Item 1. Business.
General
Cambridge Advantaged Properties II Limited Partnership (formerly Hutton Advantaged Properties II Limited Partnership) (the "Partnership") is a limited partnership which was formed under the laws of the State of Delaware on June 25, 1985. Since November 25, 1997, the general partners of the Partnership have been Related Advantaged Residential Associates Inc., (the "Related General Partner"), a Delaware corporation and an affiliate of The Related Companies, L.P. ("Related"), a New York limited partnership, and Related and Cambridge Associates Limited Partnership (formerly Related and Hutton Associates Limited Partnership), a Delaware limited partnership, ("Related and Cambridge Associates"), and together with the Related General Partner, the "General Partners". The general partner of Related and Cambridge Associates is the Related General Partner. On November 25, 1997, the Related General Partner and one of the then other general partners of the Partnership, Advantaged Housing Associates, Inc. ("AHA"), consummated a Purchase Agreement pursuant to which the Related General Partner purchased AHA's general partner interest in the Partnership (the "Transfer"). In addition to the Transfer, the Related General Partner also acquired AHA's general partner interest in Related and Cambridge Associates Limited Partnership, another General Partner which is also the special limited partner of the Partnership. The General Partners manage and control the affairs of the Partnership. See Item 10, Directors and Executive Officers of the Registrant, below.
On May 19, 1994, the Partnership's name was changed to Cambridge Advantaged Properties II Limited Partnership.
On August 9, 1985, pursuant to a prospectus dated August 9, 1985 as supplemented by the supplements thereto dated September 20, 1985 and October 25, 1985 (as so supplemented, the "Prospectus"), the Partnership commenced a public offering (the "Offering"). Pursuant to the Offering, the Partnership issued and sold 7,150 Limited Partnership Interests resulting in $35,750,000 in Gross Proceeds from 2,926 investors (before offering expenses and sales commissions of $3,896,518). The Offering was completed in January 1986 and no further issuance of Limited Partnership Interests is anticipated.
Investment Objectives/Government Incentives The Partnership was formed to invest, as a limited partner, in other limited partnerships (referred to herein as "Local Partnerships", "subsidiaries" or "subsidiary partnerships"), each of which owns or leases and operates an existing residential housing development ("Apartment Complexes") which benefit from financing at rates below those otherwise available from conventional lenders that is made available through various federal and state government programs or through the issuance of tax-exempt bonds ("Advantaged Financing"). In acquiring its interests in the Local Partnerships ("Local Partnership Interests"), the Partnership's investment objectives have been, to:
(1) provide current tax benefits in the form of tax losses which Limited Partners may use to offset taxable income from other sources;
(2) provide long-term capital appreciation through an increase in the value of the Partnership's investments in Local Partnerships;
(3) provide cash distributions from sale or refinancing transactions; and
(4) preserve and protect the Partnership's capital.
Federal, state and local government agencies have provided significant incentives in order to stimulate private investment in housing which benefits from Advantaged Financing. The intent of these incentives was to reduce certain market risks and provide investors with (i) tax benefits, (ii) long-term capital appreciation, and (iii) limited cash distributions. Notwithstanding these factors, there remain significant risks. These risks include, but are not limited to, the financial strength and expertise of the general partners of the Local Partnerships ("Local General Partners"); the long-term nature of investments in Advantaged Housing which limits the ability of the Partnership to vary its investments in response to changing economic, financial and investment conditions; and changes in local economic circumstances and housing patterns which have an impact on real estate values. Apartment Complexes benefiting from Advantaged Financing also require greater management expertise and may have higher operating expenses than conventional apartment buildings. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Further information concerning the Advantaged Financing programs in which the Local Partnerships participate can be found in Item 2, Properties.
The Partnership is subject to risks incident to potential losses arising from the management and ownership of improved real estate. The Partnership can also be affected by poor economic conditions generally, however no more than 30% of the properties are located in any single state. There are also substantial risks associated with owning properties receiving government assistance, for example the possibility that Congress may not appropriate funds to enable HUD to make rental assistance payments. HUD also restricts annual cash distributions to partners based on operating results and a percentage of the owners' equity contribution. The Partnership cannot sell or substantially liquidate its investments in subsidiary partnerships during the period that the subsidy agreements are in existence, without HUD's approval. Furthermore, there may not be market demand for apartments at full market rents when the rental assistance contracts expire.
Investments The Local Partnership Interests owned by the Partnership were acquired from unaffiliated sellers. The Partnership became the principal limited partner in these Local Partnerships pursuant to local limited partnership agreements. As a limited partner, the Partnership's liability for obligations of the Local Partnerships is limited to its investment. The Local General Partners of the Local Partnerships retain responsibility for maintaining, operating and managing the Apartment Complexes. However, Related and Cambridge Associates, a general partner of the Partnership, is a special limited partner of each Local Partnership, and, under certain circumstances, has the right to replace the Local General Partners of the Local Partnership and also has certain rights with respect to voting on or approving of certain matters, including the sale of the Apartment Complex. These rights were given to Related and Cambridge Associates rather than the Partnership so as to avoid claims that by the existence or exercise of such rights the Partnership was taking part in the control of the Local Partnerships' operations and should thereby incur liability for all debts and obligations of the Local Partnerships (if this were found to be the case, the Partnership's interest in one Local Partnership could have been reached by creditors of another Local Partnership). Related and Cambridge Associates has agreed to exercise these rights as a fiduciary of the Limited Partners of the Partnership.
The Partnership purchased the Local Partnership Interests for a purchase price consisting in each case of a cash down payment, and a deferred cash payment, as evidenced by an Installment Promissory Note. Such notes were and are payable upon the occurrence of certain events, generally in two stages, upon completion of construction and upon the later of permanent loan closing or attainment of 95% occupancy. The cash payments were made in part as
the purchase price of the Local Partnership Interests and in part as capital contributions to the Local Partnerships. Such contributions were generally used by the Local Partnership to pay partnership management fees to the Local General Partners, fees to the Local General Partners for guaranteeing the funding of operating deficits (generally for a period of three to five years and subject to a maximum amount), and payments to Related/Cambridge Associates or its affiliates for acquisition fees, development consulting fees, administrative service fees, and organizational expense reimbursements in an amount of up to 6.6% of the aggregate cash payments made by the Partnership to the Local Partnership and the persons from whom the Partnership purchased its Local Partnership Interest.
As of March 25, 1998, several Local Partnerships are experiencing financial difficulties. As a consequence, recoverability of a significant portion of the Partnership's investments will depend upon material improvements in their operating results and their ability to meet debt service obligations. In addition, the level of cash distributions provided to the Partnership by the Local Partnership has not been sufficient, and may not be sufficient in the future, to cover the Partnership's operating expenses. As a result, the Partnership has required, and may in the future require, funding from other sources for such purposes. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion.
Sales of Underlying Properties On May 31, 1996, the property and the related assets and liabilities of McAdam Park-336 ("McAdam") were sold to an unaffiliated third party for $14,735,000 resulting in a gain in the amount of $6,108,426 and forgiveness of indebtedness income of $1,320,280 as a result of forgiveness of interest on mortgage debt and advances from the mortgage note holder.
On November 12, 1997, the property and the related assets and liabilities of Galveston-Stewart's Landing, Ltd. ("Galveston") were sold to an unaffiliated third party for $5,030,000 resulting in a gain in the amount of $1,378,652. Galveston used $5,000,000 of the net proceeds to settle the mortgage indebtedness and accrued interest thereon which amounted to $8,629,807, resulting in forgiveness of indebtedness income of $3,629,807.
Tax Matters The Tax Reform Act of 1986 (the "TRA") provides as of 1991 that the passive losses generated by the Partnership can only be used to shelter passive income or, in the alternative, may be carried forward to offset a gain upon the sale of properties.
Competition The real estate business is highly competitive and each of the Local Partnerships in which the Partnership has invested owns an Apartment Complex which must compete for tenants with other rental housing in its area. However, the below market interest rates on Advantaged Financing generally make it possible to offer the apartments to eligible tenants at a cost to the tenant significantly below the market rate for comparable conventionally financed apartments in the area.
Employees The Partnership does not have any employees. All services are performed for the Partnership by its General Partners and their affiliates. The General Partners receive compensation in connection with such activities as set forth in Items 11 and 13 herein. In addition, the Partnership reimburses the General Partners and certain of their affiliates for expenses incurred in connection with the performance by their employees of services for the Partnership in accordance with the Partnership Agreement.
Item 2.
Item 2. Properties.
As of March 25, 1998, the Partnership holds a 98% Limited Partnership Interest in 10 Local Partnerships each of which owns an Apartment Complex. The original underlying properties in two of the Local Partnerships in which the Partnership had an interest have been sold. See Item 1. Business-Sales of Underlying Properties. Set forth below is certain information concerning the Apartment Complexes and their operations and financing. See Schedule III to the consolidated financial statements included herein for additional information pertaining to the Apartment Complexes.
Each of the Local Partnerships owns one Apartment Complex. The Apartment Complexes are located in California (1), Florida (3), Kansas (2), Oklahoma (1), Texas (1) and Virginia (2). Three of the Apartment Complexes are in the suburbs of major cities, while the remaining Apartment Complexes are in close proximity to the downtown business districts of their respective cities. The Apartment Complexes are occupied by low, moderate and middle-income tenants. The occupancy rates are set forth below. The aggregate number of rental units contained in the Apartment Complexes is 3,132. The largest Apartment Complex contains 520 units and the smallest contains 156 units.
All of the Apartment Complexes are subject to existing permanent first mortgage loans ("Mortgage Loans on Real Estate"). See Schedule III.
LOCAL PARTNERSHIP SCHEDULE
(a) The Partnership invested in Local Partnerships owning existing Apartment Complexes which receive either Federal or state subsidies. HUD through FHA, administers a variety of subsidies for low- and moderate-income housing. FmHA administers similar housing programs for nonurban areas. The Federal programs generally provide one or a combination of the following forms of assistance: (i) mortgage loan insurance and (ii) rental subsidies.
i) Mortgage Loan Insurance. HUD provides mortgage insurance for rental housing projects pursuant to a number of sections of Title II of the National Housing Act ("NHA"), including Section 236, Section 221(d)(4), Section 221(d)(3) and Section 220. Under all of these programs, HUD will generally provide insurance equal to 100% of the total replacement cost of the project to nonprofit owners and 90% of the total replacement cost to limited-distribution owners. Mortgages are provided by institutions approved by HUD, including banks, savings and loan companies and local housing authorities. Section 221(d)(4) of NHA provides for federal insurance of private construction and permanent mortgage loans to finance new construction of rental apartment complexes containing five or more units. The most significant difference between the 221(d)(4) program and the 221(d)(3) program is the maximum amount of the loan which may be obtained. Under the 221(d)(3) program, nonprofit sponsors may obtain a permanent mortgage equal to 100% of the total replacement cost; no equity contribution is required of a nonprofit sponsor. In all other respects the 221(d)(3) program is substantially similar to the 221(d)(4) program.
ii) Rental Subsidies. Many of the tenants in HUD insured projects receive some form of rental assistance payments, primarily through the Section 8 Housing Assistance Payments Program (the "Section 8 Program"). Apartment Complexes not receiving assistance through the Section 8 Program ("Section 8 Payments") will generally have limitations on the amounts of rent which may be charged. One requirement imposed by HUD regulations effective for apartment complexes initially approved for Section 8 payments on or after November 5, 1979 is to limit the amount of the owner's annual cash distributions from operations to 10% of the owner's equity investment in an apartment complex if the apartment complex is intended for occupancy by families and to 6% of the owner's equity investment in an apartment complex intended for occupancy by elderly persons. The owner's equity investment in the apartment complex is 10% of the project's replacement cost as determined by HUD.
All leases are generally for periods not exceeding one to two years and no tenant occupies more than 10% of the rentable square footage.
Rents from commercial tenants (to which average rental per square foot applies) comprised less than 5% of the rental revenues of the Local Partnerships. Rents for the residential units are determined annually by HUD and reflect increases in consumer price indices in various geographic areas.
Management continuously reviews the physical state of the properties and budgets improvements when required which are generally funded from cash flow from operations or release of replacement reserve escrows. No improvements are expected to require additional financing.
Management continuously reviews the insurance coverage of the properties and believes such coverage is adequate.
See Item 1, Business, above for the general competitive conditions to which the properties described above are subject.
Real estate taxes are calculated using rates and assessed valuations determined by the township or city in which the property is located. Such taxes have approximated 1% of the aggregate cost of the properties as shown in Schedule III to the financial statements included herein.
(b) On May 31, 1996, the property and the related assets and liabilities of McAdam Park-336 were sold to Fannie Mae (see Item 7. below).
(c) On November 12, 1997, the property and the related assets and liabilities of Galveston-Stewart's Landing, Ltd. were sold to Beal Bank (see Item 7. below).
Item 3.
Item 3. Legal Proceedings.
None
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 fiscal year covered by this report through the solicitation of proxies or otherwise.
PART II
Item 5.
Item 5. Market for the Registrant's Limited Partnership Interests and Related Security Holder Matters.
As of March 25, 1998, the Partnership had issued and outstanding 7,150 Limited Partnership Interests, each representing a $5,000 capital contribution per unit to the Partnership, for aggregate Gross Proceeds of $35,750,000.
Limited Partnership Interests are not traded in any organized market. It is not anticipated that any public market will develop for the purchase and sale of the Limited Partnership Interests. Limited Partnership Interests may be transferred only if certain requirements are satisfied, including an opinion of counsel to the Partnership that such transfer would not cause a termination of the Partnership under Section 708 of the Internal Revenue Code and would not violate any federal or state securities laws.
As of May 1, 1998, there were 2,946 registered holders of Limited Partnership Interests.
The Partnership has made no distributions to its Limited Partners since its inception on June 25, 1985. There are no material restrictions upon the Partnership's present or future ability to make distributions in accordance with the provisions of the Partnership's Amended and Restated Agreement and Certificate of Limited Partnership. The Partnership has invested as a limited partner in Local Partnerships owning Apartment Complexes which receive Governmental Assistance under programs which in many instances restrict the cash return available to owners (see Item 8). The Partnership does not anticipate providing significant cash distributions to its Limited Partners.
There has recently been an increasing number of requests for the list of holders of limited partnership interests in limited partnerships such as the Partnership. Often these requests are made by a person who, only a short time before making the request, acquired merely a small number of Limited Partnership Interests in the Partnership and seeks the list for an improper purpose, a purpose that is not in the best interest of the Partnership or is harmful to the Partnership. In order to best serve and protect the interests of the Partnership and all of its investors, the General Partners have adopted a policy with respect to requests for the Partnership's list of holders of Limited Partnership Interests. This policy is intended to protect investors from unsolicited and coercive offers to acquire the interests of holders of Limited Partnership Interests and does not limit any other rights the General Partners may have under the Partnership Agreement or applicable law.
Item 6.
Item 6. Selected Financial Data.
The information set forth below presents selected financial data of the Partnership. Additional detailed financial information is set forth in the audited financial statements and footnotes contained in Item 8 hereof and in Schedules contained in Item 14 hereof.
During the years ended March 25, 1994 through 1996, total assets decreased primarily due to depreciation, partially offset by net additions to property and equipment. During the year ended March 25, 1994, long-term obligations and total liabilities increased primarily due to accruals of interest on mortgage notes payable. There was a decrease in long-term obligations and total liabilities in both 1996 and 1995 due to forgiveness of indebtedness at Harbours, Westwind II, Woodbridge and at Triangle/Oaks Partnerships, respectively. For the year ended March 25, 1996, there was also a decrease in assets due to a loss on impairment of assets. During the years ended March 25, 1997 and 1998 total assets decreased primarily due to depreciation and the sale of property (see Note 10 in Item 8. Financial Statements and Supplementary Data), partially offset by net additions to property and equipment. Long-term obligations and total liabilities decreased for the years ended March 25, 1997 and 1998 primarily due to the decrease in mortgage notes payable satisfied by the sales price of the properties which were sold and the forgiveness of indebtedness of mortgage debt and payments to the note holders.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity and Capital Resources
General The Partnership's capital has been invested primarily in 12 Local Partnerships in which the Partnership made an initial investment of $29,354,485 (including acquisition expenses) in the Local Partnerships. These investments are highly illiquid. On May 31, 1996, the property and the related assets and liabilities of McAdam Park-336 were sold to Fannie Mae and on November 12, 1997, the property and the related assets and liabilities of Galveston-Stewarts's Landing, Ltd. were sold to Beal Bank (see below), which reduced the number of Local Partnerships in which the Partnership is invested to ten. In addition, the Partnership has obtained loans from an affiliate of the Related General Partner, which together with Partnership funds, have been advanced to four local partnerships. Cumulatively, approximately $994,000 of such advances were forgiven as a result of the above sales.
Cash of the Partnership and its consolidated subsidiaries decreased by approximately $214,000 during the 1997 Fiscal Year. This decrease is attributable to principal payments of mortgage notes payable ($5,591,000), acquisition of property and equipment ($157,000), an increase in mortgage escrow deposits-replacement reserves ($169,000) and a decrease in capitalization of consolidated subsidiaries attributable to minority interest ($130,000) which exceeded cash flow provided by operating activities ($795,000), proceeds from the sale of property ($5,030,000) and a decrease in deferred costs ($9,000). Included in the adjustments to reconcile the net income to cash flow provided by operating activities is gain on sale of property ($1,379,000), forgiveness of indebtedness income ($3,630,000) and depreciation and amortization ($3,456,000).
The Partnership's primary source of funds are the cash distributions from operations of the Local Partnerships in which the Partnership has invested. These sources are available to meet obligations of the Partnership. However, the cash distributions received from the Local Partnerships to date have not been sufficient to meet all such obligations of the Partnership. During the years ended March 25, 1998 ("the 1997 Fiscal Year") , 1997 ("the 1996 Fiscal Year") , and 1996 ("the 1995 Fiscal Year"), such distributions amounted to approximately $150,000, $13,000, and $15,000, respectively. Accordingly, the Related General Partner advanced funds to meet the Partnership's third party obligations with the remaining unpaid balance of advanced funds equaling approximately $2,060,000, $2,067,000, and $1,980,000 as of March 25, 1998, 1997, and 1996, respectively. In addition, certain fees and expense reimbursements owed to the General Partners amounting to approximately $2,414,000, $1,680,000, and $831,000 were accrued and unpaid as of March 25, 1998, 1997, and 1996, respectively. Without the General Partners' advances and continued accrual without payment of certain fees and expense reimbursements, the Partnership will not be in the position to meet its obligations. The General Partners, have continued advancing and allowing the accrual without payment of these amounts, but are under no obligation to do so.
Sales of Underlying Properties On November 12, 1997, the property and the related assets and liabilities of Galveston-Stewart's Landing, Ltd. ("Galveston") were sold to an unaffiliated third party for $5,030,000 resulting in a gain in the amount of $1,378,652. Galveston used $5,000,000 of the net proceeds to settle the mortgage indebtedness and accrued interest thereon which amounted to $8,629,807, resulting in forgiveness of indebtedness income of $3,629,807.
On May 31, 1996, the property and the related assets and liabilities of McAdam Park-336 ("McAdam") were sold to an unaffiliated third party for $14,735,000 resulting in a gain in the
amount of $6,108,426 and forgiveness of indebtedness income of $1,320,280 as a result of forgiveness of interest on mortgage debt and advances from the mortgage note holder.
For a discussion of contingencies affecting certain Local Partnerships, see Results of Operations of Certain Local Partnerships below.
Except as described above, management is not aware of any trends or events, commitments or uncertainties, which have not otherwise been disclosed, that will or are likely to impact liquidity in a material way. Management believes the only impact would be for laws that have not yet been adopted. The portfolio is diversified by the location of the properties around the United States so that if one area of the country is experiencing downturns in the economy, the remaining properties in the portfolio may be experiencing upswings. However, the geographic diversification of the portfolio may not protect against a general downturn in the national economy.
Results of Operations
Property and equipment to be held and used are carried at cost which includes the purchase price, acquisition fees and expenses, construction period interest and any other costs incurred in acquiring the properties. The cost of property and equipment is depreciated over their estimated useful lives using accelerated and straight-line methods. Expenditures for repairs and maintenance are charged to expense as incurred; major renewals and betterments are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the assets and accumulated depreciation accounts and the profit or loss on such disposition is reflected in earnings. A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the property on an undiscounted basis are below depreciated cost. At that time property investments themselves are reduced to estimated fair value (generally using discounted cash flows) when the property is considered to be impaired and the depreciated cost exceeds estimated fair value.
At the time management commits to a plan to dispose of assets, said assets are adjusted to the lower of carrying amount or fair value less costs to sell. These assets are classified as property and equipment-held for sale and are not depreciated.
During the fiscal year ended March 25, 1996 and through March 25, 1998, the Partnership has recorded approximately $1,116,000 as a loss on impairment of assets.
The following is a summary of the results of operations of the Partnership for the 1997, 1996 and 1995 Fiscal Years.
The results of operations of the Partnership, as well as the Local Partnerships, excluding gain on sale of property, administrative and management-related parties, loss on impairment of assets and forgiveness of indebtedness income, remained fairly consistent for the 1997, 1996 and 1995 Fiscal Years. The Partnership's primary source of income continues to be its portion of the Local Partnerships' operating results. The majority of Local Partnership income continues to be in the form of rental income with the corresponding expenses being divided among operations, depreciation and amortization, and mortgage interest.
Net income (loss) for the 1997, 1996 and 1995 Fiscal Years totaled $906,578, $6,207,429, and $(548,077), respectively.
Excluding 1997 and 1996, in which the Partnership generated passive income, the Partnership has met the investment objective of generating tax benefits in the form of passive losses (which
Limited Partners may use to offset passive income from other sources ). This passive income may be offset by the carryforward of any unused passive losses from prior years; however, the sale or refinancing transactions of the Local Partnerships to date have been insufficient to provide cash distributions to the Limited Partners.
1997 vs 1996 Rental income decreased approximately 4% for the 1997 Fiscal Year as compared to the 1996 Fiscal Year. Excluding McAdam which sold its property on May 31, 1996 and Galveston which sold its property on November 12, 1997, rental income increased less than 1% primarily due to increases in occupancy at Sheridan.
Other income decreased approximately $271,000 for the 1997 Fiscal Year as compared to the 1996 Fiscal Year. Excluding McAdam and Galveston, such income decreased approximately $222,000 due to a decrease in income from funding of the Breakeven Guarantee by the Local General Partner of Suncreek and an overaccrual in 1996 of fire insurance proceeds at Triangle Oaks.
A gain on sale of property in the amount of approximately $1,379,000 was recorded in the 1997 Fiscal Year and forgiveness of indebtedness income in the amounts of approximately $3,630,000 was recorded in the 1997 Fiscal Year (see Notes 10 and 11 in Item 8.
Item 8. Financial Statements and Supplementary Data. Sequential Page --------- (a) 1. Financial Statements
Independent Auditors' Report 17
Consolidated Balance Sheets at March 25, 1998 and 1997 44
Consolidated Statements of Operations for the Years Ended March 25, 1998, 1997 and 1996 45
Consolidated Statements of Changes in Partners' Deficit for the Years Ended March 25, 1998, 1997 and 1996 46
Consolidated Statements of Cash Flows for the Years Ended March 25, 1998, 1997 and 1996 47
Notes to Consolidated Financial Statements 50
INDEPENDENT AUDITORS' REPORT
To the Partners of Cambridge Advantaged Properties II Limited Partnership and Subsidiaries
We have audited the consolidated balance sheets of Cambridge Advantaged Properties II Limited Partnership and Subsidiaries as of March 25, 1998 and 1997, and the related consolidated statements of operations, changes in partners' deficit, and cash flows for the years ended March 25, 1998, 1997 and 1996 (the 1997, 1996 and 1995 Fiscal Years, respectively). These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements for 11 subsidiary partnerships whose income (losses) before extraordinary item aggregated $2,252,981, ($3,214,557) and ($5,786,199) during the 1997, 1996 and 1995 Fiscal Years, respectively, and whose assets constituted 99% of the Partnership's assets at March 25, 1998 and 1997, presented in the accompanying consolidated financial statements. The financial statements of these subsidiary partnerships were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for these subsidiary partnerships, is based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 upon our audits, and the reports of the other auditors, the accompanying consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cambridge Advantaged Properties II Limited Partnership and Subsidiaries at March 25, 1998 and 1997, and the results of their operations, and their cash flows for the years ended March 25, 1998, 1997 and 1996, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements of Cambridge Advantaged Properties II Limited Partnership and Subsidiaries have been prepared assuming that the consolidated entity will continue as a going concern. As discussed in Notes 2 and 12, the auditors of three (Fiscal 1997) subsidiary partnerships have modified their reports due to the uncertainties of the subsidiary partnerships' abilities to continue as going concerns. These subsidiary partnerships' losses before extraordinary item aggregated $2,340,047, $1,478,861 and $1,278,519 for the 1997, 1996 and 1995 Fiscal Years, respectively, and their assets constituted 39% and 37% of the Partnership's assets at March 25, 1998 and 1997, respectively. These matters raise substantial doubt about Cambridge Advantaged Properties II Limited Partnership and Subsidiaries ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 12. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
TRIEN, ROSENBERG, ROSENBERG, WEINBERG, CIULLO & FAZZARI, LLP New York, New York June 15, 1998
[DICKEY & WOLF, LLC letterhead]
INDEPENDENT AUDITORS' REPORT
To the Partners Triangle/Oaks Limited Partnership
We have audited the accompanying balance sheets of TRIANGLE/OAKS LIMITED PARTNERSHIP as of December 31, 1997 and 1996, and the related statement of operations, partners' equity/(deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TRIANGLE/OAKS LIMITED PARTNERSHIP as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 9, the Partnership is experiencing difficulty in generating sufficient cash flow to meet its obligations and sustain its operations, which raises substantial doubt about its ability to continue as a going concern at December 31, 1997. Management's plans in regard to these matters are also described in Note 9. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Dickey & Wolf, LLC
DICKEY & WOLF, LLC Certified Public Accountants
Harrisonville, Missouri January 27, 1998
[DICKEY & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners Triangle/Oaks Limited Partnership
We have audited the accompanying balance sheet of TRIANGLE/OAKS LIMITED PARTNERSHIP as of December 31, 1995, and the related statement of operations, partners' equity/(deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TRIANGLE/OAKS LIMITED PARTNERSHIP as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
/s/ Dickey & Wolf DICKEY & WOLF, LLC Certified Public Accountants
Harrisonville, Missouri January 17, 1996
[DICKEY & WOLF, LLC letterhead]
INDEPENDENT AUDITORS' REPORT
To the Partners Sheridan Square Associates of Lawton,
We have audited the accompanying balance sheets of SHERIDAN SQUARE ASSOCIATES OF LAWTON, (a Oklahoma Limited Partnership) as of December 31, 1997 and 1996, and the related statements of operations, changes in partners' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SHERIDAN SQUARE ASSOCIATES OF LAWTON as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
/s/ Dickey & Wolf, LLC
DICKEY & WOLF, LLC Certified Public Accountants
Harrisonville, MO January 28, 1998
[DICKEY & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners Sheridan Square Associates of Lawton
We have audited the accompanying balance sheet of Sheridan Square Associates of Lawton, (a Oklahoma Limited Partnership) as of December 31, 1995, and the related statements of operations, changes in partners' equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects the financial position of Sheridan Square Associates of Lawton as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
/s/ Dickey & Wolf DICKEY & WOLF, LLC Certified Public Accountants
Harrisonville, MO January 26, 1996
[DICKEY & WOLF, LLC letterhead]
INDEPENDENT AUDITORS' REPORT
To the Partners Apple Creek Associates of Denton, Ltd.
We have audited the accompanying balance sheets of APPLE CREEK ASSOCIATES OF DENTON, LTD., (a Texas Limited Partnership) as of December 31, 1997 and 1996, and the related statements of operations, statements of changes in partners' equity/(deficit), and statements of cash flows for the years then ended. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of APPLE CREEK ASSOCIATES OF DENTON, LTD. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles.
/s/ Dickey & Wolf, LLC
DICKEY & WOLF, LLC Certified Public Accountants
Harrisonville, MO January 28, 1998
[DICKEY & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners Apple Creek Associates of Denton, Ltd.
We have audited the accompanying balance sheets of APPLE CREEK ASSOCIATES OF DENTON, LTD. as of December 31, 1996 and 1995, and the related statements of operations, statements of changes in partners' equity/(deficit), and statements of cash flows for the years then ended. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of APPLE CREEK ASSOCIATES OF DENTON, LTD. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles.
/S/ DICKEY & WOLF, LLC
DICKEY & WOLF, LLC Certified Public Accountants Harrisonville, MO January 27, 1997
[DICKEY & WOLF, LLC letterhead]
INDEPENDENT AUDITORS' REPORT
To the Partners Galveston-Stewart's Landing, Ltd.
We have audited the accompanying balance sheet of GALVESTON-STEWART'S LANDING, LTD. (a Texas Limited Partnership) as of December 31, 1997, and the related statements of operations, changes in partners' equity/(deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of GALVESTON STEWART'S LANDING, LTD. as of December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity to generally accepted accounting principles.
/s/ Dickey & Wolf, LLC
DICKEY & WOLF, LLC Certified Public Accountants
Harrisonville, MO January 28, 1998
[DICKEY & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners Galveston-Stewart's Landing, Ltd.
We have audited the accompanying balance sheet of GALVESTON-STEWART'S LANDING, LTD. (a Texas Limited Partnership) as of December 31, 1996, and the related statements of operations, changes in partners' equity/(deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of GALVESTON STEWART'S LANDING, LTD. as of December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity to generally accepted accounting principles.
The accompany financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 9 to the financial statements, the Partnership has suffered recurring losses from operations and has a net capital deficiency. In addition, the mortgage holder commenced foreclosure proceedings and the Partnership has filed a voluntary relief under Chapter 11 of the United States Bankruptcy Code. These factors raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Dickey & Wolf, LLC DICKEY & WOLF, LLC Certified Public Accountants
Harrisonville, MO January 27, 1997
[DICKEY, FRANKLIN & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners Galveston-Stewart's Landing, Ltd.
We have audited the accompanying balance sheet of GALVESTON-STEWART'S LANDING, LTD. (a Texas Limited Partnership) as of December 31, 1995, and the related statements of operations, changes in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of GALVESTON-STEWART'S LANDING, LTD. as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As shown in the financial statements, the Partnership incurred a net loss of $(1,377,231) during the year ended December 31, 1995. In addition, as explained in Note 8, Beal Bank had commenced foreclosure on the property during 1995. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern.
The ability of the Partnership to continue depends upon its ability to obtain additional or restructured financing and ultimately to attain a level of operating profit sufficient to enable it to meets its obligations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Dickey & Wolf DICKEY & WOLF, LLC Certified Public Accountants
Harrisonville, MO January 26, 1996
[DICKEY & WOLF, LLC letterhead]
INDEPENDENT AUDITORS' REPORT
To the Partners Woodridge, Ltd.
We have audited the accompanying balance sheets of WOODRIDGE, LTD. as of December 31, 1997 and 1996, and the related statements of operations, statements of changes in partners' equity/(deficit), and statements of cash flows for the years then ended. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of WOODRIDGE, LTD. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles.
/s/ Dickey & Wolf, LLC
DICKEY & WOLF, LLC Certified Public Accountants
Harrisonville, MO January 28, 1998
[DICKEY & WOLF, LLC LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners Woodridge, Ltd.
We have audited the accompanying balance sheet of WOODRIDGE, LTD., (a California Limited Partnership) as of December 31, 1995, and the related statement of operations, partners' equity/(deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of WOODRIDGE, LTD. as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
/s/ Dickey & Wolf DICKEY & WOLF, LLC Certified Public Accountants
Harrisonville, MO January 26, 1996
[Reznick Fedder & Silverman letterhead]
INDEPENDENT AUDITORS' REPORT
To the Partners Players Club at Fort Myers, Ltd.
We have audited the accompanying balance sheets of Players Club at Fort Myers, Ltd. as of December 31, 1997 and 1996, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Players Club at Fort Myers, Ltd. as of December 31, 1997 and 1996, and the results of its operations, and its cash flows for the years then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note B to the financial statements, the Partnership has incurred operating losses and cash flow deficits and low occupancy levels which raises substantial doubt about the Partnership's ability to continue as a going concern. In addition, the general partner's operating deficit guarantee has expired and there is no further obligation to continue to fund operating deficits. Management's plans in regard to these matters are also described in Note B. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or amounts and classification of liabilities that might be necessary should the Partnership be unable to continue in existence.
/s/ Reznick Fedder & Silverman
Boston, Massachusetts January 29, 1998
[REZNICK FEDDER & SILVERMAN LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners Players Club at Fort Myers, Ltd.
We have audited the accompanying balance sheets of Players Club at Fort Myers, Ltd. as of December 31, 1996 and 1995, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Players Club at Fort Myers, Ltd. as of December 31, 1996 and 1995, and the results of its operations, and its cash flows for the years then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the partnership will continue as a going concern. As discussed in Note B to the financial statements, the partnership has incurred operating and cash deficits and low occupancy levels which raises substantial doubt about the partnership's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Atlanta, Georgia /s/ Reznick Fedder & Silverman February 7, 1997 ------------------------------ Reznick Fedder & Silverman
[Reznick Fedder & Silverman letterhead]
INDEPENDENT AUDITORS' REPORT
To the Partners Suntree at Fort Myers, Ltd.
We have audited the accompanying balance sheets of Suntree at Fort Myers, Ltd. as of December 31, 1997 and 1996, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Suntree at Fort Myers, Ltd. as of December 31, 1997 and 1996, and the results of its operations, and its cash flows for the years then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note B to the financial statements, the Partnership has incurred operating losses and cash flow deficits and low occupancy levels which raises substantial doubt about the Partnership's ability to continue as a going concern. In addition, the general partner's operating deficit guarantee has expired and there is no further obligation to continue to fund operating deficits. Managemenfs plans in regard to these matters are also described in Note B. The financial statements do not include any adjustments relating the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Partnership be unable to continue in existence.
/s/ Reznick Fedder & Silverman
Boston, Massachusetts January 29, 1998
[REZNICK FEDDER & SILVERMAN LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners Suntree at Fort Myers, Ltd.
We have audited the accompanying balance sheets of Suntree at Fort Myers, Ltd. as of December 31, 1996 and 1995, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Suntree at Fort Myers, Ltd. as of December 31, 1996 and 1995, and the results of its operations, and its cash flows for the years then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the partnership will continue as a going concern. As discussed in Note B to the financial statements, the partnership has incurred operating and cash deficits and low occupancy levels which raises substantial doubt about the partnership's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Atlanta, Georgia /s/ Reznick Fedder & Silverman February 7, 1997 ------------------------------ Reznick Fedder & Silverman
[BDO SEIDMAN, LLP LETTERHEAD]
Report of Independent Certified Public Accountants'
To the Partners of The Harbours Associates
We have audited the accompanying balance sheet of The Harbours Associates, VHDA Project No. 95-0759 (a limited partnership), as of December 31, 1997, and the related statements of profit and loss, partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Harbours Associates at December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Richmond, Virginia February 11, 1998
[BDO SEIDMAN, LLP LETTERHEAD]
Independent Auditors' Report
To the Partners of The Harbours Associates
We have audited the accompanying balance sheet of The Harbours Associates, VHDA Project No 95-0759 (a limited partnership), as of December 31, 1996, and the related statements of profit and loss, partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Harbours Associates at December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP Richmond, Virginia February 9, 1997
[BDO SEIDMAN, LLP LETTERHEAD-Richmond, Virginia]
Independent Auditors' Report
To the Partners of The Harbours Associates
We have audited the accompanying balance sheets of The Harbours Associates (a limited partnership) as of December 31, 1995 and 1994, and the related statements of operations, partners' deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Harbours Associates at December 31, 1995 and 1994, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP February 9, 1996
[George, Bowerman & Noel, P.A. letterhead]
INDEPENDENT AUDITORS' REPORT
The Partners Brookwood Apartments, L.P. (A Kansas Limited Partnership) Wichita, Kansas
We have audited the accompanying balance sheet of Brookwood Apartments, L.P. (A Kansas Limited Partnership) as of December 31, 1997, and the related statements of operations, partners' capital (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
As described in Note 1, the accompanying financial statements reflect certain reorganization adjustments of the Partnership on a "push-down" basis. However, in connection with the reorganization, the Partnership has not discounted certain debt which, in our opinion, should be discounted and has capitalized certain deferred financing costs which, in our opinion, should have been written off in order to conform with generally accepted accounting principles. If these additional reorganization adjustments had been made, deferred financing costs and mortgage note payable would have been reduced by $274,641 in the accompanying balance sheet. These departures from generally accepted accounting principles do not have a material effect on the results of operations or cash flows of Brookwood Apartments, L.P. (A Kansas Limited Partnership) for the year ended December 31, 1997.
In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Brookwood Apartments, L.P. (A Kansas Limited Partnership) for the year ended December 31, 1997 and its financial position at December 31, 1997 in conformity with generally accepted accounting principles.
/s/ George, Bowerman & Noel, P.A.
Wichita, Kansas February 12, 1998
[GEORGE, BOWERMAN, OSBORN & COMPANY, P.A. LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the General Partners Brookwood Apartments, L.P.
We have audited the accompanying balance sheet of Brookwood Apartments, L.P. (A Kansas Limited Partnership), Project No. 102-35157-PM as of December 31, 1996, and the related statements of profit and loss, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Brookwood Apartments, L.P. as of December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
In accordance with Government Auditing Standards, we have also issued a report dated January 22, 1997 on our consideration of Brookwood Apartments, L.P.'s internal control structure and a report dated January 22, 1997 on its compliance with laws and regulations.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information included in the report is presented for purposes of additional analysis and is not a required part of the basic financial statements of Brookwood Apartments, L.P. Such information has been subjected to the procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the financial statements taken as a whole.
/s/ George, Bowerman, Osborn & Company, P.A.
Wichita, Kansas January 22, 1997
[GEORGE, BOWERMAN, OSBORN & COMPANY, P.A. LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the General Partners Brookwood Apartments, L.P.
We have audited the accompanying balance sheet of Brookwood Apartments, L.P. (A Kansas Limited Partnership), Project No. 102-35157-PM as of December 31, 1995, and the related statements of profit and loss, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Brookwood Apartments, L.P. as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
In accordance with Government Auditing Standards, we have also issued a report dated January 24, 1996 on our consideration of Brookwood Apartments, L.P.'s internal control structure and a report dated January 24, 1996 on its compliance with laws and regulations.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information included in the report is presented for purposes of additional analysis and is not a required part of the basic financial statements of Brookwood Apartments, L.P. Such information has been subjected to the procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the financial statements taken as a whole.
/s/ George, Bowerman, Osborn & Company, P.A.
Wichita, Kansas January 24, 1996
[BDO SEIDMAN, LLP LETTERHEAD]
Report of Independent Certified Public Accountants'
To the Partners Westwind II Associates
We have audited the accompanying balance sheets of Westwind II Associates (a limited partnership) as of December 31, 1997 and 1996, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Westwind II Associates as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Richmond, Virginia February 11, 1998
[BDO SEIDMAN, LLP LETTERHEAD]
Independent Auditors' Report
To the Partners Westwind II Associates
We have audited the accompanying balance sheets of Westwind II Associates (a limited partnership) as of December 31, 1996 and 1995, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Westwind II Associates as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP Richmond, Virginia February 8, 1997
[Coopers & Lybrand L.L.P. letterhead]
Report of Independent Accountants
To the Partners Suncreek - 268, Ltd.
We have audited the accompanying balance sheet of Suncreek - 268, Ltd. as of December 31, 1997, and the related statements of operations, changes in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Suncreek - 268, Ltd. as of December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Portland, Oregon February 6, 1998
[COOPERS & LYBRAND L.L.P. LETTERHEAD]
Report of Independent Accountants
To the Partners Suncreek - 268, Ltd.
We have audited the accompanying balance sheet of Suncreek - 268, Ltd. as of December 31, 1996, and the related statements of operations, changes in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Suncreek - 268, Ltd. as of December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand, L.L.P.
Portland, Oregon February 6, 1997
[COOPERS & LYBRAND L.L.P. LETTERHEAD]
Report of Independent Accountants
To the Partners Suncreek - 268, Ltd.
We have audited the accompanying balance sheet of Suncreek - 268, Ltd. as of December 31, 1995, and the related statements of operations, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Suncreek - 268, Ltd. as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Portland, Oregon February 8, 1996
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
See accompanying notes to consolidated financial statements.
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
*Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
See accompanying notes to consolidated financial statements.
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
See accompanying notes to consolidated financial statements.
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (CONTINUED)
See accompanying notes to consolidated financial statements.
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (CONTINUED)
See accompanying notes to consolidated financial statements.
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 25, 1998
NOTE 1 - Organization
Cambridge Advantaged Properties II Limited Partnership (formerly Hutton Advantaged Properties II Limited Partnership) ("the Partnership") was formed pursuant to the laws of the State of Delaware on June 25, 1985. The Partnership invests, as a limited partner, in limited partnerships ("Local Partnerships", "subsidiaries" and "subsidiary partnerships"), each of which owns and operates residential housing developments, which benefit from financing at rates below those otherwise available from conventional lenders, made available through various federal and state government programs or through the issuance of tax-exempt bonds ("Advantaged Financings").
As of March 25, 1998 the Partnership holds an interest in 10 Local Partnerships which own 10 Apartment Complexes. On May 31, 1996, the property and the related assets and liabilities of McAdam Park-336, Ltd. ("McAdam") were sold to an unaffiliated third party. On November 12, 1997, the property and the related assets and liabilities of Galveston-Stewart's Landing, Ltd. ("Galveston") were sold to an unaffiliated third party (see Note 10).
The general partners of the Partnership are Related Advantaged Residential Associates Inc. (the "Related General Partner"), a Delaware corporation and an affiliate of The Related Companies, L.P. ("Related"), a New York limited partnership and Related and Cambridge Associates Limited Partnership, a Delaware limited partnership ("Related and Cambridge Associates" and together with the Related General Partner, the "General Partners"). The general partner of Related and Cambridge Associates is the Related General Partner.
Pursuant to the public offering, which occurred from 1985 through 1986, the Partnership received $35,750,000 of Gross Proceeds from 7,150 Limited Partnership Interests. No further issuance of Limited Partnership Interests is anticipated.
The terms of the Partnership's Restated Agreement of Limited Partnership (the "Limited Partnership Agreement") provide, among other things, that, subject to certain exceptions, profits and losses be shared 99% by the limited partners and 1% by the general partners.
Effective May 19, 1995, the Partnership's name was changed from Hutton Advantaged Properties II Limited Partnership to Cambridge Advantaged Properties II Limited Partnership.
NOTE 2 - Summary of Significant Accounting Policies
a) Going Concern
As of March 25, 1998, several Local Partnerships are experiencing financial difficulties. There is substantial doubt about the Partnership's ability to continue as a going concern. Recoverability of a significant portion of the Partnership's investments will depend upon material improvements in the ability of each subsidiary partnership to meet its debt service obligations. In addition, the level of cash distributions provided to the Partnership by the Local Partnerships have not been sufficient, and may not be sufficient in the future, to cover the Partnership's operating expenses. As a result, the Partnership has required, and may in the future require, funding from other sources for such purposes. There can be no assurance that the Partnership will be successful in obtaining such financing. The consolidated financial statements do not
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 25, 1998
include any adjustments that might result from the outcome of these uncertainties. See Note 12 for management's intentions.
b) Basis of Consolidation
The consolidated financial statements include the accounts of Cambridge Advantaged Properties II Limited Partnership, (the "Partnership"), and eleven subsidiary partnerships (1997 Fiscal Year) one of which only has activity through the date of sale of its property and the related assets and liabilities which occurred on November 12, 1997, twelve subsidiary partnerships (1996 Fiscal Year), one of which only has activitiy through the date of sale of its property and the related assets and liabilities which occurred on May 31, 1996 and twelve subsidiary partnerships (1995 Fiscal Year). The Partnership is a limited partner, with an ownership interest of 98% in each of the subsidiary partnerships. Through the rights of the Partnership and/or a General Partner, which General Partner has a contractual obligation to act on behalf of the Partnership, to remove the general partner of the subsidiary local partnerships and to approve certain major operating and financial decisions, the Partnership has a controlling financial interest in the subsidiary local partnerships.
For financial reporting purposes, the Partnership's fiscal year ends March 25. The Partnership's fiscal year ends March 25 in order to allow adequate time for the subsidiaries' financial statements to be prepared and consolidated. The books and records of the Partnership are maintained on the accrual basis of accounting, in accordance with generally accepted accounting principles ("GAAP"). All subsidiaries have fiscal years ending December 31. Accounts of subsidiaries have been adjusted for intercompany transactions from January 1 through March 25.
All intercompany accounts and transactions have been eliminated in consolidation.
Increases (decreases) in the capitalization of consolidated subsidiaries attributable to minority interest arise from cash contributions and cash distributions to the minority interest partners.
The Partnership's investment in each subsidiary is equal to the respective subsidiary partners' equity less minority interest capital, if any. Losses attributable to minority interests which exceed the minority interests' investment in a subsidiary have been charged to the Partnership. Such losses aggregated $0, $2,200, and $47,500, for the years ended March 25, 1998, 1997 and 1996 (the 1997, 1996 and 1995 Fiscal Years, respectively). In consolidation, all subsidiary partnership losses are included in the Partnership's capital account except for losses allocated to minority interest capital.
c) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks and investments in short-term highly liquid instruments purchased with original maturities of less than three months.
d) Property and Equipment
Property and equipment to be held and used are carried at cost which includes the purchase price, acquisition fees and expenses, construction period interest and any other costs incurred
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 25, 1998
in acquiring the properties. The cost of property and equipment is depreciated over their estimated useful lives using accelerated and straight-line methods. Expenditures for repairs and maintenance are charged to expense as incurred; major renewals and betterments are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the assets and accumulated depreciation accounts and the profit or loss on such disposition is reflected in earnings. A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the property on an undiscounted basis are below depreciated cost. At that time property investments themselves are reduced to estimated fair value (generally using discounted cash flows) when the property is considered to be impaired and the depreciated cost exceeds estimated fair value.
At the time management commits to a plan to dispose of assets, said assets are adjusted to the lower of carrying amount or fair value less costs to sell. These assets are classified as property and equipment-held for sale and are not depreciated.
During the fiscal year ended March 25, 1996 and through March 25, 1998, the Partnership has recorded approximately $1,116,000 as a loss on impairment of assets.
e) Amortization
Deferred costs are being amortized over their respective periods of benefit.
f) Income Taxes
No provision has been made for income taxes in the accompanying financial statements since such taxes, if any, are the responsibility of the individual partners. For income tax purposes, the Partnership has a fiscal year ending December 31 (Note 9).
g) Loss Contingencies
The Partnership records loss contingencies as a charge to income when information becomes available which indicates that it is probable that an asset has been impaired or a liability has been incurred as of the date of the financial statements and the amount of loss can be reasonably estimated.
h) Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
NOTE 3 -Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instruments (all of which are held for non-trading purposes) for which it is practicable to estimate that value:
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 25, 1998
Cash and Cash Equivalents, Mortgage Escrow Deposits and Cash-Restricted for Tenants' Security Deposits
The carrying amount approximates fair value.
Mortgage Notes Payable
The fair value of mortgage notes payable is estimated, where practicable, based on the borrowing rate currently available for similar loans.
The estimated fair values of the Partnership's mortgage note payable are as follows:
*Management believes it is not practical to estimate the fair value of the mortgage notes payable because mortgage programs with similar characteristics are not currently available to the partnerships.
Accounts payable and accrued expenses
The estimated fair value of the Partnership's accounts payable and accrued expenses which are different than carrying value are as follows:
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 25, 1998
NOTE 4 - Property and Equipment
The components of property and equipment and their estimated useful lives are as follows:
*For one subsidiary partnership, Suncreek, prior to April 1996 land was leased but no payment is required until certain cash flow levels are achieved. No payments were required in the 1996 and 1995 Fiscal Years. In connection with Suncreek's refinancing in April 1996, Suncreek amended the terms of its partnership agreement with the Local General Partner to reflect the elimination of the land lease together with all accrued and unpaid land lease payments and the Local General Partner's contribution to Suncreek of the underlying land. The land was recorded at $2,000,000 which represents the estimation by Suncreek's management of its fair market value as of the contribution date.
Depreciation expense for the 1997, 1996, and 1995 Fiscal Years amounted to $3,276,844, $3,557,303 and $3,923,830, respectively.
During the 1997 and 1996 Fiscal Years there was a decrease in accumulated depreciation in the amount of approximately $2,736,000 and $6,173,000 due to the sale of Galveston and McAdam, respectively (see Note 10).
Galveston had experienced significant cash flow problems and was in default on the Mortgage Note Payable. Beal Bank then commenced foreclosure proceedings. In order to stay such proceedings, Galveston filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code in August 1996. As a result of the 1995 loss combined with a history of operating and cash flows losses, it was determined that an impairment of property and equipment existed at December 31, 1995. The impairment loss was determined to be $1,116,378 and reported separately in the Consolidated Statements of Operations. The amount of the impairment loss was determined based on the difference on the carrying value of property and equipment (net of depreciation) and the appraisal provided by Beal Bank, the underlying mortgage holder. The appraisal was dated January 29, 1996, in the amount of $4,050,000. On November 12, 1997, the property and the related assets and liabilities of Galveston were sold to an unaffiliated third party for $5,030,000.
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 25, 1998
NOTE 5 - Mortgage Escrow Deposits
Mortgage escrow deposits consist of the following:
NOTE 6 - Deferred Costs
The components of deferred costs and their periods of amortization are as follows:
(a) Represents fees to the Partnership's general partners and affiliates.
(b) Payable from capital contributions of the Partnership to the subsidiary partnerships.
Amortization of deferred costs for the 1997, 1996 and 1995 Fiscal Years aggregated $178,833, $166,510, and $204,764, respectively.
During the 1997, 1996 and 1995 Fiscal Years, respectively, approximately $37,000, $0, and $60,000 of fully amortized deferred costs were written off.
NOTE 7 - Mortgage Notes Payable
The mortgage notes are payable in aggregate monthly installments of approximately $575,000, including principal and interest at rates varying from 3.45% to 10.5% per annum, through 2030. Each subsidiary partnership's mortgage note payable is collateralized by the land and buildings of the respective subsidiary partnership, the assignment of certain subsidiary partnership's rents and leases and is without further recourse.
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 25, 1998
Annual principal payment requirements for each of the next five fiscal years are as follows:
The mortgage agreements require monthly deposits to replacement reserves of approximately $21,000 and monthly deposits to escrow accounts for real estate taxes, hazard and mortgage insurance and other (see Note 5).
NOTE 8 - Related Party Transactions
One of the general partners of the Partnership, Related and Cambridge Associates, has a 1% interest as a special limited partner in each of the subsidiary partnerships.
Whitney Management Corp., an affiliate of the Related General Partner, is the managing agent of four of the properties. On November 12, 1997, the property and the related assets and liabilities of Galveston, one of the properties, was sold (see Note 10).
Fees incurred to related parties for the years ended March 25, 1998, 1997 and 1996 were as follows:
(a) After all other expenses of the Partnership are paid, an annual partnership management fee of up to .5% of invested assets is payable to the Partnership's general partners and affiliates. Partnership management fees have been charged to operations and are included in administrative and management-related parties expenses. Partnership management fees owed to the general partners amounting to approximately $1,877,000 and $1,222,000 were accrued and unpaid as of March 25, 1998 and 1997, respectively.
(b) An affiliate of the Related General Partner performs services for the Partnership which include, but are not limited to: accounting and financing management, registrar, transfer and assignment functions, asset management, investor communications, printing and other ad-
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 25, 1998
ministrative services. The amount of reimbursement from the Partnership is limited by the provisions of the Partnership agreement. Another affiliate of the Related General Partner performs asset monitoring for the Partnership. These services include site visits and evaluations of the subsidiary partnerships' performance. Expense reimbursements and asset monitoring fees owed to the Related General Partner amounting to approximately $537,000 and $458,000 were accrued and unpaid as of March 25, 1998 and 1997, respectively.
(c) Property management fees paid by subsidiary partnerships amounted to $830,247, $872,604, and $862,480 for the 1997, 1996 and 1995 Fiscal Years, respectively. Of these fees, $421,184, $437,151, and $433,519, were incurred to affiliates of the subsidiary partnerships. In addition, $547,671, $582,597 and $587,800 were incurred to affiliates of the Related General Partner for the 1997, 1996 and 1995 Fiscal Years, respectively. Of such amounts incurred to affiliates of the Related General Partner, $195,656, $215,735, and $218,007 are also included in amounts incurred to affiliates of the subsidiary partners because they were incurred to affiliates of both.
(d) Related and Cambridge Associates, a limited partner of the subsidiary partnerships is entitled to receive a local administrative fee of up to $2,500 from each subsidiary partnership.
Related and Cambridge Associates, a General Partner of the Partnership, is a special limited partner of each Local Partnership, with a 1% interest in profits, losses and distributions. Distributions aggregating $1,531 and $129 were made to Related and Cambridge Associates for the 1997 and 1996 Fiscal Years.
C/R Florida Associates, L.P., a Delaware limited partnership ("C/R Florida"), is the general partner of Players Club and Suntree, with a 1% interest in profits, losses and distributions. Related Advantaged Residential Associates Inc. is the general partner of C/R Florida.
During September 1988, the Partnership obtained a $793,867 loan from an affiliate of the Related General Partner. This loan accrues interest at the bank's prime rate plus 1% and is repayable from all available cash sources. These funds, together with $2,545,223 of Partnership funds, were advanced by the Partnership to complete the Triangle/Oaks refinancing and to provide adequate working capital for the local partnership. Approximately $2,735,000 was outstanding at both March 25, 1998 and 1997 (see Note 12).
As of March 25, 1998, an affiliate of the Related General Partner advanced $310,926 to the Partnership, none of which was advanced in the 1997, 1996 or 1995 Fiscal Years. These funds were advanced by the Partnership to Sheridan to provide working capital. During the 1997 Fiscal Year, $74,587 was repaid. Such note is noninterest bearing (see Note 12).
As of March 25, 1997, the Partnership and Whitney Management Corporation, an affiliate of the Local General Partner, and the Partnership had advanced $606,445 to Galveston, none of which was advanced during the 1997, 1996 and 1995 Fiscal Years, respectively. These funds were advanced to provide working capital to the subsidiary partnership. Such note is noninterest bearing. In 1997, such advances were forgiven as a result of a sale of the property and the related assets and liabilities of Galveston (see Note 10).
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 25, 1998
The Partnership advanced $473,007 to McAdam in connection with the restructuring of their mortgage debt, none of which was advanced during the 1997, 1996 and 1995 Fiscal Years. Although these advances were treated as voluntary loans as defined in the subsidiary partnership agreement, by separate agreement with the mortgagee, these advances were noninterest bearing. The loan was subordinate to the mortgage notes and repayment was expected only from resale of the Property or refinancing of the mortgage debt. In 1996, such advances were forgiven as a result of a sale of the property and the related assets and liabilities of McAdam (see Note 10).
As of March 25, 1998, the Partnership had advanced Apple Creek approximately $853,000, none of which was advanced during the 1997, 1996 or 1995 Fiscal Years.
Due to local general partners and affiliates at March 25, 1998 and 1997 consists of the following:
(*) Operating deficit loans include five and four loans payable to local general partners and affiliates, respectively, which are unsecured, non-interest bearing and are payable out of available surplus cash, of the respective subsidiary partnership, or at the time of sale or refinancing.
(**) One subsidiary partnership had a long-term note payable to its local general partner. The note, which matured in 1997, required monthly principal payments in the amount of $1,250 plus interest at the prime rate.
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 25, 1998
NOTE 9 - Income Taxes
A reconciliation of the financial statement net loss to the income tax loss for the Partnership and its consolidated subsidiaries is as follows:
NOTE 10 - Sale of Property
On November 12, 1997, the property and the related assets and liabilities of Galveston were sold to an unaffiliated third party for $5,030,000 resulting in a gain in the amount of $1,378,652. Galveston used $5,000,000 of the net proceeds to settle the mortgage indebtedness and accrued interest thereon which amounted to $8,629,807, resulting in forgiveness of indebtedness income of $3,629,807.
On May 31, 1996, the property and the related assets and liabilities of McAdam were sold to an unaffiliated third party for $14,735,000 resulting in a gain in the amount of $6,108,426 and forgiveness of indebtedness income of $1,320,280 as a result of forgiveness of interest on mortgage debt and advances from the mortgage note holder.
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 25, 1998
NOTE 11 - Extraordinary Item - Forgiveness of Indebtedness Income
Extraordinary items-forgiveness of indebtedness consist of the following:
Galveston On November 12,1997, the property and the related assets and liabilities of Galveston were sold to an unaffiliated third party for $5,030,000. For financing reporting purposes, forgiveness of indebtedness income of $3,629,807 was realized (see Note 10).
McAdam On May 31, 1996 the property and the related assets and liabilities of McAdam were sold to an unaffiliated third party for $14,685,000. For financing reporting purposes, forgiveness of indebtedness income of $1,320,280 was realized (see Note 10).
Suncreek In April 1996, Suncreek completed a refinancing of its mortgage debt resulting in forgiveness of indebtedness income of $3,200,000 which was realized as a result of forgiveness of former mortgage debt. In addition, the balance of a note payable to the selling partner amounting to $641,303 which represented a portion of the original purchase price was also forgiven.
Woodridge During 1995, Woodridge completed a refinancing of its first mortgage debt which matured on June 1, 1995 (see Note 7). As a result of the refinancing, the previous mortgage including past due interest was discounted and paid and an extraordinary gain of $1,462,450 was realized.
Westwind II During 1995 Westwind II incurred an extraordinary gain of $1,560,716 on the early retirement of the debt related to the Multifamily Rental Housing Revenue bonds issued by the authority of the Roanoke Redevelopment and Housing Authority. Westwind II retired the debt at a discount, using the funds obtained from a mortgage issued by FHA. The debt balance at the time of the refinancing was $5,660,000 and the amount paid to retire the debt was $4,040,000 resulting in a discount of $1,620,000. The gain was offset by the write off of the net unamortized deferred mortgage costs of $59,284 related to the bonds.
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 25, 1998
Harbours During 1995 Harbours incurred an extraordinary gain of $2,300,269 on the early retirement of the debt related to the Multifamily Rental Housing Revenue bonds issued by the authority of the Newport News Redevelopment and Housing Authority. Harbours retired the debt at a discount, using the funds obtained from a mortgage issued by Virginia Housing Development Authority. The debt balance at the time of the refinancing was $15,525,000 and the amount paid to retire the debt was $13,015,000 resulting in a discount of $2,150,000. The gain was offset by the write off of certain other assets of $209,731 related to the bonds.
NOTE 12 - Commitments and Contingencies
a) Events of Default and Going Concern
The financial statements for three subsidiary partnerships have been prepared assuming each will continue as a going concern. The circumstances described below, as well as matters discussed in Note 2, raise substantial doubt about the Partnership and its consolidated subsidiaries' ability to continue as a going concern. The auditors for these three subsidiary partnerships modified their reports on the 1997 Fiscal Year financial statements due to the uncertainty of each subsidiary partnership's ability to continue as a going concern. The three subsidiary partnerships are Players Club, Suntree and Triangle/Oaks.
In view of the matters described in the preceding paragraph, recoverability of the Partnership's investment in the subsidiary partnerships is dependent upon continued operations of the subsidiary partnerships, which in turn are dependent upon the ability of each subsidiary partnership to meet financing requirements on a continuing basis and to succeed in future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the subsidiary partnerships be unable to continue in existence.
Management of the Partnership intends to continue to support the efforts of the Local General Partners of these subsidiary partnerships to refinance or restructure mortgage indebtedness and to provide consultation and advice in such matters as required.
The following is a description of each subsidiary's events of default and going concern issues, as well as the courses of action taken by the respective local general partners to enable the subsidiary partnerships to achieve such goals.
Players Club at Fort Meyers, Ltd. and Suntree at Fort Meyers, Ltd. Players Club at Fort Meyers, Ltd. ("Players Club") and Suntree at Fort Meyers, Ltd. ("Suntree") have incurred operating losses and cash flow deficits due to soft market conditions and reduced occupancy levels. At March 25, 1998, Players Club and Suntree have partners' deficiencies of approximately $4,132,000 and $2,980,000, respectively. In addition, the Local General Partners' operating deficit guarantees have expired and there is no further obligation to continue to fund operating deficits. The partnerships entered into agreements with bondholders in January 1993 (further modified effective January 1996 and again extended and modified effective January 1997). Pursuant to the modification, the minimum pay rate for Suntree was reduced to 6.5% and 7.5% for the periods January 1, 1997 through June 30, 1997 and July 1, 1997 through December 31, 1997, respectively. Due to continuing weak market conditions and
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 25, 1998
a change in property management, effective with the July payment, the forbearance agreement with Suntree was further modified extending the minimum pay rate of 6.5% through December 31, 1997. Thereafter, the stated rate is to be reinstated unless an agreement can be reached as discussed below. The minimum pay rate for Players Club was reduced to 6.5% and 6.25% for the periods January 1, 1997 through January 31, 1997 and February 1, 1997 through December 31, 1997, respectively. The difference between the minimum pay rate and the stated rate is payable from all future available cash flow or is deferred to be paid from sales/refinancing proceeds. Currently, Suntree and Players Club are in negotiations with the bondholder with regard to a permanent modification of the terms of the bonds, including an extension of maturity of the bonds. Based on current negotiations and issuer approvals, it is expected that such modifications will close in the second quarter of 1998. The forbearance agreement and its terms have been temporarily extended pending closing of this permanent modification. Recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operation of the subsidiary partnerships, which is dependent upon their abilities to meet financing requirements on a continuing basis, to maintain present financing, and to succeed in future operations. As of year-end 1997, the bondholders, pursuant to forbearance and second mortgage agreements have advanced $280,000 and $130,000 to Players Club and Suntree, respectively. Such funds were advanced to cover certain deferred maintenance items and delinquent real estate taxes. These loans will be repaid from available cash flow after payment of bond interest on a self amortizing basis.
The Partnership's investments in Players Club and Suntree have been reduced to zero by prior years' losses. The minority interest balance for Players Club was approximately $3,000 and $20,000 at March 25, 1998 and 1997, respectively. In the case of Suntree, the minority interest balance was approximately $7,000 and $18,000 at March 25, 1998 and 1997, respectively. Players Club's net loss after minority interest amounted to approximately $829,000, $559,000 and $544,000 for the 1997, 1996 and 1995 Fiscal Years, respectively. Suntree's net loss after minority interest amounted to approximately $567,000, $350,000 and $307,000 for the 1997, 1996 and 1995 Fiscal Years, respectively.
Triangle/Oaks Limited Partnership During the years ended December 31, 1997 and 1996, the Local Partnership incurred losses of $915,330 and $551,907, respectively. In addition, at December 31, 1997, accounts payable and accrued expenses exceed available cash by $538,226 and total liabilities exceed total assets by $6,997,712. These factors among others may indicate that the Local Partnership will be unable to continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the recoverability that might be necessary should the Local Partnership be unable to continue as a going concern. The partnership has received a commitment from affiliates of the Local General Partner to provide additional cash funding as follows:
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 25, 1998
The cash funds provided will assist the Local Partnership in reducing accounts payable and accrued liabilities. In addition, the cash funds will provide the partnership an opportunity to improve the property; thereby increasing occupancy and improving performance.
The Partnership's investments in Triangle/Oaks has been reduced to zero by prior years' losses. The minority interest balance for Triangle/Oaks was approximately $396,000 and $414,000 at March 25, 1998 and 1997, respectively. Triangle/Oaks net loss after minority interest amounted to approximately $897,000, $588,000 and $402,000 for the 1997, 1996 and 1995 Fiscal Years, respectively.
b) Uninsured Cash and Cash Equivalents
The Partnership maintains cash and cash equivalents in various banks. Accounts at each bank are guaranteed by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. As of March 25, 1998, uninsured cash and cash equivalents approximated $241,000.
c) Other
The Partnership is subject to risks incident to potential losses arising from the management and ownership of improved real estate. The Partnership can also be affected by poor economic conditions generally, however no more than 30% of the properties are located in any single state. There are also substantial risks associated with owning properties receiving government assistance, for example the possibility that Congress may not appropriate funds to enable HUD to make rental assistance payments. HUD also restricts annual cash distributions to partners based on operating results and a percentage of the owners' equity contribution. The Partnership cannot sell or substantially liquidate its investments in subsidiary partnerships during the period that the subsidy agreements are in existence, without HUD's approval. Furthermore there may not be market demand for apartments at full market rents when the rental assistance contract expire.
Each subsidiary partnership with restricted assets had liabilities in excess of assets at December 31, 1997.
Item 9.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable. PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
The Partnership has no directors or executive officers.
Since November 25, 1997, the General Partners of the Partnership have been Related Advantaged Residential Associates Inc., (Related General Partner), and Related and Cambridge Associates Limited Partnership, both of which are affiliates of The Related Companies, L.P. ("Related"). The general partner of Related is The Related Realty Group, Inc., of which Stephen M. Ross is president, director and a stockholder. The General Partners will manage and control the affairs of the Partnership directly and engage other affiliates of Related, to assist them in connection herewith.
Certain information concerning the directors and executive officers of the Related General Partner (which is also the general partner of Related and Cambridge, the other General Partner of the Partnership) are set forth below.
On November 25, 1997, the Related General Partner and one of the then other general partners of the Partnership, Advantaged Housing Associates, Inc. ("AHA"), consummated a Purchase Agreement pursuant to which the Related General Partner purchased AHA's general partner interest in the Partnership (the "Transfer"). In addition to the Transfer, the Related General Partner also acquired AHA's general partner interest in Related and Cambridge Associates which is also the special limited partner of the Partnership.
Related Advantaged Residential Associates Inc.
Related Advantaged Residential Associates Inc. was incorporated in Delaware on January 25, 1985. The directors and executive officers of the Related General Partner are as follows:
STEPHEN M. ROSS, 58, is president, director and a shareholder of The Related Realty Group, Inc., the general partner of The Related Companies, L.P. He graduated from the University of Michigan School of Business Administration with a bachelor of science degree and from Wayne State University School of Law with a Juris Doctor degree. Mr. Ross then received a master of laws degree in taxation from New York University School of Law. He joined the accounting firm of Coopers & Lybrand in Detroit as a tax specialist and later moved to New York, where he worked for two large Wall Street investment banking firms in their real estate and corporate finance departments. Mr. Ross formed the predecessor of The Related Companies, L.P. in 1972 to develop, manage, finance and acquire subsidized and conventional apartment developments.
J. MICHAEL FRIED, 54, is president, a director and a principal shareholder of Related Capital Corporation ("Capital"), a real estate finance and acquisition affiliate of the General Partner. In that capacity, he is the chief executive officer of Capital, and is responsible for initiating and directing all of Capital's syndication, finance, acquisition and investor reporting activities. Mr. Fried practiced corporate law in New York City with the law firm of Proskauer Rose Goetz & Mendelsohn from 1974 until he joined Capital in 1979. Mr. Fried graduated from Brooklyn Law School with a Juris Doctor degree, magna cum laude; from Long Island University
Graduate School with a master of science degree in psychology; and from Michigan State University with a bachelor of arts degree in history.
D. GARRY MUNSON, 53, graduated from Cornell University with a bachelor of science degree in industrial and labor relations and from the University of Pennsylvania Wharton School of Finance with a Masters in business administration. Mr. Munson founded in 1977, and is currently President and part owner of, Whitney Management Company, and Munson and Company. Whitney Management Company manages residential real estate projects. Munson and Company provides consulting services to the residential real estate industry. Mr. Munson joined Capital in September 1985 as head of the Acquisition Department.
ALAN P. HIRMES, 43, has been a Certified Public Accountant in New York since 1978. Prior to joining Capital in October 1983, Mr. Hirmes was employed by Weiner & Co., certified public accountants. Mr. Hirmes is also a Vice President of Capital. Mr. Hirmes graduated from Hofstra University with a bachelor of arts degree.
STUART J. BOESKY, 42, practiced real estate and tax law in New York City with the law firm of Shipley & Rothstein from 1984 until February 1986 when he joined Capital. From 1983 to 1984, Mr. Boesky practiced law with the Boston law firm of Kaye Fialkow Richard & Rothstein and from 1978 to 1980, was a consultant specializing in real estate at the accounting firm of Laventhol & Horwath. Mr. Boesky graduated from Michigan State University with a bachelor of arts degree and from Wayne State School of Law with a Juris Doctor degree. He then received a master of laws degree in taxation from Boston University School of Law.
GLENN F. HOPPS, 35, joined Related 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.
LYNN A. McMAHON, 42, has served as assistant to the President of Capital. From 1978 to 1983 she was employed at Sony Corporation of America in the Government Relations Department.
Item 11.
Item 11. Executive Compensation.
The Partnership has no officers or directors. The Partnership does not pay or accrue any fees, salaries or other forms of compensation to directors or officers of the General Partners for their services. However, under the terms of the Amended and Restated Agreement of Limited Partnership of the Partnership, the General Partners and their affiliates are entitled to receive compensation from the Partnership in consideration of certain services rendered to the Partnership by such parties. In addition, the General Partners collectively hold a 1% interest in all profits, losses and distributions attributable to sales and refinancings. Certain directors and officers of the General Partners receive compensation from the General Partners and their affiliates for services performed for various affiliated entities which may include services performed for the Partnership. See Note 9 to the Financial Statements, which is incorporated by reference.
Tabular information concerning salaries, bonuses and other types of compensation payable to execute officers has not been included in this annual report. As noted above, the Partnership has no executive officers. The levels of compensation payable to the General Partners and/or their affiliates is limited by the terms of the Partnership Agreement and may not be increased therefrom on a discretionary basis.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The General Partners own all of the outstanding general partnership interests in the Partnership. The General Partners have a 1% interest in all profits, losses and distributions of the Partnership from operations and a subordinated 15% interest in such items from sale or refinancing proceeds. Except as aforesaid, no person is known to own beneficially in excess of 5% of the outstanding partnership interests.
At March 25, 1998, security ownership by the General Partners and their affiliates is as listed:
Item 13.
Item 13. Certain Relationships and Related Transactions.
The Partnership has and will continue to have certain relationships with the General Partners and their affiliates, as discussed in Item 11 and also Note 8 to the Financial Statements in Item 8 above. However, there have been no direct financial transactions between the Partnership and the directors and officers of the General Partners.
Related and Cambridge Associates is a special limited partner of each Local Partnership, with a 1% interest in profits, losses and distributions from such Local Partnerships. As discussed in Item 1, Related and Cambridge Associates has been admitted to the Local Partnerships for the purpose of monitoring the Local Partnerships and exercising certain rights under the Local Partnership Agreements on behalf of the Partnership. Related and Cambridge Associates, an affiliate of the Related General Partner, is also the general partner of four of the properties.
The Related General Partner and the Cambridge General Partner are the general partners of C/R Florida, which is the Local General Partner of Players Club and Suntree. The Cambridge General Partner and certain officers, directors and shareholders of the Related General Partner are the limited partners of C/R Florida.
Related Service Group, an affiliate of the Related General Partner, provided property management services to three Local Partnerships through July 1997, for which it was paid its usual and customary management fees, aggregating approximately $168,000, $308,000 and $309,000 during the 1997, 1996 and 1995 Fiscal Years, respectively. Commencing August 1, 1997 the properties are managed by Related Management Company, an affiliate of the Related General Partner and were paid approximately $115,000 during the 1997 Fiscal Year.
Whitney Management Corp., an affiliate of the Related General Partner, is the managing agent of four of the properties. Property management fees earned by Whitney Management Corp. were approximately $265,000, $275,000 and $278,000 for the 1997, 1996 and 1995 Fiscal Years,
respectively. On November 12, 1997, the property and the related assets and liabilities of Galveston, one of the properties, was sold to an unaffiliated third party for $5,030,000 (see Note 10).
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued)
SIGNATURES
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:
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP (Registrant)
By: RELATED ADVANTAGED RESIDENTIAL ASSOCIATES INC., a General Partner
Dated: June 15, 1998
By: /s/ J. Michael Fried -------------------- J. Michael Fried, President and Director
By: RELATED AND CAMBRIDGE ASSOCIATES, LIMITED PARTNERSHIP, a General Partner
By: Related Advantaged Residential Associates Inc., its General Partner
Dated: June 15, 1998
By: /s/ J. Michael Fried -------------------- J. Michael Fried, President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, the report has been signed below by the following persons on behalf by the registrant and in the capacities and on the dates indicated:
INDEPENDENT AUDITORS' REPORT
To the Partners of Cambridge Advantaged Properties II Limited Partnership and Subsidiaries
In connection with our audits of the consolidated financial statements of Cambridge Advantaged Properties II Limited Partnership and Subsidiaries included in this Form 10-K as presented in our opinion dated June 15, 1998 on page 17, which is based in part on the reports of other auditors, we have also audited supporting Schedule III-March 25, 1998. In our opinion, and based on the reports of other auditors (certain of which were modified due to the uncertainty of these subsidiary partnerships' abilities to continue in existence), this consolidated schedule presents fairly, when read in conjunction with the related consolidated financial statements, the financial data required to be set forth therein.
The accompanying consolidated financial statements of Cambridge Advantaged Properties II Limited Partnership and Subsidiaries have been prepared assuming that the consolidated entity and its subsidiary partnerships will continue as a going concern. As discussed in Notes 2 and 12, the auditors of three (Fiscal 1997) subsidiary partnerships have modified their reports due to the uncertainties of the subsidiary partnerships' abilities to continue as going concerns. These subsidiary partnerships' losses before extraordinary item aggregated $2,340,047, $1,478,861 and $1,278,519 for the 1997, 1996 and 1995 Fiscal Years, respectively, and their assets constituted 39% and 37% of the Partnership's assets at March 25, 1998 and 1997, respectively. These matters raise substantial doubt about Cambridge Advantaged Properties II Limited Partnership and Subsidiaries ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 12. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
TRIEN, ROSENBERG, ROSENBERG, WEINBERG, CIULLO & FAZZARI, LLP
New York, New York June 15, 1998
CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Partnership Property Pledged as Collateral MARCH 25, 1998
(a) The total loss on impairment of assets in the amount of $1,116,378 is included in Costs Capitalized Subsequent to Acquisition. See Note 4 in Item 8, Financial Statements and Supplementary Data. (b) Property was subject to a 99 year land lease expiring 2084. In connection with Suncreek's refinancing in April 1996, Suncreek amended the terms of its partnership agreement with the general partner to reflect the elimination of the land lease together with all accrued and unpaid land lease payments and the general partner's contribution to Suncreek of the underlying land. The land was recorded at $2,000,000 which represents the estimation by Suncreek's management of its fair market value as of the contribution date (see Note 7 to financial statements in Item 8). (c) Since all properties were acquired as operating properties, depreciation is computed using primarily by the straight line method over the estimated useful lives determined by the Partnership date of acquisition. (d) Furniture and fixtures, included in buildings and improvements, are depreciated primarily by the straight line method over the estimated useful lives ranging from 5 to 15 years. (e) Land was leased from the former general partner. During December 1991, the bankruptcy court approved the termination of said lease and transfer of title of the property to McAdam Park-336. (f) On May 31, 1996, the property and the related assets and liabilities of McAdam Park-336 were sold to Fannie Mae. (See Note 10 in Item 8. Financial Statements and Supplemental Data). (g) On November 12, 1997, the property and the related assets and liabilities of Galveston-Stewart Landing, Ltd. were sold to Beal Bank. (See Note 10 in Item 8. Financial Statements and Supplemental Data).
Geographic Locations: (1) California, (2) Florida, (3) Kansas, (4) Oklahoma, (5) Texas, (6) Virginia.
At the time the local partnerships were acquired by Cambridge Advantaged Properties II Limited Partnership, the entire purchase price paid by Cambridge Advantaged Properties II Limited Partnership was pushed down to the local partnerships as property and equipment with an offsetting credit to capital. Since the projects were in the construction phase at the time of acquisition, the capital accounts were insignificant at the time of purchase. Therefore, there are no material differences between the original cost basis for tax and GAAP.