnership's loans are secured by first deeds of trust and 42% are secured by
second deeds of trust. The aggregate principal balance of these loans total
$37,428,246.
The following table shows the growth in total partnership capital, loans
and net income as of September 30, 1999, and for the years ended December 31,
1998, 1997, 1996, 1995, 1994, 1993:
Capital Loans Net Income
-----------------------------------------------
1999 (as of 09/30/99) 33,845,577 37,428,246 2,078,161
1998 27,047,654 31,905,958 2,274,128
1997 20,931,153 25,304,989 1,798,958
1996 14,704,658 15,642,990 1,230,907
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 September 30, 1999, the partnership had made one hundred sixty one
(161) loans, including eighty four (84) first deeds of trust, seventy two (72)
second deeds of trust and five (5) third deeds of trust. The following table
sets forth the types and maturities of these loans. Many of these loans have
been repaid in full by the borrowers.
<PAGE>
<TABLE>
TYPES AND MATURITIES OF LOANS (As of September 30, 1999)
Number of Mortgage
Investments Amount Percent
----------------------- -------------------------- --------------------
<S> <C> <C> <C>
First Mortgage 84 $47,434,548 56.30%
Second Mortgage 72 $35,417,541 42.03%
Third Mortgage 5 $1,404,900 1.67%
----------------------- -------------------------- --------------------
161 $84,256,989 100.0%
======================= ========================== ====================
Maturing before 1/1/98 44 $11,327,426 13.45%
Maturing after 1/1/98 and before 1/1/2000 46 $25,329,899 30.06%
Maturing after 1/1/2000 and before 1/1/2002 45 $35,769,940 42.45%
Maturing after 1/1/2002 26 $11,829,724 14.04%
----------------------- -------------------------- --------------------
161 $84,256,989 100.0%
======================= ========================== ====================
Single Family Residences 78 $33,576,638 39.85%
Commercial Residences 53 $28,865,374 34.26%
Multi-Unit Property 18 $12,654,977 15.02%
Unimproved Land 12 $9,160,000 10.87%
----------------------- -------------------------- --------------------
161 $84,256,989 100.0%
======================= ========================== ====================
</TABLE>
DELINQUENCIES
As of September 30, 1999, we had 4 loans ($1,605,177) which were delinquent
over 90 days. This represents 4.29% of our outstanding portfolio. These loans
were not in foreclosure.
ALLOWANCE FOR LOSSES
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 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. At September 30,
1999, $799,607 was provided as an allowance for possible losses.
1. Table of open loans for the partnership as of September 30, 1999. As of
September 30, 1999, the partnership had fifty six (56) open loans with a
principal outstanding balance totaling $37,428,246. Open loans are those loans
in which the principal amount of the loan is outstanding. That is, the loan has
not been paid back to the partnership.
The following table sets forth with respect to each open loan, the
following information:
-the date the loan was funded;
-the amount of the existing first or second mortgage on the property, if
any;
-the amount of the loan, the term of the loan;
-the appraised value of the property at the time the loan was made;
-the loan to value ratio at the time the loan was made; and
-the current status of the loan
Please be aware that the key to the footnotes indicated in the following
table appear at the bottom of the page.
<PAGE>
<TABLE>
a. Loans Secured By Single Family Residences (1-4 Units)
S
Existing Existing % t
1st 2nd Amount of Loan Appraised Loan to a
Mortgage Mortgage Partnership Term Value of Value t
Date at at Loans at in Property at Ratio at u
County Funded Funding Funding Funding Months Funding Funding s
------------------- ----------- -------------- ------------ ------------- ---------- -------------- ----------- --------
Single Family Residences (county)
<S> <C> <C> <C> <C> <C> <C>
San Mateo 1 03/29/96 $ 0 $ 0 $ 105,000 120 $ 140,000 75.00 A
Alameda 2 05/07/97 262,342 0 50,000 24 405,000 77.12 A
San Francisco 1 06/26/97 0 0 390,000 36 565,000 69.05 A
San Francisco 1 06/24/97 0 0 579,300 36 800,000 72.41 A
San Francisco 2 09/16/97 579,300 0 1,320,000 18 2,450,000 77.52 A
San Mateo, 1 10/07/97 0 0 250,000 360 435,000 57.47 A
San Francisco 1 10/23/97 0 0 2,400,000 18 3,403,034 70.53 A
Marin 2 03/25/98 1,300,000 0 894,000 24 2,867,000 76.53 B
San Francisco 2 08/07/98 1,702,800 0 950,700 18 4,205,000 63.10 A
Stanislaus 1 09/15/98 0 0 2,500,000 36 4,004,263 62.43 A
San Francisco 1 11/03/98 0 0 910,000 18 1,300,000 70.00 A
San Francisco 2 11/13/98 1,320,000 0 1,155,000 18 3,300,000 75.00 A
San Francisco 2 11/03/98 910,000 0 953,000 18 2,800,000 66.54 A
San Mateo 1 11/25/98 0 0 2,600,000 12 3,946,429 65.88 A
San Mateo 2 01/26/99 516,932 0 110,000 48 825,000 75.99 A
Marin 1 03/04/99 0 0 1,210,000 24 1,860,000 65.05 A
Santa Clara 1 02/23/99 0 0 896,000 18 1,215,000 73.74 A
San Francisco 2 04/27/99 2,400,000 0 430,345 12 4,435,862 63.81 A
San Mateo 2 07/30/99 264,025 0 950,000 18 1,550,000 78.32 A
Santa Clara 1 07/20/99 0 0 950,000 60 1,440,000 65.97 A
Lake 2 08/06/99 454,885 0 737,500 24 1,775,000 67.18 A
Santa Clara 2 08/17/99 668,433 0 850,000 120 2,800,000 54.23 A
b. Loans Secured By Multifamily Residences (5+ Units)
S
Existing Existing % t
1st 2nd Amount of Loan Appraised Loan to a
Mortgage Mortgage Partnership Term Value of Value t
Date at at Loans at in Property at Ratio at u
County Funded Funding Funding Funding Months Funding Funding s
------------------- ----------- -------------- ------------ ------------- ---------- -------------- ----------- --------
Multiple Units (county)
<S> <C> <C> <C> <C> <C> <C>
San Joaquin 2 10/05/94 $713,917 $ 0 $ 200,000 60 $ 1,270,000 71.96 A
San Francisco 1 03/21/95 0 0 400,000 120 583,333 68.57 A
San Mateo 1 09/18/97 0 0 2,200,000 12 3,470,000 63.40 A
Marin 1 07/09/98 0 0 390,000 12 519,726 75.04 A
Contra Costa 2 03/31/99 5,733 0 38,727 60 58,042 76.60 A
<FN>
1 Indicates a first deed of trust on property
2 Indicates a second deed of trust on property
3 Indicated a third deed of trust on the property
4 The term loan to value ratio means the total amount of debt secured by the property expressed as a percentage of the total
value of the property. Generally, the loan to value ratio will not exceed 80% of the appraised value for
residential properties, 70% of the appraised value for commercial properties and 50% of appraised value for
unimproved land.
A. Loan current or less than 90 days delinquent
B. Loan 90 days or more delinquent
C. Loan in foreclosure
D. Loan in bankruptcy
</FN>
</TABLE>
<PAGE>
<TABLE>
c. Loans Secured By Commercial Property
S
Existing Existing % t
1st 2nd Amount of Loan Appraised Loan to a
Mortgage Mortgage Partnership Term Value of Value t
Date at at Loans at in Property at Ratio at u
County Funded Funding Funding Funding Months Funding Funding s
------------------- ----------- -------------- ------------ ------------- ---------- -------------- ----------- --------
Commercial Properties (county)
<S> <C> <C> <C> <C> <C> <C>
Santa Clara 1 03/31/96 $ 0 $ 0 $ 40,000 36 $ 56,640 70.62 A
San Francisco 2 12/29/94 1,060,486 0 325,000 107 2,000,000 69.27 A
Sacramento 2 08/27/93 846,019 0 67,500 120 1,343,500 68.00 A
San Francisco 2 10/14/93 11,864 0 200,000 60 428,333 49.62 A
Alameda 1 11/16/93 0 0 192,500 60 256,667 75.00 B
Santa Clara 1 01/20/94 0 0 390,000 60 585,000 66.67 B
Fresno 1 06/15/95 0 0 130,000 60 225,000 57.78 A
Contra Costa 1 01/05/96 0 0 104,000 60 190,000 54.74 A
San Mateo 1 02/16/96 0 0 75,000 60 265,000 28.30 A
Santa Clara 2 03/22/96 5,492,788 0 955,000 60 8,665,032 74.41 A
San Mateo 2 08/20/96 74,754 0 65,000 54 265,000 52.74 A
Santa Clara 2 11/15/96 468,000 0 18,000 15 585,000 83.08 B
San Francisco 1 03/28/97 0 0 700,000 108 2,100,00 33.33 A
San Mateo 1 04/23/97 0 0 370,000 60 495,000 74.75 A
San Francisco 1 09/12/97 0 0 150,000 60 1,440,000 10.42 A
San Francisco 1 09/19/97 0 0 325,000 120 595,000 54.62 A
Alameda 2 09/30/97 156,750 0 169,555 120 568,125 57.43 A
Contra Costa 2 05/13/98 1,124,681 0 300,000 18 1,870,000 76.19 A
Stanislaus 1 07/24/98 0 0 1,072,000 18 1,949,344 54.99 A
Santa Clara 1 11/04/98 0 0 1,800,000 24 2,610,000 68.97 A
Stanislaus 1 12/03/98 0 0 650,000 36 984,286 66.04 A
Riverside 2 03/05/97 121,264 0 50,000 36 300,000 57.09 A
San Mateo 2 03/05/99 3,753,523 0 2,050,000 24 10,652,313 54.48 A
San Francisco 1 05/27/99 0 0 850,000 24 1,335,714 63.64 A
San Francisco 2 08/11/99 850,000 0 1,028,095 21 2,703,809 69.46 A
d. Loans Secured By Land
S
Existing Existing % t
1st 2nd Amount of Loan Appraised Loan to a
Mortgage Mortgage Partnership Term Value of Value t
Date at at Loans at in Property at Ratio at u
County Funded Funding Funding Funding Months Funding Funding s
------------------- ----------- -------------- ------------ ------------- ---------- -------------- ----------- --------
Land (county)
<S> <C> <C> <C> <C> <C> <C>
Stanislaus 1 02/06/98 $ 0 $ 0 $ 350,000 18 $ 700,000 50.00 A
Santa Clara 1 06/16/99 0 0 120,000 24 240,000 50.00 A
Stanislaus 2 06/23/99 363,035 0 1,800,000 24 3,008,571 71.90 A
Stanislaus 2 06/23/99 2,133,726 0 2,600,000 24 9,004,878 52.57 A
<FN>
5 Indicates a first deed of trust on property
6 Indicates a second deed of trust on property
7 Indicated a third deed of trust on the property
8 The term loan to value ratio means the total amount of debt secured by the property expressed as a percentage of the total
value of the property. Generally, the loan to value ratio will not exceed 80% of the appraised value for
residential properties, 70% of the appraised value for commercial properties and 50% of appraised value for
unimproved land.
A. Loan current or less than 90 days delinquent
B. Loan 90 days or more delinquent
C. Loan in foreclosure
D. Loan in bankruptcy
</FN>
</TABLE>
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
CAUTION: WE DO NOT INTEND 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. YOU SHOULD CONSULT WITH YOUR TAX ADVISORS,
ATTORNEYS OR ACCOUNTANTS ON MATTERS RELATING TO AN INVESTMENT IN THE PARTNERSHIP
WITH SPECIAL REFERENCE TO YOUR OWN SITUATION.
The following is a summary of federal income tax considerations material to
your investment in the partnership. 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, you 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 your income
from sources other than the partnership and, if the partnership's investment
objectives are met, we 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.
This summary provides a discussion of tax consequences deemed material by
counsel but is not 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. 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. If
you are such a prospective investor, you should carefully consult your own
advisors on this issue. 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" at page 50 and "TAX RISKS" at page 13 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") at page 51.
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 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 1% of the net income and net loss and the limited partners are
allocated 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 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 bulk of
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 does not expect 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
Landels, Ripley & Diamond, LLP ("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" at page 50 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.
2. Publicly Traded Partnerships. 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. 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:
-The partnership will be organized and operated in accordance with the
California Revised Limited Partnership Act.
-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.
-The partnership will not participate in any loan on terms other than those
described in "INVESTMENT OBJECTIVES AND CRITERIA" at page 35 without first
receiving certain advice of counsel.
<PAGE>
-The loans will be made by on substantially the terms and conditions
described in the prospectus in "INVESTMENT OBJECTIVES AND CRITERIA" at page 35.
-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.
You 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.
You should note that any statement that a tax position "more likely than not"
will be sustained only means that in counsel's judgement, at least a 51% chance
of prevailing exists if the IRS will challenge the tax position. 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.
Partnership Status. 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 ability to obtain income tax attributes anticipated from an investment
in units depends upon the classification of the partnership as a partnership for
federal income tax purposes and not as an association taxable as a corporation.
Regulations regarding entity classification have been issued under Section 7701
of the Internal Revenue Code which, in effect, operate to allow a business
entity that is not otherwise required to be classified as a corporation, i.e.,
and "eligible entity," to elect its classification for federal income tax
purposes. Under Section 301.7701-3(b) of the regulation, an "eligible entity"
that has at least two members will be treated as a partnership in the absence of
an election. Accordingly, while we do not intend to request a ruling from the
IRS as to the classification of the partnership for income tax purposes, unless
the partnership is deemed to be taxable as a corporation pursuant to the
application of the publicly traded partnership rules discussed below, the
partnership will qualify as a "eligible entit" and need not make an election to
be treated as a partnership for income tax purposes.
In the event that the partnership, for any reason, were to be treated for
federal incomve tax purposes as an association taxable as a corporation, the
partners of the partnership would be treated as stockholders with the following
results, among others: (1) the partnership would become a taxable entity subject
to the federal income tax imposed on corporations; (2) items of income, gain,
loss, deduction and credit would be accounted for by the partnership on its
federal income tax return and would not flow through to the partners; and (3)
distributions of cash would generally be treated as dividends taxable to the
partners at ordinary income rates, to the extent of current or accumulated
earnings and profits, and would not be deductible by the partnership in
computing it income tax.
Based on the entity classification regulations, and IRS rulings and
judicial decisions under Section 7701(a) of the Internal Revenue Code, all of
which are subject to change, and based upon certain representations of the
general partners and other assumptions, counsel has concluded that the
partnership will more likely than not be treated as a partnership for federal
income tax purposes and not as an association taxable as a corporation. In
rendering such opinion, counsel has also relied upon the fact that the
partnership is duly organized as a limited partnership under the laws of the
State of California and upon representation by the general partners that the
partnership will be organized and operated strictly in accordance with the
provisions of the partnership agreement. The remaining summary of the federal
tax consequences in the section assumes that the partnership will be classified
as a partnership for federal income tax purposes.
Publicly Traded Partnerships. Classification of the partnership as a
"publicly traded partnership" could result in (1) the partnership being taxable
as a corporation (See "Partnership Status" above), and (2) the treatment of net
income of the partnership as portfolio income rather than passive income (See
"Passive Loss Limitations" below). A publicly traded partnership is generally
defined under Section 7704 of the Internal Revenue Code as any partnership whose
interests are traded on an established securities market or are readily tradable
on a secondary market or the substantial equivalent thereof. In addition,
regulations have been issued (the Section 7704 regulations) which provide
guidance with respect to such classification standards, including certain safe
harbor standards which, if satisfied, preclude classification as a publicly
traded partnership.
The Section 7704 regulations contain definitions of what constitutes an
established securites market and a secondary market or the substantial
equivalent thereof. They also set forth what transfers may be disregarded in
determining whether such definitions are satisfied with respect to the
activities of a partnership. The general partners do not believe that units in
the partnership are traded on an established securities market or a secondary
market or a substantial equivalent thereof as defined in Section 7704
regulations. The general partners have also represented that they do not intend
to cause the units to be traded on an established securities market or a
secondary market in the future.
As noted above, the Section 7704 regulations provide certain safe harbors,
the "secondary market safe harbors" which, after taking into consideration all
transfers other than those deemed disregarded, may be satisfied in order to
avoid classification of such transfers as being made on a secondary market or
the substantial equivalent thereof. One of the secondary market safe harbors
provides that interests in a partnership will not be considered tradeable on a
secondary market or the substantial equivalent thereof if the sum off the
partnership interests transferred during any taxable year, other than certain
disregarded transfers, does not exceed 2% of the total interest in the
partnership's capital or profits. Disregarded transfers include, among other
things, transfers by gift, transfers at death, transfers between family members,
distributions from a qualified plan and block transfers, which are defined as
transfers by a partner during any 30 calendar day period units representing more
than 2% of the total interest in a partnership's capital or profits.
A second safe harbor from classification as a publicly traded partnership,
dealing with redemption and repurchase agreements, is also provided in the
Section 7704 regulations. The Section 7704 regulations also make it clear that
the failure to satisfy a safe harbor provision under the regulations will not
cause a partnership to be treated as a publicly traded partnership if, after
taking into account all facts and circumstances, partners are not readily able
to buy, sell or exchange their partnership interests in a manner that is
comparable, economically, to trading on an established securities market.
The general partners have represented that the partnership will be operated
strictly in accordance with the partnership agreement, and they have also
represented that they will void any transfers or assignments of units if they
believe that such transfers or assignments will cause the partnership to be
treated as a publicly traded partnership under the Section 7704 regulations or
any other guidelines adopted by the IRS in the future. Based upon the
representations of the general partners, and assuming the partnership will be
operated strictly in accordance with the terms of the partnership agreement,
counsel has concluded that it is more likely than not the partnership will not
be classified as a publicly traded partnership under Section 7704 of the
Internal Revenue Code. Due to the complex nature of the safe harbor provisions
contained in Section 7704 regulations, and because any determination in this
regard will necessarily be based upon future facts not yet in existence, no
assurance can be given that the IRS will not challenge this conclusion or that
the partnership will not, at some time in the future, be deemed a publicly
traded partnership.
Even if the partnership were deemed a publicly traded partnership, Section
7704(c) of the Internal Revenue Code provides an exception to taxation of such
an entity as a corporation if 90% or more of the gross income of such an entity
for each taxable year consists of "qualifying income." Qualifying income
includes interest, real property rents and gain from the sale of other
disposition of real property, but qualifying income does not include real
property rents which are contingent on the profits of the lessees or income from
the rental or lease of personal property. The general partners intend to operate
the partnership in such a manner as to qualify for the 90% qualifying income
exception. (see "INVESTMENT OBJECTIVES AND CRITERIA" at page 35). Investors
should note, however, that even if the partnership satisfies the qualifying
income exception, being deemed to be a publicly traded partnership would result
in certain other material adverse tax consequences to limited partners,
including the treatment of net income of the partnership as portfolio income
rather than passive income.
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. 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 for any reason 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.
Anti-Abuse Rules. The regulations set forth broad "anti-abuse" rules
applicable to partnerships, which rules authorize the IRS to recast transactions
involving the use of partnerships either to reflect the underlying economic
arrangement or to prevent the use of a partnership to circumvent the intended
purpose of any provision of the Internal Revenue Code. The general partners are
not aware of any fact or circumstance which could cause these rules to be
applied to the partnership; however, if any of the transactions entered into by
the partnership were to be recharacterized under these rules, or the partnership
itself were to be recast as a taxable entity under these rules, material adverse
tax consequences to all of the partners might occur.
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 cash
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.
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.
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" at
page 64).
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, 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 partner's interests in the partnership; or (iii) the
allocation can be deemed to be in accordance with the partner's 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 partner's 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 Units. You may be unable to sell your units as there
may be no public market for them. In the event that units are sold, however, the
selling party will realize gain or loss equal to the difference between the
gross sale price or proceeds received from sale and the investor's adjusted tax
basis in his units. Assuming the investor is not a "dealer" with respect to such
units and has held the units for more than 12 months, his gain or loss will be
long-term capital gain or loss, except for that portion of any gain attributable
to such investor's share of the partnership's "unrealized receivables" and
"inventory items" as defined in Section 751 of the Internal Revenue Code, which
portion would be taxable as ordinary income.
Ordinary income for individual taxpayers is currently taxed at a maximum
marginal rate of 39.6%. Capital gains, however, are taxed at a maximum marginal
rate of 20% i.e., for gains realized with respect to capital assets held for
more than 12 months. The Internal Revenue Code also provides, however, that the
portion of long-term capital gain arising from the sale or exchange of
depreciable real property which constitutes depreciation recapture will be taxed
at a maximum marginal rate of 25% rather than 20%. Capital losses may generally
be used to offset capital gains or may, in the absence of capital gains, be
deductible against ordinary income on a dollar-for-dollar basis up to a maximum
annual deduction of $3,000 ($1,500 in the case of a married individual filing a
separate return.)
Any recapture cost recovery allowances taken previously by the partnership
with respect to personal property associated with partnership real properties
will be treated as "unrealized receivables" for this purpose. Investors should
note that in this regard that Section 6050K of the Internal Revenue Code
requires the partnership to report any sale of units to the IRS if any portion
of the gain realized upon such sale is attributable to the transferor's share of
the partnershi's "Section 751 property."
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 reduce portfolio income. With regard
to interest, the Treasury has issued 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 regulations 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.
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 and be
treated as portfolio income.
Treatment of Loans Containing Participation Features. The partnership may
extend loans with an equity interest in the property securing the loans (See
"INVESTMENT OBJECTIVES AND CRITERIA- Equity Interests in Real Property" at page
36). With respect to loans 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 venture 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 loans 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 venture 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 Loans. No gain or loss will be recognized by the
partnership upon the full repayment of principal of a loan. Any gain recognized
by the partnership on the sale or exchange of a loan will be treated as a
capital gain unless the partnership is deemed to be a "dealer" in loans 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 loans. However, if the partnership were at any
time deemed for tax purposes to be holding one or more loans 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" at page 59). 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 loans 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.
Tax Consequences of Reinvestment in Loans. 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" at page 56 and "Investment by Tax-Exempt
Investors" at page 59).
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 the offering
period or for a five year term thereafter might be less than projected although
not significantly 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
loans. Original issue discount may arise with respect to loans 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 such loans 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 loan 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 loan. 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.
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 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.
Tax Returns. The partnership will furnish annually to you (but not to
assignees of limited partners unless they become substituted limited partners)
sufficient information from the partnership's tax return for you to prepare your
own federal, state and local tax returns. The partnership's tax returns will be
prepared by accountants to be selected by the general partners. There are
substantial additional penalties 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 loan. The fees paid for services rendered in connection with the making or
securing of loans, 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.
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 loan) 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 loan 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 loans 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 loans. 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" at page 56.)
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.
If you are a tax-exempt investor, you are strongly urged to consult your
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 you should consider "TAX
RISKS - Investments by Tax-Exempt Investors" at page 15 and "ERISA
CONSIDERATIONS" at page 61.
Investment By Charitable Remainder Trusts. A charitable remainder trust
(CRT) is a trust created to provide income for the benefit of at least one
non-charitable beneficiary for life or a term of up to 20 years, with the
property comprising the trust corpus then transferred to a charitable
beneficiary upon the expiration of the trust. Upon the creation of a CRT, the
grantor would normally be entitled to a charitable income tax deduction equal to
the current fair market value of the remainder interest which will ultimately
pass to charity. A CRT is also exempt from federal income taxation if the trust
is established and maintained in compliance with highly complex rules contained
in the Internal Revenue Code and underlying regulations. Among these rules is a
provision that if any portion of the income recognized by a CRT is deemed to be
UBTI, all of the CRT's income for the taxable year in which UBTI is incurred,
from whatever sources derived, will be subject to income taxation at the trust
level. As set forth above in "Investment by Tax-Exempt Investors," the general
partners have used their best efforts to structure the partnership's activities
to avoid any of the partnership's income characterized as UBTI. Accordingly,
unless the partnership incurs indebtedness for the purpose of acquiring or
improving real properties, and hence is deemed to be holding property subject to
"acquisition indebtedness," or is deemed to hold its properties primarily for
sale to customers in the ordinary course of business, under current law, the
partnership's income should not be deemed to constitute UBTI to tax-exempt
investors.
Foreign Investors As Limited Partners. Foreign investors may purchase units
in the partnership. A foreign investor who purchases units and becomes a limited
partner in the partnership will generally be required to file a United States
tax return on which he must report his distributive share of the partnership's
items of income, gain, loss, deduction and credit. A foreign investor must pay
United States federal income tax at regular United States tax rates on his share
of any net income, whether ordinary or capital gains. A foreign investor may
also be subject to tax on his distributive share of the partnership's income and
gain in his country of nationality or residence or elsewhere. In addition,
distributions of net cash from operations or proceeds from the sale of
properties otherwise payable to a foreign investor from the partnership or
amounts payable upon the sale of a foreign investor's units may be reduced by
United States tax withholdings made pursuant to applicable provisions of the
Internal Revenue Code. Foreign investors should consult their own tax advisors
with regard to the effect of both the United States tax laws and foreign laws on
an investment in the partnership and the potential that the partnership will be
required to withhold federal income taxes from amount otherwise payable to
foreign investors.
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. Your distributive share
of the taxable income or loss of the partnership generally will be required to
be included in determining your reportable income for state or local income tax
purposes in the jurisdiction in which you are a resident. Further, upon your
death, estate or inheritance taxes might be payable in such jurisdictions based
upon your interest in the partnership. In addition, you 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 you for federal income
tax purposes may not be available to you for state or local income tax purposes.
Many states have implemented or are in the process of implementing programs
to require partnerships to withhold and pay state income taxes owed by
non-resident partners relating to income-producing properties located in their
states. For example California has required certain public real estate programs
to withhold and pay state taxes relating to income-producing properties located
in the state. In the event that the partnership is required to withhold state
taxes from cash distributions otherwise payable to limited partners, the amount
of the net cash from operations otherwise payable to such limited partners would
likely be reduced. In addition, such collection and filing requirements at the
state level may result in increases in the partnership's administrative expenses
which would likely have the effect of reducing returns to the limited partners.
You are urged to consult your 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.
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.
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
partners have represented that it intends to prohibit transfers of units only to
the extent necessary to comply with the publicly traded partnership safe harbors
(See "FEDERAL INCOME TAX CONSEQUENCES - Publicly Traded partnerships" at page
52). 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.
Annual Valuation. Fiduciaries of retirement plans are required to determine
annually the fair market value of the assets of such retirement plans,
typically, as of the close of a plan's fiscal year. To enable the fiduciaries of
retirement plans subject to the annual reporting requirements of ERISA to
prepare reports relating to an investment in the partnership, the general
partners are required to furnish an annual statement of estimated unit value to
the investors. For the first three full fiscal years following the termination
fo the offering, the value of a unit will be deemed $1.00, and no valuations
will be performed. Thereafter, the annual statement will report the estimated
value of each unit based on the estimated amount a unit holder would receive if
all partnership assets were sold as of the close of the partnership's fiscal
year for their estimated values and if such proceeds, without reduction for
selling expenses, together with the other funds of the partnership, were
distributed in liquidation of the partnership.
Such estimated values will be based upon annual valuations of partnership
properties performed by the general partners, but no independent appraisals will
be obtained. While the general partners are required under the partnership
agreement to obtain the opinion of an independent third party stating that their
estimates of value are reasonable, such general partner valuations may not
satisfy the requirements imposed upon fiduciaries under ERISA for all retirement
plans. The estimated value per unit will be reported to limited partners in the
partnership's next annual or quarterly report form 10-K or 10-Q sent to the
limited partners for the period immediately following completion of the
valuation process. There can be no assurance that the estimated value per unit
will actually be realized by the partnership or by the limited partners upon
liquidation in part because estimates do not necessarily indicate the price at
which properties could be sold. Limited partners may not be able to realize
estimated net asset value if they were to attempt to sell their units, because
no public market for units exists or is likely to develop.
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.
Each unit is $1.
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:
-terminate the partnership;
-amend the limited partnership agreement, subject to certain limitations
described in Section 12.4 of the limited partnership
agreement;
-approve or disapprove the sale of all or substantially all of the assets
of the partnership; or
-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" at page 64).
If you assign your units to another person, that person will not become a
substituted limited partner in your place unless the written consent of the
general partners to such substitution has been obtained. Such consent shall not
be unreasonably withheld. A person 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.
There is not a public trading market for the units and none is likely to
exist. The transferability of the units will be subject to a number of
restrictions. Accordingly, the liquidity of the units will be limited and you
may not be able to liquidate your 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 2000 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. 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,
you will not be permitted to make any transfer or assignment of your interests
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.
We will not repurchase any units from you. However, you 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 your capital account. You 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" at page 67).
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. You 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.
You as a limited partnership will not be responsible for the obligations of
the partnership. However, you will be liable to the extent of any deficit in
your 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 you may constitute, wholly or in part,
return of capital.
As a limited partner you 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:
-terminate the partnership (including merger or reorganization with one or
more other partnerships);
-amend the limited partnership agreement;
-approve or disapprove the sale of all or substantially all of the assets
of the partnership; or
-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 $1, and no person may acquire less than 2000 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 your subscription for units, you will be required
to elect either (i) to receive monthly, quarterly or annual distributions
("periodic distributions"); or (ii) to retain your earnings in your capital
account with us. The election to receive periodic cash distributions is
irrevocable although you may change whether such distributions are received on a
monthly, quarterly or annual basis. If you initially elected to retain your
earnings, you may, after three (3) years, change your election and receive
periodic cash distributions. The general partners will also receive cash
distributions equal to one percent (1%) of total partnership income. In order to
provide you greater flexibility, if you initially elect to receive cash
distributions and subsequently change your mind, we are going to register with
the SEC, a dividend reinvestment plan. We anticipate that the dividend
reinvestment plan will be filed in the first half of 2000 and take effect
immediately. Until that time, you will still have the election to receive cash
distributions or to retain your earnings in your capital account with us.
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 our offices. 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.
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 you. You shall also be furnished such detailed
information as is reasonably necessary to enable you to complete your 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. You 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 units. Any transferee must be a
person that would have been qualified to purchase units in this offering and no
transferee may acquire or hold less than 2,000 units. No 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, you will not be
permitted to make any transfer or assignment of your 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.
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.
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:
-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);
-upon the affirmative vote of a majority-in interest of the limited
partners;
-upon the sale of all or substantially all (i.e., at least seventy percent
(70%)) of the partnership's assets; or
-otherwise by operation of law.
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 us 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 (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 loans, and the then-current value and marketability of the
partnership's loans. 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, units 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" at page 16).
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. Additionally,
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. The member
firm 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 to:
-a minor or incompetent (unless a guardian, custodian or conservator has
been appointed to handle the affairs of such person);
-any person not permitted to be a transferee under applicable law,
including, in particular but without limitation, applicable federal and state
securities laws;
-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;
-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.
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 for
adverse tax consequences, 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. 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, you may not be able to liquidate your investment 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. You have 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, after the one year period, you may withdraw all or part of your
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. Such notice must be 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.
You will also have the right after five years from the date of purchase of
the units to withdraw from the partnership. This will be done 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, we 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.
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 Corp., thereby reducing the amount owed to
the partnership from Redwood Mortgage Corp. 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"
at page 69).
In the event of your death during your investment with us, your heirs will
be provided with the option to liquidate all or a portion of your investment.
Such liquidations will not be subject to any early withdrawal penalties but will
be limited in amount to $50,000 per year paid in equal quarterly installments.
Your heirs will be required to notify us of their intent to liquidate your
investment within 6 months from the date of death or the investment will become
subject to our regular liquidation provisions. Due to the complex nature of
administering a decedent's estate, the general partners reserve the right and
discretion to request any and all information they deem necessary and relevant
in determining the date of death, the name of the beneficiaries or any other
matters they may deem relevant.
You 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 your 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 loans (which sales are not
required to be made).
We will not establish a reserve from which to fund withdrawals. Our
capacity to return your capital account upon withdrawal 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. 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 this 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
capital accounts after five years over four quarterly installments, then to
administrators withdrawing capital accounts upon the death of a limited partner
and finally to all other limited partners withdrawing capital accounts. 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 their earnings will be credited to their capital accounts and will
increase their capital accounts, in lieu of receiving periodic cash
distributions. Earnings retained in your capital account will be used by us for
making further loans and for other proper partnership purposes. However, there
is no assurance as to the timing or amount of any distribution to the holders of
the units. To provide an added degree of flexibility, we are planning to
register a dividend reinvestment program in the first 6 months of 2000 and
anticipate that it would be effective shortly thereafter. Until such time, the
distribution policy described above will still be in effect.
Cash available for distribution will be allocated to you and your assignees
in the ratio which the capital accounts owned by you bears to the capital
accounts then outstanding, subject to adjustment with respect to units issued by
the partnership during the quarter. For such purposes, a transferee 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 your right to
credit your capital account in lieu of receipt of periodic cash distributions,
such option to credit your capital account in lieu of receiving periodic cash
distributions will continue unless prohibited by applicable federal or state
law.
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.
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 you such information as is necessary for the
preparation by your 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 you of the affairs of the
partnership.
For as long as the partnership is required to file quarterly reports on
Form 10-Q and annual reports on Form 10-k with the Securities and Exchange
Commission, the information contained in each such report for a quarter shall be
sent within 60 days after the end of such quarter. If and when such reports are
not required to be filed, you 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
30,000,000 units ($30,000,000) of limited partnership interest at $1 per unit.
The minimum subscription is 2,000 units ($2,000).
Sales Commissions. Participating broker dealers will receive sales
commissions of 5% of gross proceeds for subscriptions where investors elect to
receive cash distributions and sales commissions of 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 .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 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 65% of investors will elect to compound earnings and receive
additional units and 35% of investors will elect to receive distribution.
Sales by Registered Investment Advisors. In addition to purchasing units
though participating broker dealers, we may accept unsolicited orders for units
directly from you if you utilize the services of a registered investment
advisor. A registered investment advisor is an investment professional retained
by you to advise you regarding your investment strategy regarding all of your
assets, not just your investment with us. Registered investment advisors are
paid by you based upon the total amount of your assets being managed by the
registered investment advisor.
If you utilize the services of a registered investment advisor in acquiring
units, Redwood Mortgage Corp. will pay to the partnership, an amount equal to
the sales commissions otherwise attributable to a sale of units through a
participating broker dealer. The partnership will in turn credit such amounts
received by Redwood Mortgage Corp. to the account of the investor who placed the
unsolicited order.
-Election of Investors to Pay Client Fees. If you acquire units directly
from the partnership through the services of a registered investment advisor,
you will have the election to authorize us to pay your registered investment
advisor an estimated quarterly amount of no more than 2% annually of your
capital account that would otherwise be paid to you as periodic cash
distributions or compounded as earnings. For ease of reference, we have referred
to these fees as "client fees." If you elect to compound earnings, then the
amount of the earnings reinvested by you will be reduced by an amount equal to
the amount of the client fees paid. Thus, the amount of the periodic cash
distributions paid or the amount of earnings compounded will be less if you
elect to pay client fees through us. The authorization to pay client fees is
solely at your election and is not a requirement of investment with us.
-Client Fees are not Sales Commissions. All client fees paid will be paid
from those amounts that would otherwise be paid to you or compounded in your
capital account. The payment of all client fees is noncumulative and subject to
the availability of sufficient earnings in your capital account. In no event
will any such client fees be paid by us as sales commissions or other
compensation. We are merely agreeing to pay to the registered investment
advisor, as an administrative convenience to you, a portion of those amounts
that would otherwise be paid to you. In no event will the total of all
compensation including sales commissions, expense reimbursements, sales seminar
and/or due diligence expenses exceed 10% of the program proceeds received plus
an additional .5% for bona fide due diligence expenses as set forth in Rule 2810
of the NASD Conduct Rules.
-Representations and Warranties of Registered Investment Advisors. All
registered investment advisors will represent and warrant to the partnership
that, among other things, the investment in the units is suitable for you, that
he has informed you of all pertinent facts relating to the liquidity and
marketability of units, and that if he is affiliated with an NASD registered
broker or dealer, that all client fees received by him in connection with this
transaction will be run through the books and records of the NASD member in
compliance with Notice to Members 96-33 and Rules 3030 and 3040 of the NASD
Conduct Rules.
Payment of Sales Commissions. As of the date hereof, total commissions have
averaged 7.76% of limited partner units sold. 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.
Payment of Other Fees to Participating Broker Dealers. 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.
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.
Suitability Requirements. You will be required to comply with (i) the
minimum purchase requirement and investor suitability standard of your state of
residence or (ii) the investor suitability standard imposed by the partnership
in the event that your state of residence does not impose such a standard (See
"INVESTOR SUITABILITY STANDARDS" at page 16).
In order to purchase any units, the you must complete and execute the
signature page for the subscription agreement. Any subscription for units must
be accompanied by tender of the sum of $1 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, you agree to all of the terms of the
partnership agreement including the grant of a power of attorney under certain
circumstances. Units will be evidenced by a written partnership agreement.
Your subscription agreement will be accepted or rejected by the general
partners within thirty (30) days after its 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 number of units that may be purchased
by the general partners or their affiliates is $50,000 (50,000 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 and no purchases have been
made to date.
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 Corp. The partnership lends to Redwood
Mortgage Corp., funds from the offering proceeds equal to the amount of sales
commission owed to the participating broker dealers. For example, if an investor
elects to invest over $10,000 and elects to reinvest his earnings, the
partnership will pay a 9% or $900 sales commission to the participating broker
dealer. Instead of paying $900 to the participating broker dealer, the
partnership will lend $900 to Redwood Mortgage Corp. in the form of a formation
loan. Redwood Mortgage Corp. pays the participating broker dealer its sales
commission and then repays the partnership the amount of the loan, in the case
of our example, $900. That loan, called a formation loan, is non-interest
bearing, unsecured, and is paid back to the partnership by Redwood Mortgage
Corp. over time.
Initially, upon the formation of the partnership, approximately eighty four
percent (84%) of each dollar invested will be available for loans assuming that
all units offered are purchased and no leveraged funds are utilized. However, as
Redwood Mortgage Corp. repays the formation loan, and if working capital
reserves are applied to loans as has occurred in prior programs, approximately
ninety-six percent (96%), will be available for investment in loans.
Although it is possible that the amount of 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 Corp.,
whichever is less. As of the date hereof, the formation loan represents 7.76% of
capital raised. The formation loan will be unsecured, will not bear interest and
will be repaid in annual installments. Upon commencement of this offering,
Redwood Mortgage Corp. 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.
No sales commissions for the current offering were paid in 1996, therefore,
no payment was made in 1997. The first payment of $43,223 was made December 31,
1998. This amount equals 1/10th of the amount loaned to Redwood Mortgage Corp.
from the partnership to pay sales commissions in 1997. Upon completion of the
offering, the balance of the current formation loan will be repaid in 10 equal
annual installments of principal, without interest, commencing on December 31 of
the year following the year the offering terminates. As of September 30, 1999,
the partnership, in connection with the current formation loan, had loaned
$1,306,185 to Redwood Mortgage Corp. from the offering proceeds to pay sales
commissions to participating broker dealers.
Redwood Mortgage Corp., at its option, may prepay all or any part of the
formation loan. Redwood Mortgage Corp. intends to repay the formation loan
principally from loan brokerage commissions earned on loans, and the receipt of
a portion of the early withdrawal penalties and other fees paid by the
partnership. Since Redwood Mortgage Corp. will use the proceeds from loan
brokerage commissions on loans 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 general partner(s)
begins using any other loan brokerage firm for the placement of loans, Redwood
Mortgage Corp. 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
Corp. is no longer receiving any payments for services rendered, the debt on the
formation loan shall be forgiven and Redwood Mortgage Corp. will be immediately
released from any further obligation under the formation loan.
Because the formation loan does not bear interest, it 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.
The initial formation loan made in connection with the initial offering of
$15,000,000, is to be repaid over 10 years. Installments of principal, without
interest, are paid once a year. These installments commenced on December 31 of
the year the offering terminated. The initial offering terminated in September
1996, so repayments of the formation loan began in December 1996. The total
amount of the first formation loan was $1,074,840. As of September 30, 1999,
$311,682 had been repaid by the partnership.
Escrow Arrangements. Funds received by the participating broker dealers
from subscriptions for units will be immediately available to us for investment.
As this is not our first offering, no escrow will be established. Subscription
proceeds will be released to the partnership and deposited into the our
operating account.
Termination Date of Offering. 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.
Subscription Account. Your subscription 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. Once your subscription has been accepted, you will be admitted
into the partnership only when your subscription funds are required by the
partnership to fund a mortgage loan, for the formation loan, to create
appropriate reserves, or to pay organizational expenses or other proper
partnership activities (See "ESTIMATED USE OF PROCEEDS" at page 2). During the
period prior to your admittance of as a limited partner, proceeds from the sale
of units will be held by the general partners for your account in the
subscription account. Investors' funds will be transferred from the subscription
account into the partnership on a first-in, first-out basis. Upon your admission
to the partnership, your subscription funds will be released to the partnership
and units will be issued at the rate of $1 per unit or fraction thereon.
Interest earned on subscription funds while in the subscription account will be
returned to you, or if you elect to compound earnings (see below), the amount
equal to such interest will be added to your investment in the partnership, and
the number of units actually issued shall be increased accordingly.
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 you 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 2,000 units
($2,000), you may at any time, and from time to time subscribe to purchase
additional units in the partnership as long as the offering is open. You are
liable for the payment of the full purchase price of all units for which you
have subscribed.
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 us in connection with this offering
-a brochure entitled Redwood Mortgage Investors VIII;
-a brochure describing Redwood Mortgage Corp. and its affiliated entities;
-a fact sheet describing the general features of Redwood Mortgage Investors
VIII; (iv) a cover letter transmitting the prospectus;
-a summary description of the offering;
-a slide presentation;
-broker updates;
-an audio cassette presentation;
-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. We have 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 or
in supplements hereto or in supplemental sales literature issued by the
partnership and referred to in this prospectus or in supplements thereto. If you
receive such information or representations, 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 at any time
subsequent to its date.
LEGAL PROCEEDINGS
In the normal course of business we 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, we are 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 Landels, Ripley & Diamond LLP, 350 The Embarcadero, San
Francisco, California 94105, 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, 1997 and 1998, the
balance sheet at December 31, 1997, and 1998, of Gymno Corporation, a general
partner, and the balance sheet at September 30, 1998 and 1999 of Redwood
Mortgage Corp, a general partner, all included in this prospectus have been
examined by 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"
at page 50 and "ERISA CONSIDERATIONS" at page 61 as they relate to the matters
referenced therein have been reviewed by the Landels, Ripley & Diamond LLP, and
are included herein in reliance upon the authority of that firm as experts
thereon.
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 Commission's 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.
GLOSSARY
The following are definitions of certain terms used in the prospectus and
not otherwise defined herein:
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 partner's 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 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 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.
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.
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.
Limited Partnership Interest. The term "Limited Partnership Interest" means
a limited partnership interest in Redwood Mortgage Investors VIII, acquired
pursuant to the purchase of units 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.
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
(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.
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).
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
Interim Financial Statements, as of September 30, 1999........................77
Financial Statements, December 31, 1998 and 1997, with Auditor's
Report Thereon...............................................................93
Independent Auditor's Report..................................................94
GYMNO Corporation
Interim Financial Statements, as of September 30, 1999.......................111
Independent Auditor's Report.................................................115
Financial Statements, December 31, 1998 and 1997, with Auditor's
Report Thereon..............................................................116
Redwood Mortgage Corp
Independent Auditor's Report.................................................120
Financial Statements, September 30, 1999 and 1998, with Auditor's
Report Thereon..............................................................121
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
INTERIM FINANCIAL STATEMENTS
In the opinion of the management of Redwood Mortgage Investors VIII, a
California limited partnership, all adjustments necessary for a fair statement
of financial position for the interim period presented herein have been made.
All such adjustments are of a normal, recurring nature. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. However, management of Redwood Mortgage Investors VIII believes that
the disclosures contained herein are adequate to make the information presented
not misleading. It is suggested that these unaudited financial statements be
read in conjunction with the corresponding audited financial statements and the
notes thereto included elsewhere in this prospectus.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEET
AS OF SEPTEMBER 30, 1999 (unaudited)
ASSETS
Sept 30, 1999
(unaudited)
---------------
Cash $1,038,226
---------------
Accounts receivable:
Mortgage investments, secured by deeds of trust 37,428,246
Accrued interest on mortgage investments 539,720
Advances on mortgage investments 18,171
Accounts receivable, unsecured 49,066
---------------
38,035,203
Less allowance for doubtful accounts 799,607
---------------
37,235,596
---------------
Real estate owned, acquired through foreclosure,
held for sale 0
Investment in limited liability corporation, at cost which
approximates market 356,358
Prepaid expense-deferred loan fee 9,375
---------------
$38,639,555
===============
See accompanying notes to financial statements
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEET
AS OF SEPTEMBER 30, 1999 (unaudited)
LIABILITIES AND PARTNERS' CAPITAL
Sept 30, 1999
(unaudited)
---------------
Liabilities:
Accounts payable and accrued expenses $0
Note payable - bank line of credit 4,452,000
Deferred interest income 341,978
Subscriptions to partnership in applicant status 0
---------------
4,793,978
---------------
Partners' Capital:
Limited partners' capital, subject to redemption (note 4E):
net of unallocated syndication costs of $376,858 and
formation loan receivable of $1,965,413 for
September 30, 1999 33,817,316
General partners' capital, net of unallocated syndication
costs of $3,807 for September 30, 1999 28,261
---------------
Total partners' capital 33,845,577
---------------
Total liabilities and partners' capital $38,639,555
===============
See accompanying notes to financial statements.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1999
9 mos. ended 3 mos. ended
Sept. 30, 1999 Sept. 30, 1999
(unaudited) (unaudited)
================ ================
Revenues:
Interest on mortgage investments $3,268,965 $1,151,637
Interest on bank deposits 4,939 1,990
Late charges 23,710 11,082
Miscellaneous 52,124 51,017
------------------ ----------------
3,349,738 1,215,726
------------------ ----------------
Expenses:
Mortgage servicing fees 295,354 79,017
Interest on note payable - bank 459,433 161,380
Amortization of loan origination fees 7,460 3,042
Provision for doubtful accounts and
losses on real estate acquired through
foreclosure 374,138 180,677
Asset management fees - general partners 30,248 11,125
Amortization of organization costs 0 0
Clerical costs through Redwood Mortgage Corp. 60,541 21,248
Professional services 30,614 794
Printing, supplies and postage 3,526 1,361
Other 8,695 2,862
------------------ ----------------
1,270,009 461,506
------------------ ----------------
Income before interest credited to partners
in applicant status 2,079,729 754,220
Interest credited to partners in applicant
status 1,568 520
------------------ ----------------
Net income $2,078,161 $753,700
================== ================
Net income: to general partners (1%) $20,782 $7,537
to limited partners (99%) 2,057,379 746,163
------------------ ----------------
$2,078,161 $753,700
================== ================
Net income for $1,000 invested by limited
partners for entire period:
- where income is reinvested and
compounded $62.38 $20.38
================== ================
- where partner received income in
monthly distributions $60.71 $20.24
================== ================
See accompanying notes to financial statements
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
AS OF SEPTEMBER 30, 1999 (unaudited)
PARTNERS' CAPITAL
-------------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
-------------------------------------------------------------------
Capital
Partners In Account Unallocated Formation
Applicant Limited Syndication Loan
Status Partners Costs Receivable Total
------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1998 $ 0 $29,020,110 $(353,875) $(1,640,904) $27,025,331
Contributions on application 6,170,851 0 0 0 0
Formation loan increases 0 0 0 (466,772) (466,772)
Formation loan payments 0 0 0 121,550 121,550
Interest credited to partners in 1,568 0 0 0 0
Upon admission to partnership:
Interest withdrawn (706) 0 0 0 0
Transfers to partners' capital (6,171,713) 6,171,713 0 0 6,171,713
Net income 0 2,057,379 0 0 2,057,379
Syndication costs incurred 0 0 (127,990) 0 (127,990)
Allocation of syndication costs 0 (94,134) 94,134 0 0
Partners' withdrawals 0 (963,786) 0 0 (963,786)
Early withdrawal penalties 0 (31,695) 10,873 20,713 (109)
------------- -------------- --------------- -------------- --------------
Balances at September 30, 1999 $0 $36,159,587 $(376,858) $(1,965,413) $33,817,316
============= ============== =============== ============== ==============
PARTNERS' CAPITAL
-----------------------------------------------------------------------------------
GENERAL PARTNERS' CAPITAL
------------------------------------------------------------
Capital Account Unallocated Total Partners'
General Partners Syndication Total Capital
Costs
------------------- ----------------- ---------------- -------------------
Balances at December 31, 1998 $25,897 $(3,574) $22,323 $27,047,654
Contributions on application 0 0 0 0
Formation loan increases 0 0 0 (466,772)
Formation loan payments 0 0 0 121,550
Interest credited to partners in 0 0 0 0
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to partners' capital 6,171 0 6,171 6,177,884
Net income 20,782 0 20,782 2,078,161
Syndication costs incurred 0 (1,293) (1,293) (129,283)
Allocation of syndication costs (951) 951 0 0
Partners' withdrawals (19,831) 0 (19,831) (983,617)
Early withdrawal penalties 0 109 109 0
------------------- ----------------- ---------------- -------------------
Balances at September 30, 1999 $32,068 $(3,807) $28,261 $33,845,577
=================== ================= ================ ===================
See accompanying notes to financial statements
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (unaudited)
Sept. 30, 1999
-----------------
(unaudited)
-----------------
Cash flows from operating activities:
Net income $2,078,161
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of organization costs 0
Provision for doubtful accounts. 374,138
Provision for losses (gains) on real estate held for sale 0
(Increase) decrease in Assets:
Accrued interest & advances 112,672
Due from related companies 0
Deferred loan fee 2,460
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (2,500)
Deferred interest income 217,173
-----------------
Net cash provided by operating activities 2,782,104
-----------------
Cash flows from investing activities:
Principal collected on Mortgage Investments 12,732,358
Mortgage Investments made (18,254,646)
Disposition of real estate held for sale 77,063
Additions to real estate held for sale (1,886)
Additions to limited liability Corporation (50,000)
Accounts receivables, unsecured - (disbursements) receipts (217)
-----------------
Net cash used in investing activities (5,497,328)
-----------------
Cash flows from financing activities
Increase (decrease) in note payable-bank (1,495,000)
Contributions by partner applicants 6,177,022
Interest credited to partners in applicant status 1,568
Interest withdrawn by partners in applicant status (706)
Partners withdrawals (983,617)
Syndication costs incurred (129,283)
Formation Loan increases (466,772)
Formation Loan collections 121,550
-----------------
Net cash provided by financing activities 3,224,762
-----------------
Net increase (decrease) in cash and cash equivalents 509,538
Cash - beginning of period 528,688
-----------------
Cash - end of period $1,038,226
=================
See accompanying notes to financial statements.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 (unaudited)
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
mortgage investments secured by deeds of trust on California real estate.
Mortgage investments are being arranged and serviced by Redwood Mortgage Corp.,
an affiliate of the general partners. At September 30, 1999, the partnership was
in the offering stage, wherein contributed capital totalled $31,760,986 in
limited partner contributions of an approved aggregate offering of $45,000,000,
in units of $100 each (317,609.86). As of that date, $0 remained in applicant
status.
A minimum of 2,500 units ($250,000) and a maximum of 150,000 units
($15,000,000) were initially offered through qualified broker-dealers. This
initial offering was closed in October, 1996. In December 1996, the partnership
commenced a second offering of an additional 300,000 units ($30,000,000). As
mortgage investments are identified, partners are transferred from applicant
status to admitted partners participating in mortgage investment operations.
Each month's 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 Commissions - Formation Loan Sales commissions are not paid
directly by the partnership out of the offering proceeds. Instead, the
partnership lends to Redwood Mortgage Corp., an affiliate of the general
partners, amounts to pay all sales commissions and amounts payable in connection
with unsolicited orders. This loan is referred to as the "formation loan". It is
unsecured and non-interest bearing.
The formation loan relating to the initial $15,000,000 offering totalled
$1,074,840, which was 7.2% of limited partners contributions of $14,932,017
which was under the limit of 9.1% relative to the initial offering. It is to be
repaid, without interest, in ten annual installments of principal, which
commenced on January 1, 1997, following the year the initial offering closed,
which was in 1996. The formation loan relating to the second offering
($30,000,000) totalled $1,306,185 at September 30, 1999, which was 7.7% of the
limited partners contributions of $16,828,969.
Sales commissions range from 0% (units sold by general partners) to 9% of
gross proceeds. The partnership anticipates that the sales commissions will
approximate 7.6% based on the assumption that 65% of investors will elect to
reinvest earnings. 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 made by Redwood Mortgage Corp., during the offering stage,
will be determined at 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 such payment
beginning December 31, 1997. Upon completion of the offering, the balance will
be repaid in ten equal annual installments.
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 (unaudited)
The following summarizes formation loan transactions to September 30, 1999:
Initial Subsequent
Offering of Offering of Total
$15,000,000 $30,000,000
--------------- -------------- ---------------
<S> <C> <C> <C>
Limited partner contributions $14,932,017 $16,828,969 $31,760,986
=============== ============== ===============
Formation loan made $1,074,840 1,306,185 2,381,025
Payments to date (259,159) (103,930) (363,089)
Early withdrawal penalties applied (52,523) 0 (52,523)
--------------- -------------- ---------------
Balance September 30, 1999 $763,158 $1,202,255 $1,965,413
=============== ============== ===============
Percent loaned of partners' contributions 7.2% 7.7% 7.5%
=============== ============== ===============
</TABLE>
The formation loan, which is receivable from Redwood Mortgage Corp., an
affiliate of the general partners, has been deducted from limited partners'
capital on the balance sheet. As amounts are collected from Redwood Mortgage
Corp., the deduction from capital will be reduced.
B. Other Organizational and Offering Expenses Organizational and offering
expenses other than sales commissions, but including printing costs, attorney
and accountant fees, registration and filing fees and other costs, will be paid
by the partnership.
Through September 30, 1999, organization costs of $12,500 and syndication
costs of $1,118,044 have been incurred by the partnership with the following
distribution:
<TABLE>
Syndication Organization
Costs Costs Total
--------------- ----------------- ----------------
<S> <C> <C> <C>
Costs incurred $1,118,044 $12,500 $1,130,544
Early withdrawal penalties applied (28,772) 0 (28,772)
Allocated and amortized to date (708,607) (12,500) (721,107)
--------------- ----------------- ----------------
September 30, 1999 balance $380,665 $0 $380,665
=============== ================= ================
</TABLE>
Organization and syndication costs attributable to the initial offering
($15,000,000) were limited to the lesser of 10% of the gross proceeds or
$600,000 with any excess being paid by the general partners. Applicable gross
proceeds were $14,932,017. Related expenditures totalled $582,365 ($569,865
syndication costs plus $12,500 organization expense) or 3.90%.
As of September 30, 1999, syndication costs attributable to the subsequent
offering ($30,000,000) totalled $548,179 because the costs of the offering
becomes greater at the initial stages due to professional and filing fees
related to formulating the offering documents. The syndication costs payable by
the partnership are estimated to be $1,200,000 if the maximum is sold (4% of
$30,000,000). The general partners will pay any syndication expenses (excluding
selling commissions) in excess of ten percent of the gross proceeds or
$1,200,000.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
Once a mortgage investment is categorized as impaired, interest is no longer
accrued thereon.
B. Management Estimates
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, including the valuation of impaired
mortgage investments, and the valuation of real estate acquired through
foreclosure. Actual results could differ significantly from these estimates.
C. Mortgage Investments, Secured by Deeds of Trust
The partnership has both the intent and ability to hold the mortgage
investments to maturity, i.e., held for long-term investment. Therefore they are
valued at cost for financial statement purposes with interest thereon being
accrued by the simple interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118
(effective January 1, 1995) provide that if the probable ultimate recovery of
the carrying amount of a mortgage investment, with due consideration for the
fair value of collateral, is less than the recorded investment and related
amounts due and the impairment is considered to be other than temporary, the
carrying amount of the investment (cost) shall be reduced to the present value
of future cash flows. The adoption of these statements did not have a material
effect on the financial statements of the partnership because that was
essentially the valuation method previously used on impaired loans.
At September 30, 1999, there were no mortgage investments categorized as
impaired by the partnership. Had there been a computed amount for the reduction
in carrying values of impaired loans, the reduction would have been included in
the allowance for doubtful accounts.
As presented in Note 10 to the financial statements, the average mortgage
investment to appraised value of security at the time the loans were consummated
was 61.09%. When a mortgage investment is valued for impairment purposes, an
updating is made in the valuation of collateral security. However, such a low
loan to value ratio has the tendency to minimize reductions for impairment.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents
include interest bearing and non-interest bearing bank deposits.
E. Real Estate Owned, Held for Sale
Real estate owned, held for sale, includes real estate acquired through
foreclosure and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the property's estimated fair
value, less estimated costs to sell. At September 30, 1999, one such property
existed and is held in a limited liability corporation. (see notes 2F and 7)
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 (unaudited)
Effective January 1, 1996, the partnership adopted the provisions of
Statement No 121 (SFAS 121) of the Financial Accounting Standards Board,
"Accounting for the impairment of long lived assets and for long lived assets to
be disposed of". The adoption of SFAS 121 did not have a material impact on the
partnership's financial position because the methods indicated were essentially
those previously used by the partnership.
F. Investment in Limited Liability Corporation (see Note 7)
The partnership carries its investment in a limited liability corporation
as investment in real estate, which is at the lower of costs or fair value, less
estimated costs to sell.
G. Income Taxes
No provision for federal and state income taxes is made in the financial
statements since income taxes are the obligation of the partners if and when
income taxes apply.
H. Organization and Syndication Costs
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 were amortized over a five year
period. Syndication costs are charged against partners' capital and are being
allocated to individual partners consistent with the partnership agreement.
I. Allowance for Doubtful Accounts
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, with due consideration to
collateral values, to provide for unrecoverable accounts receivable, including
impaired mortgage investments, other mortgage investments, accrued interest and
advances on mortgage investments, and other accounts receivable (unsecured). The
composition of the allowance for doubtful accounts as of September 30, 1999,
December 31, 1998, and 1997 was as follows:
September 30,
1999
----------------
Impaired mortgage investments $0
Other mortgage investments 755,607
Accounts receivable, unsecured 44,000
---------------
$799,607
===============
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 (unaudited)
J. Net Income Per $1,000 Invested
Amounts reflected in the statements 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
investment has approximated those whose investments and options have remained
constant.
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees which are paid to the general
partners and/or related parties.
A. Mortgage Brokerage Commissions
For fees in connection with the review, selection, evaluation, negotiation
and extension of partnership mortgage investments in an amount up to 12% of the
mortgage investments until 6 months after the termination date of the offering.
Thereafter, mortgage investment brokerage commissions will be limited to an
amount not to exceed 4% of the total partnership assets per year. The mortgage
investment brokerage commissions are paid by the borrowers, and thus, not an
expense of the partnership. For the nine months through September 30, 1999,
mortgage investment brokerage commissions paid by the borrowers was $492,343.
B. Mortgage Servicing Fees
Monthly mortgage servicing fees of up to 1/8 of 1% (1.5% annual) of the
unpaid principal, is paid to Redwood Mortgage Corp., or such lesser amount as is
reasonable and customary in the geographic area where the property securing the
mortgage is located. Mortgage servicing fees of $295,354 were incurred for the
nine month period ended September 30, 1999.
C. Asset Management Fee
The general partners receive monthly fees for managing the partnership's
mortgage investment portfolio and operations up to 1/32 of 1% of the "net asset
value" (3/8 of 1% annual). Management fees of $30,248 were paid for the nine
month period ended September 30, 1999.
D. Other Fees
The partnership agreement provides for other fees such as reconveyance,
mortgage assumption and mortgage 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
AS OF SEPTEMBER 30, 1999 (unaudited)
F. Operating Expenses
The general partners and their affiliate, Redwood Mortgage Corp., 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 are admitted to limited
partner capital. As of September 30, 1999 a general partner, GYMNO Corporation,
contributed $31,759, 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
1-120 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 partnershi's mortgage investment portfolio.
During the nine months period ending September 30, 1999, interest totalling
$1,568 was credited to partners in applicant status. As mortgage investments
were made and partners were transferred to regular status to begin sharing in
income from mortgage investments 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 terminated
sooner, as provided. The normal provisions do not allow for capital withdrawal
for the first five years. Early withdrawal is 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
At subscription, investors elect either to receive monthly, quarterly or
annual distributions of earnings, or to allow earnings to compound. Subject to
certain limitations, a compounding investor may subsequently change his
election, but an investor's election to take cash distributions is irrevocable.
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.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 (unaudited)
E. Liquidity, Capital Withdrawals and Early Withdrawals
There are substantial restrictions on transferability of units and
accordingly an investment in the partnership is non-liquid. 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 a
one-year period, Limited partners may withdraw all or part of their capital
account 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, subject to a 10% early withdrawal penalty. The 10% penalty
is applicable to the amount withdrawn early and will be deducted from the
limited partners' capital account.
After five years from the date of purchase of the units, limited partners
have the right to withdraw from the partnership on an installment basis,
generally this is done over a five year period in twenty (20) quarterly
installments. Once a limited partner has been in the partnership for the minimum
five year period, 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 may liquidate all or part of a limited
partner's capital account in four quarterly installments beginning on the last
day of the calendar quarter following the quarter in which the notice of
withdrawal is given. This withdrawal is subject to a 10% early withdrawal
penalty applicable to any sums withdrawn prior to the time when such sums could
have been withdrawn without penalty.
The partnership will not establish a reserve from which to fund withdrawals
and, accordingly, the partnership's capacity to return a limited partne's
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 on a
monthly basis, up to a maximum interest rate of 12%. To date, actual realization
exceeded the guaranteed amount for each month.
NOTE 5- LEGAL PROCEEDINGS
The partnership is not a defendant in any legal actions.
NOTE 6 - NOTE PAYABLE - BANK LINE OF CREDIT
The partnership has a bank line of credit expiring September 30, 2000, of
up to $9,000,000 at .25% over prime secured by its mortgage investment
portfolio. The note payable balance was $4,452,000 at September 30, 1999, and
the interest rate was 8.50%, (8.25% prime plus .25%).
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 (unaudited)
NOTE 7 - INVESTMENT IN LIMITED LIABILITY CORPORATION
As a result of acquiring real property through foreclosure, the partnership
has contributed its interest (principally land) to a limited liability
corporation (LLC), which is owned 100% by the partnership. The LCC will complete
the construction and sell the property. The Partnership expects to realize a
profit from the venture.
NOTE 8 - INCOME TAXES
The following reflects a reconciliation from net assets (partner' capital)
reflected in the financial statements to the tax basis of
those net assets:
Sept. 30,
1999
---------------
Net assets - Partners' capital per financial statements $33,845,577
Unamortized syndication costs 380,665
Allowance for doubtful accounts 799,607
Formation loans receivable 1,965,413
---------------
Net assets tax basis $36,991,262
===============
In 1998 and 1997, approximately 61% of taxable income was allocated to tax
exempt organizations, i.e., retirement plans. Such plans do not have to file
income tax returns unless their "unrelated business income" exceeds $1,000.
Applicable amounts become taxable when distribution is made to participants.
NOTE 9 - FAIR VALUE OF FINANCIAL INVESTMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
(a) Cash and Cash Equivalents. The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.
(b) The carrying value of mortgage investments (see note 2(c) is
$37,428,246. The fair value of these investments of $35,317,050 is estimated
based upon projected cash flows discounted at the estimated current interest
rates at which similar loans would be made. The applicable amount of the
allowance for doubtful accounts along with accrued interest and advances related
thereto should also be considered in evaluating the fair value versus the
carrying value.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 (unaudited)
NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS
The mortgage investments are secured by recorded deeds of trust. At
September 30, 1999, there were 56 mortgage investments outstanding with the
following characteristics:
Number of mortgage investments outstanding 56
Total mortgage investments outstanding $37,428,246
Average mortgage investment outstanding $668,362
Average mortgage investment as percent of total 1.79%
Average mortgage investment as percent of partners' capital 1.97%
Largest mortgage investment outstanding $2,600,000
Largest mortgage investment as percent of total 6.95%
Largest mortgage investment as percent of partners' capital 7.68%
Number of counties where security is located (all California) 12
Largest percentage of mortgage investments in one county 28.30%
Average mortgage investment to appraised value of security at
time mortgage investment was consumated 61.09%
Number of mortgage investments in foreclosure status 0
Amount of mortgage investments in foreclosure $0
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 (unaudited)
The following categories of mortgage investments are pertinent at September
30, 1999:
September 30
----------------
1999
----------------
First trust deeds $21,539,375
Second trust deeds 15,888,871
Total mortgage investments 37,428,246
Prior liens due other lenders 27,747,834
----------------
Total debt $65,176,080
================
Appraised property value at time of loan $106,683,182
================
Total investments as a percent of appraised value 61.09%
================
Investments by type of property
Owner occupied homes $9,840,088
Non-owner occupied homes 9,011,873
Apartments 2,466,030
Commercial 11,240,255
Land 4,870,000
----------------
$37,428,246
================
The interest rates on the mortgage investments range from 8.00% to 14.50%
at September 30, 1999.
Scheduled maturity dates of mortgage investments as of September 30, 1999
are as follows:
Year Ending
December 31,
-------------------
1999 $7,557,325
2000 11,775,549
2001 13,750,272
2002 430,372
2003 419,997
Thereafter 3,494,731
---------------
$37,428,246
===============
The scheduled maturities for 1999 include approximately $975,675 in eight
mortgage investments which were past maturity at September 30, 1999. The
interest payments on four mortgage investments were more than 90 days late.
The cash balance at September 30, 1999, of $1,038,226 was in one bank with
interest bearing balances totalling $765,870. The balance exceeded FDIC
insurance limits (up to $100,000 per bank) by $938,226. This bank is the same
financial institution that has provided the partnership with the $9,000,000
limit line of credit. At September 30, 1999, draw down against this facility was
$4,452,000 and the interest payment was current.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 1998
(With Auditor's Report Thereon)
<PAGE>
PARODI & CROPPER
CERTIFIED PUBLIC ACCOUNTANTS
3658 Mount Diablo Blvd., Suite #205
Lafayette CA 94549
(925) 284-3590
INDEPENDENT AUDITOR'S 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, 1998 and 1997 and the
statements of income, changes in partners' capital and cash flows for the three
years ended December 31,1998. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of REDWOOD MORTGAGE INVESTORS
VIII as of December 31, 1998 and 1997, and the results of its operations and
cash flows for the three years ended December 31, 1998, 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.
/s/ Parodi & Cropper
PARODI & CROPPER
Lafayette, California
March 3, 1999
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
---------------- -------------
Cash $528,688 $663,159
---------------- -------------
Accounts receivable:
Mortgage investments, secured by deeds of trust 31,905,958 25,304,989
Accrued interest on mortgage investments 459,418 341,976
Advances on mortgage investments 211,145 205,804
Accounts receivables, unsecured 48,849 62,844
---------------- -------------
32,625,370 25,915,613
Less allowance for doubtful accounts 414,073 257,500
---------------- -------------
32,211,297 25,658,113
---------------- -------------
Real estate owned, acquired through foreclosure,
held for sale 66,000 70,138
Investment in limited liability corporation, at
cost which approximates market 304,139 251,139
Organization costs, less accumulated amortization
of $12,500 and $10,625, respectively 0 1,875
Due from related companies 0 2,999
Prepaid expense-deferred loan fee 11,835 10,151
---------------- -------------
$33,121,959 $26,657,574
================ =============
See accompanying notes to financial statements
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
LIABILITIES AND PARTNERS' CAPITAL
1998 1997
---------- ----------
Liabilities:
Accounts payable and accrued expenses $2,500 $3,355
Note payable - bank line of credit 5,947,000 5,640,000
Deferred interest income 124,805 83,066
---------- ----------
6,074,305 5,726,421
---------- ----------
Partners' Capital:
Limited partners' capital, subject to redemption
Net of unallocated syndication costs of $353,875
(note 4E): and $431,994 for 1998 and 1997,
respectively:and formation loan receivable
of $1,640,904 and $1,386,693 for 1998 and
1997, respectively 27,025,331 20,914,721
General partners' capital, net of unallocated
syndication costs of $3,574 and $4,364 for
1998 and 1997, respectively 22,323 16,432
------------ ----------
Total partners' capital 27,047,654 20,931,153
------------- ----------
Total liabilities and partners' capital $33,121,959 $26,657,574
============= ==========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996
-------------- ------------- --------------
Revenues:
<S> <C> <C> <C>
Interest on mortgage investments $3,376,293 $2,613,008 $1,718,208
Interest on bank deposits 8,946 9,487 4,083
Late charges 19,384 6,432 3,847
Miscellaneous 1,398 530 497
-------------- ------------- --------------
3,406,021 2,629,457 1,726,635
-------------- ------------- --------------
Expenses:
Mortgage servicing fees 295,052 189,692 155,912
Interest on note payable - bank 513,566 340,633 188,638
Amortization of loan origination fees 11,415 16,819 11,999
Provision for doubtful accounts and losses on
real estate acquired through foreclosure 162,969 139,804 55,383
Asset management fee - general partner 31,651 24,966 17,053
Amortization of organization costs 1,875 2,500 2,500
Clerical costs through Redwood Mortgage 67,453 54,549 38,799
Professional services 27,462 36,717 17,687
Printing, supplies and postage 7,089 9,584 1,192
Other 8,907 5,673 3,947
------------- --------------
--------------
1,127,439 820,937 493,110
-------------- ------------- --------------
Income before interest credited to partners in 2,278,582 1,808,520 1,233,525
Interest credited to partners in applicant status 4,454 9,562 2,618
-------------- ------------- --------------
Net Income $2,274,128 $1,798,958 $1,230,907
============== ============= ==============
Net income: To general partners(1%) $22,741 $17,990 $12,309
To limited partners (99%) 2,251,387 1,780,968 1,218,598
--------------
------------- --------------
Total - net income $2,274,128 $1,798,958 $1,230,907
============== ============= ==============
Net income per $1,000 invested by limited
partners for entire period:
- -where income is reinvested and compounded $84 $84 $ 84
============== ============= ==============
- -where partner receives income in monthly $81 $81 $ 81
distributions
============== ============= ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
PARTNERS' CAPITAL
-----------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
-----------------------------------------------------------------
Capital
Partners In Account Unallocated Formation
Applicant Limited Syndication Loan
Status Partners Costs Receivable Total
------------- --------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $ 0 $11,784,937 $(322,677) $(775,229) $10,687,031
Contributions on application 4,172,718 0 0 0 0
Formation loan increases 0 0 0 (314,996) (314,996)
Formation Loan payments 0 0 0 8,961 8,961
Interest credited to partners in 2,618 0 0 0 0
Upon admission to
partnership:
Interest withdrawn (863) 0 0 0 0
Transfers to partners'
capital (3,863,536) 3,859,312 0 0 3,859,312
Net Income 0 1,218,598 0 0 1,218,598
Syndication costs incurred 0 0 (212,542) 0 (212,542)
Allocation of syndication costs 0 (116,523) 116,523 0 0
Partners' withdrawals 0 (553,027) 0 0 (553,027)
Early withdrawal penalties 0 (12,108) 4,506 7,558 (44)
------------- --------------- ------------- -------------- --------------
Balances at December 31, 1996 310,937 16,181,189 (414,190) (1,073,706) 14,693,293
Contributions on application 5,251,969 0 0 0 0
Formation loan increases 0 0 0 (420,510) (420,510)
Formation loan payments 0 0 0 98,999 98,999
Interest credited to partners in 9,562 0 0 0 0
Upon admission to partnership:
Interest withdrawn (1,849) 0 0 0 0
Transfers to partners'
capital (5,570,619) 5,565,372 0 0 5,565,372
Net income 0 1,780,968 0 0 1,780,968
Syndication costs incurred 0 0 (188,517) 0 (188,517)
Allocation of syndication costs 0 (166,023) 166,023 0 0
Partners' withdrawals 0 (614,837) 0 0 (614,837)
Early withdrawal penalties 0 (13,261) 4,690 8,524 (47)
------------- --------------- ------------- --------------- --------------
</TABLE>
<PAGE>
<TABLE>
PARTNERS' CAPITAL
-----------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
-----------------------------------------------------------------
Capital Account
Partners In Limited Partners Unallocated Formation
Applicant Syndication Loan
Status Costs Receivable Total
------------- ------------------ ---------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1997 $0 $22,733,408 $(431,994) $(1,386,693) $20,914,721
Contributions on application 5,105,559 0 0 0 0
Formation loan increases 0 0 0 (403,518) (403,518)
Formation Loan payments 0 0 0 133,580 133,580
Interest credited to partners in
applicant status 4,454 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (1,553) 0 0 0 0
Transfers to partners'
capital (5,108,460) 5,103,359 0 0 5,103,359
Net income 0 2,251,387 0 0 2,251,387
Syndication costs incurred 0 0 (126,453) 0 (126,453)
Allocation of syndication costs 0 (196,317) 196,317 0 0
Partners' withdrawals 0 (847,661) 0 0 (847,661)
Early withdrawal penalties 0 (24,066) 8,255 15,727 (84)
------------- --------------- ------------- --------------- --------------
Balances at December 31, 1998 $0 $29,020,110 $(353,875) $(1,640,904) $27,025,331
============= =============== ============= =============== ==============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
PARTNERS' CAPITAL
---------------------------------------------------------------------
GENERAL PARTNERS' CAPITAL
---------------------------------------------------------------------
Capital Unallocated Total
Account Syndication Total Partners'
General Costs Capital
Partners
---------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 $11,325 $(3,258) $8,067 $10,695,098
Contributions on application 0 0 0 0
Formation loan increases 0 0 0 (314,996)
Formation loan payments 8,961
Interest credited to partners in
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to partners' capital 4,224 0 4,224 3,863,536
Net Income 12,309 0 12,309 1,230,907
Syndication costs incurred 0 (2,147) (2,147) (214,689)
Allocation of syndication costs (1,177) 1,177 0 0
Partners' withdrawals (11,132) 0 (11,132) (564,159)
Early withdrawal penalties 0 44 44 0
---------------- --------------- ------------ ---------------
Balances at December 31, 1996 15,549 (4,184) 11,365 14,704,658
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (420,510)
Formation Loan payments 0 0 0 98,999
Interest credited to partners in
applicant status 0 0 0 0
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners' capital 5,247 0 5,247 5,570,619
Net Income 17,990 0 17,990 1,798,958
Syndication costs incurred 0 (1,904) (1,904) (190,421)
Allocation of syndication costs (1,677) 1,677 0 0
Partners' withdrawals (16,313) 0 (16,313) (631,150)
Early withdrawal penalties 0 47 47 0
---------------- --------------- ------------ ---------------
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
PARTNERS' CAPITAL
---------------------------------------------------------------------
GENERAL PARTNERS' CAPITAL
---------------------------------------------------------------------
Capital Unallocated Total
Account Syndication Total Partners'
General Costs Capital
Partners
---------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Balances at December 31, 1997 $20,796 $(4,364) $16,432 $20,931,153
Contributions on application 0 0 0 0
Formation loan increases 0 0 0 (403,518)
Formation loan payments 0 0 0 133,580
Interest credited to partners in
applicant status 0 0 0 0
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to partners' capital 5,101 0 5,101 5,108,460
Net Income 22,741 0 22,741 2,274,128
Syndication costs incurred 0 (1,277) (1,277) (127,730)
Allocation of syndication costs (1,983) 1,983 0 0
Partners' withdrawals (20,758) 0 (20,758) (868,419)
Early withdrawal penalties 0 84 84 0
---------------- --------------- ------------ ---------------
Balances at December 31, 1998 $25,897 $(3,574) $22,323 $27,047,654
================ =============== ============ ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
1998 1997 1996
-------------- -------------- ---------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $2,274,128 $1,798,958 $1,230,907
Adjustments to reconcile net income to net
cash provided by operating activities
Amortization of organization costs 1,875 2,500 2,500
Provision for doubtful accounts. 156,573 139,804 78,651
Provision for losses (gains) on real estate
held for sale 6,396 0 (23,268)
Increase (decrease) in accounts payable (855) (17,270) 16,615
(Increase) in accrued interest & advances (122,783) (342,571) (83,477)
(Increase) decrease in amount due from
related companies 2,999 (2,688) 2,738
(Increase) decrease in deferred loan fee (1,684) 10,569 (3,002)
Increase (decrease ) in deferred interest -------------- -------------- ---------------
income 41,739 (134,414) 217,480
-------------- -------------- ---------------
Net cash provided by operating activities 2,358,388 1,454,888 1,439,144
-------------- -------------- ---------------
Cash flows from investing activities:
Principal collected on mortgage
investments 14,262,838 10,279,337 9,019,190
Mortgage investments made (20,863,807) (19,941,336) (13,148,944)
Disposition of real estate held for sale 0 0 299,154
Additions to real estate held for sale (2,258) (3,254) 0
Additions to limited liability corporation (53,000) (60,000) 0
Accounts receivables, unsecured - ------------- -------------- ---------------
(disbursements) receipts 13,995 12,490 (4,018)
-------------- -------------- ---------------
Net cash used in investing activities (6,642,232) (9,712,763) (3,834,618)
-------------- -------------- ---------------
Cash flows from financing activities
Increase (decrease) in note payable-bank 307,000 4,140,000 (410,000)
Contributions by partner applicants 5,105,559 5,251,969 4,172,718
Interest credited to partners in applicant
status 4,454 9,562 2,618
Interest withdrawn by partners in applicant
status (1,553) (1,849) (863)
Partners withdrawals (868,419) (631,150) (564,159)
Syndication costs incurred (127,730) (190,421) (214,689)
Formation loan increases (403,518) (420,510) (314,996)
Formation loan collections 133,580 98,999 8,961
-------------- --------------- --------------
Net cash provided by financing activities 4,149,373 8,256,600 2,679,590
-------------- -------------- ---------------
Net increase (decrease) in cash and cash
equivalents (134,471) (1,275) 284,116
Cash - beginning of period 663,159 664,434 380,318
-------------- -------------- ---------------
Cash - end of period $528,688 $663,159 $664,434
============== ============== ===============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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
mortgage Investments secured by deeds of trust on California real estate.
Mortgage investments are being arranged and serviced by Redwood Mortgage Corp.,
an affiliate of the general partners. At December 31, 1998, the partnership was
in the offering stage, wherein contributed capital totalled $25,590,135 in
limited partner contributions of an approved aggregate offering of $45,000,000,
in units of $100 each (255,902).
A minimum of 2,500 units ($250,000) and a maximum of 150,000 units
($15,000,000) were initially offered through qualified broker-dealers. This
initial offering was closed in October, 1996. In December 1996, the partnership
commenced a second offering of an additional 300,000 units ($30,000,000). As
mortgage investments are identified, partners are transferred from applicant
status to admitted partners participating in mortgage investment operations.
Each month's 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 Commissions - Formation Loan Sales commissions are not paid
directly by the Partnership out of the offering proceeds. Instead, the
partnership loans to Redwood Mortgage, an affiliate of the general partners,
amounts to pay all sales commissions and amounts payable in connection with
unsolicited orders. This loan is referred to as the "formation loan". It is
unsecured and non-interest bearing.
The formation loan relating to the initial $15,000,000 offering totalled
$1,074,840, which was 7.2% of limited partners' contributions of $14,932,017
(under the limit of 9.1% relative to the initial offering). It is to be repaid,
without interest, in ten annual installments of principal, which commenced on
January 1, 1997, following the year the initial offering closed, which was in
1996.
The formation loan relating to the second offering ($30,000,000) totalled
$839,413 at December 31, 1998, which was 7.9% of the limited partners
contributions of $10,658,118. Sales commissions range from 0% (units sold by
general partners) to 9% of gross proceeds. The partnership anticipates that the
sales commissions will approximate 7.6% based on the assumption that 65% of
investors will elect to reinvest earnings, thus generating 9% commissions. 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 Corp., during the offering stage, will be determined at
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 such payment beginning December
31, 1997. Upon completion of the offering, the balance will be repaid in ten
equal annual installments.
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
The following summarizes formation loan transactions to December 31, 1998:
Initial Subsequent Total
Offering of Offering of
$15,000,000 $30,000,000
-------------- --------------- ----------------
<S> <C> <C> <C>
Limited partner contributions $14,932,017 $10,685,117 $25,590,134
============== =============== ================
Formation loan made $1,074,840 839,413 1,914,253
Payments to date (198,316) (43,223) (241,539)
Early withdrawal penalties applied (31,810) 0 (31,810)
-------------- --------------- ----------------
Balance December 31, 1998 $844,714 $796,190 $1,640,904
============== =============== ================
Percent loaned of partners' contributions 7.2% 7.9% 7.5%
============== =============== ================
</TABLE>
The formation loan, which is receivable from Redwood Mortgage Corp., an
affiliate of the general partners, has been deducted from limited partners'
capital in the balance sheet. As amounts are collected from Redwood Mortgage
Corp., the deduction from capital will be reduced.
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.
Through December 31, 1998, organization costs of $12,500 and syndication
costs of $988,761 had been incurred by the partnership with the following
distribution:
Syndication Organization
Costs Costs Total
------------ ------------ ----------
Costs incurred $988,761 $12,500 $1,001,261
Early withdrawal penalties applied (17,790) 0 (17,790)
Allocated and amortized to date (613,522) (12,500) (626,022)
------------ ------------ ----------
December 31, 1998 balance $357,449 0 $357,449
============ ============ ==========
Organization and syndication costs attributable to the initial offering
($15,000,000) were limited to the lesser of 10% of the gross proceeds or
$600,000 with any excess being paid by the general partners. Applicable gross
proceeds were $14,932,017. Related expenditures totalled $582,365 ($569,865
syndication costs plus $12,500 organization expense) or 3.90%.
As of December 31, 1998, syndication costs attributable to the subsequent
offering ($30,000,000) totalled $418,896, (3.93% of contributions), with the
costs of the offering document being greater at the initial stages. The
syndication costs payable by the partnership are estimated to be $1,200,000 if
the maximum is sold (4% of $30,000,000). The general partners will pay any
syndication expenses (excluding selling commissions) in excess of ten percent of
the gross proceeds or $1,200,000.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
Once a Mortgage Investment is categorized as impaired, interest is no longer
accrued thereon.
B. Management Estimates
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, including the valuation of impaired
mortgage investments, and the valuation of real estate acquired through
foreclosure. Actual results could differ significantly from these estimates.
C. Mortgage Investments, Secured by Deeds of Trust
The partnership has both the intent and ability to hold the mortgage
investments to maturity, i.e., held for long-term investment. They are therefore
valued at cost for financial statement purposes with interest thereon being
accrued by the simple interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118
(effective January 1, 1995) provide that if the probable ultimate recovery of
the carrying amount of a mortgage investment, with due consideration for the
fair value of collateral, is less than the recorded investment and related
amounts due and the impairment is considered to be other than temporary, the
carrying amount of the investment (cost) shall be reduced to the present value
of future cash flows. The adoption of these statements did not have a material
effect on the financial statements of the partnership because that was the
valuation method previously used on impaired loans.
At December 31, 1998, 1997, and 1996, there were no mortgage investments
categorized as impaired by the partnership. Had there been a computed amount for
the reduction in carrying values of impaired loans, the reduction would have
been included in the allowance for doubtful accounts.
As presented in Note 10 to the financial statements, the average mortgage
investment to appraised value of security at the time the losses were
consummated was 59.50%. When a loan is valued for impairment purposes, an
updating is made in the valuation of collateral security. However, such a low
loan to value ratio has the tendency to minimize reductions for impairment.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents
include interest bearing and non-interest bearing bank
deposits.
E. Real Estate Owned, Held for Sale
Real estate owned, held for sale, includes real estate acquired through
foreclosure and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the property's estimated fair
value, less estimated costs to sell. At December 31, 1998, there was one such
piece of property with costs totaling $77,396 less a reduction of $11,396 to
arrive at the net fair value of $66,000.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Effective January 1, 1996, the partnership adopted the provisions of
Statement No 121 (SFAS 121) of the Financial Accounting Standards Board,
"Accounting for the impairment of long lived Assets and for long lived assets to
be disposed of". The adoption of SFAS 121 did not have a material impact on the
partnership's financial position because the methods indicated were essentially
those previously used by the partnership.
F. Investment in Limited Liability Corporation (see Note 7)
The partnership carries its investment in a limited liability corporation
as investment in real estate, which is at the lower of costs or fair value, less
estimated costs to sell.
G. Income Taxes
No provision for federal and state income taxes is made in the financial
statements since income taxes are the obligation of the partners if and when
income taxes apply.
H. Organization and Syndication Costs
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 are charged against partners' capital and are
being allocated to individual partners consistent with the partnership
agreement.
I. Allowance for Doubtful Accounts
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, with due consideration to
collateral values, to provide for unrecoverable accounts receivable, including
impaired mortgage investments, unspecified mortgage investments, accrued
interest and advances on mortgage investments, and other accounts receivable
(unsecured). The composition of the allowance for doubtful accounts as of
December 31, 1998, and 1997 was as follows:
December 31,
-------------------------------
1998 1997
--------------- ------------
Impaired mortgage investments $0 $0
Unspecified mortgage investments 370,073 213,500
Amounts receivable, unsecured 44,000 44,000
--------------- ------------
$414,073 $257,500
=============== ============
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
J. Net Income Per $1,000 Invested
Amounts reflected in the statements 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 select 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 are paid to the general
partners and/or related parties.
A. Mortgage Brokerage Commissions
For fees in connection with the review, selection, evaluation, negotiation
and extension of partnership mortgage investments in an amount up to 12% of the
mortgage investments until 6 months after the termination date of the offering.
Thereafter, mortgage investment brokerage commissions will be limited to an
amount not to exceed 4% of the total partnership assets per year. The mortgage
investment brokerage commissions are paid by the borrowers, and thus, not an
expense of the partnership. In 1998 and 1997, mortgage investment brokerage
commissions paid by the borrowers were $604,836 and $837,399, respecively.
B. Mortgage Servicing Fees
Monthly mortgage 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
mortgage is located. Mortgage servicing fees of $295,052, $189,692, and $155,912
were incurred for years 1998, 1997, and 1996 respectively.
C. Asset Management Fee
The general partners receive monthly fees for managing the partnership's
mortgage investment portfolio and operations up to 1/32 of 1% of the "net asset
value" (3/8 of 1% annual). Management fees of $31,651, $24,966, and $17,053 were
incurred for years 1998, 1997, and 1996, respectively.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
D. Other Fees
The partnership agreement provides for other fees such as reconveyance,
mortgage assumption and mortgage 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%.
F. Operating Expenses
The general partners or their affiliate (Redwood Mortgage Corp.) 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 were to contribute 1/10 of
1% in cash contributions as proceeds from the offering are admitted to limited
partner capital. As of December 31, 1998 a General Partner, GYMNO Corporation,
had contributed $25,588, 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
1-120 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 partnership's mortgage investment portfolio.
During the periods ending December 31, 1998, 1997, and 1996, interest
totalling $4,454, $9,562 and $2,618 respectively, was credited to partners in
applicant status. As mortgage investments were made and partners were
transferred to regular status to begin sharing in income from mortgage
investments 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, a compounding investor may subsequently change
his election, but an investor's election to have cash distributions is
irrevocable.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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, subject to a 10% early withdrawal penalty. The 10% penalty
is applicable to the amount withdrawn as stated in the notice of withdrawal 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 in
the partnership agreement.
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. Once this five year period expires, 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 partner's capital account in
four quarterly installments beginning on the last day of the calendar quarter
following the quarter in which the notice of withdrawal is 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 partnership's capacity to return a limited partner's
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 on a
monthly basis, up to a maximum interest rate of 12%. To date, actual realization
exceeded the guaranteed amount for each month.
NOTE 5 - LEGAL PROCEEDINGS
The partnership is not a defendant in any legal actions.
NOTE 6 - NOTE PAYABLE - BANK LINE OF CREDIT
The partnership has a bank line of credit expiring September 30, 2000, of
up to $8,000,000 at .5% over prime secured by its mortgage investment portfolio.
The note payable balances were $5,947,000 and $5,640,000 at December 31, 1998
and 1997, respectively, and the interest rate was 8.25% at December 31, 1998,
(7.75% prime plus .50%).
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 7 - INVESTMENT IN LIMITED LIABILITY CORPORATION
As a result of acquiring real property through foreclosure, the partnership
has contributed its interest (principally land) to a limited liability
corporation, which is owned 100% by the partnership, will complete the
construction and sell the property. The partnership expects to realize a profit
from the venture.
NOTE 8 - INCOME TAXES
The following reflects a reconciliation from net assets (partners' capital)
reflected in the financial statements to the tax basis of those net assets:
December 31,
----------------------------
1998 1997
------------ ------------
Net assets - Partners' capital per financial
statements $27,047,654 $20,931,153
Unamortized syndication costs 357,449 436,358
Allowance for doubtful accounts 414,073 257,500
Formation loans receivable 1,640,904 1,386,693
----------- ------------
Net assets tax basis $29,460,080 $23,011,704
============ ============
In 1998 and 1997, approximately 61% of taxable income was allocated to tax
exempt organizations, i.e., retirement plans. Such plans do not have to file
income tax returns unless their "unrelated business income" exceeds $1,000.
Applicable amounts become taxable when distribution is made to participants.
NOTE 9 - FAIR VALUE OF FINANCIAL INVESTMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
(a) Cash and Cash Equivalents The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.
(b) The carrying value of mortgage investments (see note 2(c) is
$31,905,958. The fair value of these investments of $32,231,632 is estimated
based upon projected cash flows discounted at the estimated current interest
rates at which similar loans would be made. The applicable amount of the
allowance for doubtful accounts along with accrued interest and advances related
thereto should also be considered in evaluating the fair value versus the
carrying value.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS
The mortgage investments are secured by recorded deeds of trust. At
December 31, 1998, there were 55 mortgage investments outstanding with the
following characteristics:
Number of mortgage investments outstanding 55
Total mortgage investments outstanding $31,905,958
Average mortgage investment outstanding $580,108
Average mortgage investment as percent of total 1.82%
Average mortgage investment as percent of partners' capital 2.14%
Largest mortgage investment outstanding 2,600,000
Largest mortgage investment as percent of total 8.15%
Largest mortgage investment as percent of Partners' Capital 9.61%
Number of counties where security is located (all California) 11
Largest percentage of mortgage investments in one county 32.65%
Average mortgage investment to appraised value of security at
time loan was consummated 9.50%
Number of Mortgage investments in foreclosure status 0
Amount of Mortgage investments in foreclosure 0
The following categories of mortgage investments are pertinent at December
31, 1998 and 1997:
December 31,
------------------------------------
1998 1997
---------------- ----------------
First trust deeds $22,349,185 $17,103,865
Second trust deeds 8,469,460 8,163,624
Third trust Deeds 1,087,313 37,500
---------------- ----------------
Total mortgage investments 31,905,958 25,304,989
Prior liens due other lenders 26,411,096 24,224,566
----------------
Total debt $58,317,054 $49,529,555
================ ================
Appraised property value at time of loan $98,011,150 $88,714,541
================ ================
Total investments as a percent of appraisals 59.50% 55.83%
================ ================
Investments by type of property
Owner occupied homes $6,450,199 $2,445,423
Non-owner occupied homes 8,789,445 5,318,722
Apartments 3,256,602 5,982,649
Commercial 13,409,712 11,558,195
---------------- ----------------
$31,905,958 $25,304,989
================ ================
The interest rates on the mortgage investments range from 8.00% to 14.00%
at December 31, 1998.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Scheduled maturity dates of mortgage investments as of December 31, 1998
are as follows:
Year Ending
December 31,
-------------------
1999 $11,815,481
2000 9,576,318
2001 5,540,542
2002 1,515,906
2003 1,336,291
Thereafter 2,121,420
---------------------
$31,905,958
=====================
The scheduled maturities for 1999 include approximately $265,376 in
mortgage investments which are past maturity at December 31, 1998. Interest
payment on only one of these loans was delinquent.
The cash balance at December 31, 1998 of $528,688 was in one bank with
interest bearing balances totalling $492,951. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $428,688. This bank is the same
financial institution that has provided the partnership with the $8,000,000
limit line of credit. At December 31, 1998, draw down against this facility was
$5,947,000. As and when deposits in the partnership's bank accounts increase
significantly beyond the insured limit, the funds are either placed on new
mortgage investments or used to pay-down on the line of credit balance.
<PAGE>
GYMNO CORPORATION
INTERIM FINANCIAL STATEMENTS
In the opinion of the management of Gymno Corporation, a California
corporation (Gymno), all adjustments necessary for a fair statement of financial
position for the interim period presented herein have been made. All such
adjustments are of a normal, recurring nature. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
However, management of Gymno believes that the disclosures contained herein are
adequate to make the information presented not misleading. It is suggested that
this unaudited balance sheet be read in conjunction with the corresponding
audited balance sheet and the notes thereto included elsewhere in this
prospectus.
<PAGE>
GYMNO CORPORATION
BALANCE SHEETS
AS OF SEPTEMBER 30, 1999
(Unaudited)
ASSETS
September 30,
1999
-----------------
Cash and equivalents $815
Deferred income tax benefits 120
-----------------
Total current assets 935
-----------------
Investment in partnerships, at net equity:
Redwood Mortgage Investors IV 7,500
Redwood Mortgage Investors V 5,000
Redwood Mortgage Investors VI 9,773
Redwood Mortgage Investors VII 12,098
Redwood Mortgage Investors VIII 31,760
-----------------
66,131
-----------------
$67,066
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable - stockholders $436
Accrued income taxes 0
Loan from Redwood Mortgage at 8% interest 10,781
---------------
Total current liabilities 11,217
---------------
Stockholders' equity:
Common stock at stated value:
Authorized 1,000,000 shares of no par value
issued and outstanding 500 shares 5,000
Paid-in surplus 7,500
Retained earnings 43,349
---------------
Total stockholders' equity 55,849
---------------
$67,066
===============
See accompanying notes to balance sheets.
<PAGE>
GYMNO CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(unaudited)
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 partners 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.
The company has also acquired limited partnership interests in Redwood
Mortgage Investors VII. The company receives investment income from such limited
partnership interests.
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.
<PAGE>
GYMNO CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDING SEPTEMBER 30, 1999
(unaudited)
NOTE 3 - INCOME TAXES
The following reflects the estimated income taxes for the period ending
September 30, 1999:
NINE MONTHS ENDED
SEPTEMBER 30, 1999
CALIF FED
-------- --------- --
Income before provision for income
taxes $6,374 $6,374
Nondeductible expenses 0 0
State Tax deduction:
Prior fiscal year tax 0 (953)
Taxable income differential-
-------- ---------
partnerships 2,019 2,019
-------- ---------
Taxable income 8,393 7,440
-------- ---------
Tax rate (California $800 minimum) 8.84% 15%
-------- ---------
Income tax thereon $800 $1,116
Change in deferred income tax benefit 0 23
-------- ---------
Income Tax expense $800 $1,139
======== =========
Above tax liability 800 1,116
Estimated tax payments 800 1,116
-------- ---------
Income tax liability $0 $0
======== =========
Total liability $0 $0
======== =========
=========
California income taxes were determined at the greater of 8.84% 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 1998 taxes are deductible in 1999). At September 30, 1999 there
were deferred income tax benefits of $120 relating to the $800 California
Franchise Tax deductible for the current period.
<PAGE>
CAPORICCI, CROPPER & LARSON, LLP
CERTIFIED PUBLIC ACCOUNTANTS
1575 TREAT BOULEVARD, SUITE 208
WALNUT CREEK, CALIFORNIA 94598
(925) 932-3860
FAX (925) 932-3862
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
GYMNO CORPORATION
We have audited the accompanying balance sheets of GYMNO Corporation as of
December 31, 1998, and 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial positions of GYMNO Corporation as of
December 31, 1998, and 1997 in conformity with generally accepted accounting
principles.
/S/ Caporicci, Cropper & Larson, LLP
CAPORICCI, CROPPER & LARSON, LLP
Walnut Creek,C alifornia
March 11, 1999
<PAGE>
GYMNO CORPORATION
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
------------- -------------
Cash and equivalents $427 $1,338
Deferred income tax benefits 143 136
------------- -------------
Total current assets 570 1,474
------------- -------------
Investment in partnerships, at net equity:
Redwood Mortgage Investors IV 7,500 7,500
Redwood Mortgage Investors V 5,000 5,000
Redwood Mortgage Investors VI 9,773 9,773
Redwood Mortgage Investors VII 12,248 12,448
Redwood Mortgage Investors VIII 25,589 20,488
------------ -------------
60,110 55,209
------------ -------------
$60,680 $56,683
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable - Stockholders $436 $436
Accrued income taxes 232 382
Loan from Redwood Mortgage at 8% interest 8,598 9,138
------------- -------------
Total current liabilities 9,266 9,956
------------- -------------
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 38,914 34,227
------------- -------------
Total stockholders' equity 51,414 46,727
------------- -------------
$60,680 $56,683
============= =============
See accompanying notes to balance sheets.
<PAGE>
GYMNO CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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.
The Company has also acquired limited partnership interests in Redwood
Mortgage Investors VII. The Company receives investment income from such limited
partnership interests.
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.
<PAGE>
GYMNO CORPORATION
NOTES TO BALANCE SHEETS
DECEMBER 31,1998 AND 1997
NOTE 3 - INCOME TAXES The following reflects the income taxes for the
periods ending December 31, 1998 and 1997:
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
CALIF FED CALIF FED
------- ------- ------- ------
Income before provision for income
taxes $7,120 $7,120 $7,945 7,945
Nondeductible expenses 0 0 6 6
State Tax deduction:
Prior fiscal year tax 0 (863) 0 (800)
Taxable income differential-
------- ------- ------- -------
partnerships 3,655 3,655 1,811 1,811
------- ------- ------- -------
Taxable income 10,775 9,912 9,762 8,962
------- ------- ------- -------
Tax rate (California $800 minimum) 8.84% 15% 8.84% 15%
------- ------- ------- -------
Income tax thereon $953 $1,487 $863 $1,344
Change in deferred income tax benefit 0 (7) 0 (16)
------- ------- ------- -------
Income Tax expense $953 $1,480 $863 $1,328
======= ======= ======= =======
Above tax liability 953 1,487 863 1,344
Estimated tax payments 864 1,344 800 1,025
------- ------- -------- ------
Income tax liability $89 $143 $63 $319
======= ======= ======== ======
Total liability $232 $382
======= ========
California income taxes were determined at the greater of 8.84% 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 1998 taxes are deductible in 1999). At December 31, 1998 there was
a deferred income tax benefit of $143 relating to the $953 California Franchise
Tax deductible in the following year.
<PAGE>
REDWOOD MORTGAGE CORP.
(A California Corporation)
BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
(with auditor's report thereon)
<PAGE>
CAPORICCI, CROPPER & LARSON, LLP
CERTIFIED PUBLIC ACCOUNTANTS
1575 TREAT BOULEVARD, SUITE 208
WALNUT CREEK, CALIFORNIA 94598
(925) 932-3860
FAX (925) 932-3862
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
REDWOOD MORTGAGE CORP.
We have audited the accompanying balance sheets of Redwood Mortgage Corp.
as of September 30, 1999 and 1998. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 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. We believe that our audit 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 Corp. as of
September 30, 1999 and 1998, in conformity with generally accepted accounting
principles.
/s/ Caporicci, Cropper & Larson, LLP
CAPORICCI, CROPPER & LARSON, LLP
Walnut Creek, California
December 2, 1999
<PAGE>
REDWOOD MORTGAGE CORP.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
------------- ------------
Cash and equivalents $444,980 $249,559
Accounts receivable:
Due from affiliate 83,354 95,354
Advances and deposits 16,845 16,133
Income taxes refundable 32,905 0
Prepaid Expenses 8,901 13,351
Furniture, equipment and leasehold improvements,
net of accumulated depreciation and amortization
of $209,270 and $189,108 respectively 54,457 46,432
Investment in partnerships 1,034,841 749,234
Deferred costs of mortgage related rights 1,853,025 1,566,574
Total assets $3,529,308 $2,736,637
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $8,885 $28,666
Due to parent company, Redwood Group, Ltd. 28,039 28,039
Pension/profit sharing liability 36,608 33,893
Advance from partnerships 2,166,328 1,845,891
Deferred income taxex 542,445 347,601
------------- ------------
Total liabilities 2,782,305 2,284,090
------------- ------------
Stockholder's equity:
Common stock, wholly owned by Redwood Group,
Ltd, at stated value (1,000 shares
outstanding) 4,000 4,000
Retained earning 743,003 448,547
------------ -------------
Total stockholder's equity 747,003 452,547
------------ -------------
Total liabilities and stockholder's
equity $3,529,308 $2,736,637
============ =============
See accompanying notes to financial statements.
<PAGE>
REDWOOD MORTGAGE CORP.
NOTES TO BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
NOTE 1 - ORGANIZATION
Redwood Mortgage Corp., formerly Redwood Home Loan Co. (the Company), is a
wholly-owned subsidiary of Redwood Group, Ltd., which is owned by D. Russell
Burwell, and related parties. D. Russell Burwell, Michael R. Burwell, and Gymno
Corporation (owned by the Burwells) are General Partners in eight limited
partnerships which invest in high-yield debt instruments, primarily promissory
notes secured by deeds of trust on California real estate. In addition, another
related Company is General Partner in a ninth limited partnership.
The Company maintains "trust accounts" to service mortgage investments made
principally by the aforementioned nine limited partnerships. As a real estate
broker licensed with the State of California, the Company arranges loans with
various maturities, all of which are secured by trust deeds. At September 30,
1999, the Company was servicing a portfolio totaling $71,073,468.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- Accrual Basis The accompanying financial statements were prepared on the
accrual basis of accounting wherein revenue is recognized when earned and
expenses are recognized when incurred. The company files its income tax returns
on the cash basis of accounting. A provision for income taxes is provided for
deferred taxes resulting from differences in the timing of reporting revenue and
expense items for accrual cash basis. The principal difference is the tax on
deferred costs of mortgage related rights.
- Use of Estimates 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
revenue and expenses for the related periods. Such estimates relate principally
to lives assigned to furniture and equipment and to the period of recoverability
of deferred costs of mortgage related rights. Actual results could differ from
these estimates.
- Mortgage Servicing Rights Consistent with statement of Financial
Accounting Standards No 122 (FASB 122), the company has recognized as an asset
rights to service loans of the limited partnerships mentioned above. Such rights
result in significant revenue including mortgage servicing fees and loan
commissions (See note 3). The costs of these rights include fees paid to
broker-dealers to raise capital for the partnerships. Such costs are being
allocated over ten years on a straight line basis.
- Cash and Cash Equivalents Cash and cash equivalents represent cash and
short term, highly liquid investments with original maturities of three months
or less. The company had only "cash" accounts at September 30, 1999 and 1998.
- Furniture, Equipment and Leasehold Improvements, Net Furniture, equipment
and leasehold improvements are stated at cost less depreciation and amortization
computed primarily on a straight line basis over estimated useful lines of 5 to
7 years.
- Income Taxes Income taxes are accounted for using an asset and liability
approach that requires the recognition of deferred taxes for expected future tax
consequences of differences in timing of stating expenses and/or revenues.
Expected future events are considered other than changes in the tax law or
rates.
- Investments in Partnerships Investments in partnership are accounted for
using the equity method. Accordingly, the investment is carried at cost,
adjusted for the company's share of the partnerships' income or losses.
NOTE 3 - INCOME FROM MORTGAGE RIGHTS OF LIMITED PARTNERSHIPS
The following are commissions and/or fees derived by the company from
related mortgage services.
<PAGE>
REDWOOD MORTGAGE CORP.
NOTES TO BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
A. Mortgage Brokerage Commissions For fees in connection with the review,
selection, evaluation, negotiation and extension of partnership mortgage
investments in an amount up to 12% of the mortgage investments until 6 months
after the termination date of an offering. Only 1 of the 9 limited partnerships
is in the offering stage. Thereafter, mortgage investments brokerage commissions
are limited to an amount not to exceed 4% of the total partnership assets per
year. The mortgage investment brokerage commissions are paid by the borrowers,
and thus, not an expense of the partnerships.
B. Mortgage Service Fees Monthly mortgage service fees of up to 1/8 of 1%
(1.5% annual) of the unpaid principal, are paid to Redwood Mortgage Corp., or
such lesser amount as is reasonable and customary in the geographic area where
the property securing the mortgage is located.
C. Other Fees The Partnership Agreements provide for other fees such as
reconveyance, mortgage assumption and mortgage extension fees. Such fees are
incurred by the borrowers and are paid to Redwood Mortgage Corp.
D. Clerical Fees The Company is reimbursed for expenses and clerical costs
associated with accounting and related services incurred on behalf of the
limited partnerships.
NOTE 4 - ADVANCES FROM PARTNERSHIPS
The Company has financed the payment of costs of mortgage related rights,
which were paid primarily to broker-dealers to raise investment capital for the
limited partnerships, which invest in mortgages secured by deeds of trust. The
advances are from the limited partnerships and are non-interest bearing and are
being paid over a number of years from revenue generated from the partnerships.
NOTE 5 -- INCOME TAXES
Significant components of the provision for income taxes are as follows:
Fiscal year ended September 30
1999 1998
--------------- ----------------
Current:
Federal $ - $ 1,150
State (minimum $800) 800 38,765
--------------- ----------------
800 39,915
--------------- ----------------
Deferred:
Federal 55,605 46,721
State 139,239 (26,200)
--------------- ----------------
194,844 20,521
--------------- ----------------
Total $195,644 $60,436
=============== ================
Income before tax provision $490,100 $137,987
--------------- ----------------
<PAGE>
REDWOOD MORTGAGE CORP.
NOTES TO BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
Deferred income taxes are provided at 8.84% for California, and 34% for
Federal purposes. There are net operating loss carryforwards to fiscal year
September 30, 2000 of $708,408 Federal and $122,192 California. The timing in
utilization if the California net operating loss affects the effective rates
since only 50% of the loss is carried forward for five years rather than the
100% and fifteen years allowed for Federal purposes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes.
Significant components of the company's deferred tax liabilities are as
follows:
As of September 30,
1999 1998
------------- ------------
Timing Differences
- ------------------------------------------------
Deferred costs of mortgage related rights $1,853,025 $1,566,574
Income (loss) on investments in partnerships 97,403 (371,021)
Other assets and liabilities, net 6,569 10,238
------------- ------------
Subtotal: 1,956,997 1,205,791
Less California net operating loss carryforward (122,192) -
------------- ------------
Base for California deferred tax $1,834,805 $1,205,791
============= ============
California deferred tax @8.84% $162,197 $106,592
============= ============
Above timing differences $1,956,997 $1,205,791
Less California deferred taxes (162,197) (106,592)
Plus - California tax timing differences 31,984 -
Less Federal net operating loss carryforward (708,408) (390,348)
------------- ------------
Base for Federal deferred tax $1,118,376 $708,851
============= ============
Federal deferred tax @34% $380,218 $241,009
California deferred tax (above) 162,197 106,592
------------- ------------
Deferred tax liability $542,445 $347,601
============= ============
Increase for the year $194,844 $20,521
============= ============
NOTE 6 - INVESTMENT IN PARTNERSHIPS
The company had investments in partnerships carried at equity in net assets
as follows:
As of September 30,
--------------------------------------
Partnerships (all December 31, year ends) 1999 1998 1997
- ---------------------------------------- ----------- ----------- ------------
Redwood Mortgage Investors IV $414 1,243 2,071
Norfolk Associates 1,034,427 747,991 220,870
Lockbrae Road Apartments - - 225,600
----------- ----------- ------------
$1,034,841 $749,234 $478,541
=========== =========== ============
A loss of $371,021 was realized in 1998 on the disposition of the
investment in Lockbrae Road Apartments, and a gain was realized in 1999 of
$97,403 on Norfolk Associates, which sold the property in fiscal year 1999. The
investment in Norfolk Associates will be converted to cash equivalents in late
1999 upon dissolution of the partnership.
Redwood Mortgage Investors IV is one of the limited partnerships with
investments in mortgages. The company is liquidating its position therein.
<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 loans; 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 loans.
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 December 31,
1998, for partnerships which completed funding after January 1, 1989.
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 after January 1, 1989.
TABLE III - OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
Table III summarizes the annual operating results from January 1, 1984,
through September 30, 1999 for prior limited partnerships that the general
partners have organized.
TABLE V - PAYMENT OF MORTGAGE INVESTMENTS
Table V presents information on the payment of the partnerships' mortgages
within the three (3) years ending September 30, 1999.
About one-third of the loans held by 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 I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(AS OF DECEMBER 31, 1998)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
RMI VII
--------------
Dollar Amount Offered $12,000,000
Dollar Amount Raised $11,998,359
Percentage of Amount Raised 100.00%
Less Offering Expenses:
Organization Expense 3.55%
Percentage Available for Investment
Net of Offering Expenses 96.45%
Mortgage Investments Funded from Offering Proceeds
Secured by Deeds of Trust 86.85%
Formation Loan 7.62%
Selling Commissions Paid to Non-Affiliates 1.00%
Selling Commissions Paid to Affiliates 0
Mortgage Investments Commitments 0
Mortgage Investment Application or Mortgage
Investment 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
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(AS OF DECEMBER 31, 1998)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)~
RMI VI
---------------
Dollar Amount Offered $12,000,000
Dollar Amount Raised $9,772,594
Percentage of Amount Raised 100.00%
Less Offering Expenses:
Organization Expense 2.63%
Selling Commissions Paid to Non-Affiliates 1.00%
Selling Commissions Paid to Affiliates 0
Percentage Available for Investment
Net of Offering Expenses 96.37%
Mortgage Investments Funded from Offering
Proceeds Secured by Deeds of Trust 86.04%
Formation Loan 6.27%
Mortgage Investment Commitments 0
Mortgage Investment Application or Mortgage Investment
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
<PAGE>
TABLE II
COMPENSATION TO GENERAL PARTNERS AND AFFILIATES
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS)
RMI VII
--------------------
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) $1,967,495
Processing Fees (1) 54,948
Other (1) 8,024
Dollar Amount of Cash Generated from Operations Before Deducting
from:
Payments to General Partners and Affiliates: $13,360,058
Amount Paid to General Partners and Affiliates from Operations:
Partnership Management Fees $80,636
Earnings Distribution 77,089
Mortgage Servicing Fee 620,702
Late Charges 0
Reimbursement of Expenses, at Cost 242,398
Prepayment Fee 0
(1) These sums were paid by borrowers of partnership funds, and were not
expenses of the partnership.
<PAGE>
TABLE II
COMPENSATION TO GENERAL PARTNERS AND AFFILIATES
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
RMI VI
------------------
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
Points (1) $1,529,056
Processing Fees (1) 61,737
Other (1) 8,380
Dollar Amount of Cash Generated from Operations Before Deducting
Payments to General Partners and Affiliates: $14,766,457
Amount Paid to General Partners and Affiliates from Operations:
Partnership Management Fees $88,979
Earnings Fee 87,298
Mortgage Servicing Fee 710,886
Reimbursement of Expenses, at Cost 286,311
(1) These sums were paid by borrowers of partnership funds, and were not
expenses of the partnerships.
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI VII
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1989 1990 1991
------------ ------------- -------------
5 days in December 1989
Gross Revenues $1,682 $238,949 $759,828
<S> <C> <C> <C>
Less: General Partners' Mgmt Fee 0 4,795 7,506
Mortgage Servicing Fee 0 14,172 42,177
Administrative Expenses 191 5,304 36,595
Provision for Uncollected Accts 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) dist. 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
NOTES:
(1) Based upon year's average capital balances.
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI VII
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1992 1993 1994
------------- ------------- -------------
<S> <C> <C> <C>
Gross Revenues $1,468,593 $1,711,092 $1,489,882
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's average capital balances.
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI VII
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1995 1996 1997
------------- -------------- -------------
<S> <C> <C> <C>
Gross Revenues $1,483,881 $1,580,501 $1,623,863
Less: General Partners' Mgmt Fee 0 0 0
Mortgage Servicing Fee 33,394 97,268 83,559
Administrative Expenses 66,371 76,875 80,614
Provision for Uncollected Accts 306,779 419,437 434,495
Amortization of Organization and Syndication Costs 2,016 368 0
Offering Period Interest Expense to Limited Partners 0 0 0
Interest Expense 163,361 127,454 198,316
------------- -------------- -------------
Net Income (GAAP Basis) dist. to Limited Partners $911,960 $859,099 $826,879
-------------- -------------
-------------
Sources of Funds - Net Income $911,960 $859,099 826,879
Reduction in Assets 0 1,110,429 0
Increase in Liabilities 63,206 0 1,081,907
Early Withdrawal Penalties Applied to Synd. Costs 3,344 0 0
Increase in Applicant's Deposit 0 0 0
Increase in Partners' Capital -collection on Formation
Loan 0 0 87,888
-------------- -------------
-------------
Cash generated from Operations $978,510 $1,969,528 $1,996,674
Use of Funds-Increase in Assets 471,434 0 610,362
Reduction in Liabilities 0 670,402 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 270,760 336,341 407,648
Return of Capital to LP's 184,157 722,536 1,212,916
------------- -------------- -------------
Net Increase (Decrease) in Cash $52,159 $240,249 $(234,252)
Cash at the beginning of the year 462,681 514,840 755,089
Cash at the end of the year 514,840 755,089 520,837
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $60.01 $60.22 $61.02
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) $58.43 $58.62 $59.38
Cash Distribution to Investors for $1,000 Invested
Income (1) $19.69 $23.66 $30.01
Capital (1) $13.39 $50.83 $89.28
Federal Income Tax Results for $1,000 Invested
Capital for a Compounding Ltd. Partner $65.75 $63.24 $75.49
Federal Income Tax Results for $1,000 Invested for a
Limited Partner Receiving Monthly Earnings
Distributions $64.01 $61.86 $73.81
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI VII
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1998 9/30/99
------------- -------------
Gross Revenues $1,657,728 $1,344,059
Less: General Partners' Mgmt Fee 16,141 11,249
Mortgage Servicing Fee 128,493 109,209
Administrative Expenses 72,602 58,234
Provision for Uncollected Accts 423,054 313,483
Amortization of Organization and
Syndication Costs 0 0
Offering Period Interest Expense to
Limited Partners 0 0
Interest Expense 170,867 172,455
------------- -------------
Net Income (GAAP Basis) dist. to Limited
Partners $846,571 $679,429
------------- -------------
Sources of Funds - Net Income $846,571 $679,429
Reduction in Assets 1,227,571 2,171,891
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 -collection on
Formation Loan 87,888 65,916
------------- -------------
Cash generated from Operations $2,162,030 $2,917,236
Use of Funds-Increase in Assets 0 0
Reduction in Liabilities 356,024 1,604,402
Decrease in Applicant's Deposit 0 0
Offering Period Interest Expense to Limited
Partners 0 0
Investment Income Pd to LP's 464,824 368,858
Return of Capital to LP's 1,400,475 1,065,932
------------- -------------
Net Increase (Decrease) in Cash $(59,293) $(121,956)
Cash at the beginning of the year 520,837 461,544
Cash at the end of the year 461,544 339,588
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $66.95 $57.51
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) $64.98 $56.09
Cash Distribution to Investors for $1,000 Invested
Income (1) $36.09 $30.87
Capital (1) $108.74 $89.21
Federal Income Tax Results for $1,000 Invested
Capital for a Compounding Ltd. Partner $95.60 N/A
Federal Income Tax Results for $1,000 Invested for a
Distributions $93.29 N/A
NOTES:
(1) Based upon year's initial capital balances
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI VI
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1987 1988(2) 1989
------------- -------------- --------------
<S> <C> <C> <C>
Gross Revenues $35,485 $600,194 $1,284,180
Less: General Partners' Mgmt Fee 833 15,726 0
Mortgage Servicing Fee 2,659 46,393 90,434
Administrative Expenses 494 19,837 53,083
Provision for Uncollected Accts 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
NOTES:
(1) Based upon year's average capital balances
(2) The offering terminated in September, 1989.
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI VI
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1990 1991 1992
------------- -------------- --------------
<S> <C> <C> <C>
Gross Revenues $1,527,697 $1,587,354 $1,661,779
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
(2) The offering terminated in September, 1989.
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI VI
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1993 1994 1995
------------- -------------- --------------
<S> <C> <C> <C>
Gross Revenues $1,713,378 $1,391,088 $1,277,782
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's average capital balances
(2) The offering terminated in September, 1989.
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI VI
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1996 1997 1998
------------- ------------- --------------
<S> <C> <C> <C>
Gross Revenues $1,167,859 $1,036,596 $871,861
Less: General Partners' Mgmt Fee 0 0 6,640
Mortgage Servicing Fee 44,565 39,918 70,630
Administrative Expenses 64,273 65,813 58,862
Provision for Uncollected Accts 312,684 268,101 180,054
Amortization of Organization and Syndication Costs 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Interest Expense 158,175 133,577 43,170
------------- ------------- --------------
Net Income (GAAP Basis) dist. to Limited Partners $588,162 $529,187 $512,505
------------- --------------
-------------
Sources of Funds - Net Income $588,162 $529,187 $512,505
Reduction in Assets 1,278,214 1,763,235 1,159,329
Increase in Liabilities 0 0 0
Early Withdrawal Penalties Applied to Synd. Costs 0 0 0
Increase in Applicant's Deposit 0 0 0
Increase in Partners' Capital - Collection of Formation 0 62,328 59,521
------------- ------------- --------------
Cash generated from Operations $1,866,376 $2,354,750 $1,731,355
Use of Funds-Increase in Assets 0 0 0
Reduction in Liabilities 491,978 649,124 466,778
Decrease in Applicant's Deposit 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Investment Income Pd to LP's 294,678 257,670 235,837
Return of Capital to LP's 1,183,099 1,297,410 1,060,108
------------- ------------- --------------
Net Increase (Decrease) in Cash $(103,379) $150,546 $(31,368)
Cash at the beginning of the year 283,976 180,597 331,143
Cash at the end of the year 80,597 331,143 299,775
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $53.50 $52.88 $56.32
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) $52.23 $51.64 $54.91
Cash Distribution to Investors for $1,000 Invested
Income (1) $25.83 $24.79 $25.01
Capital (1) $103.72 $124.81 $112.40
Federal Income Tax Results for $1,000 Invested
Capital for a Compounding Ltd. Partner $50.71 $30.48 $75.41
Federal Income Tax Results for $1,000 Invested for a
Limited Partner Receiving Monthly Earnings
Distributions $49.72 $29.89 $73.53
NOTES:
(1) Based upon year's initial capital balances
(2) The offering terminated in September, 1989.
</TABLE>
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI VI
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
9/30/99
-------------
Gross Revenues $611,204
Less: General Partners' Mgmt Fee 8,043
Mortgage Servicing Fee 40,804
Administrative Expenses 43,478
Provision for Uncollected Accts 111,762
Amortization of Organization and Syndication Costs 0
Offering Period Interest Expense to Limited Partners 0
Interest Expense 14,713
-------------
Net Income (GAAP Basis) dist. to Limited Partners $392,404
-------------
Sources of Funds - Net Income $392,404
Reduction in Assets 975,041
Increase in Liabilities 0
Early Withdrawal Penalties Applied to Synd. Costs 0
Increase in Applicant's Deposit 0
Increase in Partners' Capital - Collection of Formation
-------------
Cash generated from Operations $1,367,445
Use of Funds-Increase in Assets 0
Reduction in Liabilities 433,131
Decrease in Applicant's Deposit 0
Offering Period Interest Expense to Limited Partners 0
Investment Income Pd to LP's 162,088
Return of Capital to LP's 697,866
-------------
Net Increase (Decrease) in Cash $74,360
Cash at the beginning of the year 299,775
Cash at the end of the year 374,135
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $46.21
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) $45.29
Cash Distribution to Investors for $1,000 Invested
Income (1) $18.61
Capital (1) $80.15
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
NOTES:
(1) Based upon year's initial capital balances
(2) The offering terminated in September, 1989.
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI V
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1986 1987 1988
------------- -------------- --------------
(1 month only)
<S> <C> <C> <C>
Gross Revenues $20,794 $460,522 $627,223
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI V
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1989 1990 1991
------------- -------------- --------------
<S> <C> <C> <C>
Gross Revenues $755,856 $775,058 $745,102
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI V
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1992 1993 1994
------------- -------------- --------------
<S> <C> <C> <C>
Gross Revenues $840,592 $826,774 $557,036
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI V
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1995 1996 1997
------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $567,540 $419,823 $320,600
Less: General Partners' Mgmt Fee 0 0 0
Mortgage Servicing Fee 0 0 0
Administrative Expenses 30,593 31,312 30,085
Provision for Uncollected Accts 182,162 91,880 56,504
Amortization of Organization and Syndication Costs 627 741 0
Offering Period Interest Expense to Limited Partners 0 0 0
Interest Expense 95,941 77,789 53,466
------------- -------------- ----------------
Net Income (GAAP Basis) dist. to Limited Partners $258,217 $218,101 $180,545
-------------- ----------------
-------------
Sources of Funds - Net Income $258,217 $218,101 $180,545
Reduction in Assets 464,011 1,003,642 1,278,194
Increase in Liabilities 0 0 0
Early Withdrawal Penalties Applied to Synd. Costs 0 0 0
Increase in Applicant's Deposit 0 0 0
Increase in Partners' Capital 0 0 27,954
--------------
------------- ----------------
Cash generated from Operations $722,228 $1,221,743 $1,486,693
Use of Funds-Increase in Assets 0 0 0
Reduction in Liabilities 69,000 337,607 627,326
Decrease in Applicant's Deposit 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Investment Income Pd to LP's 124,329 101,335 82,504
Return of Capital to LP's 689,307 701,283 792,784
------------- --------------
----------------
Net Increase (Decrease) in Cash $(160,408) $81,518 $(15,921)
Cash at the beginning of the year 202,905 42,497 124,015
Cash at the end of the year 42,497 124,015 108,094
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $50 $48 $46
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) $49 $47 $45
Cash Distribution to Investors for $1,000 Invested
Income (1) $23 $21 $20
Capital (1) $130 $147 $191
Federal Income Tax Results for $1,000 Invested
Capital for a Compounding Ltd. Partner $51 $48 $58
Federal Income Tax Results for $1,000 Invested for a
Limited Partner Receiving Monthly Earnings
Distributions $50 $47 $57
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI V
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1998 9/30/99
------------- --------------
Gross Revenues $494,109 $239,234
Less: General Partners' Mgmt Fee 0 0
Mortgage Servicing Fee 0 0
Administrative Expenses 25,844 20,059
Provision for Uncollected Accts 303,397 89,791
Amortization of Organization and Syndication
Costs 0 0
Offering Period Interest Expense to Limited
Partners 0 0
Interest Expense 7,454 13,505
------------- --------------
Net Income (GAAP Basis) dist. to Limited Partners $157,414 $115,879
------------- --------------
Sources of Funds - Net Income $157,414 $115,879
Reduction in Assets 337,030 34,160
Increase in Liabilities 0 167,047
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 $494,444 $317,086
Use of Funds-Increase in Assets 0 0
Reduction in Liabilities 11,807 0
Decrease in Applicant's Deposit 0 0
Offering Period Interest Expense to Limited Partners 0 0
Investment Income Pd to LP's 77,341 54,077
Return of Capital to LP's 376,931 246,993
------------ --------------
Net Increase (Decrease) in Cash $28,365 $16,016
Cash at the beginning of the year 108,094 136,459
Cash at the end of the year 136,459 152,475
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $47 $37
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) $46 $37
Cash Distribution to Investors for $1,000 Invested
Income (1) $22 $17
Capital (1) $108 $78
Federal Income Tax Results for $1,000 Invested
Capital for a Compounding Ltd. Partner $92 N/A
Federal Income Tax Results for $1,000 Invested for a
Limited Partner Receiving Monthly Earnings
Distributions $90 N/A
NOTES:
(1) Based upon year's initial capital balances
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI IV
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1985 1986 1987
------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $236,437 $870,719 $1,104,423
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI IV
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1988 1989 1990
------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $1,129,031 $1,211,845 $1,277,106
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI IV
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1991 1992 1993
------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $1,261,526 $1,329,074 $1,186,369
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI IV
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1994 1995 1996
------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $994,076 $1,016,152 $954,899
Less: General Partners' Mgmt Fee 11,687 10,959 10,309
Mortgage Servicing Fee 88,072 73,032 46,809
Administrative Expenses 56,734 54,789 57,868
Provision for Uncollected Accts 243,856 189,026 218,317
Amortization of Organization and Syndication Costs 1,975 1,241 0
Offering Period Interest Expense to Limited Partners 0 0 0
Interest Expense 9,585 139,708 123,308
------------- -------------- ----------------
Net Income (GAAP Basis) dist. to Limited Partners $582,167 $547,397 $498,288
-------------- ----------------
-------------
Sources of Funds - Net Income $582,167 $547,397 $498,288
Reduction in Assets 0 0 1,016,682
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 $1,514,970
Use of Funds-Increase in Assets 520,319 74,528 0
Reduction in Liabilities 0 0 309,097
Decrease in Applicant's Deposit 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Investment Income Pd to LP's 261,074 233,353 212,280
Return of Capital to LP's 907,454 864,922 728,553
------------- -------------- ----------------
Net Increase (Decrease) in Cash $6,595 $(229,250) $265,040
Cash at the beginning of the year 347,341 353,936 124,686
Cash at the end of the year 353,936 124,686 389,726
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $62 $63 $61
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) $60 $61 $60
Cash Distribution to Investors for $1,000 Invested
Income (1) $27 $26 $25
Capital (1) $95 $97 $87
Federal Income Tax Results for $1,000 Invested
Capital for a Compounding Ltd. Partner $44 $67 $62
Federal Income Tax Results for $1,000 Invested for a
Limited Partner Receiving Monthly Earnings
Distributions $43 $66 $60
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI IV
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1997 1998 9/30/99
---------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $947,233 $913,462 $703,764
Less: General Partners' Mgmt Fee 9,803 9,303 6,670
Mortgage Servicing Fee 53,475 69,550 53,217
Administrative Expenses 47,083 42,769 33,565
Provision for Uncollected Accts 237,122 200,712 141,918
Amortization of Organization and Syndication Costs 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Interest Expense 127,795 114,274 93,606
---------------- -------------- ----------------
Net Income (GAAP Basis) dist. to Limited Partners $471,955 $476,854 $374,788
---------------- -------------- ----------------
Sources of Funds - Net Income $471,955 $476,854 $374,788
Reduction in Assets 0 378,202 805,697
Increase in Liabilities 297,222 15,717 0
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 $769,177 $870,773 $1,180,485
Use of Funds-Increase in Assets 48,154 0 0
Reduction in Liabilities 0 0 665,717
Decrease in Applicant's Deposit 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Investment Income Pd to LP's 208,313 221,641 171,759
Return of Capital to LP's 647,257 667,647 414,432
---------------- -------------- ----------------
Net Increase (Decrease) in Cash $(134,547) $(18,515) $(71,423)
Cash at the beginning of the year 389,726 255,179 236,664
Cash at the end of the year 255,179 236,664 165,241
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $61 $65 $53
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) $60 $63 $52
Cash Distribution to Investors for $1,000 Invested
Income (1) $26 $29 $24
Capital (1) $81 $88 $58
Federal Income Tax Results for $1,000 Invested
Capital for a Compounding Ltd. Partner $85 $79 N/A
Federal Income Tax Results for $1,000 Invested for a
Limited Partner Receiving Monthly Earnings
Distributions $83 $76 N/A
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI III
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1984 1985 1986
------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $121,765 $215,150 $200,934
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI III
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1987 1988 1989
------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $165,951 $190,856 $211,062
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI III
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1990 1991 1992
------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $196,540 $169,921 $177,555
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI III
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1993 1994 1995
------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $236,762 $165,126 $166,111
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI III
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1996 1997 1998
------------- ------------- ----------------
<S> <C> <C> <C>
Gross Revenues $166,395 $168,046 $183,854
Less: General Partners' Mgmt Fee 2,191 2,229 2,222
Mortgage Servicing Fee 14,696 7,791 13,433
Administrative Expenses 14,270 13,950 14,983
Provision for Uncollected Accts 8,279 20,790 29,519
Amortization of Organization and Syndication Costs 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
------------- ------------- ----------------
Net Income (GAAP Basis) dist. to Limited Partners $126,959 $123,286 $123,697
------------- ----------------
-------------
Sources of Funds - Net Income $126,959 $123,286 $123,697
Decrease in Assets 134,161 56,244 0
Increase in Liabilities 2,458 0 5,310
Increase in Applicant's Deposit 0 0 0
Increase in Partners' Capital 70,000 4,812 4,812
------------- ------------- ----------------
Cash generated from Operations $333,578 $184,342 $133,819
Use of Funds-Increase in Assets 0 0 165,523
Decrease in Liabilities 0 6,724 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 79,413 79,219 78,559
Return of Capital to LP's 30,874 46,854 48,389
-------------
------------- ----------------
Net Increase (Decrease) in Cash $223,291 $51,545 $(158,652)
Cash at the beginning of the year 10,792 234,083 285,628
Cash at the end of the year 234,083 285,628 126,976
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $72 $70 $71
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) $70 $68 $69
Cash Distribution to Investors for $1,000 Invested
Income (1) $47 $45 $45
Capital (1) $18 $27 $28
Federal Income Tax Results for $1,000 Invested
Capital for a Compounding Ltd. Partner $57 $80 $65
Federal Income Tax Results for $1,000 Invested for a
Limited Partner Receiving Monthly Earnings
Distributions $56 $78 $65
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI III
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
9/30/99
-------------
Gross Revenues $142,392
Less: General Partners' Mgmt Fee 1,661
Mortgage Servicing Fee 10,454
Administrative Expenses 11,941
Provision for Uncollected Accts 23,447
Amortization of Organization and Syndication Costs 0
Offering Period Interest Expense to Limited Partners 0
-------------
Net Income (GAAP Basis) dist. to Limited Partners $94,889
-------------
Sources of Funds - Net Income $94,889
Decrease in Assets 0
Increase in Liabilities 0
Increase in Applicant's Deposit 0
Increase in Partners' Capital 0
-------------
Cash generated from Operations $94,889
Use of Funds-Increase in Assets 30,572
Decrease in Liabilities 5,310
Decrease in Applicant's Deposit 0
Offering Period Interest Expense to Limited Partners 0
Investment Income Pd to LP's 59,813
Return of Capital to LP's 74,683
-------------
Net Increase (Decrease) in Cash $(75,489)
Cash at the beginning of the year 126,976
Cash at the end of the year 51,487
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $54
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) $53
Cash Distribution to Investors for $1,000 Invested
Income (1) $34
Capital (1) $42
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
NOTES:
(1) Based upon year's initial capital balances
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI II
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1984 1985 1986
------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $207,656 $218,404 $210,308
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI II
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1987 1988 1989
------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $208,807 $232,361 $190,156
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI II
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1990 1991 1992
------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $131,811 $93,683 $92,678
Less: General Partners' Mgmt Fee 11,221 0 0
Mortgage Servicing Fee 5,395 0 2,156
Administrative Expenses 10,146 10,950 12,948
Provision for Uncollected Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI II
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1993 1994 1995
------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $130,958 $102,122 $100,734
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI II
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1996 1997 1998
---------------- ------------- ---------------
<S> <C> <C> <C>
Gross Revenues $100,382 $88,149 $76,313
Less: General Partners' Mgmt Fee 3,061 2,841 2,606
Mortgage Servicing Fee 18,314 4,577 4,441
Administrative Expenses 10,597 9,811 9,401
Provision for Uncollected Accts 20,670 17,950 6,171
Amortization of Organization and Syndication Costs 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
---------------- ------------- ---------------
Net Income (GAAP Basis) dist. to Limited Partners $47,740 $52,970 $53,694
------------- ---------------
----------------
Sources of Funds - Net Income $47,740 $52,970 $53,694
Decrease in Assets 168,233 0 58,220
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 $215,973 $52,970 $111,914
Use of Funds-Increase in Assets 0 15,540 0
Decrease in Liabilities 6,572 14,830 2,958
Decrease in Applicant's Deposit 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
Investment Income Pd to LP's 21,264 23,690 32,004
Return of Capital to LP's 89,158 97,517 107,897
----------------
------------- ---------------
Net Increase (Decrease) in Cash $98,979 $(98,607) $(30,945)
Cash at the beginning of the year 57,851 156,830 58,223
Cash at the end of the year 156,830 58,223 27,278
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $53 $63 $70
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) $51 $62 $68
Cash Distribution to Investors for $1,000 Invested
Income (1) $23 $27 $40
Capital (1) $95 $111 $134
Federal Income Tax Results for $1,000 Invested
Capital for a Compounding Ltd. Partner $49 $75 $31
Federal Income Tax Results for $1,000 Invested for a
Limited Partner Receiving Monthly Earnings
Distributions $48 $73 $30
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI II
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
9/30/99
----------------
Gross Revenues $49,531
Less: General Partners' Mgmt Fee 1,739
Mortgage Servicing Fee 3,191
Administrative Expenses 8,196
Provision for Uncollected Accts 391
Amortization of Organization and Syndication Costs 0
Offering Period Interest Expense to Limited Partners 0
----------------
Net Income (GAAP Basis) dist. to Limited Partners $36,014
----------------
Sources of Funds - Net Income $36,014
Decrease in Assets 178,578
Increase in Liabilities 0
Increase in Applicant's Deposit 0
Increase in Partners' Capital 0
----------------
Cash generated from Operations $214,592
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 33,963
Return of Capital to LP's 79,983
----------------
Net Increase (Decrease) in Cash $100,646
Cash at the beginning of the year 27,278
Cash at the end of the year 127,924
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $52
Income & Distribution Data for
$1,000 Invested for a Limited Partner Receiving
Monthly Earning Distribution (GAAP Basis) $51
Cash Distribution to Investors for $1,000 Invested
Income (1) $47
Capital (1) $111
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
NOTES:
(1) Based upon year's initial capital balances
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1984 1985 1986
------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $188,289 $205,116 $206,710
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1987 1988 1989
------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $207,133 $217,668 $209,477
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1990 1991 1992
------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $187,920 $152,401 $143,619
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1993 1994 1995
------------- -------------- ----------------
<S> <C> <C> <C>
Gross Revenues $214,168 $151,237 $153,757
Less: General Partners' Mgmt 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 Accts 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) dist. 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 $9 $(18) $80
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1996 1997 1998
---------------- ------------- ----------------
<S> <C> <C> <C>
Gross Revenues $135,273 $130,974 $120,561
Less: General Partners' Mgmt Fee 10,686 3,431 3,266
Mortgage Servicing Fee 24,133 7,499 7,744
Administrative Expenses 12,170 12,038 11,378
Provision for Uncollected Accts 8,845 20,435 7,456
Amortization of Organization and Syndication Costs 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
---------------- ------------- ----------------
Net Income (GAAP Basis) dist. to Limited Partners $79,439 $87,571 $90,717
------------- ----------------
----------------
Sources of Funds - Net Income $79,439 $87,571 $90,717
Decrease in Assets 208,623 0 35,187
Increase in Liabilities 23,127 0 0
Increase in Applicant's Deposit 0 0 0
Increase in Partners' Capital 0 0 0
---------------- ------------- ----------------
Cash generated from Operations $311,189 $87,571 $125,904
Use of Funds-Increase in Assets 0 140,251 0
Decrease in Liabilities 0 24,992 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 25,439 29,816 25,859
Return of Capital to LP's 101,605 130,035 101,698
----------------
------------- ----------------
Net Increase (Decrease) in Cash $184,145 $(237,523) $(1,653)
Cash at the beginning of the year 69,796 253,941 16,418
Cash at the end of the year 253,941 16,418 14,765
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $56 $65 $71
Cash Distribution to Investors for $1,000 Invested
Income (1) $18 $21 $20
Capital (1) $71 $93 $77
Federal Income Tax Results for $1,000 Invested
Capital for a Compounding Ltd. Partner $31 $68 $67
NOTES:
(1) Based upon year's initial capital balances
</TABLE>
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
RMI
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
09/30/99
----------------
Gross Revenues $89,526
Less: General Partners' Mgmt Fee 2,364
Mortgage Servicing Fee 6,704
Administrative Expenses 9,663
Provision for Uncollected Accts 5,295
Amortization of Organization and Syndication Costs 0
Offering Period Interest Expense to Limited Partners 0
----------------
Net Income (GAAP Basis) dist. to Limited Partners $65,500
----------------
Sources of Funds - Net Income $65,500
Decrease in Assets 131,455
Increase in Liabilities 0
Increase in Applicant's Deposit 0
Increase in Partners' Capital 0
----------------
Cash generated from Operations $196,955
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 31,252
Return of Capital to LP's 105,168
----------------
Net Increase (Decrease) in Cash $60,535
Cash at the beginning of the year 14,765
Cash at the end of the year 75,300
Income & Distribution Data for $1,000 Invested for
a Compounding Limited Partner (GAAP Basis) $52
Cash Distribution to Investors for $1,000 Invested
Income (1) $24
Capital (1) $82
Federal Income Tax Results for $1,000 Invested
Capital for a Compounding Ltd. Partner N/A
NOTES:
(1) Based upon year's initial capital balances
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
CMI (CONSOLIDATED)
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1984 1985 1986
------------- ------------- -------------
<S> <C> <C> <C>
Gross Revenues $592,783 $567,307 $515,812
Less: General Partners' Mgmt 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 Accts 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) dist. 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 & Distr. 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 Distr. 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
NOTES:
(1) Based upon year's initial capital balances
(2) CMI II (New Portfolio of CMI I) commenced operation on January 1, 1984
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
CMI (CONSOLIDATED)
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1987 1988 1989
-------------- ------------- -------------
<S> <C> <C> <C>
Gross Revenues $454,722 $327,040 $355,951
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
(2) CMI II (New Portfolio of CMI I) commenced operation on January 1, 1984
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
CMI (CONSOLIDATED)
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1990 1991 1992
-------------- ------------- -------------
<S> <C> <C> <C>
Gross Revenues $294,299 $310,196 $279,365
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
(2) CMI II (New Portfolio of CMI I) commenced operation on January 1, 1984
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
CMI (CONSOLIDATED)
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1993 1994 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Gross Revenues $258,338 $204,608 $210,590
Less: General Partners' Mgmt 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 Accts 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) dist. 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
NOTES:
(1) Based upon year's initial capital balances
(2) CMI II (New Portfolio of CMI I) commenced operation on January 1, 1984
</TABLE>
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
CMI (CONSOLIDATED)
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
1996 1997 1998
----------------- ------------- -------------
<S> <C> <C> <C>
Gross Revenues $193,218 $180,117 $171,863
Less: General Partners' Mgmt Fee 13,117 12,229 11,244
Mortgage Servicing Fee 18,050 14,935 15,048
Administrative Expenses 14,341 14,182 13,269
Provision for Uncollected Accts 49,281 32,877 20,736
Amortization of Organization and Syndication Costs 0 0 0
Offering Period Interest Expense to Limited Partners 0 0 0
----------------- ------------- -------------
Net Income (GAAP Basis) dist. to Limited Partners $98,429 $105,894 $111,566
------------- -------------
-----------------
Sources of Funds - Net Income $98,429 $105,894 $111,566
Decrease in Assets 143,063 204,288 15,743
Increase in Liabilities 3,900 0 11,503
Increase in Applicant's Deposit 0 0 0
Increase in Partners' Capital 0 0 0
----------------- ------------- -------------
Cash generated from Operations $245,392 $310,182 138,812
Use of Funds-Increase in Assets 0 0 0
Decrease in Liabilities 0 3,738 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 28,260 33,904 31,596
Return of Capital to LP's 189,391 206,685 176,327
-----------------
------------- -------------
Net Increase (Decrease) in Cash $27,741 $65,855 $(69,111)
Cash at the beginning of the year 57,185 84,926 150,781
Cash at the end of the year 84,926 150,781 81,670
Income & Distribution Data for $1,000 Invested Net Income
CMI (Original Portfolio) (GAAP Basis) $57 $66 $76
Net Income CMI II (New Portfolio of CMI) (GAAP Basis) $57 $66 $76
Cash Distribution to Investors for $1,000 Invested: CMI
(Original Portfolio)
Income (1) $21 $20 $19
Capital (1) $149 $169 $120
CMI II (New Portfolio of CMI)
Income (1) $12 $21 $21
Capital (1) $74 $93 $111
Federal Income Tax Results for $1,000 Invested Capital
Ordinary Income from Operations CMI (Original Portfolio) $84 $76 $93
Ordinary Income from Operations CMI II (New Portfolio of
CMI)
NOTES:
(1) Based upon year's initial capital balances
(2) CMI II (New Portfolio of CMI I) commenced operation on January 1, 1984
</TABLE>
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR LIMITED PARTNERSHIPS
CMI (CONSOLIDATED)
(AS OF SEPTEMBER 30, 1999)
(NOT COVERED BY REPORT OF INDEPENDENT PUBLIC ACCOUNTANT)
09/30/99
------------
Gross Revenues $132,901
Less: General Partners' Mgmt Fee 8,024
Mortgage Servicing Fee 11,889
Administrative Expenses 11,020
Provision for Uncollected Accts 12,564
Amortization of Organization and Syndication Costs 0
Offering Period Interest Expense to Limited Partners 0
------------
Net Income (GAAP Basis) dist. to Limited Partners $89,404
------------
Sources of Funds - Net Income $89,404
Decrease in Assets 0
Increase in Liabilities 0
Increase in Applicant's Deposit 0
Increase in Partners' Capital 0
------------
Cash generated from Operations $89,404
Use of Funds-Increase in Assets 32,013
Decrease in Liabilities 11,696
Decrease in Applicant's Deposit 0
Offering Period Interest Expense to Limited Partners 0
Investment Income Pd to LP's 18,683
Return of Capital to LP's 103,565
------------
Net Increase (Decrease) in Cash $(76,553)
Cash at the beginning of the year 81,670
Cash at the end of the year 5,117
Income & Distribution Data for $1,000 Invested Net Income
CMI (Original Portfolio) (GAAP Basis) $63
Net Income CMI II (New Portfolio of CMI) (GAAP Basis) $63
Cash Distribution to Investors for $1,000 Invested: CMI
(Original Portfolio)
Income (1) $13
Capital (1) $62
CMI II (New Portfolio of CMI)
Income (1) $13
Capital (1) $78
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
NOTES:
(1) Based upon year's initial capital balances
(2) CMI II (New Portfolio of CMI I) commenced operation on January 1, 1984
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
CORPORATE MORTGAGE INVESTORS I & II
FOR THE THREE YEARS ENDING
SEPTEMBER 30, 1999
SINGLE FAMILY 1-4 UNITS (county)
- --------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alameda 11/29/94 03/13/97 60,000.00 13,896.74 73,896.74
Amador 02/23/96 06/03/97 45,000.00 5,047.64 50,047.64
Santa Clara 04/26/94 11/05/97 87,500.00 31,938.26 119,438.26
San Mateo 02/28/97 12/29/97 35,000.00 3,097.18 38,097.18
San Francisco 07/28/95 05/31/98 145,000.00 24,789.91 169,789.91
Ventura 12/05/96 06/25/98 65,000.00 43,030.90 108,030.90
Alameda 09/29/88 10/26/98 74,600.00 64,089.87 138,689.87
Ventura 12/05/96 05/17/99 52,000.00 15,030.78 67,030.78
Ventura 12/05/96 07/19/99 65,000.00 22,157.23 87,157.23
- --------------------------------------------------------------------------------------------------------------
MULTIPLE 5+ UNITS (county)
- --------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
COMMERCIAL (county)
- --------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Santa Clara 01/31/94 10/01/96 100,000.00 20,044.97 120,044.97
Contra Costa 06/21/88 04/07/97 54,600.00 28,890.31 83,490.31
San Francisco 08/24/94 06/30/97 87,500.00 27,241.68 114,741.68
Santa Barbara 05/10/94 10/31/97 100,000.00 39,560.36 139,560.36
San Mateo 12/02/97 08/19/98 150,000.00 9,358.83 159,358.83
San Mateo 02/02/96 10/02/98 175,000.00 51,682.83 226,682.83
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS I
FOR THE THREE YEARS ENDING
SEPTEMBER 30, 1999
SINGLE FAMILY 1-4 UNITS (county)
- --------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sacramento 03/13/92 10/31/97 13,812.08 -11,914.86 1,897.22
Ventura 12/05/96 02/13/98 65,000.00 1,913.40 66,913.40
Ventura 12/05/96 02/13/98 65,000.00 13,110.67 78,110.67
Ventura 12/05/96 02/13/98 65,000.00 4,922.69 69,922.69
San Mateo 02/16/94 02/25/98 75,000.00 31,129.95 106,129.95
Contra Costa 08/30/93 03/02/99 29,502.78 23,776.64 53,279.42
Santa Clara 12/31/91 02/18/99 54,000.00 -30,585.00 23,415.00
Stanislaus 12/31/96 06/23/99 100,000.00 30,493.33 130,493.33
Contra Costa 10/23/85 07/19/99 5,958.05 23,479.72 29,437.77
- --------------------------------------------------------------------------------------------------------------
MULTIPLE 5+ UNITS (county)
- --------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
COMMERCIAL (county)
- --------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
San Mateo 03/31/96 10/02/98 15,000.00 6,118.14 21,118.14
San Mateo 05/30/97 10/15/98 100,000.00 14,693.80 114,693.80
Santa Clara 12/31/92 06/01/99 54,500.00 47002.52 101,502.52
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS II
FOR THE THREE YEARS ENDING
SEPTEMBER 30, 1999
SINGLE FAMILY 1-4 UNITS (county)
- --------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Marin 01/23/87 12/13/96 50,500.01 6,277.71 56,777.72
Santa Clara 02/11/94 06/06/97 88,000.00 19,621.27 107,621.27
Sacramento 03/12/97 10/31/97 13,760.71 -12,627.29 1,133.42
Ventura 12/05/96 02/13/98 65,000.00 12,082.39 77,082.39
Ventura 12/05/96 02/13/98 65,000.00 13,599.29 78,599.29
San Mateo 02/16/94 02/25/98 50,000.00 10,376.65 60,376.65
- --------------------------------------------------------------------------------------------------------------
MULTIPLE 5+ UNITS (county)
- --------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alameda 06/01/92 05/13/98 100,000.00 87,651.58 187,651.58
- --------------------------------------------------------------------------------------------------------------
COMMERCIAL (county)
- --------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alameda 01/12/94 12/02/96 30,000.00 7,553.14 37,553.14
Santa Barbara 05/10/94 10/31/97 50,000.00 19,780.28 69,780.28
Stanislaus 12/31/96 06/23/99 100,000.00 30,493.33 130,493.33
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS III
FOR THE THREE YEARS ENDING
SEPTEMBER 30, 1999
SINGLE FAMILY 1-4 UNITS (county)
------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alameda 11/29/94 05/19/97 60,000.00 15,662.20 75,662.20
Alameda 11/03/94 07/10/97 73,000.00 19,586.80 92,586.80
Alameda 09/02/92 07/15/97 100,000.00 57,227.60 157,227.60
San Mateo 08/16/94 11/14/97 75,000.00 28,380.54 103,380.54
Ventura 12/05/96 03/03/98 65,000.00 10,539.20 75,539.20
San Mateo 02/01/98 12/31/98 30,000.00 3,111.01 33,111.01
Santa Clara 12/31/91 02/18/99 83,619.72 -47,253.20 36,366.52
Ventura 12/05/96 07/26/99 65,000.00 22,471.54 87,471.54
------------------------------------------------------------------------------------------------------------
MULTIPLE 5+ UNITS (county)
------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alameda 06/01/92 05/13/98 60,000.00 52,592.89 112,592.89
Alameda 11/09/83 09/03/99 17,524.36 28,623.51 46,147.87
------------------------------------------------------------------------------------------------------------
COMMERCIAL (county)
------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
San Francisco 08/24/94 06/30/97 87,500.00 27,241.69 114,741.69
San Mateo 03/31/98 08/19/98 60,000.00 3,289.28 63,289.28
San Mateo 10/18/96 11/18/98 100,000.00 25,160.00 125,160.00
Stanislaus 12/20/94 06/23/99 141,964.18 155,813.06 297,777.24
------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS IV
FOR THE THREE YEARS ENDING
SEPTEMBER 30, 1999
SINGLE FAMILY 1-4 UNITS (county)
- -------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alameda 09/02/92 07/15/97 78,750.00 45,066.81 123,816.81
San Mateo 03/20/90 08/29/97 80,000.00 77,498.01 157,498.01
San Francisco 11/06/92 11/04/97 12,266.67 5,240.50 17,507.17
Santa Clara 04/26/94 11/05/97 87,500.00 31,938.26 119,438.26
Alameda 12/24/91 12/31/97 67,257.75 30,392.45 97,650.20
San Mateo 11/16/87 01/19/98 40,000.00 54,832.78 94,832.78
San Mateo 10/16/92 04/01/98 76,760.00 70,117.71 146,877.71
Alameda 07/07/86 05/19/98 27,850.00 46,154.10 74,004.10
San Mateo 05/21/91 07/02/98 120,000.00 123,436.63 243,436.63
Contra Costa 04/10/97 02/04/99 12,500.00 2,616.39 15,116.39
San Mateo 08/29/97 05/26/99 15,282.02 2,264.56 17,546.58
Contra Costa 10/23/85 07/19/99 34,041.95 64,122.55 98,164.50
Ventura 12/05/96 09/03/99 65,000.00 23,677.32 88,677.32
- -------------------------------------------------------------------------------------------------------------
MULTIPLE 5+ UNITS (county)
- -------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alameda 03/13/97 05/01/98 500,000.00 61,215.28 561,215.28
Alameda 06/01/92 05/13/98 275,000.00 373,615.12 648,615.12
Sacramento 06/29/90 07/17/98 187,778.06 136,018.43 323,796.49
Sacramento 07/03/95 12/24/98 200,000.00 29,398.68 229,398.68
Contra Costa 12/31/94 02/04/99 175,000.00 105,355.18 280,355.18
Alameda 12/24/97 06/28/99 690,000.00 98,272.41 788,272.41
Alameda 04/27/89 06/10/99 65,000.00 78,181.27 143,181.27
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS IV
FOR THE THREE YEARS ENDING
SEPTEMBER 30, 1999
COMMERCIAL (county)
- -------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lake 01/30/91 10/04/96 16,000.00 13,245.50 29,245.50
Alameda 12/12/90 03/24/97 201,671.45 271,459.89 473,131.34
San Luis Obispo 03/14/96 05/23/97 200,000.00 30,005.13 230,005.13
Contra Costa 04/26/91 06/23/97 114,952.65 154,302.43 269,255.08
San Mateo 12/31/90 12/05/97 260,000.00 205,321.34 465,321.34
Santa Clara 09/29/95 12/18/97 300,000.00 79,483.33 379,483.33
Contra Costa 09/29/92 05/04/98 100,000.00 65,297.83 165,297.83
Sonoma 05/26/93 07/09/98 292,500.00 361,093.01 653,593.01
San Mateo 12/02/97 08/19/98 90,000.00 7,588.88 97,588.88
San Mateo 02/02/96 10/02/98 275,000.00 69,864.78 344,864.78
San Mateo 05/30/97 10/15/98 250,000.00 36,734.50 286,734.50
San Mateo 08/26/93 03/12/99 133,000.00 52,840.61 185,840.61
Santa Clara 12/31/92 06/01/99 54,500.00 47,002.52 101,502.52
Stanislaus 12/20/94 06/23/99 946,427.86 1,076,196.15 2,022,624.01
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS V
FOR THE THREE YEARS ENDING
SEPTEMBER 30, 1999
SINGLE FAMILY 1-4 UNITS (county)
- ------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Marin 01/23/87 12/13/96 60,000.00 57,433.82 117,433.82
San Francisco 04/15/93 03/19/97 93,500.00 23,305.54 116,805.54
San Francisco 12/09/94 06/10/97 14,000.00 3,110.57 17,110.57
San Francisco 04/16/91 10/23/97 342,442.77 91,841.37 434,284.14
Sacramento 03/12/92 10/31/97 27,664.73 -23,852.44 3,812.29
San Mateo 11/18/92 12/10/97 25,000.00 15,165.60 40,165.60
Alameda 01/24/92 12/19/97 87,300.00 33,156.31 120,456.31
Santa Clara 12/31/91 02/18/99 228,620.18 -127,741.15 100,879.03
- ------------------------------------------------------------------------------------------------------------
MULTIPLE 5+ UNITS (county)
- ------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sacramento 06/29/90 07/17/98 126,555.01 65,224.49 191,779.50
- ------------------------------------------------------------------------------------------------------------
COMMERCIAL (county)
- ------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
San Mateo 08/01/90 01/24/97 50,000.00 42,804.93 92,804.93
Contra Costa 04/26/91 06/23/97 115,032.96 154,302.43 269,335.39
Contra Costa 11/16/93 07/03/97 235,000.00 56,654.84 291,651.84
Sonoma 07/06/89 08/01/97 100,000.00 91,651.43 191,651.43
Santa Clara 09/29/95 12/18/97 100,000.00 26,660.60 126,666.60
Contra Costa 09/29/92 05/04/98 100,000.00 128,786.98 228,786.98
San Mateo 07/15/92 12/08/98 112,500.00 96,554.54 209,054.54
San Francisco 06/17/98 01/08/99 400,000.00 23,314.28 423,314.28
Sonoma 11/07/94 05/14/99 66,190.41 25,660.80 91,851.21
Stanislaus 12/20/94 06/23/99 236,606.97 261,799.03 498,406.00
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS VI
FOR THE THREE YEARS ENDING
SEPTEMBER 30, 1999
SINGLE FAMILY 1-4 UNITS (county)
- --------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
San Mateo 07/01/88 10/06/96 22,500.00 21,468.10 43,968.10
San Mateo 06/29/89 10/11/96 69,396.16 113,467.71 182,863.87
San Mateo 10/10/96 04/14/97 37,055.61 1,527.25 38,582.86
Alameda 07/01/90 07/02/97 233,367.46 -127,393.18 105,974.28
Sacramento 03/13/92 10/31/97 55,307.12 -47,694.39 7,612.73
Alameda 01/24/92 12/19/97 87,300.00 32,875.31 120,175.31
Alameda 12/24/91 12/31/97 67,257.75 30,820.92 98,078.67
San Mateo 10/16/92 04/01/98 115,140.00 50,554.99 165,694.99
El Dorado 06/24/93 06/19/98 235,000.00 154,808.06 389,808.06
Alameda 02/23/95 06/23/98 153,320.99 52,892.71 211,213.70
San Mateo 07/25/88 02/17/99 49,000.00 66,190.49 115,190.49
Contra Costa 08/30/93 03/02/99 21,635.32 17,572.19 39,207.51
Ventura 12/05/96 05/17/99 13,000.00 6,491.67 19,491.67
San Mateo 05/15/96 05/28/99 145,000.00 31,017.05 176,017.05
Ventura 12/05/96 07/02/99 65,000.00 15,006.13 80,006.13
Solano 02/11/88 06/14/99 36,000.00 67,213.77 103,213.77
Santa Clara 12/31/91 02/18/99 285,793.30 -141,804.88 143,988.42
San Francisco 06/29/90 07/21/99 200,000.00 241,041.21 441,041.21
Contra Costa 02/10/99 09/14/99 335,000.00 20,891.09 355,891.09
- --------------------------------------------------------------------------------------------------------------
MULTIPLE 5+ UNITS (county)
- -------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sacramento 08/19/88 07/28/97 509,985.54 -214,554.68 295,430.86
Sacramento 07/24/97 02/02/98 10,000.00 368.58 10,368.58
Alameda 03/13/98 05/01/98 350,000.00 15,781.59 365,781.59
Alameda 06/01/92 05/13/98 275,000.00 241,049.46 516,049.46
Sacramento 06/29/90 07/17/98 96,559.83 97,106.39 193,666.22
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS VI
FOR THE THREE YEARS ENDING
SEPTEMBER 30, 1999
COMMERCIAL (county)
- -------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
San Mateo 08/01/90 01/24/97 50,000.00 42,561.13 92,561.13
Alameda 12/12/90 03/24/97 210,034.69 283,065.26 493,099.95
Alameda 11/05/90 03/31/97 78,740.20 105,095.44 183,835.64
Sonoma 07/06/89 08/01/97 100,000.00 91,374.72 191,374.72
Contra Costa 03/19/91 09/30/97 227,755.59 -186,413.27 41,342.32
Santa Barbara 05/10/94 10/31/97 100,000.00 40,222.70 140,222.70
Santa Clara 09/29/95 12/18/97 550,000.00 83,866.67 633,866.67
Sonoma 05/26/93 07/09/98 292,500.00 624,396.12 916,896.12
Alameda 08/11/88 08/03/98 73,000.00 93,566.06 166,566.06
San Mateo 02/02/96 10/02/98 150,000.00 31,079.87 181,079.87
San Francisco 06/17/98 01/08/99 700,000.00 40,799.99 740,799.99
Solano 11/07/94 05/14/99 72,809.59 27,404.49 100,214.08
Santa Clara 12/31/92 06/01/99 109,000.00 89,992.26 198,992.26
Stanislaus 12/20/94 06/23/99 567,856.74 625,917.71 1,193,774.45
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS VII
FOR THE THREE YEARS ENDING
SEPTEMBER 30, 1999
SINGLE FAMILY 1-4 UNITS (county)
- ---------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
San Mateo 06/24/92 03/13/97 81,000.00 45,775.04 126,775.04
San Francisco 04/15/93 03/19/97 50,000.00 17,967.50 67,967.50
Alameda 08/16/91 04/11/97 66,000.00 41,506.43 107,506.43
San Mateo 10/10/96 04/14/97 29,944.39 1,234.15 31,178.54
San Francisco 07/15/96 05/09/97 320,000.00 20,144.66 340,144.66
Tuolomne 03/26/93 05/14/97 175,000.00 36,244.52 211,244.52
San Mateo 08/12/91 05/31/97 108,270.70 71,684.54 179,955.24
San Mateo 06/19/92 06/18/97 42,500.00 25,030.01 67,030.01
San Mateo 12/30/90 06/19/97 15,000.00 14,166.94 29,166.94
San Francisco 07/16/91 08/22/97 108,000.00 89,977.37 197,977.37
San Mateo 03/29/90 08/29/97 63,960.00 61,632.29 125,592.29
San Mateo 06/10/92 09/05/97 145,000.00 95,692.30 240,692.30
San Francisco 10/09/96 09/12/97 238,000.00 12,930.41 250,730.41
Marin 05/20/91 09/30/97 63,922.80 100,305.42 164,228.22
San Francisco 04/16/91 10/23/97 343,719.78 90,066.64 433,786.42
San Francisco 11/06/92 11/04/97 6,133.33 1,932.57 8,065.90
Alameda 12/24/91 12/31/97 37,984.50 17,405.28 55,389.78
San Mateo 11/19/90 06/16/98 91,000.00 94,499.63 185,499.63
El Dorado 06/24/93 06/19/98 300,000.00 197,627.33 497,627.33
Alameda 02/23/95 06/23/98 153,320.99 57,892.71 211,213.70
San Mateo 12/29/87 07/31/98 79,000.00 85,460.44 164,460.44
San Mateo 09/04/94 08/14/98 60,000.00 26,344.06 86,344.06
Santa Cruz 09/15/97 10/02/98 107,263.44 11,293.28 118,556.72
San Francisco 09/22/97 11/02/98 210,000.00 37,426.99 247,426.99
San Francisco 09/26/97 11/06/98 323,003.04 32,691.04 355,694.08
San Mateo 07/07/98 11/25/98 200,000.00 8,900.70 208,900.70
Santa Clara 12/31/91 02/18/99 152,400.85 -76,931.92 75,468.93
Contra Costa 08/30/93 03/02/99 126,861.90 103,048.66 229,910.56
Sonoma 04/17/92 03/31/99 15,850.00 11,109.80 26,959.80
San Mateo 08/29/97 05/26/99 12,217.98 2,050.36 14,268.34
Monterey 02/18/99 06/18/99 75,000.00 2,900.00 77,900.00
Monterey 06/18/97 06/18/99 687,500.00 125,402.84 812,902.84
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS VII
FOR THE THREE YEARS ENDING
SEPTEMBER 30, 1999
MULTIPLE 5+ UNITS (county)
- --------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
San Francisco 02/05/96 12/27/96 883,750.00 50,570.34 934,320.34
San Francisco 07/17/96 02/26/98 84,241.05 147,731.84 231,972.89
Alameda 03/13/97 05/01/98 1,400,000.00 263,875.12 1,663,875.12
San Mateo 07/25/89 02/17/99 45,000.00 46,422.67 91,422.67
- --------------------------------------------------------------------------------------------------------------
COMMERCIAL (county)
- --------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Santa Clara 10/31/94 10/01/96 275,000.00 56,956.67 331,956.67
Alameda 12/13/91 01/31/97 52,760.73 67,026.76 119,787.49
Alameda 12/12/90 03/24/97 50,461.02 68,068.88 118,529.90
Santa Cruz 09/23/94 03/28/97 100,000.00 17,765.69 117,765.69
Alameda 11/05/90 03/31/97 236,177.62 106,668.62 342,846.24
San Francisco 01/15/97 04/01/97 442,500.00 4,022.19 446,522.19
Contra Costa 04/26/91 06/23/97 182,475.81 246,883.76 429,359.57
San Francisco 04/20/95 09/18/97 200,000.00 56,821.69 256,821.69
Contra Costa 03/19/91 09/30/97 227,957.56 -186,615.23 41,342.33
Santa Clara 03/27/96 10/24/97 400,000.00 54,360.37 454,360.37
Santa Barbara 05/10/94 10/31/97 125,000.00 50,276.97 175,276.97
Santa Clara 09/29/95 12/18/97 700,000.00 169,533.33 869,533.33
San Mateo 12/02/92 12/31/97 55,000.00 33,308.16 88,308.16
Solano 11/30/95 01/30/98 60,000.00 10,638.75 70,638.75
Contra Costa 09/29/92 05/04/98 350,000.00 258,375.49 608,375.49
Solano 09/30/97 06/05/98 480,000.00 42,640.01 522,640.01
Alameda 04/25/97 07/24/98 560,000.00 81,144.01 641,144.01
San Mateo 02/02/96 10/02/98 700,000.00 136,866.58 836,866.58
San Mateo 07/15/92 12/08/98 112,500.00 96,240.02 208,740.02
San Francisco 06/17/98 01/08/99 1,000,000.00 48,102.51 1,048,102.51
San Mateo 08/26/93 03/12/99 133,000.00 53,554.50 186,554.50
Alameda 08/18/93 06/09/99 82,500.00 57,105.93 139,605.93
Stanislaus 12/31/96 06/23/99 950,000.00 289,866.67 1,239,866.67
Stanislaus 12/20/94 06/23/99 757,144.25 834,559.07 1,591,703.32
San Francisco 01/05/99 08/25/99 1,350,000.00 119,945.50 1,469,945.50
Alameda 12/19/97 09/24/99 832,820.75 407,458.11 1,240,278.86
Solano 09/24/98 09/30/99 950,000.00 106,896.15 1,056,896.15
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS VIII
FOR THE THREE YEARS ENDING
SEPTEMBER 30, 1999
SINGLE FAMILY 1-4 UNITS (county)
- --------------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Marin 05/11/95 11/06/96 50,000.00 8,446.53 58,446.53
San Mateo 03/22/94 11/15/96 100,000.00 25,983.46 125,983.46
Alameda 08/05/94 11/22/96 410,000.00 88,249.87 498,249.87
San Mateo 04/30/96 12/11/96 453,720.67 25,915.39 479,636.06
San Francisco 03/27/96 03/18/97 125,000.00 14,059.97 139,059.97
San Francisco 04/15/93 03/19/97 70,125.00 22,935.84 93,060.84
San Mateo 03/09/95 03/27/97 80,000.00 18,925.90 98,952.90
San Mateo 04/11/96 04/21/97 325,000.00 32,826.90 357,826.90
Sonoma 03/04/94 04/25/97 93,400.00 27,746.86 121,146.86
Tuolomne 03/26/93 05/14/97 100,000.00 43,838.58 143,838.58
Santa Clara 06/30/95 06/06/97 44,000.00 9,251.29 53,251.29
Marin 10/17/95 06/09/97 770,000.00 105,256.69 875,256.69
San Mateo 08/09/96 06/24/97 65,000.00 6,511.02 71,511.02
Stanislaus 08/04/95 09/08/97 50,000.00 10,746.68 60,746.68
San Francisco 09/12/95 10/01/97 250,000.00 57,678.67 307,678.67
San Mateo 08/30/96 10/06/97 445,000.00 44,544.27 489,544.27
San Mateo 12/29/95 04/23/98 225,000.00 63,849.70 288,849.70
Marin 05/09/97 05/20/98 120,000.00 13,410.94 133,410.94
Marin 05/31/96 05/20/98 906,413.85 153,528.25 1,059,941.10
El Dorado 06/24/93 06/19/98 130,000.00 84,489.35 214,489.35
San Francisco 04/15/97 11/02/98 420,000.00 37,426.99 457,426.99
Marin 10/31/97 11/03/98 1,274,321.61 136,974.54 1,411,296.15
San Francisco 09/26/97 11/06/98 232,003.04 32,691.04 264,694.08
Mendocino 06/25/96 11/30/98 125,000.00 36,479.46 161,479.46
Alameda 06/20/95 02/05/99 66,000.00 30,505.41 96,505.41
Contra Costa 04/10/97 02/04/99 37,500.00 7,849.20 45,349.20
San Francisco 04/28/98 03/24/99 352,000.00 35,465.82 387,465.82
San Francisco 12/15/94 04/22/99 275,000.00 -1,767.18 273,232.82
Monterey 02/18/99 06/18/99 75,000.00 2,900.00 77,900.00
Monterey 06/18/97 06/18/99 687,500.00 125,402.84 812,902.84
San Mateo 10/16/98 09/24/99 201,573.15 12,715.93 214,289.08
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
TABLE V
PAYMENT OF MORTGAGE INVESTMENTS
REDWOOD MORTGAGE INVESTORS VIII
FOR THE THREE YEARS ENDING
SEPTEMBER 30, 1999
MULTIPLE 5+ UNITS (county)
- --------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
San Francisco 02/05/96 12/27/96 883,750.00 50,570.34 934,320.34
San Francisco 07/17/96 02/26/98 1,014,320.42 147,731.84 1,162,052.26
San Mateo 12/29/95 03/12/98 425,000.00 114,078.49 539,078.49
Alameda 03/13/97 05/01/98 1,800,000.00 220,374.98 2,020,374.98
San Mateo 09/10/97 08/21/98 945,000.00 103,241.26 1,048,241.26
Contra Costa 12/30/94 02/04/99 525,000.00 209,970.62 734,970.62
San Francisco 08/11/98 06/18/99 1,362,500.00 130,636.73 1,493,136.73
Alameda 12/04/97 06/28/99 690,000.00 125,676.80 815,676.80
Alameda 02/04/99 09/23/99 606,598.37 25,526.45 632,124.82
Alameda 02/04/99 09/23/99 727,500.00 52,753.89 780,253.89
San Joaquin 07/11/95 09/23/99 660,000.00 326,215.96 986,215.96
- -------------------------------------------------------------------------------------------------------
COMMERCIAL (county)
- ---------------------------------------------------------------------------------------------------------
MORTGAGE
CLOSED INVESTMENT INTEREST/ PROCEEDS
PROPERTY FUNDED ON AMOUNT LATE/MISC TO DATE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Santa Clara 10/31/94 10/01/96 500,000.00 100,224.84 600,224.84
San Luis Obispo 03/14/96 05/23/97 300,000.00 45,007.71 345,007.71
San Mateo 05/26/94 05/30/97 280,000.00 86,457.95 366,457.95
San Francisco 10/28/96 07/17/97 975,000.00 82,881.25 1,057,881.25
San Francisco 01/15/97 07/17/97 745,474.49 32,064.27 777,538.76
San Francisco 04/30/97 07/17/97 50,000.00 1,300.00 51,300.00
San Francisco 04/20/95 09/18/97 400,000.00 55,785.90 455,785.90
San Mateo 08/28/95 10/14/97 750,000.00 210,514.55 960,514.55
Santa Clara 03/27/96 10/24/97 800,000.00 151,285.28 951,285.28
Santa Barbara 05/10/94 10/31/97 425,000.00 167,181.54 592,181.54
San Mateo 06/30/95 12/05/97 130,000.00 45,729.11 175,729.11
Santa Clara 09/29/95 12/18/97 1,050,000.00 278,130.56 1,328,130.56
Alameda 09/13/95 01/23/98 60,000.00 18,775.03 78,775.03
Solano 09/30/97 06/05/98 480,000.00 42,640.01 522,640.01
Alameda 04/25/97 07/24/98 2,100,000.00 304,290.03 2,404,290.03
San Mateo 02/02/96 10/02/98 700,000.00 139,460.58 839,460.58
San Mateo 05/30/97 10/15/98 650,000.00 95,509.70 745,509.70
Santa Cruz 03/31/98 12/21/98 684,000.00 54,758.00 738,758.00
Santa Clara 06/11/98 12/28/98 2,000,000.00 132,000.00 2,132,000.00
San Francisco 06/17/98 01/08/99 1,515,000.00 64,792.61 1,579,792.61
Alameda 08/18/93 06/09/99 82,500.00 56,379.69 138,879.69
Stanislaus 12/31/96 06/23/99 1,450,000.00 442,153.34 1,892,153.34
San Joaquin 01/01/96 08/06/99 320,000.00 69,177.57 389,177.57
San Francisco 01/05/99 08/25/99 1,350,000.00 119,945.50 1,469,945.50
Alameda 12/19/97 09/24/99 832,820.75 407,458.11 1,240,278.86
Solano 09/24/98 09/30/99 95,000.00 5,626.11 100,626.11
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SECOND AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
REDWOOD MORTGAGE INVESTORS VIII
A California Limited Partnership
THIS SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT was made and
entered into as of the 14th day of February 2000, by and among D. RUSSELL
BURWELL, an individual, MICHAEL R. BURWELL, an individual, GYMNO CORPORATION, a
California corporation and REDWOOD MORTGAGE CORP., 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. On February 7, 2000, Redwood Mortgage Corp., a California corporation
("Redwood Mortgage Corp.") was admitted as a general partner of the Partnership
pursuant to Section 12.4(d) of the Partnership Agreement.
D. In January 2000, the General Partners elected pursuant to Section 3.2 of
the Partnership Agreement, to restate the offering price to $1 per Unit and
correspondingly increase the number of units offered to 30,000,000. The total
offering amount of $30,000,000 has not increased. To the extent necessary, the
Capital Accounts of existing Limited Partners will be adjusted to reflect the
change in unit price.
E. Additionally, in January 2000, the General Partners elected to revise
their prospectus in order to meet the "Plain English" rules promulgated by the
Securities and Exchange Commission ("SEC").
F. Accordingly, in order to: (i) reflect the addition of Redwood Mortgage
Corp. as a general partner; (ii) include the change in offering terms and (iii)
to reflect certain other changes in the partnership, the general partners have
elected to amend and restate the partnership agreement as set forth herein (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, in the event
such Partner utilized the services of a Participating Broker Dealer, such
Partner's Capital Contribution, or if such Partner acquired his Units through an
unsolicited sale, such Partner's Capital Contribution plus the amount of the
sales commissions otherwise payable is paid, 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.
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(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.
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 Partnership's 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 Corp., 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 Corp.
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, Gymno
Corporation, a California corporation, and Redwood Mortgage Corp., 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;
(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,
1999, for the period ended July 30, 1999, and in effect until September 30,
1999, is 4.50%. 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
Corp. 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)" or "Loans" 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.
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 Corp., a
General Partner, in connection with the second offering of 300,000 Units
pursuant to the Prospectuses dated December 4, 1996 and February 28, 2000 equal
to the amount of the sales commissions and the amounts payable in connection
with unsolicited sales. Redwood Mortgage Corp. 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
February 28, 2000, 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 Loans secured by
deeds of trust (the "Loans") on California real estate.
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 them;
(j) To borrow funds for the purpose of making Loans, provided that the
amount of borrowed funds does not exceed fifty percent (50%) of the
Partnership's Loan 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 Corp.
is no longer receiving payments for services rendered, the debt on the Formation
Loan shall be forgiven by the Partnership and Redwood Mortgage Corp. 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.
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 Loans, and the then-current value and marketability of the
Partnership's Loans. 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.
4.2 Other Contributions.
(a) Capital Contribution by Initial Limited Partner. 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 $18,893,383.13 as of November 30, 1999.
(c) Capital Contributions of New Limited Partners. The New Limited Partners
shall contribute to the capital of the Partnership an amount equal to one dollar
($1) for each Unit subscribed for by each such New Limited Partners, with a
minimum subscription of two thousand (2000) 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 Loan, 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 $1 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
Loan, 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.
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 have earnings retained in his capital account that will increase it in lieu
of receiving periodic 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 have earnings
retained in his capital account 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 have
earnings retained in their capital account will have earnings retained by the
Partnership to be used for making further Loans or for other proper Partnership
purposes. The Earnings from such further Loans will be allocated among all
Partners; however, Limited Partners who elect to have earnings retained in their
capital account 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 have
earnings retained in their capital accounts will increase over time. Annual
distributions will be made after the calendar year. In order to provide greater
flexibility to investors, the Partnership is going to register with the
Securities and Exchange Commission a dividend reinvestment plan. The dividend
reinvestment plan will be on substantially the same terms as described herein
with respect to the ability to receive monthly, quarterly or annual
distributions or to reinvest earnings. However, it will give Investors a greater
degree of flexibility of moving from one option to another throughout the term
of their investment in the Partnership. It is anticipated that the dividend
reinvestment plan will be filed in the first half of 2000 and take effect
immediately. Until the effectiveness of the dividend reinvestment plan is final,
the foregoing elect to receive cash distributions or reinvested earnings will
remain in place.
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
15637 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.
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.
(g) The General Partners may adopt any procedure or convention they deem
reasonable to account for unsolicited investments made by Limited Partners and
the payment of a portion of the Formation Loan to such Partners' Capital
Account.
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, 1999, for the period ended May 30, 1999, and in
effect until September 30, 1999, is 4.50%. 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 Corp. 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.
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.
(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 Corp., a General Partner, has been repaying the Formation Loans, which
are discussed in Section 10.9, with the proceeds it receives from loan brokerage
commissions on Loans, 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 Corp. 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. Additionally, as set forth below in subsection (g) there
shall be a limited right of withdrawal upon the death of a Limited Partner. If a
Limited Partner elects to withdraw either after the one (1) year holding period
or the five (5) year withholding period or his heirs elect to withdraw after his
death, 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.
(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 Corp., a General Partner 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 Loans 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. 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, then to Administrators withdrawing
Capital Accounts under subsection (g) below, and finally to all other Limited
Partners withdrawing Capital Accounts under subsection (a) above.
(g) Upon the death of a Limited Partner, a Limited Partner's heirs or
executors may, subject to certain conditions as set forth herein, liquidate all
or a part of the deceased Limited Partner's investment without penalty. An
executor, heir or other administrator of the Limited Partner's estate (for ease
of reference the "Administrator") shall give written notice of withdrawal
("Notice of Withdrawal") to the General Partners within 6 months of the Limited
Partner's date of death. The total amount available to be liquidated in any one
year shall be limited to $50,000. The liquidation of the Limited Partner's
capital account in any one year shall be made in four equal quarterly
installments beginning the calendar quarter following the quarter in which time
the Notice of Withdrawal is received. Due to the complex nature of administering
a decedent's estate, the General Partners reserve the right and discretion to
request any and all information they deem necessary and relevant in determining
the date of death, the name of the beneficiaries and/or any other matters they
deem relevant. The General Partners retain the discretion to refuse or to delay
the liquidation of a deceased Limited Partner's investment unless or until the
General Partners have received all such information they deem relevant. The
liquidation of a Limited Partner's capital account pursuant to this subsection
is subject to the provisions of subsections 8.1(d), (e) and (f) above.
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 Loans 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 Loans 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.
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 Loan
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 Loan 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 Loans, 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 Loan serviced, or such higher amount as shall
be customary and reasonable between unrelated Persons in the geographical area
where the property securing the Loan 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.
10.3 Escrow and Other Loan Processing Fees. The General Partners or an
Affiliate of a General Partner may act as escrow agent for Loans 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 Loan is
located.
10.4 Asset Management Fee. The General Partners shall 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 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. A General Partner or 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. A General Partner or 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 a
General Partner or an Affiliate of the General Partners in connection with Loans
shall be paid to the Partnership.
10.9 Formation Loans to Redwood Mortgage Corp. The Partnership may lend to
Redwood Mortgage Corp., 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 and all
amounts payable in connection with unsolicited orders received by the General
Partners. The Formation Loans shall be unsecured and shall be evidenced by a
non-interest bearing promissory note executed by Redwood Mortgage Corp. in favor
of the Partnership. The First Formation Loan is being repaid in ten (10) equal
annual installments of principal without interest, commencing on December 31,
1996. As of September 30, 1999, the total aggregate amount of the First
Formation Loan equaled $1,074,840 of which $311,682 had been repaid by Redwood
Mortgage Corp. The Second Formation Loan will be repaid as follows: Upon the
commencement of this offering, Redwood Mortgage Corp. 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. As of September 30, 1999, the Partnership had loaned
$1,306,185 to Redwood Mortgage Corp. of which $103,930 had been repaid. 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 Corp. 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 Corp. at its option may prepay all or any part of
the Formation Loans. Redwood Mortgage Corp. will repay the Formation Loans
principally from loan brokerage commissions earned on Loans, early withdrawal
penalties and other fees paid by the Partnership. Since Redwood Mortgage Corp.
will use the proceeds from loan brokerage commissions on Loans 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 Loans, Redwood Mortgage Corp.
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 Corp. is no longer receiving any payments for services
rendered, the debt on the Formation Loans shall be forgiven and Redwood Mortgage
Corp. 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.
10.10 Sale of Loans and Loans Made to General Partners or Affiliates. The
Partnership may sell existing Loans 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 Loan, or the fair market value of such Loan,
whichever is greater. Notwithstanding the foregoing, the General Partners shall
be under no obligation to purchase any Loan from the Partnership or to guarantee
any payments under any Loan. Generally, Loans will not be made to the General
Partners or their Affiliates. However, the Partnership may make the Formation
Loans to Redwood Mortgage Corp. 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 Loans from General Partners or Affiliates. The
Partnership may purchase existing Loans 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
Loan;
(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 Loan was held by the seller for more than 180 days, the seller
shall retain a ten percent (10%) interest in such Loan.
10.12 Interest. Redwood Mortgage Corp. shall be entitled to keep interest
if any, earned on the Loans between the date of deposit of borrower's funds into
Redwood Mortgage Corp.'s trust account and date of payment of such funds by
Redwood Mortgage Corp.
10.13 Sales Commissions.
(a) 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").In
the event the Partnership receives any unsolicited orders directly from an
investor who did not utilize the services of a Participating Broker Dealer,
Redwood Mortgage Corp. through the Formation Loans will pay to the Partnership
an amount equal to the amount of the sales commissions otherwise attributable to
a sale of a Unit through a Participating Broker Dealer. The Partnership will in
turn credit such amounts received from Redwood Mortgage Corp. to the account of
the Investor who placed the unsolicited order. All unsolicited orders will be
handled only by the General Partners.
Sales commissions will not be paid by the Partnership out of the offering
proceeds. All sales commissions will be paid by Redwood Mortgage Corp., which
will also act as the mortgage loan broker for all Loans 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 Corp., but will not be
included in the first Formation Loan. The Partnership will loan to Redwood
Mortgage Corp. funds in an amount equal to the sales commissions and all amounts
payable in connection with unsolicited sales by the General Partners, as a
Formation Loan. With respect to the initial offering of 150,000 Units, Redwood
Mortgage Corp. will use the proceeds from loan brokerage commissions on Loans 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 Loans, Redwood Mortgage Corp. 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
Corp. is no longer receiving any payments for services rendered, Redwood
Mortgage Corp. 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.
(b) Sales by Registered Investment Advisors. The General Partners may
accept unsolicited orders received directly from Investors if an Investor
utilizes the services of a registered investment advisor. A registered
investment advisor is an investment professional retained by a Limited Partner
to advise him regarding all of his assets, not just an investment in the
Partnership. Registered investment advisors are paid by the Investor based upon
the total amount of the Investor's assets being managed by the registered
investment advisor.
If an investor utilizes the services of a registered investment advisor,
Redwood Mortgage Corp. will pay to the Partnership an amount equal to the sales
commission otherwise attributable to a sale of Units through a participating
broker dealer. The Partnership will in turn credit such amounts received by
Redwood Mortgage Corp. to the account of the Investor who placed the unsolicited
order.
If an Investor acquires units directly through the services of a registered
investment advisor, the Investor will have the election to authorize the
Partnership to pay the registered investment advisor an estimated quarterly
amount of no more than 2% annually of his capital account that would otherwise
be paid as periodic cash distributors or compounded as earnings. For ease of
reference, we refer to these as "Client Fees." The payment of Client Fees will
be paid from those amounts that would otherwise be distributable to you or
compounded in your capital account. The payment of Client Fees is noncumulative
and subject to the availability of sufficient earnings in your capital account.
In no event will any such Client Fees be paid to us as sales commissions or
other compensation. The Partnership is merely agreeing as an administrative
convenience to pay the registered investment advisor a portion of those amounts
that would be paid to you.
All registered investment advisors will be required to represent and
warrant to the Partnership, that among other things, the investment in the units
is suitable for the Investor, that he has informed the Investor of all pertinent
facts relating to the liquidating and marketability of the units, and that if he
is affiliated with a NASD registered broker or dealer, that all Client Fees
received by him in connection with any transactions with the Partnership will be
run through the books and records of the NASD member in compliance with Notice
to Members 96-33 and Rules 3030 and 3040 of the NASD Conduct Rules.
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, 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 10.15 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.
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.
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;
(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.
12.13 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.
12.14 Defined Terms. All terms used in this Agreement which are defined in
the Prospectus of Redwood Mortgage Investors VIII, dated February 28, 2000 shall
have the meanings assigned to them in said Prospectus, unless this Agreement
shall provide for a specific definition in Article 2.
12.15 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.
<PAGE>
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
REDWOOD MORTGAGE CORP.
It: ___________________________________
LIMITED PARTNERS:
By: Gymno Corporation,
(General Partner and Attorney-in-Fact)
By:
------------------------------------------------
D. Russell Burwell, President
<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 February 28, 2000.
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 February 17,
2000, 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 trust's 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.
(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.
<PAGE>
(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 and any amendments thereto or
cancellations thereof required under the
laws of the State of California;
(b) Any other 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 $1 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 $1
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 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 after I am admitted to the partnership. If I elect to allow my
share of partnership income to be paid 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.
<PAGE>
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>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
SUBSCRIPTION AGREEMENT
PLEASE READ THIS AGREEMENT BEFORE SIGNING
- -------------------------------------------------------------------------------------------------------------------------------
Type Of Ownership: (check one)
<S> <C>
1. [ ] SINGLE PERSON (I) *12. [ ] INDIVIDUAL RETIREMENT ACCOUNT (IRA)
(Investor and Trust Custodian must sign)
2. [ ] MARRIED PERSON-SEPARATE PROPERTY (I-2)
*13. [ ] IRA/SEP (SEP)
*3. [ ] COMMUNITY PROPERTY (COM) (Investor and Trust Custodian must sign)
*4. [ ] TENANTS IN COMMON (T) *14. [ ] ROLLOVER IRA (ROI)
(All parties must sign) (Investor and Trust Custodian must sign)
*5. [ ] JOINT TENANTS WITH RIGHTS OF 15. [ ] KEOGH (H.R.10) (K)
SURVIVORSHIP (J) (Custodian signature required)
(All parties must sign)
6. [ ] CORPORATION (C): 16. [ ] PARTNERSHIP (P)
(Authorized party must sign) (Authorized Party must sign)
7. [ ] TRUST (TR) 17. [ ] NON-PROFIT ORGANIZATION (NP)
(Trustee signature required) (Authorized Party must sign)
[ ] Taxable
18. [ ] CUSTODIAN (CU)
8. [ ] PENSION PLAN (PP) (Custodian signature required)
(Trustee signature required)
19. [ ] CUSTODIAN/UGMA (UGM)
9. [ ] PROFIT SHARING PLAN (PSP) (Custodian signature required)
(Trustee signature required)
20. [ ] OTHER (Explain)
*10. [ ] ROTH IRA (RRA)
----------------------------------------------------
(Investor and Trust Custodian must sign)
----------------------------------------------------
*11. [ ] Rollover ROTH IRA (RRI)
(Investor and Trust Custodian must sign)
----------------------------------------------------
* Two or more signatures required. Complete Sections 1 through 6 where applicable.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
1. INVESTOR NAME Type or print your name(s) exactly as it should appear in
AND ADDRESS the account records of the partnership. Complete this
section for all trusts other than IRA/Keogh or other
qualified plans. If IRA/Keogh or qualified plan,
Section 2 must also be completed. 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)
----------------------------------------------------------
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, only one number will be used
and will be that of the first person listed).
2. TRUST COMPANY Name of Trust Company,
REGISTRATION Custodian or Administrator:
-----------------------------------------------------------
Please print here the exact name of Trust Company,
Custodian or Administrator
-----------------------------------------------------------
Address
--------------------------------- ------------- -----------
City State Zip Code
------------------------------------- ------------------
Taxpayer ID# Tax Year End
-----------------------------------------------------------
SIGNATURE:
(X) --------------------------------------------
(Trust Company, Custodian or Administrator)
<PAGE>
3. INVESTMENT Number of units to be purchased
----------------
Minimum subscription is
2,000 units at $1 per Amount of payment enclosed
unit ($2,000), with ---------------------
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
4. DISTRIBUTIONS Does the investor wish to have his income compounded
and reinvested?
[ ] 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 ------------------------------------------------------
(If the same as in Name
2, please disregard) ------------------------------------------------------
Address
------------------------------------------------------
City State Zip Code
------------------------------------------------------
Account Number
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 1 or 2, or to the alternate address listed in
Section 5 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 20 , at
------ ----- --------------------------
Investor's primary residence is in
--------------------
(X)
------------------------------------------------------
(Investor Signature and Title)
(X)
------------------------------------------------------
(Investor Signature and Title)
(X)
------------------------------------------------------
(Investor Signature and Title)
<PAGE>
7. BROKER-DEALER DATA The undersigned broker-dealer hereby certifies that
(To be completed (i) a copy of the prospectus, as amended and/or
by selling supplemented to date, has been delivered to the above
broker-dealer) investor; and (ii) that the appropriate suitability
determination as set forth in the prospectus has been
made and that the appropriate records are being
maintained.
(X)
-------------------------------------------------------
Broker-Dealer Authorized Signature (Required on all orders)
Broker-Dealer Name:
----------------------------------------
Street Address:
--------------------------------------------
City, State, Zip Code:
-------------------------------------
Registered Representative
Name (Last, First):
-----------------------------------------
Street Address:
--------------------------------------------
City, State, Zip Code
---------------------------------------
Phone No.:
-------------------------------------------------
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 that he has informed the investor of
all pertinent facts relating to the liquidity and
marketability of the units.
Registered Representative's Signature:
(X)
-----------------------------------------------------------
8. ACCEPTANCE This subscription accepted
This subscription will not be
an effective agreement until REDWOOD MORTGAGE INVESTORS VIII,
it or a facsimile is signed by A California Limited Partnership
a general partner of Redwood P.O. Box 5096
Mortgage Investors VIII, a Redwood City, California 94063
California limited partnership (650) 365-5341
By:
-----------------------------------
(Office Use Only)
Account #:
-------------------------------------------------
Investor Check Date:
---------------------------------------
Check Amount:
----------------------------------------------
Check #:
---------------------------------------------------
Entered By: Checked By:
--------------------- ----------------
Date Entered:
----------------------------------------------
<PAGE>
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
REDWOOD MORTGAGE INVESTORS VIII,
A California Limited Partnership
UNSOLICITED SALES
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 February 28, 2000.
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 February 17,
2000, 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 registered investment advisor ("advisor")
or 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 trust's 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.
(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.
<PAGE>
(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.
(j) If I have used the services of an advisor in connection with my
acquisition of units, I understand that I may, but am not obligated to,
authorize the partnership to pay any client fees owing to my advisor based upon
the outstanding balance in my capital account and payable from cash
distributions payable to me either in the form of cash or units. I further
understand and acknowledge that if I elect to have such client fees paid through
the partnership I will receive less cash or units, as applicable, from
distributions than an investor who does not pay such client fees or does not pay
such client fees through the partnership. Further, I understand and acknowledge,
that the partnership and the general partners are merely, as an administrative
convenience, making such payments of client fees to the advisor, and shall have
no liability as a result thereof.
(k) If I authorize the partnership to pay any client fees pursuant to the
terms of the authorization to make payments of client fees (the "authorization")
I understand and acknowledge that neither the partnership nor the general
partners shall have any liability for disbursement. The undersigned further
acknowledges that all cash distributions by the partnership are noncumulative
and thus the obligation to pay client fees pursuant to the terms of the
authorization is noncumulative. Further, the undersigned understands that the
general partners are in no way guaranteeing that there will be sufficient cash
flow for cash distributions or that such distribution will be sufficient to make
the payments authorized by the authorization. In the event of insufficient cash
distributions, the general partners and the partnership shall have no liability
to the undersigned or their registered investment advisor.
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 and any amendments thereto or
cancellations thereof required under the laws of the State of California;
(b) Any other 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.
<PAGE>
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 $1 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 $1
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 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 after I am admitted to the partnership. If I elect to allow my
share of partnership income to be paid 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>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
SUBSCRIPTION AGREEMENT
PLEASE READ THIS AGREEMENT BEFORE SIGNING
- -------------------------------------------------------------------------------------------------------------------------------
Type Of Ownership: (check one)
<S> <C>
1. [ ] SINGLE PERSON (I) *12. [ ] INDIVIDUAL RETIREMENT ACCOUNT (IRA)
(Investor and Trust Custodian must sign)
2. [ ] MARRIED PERSON-SEPARATE PROPERTY (I-2)
*13. [ ] IRA/SEP (SEP)
*3. [ ] COMMUNITY PROPERTY (COM) (Investor and Trust Custodian must sign)
*4. [ ] TENANTS IN COMMON (T) *14. [ ] ROLLOVER IRA (ROI)
(All parties must sign) (Investor and Trust Custodian must sign)
*5. [ ] JOINT TENANTS WITH RIGHTS OF 15. [ ] KEOGH (H.R.10) (K)
SURVIVORSHIP (J) (Custodian signature required)
(All parties must sign)
6. [ ] CORPORATION (C): 16. [ ] PARTNERSHIP (P)
(Authorized party must sign) (Authorized Party must sign)
7. [ ] TRUST (TR) 17. [ ] NON-PROFIT ORGANIZATION (NP)
(Trustee signature required) (Authorized Party must sign)
[ ] Taxable
18. [ ] CUSTODIAN (CU)
8. [ ] PENSION PLAN (PP) (Custodian signature required)
(Trustee signature required)
19. [ ] CUSTODIAN/UGMA (UGM)
9. [ ] PROFIT SHARING PLAN (PSP) (Custodian signature required)
(Trustee signature required)
20. [ ] OTHER (Explain)
*10. [ ] ROTH IRA (RRA)
----------------------------------------------------
(Investor and Trust Custodian must sign)
----------------------------------------------------
*11. [ ] Rollover ROTH IRA (RRI)
(Investor and Trust Custodian must sign)
----------------------------------------------------
* Two or more signatures required. Complete Sections 1 through 6 where applicable.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
1. INVESTOR NAME Type or print your name(s) exactly as it should appear in
AND ADDRESS the account records of the partnership. Complete this
section for all trusts other than IRA/Keogh or other
qualified plans. If IRA/Keogh or qualified plan,
Section 2 must also be completed. 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)
----------------------------------------------------------
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, only one number will be used
and will be that of the first person listed).
2. TRUST COMPANY Name of Trust Company,
REGISTRATION Custodian or Administrator:
-----------------------------------------------------------
Please print here the exact name of Trust Company,
Custodian or Administrator
-----------------------------------------------------------
Address
--------------------------------- ------------- -----------
City State Zip Code
------------------------------------- ------------------
Taxpayer ID# Tax Year End
-----------------------------------------------------------
SIGNATURE:
(X) --------------------------------------------
(Trust Company, Custodian or Administrator)
<PAGE>
3. INVESTMENT Number of units to be purchased
----------------
Minimum subscription is
2,000 units at $1 per Amount of payment enclosed
unit ($2,000), with ---------------------
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
4. DISTRIBUTIONS Does the investor wish to have his income compounded
and reinvested?
[ ] 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 ------------------------------------------------------
(If the same as in Name
2, please disregard) ------------------------------------------------------
Address
------------------------------------------------------
City State Zip Code
------------------------------------------------------
Account Number
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 1 or 2, or to the alternate address listed in
Section 5 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 20 , at
------ ----- --------------------------
Investor's primary residence is in
--------------------
(X)
------------------------------------------------------
(Investor Signature and Title)
(X)
------------------------------------------------------
(Investor Signature and Title)
(X)
------------------------------------------------------
(Investor Signature and Title)
<PAGE>
7. ADVISOR DATA (To be completed by recommending advisor)
The undersigned advisor hereby certifies that (i) a copy of the prospectus,
as amended and/or supplemented to date, has been delivered to the above
investor; and (ii) that the appropriate suitability determination as set forth
in the prospectus has been made and that the appropriate records are being
maintained.
Advisor:
Last Name First:
-------------------------------------------------
Street Address:
-------------------------------------------------
City, State, Zip Code:
-------------------------------------------------
Broker-Dealer Affiliated? [ ]YES [ ]NO Broker-Dealer Name__________________
Are you a registered investment advisor ("RIA") under applicable state or
federal law? [ ]YES [ ]NO
The advisor, by signing below, (1) 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 advisor, that investment in the units is
suitable for the investor and that suitability records are being maintained; (2)
certifies that if the advisor is affiliated with an NASD firm, that all fees
received by him in connection with this transaction will be run through the
books and records of the NASD member firm in compliance with Notice to Members
96-33 and Rules 3030 and 3040 of the NASD Conduct Rules; (3) that he has
informed the investor of all pertinent facts relating to the liquidity and
marketability of the units; (4) the undersigned agrees and acknowledges that the
general partners are relying upon the certification of the undersigned herein
with respect to the suitability of the client to purchase limited partnership
units in the partnership; (5) that if the undersigned's client has elected to
pay client fees from earnings, the undersigned hereby represents and warrants
that he is a registered investment advisor under applicable federal and/or state
securities laws; (6) that, if applicable, he understands and acknowledges that
neither the partnership or the general partners shall have any liability to him
with respect to any client fees paid from investors' earnings under the
authorization agreement and that the general partners and the partnership in no
way guarantee that there will be sufficient cash for distribution to investors
and, thus in the case of a signed authorization agreement, sufficient cash for
the investor to pay his client fees from earnings; and (7) that, in any dispute
between the undersigned and the investor regarding payment of client fees, the
partnership and the general partners will respect the wishes of the investor and
that the general partners and the partnership will have no liability to the
undersigned as a result thereof.
Advisor's Signature
-------------------------------------------------
Print or Type Name:
-------------------------------------------------
Please check applicable box. (Only clients of RIAs may elect to have client
fees paid, provided such client fees are no more than 2% annually of the RMI
VIII assets under management which, for purposes of this subscription agreement
is the investor's capital account.):
[ ] Yes, client fees paid. If client fees are to be paid, a completed
authorization to make payments of client fees ("authorization") attached hereto
must be completed, signed and returned to the general partners along with this
subscription agreement.
If the investor has elected to receive cash distributions, client fees will
be calculated on a monthly basis, based upon the capital account balance of the
investor at the end of the month. Such client fees will be paid to the advisor
at the same time the investor receives their distributions (either on a monthly,
quarterly or annual basis), as set forth in Item 4 above.
If the Investor has elected to reinvest their earnings in lieu of receiving
periodic cash distributions, client fees will be
calculated on a monthly basis, based upon the capital account balance of
the investor at the end of the month. Such client fees
shall be paid to the advisor (please check one):
[ ] Monthly [ ] Quarterly [ ] Annually
[ ] No client fees paid from earnings or distributions
<PAGE>
8. ACCEPTANCE This subscription will not be an effective agreement until it
is signed by a general partner of Redwood Mortgage Investors VIII, a California
limited partnership
This subscription accepted
REDWOOD MORTGAGE INVESTORS VIII, A California Limited Partnership
P.O. Box 5096
Redwood City, California 94063
(650) 365-5341
By:
-----------------------------------------------------------
(Office Use Only)
Account #:
---------------------------------------------------
Investor Check Date:
-----------------------------------------
Check Amount:
------------------------------------------------
Check #:
-----------------------------------------------------
Entered By: Checked By:
--------------- --------------------
Date Entered:
------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
REDWOOD MORTGAGE INVESTORS VIII
AUTHORIZATION TO MAKE PAYMENTS OF CLIENT FEES
FOR INVESTORS WHO UTILIZE THE SERVICES OF REGISTERED INVESTMENT ADVISORS
- --------------------------------------------------------------------------------
The undersigned limited partner hereby certifies that the undersigned is a
limited partner owning units in Redwood Mortgage Investors VIII (the
"partnership" or "RMI VIII"). By signing and delivering this authorization to
the partnership and the general partners, the undersigned hereby authorizes and
directs the partnership to pay to the person or entity set forth below as the
payee an estimated annual amount equal to _____% (not more than 2% annually) of
the undersigned's capital account ("client fees"). All client fees payable will
be calculated on a monthly basis based upon the capital account balance of the
investor at the end of the month. If the investor elected to receive periodic
cash distributions, such client fees will be paid at the same time the investor
receives distributions, either monthly, quarterly or annually. If the investor
has elected to reinvest earnings in lieu of receiving periodic cash
distributions, such client fees shall be paid to the advisor on either a
monthly, quarterly or annual basis as determined by the investor in the
completed subscription agreement. The capital accounts of the limited partners
who elect to pay client fees through the partnership will be less than the
capital accounts of limited partners who do not pay client fees or who do pay
client fees through the partnership.
The undersigned acknowledges and agrees that neither the partnership nor
the general partners shall have any liability for disbursements made pursuant to
this authorization. The undersigned acknowledges that all periodic cash
distributions by the partnership are non-cumulative. Further, the undersigned
acknowledges that the general partners are in no way guaranteeing that there
will be sufficient cash flow for periodic cash distributions or that such
distributions will be sufficient to make the payments authorized by this
agreement. In the event of insufficient earnings, the partnership and the
general partners shall have no liability to the undersigned or the payee. The
undersigned further acknowledges and agrees that the partnership is authorized
to comply with this request unless and until this authorization is expressly
revoked in writing and terminated by the undersigned limited partner. Any
revocation of this authorization shall be effective the quarter after the
quarter in which it is received by the partnership.
PAYEE (1) LIMITED PARTNER
Please designate whether Advisor or
Broker/Dealer Firm
- ----------------------------------- -----------------------------------------
Name of Payee - Please Print Name of Limited Partner - Please Print
- ----------------------------------- -----------------------------------------
Authorized Signature of Payee Signature of Limited Partner (or Trustee)
- ----------------------------------- -----------------------------------------
Firm Name Signature of Joint Owner (if applicable)
- ----------------------------------- -----------------------------------------
Street Address Date of Admission
- ------------------------------------------------------------
City, State, Zip Code
Limited partners in RMI VIII (the "partnership") who utilized the services
of an advisor may authorize the direct payment by the partnership of a portion
of the earnings otherwise distributable to them or otherwise used to acquire
additional units by executing this authorization and delivering it to the
partnership. Execution of the authorization is at the option of the limited
partner and is not required in connection with an investment in the partnership.
This authorization is not intended to describe an investment in the partnership
or to be used as sales material or in any other manner in connection with the
offer or sale of units in the partnership. An offer to sell units of the
partnership may only be made by the prospectus. This document is not authorized
to be used in any way in connection with the offer or sale of units in the
partnership, and unauthorized use of this document is strictly prohibited and
may constitute a violation of federal and state securities laws.
PLEASE INCLUDE DOCUMENT WITH THE COMPLETED SUBSCRIPTION AGREEMENT
[FN]
If the advisor is affiliated with an NASD broker-dealer firm, all fees
received by him in connection with this transaction will be run through the
books and records of the NASD member in compliance with Notice to Members 96-33
and Rules 3030 and 3040 of the NASD Conduct Rules.
</FN>
<PAGE>
SPECIAL NOTICE FOR CALIFORNIA RESIDENTS ONLY
COMMISSIONER'S 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
(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 transferor's ancestors, descendants or spouse or any custodian
or trustee for the account of the
(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
(8) to a broker-dealer licensed under the Code in a principal transaction,
or as an underwriter or member of an
(9) if the interest sold or transferred is a pledge or other lien given by
the purchaser to the seller upon a sale of
(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 COMMISSIONER'S RULES."
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. Other Expenses of Issuance and Distribution.
The expenses payable in connection with the issuance and distribution of
the securities being registered are estimated on the maximum offering amount of
$30,000,000 to be as follows:
Maximum of
$ 30,000,000
---------------------
SEC Registration Fee $10,341.81
NASD Registration Fee 3,500.00
California Registration Fee 2,500.00
Printing and Engraving Expenses 100,000.00
Accounting Fees and Expenses 40,000.00
Legal Fees and Expenses 200,000.00
Other Blue Sky Filing Fees and Expenses 20,000.00
Postage 60,000.00
Advertising and Sales 100,000
Sales Literature 120,000
Due Diligence 150,000
Sales Seminars 225,000
Miscellaneous 75,000
---------------------
Total $1,106,341.81
=====================
ITEM 31 Sales to Special Parties.
Inapplicable
ITEM 32. Recent Sales of Unregistered Securities.
None
ITEM 33 Indemnification of Directors and Officers
Section 3.16 of the Limited Partnership Agreement provides that the General
Partners and their Affiliates shall be indemnified by the Partnership for
liability and related expenses (including attorneys fees) incurred in dealing
with third parties, excluding matters arising under the Securities Act of 1933,
as amended, provided the General Partners or their Affiliates acted in good
faith, and provided that the conduct did not constitute gross negligence or
gross misconduct.
ITEM 34. Treatment of Proceeds from Stock Being Registered
Inapplicable.
ITEM 35. Financial Statements and Exhibits.
(a) Financial Statements Included in the Prospectus:
1. Redwood Mortgage Investors VIII:
Report of Independent Public Accountant
Balance Sheet at December 31, 1998 and 1997 (audited)
2. Gymno Corporation:
Report of Independent Public Accountant
Balance Sheet at September 30, 1999 (unaudited), and
December 31, 1998 and 1997 (audited)
3. Redwood Mortgage Corp.:
Report of Independent Public Accountant
Balance Sheet at December 31, 1999 and 1998 (audited)
(b) Exhibits:
Exhibit Number
1.1 Form of Participating Dealer Agreement (2)
3.1 Limited Partnership Agreement (2)
3.2 Form of Certificate of Limited Partnership Interest (1)
* 3.3 Certificate of Limited Partnership
5.1 Opinion of Counsel as to the Legality of the Securities Being
Registered (1)
5.2 Opinion of Counsel as to ERISA Matters (1)
8.1 Opinion of Counsel on Certain Tax Matters (1)
10.2 Loan Servicing Agreement (1)
10.3 (a) Form of Note secured by Deed of Trust for Construction Loans
which provides for principal and interest payments (1)
(b) Form of Note secured by Deed of Trust for Commercial Loans
which provides for interest only payments (1)
(c) Form of Note secured by Deed of Trust for Commercial Loans
which provides for principal and interest
(d) Form of Note secured by Deed of Trust for Residential Loans
which provides for interest only payments (1)
(e) Form of Note secured by Deed of Trust for Residential Loans
which provides for interest and principal
10.4 (a) Construction Deed of Trust, Assignment of Leases and Rents,
Security Agreement and Fixture Filing to
(b) Deed of Trust, Assignment of Leases and Rents, and Security
Agreement and Fixture Filing to accompany
(c) Deed of Trust, Assignment of Leases and Rents, and Security
Agreement and Fixture Filing to accompany
10.6 Agreement to Seek a Lender (1)
24.2 Consent of the Law Offices Landels, Ripley & Diamond, LLP
24.3 Consent of Parodi & Cropper
24.4 Consent of Caporicci, Cropper & Larson, LLP
* Filed under Form SE (1) These exhibits were previously contained in
Registrant's Registration Statement filed on Form S-11 with the Commission on
September 30, 1996, and are incorporated by reference herein. (2) These exhibits
were previously contained in Registrant's Post Effective Amendment No. 1 to the
Registration Statement filed on Form S-11 with the Commission on December 4,
1996 and are incorporated by reference herein.
ITEM 36. Undertaking.
THE UNDERSIGNED REGISTRANT HEREBY UNDERTAKES:
1. To file during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i) To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
2. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. That each such post-effective amendment will comply with the applicable
forms, rules and regulations of the Commission in effect at the time such
post-effective amendment is filed.
4. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the terminating of the
offering.
5. To provide the Underwriters at the closing specified in the underwriting
agreements certificates in such denominations and registered in such names as
required by the Underwriters to permit prompt delivery to each purchaser.
6. To send to each limited partner at least on an annual basis a detailed
statement of any transactions with the general partners or its affiliates, and
of fees, commissions, compensation and other benefits paid, or accrued to the
general partners or its affiliates for the fiscal year completed, showing the
amount paid or accrued to each recipient and the services performed.
7. To provide to the limited partners the financial statements required by
Form 10-K for the first full fiscal year of operations of the partnership.
8. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expense
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
for such issue.
The General Partners also undertake to file, after the end of the
distribution period, a current report on Form 8-K containing the financial
statements and any additional information required by Rule 3-14 of Regulation
S-X, to reflect each commitment (i.e., the signing of a binding purchase
agreement) made after the end of the distribution period involving the use of
ten percent (10%) or more (cumulative basis) of the net proceeds of the offering
and to provide the information contained in such report to the Limited Partners
at least once each quarter after the distribution period of the offering has
ended.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this post-effective
amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Redwood City, State of California, on
February 28, 2000.
REDWOOD MORTGAGE INVESTORS VIII
A California Limited Partnership
By:/s/D. Russell Burwell
D. Russell Burwell, General Partner
By:/s/Michael R. Burwell
Michael R. Burwell, General Partner
By: GYMNO CORPORATION
General Partner
By:/s/D. Russell Burwell
D. Russell Burwell, General Partner
By:/s/Michael R. Burwell
Michael R. Burwell, General Partner
By: REDWOOD MORTGAGE CORP.
General Partner
By:/s/D. Russell Burwell
D. Russell Burwell, General Partner
By:/s/Michael R. Burwell
Michael R. Burwell, General Partner
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Registration Statement has been signed by the following persons
in the capacities and on the dates indicated
Signature Title Date
President of Gymno Corporation
(Principal Executive Officer);
Director of Gymno Corporation
President of Redwood Mortgage Corp.
/s/D. Russell Burwell
_____________________ __________________________
D. Russell Burwell April 28, 2000
Secretary/Treasurer of Gymno
Corporation (Principal Financial
and Accounting Officer); Director
of Gymno Corporation;
Secretary/Treasurer of Redwood
Mortage Corp.
/s/Michael R. Burwell
_____________________ _________________________
Michael R. Burwell April 28, 2000
/s/D. Russell Burwell __________________________
_____________________ General Partner April 28, 2000
D. Russell Burwell
/s/Michael R. Burwell
_____________________ General Partner _________________________
Michael R. Burwell April 28, 2000
<PAGE>
INDEX TO EXHIBITS
to
POST EFFECTIVE AMENDMENT #10
EXHIBITS
24.2 Consent of Counsel, McCutchen, Doyle, Brown & Enersen, LLP
24.3 Consent of Independent Auditors, Parodi & Cropper, LLP
24.4 Consent of Independent Auditors, Caporicci, Cropper & Larson, LLP
<PAGE>
Exhibit 24.2
CONSENT OF COUNSEL
TO REDWOOD MORTGAGE INVESTORS VIII
We hereby consent to the use in the Registration Statement on Form
S-11, and any amendments or supplements of our form of opinions in respect to
certain tax and ERISA matters and legality as to the issuance of securities, and
to any reference to our firm included in or made part of the Registration
Statement. In giving this consent, we do not thereby admit that we come within
the category of persons whose consent is required under the Securities Act of
1933, as amended, or the Rules and Regulations promulgated thereunder.
/s/ McCutchen, Doyle, Brown & Enersen, LLP
- -----------------------------
McCutchen, Doyle, Brown & Enersen, LLP
San Francisco, California
April 28, 2000
<PAGE>
Exhibit 24.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO REDWOOD MORTGAGE INVESTORS VIII
We hereby consent to the use of our reports accompanying the balance
sheets of the general partner, GYMNO Corporation and the financial statements of
the partnership, Redwood Mortgage Investors VIII, in this prospectus, and any
supplements thereto, and Registration Statement filed on Form S-11 for Redwood
Mortgage Investors VIII. We also consent to the reference to our firm under the
reference "experts" in the prospectus.
/s/Parodi & Cropper
- --------------------------------
Parodi & Cropper
(Predecessor firm of Caporicci, Cropper & Larson)
April 28, 2000
<PAGE>
Exhibit 24.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO REDWOOD MORTGAGE INVESTORS VIII
We hereby consent to the use of our reports accompanying the balance
sheets of the general partner, GYMNO Corporation and the financial statements of
the partnership, Redwood Mortgage Investors VIII, in this supplement and
Registration Statement filed on Form S-11 for Redwood Mortgage Investors VIII.
We also consent to the reference to our firm under the reference "experts" in
the prospectus.
/s/ Caporicci, Cropper & Larson, LLP
- --------------------------------
Caporicci, Cropper & Larson
April 28, 2000
