-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FS/u9lbuKbizCBUMPUSXgVUe8EI63wrM9SbYgJQ0UJi6si8yca/zDPjyyqSZ/QBn u7ljSXKgTNr9uIUHd2XceQ== 0000793935-97-000016.txt : 19970329 0000793935-97-000016.hdr.sgml : 19970329 ACCESSION NUMBER: 0000793935-97-000016 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH LENDERS L P CENTRAL INDEX KEY: 0000835959 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 621356791 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-18062 FILM NUMBER: 97566304 BUSINESS ADDRESS: STREET 1: 4400 HARDING RD STREET 2: STE 500 CITY: NASHVILLE STATE: TN ZIP: 37201 BUSINESS PHONE: 6152921040 MAIL ADDRESS: STREET 1: 4400 HARDING RD STREET 2: STE 500 CITY: NASHVILLE STATE: TN ZIP: 37205 FORMER COMPANY: FORMER CONFORMED NAME: NORTH LENDERS LTD DATE OF NAME CHANGE: 19910114 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1996 or [] Transition Report to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the transition period from ________to________ Commission File Number 33-229908-A NORTH LENDERS, L.P. (Exact name of Registrant as specified in its charter) Delaware 62-1356792 (State or other Jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number.) One Belle Meade Place, 4400 Harding Road, Suite 500, Nashville, Tennessee 37205 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (615) 292-1040 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: UNITS OF LIMITED PARTNERSHIP INTEREST (Title of Class) 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 at least the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy of information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate sales price of the Units of Limited Partnership Interest to non-affiliates was $5,625,000 as of February 28, 1997. This does not reflect market value, but is the price at which these Units of Limited Partnership Interest were sold to the public. There is no current market for these Units. DOCUMENTS INCORPORATED BY REFERENCE Documents Incorporated by Reference in Part IV: Prospectus of Registrant, dated September 1, 1988, as filed pursuant to Rule 424(b) of the Securities and Exchange Commission. PART I Item 1. Business North Lenders, L.P. (the "Registrant"), is a Tennessee limited partnership organized on June 27, 1988, pursuant to the provisions of the Tennessee Uniform Limited Partnership Act, Chapter 2, Title 61, Tennessee Code Annotated, as amended. The general partner of Registrant is 222 North, Ltd. On December 31, 1990, the Registrant changed the state of domicile from Tennessee to Delaware and is now governed by the Delaware revised Uniform Limited Partnership Act Sections 17-101-17-1109, Title 6. Registrant's primary business is to lend monies to North by Northeast, Ltd. (the "Borrower") which is engaged primarily in the business of investing in partnerships that own and operate real estate. Registrant's investment objectives are preservation of capital and capital appreciation through lending with a participating interest to partnerships investing in real estate which will appreciate through the passage of time, growth in the surrounding areas, and the development of the properties prior to resale. Financial Information The Registrant's activity is within one industry segment and geographical area. Therefore, financial data relating to the industry segment and geographical area is included in Item 6 - Selected Financial Data. Narrative Description of Business In 1989, the Registrant issued a $4,719,375 participating mortgage note (the "Lender Financing") maturing on December 31, 2002 to North by Northeast, Ltd., an affiliated partnership sharing the same general partner. The principal balance accrues interest at a simple interest rate of 10% per annum. The Registrant receives a priority return of interest and principal, and 50% of the "Net Revenues". Net revenues, as defined by the participating loan agreement, represent the difference between cash proceeds earned and the following, in this order: 1) accrued but unpaid interest and applicable principal balances; 2) accrued preferred return (12%) on the net offering proceeds of the Registrant; and 3) the applicable equity balance. The Registrant has made principal payments totalling $4,535,486, including $162,789 in 1996, leaving a principal balance of $183,889 outstanding at December 31, 1996. These funds together with available equity proceeds of North by Northeast, Ltd. (the "Borrower") have enabled the Borrower to invest in North by Northeast Land Partners (the "Land Partnership"). The Borrower and a Trammell Crow entity (Reveille Industrial Limited Partnership) are general partners in the Land Partnership and each owns a 50% interest in the Land Partnership. The Registrant has no competition because it is under agreement with North by Northeast, Ltd. to loan all proceeds raised, less operating reserves, to North by Northeast, Ltd. The Registrant has no employees. Partnership administration services are being provided under a contractual agreement with Landmark Realty Services Corporation, an affiliate of the general partner. North by Northeast Land Partners The Lender Financing is secured with a hypothecated mortgage on the land and improvements held (Property) by the Land Partnership. As of December 31, 1996, the Land Partnership owned approximately 10 saleable acres of land in the Town of Fishers, Hamilton County, just outside of Indianapolis city limits. The property lies at the intersection of Interstate 69 and 96th Street. The majority of the development of the Property was completed in 1990. The construction of the NNE Boulevard extension began in 1991 and was completed in 1993. All other development on the Property pertained to sales and included grading and other sitework and extending roads and utilities. The Property securing the Lender Financing continues to encounter a significant amount of competition. The largest competition for land sales and build-to-suit type sales is Crosspointe, a 300-acre business park at the northwest corner of Interstate 69 and 96th Street. In addition, Exit 5 Business Park, two miles north of the Property has competitive land. Castleton Business Park, one-half mile south of the Property, is the largest competitor for leased space. The Land Partnership's Property offers better access to purchasers and anticipated pricing is similar. Wal-Mart and Sam's Wholesale continue to bring heavy traffic to the area. The widening of 96th Street to five lanes by the Town of Fishers has also attracted many potential buyers to the area. There is little competition within the Castleton area for the approximately 3 acres zoned for commercial use at North By Northeast. While a few smaller parcels are available in the vicinity of the Castleton Square Mall, approximately 1.5 miles southeast of the property, the majority of the undeveloped land has occurred over the last ten years. Hence, large, zoned parcels of vacant land are scarce. Along 96th Street near the Interstate 69 interchange, approximately 30 acres across 96th Street are under development for retail use and will be competition for the Land Partnership. Item 2. Properties The Registrant does not own any property, nor does it intend to own any property in the future. See the above information of North By Northeast Land Partners for a description of the property securing the note receivable from the Borrower. Item 3. Legal Proceedings Registrant is not a party to, nor is the Borrower or any of the Land Partnership's property the subject of, any material legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders The security holders of Registrant did not vote on any matter during the fiscal year covered by this report. PART II Item 5. Market for Registrant's Units of Limited Partnership Interest and Related Security Holder Matters There is no established market for the Units, and it is not anticipated that any will exist in the future. The Registrant commenced an offering to the public on September 1, 1988 of 5,625 Units of Limited Partnership Interests at $1,000 per Unit. This offering was fully issued and completed on March 15, 1989. As of February 28, 1997, there were 431 holders of record of the Units of Limited Partnership Interest. There were no distributions in 1996. The Registrant distributed $1,647,728 and $2,357,954 to the partners in 1995 and 1994, rescpectively. There are no material restrictions upon Registrant's present or future ability to make distributions in accordance with the provisions of Registrant's Limited Partnership Agreement. Item 6. Selected Financial Data For the Year Ending December 31, 1996 1995 1994 1993 1992 Interest income $ 34,125 671,882 486,714 308,267 381,452 Net Earnings 12,604 645,840 461,181 275,618 342,052 Net Income per Limited Partner Unit 2.24 111.89 77.80 49.00 60.81 Total Assets 535,431 522,826 1,524,866 3,421,487 4,282,233 Note Receivable from Affiliate 183,889 346,678 1,325,513 2,863,565 3,557,204 Distributions - 1,647,728 2,357,954 1,136,364 340,909 Distributions per Limited Partner Unit - 290 415 - - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Due to the nature of the Registrant, all activity is a result of transactions with North by Northeast, Ltd., the Borrower, and North by Northeast Land Partners (Land Partnership), the investment of North by Northeast, Ltd. Sales There were no land sales at the Land Partnership in 1996. In 1995, the Land Partnership sold approximately 20 acres for $3,209,564. Approximately $300,000 was retained for development and operating expenses and the remaining $2.5 million in net proceeds were distributed to the partners. Also in 1995, Northeast Building IV sold its land and building, and the Borrower received approximately $485,000, resulting in a $174,000 gain on its original $310,000 investment. These Land and Building partnership distributions enabled the Borrower to make interest and principal payments on the Lender Financing of $1.6 million in 1995. In 1994, the Land Partnership sold approximately 43.5 acres for $4.9 million. From these proceeds, $4.1 million was distributed to the Borrower, and the remaining proceeds were retained for development and operating costs. The Borrower made interest and principal payments on the Lender Financing of $2.3 million. Analysis of Operations The operations of the Registrant are minimal and comparable to prior years except for the fluctuations in interest income. Interest income includes interest accrued on the principal balance due from the Borrower and additional interest, if any, as defined in Item 1. The Registrant earned additional interest of $622,696 and $239,237 in 1995 and 1994, respectively. There was no additional interest earned in 1996. Accrued interest income has declined through the years due to the reduction in principal balances. Financial Condition and Liquidity The General Partner believes the cash and cash equivalents balance of $249,016 at December 31, 1996 will provide sufficient liquidity for 1997 due to the expenses of the Registrant. Item 8. Financial Statements and Supplementary Data NORTH LENDERS,L.P. (A Limited Partnership) FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 INDEX Page Number Independent Auditors' Report F-1 Financial Statements Balance Sheets F-2 Statements of Earnings F-3 Statements of Partners' Equity F-4 Statements of Cash Flows F-5 Notes to Financial Statements F-6 Independent Auditors' Report The Partners North Lenders,L.P.: We have audited the accompanying balance sheets of North Lenders, L.P. (a limited partnership) as of December 31, 1996 and 1995, and the related statements of earnings, partners' equity, and cash flows for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North Lenders, L.P. at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three- year period ended December 31, 1996, in conformity with generally accepted accounting principles. As discussed in Note 1, the Partnership adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure", in 1995. KPMG Peat Marwick LLP Nashville, Tennessee January 20, 1997 F-1 NORTH LENDERS, L.P. (A Limited Partnership) Balance Sheets December 31, 1996 and 1995 Assets 1996 1995 Cash and cash equivalents $ 249,016 50,698 Note receivable from affiliate (note 3) 183,889 346,678 Interest receivable from affiliate (note 3) 4,585 11,186 Deferred loan costs, less accumulated amortization of $133,309 in 1996 and $116,986 in 1995 97,941 114,264 Total assets $ 535,431 522,826 Liabilities and Partners' Equity Accrued liabilities $ 30,816 30,816 Partners' equity: Limited partners (5,625 units outstanding) 504,615 492,010 General partner - - Total partners' equity 504,615 492,010 Commitment and contingency (note 3) Total liabilities and partners' equity $ 535,431 522,826 See accompanying notes to financial statements. F-2 NORTH LENDERS, L.P. (A Limited Partnership) Statements of Earnings Years ended December 31, 1996, 1995 and 1994 1996 1995 1994 Interest income (note 3) $ 34,125 671,882 486,714 Expenses: Legal and accounting fees (note 2) 4,822 7,864 7,689 General and administrative 375 1,854 1,521 Amortization 16,323 16,324 16,323 Total expenses 21,520 26,042 25,533 Net Earnings $ 12,605 645,840 461,181 Net earnings allocated to: General partner $ - 16,478 23,579 Limited partners $ 12,605 629,362 437,602 Net earnings per limited partner unit $ 2.24 111.89 77.80 Weighted average units outstanding 5,625 5,625 5,625 See accompanying notes to financial statements. F-3 NORTH LENDERS, L.P. (A Limited Partnership) Statements of Partners' Equity Years ended December 31, 1996, 1995 and 1994 Limited General partners partner Total Units Amounts Balance at December 31, 1993 5,625 $ 3,390,671 - 3,390,671 Distributions (note 4) - (2,334,375) (23,579)(2,357,954) Net earnings - 437,602 23,579 461,181 _______ _______ _______ _______ Balance at December 31, 1994 5,625 1,493,898 - 1,493,898 Distributions (note 4) - (1,631,250) (16,478)(1,647,728) Net earnings - 629,362 16,478 645,840 _______ _______ _______ _______ Balance at December 31, 1995 5,625 492,010 - 492,010 Net earnings - 12,605 - 12,605 _______ _______ _______ _______ Balance at December 31, 1996 5,625 $ 504,615 - 504,615 See accompanying notes to financial statements. F-4 NORTH LENDERS, L.P. (A Limited Partnership) Statements of Cash Flows Years ended December 31, 1996, 1995 and 1994 1996 1995 1994 Cash flows from operating activities: Net earnings $ 12,605 645,840 461,181 Adjustments to reconcile net earnings to net cash provided by operating activities: Amortization 16,323 16,324 16,323 Decrease in interest receivable from affiliate 6,601 6,972 287,773 (Decrease) increase in accrued expenses - (152) 152 Net cash provided by operating activities 35,529 668,984 765,429 Cash flows from investing activities - payments received on note receivable from affiliate 162,789 978,835 1,538,052 Cash flows from financing activities - Distributions - (1,647,728) (2,357,954) Net increase (decrease) in cash and cash equivalents 198,318 91 (54,473) Cash and cash equivalents at beginning of year 50,698 50,607 105,080 Cash and cash equivalents at end of year $ 249,016 50,698 50,607 See accompanying notes to financial statements. F-5 NORTH LENDERS, L.P. (A Limited Partnership) Notes to Financial Statements December 31, 1996 and 1995 (1) Summary of Significant Accounting Policies (a) Organization North Lenders, Ltd., a Tennessee limited partnership, was organized on June 27, 1988 to lend monies to corporations, partnerships, and other entities engaged primarily in the business of owning and operating real estate. North Lenders, Ltd. was reorganized on December 31, 1990 under the laws of the State of Delaware and changed its name to North Lenders, L.P. (the Partnership). The general partner is 222 North, Ltd., and the general partners of 222 North, Ltd. are 222 Partners, Inc., Steven D. Ezell and Michael A. Hartley. The Partnership prepares financial statements and Federal income tax returns on the accrual method and includes only those assets, liabilities and results of operations which relate to the business of the Partnership. (b) Estimates Management of the Partnership has made estimates and assumptions to prepare these financial statements in accordance with generally accepted accounting principles. Actual results could differ from those estimates. (c) Cash and Cash Equivalents The Partnership considers all short-term investments with original maturities of three months or less at the date of purchase to be cash equivalents. Cash belonging to the Partnership is combined in an account with funds from other partnerships related to the general partner. (d) Note Receivable from Affiliate Effective January 1, 1995, the Partnership adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure". The Partnership, considering current information and events regarding the borrower's ability to repay its obligations, considers a note to be impaired when it is probable that the Partnership will be unable to F-6 NORTH LENDERS, L.P. (A Limited Partnership) Notes to Financial Statements (1) Summary of Significant Accounting Policies (continued) (d) Note Receivable from Affiliate (continued) collect all amounts due according to the contractual terms of the note agreement. When a note is considered to be impaired, the amount of the impairment is measured based upon the estimated fair value of the underlying collateral. The Partnership will establish an impairment allowance for the amount that the recorded value of the note exceeds its estimated fair value. The impairment allowance is established by a charge to earnings. When a note is considered to be impaired, management ceases the accrual of interest income. Any cash receipts on impaired notes receivable are applied to reduce the principal amount of such notes until the principal has been recovered and are recognized as interest income, thereafter. At December 31, 1996 and 1995, the Partnership has no loans that meet the definitions of an impaired loan under SFAS No. 114. Accordingly, the note receivable from affiliate is recorded at cost with no allowance for impairment. (e) Deferred Loan Costs Deferred loan costs are amortized by the straight-line method over the fifteen year term of the note receivable from affiliate. (f) Income Taxes No provision has been made in the financial statements for Federal income taxes, since such taxes are the responsibilities of the partners. Annually, the partners receive, from the partnership, IRS Form K-1's, which provide them with their respective share of taxable income or losses, deductions, and other tax related information. The only significant difference between the tax basis and reported amounts of the Partnership's assets and liabilities relates to the recognition of interest income. For income tax purposes, the outstanding note receivable principal balance accrues interest at a compounded interest rate of 6.45% per annum. It accrues interest at a 10% simple interest rate for financial reporting and payment purposes. This results in a book basis of the note receivable of $183,889 and interest receivable of $4,585 at December 31, 1996 compared to a tax basis for these assets of $0. F-7 NORTH LENDERS, L.P. (A Limited Partnership) Notes to Financial Statements (1) Summary of Significant Accounting Policies (continued) (g) Partnership Allocations Net profits, losses and distributions of cash flow of the Partnership are allocated to the partners in accordance with the Partnership agreement as follows: Net profits are allocated first to any partner with a negative balance in their capital account, determined at the end of the taxable year as if the Partnership had distributed cash flow, in proportion to the negative capital balance account of all partners until no partner's capital account is negative. Net profit allocations are then made to the limited partners up to the difference between their capital account balances and the sum of their adjusted capital contributions (capital balance, net of cumulative cash distributions in excess of preferred returns - 12% annual cumulative return on capital contributed). Any remaining net profit allocations are then made to the limited partners until the taxable year in which cumulative profits to the limited partners equal their adjusted capital contribution plus an unpaid preferred return (12% annual cumulative return on capital contributed). Net profits are then allocated to the general partner until the ratio of the general partner's capital account balance to the capital account balances, in excess of adjusted capital contributions and unpaid preferred return, of all limited partners is 27 to 73. Thereafter, profits are generally allocated 27% to the general partner and 73% to the limited partners. Net losses are allocated to the partners in proportion to their positive capital accounts. Partnership distributions are allocated 99% to the limited partners and 1% to the general partner in an amount equal to their preferred return (12% annual cumulative return on capital contributed), 99% to the limited partners and 1% to the general partner until the limited partners have received an amount equal to their adjusted capital contributions, and then 73% to the limited partners and 27% to the general partner. F-8 NORTH LENDERS, L.P. (A Limited Partnership) Notes to Financial Statements (2) Related Party Transactions The general partner and its affiliates have been actively involved in managing the Partnership. Affiliates of the general partner receive fees for performing certain services. Expenses incurred for these services in 1996, 1995 and 1994 are as follows: 1996 1995 1994 Accounting fees $ 1,800 1,500 1,500 (3) Note Receivable From Affiliate The note receivable from affiliate represents a long-term note receivable from North by Northeast, Ltd., an affiliate sharing the same general partner. This note receivable bears simple interest at 10% per annum plus "additional interest" equal to 50% of the "net revenues". Net revenues, as defined by the participating loan agreement, represent the difference between cash proceeds earned and the following: 1) accrued but unpaid interest and applicable principal balances; 2) accrued preferred return (12%) on the net offering proceeds of the Borrower; and 3) the applicable equity balance. During 1995 and 1994, the Partnership received from its affiliate $622,696 and $239,237, respectively, of additional interest. There was no additional interest income in 1996. The note is secured by a mortgage on the land owned by North by Northeast Land Partners and by a security interest in any cash reserves or investment securities held by the debtor and North by Northeast Land Partners. The debtor has a 50% ownership interest in North by Northeast Land Partners. Unpaid accrued interest and principal payments become due upon the sale of the property or any portion thereof to the extent cash is available, but no later than December 31, 2002. The loan agreement permits North by Northeast Land Partners to withhold up to 25% of the net sales proceeds for future development costs. F-9 NORTH LENDERS, L.P. (A Limited Partnership) Notes to Financial Statements (3) Note Receivable From Affiliate (continued) Summarized information of North by Northeast, Ltd. (Limited) and North by Northeast Land Partners (Land) at December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995, and 1994, are presented below. Assets Limited Land 1996 1995 1996 1995 Cash and investments $ 29,358 42,479 230,840 485,452 Restricted cash - - 1,000 27,539 Land and improvements held for investment - - 642,533 597,923 Investment in partnership 274,382 461,473 - - $ 303,740 503,952 874,373 1,110,914 Liabilities and Partners' Equity Note payable-affiliate $ 183,889 346,678 - - Accrued interest payable 4,585 11,186 - - Accounts payable - - 6,900 59,260 Partners' equity 115,266 146,088 867,473 1,051,654 $ 303,740 503,952 874,373 1,110,914 F-10 NORTH LENDERS, L.P. (A Limited Partnership) Notes to Financial Statements (3) Note Receivable From Affiliate (continued) Operations Limited Land 1996 1995 1994 1996 1995 1994 Revenues: Gain on sale of land and improvements $ - - - - 1,096,342 1,986,671 Equity in income of partner- ships 2,909 683,516 1,233,519 - - - Other 1,866 4,408 8,901 83,192 363,431 35,433 ------- ------- ------- ------- ------- ------- Total revenues 4,775 687,924 1,242,420 83,192 1,459,773 2,022,104 Expenses: Interest expense 30,610 666,663 484,264 - - - Other expense 4,987 9,784 9,271 77,373 96,889 120,288 ------- ------- ------- ------- ------- ------- Total expenses 35,597 676,447 493,535 77,373 96,889 120,288 Net income $ (30,822) 11,477 748,885 5,819 1,362,884 1,901,816 Cash Flows Cash (used) provided by: Operating activities $ (40,332) (679,042) (772,375) (64,612) 2,816,211 3,925,024 Investing activities 190,000 2,636,018 3,774,921 53,576 (4,152) (3,362) Financing activities (162,789)(1,967,705) (2,989,786) (190,000)(2,561,383)(3,774,921) Net (decrease) increase in cash and cash equivalents $(13,121) (10,729) 12,760 (201,036) 250,676 146,741
F-11 NORTH LENDERS, L.P. (A Limited Partnership) Notes to Financial Statements (4) Distributions For the years ended December 31, 1995 and 1994, the Partnership made distributions totaling $1,647,728 and $2,357,954, respectively. Of these amounts, $1,631,250 ($290 per share) and $2,334,375 ($415 per share) were allocated to the limited partners for 1995 and 1994, respectively. Distributions to the general partner were $16,478 and $23,579, for the years ended December 31, 1995 and 1994, respectively. There were no distributions in 1996. (5) Fair Value of Financial Instruments At December 31, 1996 and 1995, the Partnership had financial instruments including cash and cash equivalents, interest receivable, accrued liabilities, and a note receivable. The carrying amounts of cash and cash equivalents, interest receivable, and accrued liabilities approximate their estimated fair value because of the short maturity of those financial instruments. The determination of the estimated fair value of the note receivable from affiliate was not practical as the note agreement does not provide for a predictable cash payment stream. F-12 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 Registrant does not have any directors or officers. 222 North, Ltd. is the general partner. Steven D. Ezell, Michael A. Hartley and 222 Partners, Inc. are the general partners of the general partner and as such have general responsibility and ultimate authority in matters affecting Registrant's business. Steven D. Ezell Steven D. Ezell, age 44, is a general partner of 222 North, Ltd., and the President and sole shareholder of 222 Partners, Inc. He has been an officer of 222 Partners, Inc. from September 17, 1986 through the current period. Mr. Ezell is President and 50% owner of Landmark Realty Services Corporation. For the prior four years, Mr. Ezell was involved in property acquisitions for Dean Witter Realty Inc. in New York City, most recently as Senior Vice President. Steven D. Ezell is the son of W. Gerald Ezell. Michael A. Hartley Michael A. Hartley, age 37, is Secretary/Treasurer and a Vice President of 222 Partners, Inc. He has been an officer of 222 Partners, Inc. from September 17, 1986 through the current period. Mr. Hartley is Vice President and 50% owner of Landmark Realty Services Corporation. Prior to joining Landmark in 1986, Mr. Hartley was Vice President of Dean Witter Realty Inc., a New York- based real estate investment firm. 222 Partners Inc. 222 Partners, Inc. was formed in September, 1986 and serves as general partner for several other real estate investment limited partnerships. The directors of 222 Partners, Inc. are W. Gerald Ezell, Steven D. Ezell, and Michael A. Hartley. Other directors of 222 Partners, Inc. are as follows: W.Gerald Ezell W. Gerald Ezell, age 66, serves on the Board of Directors of 222 Partners, Inc. Until November, 1985, Mr. Ezell had been for over 20 years an agency manager for Fidelity Mutual Life Insurance Company and a registered securities principal of Capital Analysts Incorporated, a wholly owned subsidiary of Fidelity Mutual Life Insurance Company. Item 11. Executive Compensation During 1996, Registrant was not required to and did not pay remuneration to any executives, partners of the general partner or any affiliates, except as set forth in Item 13 of this report, "Certain Relationships and Related Transactions." The general partner does participate in the profits, losses and distributions of the Registrant as set forth in the Partnership Agreement. Item 12. Security Ownership of Certain Beneficial Owners and Management As of February 28, 1997 no person or "group" (as that term is used in Section 13(d) (3) of the Securities Exchange Act of 1934) was known by the Registrant to beneficially own more than five percent of the units of Registrant. As of the above date, the Registrant knew of no officers or directors of 222 Partners, Inc. that beneficially owned any of the units of the Registrant. There are no arrangements known by the Registrant, the operation of which may, at a subsequent date, result in a change in control of the Registrant. Item 13. Certain Relationships and Related Transactions No affiliated entities have, for the year ending December 31, 1996, earned compensation or payments for services from the Registrant in excess of $60,000. For a listing of all miscellaneous transactions with affiliates which were less than $60,000, refer to Note 2 of the notes to Financial Statements in Item 8. The Registrant had a note receivable balance of $183,889 and accrued interest of $4,585 from North by Northeast, Ltd.,an affiliated partnership, at December 31, 1996. PART IV Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K (a) (1) Financial Statements See Financial Statements Index in Item 8 hereof. (2) Financial Statement Schedules See Financial Statement Schedule Index at page 18 hereof. (3) Exhibits 3 Amended and Restated Certificate and agreement of Limited Partnership, incorporated by reference to Exhibit A to the Prospectus of Registrant dated September 1, 1988 filed pursuant to Rule 424 (b) of the Securities and Exchange Commission. 10A Loan Agreement by and among North by Northeast, Ltd. and the Registrant, incorporated by reference to Exhibit 10.1 to Registrant's Form S-18 Registration Statement as filed on July 1, 1988. 10B Deed of Trust and Security Agreement by and among North by Northeast, Ltd. and the Registrant, incorporated by reference to Exhibit 10.2 of the Registrant's Form S-18 Registration Statement as filed on July 1, 1988. 10C Participating Mortgage Note of North by Northeast, Ltd. to North Lenders, Ltd., incorporated by reference to Exhibit 10.3 to Registrant's Form S-18 Registration Statement as filed on July 1, 1988. 22 Subsidiaries-Registrant has no subsidiaries. 27 Financial Data Schedule (b) No reports on Form 8-K have been filed during the last quarter of 1996. Financial Statement Schedule Filed Pursuant to Item 14(a)(2) NORTH LENDERS, L.P. (A Limited Partnership) ADDITIONAL INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 INDEX Page Number Additional financial information furnished pursuant to the requirements of Form 10-K: Financial Statement Schedule - Independent Auditors' Report S-1 Schedule IV - Mortgage Loans on Real Estate S-2 Financial Statements of Properties Securing Mortgage loans - North By Northeast Land Partners Independent Auditors' Report 26 Balance Sheets 27 Statements of Earnings 28 Statements of Partners' Equity 29 Statements of Cash Flows 30 Notes to Financial Statements 31 North By Northeast, Ltd. Independent Auditors' Report 39 Balance Sheets 40 Statements of Operations 41 Statements of Partners' Equity 42 Statements of Cash Flows 43 Notes to Financial Statements 44 All other Schedules have been omitted because they are inapplicable, not required or the information is included in the Financial Statements or notes thereto. Independent Auditors' Report The Partners North Lenders, L.P.: Under date of January 20, 1997, we reported on the balance sheets of North Lenders, L.P. as of December 31, 1996 and 1995, and the related statements of earnings, partners' equity, and cash flows for each of the years in the three-year period ended December 31, 1996. The financial statements and our report thereon are included elsewhere herein. In connection with our audits of the aforementioned financial statements, we have also audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Partnership's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in Note 1, the Partnership adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure", in 1995. KPMG Peat Marwick LLP Nashville, Tennessee January 20, 1997 S-1 Schedule IV NORTH LENDERS, L.P. (A Limited Partnership) Mortgage Loans on Real Estate December 31, 1996 Principal amount of loan subject to Carrying delin- Face amount quent Final Periodic amount of principal Interest maturity payment Prior of mortgage or Description rate date terms liens mortgage (1)(2) interest ________ _____ _____ ____ ___ _____ _____ _____ North by Northeast, Ltd., an affiliate* 10% December Upon the $ - 5,625,000 183,889 - 31, 2002 sale of property
1996 1995 1994 ____ ____ ____ (1) Balance at beginning of period $ 346,678 1,325,513 2,863,565 Deductions - collection of principal 162,789 978,835 1,538,052 Balance at close of period $ 183,889 346,678 1,325,513 (2) Aggregate cost for Federal tax purposes - - 671,870 *The note receivable from affiliate represents a $183,889 note receivable from North by Northeast, Ltd., an affiliate sharing the same general partner. This note receivable bears interest at 10% per annum plus "additional interest" equal to 50% of the "net revenues," as defined in the participating loan agreement. The note is secured by a mortgage on the land owned by North by Northeast Land Partners in Indianapolis, Indiana (Property) and by a security interest in any cash reserves or investment securities held by the debtor and North by Northeast Land Partners. Unpaid accrued interest and principal payments become due upon the sale of the Property or any portion thereof to the extent cash is available, but no later than December 31, 2002. The loan agreement permits North by Northeast Land Partners to withhold up to 25% of the net sales proceeds for future development costs. See accompanying independent auditors' report. S-2 Independent Auditors' Report The Partners North By Northeast Land Partners: We have audited the accompanying balance sheets of North By Northeast Land Partners (a general partnership) as of December 31, 1996 and 1995, and the related statements of earnings, partners' equity, and cash flows for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North By Northeast Land Partners at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. As discussed in Note 1, the Partnership adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed of" on January 1, 1996. KPMG Peat Marwick LLP Nashville, Tennessee January 20, 1997 NORTH BY NORTHEAST LAND PARTNERS (A General Partnership) Balance Sheets December 31, 1996 and 1995 Assets 1996 1995 Cash and cash equivalents (note 3) $ 230,840 431,876 Restricted cash (note 1) 1,000 27,539 Certificate of deposit - 53,576 Land and improvements held for investment (note 3) 642,533 597,923 Total Assets $ 874,373 1,110,914 Liabilities and Partners' equity Liabilities: Accounts payable (note 2) $ 6,900 59,260 Total liabilities 6,900 59,260 Partners' equity: North by Northeast, Ltd. 223,892 410,982 Reveille Industrial #3, L.P. 643,581 640,672 Total partners' equity 867,473 1,051,654 Commitment (note 3) Total liabilities and partners' equity $ 874,373 1,110,914 See accompanying notes to financial statements. NORTH BY NORTHEAST LAND PARTNERS (A General Partnership) Statements of Earnings Years ended December 31, 1996, 1995 and 1994 1996 1995 1994 Revenues: Sales of land and improvements $ - 3,209,564 4,875,547 Cost of land and improvements sold - (1,759,379) (2,532,573) Selling expenses (note 2) - (353,843) (356,303) Gain on sale of land and improvements - 1,096,342 1,986,671 Other income: Inducement fee (note 3) - 253,805 - Common area maintenance income 50,628 73,650 - Interest 20,209 28,262 8,401 Rental income - - 5,139 Miscellaneous 12,355 7,714 21,893 Total other income 83,192 363,431 35,433 Total revenues 83,192 1,459,773 2,022,104 Expenses: Partnership administration fee (note 2) 6,000 6,000 6,000 Legal and accounting (note 2) 29,606 19,418 11,754 Property management fees (note 2) 6,000 6,000 6,000 Other land management fees (note 2) 26,187 51,927 82,370 General and administrative expenses 885 5,914 5,298 Property taxes 8,695 7,630 8,866 Total expenses 77,373 96,889 120,288 Net earnings $ 5,819 1,362,884 1,901,816 Net earnings allocated to: North by Northeast, Ltd. $ 2,910 687,284 1,513,444 Reveille Industrial #3, L.P. $ 2,909 675,600 388,372 See accompanying notes to financial statements. NORTH BY NORTHEAST LAND PARTNERS (A General Partnership) Statements of Partners' Equity Years ended December 31, 1996, 1995 and 1994 North By Reveille Northeast, Industrial Ltd. #3,L.P. Total Balance at December 31, 1993 $ 4,434,206 - 4,434,206 Distributions (4,085,869) - (4,085,869) Net earnings 1,513,444 388,372 1,901,816 Balance at December 31, 1994 1,861,781 388,372 2,250,153 Distributions (2,138,083) (423,300) (2,561,383) Net earnings 687,284 675,600 1,362,884 Balance at December 31, 1995 410,982 640,672 1,051,654 Distributions (190,000) - (190,000) Net earnings 2,910 2,909 5,819 Balance at December 31, 1996 $ 223,892 643,581 867,473 See accompanying notes to financial statements. NORTH BY NORTHEAST LAND PARTNERS (A General Partnership) Statements of Cash Flows Years ended December 31, 1996, 1995 and 1994 1996 1995 1994 Cash flows from operating activities: Net earnings $ 5,819 1,362,884 1,901,816 Adjustments to reconcile net earnings to net cash (used) provided by operating activities: Cost of land and improvements sold - 1,759,379 2,532,573 Cost of land improvements (44,610) (247,599) (522,834) Decrease (increase) in restricted cash 26,539 (27,539) - Decrease in accounts receivable - 2,769 24,999 (Decrease) increase in accounts payable (52,360) (33,683) 75,020 Decrease in revenue applicable to future improvements - - (86,550) Net cash (used) provided by operating activities (64,612) 2,816,211 3,925,024 Cash flows from investing activities Decrease (increase) in certificate of deposit 53,576 (4,152) (3,362) Cash flows from financing activities - distributions to partners (190,000) (2,561,383) (3,774,921) Net (decrease) increase in cash and cash equivalents (201,036) 250,676 146,741 Cash and cash equivalents at beginning of year 431,876 181,200 34,459 Cash and cash equivalents at end of year $ 230,840 431,876 181,200 NORTH BY NORTHEAST LAND PARTNERS (A General Partnership) Statements of Cash Flows Years ended December 31, 1996, 1995 and 1994 Supplemental Disclosure of Noncash Financing and Investing Activities: During 1994, the Partnership distributed to North by Northeast, Ltd. an interest in a limited partnership investment received in a sale of land and improvements held for investment. The limited partnership had an estimated value of $310,948 which was the Partnership's basis in the investment. See accompanying notes to financial statements. NORTH BY NORTHEAST LAND PARTNERS (A General Partnership) Notes to Financial Statements December 31, 1996 and 1995 (1) Summary of Significant Accounting Policies (a) Organization North by Northeast Land Partners (the Partnership) was organized by North by Northeast, Ltd. and Reveille Industrial #3 Limited Partnership (RILP), an affiliate of Trammell Crow Company (Trammell Crow), each acting as general partners and each owning 50% of the partnership. The Partnership was organized on October 18, 1988 for the purpose of acquiring, developing and selling parcels of real estate near Indianapolis, Indiana. The Partnership prepares financial statements and Federal income tax returns on the accrual method and includes only these assets, liabilities, and results of operations which relate to the Partnership. (b) Estimates Management of the Partnership has made estimates and assumptions to prepare these financial statements in accordance with generally accepted accounting principles. Actual results could differ from those estimates. (c) Cash and Cash Equivalents The Partnership considers all short-term investments with original maturities of three months or less at the date of purchase to be cash equivalents. Cash belonging to the Partnership is combined in an account with funds from other partnerships related to the general partner. (d) Restricted Cash At December 31, 1996 and 1995, the Partnership has restricted cash balances of $1,000 and $27,539, respectively, representing retainage on land improvements made to land sold. NORTH BY NORTHEAST LAND PARTNERS (A General Partnership) Notes to Financial Statements (1) Summary of Significant Accounting Policies (continued) (e) Land and Improvements Held for Investment The Partnership acquired a tract of undeveloped land representing approximately 169 acres. Land and improvements held for investment is recorded at acquisition cost plus certain carrying costs. Insurance and property taxes are capitalized as carrying costs of the property during the development stage of the property. Insurance and property taxes are charged to expense once development is complete. Revenue applicable to future improvements is deferred and recognized as improvements are completed. Approximately 10 acres remain at December 31, 1996 and 1995. The Partnership adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" on January 1, 1996. SFAS No. 121 requires that long-lived assets to be disposed of be reported at the lower of the carrying amount or fair value less estimated costs to sell. The fair value of the assets can be determined externally, using appraisals, or internally using discounted future net cash flows. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets less estimated costs to sell. Impairment is recognized through the establishment of an allowance for impairment with a corresponding charge to operations. Losses upon the sale of the assets are charged to the allowance. Based upon management's analysis, the Partnership's land and improvements held for investment does not meet the definition of impairment under SFAS No. 121. Accordingly, land and improvements held for investment is recorded at cost with no allowance for impairment necessary. The adoption of SFAS No. 121 did not have an impact on the Partnership's financial position, results of operation, or liquidity. NORTH BY NORTHEAST LAND PARTNERS (A General Partnership) Notes to Financial Statements (1) Summary of Significant Accounting Policies (continued) (f) Income Recognition Income from sales of land and improvements held for investment is generally recorded on the accrual basis when the buyer's financial commitment is sufficient to provide economic substance to the transaction, and when other criteria of SFAS No. 66 "Accounting for Sales of Real Estate" are satisfied. For sales of real estate where both cost recovery is reasonably certain and the collectibility of the contract price is reasonably assured, but the transaction does not meet the remaining requirements to be recorded on the accrual basis, profit is deferred and recognized under the installment method, which recognizes profit as collections of principal are received. If developments subsequent to the adoption of the installment method occur which cause the transaction to meet the requirements of the full accrual method, the remaining deferred profit is recognized at that time. Any losses on sales of real estate are recognized at the time of the sale. (g) Income Taxes No provision has been made in the financial statements for Federal income taxes, since such taxes are the responsibility the partners. The partnership is subject to a 6% state tax on certain interest income. For the years ended December 31, 1996, 1995, and 1994, the Partnership had no state income tax expense. Annually, the partners receive, from the partnership, IRS Form K-1's which provides them with their respective share of taxable income (or losses), deductions, and other tax related information. At December 31, 1996 and 1995, there were no differences in the book and tax bases of the Partnership's assets and liabilities. (h) Partnership Allocations Net profits, losses and distributions of cash flow of the Partnership are allocated in accordance with the Partnership agreement as follows: Net profits are first allocated to the partners to offset any cumulative net losses allocated to the partners, then to offset any reductions to capital account balances caused by NORTH BY NORTHEAST LAND PARTNERS (A General Partnership) Notes to Financial Statements (1) Summary of Significant Accounting Policies (continued) prior allocations of losses. Any remaining profits are then allocated to North by Northeast, Ltd. until the cumulative net profits allocated to North by Northeast, Ltd. are equal to the sum of its Preferred Return (11% of the outstanding balances of Phase I development contributions), 10% of Phase I development contributions, and any amounts distributed to North by Northeast, Ltd. commencing on the date hereof and ending on a date 90 days following the close of the fiscal year. Any remaining profits are allocated to the partners in proportion to their ownership interests. Net losses are allocated first among the partners until the cumulative losses allocated are equal to the cumulative profits allocated to date, then among the partners in proportion to their positive account balances. Any remaining losses are allocated among the partners in proportion to their ownership interests. Partnership distributions from the cash proceeds from sales to an affiliated venture are allocated first to pay any currently required installments or payments of outstanding liabilities and expenses of the Partnership which are not assumed by a single partner or a purchaser of the project, if applicable, and upon which either the Partnership or any partner has personal liability, excluding capital loans, then to repay capital loans, then to fund the construction reserve fund with 25% of cash proceeds from such sale until such fund is equal to the total amount designated for the construction reserve fund. Then distributions are allocated to North by Northeast, Ltd. until North by Northeast, Ltd. has received an amount equal to its preferred return, to the extent unpaid, then to North by Northeast, Ltd. until North by Northeast, Ltd. has received 110% of the sum of the then outstanding Phase I Development Contribution. Any remaining cash distribution is to be used to fund construction shortfall loans, together with any interest thereon. Any remaining proceeds shall then be divided between the partners in proportion to their ownership interests. Partnership distributions from the cash proceeds from sales to a third-party venture are allocated as follows: 1) Out of the portion of the proceeds of such sale equivalent to the purchase price which would have been received had such NORTH BY NORTHEAST LAND PARTNERS (A General Partnership) Notes to Financial Statements (1) Summary of Significant Accounting Policies (continued) installments or payments of outstanding liabilities and expenses of the Partnership which are not assumed by a single partner or a purchaser of the project, if applicable, and upon which either the Partnership or any partner has personal liability, excluding capital loans, then to repay capital loans, then to fund the construction reserve fund with the 25% of cash proceeds from such sale until such fund is equal to the total amount designated for the construction reserve fund. Then distributions are allocated to North by Northeast, Ltd. until North by Northeast, Ltd. has received an amount equal to its preferred return, to the extent unpaid, then to North by Northeast, Ltd. until North by Northeast, Ltd. has received 110% of the sum of the then outstanding Phase I Development Contribution. Any remaining cash distribution is to be used to fund construction shortfall loans, together with any interest thereon. Any remaining proceeds shall then be divided between the partners in proportion to their ownership interests. 2) That portion of the proceeds from a sale to a third-party venture which is equal to the third-party price differential shall be distributed to North by Northeast, Ltd. (and shall not apply toward the reduction of any preferred return or return of Phase I Development Contribution). 3) That portion of the proceeds from a sale to a third-party venture which is in excess of the minimum purchase price for the parcel sold as a set forth in the closing schedule shall be divided between the partners in proportion to their ownership interests (and shall not apply toward the reduction of any capital loan, preferred return, return of Phase I Development Contribution, or Construction Shortfall loan). (i) Reclassifications Certain prior year amounts have been reclassified to conform with the current year presentation. NORTH BY NORTHEAST LAND PARTNERS (A General Partnership) Notes to Financial Statements (2) Related Party Transactions The general partners and their affiliates have been actively involved in managing the Partnership. Affiliates of the general partners receive fees and commissions for performing certain services. Expenses incurred for these services during 1996, 1995 and 1994 are as follows: Payee Nature of Compensation 1996 1995 1994 Landmark Realty Services Corp. Administration fees $ 6,000 6,000 6,000 Property management fees 6,000 6,000 6,000 Sales commissions - 45,852 100,147 Accounting fees - 800 400 Year-end accounts payable 400 400 66,875 Trammell Crow Company (RILP) Sales commissions - 98,556 161,980 Development costs - 7,270 - Development fees 6,780 - - Management fees - 56,387 74,454 (3) Land and Improvements Held for Investment The components of land and improvements held for investment at December 31, are as follows: 1996 1995 Land and carrying costs 342,370 342,370 Land improvements 300,163 255,553 $ 642,533 597,923 The aggregate cost for Federal income tax purposes for land and improvements held for investment was $642,533 and $597,923 at December 31, 1996 and 1995, respectively. (Continued) NORTH BY NORTHEAST LAND PARTNERS (A General Partnership) Notes to Financial Statements (3) Land and Improvements Held for Investment (continued) The Partnership's land and improvements held for investment and cash and cash equivalents serve as collateral on a note payable of North by Northeast, Ltd. to an affiliate. At December 31, 1996 and 1995, the note had an outstanding principal balance of $183,889 and $346,678, respectively. Interest and principal payments become due upon the sale of the collateral or any portion thereof to the extent cash is available, but no later than December 31, 2002. The loan agreement permits the Partnership to withhold up to 25% of the net sales proceeds for future development costs. At December 31, 1996, North by Northeast, Ltd. is committed to contribute an additional $254,862 to the Partnership if needed. During the year ended December 31, 1995, one of the landowners in the Partnership's development requested a change in its land purchase contract to allow for additional outparcels. Management of the Partnership negotiated and the Partnership received a fee of $253,805 as consideration for allowing this change. (4) Fair Value of Financial Instruments At December 31, 1996 and 1995, the Partnership had financial instruments including cash and cash equivalents, restricted cash, certificates of deposit, and accounts payable. The carrying amounts of these financial instruments approximate their fair value because of the short maturity of such instruments. Independent Auditors' Report The Partners North By Northeast, Ltd.: We have audited the accompanying balance sheets of North By Northeast, Ltd. (a limited partnership) as of December 31, 1996 and 1995, and the related statements of operations, partners' equity, and cash flows for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North By Northeast, Ltd. at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Nashville, Tennessee January 20, 1997 NORTH BY NORTHEAST, LTD. (A Limited Partnership) Balance Sheets December 31, 1996 and 1995 Assets 1996 1995 Cash and cash equivalents (note 4) $ 29,358 42,479 Investment in land partnership (notes 3 and 4) 274,382 461,473 Total assets $ 303,740 503,952 Liabilities and Partners' Equity Liabilities: Note payable to affiliate (note 4) $ 183,889 346,678 Accrued interest payable to affiliate (note 4) 4,585 11,186 Total liabilities 188,474 357,864 Partners' equity: Limited partners (1,875 units outstanding) 370,784 401,606 General partner (255,518) (255,518) Total Partners' equity 115,266 146,088 Commitment and contingency (notes 3 and 4) Total liabilities and partners' equity $ 303,740 503,952 See accompanying notes to financial statements. NORTH BY NORTHEAST, LTD. (A Limited Partnership) Statements of Operations Years ended December 31, 1996, 1995 and 1994 1996 1995 1994 Revenues: Equity in income of partnerships (note 3) $ 2,909 509,134 1,233,519 Gain on sale of partnership (note 3) - 174,382 - Interest income 1,866 4,408 1,607 Other income - - 7,294 Total revenues 4,775 687,924 1,242,420 Expenses: Legal and accounting (note 2) 4,467 8,186 7,219 General and administrative 520 1,598 2,052 Interest expense (notes 2 and 4) 30,610 666,663 484,264 Total expenses 35,597 676,447 493,535 Net (loss) earnings $ (30,822) 11,477 748,885 Net (loss) earnings allocated to: General Partner $ - 11,477 54,859 Limited Partners $ (30,822) - 694,026 Net (loss) earnings per limited partner unit $ (16.44) - 370.15 Weighted average units outstanding 1,875 1,875 1,875 See accompanying notes to financial statements. NORTH BY NORTHEAST, LTD. (A Limited Partnership) Statements of Partners' Equity Years ended December 31, 1996, 1995 and 1994 Limited General partners partner Total Units Amounts Balance at December 31, 1993 1,875 $ 1,826,330 - 1,826,330 Distributions (note 5) - (1,396,875) (54,859) (1,451,734) Net earnings - 694,026 54,859 748,885 Balance at December 31, 1994 1,875 1,123,481 - 1,123,481 Distributions (note 5) - (721,875) (266,995) (988,870) Net earnings - - 11,477 11,477 Balance at December 31, 1995 1,875 401,606 (255,518) 146,088 Net loss - (30,822) - (30,822) Balance at December 31, 1996 1,875 $ 370,784 (255,518) 115,266 See accompanying notes to financial statements. NORTH BY NORTHEAST, LTD. (A Limited Partnership) Statements of Cash Flows Years ended December 31, 1996, 1995 and 1994 1996 1995 1994 Cash flows from operating activities: Net (loss) earnings $ (30,822) 11,477 748,885 Adjustments to reconcile net (loss) earnings to net cash used by operating activities: Equity in income of partnerships (2,909) (509,134) (1,233,519) Gain on sale of partnership - (174,382) - Decrease in accrued interest payable to affiliate (6,601) (6,972) (287,772) (Decrease) increase in accounts payable - (31) 31 Net cash used by operating activities (40,332) (679,042) (772,375) Cash flows from investing activities - distributions from partnerships 190,000 2,636,018 3,774,921 Cash flows from financing activities: Distributions - (988,870) (1,451,734) Payment of notes payable to affiliates (162,789) (978,835) (1,538,052) Net cash used by financing activities (162,789) (1,967,705) (2,989,786) Net (decrease) increase in cash and cash equivalents (13,121) (10,729) 12,760 Cash and cash equivalents at beginning of year 42,479 53,208 40,448 Cash and cash equivalents at end of year $ 29,358 42,479 53,208 See accompanying notes to financial statements. NORTH BY NORTHEAST, LTD. (A Limited Partnership) Statements of Cash Flows, Continued Years ended December 31, 1996, 1995 and 1994 Supplemental Disclosures of Cash Flow Information: 1996 1995 1994 Cash paid during the year for interest $ 37,211 673,635 772,036 Supplemental Disclosure of Noncash Financing and Investing Activities: During 1994, North by Northeast Land Partners distributed an investment in Northeast Building IV, L.P., which had an estimated value of $310,948, to North by Northeast, Ltd. See note 3 for additional information. NORTH BY NORTHEAST, LTD. (A Limited Partnership) Notes to Financial Statements December 31, 1996 and 1995 (1) Summary of Significant Accounting Policies (a) Organization North by Northeast, Ltd. (the Partnership) was organized on June 27, 1988 to participate as a general partner in North By Northeast Land Partners (the Land Partnership) and other affiliated partnerships. On October 18, 1988, the Land Partnership acquired an undeveloped tract of land in Indianapolis, Indiana for the purpose of developing and selling parcels of real estate. The general partner is 222 North, Ltd., whose general partners are 222 Partners, Inc., Steven D. Ezell and Michael A. Hartley. The Partnership prepares financial statements and Federal income tax returns on the accrual method and includes only those assets, liabilities and results of operations which relate to the business of the Partnership. (b) Estimates Management of the Partnership has made estimates and assumptions to prepare these financial statements in accordance with generally accepted accounting principles. Actual results could differ from those estimates. (c) Cash and Cash Equivalents The Partnership considers all short-term investments with original maturities of three months or less at the date of purchase to be cash equivalents. Cash belonging to the Partnership is combined in an account with funds from other partnerships related to the general partner. (d) Investment in Partnerships Investment in North by Northeast Land Partners (Land Partnership) is accounted for using the equity method. Accordingly, the Partnership's investment has been adjusted to reflect its proportionate share of profits, losses, and distributions. Interest incurred on notes payable attributable to investment in the Land Partnership was capitalized when the Land Partnership was actively developing its land. It is currently being charged NORTH BY NORTHEAST, LTD. (A Limited Partnership) Notes to Financial Statements December 31, 1996 and 1995 (1) Summary of Significant Accounting Policies (continued) to expense as the development project is substantially complete. Capitalized interest is amortized as land parcels are sold on the basis of the relative sales value of the parcels. Investment in Northeast Building IV, L.P. was accounted for using the cost method and was sold in 1995. (e) Income Taxes No provision has or will be made for Federal or state income taxes since such taxes are the personal responsibility of the partners. Annually, the partners receive, from the partnership, IRS Form K-1's, which provide them with their respective share of taxable income or losses, deductions, and other tax related information. There are no differences in the book and tax basis of the Partnership's assets and liabilities. (f) Partnership Allocations Net profits, losses and distributions of cash flow of the Partnership are allocated to the partners in accordance with the Partnership agreement as follows: Net profits are allocated first to any partner with a negative balance in their capital account, determined at the end of the taxable year as if the Partnership had distributed cash flow, in proportion to the negative capital balance account of all partners until no partner's capital account is negative. Net profit allocations are then made to the limited partners up to the difference between their capital account balances and the sum of their adjusted capital contributions (capital balance, net of cumulative cash distributions in excess of preferred returns - 12% annual cumulative return on capital contributed). Any remaining net profit allocations are then made to the limited partners until the taxable year in which cumulative profits to the limited partners equal their adjusted capital contribution plus an unpaid preferred return (12% annual cumulative return on capital contributed). Net profits are then allocated to the general partner until the ratio of the general partner's capital account balance to the capital account balances, in NORTH BY NORTHEAST, LTD. (A Limited Partnership) Notes to Financial Statements (1) Summary of Significant Accounting Policies (continued) excess of adjusted capital contributions and unpaid preferred return, of all limited partners is 27 to 73. Thereafter, profits are generally allocated 27% to the general partner and 73% to the limited partners. Net losses are allocated to the partners in proportion to their positive capital accounts. Partnership distributions are allocated 99% to the limited partners and 1% to the general partner in an amount equal to their preferred return (12% annual cumulative return on capital contributed), 99% to the limited partners and 1% to the general partner until the limited partners have received an amount equal to their adjusted capital contributions, and then 73% to the limited partners and 27% to the general partner. (2) Related Party Transactions The general partner and its affiliates have been actively involved in managing the investments in partnerships. Affiliates of the general partner receive fees or commissions for performing certain services. Compensation paid for these services during 1996, 1995 and 1994 is as follows: 1996 1995 1994 Accounting fees $ 1,600 1,500 1,500 (3) Investment in Partnership The Partnership has a 50% ownership interest in North By Northeast Land Partners, a general partnership. The remaining 50% is owned by an unrelated affiliate of Trammell Crow Company. Pursuant to the partnership agreement, the Trammell Crow affiliate will provide development supervision for the acquisition of land and construction of improvements. At December 31, 1996, development on the land is substantially complete. NORTH BY NORTHEAST, LTD. (A Limited Partnership) Notes to Financial Statements (3) Investment in Partnership (continued) Summarized information at December 31, 1996 and 1995 and for the years ended December 31, 1996, 1995, and 1994, is presented below (in thousands): Assets 1996 1995 Cash and investments $ 231 485 Restricted cash 1 28 Land and improvements held for investment 642 598 Total assets $ 874 1,111 Liabilities and Partners' Equity Accounts payable $ 7 59 Partners' equity 867 1,052 Total liabilities and partners' equity $ 874 1,111 Operations for the Year 1996 1995 1994 Revenues: Gain on sale of land and improvements $ - 1,097 1,987 Other 83 363 35 Total revenues 83 1,460 2,022 Operating expenses 77 97 120 Net earnings $ 6 1,363 1,902 Cash Flows for the Year 1996 995 1994 Cash (used) provided by: Operating activities $ (65) 2,816 3,925 Investing activities 54 (4) (3) Financing activities (190) (2,561) (3,775) Net (decrease) increase in cash and cash equivalents $ (201) 251 147 NORTH BY NORTHEAST, LTD. (A Limited Partnership) Notes to Financial Statements (3) Investment in Partnership (continued) A summary of activity in the Partnership's investment account and a reconciliation of the partner's equity account on the books of the investee and the Partnership's investment account follows (in thousands): 1996 1995 1994 Balances, beginning of year $ 411 1,862 4,434 Net earnings allocated to Partnership 3 687 1,514 Distributions (190) (2,138) (4,086) Partner's equity account 224 398 1,862 Capitalized construction period interest at year end 50 50 241 Investment in North by Northeast Land Partners $ 274 411 2,103 The Partnership is committed to contribute an additional $254,862 to the Land Partnership. However, due to retained proceeds from property sales, management of the Land Partnership does not anticipate a need for these funds. During 1994, the Land Partnership sold 8.4 acres to Northeast Building IV, L.P., an Indiana limited partnership, for $60,000 an acre. In exchange for the acreage sold, the Land Partnership received an equity interest in the purchaser and $193,292 in cash. The equity interest in the purchaser represented a 13.644% interest in capital, 10% interest in all operating cash flows, and upon sale or refinancing of the building, a priority return of capital and 7.5% of any profits. Because the Partnership's co-general partner in North by Northeast Land Partners decided not to participate in this investment with the Partnership, the investment was treated as a noncash distribution from North by Northeast Land Partners to North by Northeast, Ltd. In 1995, the Partnership's interest was sold for net proceeds of $485,330 resulting in a gain of $174,382 which is included in the accompanying 1995 statement of operations. NORTH BY NORTHEAST, LTD. (A Limited Partnership) Notes to Financial Statements (4) Note Payable to Affiliate The note payable to affiliate at December 31, 1996, represents a long-term note payable to North Lenders, L.P., an affiliate sharing the same general partner. The note incurs simple interest at an annual rate of 10% plus "additional interest" equal to 50% of "net revenues", as defined in the participating loan agreement. During 1995, the Partnership recognized $622,696 and $239,237, respectively, of "additional interest" expense. There was no additional interest expense in 1996. The note is secured by a mortgage on land and improvements owned by the Land Partnership and by a security interest in any cash reserves or investment securities held by the Partnership. Interest and principal payments become due upon the sale of the collateral or any portion thereof to the extent cash is available, but no later than December 31, 2002. The loan agreement permits the Land Partnership to withhold up to 25% of the net sales proceeds for future development costs. (5) Distributions For the years ended December 31, 1995 and 1994, the Partnership made distributions totaling $988,870 and $1,451,734, respectively. Of these amounts, $721,875 ($385 per unit) and $1,396,875 ($745 per unit) were allocated to the limited partners in 1995 and 1994, respectively. Distributions to the general partner were $266,995 and $54,859, for the years ended December 31, 1995 and 1994, respectively. There were no distributions in 1996. (6) Fair Value of Financial Instruments At December 31, 1996 and 1995, the Partnership had financial instruments including cash and cash equivalents, accrued interest payable, and a note payable. The carrying amounts of cash and cash equivalents, and accrued interest payable approximate their estimated fair value because of the short maturity of those financial instruments. The determination of the estimated fair value of the note payable to affiliate was not practicable as the note agreement does not provide for a predictable cash payment stream. 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. NORTH LENDERS, L.P. By: 222 North, Ltd. General Partner DATE: March 27, 1997 By: /s/ Steven D. Ezell General Partner DATE: March 27, 1997 By: /s/ Michael A. Hartley General Partner By: 222 Partners, Inc. General Partner DATE: March 27, 1997 By: /s/ Michael A. Hartley Secretary/Treasurer Pursuant to the requirements of the Securities Exchange 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. NORTH LENDERS, L.P. By: 222 North, Ltd. General Partner DATE: March 27, 1997 By: /s/ Steven D. Ezell General Partner DATE: March 27, 1997 By: /s/ Michael A. Hartley General Partner By: 222 Partners, Inc. General Partner DATE: March 27, 1997 By: /s/ Michael A. Hartley Secretary/Treasurer Supplement Information to be Furnished with Reports filed Pursuant to Section 15(d) of the Act by Registrant Which Have Not Registered Securities Pursuant to Section 12 of the Act: No annual report or proxy material has been sent to security holders. Exhibits filed to Item 14(a)(3): NORTH LENDERS, L.P. (A Tennessee Limited Partnership) Exhibit Index Exhibit 3 Amended and Restated Certificate and Agreement of Limited Partnership, incorporated by reference to Exhibit A to the Prospectus of Registrant dated September 1, 1988 filed pursuant to Rule 424 (b) of the Securities and Exchange Commission. 10A Loan Agreement by and among North By Northeast, Ltd. and the Registrant, incorporated by reference to Exhibit 10.1 to Registrant's Form S-18 registration Statement as filed on July 1, 1988. 10B Deed of Trust and Security Agreement by and among North By Northeast, Ltd. and the Registrant, incorporated by reference to Exhibit 10.2 of the Registrant's Form S-18 Registration Statement as filed on July 1, 1988. 10C Participating Mortgage Note of North By Northeast, Ltd. to North Lenders, Ltd., incorporated by reference to Exhibit 10.3 to Registrant's Form S-18 Registration Statement as filed on July 1, 1988. 22 Subsidiaries-Registrant has no subsidiaries. 27 Financial Data Schedule EX-27 2
5 0000835959 NORTH LENDERS, LTD 12-MOS DEC-31-1996 DEC-31-1996 249,016 0 183,889 0 0 0 0 0 535,431 0 0 0 0 0 504,615 535,431 0 34,125 0 0 21,521 0 0 12,604 0 12,604 0 0 0 12,604 2.24 2.24
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