Item 1. Business
General - -------
Capital Mortgage Plus L.P. (the "Registrant") is a limited partnership formed under the laws of the State of Delaware on November 23, 1988. The sole general partner of the Registrant is CIP Associates, Inc., a Delaware corporation (the "General Partner"). The General Partner manages and controls the affairs of the Registrant. On November 17, 2003, CharterMac acquired CharterMac Capital (formerly known as Related Capital Company), which is the indirect parent of RCC Manager LLC, the sole shareholder of the General Partner. Pursuant to the acquisition, CharterMac acquired controlling interests in the General Partner. This acquisition did not affect the Registrant or its day-to-day operations. See Item 10, Directors and Executive Officers of the Registrant, below.
Investment Objectives - ---------------------
The Registrant's principal investment objectives are to: (i) preserve and protect the Registrant's capital; (ii) provide quarterly cash distributions of adjusted cash from operations; and (iii) provide additional distributions from additional interest arising from participations in the annual cash flow of the developments and/or the sale or refinancing of a development. There can be no assurance that all of the objectives can be achieved.
The Registrant originated federally insured and co-insured first mortgage construction and permanent loans ("Mortgages") to finance multi-family residential rental properties ("Developments" and each a "Development") developed by unaffiliated entities. All base interest and initially at least 90% in the aggregate of the principal of the Mortgages in which the Registrant invests are insured or coinsured by the U.S. Department of Housing and Urban Development ("HUD") and Related Mortgage Corporation ("RMC"). The remaining 10% of the Registrant's portfolio is comprised of uninsured non-interest bearing equity loans ("Equity Loans") secured by the assignment of the debtor's interests in the Development made directly to the same developers as the Mortgages for, among other purposes, defrayal of certain specific cash requirements of the Developments. The Registrant made five Mortgages in the aggregate amount of $26,158,190 and five Equity Loans in the aggregate amount of $3,062,135 in connection with five Developments. The Registrant is a closed-end Company that made its last mortgage investment in March 1993 and does not expect to make any additional investments. As of December 31, 2005, the Registrant continued to hold two of its original five investments with the other three investments having been previously repaid as follows:
As permitted by the certain Subordinated Promissory Note dated August 23, 1991 (the "Subordinated Note"), on November 30, 2005, RMC called for the prepayment of the Subordinated Note on May 31, 2006 from Fieldcrest III Apartments, Ltd. ("Fieldcrest") at an estimated fair market value of $5,000,000.
Windemere Apartments ("Windemere") is currently in negotiations to refinance its Mortgage and Equity Loan through an affiliate of the General Partner. No documents have been drawn up, and there is no guarantee that the refinancing will occur. The Registrant currently estimates that the refinancing could take place in April 2006. As of December 31, 2005, Windemere had a Mortgage balance of approximately $7,432,000 and an Equity Loan balance of approximately $737,000.
The Registrant is engaged solely in the business of investing in Mortgages and Equity Loans; therefore, presentation of industry segment information is not applicable.
For detailed financial information pertaining to the Registrant, see Item 8, Financial Statements and Supplementary Data, below.
Investments - -----------
The following table lists the Registrant's Mortgages and Equity Loans as of February 28, 2006.
(1) The minimum interest rate shown above includes interest payable under the first mortgage note plus additional interest payable pursuant to the terms of a Limited Operating Guaranty agreement for Fieldcrest and the Additional Interest Guaranty agreements for Windemere.
(2) The Windemere Mortgage is co-insured by HUD and RMC. The Fieldcrest Mortgage is fully insured by HUD. As of February 28, 2006, all loan amounts under the Mortgages have been disbursed.
(3) Default interest payments in the aggregate amount of approximately $833,000 for the years ended December 31, 1999 through 2005 and $130,000 for the year ended December 31, 1996 have not been received and as a result, the Registrant established an allowance for uncollectability for a portion of the unpaid default interest payments which equals approximately $963,000 and $843,000 at December 31, 2005 and 2004, respectively.
(4) All Mortgages and Equity Loans have call provisions effective ten years following final endorsement and a grace period. The Registrant, in order to enforce such provisions, would be required to terminate the mortgage insurance contract with Federal Housing Administration (and/or the coinsurer) with respect to each of the Mortgages not later than the accelerated payment date. Since the exercise of such option would be at the Registrant's discretion, it is generally expected to be exercised when the Registrant determines that (i) the value of the Development has increased by an amount which would justify accelerating payment in full and assuming the risks of foreclosure if the mortgagor failed to make the accelerated payment or (ii) if the Registrant determines it is in the best interest of the investors.
The following is the interest income from Mortgages as a percentage of Registrant's total revenues for the prior three fiscal years.
Repayment of Mortgage Loans - ---------------------------
Holly Ridge II Apartments ("Holly Ridge") - ----------------------------------------- On December 29, 2004, HR II Associates, the owner of Holly Ridge, prepaid the outstanding Mortgage and Equity Loan in full. The Mortgage and the Equity Loan were secured by a mortgage on the Holly Ridge property and partnership interests in HR II Associates. The outstanding debt repaid early to the Registrant totaled $6,421,915, including the $5,034,666 outstanding balance of the Mortgage Loan, the $684,400 Equity Loan and $702,849 of additional interest due pursuant to the loan documents.
The proceeds from the repayment of the Holly Ridge Mortgage and Equity Loan on December 29, 2004 were included as part of the regular quarterly distributions which aggregated approximately $6,834,000 and $71,000 made to the limited partners or BACs holders and the General Partner, respectively, during the three months ended March 31, 2005.
Competition - -----------
The Registrant's business is affected by competition to the extent that the underlying Developments from which its borrowers derive interest and principal payments may be subject to competition from neighboring properties. In particular, the receipt of additional interest and the repayment of the Equity Loans, neither of which is insured or guaranteed by government or quasi-government agencies, are dependent upon the economic performance of the underlying Developments which could be adversely affected by competitive conditions.
Employees - ---------
The Registrant does not directly employ anyone. All services are performed for the Registrant by its General Partner and that entity's affiliates. The General Partner receives compensation in connection with such activities as set forth in Items 11 and 13. In addition, the Registrant reimburses the General Partner and certain of its affiliates for expenses incurred in connection with the performance by their employees of services for the Registrant in accordance with the Partnership Agreement.
Item 1A.
Item 1A. Risk Factors
Management is not aware of any trends or events, commitments or uncertainties that will impact liquidity in a material way. Management believes the only impact would be from laws that have not yet been adopted. All base interest and the principal of the Registrant's investments in Mortgages are insured or co-insured by HUD and additionally one Mortgage is coinsured by a private mortgage lender (which is affiliated with the non-executive Chairman of CharterMac, the parent of the General Partner). The Registrant's investments in uninsured non-interest bearing Equity Loans (which represent approximately 10% of the Registrant's portfolio when originated) are secured by a Registrant interest in the two properties. Due to the prepayment of three of the Registrant's original investments in Mortgages and Equity Loans, the portfolio is not diversified by location around the United States. Thus, the Registrant may not be protected against a general downturn in the national economy.
Item 1B.
Item 1B. Unresolved Staff Comments
Not applicable
Item 2.
Item 2. Properties
The Registrant does not own or lease any property.
Item 3.
Item 3. Legal Proceedings
There are no material legal proceedings pending against or involving the Registrant.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report through the solicitation of proxies or otherwise.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities
As of December 31, 2005, the Registrant had issued and outstanding 1,836,660 limited partnership interests ("Limited Partnership Interests"). All of the issued and outstanding Limited Partnership Interests are issued to Related FI BUC$ Associates, Inc. (the "Assignor Limited Partner"), which has issued Beneficial Assignment Certificates ("BACs"). Each BAC represents all of the economic and virtually all of the material ownership rights attributable to a Limited Partnership Interest held by the Assignor Limited Partner. BACs may be converted into Limited Partnership Interests at no cost to the holder, but Limited Partnership Interests are not convertible back into BACs. There is currently no established public trading market for BACs and it is not anticipated that BACs will be listed for trading on any securities exchange or included for quotation on the Nasdaq National Market.
The Registrant has 3,351 registered holders of an aggregate of 1,836,660 BACs, as of March 3, 2006.
All of the Registrant's general partnership interests, representing an aggregate capital contribution of $1,000, are held by the General Partner.
There are no material legal restrictions upon the Registrant's present or future ability to make distributions in accordance with the provisions of the Registrant's Amended and Restated Agreement of Limited Partnership.
Distribution Information - ------------------------
Accrued cash distributions per BAC made to the limited partners or BACs holders for the following quarters in 2005, 2004 and 2003, which are paid in subsequent quarters, were as follows:
Quarterly distributions are generally made 45 days following the close of the calendar quarter.
A total of $15,817,194 was distributed to the limited partners or BACs holders during the years 2005, 2004 and 2003. The Registrant utilized the original working capital reserve, in the aggregate amount of $477,532, for distributions from 1989 through 1991, which was considered to be a return of capital. An additional working capital reserve of approximately $2,800,000 was established from uninvested offering proceeds, a portion of which was applied to pay a part of the 2005, 2004 and 2003 distributions (which was considered to be a return of capital). Approximately $6,667,000, $0 and $6,594,000 paid to the limited partners or BACs holders in each of the years ended December 31, 2005, 2004 and 2003, respectively, represented a return of capital. A total of $186,120 was distributed to the General Partner during 2005, 2004 and 2003.
The 2004 fourth quarter distribution, which was paid on February 14, 2005, was funded primarily by the Holly Ridge repayment proceeds, $3.63 per BAC of which is considered to be a return of capital.
The Registrant does not have an equity compensation plan.
The Registrant has not sold securities within the past three years which were not registered under the Securities Act of 1933.
The Registrant has not repurchased any securities in the fourth quarter of the fiscal year ended December 31, 2005.
Item 6.
Item 6. Selected Financial Data
The information set forth below presents selected financial data of the Registrant. Additional financial information is set forth in the audited financial statements and footnotes thereto contained in Item 8 hereof.
(*) Includes $3.63 of Holly Ridge repayment proceeds which was distributed on February 14, 2005 (**) Includes $3.59 of Mortenson repayment proceeds which was distributed on February 14, 2003
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Capital Resources and Liquidity - -------------------------------
Sources of Registrant funds included interest earned on (1) investments in Mortgages and Equity Loans (see also Item 1, Business) and (2) the working capital reserve.
During the year ended December 31, 2005, cash and cash equivalents of the Registrant decreased by approximately $1,558,000 due to distributions paid to partners and BACs holders of approximately $7,411,000 which exceeded cash provided by operating activities of approximately $711,000 and collections of principal on mortgage loans of approximately $5,142,000.
As permitted by the certain Subordinated Promissory Note dated August 23, 1991 (the "Subordinated Note"), on November 30, 2005, RMC called for the prepayment of the Subordinated Note on May 31, 2006 from Fieldcrest III Apartments, Ltd. ("Fieldcrest") at an estimated fair market value of $5,000,000. The potential repayment of the remaining loans would result in the distribution of proceeds and that there would be no additional activity in the fund. Any repayment on the equity loan would result in a gain as it has been fully reserved.
Windemere Apartments ("Windemere") is currently in negotiations to refinance its Mortgage and Equity Loan through an affiliate of the General Partner. No documents have been drawn up, and there is no guarantee that the refinancing will occur. The Registrant currently estimates that the refinancing could take place in April 2006. As of December 31, 2005, Windemere had a Mortgage balance of approximately $7,432,000 and an Equity Loan balance of approximately $737,000. The potential repayment of the remaining loans would result in the distribution of proceeds and that there would be no additional activity in the fund. Any repayment on the default interest on Windemere and the equity loan would result in a gain as they have been fully reserved.
Subject to the future performance of the Registrant's investments and results of operations, the General Partner anticipates that there will be sufficient cash from operations generated to cover anticipated expenses in 2006. Distributions depend on earnings and are reduced upon repayment.
On December 29, 2004, HR II Associates, the owner of Holly Ridge, prepaid the outstanding Mortgage Loan and Equity Loan in full. The Mortgage and the Equity Loan were secured by a mortgage on the Holly Ridge property and partnership interests in HR II Associates. The outstanding debt repaid early to the Registrant totaled $6,421,915, including the $5,034,666 outstanding balance of the Mortgage, the $684,400 Equity Loan and $702,849 of additional interest due pursuant to the loan documents. The repayment proceeds were included in a cash distribution and were considered a return of capital made during the first quarter of 2005 of $6,667,076 ($3.63 per BAC) to the BACs holders and $67,344 to the General Partner.
Regular quarterly cash distributions, which on an annual basis totaled approximately $663,000 and $947,000 (other than the distribution of Mortgage and Equity Loans repayment proceeds), were made to the limited partners or BACs holders during the years ended December 31, 2005 and 2004, respectively. Such distributions were made from adjusted cash flow from operations and, to a lesser extent, from working capital reserves which is considered to be a return of capital. Approximately $14,000 and $19,000 was distributed to the General Partner in each of the years ended December 31, 2005 and 2004, respectively.
Management is not aware of any trends or events, commitments or uncertainties that will impact liquidity in a material way. Management believes the only impact would be from laws that have not yet been adopted. All base interest and the principal of the Registrant's investments in Mortgages are insured or co-insured by HUD and additionally one Mortgage is coinsured by a private mortgage lender (which is affiliated with the non-executive Chairman of CharterMac, the parent of the General Partner). The Registrant's investments in uninsured non-interest bearing Equity Loans (which represent approximately 10% of the Registrant's portfolio when originated) are secured by a Registrant interest in two properties. Due to the prepayment of three of the Registrant's original investments in Mortgages and Equity Loans, the portfolio is not diversified by location around the United States. Thus, the Registrant may not be protected against a general downturn in the national economy.
Inflation - ---------
In the last three fiscal years, there has been no material impact from inflation or changing prices on revenues or on income from continuing operations.
Off Balance Sheet Arrangements - ------------------------------
The Registrant does not have any off-balance sheet arrangements.
Contractual Obligations - -----------------------
The Registrant does not have long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or other long-term liabilities reflected on the Registrant's balance sheet under GAAP.
Critical Accounting Policies - ----------------------------
The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which requires the Registrant to make certain estimates and assumptions. A summary of significant accounting policies is disclosed in Note 2 to the financial statements which are included in the Registrant's annual report on Form 10-K for the year ended December 31, 2005. The following section is a summary of certain aspects of those accounting policies that may require subjective or complex judgments and are most important to the portrayal of the Registrant's financial condition and results of operations. The Registrant believes that there is a low probability that the use of different estimates or assumptions in making these judgments would result in materially different amounts being reported in the financial statements.
o Interest income on the Mortgages consists of contingent and non-contingent interest as defined in the mortgage notes and other additional interest agreements. Non-contingent interest consists of base and default interest, which is recognized as earned. Contingent interest is based on the underlying property's cash flows and is recognized when received.
o If the interest receivable exceeds the estimated value derived by management, the Registrant adjusts the allowance account to reflect its estimated fair value.
o The Equity Loans entitle the Registrant to an equity participation of approximately 35% of any proceeds from sale or refinancing. Because the participation percentage is less than 50%, the Registrant accounts for these Equity Loans as loans and not as equity investments in the borrower. The Equity Loans were considered to be premiums paid to obtain the Mortgages and were amortized over an estimated life. Effective December 31, 2004, the Equity Loans are fully amortized. The Registrant believes the resulting zero net book value properly states the net loan value. The Registrant believes recovery of such loans is contingent and recovery is likely only in the event of sale or refinancing occurs. Although the Registrant can call its loan, it cannot control the amount of proceeds available for repayment. Accordingly, the Registrant believes such collections should be reflected as gains when they occur.
Results of Operations - ---------------------
2005 vs. 2004 - -------------
Results of operations for the years ended December 31, 2005 and 2004, consisted primarily of interest income of $975,000 and $2,019,000, respectively, earned from investments in Mortgages, which was lower in 2005 due to non-recurring interest earned as a result of the Holly Ridge Mortgage and Equity Loan repayment in 2004.
Interest income from temporary investments increased approximately $15,000 for the year ended December 31, 2005 as compared to 2004, primarily due to non-recurring interest earned on the proceeds from the sale of Holly Ridge during the first two months of 2005 until such proceeds were distributed to partners in February 2005.
Other income decreased approximately $541,000 for the year ended December 31, 2005 as compared to 2004, primarily due to the gain realized from the repayment of the Holly Ridge Mortgage and Equity Loan in 2004.
General and administrative expenses increased approximately $18,000 for the year ended December 31, 2005 as compared to 2004, primarily due to an underaccrual of accounting fees in 2004 and an increase in legal costs in 2005.
Amortization expenses decreased approximately $72,000 for the year ended December 31, 2005 as compared to 2004, primarily due to the repayment of the Holly Ridge Mortgage and Equity Loan on December 29, 2004.
A provision for bad debts of approximately $120,000 and $84,000 was charged for the years ended December 2005 and 2004, respectively, representing the 2005 and 2004 guaranteed interest due from Windemere, which is not expected to be paid.
2004 vs. 2003
Results of operations for the years ended December 31, 2004 and 2003, consisted primarily of interest income of $2,019,000 and $1,470,000, respectively, earned from investments in Mortgages, which was higher in 2004 due to non-recurring interest earned as a result of the sale of Holly Ridge.
Interest income from temporary investments decreased approximately $7,000 for the year ended December 31, 2004 as compared to 2003, primarily due to proceeds from the sale of Mortenson House Apartments earning interest in 2003.
Other income increased approximately $542,000 for the year ended December 31, 2004 as compared to 2003, primarily due to the gain realized from the repayment of the Holly Ridge Mortgage Loan and Equity Loan in 2004.
General and administrative-related parties increased approximately $42,000 for the year ended December 31, 2004 as compared to 2003, primarily due to increased expense reimbursements due to the General Partner for asset monitoring and overhead.
Amortization expenses decreased approximately $27,000 for the year ended December 31, 2004 as compared to 2003, due to the Fieldcrest Equity Loan becoming fully amortized in 2003.
A provision for bad debts of approximately $84,000 and $142,000 was charged for the years ended December 2004 and 2003, respectively, representing the 2003 guaranteed interest due from Holly Ridge and the 2004 and 2003 guaranteed interest due from Windemere.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.
The Registrant does not have any market risk sensitive instruments.
Item 8.
Item 8. Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm
To the Partners of Capital Mortgage Plus L.P.
We have audited the accompanying statements of financial condition of Capital Mortgage Plus, L.P. (a Delaware Limited Partnership) as of December 31, 2005 and 2004 and the related statements of income, changes in partners' capital (deficit) and cash flows for the years ended December 31, 2005, 2004 and 2003. These financial statements are the responsibility of the General Partner. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. 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 the General Partner, 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 Capital Mortgage Plus, L.P. as of December 31, 2005 and 2004, and the results of its operations, changes in partners' capital (deficit) and its cash flows for the years ended December 31, 2005, 2004 and 2003, in conformity with accounting principles generally accepted in the United States of America.
/s/ REZNICK GROUP, P.C. Bethesda, Maryland March 14, 2006
CAPITAL MORTGAGE PLUS L.P. (a limited partnership) STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to financial statements.
CAPITAL MORTGAGE PLUS L.P. (a limited partnership) STATEMENTS OF INCOME
See accompanying notes to financial statements.
CAPITAL MORTGAGE PLUS L.P. (a limited partnership) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 and 2003
See accompanying notes to financial statements.
CAPITAL MORTGAGE PLUS L.P. (a limited partnership) STATEMENTS OF CASH FLOWS
See accompanying notes to financial statements.
CAPITAL MORTGAGE PLUS L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005, 2004 and 2003
NOTE 1 - General
Capital Mortgage Plus L.P., a Delaware limited partnership (the "Partnership") commenced a public offering (the "Offering") on May 10, 1989 of 5,000,000 Beneficial Assignment Certificates ("BACs") representing assignments of limited partnership interests valued at $20 per BAC totaling $100,000,000. The BACs represent an assignment of all of the economic and all of the material ownership rights attributable to the limited partnership interests in the Partnership. The BACs holders have virtually the same rights and, for all practical purposes, are limited partners of the Partnership.
Pursuant to the Offering, the Partnership received $36,733,200 of gross proceeds from the BACs holders representing the issuance of 1,836,660 BACs. The final closing of the Offering occurred on May 23, 1991 and no further issuance of BACs is anticipated.
The Partnership was organized on November 23, 1988 and will continue until December 31, 2041 unless terminated sooner under the provisions of its partnership agreement.
The general partner of the Partnership is CIP Associates, Inc., a Delaware corporation (the "General Partner"). On November 17, 2003, CharterMac acquired CharterMac Capital (formerly known as Related Capital Company), which is the indirect parent of RCC Manager LLC, the sole shareholder of the General Partner. Pursuant to the acquisition, CharterMac acquired controlling interests in the General Partner. This acquisition did not affect the Registrant or its day-to-day operations. Related FI BUC$ Associates, Inc. is the Assignor Limited Partner of the Registrant.
The Partnership was formed to invest in insured or guaranteed mortgage investments. The Partnership has invested in first mortgage construction and permanent loans ("Mortgages") to finance multifamily residential rental properties ("Developments") developed by unaffiliated entities. A substantial portion of the Mortgages provides additional interest based on the annual cash flow from the Developments and the proceeds of prepayments, sales or other dispositions. All base interest and initially at least 90% of the principal of the Mortgages is insured or coinsured by U.S. Department of Housing and Urban Development ("HUD") and a private mortgage lender (which is an affiliate of the General Partner). The Partnership has also invested in uninsured equity loans ("Equity Loans") made directly to developers of developments on which the Partnership holds a Mortgage.
Net income and distributions from operations of the Partnership are allocated 2% to the General Partner and 98% to the limited partners, until the limited partners have received an 11% per annum non-cumulative non-compounded return on their adjusted contributions as defined in the Amended and Restated Agreement of Limited Partnership. Thereafter, net income and distributions will be allocated 90% to the limited partners and 10% to the General Partner. Distributions of disposition proceeds are allocated 1% to the General Partner and 99% to the limited partners until each limited partner has received an amount equal to its original contribution plus an amount which, when added to all prior distributions equals a 7% per annum cumulative non-compounded return on its adjusted contribution; then 2% and 98% of disposition proceeds, until each limited partner has received an amount which, when added to all prior distributions equals an 11% per annum cumulative non-compounded return on its adjusted contribution; and thereafter 10% to the General Partner and 90% to the limited partners.
The accrued cash distributions per BAC were approximately $0.36, $4.11 and $0.52 for 2005, 2004 and 2003. The 2005, 2004 and 2003 distributions were made from adjusted cash flow from operations (and, in particular, of the fourth quarter 2004 distributions which were paid on February 14, 2005 from the repayment of the Holly Ridge loan, $3.63 per BAC was considered to be a return of capital) and to a lesser extent were supplemented from working capital reserves, which was considered to be a return of capital.
NOTE 2 - Accounting Policies
a) Basis of Accounting
The books and records of the Partnership are maintained on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP").
The preparation of financial statements in conformity with GAAP requires the General Partner to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates are made when accounting for the allowance for the interest receivable. Actual results could differ from those estimates.
CAPITAL MORTGAGE PLUS L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 2005, 2004 and 2003
Loan origination costs, net of related loan fees, are deferred and recognized as a component of interest income over contractual payment terms of the related mortgage loans.
The Equity Loans entitle the Registrant to an equity participation of approximately 35% of any proceeds from sale or refinancing. Because the participation percentage is less than 50%, the Registrant accounts for these Equity Loans as loans and not as equity investments in the borrower. The Equity Loans were considered to be premiums paid to obtain the Mortgages and were amortized over an estimated life. Effective December 31, 2004, the Equity Loans are fully amortized. The Registrant believes the resulting zero net book value properly states the net loan value. The Registrant believes recovery of such loans is contingent and recovery is likely only in the event of sale or refinancing occurs. Although the Registrant can call its loan, it cannot control the amount of proceeds available for repayment. Accordingly, the Registrant believes such collections should be reflected as gains when they occur. The Registrant does not believe that the variable interest component represented by the Equity Loan participation rights cause the Registrant to be the primary beneficiary of the borrowers. Accordingly, none of the borrowers are required to be consolidated under FASB Interpretation No. 46 (R) "Consolidation of Variable Interest Entities," ("FIN 46 (R)"). Further, the combination of the Mortgage Loan and the Equity Loan are not considered to increase the variability of expected losses or residual returns since the Mortgage Loans are insured by HUD.
b) Cash and Cash Equivalents Cash and cash equivalents include temporary investments with original maturity dates of less than 3 months when acquired and are carried at cost plus accrued interest, which approximates market value.
c) Income Taxes The Partnership is not required to provide for, or pay, any federal income taxes. Income tax attributes that arise from its operation are passed directly to the individual partners. The Partnership may be subject to state and local taxes in jurisdictions in which it operates.
d) Revenue Recognition Interest income on the Mortgages loans consists of contingent and non-contingent interest as defined in the mortgage notes and other additional interest agreements. Non-contingent interest consists of base and default interest, which are recognized as earned. Contingent interest is based on the underlying Development's cash flows and is recognized when received. The Registrant does not accrue interest income on nonperforming loans. All of the existing loans are considered performing loans.
CAPITAL MORTGAGE PLUS L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 2005, 2004 and 2003
Note 3 - Investments in Mortgage Loans
Information relating to investments in Mortgages and Equity Loans as of December 31, 2005 and 2004 is as follows:
CAPITAL MORTGAGE PLUS L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 2005, 2004 and 2003
(A) Base interest on the Mortgages is that amount that is insured/co-insured by HUD and is being shown net of service fee.
(B) Default Interest is the minimum amount due over the base rate, and is not contingent upon cash flow. This interest is secured by partnership interests in the borrower.
(C) Annual Yield is the amount over the default rate and is contingent upon cash flow of the Development.
(D) Cash Flow Participation is the percent of cash flow due to the Partnership after payment of the Annual Yield and is contingent upon cash flow.
(E) The Investments in Loans amount reflects the unpaid balance of the Mortgages in the amounts of $10,541,743 at December 31, 2005 and $10,648,744 at December 31, 2004.
* This is the unamortized portion of the Equity Loan and the balance of the $684,400 repaid is included in other income on the Statements of Income.
The Windemere Apartments ("Windemere") Mortgage is co-insured by HUD and Related Mortgage Corporation ("RMC"), a company which is affiliated with the non-executive Chairman of CharterMac, the parent of the General Partner. The Fieldcrest III Apartments, Ltd. ("Fieldcrest") Mortgage is insured by HUD. The Holly Ridge II Apartments ("Holly Ridge") Mortgage was insured by HUD.
In addition to the interest rate payable during the post-construction periods, the Partnership will be entitled to payment of 30% of cash flow, if any, remaining after payment of the permanent loan interest and accrued interest if any, and certain amounts from sales or refinancing proceeds.
The Equity Loans are non-interest bearing and are secured by the assignment of the owner/developers' interests in the Developments. The Equity Loans are not insured by HUD or any other party and, for financial statement reporting purposes, were considered to be premiums paid to obtain the Mortgages. Effective December 31, 2004, the Equity Loans are fully amortized. The Registrant believes the resulting zero net book value properly states the net loan value. The Registrant believes recovery of such loans is contingent and recovery is likely only in the event of sale or refinancing occurs. Although the Registrant can call its loan, it cannot control the amount of proceeds available for repayment. Accordingly, the Registrant believes such collections should be reflected as gains when they occur.
At December 31, 2005, all of the loans due to the Partnership are current with respect to their Federal Housing Authority ("FHA") Mortgage obligations. Windemere has not paid its default interest of an aggregate of approximately $120,000, $124,000, $124,000, $125,000, $88,000, $126,000, $127,000 and $129,000 for the years ended December 31, 2005, 2004, 2003, 2002, 2001, 2000, 1999 and 1996. As a result, an allowance for uncollectability relating to the default interest amounted to approximately $963,000 and $843,000 at December 31, 2005 and 2004, respectively. The allowance has been reflected in the provision for bad debts on the statement of income.
CAPITAL MORTGAGE PLUS L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 2005, 2004 and 2003
As permitted by the certain Subordinated Promissory Note dated August 23, 1991 (the "Subordinated Note"), on November 30, 2005, RMC called for the prepayment of the Subordinated Note on May 31, 2006 from Fieldcrest at an estimated fair market value of $5,000,000.
Windemere is currently in negotiations to refinance its Mortgage and Equity Loan through an affiliate of the General Partner. No documents have been drawn up, and there is no guarantee that the refinancing will occur. The Partnership currently estimates that the refinancing could take place in April 2006. As of December 31, 2005, Windemere had a Mortgage balance of approximately $7,432,000 and an Equity Loan balance of approximately $737,000. Effective December 31, 2004, the Equity Loan has a net book value of $0. The Registrant believes recovery of such loan is contingent and recovery is likely only in the event of sale or refinancing. Although the Registrant can call its loan, it cannot control the amount of proceeds available for repayment. Accordingly, the Registrant believes such collections should be reflected as gains when they occur. Recovery of the Equity Loan is subordinate to the default interest of $963,033 which has been fully reserved.
NOTE 4 - Related Parties
The costs incurred to related parties for the years ended December 31, 2005, 2004 and 2003 were as follows:
(a) A Partnership management fee for managing the affairs of the Partnership equal to .5% per annum of invested assets is payable out of cash flow to the General Partner. During the years ended December 31, 2005, 2004 and 2003, payments of approximately $50,000, $97,000 and $122,000 were made, respectively. At December 31, 2005 and 2004, the General Partner and its affiliates were due approximately $16,000 and $0, respectively, for these fees.
(b) The General Partner and its affiliates perform services for the Partnership which include, but are not limited to: accounting and financial management, registrar, transfer and assignment functions, asset management, investor communications, printing services and other administrative services. The amount of reimbursement from the Partnership is limited by the provisions of the Partnership Agreement. An affiliate of the General Partner performs asset monitoring services for the Partnership. These asset monitoring services include site visits and evaluations of the performance of the properties securing the loans. During the years ended December 31, 2005, 2004 and 2003, payments of approximately $79,000, $152,000 and $104,000 were made, respectively, relating to these costs. As of December 31, 2005 and 2004, the General Partner and its affiliates were due approximately $103,000 and $20,000, respectively.
RMC is a co-insurer on the Windemere Mortgage in which the Partnership has invested. RMC is entitled to a mortgage insurance premium which is paid by the mortgagor. RMC is also the servicer for both Windemere and Fieldcrest and receives a fee for its services.
NOTE 5 - Concentration of Credit Risk
The Partnership maintains its cash in several banks which are insured by the Federal Deposit Insurance Corporation (FDIC) for a balance up to $100,000. At times during 2005, the account balance exceeded the FDIC limit.
Management is not aware of any trends or events, commitments or uncertainties that will impact liquidity in a material way. Management believes the only impact would be from laws that have not yet been adopted. All base interest and the principal of the Registrant's investments in Mortgages are insured or co-insured by HUD and additionally one Mortgage is coinsured by a private mortgage lender (which is affiliated with the non-executive Chairman of CharterMac, the parent of the General Partner). The Registrant's investments in uninsured non-interest bearing Equity Loans (which represent approximately 10% of the Registrant's portfolio when originated) are secured by a Registrant interest in the two properties. Due to the prepayment of three of the Registrant's original investments in Mortgages and Equity Loans, the portfolio is not diversified by location around the United States (see Note 3). Thus, the Registrant may not be protected against a general downturn in the national economy.
CAPITAL MORTGAGE PLUS L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 2005, 2004 and 2003
NOTE 6 - Fair Value of Financial Instruments
Financial Accounting Standards Board Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments" ("SFAS No. 107"), requires that the estimated fair value of financial instruments, as defined by SFAS No. 107, be disclosed. Financial instruments are defined as cash, evidence of an ownership interest in an entity or a contract which creates obligations and rights to exchange cash and/or other financial instruments. SFAS No. 107 also requires disclosures of the methods and significant assumptions used to estimate the fair value of financial instruments.
Considerable judgment is required in interpreting data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Partnership could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The following methods/assumptions were used to estimate the fair value of each class of financial instrument:
Cash and Cash Equivalents - ------------------------- Fair value is determined to be the carrying value because each class of financial instrument matures in three months or less and does not represent unanticipated credit concerns.
Investments in Loans - -------------------- At December 31, 2005, the estimated carrying value of the Mortgages and Equity Loans approximated fair value. The estimated fair values at December 31, 2005 were based on internal valuations of the two Developments collateralizing these Mortgages. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument which sets forth the terms of a loan. This estimate is subjective in nature and involves uncertainties and matters of significant judgment. Changes in assumptions could significantly affect estimates. Due to the property-specific nature of the loans and the lack of a ready market for such investments, this fair value estimate does not necessarily represent the amount which the Partnership could realize upon a current sale of its investments.
NOTE 7 - Quarterly Financial Information (Unaudited)
The Registrant has not disposed of any segments of business and has not experienced any extraordinary, unusual or infrequently occurring items within the two most recent fiscal years, other than the repayment of the Mortgage and Equity Loan with respect to Holly Ridge.
CAPITAL MORTGAGE PLUS L.P. (a limited partnership) NOTES TO FINANCIAL STATEMENTS - CONTINUED DECEMBER 31, 2005, 2004 and 2003
NOTE 8 - Taxable Income
A reconciliation of the financial statement net income of the Registrant to net income as shown on the tax returns for the years ended December 31, 2005, 2004 and 2003 is as follows:
The differences in the assets and liabilities of the Registrant for financial reporting purposes and tax reporting purposes as of December 31, 2005 are as follows:
NOTE 9 - Subsequent Event
On February 14, 2006, distributions of $167,237 and $3,413 were paid to BAC holders and the General Partner, respectively, representing the 2005 fourth quarter distributions.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A.
Item 9A. Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Principal Executive Officer and Principal Financial Officer of CIP Associates, Inc., the general partner of the Registrant, has evaluated the effectiveness of the Registrant's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the period covered by this report. Based on such evaluation, such officer has concluded that, as of the end of such period, the Registrant's disclosure controls and procedures are effective.
INTERNAL CONTROL OVER FINANCIAL REPORTING. There have not been any changes in the Registrant's internal control over financial reporting during the fiscal year to which this report relates that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
Item 9B.
Item 9B. Other Information
Boesky Resignation ------------------ On November 8, 2005, CharterMac announced that Stuart J. Boesky would step down as Chief Executive Officer and trustee of CharterMac, the indirect parent of RCC Manager LLC, the sole shareholder of CIP Associates, Inc. (the "General Partner"). Upon his stepping down, which was effective on November 15, 2005, he also resigned from his position as Senior Vice President. Mr. Boesky will stay on as a consultant to CharterMac for the next year in order to ensure a smooth transition.
Tender Offer Response --------------------- The Registrant responded to an unsolicited tender offer and expressed no opinion with respect to whether or not BACs holders should tender their Units as more fully discussed in the Registrant's press release dated November 18, 2005, which is included as Exhibit 99.1 to this Report on Form 10-K.
Transfer Procedures ------------------- As was previously disclosed, the Registrant has been the subject of at least two ongoing tender offers by persons not affiliated with it or its general partner, each such tender offer seeking to purchase up to 4.9% of the outstanding units of the Registrant. See "Tender Offer Response" above.
Those tender offers, as well as other transfer requests made independently of the tender offers, implicate the Registrant's policies and procedures concerning transfers generally and tender offers in particular, which were adopted by the Registrant pursuant to the terms of its Partnership Agreement, to ensure compliance with applicable law, avoid adverse tax consequences for the Registrant and its investors, and preserve the Registrant's advantageous tax status.
In prior years, the Registrant relied on the 5% safe harbor established by Internal Revenue Service ("IRS") regulations to avoid being characterized as a "publicly-traded partnership" that is taxed as a corporation. The 5% safe harbor, however, expired and is no longer available as of December 31, 2005. Accordingly, the Registrant now relies on a 2% safe harbor established by another IRS regulation to avoid being characterized as a "publicly-traded partnership" that is taxed as a corporation.
A brief summary of certain of the Registrant's key policies, practices and requirements with respect to transfers and tender offers is as follows:
o No transfer (whether for substitution, assignment or otherwise) is effective or binding on the Registrant unless and until it is approved by the General Partner.
o No transfer will be approved unless the transferor and transferee submit complete and properly executed forms of the Registrant's own transfer documentation. The Registrant does not accept forms of transfer documentation other than its own and does not accept signatures made by power of attorney in lieu of original signatures by each of the transferors and transferees.
o The Registrant will not approve transfers that in the cumulative aggregate for any tax year exceed the IRS 2% safe harbor, unless a financially responsible person provides the Registrant and its partners with (i) an indemnity (in form and substance in all ways acceptable to the General Partner) for all liability (including, without limitation, any adverse tax consequences) arising from or relating to exceeding the 2% safe harbor and (ii) a legal opinion (in form and substance in all ways acceptable to the General Partner) that there will be no adverse tax consequences to the Registrant and its partners from exceeding the 2% safe harbor.
o In order to avoid the undesirable situation of one or more tender offers consuming the entire safe harbor limitation early in the tax year and leaving the Registrant's remaining investors with no liquidity opportunity for the rest of that tax year, the Registrant restricts the cumulative aggregate total of transfers made pursuant to all tender offers to 1.5% of its outstanding units in each tax year, unless a financially responsible person conducting such tender offer provides the Registrant with an acceptable indemnity and legal opinion of the type described above. At the end of each tax year, the General Partner, in its discretion, may allow the cumulative total number of transfers (including those by tender offer) to reach the 2% safe harbor limit.
o The Registrant requires that all tender offers for its units be conducted in accordance with all applicable law including, without limitation, the federal securities laws.
The foregoing is solely a summary of the Registrant's policies, requirements and practices with respect to transfers and tender offers. More complete information, including a copy of the Registrant's transfer documentation package, may be obtained from the Registrant.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The Registrant has no directors or executive officers. The Registrant's affairs are managed and controlled by the General Partner. The General Partner was organized in Delaware in November 1988. The executive officers and director of the General Partner have held their positions as indicated below.
On November 17, 2003, CharterMac acquired CharterMac Capital (formerly known as Related Capital Company) ("CharterMac Capital"), which is the indirect parent of RCC Manager LLC, the sole shareholder of the General Partner. Pursuant to the acquisition, CharterMac acquired controlling interests in the General Partner. This acquisition did not affect the Registrant or its day-to-day operations as the General Partner's management team remained unchanged. Alan P. Hirmes replaced Stephen M. Ross as Director of CIP Associates Inc. effective April 1, 2004 as a result of this acquisition. Certain information concerning the director and executive officers of the General Partner is set forth below.
The Registrant, the General Partner and its director and executive officers, and any BACs holder holding more than ten percent of the Registrant's BACs are required to report their initial ownership of such BACs and any subsequent changes in that ownership to the Securities and Exchange Commission on Forms 3, 4 and 5. Such executive officers, directors (and ten percent holders) are required by Securities and Exchange Commission regulators to furnish the Registrant with copies of all Forms 3, 4 or 5 they file. The Registrant is not aware of any BACs holders who own more than ten percent of the BACs. During the most recent fiscal year, all of these filing requirements were satisfied by the officers and director of the General Partner on a timely basis. In making these disclosures, the Registrant has relied solely on written representations of the General Partner's director and executive officers or copies of the reports they have filed with the Securities and Exchange Commission during and with respect to its most recent fiscal year.
CIP Associates Inc.
Name Position Position Held Since ----------------- ------------------------ ---------------------
Alan P. Hirmes Director and President 1988 Brenda Abuaf Executive Vice President 2005 Marc Schnitzer Vice President 1988 Glenn F. Hopps Treasurer 1998 Teresa Wicelinski Secretary 1998
ALAN P. HIRMES, 51, the Director and President of the General Partner. Mr. Hirmes has been a Certified Public Accountant in New York since 1978. Prior to joining CharterMac Capital in October 1983, Mr. Hirmes was employed by Weiner & Co., certified public accountants. Mr. Hirmes is also the President of CharterMac Capital. Mr. Hirmes graduated from Hofstra University with a Bachelor of Arts degree. Mr. Hirmes also serves on the Board of Trustees of CharterMac and American Mortgage Acceptance Company ("AMAC").
BRENDA ABUAF, 50, Executive Vice President and Co-Department Head of the Corporate Communications Department. Ms. Abuaf joined CharterMac Capital in 1980 and graduated from the University of Stony Brook with a Bachelor of Arts Degree in Social Science.
MARC D. SCHNITZER, 45, joined CharterMac Capital in January 1988 after receiving his Master of Business Administration degree from The Wharton School of The University of Pennsylvania in December 1987. From 1983 to 1986, Mr. Schnitzer was a Financial Analyst with The First Boston Corporation in New York, an international investment banking firm. Mr. Schnitzer received a Bachelor of Science degree, summa cum laude, in Business Administration, from the School of Management at Boston University in May 1983. Mr. Schnitzer also serves on the Board of Trustees of CharterMac.
GLENN F. HOPPS, 43, joined CharterMac Capital in December, 1990, and prior to that date was employed by Marks Shron & Company and Weissbarth, Altman and Michaelson, certified public accountants. Mr. Hopps graduated from New York State University at Albany with a Bachelor of Science Degree in Accounting.
TERESA WICELINSKI, 40 joined CharterMac Capital in June 1992, and prior to that date was employed by Friedman, Alprin & Green, certified public accountants. Ms. Wicelinski graduated from Pace University with a Bachelor of Arts Degree in Accounting.
There are no family relationships between the foregoing director and/or executive officers.
The parent of the General Partner of the Registrant, CharterMac, has adopted a Code of Ethics that applies to the Principal Executive Officer and Principal Financial Officer of CharterMac and its subsidiaries, including the General Partner. CharterMac's Code of Ethics will be provided without charge to any person who requests it. Such request should be directed to Investor Services, CharterMac, 625 Madison Avenue, New York, NY 10022.
Item 11.
Item 11. Executive Compensation
The Registrant has no officers or directors. The Registrant does not pay or accrue any fees, salaries or other forms of compensation to directors or officers of the General Partner for their services. The director and certain officers of the General Partner receive compensation from the General Partner and its affiliates for services performed for various affiliated entities which may include services performed for the Registrant. Such compensation may be based in part on the performance of the Registrant; however, the General Partner believes that any compensation attributable to services performed for the Registrant is immaterial. See also Note 4-Related Parties, in Notes to the Financial Statements, included in Item 8 above.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
As of March 3, 2006, no person was known by the Registrant to be the beneficial owner of more than five percent of the Limited Partnership Interests and/or BACs; and neither the General Partner nor any director or officer of the General Partner owns any Limited Partnership Interests or BACs.
There are no securities authorized for issuance under equity compensation plans.
Item 13.
Item 13. Certain Relationships and Related Transactions
The Registrant has and will continue to have certain relationships with the General Partner and its affiliates, as discussed in Item 11, Executive Compensation. However, there have been no direct financial transactions between the Registrant and the director and/or officers of the General Partner. See Note 4-Related Parties, in Notes to the Financial Statements, included in Item 8 above.
Item 14.
Item 14. Principal Accountant Fees and Services
Audit Fees - ---------- The aggregate fees billed by Reznick Group and their respective affiliates (collectively, "Reznick") for professional services rendered for the audit of our annual financial statements for the years ended December 31, 2005 and 2004 and for the reviews of the financial statements included in the Registrant's Quarterly Reports on Form 10-Q were $28,000 and $28,000, respectively. There were no other audit related fees for the years ended December 31, 2005 and 2004.
Audit - Related Fees - -------------------- None
Tax Fees - -------- The aggregate fees billed by Weiser LLP and their respective affiliates (collectively, "Weiser") for professional services rendered for the preparation of our annual tax returns were $8,700 for both years ended December 31, 2005 and 2004. There were no other tax related fees for the years ended December 31, 2005 and 2004.
All Other Fees - -------------- None
The Registrant has no directors or executive officers and accordingly has no audit committee and no audit committee financial expert. The Registrant is not a listed issuer as defined in Regulation 10A-3 promulgated under the Securities Exchange Act of 1934.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules
(a) 2. Financial Statement Schedules -----------------------------
All schedules have been omitted because they are not required or because the required information is contained in the financial statements or notes hereto.
(a) 3. Exhibits --------
(3A) The Registrant's Amended and Restated Agreement of Limited Partnership, incorporated by reference to Exhibit A to the Registrant's Prospectus, dated May 10, 1989 (the "Prospectus"), filed pursuant to Rule 424(b) under the Securities Act of 1933, File No. 33-26690.
(3B) The Registrant's Certificate of Limited Partnership, as amended, incorporated by reference to Exhibits 3B and 3C to the Registrant's Registration Statement on Form S-11, File No. 33-26690, dated January 24, 1989 and to Exhibit 3D to Amendment No. 1 to such Registration Statement dated April 28, 1989
(3C) Amendment No. 1, dated July 7, 1989, to the Registrant's Amended and Restated Agreement of Limited Partnership, incorporated by reference to Amendment Number 2 to the Registrant's Registration Statement on Form S-11, File No. 33-26690, dated July 7, 1989.
(10D) Mortgage Note, dated September 27, 1990, with respect to Windemere Apartments in Wichita, Kansas, in the principal amount of $8,110,300 (incorporated by reference to Exhibit 10(a) in the Registrant's Form 8 Amendment dated October 30, 1990 to Current Report on Form 8-K dated September 28, 1990)
(10E) Equity Loan Note, dated September 27, 1990, with respect to Windemere Apartments in Wichita, Kansas, in the principal amount of $736,500 (incorporated by reference in Exhibit 10(b) in the Registrant's Form 8 Amendment dated October 30, 1990 to Current Report on Form 8-K dated September 28, 1990)
(10F) Subordinated Promissory Note, dated September 27, 1990 with respect to Windemere Development, Inc. (incorporated by reference to Exhibit 10(c) in the Registrant's Form 8 Amendment dated October 30, 1990 to Current Report on Form 8-K dated September 28, 1990)
(10G) Mortgage Note, dated August 23, 1991, with respect to Fieldcrest III Apartments in Dothan, Alabama, in the principal amount of $3,450,200 (incorporated by reference to Exhibit 10(a) in the Registrant's Current Report on Form 8-K dated August 27, 1991)
(10H) Equity Loan Note, dated August 27, 1991, with respect to Fieldcrest III Apartments in Dothan, Alabama, in the principal amount of $383,300 (incorporated by reference to Exhibit 10(b) in the Registrant's Current Report on Form 8-K dated August 27, 1991)
(10I) Subordinated Promissory Note, dated August 27, 1991 with respect to Fieldcrest III Apartments (incorporated by reference to Exhibit 10(c) in the Registrant's Current Report on Form 8-K dated August 27, 1991)
(10J) Mortgage Note, dated March 1, 1993, with respect to Holly Ridge Apartments in Gresham, Oregon, in the principal amount of $5,310,000 (incorporated by reference to Exhibit 10(a) in the Registrant's Current Report on Form 8-K dated March 16, 1993)
Item 15. Exhibits, Financial Statement Schedules (continued)
* Filed herewith
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.
CAPITAL MORTGAGE PLUS L.P. (Registrant)
By: CIP ASSOCIATES, INC. General Partner
Date: March 28, 2006 By: /s/ Alan P. Hirmes -------------- ------------------ Alan P. Hirmes President (Principal Executive and Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature Title Date - ------------------ ----------------------------------------- --------------
President (Principal Executive and /s/ Alan P. Hirmes Financial Officer and Director) of - ------------------ CIP Associates, Inc. (the General Partner Alan P. Hirmes of the Registrant) March 28, 2006 --------------
/s/ Glenn F. Hopps Treasurer (Principal Accounting Officer) - ------------------ of CIP Associates, Inc. (the General Glenn F. Hopps Partner of the Registrant) March 28, 2006 --------------
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)
I, Alan P. Hirmes, Principal Executive Officer and Principal Financial Officer of CIP Associates, Inc., (the "General Partner"), the general partner of Capital Mortgage Plus L.P. (the "Partnership"), hereby certify that:
1. I have reviewed this annual report on Form 10-K for the period ending December 31, 2005 of the Partnership;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Partnership as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rues 13a-15(f) and 15d-15(f)) for the Partnership and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Partnership including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the Partnership's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the Partnership's internal control over financial reporting that occurred during the Partnership's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Partnership's internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Partnership's auditors and to the board of directors of the General Partner:
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Partnership's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Partnership's internal control over financial reporting.
Date: March 28, 2006 --------------
By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes Principal Executive Officer and Principal Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b) AND SECTION 1350 OF TITLE 18 OF THE UNITED STATES CODE (18 U.S.C. 1350)
In connection with the Annual Report of Capital Mortgage Plus L.P. (the "Partnership") on Form 10-K for the period ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Alan P. Hirmes, Principal Executive Officer and Principal Financial Officer of CIP Associates, Inc., the general partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Partnership.
A signed original of this written statement required by Section 906 has been provided to the Partnership and will be retained by the Partnership and furnished to the Securities and Exchange Commission or its staff upon request.
By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes Principal Executive Officer and Principal Financial Officer March 28, 2006
Exhibit 99.1
CAPITAL MORTGAGE PLUS L.P. RESPONDS TO TENDER OFFER ------------------------
New York, New York, November 18, 2005 -- Capital Mortgage Plus L.P. (the "Partnership") responded today as follows to an unsolicited tender offer (the "Offer") by Everest Properties II, LLC (the "Offeror") to purchase up to 89,996 of the Partnership's beneficial acceptance certificates ("BACs"), or approximately 4.9% of the Partnership's total outstanding BACs, at a price of $4.50 per BAC, less certain reductions to that purchase price as described in the Offeror's written tender offer materials dated October 21, 2005 (the "Offering Materials").
The Offeror is not affiliated with the Partnership or its general partner. The Offeror did not provide the Partnership with a copy of the Offering Materials at or prior to the time it commenced the Offer. The Partnership learned of the Offer only after certain BACs holders contacted the Partnership to inquire about the Offer and the Partnership thereafter obtained a copy of the Offering Materials.
The Partnership expresses no opinion and is neutral with respect to whether or not BACs holders should tender their BACs in response to the Offer. As the Partnership has previously disclosed to its BACs holders, the Partnership is in the process of liquidating its portfolio of investments in real estate mortgages and currently holds only two such remaining investments. It is uncertain at this time how much money, if any, will be realized by the Partnership and its BACs holders from the liquidation of its remaining investments. While there can be no assurances about how much money such contemplated sales will realize and when such sales will occur, the general partner of the Partnership currently believes that the aggregate amount that may be distributed to BACs holders from such sales may materially exceed the net purchase price of the Offer and that it is possible that such sales of the Partnership's two remaining investments and the resulting distributions to BACs holders could occur within the next six to nine months. Although there is the risk that the actual liquidation of the Partnership's two remaining investments might take longer than nine months and might result in distributions to BACs holders that are less than the Offer's price, BACs holders might obtain more money by holding their BACs than by selling them to the Offeror. Accordingly, BACs holders should consider, with their own financial advisors, whether or not the Offer and its purchase price are attractive or unattractive to them from an economic point of view.
In addition, BACs holders may also wish to consider the following:
First, the Partnership, on or about November 14, 2005, mailed to BACs holders a quarterly distribution of $.09 per BAC. According to the terms of the Offer, this distribution will reduce the price of the Offer to $4.41 per BAC, which price is also subject to other reductions as described in the Offering Materials.
Second, the Offer raises certain questions about its potential impact on the Partnership's tax status for federal income tax purposes. The Partnership is currently treated, and has since its inception been treated, as a partnership and a pass-through entity for federal income tax purposes -- a tax status that is desirable and beneficial to the Partnership and its investors. That beneficial tax status might be lost, and the Partnership might be taxed as a corporation, if it were deemed to be a "publicly traded partnership" within the meaning of the Internal Revenue Code and certain regulations promulgated by the Internal Revenue Service. It is uncertain whether or not the Offer, if consummated, might cause the Partnership to be deemed a "publicly traded partnership" since the Offer could result in a transfer of more than two percent of the interests in the Partnership during the year, which might prevent the Partnership from relying on an Internal Revenue Service "safe harbor" protecting against publicly traded partnership treatment. Accordingly, the Partnership will only permit BACs to be transferred pursuant to the Offer if the General Partner determines, in its sole discretion, either that the cumulative total number of transfers in any tax year (including transfers prior to the Offer, transfers pursuant to the Offer and any amount reserved for future transfers outside of the Offer) falls within the safe harbor or that the Offeror has provided sufficient assurances and protection to the Partnership, its partners and BACs holders to allow the transfers notwithstanding the potential violation of the two percent limitation safe harbor. In order to address these concerns, the Offeror must provide the Partnership with (i) an opinion of counsel that the Offer will not result in the Partnership being deemed to be a "publicly traded partnership" for federal income tax purposes and (ii) an agreement to indemnify the Partnership, its general partner and its BACs holders for any loss or liability relating to any adverse tax consequences arising from the Offer. This legal opinion and indemnity must be in a form and content satisfactory to the Partnership and its counsel.
Third, the Agreement of Transfer and proposed transfer documentation included with the Offering Materials are inconsistent with the Partnership's long-established practices, procedures and documentation necessary for BACs holders to transfer their units Accordingly, the Offeror's Agreement of Transfer and proposed transfer documentation will not be accepted by the Partnership and BACs will not be transferred based on the Offeror's proposed documentation. The Offeror and any BACs holder wishing to sell his, her or its BACs must each
complete the Partnership's standard transfer and subscription documentation in accordance with the Partnership's standard practices and procedures. Among other things, each selling BACs holder must individually sign each of the Partnership's required transfer documents. Pursuant to the Partnership's well-established practices and procedures, the Partnership does not accept, and will not accept in connection with the Offer, signatures by persons other than the selling unit holder who purport to act based on a power of attorney executed by the unit holder. Persons who wish to sell their units to the Offeror should contact the Partnership and request its standard transfer documentation.
Fourth, the Offer does not afford tendering BACs holders withdrawal or proration rights and states that BACs will be purchased on a "first-received, first-buy basis." The Partnership believes that such terms are highly coercive and unfair to unit holders and may be in violation of the federal securities laws.
* * *
Each BACs holder should consult with his, her or its own investment, tax and legal advisors in deciding whether or not to tender BACs in response to the Offer. As a precaution to make sure that any tendering BACs holder is aware of the disclosures contained in this press release, the Partnership will require, as a condition to processing transfer requests, each tendering BACs holder to sign a written statement acknowledging that he, she or it is aware of and understands the disclosures contained in this press release and that he, she or it wishes to proceed with the sale of their BACs to the Offeror anyway.
Certain statements in this press release may constitute forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties are detailed in Capital Mortgage Plus L.P.'s Annual Report on Form 10-K for the period ended December 31, 2004, and in its other filings with the Securities and Exchange Commission. Such forward-looking statements speak only as of the date of this press release. Capital Mortgage Plus L.P. expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Partnership's expectations with regard thereto or change in events, conditions, or circumstances on which any such statement is based.
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