SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 33-73688
AMERICAN TAX-EXEMPT BOND TRUST
(Exact name of registrant as specified in its governing instrument)
Delaware 13-7033312
- -------------------------------- ------------------------------------
(State or other jurisdiction
of incorporation or organization) (I.R.S. Employer Identification No.)
625 Madison Avenue, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's prospectus dated November 1, 1994, as filed with the
Commission pursuant to Rule 424(b) of the Securities Act of 1933, but only to
the extent expressly incorporated by reference in Parts I, II, III and IV.
Index to exhibits may be found on page 29
Page 1 of 64
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PART I
Item 1. Business.
General
American Tax-Exempt Bond Trust (the "Trust") is a business trust which
was formed under the laws of the State of Delaware on December 23, 1993. The
Manager to the Trust is Related AMI Associates, Inc., a Delaware corporation
("Related AMI" or the "Manager"). The Manager manages the day to day affairs of
the Trust pursuant to the Second Amended and Restated Business Trust Agreement
(the "Trust Agreement"), dated as of September 27, 1994, among Related AMI, as
grantor, Related AMI, as Manager, Wilmington Trust Company, a Delaware banking
corporation, as trustee, and the other persons referred to herein to be holders
of beneficial interests in the Trust. See Item 10, Directors and Executive
Officers of the Registrant, below.
On November 1, 1994, the Trust commenced a public offering (the
"Offering") of its shares of beneficial interest, managed by Related Equities
Corporation (the "Dealer Manager"), pursuant to a prospectus dated November 1,
1994. As of December 31, 1995, a total of approximately 937,359 shares have been
sold through the Offering and approximately 1,587 through the Reinvestment Plan,
representing Gross Proceeds of $18,778,912 (before volume discounts of $1,860).
For the period January 1, 1996 to March 7, 1996, a total of approximately
117,260 additional shares were sold through the Offering and approximately 1,682
through the Reinvestment Plan representing Gross Proceeds of $2,378,848 (before
volume discounts of $1,424).
The Trust's principal investment objectives are to: (i) preserve and
protect the Trust's invested capital; (ii) provide quarterly distributions that
are exempt from Federal income taxation; and (iii) provide additional
distributions in connection with First Mortgage Bond investments from Contingent
Interest payments exempt from Federal income taxation. There can be no assurance
that such objectives will be achieved.
The Trust intends to invest the Net Proceeds primarily in First Mortgage
Bonds issued by various state or local governments or their agencies or
authorities and secured by first mortgages and related first mortgage loans
financed by such bonds (collectively, "Mortgage Loans") principally on
multifamily residential apartment projects and, secondarily, retirement
community projects owned or to be developed by third-party developers and, to a
lesser extent, by Affiliates of the Manager. The principal amount of a Mortgage
Loan at the time the loan is made or after a First Mortgage Bond is acquired and
restructured, together with all mortgage loans on the subject property, will
generally not exceed 85% of the appraised fair market value of the related
property. The First Mortgage Bonds will have maturities of 10 to 35 years,
although the Trust anticipates holding the First Mortgage Bonds for
approximately 10 to 12 years and having the right to cause repayment of the
bonds at that time. The First Mortgage Bonds will normally be structured so that
no principal payments will be due thereon until the scheduled maturity or
earlier redemption of such bonds, at which point a lump sum or "balloon" payment
of the outstanding principal will be due. In addition, the Trust may invest up
to 10% of the Gross Proceeds in Tax-Exempt Securities which are expected to
begin amortizing or to be repaid as early as during the offering period and from
time to time throughout the life of the Trust. The aggregate average life of the
Tax-Exempt Securities acquired by the Trust is expected to be six to eight
years. As of December 31, 1995, the Trust acquired one First Mortgage Bond in
the amount of $10,700,000.
As of December 31, 1995, of the total Net Proceeds available for
investment, 3.52% had been invested in Tax-Exempt Securities and 61.93% in First
Mortgage Bonds. As of December 31, 1995, 34.55% of the total net proceeds
available for investment had not yet been invested in First Mortgage Bonds or
Tax-Exempt Securities.
First Mortgage Bonds
As of December 31, 1995, the Trust has made the following investment in
First Mortgage Bonds:
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Reflections Bonds
On December 21, 1995 American Tax-Exempt Bond Trust (the "Trust")
completed the amendment of the bond indenture for the $10,700,000 tax-exempt
First Mortgage Bonds (the "Reflections Bonds") in which the Trust had previously
acquired a 100% participation on October 10, 1995. In connection with the
amendment of the Reflections Bonds, the Trust redeemed the 100% participation
interest it previously acquired and now directly owns the Reflections Bonds.
The Reflections Bonds were issued by the Orange County Florida Housing
Finance Authority (the "Issuer") and are secured by a first mortgage and
mortgage loan on Reflections Apartments (the "Project" or "Reflections"), a
development consisting of 336 apartment units in Casselberry, Florida.
Reflections is owned by Casselberry-Oxford Associates, L.P. (the "Borrower").
The Trust purchased the 100% participation in Reflections Bonds for
$10,700,000 from BRI OP Limited Partnership (the "Seller"), which is not
affiliated with the Manager or Related Capital Company (the "Sponsor").
The Reflections Bonds bear a fixed Current Interest Rate of 9.0%,
payable monthly in arrears, together with Contingent Interest. After payment of
the fixed Current Interest, Contingent Interest will be payable as follows: (i)
25% of net property cash flow after payment of Current Interest, third party
issuer and trustees fees, required reserves, and a preferred return to the
Borrower equal to 3.7% of gross revenues; and (ii) after repayment of
outstanding principal, (a) 10% of net sale or repayment proceeds (which may be
in certain circumstances when no sale proceeds are received be measured by fair
market value) up to $1,300,000, and (b) 25% thereafter until the Borrower has
paid interest at a simple annual rate of 16% over the term of the Reflections
Bonds.
The Reflections Bonds have a term of thirty years and are subject to
mandatory redemption, at the Trust's option, after ten years. The principal of
the Reflections Bonds is payable upon sale or refinancing of the Project and
prepayment, in whole or in part, is prohibited during the first five years,
except as described below.
Prepayment in whole will be permitted thereafter subject to the payment
of a premium. If prepaid during the sixth year, the premium is equal to 5% of
the principal amount of the Reflections Bonds outstanding at the time of
prepayment. Thereafter, the premium will be reduced by 1% per year through the
tenth year, when there will be no prepayment premium payable.
Potential Acquisitions
Rolling Ridge Apartments
On July 7, 1995, the Trust executed a letter of intent to purchase
tax-exempt First Mortgage Bonds (as hereinafter referred to as the "Rolling
Ridge Bonds") in an approximate aggregate principal amount of $4,875,000. The
Rolling Ridge Bonds are expected to be issued by San Bernardino County (the
"Issuer") and secured by a first mortgage and mortgage loan on Rolling Ridge
Apartments (the "Project" or "Rolling Ridge"), a development consisting of 110
apartment units in Chino Hills, California. Rolling Ridge is owned and operated
by Duane R. Raab, Ralph E. Haun and Diane E. Haun (the "Borrower").
As of December 31, 1995, the letter of intent remains outstanding and
the Manager is still continuing its due diligence review of the Project.
The Rolling Ridge Bonds that will be used to refinance the Project will
be restructured to meet the Trust's investment criteria and are expected to bear
a fixed Current Interest Rate of 9.0%, payable monthly in arrears, together with
Contingent Interest. The Trust expects that, after payment of the fixed Current
Interest, Contingent Interest will be payable out of (i) 25% of net property
cash flow until the Borrower has paid interest up to a still-to-be-negotiated
rate, then (ii) 25% of net sale or repayment proceeds (which may in certain
circumstances when no sale proceeds are received be measured by fair market
value) over repayment of outstanding principal, until
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the Borrower has paid interest at a simple annual rate of 16% over the term of
the Rolling Ridge Bonds. The Trust has been informed that, as of December 31,
1995, the Borrower is current with respect to all payments of principal and
interest.
The Trust expects that the principal of the Rolling Ridge Bonds will be
payable upon sale or refinancing of the Project. It is expected that prepayment,
in whole or in part, will be prohibited during the first five years following
the acquisition of the Rolling Ridge Bonds, except as described below.
Prepayment in whole will be permitted thereafter subject to the payment of a
premium. If prepaid during the sixth year, the premium is expected to equal 5%
of the principal amount of the Rolling Ridge Bonds outstanding at the time of
prepayment. Thereafter, the premium will be reduced by 1% per year until the
tenth year, when there will be no prepayment premium payable.
The Trust expects that, notwithstanding the foregoing, a one-time
assumption will be permitted without prepayment penalty or contingent interest
payment otherwise due on sale or refinancing. Any such new assuming borrower may
be rejected by the Manager in its sole discretion and an assumption fee equal to
actual costs plus 1/2 of 1% of the outstanding principal amount is expected to
be due at the time of assumption.
It should be understood that the initial disclosure of any proposed
investment cannot be relied upon as an assurance that the Trust will ultimately
consummate such proposed investment or that the information provided concerning
the proposed investment will not change between the date of this report and the
actual investment.
Anticipated Terms of Future First Mortgage Bonds
The First Mortgage Bonds will bear a Current Interest Rate which is
fixed. In addition, a majority of the First Mortgage Bonds are expected to
provide for participations in net property cash flow and the residual value of
the underlying Properties in an amount equal to 25% to 50% of Net Property Cash
Flow and 25% to 50% of Net Sale or Repayment Proceeds, until the borrower has
paid interest at a simple annual rate of 16% over the term of the First Mortgage
Bonds. The First Mortgage Bonds are expected to prohibit optional prepayments
during the first five years after acquisition by the Trust and require a
redemption premium of at least 5% of the principal amount if prepaid in the
sixth year, declining 1% per year thereafter until there is no longer a premium.
The Trust expects to continue to invest in First Mortgage Bonds
primarily by acquiring outstanding First Mortgage Bonds which are simultaneously
restructured to change the principal, interest and other terms of those bonds to
conform to the Trust's investment objectives and policies. The multi-family
rental housing properties financed by the outstanding First Mortgage Bonds will
have been constructed and leased. The Trust may also acquire First Mortgage
Bonds that are, or prior to restructuring were, in default because the cash flow
from the property was insufficient to pay the debt service due on the bonds. The
restructuring of the outstanding First Mortgage Bonds will be sufficiently
extensive so that generally a restructured First Mortgage Bond held by the Trust
will be considered to be a newly issued bond for Federal income tax purposes.
The Trust will only acquire an outstanding First Mortgage Bond if: (i)
the Trust has reached a binding agreement with the owner of the underlying
property to amend the terms of the bonds in a manner that is acceptable to the
Trust and (ii) the governmental entity that is the issuer of the outstanding
bonds has agreed to ratify the change in terms and to file the necessary forms
to continue the tax-exemption of the restructured First Mortgage Bonds or the
Manager believes that there is a substantial likelihood that the issuer will
agree subsequently to take the action necessary to continue the First Mortgage
Bond's tax-exemption.
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Tax-Exempt Securities
As of and for the period ended December 31, 1995, the Trust has made the
following investments in Tax-Exempt Securities:
Principal
Balance at
Stated Final Purchase Price 12/31/95
Date Interest Payment ------------------- Including
Seller Purchased Rate Date % Amount Premium/(Disc)
- ------ --------- -------- ------- ------- -------- -------------
Smith
Barney 5/3/95 9.25% 8/1/95 101.124% $202,248 $ 0
Smith
Barney 9/19/95 4.40% 11/15/95 100.123% 200,246 0
Wheat
First 12/12/95 8.25% 2/15/96 102.796% 205,592 205,592
------- -------
$608,086 $205,592
======= =======
Competition
The Trust's business is affected by competition to the extent that in
acquiring First Mortgage Bonds, the Trust will be in competition with private
investors, mortgage banking companies, lending institutions, trust funds,
pension funds and other entities, some with similar objectives to those of the
Trust. Some of these entities can be expected to have substantially greater
resources and experience in acquiring First Mortgage Bonds than the Trust. The
Registrant's business is also affected by competition to the extent that the
underlying Properties from which it derives interest and ultimately, principal
payments, may be subject to competition relating to rental rates and amenities
from comparable neighboring properties.
Employees
The Trust does not directly employ anyone. All services are performed
for the Trust by the Manager and its Affiliates. The Manager receives
compensation in connection with such activities as set forth in Items 11 and 13.
In addition, the Trust reimburses the Manager and certain of its Affiliates for
expenses incurred in connection with the performance by their employees of
services for the Trust in accordance with the Trust Agreement.
Item 2. Properties.
The Trust does not own or lease any property.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Shareholders.
None.
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PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
Matters.
Although the shares are freely transferable, shareholders may not be
able to liquidate their investment because the shares are not intended to be
included for listing or quotation on any established market and no public
trading market is expected to develop for the shares, although there may be an
informal market. Shares may therefore not be readily accepted as collateral for
a loan. Furthermore, even if an informal market for the sale of shares develops,
a shareholder may only be able to sell its shares at a substantial discount from
the public offering price. Consequently, the purchase of shares should be
considered only as a long-term investment. Any shareholder will have the limited
right to assign the economic attributes of his shares to an assignee. However,
the assignee of shares can become a substituted shareholder only with the
consent of the Manager, which consent the Manager may grant or withhold in its
sole and absolute discretion. Accordingly, the Trust should not be deemed to
have the corporate characteristic of free transferability of interests. The
number of shareholders as of December 31, 1995 was 876.
Reinvestment Plan
A Reinvestment Plan is available which will enable shareholders to have
their distributions from the Trust invested in shares of the Trust, or fractions
thereof. The Reinvestment Plan commenced on November 1, 1994, the date the Trust
commenced the Offering. The Trust Agreement gives to the Manager broad powers to
renew, modify, extend, consolidate or cancel the Trust's Reinvestment Plan
without the consent of shareholders. Shares received pursuant to the
Reinvestment Plan will entitle participants to the same rights and be treated in
the same manner as those issued pursuant to the Offering.
During the offering period, the price per share purchased pursuant to
the Reinvestment Plan will equal $20. From the termination of the offering
period until the third anniversary of the final closing date, the price per
share purchased pursuant to the Reinvestment Plan will equal $19. Thereafter,
the price per share purchased pursuant to the Reinvestment Plan will be the
greater of $20 (the public offering price) or 95% of the then fair market value
of such share (as determined by the Manager).
Shares received pursuant to the Reinvestment Plan will entitle
participants to the same rights and be treated in the same manner as those
issued pursuant to the Offering.
Experience under the Reinvestment Plan may indicate that changes are
desirable. The Reinvestment Plan gives the Manager broad powers to modify,
consolidate or cancel the Trust's Reinvestment Plan upon notice but without
consent of shareholders.
Redemption Plan
After the final closing date, any shareholder, including the Manager or
any of its Affiliates, who acquired or received shares directly from the Trust
or the Reinvestment Plan (such shares, for so long as owned by the original
holder, are called "Eligible Shares") may present all or a portion of such
Eligible Shares to the Trust for redemption (the "Redemption Plan"). The Trust
is required to redeem such Eligible Shares presented for redemption for cash to
the extent it has sufficient net proceeds ("Reinvestment Proceeds") from the
sale of shares under the Reinvestment Plan. There is no assurance that there
will be Reinvestment Proceeds available for redemption and, accordingly, an
investor's shares may not be redeemed. The full amount of Reinvestment Proceeds
for any quarter will be used to redeem Eligible Shares presented for redemption
for such quarter. The Manager may suspend or terminate the Redemption Plan upon
notice to, but without the consent of, the shareholders.
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Distribution Information
Cash distributions for the year ended December 31, 1995 were as set
forth in the following table:
Cash Distribution Total Amount
for Quarter Ended Date Paid Minimum Maximum Distributed
June 30, 1995 8/14/95 $ .0667 $ .3333 $ 82,704
September 30, 1995 11/15/95 .0667 .4000 259,544
December 31, 1995 2/14/96 .0667 .4000 333,590
------ ------ -------
Total for 1995 $0.2001 $1.1333 $675,838
====== ====== =======
Quarterly distributions were made 45 days following the close of the
calendar quarter and were funded from cash provided from earnings through
approximately the distribution dates and proceeds from the maturity of
investments. Amounts received by shareholders varied depending on the dates they
became shareholders.
The Trust's Offering commenced November 1, 1994, and its first closing
on the sales of shares occurred on April 27, 1995. Accordingly, there were no
distributions for the quarter ended March 31, 1995.
There are no material legal restrictions on the Trust's present or
future ability to make distributions in accordance with the provisions of the
Trust Agreement.
The Trust has adopted a policy of attempting to maintain stable
distributions to shareholders during the offering and acquisition stages of the
Trust. In order to accomplish this result, it has purchased and may be required
to continue purchase Tax-Exempt Securities which mature quarterly during this
period. The effect of this policy has been the following: (a) a portion of the
distributions have constituted, and will continue to constitute, a return of
capital; (b) earlier investors' returns from an investment in the Trust will be
greater than later investors' returns; and (c) there will be a decrease in funds
remaining to be invested in Mortgage Investments.
Of the total distributions of $346,455 made for the year ended December
31, 1995, $118,569 ($.13 per share or 34%) represents a return of capital
determined in accordance with generally accepted accounting principles. The
portion of the distributions which constitutes a return of capital may be
significant during the acquisition stage in order to maintain level
distributions to shareholders.
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Item 6. Selected Financial Data.
The information set forth below presents selected financial data of the
Trust. Additional financial information is set forth in the audited financial
statements and footnotes thereto contained in Item 8 hereof.
Year Ended
Operations* December 31, 1995
----------- -----------------
Interest income:
First Mortgage Bonds $226,972
Tax-Exempt Securities 2,160
Marketable Securities 147,647
Total revenues 376,779
Total expenses 148,893
Net income $227,886
========
Net income per weighted
average share-Shareholders $0.57
========
December 31, December 31,
1995 1994
------------ ------------
Financial Position
------------------
Total assets $17,385,740 $771,890
--------- --------
Total liabilities $174,470 $770,890
--------- --------
Total shareholders' equity $17,211,270 $1,000
--------- --------
* The Trust had no operations in 1994.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
On December 23, 1993, the Trust received $1,000 from Related AMI
Associates, Inc., as grantor for the benefit of Related AMI Associates, Inc. as
the Manager (the "Manager") of the Trust. As of December 31, 1995, the Trust had
received $18,778,912 (before volume discounts of $1,860) in Gross Proceeds from
the sale of 937,359 shares pursuant to the Offering and 1,587 shares through the
Reinvestment Plan resulting in Net Proceeds available for investment of
approximately $17,276,599 after volume discounts, payments of sales commissions
and organization and offering expenses. For the period ending January 1, 1996 to
March 7, 1996, a total of approximately 117,260 additional shares were sold
through the Offering and approximately 1,682 through the Reinvestment Plan
representing Gross Proceeds of $2,378,848 (before volume discounts of $1,424).
The Trust has invested and will continue to invest the Net Proceeds
primarily in First Mortgage Bonds issued by various state or local governments
or their agencies or authorities and secured by Mortgage Loans principally on
multifamily residential apartment projects and, secondarily, retirement
community projects owned or to be developed by third-party developers and, to a
lesser extent, by Affiliates of the Manager. The principal amount of a Mortgage
Loan at the time the loan is made or after a First Mortgage Bond is acquired and
restructured, together with all mortgage loans on the subject property, will
generally not exceed 85% of the appraised fair market value of the related
Property. The First Mortgage Bonds will have maturities of 10 to 35 years,
although the Trust anticipates holding the First Mortgage Bonds for
approximately 10 to 12 years and having the right to cause repayment of the
bonds at that time. The First Mortgage Bonds will normally be structured so that
no principal payments will be due thereon until the scheduled maturity or
earlier redemption of such bonds, at which point a lump sum or "balloon" payment
of the outstanding principal will be due. In addition, the Trust may invest up
to 10% of the Gross Proceeds in Tax-Exempt Securities which are expected to
begin amortizing or to be repaid as early as during the Offering period and from
time to time throughout the life of the Trust. The aggregate average life of the
Tax-Exempt Securities acquired by the Trust is expected to be six to eight
years. As of December 31, 1995, 34.55% of the total Net Proceeds available for
investment had not yet been invested in First Mortgage Bonds or Tax-Exempt
Securities. As of December 31, 1995, of the total net proceeds available for
investment, 3.52% had been invested in Tax-Exempt Securities and 61.93% in First
Mortgage Bonds.
For the year ended December 31, 1995, the Trust had purchased three
Tax-Exempt Securities in the aggregate amount of $608,086, two of which matured
in the amount of $400,000 during 1995. On December 21, 1995, the Trust completed
the amendment of the bond indenture of the $10,700,000 in Reflections Bonds in
which the Trust had previously acquired a 100% participation on October 10,
1995. In connection with the amendment of the Reflection Bonds, the Trust
redeemed the 100% participation interest it previously acquired and now directly
owns the Reflections Bonds.
For a description of each of the Trust's investments see Item 1.
Business.
During the year ended December 31, 1995, cash and cash equivalents
increased $3,313,564 primarily as a result of proceeds from the issuance of
shares of beneficial interest ($18,777,052), net of an increase in offering
costs ($738,826), the purchase of one First Mortgage Bond ($10,700,000), the
purchase of three Tax-Exempt Securities ($608,086), two of which matured
($400,000), the purchase of marketable securities ($2,550,000) and a decrease in
accounts payable and due to affiliates of ($682,560) from financing activities
and a decrease in cash from operating activities of ($237,561). Included in the
adjustments to reconcile the net income to cash flow from operations is
amortization in the amount of $11,628.
The Trust has established a Reserve for working capital and
contingencies in an amount equal to 1% of the Gross Proceeds of the Offering
(totaling $187,789 at December 31, 1995), an amount which is anticipated to be
sufficient to satisfy liquidity requirements, and may add to such Reserves from
Cash Flow, Sale or Repayment Proceeds and uninvested Net Proceeds. As of
December 31, 1995, none of this reserve has been used. Liquidity will be
adversely affected by unanticipated costs, including operating costs in excess
of such Reserves. The Trust
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may borrow funds from third parties or from the Manager or its Affiliates to
meet working capital requirements of the Trust or to take over the operation of
a Property on a short-term basis (up to 24 months) but not for the purpose of
making Distributions.
Distribution Policy
The Trust has adopted a policy of attempting to maintain stable
distributions during the offering period and acquisition stage. In order to
accomplish this result, a portion of the Net Proceeds are expected to be
invested in Tax-Exempt Securities with an aggregate average life of six to eight
years, a portion of which will amortize or be paid during such period. Proceeds
from such amortization or repayment will be distributed to Shareholders. To
date, the Trust has purchased and may be required to continue to purchase
Tax-Exempt Securities which mature quarterly during this period. The effect of
this policy has been the following: (a) a portion of the distributions have
constituted, and will continue to constitute, a return of capital; (b) earlier
investors' returns from an investment in the Trust will be greater than later
investors' returns; and (c) there will be a decrease in funds remaining to be
invested in Mortgage Investments.
Of the total distributions of $346,455 made for the year ended December
31, 1995, $118,569 ($.13 per share or 34%) represents a return of capital
determined in accordance with generally accepted accounting principles. The
portion of the distributions which constitute a return of capital may be
significant during the acquisition stage in order to maintain level
distributions to shareholders.
Management expects that cash flow from operations, combined with the
maturity of investments described above, will be sufficient to fund
distributions at the current level in the future.
Results of Operations
The results of operations for the year ended December 31, 1995 consisted
of interest income of $376,779 earned on the First Mortgage Bonds, the
marketable securities and three Tax-Exempt Securities, net of general and
administrative and amortization expenses. Results of operations are not
reflective of future operations of the Trust due to the expected utilization of
the net proceeds of the offering to invest in First Mortgage Bonds and
Tax-Exempt Securities and the continued offering of shares of beneficial
ownership interest for sale.
Inflation
Inflation has been consistently low during the periods presented in the
financial statements and, as a result, has not had a significant effect on the
operations of the Trust or its investments.
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Item 8. Financial Statements and Supplementary Data.
(a) 1. Financial Statements Page
Independent Auditors' Report 12
Balance Sheets at December 31, 1995 and 1994 13
Statement of Operations - Year ended December 31, 1995 14
Statement of Changes in Shareholders' Equity -
year ended December 31, 1995 15
Statement of Cash Flows - Year ended December 31, 1995 16
Notes to Financial Statements 17
(a) 2. Financial Statement Schedules
All schedules have been omitted because they are not required or because the
required information is contained in the Financial Statements or notes thereto.
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INDEPENDENT AUDITORS' REPORT
To The Manager
American Tax-Exempt Bond Trust:
We have audited the accompanying balance sheets of American Tax-Exempt Bond
Trust as of December 31, 1995 and 1994, and the related statements of
operations, changes in shareholders' equity, and cash flows for the year ended
December 31, 1995. These financial statements are the responsibility of the
Trust'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 American Tax-Exempt Bond Trust
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
January 30, 1996
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AMERICAN TAX-EXEMPT BOND TRUST
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
---------- --------
Cash and cash equivalents (Note 1) $ 3,314,564 $ 1,000
Marketable securities 2,550,000 0
Investment in First Mortgage Bonds (Note 3) 10,943,182 0
Investment in Tax-Exempt Securities (Note 4) 203,958 0
Offering costs 0 709,387
Deferred costs 224,056 11,503
Organization costs, net of accumulated amortization
of $7,500 in 1995 42,500 50,000
Other assets 72,220 0
Accrued interest receivable 35,260 0
----------- ---------
Total assets $17,385,740 $771,890
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Due to affiliates $ 131,917 $357,659
Accounts payable 42,553 413,231
----------- --------
Total liabilities 174,470 770,890
----------- --------
Shareholders' equity:
Beneficial owner's equity-manager (186) 1,000
Beneficial owners' equity-shareholders 17,211,456 0
----------- --------
Total shareholders' equity 17,211,270 1,000
----------- --------
Total liabilities and shareholders' equity $17,385,740 $771,890
=========== ========
See accompanying notes to financial statements.
-13-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
Revenues:
Interest income:
First Mortgage Bonds (Note 3) $226,972
Tax-Exempt Securities (Note 4) 2,160
Marketable Securities 147,647
-------
Total revenues 376,779
-------
Expenses:
General and administrative 66,535
General and administrative-
related parties (Note 5) 74,858
Amortization 7,500
Total expenses 148,893
Net income $227,886
=======
Allocation of Net Income:
Shareholders $224,865
Manager 2,271
Special distributions to Manager (Note 5) 750
Net income $227,886
=======
Net income per weighted
average share - shareholders $ .57
=======
See accompanying notes to financial statements.
-14-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
Beneficial Beneficial
Owners' Equity- Owner's Equity-
Total Shareholders Manager
----- ------------ -------
Balance at
January 1, 1995 $ 1,000 $ 0 $ 1,000
Issuance of shares of
beneficial ownership
interest 18,777,052 18,777,052 0
Offering costs (1,448,213) (1,448,213) 0
Net income 227,886 224,865 3,021
Distributions (346,455) (342,248) (4,207)
------------ ------------ -------------
Balance at
December 31, 1995 $ 17,211,270 $ 17,211,456 $ (186)
============ ============ =============
See accompanying notes to financial statements.
-15-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
Cash flows from operating activities:
Net income $ 227,886
------------
Adjustments to reconcile net income to
net cash used in operating activities:
Amortization expense-organization costs 7,500
Amortization of REMIC premium 4,128
Changes in operating assets and liabilities:
Increase in other assets (72,220)
Increase in accrued interest receivable (35,260)
Increase in due to affiliates 86,140
Increase in deferred costs (455,735)
------------
Total adjustments (465,447)
------------
Net cash used in operating activities (237,561)
------------
Cash flows used in investing activities:
Purchase of First Mortgage Bonds (10,700,000)
Purchases of Marketable Securities (2,550,000)
Maturity of Tax-Exempt Securities 400,000
Purchase of Tax-Exempt Securities (608,086)
------------
Net cash used in investing activities (13,458,086)
------------
Cash flows provided by financing activities:
Decrease in accounts payable related to
financing activities (370,678)
Decrease in due to affiliates (311,882)
Proceeds from issuance of shares of
beneficial interest 18,777,052
Distribution to shareholders (346,455)
Increase in offering costs (738,826)
------------
Net cash provided by financing activities 17,009,211
------------
Net increase in cash and cash equivalents 3,313,564
Cash and cash equivalents at beginning of period 1,000
------------
Cash and cash equivalents at end of period $ 3,314,564
============
Supplemental schedule of non cash financial activities:
Increase in offering costs $ (709,387)
Decrease in deferred costs 952,569
Increase in investment in first mortgage bonds (243,182)
------------
$ 0
============
See accompanying notes to financial statements.
-16-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1 - General
American Tax-Exempt Bond Trust (the "Trust") was formed on December 23,
1993 as a Delaware business trust for the primary purpose of investing in
tax-exempt first mortgage bonds ("First Mortgage Bonds") issued by various state
or local governments or their agencies or authorities and secured by first
mortgage loans on multifamily residential apartment and retirement community
projects.
On December 23, 1993, the Trust received $1,000 from Related AMI
Associates, Inc., as grantor for the benefit of Related AMI Associates, Inc. as
the only present beneficiary and the manager (the "Manager") of the Trust.
On November 1, 1994, the Trust commenced a public offering through
Related Equities Corporation, an affiliate of the Manager, and other
broker-dealers on a "best efforts" basis, for up to 10,000,000 shares of its
shares of beneficial interest at an initial offering price of $20 per share. As
of December 31, 1995, a total of 938,946 shares have been sold to the public
through the offering and the Reinvestment Plan representing Gross Proceeds of
$18,778,912 (before volume discounts of $1,860).
The Trust intends to invest the Net Proceeds primarily in First Mortgage
Bonds issued by various state or local governments or their agencies or
authorities and secured by first mortgages and related first mortgage loans
financed by such bonds (collectively, "Mortgage Loans") principally on
multifamily residential apartment projects and, secondarily, retirement
community projects owned or to be developed by third-party developers and, to a
lesser extent, by Affiliates of the Manager. The principal amount of a Mortgage
Loan at the time the loan is made or after a First Mortgage Bond is acquired and
restructured, together with all mortgage loans on the subject property, will
generally not exceed 85% of the appraised fair market value of the related
Property. The First Mortgage Bonds will have maturities of 10 to 35 years,
although the Trust anticipates holding the First Mortgage Bonds for
approximately 10 to 12 years and having the right to cause repayment of the
bonds at that time. The First Mortgage Bonds will normally be structured so that
no principal payments will be due thereon until the scheduled maturity or
earlier redemption of such bonds, at which point a lump sum or "balloon" payment
of the outstanding principal will be due. In addition, the Trust may invest up
to 10% of the Gross Proceeds in Tax-Exempt Securities which are expected to
begin amortizing or to be repaid as early as during the offering period and from
time to time throughout the life of the Trust. The aggregate average life of the
Tax-Exempt Securities acquired by the Trust is expected to be six to eight
years. As of December 31, 1995, of the total net proceeds for investment, 3.52%
had been invested in Tax-Exempt Securities and 61.93% had been invested in First
Mortgage Bonds. As of December 31, 1995, 34.55% of the total net proceeds
available for investment had not yet been invested in First Mortgage Bonds or
Tax-Exempt Securities.
The First Mortgage Bonds will bear a Current Interest Rate which is
fixed. In addition, a majority of the First Mortgage Bonds are expected to
provide for participations in net property cash flow and the residual value of
the underlying Properties in an amount equal to 25% to 50% of Net Property Cash
Flow and 25% to 50% of Net Sale or Repayment Proceeds, until the borrower has
paid interest at a simple annual rate of 16% over the term of the First Mortgage
Bonds. The First Mortgage Bonds are expected to prohibit optional prepayments
during the first five years after acquisition by the Trust and require a
redemption premium of at least 5% of the principal amount if prepaid in the
sixth year, declining 1% per year thereafter until there is no longer a premium.
The Trust expects to invest in First Mortgage Bonds primarily by
acquiring outstanding First Mortgage Bonds which are simultaneously restructured
to change the principal, interest and other terms of those bonds to conform to
the Trust's investment objectives and policies. The multi-family rental housing
properties financed by the outstanding First Mortgage Bonds will have been
constructed and leased. The Trust may also acquire First
-17-
<PAGE>
Mortgage Bonds that are, or prior to restructuring were, in default because the
cash flow from the property will be insufficient to pay the debt service due on
the bonds. The restructuring of the outstanding First Mortgage Bonds will be
sufficiently extensive so that generally a restructured First Mortgage Bond held
by the Trust will be considered to be a newly issued bond for federal income tax
purposes.
The Trust will only acquire an outstanding First Mortgage Bond if: (i)
the Trust has reached a binding agreement with the owner of the underlying
property to amend the terms of the bonds in a manner that is acceptable to the
Trust and (ii) the governmental entity that is the issuer of the outstanding
bonds has agreed to ratify the change in terms and to file the necessary forms
to continue the tax-exemption of the restructured First Mortgage Bonds or the
Manager believes that there is a substantial likelihood that the issuer will
agree subsequently to take the action necessary to continue the First Mortgage
Bond's tax-exemption.
Included in cash and cash equivalents is restricted cash of $187,789 of
working capital reserves.
NOTE 2 - Accounting Policies
a) Basis of Accounting
The books and records of the Trust are maintained on the accrual
basis of accounting in accordance with generally accepted accounting principles.
b) Cash and Cash Equivalents
Cash and cash equivalents include temporary investments with original
maturity dates equal to or less than three months and are carried at cost plus
accrued interest, which approximates market.
c) Loan Origination Costs
Bond Selection fees and expenses incurred for the investment of
mortgage loans have been capitalized and are included in investment in First
Mortgage Bonds. Loan origination costs are being amortized on the effective
yield method over the lives of the respective mortgages.
d) Organization Costs
Costs incurred to organize the Trust including, but not limited to,
legal and accounting fees are considered organization costs. These costs have
been capitalized and are being amortized on a straight-line basis over a
60-month period.
e) Offering Costs
Costs incurred to sell shares including brokerage and nonaccountable
expense allowance are considered offering costs. These costs have been charged
directly to shareholders' equity with the sale of shares of beneficial interest
to the public.
-18-
<PAGE>
f) Income Taxes
The Trust is not required to provide for, or pay, any Federal income
taxes. Income tax attributes that arise from its operation are passed directly
to the individual partners. The Trust may be subject to state and local taxes in
jurisdictions in which it operates.
g) Net Income Per Weighted Average Share
Net income per weighted average share is computed based in the net
income for the period, divided by the weighted average number of shares
outstanding for the period. The weighted average number of shares outstanding
for the years ended December 31, 1995 was 399,265 shares.
h) Investments in Marketable, Equity and Other Securities
Effective January 1, 1995, the Trust has adopted the provisions of
the Financial Accounting Standards Board's Statement of Financial Accounting
Standards ("SFAS") No. 115 Accounting for Certain Investments in Debt and Equity
Securities. At December 31, 1995, the Trust has classified its securities as
available for sale.
Available for sale securities are carried at fair value with net
unrealized gain (loss) reported as a separate component of shareholders' equity
until realized. A decline in the market value of any available for sale security
below cost that is deemed other than temporary is charged to earnings resulting
in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest method.
Dividend and interest income are recognized when earned. Realized gains and
losses for securities are included in earnings and are derived using the
specific identification method for determining the cost of the securities sold.
Investments in marketable, equity and other securities, represent
marketable securities (consisting of tax-exempt municipal preferred stock),
investment in First Mortgage Bonds and investments in Tax-Exempt Securities
which are carried at cost which approximates market.
i) Use of Estimates
Management of the Trust has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosures of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
j) Financial Instruments
The Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 107, Disclosures about Fair Value of Financial
Instruments, defines fair value of a financial instrument as the amount at which
the instrument could be exchanged in a current transaction between willing
parties. Financial instruments held by the Company include cash and cash
equivalents, marketable securities, investments in First Mortgage Bonds and
Tax-Exempt Securities, interest receivable and accounts payable and accrued
expenses.
-19-
<PAGE>
For cash and cash equivalents, marketable securities, interest
receivable and accounts payable and accrued expenses the carrying amounts is a
reasonable estimate of fair value.
NOTE 3 - Investment in First Mortgage Bonds
On December 21, 1995, the Trust completed the amendment of the bond
indenture for the $10,700,000 in tax-exempt First Mortgage Bonds (the
"Reflections Bonds") in which the Trust had previously acquired a 100%
participation. In connection with the amendment of the Reflections Bonds, the
Trust redeemed the 100% participation interest it previously acquired and now
directly owns the Reflections Bonds.
The Reflections Bonds were issued by the Orange County Florida Housing
Finance Authority (the "Issuer") and are secured by a first mortgage and
mortgage loan on Reflections Apartments (the "Project" or "Reflections"), a
development consisting of 336 apartment units in Casselberry, Florida.
Reflections is owned by Casselberry-Oxford Associates, L.P. (the "Borrower").
The Trust purchased the 100% participation in Reflections Bonds for
$10,700,000 from BRI OP Limited Partnership (the "Seller"), which is not
affiliated with the Manager or Related Capital Company (the "Sponsor").
The Reflections Bonds bear a fixed Current Interest Rate of 9.0%,
payable monthly in arrears, together with Contingent Interest. After payment of
the fixed Current Interest, Contingent Interest will be payable as follows: (i)
25% of net property cash flow after payment of Current Interest, third party
issuer and trustees fees, required reserves, and a preferred return to the
Borrower equal to 3.7% of gross revenues; and (ii) after repayment of
outstanding principal, (a) 10% of net sale or repayment proceeds (which may be
in certain circumstances when no sale proceeds are received be measured by fair
market value) up to $1,300,000, and (b) 25% thereafter until the Borrower has
paid interest at a simple annual rate of 16% over the term of the Reflections
Bonds.
The Reflections Bonds have a term of thirty years and are subject to
mandatory redemption, at the Trust's option, after ten years. The Principal of
the Reflections Bonds is payable upon sale or refinancing of the Project and
prepayment, in whole or in part, is prohibited during the first five years,
except as described below.
Prepayment in whole will be permitted thereafter subject to the payment
of a premium. If prepaid during the sixth year, the premium is equal to 5% of
the principal amount of the Reflections Bonds outstanding at the time of
prepayment. Thereafter, the premium will be reduced by 1% per year through the
tenth year, when there will be no prepayment premium payable.
-20-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - Investment in First Mortgage Bonds
Information relating to investments in First Mortgage Bonds as of
December 31, 1995 is as follows:
<TABLE>
<CAPTION>
Date of
Investment/ Loan Final Balance Interest Paid to
Final Outstanding Origination At December the Company
Property Description Maturity Date Loan Balance Costs 31, 1995 in 1995
Reflection Bonds
Casselbury,
<S> <C> <C> <C> <C> <C> <C>
Florida (A) 336 Apartment
Units 12/95 - 12/25 $10,700,000 $243,182 $10,943,182 $226,972
</TABLE>
(A) The interest rates for the Reflections are 9.00%. In addition to the
interest rate the trust will be entitled to 25% of the cash flow,
as defined.
-21-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - Investment in Tax-Exempt Securities
On May 3, 1995, the Trust used a portion of the net proceeds of its
offering to purchase a Topeka Kansas General Obligation Tax-Exempt Bond from
Smith Barney (the "Kansas Bond"). The Kansas Bond, which had a principal face
value of $200,000 and interest rate of 9.25%, was purchased as a Tax-Exempt
Security investment at the premium price of 101.124% or $202,248 and matured on
August 1, 1995.
On September 19, 1995, the Trust used a portion of the proceeds of the
Kansas Bond to purchase a New York State Environmental Facilities Corp. State
Water Pollution Control Revolving Fund Series D Tax-Exempt Bond from Smith
Barney. The bond, which had a principal face value of $200,000 and interest rate
of 4.4%, was purchased as a Tax-Exempt Security investment at the premium price
of 100.123% or $200,246 and matured on November 15, 1995.
On December 12, 1995, the Trust used a portion of the net proceeds of
its offering to purchase a Philadelphia Penn Refunding General Obligation
Tax-Exempt Bond from Wheat First Butcher Singer. The bond, which has a principal
face value of $200,000 and interest rate of 8.25%, was purchased as a Tax-
Exempt Security investment at the premium price of 102.796% or $205,592 with a
maturity date of February 15, 1996.
Information relating to investments in Tax-Exempt Securities for the
year ended December 31, 1995:
Purchases:
Topeka Kansas General Obligation Tax-Exempt Bond $202,248
New York State Environmental Tax-Exempt Bond 200,246
Philadelphia Penn General Obligation Tax-Exempt Bond 205,592
Sales:
Maturity of Topeka Kansas General Obligation
Tax-Exempt Bond (200,000)
Maturity of New York State Environmental
Tax-Exempt Bond (200,000)
Amortization of premium (4,128)
---------
Amortized cost at December 31, 1995 $203,958
=========
-22-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - Investment in Tax-Exempt Securities (continued)
Information relating to investments in Tax-Exempt Securities
as of December 31, 1995 is as follows:
Original
Purchase Principal Premium
Stated Final Price at at
Date Interest Payment Including December December
Seller Purchased Rate Date Premium 31, 1995 31, 1995
Smith Barney 5/3/95 9.25% 8/1/95 $202,248 $ 0 $ 0
Smith Barney 9/19/95 4.40% 11/15/95 200,246 0 0
Wheat First 12/12/95 8.25% 2/15/96 205,592 200,000 5,592
$608,086 $200,000 $5,592
Accumulated Interest
Amortization Balance at Earned by Net
at December December the Trust Less 1995 Interest
31, 1995 31, 1995 for 1995 Amortization Earned
Seller $ 0 $ 0 $4,162 $2,248 $1,914
Smith Barney 0 0 1,296 246 1,050
Smith Barney (1,634) 203,958 830 1,634 (804)
Wheat First $(1,634) $203,958 $6,288 $4,128 $2,160
-23-
<PAGE>
AMERICAN TAX-EXEMPT BOND TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - Related Party Transactions
The Trust Agreement provides for the Manager, an affiliate of Related
Capital Company, to act as the Manager of the Trust. In accordance with the
Trust Agreement, the Manager is entitled to receive (i) compensation in
connection with the organization and start-up of the Trust and the Trust's
investment in the tax-exempt First Mortgage Bonds; (ii) special distributions
calculated as a percentage of total assets invested by the Trust which totaled
$750 for the year ended December 31, 1995; (iii) a subordinated incentive fee
based on the gain on the sale of the tax-exempt First Mortgage Bonds; (iv)
reimbursement of certain administrative costs incurred by the Manager or an
affiliate on behalf of the Trust which totaled $74,8580 for the year ended
December 31, 1995; (v) acquisition expense allowance and bond selection fees
calculated on a percentage of the Gross Proceeds applicable to the First
Mortgage Bonds; as of December 31, 1995, $375,578 of such costs $214,000 have
been capitalized and included in Investment in First Mortgage Bonds; and (vi)
certain other fees.
The Trust has agreed to pay the Manager a nonaccountable allowance
("Expense Allowance") equal to 2.5% of the Gross Proceeds of the Offering. The
Manager, to the extent not paid by an affiliate, has agreed to be responsible
for all expenses of the Offering, except for the payment of the Expense
Allowance, and certain selling commissions (not to exceed 5.0% of gross
proceeds) and a due diligence expense allowance (not to exceed 0.5% of gross
proceeds) on certain sales of shares. As of December 31, 1995, offering costs
totaled $419,473, and along with selling commissions (see below) are charged
directly to Beneficial Owners' Equity-Shareholders.
The Trust has agreed to pay commissions of up to 5% of the aggregate
purchase price of shares sold, subject to quantity discounts, as well as a
non-accountable due diligence expense reimbursement in an amount up to .5% of
Gross Proceeds to certain broker-dealers selected by the Dealer Manager and
approved by the Manager. At December 31, 1995, the Trust paid $1,028,740 of
commissions and due diligence to unaffiliated broker-dealers.
NOTE 6 - Commitments
Rolling Ridge Apartments
On July 7, 1995, the Trust executed a letter of intent to purchase
tax-exempt First Mortgage Bonds (as hereinafter referred to as the "Rolling
Ridge Bonds") in an approximate aggregate principal amount of $4,875,000. The
Rolling Ridge Bonds are expected to be issued by San Bernardino County (the
"Issuer") and secured by a first mortgage and mortgage loan on Rolling Ridge
Apartments (the "Project" or "Rolling Ridge"), a development consisting of 110
apartment units in Chino Hills, California. Rolling Ridge is owned and operated
by Duane R. Raab, Ralph E. Haun and Diane E. Haun (the "Borrower").
As of December 31, 1995, the letter of intent remains outstanding and
the Manager is still continuing its due diligence review of the Project.
The Rolling Ridge Bonds that will be used to refinance the Project will
be restructured to meet the Trust's investment criteria and are expected to bear
a fixed Current Interest Rate of 9.0%, payable monthly in arrears, together with
Contingent Interest. The Trust expects that, after payment of the fixed Current
Interest, Contingent Interest will be payable out of (i) 25% of net property
cash flow until the Borrower has paid interest up to a still-to-be-negotiated
rate, then (ii) 25% of net sale or repayment proceeds (which may in certain
circumstances when no sale proceeds are received be measured by fair market
value) over repayment of outstanding principal, until the Borrower has paid
interest at a simple annual rate of 16% over the term of the Rolling Ridge
Bonds. The Trust has been informed that, as of December 31, 1995, the Borrower
is current with respect to all payments of principal and interest.
-24-
<PAGE>
The Trust expects that the principal of the Rolling Ridge Bonds will be
payable upon sale or refinancing of the Project. It is expected that prepayment,
in whole or in part, will be prohibited during the first five years following
the acquisition of the Rolling Ridge Bonds, except as described below.
Prepayment in whole will be permitted thereafter subject to the payment of a
premium. If prepaid during the sixth year, the premium is expected to equal 5%
of the principal amount of the Rolling Ridge Bonds outstanding at the time of
prepayment. Thereafter, the premium will be reduced by 1% per year until the
tenth year, when there will be no prepayment premium payable.
The Trust expects that, notwithstanding the foregoing, a one-time
assumption will be permitted without prepayment penalty or contingent interest
payment otherwise due on sale or refinancing. Any such new assuming borrower may
be rejected by the Manager in its sole discretion and an assumption fee equal to
actual costs plus 1/2 of 1% of the outstanding principal amount is expected to
be due at the time of assumption.
NOTE 7 - Subsequent Events
The Trust has received an additional $2,378,848 (before volume discounts
of $1,424) of Gross Proceeds representing 118,942 shares for the period January
1, 1996 to March 7, 1996.
On February 14, 1996, a distribution of $333,590 and $3,370 was paid to
the shareholders and the Manager, respectively, representing the 1995 fourth
quarter distribution. The distribution has been funded from cash collections of
debt service payments and interest income through approximately the distribution
date, February 14, 1996, and proceeds from the maturity of investments.
On February 15, 1996, the Philadelphia Penn Refunding General Obligation
Tax-Exempt Bond which was purchased from Wheat First Butcher Singer on December
12, 1995, matured at 102.00% or $204,000.
-25-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Manager of the Trust is Related AMI Associates, Inc., a Delaware
corporation. The Trustee of the Trust is Wilmington Trust Company, a Delaware
banking corporation. The Manager is affiliated with Related Capital Company
("Related"), a New York general partnership, in which Stephen M. Ross, through
his interests in other entities, owns a significant interest. The shares of the
Manger are owned 67.2% by Stephen M. Ross and 32.8% by three officers of the
Manager. The Manager will manage and control the affairs of the Trust directly
and by engaging others, including Affiliates. The Trustee has been appointed as
a trustee solely in order to satisfy the requirements of Section 3807 of the
Delaware Business Trust Act, and its duties and responsibilities are limited.
The Registrant, the Registrant's Manager and their directors and
executive officers, and any persons holding more than ten percent of the
Registrant's shares are required to report their initial ownership of such
shares and any subsequent changes in that ownership to the Securities and
Exchange Commission on Forms 3, 4 and 5. Such executive officers, directors are
required by Securities and Exchange Commission regulators to furnish the
Partnership with copies of all Forms 3, 4 or 5 they file. All of these filing
requirements were satisfied on a timely basis for the current year. In making
these disclosures, the Registrant has relied solely on written representations
of the Manager's directors and executive officers and persons who own greater
than ten percent of the Registrant's shares of copies of the reports they have
filed with the Securities and Exchange Commission during and with respect to its
most recent fiscal year.
These officers of the Manager may also provide services to the Trust on
behalf of the Manager. The executive officers and directors of the Manager and
their positions with the Manager are set forth below.
Year First Became
Officer/Director
Name Age Positions Held of Manager
J. Michael Fried 51 Director and President 1991
Stuart J. Boesky 39 Director and
Senior Vice President 1991
Alan P. Hirmes 41 Senior Vice President 1991
Ryne A. Nishimi 38 Senior Vice President 1994
Arthur G. Hatzopoulos 42 Vice President 1995
Lawrence J. Lipton 39 Treasurer 1993
Lynn A. McMahon 40 Secretary 1991
-26-
<PAGE>
J. MICHAEL FRIED, age 51, is the sole shareholder of one of the general
partners of Related, the real estate finance affiliate of The Related Companies,
L.P. In that capacity, he is generally responsible for all of the syndication,
finance, acquisition and investor reporting activities of Related and its
Affiliates. Mr. Fried practiced corporate law in New York City with the law firm
of Proskauer Rose Goetz & Mendelsohn from 1974 until he joined Related in 1979.
Mr. Fried graduated from Brooklyn Law School with a Juris Doctor degree, magna
cum laude; from Long Island University Graduate School with a Master of Science
degree in Psychology; and from Michigan State University with a Bachelor of Arts
degree in History.
STUART J. BOESKY, age 39, is the sole shareholder of one of the general
partners of Related. Mr. Boesky practiced real estate and tax law in New York
City with the law firm of Shipley & Rothstein from 1984 until February 1986 when
he joined Related. From 1983 to 1984 Mr. Boesky practiced law with the Boston
law firm of Kaye, Fialkow, Richmond & Rothstein and from 1978 to 1980 was a
consultant specializing in real estate at the accounting firm of Laventhol &
Horwath. Mr. Boesky graduated from Michigan State University with a Bachelor of
Arts degree and from Wayne State School of Law with a Juris Doctor degree. He
then received a Master of Laws degree in Taxation from Boston University School
of Law.
ALAN P. HIRMES, age 41, is the sole shareholder of one of the general
partners of Related. Mr. Hirmes has been a Certified Public Accountant in New
York since 1978. Prior to joining Related in October 1983, Mr. Hirmes was
employed by Weiner & Co., certified public accountants. Mr. Hirmes graduated
from Hofstra University with a Bachelor of Arts degree.
RYNE A. NISHIMI, age, 38, is the President of, and serves as the
Director of Marketing for, Related Equities Corporation and has held other
positions in marketing since joining Related in 1983. From 1981 to 1983, Mr.
Nishimi worked for Fox & Carskadon Financial Corporation as a Marketing Manager
in their real estate syndication operation. Mr. Nishimi graduated from Santa
Clara University School of Business Administration with a Bachelor of Science
Degree.
ARTHUR G. HATZOPOULOS, age 42, is a Vice President of Related Capital
Company where he is responsible for a tax-exempt multifamily bond fund and
acquisitions of low-income housing tax credit projects. Prior to joining
Related, Mr. Hatzopoulos was a First Vice President and Portfolio Manager for
First Nationwide Bank, a Federal Savings Bank, where he was responsible for debt
restructuring, special lending relationships and asset sales. He has also been
associated with an investment banking firm where he was responsible for
monitoring a national portfolio of multifamily revenue bond projects. From 1981
to 1985 he served as Deputy Director of the Jersey City Department of Housing
and Economic development. Mr. Hatzopoulos graduated for Columbia University with
a Bachelor of Arts degree. He also holds a Masters in City and Regional Planning
from Harvard University, Kennedy School of Government.
LAWRENCE J. LIPTON, age 39, is a Vice President and controller of the
Related Companies, L.P. Mr. Lipton has been a Certified Public Accountant in New
York since 1989. Prior to joining Related, Mr. Lipton was employed by Deloitte &
Touche from 1987-1991. Mr. Lipton graduated from Rutgers College with a Bachelor
of Arts degree and from Baruch College with a Masters of Business Administration
degree.
LYNN A. McMAHON, age 40, has served since 1983 as assistant to J.
Michael Fried. From 1978 to 1983, she was employed at Sony Corporation of
America in the Government Relations Department.
-27-
<PAGE>
Item 11. Executive Compensation.
The Trust does not pay or accrue any fees, salaries or other forms of
compensation to directors and officers of the Manager for their services. The
Manager and its Affiliates receive substantial fees and compensation in
connection with the organization of the Trust, the offering, investment of the
proceeds and the management of the investments. Certain directors and officers
of the Manager and certain officers of the Trust receive compensation from the
Manager and its Affiliates (and not from the Trust) for services performed for
various affiliated entities which may include services performed for the Trust.
Such compensation may be based in part on the performance of the Trust; however,
the Manager believes that any compensation attributable to services performed
for the Trust is immaterial. See also Note 5 to the Financial Statements in Item
8 above, which is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of December 31, 1995, no person was known by the Trust to be the
beneficial owner of more than five percent of the outstanding shares of the
Trust. No directors and officers of the Manager own any shares of the Trust.
Item 13. Certain Relationships and Related Transactions.
The Trust has and will continue to have certain relationships with the
Manager and its affiliates, as discussed in Item 11 and Item 8, Note 5. However,
there have been no direct financial transactions between the Trust and the
directors and officers of the Manager.
-28-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
<TABLE>
<CAPTION>
Sequential
(a)1. Financial Statements Page
<S> <C> <C>
Independent Auditors' Report 12
Balance Sheets at December 31, 1995 and 1994 13
Statement of Operations - year ended December 31, 1995 14
Statement of Changes in Shareholders' Equity -
year ended December 31, 1995 15
Statement of Cash Flows - year ended December 31, 1995 16
Notes to Financial Statements 17
(a)2. Financial Statement Schedules
All schedules have been omitted because they are not required or because
the required information is contained in the Financial Statements or
notes thereto.
(a)3. Exhibits
3(a) Certificate of Trust and Certificate of Amendment from
Certificate of Trust (incorporated by reference to Exhibit 3(a)
to the Registration Statement on Form S-11, File No. 33-73688).
3(b),4 Second Amended and Restated Business Trust Agreement
(incorporated by reference from Exhibit 3(b), 4 to the
Registration Statement on Form S-11, File No. 33-73688).
10(a) Escrow Agreement (incorporated by reference from Exhibit 10(a) to
the Registration Statement on Form S-11, File No. 33-73688).
10(b) Fee Agreement (incorporated by reference from Exhibit 10 (b) to
the Registration Statement on Form S-11, File No. 33-73688).
10(c) Orange County Housing Finance Authority Multifamily Revenue
Refunding Bonds 1995 Series (Casselberry-Oxford Associates
Project) in the principal amount of $10,700,000 dated December 1,
1995 (incorporated by reference to Current Report on Form 8-K, as
previously filed on December 21, 1995).
27 Financial Data Schedule (filed herewith). 32
99. Additional Exhibits
99(a) The financial statements of Casselberry-Oxford Associates
Limited Partnership for years ended December 31,
1995(audited), 1994 (unaudited) and 1993 (unaudited) which
owns and operates a 336 unit rental housing community known as
Reflections Apartments located in Casselberry, Florida, as
required by Staff Accounting Bulletin No. 71 (filed herewith). 33
(b) One report on Form 8-K had been filed during the quarter ended
December 31, 1995 related to the acquisition of the Reflections
Bonds.
</TABLE>
-29-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN TAX-EXEMPT BOND TRUST
(Registrant)
By: RELATED AMI ASSOCIATES, INC., as Manager
Date: August 8, 1996 By: /s/ J. Michael Fried
J. Michael Fried
Director and President
Date: August 8, 1996 By: /s/ Stuart J. Boesky
Stuart J. Boesky
Director and Senior
Vice President
-32-
<PAGE>
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Signature Title Date
/s/ J. Michael Fried Director and President
J. Michael Fried (Principal Executive Officer)
of the Manager August 8, 1996
/s/ Stuart J. Boesky Director and
Stuart J. Boesky Senior Vice President
of the Manager August 8, 1996
/s/ Alan P. Hirmes Senior Vice President
Alan P. Hirmes (Principal Financial Officer)
of the Manager August 8, 1996
/s/ Lawrence J. Lipton Treasurer
Lawrence J. Lipton (Principal Accounting Officer)
of the Manager August 8, 1996
-33-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the
financial statements for American Tax-Exempt Bond Trust and is qualified
in its entirety by reference to such financial statements
</LEGEND>
<CIK> 0000916824
<NAME> American Tax Exempt Bond Trust
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,314,564
<SECURITIES> 13,697,140
<RECEIVABLES> 374,036
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,385,740
<CURRENT-LIABILITIES> 174,470
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,211,270
<TOTAL-LIABILITY-AND-EQUITY> 17,385,740
<SALES> 0
<TOTAL-REVENUES> 376,779
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 148,893
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 227,886
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 227,886
<EPS-PRIMARY> .57
<EPS-DILUTED> 0
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Casselberry-Oxford Associates Limited Partnership
We have audited the accompanying balance sheet of Casselberry-Oxford
Associates Limited Partnership as of December 31, 1995, and the related
statements of operations, partners' deficit and cash flows for the year then
ended. 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 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 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 audit provides 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 Casselberry-Oxford
Associates Limited Partnership as of December 31, 1995, and the results of
its operations and its cash flows for the year then ended, in conformity with
general accounting principles.
As discussed in note 2, during 1995 the partnership changed its method of
reporting from the basis used for income tax purposes to a basis in
conformity with generally accepted accounting principles.
/s/Reznick Fedder & Silverman
Reznick Fedder & Silverman
Bethesda, Maryland
January 26, 1996
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT IN PROPERTY AND EQUIPMENT
Property and equipment $7,158,819
OTHER ASSETS
Cash and cash equivalents 34,237
Tenant receivables 19,337
Due from Oxford 19,116
Tenant security deposits--funded 46,844
Prepaid expenses 10,000
Mortgage escrow deposits 87,096
Refinancing escrow 107,381
Debt service reserve escrow 200,000
Unamortized costs 478,142
-----------
$8,160,972
===========
</TABLE>
LIABILITIES AND PARTNERS' DEFICIT
----------------------------------
<TABLE>
<S> <C> <C>
LIABILITIES APPLICABLE TO INVESTMENT IN PROPERTY AND EQUIPMENT
Mortgage note payable .......................................... $10,700,000
Accrued interest payable ....................................... 29,425
-----------
10,729,425
OTHER LIABILITIES
Accounts payable ............................................... 407,344
Tenant security deposits ....................................... 46,141
Deferred rental revenue ........................................ 8,982
Working capital advances ....................................... 3,234
Accrued investor services fee .................................. 7,000
Working capital loan (includes accrued interest of $16,858) .... 831,858
Operating expenses loan (includes accrued interest of $67,280) . 1,233,909
Loan payable ................................................... 347,177
Deferred management fees ....................................... 148,460
Subordinated management fees ................................... 67,468
Subordinated loan payable ...................................... 153,843
-----------
13,984,841
COMMITMENTS AND CONTINGENCIES
PARTNERS' DEFICIT
Capital contributions .......................................... $ 5,835,310
Less: Nonamortizable costs ..................................... 439,499
------------
5,395,811
Cumulative cash distributions .................................. (324,745)
Cumulative losses .............................................. (10,894,935) (5,823,869)
------------ -----------
$ 8,160,972
===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
Gross potential rental revenue .............. $2,128,778
Less vacancies and allowances ............... 212,097
----------
Net rental revenue ........................ 1,916,681
Interest income ............................. 18,324
Other income ................................ 128,757
----------
Total operating revenue ................. 2,063,762
----------
Operating expenses
Renting ................................... $ 26,777
Administrative ............................ 247,723
Maintenance and operating ................. 778,278
Utilities ................................. 149,225
Taxes ..................................... 187,946
Insurance ................................. 60,485 1,450,434
----------
Mortgage interest ........................... 829,838
Interest on advances and loans .............. 16,858
Depreciation ................................ 229,652
Amortization ................................ 6,981
Financing fees .............................. 293,207
Letter of credit fees ....................... 14,237
Investor services fees ...................... 7,806
Professional fees ........................... 975
Other partnership expenses .................. 8,556 1,408,110
---------- ---------
Total expenses .............................. 2,858,544
----------
Net loss .................................... $ (794,782)
==========
The accompanying notes are an integral part of this statement.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Gross Less Net Cumulative
Capital Nonamortizable Capital Cash Cumulative Partners'
Contributions Costs Contributions Distributions Losses Deficit
-------------- --------------- -------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Partners' deficit, 1/1/95,
as previously reported ..... $5,835,310 $(439,499) $5,395,811 $(324,745) $(14,953,375) $(9,882,309)
Adjustment to reflect the
change in method of
financial statement
reporting .................. -- -- -- -- 4,853,222 4,853,222
---------- ---------- ----------- ---------- ------------ ------------
Partners' deficit, 1/1/95,
as restated ................ 5,835,310 (439,499) 5,395,811 (324,745) (10,100,153) (5,029,087)
Net loss ..................... -- -- -- -- (794,782) (794,782)
---------- ---------- ----------- ---------- ------------ ------------
Partners' deficit, 12/31/95 .. $5,835,310 $(439,499) $5,395,811 $(324,745) $(10,894,935) $(5,823,869)
========== ========== =========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities
Net loss ................................................................ $ (794,782)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation .......................................................... 229,652
Amortization .......................................................... 6,981
Changes in asset and liability accounts (Increase) decrease in assets
Tenant receivables .................................................... (15,930)
Prepaid expenses ...................................................... 14,237
Unamortized costs ..................................................... (479,589)
Mortgage escrow deposits .............................................. 35,761
Debt service escrow ................................................... (107,381)
Tenant security deposits--net ......................................... (587)
Increase (decrease) in liabilities
Accounts payable ...................................................... 346,237
Accrued interest payable .............................................. (277,085)
Accrued interest--working capital loan ................................ 16,858
Deferred rental revenue ............................................... (825)
Deferred management fees .............................................. 29,170
Deferred fees payable ................................................. (333,643)
-----------
Net cash used in operating activities ............................... (1,330,926)
-----------
Cash flows from investing activities
Net disbursements from project reserve account--Fleet ................... 353,739
Net disbursements from debt service reserve escrow--Fleet ............... 350,216
Net deposits to debt service reserve escrow--Related .................... (200,000)
-----------
Net cash provided by investing activities ........................... 503,955
-----------
Cash flows from financing activities
Proceeds from working capital advances .................................. 2,484
Proceeds from working capital loan ...................................... 815,000
-----------
Net cash provided by financing activities ........................... 817,484
-----------
NET DECREASE IN CASH EQUIVALENTS ...................................... (9,487)
Cash and cash equivalents, beginning ...................................... 43,724
-----------
Cash and cash equivalents, end ............................................ $ 34,237
===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest .................................. $ 1,106,923
===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1--ORGANIZATION
Casselberry-Oxford Associates Limited Partnership, a Maryland limited
partnership, was formed January 1, 1983 to acquire an interest in real
property located in Casselberry, Florida and to construct and operate a 336
unit rental housing community known as Reflections Apartments. The
partnership will continue to operate until December 31, 2036, unless
dissolved earlier in accordance with the partnership agreement. The
partnership has entered into an agreement, which governs the rental, sale,
and conversion of the units with the Orange County Housing Finance Authority
of the State of Florida, and Suntrust Bank, Central Florida, National
Association. The agreement provides for, among other things, the rental of at
least 20% of the units to tenants whose income does not exceed 80% of the
median area income. This restriction is necessary in order for the
partnership to comply with the provisions of the Internal Revenue Code
governing preservation of the tax exempt status of the bonds issued by the
Orange County Housing Finance Authority.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the
preparation of the financial statements follows.
Basis of Accounting
Prior to 1995, the partnership maintained its financial records and
prepared its financial statements on the basis of accounting used for income
tax purposes. As a result, the partnership amortized construction period
interest and taxes as allowed by the Internal Revenue Code, and depreciation
was computed on the accelerated cost recovery system, rather than
capitalizing the development period costs and depreciating the buildings over
their estimated economic lives as required by generally accepted accounting
principles. Pursuant to the terms of the refinancing (note 5), the
partnership was required to change its method of reporting from the basis
used for income tax purposes to a basis in conformity with generally accepted
accounting principles. The effect of this change in accounting method was to
decrease partners' deficit at January 1, 1995, by $4,853,222 for the
cumulative effect of the change on net loss for prior years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Rental Income
Rental income is recognized as rentals become due. Rental payments
received in advance are deferred until earned. All leases between the
partnership and the tenants of the property are operating leases.
Cash Equivalents
The Partnership invests substantially all of its available cash in the
operating bank account in an overnight investment in commerical paper which
is considered to be a cash equivalent. The carrying amount of the investment
approximates fair value. At December 31, 1995, $31,876 was invested.
Depreciation
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives on a
straight-line basis for financial reporting purposes. Accelerated lives and
methods are used for income tax purposes.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Unamortized Costs
Permanent financing costs are being amortized on the straight-line method
over the term of the mortgage.
Nonamortizable Costs
The partnership has determined that nonamortizable costs of $439,499,
attributable to the issuing and marketing of limited partnership interests,
are a direct reduction of capital.
Income Taxes
No provision or benefit for income taxes has been included in these
financial statements since the taxable income or loss passes through to, and
is reportable by, the partners on their respective income tax returns.
NOTE 3--RELATED PARTY TRANSACTIONS
The general partners of the partnership are Leo E. Zickler and OAMCO VII,
L.L.C.
The general partners are officers and/or affiliates of Oxford Development
Corporation (Oxford), Oxford Holding Corporation (OHC), Oxford Realty
Financial Group, Inc. (ORFG), or NHP Inc.
The following items were paid or are payable to Oxford, OHC, ORFG, NHP
Inc. or their affiliates from operating revenues or distributable net cash
flow.
Property Management Fee
The partnership has entered into an agreement with NHP Management Company,
an affiliate of NHP Inc. to provide property management services to the
partnership. The fee for such services is equal to 3.36% of gross collections
which was $66,980 in 1995. The agreement expires December 31, 1996, at which
time it can be automatically renewed for one year periods, subject to certain
limitations.
Deferral of Fees
Pursuant to the terms of the partnership agreement, 33.3% of the property
management fees are deferred in any year in which certain operating income
levels are not achieved. Deferred amounts will be repayable without interest
from distributable net cash flow (note 6) or from the proceeds of sale or
refinancing, after certain priorities. In 1995, $21,757 was deferred by NHP
Management Company and as of December 31, 1995, the cumulative amounts
deferred by NHP Management Company was $45,287. Effective December 22, 1995,
pursuant to the refinancing (note 5), the deferral requirement has been
eliminated.
Additionally, Oxford Management Company, Inc. (OMC), the former property
management agent, had deferred management fees of $87,745 in prior years.
Subordination of Fees
In 1987, OMC agreed to subordinate $67,468 of its management fees. This
amount is repayable to OMC, without interest, from distributable net cash
flow (note 6) or proceeds of sale or refinancing of the project, after
certain priorities.
Accounting and Data Processing Fee
NHP Management Company receives an accounting and data processing fee of
$1.49 per unit per month. A fee of $6,015 was paid in 1995.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3--RELATED PARTY TRANSACTIONS (continued)
Administrative Fee
NHP Management Company receives an annual fee of $895 for preparation of
workpapers and account analyses for the audit firm.
Incentive Management Fee
NHP Management Company receives an incentive management fee payable from
distributable net cash flow after certain priorities (note 6). No fee was
earned in 1995.
Capital Improvement Consulting, Oversight, and Administrative (CICOA) Fee
NHP Management Company earns a fee for its services in special planning
and oversight in connection with capital improvements made to the rental
property. The fee is 7.46% of the actual costs of certain capital
improvements, subject to certain limitations, and is payable to NHP
Management Company from operating revenue. The fee earned in 1995 was $1,707.
Cash Management Fee
NHP Management Company receives a cash management fee for managing and
investing partnership funds. The fee is 1.12% of the average monthly
investment portfolio (computed on an annualized basis) managed by NHP
Management Company. The fee earned by NHP Management Company in 1995 was
$1,019 and was offset against interest income.
Asset Management Fees
The partnership has entered into an Asset Management Agreement with ORFG
to provide certain supervisory and asset management services to the
partnership, which previously had been provided by the former property
management agent, OMC, but are not provided by NHP Management Company,
including overseeing the property manager. The fee earned for such services
in 1995 was $26,100, representing an amount equal to 34.1% of all the
above-referenced fees payable to NHP Management Company, and is currently
payable as an operating expense. Pursuant to the terms of the partnership
agreement, ORFG is required to subordinate one-third of a portion of this fee
which was $7,412 in 1995 and as of December 31, 1995, the cumulative amount
deferred was $15,428 and is included in deferred management fees. Effective
December 22, 1995, pursuant to the refinancing (note 5), the subordination
requirement has been eliminated.
Additionally, ORFG earns a fee equal to 1% of the gross receipts. This fee
is deferred and is payable from distributable net cash flow (note 6). No such
fee was expensed in 1995.
Management estimates that projected future cash flow will not be
sufficient to pay the asset management fee equal to 1% of gross receipts.
Consequently, the partnership has ceased accrual of this fee. If, in the
future, the partnership determines that projected cash flow is sufficient to
pay this fee, the partnership will accrue any prior year's fees and interest
thereon at that time.
Investor Services Fee
An investor services fee is payable annually on a cumulative basis to ORFG
for its services in preparing necessary reports for the investor limited
partners and in communicating with them concerning the partnership's affairs.
The fee may be increased by the same percentage as the average percentage
increase in the project's rent. A fee of $7,806 was expensed and paid in
1995.
Prior to January 1, 1994, Oxford Equities Corporation (OEC) was the
servicer of this information. The balance due OEC at December 31, 1995 was
$7,000.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3--RELATED PARTY TRANSACTIONS (continued)
Due from Oxford
When OMC provided property management services to the partnership, the
employees of the partnership were paid through a common paymaster, Oxford
Realty Services Corporation (ORSC). The partnership had a deposit with ORSC
of $19,116 which represented approximately the amount advanced by ORSC to
fund payroll before being reimbursed by the partnership. This deposit will be
refunded by ORSC in accordance with the Payroll Reimbursement Agreement.
The following loans have been made to the partnership by Oxford or its
affiliates.
Working Capital Advances
Oxford has provided non-interest bearing working capital advances, which
are repayable from first available distributable cash flow. As of December
31, 1995, the balance due Oxford was $3,234.
Working Capital Loan
Oxford made loans to the partnership during 1995, in the amount of
$815,000 for the purpose of enabling the partnership to extend the letter of
credit while pursuing refinancing or a sale, for the purpose of funding
obligations under the Commitment Letter, and to fund the bond refunding and
other closing costs. Repayment of this loan will be subordinated to certain
priority returns to the Preferred ILPs (note 6), with the unpaid balance
accruing interest at a simple rate equal to 10% per annum. Interest of
$16,858 was expensed in 1995. As of December 31, 1995, the amount due Oxford
was $831,858, which includes accrued interest of $16,858.
Operating Expense Loan
Pursuant to a loan and incentive fee agreement between OMC and the
partnership, OMC has agreed to provide an operating expense loan. OMC has
advanced $1,233,909 as of December 31, 1995 which includes accrued interest
of $67,280. Pursuant to an earlier agreement no additional interest will be
charged. The loan is repayable from distributable net cash flow (note 6) or
proceeds of the sale or refinancing of the project, after certain priorities.
OMC is not required to make additional operating expense loans as the term of
this obligation has expired.
Subordinated Loan Payable
During 1988, a collateral security account funded by Oxford, in the amount
of $153,843 was drawn to pay mortgage interest of the partnership. This
amount is repayable to Oxford, without interest, upon sale or refinancing of
the project, after certain priorities.
Amounts outstanding on the above notes and loans at the time of sale or
refinancing of the project or the dissolution of the partnership are payable
from the proceeds of such sale, refinancing or partnership liquidation.
As described above, the related party notes and loans are repayable from
available cash flow, if any. Accordingly, management believes it is not
practicable to estimate the fair value of these notes and loans.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated
depreciation, and at December 31, 1995 consisted of the following:
<TABLE>
<S> <C>
Land ............................................. $ 700,000
Buildings ........................................ 9,173,606
Building equipment ............................... 1,598,578
------------
11,472,184
Less accumulated
depreciation ................................... (4,313,365)
------------
$ 7,158,819
============
</TABLE>
NOTE 5--MORTGAGE NOTE PAYABLE
During the year, the partnership was obligated on a mortgage loan in the
original amount of $10,700,000 which was payable to Independence One Mortgage
Corporation. The mortgage loan was financed by tax-exempt bonds issued by
Orange County Housing Finance Authority. The mortgage note provided for: (a)
interest at 6-7/8% per annum; (b) monthly payments to the debt service escrow
to fund the semi-annual payments of interest; (c) establishment of a Project
Reserve Account; and (d) original maturity on Feburary 1, 1995, which was
extended to June 30, 1995.
The mortgage loan was secured by a first mortgage lien on the property, an
assignment of rents and leases, and a letter of credit in the amount of
$11,129,115 issued by Fleet National Bank. The letter of credit was secured
by a second mortgage lien on the property and a second assignment of rents
and leases
In addition, Casselberry obtained an extension of the bond maturity until
June 30, 1995 from the Orange County Housing Finance Agency. In conjunction
with the loan extension, the interest rate on the mortgage loan was reduced
from 6.875% to 4.95% until June 30, 1995. A new extension was not agreed
upon, and effective July 1, 1995, the interest rate was increased to the
default rate of 10.75%.
As part of the extension, Fleet agreed that it would not foreclose on the
property until October 31, 1995, in order to provide the partnership with
sufficient time to arrange for either a refinancing or sale. Prior to the
scheduled bond maturity, Fleet purchased the bonds in lieu of their
redemption. On August 2, 1995, the partnership signed a letter of intent with
Related Capital Company (RCC) for the refinancing of the mortgage and on
October 11, 1995, RCC purchased the mortgage bonds from Fleet.
On December 22, 1995, the refinancing with RCC closed. The new mortgage
loan provides for, among other things: (a) principal amount of $10,700,000;
(b) maturity on December 22, 2005; (c) an interest rate equal to 9% per
annum; (d) monthly payments of interest only and quarterly interest payments
equal to 25% of net cash flow after a priority payment to the partners of
3.7% of total operating income for the period to the partnership; and (e)
establishment of a replacement reserve with an initial deposit of $200,000
and for the first 24 months deposits of $8,400 per month and $7,000,
thereafter.
The carrying amount of the partnership's mortgage note payable
approximates fair value.
The liability of the partnership is limited to the property and equipment
collateralizing the mortgage note and certain other amounts deposited with
the mortgage lender.
In 1989, the partnership received a loan from Merrill Lynch, Hubbard,
Inc., to cover certain costs of refinancing the mortgage loan. The loan is
repayable, without interest, from the proceeds of the sale or refinancing of
the project, after certain priorities. As of December 31, 1995, the loan
balance was $347,177. Because the loan is only payable from the proceeds of
the sale or refinancing of the project, management believes it is not
practicable to estimate the fair value of this loan.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6--PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS
Partners' capital contributions are as follows:
General and Special Limited Partners .... $ 260
Investor Limited Partners ............... 4,750,050
Preferred Limited Partners .............. 1,085,000
----------
$5,835,310
==========
Distributable net cash flow at
December 31, 1995 is as follows:
Cash .................................... $ 34,237
Tenant security deposits--funded ........ 46,844
----------
81,081
Less: Accounts payable .................. $ 407,344
Tenant security deposits .......... 46,141
Deferred rental revenue ........... 8,982
Accrued interest payable .......... 29,425 491,892
--------- ----------
Distributable net cash flow ............. $ (410,811)
==========
The general partners have the right to reserve for contingencies and
future replacements in amounts determined adequate for such purposes at any
time.
Distributable net cash flow, when available, is payable as follows:
a) To the preferred limited partners, payment of an $87,000 cumulative,
annual preferred return beginning in 1996;
b) To payment of any unpaid investor services fees;
c) To ORFG, payment of any unpaid asset management fee charged to the
partnership beginning in 1996 and any accrued interest thereon;
d) To Oxford, all unpaid interest of 10%, simple interest, on Oxford working
capital loan in the original amount of $815,000 made in 1995;
e) From 50% of remaining distributable net cash flow, repayment of
outstanding principal on the Oxford working capital loan in the original
amount of $815,000;
f) To the preferred limited partners, an amount equal to a cumulative,
compounded return of 15% per year on the preferred capital contributions
($1,068,362 as of December 31, 1995 less prior distributions to preferred
limited partners);
g) To the preferred limited partners, an amount equal to the preferred
capital contributions;
h) To ORSC and ORFG, payment of the 1992 - 1995 asset management fees from
up to 50% of distributable cash flow;
i) To OMC, NHP Management Company and ORFG, in payment of any deferred
property management fees;
j) To the investor limited partners, up to $380,000 in accordance with their
partnership interests;
k) To the special limited and general partners, up to $20,000 in accordance
with their partnership interests;
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6--PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS (continued)
l) To OMC, the payment of 1987 subordinated property management fee;
m) To the payment of any operating expense loans, including interest
thereon;
n) The next $126,667, shall be distributed on a non-cumulative basis, as
follows: 25% to the general and special limited partners and 75% to the
investor limited partners;
o) The remaining amount will be distributed 40% to NHP Management Company as
an incentive management fee, 50% to the investor limited partners, and
10% to the special limited and general partners.
Pursuant to the partnership agreement, the Preferred Limited Partners will
receive a priority distribution from the net proceeds of any sale,
refinancing or partnership liquidation.
NOTE 7--MAJOR REPAIRS
In 1994, management discovered that the rental property had incurred
significant structural damage caused by termite infestation and water
penetration. During 1994, management began the process of repairing the
damages which was estimated to cost a total of $500,000 - $700,000 over
several years. During 1995, the partnership incurred costs of approximately
$417,000, completing the repair work. Approximately $200,000 was accrued and
payable as of December 31, 1995.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1994
(Unaudited)
ASSETS
INVESTMENT IN PROPERTY AND EQUIPMENT
Property and equipment ......................................... $ 7,388,468
OTHER ASSETS
Cash ........................................................... 43,724
Tenant receivables ............................................. 3,407
Due from Oxford ................................................ 19,116
Tenant security deposits--funded ............................... 37,366
Prepaid expenses ............................................... 24,237
Mortgage escrow deposits ....................................... 122,857
Debt service escrow ............................................ 350,216
Project reserve account ........................................ 353,739
Unamortized costs .............................................. 5,534
-----------
$ 8,348,664
===========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES APPLICABLE TO INVESTMENT IN PROPERTY AND EQUIPMENT
Mortgage note payable .......................................... $10,700,000
Accrued interest payable ....................................... 306,510
-----------
11,006,510
OTHER LIABILITIES
Accounts payable ............................................... 61,854
Tenant security deposits ....................................... 37,250
Deferred rental revenue ........................................ 9,807
Accrued investor services fee .................................. 7,000
Operating expense loan (includes accrued interest of $67,280) .. 1,233,909
Loan payable ................................................... 347,177
Deferred management fees ....................................... 119,290
Subordinated management fees ................................... 67,468
Subordinated loan payable ...................................... 153,843
Deferred fees payable (Note 5) ................................. 333,643
-----------
13,377,751
Partners' deficit (Note 6):
Capital contributions ..................... $ 5,835,310
Less: Nonamortizable costs (Note 2) ....... 439,499
-----------
5,395,811
Cumulative cash distributions ............. (324,745)
Cumulative losses ......................... (10,100,153) (5,029,087)
------------ -----------
$ 8,348,664
===========
The accompanying notes are an integral part of this statement.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(Unaudited)
Gross potential revenue .......................................... $2,087,095
Less vacancies and allowances .................................... 169,000
----------
Net rental revenue ........................................... 1,918,095
Interest income .................................................. 16,803
Other income ..................................................... 79,310
----------
Total operating revenue ...................................... 2,014,208
----------
Operating expenses
Renting .......................................... $ 30,326
Administrative ................................... 241,698
Maintenance and operating ........................ 530,980
Utilities ........................................ 138,791
Taxes ............................................ 186,851
Insurance ........................................ 46,680 1,175,326
--------
Mortage interest ................................. 735,625
Depreciation ..................................... 229,630
Amortization ..................................... 66,370
Financing fees ................................... 16,451
Letter of credit fees ............................ 168,969
Investor services fee ............................ 7,729
Professional fees ................................ 2,460
Other partnership expenses ....................... 6,429 1,233,663
-------- -----------
Total expenses ............................................. 2,408,989
-----------
Net loss ................................................... $ (394,781)
===========
The accompanying notes are an integral part of this statement.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
Less Cumulative
Gross Capital Non-amortizable Net Capital Cash Cumulative Partners'
Contributions Costs Contributions Distributions Losses Deficit
-------------- ---------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Partners' deficit,
1/1/94 ............. $5,835,310 $(439,449) $5,395,811 $(324,745) $ (9,705,372) $(4,634,306)
Net loss ............. -- -- -- -- (394,781) (394,781)
---------- --------- ---------- ---------- ------------- ------------
Partners' deficit,
12/31/93 ........... $5,835,310 $(439,499) $5,395,811 $(324,745) $(10,100,153) $(5,029,087)
========== ========= ========== ========== ============= ============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
(Unaudited)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss ...................................................................... $(394,781)
Adjustments to reconcile net loss to net cash used in operating activities:
Deprectiation ................................................................ 229,630
Amortization ................................................................. 66,370
Changes in asset and liability accounts:
Tenant receivables .......................................................... (3,156)
Other accounts receivable ................................................... 150
Prepaid expenses ............................................................ (461)
Accounts payable ............................................................ 36,278
Deferred rental revenue ..................................................... (4,614)
Deferred management fees .................................................... 29,767
Net security deposits paid .................................................. 982
Net deposits to escrows for taxes and insurance ............................. (27,783)
Net deposits to debt service escrow ......................................... (3,455)
---------
Net cash used in operating activities ...................................... (71,073)
---------
Cash flows from investing activities:
Net disbursements from project reserve account ................................ 537
---------
Net cash provided by investing activities .................................. 537
---------
NET DECREASE IN CASH ....................................................... (70,536)
Cash, beginning ................................................................ 114,260
---------
Cash, end ...................................................................... $ 43,724
=========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest ........................................ $ 735,625
=========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
(Unaudited)
NOTE 1 -- ORGANIZATION
Casselberry-Oxford Associates Limited Partnership, a Maryland limited
partnership, was formed January 1, 1983 to acquire an interest in real
property located in Casselberry, Florida and to construct and operate a 336
unit rental housing community known as Reflections Apartments. The
partnership will continue to operate until December 31, 2036, unless
dissolved earlier in accordance with the partnership agreement. The
partnership has entered into an agreement, which governs the rental, sale,
and conversion of the units with the Orange County Housing Finance Authority
of the State of Florida, and Independence One Mortgage Corporation. The
agreement provides for, among other things, the rental of at least 20% of the
units to tenants whose income does not exceed 80% of the median area income.
This restriction is necessary in order for the partnership to comply with the
provisions of the Internal Revenue Code governing preservation of the tax
exempt status of the bonds issued by the Orange County Housing Finance
Authority.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the financial statements follows.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Rental Income
Rental income is recognized as rentals become due. Rental payments
received in advance are deferred until earned. All leases between the
partnership and the tenants of the property are operating leases.
Depreciation
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives on a
straight-line basis for financial reporting purposes. Accelerated lives and
methods are used for income tax purposes.
Unamortized Costs
Permanent financing costs are being amortized on the straight-line method
over the term of the mortgage.
Nonamortizable Costs
The partnership has determined that nonamortizable costs of $439,499,
attributable to the issuing and marketing of limited partnership interests,
are a direct reduction of capital.
Income Taxes
No provision or benefit for income taxes has been included in these
financial statements since the taxable income or loss passes through to, and
is reportable by, the partners on their respective income tax returns.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 3 -- RELATED PARTY TRANSACTIONS
The general partners of the partnership are Leo E. Zickler and OAMCO VII,
L.L.C.
The general partners are officers and/or affiliates of Oxford Development
Corporation (Oxford), Oxford Holding Corporation (OHC), Oxford Realty
Financial Group, Inc. (ORFG), or NHP, Inc.
The following items were paid or are payable to Oxford, OHC, ORFG, NHP,
Inc. or their affiliates from operating revenues or distributable net cash
flow.
Property Management Fee
The partnership has entered into an agreement with NHP Management Company,
an affilate of NHP, Inc. to provide property management services to the
partnership. The fee for such services is equal to 3.36% of gross collections
which was $66,612 in 1994. The agreement expires December 31, 1995, at which
time it can be automatically renewed for one year periods, subject to certain
limitations.
Deferral of Fees
Pursuant to the terms of the partnership agreement, 33.3% of the property
management fees are deferred in any year in which certain operating income
levels are not achieved. Deferred amounts will be repayable without interest
from distributable net cash flow (note 6) or from the proceeds of sale or
refinancing, after certain priorities. In 1994, $22,204 was subordinated by
NHP Management Company and as of December 31, 1994, the cumulative amounts
subordinated by NHP Management Company was $23,539.
Additionally, Oxford Management Company, Inc. (OMC), the former property
management agent, had subordinated $87,745 in prior years.
Subordination of Fees
In 1987, OMC agreed to subordinate $67,468 of its management fees. This
amount is repayable to OMC, without interest, from distributable net cash
flow (note 6) or proceeds of sale or refinancing of the project, after
certain priorities.
Accounting and Data Processing Fee
NHP Management Company receives an accounting and data processing fee of
$1.49 per unit per month. A fee of $6,015 was paid in 1994.
Administrative Fee
The management agent receives an annual fee for preparation of workpapers
and account analyses for the audit firm. During 1994, $600 was paid to OMC,
the former property management agent, and $444 was paid to NHP Management
Company for their services relating to the audit work preparation of the 1993
audit.
Incentive Management Fee
NHP Management Company receives an incentive management fee payable from
distributable net cash flow after certain priorities (note 6). No fee was
earned in 1994.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 3 -- RELATED PARTY TRANSACTIONS (continued)
Capital Improvement Consulting, Oversight, and Administrative (CICOA) Fee
NHP Management Company earns a fee for its services in special planning
and oversight in connection with capital improvements made to the rental
property. The fee is 7.46% of the actual costs of certain capital
improvements, subject to certain limitations, and is payable to NHP
Management Company from operating revenue. The fee earned in 1994 was $8,594.
Cash Management Fee
NHP Management Company receives a cash management fee for managing and
investing partnership funds. The fee is 1.12% of the average monthly
investment portfolio (computed on an annualized basis) managed by NHP
Management Company. The fee earned by NHP Management Company in 1994 was
$1,608 and was offset against interest income.
Asset Management Fees
The partnership has entered into an Asset Management Agreement with ORFG
to provide certain supervisory and asset management services to the
partnership, which previously had been provided by the former property
management agent, OMC, but are not provided by NHP Management Company,
including overseeing the property manager. The fee earned for such services
in 1994 was $28,372, representing an amount equal to 34.1% of all the
above-referenced fees payable to NHP Management Company, and was currently
payable as an operating expense. Pursuant to the terms of the partnership
agreement, ORFG is required to subordinate one third of a portion of this fee
which was $7,563 in 1994 and as of December 31, 1994, the cumulative amount
deferred was $8,016.
Additionally, ORFG earns a fee equal to 1% of the gross receipts. This fee
is only payable out of available distributable cash flow after certain
priorities (note 6), if any. Management believes that it is not likely that
sufficient distributable cash flow will be generated for the payment of this
fee and accordingly, has ceased accrual.
Investor Services Fee
An investor services fee is payable annually on a cumulative basis to ORFG
for its services in preparing necessary reports for the investor limited
partners and in communicating with them concerning the partnership's affairs.
The fee may be increased by the same percentage as the average percentage
increase in the project's rent. A fee of $7,729 was expensed in 1994.
Due from Oxford
When OMC provided property management services to the partnership, the
employees of the partnership were paid through a common paymaster, Oxford
Realty Services Corporation (ORSC). The partnership had a deposit with ORSC
of $19,116 which represented approximately the amount advanced by ORSC to
fund payroll before being reimbursed by the partnership. This deposit will be
refunded by ORSC in accordance with the Payroll Reimbursement Agreement.
The following loans have been made to the partnership by Oxford or its
affiliates.
Operating Expense Loan
Pursuant to a loan and incentive fee agreement between OMC and the
partnership, OMC had agreed to provide an operating expense loan. OMC has
advanced $1,233,909 as of December 31, 1994 which includes accrued interest
of $67,280. Pursuant to an earlier agreement no additional interest will be
charged. The loan is repayable from distributable net cash flow (note
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 3 -- RELATED PARTY TRANSACTIONS (continued)
6) or proceeds of the sale or refinancing of the project, after certain
priorities. OMC is not required to make additional operating expense loans as
the term of this obligation has expired.
Subordinated Loan Payable
During 1988, the collateral security account funded by Oxford, in the
amount of $153,843 was drawn to pay mortgage interest of the partnership.
This amount is repayable to Oxford, without interest, upon sale or
refinancing of the project, after certain priorities.
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated
depreciation, and at December 31, 1994 consisted of the following:
Land ............................. $ 700,000
Buildings ........................ 9,173,606
Building equipment ............... 1,598,578
------------
11,472,184
Less accumulated depreciation .... (4,083,716)
------------
$ 7,388,468
============
NOTE 5 -- MORTGAGE NOTE PAYABLE
The mortgage loan in the original amount of $10,700,000 is payable to
Independence One Mortgage Corporation. The mortgage note provides for: (a)
interest a 6-7/8% per annum; (b) monthly payments to the debt service escrow
to fund the semi-annual payments of interest; (c) maturity on February 1,
1995; and (d) establishment of the Project Reserve Account to be used to fund
debt service escrow shortfalls and under certain circumstances, operating
expenses or distributions to partners.
The mortgage loan is secured by a first mortgage lien on the property, an
assignment of rents and leases, and a letter of credit in the amount of
$11,129,115 issued by Fleet National Bank. The letter of credit is secured by
a second mortgage lien on the property and a second assignment of rents and
leases. The partnership pays an annual fee to Fleet National Bank for its
issuance of the letter of credit. The fee expensed in 1994 was $168,969. In
addition, Fleet has agreed to defer $333,643 of prior years' fees without
interest. These fees are due on or before July 31, 1995 and are secured by
the Project Reserve Account.
The liability of the partnership is limited to the property and equipment
collateralizing the mortgage note and certain other amounts deposited with
the mortgage lender.
To cover certain costs of refinancing the mortgage loan in 1989, the
partnership received a loan from Merrill Lynch, Hubbard, Inc. The loan is
repayable, without interest, from the proceeds of the sale or refinancing of
the project, after certain priorities. As of December 31, 1994, the loan
balance was $347,177.
The partnership was not able to procure permanent refinancing to pay off the
mortgage when it was due. Casselberry's failure to repay its first mortgage loan
prior to the February 1, 1995 maturity date was an event of default under the
mortgage
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5 -- MORTGAGE NOTE PAYABLE (continued)
loan documents. Prior to the event of default, Casselberry began negotiations
with Fleet National Bank concerning the partnership's inability to repay the
existing loan. On January 31, 1995, Casselberry and Fleet National Bank
reached agreement on and implemented a five-month extension of Fleet National
Bank's letter of credit, postponing the due date on the loan until June 30,
1995. In addition, Casselberry obtained an extension of the bond maturity
until June 30, 1995 from the Orange County Housing Finance Agency, the Issuer
of the bonds. In conjunction with the loan extension, the interest rate on
the mortgage loan was reduced from 6.875% to 4.95% until June 30, 1995.
NOTE 6 -- PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS
Partners' capital contributions are as follows:
General and Special Limited Partners ........................ $ 260
Investor Limited Partners ................................... 4,750,050
----------
Preferred Limited Partners .................................. 1,085,000
----------
$5,835,310
==========
Distributable net cash flow at December 31, 1994 is as follows:
Cash .............................................. $ 43,724
Tenant security deposits -- funded ................ 37,366
Debt service escrow ............................... 350,216
-------
431,306
Less:
Accounts payable .................................. $ 61,854
Tenant security deposits .......................... 37,250
Deferred rental revenue ........................... 9,807
Accrued interest payable .......................... 306,510 415,421
------- -------
Distributable net cash flow $ 15,885
========
The general partners have the right to reserve for contingencies and
future replacements in amounts determined adequate for such purposes at any
time.
Distributable net cash flow, when available, is payable as follows:
(a) To the preferred limited partners, an amount equal to a cumulative,
compounded return of 15% per year on the preferred capital contributions
($787,489 as of December 31, 1994);
(b) To the preferred limited partners, an amount equal to the preferred
capital contributions;
(c) To ORFG, payment of the asset management fee from, up to 50% of
distributable cash flow;
(d) To NHP Management Corporation, in payment of any deferred property
management fees;
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 6 -- PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS (continued)
(e) To the investor limited partners, a payment equal to the lesser of
$380,000 or projected distributions to the investor limited partners for the
year, in accordance with their partnership interests;
(f) To the special limited and general partners, a payment equal to the
lesser of $20,000 or projected distributions to the special limited and
general partners for the year;
(g) To the payment of any subordinated property management fees;
(h) To the payment of any operating expense loans, including interest
thereon;
(i) To the partners, on a non-cumulative basis, a payment of up to
$400,000 reduced by any distributions under (d) and (e) above with 95%
allocated to the investor limited partners and 5% to the special limited and
general partners;
(j) The next $126,667, shall be distributed on a non-cumulative basis, as
follows: 25% to the general and special limited partners and 75% to the
investor limited partners;
(k) The remaining amount will be distributed 40% to OMC and/or NHP
Management Company as an incentive management fee, 50% to the investor
limited partners, and 10% to the special limited and general partners.
Pursuant to the partnership agreement, the Preferred Limited Partners will
receive a priority distribution from the net proceeds of any sale,
refinancing or partnership liquidation.
NOTE 7 -- MAJOR REPAIRS
Management has discovered that the rental property has incurred
significant structural damage caused by termite infestation and water
penetration. During 1994, management began the process of repairing the
damages which is estimated to cost a total of $500,000-$700,000 over several
years. During 1994, the partnership incurred costs of approximately $150,000
which was paid out of project operations. Future years' repair costs will be
paid from either project operations, the project reserve account, or from
excess refinancing proceeds. Management estimates that 1995 costs will be
$350,000.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1993
(Unaudited)
ASSETS
INVESTMENT IN PROPERTY AND EQUIPMENT
Property and equipment .......................................... $ 7,618,098
OTHER ASSETS
Cash ............................................................ 114,260
Tenant receivables .............................................. 251
Other accounts receivable ....................................... 150
Due from Oxford ................................................. 19,116
Tenant security deposits -- funded .............................. 20,867
Prepaid expenses ................................................ 23,776
Mortgage escrow deposits ........................................ 95,074
Debt service escrow ............................................. 346,761
Project reserve account ......................................... 354,276
Unamortized costs ............................................... 71,904
-----------
$ 8,664,533
===========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES APPLICABLE TO INVESTMENT IN
PROPERTY AND EQUIPMENT
Mortgage note payable ........................................... $10,700,000
Accrued interest payable ........................................ 306,510
-----------
11,006,510
OTHER LIABILITIES
Accounts payable ................................................ 25,576
Tenant security deposits ........................................ 19,769
Deferred rental revenue ......................................... 14,421
Accrued investor services fee ................................... 7,000
Operating expense loan (includes accrued interest of $67,280) ... 1,233,909
Loan payable .................................................... 347,177
Deferred management fees ........................................ 89,523
Subordinated management fees .................................... 67,468
Subordinated loan payable ....................................... 153,843
Deferred fees payable ........................................... 333,643
-----------
13,298,839
Partners' deficit:
Capital contributions ........................ $ 5,835,310
Less: Nonamortizable costs ................... 439,499
-----------
5,395,811
Cumulative cash distributions ................ (324,745)
Cumulative losses ............................ (9,705,372) (4,634,306)
----------- -----------
$ 8,664,533
===========
The accompanying notes are an integral part of this statement.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(Unaudited)
Gross potential revenue ............................................ $2,004,025
Less vacancies and allowances ...................................... 91,090
----------
Net rental revenue ............................................. 1,912,935
Interest income .................................................... 17,167
Other income ....................................................... 123,087
----------
Total operating revenue ........................................ 2,053,189
----------
Operating expenses
Renting ................................. $ 29,939
Administrative .......................... 228,371
Maintenance and operating ............... 400,442
Utilities ............................... 113,168
Taxes ................................... 184,098
Insurance ............................... 31,803 987,821
----------
Mortgage interest ......................... 735,625
Depreciation ............................ 356,649
Amortization ............................ 66,377
Financing fees .......................... 16,451
Letter of credit fees ................... 163,960
Investor services fee ................... 7,504
Other partnership expenses .............. 621 1,347,187
---------- ----------
Total expenses ............................................... 2,335,008
-----------
Net loss ..................................................... $ (281,819)
===========
The accompanying notes are an integral part of this statement.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1993
(Unaudited)
<TABLE>
<CAPTION>
Gross Less Cumulative
Capital Non-amortizable Net Capital Cash Cumulative Partners'
Contributions Costs Contributions Distributions Losses Deficit
------------- --------------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Partners' deficit, 1/1/93
as previously reported ................ $5,835,310 $(439,499) $5,395,811 $(187,149) $(13,949,047) $(8,740,395)
Adjustment to reflect the
change in method of financial
statement reporting ................... -- -- -- -- 4,525,494 4,525,494
---------- --------- ---------- --------- ------------ -----------
Partners' deficit 1/1/93, as restated ... 5,835,310 (439,499) 5,395,811 (187,159) (9,423,553) (4,214,901)
Cash distributions ...................... (137,586) (137,586)
Net loss ................................ (281,819) (281,819)
---------- --------- ---------- --------- ------------- -----------
Partners' deficit, 12/31/93 ............. $5,835,310 $(439,499) $5,395,811 $(324,745) $ (9,705,372) $(4,634,306)
========== ========= ========== ========= ============= ===========-
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
(Unaudited)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss ....................................................................... $(281,819)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation ................................................................. 356,649
Amortization ................................................................. 66,377
Changes in asset and liability accounts
Tenant receivables ......................................................... (56)
Other accounts receivable .................................................. (150)
Accounts payable ........................................................... (14,610)
Deferred rental revenue .................................................... (360)
Deferred management fees ................................................... 30,554
Net security deposits paid ................................................. (485)
Net deposits to escrows for taxes and insurance ............................ (32,060)
Net deposits to debt service escrow ........................................ (3,962)
---------
Net cash provided by operating activities ................................ 120,078
---------
Cash flows from investing activities:
Net deposits to project reserve account ........................................ (1,634)
Purchase of property and equipment ............................................. (3,117)
---------
Net cash used in investing activities .................................... (4,751)
---------
Cash flows from financing activities:
Distributions to partners ...................................................... (137,586)
---------
Net cash used in financing activities .................................... (137,586)
---------
NET DECREASE IN CASH ..................................................... (22,259)
Cash, beginning .................................................................. 136,519
---------
Cash, end ........................................................................ $ 114,260
=========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest ......................................... $ 735,625
=========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993
(Unaudited)
NOTE 1 -- ORGANIZATION
Casselberry-Oxford Associates Limited Partnership, a Maryland limited
partnership, was formed January 1, 1983 to acquire an interest in real
property located in Casselberry, Florida and to construct and operate a 336
unit rental housing community known as Reflections Apartments. The
partnership will continue to operate until December 31, 2036, unless
dissolved earlier in accordance with the partnership agreement. The
partnership has entered into an agreement, which governs the rental, sale,
and conversion of the units with the Orange County Housing Finance Authority
of the State of Florida, and Independence One Mortgage Corporation. The
agreement provides for, among other things, the rental of at least 20% of the
units to tenants whose income does not exceed 80% of the median area income.
This restriction is necessary in order for the partnership to comply with the
provisions of the Internal Revenue Code governing the preservation of the tax
exempt status of the bonds issued by the Orange County Housing Finance
Authority.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the financial statements follows.
Basis of Accounting
Prior to 1993, the partnership maintained its financial records and
prepared its financial statements on the basis of accounting used for income
tax purposes. As a result, the partnership amortized construction period
interest and taxes as allowed by the Internal Revenue Code, and depreciation
was computed on the accelerated cost recovery system, rather than
capitalizing the development period costs and depreciating the buildings over
their estimated economic lives as required by generally accepted accounting
principles. Effective January 1, 1993, the partnership has changed its method
of reporting from the basis used for income tax purposes to a basis in
conformity with generally accepted accounting principles. The effect of this
change in accounting method was to decrease partners' deficit at January 1,
1993 by $4,525,494 for the cumulative effect of the change on net loss for
prior years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Rental Income
Rental income is recognized as rentals become due. Rental payments
received in advance are deferred until earned. All leases between the
partnership and the tenants of the property are operating leases.
Depreciation
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives on a
straight-line basis for financial reporting purposes. Accelerated lives and
methods are used for income tax purposes.
Unamortized Costs
Permanent financing costs are being amortized on the straight-line method
over the term of the mortgage.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Nonamortizable Costs
The partnership has determined that nonamortizable costs of $439,499,
attributable to the issuing and marketing of limited partnership interests,
are a direct reduction of capital.
Income Taxes
No provision or benefit for income taxes has been included in these
financial statements since the taxable income or loss passes through to, and
is reportable by, the partners on their respective income tax returns.
NOTE 3 -- RELATED PARTY TRANSACTIONS
The general partners of the partnership are Leo E. Zickler and OAMCO VII,
L.L.C.
The general partners and/or special limited partners are officers and/or
affiliates of Oxford Development Corporation (Oxford), Oxford Holding
Corporation (OHC), Oxford Asset Management Corporation (OAMCO), or NHP, Inc.
(NHP).
The following items were paid or are payable to Oxford, OHC, OAMCO, NHP or
their affiliates from operating revenues or distributable net cash flow.
Property Management Fee
The partnership had previously entered into an agreement with Oxford
Management Company, Inc. (OMC), an Oxford subsidiary, to rent and manage the
community. OMC received a property management fee equal to 4.5% of gross
collections, which was $86,328 in 1993. This agreement was cancelled on
December 10, 1993, in connection with the execution of the property
management agreement described below.
Effective December 10, 1993, the partnership entered into an agreement
with NHP Property Management, Inc. (NHP/PMI), an affiliate of NHP, to provide
property management services to the partnership. The fee for such services is
equal to 3.36% of gross collections which was $3,977 in 1993. At the same
time, the partnership entered into an asset management agreement with OAMCO
to provide various supervisory and asset management services that were
previously provided by OMC but are not provided by NHP/PMI.
The agreement expires December 31, 1994, at which time it can be
automatically renewed for one year periods, subject to certain limitations.
Deferral of Fees
Pursuant to the partnership agreement, OMC and NHP/PMI have agreed to
defer one third of their management fees in any year in which certain net
operating income levels are not achieved. Deferred amounts will be repayable
to OMC and NHP/PMI, without interest, from distributable net cash flow (note
6) or sale or refinancing proceeds after certain priorities. In 1993, $28,776
(1.5% of gross collections) in fees was deferred by OMC and $1,326 (1.12% of
gross collections) was deferred by NHP/PMI. As of December 31, 1993, the
cumulative amounts deferred by OMC and NHP/PMI were $87,745 and $1,326,
respectively.
Subordinated Management Fee
In 1987, OMC agreed to subordinate $67,468 of its management fees. This
amount is repayable to OMC, without interest, from distributable net cash
flow (note 6) or proceeds of sale or refinancing of the project, after
certain priorities.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 3 -- RELATED PARTY TRANSACTIONS (continued)
Incentive Management Fee
Through December 10, 1993, OMC received an incentive management fee,
payable from distributable net cash flow, after certain priorities (note 6).
Effective December 10, 1993, this incentive management fee is earned by
NHP/PMI. No fee was earned by OMC or NHP/PMI in 1993.
Accounting and Data Processing Fee
OMC received an accounting and data processing fee through December 10,
1993. The 1993 fee paid to OMC was $8,064.
Effective December 10, 1993, the accounting and data processing fee of
$1.49 per unit per month is payable to NHP/PMI. No fee was paid to NHP/PMI in
1993.
Administrative Fee
The partnership paid OMC an annual fee of $1,200 for preparation of work
papers and account analyses for the audit firm. Effective December 10, 1993,
this fee is earned by NHP/PMI. No fee was paid to NHP/PMI in 1993.
Cash Management Fee
Oxford received a cash management fee for managing and investing
partnership funds through December 10, 1993. The fee is 1.5% of the average
monthly investment portfolio (computed on an annualized basis) managed by
Oxford. The fee earned by Oxford in 1993 was $1,900 and was offset against
interest income.
Effective December 10, 1993, the cash management fee of 1.12% of the
average monthly investment portfolio is payable to NHP/PMI. No fee was paid
to NHP/PMI in 1993.
Asset Management Fees
From January 1, 1992 through December 10, 1993, the partnership had an
agreement with Oxford Realty Services Corporation (ORSC), an Oxford
affiliate, to provide consultation and asset management services. The fee is
equal to 1% of gross receipts. The fee is payable, after certain priorities,
from 50% of the partnership's distributable net cash flow. Any unpaid fee
will bear interest at 2% per annum over the prime rate as charged by Citibank
(6% at December 31, 1993). No fee was expensed in 1993. This agreement was
cancelled on December 10, 1993, in connection with the execution of the asset
management agreement described below.
Effective December 10, 1993, the partnership entered into an Asset
Management Agreement with OAMCO to provide certain supervisory and asset
management services to the partnership, which previously had been provided by
OMC but are not provided by NHP/PMI, including overseeing the property
manager. The fee earned for such services in 1993 was $1,355, representing an
amount equal to 34.1% of all fees payable to NHP/PMI, and was currently
payable as an operating expense. Pursuant to the terms of the partnership
agreement, OAMCO has agreed to defer one third of a portion of the fee
currently payable from operations. During 1993, $452 was deferred and is
payable, after certain priorities, from distributable net cash flow. This
amount is included in deferred management fees.
Additionally, OAMCO earns a fee equal to 1% of the gross receipts. This
fee is only payable out of available distributable cash flow after certain
priorities (note 6), if any. Management believes that it is not likely that
sufficient distributable cash flow will be generated for the payment of this
fee and accordingly, has ceased accrual.
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 3 -- RELATED PARTY TRANSACTIONS (continued)
Effective December 10, 1993, the aggregate fees paid to NHP/PMI and OAMCO,
as reflected above, were equal to the aggregate fee levels previously paid to
OMC and ORSC prior to December 10, 1993.
Investor Services Fee
An investor services fee is payable annually on a cumulative basis to
Oxford Equities Corporation for its services in preparing necessary reports
for the investor limited partners and in communicating with them concerning
the partnership's affairs. The fee may be increased by the same percentage as
the average percentage increase in the project's rent. A fee of $7,504 was
expensed in 1993.
Due from Oxford
When OMC provided property management services to the partnership, the
employees of the partnership were paid through common paymaster, ORSC. The
partnership had a deposit with ORSC of $19,116 which represented
approximately the amount advanced by ORSC to fund payroll before being
reimbursed by the partnership. This deposit will be refunded by ORSC in
accordance with the Payroll Reimbursement Agreement.
The following loans have been made to the partnership by Oxford or its
affiliates.
Operating Expense Loan
Pursuant to a loan and incentive fee agreement between OMC and the
partnership, OMC has agreed to provide an operating expense loan. OMC has
advanced $1,233,909 as of December 31, 1993 which includes accrued interest
of $67,280.
Pursuant to an earlier agreement, no additional interest will be charged.
The loan is repayable from distributable net cash flow (note 6) or proceeds
of the sale or refinancing of the project, after certain priorities. OMC is
not required to make additional operating expense loans as the term of this
obligation has expired.
Subordinated Loan Payable
During 1988, the collateral security account funded by Oxford, in the
amount of $153,843, was drawn to pay mortgage interest of the partnership.
This amount is repayable to Oxford, without interest, upon sale or
refinancing of the project, after certain priorities.
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated
depreciation, and at December 31, 1993 consisted of the following:
Land .............................. $ 700,000
Buildings ......................... 9,173,606
Building equipment ................ 1,598,578
------------
11,472,184
Less accumulated depreciation ..... (3,854,086)
------------
$ 7,618,098
============
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5--MORTGAGE NOTE PAYABLE
The mortgage loan in the original amount of $10,700,00 is payable to
Independence One Mortgage Corporation. The mortgage note provides for: (a)
interest at 6-7/8% per annum; (b) monthly payments to the debt service escrow
to fund the semi- annual payments of interest; (c) maturity on February 1,
1995; and (d) establishment of the Project Reserve Account to be used to fund
debt service escrow shortfalls and under certain circumstances, operating
expenses or distributions to partners.
The mortgage loan is secured by a first mortgage lien on the property, an
assignment of rents and leases, and a letter of credit in the amount of
$11,129,115 issued by Fleet National Bank. The letter of credit is secured by
a second mortgage lien on the property and a second assignment of rents and
leases.
The partnership pays an annual fee to Fleet National Bank for its issuance
of the letter of credit. The fee expensed in 1993 was $163,960. In addition,
Fleet has agreed to defer $333,643 of prior years' fees, without interest.
These fees are due on or before July 31, 1995 and are secured by the Project
Reserve Account.
The liability of the partnership is limited to the property and equipment
collateralizing the mortgage note and certain other amounts deposited with
the mortgage lender.
To cover certain costs of refinancing the mortgage loan, the partnership
received a loan from Merrill, Lynch, Hubbard, Inc. The loan is repayable,
without interest, from the proceeds of the sale or refinancing of the
project, after certain priorities. As of December 31, 1993, the loan balance
was $347,177.
NOTE 6 -- PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS
Partners' capital contributions are as follows:
General and Special Limited Partners ............................ $ 260
Investor Limited Partners ....................................... 4,750,050
Preferred Limited Partners ...................................... 1,085,000
----------
$5,835,310
==========
Distributable net cash flow at December 31, 1993 is as follows:
Cash ............................................................ $114,260
Tenant security deposits--funded ................................ 20,867
Debt service escrow ............................................. 346,761
--------
$481,888
Less:
Accounts payable ................................. $ 25,576
Tenant security deposits ......................... 19,769
Deferred rental revenue .......................... 14,421
Accrued interest payable ......................... 306,510 366,276
-------- --------
Distributable net cash flow ..................................... $115,612
========
<PAGE>
CASSELBERRY-OXFORD ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 6 -- PARTNERS' CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS (continued)
Distributable net cash flow, when available, is payable as follows:
(a) To the preferred limited partners, an amount equal to a cumulative,
compounded return of 15% per year on the preferred capital contributions
($543,251 as of December 31, 1993);
(b) To the preferred limited partners, an amount equal to the preferred
capital contributions;
(c) To ORSC and/or OAMCO, payment of the asset management fee from, up to
50% of distributable cash flow;
(d) To OMC and/or NHP/PMI, in payment of any deferred property management
fees;
(e) To the investor limited partners, a payment equal to the lesser of
$380,000 or projected distributions to the investor limited partners for the
year, in accordance with their partnership interests;
(f) To the special limited and general partners, a payment equal to the
lesser of $20,000 or projected distributions to the special limited and
general partners for the year;
(g) To OMC, in payment of any subordinated property management fees;
(h) To OMC, in payment of any operating expense loans, including interest
thereon;
(i) To the partners, on a non-cumulative basis, a payment of up to
$400,000 reduced by any distributions under (d) and (e) above with 95%
allocated to the investor limited partners and 5% to the special limited and
general partners;
(j) The next $126,667, shall be distributed on a non-cumulative basis, as
follows: 25% to the general and special limited partners and 75% to the
investor limited partners;
(k) The remaining amount will be distributed 40% to OMC and/or NHP/PMI as
an incentive management fee, 50% to the investor limited partners, and 10% to
the special limited and general partners.
Pursuant to the partnership agreement, the Preferred Limited Partners will
receive a priority distribution from the net proceeds of any sale,
refinancing or partnership liquidation.
NOTE 7 -- CONTINGENCIES
The partnership maintains its operating cash balance in one bank. The
balance is insured by the Federal Deposit Insurance Corporation up to
$100,000. As of December 31, 1993, the uninsured portion of the cash balance
held at the bank was $12,760.
