10-K 1 vms.txt VMS 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, 2001 [ ] 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 0-14194 VMS NATIONAL PROPERTIES JOINT VENTURE (Exact name of registrant as specified in its charter) Illinois 36-3311347 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, PO Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) Issuer's telephone number (864) 239-1000 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Units of Limited Partnership Interest (Title of class) Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the 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 partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests, as of December 31, 2001. No market exists for the limited partnership interests of the Registrant, and, therefore, no aggregate market value can be determined. DOCUMENTS INCORPORATED BY REFERENCE NONE PART I Item 1. Description of Business VMS National Properties Joint Venture (the "Venture" or the "Registrant"), of which the general partners are VMS National Residential Portfolio I ("Portfolio I") and VMS National Residential Portfolio II ("Portfolio II"), was formed in September 1984. Portfolio I and Portfolio II are collectively referred to as the "Partnerships". The Partnerships are limited partnerships formed in September 1984, under the Uniform Limited Partnership Act of the State of Illinois. Effective December 12, 1997, the managing general partner of each of the Partnerships was transferred from VMS Realty Investment, Ltd. ("VMSRIL") (formerly VMS Realty Partners) to MAERIL, Inc. ("MAERIL" or the "Managing General Partner"), a wholly-owned subsidiary of MAE GP Corporation ("MAE GP") and an affiliate of Insignia Financial Group, Inc. ("Insignia"). Effective February 25, 1998, MAE GP was merged with Insignia Properties Trust ("IPT"), which was an affiliate of Insignia. Effective October 1, 1998 and February 26, 1999, Insignia and IPT were respectively merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. Thus, the Managing General Partner is now a wholly-owned subsidiary of AIMCO. From the period October 26, 1984, through June 16, 1985, the Partnerships sold 912 Limited Partnership Interests ("Interests") at a price of $150,000 per Limited Partnership Interest for a total of $136,800,000. The Interests of each Partnership were offered in reliance upon exemptions from registration under the Securities Act of 1933, as amended (the "Act"), and Regulation D thereunder. The participation interest in the Venture of Portfolio I and Portfolio II is approximately 71% and 29%, respectively. The Venture originally acquired 51 residential apartment complexes located throughout the United Sates. At December 31, 2001, 34 of the Venture's properties had been foreclosed and two had been sold. The Venture continues to own and operate the remaining 15 residential apartment complexes (see "Item 2. Description of Properties"). The Managing General Partner intends to maximize the operating results and, ultimately, the net realizable value of each of the Venture's properties in order to achieve the best possible return for the investors. Such results may best be achieved through property sales, refinancings, debt restructurings or relinquishment of the assets. The Venture intends to evaluate each of its holdings periodically to determine the most appropriate strategy for each of the assets. The Registrant has no employees. Management and administrative services are provided by the Managing General Partner and by agents retained by the Managing General Partner. In addition to day-to-day management of the properties' operations, affiliates of the Managing General Partner also provide real estate advisory and asset management services to the Venture. As advisor, such affiliates provide all partnership accounting and administrative services, investment management, and supervisory services over property management and leasing. The real estate business in which the Registrant is engaged is highly competitive. There are other residential properties within the market area of the Registrant'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 apartments at the Registrant's properties and the rents that may be charged for such apartments. While the Managing General Partner and its affiliates own and/or control a significant number of apartment units in the United States, such units represent an insignificant percentage of total apartment units in the United States and competition for the apartments is local. Both the income and expenses of operating the properties owned by the Registrant are subject to factors outside of the Registrant's control, such as changes in the supply and demand for similar properties resulting from various market conditions, increases in unemployment or population shifts, changes in the 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 properties because such properties are susceptible to the impact of economic and other conditions outside of the control of the Registrant. 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 Venture 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 Venture. The Venture 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 Venture received notice that it is a potentially responsible party with respect to an environmental clean up site. A further description of the Registrant's business is included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in "Item 7" of this Form 10-K. Transfer of Control Pursuant to a series of transactions which closed on October 1, 1998, and February 26, 1999, Insignia and IPT merged into AIMCO, a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the Managing General Partner. The Managing General Partner does not believe that this transaction has had or will have a material effect on the affairs and operations of the Venture. Item 2. Description of Properties The following table sets forth the Venture's remaining investment in properties: Date of Property (1) Purchase Use North Park Apartments 11/14/84 Apartment Evansville, IN 284 Units Chapelle Le Grande 12/05/84 Apartment Merrillville, IN 105 Units Terrace Gardens 10/26/84 Apartment Omaha, NE 126 Units Forest Ridge Apartments 10/26/84 Apartment Flagstaff, AZ 278 Units Scotchollow 10/26/84 Apartment San Mateo, CA 418 Units Pathfinder Village 10/26/84 Apartment Freemont, CA 246 Units Buena Vista Apartments 10/26/84 Apartment Pasadena, CA 92 Units Mountain View Apartments 10/26/84 Apartment San Dimas, CA 168 Units Crosswood Park 12/05/84 Apartment Citrus Heights, CA 180 Units Casa de Monterey 10/26/84 Apartment Norwalk, CA 144 Units The Bluffs 10/26/84 Apartment Milwaukee, OR 137 Units Watergate Apartments 10/26/84 Apartment Little Rock, AR 140 Units Shadowood Apartments 11/14/84 Apartment Monroe, LA 120 Units Vista Village Apartments 10/26/84 Apartment El Paso, TX 220 Units Towers of Westchester Park 10/26/84 Apartment College Park, MD 303 Units (1) All properties are fee ownership, each subject to a first and second mortgage. Schedule of Properties Set forth below for each of the Registrant's properties is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation and Federal tax basis.
Gross Carrying Accumulated Depreciable Federal Property Value Depreciation Method Life Tax Basis (in thousands) (in thousands) North Park Apartments $ 10,835 $ 7,366 SL/200% DBL 5-27.5 yrs $ 1,419 Chapelle Le Grande 5,110 3,410 SL/200% DBL 5-27.5 yrs 710 Terrace Gardens 6,846 4,065 SL/150% and 5-27.5 yrs 1,738 200% DBL Forest Ridge Apartments 9,447 6,112 SL/150% and 5-27.5 yrs 1,618 200% DBL Scotchollow 30,131 18,512 SL/150% DBL 5-27.5 yrs 6,749 Pathfinder Village 18,225 9,956 SL/200% DBL 5-27.5 yrs 6,342 Buena Vista Apartments 6,324 3,848 SL/200% DBL 5-27.5 yrs 1,328 Mountain View Apartments 11,319 6,443 SL/200% DBL 5-29 yrs 2,263 Crosswood Park 9,814 6,000 SL/150% DBL 5-29 yrs 2,467 Casa de Monterey 8,918 5,394 SL/200% DBL 5-27.5 yrs 2,050 The Bluffs 4,659 3,151 SL/200% DBL 5-27.5 yrs 576 Watergate Apartments 7,462 4,971 SL/200% DBL 5-27.5 yrs 1,145 Shadowood Apartments 4,613 3,125 SL 5-27.5 yrs 646 Vista Village Apartments 7,315 4,525 SL 5-27.5 yrs 1,492 Towers of Westchester Park 18,442 12,097 SL 5-27.5 yrs 3,096 $159,460 $ 98,975 $ 33,639
See "Note A" of the Notes to the Combined Financial Statements included in "Item 8" for a description of the Venture's depreciation policy. Schedule of Property Indebtedness The following table sets forth certain information relating to the loans encumbering the Registrant's properties.
Principal Principal Principal Balance At Balance At Balance December 31, December 31, Period Due At Property 2001 2000 Amortized Maturity (in thousands) (in thousands) North Park Apartments 1st mortgage $ 6,052 $ 6,135 25 yrs $ 5,376 2nd mortgage 1,977 1,860 (A) (A) Chapelle Le Grande 1st mortgage 3,106 3,148 25 yrs 2,759 2nd mortgage 1,047 995 (A) (A) Terrace Gardens 1st mortgage 4,298 4,357 25 yrs 3,818 2nd mortgage 1,258 1,259 (A) (A) Forest Ridge Apartments 1st mortgage 5,711 5,789 25 yrs 5,073 2nd mortgage 1,156 1,706 (A) (A) Scotchollow 1st mortgage 28,204 28,590 25 yrs 25,054 2nd mortgage 7,914 8,415 (A) (A) Pathfinder Village 1st mortgage 13,032 13,210 25 yrs 11,576 2nd mortgage 3,443 4,075 (A) (A) Buena Vista Apartments 1st mortgage 4,795 4,861 25 yrs 4,260 2nd mortgage 1,180 1,360 (A) (A) Mountain View Apartments 1st mortgage 6,928 7,023 25 yrs 6,154 2nd mortgage 1,539 1,894 (A) (A) Crosswood Park 1st mortgage 5,390 5,463 25 yrs 4,788 2nd mortgage 1,018 1,343 (A) (A) Casa de Monterey 1st mortgage 3,971 4,024 25 yrs 3,479 2nd mortgage 1,153 1,232 (A) (A) The Bluffs 1st mortgage 3,605 3,654 25 yrs 3,202 2nd mortgage 1,159 1,097 (A) (A) Watergate Apartments 1st mortgage 2,805 2,844 25 yrs 2,492 2nd mortgage 853 827 (A) (A) Shadowood Apartments 1st mortgage 2,180 2,209 25 yrs 1,936 2nd mortgage 507 608 (A) (A) Vista Village Apartments 1st mortgage 3,215 3,259 25 yrs 2,856 2nd mortgage 1,048 988 (A) (A) Towers of Westchester Park 1st mortgage 11,730 11,890 25 yrs 10,420 2nd mortgage 2,998 3,617 (A) (A) Totals $133,272 $137,732 $93,243
Interest rates are 8.50% and 10.84% for all first and second mortgages, respectively. All notes mature January 1, 2008. (A) Payments based on excess monthly cash flow at each property, with any unpaid balance due at maturity. Per the junior loan agreements, excess monthly cash flow is defined as revenue generated from operation of a property less (1) operating expenses of the property, (2) the debt service payment for the senior loans, (3) the tax and insurance reserve deposit and (4) replacement reserve deposit. Rental Rates and Occupancy The following table sets forth the average annual rental rates and occupancy for 2001 and 2000 for each property. Average Annual Average Rental Rates Per Unit Occupancy Property 2001 2000 2001 2000 North Park Apartments $ 6,559 $ 6,506 89% 93% Chapelle Le Grande 8,772 8,364 93% 93% Terrace Gardens 9,828 9,635 92% 94% Forest Ridge Apartments 7,866 7,531 98% 97% Scotchollow 18,814 16,389 95% 99% Pathfinder Village 18,250 15,633 95% 98% Buena Vista Apartments 15,912 14,788 93% 97% Mountain View Apartments 13,489 12,331 98% 98% Crosswood Park 10,944 10,065 95% 96% Casa de Monterey 10,037 9,161 96% 98% The Bluffs 7,404 7,233 90% 93% Watergate Apartments 7,603 7,446 92% 92% Shadowood Apartments 6,988 6,743 97% 94% Vista Village Apartments 6,619 6,562 90% 90% Towers of Westchester Park 12,564 12,169 98% 97% The Managing General Partner attributes the occupancy fluctuations at the properties to the following: a decrease at North Park Apartments due to increased competition in a soft market; a decrease at Scotchollow, Pathfinder Village and The Bluffs due to softening markets in their respective localities caused primarily by a weakness in the local industries and recent layoffs; a decrease at Buena Vista Apartments due to increased competition in the local market; an increase at Shadowood Apartments due to an aggressive marketing and resident retention program. 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 residential apartment complexes in the area. The Managing General Partner believes that all of the properties are adequately insured. Each property is an apartment complex which leases units for lease terms of one year or less. No residential tenant leases 10% or more of the available rental space. Real Estate Taxes and Rates Real estate taxes and rates in 2001 for each property were as follows: 2001 2001 Taxes Rate (in thousands) North Park Apartments $147 9.36% Chapelle Le Grande 62 14.85% Terrace Gardens 95 1.85% Forest Ridge Apartments 97 10.05% Scotchollow 357 1.28% Pathfinder Village 215 1.39% Buena Vista Apartments 75 1.24% Mountain View Apartments 122 1.20% Crosswood Park 123 1.05% Casa de Monterey 95 1.16% The Bluffs 69 1.39% Watergate Apartments 57 6.80% Shadowood Apartments 44 11.94% Vista Village Apartments 118 2.94% Towers of Westchester Park 222 1.43% Capital Improvements The Venture is restricted to annual capital improvements of $300 per unit for all of the properties, which is the limit set by the Junior Debt for funding of capital improvements. The Venture, the holder ("AIMCO LP") of the Junior Debt encumbering the properties and the servicer of the Senior Debt encumbering the properties have agreed to a procedure to assess whether or not capital expenditures, in addition to those permitted under the $300 per unit maximum, are needed at the properties and the methodology for funding any such capital expenditures. During 1999, the Venture and the holders of the Junior and Senior Debt agreed that additional capital expenditures were required and that these expenditures would be funded out of the cash flows from the properties that otherwise would have been utilized to pay debt service on the Junior Debt. In November 1999, an agreement was signed relating to the required capital expenditures at Towers of Westchester Park. In July 2000, similar agreements were signed relating to North Park Apartments, Scotchollow, Pathfinder Village, Buena Vista Apartments, Mountain View Apartments, Casa de Monterey and The Bluffs. In August 2000, agreements were signed relating to Shadowood Apartments, Crosswood Park, Vista Village Apartments, Watergate Apartments, Chapelle Le Grande, and Forest Ridge Apartments and in September 2000, an agreement was signed relating to Terrace Gardens. North Park Apartments: The methodology discussed above for funding the required capital expenditures has been applied to North Park Apartments. The parties agreed that this property required capital expenditures which were estimated to cost approximately $150,000, all of which were completed as of December 31, 2001 at a cost of approximately $183,000. Approximately $93,000 of these expenditures were completed during 2001. These costs were funded out of cash flows from the property that otherwise would have been utilized to service the Junior Debt. The Venture completed approximately $240,000 in capital expenditures, including the aforementioned capital expenditures, at North Park Apartments during the year ended December 31, 2001, consisting primarily of structural improvements, recreational facilities enhancements, floor covering replacements, parking lot and electrical improvements and major landscaping. These improvements were funded from operating cash flow and replacement reserves. The Venture is currently evaluating the capital improvement needs of the property for the upcoming year. The property expects to budget $300 per unit or approximately $85,000. Additional improvements may be considered and will depend on the physical condition of the property as well as debt restrictions, replacement reserves and anticipated cash flow generated by the property. Chapelle Le Grande: The methodology discussed above for funding the required capital expenditures has been applied to Chapelle Le Grande. The parties agreed that this property required capital expenditures which were estimated to cost approximately $90,000 all of which were completed as of December 31, 2001 at a cost which approximated its budgeted amount. Approximately $51,000 of these expenditures were completed during 2001. These costs were funded out of cash flows from the property that otherwise would have been utilized to service the Junior Debt. The Venture completed approximately $74,000 in capital expenditures, including the aforementioned capital expenditures, at Chapelle Le Grande during the year ended December 31, 2001, consisting primarily of structural improvements, roof replacements, heating and air conditioning upgrades and floor covering replacements. These improvements were funded from operating cash flow and replacement reserves. The Venture is currently evaluating the capital improvement needs of the property for the upcoming year. The property expects to budget $300 per unit or approximately $32,000. Additional improvements may be considered and will depend on the physical condition of the property as well as debt restrictions, replacement reserves and anticipated cash flow generated by the property. Terrace Gardens: The methodology discussed above for funding the required capital expenditures has been applied to Terrace Gardens. The parties agreed that this property required capital expenditures which have a revised completion date of March 31, 2002 and which are estimated to cost approximately $433,000, of which approximately $317,000 (all during 2001) were completed as of December 31, 2001. These costs were funded out of cash flows from the property that otherwise would have been utilized to service the Junior Debt. The Venture completed approximately $624,000 in capital expenditures, including the aforementioned capital expenditures, at Terrace Gardens during the year ended December 31, 2001, consisting primarily of structural and building improvements, plumbing upgrades, floor covering replacements, pool upgrades and a water submetering project. These improvements were funded from operating cash flow, insurance proceeds and replacement reserves. The Venture is currently evaluating the capital improvement needs of the property for the upcoming year. The property expects to budget $300 per unit or approximately $38,000. Additional improvements may be considered and will depend on the physical condition of the property as well as debt restrictions, replacement reserves and anticipated cash flow generated by the property. Forest Ridge Apartments: The methodology discussed above for funding the required capital expenditures has been applied to Forest Ridge Apartments. The parties agreed that this property required capital expenditures which were estimated to cost approximately $296,000 all of which were completed as of December 31, 2001 at a cost of approximately $291,000. Approximately $26,000 of these expenditures were completed during 2001. These costs were funded out of cash flows from the property that otherwise would have been utilized to service the Junior Debt. The Venture completed approximately $145,000 in capital expenditures, including the aforementioned capital expenditures, at Forest Ridge Apartments during the year ended December 31, 2001, consisting primarily of structural enhancements and floor covering, water heater, and appliance replacements. These improvements were funded from operating cash flow and replacement reserves. The Venture is currently evaluating the capital improvement needs of the property for the upcoming year. The property expects to budget $300 per unit or approximately $83,000. Additional improvements may be considered and will depend on the physical condition of the property as well as debt restrictions, replacement reserves and anticipated cash flow generated by the property. Scotchollow: The methodology discussed above for funding the required capital expenditures has been applied to Scotchollow. The parties agreed that this property required capital expenditures which have a revised completion date of March 31, 2002 and which are estimated to cost approximately $941,000, of which approximately $893,000 ($568,000 during 2001) were completed as of December 31, 2001. These costs were funded out of cash flows from the property that otherwise would have been utilized to service the Junior Debt. The Venture completed approximately $1,287,000 in capital expenditures, including the aforementioned capital expenditures, at Scotchollow during the year ended December 31, 2001, consisting primarily of major structural upgrades, parking lot improvements, exterior painting, floor covering replacements, plumbing and other upgrades. These improvements were funded from operating cash flow and replacement reserves. The Venture is currently evaluating the capital improvement needs of the property for the upcoming year. The property expects to budget $300 per unit or approximately $125,000. Additional improvements may be considered and will depend on the physical condition of the property as well as debt restrictions, replacement reserves and anticipated cash flow generated by the property. Pathfinder Village: The methodology discussed above for funding the required capital expenditures has been applied to Pathfinder Village. The parties agreed that this property required capital expenditures which have a revised completion date of March 31, 2002 and which are estimated to cost approximately $1,237,000, of which approximately $1,223,000 ($378,000 during 2001) were completed as of December 31, 2001. These costs were funded out of cash flows from the property that otherwise would have been utilized to service the Junior Debt. The Venture completed approximately $1,323,000 in capital expenditures, including the aforementioned capital expenditures, at Pathfinder Village during the year ended December 31, 2001, consisting primarily of major structural improvements, floor covering replacements, roofing and interior and other enhancements. These improvements were funded from operating cash flow and replacement reserves. The Venture is currently evaluating the capital improvement needs of the property for the upcoming year. The property expects to budget $300 per unit or approximately $74,000. Additional improvements may be considered and will depend on the physical condition of the property as well as debt restrictions, replacement reserves and anticipated cash flow generated by the property. Buena Vista Apartments: The methodology discussed above for funding the required capital expenditures has been applied to Buena Vista Apartments. The parties agreed that this property required capital expenditures which have a revised completion date of March 31, 2002 and which are estimated to cost approximately $174,000, of which approximately $156,000 (all during 2001) were completed as of December 31, 2001. These costs were funded out of cash flows from the property that otherwise would have been utilized to service the Junior Debt. The Venture completed approximately $264,000 in capital expenditures, including the aforementioned capital expenditures, at Buena Vista Apartments during the year ended December 31, 2001, consisting primarily of plumbing upgrades, major structural improvements, appliances, and floor covering replacements. These improvements were funded from operating cash flow and replacement reserves. The Venture is currently evaluating the capital improvement needs of the property for the upcoming year. The property expects to budget $300 per unit or approximately $28,000. Additional improvements may be considered and will depend on the physical condition of the property as well as debt restrictions, replacement reserves and anticipated cash flow generated by the property. Mountain View Apartments: The methodology discussed above for funding the required capital expenditures has been applied to Mountain View Apartments. The parties agreed that this property required capital expenditures, all of which were completed as of December 31, 2001 at a cost which approximated the budgeted amount of $209,000 ($143,000 during 2001). These costs were funded out of cash flows from the property that otherwise would have been utilized to service the Junior Debt. The Venture completed approximately $277,000 in capital expenditures, including the aforementioned capital expenditures, at Mountain View Apartments during the year ended December 31, 2001, consisting primarily of major structural and pool improvements, floor covering replacements, and electrical upgrades. These improvements were funded from operating cash flow and replacement reserves. The Venture is currently evaluating the capital improvement needs of the property for the upcoming year. The property expects to budget $300 per unit or approximately $50,000. Additional improvements may be considered and will depend on the physical condition of the property as well as debt restrictions, replacement reserves and anticipated cash flow generated by the property. Crosswood Park: The methodology discussed above for funding the required capital expenditures has been applied to Crosswood Park. The parties agreed that this property required capital expenditures which have a revised completion date of March 31, 2002 and which are estimated to cost approximately $301,000, of which approximately $248,000 ($26,000 during 2001) were completed as of December 31, 2001. These costs were funded out of cash flows from the property that otherwise would have been utilized to service the Junior Debt. The Venture completed approximately $497,000 in capital expenditures, including the aforementioned capital expenditures, at Crosswood Park during the year ended December 31, 2001, consisting primarily of structural improvements, floor covering and appliance replacements and other enhancements. These improvements were funded from operating cash flow and replacement reserves. The Venture is currently evaluating the capital improvement needs of the property for the upcoming year. The property expects to budget $300 per unit or $54,000. Additional improvements may be considered and will depend on the physical condition of the property as well as debt restrictions, replacement reserves and anticipated cash flow generated by the property. Casa de Monterey: The methodology discussed above for funding the required capital expenditures has been applied to Casa de Monterey. The parties agreed that this property required capital expenditures which have a revised completion date of March 31, 2002 and which are estimated to cost approximately $378,000, of which approximately $361,000 ($198,000 during 2001) were completed as of December 31, 2001. These costs were funded out of cash flows from the property that otherwise would have been utilized to service the Junior Debt. The Venture completed approximately $542,000 in capital expenditures, including the aforementioned capital expenditures, at Casa de Monterey during the year ended December 31, 2001, consisting primarily of major structural upgrades, floor covering and appliance replacements, major landscaping, cabinets and parking area and ground lighting improvements. These improvements were funded from operating cash flow and replacement reserves. The Venture is currently evaluating the capital improvement needs of the property for the upcoming year. The property expects to budget $300 per unit or approximately $43,000. Additional improvements may be considered and will depend on the physical condition of the property as well as debt restrictions, replacement reserves and anticipated cash flow generated by the property. The Bluffs: The methodology discussed above for funding the required capital expenditures has been applied to The Bluffs. The parties agreed that this property required capital expenditures which have a revised completion date of March 31, 2002 and which are estimated to cost approximately $52,000, of which approximately $17,000 (all during 2001) were completed as of December 31, 2001. These costs are to be funded out of cash flows from the property that otherwise would have been utilized to service the Junior Debt. The Venture completed approximately $172,000 in capital expenditures, including the aforementioned capital expenditures at The Bluffs during the year ended December 31, 2001, consisting primarily of floor covering, appliance and plumbing fixture replacements and other enhancements. These improvements were funded from operating cash flow and replacement reserves. The Venture is currently evaluating the capital improvement needs of the property for the upcoming year. The property expects to budget $300 per unit or approximately $41,000. Additional improvements may be considered and will depend on the physical condition of the property as well as debt restrictions, replacement reserves and anticipated cash flow generated by the property. Watergate Apartments: The methodology discussed above for funding the required capital expenditures has been applied to Watergate Apartments. The parties agreed that this property required capital expenditures which have a revised completion date of March 31, 2002 and which are estimated to cost approximately $186,000, of which $86,000 (all during 2001) were completed as of December 31, 2001. These costs were funded out of cash flows from the property that otherwise would have been utilized to service the Junior Debt. The Venture completed approximately $207,000 in capital expenditures, including the aforementioned capital expenditures, at Watergate Apartments during the year ended December 31, 2001, consisting primarily of roof replacements, floor coverings, structural improvements, air conditioning upgrades and major landscaping. These improvements were funded from operating cash flow, replacement reserves and insurance proceeds. The Venture is currently evaluating the capital improvement needs of the property for the upcoming year. The property expects to budget $300 per unit or $42,000. Additional improvements may be considered and will depend on the physical condition of the property as well as debt restrictions, replacement reserves and anticipated cash flow generated by the property. Shadowood Apartments: The methodology discussed above for funding the required capital expenditures has been applied to Shadowood Apartments. The parties agreed that this property required capital expenditures which have a revised completion date of March 31, 2002 and which are estimated to cost approximately $151,000, of which $148,000 (none during 2001) were completed as of December 31, 2001. These costs were funded out of cash flows from the property that otherwise would have been utilized to service the Junior Debt. The Venture completed approximately $172,000 in capital expenditures at Shadowood Apartments during the year ended December 31, 2001, consisting primarily of parking lot improvements, structural upgrades, plumbing improvements, floor covering replacements and other enhancements. These improvements were funded from operating cash flow and replacement reserves. The Venture is currently evaluating the capital improvement needs of the property for the upcoming year. The property expects to budget $300 per unit or $36,000. Additional improvements may be considered and will depend on the physical condition of the property as well as debt restrictions, replacement reserves and anticipated cash flow generated by the property. Vista Village Apartments: The methodology discussed above for funding the required capital expenditures has been applied to Vista Village Apartments. The parties agreed that this property required capital expenditures which were estimated to cost approximately $264,000 all of which were completed as of December 31, 2001 at a cost of approximately $240,000. Approximately $199,000 of these expenditures were completed during 2001. These costs were funded out of cash flows from the property that otherwise would have been utilized to service the Junior Debt. The Venture completed approximately $367,000 in capital expenditures, including the aforementioned capital expenditures, at Vista Village Apartments during the year ended December 31, 2001, consisting primarily of appliance and floor covering replacements, air conditioning upgrades and other enhancements. These improvements were funded from operating cash flow and replacement reserves. The Venture is currently evaluating the capital improvement needs of the property for the upcoming year. The property expects to budget $300 per unit or $66,000. Additional improvements may be considered and will depend on the physical condition of the property as well as debt restrictions, replacement reserves and anticipated cash flow generated by the property. Towers of Westchester Park: The methodology discussed above for funding the required capital expenditures has been applied to Towers of Westchester Park. The parties agreed that this property required capital expenditures during 2000 which were estimated to cost approximately $1,001,000, all of which were completed as of December 31, 2001 at a cost of approximately $1,008,000. Approximately $88,000 of these expenditures were completed during 2001. These costs were funded out of cash flows from the property that otherwise would have been utilized to service the Junior Debt. The Venture completed approximately $243,000 in capital expenditures, including the aforementioned capital expenditures, at Towers of Westchester Park during the year ended December 31, 2001, consisting primarily of heating and air conditioning upgrades, major landscaping and floor covering and plumbing fixture replacements. These improvements were funded from operating cash flow and replacement reserves. The Venture is currently evaluating the capital improvement needs of the property for the upcoming year. The property expects to budget $300 per unit or approximately $91,000. Additional improvements may be considered and will depend on the physical condition of the property as well as debt restrictions, replacement reserves and anticipated cash flow generated by the property. The Venture has budgeted $300 per unit or approximately $888,000 for all of the properties which is equal to the limit set by the second mortgage notes for funding of capital improvements. In addition, approximately $404,000 has been budgeted to complete the additional capital expenditures agreed upon by the Venture and the holders of the Junior and Senior Debt during 1999. As the Venture identifies properties which require additional improvements discussions are held with the holders of both the first and second mortgage notes for approval to perform agreed upon capital improvements. Item 3. Legal Proceedings The Venture is unaware of any 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 The unitholders of the Partnerships did not vote on any matter during the quarter ended December 31, 2001. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholders Matters From the period October 26, 1984, through June 16, 1985, Portfolio I and Portfolio II sold a total of 912 Limited Partnership Interests at a price of $150,000 per Limited Partnership Interest, for a total of $136,800,000. As of December 31, 2001, there were 739 holders of record of Portfolio I and 288 holders of record of Portfolio II, owning 644 and 267 units, respectively. As of December 31, 2000, there were 770 holders of record of Portfolio I and 297 holders of record of Portfolio II, owning a total of 644 and 267 units, respectively. As of December 31, 1999, there were 795 holders of record of Portfolio I and 313 holders of record of Portfolio II, owning a total of 644 and 267 units, respectively. No public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future. There were no cash distributions to the partners of either of the Partnerships for the years ended December 31, 2001, 2000 or 1999. In accordance with the respective Agreements of Limited Partnership, there are no material restrictions on the Partnerships' ability to make cash distributions; however, future cash distributions are subject to the order of distributions as stipulated by the Venture's plan of reorganization (see "Note E" to the combined financial statements for further details of the order of distribution). Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves and the timing of debt maturities, refinancings and/or property sales. There can be no assurance that the Partnerships will generate sufficient funds from operations, after required capital expenditures, required cash flow payments on the Junior Debt and the order of distributions as stipulated by the Venture's Plan of Reorganization, to permit any distributions to their partners in 2002 or subsequent periods. See "Item 2. Description of Properties - Capital Improvements" for information relating to anticipated capital expenditures at the properties. As a result of tender offers, AIMCO and its affiliates currently own 66.24 units of limited partnership interest in Portfolio I representing 10.29% of the outstanding limited partnership interests, along with the 2% general partner interest for a combined ownership in Portfolio I of 12.29%. AIMCO and its affiliates currently own 39.83 units of limited partnership interest in Portfolio II representing 14.92% of the outstanding limited partnership interests, along with the 2% general partner interest for a combined ownership in Portfolio II of 16.92%. The Venture is owned 70.69% by Portfolio I and 29.31% by Portfolio II which results in AIMCO and its affiliates currently owning 13.65% of the Venture. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnerships for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreements, unitholders holding a majority of the interests are entitled to take action with respect to a variety of matters which would include voting on certain amendments to the Partnership Agreements and voting to remove the Managing General Partner. When voting on matters, AIMCO would in all likelihood vote the units it acquired in a manner favorable to the interest of the Managing General Partner because of its affiliation with the Managing General Partner. Item 6. Selected Financial Data (in thousands, except per interest data):
2001 2000 1999 1998 1997 Total revenues from rental operations $ 33,249 $ 31,015 $ 28,658 $ 27,956 $ 25,577 Extraordinary item-gain on extinguishment of debt $ -- $ -- $ -- $ -- $ 10,303 (A) Net (loss) income $ (2,910) $ (40) $ (6,402) $ (6,958) $ 606 Net (loss) income per limited Partnership interest Portfolio I - 644 interests $ (3,130) $ (43) $ (6,842) $ (7,483) $ 654 Portfolio II - 267 interests $ (3,131) $ (45) $ (6,992) $ (7,493) $ 646 Total assets $ 68,919 $ 68,879 $ 68,445 $ 71,937 $ 73,542 Mortgage loans and notes $178,940 $179,809 $179,468 $177,190 $172,904
A) During 1997, all of the Venture's properties were refinanced. As a result, the Venture recognized an extraordinary gain on the extinguishment of debt. The above selected financial data should be read in conjunction with the combined financial statements and the related notes. 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 matter, 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 combined financial statements and other items contained elsewhere in this report. Results from Operations 2001 Compared with 2000 The Venture recorded a net loss for the twelve months ended December 31, 2001 of approximately $2,910,000 compared to a net loss of approximately $40,000 for the corresponding period in 2000 (see "Note J" of the combined financial statements for a reconciliation of these amounts to the Registrant's federal taxable loss). The increase in net loss for the twelve month period is primarily due to the increase in total expenses partially offset by an increase in total revenues. The increase in total expenses is attributable to increases in interest, operating, depreciation, property tax and property management fee expenses. The increase in interest expense is due to the amortization of the debt discount related to the mortgage participation liability. The liability was recorded during 2001 as a result of improved operations and cash flows due to extensive rehabilitation projects at the properties which have resulted in a significant increase in the estimated fair value of the properties (see "Item 8. Financial Statements and Supplementary Data, Note E - Participating Mortgage Note"). The increases in operating expense are primarily due to increases in the cost of natural gas and insurance rates at all of the Venture's properties. Depreciation expense increased due to property improvements and replacements placed into service during the past twelve months which are now being depreciated. Property tax expense increased due to an increase in the assessed value by the local taxing authority at Crosswood Park, Vista Village, Watergate and Mountain View Apartments. The property management fee increased due to increased rental income at a majority of the investment properties. The increase in total revenues was due to an increase in rental and other income and casualty gains at Terrace Gardens Apartments and Watergate Apartments as discussed below. Rental income increased due to increases in average rental rates at all of the Venture's properties which more than offset a slight decrease in occupancy at eight of the Venture's investment properties. Other income increased due to an increase in tenant reimbursements and fees and interest income due to higher average cash balances in interest bearing accounts. During the year ended December 31, 2001, a net casualty gain of approximately $23,000 was recorded at Watergate Apartments. The casualty gain related to damage caused by an ice storm in December 2000. The gain was the result of the receipt of insurance proceeds of approximately $30,000 offset by approximately $7,000 of undepreciated fixed assets being written off. During the year ended December 31, 2001, a casualty gain of approximately $40,000 was recorded at Terrace Garden Apartments. The casualty gain related to wind damage in April 2001. The gain was the result of the receipt of insurance proceeds of approximately $58,000 offset by approximately $18,000 of undepreciated fixed assets being written off. 2000 Compared with 1999 The Venture recorded a net loss for the twelve months ended December 31, 2000 of approximately $40,000 compared to a net loss of approximately $6,402,000 for the corresponding period in 1999 (see "Item 8. Financial Statements and Supplementary Data, Note J" for a reconciliation of these amounts to the Registrant's federal taxable loss). The decrease in net loss is attributable to an increase in total revenues and a decrease in total expenses. The increase in total revenues was due to an increase in both rental and other income. Rental income increased mainly due to an increase in average annual rental rates at all of the Venture's investment properties despite decreases in occupancy at seven of the investment properties. Other income increased primarily due to increases in interest income and tenant auxiliary services. Total expenses decreased primarily due to a reduction in interest expense which more than offset an increase in operating expenses and property management fees. Interest expense decreased due to a reduction in the amortization of the imputed interest on the Venture's Assignment Note. This discount for imputed interest became fully amortized during January 2000, which was the estimated maturity date of the Assignment Note. Operating expenses increased due to an increase in property expenses. The increase in property expense was primarily a result of an increase in salary and related benefits, especially at Scotchollow. In addition, there was an increase in utilities, especially natural gas, due to price increases and an unusually cold November and December. Included in general and administrative expenses for each of the years ended December 31, 2001, 2000 and 1999, are reimbursements to the Managing General Partner allowed under the Partnership Agreement associated with its management of the Venture. 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. As part of the ongoing business plan of the Venture, the Managing General Partner monitors the rental market environment of each of its investment properties within the Venture to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Venture from increases in expenses. As part of this plan, the Managing General Partner attempts to protect the Venture 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, 2001, the Venture had cash and cash equivalents of approximately $5,048,000 compared to approximately $2,153,000 at December 31, 2000, an increase of approximately $2,895,000. The increase is the result of approximately $7,958,000 of cash provided by operating activities which was offset by approximately $3,183,000 and $1,880,000 of cash used in investing and financing activities, respectively. Cash used in investing activities consisted of property improvements and replacements partially offset by withdrawals from escrow accounts maintained by the mortgage lender and net insurance proceeds from casualties at Watergate Apartments and Terrace Gardens. Cash used in financing activities consisted of principal payments made on the mortgages encumbering the Registrant's properties partially offset by an advance made to the Venture from an affiliate of the Managing General Partner. The Venture invests its working capital reserves in interest-bearing accounts. In December 2001, an affiliate of the Managing General Partner loaned the Venture's investment properties approximately $3,590,000 to cover capital expenditures required at all of the properties. In accordance with the terms of the Partnership Agreement, interest is charged at the prime rate plus 3%. At December 31, 2001, the balance of the loan was approximately $3,590,000. Interest expense amounted to less than $1,000. Certain affiliates of the former general partners may be entitled to receive various fees upon disposition of the properties. These fees will be paid from the disposition proceeds and are subordinated to the distributions required by the Venture's 1993 bankruptcy plan. There were no property dispositions for which proceeds were received during the years ended December 31, 2001, 2000 or 1999. During the year ended December 31, 2000, the Managing General Partner loaned the Venture approximately $15,000 to cover operational expenses required at Mountain View Apartments and Casa de Monterey. These loans were made in accordance with the terms of the Partnership Agreements. At December 31, 2001 and 2000, the balance of the loans was approximately $18,000 and $17,000, respectively, which includes accrued interest. Interest is charged at the prime rate plus 3%. Interest expense was approximately $1,000 and $2,000 for the years ended December 31, 2001 and 2000, respectively. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Venture and to comply with Federal, state and local legal and regulatory requirements. The Venture budgeted $300 per unit or approximately $888,000 for all of the properties for 2002. The Venture's Junior Debt restricts capital expenditures from exceeding $300 per unit annually for all of the properties. The Venture, the holder ("AIMCO LP") of the Junior Debt encumbering the properties and the servicer of the Senior Debt encumbering the properties have agreed to a procedure to assess whether or not capital expenditures, in addition to those permitted under the $300 per unit maximum, are needed at the properties and the methodology for funding any such capital expenditures. During 1999, the Venture and the holders of the Junior and Senior Debt agreed that additional capital expenditures were required and that these expenditures would be funded out of the cash flows from the properties that otherwise would have been utilized to pay debt service on the Junior Debt. As a result, the balloon payments due on the Junior Debt may be higher at its maturity in January 2008 as accrued but unpaid interest is added to the principal balance. Each of the Venture's properties is encumbered by senior and junior debt. The senior debt has an interest rate of 8.5% per annum and requires monthly payments of principal and interest. The junior debt has an interest rate of 10.84% per annum and the monthly payments are based on excess monthly cash flow for each property. All of the loans mature on January 1, 2008, and the senior debt includes prepayment penalties if paid prior to January 1, 2007. In 1997, these loans were recorded at the agreed valuation amount of $110,000,000, which was less than the $152,225,000 face amount of the senior debt. If the Venture defaults on the mortgage notes payable or is unable to pay the outstanding agreed valuation amounts upon maturity, then the note face amounts become due. Accordingly, the Venture deferred recognition of a gain of $42,225,000 in 1997, which is the difference between the note face amounts and the agreed valuation amounts. All the loans are cross-collateralized but they are not cross-defaulted. Therefore, a default by one property under the terms of its debt agreement does not in and of itself create a default under all of the senior and junior debt agreements. However, if the proceeds upon the sale or refinancing of any property are insufficient to fully repay the outstanding senior and junior debt related to that property, any deficiency is to be satisfied from the sale or refinancing of the remaining properties. Both on a short-term and long-term basis, the Managing General Partner monitors the rental market environment of each of the investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Venture from increases in expenses all of which have an impact on the Venture's liquidity. The Venture's current assets are thought to be sufficient for any short-term needs (exclusive of capital improvements, as discussed above and below) of the Venture. The Senior Debt encumbering all of the properties totals approximately $105,022,000 and is being amortized over 25 years, with a balloon payment of $93,243,000 due January 2008. The Junior Debt, which also matures January 2008, totals approximately $28,250,000 and requires monthly payments based upon monthly excess cash flow for each property. Per the Junior Debt Agreements, excess cash flow is defined as revenue generated from the operation of a property less (1) operating expenses of the property, (2) the debt service payment for the Senior Loan, (3) tax and insurance reserve deposit, and (4) replacement reserve deposit. The Venture anticipates that cash flow is sufficient to meet the operating needs of the Venture as well as the requirements of the Senior Debt with any excess cash flow being utilized to meet the requirements of the Junior Debt. The Assignment Note and Long-Term Arrangement Fee Notes totaling approximately $42,060,000 are non-interest bearing and are subordinate to the Senior and Junior Debt. AIMCO LP, which owns the Managing General Partner and which is a controlled affiliate of AIMCO, purchased (i) the Junior Debt on November 19, 1999, (ii) a significant interest in the residual value of the properties on November 16, 1999 and (iii) economic and voting rights in a 0.61% interest in Partners Liquidating Trust in September 2000. These transactions occurred between AIMCO LP and unrelated third parties and thus had no effect on the combined financial statements of the Venture. There were no cash distributions to the partners of either of the Partnerships for the years ended December 31, 2001, 2000 or 1999. In accordance with the respective Agreements of Limited Partnership, there are no material restrictions on the Partnerships' ability to make cash distributions; however, future cash distributions are subject to the order of distributions as stipulated by the Venture's plan of reorganization (see "Note E" to the combined financial statements for further details of the order of distribution). Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves and the timing of debt maturities, refinancings and/or property sales. There can be no assurance that the Partnerships will generate sufficient funds from operations, after required capital expenditures, required cash flow payments on the Junior Debt and the order of distributions as stipulated by the Venture's Plan of Reorganization, to permit any distributions to their partners in 2002 or subsequent periods. As a result of tender offers, AIMCO and its affiliates currently own 66.24 units of limited partnership interest in Portfolio I representing 10.29% of the outstanding limited partnership interests, along with the 2% general partner interest for a combined ownership in Portfolio I of 12.29%. AIMCO and its affiliates currently own 39.83 units of limited partnership interest in Portfolio II representing 14.92% of the outstanding limited partnership interests, along with the 2% general partner interest for a combined ownership in Portfolio II of 16.92%. The Venture is owned 70.69% by Portfolio I and 29.31% by Portfolio II which results in AIMCO and its affiliates currently owning 13.65% of the Venture. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnerships for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreements, unitholders holding a majority of the interests are entitled to take action with respect to a variety of matters which would include voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. When voting on matters, AIMCO would in all likelihood vote the units it acquired in a manner favorable to the interest of the Managing General Partner because of its affiliation with the Managing General Partner. Recent Accounting Pronouncements In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 provides accounting guidance for financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Managing General Partner does not anticipate that its adoption will have a material effect on the financial position or results of operations of the Partnership. Item 7a. Market Risk Factors The Venture 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 Venture's cash and cash equivalents as well as interest paid on its indebtedness. As a policy, the Venture does not engage in speculative or leveraged transactions, nor does it hold or issue financial instruments for trading purposes. The Venture 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 Venture maintains its debt as fixed rate in nature by borrowing on a long-term basis except for advances made from an affiliate of the Managing General Partner. These advances bear interest at the prime rate plus three basis points. Based on interest rates at December 31, 2001, an increase or decrease of 100 basis points in market interest rates would not have a material impact on the Venture. The following table summarizes the Venture's debt obligations at December 31, 2001. The interest rates represent the weighted-average rates. The fair value of the Venture's first mortgages, after discounting the scheduled loan payments to maturity is approximately $111,703,000 at December 31, 2001, however, the Venture is precluded from refinancing the first mortgage until January 2007. The Managing General Partner believes that it is not appropriate to use the Venture's incremental borrowing rate for the second mortgages, as there is currently no market in which the Venture could obtain similar financing. Therefore, the Managing General Partner considers estimation of fair value to be impracticable for this indebtedness. Long-term Debt Principal Weighted-average (in thousands) Interest Rate 2002 $ 1,565 8.50% 2003 1,705 8.50% 2004 1,832 8.50% 2005 2,022 8.50% 2006 2,201 8.50% Thereafter 123,947 9.03% $133,272 As principal payments for the junior loans are based upon monthly cash flow, all principal is assumed to be repaid at maturity. Item 8. Financial Statements and Supplementary Data LIST OF COMBINED FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors Combined Balance Sheets - Years ended December 31, 2001 and 2000 Combined Statements of Operations - Years ended December 31, 2001, 2000 and 1999 Combined Statements of Changes in Partners' Deficit - Years ended December 31, 2001, 2000 and 1999 Combined Statements of Cash Flows - Years ended December 31, 2001, 2000 and 1999 Notes to Combined Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners VMS National Properties Joint Venture We have audited the accompanying combined balance sheets of VMS National Properties Joint Venture as of December 31, 2001 and 2000, and the related combined statements of operations, changes in partners' deficit, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Venture's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Venture's management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of VMS National Properties Joint Venture at December 31, 2001 and 2000, and the combined results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. /s/ERNST & YOUNG LLP Greenville, South Carolina February 15, 2002 VMS NATIONAL PROPERTIES JOINT VENTURE COMBINED BALANCE SHEETS (in thousands)
December 31, December 31, 2001 2000 Assets: Cash and cash equivalents $ 5,048 $ 2,153 Receivables and deposits 1,618 1,743 Restricted escrows 1,460 4,279 Other assets 308 329 Investment properties: Land 13,404 13,404 Buildings and related personal property 146,056 139,698 Less accumulated depreciation (98,975) (92,727) 60,485 60,375 $ 68,919 $ 68,879 Liabilities and Partners' Deficit Liabilities Accounts payable $ 1,718 $ 1,245 Tenant security deposits liabilities 1,013 1,111 Accrued property taxes 569 521 Other liabilities 318 941 Accrued interest 999 1,071 Due to affiliate (Note G) 3,608 17 Mortgage notes payable, including $28,250 due to an affiliate at 2001 and $31,276 at 2000 (Note C) 133,272 137,732 Notes payable (Note D) 42,060 42,060 Deferred gain on extinguishment of debt (Note A) 42,225 42,225 Mortgage participation liability (Note E) 4,091 -- Partners' Deficit (160,954) (158,044) $ 68,919 $ 68,879 See Accompanying Notes to Combined Financial Statements
VMS NATIONAL PROPERTIES JOINT VENTURE COMBINED STATEMENTS OF OPERATIONS (in thousands, except per interest data)
For The Years Ended December 31, 2001 2000 1999 Revenues: Rental income $31,236 $29,566 $27,503 Other income 1,950 1,449 1,155 Casualty gains (Note F) 63 -- -- Total revenues 33,249 31,015 28,658 Expenses: Operating 9,733 8,567 8,428 Property management fees to an affiliate 1,344 1,238 1,160 General and administrative 615 643 636 Depreciation 6,299 5,929 6,000 Interest, including approximately $7,257, $3,353 and $3,444 to an affiliate 16,344 12,989 17,029 Property taxes 1,824 1,689 1,807 Total expenses 36,159 31,055 35,060 Net loss (Note J) $(2,910) $ (40) $(6,402) Net loss allocated to general partners (2%) $ (58) $ (1) $ (128) Net loss allocated to limited partners (98%) (2,852) (39) (6,274) $(2,910) $ (40) $(6,402) Net loss per limited partnership interest: Portfolio I (644 interests issued and outstanding) $(3,130) $ (43) $(6,842) Portfolio II (267 interests issued and outstanding) $(3,131) $ (45) $(6,992) See Accompanying Notes to Combined Financial Statements
VMS NATIONAL PROPERTIES JOINT VENTURE COMBINED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (in thousands)
VMS National Residential Portfolio I Limited Partners General Accumulated Subscription Partner Deficit Notes Total Total Partners' deficit at December 31, 1998 $(3,445) $(102,751) $ (506) $(103,257) $(106,702) Net loss for the year ended December 31, 1999 (90) (4,406) -- (4,406) (4,496) Partner's deficit at December 31, 1999 (3,535) (107,157) (506) (107,663) (111,198) Collections of subscription notes -- -- 4 4 4 Net loss for the year ended December 31, 2000 (1) (27) -- (27) (28) Partners' deficit at December 31, 2000 (3,536) (107,184) (502) (107,686) (111,222) Net loss for the year ended December 31, 2001 (41) (2,016) -- (2,016) (2,057) Partners' deficit at December 31, 2001 $(3,577) $(109,200) (502) $(109,702) $(113,279) VMS National Residential Portfolio II Limited Partners General Accumulated Subscription Partner Deficit Notes Total Total Partners' deficit at December 31, 1998 $(1,442) $(43,134) $ (329) $(43,463) $(44,905) Net loss for the year ended December 31, 1999 (38) (1,868) -- (1,868) (1,906) Partner's deficit at December 31, 1999 (1,480) (45,002) (329) (45,331) (46,811) Collections of subscription notes -- -- 1 1 1 Net loss for the year ended December 31, 2000 -- (12) -- (12) (12) Partners' deficit at December 31, 2000 (1,480) (45,014) (328) (45,342) (46,822) Net loss for the year ended December 31, 2001 (17) (836) -- (836) (853) Partners' deficit at December 31, 2001 $(1,497) $(45,850) $ (328) $(46,178) $(47,675) Combined partners' deficit at December 31, 2001 $(5,074) $(155,050) $ (830) $(155,880) $(160,954) See Accompanying Notes to Combined Financial Statements
VMS NATIONAL PROPERTIES JOINT VENTURE COMBINED STATEMENTS OF CASH FLOWS (in thousands)
For The Years Ended December 31, 2001 2000 1999 Cash flows from operating activities: Net loss $(2,910) $ (40) $(6,402) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 6,299 5,929 6,000 Amortization of mortgage discounts 4,091 403 4,199 Casualty gain (63) -- -- Change in accounts: Receivables and deposits 125 120 300 Other assets 21 (18) 107 Accounts payable 129 97 244 Tenant security deposit liabilities (98) 36 (33) Accrued interest 938 2,965 1,061 Accrued property taxes 48 (77) (449) Due to affiliate 1 2 -- Other liabilities (623) (785) 1,233 Net cash provided by operating activities 7,958 8,632 6,260 Cash flows from investing activities: Property improvements and replacements (6,090) (4,119) (1,857) Insurance proceeds received 88 -- -- Net withdrawals from (deposits to) restricted escrows 2,819 (1,698) 15 Net cash used in investing activities (3,183) (5,817) (1,842) See Accompanying Notes to Combined Financial Statements
VMS NATIONAL PROPERTIES JOINT VENTURE COMBINED STATEMENTS OF CASH FLOWS (continued) (in thousands)
For The Years Ended December 31, 2001 2000 1999 Cash flows from financing activities: Payments on mortgage notes payable $(5,470) $(2,686) $(3,345) Payments received on subscription notes -- 5 -- Advances from an affiliate 3,590 15 -- Net cash used in financing activities (1,880) (2,666) (3,345) Net increase in cash and cash equivalents 2,895 149 1,073 Cash and cash equivalents at beginning of year 2,153 2,004 931 Cash and cash equivalents at end of year $ 5,048 $ 2,153 $ 2,004 Supplemental disclosure of cash flow information: Cash paid for interest, including approximately $2,179, $733 and $2,027 paid to an affiliate $11,302 $ 9,622 $11,768 Supplemental disclosure of non-cash information: Accrued interest added to mortgage notes payable $ 1,010 $ 2,607 $ 1,424 Property improvements and replacements included in accounts payable and other liabilities $ 843 $ 499 $ -- See Accompanying Notes to Combined Financial Statements
VMS NATIONAL PROPERTIES JOINT VENTURE NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 2001 Note A - Organization and Significant Accounting Policies Organization: VMS National Properties Joint Venture (the "Venture") was formed as a general partnership pursuant to the Uniform Partnership Act of the State of Illinois and a joint venture agreement (the "Venture Agreement") dated September 27, 1984, between VMS National Residential Portfolio I ("Portfolio I") and VMS National Residential Portfolio II ("Portfolio II") (collectively, the "Partnerships"). Effective December 12, 1997, the managing general partner of each of the Partnerships was transferred from VMS Realty Investment, Ltd. ("VMSRIL" or the "Former Managing General Partner") (formerly VMS Realty Partners) to MAERIL, Inc. ("MAERIL" or the "Managing General Partner"), a wholly-owned subsidiary of MAE GP Corporation ("MAE GP") and an affiliate of Insignia Financial Group, Inc. ("Insignia"). Effective February 25, 1998, MAE GP was merged with Insignia Properties Trust ("IPT"), which was an affiliate of Insignia. Effective October 1, 1998 and February 26, 1999, Insignia and IPT were respectively merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. Thus the Managing General Partner is now a wholly-owned subsidiary of AIMCO. The directors and officers of the Managing General Partner also serve as executive officers of AIMCO. The Partnership Agreement provides that the Venture is to terminate on December 8, 2044, unless terminated prior to such date. The Venture owns and operates 15 residential apartment complexes located in or near major urban areas in the United States. Pursuant to the terms of the Joint Venture Agreement for the Venture and the respective Partnership Agreements for Portfolio I and Portfolio II, the Managing General Partner will manage Portfolio I, Portfolio II, VMS National Properties and each of the Venture's operating properties. The Limited Partners do not participate in or control the management of their respective partnership, except that certain events must be approved by the Limited Partners. These events include: (1) voluntary dissolution of either Portfolio I or Portfolio II, and (2) amending substantive provisions of either Partnership Agreement. Basis of Accounting: The accompanying financial statements represent the combined financial statements of VMS National Residential Portfolio I ("Portfolio I"), VMS National Residential Portfolio II ("Portfolio II"), and the Venture. Significant interpartnership accounts and transactions have been eliminated from these combined financial statements. Allocation of Income, Loss, and Distributions: The operating profits and losses of VMS National Properties Joint Venture are allocated to Portfolio I and Portfolio II based on their respective ownership of VMS National Properties Joint Venture which is 70.69% and 29.31%, respectively. Portfolio I and Portfolio II then combine their respective share of the operating profits and losses of VMS National Properties Joint Venture with their respective operating profits and losses which is then allocated 98% to the respective limited partners and 2% to the respective general partners of both Portfolio I and Portfolio II. Operating cash flow distributions for Portfolio I and Portfolio II will be made at the discretion of the Managing General Partner subject to the order of distribution indicated in the Venture's Second Amended and Restated Plan of Reorganization (the "Plan") as approved by the US Bankruptcy Court in September 1993. Such distributions will be allocated first to the respective Limited Partners in an amount equal to 12% per year (on a noncumulative basis) of their contributed capital; then, to the general partners, a subordinated incentive fee equal to 10.45% of remaining operating cash flow; and finally, of the balance to be distributed, 98% to the Limited Partners and 2% to the general partners. Distributions of proceeds arising from the sale or refinancing of the Venture's properties will be allocated to Portfolio I and Portfolio II in proportion to their respective Venture interests subject to the order of distribution indicated in the Plan and approved by Bankruptcy Court. Distributions by Portfolio I and Portfolio II will then be allocated as follows: (1) first to the Limited Partners in an amount equal to their aggregate capital contributions; (2) then to the general partners in an amount equal to their aggregate capital contributions; (3) then, among the Limited Partners, an amount equal to $62,000,000 multiplied by the respective percentage interest of Portfolio I or Portfolio II in the Venture; and (4) finally, of the balance, 76% to the Limited Partners and 24% to the general partners. In any event, there shall be allocated to the general partners not less than 1% of profits or losses. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Fair Value of Financial Instruments: Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined in the SFAS as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Venture believes that the carrying amounts of its financial instruments (except for long term debt) approximate their fair values due to the short term maturity of these instruments. The fair value of the Venture's first mortgages, after discounting the scheduled loan payments to maturity, is approximately $111,703,000, however, the Venture is precluded from refinancing the first mortgage until January 2007. The Managing General Partner believes that it is not appropriate to use the Venture's incremental borrowing rate for the second mortgages, the Assignment Note and the long term arrangement fee, as there is currently no market in which the Venture could obtain similar financing. Therefore, the Managing General Partner considers estimation of fair value to be impracticable for this indebtedness. Cash and Cash Equivalents: Includes cash on hand and in banks. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. At December 31, 2001 and 2000, cash balances included approximately $4,957,000 and $616,000, respectively, that are maintained by an affiliated management company on behalf of affiliated entities in cash concentration accounts. Tenant Security Deposits: The Venture 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 consist of fifteen apartment complexes and are stated at cost. Acquisition fees are capitalized as a cost of real estate. In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded 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. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. No adjustments for impairment of value were recorded in the years ended December 31, 2001, 2000 or 1999. See "Recent Accounting Pronouncements" below. Escrows: In connection with the December 1997 refinancing of the Venture's 15 remaining properties, a replacement escrow was required for each property. Each property was required to deposit an initial lump sum amount plus make monthly deposits over the term of the loan, which varies by property. These funds are to be used to cover replacement costs. The balance of the replacement reserves at December 31, 2001 and 2000 is approximately $1,460,000 and $4,279,000, respectively, including interest. Depreciation: Depreciation is computed by the straight-line method over estimated useful lives ranging from 25 to 29 years for buildings and improvements and the 150% or 200% declining balance method for five to fifteen years for personal property. Leases: The Venture generally leases apartment units for twelve-month terms or less. The Venture recognizes income as earned on its 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. Segment Reporting: SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" 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 established standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Partnership has only one reportable segment. The Managing General Partner believes that segment-based disclosures will not result in a more meaningful presentation than the combined financial statements as currently presented. Advertising Costs: The Venture expenses the cost of advertising as incurred. Advertising costs of approximately $351,000, $355,000 and $355,000, are included in operating expense for the years ended December 31, 2001, 2000, and 1999, respectively. Deferred Gain on Extinguishment of Debt: When senior and junior loans refinanced in 1997, senior loans were recorded at the agreed valuation amount of $110,000,000, which was less than the $152,225,000 face amount of the senior debt. If the Venture defaults on the mortgage notes payable or is unable to pay the outstanding agreed valuation amounts upon maturity, then the note face amounts become due. Accordingly, the Venture deferred recognition of a gain of $42,225,000, which is the difference between the note face amounts and the agreed valuation amounts. Income Taxes: Taxable income or loss of the Venture is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Venture. Reclassification: Certain reclassifications have been made to the 2000 information to conform to the 2001 presentation. Recent Accounting Pronouncements: In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 provides accounting guidance for financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Managing General Partner does not anticipate that its adoption will have a material effect on the financial position or results of operations of the Partnership. Note B - Transfer of Control Pursuant to a series of transactions which closed on October 1, 1998, and February 26, 1999, Insignia and IPT merged into AIMCO, a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the Managing General Partner. The Managing General Partner does not believe that this transaction has had or will have a material effect on the affairs and operations of the Venture. Note C - Mortgage Notes Payable
Principal Principal Monthly Principal Balance At Balance At Payment Balance December 31, December 31, Including Due At Property 2001 2000 Interest Maturity (in thousands) (in thousands) North Park Apartments 1st mortgage $ 6,052 $ 6,135 $ 51 $ 5,376 2nd mortgage 1,977 1,860 (A) (A) Chapelle Le Grande 1st mortgage 3,106 3,148 26 2,759 2nd mortgage 1,047 995 (A) (A) Terrace Gardens 1st mortgage 4,298 4,357 36 3,818 2nd mortgage 1,258 1,259 (A) (A) Forest Ridge Apartments 1st mortgage 5,711 5,789 48 5,073 2nd mortgage 1,156 1,706 (A) (A) Scotchollow 1st mortgage 28,204 28,590 236 25,054 2nd mortgage 7,914 8,415 (A) (A) Pathfinder Village 1st mortgage 13,032 13,210 109 11,576 2nd mortgage 3,443 4,075 (A) (A) Buena Vista Apartments 1st mortgage 4,795 4,861 40 4,260 2nd mortgage 1,180 1,360 (A) (A) Mountain View Apartments 1st mortgage 6,928 7,023 58 6,154 2nd mortgage 1,539 1,894 (A) (A) Crosswood Park 1st mortgage 5,390 5,463 45 4,788 2nd mortgage 1,018 1,343 (A) (A) Casa de Monterey 1st mortgage 3,971 4,024 33 3,479 2nd mortgage 1,153 1,232 (A) (A) The Bluffs 1st mortgage 3,605 3,654 30 3,202 2nd mortgage 1,159 1,097 (A) (A) Watergate Apartments 1st mortgage 2,805 2,844 23 2,492 2nd mortgage 853 827 (A) (A) Shadowood Apartments 1st mortgage 2,180 2,209 18 1,936 2nd mortgage 507 608 (A) (A) Vista Village Apartments 1st mortgage 3,215 3,259 27 2,856 2nd mortgage 1,048 988 (A) (A) Towers of Westchester Park 1st mortgage 11,730 11,890 98 10,420 2nd mortgage 2,998 3,617 (A) (A) Totals $133,272 $137,732 $878 $93,243
(A) Payments are based on excess monthly cash flow with any unpaid balance due at maturity. Excess monthly cash flow is defined as revenue generated from the operation of a property less: (1) operating expenses of the property; (2) the debt service payment for the senior loan; (3) the tax and insurance reserve deposit; and (4) the replacement reserve deposit. Interest rates are 8.50% and 10.84% for all first and second mortgages, respectively. All notes mature January 1, 2008. The senior debt includes prepayment penalties if repaid prior to January 1, 2007. All of the loans are cross-collaterized, but they are not cross-defaulted; therefore, a default by one property under the terms of its debt agreement does not in and of itself create a default under all of the senior and junior debt agreements. However, if the proceeds upon the sale or refinancing of any property are insufficient to fully repay the outstanding senior or junior debt related to that property, any deficiency is to be satisfied from the sale or refinancing of the remaining properties. Scheduled principal payments on mortgage notes payable subsequent to December 31, 2001 are as follows (in thousands): 2002 $ 1,565 2003 1,705 2004 1,832 2005 2,022 2006 2,201 Thereafter 123,947 $133,272 As principal payments for the junior loans are based upon monthly cash flow, all principal is assumed to be repaid at maturity. Note D - Notes Payable Assignment Note: The Venture executed a purchase money subordinated note (the "Assignment Note") payable to the VMS/Stout Venture, an affiliate of the former general partner, in exchange for the assignment by the VMS/Stout Venture of its interest in the contract of sale to the Venture. The Assignment Note is collateralized by the pledge from Portfolio I and Portfolio II of their respective interests in the Venture. In November 1993, VMS Realty Partners assigned its 50% interest in the VMS/Stout Venture to the Partners Liquidating Trust which was established for the benefit of the former creditors of VMS Realty Partners and its affiliates. At December 31, 2001 and 2000 the remaining $38,810,000 of the Assignment Note is non-interest bearing and is payable only after payment of debt of higher priority, including the senior and junior mortgage notes payable. Pursuant to SOP 90-7, the Assignment Note, the Long-Term Loan Arrangement Fee Note (as defined below) and related accrued interest were adjusted to the present value of amounts to be paid using an estimated current interest rate of 11.5%. Interest expense is being recognized through the amortization of the discount which totaled approximately $403,000 and $4,199,000 in 2000 and 1999, respectively. The discount became fully amortized in January 2000. Long-Term Loan Arrangement Fee Note: The Venture executed an unsecured, nonrecourse promissory note (the "Long-Term Loan Arrangement Fee Note") payable to the VMS/Stout Venture as consideration for arranging long-term financing. The note in the amount of $3,250,000 does not bear interest and is payable only after debt of a higher priority, including senior and junior mortgage loans have been repaid. Note E - Participating Mortgage Note AIMCO Properties LP, which owns the Managing General Partner and which is a controlled affiliate of AIMCO, purchased (i) the Junior Debt on November 19, 1999; (ii) a significant interest in the residual value of the properties on November 16, 1999, and (iii) a significant interest in the Bankruptcy Claims (as defined below) effective September 2000. These transactions occurred between AIMCO Properties, LP and an unrelated third party and thus had no effect on the combined financial statements of the Venture. Residual value is defined as the amount remaining from a sale of the Venture's investment properties or refinancing of the mortgages encumbering such investment properties after payment of selling or refinancing costs and repayment of the Senior and Junior Debt, plus accrued interest on each. The agreement states that the Venture will retain an amount equal to $13,500,000 plus accrued interest at 10% compounded monthly (the "Partnership Advance Account") from the proceeds. Interest began accruing on the Partnership Advance Account in 1993 when the bankruptcy plan was finalized. Any proceeds remaining after the Partnership Advance Account is fully funded are split equally (the "50/50 Split") between the Venture and AIMCO Properties, LP. The Venture must repay the Assignment Note, the Long-term Loan Arrangement Fee Note and other pre-petition claims (collectively the "Bankruptcy Claims") which collectively total approximately $42,139,000 from the Partnership Advance Account. Any amounts remaining in the Partnership Advance Account after payment of the Bankruptcy Claims are split 75% to the Venture and 25% to AIMCO Properties, LP. The Venture has recorded the estimated fair value of the participation feature as a liability and a debt discount of approximately $36,518,000. During the year ended December 31, 2001, the Venture amortized approximately $4,091,000 of the debt discount which is included in interest expense. The fair value of the participation feature was calculated based upon information currently available to the Managing General Partner and depends largely upon the fair value of the collateral properties. These fair values were determined using the net operating income of the properties capitalized at a rate deemed reasonable for the type of property adjusted for market conditions, the physical condition of the property and other factors. The Managing General Partner evaluates the fair value of the participation feature on an annual basis or as circumstances dictate that it should be analyzed. Note F - Casualty Gain During the year ended December 31, 2001, a net casualty gain of approximately $23,000 was recorded at Watergate Apartments. The casualty gain related to damage caused by an ice storm in December 2000. The gain was the result of the receipt of insurance proceeds of approximately $30,000 offset by approximately $7,000 of undepreciated fixed assets being written off. During the year ended December 31, 2001, a casualty gain of approximately $40,000 was recorded at Terrace Garden Apartments. The casualty gain related to wind damage in April 2001. The gain was the result of the receipt of insurance proceeds of approximately $58,000 offset by approximately $18,000 of undepreciated fixed assets being written off. Note G - Transactions With Affiliated Parties The Venture has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all Subpartnership activities. The Revised and amended Asset Management Agreement provides for (i) certain payments to affiliates for real estate advisory services and asset management of the Venture's retained properties for an annual compensation of $300,000 adjusted annually by the consumer price index and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Venture up to $100,000 per annum. Asset management fees of approximately $300,000 were paid to an affiliate of the Managing General Partner for each of the years ended December 31, 2001, 2000 and 1999. These fees are included in general and administrative expenses. Affiliates of the Managing General Partner are entitled to receive a percentage of the gross receipts from all of the Registrant's properties as compensation for providing property management services. The Registrant paid to such affiliates approximately $1,344,000, $1,238,000 and $1,160,000 for the years ended December 31, 2001, 2000 and 1999, respectively. Affiliates of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $100,000 for each of the years ended December 31, 2001, 2000 and 1999. These expenses are included in general and administrative expenses. During the years ended December 31, 2001, 2000 and 1999, the Venture paid fees related to construction management services provided by an affiliate of the Managing General Partner of approximately $940,000, $125,000 and $16,000, respectively. The construction management service fees are calculated based on a percentage of current and certain prior year additions to investment properties and are being depreciated over 15 years. An affiliate of the Managing General Partner received bookkeeping reimbursements in the amount of approximately $123,000, $131,000 and $142,000 for the years ended December 31, 2001, 2000 and 1999, respectively. These expenses are included in operating expenses. Prepetition property management fees were approved by the Bankruptcy Court for payment to a former affiliate. This allowed claim may be paid only from available Venture cash. At December 31, 2001 and 2000, the outstanding balance of $79,000 is included in other liabilities. In December 2001, an affiliate of the Managing General Partner loaned the Venture's investment properties approximately $3,590,000 to cover capital expenditures required at all of the properties. In accordance with the terms of the Partnership Agreement, interest is charged at the prime rate plus 3%. At December 31, 2001, the balance of the loan was approximately $3,590,000. Interest expense amounted to less than $1,000. During the year ended December 31, 2000, the Managing General Partner loaned the Venture approximately $15,000 to cover operational expenses required at Mountain View Apartments and Casa de Monterey. These loans were made in accordance with the terms of the Partnership Agreements. At December 31, 2001 and 2000, the balance of the loans was approximately $18,000 and $17,000, respectively, which includes accrued interest. Interest is charged at the prime rate plus 3%. Interest expense was approximately $1,000 and $2,000 for the years ended December 31, 2001 and 2000, respectively. Certain affiliates of the former general partners and the VMS/Stout Venture may be entitled to receive various fees upon disposition of the properties. These fees will be paid from the disposition proceeds and are subordinated to the distributions required by the bankruptcy plan. There were no property dispositions for which proceeds were received during the years ended December 31, 2001, 2000 or 1999. The junior debt is held by an affiliate of the Managing General Partner. The monthly principal and interest payments are based on monthly excess cash flow for each property, as defined in the mortgage agreement. During the year ended December 31, 2001, 2000 and 1999, the Venture recognized approximately $7,236,000, $3,353,000 and $3,444,000, respectively. Beginning in 2001, the Venture began insuring its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Venture insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the year ended December 31, 2001, the Venture paid AIMCO and its affiliates approximately $273,000 for insurance coverage and fees associated with policy claims administration. As a result of tender offers, AIMCO and its affiliates currently own 66.24 units of limited partnership interest in Portfolio I representing 10.29% of the outstanding limited partnership interests, along with the 2% general partner interest for a combined ownership in Portfolio I of 12.29%. AIMCO and its affiliates currently own 39.83 units of limited partnership interest in Portfolio II representing 14.92% of the outstanding limited partnership interests, along with the 2% general partner interest for a combined ownership in Portfolio II of 16.92%. The Venture is owned 70.69% by Portfolio I and 29.31% by Portfolio II which results in AIMCO and its affiliates currently owning 13.65% of the Venture. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnerships for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreements, unitholders holding a majority of the interests are entitled to take action with respect to a variety of matters which would include voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. When voting on matters, AIMCO would in all likelihood vote the units it acquired in a manner favorable to the interest of the Managing General Partner because of its affiliation with the Managing General Partner. Note H - Subscription Notes And Accrued Interest Receivable Portfolio I and Portfolio II executed promissory notes requiring cash contributions from the partners aggregating $136,800,000 to the capital of Portfolios I and II for 644 and 267 units, respectively. Of this amount, approximately $135,060,000 was contributed in cash through December 31, 2001, and $910,000 was deemed uncollectible and written-off prior to December 31, 2001. The following table represents the remaining Limited Partners' subscription notes principal balances and the related accrued interest receivable at December 31, 2001 (in thousands): Portfolio I Portfolio II Subscription notes receivable $502 $328 Accrued interest receivable 63 67 Allowance for uncollectible interest receivable (63) (67) Total subscription notes and accrued interest receivable $502 $328 All amounts outstanding at December 31, 2001, are considered past due and bear interest at the default rate of 18%. No interest will be recognized until collection is assured. Note I - Investment Properties and Accumulated Depreciation
Initial Cost (in thousands) Buildings and Costs Capitalized Provision to Related Personal Subsequent to Reduce to Description Encumbrances Land Property Acquisition Fair Value North Park Apartments $ 8,029 $ 557 $ 8,349 $ 1,929 $ -- Chapelle Le Grande 4,153 166 3,873 1,071 -- Terrace Garden 5,556 433 4,517 1,896 -- Forest Ridge Apartments 6,867 701 6,930 1,816 -- Scotchollow 36,118 3,510 19,344 7,277 -- Pathfinder Village 16,475 3,040 11,698 4,737 (1,250) Buena Vista Apartments 5,975 893 4,538 893 -- Mountain View Apartments 8,467 1,289 8,490 1,540 -- Crosswood Park 6,408 611 8,597 2,606 (2,000) Casa De Monterey 5,124 869 6,136 1,913 -- The Bluffs 4,764 193 3,667 799 -- Watergate Apartments 3,658 263 5,625 1,574 -- Shadowood Apartments 2,687 209 3,393 1,011 -- Vista Village Apartments 4,263 568 5,209 1,538 -- Towers Of Westchester Park 14,728 529 13,491 4,422 -- TOTAL $133,272 $13,831 $113,857 $35,022 $(3,250)
Gross Amount At Which Carried At December 31, 2001 (in thousands) Buildings Accum- And Related ulated Year of Date of Personal Deprec- Construc- Acquis- Depreciable Description Land Property Total iation tion ition Life Years North Park Apartments $ 557 $ 10,278 $ 10,835 $ 7,366 1968 11/14/84 5-27.5 Chapelle Le Grande 166 4,944 5,110 3,410 1972 12/05/84 5-27.5 Terrace Gardens 433 6,413 6,846 4,065 1973 10/26/84 5-27.5 Forest Ridge Apartments 701 8,746 9,447 6,112 1974 10/26/84 5-27.5 Scotchollow 3,510 26,621 30,131 18,512 1973 10/26/84 5-27.5 Pathfinder Village 2,753 15,472 18,225 9,956 1971 10/26/84 5-27.5 Buena Vista Apartments 893 5,431 6,324 3,848 1972 10/26/84 5-27.5 Mountain View Apartments 1,289 10,030 11,319 6,443 1978 10/26/84 5-29 Crosswood Park 471 9,343 9,814 6,000 1977 12/05/84 5-29 Casa De Monterey 869 8,049 8,918 5,394 1970 10/26/84 5-27.5 The Bluffs 193 4,466 4,659 3,151 1968 10/26/84 5-27.5 Watergate Apartments 263 7,199 7,462 4,971 1972 10/26/84 5-27.5 Shadowood Apartments 209 4,404 4,613 3,125 1974 11/14/84 5-27.5 Vista Village Apartments 568 6,747 7,315 4,525 1971 10/26/84 5-27.5 Towers Of Westchester 529 17,913 18,442 12,097 1971 10/26/84 5-27.5 Park TOTAL $13,404 $146,056 $159,460 $ 98,975
The aggregate cost of the investment properties for Federal income tax purposes at December 31, 2001 and 2000, is approximately $176,911,000 and $170,565,000, respectively. The accumulated depreciation for Federal income tax purposes at December 31, 2001 and 2000, is approximately $143,272,000 and $135,770,000, respectively. Reconciliation of Investment Properties and Accumulated Depreciation: 2001 2000 1999 Investment Properties Balance at beginning of year $153,102 $148,484 $146,627 Property improvements and replacements 6,434 4,618 1,857 Dispositions of property (76) -- -- Balance at end of year $159,460 $153,102 $148,484 Accumulated Depreciation Balance at beginning of year $ 92,727 $ 86,798 $ 80,798 Additions charged to expense 6,299 5,929 6,000 Dispositions of property (51) -- -- Balance at end of year $ 98,975 $ 92,727 $ 86,798 Note J - Income Taxes The following is a reconciliation of reported net loss per the financial statements to the Federal taxable loss to partners (in thousands): 2001 2000 1999 Net loss as reported $(2,910) $ (40) $(6,402) Depreciation differences (1,204) (1,233) (749) Unearned income (304) (577) 812 Casualty loss (63) -- -- Other 4,156 (80) 95 Federal taxable loss $ (325) $(1,930) $(6,244) The following is a reconciliation between the Venture's reported amounts and Federal tax basis of net liabilities at December 31, 2001 and 2000 (in thousands): 2001 2000 Net liabilities as reported $(160,954) $(158,044) Land and buildings 17,451 17,460 Accumulated depreciation (44,297) (43,043) Syndication costs 17,650 17,650 Deferred gain 42,225 42,225 Other deferred costs 9,601 9,601 Other (53,345) (53,102) Notes payable 4,882 4,882 Subscription notes receivable 1,837 1,837 Mortgage payable (47,727) (47,727) Residual proceeds liability 4,091 -- Accrued interest 9,571 9,571 Net liabilities - Federal tax basis $(199,015) $(198,690) Note K - Legal Proceedings The Venture is unaware of any pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. Note L - Selected Quarterly Financial Data (Unaudited) The following is a summary of the unaudited quarterly results of operations for the Venture (in thousands, except per interest data):
1st 2nd 3rd 4th 2001 Quarter Quarter Quarter Quarter Total Total revenues $ 8,235 $ 8,449 $ 8,329 $ 8,236 $33,249 Total expenses 7,925 9,833 9,288 9,113 36,159 Net income (loss) $ 310 $(1,384) $ (959) $ (877) $(2,910) Net income (loss) per limited partnership interest: Portfolio I (644 interests issued and outstanding) $ 334 $(1,489) $(1,031) $ (944) $(3,130) Portfolio II (267 interests issued and outstanding) $ 333 $(1,490) $(1,030) $ (944) $(3,131) 1st 2nd 3rd 4th 2000 Quarter Quarter Quarter Quarter Total Total revenues $ 7,461 $ 7,676 $ 7,889 $ 7,989 $31,015 Total expenses 7,958 7,664 7,734 7,699 31,055 Net (loss) income $ (497) $ 12 $ 155 $ 290 $ (40) Net (loss) income per limited partnership interest: Portfolio I (644 interests issued and outstanding) $ (535) $ 13 $ 168 $ 311 $ (43) Portfolio II (267 interests issued and outstanding) $ (536) $ 15 $ 165 $ 311 $ (45)
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 The Partnerships have no officers or directors. The Managing General Partner manages substantially all of the affairs and has general responsibility in all matters affecting the business of the Venture. Effective December 12, 1997, the managing general partner of each of the Partnerships was transferred from VMS Realty Investment, Ltd. ("VMSRIL") (formerly VMS Realty Partners) to MAERIL, Inc. ("MAERIL" or the "Managing General Partner"), a wholly-owned subsidiary of MAE GP Corporation ("MAE GP") and an affiliate of Insignia Financial Group, Inc. ("Insignia"). Effective February 25, 1998, MAE GP was merged with Insignia Properties Trust ("IPT"), which is an affiliate of Insignia. Effective October 1, 1998 and February 26, 1999; Insignia and IPT were respectively merged into Apartment Investment and Management Company ("AIMCO"). Thus, the Managing General Partner is now a wholly-owned subsidiary of AIMCO. The names of the directors and executive officers of the Managing General Partner, their ages and the nature of all positions with the Managing General Partner presently held by them are set forth below. There are no family relationships between or among any officers or directors. Name Age Position Patrick J. Foye 44 Executive Vice President and Director Martha L. Long 42 Senior Vice President and Controller 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. Martha L. Long has been Senior Vice President and Controller of the Managing General Partner since October 1998 as a result of the acquisition of Insignia Financial Group, Inc. As of February 2001, Ms. Long was also appointed head of the service business for AIMCO. From June 1994 until January 1997, she was the Controller for Insignia, and was promoted to Senior Vice President - Finance and Controller in January 1997, retaining that title until October 1998. From 1988 to June 1994, Ms. Long was Senior Vice President and Controller for The First Savings Bank, FSB in Greenville, South Carolina. One or more of the above persons are also directors and/or officers of a general partner (or general partner of a general partner) of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act. Further, one or more of the above persons are also directors and/or officers of Apartment Investment and Management Company and the general partner of AIMCO Properties, L.P., entities that have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15 (d) of such Act. The executive officers and director of the Managing General Partner fulfill the obligations of the Audit Committee and oversee the Venture's financial reporting process on behalf of the Managing General Partner. Management has the primary responsibility for the combined financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the executive officers and director of the Managing General Partner reviewed the audited financial statements with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The executive officers and director of the Managing General Partner reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States, their judgments as to the quality, not just the acceptability, of the Venture's accounting principles and such other matters as are required to be discussed with the Audit Committee or its equivalent under auditing standards generally accepted in the United States. In addition, the Venture has discussed with the independent auditors the auditors' independence from management and the Venture including the matters in the written disclosures required by the Independence Standards Board and considered the compatibility of non-audit services with the auditors' independence. The executive officers and director of the Managing General Partner discussed with the Venture's independent auditors the overall scope and plans for their audit. In reliance on the reviews and discussions referred to above, the executive officers and director of the Managing General Partner have approved the inclusion of the audited financial statements in the Form 10-K for the year ended December 31, 2001 for filing with the Securities and Exchange Commission. The Managing General Partner has reappointed Ernst & Young LLP as independent auditors to audit the combined financial statements of the Venture for the current fiscal year. Fees for the last fiscal year were audit services of approximately $126,000 and non-audit services (principally tax-related) of approximately $69,000. Item 11. Executive Compensation No compensation or remuneration was paid by the Venture to any officer or director of the Managing General Partner. However, reimbursements and other payments have been made to the Venture's current and former managing general partners and their affiliates, as described in "Item 13. Certain Relationships and Related Transactions". Item 12. Security Ownership of Certain Beneficial Owners and Management (a) Security ownership of certain beneficial owners. Except as noted below, no persons or entity owns of record or is known by the Venture to own beneficially more than 5% of the outstanding Interests of either of the Partnerships as of December 31, 2001. Entity Number of Units Percentage National Residential Portfolio I AIMCO Properties, LP 66.24 10.29% (an affiliate of AIMCO) National Residential Portfolio II AIMCO Properties, LP 39.83 14.92% (an affiliate of AIMCO) AIMCO Properties, LP is indirectly ultimately controlled by AIMCO. Its business address is 2000 South Colorado Boulevard, Denver, Colorado. (b) Security ownership of management. No officers or directors of MAERIL or of Prudential-Bache Properties, Inc., the general partners of the Partnerships, own any Limited Partnership Interests in the Partnerships. No general partners, officers or directors of the general partners of the Venture possess the right to acquire a beneficial ownership of Interests of either of the Partnerships. (c) Change in control Pursuant to a series of transactions which closed on October 1, 1998, and February 26, 1999, Insignia Financial Group, Inc. ("Insignia") and Insignia Properties Trust merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the Managing General Partner. The Managing General Partner does not believe that this transaction has had or will have a material effect on the affairs and operations of the Venture. Item 13. Certain Relationships and Related Transactions The Venture has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all Subpartnership activities. The Revised and amended Asset Management Agreement provides for (i) certain payments to affiliates for real estate advisory services and asset management of the Venture's retained properties for an annual compensation of $300,000 adjusted annually by the consumer price index and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Venture up to $100,000 per annum. Asset management fees of approximately $300,000 were paid to an affiliate of the Managing General Partner for each of the years ended December 31, 2001, 2000 and 1999. These fees are included in general and administrative expenses. Affiliates of the Managing General Partner are entitled to receive a percentage of the gross receipts from all of the Registrant's properties as compensation for providing property management services. The Registrant paid to such affiliates approximately $1,344,000, $1,238,000 and $1,160,000 for the years ended December 31, 2001, 2000 and 1999, respectively. Affiliates of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $100,000 for each of the years ended December 31, 2001, 2000 and 1999. These expenses are included in general and administrative expenses. During the years ended December 31, 2001, 2000 and 1999, the Venture paid fees related to construction management services provided by an affiliate of the Managing General Partner of approximately $940,000, $125,000 and $16,000, respectively. The construction management service fees are calculated based on a percentage of current and certain prior year additions to investment properties and are being depreciated over 15 years. An affiliate of the Managing General Partner received bookkeeping reimbursements in the amount of approximately $123,000, $131,000 and $142,000 for the years ended December 31, 2001, 2000 and 1999, respectively. These expenses are included in operating expenses. Prepetition property management fees were approved by the Bankruptcy Court for payment to a former affiliate. This allowed claim may be paid only from available Venture cash. At December 31, 2001 and 2000, the outstanding balance of $79,000 is included in other liabilities. In December 2001, an affiliate of the Managing General Partner loaned the Venture's investment properties approximately $3,590,000 to cover capital expenditures required at all of the properties. In accordance with the terms of the Partnership Agreement, interest is charged at the prime rate plus 3%. At December 31, 2001, the balance of the loan was approximately $3,590,000. Interest expense amounted to less than $1,000. During the year ended December 31, 2000, the Managing General Partner loaned the Venture approximately $15,000 to cover operational expenses required at Mountain View Apartments and Casa de Monterey. These loans were made in accordance with the terms of the Partnership Agreements. At December 31, 2001 and 2000, the balance of the loans was approximately $18,000 and $17,000, respectively, which includes accrued interest. Interest is charged at the prime rate plus 3%. Interest expense was approximately $1,000 and $2,000 for the years ended December 31, 2001 and 2000, respectively. Certain affiliates of the former general partners and the VMS/Stout Venture may be entitled to receive various fees upon disposition of the properties. These fees will be paid from the disposition proceeds and are subordinated to the distributions required by the Plan. There were no property dispositions for which proceeds were received during the years ended December 31, 2001, 2000 or 1999. The junior debt is held by an affiliate of the Managing General Partner. The monthly principal and interest payments are based on monthly excess cash flow for each property, as defined in the mortgage agreement. During the year ended December 31, 2001, 2000 and 1999, the Venture recognized approximately $7,236,000, $3,353,000 and $3,444,000, respectively. Beginning in 2001, the Venture began insuring its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Venture insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the year ended December 31, 2001, the Venture paid AIMCO and its affiliates approximately $273,000 for insurance coverage and fees associated with policy claims administration. As a result of tender offers, AIMCO and its affiliates currently own 66.24 units of limited partnership interest in Portfolio I representing 10.29% of the outstanding limited partnership interests, along with the 2% general partner interest for a combined ownership in Portfolio I of 12.29%. AIMCO and its affiliates currently own 39.83 units of limited partnership interest in Portfolio II representing 14.92% of the outstanding limited partnership interests, along with the 2% general partner interest for a combined ownership in Portfolio II of 16.92%. The Venture is owned 70.69% by Portfolio I and 29.31% by Portfolio II which results in AIMCO and its affiliates currently owning 13.65% of the Venture. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnerships for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreements, unitholders holding a majority of the interests are entitled to take action with respect to a variety of matters which would include voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. When voting on matters, AIMCO would in all likelihood vote the units it acquired in a manner favorable to the interest of the Managing General Partner because of its affiliation with the Managing General Partner. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following combined financial statements of the Registrant are included in Item 8: Combined Balance Sheets at December 31, 2001 and 2000. Combined Statements of Operations for the years ended December 31, 2001, 2000 and 1999. Combined Statements of Changes in Partners' Deficit for the years ended December 31, 2001, 2000 and 1999. Combined Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999. Notes to Combined Financial Statements Schedules are omitted for the reason that they are inapplicable or equivalent information has been included elsewhere herein. The following items are incorporated by reference: Part V - Amended Restated Certificate and Agreement of: Item 1(b)(i) Limited Partnership of VMS National Residential Portfolio I. Item 1(b)(ii) Limited Partnership of VMS National Residential Portfolio II. Item 1(b)(iii) Joint Venture Agreement between VMS National Residential Portfolio I and VMS National Residential Portfolio II. (b) Reports on Form 8-K: None filed during the quarter ended December 31, 2001. (c) Exhibits: See Exhibit Index EXHIBIT INDEX Exhibit No. Description 3 and 21 Portions of the Prospectus of the Partnership dated May 15, 1986 as supplemented by Supplement Numbers 1 through 7 dated December 18, 1986, February 11, 1987, March 31, 1987, August 19, 1987, January 4, 1988, April 18, 1988 and June 30, 1988 as filed with the Commission pursuant to Rule 424(b) and (c), as well as the Restated Limited Partnership Agreement set forth as Exhibit A to the Prospectus, are hereby incorporated by reference, specifically pages 15 - 21, 44 - 68, 76, 86 - 90, 106 - 108, A9 - A13, A16 - A20 and Supplements Numbers 1 and 2. 10.1 Stipulation Regarding Entry of Agreed Final Judgment of Foreclosure and Order Relieving Receiver of Obligation to Operate Subject Property - Kendall Mall is incorporated by reference to the Form 10-QSB dated June 30, 1995. 10.2 Form of Amended, Restated and Consolidated Senior Secured Promissory Note between the Venture and MF VMS, L.L.C. relating to each of the Venture's properties. 10.3 Form of Amended, Restated and Consolidated Junior Secured Promissory Note between the Venture and MF VMS, L.L.C. relating to each of the Venture's properties. 11 Calculation of Net Loss Per Investor. 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. VMS NATIONAL PROPERTIES JOINT VENTURE (Registrant) VMS National Residential Portfolio I By: MAERIL, Inc. Managing General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Martha L. Long Martha L. Long Senior Vice President and Controller VMS National Residential Portfolio II By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Martha L. Long Martha L. Long Senior Vice President and Controller Date: Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/Patrick J. Foye Date: Patrick J. Foye Executive Vice President and Director /s/Martha L. Long Date: Martha L. Long Senior Vice President and Controller Exhibit 11 VMS NATIONAL PROPERTIES JOINT VENTURE CALCULATION OF NET LOSS PER INVESTOR (in thousands, except per unit data)
For the Years Ended December 31, 2001 2000 1999 VMS National Properties net loss $(2,910) $ (38) $(6,272) Portfolio I net loss -- (1) (63) Portfolio II net loss -- (1) (67) Combined net loss $(2,910) $ (40) $(6,402) Portfolio I allocation: 70.69% $(2,057) $ (27) $(4,433) -- (1) (63) $(2,057) $ (28) $(4,496) Net loss to general partner (2%) $ (41) $ (1) $ (90) Net loss to limited partners (98%) $(2,016) $ (27) $(4,406) Number of Limited Partner interests 644 644 644 Net loss per limited Partnership interest $(3,130) $ (43) $(6,842) Portfolio II allocation: 29.31% $ (853) $ (11) $(1,839) -- (1) (67) $ (853) $ (12) $(1,906) Net loss to general partner (2%) $ (17) $ -- $ (38) Net loss to limited partners (98%) $ (836) $ (12) $(1,868) Number of Limited Partner interests 267 267 267 Net loss per limited Partnership interest $(3,131) $ (45) $(6,992)