Item 1. Business (a) General Development of Business Urban Improvement Fund Limited 1973-II, a California limited partnership (the "Registrant"), was formed in 1973 for the purpose of investing, through Local Limited Partnerships (LLP's), in federally and state-assisted low and moderate income housing projects. Units of Limited Partnership Interest were sold in a public offering to investors who required tax shelter for income from other sources. The Registrant acquired equity interests as a limited partner in eleven (11) such Local Limited Partnerships. One of these projects was sold in 1978 through a trustee's sale (foreclosure). Two of these properties, Mott Haven Apartment VII and Mott Haven Apartments VIII were assigned to HUD in 1997 and sold through a trustee's sale (foreclosure) in 1999. One of the Partnerships, 808 Memorial Drive, sold its interest in real estate during July 1997 in a tax-free exchange. The Partnership also changed its name to 808 Investments Limited Partnership and reinvested the proceeds in three properties that are conventional, multi-family residential projects during December 1997. The remaining eight (8) partnerships are described in Item 2
Item 2. Partnerships
The Registrant owns equity interests as a Limited Partner in the following Partnership as of December 31, 1999:
*Developed under auspices of Massachusetts Housing Finance Agency.
Mortgage indebtedness associated with each project is shown in Schedule XI of this report.
The following is a description of each of the above listed properties:
COMMUNITY CIRCLE is a 160-unit project located in Cleveland, Ohio, consisting of seven frame and brick two-story buildings and one masonry and pre-cast concrete ten-story building. The project was constructed under Section 236 of the National Housing Act.
CROWNINSHIELD APARTMENTS consists of 284 rental units rehabilitated under the auspices of the Massachusetts Housing Finance Agency. The project is located in Peabody, Massachusetts.
HOLLY STREET is a 71-unit project located in the cities of Methuen and Lawrence, Massachusetts, consisting of eleven two-, three- and four-story buildings of frame and brick construction. The project was rehabilitated pursuant to authority granted by the Massachusetts Housing Finance Agency, with subsidy under Section 236 of the National Housing Act.
KING DRIVE APARTMENTS is a 315-unit project located in Chicago, Illinois. It is a 22-story building of concrete construction. The building contains space for two commercial shops. The project was constructed under Section 236 of the National Housing Act.
MET-PACA I consists of 37 units in four buildings rehabilitated under Section 236 of the National Housing Act. This project is located in New York City, New York.
MORRISANIA II ASSOCIATES is a 161-unit project located at 1104-1148 Clay Avenue, Bronx, New York, consisting of twelve five-story buildings of brick construction. The development was rehabilitated under Section 236 of the National Housing Act.
SOUTHERN BOULEVARD REHAB PHASE I is a 73-unit project located in the Bronx, New York, consisting of two six-story, wood joist and brick exterior buildings. The project is located in the same area as Mott Haven 7. The project was rehabilitated under Section 236 of the National Housing Act.
808 INVESTMENTS LIMITED PARTNERSHIP owned a 301-unit project located in Cambridge, Massachusetts, consisting of two buildings of steel and brick construction and a five-level parking structure. The buildings are eleven and twenty stories and they are centrally air-conditioned. The project has two small landscaped plazas. There is approximately 57,000 square feet of commercial space and 2,000 square feet of retail spaces. The project was constructed under the auspices of the Massachusetts Housing Finance Agency.
During July 1997, the Partnership sold its real estate project located in Cambridge, Massachusetts in a tax free exchange. During December 1997, the Partnership purchased a 124 unit project located in Greensboro, North Carolina, a 399 unit project in Dallas, Texas and a 128 unit project in Escondido, California. These projects were financed with conventional mortgages which are not insured by HUD or any state agency.
Item 3.
Item 3. Legal Proceedings. There are no material pending legal proceedings at this time, other than ordinary routine litigation incidental to the Partnership's business, including the Local Limited Partnerships in which the Partnership is a Limited Partner.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders through the solicitation of proxies or otherwise.
PART II
Item 5.
Item 5. Market for the Registrant's Securities and Related Security Holder Matters.
(a) There is not a ready market for the transfer of limited partnership interests. Limited partnership interests may be transferred between individuals with the consent of the General Partner. (b) Holders
The Registrant has no officers or directors. Interfinancial Real Estate Management Company, the General Partner of the Registrant, is a corporation.
(c) There have been no distributions to partners during the five year period ending December 31, 1999.
Item 6.
Item 6. Selected Financial Data These statements do not include all disclosures required under generally accepted accounting principles; however, when read in conjunction with the related financial statements and notes thereto included under Item 8, the statements include all generally accepted accounting principles disclosures for the latest three years.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The Partnership has followed the practice of investing available funds, not used in the purchase of properties or in operations, in short-term investments. Interest income resulted from such short-term investments. The Partnership is dependent upon interest earned and the distributions and repayment of advances from Local Limited Partnerships for cash flow. As shown in the table below, the Partnership has received distributions in recent years. This trend is expected to continue. The Partnership has advanced funds to and received repayments of such advances from selected Local Limited Partnerships. The General Partner believes these net advances will not significantly affect the operations of the Partnership.
Under the terms of the Limited Partnership Agreement, the Partnership is required to pay the General Partner an annual management fee equal to one- quarter of one percent of invested assets or $136,548. (The fee will not be more than fifty percent of the Partnership's annual net cash flow, as defined, subject to an annual minimum of $70,000.) The Partnership recorded management fee expense of $70,000 per year from 1995 through 1999. The Partnership will also pay the General Partner a liquidation fee for the sale of projects. The liquidation fee is the lesser of (i) ten percent of the net proceeds to the Partnership from the sale of a project(s) or (ii) one percent of the sales price plus three percent of the net proceeds after deducting an amount suf- ficient to pay long-term capital gains taxes. No part of such fee shall accrue or be paid unless: (i) the Limited Partners' share of the proceeds
has been distributed to them, (ii) the Limited Partners shall have first received an amount equal to their invested capital attributable to the project(s) sold, and (iii) the Limited Partners have received an amount sufficient to pay long-term capital gains taxes from the sale of the project(s), if any, calculated at the maximum rate then in effect.
During the period 1995 to 1999, the Partnership paid incentive management fees to the General Partner of a Local Limited Partnership. These fees were paid from distributions received from this Local Limited Partnership.
At December 31, 1999, the Partnership had investments in eight active real estate limited partnerships as a Limited Partner. The Partnership carries such investments on the equity method of accounting. The Partnership discon- tinues recording losses for financial reporting purposes when its investment in a particular Local Limited Partnership is reduced to zero, unless the Part- nership intends to commit additional funds to the Local Limited Partnership. At year-end, all of the investments were reduced to zero except for 808. The equity in income in Local Limited Partnerships resulted from either Local Limited Partnerships, whose investments have not been reduced to zero, report- ing income from operations and Local Limited Partnerships, whose investments have been reduced to zero, who paid distributions or repaid an advance. Additional advances to Local Limited Partnerships, after an investment is reduced to zero, are recorded as losses.
The components of the Partnership's equity in net income (loss) of the Local Limited Partnerships for 1999, 1998 and 1997 is summarized as follows:
The net income from 808 Investments Limited Partnership was a result of the sale of real estate and represents Urban's share of the sales proceeds which were reinvested in the tax-free exchange.
The actual combined losses of Local Limited Partnerships will generally decrease as depreciation and interest decreases and the projects achieve stable operations. The distributions to the Partnership from Local Limited Partnerships are the result of positive cash flow from the operations of these projects.
Liquidity The Partnership is dependent upon distributions from its investments in Local Limited Partnerships for cash flow. The Partnership may not be able to gen- erate sufficient cash flow from operations or from distributions from its interests in Local Limited Partnerships to pay future obligations as they become due without additional financing or advances from the General Partner. The General Partner is under no obligation to advance additional funds to the Partnership. The General Partner is monitoring the operations of the Local Limited Partnerships to ensure that sufficient cash will be received from the Local Limited Partnerships to sustain operations. The General Partner antic- ipates it will receive adequate distributions from the Local Limited Partner- ships to maintain operations.
Capital Resources The General Partner believes that additional situations may arise where it would be advantageous to the Partners to exchange properties in a tax-free transaction. The Partnership's basis in its properties has been reduced through depreciation deductions and other losses to levels substantially below the amount of debt secured by the properties. Additionally, the rental properties owned and operated by the Local Limited Partnerships have typically computed depreciation for financial reporting purposes using the straight-line method over the estimated economic useful life of the property. For income tax reporting purposes, depreciation generally has been computed over the same or shorter periods using accelerated methods. As a result, the carrying values of the Partnership's investments in Local Limited Partnerships are substantially greater for financial reporting purposes than for income tax reporting purposes. Upon sale or other disposition of a property by the Local Limited Partnership, the gain recognized by the Partnership for income tax reporting purposes may be substantially greater than the gain recorded for financial reporting purposes. Accordingly, if the properties are sold, the Partnership, in all likelihood, would recognize taxable gain in excess of the cash available for distribution. If sale proceeds are reinvested in a manner which permits the original sale to be treated as a like-kind exchange, the Partnership can defer this gain until the new property is sold. Additionally, the Partnership will receive the benefit of any cash flow or appreciation in value of the new property. If reinvestments were made, it is likely that the acquired properties would be conventional, multifamily residential projects.
The Partnership has made no material commitments for capital expenditures.
Item 8.
Item 8. Financial Statements and Supplementary Data The response to this item is submitted in a separate section of this report.
Item 9.
Item 9. Change in and Disagreements With Accountants on Accounting and Financial Disclosure There have been no disagreements on any matters of accounting principles or practices or financial statement disclosure.
PART III Item 10.
Item 10. Directors and Executive Officers of the Registrant (a) The General Partner of the Registrant is Interfinancial Real Estate Management Company. The Registrant does not have directors as such. The following is a listing of the Directors of the General Partner of the Registrant. These Directors are elected to serve one-year terms and until their successors are duly elected and qualified as directors.
(b) The General Partner of the Registrant is Interfinancial Real Estate Management Company. The Registrant does not have executive officers as such. The following is a listing of the executive officers of the General Partner of the Registrant. These executive officers are elected to serve one-year terms and will continue to serve until their successors are duly elected and qualified as executive officers.
(c) The Registrant has no employees. (d) There are no family relationships between any directors or executive officers. (e) The principal occupation and employment of each of the executive officers and directors of the General Partner are as follows:
Paul H. Pfleger, President/Director. Mr. Pfleger organized and was Chairman of the Board of Security Properties Inc. (formerly Security Pacific, Inc.) from 1969 to the present, except for a period between 1984 and 1986. Farmers Savings acquired Security Properties Inc. as a wholly-owned subsidiary during 1984 and sold the company back to the original owners during 1987. The major line of business of Security Properties Inc. is the administration of prev- iously syndicated, subsidized multifamily residential real estate. Mr. Pfleger was first elected an officer and director of the General Partner, Interfinancial Real Estate Management Company, in July 1981 and has main- tained his dual status since that time.
Mr. Pfleger is the General Partner in over 280 properties with approximately 38,000 housing units throughout the United States.
John M. Orehek, Senior Vice President. Mr. Orehek is the Chief Executive Officer and President of Security Properties Investment Inc. From 1982 to 1987, he was employed by Security Properties Inc. (SPI) as President of First Columbia Corporation, its affiliated broker/dealer, and Senior Vice President of SPI. From 1987 to 1991, when he rejoined SPI, he was President of Hallmark Capital Partners, Ltd., a Seattle real estate development corpor- ation. From 1979 to 1982 he was a member of the tax department in the Cleve- land, Ohio and Seattle, Washington offices of Arthur Andersen & Co., Certified Public Accountants. He received a B.S. degree in Economics from Allegheny College, Meadville, Pennsylvania and a law degree from Case Western Reserve University School of Law. Mr. Orehek was first elected a director of the General Partner, Interfinancial Real Estate Management Company, during 1992.
Michael Fulbright, Secretary. Mr. Fulbright is General Counsel for Security Properties Inc. (SPI). He joined the Company in 1989 as Special Counsel responsible for new development activities and sales and financing transactions in the syndication portfolio. Prior to joining SPI, he was a partner at Tousley Brain, a Seattle law firm that specializes in commercial real estate matters. His practice there included representation of lenders, institu- tional investors and commercial developers. He received a Masters of Busi- ness Administration degree from Texas A&M and a law degree from the Uni- versity of Washington. He is a member of the Washington State Bar Associa- tion. Mr. Fulbright was first elected an officer of the General Partner, Interfinancial Real Estate Management Company, during 1994.
(f) Section 20 of the Amended Certificate and Agreement of Limited Partner- ship of the Registrant provides for the indemnification of the General Partner and its designees and nominees against liability resulting from errors in judgment or any acts or omissions, whether or not disclosed, unless caused by a breach of fiduciary duty of such parties to the Registrant or its Limited Partners. None of the officers or directors of the General Partner of the Registrant have filed a petition under the federal bankruptcy laws or any state insolvency act, nor have they been engaged in any acts over the past five years that would impair their ability or integrity as directors or executive officers of the General Partner of the Registrant.
Item 11.
Item 11. Executive Compensation (a) The Registrant will not pay directly any salary or other remuneration to the officers of the General Partner of the Registrant.
(b) The Registrant has no plan or arrangement to pay directly any salary or other remuneration to the officers in the future.
(c) There are no such options, warrants, rights or any other remuneration available to the General Partner of the Registrant.
(d) The Registrant will not pay directly any salary or other remuneration to the directors of the General Partner of the Registrant.
(e) There are no such retirement benefit plans or other remuneration that would result from the resignation, retirement, termination or any other change in control of any officer or director of the General Partner of the Registrant.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management (a) Security Ownership of Certain Beneficial Owners
(b) No officers or directors of the General Partner of the Registrant own a Partnership interest.
(c) No change in control of the Registrant is anticipated.
Item 13.
Item 13. Certain Relationships and Related Transactions
(a) There are no transactions in which the directors or officers of the General Partner or security holder of the Registrant have a material interest.
(b) There are no transactions in which the directors of the General Partner have a material interest.
(c) There is no indebtedness of the management of the General Partner of the Registrant to the Registrant.
PART IV
Item 14.
Item 14. Exhibits, Financial Statements, Schedules, Exhibits and Reports on Form 8-K.
(a) 1. Financial Statements:
Report of independent certified public accountants.
Balance Sheets at December 31, 1999 and 1998.
Statements of Income (Loss) for the years ended December 31, 1999, 1998 and 1997.
Statements of Changes in Partners' Capital for the years ended December 31, 1999, 1998 and 1997.
Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997.
Notes to Financial Statements.
(a) 2. Financial Statement Schedules:
IV Indebtedness of and to Related Parties
XI Real Estate and Accumulated Depreciation and Amortization of Local Limited Partnerships.
All other schedules are omitted because they are not applicable or the required information is included in the Financial Statements or the notes thereto.
FINANCIAL STATEMENTS OF UNCONSOLIDATED SUBSIDIARIES FIFTY PERCENT OWNED PERSONS OR OTHER UNCONSOLIDATED PERSONS ACCOUNTED FOR ON THE EQUITY METHOD
Separate financial statements of the eight limited partnerships accounted for on the equity method have been omitted because combined financial statements are included in Note 4 to the financial statements.
(a) 3. Exhibits:
1.A. Form of proposed Selling Brokers' Agreement, incorporated by reference from Registration Statement on Form S-11 filed August, 1973.
3.A. Amended Certificate and Agreement of Limited Partnership, incorporated by reference from Registration Statement on Form S-11 filed August, 1973.
3.B. Amendment to Certificate of Limited Partnership, incorporated by reference from Registration Statement on Form S-11 filed August, 1973.
3.C. Amendment to certificate of Limited Partnership. Incorporated by reference from proxy statement filed September 18, 1991.
4.A. Subscription agreement incorporated by reference from Registration Statement on Form S-11 filed August, 1973.
5.A. Opinion and Consent of Counsel, incorporated by reference from Pre-Effective Amendment No. 1 to Registration Statement on Form S-11 filed October, 1973.
8.A. Opinion and Consent of Tax Counsel, incorporated by reference from Pre-Effective Amendment No. 1 to Registration Statement on Form S-11 filed October, 1973.
8.B. Tax Ruling request, incorporated by reference from Pre-Effective Amendment No. 1 to Registration Statement on Form S-11 filed October, 1973.
10.A. Copy of Agreement between Registrant, the General Partner and Income-Equities Corporation with respect to certain commitments made on behalf of the Registrant, incorporated by reference from Pre- Effective Amendment No. 1 to Registration Statement on Form S-11 filed October, 1973.
10.B. Copy of the Management Agreement between the Registrant and Income-Equities Corporation, incorporated by reference from Registration Statement on Form S-11 filed August, 1973.
10.C. Correspondence between the Management Company on behalf of the General Partner, with various developers, constituting agreements to invest in Local Limited Partnerships, incorporated by reference from Pre-Effective Amendment No. 1 to Registration Statement on Form S-11 filed October, 1973.
10.D. Copy of form of Limited Partnership Agreement between the Registrant and Local Limited Partnerships in which it becomes a limited partner, incorporated by reference from Registration Statement on Form S-11 filed August, 1973.
28.A. Letters dated August 2, 1974 and August 15, 1974 to investors from the General Partner and Management Company regarding tax information matters, incorporated by reference from Form 8-K filed August, 1974.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the last quarter of 1999.
(c) Exhibits:
Form 12b-25
(d) Financial Statement Schedules:
IV Indebtedness of and to Related Parties
XI Real Estate and Accumulated Depreciation and Amortization of Local Limited Partnerships.
All other schedules are omitted because they are not applicable or the required information is included in the financial statements or the notes thereto.
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.
(REGISTRANT) URBAN IMPROVEMENT FUND LIMITED - 1973-II BY: INTERFINANCIAL REAL ESTATE MANAGEMENT COMPANY
Date: September 26, 2000 By: Paul H. Pfleger Paul H. Pfleger President Interfinancial Real Estate Management Company
Date: September 26, 2000 By: John M. Orehek John M. Orehek Senior Vice President Interfinancial Real Estate Management Company
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.
By: Paul H. Pfleger September 26, 2000 Paul H. Pfleger, Director Date Interfinancial Real Estate Management Company
By: John M. Orehek September 26, 2000 John M. Orehek, Director Date Interfinancial Real Estate Management Company.
URBAN IMPROVEMENT FUND LIMITED - 1973-II SEATTLE, WASHINGTON
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2) AND ITEM 14(d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEAR ENDED December 31, 1999
Form 10-K - Items 14(a)(1) and (2) Form 10-K - Item 14(d)
Urban Improvement Fund Limited 1973-II (A Limited Partnership)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following financial statements of Urban Improvement Fund Limited 1973-II are included in Item 8 and Item 14(a)(1)
Independent Auditors' Report . . . . . . . . . . . . . . . . . .
Balance sheets at December 31, 1999 and 1998 . . . . . . . . . .
Statements of income (loss) for the years ended December 31, 1999, 1998 and 1997. . . . . . . . . . . . .
Statements of changes in partners' capital (deficit) for the years ended December 31, 1999, 1998 and 1997. .. . .F-5
Statements of cash flows for the years ended December 31, 1999, 1998 and 1997. . . . . . . . . . . . .
Notes to financial statements. . . . . . . . . . . . . . . . . .
The following financial statement schedules of Urban Improvement Fund Limited 1973-II are included in Item 14(a)(2) and 14(d):
IV. Indebtedness of and to Related Parties. . . . . . . . . . .F-22
XI. Real Estate and Accumulated Depreciation of Local Limited Partnerships. . . . . . . . . . . . .F-23
All other schedules are omitted because they are not applicable. Required information is shown in the financial statements or notes thereto.
FINANCIAL STATEMENTS OF UNCONSOLIDATED SUBSIDIARIES FIFTY PERCENT OWNED PERSONS OR OTHER UNCONSOLIDATED PERSONS ACCOUNTED FOR ON THE EQUITY METHOD
Separate financial statements of the eight limited partnerships accounted for on the equity method have been omitted because combined financial statements are included in Note 4 to the financial statements.
INDEPENDENT AUDITORS' REPORT
To the Partners Urban Improvement Fund Limited - 1973-II
We have audited the accompanying balance sheets of Urban Improvement Fund Limited 1973-II (a Limited Partnership) as of December 31, 1999 and 1998, and the related statements of income (loss), changes in partners' capital (deficit) and cash flows for the years ended December 31, 1999, 1998 and 1997, and the related schedules listed in Item 14(a)(2) of the annual report on Form 10-K of Urban Improvement Fund Limited 1973-II for the years ended December 31, 1999, 1998 and 1997. These financial statements and financial statement schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We did not audit five in 1999, 1998 and 1997 of the financial statements of Urban Improvement Fund Limited - 1973-II's Local Limited Partnership investments whose combined financial statements are shown in Note 4. These statements were audited by other auditors whose reports have been furnished to us, and our opinion, to the extent it relates to the amounts included for these Local Limited Partner- ship investments, is based solely on the reports of the other auditors. Urban Investment Fund Limited 1973-II's investment in these partnerships has been reduced to zero.
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, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Urban Improvement Fund Limited - 1973-II as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years ended December 31, 1999, 1998 and 1997, in conformity with generally accepted accounting principles. In addition, in our opinion, based upon our audits and the reports of other auditors, the financial state- ment schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required therein.
Atlanta, Georgia July 31, 2000
URBAN IMPROVEMENT FUND LIMITED 1973-II (A Limited Partnership)
BALANCE SHEETS
ASSETS
The Notes to Financial Statements are an integral part of these Statements.
URBAN IMPROVEMENT FUND LIMITED 1973-II (A Limited Partnership)
STATEMENTS OF INCOME (LOSS)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
The Notes to Financial Statements are an integral part of these Statements.
URBAN IMPROVEMENT FUND LIMITED 1973-II (A Limited Partnership)
STATEMENTS OF CASH FLOWS
NOTE: Capital improvements since original construction or rehabilitation are not material to the combined financial statements and, as such, are not disclosed separately. The financial statement category of buildings and improvements is composed substantially of cost plus the initial renova- tion upon acquisition. Total cost of land and building for federal income tax purposes amounts to approximately $46,176,000.