-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, URMz96aigW5bIu6ndTuLmEfGBe+rJVOD/yE/g+aPEtRUkS0zWITxk+YrRtU1zHnw E78/Sv0zN7a3BJQmn/srYg== 0000806641-95-000058.txt : 19950518 0000806641-95-000058.hdr.sgml : 19950518 ACCESSION NUMBER: 0000806641-95-000058 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950517 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCA TAX EXEMPT FUND LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000806641 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 521449733 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-15725 FILM NUMBER: 95540631 BUSINESS ADDRESS: STREET 1: 218 N CHARLES ST STE 500 CITY: BALTIMORE STATE: MD ZIP: 21201 BUSINESS PHONE: 3019620595 MAIL ADDRESS: STREET 1: 218 N CHARLES STREET STREET 2: SUITE 500 CITY: BALTIMORE STATE: MD ZIP: 21201 10-K/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A Annual Report Pursuant to Section 13 or 15(d) of Securities Exchange Act of 1934 For the period ended: December 31, 1994 Commission file number: 0-15725 SCA TAX EXEMPT FUND LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Delaware 52-1449733 (State of organization) (I.R.S. Employer Identification No.) 218 North Charles Street, Suite 500, Baltimore, Maryland 21201 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (410) 962-0595 Securities registered pursuant to Section 12(b) of the Act: Title of each class: Name of each exchange on which registered: None 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 (Section 229.405 of this chapter) 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] The Registrant is a partnership. Accordingly, no voting stock is held by non-affiliates of the Registrant. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report: 1. Financial Statements - The Financial Statements listed on the accompanying Index to Financial Statements and Schedule are filed as a part of this Annual Report on Form 10-K/A. 2. Financial Statement - Schedule. Note 3 to the Financial Statements included herein includes the information required to be included in Schedule of Mortgage Loans on Real Estate as of December 31, 1994 pursuant to Rule 12-29 of Regulation S-X at Note 3. 3. Exhibits - The Exhibits listed in the accompanying Index to Exhibits were filed as part of the Annual Report on Form 10-K. (b) Reports on Form 8-K: 1. There were no reports on Form 8-K filed during the quarter ended December 31, 1994. SCA TAX EXEMPT FUND LIMITED PARTNERSHIP BALANCE SHEETS SERIES I
Proforma (Note 7) --------------------------------- December 31, December 31, December 31, 1994 Adjustments 1994 1993 --------------- --------------- --------------- --------------- ASSETS Cash and cash equivalents $5,239,782 $2,619,488 (a) $7,859,270 $5,032,089 Interest receivable 357,783 357,783 296,040 Investment in mortgage revenue bonds, net of valuation allowance of $1,430,000 in 1994 and $0 in 1993 (Note 3) 43,177,900 43,177,900 44,607,900 Investment in parity working capital loans (Note 3) 934,600 934,600 934,600 Investment in real estate partnerships (Note 4) 104,708,977 (57,605,914)(b) 47,103,063 107,970,711 Joint investment pool (Note 7) - 54,563,816 (c) 54,563,816 Other assets (Note 7) 622,212 (603,887)(d) 18,325 18,060 --------------- --------------- --------------- --------------- TOTAL ASSETS $155,041,254 ($1,026,497) $154,014,757 $158,859,400 =============== =============== =============== =============== LIABILITIES AND PARTNERS' CAPITAL Accounts payable and accrued expenses $663,087 - $663,087 $71,793 Distributions payable 5,044,283 5,044,283 5,052,141 Due to affiliates (Note 6) 63,845 63,845 16,051 --------------- --------------- --------------- --------------- TOTAL LIABILITIES 5,771,215 - 5,771,215 5,139,985 --------------- --------------- --------------- --------------- Partners' Capital General Partners (304,746) ($10,265) (315,011) (263,970) Limited Partners (beneficial assignee certificates- issued and outstanding 200,000 certificates) 149,574,785 (1,016,232) 148,558,553 153,983,385 --------------- --------------- --------------- --------------- TOTAL PARTNERS' CAPITAL 149,270,039 (1,026,497) 148,243,542 153,719,415 --------------- --------------- --------------- --------------- COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 4, 5, 6 & 7) TOTAL LIABILITIES AND PARTNERS' CAPITAL $155,041,254 ($1,026,497) $154,014,757 $158,859,400 =============== =============== =============== =============== The accompanying notes are an integral part of these financial statements.
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP STATEMENTS OF INCOME SERIES I
For the For the For the year ended year ended year ended December 31, December 31, December 31, 1994 1993 1992 --------------- --------------- --------------- INCOME Interest on mortgage revenue bonds $3,468,563 $4,025,063 $4,613,425 Interest on parity working capital loans 72,712 83,212 94,653 Non-taxable interest on short-term investments 27,087 38,534 46,721 Taxable interest on short-term investments 107,053 67,790 77,790 Equity in property net income 4,890,052 4,116,773 3,473,978 --------------- --------------- --------------- TOTAL INCOME 8,565,467 8,331,372 8,306,567 --------------- --------------- --------------- EXPENSES Operating expenses (Note 6) 1,487,588 867,459 913,243 Valuation adjustment related to investment in mortgage revenue bonds and real estate partnerships (Notes 3 & 4) 1,430,000 4,600,000 6,350,000 --------------- --------------- --------------- TOTAL EXPENSES 2,917,588 5,467,459 7,263,243 --------------- --------------- --------------- NET INCOME $5,647,879 $2,863,913 $1,043,324 =============== =============== =============== NET INCOME ALLOCATED TO GENERAL PARTNERS $56,479 $28,639 $10,433 =============== =============== =============== NET INCOME ALLOCATED TO LIMITED PARTNERS $5,591,400 $2,835,274 $1,032,891 =============== =============== =============== NET INCOME PER BAC $27.96 $14.18 $5.16 =============== =============== =============== The accompanying notes are an integral part of these financial statements.
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS SERIES I
For the For the For the year ended year ended year ended December 31, December 31, December 31, 1994 1993 1992 --------------- --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $5,647,879 $2,863,913 $1,043,324 Adjustments to reconcile net income to net cash provided by operating activities: Equity in property net income (4,890,052) (4,116,773) (3,473,978) Interest receivable transferred to investment in real estate partnerships - (63,949) - - Other changes in investment in real estate partnerships 144 (448) 712 Valuation adjustments related to investment in real estate partnerships - 4,600,000 6,350,000 Valuation adjustments related to investment in mortgage revenue bonds 1,430,000 - - - Interest distributions from investment in real estate partnerships 8,151,642 6,861,779 5,791,714 (Increase) decrease in interest receivable (61,743) 29,264 251,803 (Increase) decrease in other assets (604,152) 20,320 51,304 Increase (decrease) in accounts payable and accrued expenses 591,294 22,690 7,929 Increase (decrease) in due to affiliates 47,794 (12,346) 25,009 --------------- --------------- --------------- Net cash provided by operating activities 10,312,806 10,204,450 10,047,817 --------------- --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds from sale of short-term investments - - 900,000 --------------- --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Distribution to partners (10,105,113) (10,103,816) (10,343,674) --------------- --------------- --------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 207,693 100,634 604,143 --------------- --------------- --------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,032,089 4,931,455 4,327,312 --------------- --------------- --------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $5,239,782 $5,032,089 $4,931,455 =============== =============== =============== DISCLOSURE OF NON-CASH ACTIVITIES: Transfer of investment in mortgage revenue bonds and working capital loans to investment in real estate partnerships - $9,450,000 $11,985,000 =============== =============== =============== The accompanying notes are an integral part of these financial statements.
SCA TAX EXEMPT LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL SERIES I FOR THE PERIOD DECEMBER 31, 1991 THROUGH DECEMBER 31, 1994
LIMITED PARTNERS BENEFICIAL ASSIGNEE GENERAL CERTIFICATES PARTNERS TOTAL ---------------- --------------- --------------- Balance, December 31, 1991 $170,365,220 ($102,125) $170,263,095 Net income 1,032,891 10,433 1,043,324 Distribution to partners (10,250,000) (98,581) (10,348,581) ---------------- --------------- --------------- Balance, December 31, 1992 161,148,111 (190,273) 160,957,838 Net income 2,835,274 28,639 2,863,913 Distribution to partners (10,000,000) (102,336) (10,102,336) ---------------- --------------- --------------- Balance, December 31, 1993 153,983,385 (263,970) 153,719,415 Net income 5,591,400 56,479 5,647,879 Distribution to partners (10,000,000) (97,255) (10,097,255) ---------------- --------------- --------------- Balance, December 31, 1994 $149,574,785 ($304,746) $149,270,039 ================ =============== =============== The accompanying notes are an integral part of these financial statements.
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP BALANCE SHEETS SERIES II Proforma (Note 7)
--------------------------------- December 31, December 31, December 31, 1994 Adjustments 1994 1993 --------------- --------------- --------------- --------------- ASSETS Cash and cash equivalents $2,614,899 $1,740,512 (a) $4,355,411 $3,284,869 Interest receivable 198,907 198,907 200,107 Investment in mortgage revenue bonds (Note 3) 29,624,600 29,624,600 29,624,600 Investment in parity working capital loans (Note 3) 815,400 815,400 815,400 Investment in real estate partnerships (Note 4) 47,981,147 (47,981,147)(b) - 49,417,599 Joint investment pool (Note 7) - 45,761,499 (c) 45,761,499 - Other assets (Note 7) 503,770 (495,630)(d) 8,140 8,140 --------------- --------------- --------------- --------------- TOTAL ASSETS $81,738,723 ($974,766) $80,763,957 $83,350,715 =============== =============== =============== =============== LIABILITIES AND PARTNERS' CAPITAL Accounts payable and accrued expenses $447,072 - $447,072 $41,804 Distributions payable 2,668,631 2,668,631 2,915,280 Due to affiliates (Note 6) 30,662 30,662 7,291 --------------- --------------- --------------- --------------- TOTAL LIABILITIES 3,146,365 - 3,146,365 2,964,375 --------------- --------------- --------------- --------------- Partners' Capital General Partners (81,346) ($9,748) (91,094) (69,624) Limited Partners (beneficial assignee certificates- issued and outstanding 96,256 certificates) 78,673,704 (965,018) 77,708,686 80,455,964 --------------- --------------- --------------- --------------- TOTAL PARTNERS' CAPITAL 78,592,358 (974,766) 77,617,592 80,386,340 --------------- --------------- --------------- --------------- COMMITMENTS AND CONTINGENCIES (Notes 2, 3, 4, 5, 6 & 7) TOTAL LIABILITIES AND PARTNERS' CAPITAL $81,738,723 ($974,766) $80,763,957 $83,350,715 =============== =============== =============== =============== The accompanying notes are an integral part of these financial statements.
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP STATEMENTS OF INCOME SERIES II
For the For the For the year ended year ended year ended December 31, December 31, December 31, 1994 1993 1992 --------------- --------------- --------------- INCOME Interest on mortgage revenue bonds $2,324,531 $3,434,531 $3,434,531 Interest on parity working capital loans 63,557 71,557 71,557 Non-taxable interest on short-term investments 20,380 44,784 86,214 Taxable interest on short-term investments 55,404 46,671 32,319 Equity in property net income 2,006,691 1,067,729 965,521 --------------- --------------- --------------- TOTAL INCOME 4,470,563 4,665,272 4,590,142 --------------- --------------- --------------- EXPENSES Operating expenses (Note 6) 923,270 380,955 381,759 Valuation adjustment related to investment in mortgage revenue bonds and real estate partnerships (Notes 3 & 4) - 1,450,000 450,000 --------------- --------------- --------------- TOTAL EXPENSES 923,270 1,830,955 831,759 =============== =============== =============== NET INCOME $3,547,293 $2,834,317 $3,758,383 =============== =============== =============== NET INCOME ALLOCATED TO GENERAL PARTNERS $35,473 $28,343 $37,584 =============== =============== =============== NET INCOME ALLOCATED TO LIMITED PARTNERS $3,511,820 $2,805,974 $3,720,799 =============== =============== =============== NET INCOME PER BAC $36.48 $29.15 $38.66 =============== =============== =============== The accompanying notes are an integral part of these financial statements.
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS SERIES II
For the For the For the year ended year ended year ended December 31, December 31, December 31, 1994 1993 1992 --------------- --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $3,547,293 $2,834,317 $3,758,383 Adjustments to reconcile net income to net cash provided by operating activities: Equity in property net income (2,006,691) (1,067,729) (965,521) Interest receivable transferred to investment in real estate partnerships - (263,600) - Valuation adjustment related to investment in real estate partnerships - 1,450,000 450,000 Interest distributions from investment in real estate partnerships 3,443,143 2,238,308 1,790,474 Amortization expense 1,149 (Increase) decrease in interest receivable 1,200 94,360 14,814 (Increase) in other assets (495,630) - - Increase (decrease) in accounts payable and accrued expenses 405,268 26,015 (2,040) Increase (decrease) in due to affiliates 23,371 (3,824) 9,484 --------------- --------------- --------------- Net cash provided by operating activities 4,917,954 5,307,847 5,056,743 --------------- --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Distribution to partners (5,587,924) (5,826,744) (6,546,458) --------------- --------------- --------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (669,970) (518,897) (1,489,715) --------------- --------------- --------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,284,869 3,803,766 5,293,481 --------------- --------------- --------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,614,899 $3,284,869 $3,803,766 =============== =============== =============== The accompanying notes are an integral part of these financial statements. DISCLOSURE OF NON-CASH ACTIVITIES: Transfer of investment in mortgage revenue bonds and working capital loans to investment in real estate partnerships - $13,975,000 - =============== =============== ===============
SCA TAX EXEMPT LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL SERIES II FOR THE PERIOD DECEMBER 31, 1991 THROUGH DECEMBER 31, 1994
LIMITED PARTNERS BENEFICIAL ASSIGNEE GENERAL CERTIFICATES PARTNERS TOTAL ---------------- --------------- --------------- Balance, December 31, 1991 $85,720,552 ($32,191) $85,688,361 Net income 3,720,799 37,584 3,758,383 Distribution to partners (6,016,000) (50,224) (6,066,224) ---------------- --------------- --------------- Balance, December 31, 1992 83,425,351 (44,831) 83,380,520 Net income 2,805,974 28,343 2,834,317 Distribution to partners (5,775,361) (53,136) (5,828,497) ---------------- --------------- --------------- Balance, December 31, 1993 80,455,964 (69,624) 80,386,340 Net income 3,511,820 35,473 3,547,293 Distribution to partners (5,294,080) (47,195) (5,341,275) ---------------- --------------- --------------- Balance, December 31, 1994 $78,673,704 ($81,346) $78,592,358 ================ =============== =============== The accompanying notes are an integral part of these financial statements.
SCA TAX EXEMPT FUND LIMITED PARTNERSHIP NOTES TO THE FINANCIAL STATEMENTS (SERIES I AND SERIES II) NOTE 1 - THE PARTNERSHIP The SCA Tax Exempt Fund Limited Partnership (the "Partnership"), was organized in 1986 and had two public offerings of Beneficial Assignee Certificates ("BACs") representing the assignment of limited partnership interests. The net proceeds from these offerings were used to acquire two separate portfolios ("Series I" and "Series II") of tax- exempt mortgage revenue bonds issued by various state or local governments or their agencies or authorities. The Partnership separately reports the operating activity of each Series by preparing separate financial statements. A total of 200,000 BACs in Series I and 96,256 BACs in Series II were issued at a stated value of $1,000 each. SCA Realty I, Inc. is the 0.1% Managing General Partner and SCA Associates 86 Limited Partnership is the 0.99% Associate General Partner (collectively, the "General Partners"). Cash flow, as defined in the Partnership Agreement, is distributable and net income is allocable 1% to the Partnership's general partnership interests and 99% to its limited partnership interests until the BAC holders have received an 8.5% non-cumulative return on their adjusted capital contribution as defined. Thereafter, cash flow is distributable and income is allocable based on varying percentages as defined in the Partnership Agreement. The Partnership is not, however, precluded from making distributions to BAC holders in excess of annual cash flow. The Partnership is required to pay distributions declared within 45 days following the end of each six-month period of the calendar year. Proceeds from sale, repayment or liquidation, as defined in the Partnership Agreement, are distributable substantially in the same manner as other cash flow, after repayment of the partners' adjusted capital contributions. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statements of the Partnership are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. Cash and Cash Equivalents and Short-Term Investments Cash and cash equivalents consist principally of investments in money market mutual funds and short-term marketable securities which are readily convertible to known amounts of cash in seven days or less. In May 1993, the Financial Accounting Standards Board (FASB) issued Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities ("Statement No. 115"). Statement No. 115 is effective for fiscal years beginning after December 15, 1993, with earlier adoption permitted. The Partnership adopted Statement No. 115 in 1994; there was no cumulative effect and no effect in the current year. The Partnership, through its joint investment pool, has invested in various short-term investments. These investments are classified as trading securities and are recorded at fair value in accordance with Statement No. 115 in the proforma information described in Note 7. Investments in Mortgage Revenue Bonds and Parity Working Capital Loans Investments in mortgage revenue bonds and parity working capital loans are carried at the lower of cost or estimated net realizable value. Estimated net realizable value is based upon the anticipated net sale or refinancing proceeds. The Managing General Partner periodically evaluates the carrying values of investments in mortgage revenue bonds and working capital loans. In 1994, the Partnership adopted the provisions of FASB Statement No. 114, "Accounting by Creditors for Impairment of a Loan" ("FAS 114"). FAS 114 amends FASB Statement No. 5, "Accounting for Contingencies," to clarify that a creditor should evaluate the collectibility of both interest and principal receivable when assessing the need for a loss provision. FASB Statement No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings" was also amended to require a creditor to measure all loans that are restructured in a troubled debt restructuring involving a modification of terms. Accordingly, the provisions of FAS 114 require a creditor to base its measure of loan impairment on the present value of expected future cash flows discounted at the loan's effective interest rate. A valuation allowance is provided to record the loan impairment with a corresponding charge to net income. There was no cumulative effect and no effect in the current year except for the classification of Lakeview Gardens discussed in Note 3. Base interest on the bonds and the parity working capital loans is recognized as revenue as it accrues; contingent interest is recognized as property performance meets the criteria for payment. Although no debt service obligations have been forgiven, delinquent bonds and parity working capital loans are placed on nonaccrual status for financial reporting purposes when collection of interest is in doubt. Interest payments on nonaccrual loans are applied first to previously recorded accrued interest and then recognized as income when received. The accrual of interest income is reinstated once a property's ability to perform is adequately demonstrated. For tax purposes, the Partnership recognizes interest income on both the bonds and the loans at rates negotiated at the time such investments were made. Interest recognized on the bonds is exempt for federal income tax purposes while interest on the working capital loans is taxable to the partners. Investments in Real Estate Partnerships Prior to the adoption of FAS 114, the Partnership reclassified investments in mortgage revenue bonds to investments in real estate partnerships whenever it became apparent that the underlying properties were unable to continue to support their entire debt service obligation, and that the other sources of debt service, including property level reserves and operating deficit guarantees, were considered insufficient to meet mortgage loan obligations. After the adoption of FAS 114, mortgage revenue bonds are not reclassified to investments in real estate partnerships until the deed to the properties collateralizing the mortgage revenue bonds has been transferred to New Borrowers. Once reclassified to investment in real estate partnerships, the investment is accounted for using the equity method of accounting. Subsequent to deed transfer, valuation adjustments are recorded for investments in real estate partnerships if the carrying values exceed estimated net sale or refinancing proceeds. The carrying value of these investments is increased or decreased, and income or loss is recognized, for the Partnership's share of the underlying property's income or loss. Interest collected from investment in real estate partnerships is recorded not as interest income, but as a distribution which decreases the investment's carrying value. Earnings per BAC Earnings per BAC have been calculated based on 200,000 and 96,256 BACs outstanding for the three years ended December 31, 1994, 1993 and 1992 for Series I and Series II, respectively. Income Taxes No recognition has been given to income taxes in the accompanying financial statements as the distributive share of the Partnership's income, deductions and credits is included in each partner's income tax returns. The Managing General Partner believes that the Partnership is not subject to income taxes. The tax basis of the Partnership's net assets exceeds the carrying value for book purposes by approximately $48.3 million and $12.6 million for Series I and Series II, respectively, at December 31, 1994. Reclassifications Certain amounts in 1993 and 1992 have been reclassified to conform to the 1994 presentation. NOTE 3 - INVESTMENT IN MORTGAGE REVENUE BONDS AND PARITY WORKING CAPITAL LOANS As of December 31, 1994, Series I held 14 mortgage revenue bonds. Five of the bonds are treated as investments in mortgage revenue bonds and have a carrying value of $43,177,900, net of a valuation allowance of $1,430,000. Series II held nine mortgage revenue bonds at December 31, 1994, three of which are treated as investments in mortgage revenue bonds aggregating $29,624,600. The remaining Series I and Series II mortgage revenue bonds are treated as investments in real estate partnerships as required by generally accepted accounting principles (see also Note 4). General Mortgage Loan Terms The proceeds from the issuance of the bonds were used to make nonrecourse participating first mortgage loans on multi-family housing developments. The Partnership's rights under the mortgage revenue bonds are defined by and dependent on the terms and conditions of the mortgage loans. The mortgage loans are assigned to the Partnership to secure the payment of principal and interest on the mortgage revenue bonds. This assignment includes an assignment of a first mortgage on the property and an assignment of rents. Additional collateral was provided in the form of property level operating reserves funded from construction period cash flow, and by operating deficit guarantees. Of the additional collateral originally provided, the property level operating reserves have been exhausted on all but four of the loans, and all but one of the operating deficit guarantees have expired. The terms of the mortgage loans provide for the payment of base interest and additional contingent interest. In addition, they provide for the Partnership to hold the mortgage revenue bonds and the related mortgage loans for 14 years. Principal on the mortgage loans will not be amortized while held by the Partnership, but will be required to be repaid or refinanced in a lump sum payment at the end of the holding period or at such earlier time as the Partnership may require. The mortgage loans are nonassumable except with the consent of the Partnership. Prepayment is prohibited during the first seven years of the mortgage loan. Between years eight and eleven, the mortgage may be prepaid at the option of the borrower subject to a declining penalty. Prepayments after the twelfth year are allowed without regard to whether or not the mortgaged property is sold or refinanced. The Partnership may also require prepayment of the mortgage loan upon the occurrence of an event which would cause significant risk that the interest on the mortgage revenue bonds would be subject to federal income taxation. The mortgage loans bear interest at base rates determined by arms length negotiations that reflect market conditions at the time the mortgage revenue bonds were purchased by the Partnership. Each loan provides for contingent interest in an amount equal to the difference between the stated base interest rate and 16%. During the construction period, each bond bore interest at base rates that were separately negotiated, and payment of any construction period contingent interest was deferred until the project is sold or refinanced. Contingent interest (other than contingent interest during the construction period) is payable during the year from 100% of the project cash flow until the Partnership's aggregate non-compounded interest rate equals the base interest rate plus 1.5% to 2.5% (first tier contingent interest), as the case may be, on each mortgage loan. Any remaining cash flow is split equally with the owner until the Partnership reaches its 16% per annum limit. To the extent that the aggregate of all interest payments, including contingent interest, for any year does not equal 16% per annum, the difference is deferred until the mortgaged property is sold or the mortgage loan is repaid. Sale or refinancing proceeds remaining after the repayment of principal and other specified payments are paid 100% to the Partnership to the extent necessary for the Partnership to recover the base rate plus first tier contingent interest previously deferred; thereafter, 50% of any excess sale or repayment proceeds is paid to the Partnership until it reaches its 16% per annum limit. Accordingly, the ability of the Partnership to collect contingent interest on the mortgage revenue bonds is dependent upon the level of project cash flow and sale or repayment proceeds. Descriptions of the various mortgage revenue bonds and working capital loans owned by the Partnership at December 31, 1994 are provided in the following table. In addition, the table provides the dates of in- substance foreclosure/reclassification for those mortgage revenue bonds and working capital loans that are classified as investments in real estate partnerships. See Note 4 for additional discussion of investments in real estate partnerships.
Series I Investment in Mortgage Base First Tier Revenue Bonds and Parity Interest Contingent Maturity Face Carrying Working Capital Loans (Note 3) Rate Rate Date Amount Amount - ----------------------------------- --------------- ---------- ---------- ------------ --------------- Alban Place Apartments 7.875 2.375 Oct. 2008 $10,500,000 $10,500,000 Frederick, MD Alban Place Limited Partnership Northridge Park Apartments 7.500 2.000 June 2012 8,950,000 8,950,000 Salinas, CA Northridge Park Phase II Lakeview Garden Apartments 7.750 2.500 Aug. 2007 9,307,500 7,877,500 Dade Co., FL Lakeview Garden Apartments Limited Partnership Riverset Apartments 7.875 2.100 Nov. 1999 6,535,000 6,535,000 Memphis, TN Auction Street Associates Limited Partnership Villa Hialeah 7.875 2.375 Oct. 2009 10,250,000 10,250,000 Hialeah, FL Shelter Group South East - Hialeah, A Limited Partnership ------------ --------------- Series I Mortgage Revenue Bond and Parity Working Capital Loan Investment Total $45,542,500 $44,112,500 (1) ============ ===============
Date of In- Base First Tier Series I Investment in Real Substance Interest Contingent Maturity Face Carrying Estate Partnerships (Note 4) Foreclosure Rate Rate Date Amount Amount - ----------------------------------- --------------- ---------- ---------- ------------ --------------- --------------- Barkley Place Sept. 7, 1988 8.000 2.250 May 2011 9,630,000 7,246,644 Fort Myers, FL Barkley Place Limited Partnership The Montclair Mar. 3, 1989 7.875 2.375 Dec. 2015 15,465,000 9,233,040 Springfield, MO Montclair Limited Partnership Newport Village Aug. 31, 1989 7.875 2.375 Dec. 2010 10,880,000 8,760,497 Thornton, CO Newport Village Limited Partnership Nicollet Ridge Sept. 1, 1990 7.875 2.375 Dec. 2010 20,340,000 15,578,276 Burnsville, MN Nicollet Ridge Limited Partnership Newport-on-Seven Dec. 1, 1991 8.125 2.375 Aug. 2008 10,800,000 7,600,916 St. Louis Park, MN St. Louis Park Housing Partners, A Limited Partnership Steeplechase Falls Apartments Feb. 1, 1991 7.875 2.375 Dec. 2008 18,100,000 16,787,457 Knoxville, TN Steeplechase Falls Limited Partnership North Pointe Apartments Dec. 31, 1991 7.875 2.375 Aug. 2006 25,850,000 19,965,765 San Bernardino, CA Cal-Shel Limited Partnership Creekside Village Apartments Dec. 31, 1992 7.500 2.250 Nov. 2009 11,985,000 10,328,030 Sacramento, CA Creekside Village Limited Partnership Willowgreen Apartments Sep. 30, 1993 8.000 2.250 Dec. 2010 9,450,000 9,208,352 Tacoma, WA Willowgreen Associates Limited Partnership --------------- --------------- Series I Investment in Real Estate Partnerships Total 132,500,000 104,708,977 --------------- --------------- Series I Total $178,042,500 $148,821,477 =============== ===============
Series II Investment in Mortgage Base First Tier Revenue Bonds and Parity Interest Contingent Maturity Face Carrying Working Capital Loans (Note 3) Rate Rate Date Amount Amount - ----------------------------------- --------------- ---------- ---------- ------------ --------------- Riverset Apartments 7.875 2.100 Nov. 1999 $12,640,000 $12,640,000 Memphis, TN Auction Street Associates Limited Partnership Southfork Village Apartments 7.875 2.375 Jan. 2009 10,550,000 10,550,000 Lakeville, MN Southfork Apartments Limited Partnership Emerald Hills Apartments 7.750 2.500 Apr. 2008 7,250,000 7,250,000 Issaquah, WA Axelrod Emerald Hills Association Limited Partnership ------------ --------------- Series II Mortgage Revenue Bond and Working Capital Loan Investment Total $30,440,000 $30,440,000 (2) ============ ===============
Date of In- Base First Tier Series II Investment in Real Substance Interest Contingent Maturity Face Carrying Estate Partnerships (Note 4) Foreclosure Rate Rate Date Amount Amount - ----------------------------------- --------------- ---------- ---------- ------------ --------------- --------------- Mallard Cove I June 1, 1991 7.300 2.375 Jan. 2006 2,610,000 2,146,507 Everett, WA Mallard Cove I Limited Partnership Mallard Cove II June 1, 1991 8.094 2.376 Jan. 2006 6,740,000 6,225,791 Everett, WA Mallard Cove II Limited Partnership Gilman Meadows Apartments June 1, 1991 8.000 2.250 Apr. 2007 7,100,000 6,640,994 Issaquah, WA Gilman Meadows Limited Partnership The Meadows Apartments Sept. 30, 1991 7.625 2.500 Jan. 2008 7,200,000 6,808,705 Memphis, TN Meadows Limited Partnership Whispering Lake Dec. 31, 1991 7.625 2.250 Dec. 2007 18,190,000 13,394,493 Kansas City, MO Whispering Lake Limited Partnership Hamilton Chase Dec. 31, 1993 8.000 2.250 Aug. 2006 13,975,000 12,764,657 Chattanooga, TN Hamilton Grove Limited Partnership --------------- --------------- Series II Investment in Real Estate Partnerships Total 55,815,000 47,981,147 --------------- --------------- Series II Total $86,255,000 $78,421,147 =============== =============== (1) Amount includes $43,177,900 of mortgage revenue bonds and $934,600 of parity working capital loans. (2) Amount includes $29,624,600 of mortgage revenue bonds and $815,400 of parity working capital loans.
Interest income of approximately $488,000 in Series I was not recognized for the year ended December 31, 1992 because of bonds on nonaccrual status. During 1994 and 1993 there were no bonds in either series on nonaccrual status, and there were no Series II bonds on nonaccrual status during 1992. During 1994, the property level reserves on Lakeview Gardens (Series I) were exhausted, and the original borrower refused to fund the operating deficits of the property. The Managing General Partner, in anticipation of the pending default, initiated workout discussions with the original borrower in the fourth quarter of 1994. The transfer of the deed is expected to take place in April 1995. As a result, the Partnership recorded a valuation adjustment of $1,430,000 on the Lakeview Gardens bond in the fourth quarter of 1994. No other adjustments were recorded to investments in mortgage revenue bonds during 1994. In 1993, a valuation adjustment of $1,200,000 was recorded on the Hamilton Chase bond (Series II). In 1992, a mortgage revenue bond valuation adjustment of $900,000 was recorded for Creekside Village, a Series I investment. These valuation adjustments do not affect the cash flow generated from property operations, the characterization of the tax-exempt income stream nor the financial obligations under the mortgage revenue bonds. The Managing General Partner will continue to evaluate the need for valuation allowances in the future as circumstances change. NOTE 4 - INVESTMENT IN REAL ESTATE PARTNERSHIPS The Partnership accounts for certain investments in mortgage revenue bonds as investments in real estate partnerships. This accounting treatment is for financial reporting purposes only and does not affect the income reported for federal income tax purposes, the amount of distributions to investors or the Managing General Partner's intentions related to other matters including ongoing legal actions, if any. Properties classified as investments in real estate partnerships typically have been or are expected to be transferred by foreclosure or deed in lieu of foreclosure to "New Borrowers". These New Borrowers are partnerships whose general partner is SCA Successor, Inc., a corporation which is an affiliate of the Managing General Partner. In certain instances, instead of the formal transfer of the property to a New Borrower, SCA Successor, Inc. has been designated as the general partner of the original borrowing entity. The Partnership continues to share in earnings of properties treated as investments in real estate partnerships in accordance with the original terms of the mortgage loans collateralizing the mortgage revenue bonds. For those properties owned by partnerships controlled by SCA Successor, Inc., although the Partnership has not waived default, the Managing General Partner has no plans or intentions to accelerate the maturity of the mortgage loans. In addition, the Partnership is responsible for the post- transfer operating deficits of New Borrowers. No operating deficits were funded for the three years ended December 31, 1994, 1993 and 1992. The Managing General Partner has taken the position that these transactions do not affect the tax-exempt nature of the income received by the Partnership on any of the loans, nor does it change the character of the Partnership's income for tax purposes. This position is consistent with industry practice, and the Managing General Partner is not aware of any contrary rulings. As with all federal income tax matters, the Internal Revenue Service may choose to review and rule on the subject at a later date. For investments accounted for as investments in real estate partnerships, Series I recognized operating income of approximately $4,890,000, $4,117,000 and $3,474,000 and collected approximately $8,152,000, $6,862,000 and $5,792,000 in interest payments for the years ended December 31, 1994, 1993 and 1992, respectively. For those same periods, Series II recognized operating income of approximately $2,007,000, $1,068,000 and $965,000 and collected approximately $3,443,000, $2,238,000 and $1,790,000 in interest payments, respectively. During 1994, no valuation adjustments were made to investments in real estate partnerships. In 1993, valuation adjustments were recorded for North Pointe ($4,600,000), (formerly Shandin Hills), a Series I property and for Mallard Cove I ($250,000), a Series II property. The Partnership recorded valuation adjustments in 1992 for three properties, Newport on Seven ($1,750,000) and Nicollet Ridge ($3,700,000) in Series I and Whispering Lake ($450,000) in Series II. Summarized Financial Information Combined financial information for the investments in real estate partnerships is presented below. This summary has been derived from the financial records of the individual partnerships and does not reflect related valuation adjustments and other basis differences recorded by the Partnership in its financial statements. Results of operations of the properties are included subsequent to their respective effective dates for reclassification to investments in real estate partnerships. In Series I, the combined results of operations includes nine properties for 1994, eight for 1993 and eight for 1992 while in Series II it includes six, five and five for 1994, 1993 and 1992, respectively. The table in Note 3 should be referenced for the effective dates of reclassification.
Series I Combined Financial Position- (unaudited) December 31, December 31, (in 000's) 1994 1993 ------------ ------------ Land, buildings and equipment, net of accumulated depreciation $114,160 $116,212 Other assets 2,057 2,342 ------------ ------------ Total Assets $116,217 $118,554 ============ ============ Liabilities due to the Partnership including bonds $146,996 $148,070 Other liabilities 2,351 2,566 Partners' deficit (33,130) (32,082) ------------ ------------ Total liabilities and partners' deficit $116,217 $118,554 ============ ============
Combined Results of Operations -(unaudited) (in 000's) For the year For the year For the year ended ended ended December 31, December 31, December 31, 1994 1993 1992 ------------ ------------ -------------- Revenues $19,421 $17,314 $15,032 Operating expenses 11,543 10,409 9,124 ------------ ------------ -------------- Net operating income 7,878 6,905 5,908 Depreciation 2,988 2,788 2,434 ------------ ------------ -------------- Net Income $4,890 $4,117 $3,474 ============ ============ ==============
Series II Combined Financial Position- (unaudited) December 31, December 31, (in 000's) 1994 1993 ------------ ------------ Land, buildings and equipment, net of accumulated depreciation $45,616 $47,097 Other assets 1,219 998 ------------ ------------ Total Assets $46,835 $48,095 ============ ============ Liabilities due to the Partnership including bonds $57,572 $55,729 Other liabilities 1,220 1,473 Partners' deficit (11,957) (9,107) ------------ ------------ Total liabilities and partners' deficit $46,835 $48,095 ============ ============
Combined Results of Operations- (unaudited) (in 000's) For the year For the year For the year ended ended ended December 31, December 31, December 31, 1994 1993 1992 ------------ ------------ -------------- Revenues $7,368 $5,153 $5,150 Operating expenses 3,843 3,022 3,129 ------------ ------------ -------------- Net operating income 3,525 2,131 2,021 Depreciation 1,518 1,063 1,056 ------------ ------------ -------------- Net Income $2,007 $1,068 $965 ============ ============ ============== Legal and Other The following summarizes the status of legal and other matters relating to the properties as of December 31, 1994. Series I Creekside Village: As a culmination of the workout negotiations initiated by the Managing General Partner during 1993, the transfer of Creekside Village was executed on February 9, 1994. Thus, the New Borrower assumed the mortgage. Willowgreen: As a culmination of the workout negotiations initiated by the Managing General Partner during 1993, the transfer of Willowgreen was executed on November 21, 1994. Thus, the New Borrower assumed the mortgage. Series II Hamilton Chase: On June 13, 1994, workout negotiations were completed and the New Borrower assumed the role of the General Partner in the original borrowing entity. During 1994, the Managing General Partner spent approximately $100,000 in legal expenses related to the transfer of the property. Additionally, upon the transfer of the property, the New Borrower determined that approximately $150,000 needed to be spent on physical improvements. As of December 31, 1994, approximately $25,000 of these repairs had been completed. The remaining repairs will be funded by property operations and are to be completed by the Summer of 1995. NOTE 5 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS In December 1991, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 107 (SFAS No. 107), "Disclosures about Fair Value of Financial Instruments." SFAS No. 107 extends existing fair value disclosure practices for some instruments by requiring the Partnership to disclose the fair value of all financial instruments for which it is practicable to estimate value. A description of the methods and assumptions used to estimate the fair value of each class of the Partnership's financial instruments for which it is practicable to estimate fair value follows: Cash and Cash Equivalents: The carrying value is a reasonable estimate of fair value. Short-term Investments: Fair value is based on currently quoted market prices. Investment in Mortgage Revenue Bonds and Working Capital Loans: Because no active market exists for the Partnership's investment in mortgage revenue bonds and working capital loans, fair value is estimated by discounting the expected future cash flows from the borrowers' payment of debt service and ultimate repayment of debt based on the projected performance of the underlying property using the interest rates commensurate with the tax exempt nature of the financing. Fair values for these investments are based on judgments regarding future expected repayment, current economic conditions, risk characteristics and other factors. These estimates involve uncertainties and matters of judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect estimates. Management will continue to assess the methodology utilized and the assumptions employed and revise them as appropriate in future years.
December 31, 1994 December 31, 1993 Carrying Value Fair Value Carrying Value Fair Value ------------------------------- -------------------------------- Series I Cash and cash equivalents $ 5,239,782 $ 5,239,782 $ 5,032,089 $ 5,032,089 Investments in mortgage revenue bonds and parity working capital loans $ 44,112,500 $ 46,099,809 $ 45,542,500 $ 48,370,000 Series II Cash and cash equivalents $ 2,614,899 $ 2,614,899 $ 3,284,869 $ 3,284,869 Investments in mortgage revenue bonds and parity working capital loans $ 30,440,000 $ 32,494,273 $ 30,440,000 $ 32,074,000
NOTE 6 - RELATED PARTY TRANSACTIONS The Managing General Partner and its affiliates are entitled to reimbursement for all costs and expenses paid by them on behalf of the Partnership for administrative services necessary for the prudent operation of the Partnership. The Partnership does not employ any personnel. All staff required by the Partnership are employees of the Managing General Partner or its affiliates which receive direct reimbursement from the Partnership for all costs related to such personnel including payroll taxes, workers' compensation and health insurance and other fringe benefits, as summarized in the table below.
For the year For the year For the year ended ended ended December 31, December 31, December 31, 1994 1993 1992 --------------- --------------- --------------- Series I Salaries of noncontrolling persons & related expenses $439,589 $326,718 $339,772 Other administrative expenses 108,674 91,775 95,944 --------------- --------------- --------------- Expenses reimbursed $548,263 $418,493 $435,716 =============== =============== =============== Series II Salaries of noncontrolling persons & related expenses $211,664 $157,237 $163,701 Other administrative expenses 52,301 43,753 46,746 --------------- --------------- --------------- Expenses reimbursed $263,965 $200,990 $210,447 =============== =============== ===============
The accompanying balance sheets include amounts payable to the Managing General Partner and its affiliates at December 31 as follows: 1994 1993 -------- -------- Series I $ 63,845 $ 16,051 Series II $ 30,662 $ 7,291 As previously detailed in the Partnership's Prospectus, affiliates of the Managing General Partner receive fees for mortgage servicing from the limited partnerships owning the mortgaged properties. With respect to the investments in real estate partnerships (See Note 4), the payment of these fees has continued after the reclassification from investments in mortgage revenue bonds, since the bonds are still owned by the Partnership and there has been no modification of the individual loan terms. The fees paid by all borrowing partnerships approximated $1,479,000 for the years ended December 31, 1994, 1993 and 1992 irrespective of any ownership changes in the underlying partnership. As a result of their general partnership interests, the General Partners are entitled to an allocation of the Fund's profits, losses and cash distributions as specified in the Partnership Agreement. As of December 31, 1994, the Partnership declared its cash distributions for the six months then ended to the General Partners of Series I and Series II in the amounts of $44,283 and $21,591, respectively. These amounts represent the General Partners' portion of the $5,044,283 and $2,668,631 semi-annual distributions in Series I and Series II declared at December 31, 1994. The operating expenses for various properties accounted for as investments in real estate partnerships include property management fees paid to affiliates of the Managing General Partner. During the years ended December 31, 1994, 1993 and 1992, these fees approximated $707,000 for 10 properties, $539,000 for 8 properties and $785,000 for 11 properties, respectively. In addition, 177061 Canada Ltd. (formerly Shelter Corporation of Canada Limited Partnership), a general partner of the Associate General Partner, is contractually obligated to the nonaffiliated borrowers of North Pointe (formerly Shandin Hills) and Whispering Lake to fund operating deficits under guarantees. The unpaid balances due under the limited operating deficit guarantees, including accrued interest as of December 31, 1994, totalled $276,000 and $387,000 for North Pointe and Whispering Lake, respectively. Scheduled payments totalling $119,000 and $115,000 were received on the North Pointe obligation during 1994 and 1993, respectively. Under the Whispering Lake obligation, $168,000 and $163,000 were received during 1994 and 1993, respectively. NOTE 7 - SUBSEQUENT EVENT As discussed in previous reports, the Managing General Partner has continued to pursue actively a means to provide BAC Holders with additional current income while enhancing investment value with a prudent level of risk. On February 14, 1995, the Partnership consummated a financing transaction which the Managing General Partner believes can achieve these goals. Additional proceeds were raised through the offering of $67,700,000 in aggregate principal amount of Multifamily Mortgage Revenue Bond Receipts, (collectively, the "Receipts"). The Receipts are collateralized by a pool of eleven of the original mortgage revenue bonds held by the Partnership. These eleven bonds all relate to properties that defaulted on their original debt obligation. The cash stream from one additional property, Creekside Village ("Creekside"), which also defaulted on its original debt obligation, has been pledged as further security for the transaction. These bonds, including Creekside, are currently classified as investments in real estate and the operating partnerships for the underlying properties that collateralize the bonds were controlled by SCA Successor, Inc., an affiliate of the Managing General Partner. On January 1, 1995, SCA Successor, Inc., the General Partner of these operating partnerships, withdrew and was replaced by SCA Successor II, Inc., an affiliate of the Managing General Partner, as sole General Partner. The other bonds in the Partnership are unaffected. The specific bonds are as follows: SCA TAX EXEMPT FUND LIMITED PARTNERSHIP MORTGAGE REVENUE REFUNDING BONDS
A Bond Interest A Bond B Bond Total Rate Face Amount Face Amount Face Amount ------------ ---------------- ---------------- ---------------- Montclair 7.10% $ 8,500,000 $ 6,840,000 $ 15,340,000 Newport Village 7.10% 6,250,000 4,175,000 10,425,000 Nicollet Ridge 7.10% 7,925,000 12,415,000 20,340,000 Steeplechase Falls 7.125% 12,650,000 5,300,000 17,950,000 Barkley Place 7.05% 5,350,000 3,480,000 8,830,000 ---------------- ---------------- ---------------- Total Series I 40,675,000 32,210,000 72,885,000 ---------------- ---------------- ---------------- Mallard Cove I 7.40% 800,000 1,670,000 2,470,000 Mallard Cove II 7.40% 2,700,000 3,750,000 6,450,000 Whispering Lake 7.10% 8,900,000 8,500,000 17,400,000 Gilman Meadows 7.40% 4,000,000 2,875,000 6,875,000 Hamilton Chase 7.35% 7,625,000 6,250,000 13,875,000 Meadows 7.35% 3,000,000 3,635,000 6,635,000 ---------------- ---------------- ---------------- Total Series II 27,025,000 26,680,000 53,705,000 ---------------- ---------------- ---------------- TOTAL 67,700,000 58,890,000 126,590,000 Creekside Village N/A N/A 11,760,000 ---------------- ---------------- ---------------- TOTAL with Creekside $ 67,700,000 $ 58,890,000 $ 138,350,000 ================ ================ ================
As stated above, eleven bonds, in the aggregate principal amount of $126,590,000, were refunded by the issuers of such bonds. As a result, a Series A Bond and a Series B Bond (whose aggregate principal amount equals that of the original bonds) were exchanged for each of the original bonds. The aggregate principal amount of the Series A Bonds and Series B Bonds is $67,700,000 and $58,890,000, respectively. Each Series B Bond is subordinate to the related issue of Series A Bonds. In addition, the maturity date for each bond has been extended as part of the refunding to January 2030. The Series A Bonds bear interest at various fixed rates per annum, as detailed on the schedule above, which is due and payable monthly. The Series A Bonds are subject to mandatory sinking fund redemptions commencing January 1, 2001 and continuing through maturity. The Series B Bonds bear interest equal to the greater of (a) three percent (3%) per annum or (b) the amount of available cash flow not exceeding 16% per annum. Principal on the Series B Bonds will not be amortized, but will be required to be repaid or refinanced in a lump sum payment at maturity, January 2030. To the extent the operating partnerships have available cash flow, interest on the principal amount shall be due and payable monthly. The Partnership deposited each of the Series A Bonds and Series B Bonds with the SCA Tax Exempt Trust (the "Trust") which was created to hold these assets. A Certificate of Participation in the corpus and the income of the Trust was issued representing interests in the two series of bonds. The Partnership is the sole holder of the Certificate of Participation. The Series A Bonds were then deposited by the Trust with a custodian and the additional proceeds were raised through the sale of Receipts in the Series A Bonds to new investors. The Receipts are credit enhanced by Financial Security Assurance Inc. ("FSA") and are rated AAA and Aaa by Standard and Poors and Moody's, respectively. Through the Series A Bonds, the Receipt Holders have a fixed interest rate and preferred return position so that a guaranteed, preferred, fixed rate tax exempt return will be paid from the interest collected. The operating partnerships entered into an interest rate swap agreement whereby a portion of the fixed interest rate under the Series A Bonds was swapped for a floating tax exempt interest rate. This mechanism will allow the Partnership to realize the potential benefit of traditionally lower floating interest rates. Under this interest rate swap, the operating partnerships are obligated to pay a floating rate equivalent to the PSA Municipal Swap Index, an index of weekly tax exempt variable rate issues. Also, an interest rate cap was purchased by the operating partnerships to limit their exposure resulting from the floating tax exempt interest rate obligation. In order to obtain credit enhancement and an investment grade rating of the Receipts, the Partnership was required to pledge the eleven bonds, as well as the cash stream from the eleven properties collateralizing the bonds to FSA. In addition, the cash stream from Creekside has been pledged to FSA as further security. Any cash in excess of the amount needed to pay interest on the Receipts is then paid for the benefit of BAC Holders. The cash flow generated on assets acquired with the new proceeds, as discussed below, and any net proceeds received under the swap agreement also will be for the benefit of BAC Holders. These cash streams are not pledged to the new investors. In return for the sale of Receipts in the Series A Bonds, the Trust, for the benefit of the Partnership, received $67.7 million. The proceeds from the sale of the Receipts have been invested in MLP III Investment Limited Partnership ("MLP III"), a Maryland limited partnership. MLP III is owned by the Partnership through a 99% general partner interest and SCA Limited Partner Corporation, an affiliate of the Managing General Partner, through a one percent (1%) limited partner interest. MLP III invested the net proceeds from the sale of the Receipts, approximately $56.8 million, in MLP II Acquisition Limited Partnership ("MLP II"), a Maryland limited partnership. MLP II is owned by MLP III through a 98.99% limited partner interest (40% annual profits and distributions interest), MLP I LLC ("MLP I"), a Maryland limited liability company, through a one percent (1%) general partner interest (60% annual profits and distributions interest) and SCA Limited Partner Corp., an affiliate of the Managing General Partner, through a .01% limited partner interest. MLP I is owned collectively by the operating partnerships. MLP III and MLP II are both affiliates of the Managing General Partner. The net proceeds held by MLP II are currently invested in various short-term investments; the Managing General Partner expects that they will be invested in additional mortgage revenue bonds that finance multi-family properties. The cash stream from these investments will benefit BAC Holders in the form of additional tax exempt or tax deferred distributions. Approximately $10.9 million was used to finance transaction costs, Partnership reserves and the interest rate cap. As part of the financing transaction, the operating partnerships entered into a cross-collateralization agreement among themselves. This cross- collateralization agreement may result in the operating partnerships being obligated under the Series A Bond obligations of the other operating partnerships due to shortfalls in their cash flows or required debt service coverage ratios. Based upon information currently available, the Managing General Partner does not anticipate that any payments will be required under the cross-collateralization agreement. Unpaid accrued base interest receivable of approximately $15.5 million on the eleven original bonds and the Parity Working Capital Loans, and interest thereon, of approximately $4.8 million, were converted to Accrued Interest Notes and Working Capital Notes, respectively, in equivalent principal amounts. The Partnership contributed the Accrued Interest Notes and Working Capital Notes to MLP III who contributed them, in turn, to MLP II. In addition, MLP II loaned the operating partnerships approximately $4.2 million (the "Load Loan Notes") to purchase an interest rate cap which will serve to limit the operating partnerships' obligation under the floating rate obligations discussed above. The Accrued Interest Notes, Working Capital Notes and Load Loan Notes, (collectively the "Notes") in the aggregate principal amount of approximately $24.5 million, are due on demand, but in any case not later than January 2030. The Notes bear interest at a compound annual rate equal to the Blended Annual Rate in effect for that calendar year as published by the Internal Revenue Service. To the extent the operating partnerships have available cash flow, interest on the principal amount and scheduled principal payments shall be due and payable monthly. The Notes and the Series B Bonds (collectively the "Junior Obligations") are subordinate in priority and right of payment to the Series A Bonds and payable only to the extent of cash flow. Payments of principal and interest on the Junior Obligations are prioritized as follows: (i) interest payments due to MLP II on the Notes, prorata between the Notes; (ii) principal payments due to MLP II on the Notes, prorata between the Notes; (iii) interest payments due to Trust on the Series B Bonds; and (iv) the principal payment of the Series B Bonds due January 2030. The Partnership will continue to report Series I and Series II separately after the financing transaction with each Series having an interest in the joint investment pool as described below. Income generated from the additional proceeds will be allocated approximately 60.1% to Series I and approximately 39.9% to Series II. Such percentages are based on the face amount of the Series A Bonds related to the refunded bonds of each respective Series. The proforma balance sheets for Series I and Series II include the results of the financing transaction as if it had occurred on December 31, 1994. The proforma adjustments are summarized as follows: (a) Cash and cash equivalents. Represents amounts transferred to the Partnership from the additional proceeds to fund additional working capital reserves of approximately $2.6 million and $1.7 million for Series I and Series II, respectively. (b) Investments in real estate partnerships. Represents the carrying value at December 31, 1994, which the Managing General Partner believes approximates the carrying value at February 14, 1995, of the original eleven bonds refunded as part of the financing transaction of approximately $57.6 million and $47.7 million for Series I and Series II, respectively. (c) Joint investment pool. Represents the interest in the investments jointly held by Series I and Series II after the financing transaction of approximately $54.6 million and $45.8 million, respectively. Series II's interest in the joint investment pool reflects the write-off of approximately $292,000 in unamortized debt issue costs related to the original mortgage note for the Hamilton Chase property. (d) Other assets. In connection with the financing transaction, approximately $4.5 million of costs were incurred. As of December 31, 1994, approximately $1 million was expensed and approximately $1.1 million was capitalized. In the first quarter of 1995, approximately $1.7 million was expensed and approximately $.7 million was capitalized. Capitalized costs include organizational costs, debt issue costs and costs associated with obtaining the credit enhancement. All capitalized costs have been included in the joint investment pool after the financing transaction was consummated. As discussed above, the joint investment pool comprises the operating partnerships, MLP I, MLP II, MLP III and the Trust. The proforma combined balance sheet of the joint investment pool at December 31, 1994 shown below reflects all related valuation adjustments and other basis differences recorded by the Partnership in its financial statements through that date. All significant intercompany balances and transactions have been eliminated. ASSETS Land & land improvements $ 10,844,584 Buildings & improvements 103,912,818 Furniture & fixtures 3,457,926 ------------- Subtotal 118,215,328 Less accumulated depreciation (12,611,716) Total land, building and furniture ------------- & fixtures 105,603,612 Cash and cash equivalents 2,095,391 Short-term investments 56,761,654 Accounts receivable 91,553 Prepaid expenses 114,135 Other assets 5,953,648 ------------- TOTAL ASSETS $170,619,993 ============= LIABILITIES AND EQUITY Accounts payable and accrued expenses $ 2,594,678 Custody receipts outstanding 67,700,000 ------------- TOTAL LIABILITIES 70,294,678 ------------- Equity: Series I 54,563,816 Series II 45,761,499 ------------- TOTAL EQUITY 100,325,315 ------------- TOTAL LIABILITIES AND EQUITY $170,619,993 ============= -----END PRIVACY-ENHANCED MESSAGE-----