-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ET2+7MiP0yNMbjBsJKYwHsBvM+CfZ4KNsWmVORqw/3h2/AJVu3iK4qosnGvspzan hVMpqax0sALAVfNxU0wT6A== 0000812564-99-000014.txt : 19990402 0000812564-99-000014.hdr.sgml : 19990402 ACCESSION NUMBER: 0000812564-99-000014 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY PENSION INCOME FUND XXIII CENTRAL INDEX KEY: 0000764543 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942963120 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 002-96389 FILM NUMBER: 99581224 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 10-K 1 FORM 10-K.-ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-14528 CENTURY PENSION INCOME FUND XXIII (Exact name of registrant as specified in its charter) California 94-2963120 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (Zip Code) (864) 239-1000 Registrant's telephone number, including area code Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Individual Investor Units and Pension Investor Notes (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days prior to the date of filing. No market for the Individual Investor Units and Pension Investor Notes exists, and, therefore, a market value for such Units or Notes cannot be determined. DOCUMENTS INCORPORATED BY REFERENCE NONE. PART I ITEM 1. DESCRIPTION OF BUSINESS Century Pension Income Fund XXIII (the "Registrant" or the "Partnership") was organized in June 1984, as a California limited partnership under the Uniform Limited Partnership Act of the California Corporations Code. Fox Partners V, a California general partnership, is the general partner of the Partnership. Fox Capital Management Corporation (the "Managing General Partner" or "FCMC"), a California corporation, and Fox Realty Investors ("FRI"), a California general partnership, are the general partners of Fox Partners V. The managing general partner of FRI is NPI Equity Investments II, Inc. ("NPI Equity II"). The Managing General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"). The Partnership Agreement provides that the Partnership is to terminate on December 31, 2020 unless terminated prior to such date. Beginning in July 1985 through December 1986, the Partnership offered $50,000,000 in Individual Investor Units and $65,000,000 in Pension Investor Notes ("Nonrecourse Promissory Notes" or "Promissory Notes"). The Partnership sold Individual Investor Units and Pension Investor Notes of $47,894,500 and $41,939,000, respectively. The net proceeds of this offering were originally used to acquire interests in five business parks and two shopping centers and to fund eight mortgage loans. The principal business of the Partnership is and has been to hold for investment and ultimately sell income-producing properties, and to service and ultimately collect or dispose of mortgage loans on income- producing properties. The Partnership presently owns seven investment properties. These properties include one residential apartment complex, two shopping centers, three business parks, and one industrial building. The Partnership also owns joint venture interests in four other commercial properties. One joint venture with an affiliated partnership, in which the Partnership has a 66 2/3 percent interest, owns a shopping center. Another joint venture with an affiliated partnership, in which the Partnership has a 68 percent interest, owns three business parks. In addition, the Partnership still holds one mortgage loan receivable. See "Item 2. Description of Properties" for a description of the Partnership's properties. The Partnership has no employees. The Managing General Partner is vested with full authority as to the general management and supervision of the business and affairs of the Partnership. Limited partners have no right to participate in the management or conduct of such business and affairs. An affiliate of the Managing General Partner provides day-to-day management services for the Partnership's residential investment property. Until September 30, 1998, property management services for Coral Palm Plaza were performed by an affiliate of the Managing General Partner. Since October 1, 1998 these property management services have been provided by an unrelated third party. With respect to the Partnership's other commercial properties, property management services are performed by an unaffiliated third party management company. See "Item 8. Financial Statements and Supplementary Data - Note D" for additional information. There have been, and it is possible there may be other, Federal, state and local legislation and regulations enacted relating to the protection of the environment. The Partnership is unable to predict the extent, if any, to which such new legislation or regulations might occur and the degree to which such existing or new legislation or regulations might adversely affect the properties owned by the Partnership. The Partnership monitors its properties for evidence of pollutants, toxins and other dangerous substances, including the presence of asbestos. In certain cases environmental testing has been performed, which resulted in no material adverse conditions or liabilities. In no case has the Partnership received notice that it is a potentially responsible party with respect to an environmental clean up site. Both the income and expenses of operating the remaining properties owned by the Partnership are subject to factors outside of the Partnership's control, such as an oversupply of similar properties resulting from overbuilding, increases in unemployment or population shifts, reduced availability of permanent mortgage financing, changes in zoning laws, or changes in patterns or needs of users. In addition, there are risks inherent in owning and operating residential and commercial properties because such properties are susceptible to the impact of economic and other conditions outside of the control of the Partnership. The real estate business in which the Partnership is engaged is highly competitive. There are other residential and commercial properties within the market area of the Partnership's properties. The number and quality of competitive properties, including those which may be managed by an affiliate of the Managing General Partner, in such market area, could have a material effect on the rental market for the apartment and commercial space at the Partnership's properties and the rents that may be charged for such apartments and commercial space. While the Managing General Partner and its affiliates are a significant factor in the United States in the apartment industry, competition for apartments is local. In addition, various limited partnerships have been formed by the Managing General Partner and/or affiliates to engage in business which may be competitive with the Partnership. Transfer of Control On December 6, 1993, the shareholders of the Managing General Partner entered into a Voting Trust Agreement with NPI Equity II pursuant to which NPI Equity II was granted the right to vote 100% of the outstanding stock of the Managing General Partner. In addition, NPI Equity II became the managing partner of FRI. As a result, NPI Equity II indirectly became responsible for the operation and management of the business and affairs of the Registrant and the other investment partnerships originally sponsored by the Managing General Partner and/or FRI. The individuals who had served previously as partners of FRI and as officers and directors of the Managing General Partner contributed their general partnership interests in FRI to a newly formed limited partnership, Portfolio Realty Associates, L.P. ("PRA"), in exchange for limited partnership interests in PRA. The shareholders of the Managing General Partner and the prior partners of FRI, in their capacity as limited partners of PRA, continue to hold, indirectly, certain economic interests in the Registrant and such other investment limited partnerships, but have ceased to be responsible for the operation and management of the Registrant and such other partnerships. On January 19, 1996, IFGP Corporation, an affiliate of Insignia Financial Group, Inc. ("Insignia"), acquired all of the issued and outstanding shares of capital stock of National Property Investors, Inc. ("NPI"). At the time, NPI was the sole shareholder of NPI Equity II. In addition, in June 1996, an affiliate of Insignia purchased all of the issued and outstanding shares of capital stock of the Managing General Partner. Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia and Insignia Properties Trust ("IPT") merged into AIMCO, a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO ultimately acquired a 100% ownership interest in IPT, the entity which controls the Managing General Partner. The Managing General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. SEGMENTS Segment data for the years ended December 31, 1998, 1997 and 1996 is included in "Item 8. Financial Statements and Supplementary Data - Note O" and is an integral part of the Form 10-K. ITEM 2. DESCRIPTION OF PROPERTIES The following table sets forth the Partnership's investments in properties:
Date of Property Purchase Type of Ownership (4) Use Commerce Plaza 3/86 Fee ownership Business Park Tampa, Florida 83,000 sq. ft. Regency Centre 5/86 Fee ownership Shopping Center Lexington, Kentucky 124,000 sq. ft. Highland Park Commerce 9/86 Fee ownership Business Park Center III 66,000 sq. ft. Charlotte, North Carolina Interrich Plaza 4/88 Fee ownership Business Park Richardson, Texas 53,000 sq. ft. Centre Stage Shopping Center 1/90 Fee ownership Shopping Center Norcross, Georgia 96,000 sq. ft. The Enclaves 4/91 Fee ownership subject Apartment Atlanta, Georgia to a first mortgage 268 units Medtronics (1) 4/95 Fee ownership Industrial Building Irvine, California 35,000 sq. ft. CORAL PALM PLAZA JOINT VENTURE Coral Palm Plaza (2) 1/87 Joint venture interest Shopping Center Coral Springs, Florida 135,000 sq. ft. MINNEAPOLIS BUSINESS PARKS JOINT VENTURE Alpha Business Center (3) 5/87 Joint venture interest Business Park Bloomington, Minnesota 172,000 sq. ft. Plymouth Service Center (3) 5/87 Joint venture interest Business Park Plymouth, Minnesota 74,000 sq. ft. Westpoint Business Center (3) 5/87 Joint venture interest Business Park Plymouth, Minnesota 161,000 sq. ft.
(1) Property was acquired through deed in lieu of foreclosure of a mortgage loan receivable on April 20, 1995. (2) Coral Palm Plaza is owned by a joint venture between the Partnership, which has a 66 2/3 percent interest, and an affiliated partnership. (3) Alpha Business Center, Plymouth Service Center and Westpoint Business Center are owned by a joint venture between the Partnership, which has a 68 percent interest, and an affiliated partnership. (4) The Non-Recourse Promissory Notes are secured by a deed of trust on all properties owned in fee by the Partnership and by a security interest in the joint venture interests held by the Partnership. The Partnership also holds a mortgage loan on real property. See "Item 8. Financial Statements and Supplementary Data - Note E" for information regarding this loan. SCHEDULE OF PROPERTIES: Set forth below for each of the Partnership's properties is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation and Federal tax basis. Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis (in thousands) (in thousands) Commerce Plaza $ 6,541 $ 2,039 5-39 S/L $ 3,516 Regency Centre 14,338 4,783 5-39 S/L 7,377 Highland Park III 5,940 2,319 5-39 S/L 3,003 Interrich Plaza 2,922 802 5-39 S/L 2,225 Centre Stage 8,355 2,198 5-39 S/L 6,424 The Enclaves 10,789 2,315 5-39 S/L 8,432 Medtronics 1,767 158 5-39 S/L 1,605 CORAL PALM JOINT VENTURE: Coral Palm Plaza 7,638 3,814 5-39 S/L 13,190 MINNEAPOLIS BUSINESS PARKS JOINT VENTURE: Alpha Business Center 10,667 3,025 5-39 S/L 8,760 Plymouth Service Center 2,818 871 5-39 S/L 2,277 Westpoint Business Center 7,527 2,466 5-39 S/L 5,683 Total $79,302 $24,790 $62,492 See "Item 8. Financial Statements and Supplementary Data - Note B" for a further description of the Partnership's depreciation policy. All of the Partnership's properties are pledged as collateral for the Non- Recourse Promissory Notes. See "Item 8. Financial Statements and Supplementary Data - Notes A and I" for information about the payments of the Non-Recourse Promissory Notes. In addition, The Enclaves is pledged as collateral for additional financing. The Enclaves note had a principal balance of approximately $6,856,000 at December 31, 1998, bears interest at 12.0625 percent and requires a balloon payment of $6,856,000 in April 2001, exclusive of deferred interest. The Partnership makes monthly interest only payments of approximately $66,000 on the debt. The mortgage note payable is non-recourse and is secured by pledge of the property and by a pledge of revenues from the rental property. The Enclaves note includes prepayment penalties if repaid prior to maturity. Further, the property may not be sold subject to existing indebtedness. RENTAL RATES AND OCCUPANCY: Average annual rental rate and occupancy for 1998 and 1997 for each property: Average Annual Average Rental Rates Occupancy Property 1998 1997 1998 1997 Commerce Plaza $ 8.28/sq. ft. $ 8.16/sq. ft. 100% 100% Regency Centre 10.91/sq. ft. 10.14/sq. ft. 94% 95% Highland Park III 8.65/sq. ft. 8.42/sq. ft. 90% 91% Interrich Plaza 5.52/sq. ft. 4.96/sq. ft. 97% 73% Centre Stage 9.40/sq. ft. 9.05/sq. ft. 97% 99% Medtronics 8.28/sq. ft. 8.16/sq. ft. 100% 100% The Enclaves 9,377/unit 9,208/unit 94% 92% CORAL PALM PLAZA JOINT VENTURE: Coral Palm Plaza $ 9.50/sq. ft. $ 8.58/sq. ft. 67% 71% MINNEAPOLIS BUSINESS PARKS JOINT VENTURE: Alpha Business Center $ 8.17/sq. ft. $ 8.09/sq. ft. 92% 90% Plymouth Service Center 6.28/sq. ft. 6.21/sq. ft. 100% 99% Westpoint Business Center 6.44/sq. ft. 6.19/sq. ft. 93% 95% The Managing General Partner attributes the increase in occupancy at Interrich Plaza to the addition of a major tenant during the fourth quarter of 1997 combined with 100% occupancy from that period through July of 1998. The overall occupancy rate has remained high due to demand for warehouse space in the Dallas/Fort Worth area. Occupancy at Coral Palm Plaza decreased as a result of three tenants vacating the property in 1998 and two tenants vacating the property during the fourth quarter of 1997. The Managing General Partner is currently attempting to lease the vacant space. As noted under "Item 1. Description of Business", the real estate industry is highly competitive. All of the properties are subject to competition from other properties in the area. The Managing General Partner believes that all of the properties are adequately insured. The multi-family residential property's lease terms are for one year or less. No residential tenant leases 10% or more of the available rental space. All of the properties are in good physical condition, subject to normal depreciation and deterioration as is typical for assets of this type and age. See the following disclosures regarding lease expirations and tenants that occupy 10% or more of the commercial space. SCHEDULE OF LEASE EXPIRATIONS FOR 1999-2008: % of Gross Number of Square Annual Annual Expirations Feet Rent Rent Commerce Plaza 1999 1 6,889 $ 60,279 10.2% 2000 2 65,833 529,880 89.8% 2001-2008 0 -- -- -- Regency Centre 1999 3 8,120 104,573 8.5% 2000 7 14,132 186,454 15.1% 2001 5 10,824 147,555 12.0% 2002 7 14,414 176,978 14.3% 2003 4 33,661 351,389 28.5% 2004 2 34,254 267,375 21.6% 2005-2008 0 -- -- -- Highland Park III 1999 3 15,277 132,985 27.4% 2000 5 11,754 107,604 22.2% 2001 4 13,111 103,769 21.4% 2002 3 14,258 140,267 29.0% 2003-2008 0 -- -- -- Interrich Plaza 1999 1 4,730 27,576 9.3% 2000 1 3,500 18,608 6.3% 2001 1 3,300 23,100 7.9% 2002 0 -- -- -- 2003 1 36,209 212,474 72.0% 2004 1 1,900 13,296 4.5% 2005-2008 0 -- -- -- Centre Stage 1999 0 -- -- -- 2000 5 7,823 103,794 12.3% 2001 0 -- -- -- 2002 5 10,616 145,821 17.3% 2003 2 4,699 63,036 7.5% 2004-2005 0 -- -- -- 2006 2 5,450 79,543 9.4% 2007-2008 0 -- -- -- Medtronics 1999 0 -- -- -- 2000 1 35,000 294,252 100.0% 2001-2008 0 -- -- -- % of Gross Number of Square Annual Annual Expirations Feet Rent Rent CORAL PALM PLAZA JOINT VENTURE: Coral Palm Plaza 1999 0 -- $ -- --% 2000 7 9,150 112,578 13.8% 2001 3 5,200 70,980 8.7% 2002 3 3,350 41,679 5.1% 2003 3 13,572 127,903 15.6% 2004 2 10,914 113,990 13.9% 2005 1 20,000 160,435 19.6% 2006 0 -- -- -- 2007 2 17,600 191,000 23.3% 2008 0 -- -- -- MINNEAPOLIS BUSINESS PARKS JOINT VENTURE: Alpha Business Center 1999 9 32,137 206,147 18.7% 2000 11 32,740 268,376 24.3% 2001 7 57,778 381,009 34.5% 2002 5 23,900 209,496 19.0% 2003 1 3,645 38,340 3.5% 2004-2008 0 -- -- -- Plymouth Service Center 1999 1 14,332 103,078 45.3% 2000 0 -- -- -- 2001 2 18,708 80,667 35.4% 2002 0 -- -- -- 2003 1 35,768 43,835 19.3% 2004-2008 0 -- -- -- Westpoint Business Center 1999 9 62,563 383,499 46.4% 2000 7 17,218 127,643 15.5% 2001 4 23,670 210,208 25.4% 2002 2 2,701 15,926 1.9% 2003 -- -- -- -- 2004 1 24,890 89,071 10.8% 2005-2008 0 -- -- -- The following schedule reflects information on tenants occupying 10% or more of the leasable square feet for each property at December 31, 1998: Annual Square Expiration Rent Per Footage of Lease Square Foot Commerce Plaza Bank 64,186 01/31/00 $ 8.00 Regency Center Craft Store 18,121 02/28/03 7.84 Fashion Discount 32,154 11/30/04 7.49 Highland Park III Bank 13,154 03/31/99 8.75 Marketing 6,788 04/30/01 7.00 Construction 7,027 04/05/02 8.25 Interrich Plaza Electronic Manufacturer 36,209 12/31/03 5.87 Centre Stage Grocer 58,890 03/31/11 7.64 Medtronics Medical Products 35,000 06/30/00 8.41 CORAL PALM PLAZA JOINT VENTURE: Coral Palm Plaza Craft Store 20,000 02/28/05 8.02 MINNEAPOLIS BUSINESS PARKS JOINT VENTURE Alpha Business Center HVAC Supplies 22,020 09/30/01 2.12 Plymouth Service Center Sales - Tool Parts 14,332 05/31/99 7.19 Eye Doctor 13,966 09/30/01 3.38 Building Supplies 35,768 12/31/03 1.23 Westpoint Business Center Tile 18,775 07/31/99 7.88 Parts Manufacturer 18,637 08/31/99 3.56 Parts Manufacturer 24,890 01/31/04 3.58 REAL ESTATE TAXES AND RATES: Real estate taxes and rates in 1998 for each property were: 1998 1998 Property Billing Rate (in thousands) Commerce Plaza $ 93* 2.70% Regency Centre 87 .98% Highland Park III 48 1.16% Interrich Plaza 41 2.50% Centre Stage 94 1.38% The Enclaves 164 3.95% Medtronics 19 1.05% CORAL PALM PLAZA JOINT VENTURE Coral Palm Plaza 203 2.59% MINNEAPOLIS BUSINESS PARKS JOINT VENTURE Alpha Business Center 296 5.30% Plymouth Service Center 130 5.29% Westpoint Business Center 319 5.36% *Represents an estimate for 1998. Actual billings have not been received as of the date of this filing. CAPITAL IMPROVEMENTS: Commerce Plaza During 1998, the Partnership completed approximately $9,000 of capital improvements at Commerce Plaza consisting of appliance replacement. These improvements were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $87,000 of capital improvements over the near term. Capital improvements budgeted for 1999 include, but are not limited to, tenant improvements which are expected to cost approximately $41,000. Regency Centre During 1998, the Partnership completed $10,000 of tenant improvements at Regency Centre which were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $127,000 of capital improvements over the near term. Capital improvements budgeted for 1999 include, but are not limited to, tenant improvements, which are expected to cost approximately $48,000. Highland Park III During 1998, the Partnership completed approximately $75,000 of tenant improvements at Highland Park III which were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $243,000 of capital improvements over the near term. Capital improvements budgeted for 1999 include, but are not limited to, tenant improvements, which are expected to cost approximately $110,000. Interrich Plaza During 1998, the Partnership did not complete any capital or tenant improvements at Interrich Plaza. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $79,000 of capital improvements over the near term. Budgeted capital improvements for 1999 include, but are not limited to, tenant improvements which are expected to cost approximately $16,000. Centre Stage During 1998, the Partnership completed approximately $18,000 of tenant improvements at Centre Stage which were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $131,000 of capital improvements over the near term. Budgeted capital improvements for 1999 include, but are not limited to, tenant improvements, which are expected to cost approximately $17,000. The Enclaves During 1998, the Partnership completed approximately $181,000 of capital improvements at The Enclaves consisting of building improvements and carpet and appliance replacement. These improvements were funded from operating cash flow. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $1,020,000 of capital improvements over the near term. Capital improvements budgeted for 1999 include, but are not limited, landscaping, carpet replacement and roof repairs, which are expected to cost approximately $477,000. Medtronics During 1998, the Partnership did not complete any capital or tenant improvements at Medtronics. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $23,000 of capital improvements over the near term. Capital improvements budgeted for 1999 include, but are not limited to, tenant improvements which are expected to cost approximately $426,000. Coral Palm Plaza During 1998, the Partnership completed approximately $126,000 of capital improvements at Coral Palm Plaza consisting of tenant improvements and parking area repairs. These improvements were funded from operating cash flow. Capital improvements budgeted for 1999 include, but are not limited to, tenant improvements, which are expected to cost approximately $80,000. Alpha Business Center During 1998, the Partnership completed approximately $127,000 of capital improvements at Alpha Business Center consisting of building and tenant improvements. These improvements were funded from operating cash flow. Capital improvements budgeted for 1999 include, but are not limited to, tenant improvements and signage replacement, which are expected to cost approximately $195,000. Plymouth Service Center During 1998, the Partnership completed approximately $77,000 of capital improvements at Plymouth Service Center consisting of building improvements, which were funded from operating cash flow. There are no capital improvements currently budgeted for 1999 for this property. Westpoint Business Center During 1998, the Partnership completed approximately $101,000 of capital improvements at West Point Business Center consisting of building and tenant improvements, which were funded from operating cash flow. Capital improvements budgeted for 1999 include, but are not limited to, building and tenant improvements, which are expected to cost approximately $194,000. The capital improvements planned for 1999 at the Partnership's properties will be made only to the extent of cash available from operations and Partnership reserves. ITEM 3. LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the Managing General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia and entities which were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates as well as a recently announced agreement between Insignia and AIMCO. The complaint seeks monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Managing General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs have filed an amended complaint. The Managing General Partner filed demurrers to the amended complaint which were heard during February 1999. No ruling on such demurrers has been received. The Managing General Partner does not anticipate that costs associated with this case, if any, will be material to the Partnership's overall operations. On July 30, 1998, certain entities claiming to own limited partnership interests in certain limited partnerships whose general partners were, at the time, affiliates of Insignia filed a complaint entitled Everest Properties, LLC, et. al. v. Insignia Financial Group, Inc., et. al. in the Superior Court of the State of California, County of Los Angeles. The action involves 44 real estate limited partnerships (including the Partnership) in which the plaintiffs allegedly own interests and which Insignia Affiliates allegedly manage or control (the "Subject Partnerships"). This case was settled on March 3, 1999. The Partnership is responsible for a portion of the settlement costs. The expense will not have a material effect on the Partnership's net income. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the quarter ended December 31, 1998, no matter was submitted to a vote of unit holders through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED PARTNER MATTERS The Partnership, a publicly-held limited partnership, offered and sold 95,789 Individual Investor Units during its offering period through December 1986. As of December 31, 1998, the number of holders of Individual Investor Units was 3,023. An affiliate of the Managing General Partner owned two units or .002%, as of December 31, 1998. No public trading market has developed for Individual Investor Units, and it is not anticipated such a market will develop in the future. In accordance with the Partnership Agreement, distributions are to be made to the general partner in an amount equal to 2% of cash payments to holders of the Promissory Notes. As such, cash distributions of approximately $43,000 were paid to the General Partner during each of the years ended December 31, 1998, 1997 and 1996. Additionally, a cash distribution of approximately $21,000 was paid to the general partner during February 1999. ITEM 6. SELECTED FINANCIAL DATA The following represents selected financial data for the Partnership, for the years ended December 31, 1998, 1997, 1996, 1995, and 1994. The data should be read in conjunction with the consolidated financial statements included elsewhere herein. This data is not covered by the independent auditors' report. Years Ended December 31, 1998 1997 1996 1995 1994 (in thousands, except per unit data) Total revenues $ 11,532 $ 11,087 $ 12,275 $ 12,712 $11,473 Loss before minority interest in joint ventures' operations $(2,579) $(5,536) $(3,258) $(6,651) $(9,762) Minority interest in joint ventures' operations (432) 415 (423) (507) 1,245 Extraordinary gain on foreclosure -- 5,337 -- -- -- Net (loss) income $(3,011) $ 216 $(3,681) $(7,158) $(8,517) Net loss per individual investor unit (1) $(30.81) $ (7.82) $(37.66) $(73.23) $(87.14) Total assets $70,369 $69,727 $78,893 $78,154 $83,300 Long-term obligations: Nonrecourse promissory notes: Principal $41,939 $41,939 $41,939 $41,939 $41,939 Deferred interest payable 37,342 34,576 31,810 29,044 26,278 Notes payable 6,856 6,856 16,956 16,956 16,947 Total $86,137 $83,371 $90,705 $87,939 $85,164 (1) $500 original contribution per unit, based on units outstanding during the year after giving effect to the allocation of net loss to the general partner. ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The matters discussed in this Form 10-K contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosure contained in this Form 10-K and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's business and results of operation. Accordingly, actual results could differ materially from those projected in the forward- looking statements as a result of a number of factors, including those identified herein. This item should be read in conjunction with the consolidated financial statements and other items contained elsewhere in this report. Results of Operations 1998 Compared to 1997 The Partnership's net loss for the year ended December 31, 1998 was approximately $3,011,000 compared to net income of approximately $216,000 for the year ended December 31, 1997. The decrease in net income is primarily attributable to the extraordinary gain of approximately $5,337,000 on the foreclosure of Sunnymead Towne Shopping Center ("Sunnymead") during the year ended December 31, 1997. The Partnership's loss before extraordinary gain was approximately $5,121,000 in 1997. The decrease in loss before the extraordinary gain was primarily due to the provision for impairment of value of $2,067,000 at Coral Palm Plaza in 1997 and partly due to the loss of Sunnymead operating results due to the foreclosure. The rental income for the comparable periods increased and total expenses decreased. Rental income increased due to an increase in rental rates at all of the properties. The increase in rental rates more than offset the decrease in occupancy rates at five of the properties. Expenses decreased due to a decrease in operating and interest expense. The decrease in operating is primarily attributable to exterior painting projects at Coral Palm Plaza, Alpha Business Center, Plymouth Service Center and West Point Business Center in 1997, with no similar projects in 1998, higher snow removal costs at Alpha Business Center, Plymouth Service Center and West Point Business Center in 1997, as well as the absence of Sunnymead operating expense in 1998. The decrease in interest expense is primarily attributable to the absence of interest related to the Sunnymead mortgage. General and administrative and depreciation expense remained relatively constant for the comparable periods. Included in general and administrative expenses at both December 31, 1998 and 1997 are management reimbursements to the Managing General Partner allowed under the Partnership Agreement. In addition, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. 1997 Compared to 1996 The Partnership's net income for the year ended December 31, 1997 was approximately $216,000 compared to a net loss of approximately $3,681,000 for the year ended December 31, 1996. The increase in net income for the year ended December 31, 1997 was attributable to the gain on foreclosure of Sunnymead Towne Shopping Center ("Sunnymead") during the first quarter of 1997. The Partnership recognized an extraordinary gain on foreclosure of approximately $5,337,000 (see "Item 8. Financial Statements and Supplemental Data - Note N - Foreclosure of Sunnymead Towne Shopping Center"). The Partnership's loss before the extraordinary gain for the year ended December 31, 1997 was approximately $5,121,000 compared to approximately $3,681,000 for the corresponding period of 1996. The increase in net loss before extraordinary gain was primarily attributable to the provision for the impairment of value of $2,067,000 at Coral Palm Plaza (see "Item 8. Financial Statements and Supplementary Data - Note G - Provision for Impairment of Value"). The increase in net loss was also attributable to a decrease in rental income. This decrease in rental income was a result of the foreclosure on Sunnymead as discussed above. The increase in net loss was partially offset by decreases in both interest on notes payable and depreciation expense which are also the result of the foreclosure of Sunnymead. The increase in minority interest in joint ventures' operations is attributable to the provision for impairment of value on Coral Palm Plaza as discussed above. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expense. As part of this plan, the Managing General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Liquidity and Capital Resources At December 31, 1998, the Partnership had cash and cash equivalents of approximately $11,698,000 as compared to approximately $9,366,000 at December 31, 1997. The increase in cash and cash equivalents is due to approximately $3,099,000 of cash provided by operating activities, which was partially offset by approximately $724,000 of cash used in investing activities and approximately $43,000 of cash used in financing activities. Cash used in investing activities consisted of capital improvements. Cash used in financing activities consisted of distributions paid to the general partner. The Partnership invests its working capital reserves in money market accounts. At December 31, 1997, the Partnership had cash and cash equivalents of approximately $9,366,000 as compared to approximately $8,289,000 at December 31, 1996. The increase in cash and cash equivalents is due to approximately $1,749,000 of cash provided by operating activities, which was partially offset by approximately $629,000 and $43,000 of net cash used in investing and financing activities, respectively. Cash used in investing activities consisted of capital improvements partially offset by insurance proceeds received. Cash used in financing activities consisted of distributions paid to the general partner. The Partnership invests its working capital reserves in money market accounts. On January 4, 1999, an affiliate of the Managing General Partner purchased 3,554 1985 Notes and 1,270 1986 Notes from a noteholder for $600 per Note. The Partnership's Enclaves property is secured by mortgage indebtedness of approximately $6,856,000, which requires interest only payments with a balloon payment due in 2001. In addition, in order to finance the purchase of its properties, the Partnership sold Nonrecourse Pension Investor Notes with an aggregate original principal amount of $41,939,000 (the "Notes"). Pursuant to the terms of the Notes, the Partnership was required to pay interest at a rate of 5% per annum on the Notes, and accrue the additional 5% (1986 Notes) and 7% (1985 Notes) per annum due on the Notes. The Notes are secured by all of the Partnership's properties. The Nonrecourse Promissory Notes have a balance of principal and deferred interest of approximately $80,000,000 at the maturity date of February 15, 1999. As a result, the Partnership is currently in default under the Nonrecourse Promissory Notes. The Managing General Partner has contacted the indenture trustee for the Nonrecourse Promissory Notes and certain holders of Nonrecourse Promissory Notes regarding this default. In connection with these conversations, the Managing General Partner has proposed that a forbearance agreement for a specific period be entered into pursuant to which the indenture trustee will agree not to exercise its rights with respect to the Partnership's properties while the Partnership markets its properties for sale. There can be no assurance, however, that a forbearance agreement will be entered into or, if entered into, that the Partnership can sell its properties or as to the net sales proceeds generated. The Managing General Partner believes it is unlikely that the sale of the Partnership's assets will generate sufficient proceeds to pay off the Nonrecourse Promissory Notes in full. If the Partnership is unsuccessful in negotiating a forbearance or other agreement with the indenture trustee or if the Partnership cannot sell its properties for sufficient value, it is likely that the Partnership will lose its properties through foreclosure. If the properties are foreclosed upon, the Partnership would be dissolved, any available cash would be distributed and limited partners would lose their investment in the Partnership. It is expected that the Partnership would recognize a gain for tax purposes if the properties were foreclosed upon. In light of the pending maturity of the Notes, no distributions were made to the limited partners for the years ended December 31, 1998 or 1997. In accordance with the Partnership's agreement of limited partnership, the general partner received cash distributions equal to 2% of the interest payments on the Nonrecourse Promissory Notes (approximately $43,000) during each of the years ended December 31, 1998, 1997 and 1996. Foreclosure of Sunnymead Towne Shopping Center On March 27, 1997, the Sunnymead Towne Shopping Center ("Sunnymead") located in Moreno Valley, California, was foreclosed upon. Several significant tenants vacated Sunnymead in 1995 and 1996 and the Partnership recorded a provision for impairment of value. In 1996 the Partnership ceased making debt service payments and the property was placed in receivership in May of 1996. The Managing General Partner determined it was not in the Partnership's best interest to contest the foreclosure action as the value of the Sunnymead property was estimated at less than the debt. As a result of the foreclosure, the Partnership recorded a gain on foreclosure of approximately $5,337,000 during the year ended December 31, 1997. Prior to the foreclosure, the outstanding debt on the property was a note payable with a principal balance of $10,100,000 and accrued interest of approximately $1,591,000. Provision for Impairment of Value In 1997, two significant tenants that had occupied 36,000 square feet (27% of leasable space) at Coral Palm Plaza moved out. The Partnership determined that, based on economic conditions at the time as well as projected future operational cash flows, a decline in value had occurred which was other than temporary. Accordingly, the property's carrying value was reduced to an amount equal to its estimated fair value and an impairment write down of $2,067,000 was recorded at December 31, 1997. Year 2000 Compliance General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. The Partnership is dependent upon the Managing General Partner and its affiliates for management and administrative services ("Managing Agent"). Any of the computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Over the past two years, the Managing Agent has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Managing Agent presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue can be mitigated. However, if such modifications and replacements are not made or not completed in time, the Year 2000 issue could have a material impact on the operations of the Partnership. The Managing Agent's plan to resolve Year 2000 issues involves four Phases: assessment, remediation, testing, and implementation. To date, the Managing Agent has fully completed its assessment of all the information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phases on both hardware and software systems. Assessments are continuing in regards to embedded systems. The status of each is detailed below. Status of Progress in Becoming Year 2000 Compliant, Including Timetable for Completion of Each Remaining Phase Computer Hardware: During 1997 and 1998, the Managing Agent identified all of the computer systems at risk and formulated a plan to repair or replace each of the affected systems. In August 1998, the mainframe system used by the Managing Agent became fully functional. In addition to the mainframe, PC-based network servers and routers and desktop PCs were analyzed for compliance. The Managing Agent has begun to replace each of the non-compliant network connections and desktop PCs and, as of December 31, 1998, had completed approximately 75% of this effort. The total cost to the Managing Agent to replace the PC-based network servers, routers and desktop PCs is expected to be approximately $1.5 million of which $1.3 million has been incurred to date. The remaining network connections and desktop PCs are expected to be upgraded to Year 2000 compliant systems by March 31, 1999. Computer software: The Managing Agent utilizes a combination of off-the-shelf, commercially available software programs as well as custom-written programs that are designed to fit specific needs. Both of these types of programs were studied, and implementation plans written and executed with the intent of repairing or replacing any non-compliant software programs. During 1998, the Managing Agent began converting the existing property management and rent collection systems to its management properties Year 2000 compliant systems. The estimated additional costs to convert such systems at all properties, is $200,000, and the implementation and the testing process is expected to be completed by March 31, 1999. The final software area is the office software and server operating systems. The Managing Agent has upgraded all non-compliant office software systems on each PC and has upgraded 80% of the server operating systems. The remaining server operating systems are planned to be upgraded to be Year 2000 compliant by March 31, 1999. Operating Equipment: The Managing Agent has operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. In September 1997, the Managing Agent began taking a census and inventory of embedded systems (including those devices that use time to control systems and machines at specific properties, for example elevators, heating, ventilating, and air conditioning systems, security and alarm systems, etc.). The Managing Agent has chosen to focus its attention mainly upon security systems, elevators, heating, ventilating and air conditioning systems, telephone systems and switches, and sprinkler systems. While this area is the most difficult to fully research adequately, management has not yet found any major non-compliance issues that put the Managing Agent at risk financially or operationally. The Managing Agent intends to have a third-party conduct an audit of these systems and report their findings by March 31, 1999. Any of the above operating equipment that has been found to be non-compliant to date has been replaced or repaired. To date, these have consisted only of security systems and phone systems. As of December 31, 1998 the Managing Agent has evaluated approximately 86% of the operating equipment for the Year 2000 compliance. The total cost incurred for all properties managed by the Managing Agent as of December 31, 1998 to replace or repair the operating equipment was approximately $400,000. The Managing Agent estimates the cost to replace or repair any remaining operating equipment is approximately $325,000, which is expected to be completed by April 30, 1999. The Managing Agent continues to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within our enterprise. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 The Managing Agent continues to conduct surveys of its banking and other vendor relationships to assess risks regarding their Year 2000 readiness. The Managing Agent has banking relationships with three major financial institutions, all of which have indicated their compliance efforts will be complete before May 1999. The Managing Agent has updated data transmission standards with two of the three financial institutions. The Managing Agent's contingency plan in this regard is to move accounts from any institution that cannot be certified Year 2000 compliant by June 1, 1999. The Partnership does not rely heavily on any single vendor for goods and services, and does not have significant suppliers and subcontractors who share information systems (external agent). To date the Partnership is not aware of any external agent with a Year 2000 compliance issue that would materially impact the Partnership's results of operations, liquidity, or capital resources. However, the Partnership has no means of ensuring that external agents will be Year 2000 compliant. The Managing Agent does not believe that the inability of external agents to complete their Year 2000 remediation process in a timely manner will have a material impact on the financial position or results of operations of the Partnership. However, the effect of non-compliance by external agents is not readily determinable. Costs to Address Year 2000 The total cost of the Year 2000 project to the Managing Agent is estimated at $3.5 million and is being funded from operating cash flows. To date, the Managing Agent has incurred approximately $2.8 million ($0.6 million expensed and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.5 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.2 million relates to repair of hardware and software and will be expensed as incurred. The Partnership's portion of these costs are not material. Risks Associated with the Year 2000 The Managing Agent believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Managing Agent has not yet completed all necessary phases of the Year 2000 program. In the event that the Managing Agent does not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios could include elevators, security and heating, ventilating and air conditioning systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change would be annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from Year 2000 issues could also adversely affect the Partnership. The Partnership could be subject to litigation for, among other things, computer system failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans Associated with the Year 2000 The Managing Agent has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and selecting new relationships for such activities as banking relationships and elevator operating systems. ITEM 7A. MARKET RISK FACTORS The Partnership is exposed to market risks from adverse changes in interest rates. In this regard, changes in U.S. interest rates affect the interest earned on the Partnership's cash and cash equivalents as well as interest paid on its indebtedness. As a policy, the Partnership does not engage in speculative or leveraged transactions, nor does it hold or issue financial instruments for trading purposes. The Partnership is exposed to changes in interest rates primarily as a result of its borrowing activities used to maintain liquidity and fund business operations. To mitigate the impact of fluctuations in U.S. interest rates, the Partnership maintains its debt as fixed rate in nature by borrowing on a long-term basis. Based on interest rates at December 31, 1998, a 1% increase or decrease in market interest rates would not have a material impact on the Partnership. The following table summarizes the Partnership's debt obligations at December 31, 1998. The interest rates represent the weighted-average rates. The fair value of the debt obligations approximated the recorded value as of December 31, 1998. Principal amount by expected maturity: Long term debt Fixed Rate Debt Average Interest Rate 1999 $41,939 11.60% 2000 -- -- 2001 6,856 12.06% Thereafter -- -- Total $48,795 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CENTURY PENSION INCOME FUND XXIII LIST OF FINANCIAL STATEMENTS Independent Auditors' Report Consolidated Balance Sheets - December 31, 1998 and 1997 Consolidated Statements of Operations - Years ended December 31, 1998, 1997, and 1996 Consolidated Statements of Changes in Partners' Deficit - Years ended December 31, 1998, 1997, and 1996 Consolidated Statements of Cash Flows - Years ended December 31, 1998, 1997, and 1996 Notes to Consolidated Financial Statements Independent Auditors' Report To the Partners Century Pension Income Fund XXIII, A California Limited Partnership Greenville, South Carolina We have audited the accompanying consolidated balance sheets of Century Pension Income Fund XXIII, A California Limited Partnership (the "Partnership") and its joint ventures as of December 31, 1998 and 1997, and the related consolidated statements of operations, changes in partners' deficit and cash flows for each of the three years in the period ended December 31, 1998. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note A to the financial statements, the Partnership's Non-Recourse Promissory Notes, totaling approximately $80,000,000 in principal and interest, matured on February 15, 1999 and are in default. This matter raises substantial doubt about the Partnership's ability to continue as a going concern. Management's plans in regard to this matter are also described in Note A. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Century Pension Income Fund XXIII, A California Limited Partnership, and its joint ventures as of December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. /s/Imowitz Koenig & Co., LLP Certified Public Accountants New York, N.Y. March 3, 1999 CENTURY PENSION INCOME FUND XXIII CONSOLIDATED BALANCE SHEETS (in thousands, except unit data) December 31, 1998 1997 Assets Cash and cash equivalents $ 11,698 $ 9,366 Receivables and deposits, net of allowance for uncollectible amounts of $601 (1998) and $466 (1997) 1,699 1,118 Other assets 286 332 Mortgage loan receivable (Note E) 1,137 1,137 Deferred charges 1,037 1,533 Investment properties (Notes I, J and M): Land 15,970 15,970 Buildings and related personal property 63,332 62,629 79,302 78,599 Less accumulated depreciation (24,790) (22,358) 54,512 56,241 $ 70,369 $ 69,727 Liabilities and Partners' Deficit Liabilities Accounts payable $ 40 $ 34 Tenant security deposit liabilities 342 367 Accrued property taxes 675 258 Accrued interest-promissory notes 1,048 1,048 Accrued interest-note payable 197 165 Other liabilities 342 274 Mortgage note payable (Note J) 6,856 6,856 Non-recourse promissory notes (Note I): Principal 41,939 41,939 Deferred interest payable 37,342 34,576 Minority interest in consolidated joint ventures 7,861 7,429 Contingencies (Note A) -- -- Partners' Deficit General partner's (1,387) (1,284) Limited partners' (95,789 units issued and outstanding) (24,886) (21,935) (26,273) (23,219) $ 70,369 $ 69,727 See Accompanying Notes to Consolidated Financial Statements CENTURY PENSION INCOME FUND XXIII CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except unit data) Years Ended December 31, 1998 1997 1996 Revenues: Rental income $ 10,879 $ 10,433 $ 11,569 Interest income on mortgage loans 81 81 81 Other income 572 573 625 Total revenues 11,532 11,087 12,275 Expenses Operating 3,082 3,292 3,456 General and administrative 1,004 1,006 1,035 Depreciation 2,441 2,378 2,510 Interest on notes payable 827 1,053 1,744 Interest to promissory note holders 4,863 4,863 4,863 Amortization of deferred charges 420 420 420 Property taxes 1,474 1,544 1,505 Provision for impairment of value -- 2,067 -- Total expenses 14,111 16,623 15,533 Loss before minority interest in joint ventures' operations and extraordinary gain on foreclosure (2,579) (5,536) (3,258) Minority interest in joint ventures' operations (432) 415 (423) Loss before extraordinary gain (3,011) (5,121) (3,681) Extraordinary gain on foreclosure -- 5,337 -- Net (loss) income $ (3,011) $ 216 $ (3,681) Net (loss) income allocated to general partner $ (60) $ 965 $ (74) Net loss allocated to limited partners (2,951) (749) (3,607) $ (3,011) $ 216 $ (3,681) Net loss per limited partnership unit $ (30.81) $ (7.82) $ (37.66) See Accompanying Notes to Consolidated Financial Statements CENTURY PENSION INCOME FUND XXIII CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (in thousands, except unit data) Limited Partnership General Limited Units Partner's Partners' Total Original capital contributions 95,789 $ 958 $ 47,894 $ 48,852 Partners' deficit at December 31, 1995 95,789 $ (2,089) $(17,579) $(19,668) Distributions to the general partner -- (43) -- (43) Net loss for the year ended December 31, 1996 -- (74) (3,607) (3,681) Partners' deficit at December 31, 1996 95,789 (2,206) (21,186) (23,392) Distributions to the general partner -- (43) -- (43) Net income (loss) for the year ended December 31, 1997 -- 965 (749) 216 Partners' deficit at December 31, 1997 95,789 (1,284) (21,935) (23,219) Distributions to the general partner -- (43) -- (43) Net loss for the year ended December 31, 1998 -- (60) (2,951) (3,011) Partners' deficit at December 31, 1998 95,789 $ (1,387) $(24,886) $(26,273) See Accompanying Notes to Consolidated Financial Statements CENTURY PENSION INCOME FUND XXIII CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 1998 1997 1996 Cash flows from operating activities: Net (loss) income $ (3,011) $ 216 $ (3,681) Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation 2,441 2,378 2,510 Amortization of deferred charges and lease commissions 695 683 672 Provision for doubtful receivables 170 354 272 Provision for impairment of value -- 2,067 -- Minority interest in joint ventures' operations 432 (415) 423 Deferred interest on non-recourse promissory notes 2,766 2,766 2,766 Extraordinary gain on foreclosure -- (5,337) -- Casualty loss 12 75 -- Changes in accounts: Receivables and deposits (751) (521) (1,141) Other assets 46 (182) (12) Deferred charges (199) (385) (361) Accounts payable 6 (24) 58 Tenant security deposit liabilities (25) (4) 9 Accrued property taxes 417 (19) 267 Other liabilities 68 (160) 117 Accrued interest on note payable 32 257 785 Net cash provided by operating activities 3,099 1,749 2,684 Cash flows from investing activities: Restricted cash -- 13 -- Property replacements and improvements (724) (742) (825) Insurance proceeds -- 100 -- Net cash used in investing activities (724) (629) (825) Cash flows from financing activities: Joint venture partner contributions -- -- 38 Cash distributions to the general partner (43) (43) (43) Net cash used in financing activities (43) (43) (5) Net increase in cash and cash equivalents 2,332 1,077 1,854 Cash and cash equivalents at beginning of year 9,366 8,289 6,435 Cash and cash equivalents at end of year $ 11,698 $ 9,366 $ 8,289 See Accompanying Notes to Consolidated Financial Statements CENTURY PENSION INCOME FUND XXIII CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued (in thousands) Years Ended December 31, 1998 1997 1996 Supplemental disclosure of cash flow information Cash paid for interest - notes payable $ 795 $ 795 $ 893 Cash paid for interest - non-recourse promissory notes $2,097 $2,097 $2,097 SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES Foreclosure: During the year ended December 31, 1997, Sunnymead Towne Center was foreclosed upon by the lender, resulting in an extraordinary gain of approximately $5,337,000. In connection with this foreclosure, approximately $67,000 in cash was transferred to the lender as partial settlement on the outstanding debt. This cash was previously classified as restricted cash on the Partnership's balance sheet. In addition, the following balance sheet accounts were adjusted by the non-cash amounts noted below (in thousands): 1997 Receivables and deposits $ (663) Other assets (27) Investment properties (5,714) Tenant security deposit liabilities 42 Accrued interest on notes payable 1,591 Other liabilities 8 Notes payable 10,100 Casualty Loss: The Partnership recorded a net casualty loss during the year ended December 31, 1997, resulting from a fire at The Enclaves which destroyed six apartment units. The damage resulted in a net loss of approximately $75,000. The following balance sheet accounts were adjusted by the non-cash amounts noted below (in thousands): 1997 Receivables and other assets $ 12 See Accompanying Notes to Consolidated Financial Statements CENTURY PENSION INCOME FUND XXIII Notes to Consolidated Financial Statements December 31, 1998 NOTE A - GOING CONCERN The accompanying consolidated financial statements have been prepared assuming Century Pension Income Fund XXIII (the "Partnership" or "Registrant") will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Nonrecourse Promissory Notes have a balance of principal and deferred interest of approximately $80,000,000 at the maturity date of February 15, 1999. As a result, the Partnership is currently in default under the Nonrecourse Promissory Notes. Fox Capital Management Corporation ("FCMC" or the "Managing General Partner") has contacted the indenture trustee for the Nonrecourse Promissory Notes and certain holders of Nonrecourse Promissory Notes regarding this default. In connection with these conversations, the Managing General Partner has proposed that a forbearance agreement for a specific period be entered into pursuant to which the indenture trustee will agree not to exercise its rights with respect to the Partnership's properties while the Partnership markets its properties for sale. The Managing General Partner believes it is unlikely that the sale of the Partnership's assets will generate sufficient proceeds to pay off the Nonrecourse Promissory Notes in full. If the Partnership is unsuccessful in negotiating a forbearance or other agreement with the indenture trustee or if the Partnership cannot sell its properties for sufficient value, it is likely that the Partnership will lose its properties through foreclosure. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Partnership be unable to continue as a going concern. NOTE B - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization: The Partnership is a limited partnership organized in 1984 under the laws of the State of California to hold for investment and ultimately sell income-producing real properties, and invest in, service, and ultimately collect or dispose of mortgage loans on income-producing real properties. The Partnership currently owns one apartment complex located in Georgia, three business parks located in Florida, North Carolina and Texas, one industrial building located in California, and two shopping centers located in Kentucky and Georgia. The Partnership also holds a sixty-eight percent joint venture interest in three business parks located in Minnesota and a sixty-six and two thirds percent joint venture interest in a shopping center located in Florida. The general partner is Fox Partners V, a California general partnership whose general partners are FCMC and Fox Realty Investors ("FRI"), a California general partnership. The Managing General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO") (See "Note C - Transfer of Control"). The directors and officers of the Managing General Partners also serve as executive officers of AIMCO. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2020, unless terminated prior to such date. Principles of Consolidation: The consolidated financial statements include all of the accounts of the Partnership and two joint ventures in which the partnership has a controlling interest. An affiliated partnership owns the minority interest in these joint ventures. All significant intercompany transactions and balances have been eliminated. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Allocation of Income, Loss, and Distributions: Net income, net loss, and distributions of cash of the Partnership are allocated between the general and limited partners in accordance with the provisions of the partnership agreement. Mortgage Loan Receivable: Mortgage loans receivable are stated at unpaid balances, less an allowance for loan losses. The amount of the allowance is based on the Managing General Partner's evaluation of the collectibility of the loan. Allowances from impaired loans are generally determined based on the value of underlying collateral or the present value of estimated cash flows. Loans are placed on a nonaccrual basis when a loan is specifically determined to be impaired or when, in the opinion of the Managing General Partner, there is an indication that the borrower may be unable to meet payments as they become due. Any unpaid interest previously accrued on those loans is reversed from income. Interest income generally is not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are applied as a reduction of the loan principal balance. Fair Value of Financial Instruments: The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The estimated fair value of the Non-Recourse Promissory notes is not practicable to estimate because it cannot be determined whether financing with similar terms and conditions would be available to the Partnership. The fair value of the note payable and deferred interest encumbering the Enclaves, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates the carrying balance. Cash and Cash Equivalents: Includes cash on hand and in banks, money market funds and certificates of deposit with original maturities of less than 90 days. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Security Deposits: The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Investment Properties: Investment properties, consisting of one apartment complex and ten commercial properties, are stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. In 1997, the Partnership determined that the Coral Palm Plaza Joint Venture property, with a carrying value of $6,029,000, was impaired and its value was written down by $2,067,000 to reflect its fair value at December 31, 1997 of $3,962,000. The fair value was based upon current economic conditions and projected future operational cash flows (see "Note G"). Depreciation: Depreciation is computed by the straight-line method over estimated useful lives ranging from twenty-seven and one-half to thirty nine years for buildings and improvements and five to seven years for furnishings. Leases: The Partnership generally leases apartment units for lease terms of twelve months or less and recognizes income as earned on these leases. In addition, the Managing General Partner's policy is to offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Concessions are charged against rental income as incurred. The Partnership leases certain commercial space to tenants under various lease terms. The leases are accounted for as operating leases in accordance with Statement of Financial Accounting Standards ("SFAS") No. 13, "Accounting for Leases." Some of these commercial leases contain stated rental increases during their term. For leases with fixed rental increases, rents are recognized on a straight-line basis over the terms of the lease. Cash collections exceeded the straight-line basis of revenue recognition by approximately $37,000 in 1998. The straight-line basis recognized $51,000 more in rental income than was collected in 1997. The Partnership recognized bad debt expense associated with lease income of approximately $170,000, $354,000 and $272,000 for the years ended December 31, 1998, 1997, and 1996, respectively. Deferred Charges: Included in deferred charges are sales commissions, organization expenses and lease commissions. Sales commissions and organization expenses related to the Pension Investor Notes ("Non-Recourse Promissory Notes", "Promissory Notes" or "Notes"), are deferred and amortized by the straight-line method over the life of the Notes. Leasing commissions are deferred and amortized over the lives of the related leases. Such amortization is charged to operating expense. At December 31, 1998 and 1997, deferred charges totaled approximately $7,435,000 and $7,369,000 and accumulated amortization totaled approximately $6,398,000 and $5,836,000, respectively. Segment Reporting: In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and Related Information" ("Statement 131"), which is effective for years beginning after December 15, 1997. Statement 131 established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. See "Note O" for required disclosures. Advertising: The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was approximately $22,000, $25,000 and $32,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Income Taxes: Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the consolidated financial statements of the Partnership. Reclassifications: Certain reclassifications have been made to the 1997 and 1996 balances to conform to the 1998 presentation. NOTE C - TRANSFER OF CONTROL Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust ("IPT") merged into Apartment Investment and Management Company, a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO ultimately acquired a 100% ownership interest in IPT, the entity which controls the Managing General Partner. The Managing General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. NOTE D - TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership Agreement provides for certain payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to the Managing General Partner and affiliates during the years ended December 31, 1998, 1997 and 1996: Years Ended December 31, 1998 1997 1996 (in thousands) Property management fees (included in operating expense) $154 $147 $140 Reimbursement for services of affiliates (1) (included in general and administrative and operating expenses) 254 204 184 Partnership management fee (included in general and administrative expenses) 111 111 111 (1) Included in "Reimbursements for services of affiliates" for 1998, 1997 and 1996 is approximately $4,000, $7,000 and $1,000, respectively, in reimbursements for construction oversight costs. During the years ended December 31, 1998, 1997 and 1996, affiliates of the Managing General Partner were entitled to receive 5% of gross receipts from the Partnership's residential property for providing property management services. The Registrant paid to such affiliates approximately $120,000, $116,000, and $117,000 for the years ended December 31, 1998, 1997 and 1996, respectively. For the nine months ended September 30, 1998 and the years ended December 31, 1997 and 1996 affiliates of the Managing General Partner were entitled to receive varying percentages of gross receipts from the Registrant's Coral Palm Plaza property for providing property management services. The Registrant paid to such affiliates approximately $34,000, $31,000 and $23,000 for the nine months ended September 30, 1998 and the years ended December 31, 1997 and 1996 (effective May 1, 1996). Since October 1, 1998 (the effective date of the Insignia Merger) these services have been provided at Coral Palm Plaza by an unrelated party. An affiliate of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $254,000, $204,000 and $184,000 for the years ended December 31, 1998, 1997 and 1996, respectively. On January 4, 1999, an affiliate of the Managing General Partner purchased 3,554 1985 Notes and 1,270 1986 Notes from a noteholder for $600 per note. For the period from January 19, 1996, to August 31, 1997, the Partnership insured its properties under a master policy through an agency affiliated with the Managing General Partner with an insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner which received payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations is not significant. In accordance with the Partnership Agreement, the general partner was allocated its two percent continuing interest in the Partnership's net income and loss and taxable income and loss exclusive of gains or losses on property dispositions recognized in 1997. The extraordinary gain on the Sunnymead foreclosure has been allocated 20% to the general partner and 80% to the limited partners per the terms of the Partnership Agreement. In each of the years ended December 31, 1998, 1997 and 1996, the general partner received approximately $43,000 of cash distributions, which were equal to two percent of cash distributions to the Promissory Note holders. The partnership management fee and partnership management incentive are limited by the Partnership Agreement to ten percent of cash available for distribution before interest payments to the Promissory Note holders and the partnership management fee. NOTE E - MORTGAGE LOANS RECEIVABLE The Partnership entered into various agreements with the borrowers on two of the Partnership's second mortgage loans receivable which were cross collateralized and in default. The properties are located in Irvine ("Irvine") and Costa Mesa, California ("Costa Mesa"). The borrower on the Irvine property had terminated payments on the mortgage loan receivable in October 1994, and in January 1995, a court appointed receiver was placed on the Irvine property. As a result, on April 20, 1995, the Partnership acquired the Irvine property through a deed in lieu of foreclosure and satisfied the existing first mortgage encumbering the property in the principal amount (including expenses) of approximately $1,114,000. On May 31, 1995, the receiver on the Irvine property was dismissed. The Partnership commenced operating the property on June 1, 1995. The mortgage loan receivable, net of the previously recorded provision for impairment of value of $1,250,000, was reclassified as real estate in 1995. The mortgagor of the Costa Mesa property assumed $400,000 of the principal amount of the debt encumbering the Irvine property resulting in an aggregate outstanding principal balance of $1,137,000. The Partnership extended the maturity date of the loan on the Costa Mesa property to March 31, 2000. Monthly payments to the Partnership remain the same. Upon the sale of the Costa Mesa property, the Partnership will be entitled to contingent interest of 50% of the amount received in excess of the current debt. Interest income on the mortgage loans totaled approximately $81,000 for each of the years ended December 31, 1998, 1997, and 1996, reflecting an interest rate of approximately 7% per annum. NOTE F - JOINT VENTURES The Partnership has investments in two consolidated joint ventures as follows: Coral Palm Plaza Joint Venture On January 23, 1987, the Partnership acquired a 66.67% ownership interest in Coral Palm Plaza Joint Venture ("Coral Palm"), a joint venture with Century Pension Income Fund XXIV, a California Limited Partnership ("CPF XXIV") and an affiliate of FCMC and FRI. Also, on January 23, 1987, Coral Palm acquired the Coral Palm Plaza, a shopping center located in Coral Springs, Florida. The Partnership reflects its interest in Coral Palm utilizing full consolidation whereby all of the accounts of the joint venture are included in the Partnership's consolidated financial statements (intercompany accounts are eliminated). Summary financial information for Coral Palm is as follows (in thousands): December 31, 1998 1997 Total assets $ 5,049 $ 5,041 Total liabilities (223) (366) Total venture's equity $ 4,826 $ 4,675 Years Ended December 31, 1998 1997 Total revenues $ 987 $ 739 Total expenses (Note G) (836) (2,897) Net income (loss) $ 151 $(2,158) Minneapolis Business Parks Joint Venture On April 30, 1987, the Partnership acquired a 68% ownership interest in Minneapolis Business Parks Joint Venture, a joint venture with CPF XXIV. On May 5, 1987, Minneapolis Business Parks Joint Venture acquired Alpha Business Center located in Bloomington, Minnesota; Plymouth Service Center located in Plymouth, Minnesota, and Westpoint Business Center located in Plymouth, Minnesota. The Partnership reflects its interest in the Minneapolis Business Parks Joint Venture utilizing full consolidation whereby all of the accounts of the joint venture are included in the Partnership's financial statements (intercompany accounts are eliminated). Summary financial information for Minneapolis Business is as follows (in thousands): December 31, 1998 1997 Total assets $19,874 $18,331 Total liabilities (539) (167) Total venture's equity $19,335 $18,164 Years Ended December 31, 1998 1997 Total revenues $ 3,293 $ 3,190 Total expenses (2,122) (2,262) Net income $ 1,171 $ 928 NOTE G - PROVISION FOR IMPAIRMENT OF VALUE During 1997, two significant tenants that occupied 36,000 square feet (27% of leasable space) at Coral Palm Plaza moved out. The Partnership determined that, based on economic conditions at the time, as well as projected future operational cash flows, a decline in value had occurred which was other than temporary. Accordingly, the property's carrying value was reduced to an amount equal to its estimated fair value and an impairment write down of $2,067,000 was recorded at December 31, 1997. In October 1995, the Partnership accepted a lease buy-out and termination agreement with a former tenant at the Partnership's Coral Palm Plaza property. The $300,000 termination payment, has been deferred and is being amortized into income on a straight-line basis over the remaining three years of the former tenant's lease. This space had not been re-leased at December 31, 1998. NOTE I - NON-RECOURSE PROMISSORY NOTES The Non-Recourse Promissory Notes are secured by a deed of trust on all properties owned in fee by the Partnership, by a security interest in the joint venture interests held by the Partnership, and by a pledge of the note and of the deed of trust on the real properties underlying the mortgage loans made by the Partnership. The Notes were issued in two series. The "1985 Series Notes," in the amount of $33,454,000, bear interest at 12 percent per annum, and the "1986 Series Notes," in the amount of $8,485,000, bear interest at ten percent per annum, except that portions of the interest may be deferred, provided the Partnership makes minimum interest payments of 5% on the unpaid principal balance. The deferred interest does not accrue additional interest. The Notes matured February 15, 1999, and are in default. In accordance with the Partnership Agreement and the Trust Indenture, upon the sale, repayment or other disposition of any Partnership property or Partnership mortgage loan, 98 percent of the resulting distributable cash proceeds is first allocated to the payment of the Promissory Notes until such Notes and related accumulated deferred interest payable are repaid and, thereafter, the cash proceeds are distributed to the Partnership's general partner, Individual Unit holders, and Note holders. Note holders are also entitled to the payment of residual interest after specified payments to the general partner and Individual Unit holders as set forth in the Trust Indenture, but it appears no residual interest will be paid. Refer to "Note A" for a discussion regarding the Partnership's inability to meet its obligation at the maturity of the Promissory Notes. NOTE J - MORTGAGE NOTE PAYABLE The Enclaves Apartments ("Enclaves") complex located in Atlanta, Georgia is pledged as collateral for a note payable at December 31, 1998. The Enclaves note, with a principal balance of approximately $6,856,000, bears interest at 12.0625 percent. The Enclaves note requires a balloon payment of $6,856,000 in April 2001, exclusive of accrued interest. The Partnership makes monthly interest only payments of approximately $66,000 on the debt. Principal payments for the years subsequent to December 31, 1998, are required as follows (in thousands): 1999 $ 0 2000 0 2001 6,856 Total $ 6,856 The mortgage note payable is non-recourse and is secured by pledge of the Partnership's property and by a pledge of revenues from the property. The Enclaves note includes prepayment penalties if repaid prior to maturity. Further, the property may not be sold subject to existing indebtedness. NOTE K - MINIMUM FUTURE RENTAL REVENUES Minimum future rental revenues from operating leases having non-cancelable lease terms in excess of one year at December 31, 1998, are as follows (in thousands): 1999 $ 6,223 2000 4,709 2001 3,306 2002 2,525 2003 1,873 Thereafter 4,719 Total $23,355 Amortization of deferred leasing commissions totaled approximately $275,000, $263,000 and $252,000 for the years ended December 31, 1998, 1997 and 1996, respectively, and are included in operating expense. NOTE L - INCOME TAXES A reconciliation of the net (loss) income per the financial statements to the net Federal taxable loss to the partners is as follows: 1998 1997 1996 (in thousands, except unit data) Net (loss) income as reported $(3,011) $ 216 $(3,681) Add (deduct): Provision for impairment of value -- 2,067 -- Original issue discount (1,606) (1,256) (936) Deferred income (47) (136) (453) Depreciation differences (304) (368) (393) Bad debt expense 135 77 236 Interest expense capitalized 5 23 4 Minority interest in joint ventures' operations (50) (682) 24 Interest accrual 38 (21) (114) Loss on fire 12 75 -- Gain on disposal of property -- (5,263) -- Federal taxable loss $(4,828) $(5,268) $(5,313) Federal taxable loss per limited partnership unit $ (49) $ (54) $ (54) The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net liabilities (in thousands) at December 31: 1998 1997 1996 Net liabilities as reported $(26,273) $(23,219) $(23,392) Differences resulted from: Sales commissions and organization expenses 6,558 6,558 6,558 Original issue discount 1,239 2,845 4,101 Provision for impairment of value 12,058 12,058 9,991 Deferred income (236) (189) (53) Acquisition costs expensed (21) (21) (21) Depreciation (3,719) (3,415) (3,047) Payments credited to rental properties 2,111 2,111 2,111 Minority interest in joint ventures' operations (4,241) (4,191) (3,509) Capitalized expense 514 509 486 Interest expense capitalized 202 202 202 Bad debt expense 502 367 290 Interest accrual 692 654 674 Other 485 485 485 Disposal of property (5,176) (5,188) -- Net liabilities - Federal tax basis $(15,305) $(10,434) $ (5,124) NOTE M - REAL ESTATE AND ACCUMULATED DEPRECIATION: Initial Cost to Partnership (in thousands) Building Net Cost and Capitalized Related (Written Down) Encumbrances Personal Subsequent to Description (1) Land Property Acquisition (in thousands) (in thousands) PARTNERSHIP: Commerce Plaza $ -- $ 1,604 $ 4,188 $ 749 Regency Centre -- 3,123 10,398 817 Highland Park III -- 654 4,849 437 Interrich Plaza -- 587 1,833 502 Centre Stage Shopping -- 1,300 6,588 467 Center The Enclaves 6,856 1,901 7,603 1,285 Medtronics -- 345 1,381 41 JOINT VENTURES: Coral Palm Plaza -- 5,009 11,046 (8,417) Alpha Business Center -- 3,199 6,735 733 Plymouth Service Center -- 475 2,306 37 Westpoint Business Center -- 1,166 5,987 374 Total $ 6,856 $19,363 $62,914 $(2,975) (1) The Non-Recourse Promissory notes are secured by a deed of trust on all properties owned in fee by the Partnership and by a security interest in the joint venture interests held by the Partnership.
Gross amount at which carried at December 31, 1998 (in thousands) Buildings and Related Personal Accumulated Date Depreciable Description Land Property Total Depreciation Acquired Life-Years PARTNERSHIP: (in thousands) Commerce Plaza $ 1,604 $ 4,937 $ 6,541 $ 2,039 3/86 5-39 years Regency Centre 3,111 11,227 14,338 4,783 5/86 5-39 years Highland Park III 619 5,321 5,940 2,319 9/86 5-39 years Interrich Plaza 587 2,335 2,922 802 4/88 5-39 years Centre Stage Shopping Center 1,300 7,055 8,355 2,198 1/90 5-39 years The Enclaves 1,901 8,888 10,789 2,315 4/91 5-39 years Medtronics 345 1,422 1,767 158 4/95 5-39 years JOINT VENTURES: Coral Palm Plaza 1,980 5,658 7,638 3,814 1/87 5-39 years Alpha Business Center 3,002 7,665 10,667 3,025 5/87 5-39 years Plymouth Service Center 419 2,399 2,818 871 5/87 5-39 years Westpoint Business Center 1,102 6,425 7,527 2,466 5/87 5-39 years Total $15,970 $63,332 $79,302 $24,790
Reconciliation of "Real Estate and Accumulated Depreciation": Years Ended December 31, 1998 1997 1996 (in thousands) Real Estate Balance at beginning of year $78,599 $87,337 $86,512 Property improvements 724 742 825 Casualty loss (21) (95) -- Provision for impairment of value -- (2,067) -- Disposal via foreclosure -- (7,318) -- Balance at end of year $79,302 $78,599 $87,337 Accumulated Depreciation Balance at beginning of year $22,358 $21,604 $19,094 Additions charged to expense 2,441 2,378 2,510 Casualty loss (9) (20) -- Disposal via foreclosure -- (1,604) -- Balance at end of year $24,790 $22,358 $21,604 The aggregate cost of the real estate for Federal income tax purposes at December 31, 1998 and 1997, is approximately $90,784,000 and $90,164,000, respectively. Accumulated depreciation for Federal income tax purposes at December 31, 1998 and 1997, is approximately $28,292,000 and $25,604,000, respectively. NOTE N - FORECLOSURE OF SUNNYMEAD TOWNE SHOPPING CENTER On March 27, 1997, the Sunnymead Towne Shopping Center ("Sunnymead") located in Moreno Valley, California, was foreclosed upon. Several significant tenants vacated Sunnymead in 1995 and 1996 and the Partnership recorded a provision for impairment of value. In 1996 the Partnership ceased making debt service payments and the property was placed in receivership in May of 1996. The Managing General Partner determined it was not in the Partnership's best interest to contest the foreclosure action as the value of the Sunnymead property was estimated at less than the debt. As a result of the foreclosure, the Partnership recorded an extraordinary gain on foreclosure of approximately $5,337,000 during the year ended December 31, 1997. Prior to the foreclosure, the outstanding debt on the property was a note payable with a principal balance of $10,100,000 and accrued interest of approximately $1,591,000. NOTE O - SEGMENT INFORMATION Description of the types of products and services from which the reportable segments derive their revenues: As defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", the Partnership has two reportable segments: residential properties and commercial properties. The Partnership's residential property segment consists of one apartment complex in Atlanta, Georgia. The Partnership rents apartment units to people for terms that are typically twelve months or less. The commercial property segment consists of three business parks located in Florida, North Carolina and Texas, one industrial building located in California, and two shopping centers located in Kentucky and Georgia. In addition, the Partnership also owns controlling interests in two joint ventures, which properties include three business parks located in Minnesota and a shopping center located in Florida. Measurement of segment profit or loss: The Partnership evaluates performance based on net income. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Factors management used to identify the Partnership's reportable segments: The Partnership's reportable segments consist of investment properties that offer different products and services. The reportable segments are each managed separately because they provide distinct services with different types of products and customers. Segment information for 1998, 1997 and 1996 is shown in the tables below (in thousands). The "Other" column includes partnership administration related items and income and expense not allocated to reportable segments. 1998 Residential Commercial Other Totals Rental income $ 2,315 $ 8,564 $ -- $10,879 Other income 58 258 337 653 Interest expense 827 -- 4,863 5,690 Depreciation 350 2,091 -- 2,441 Amortization of deferred costs -- -- 420 420 General and administrative expense -- -- 1,004 1,004 Minority interest in joint ventures' operations -- (432) -- (432) Segment profit (loss) 125 2,814 (5,950) (3,011) Total assets 8,687 53,819 7,863 70,369 Capital expenditures for investment properties 161 563 -- 724 1997 Residential Commercial Other Totals Rental income $ 2,245 $ 8,188 $ -- $10,433 Other income 44 217 393 654 Interest expense 827 226 4,863 5,916 Amortization of deferred costs -- -- 420 420 Depreciation 338 2,040 -- 2,378 General and administrative expense -- -- 1,006 1,006 Gain on foreclosure -- 5,337 -- 5,337 Provision for impairment of value -- 2,067 -- 2,067 Minority interest in joint ventures' operations -- 415 -- 415 Segment (loss) profit (45) 6,157 (5,896) 216 Total assets 9,000 53,193 7,534 69,727 Capital expenditures for investment properties 223 519 -- 742 1996 Residential Commercial Other Totals Rental income $ 2,264 $ 9,305 $ -- $11,569 Other income 96 243 367 706 Interest expense 827 917 4,863 6,607 Depreciation 321 2,189 -- 2,510 Amortization -- -- 420 420 General and administrative expense -- -- 1,035 1,035 Minority interest in joint ventures' operations -- (423) -- (423) Segment profit (loss) 116 2,154 (5,951) (3,681) Total assets 9,105 61,613 8,175 78,893 Capital expenditures for investment properties 91 734 -- 825 NOTE P - LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the Managing General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia and entities which were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates as well as a recently announced agreement between Insignia and AIMCO. The complaint seeks monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Managing General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs have filed an amended complaint. The Managing General Partner filed demurrers to the amended complaint which were heard during February 1999. No ruling on such demurrers has been received. The Managing General Partner does not anticipate that costs associated with this case, if any, will be material to the Partnership's overall operations. On July 30, 1998, certain entities claiming to own limited partnership interests in certain limited partnerships whose general partners were, at the time, affiliates of Insignia filed a complaint entitled Everest Properties, LLC, et. al. v. Insignia Financial Group, Inc., et. al. in the Superior Court of the State of California, County of Los Angeles. The action involves 44 real estate limited partnerships (including the Partnership) in which the plaintiffs allegedly own interests and which Insignia Affiliates allegedly manage or control (the "Subject Partnerships"). This case was settled on March 3, 1999. The Partnership is responsible for a portion of the settlement costs. The expense will not have a material effect on the Partnership's net income. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Century Pension Income Fund XXIII (the "Partnership" or "Registrant"), as well as Fox Partners VI ("Fox"), the general partner of the Registrant, have no officers or directors. Fox Capital Management Corporation ("FCMC" or the "Managing General Partner"), the managing general partner of Fox, manages and controls substantially all of the Registrant's affairs and has general responsibility and ultimate authority in all matters affecting its business. The Managing General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"). The names and ages of, as well as the positions held by executive officers and directors of the Managing General Partner are set forth below. No family relationships exist among any of the officers or directors of the Managing General Partner. Name Age Position Patrick J. Foye 41 Executive Vice President and Director Timothy R. Garrick 42 Vice President - Accounting and Director Patrick J. Foye has been Executive Vice President and Director of the Managing General Partner since October 1, 1998. Mr. Foye has served as Executive Vice President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Timothy R. Garrick has served as Vice President-Accounting of AIMCO and Vice President-Accounting and Director of the Managing General Partner since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President-Accounting Services of Insignia Financial Group since June of 1997. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting and from 1990 to 1992 as an Asset Manager for Insignia Financial Group. From 1984 to 1990, Mr. Garrick served in various capacities with U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina and is a Certified Public Accountant. ITEM 11. EXECUTIVE COMPENSATION No direct form of compensation or remuneration was paid by the Partnership to any officer or director of the Managing General Partner. The Partnership has no plan, nor does the Partnership presently propose a plan, which will result in any remuneration being paid to any officer or director upon termination of employment. However, reimbursements and other payments have been made to the Partnership's Managing General Partner and its affiliates, as described in "Item 13. Transactions with Affiliated Parties". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Partnership is a limited partnership and has no officers or directors. The Managing General Partner has discretionary control over most of the decisions made by or for the Partnership in accordance with the terms of the Partnership Agreement. The directors and officers of the Managing General Partner and its affiliates, as a group do not own any of the Partnership voting securities. There is no person known to the Partnership who owns beneficially or of record more than five percent of the voting securities of the Partnership as of December 31, 1998. As of December 31, 1998, Insignia Properties LP ("IPLP"), an affiliate of the Managing General Partner, owned 2 Individual Investor Units ("Units") or approximately .002%. IPLP's business address is 55 Beattie Place, Greenville, SC 29601. Additionally, IPLP is indirectly ultimately owned by AIMCO. ITEM 13. TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership Agreement provides for certain payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to the Managing General Partner and affiliates during the years ended December 31, 1998, 1997 and 1996: Years Ended December 31, 1998 1997 1996 (in thousands) Property management fees $154 $147 $140 Reimbursement for services of affiliates (1) 254 204 184 Partnership management fee 111 111 111 (1) Included in "Reimbursements for services of affiliates" for 1998, 1997, and 1996 is approximately $4,000, $7,000, and $1,000 respectively, in reimbursements for construction oversight costs. During the years ended December 31, 1998, 1997 and 1996, affiliates of the Managing General Partner were entitled to receive 5% of gross receipts from the Partnership's residential property for providing property management services. The Registrant paid to such affiliates approximately $120,000, $116,000, and $117,000 for the years ended December 31, 1998, 1997 and 1996, respectively. For the nine months ended September 30, 1998 and the years ended December 31, 1997 and 1996 affiliates of the Managing General Partner were entitled to receive varying percentages of gross receipts from the Registrant's Coral Palm Plaza property for providing property management services. The Registrant paid to such affiliates approximately $34,000, $31,000 and $23,000 for the nine months ended September 30, 1998 and the years ended December 31, 1997 and 1996 (effective May 1, 1996). Since October 1, 1998 (the effective date of the Insignia Merger) these services have been provided at Coral Palm Plaza by an unrelated party. An affiliate of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $254,000, $204,000 and $184,000 for the years ended December 31, 1998, 1997 and 1996, respectively. On January 4, 1999, an affiliate of the Managing General Partner purchased 3,554 1985 Notes and 1,270 1986 Notes from a noteholder for $600 per note. For the period from January 19, 1996, to August 31, 1997, the Partnership insured its properties under a master policy through an agency affiliated with the Managing General Partner with an insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner which received payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations is not significant. In accordance with the Partnership Agreement, the general partner was allocated its two percent continuing interest in the Partnership's net income and loss and taxable income and loss exclusive of gains or losses on property dispositions recognized in 1997. The extraordinary gain on the Sunnymead foreclosure has been allocated 20% to the general partner and 80% to the limited partners per the terms of the Partnership Agreement. In each of the years ended December 31, 1998, 1997 and 1996, the general partner received $43,000 of cash distributions, which were equal to two percent of cash distributions to the Promissory Note holders. The partnership management fee and partnership management incentive are limited by the Partnership Agreement to ten percent of cash available for distribution before interest payments to the Promissory Note holders and the partnership management fee. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1)(2) Consolidated Financial Statements and Consolidated Financial Statement Schedules: See "Item 8" of the Form 10-K for Consolidated Financial Statements of the Partnership, Notes thereto, and Consolidated Financial Statement Schedules. (A Table of Contents to Consolidated Financial Statements and Consolidated Financial Statement Schedules is included in "Item 8" and incorporated herein by reference.) (a) (3) Exhibits: See Exhibit Index contained herein (b) Reports on Form 8-K filed during the fourth quarter of 1998: Current report on Form 8-K dated on October 1, 1998, and filed on October 16, 1998, disclosing change in control of the Registrant from Insignia Financial Group, Inc. to AIMCO. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. CENTURY PENSION INCOME FUND XXIII By: Fox Partners V Its General Partner By: Fox Capital Management Corporation Its Managing General Partner By: /s/ Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/ Timothy R. Garrick Timothy R. Garrick Vice President - Accounting Date: March 31, 1999 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 date indicated. /s/ Patrick J. Foye Executive Vice President Date: March 31, 1999 Patrick J. Foye and Director /s/ Timothy R. Garrick Vice President - Accounting Date: March 31, 1999 Timothy R. Garrick and Director Exhibit Index 2. NPI Stock Purchase Agreement, dated as of August 17, 1995, incorporated by reference to the Partnership's Current Report on Form 8-K dated August 17, 1995. 2.1 Agreement and Plan of Merger, dated as of October 1, 1998, by and between AIMCO and IPT; incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K dated October 1, 1998. 3.4. Agreement of Limited Partnership incorporated by reference to Exhibit A to the Prospectus of the Partnership dated July 1, 1985, and thereafter supplemented contained in the Partnership's Registration Statement on Form S-11 (Reg. No 2-96389) 16. Letter from the Partnership's former Independent Auditor dated April 27, 1994, incorporated by reference to exhibit 10 to the Partnership's Current Report on Form 8-K dated April 22, 1994. 27. Financial Data Schedule is filed as an Exhibit to this report. EX-27 2
5 This schedule contains summary financial information extracted from Century Pension Income Fund XXIII 1998 Year-End 10-K and is qualified in its entirety by reference to such 10-K filing. 0000764543 CENTURY PENSION INCOME FUND XXIII 1,000 12-MOS DEC-31-1998 DEC-31-1998 11,698 0 1,699 0 0 0 79,302 (24,790) 70,369 0 48,795 0 0 0 (26,273) 70,369 0 11,532 0 0 14,111 0 5,690 0 0 0 0 0 0 (3,011) (30.81) 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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