10-K 1 0001.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period __________________________to ______________________ Commission file number 0-16798 SECURED INVESTMENT RESOURCES FUND, L.P. II (Exact name of registrant as specified in its charter) Delaware 36-3451000 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5453 W. 61st Place, Mission, Kansas 66205 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (913) 362-0200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests ("Units") Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X 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] PART I Item 1. Business Secured Investment Resources Fund, L.P. II ("Partnership") is a Delaware limited partnership formed pursuant to the Delaware Revised Uniform Limited Partnership Act on July 1, 1986. James R. Hoyt is the Individual General Partner and Secured Investment Resources, II Inc., a Missouri corporation, is the Corporate General Partner. The Partnership has no predecessors or subsidiaries. The Partnership was formed with the intent to engage in the business of acquiring, improving, developing, operating and holding for investment, income-producing real properties with the objectives of (i) preserving and protecting the Partnership's capital; (ii) providing cash distributions from operations; (iii) providing capital growth through property appreciation; and (iv) increasing equity in property ownership by the reduction of mortgage loans on Partnership properties. The term of the partnership is sixty (60) years from the date of the Partnership Agreement September 25, 1986, or the date of which all the assets acquired by the partnership are sold or converted to cash. On September 24, 1988, the Partnership closed its offering, having received gross proceeds of $26,830,500 from the sale of 53,661 units of limited partnership interests. The Partnership originally acquired eight properties, which included four apartment communities, three shopping centers and a health care facility. The General Partners feel that all of these properties met the Partnership's investment criteria and objectives. Since the inception of the Partnership, three properties (two apartment community and one shopping center) have been sold. As of December 31, 1998, the Partnership has made cash distributions to Limited Partners of $5,046,241 for the period April 1, 1987 through December 31, 1998. The Partnership made a distribution of $321,786 during the year ending December 31, 1998. Future distributions will only be made from excess cash flow not needed for working capital reserves. As of December 31, 1998, the Partnership had no employees. As of January 1, 1995, employees of SPECS, Inc. provide property management services to the Partnership (as described in Note D). James R. Hoyt, a General Partner, is the principal and owner of 100% of SPECS, Inc. as of December 31, 1998. Item 1. Business--Cont'd. Competition The real estate business is highly competitive and the Partnership competes with numerous entities engaged in real estate activities, some of which have greater financial resources than those of the Partnership. The Partnership's management believes that success against such competition is dependent upon the geographic location of the property, the performance of property managers, the amount of new construction in the area and the maintenance and appearance of the property. With respect to residential property, competition is also based upon the design and mix of the units and the ability to provide a community atmosphere for the tenants. The Partnership's management believes that general economic circumstances and trends and new properties in the vicinity of each of the Partnership's properties will also be competitive factors. Inflation The effects of inflation on the Partnership's operations or investments are not quantifiable. Revenues from property operations fluctuate proportionately with increases and decreases in housing costs. Fluctuations in the rate of inflation also affect the sales values of properties and, correspondingly, the ultimate gains to be realized by the Partnership from property sales. Item 2. Properties. The following table sets forth the investment portfolio of the Partnership at December 31, 1998: Average Properties at Occupancy(*) Property Description Initial Cost Date Acquired Percentage 1998 1997 Sunwood Village Apartments 252 Units $10,954,651 May 15, 1987 88% 83% Las Vegas, NV Bayberry Crossing Shopping Center 56,113 Sq.Ft. $ 4,175,012 Jun. 30, 1987 91% 88% Lee's Summit, MO Oak Terrace Active Retirement Center 129 Units $ 8,604,769 Aug. 31, 1988 97% 97% Springfield, IL Oak Terrace Healthcare 98 Beds $ 3,980,340 Aug. 31, 1988 100% 100% Center Springfield, IL Forest Park Shopping Center 19,980 Sq.Ft. $ 2,871,199 Nov. 23, 1988 97% 100% St. Louis, MO (*) Based upon vacancy amount (in dollars) as a percent of gross possible rents. (Gross possible rents is calculated by multiplying established market rates for each unit type by the total unit mix). The encumbrances against each property are described in Note C to the Partnership's consolidated financial statements. Item 3. Legal Proceedings. None. Item 4. Submission of Matters to a Vote of Security Holders. None. PART II Item 5. Market for Registrant's Common Equity and Related Security Holder Matters. (A) There is no established public trading market for the Units of the Partnership. (B) There were no distributions for the years ended December 31, 1996 and 1997. During 1998 distributions of $321,786 were made. (C) As of December 31, 1998, the Partnership had admitted 2,722 Limited Partners who have purchased 53,661 units. (The remainder of this page left blank intentionally.) Item 6. Selected Financial Data. Years Ended December 31, OPERATING DATA 1998 1997 1996 1995 1994 (In Thousands) Rents $ 5,675 5,792 5,917 5,583 5,435 Maintenance Escalations and Other Income 307 314 281 314 256 Property Operating Expenses 3,338 3,192 3,101 3,021 2,878 Depreciation/ Amortization 1,303 1,501 1,461 1,388 1,380 Net operating income 1,341 1,413 1,636 1,488 1,433 Interest Expense (1) 2,288 2,248 2,242 2,429 2,322 Gain on sale (4) 2,076 --- --- --- --- Net Income/Loss before extraordinary gain 1,129 (606) (941) (889) Extraordinary gain on debt restructuring --- --- 413 890 --- Partnership Income (Loss) $ 1,129 $ (835) (193) (51) (889) Partnership Income (Loss) Per Limited Partnership Unit (2) Operating Loss $ (20.78) (15.41) (11.19) (17.36) (16.40) Extraordinary Gain on debt restructuring --- --- 7.62 16.42 --- $ 20.78 (15.41) (3.57) (.94) (16.40) Cash Distributions Per Limited Partnership Unit (3) $ 6.00 --- --- --- --- BALANCE SHEET DATA 1998 1997 1996 1995 1994 (In Thousands) Total Assets $23,748 $29,005 $29,702 $30,294 $30,963 Mortgage Debt $22,416 $27,442 $27,474 $27,581 $28,556 (1) Certain reclassifications have been made from interest expense to amortization to more accurately reflect the change in the bond discount amortization related to the Oak Terrace bond financing. There was no income effect as a result of these reclassifications. Item 6. Selected Financial Data--Cont'd. (2) Partnership income (loss) per limited partnership unit is computed by dividing the income (loss) allocated to the Limited Partners by the weighted average number of limited partnership units outstanding. Per unit information has been computed based on 53,661 weighted average limited partnership units outstanding. (3) Cash distributions per limited partnership unit has been computed by dividing distributions paid to the Limited Partners by 53,661 limited partnership units outstanding. (4) In September 1998, the Partnership consummated a settlement agreement in which it sold Thomasbrook Apartments to a third party. As a result of the sale, a $2,075,587 gain on disposition of the asset was recorded. (The remainder of this page intentionally left blank.) Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations 1998 vs 1997 Revenues for the Partnership (excluding revenues attributed to the Thomasbrook Apartments which had revenues of $727,000 and $1,063,000 during 1998 and 1997 respectively) increased $213,000 in 1998 from 1997. This 4.2% increase is attributable to the increase of 5% in the occupancy of the residential properties and the increase rental rates charged to the commercial properties. The Thomasbrook Apartments were managed by a receiver during 1998 and was sold during September 1998. Revenues from properties operating during both years continued to increase their rental rates. Occupancy rates are expected to remain at the current high levels and rental rates will improve during 1999 producing increased revenues in 1999. Operating expenses including property administrative expenses (excluding expenses attributed to the Thomasbrook Apartments which were $544,000 and $577,000 during 1998 and 1997 respectively) increased $58,000 in 1998 from 1997. This 2% increase is related to increased expenses on residential properties. These expenses relate to increases in fees for services and repairs and maintenance. The increased repairs and maintenance resulted from an ongoing renovation program at one of the properties. Additional expenses were incurred on commercial properties for legal fees and commissions on new leases. The professional fees incurred by the Partnership increased by $102,000 in 1998 from 1997 primarily due to the legal proceedings with the lender and the subsequent sale of Thomasbrook Apartments. Management fees increased $12,000 in 1998 from 1997 for the properties excluding Thomasbrook Apartments. Interest expense (excluding interest expense attributed to the Thomasbrook Apartments of $307,000 and $450,000 during 1998 and 1997 respectively) increased $33,000 in 1998 from 1997 due to the increase in the variable rate on the Oak Terrace Active Retirement Center note agreement during 1998 as compared to 1997 and refinancing fees included with interest expense which accounted for $17,000 of the increase. The Partnership expects that the operating results for 1999 will continue to improve based on strong occupancy of the remaining properties and the rental rates in place at each property. The disposition of the Thomasbrook Apartments will have a positive impact on the net operating income of the Partnership as the property could not produce revenue to fund operating expenses or service its financing agreement. 1997 vs 1996 When comparing 1997 and 1996 operations, total revenues decreased $92,000 (1.5%) primarily due to decreased occupancy on both residential and one of the commercial properties. Interest expense increased $6,000 (.2%) to $2,248,000 for 1997. Depreciation and amortization went from $1,461,000 in 1996 to $1,501,000 in 1997, an increase of $40,000 (2.8%). Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Cont'd. Results of Operations--Cont'd. Total property operating expenses for 1997 increased $91,000 (3.5%) from 1996 levels. Professional services increased $53,000 (65.1%) due primarily as a result of legal expense related to the Thomasbrook lender claims and subsequent sale. Management fees decreased $14,000 (4.9%) while general and administrative expenses remained stable. In 1997 the loss before extraordinary item increased from ($606,000) in 1996 to ($835,000) in 1997 (37.8%). The General Partners anticipate 1999 operating results will continue to improve over 1998 and 1997 as a result of the continued planned increase in rental rates and decreased rental incentives. This planned increase in net rental income will be combined with continued efforts to reduce expenses. Liquidity and Capital Resources During 1998, the primary source of cash flow was provided by net cash provided by operating activities of $465,000. Investing activities for new equipment and additional bond reserves consumed $329,000 and financing activities consumed an additional $454,000. The cash used in financing activities included a cash distribution of $322,000 to the limited partners, which is equal to $6.00 per limited partnership unit. The net result was a decrease in cash of $317,000 during the year. Because the sale of the Thomasbrook Apartments, the liquidity and financial condition of the Partnership is expected to improve. The cash generated from operations of the Thomasbrook Apartments was insufficient to service the mortgage on the property. During 1997, the primary source of cash flow was provided by net cash provided by operating activities of $811,000. Investing activities for new equipment and additional bond reserves consumed $322,000 and financing activities consumed an additional $182,000. This resulted in an increase of cash of $306,000 during the year. Accrued interest increased during the year by $115,000. Thomasbrook Apartments' principal of $4,984,000 and accrued interest of $723,000 was past due during 1997. The cash generated from operations for that property is insufficient to service the mortgage under the current payment requirements. The General Partner has had ongoing negotiations with the lender concerning a complete restructure of the mortgage and related debt service. In December 1997, the mortgage lender initiated foreclosure proceedings and appointed a receiver. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Cont'd. Liquidity and Capital Resources--Cont'd. During 1996, the primary source of cash flow was provided by net cash provided by operating activities of $1,029,000. Investing activities for new equipment and additional bond reserves consumed $378,000 and financing activities consumed an additional $612,000. This resulted in an increase of cash of $39,000 during the year. Accrued interest decreased during the year by $4,000. On May 17, 1996 the Partnership refinanced the matured first mortgage on Sunwood Village Apartments. The terms of the new mortgage are interest at 8.625% with monthly principal and interest payments of $63,000 through the loan maturity date of June 1, 2001 (5 years). The Partnership recognized a gain of $352,000 refinancing the note due in 1996. All of the deferred interest relating to the original note was forgiven by the Lender. On November 21, 1996 the Partnership refinanced the first and second mortgage on Bayberry Crossing Shopping Center. The terms of the new mortgage are 8.25% interest with monthly principal and interest payments of $22,000 through the loan maturity date of November 10, 1999 (three years). The Partnership recognized a gain of $61,000 upon refinancing of the notes due in 1996. All of the deferred interest, accrued interest and late charges relating to the original note were forgiven by the lender. The General Partners believe that sufficient working capital will be available during 1999 to fund known, on-going operating and capital requirements of the Partnership. In 1999, the Partnership anticipates cash flow from operations will improve because management intends to 1) improve occupancy on the commercial properties; 2) achieve rental rate increases; 3) decrease the amount of promotional rent discounts offered on the residential properties; and 4) continue to maintain stringent controls over expenses. The General Partners intend to evaluate the property portfolio to determine if it is prudent to offer one or more properties for sale or possibly restructure the related financing packages. Any unleveraged portion of the net sales proceeds or favorable refinancing terms will generate additional working capital. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Cont'd. Year 2000 The Partnership is currently dependent upon the General Partners and SPECS, Inc. ("SPECS") for management and administrative services. It is anticipated that the General Partners and SPECS will have to modify or replace portions of their software so that the computer systems will function properly with respect to dates in the year 2000 and thereafter (the "Year 2000 Issue"). During 1999, the General Partners and SPECS, Inc. did install a Year 2000 compliant software system on the properties. The cost of the conversion was not material. The general partners believe that with modifications to existing software and conversion to new software, the Year 2000 Issue did not and will not pose significant operational problems for its computer systems. Inflation The effects of inflation on the Partnership's operations or investments are not quantifiable. Revenues from property operations fluctuate proportionately with increases and decreases in housing costs. Fluctuations in the rate of inflation also affect the sales values of properties and, correspondingly, the ultimate gains to be realized by the Partnership from property sales. New Accounting Standards In April 1998, the Accounting Standards Executive Committee issued Statement of Position 98-5 Reporting on the Costs of Start-Up Activities. SOP 98-5 provides guidance on the financial reporting of start up costs and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. The SOP broadly defines start-up activities and provides examples to help entities determine what costs are and are not within the scope of this SOP. The SOP applies to all nongovernmental entities and, in general, is effective for financial statements for fiscal years beginning after December 15, 1998. The Partnership does not expect this SOP to have a significant effect on its financial statement when it becomes effective in calendar 1999. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Cont'd. New Accounting Standards--Cont'd In June 1998, the Financial Accounting Standards Board Issued SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133 requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Historically, the Partnership has not entered into derivatives contracts either to hedge existing risks or for speculative purposes. Accordingly, the Partnership does not expect adoption of the new standard on January 1, 2001 to affect its financial statements. Quantitative and Qualitative Disclosure about Market Risk The Partnership is exposed to interest rate changes primarily as a result of its real estate mortgages. The Partnership's interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives, the Partnership borrows at fixed rates. The Partnership does not enter into derivative or interest rate transactions for any purpose. Item 8. Financial Statements and Supplementary Data. SECURED INVESTMENT RESOURCES FUND, L.P. II Index Page Report of Independent Certified Public Accountants 14 Financial Statements: Balance Sheets - December 31, 1998 and 1997 15-16 Statements of Operations - Years Ended December 31, 1998, 1997 and 1996 17 Statements of Partnership Capital (Deficit) - Years Ended December 31, 1998, 1997 and 1996 18 Statements of Cash Flows - Years Ended December 31, 1998, 1997 and 1996 19-20 Notes to Financial Statements 21-33 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Partners Secured Investment Resources Fund, L.P. II Mission, KS We have audited the accompanying balance sheets of Secured Investment Resources Fund, L.P. II as of December 31, 1998 and 1997, and the related statements of operations, partnership capital (deficit) and cash flows for each of the three years in the period ended December 31, 1998. We have also audited the schedules listed in the accompanying index. These financial statements and schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedules based upon our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedules are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedules. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedules. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Secured Investment Resources Fund, L.P. II at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Also in our opinion, the schedules present fairly, in all material respects, the information set forth therein. s/ BDO Seidman, LLP St. Louis, Missouri February 17, 1999 SECURED INVESTMENT RESOURCES FUND, L.P. II BALANCE SHEETS December 31, 1998 1997 ASSETS INVESTMENT PROPERTIES (Notes B and C) Land and buildings $ 30,458,599 $ 36,499,896 Furniture, fixtures and equipment 1,695,055 2,095,961 32,153,654 38,595,857 Less accumulated depreciation and allowance for losses 11,856,495 13,184,260 20,297,159 25,411,597 RESTRICTED DEPOSITS Bond cash reserves (Note C) 1,510,000 1,510,000 Bond principal reduction reserves (Note C) 582,668 519,767 Other 28,750 28,750 2,121,418 2,058,517 OTHER ASSETS Cash 550,176 867,658 Rents and other receivables, less allowance of $113,963 in 1998 and $122,350 in 1997 37,613 55,968 Due from related parties (Note D) 269,046 179,423 Prepaid expenses 224,966 117,532 Debt issuance costs, net of accumulated amortization of $406,256 in 1998 and $330,728 in 1997 178,058 253,586 Commercial commissions, deposits and other 69,699 60,679 1,329,558 1,534,846 $ 23,748,135 $ 29,004,960 SECURED INVESTMENT RESOURCES FUND, L.P. II BALANCE SHEETS--CONT'D. December 31, 1998 1997 LIABILITIES AND PARTNERSHIP CAPITAL (DEFICIT) Mortgage debt (Note C) $ 22,415,582 $ 27,442,267 Deferred interest (Note C) 737,370 737,370 Accrued interest 58,398 799,278 Accounts payable and accrued expenses (Note G) 271,425 548,265 Unearned revenue 32,415 12,736 Tenant security deposits 110,315 149,660 TOTAL LIABILITIES 23,625,505 29,689,576 Commitments and Contingencies (Notes F and I) PARTNERSHIP CAPITAL (DEFICIT) General Partners Capital contribution 1,000 1,000 Partnership deficit (184,585) (195,875) (183,585) (194,875) Limited Partners Capital contributions 18,901,831 18,901,831 Partnership deficit (18,595,616) (19,391,572) 306,215 (489,741) TOTAL PARTNERSHIP CAPITAL (DEFICIT) 122,630 (684,616) $ 23,748,135 $ 29,004,960 See notes to financial statements. SECURED INVESTMENT RESOURCES FUND, L.P. II STATEMENTS OF OPERATIONS Years Ended December 31, 1998 1997 1996 REVENUES Rent $ 5,674,765 $ 5,791,800 $ 5,916,810 Interest 23,154 24,230 11,722 Maintenance escalations 283,899 289,442 269,041 5,981,818 6,105,472 6,197,573 OPERATING AND ADMINISTRATIVE EXPENSES Property operating expenses 2,710,552 2,649,931 2,604,239 General and administrative expenses 139,529 143,211 136,698 Professional services (Note D) 235,173 133,298 80,728 Management fees (Note D) 252,002 265,549 279,374 Depreciation and amortization 1,302,986 1,500,977 1,460,582 4,640,242 4,692,966 4,561,621 NET OPERATING INCOME 1,341,576 1,412,506 1,635,952 NON-OPERATING (EXPENSES) Interest (2,288,131) (2,247,944) (2,242,210) Gain on sale--(Note J) 2,075,587 -- -- Partnership income (loss) before extraordinary item 1,129,032 (835,438) (606,258) Extraordinary item gain on debt restructuring--(Note C) -- -- 412,798 PARTNERSHIP PROFIT (LOSS) $ 1,129,032 $ (835,438) $ (193,460) Allocation of profit (loss) General Partners $ 11,290 $ (8,354) $ (1,935) Limited Partners 1,117,742 (827,084) (191,525) $ 1,129,032 $ (835,438) $ (193,460) Per Limited Partnership Unit loss before extraordinary item (20.78) $ (15.41) $ (11.19) Extraordinary item --- --- 7.62 Total per Limited Partnership Unit $ 20.78 $ (15.41) $ (3.57) See notes to financial statements. SECURED INVESTMENT RESOURCES FUND, L.P. II STATEMENTS OF PARTNERSHIP CAPITAL (DEFICIT) Years Ended December 31, 1998, 1997 and 1996 General Limited Partners Partners Total Balances at January 1, 1996 $ (184,586) $ 528,868 $ 344,282 Partnership loss (1,935) (191,525) (193,460) Balances at December 31, 1996 (186,521) 337,343 150,822 Partnership loss (8,354) (827,084) (835,438) Balances at December 31, 1997 (194,875) (489,741) (684,616) Partnership profit 11,290 1,117,742 1,129,032 Distributions 0 (321,786) (321,786) Balances at December 31, 1998 $ (183,585) $ 306,215 $ 122,630 See notes to financial statements. SECURED INVESTMENT RESOURCES FUND, L.P. II STATEMENTS OF CASH FLOWS Years Ended December 31, 1998 1997 1996 OPERATING ACTIVITIES Partnership profit (loss) $ 1,129,032 $ (835,438) $ (193,460) Adjustments to reconcile partnership loss to net cash provided by operating activities: Depreciation and amortization 1,302,986 1,500,977 1,460,582 Gain on sale of property (Note J) (2,225,597) --- --- Gain on debt restructuring --- --- (412,798) Provision for losses on rents and other receivables 75,079 71,536 65,590 Changes in assets and liabilities: Rents and other receivables (77,610) (113,073) (67,952) Prepaid expenses (106,575) (20,550) 14,079 Commercial commissions, deposits and other (8,990 37,628 40,663 Accounts payable and accrued expenses (37,377) 76,697 96,525 Accrued interest 289,238 115,139 (4,329) Unearned revenue 20,419 (23,566) 21,944 Tenant security deposits 104,541 1,198 8,138 NET CASH PROVIDED BY OPERATING ACTIVITIES 465,146 810,548 1,028,982 INVESTING ACTIVITIES Improvements to investment properties (415,812) (257,426) (323,827) Proceeds from sale of property (Note J) 150,000 Purchase of restricted bond cash reserves (62,901) (64,642) (53,951) NET CASH USED IN INVESTING ACTIVITIES $ (328,713) $ (322,068) $ (377,778) SECURED INVESTMENT RESOURCES FUND, L.P. II STATEMENTS OF CASH FLOWS--CONT'D. Years Ended December 31, 1998 1997 1996 FINANCING ACTIVITIES Debt issuance costs $ --- $ --- $ (348,243) Advance to related parties (89,623) --- (5,000) Principal payments on debt (42,506) (182,489) (259,129) Cash Distributions (321,786) --- --- NET CASH USED IN FINANCING ACTIVITIES (453,915) (182,489) (612,37) (DECREASE) INCREASE IN CASH (317,482) 305,991 38,832 CASH BEGINNING OF YEAR 867,658 561,667 522,835 CASH END OF YEAR $ 550,176 $ 867,658 $ 561,667 See notes to financial statements. SECURED INVESTMENT RESOURCES FUND, L.P. II NOTES TO FINANCIAL STATEMENTS NOTE A--SIGNIFICANT ACCOUNTING POLICIES Organization and Business--Secured Investment Resources Fund, L.P. II (the Partnership) is a Delaware limited partnership formed pursuant to the Delaware Revised Uniform Limited Partnership Act on July 1, 1986. The General Partners' and Limited Partners' interest in Partnership earnings or loss initially amounts to 1% and 99%, respectively. The allocation of the 1% interest between the General Partners is discretionary. At such point in time cash distributions to the Limited Partners amount to their original invested capital plus interest at a rate of the greater of 8% (10% for those investors who subscribed for units on or before December 31, 1986) or the increase in the consumer price index per annum, cumulative non-compounded on their adjusted invested capital, earnings or loss will be allocated 15% to the General Partners and 85% to the Limited Partners. Restricted Deposits--These restricted deposits are deposited into Money Market Treasury Funds and Certificates of Deposits. The Partnership expects to hold these until bond maturity. The amortized cost value equals market value. Investment Properties--Investment properties consist of two residential complexes and two commercial shopping centers and are stated at cost. In accordance with the Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate 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. Costs of investment properties that have been permanently impaired have been written down to appraised value. No adjustments for impairment of value were necessary for the years ending December 31, 1998 or 1997. Revenue Recognition--The Partnership has leased substantially all of its investments in real estate under operating leases. Revenue is recognized in the month earned for rent. Advertising Costs--The Partnership expenses advertising costs as incurred. Depreciation--Investment property is depreciated on a straight-line basis over the estimated useful life of the property (30 years for buildings and 5 years for furniture, fixtures and equipment). Improvements are capitalized and depreciated over their estimated useful lives. Maintenance and repair expenses are charged to operations as incurred. Income Taxes--Any tax liabilities or benefits arising from Partnership operations are recognized individually by the respective partners and, consequently, no provision will be made by the Partnership for income taxes or income tax benefits. NOTES TO FINANCIAL STATEMENTS--CONT'D. NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONT'D New Accounting Standards Guaranteed Income or Loss Per Limited Partnership Unit--Partnership operations are recognized individually by the respective partners and, consequently, no provision will be made by the Partnership for income taxes or income tax benefits. Debt Issuance and Refinancing Costs--Loan costs in the amount of $346,243 were incurred and capitalized by the Partnership in 1996. These costs are being amortized over the term of the related loans. Reclassifications--Certain items in the 1998, 1997 and 1996 financial statements have been reclassified. No income effect resulted from these reclassifications. Accounting Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In April 1998, the Accounting Standards Executive Committee issued Statement of Position 98-5 Reporting on the Costs of Start-Up Activities. SOP 98-5 provides guidance on the financial reporting of start up costs and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. The SOP broadly defines start-up activities and provides examples to help entities determine what costs are and are not within the scope of this SOP. The SOP applies to all nongovernmental entities and, in general, is effective for financial statements for fiscal years beginning after December 15, 1998. The Partnership does not expect this SOP to have a significant effect on its financial position or operating results when it becomes effective. (The remainder of this page intentionally left blank.) NOTES TO FINANCIAL STATEMENTS--CONT'D. NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONT'D New Accounting Standards - Cont'd. In June 1998, the Financial Accounting Standards Board Issued SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133 requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. SFAS 133 as amended is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Historically, the Partnership has not entered into derivatives contracts either to hedge existing risks or for speculative purposes. Accordingly, the Partnership does not expect adoption of the new standard on January 1, 2001 to affect its financial statements. (The remainder of this page intentionally left blank.) NOTES TO FINANCIAL STATEMENTS--CONT'D. NOTE B--INVESTMENT PROPERTIES Investment properties consists of the following: December 31, 1998 1997 Cost (including capital improvements subsequent to acquisition): Bayberry Crossing Shopping Center $ 4,496,025 $ 4,476,000 Forest Park Shopping Center 2,946,998 2,946,998 Thomasbrook Apartments -- 6,688,856 Sunwood Village Apartments 11,763,770 11,560,916 Oak Terrace Healthcare Center 3,980,340 3,980,340 Oak Terrace Active Retirement Center 8,958,042 8,934,268 Other equipment 8,479 8,479 32,153,654 38,595,857 Less Accumulated depreciation 11,106,495 12,434,260 Allowance for losses on investment properties 750,000 750,000 $ 20,297,159 $ 25,411,597 During 1991 and 1990, the Partnership reduced the carrying value of its commercial property portfolio to reflect real estate market conditions. This change is reflected in Allowance for Losses on Investment Properties. Depreciation expense was $1,227,458, $1,237,778 and $1,220,507 for the year ended December 31, 1998, 1997 and 1996, respectively. NOTES TO FINANCIAL STATEMENTS--CONT'D. NOTE C--MORTGAGE DEBT Mortgage debt consists of the following: December 31, 1998 1997 Collateralized by Investment Property: Bayberry Crossing Shopping Center $ 2,547,699 $ 2,586,092 Forest Park Shopping Center 1,026,797 1,114,184 Thomasbrook Apartments --- 4,984,179 Sunwood Village Apartments 7,940,528 8,008,454 Oak Terrace Active Retirement Center (OTARC) and Oak Terrace Healthcare Center (OTHCC) 12,800,000 12,800,000 Less bond discount (1,899,442) (2,050,642) $ 22,415,582 $ 27,442,267 Bayberry Crossing Shopping Center (Bayberry) On November 21, 1996 the Partnership refinanced the first and second mortgage on Bayberry Crossing Shopping Center. The terms of the new mortgage are 8.25% interest with monthly principal and interest payments of $21,571 through the loan maturity date of November 10, 1999 (three years). The Partnership recognized a gain of $60,571 upon the refinancing of the notes in 1996. All of the deferred interest, accrued interest and late charges relating to the original note were forgiven by the lender. NOTES TO FINANCIAL STATEMENTS--CONT'D. NOTE C--MORTGAGE DEBT--CONT'D. Forest Park Shopping Center (Forest Park) A bond financing agreement with a current balance of $1,026,797 is collateralized by Forest Park. Principal and interest payments are due monthly. Interest is calculated at 80% of the current prime rate and adjusted annually. Monthly principal is due at an amortization rate of 17 1/2 years, which fully amortizes the loan through the maturity date of March, 2008. The bonds are callable on April 1, 2003. The interest rates at the adjustment dates of April 1, 1996, 1995 and 1994 were 8.25%, 7.20%, and 6.25% respectively. Sunwood Village Apartments (Sunwood) On May 17, 1996 the Partnership refinanced the matured first mortgage on Sunwood Village Apartments. The terms of the new mortgage are interest at 8.625% with monthly principal and interest payments of $63,000 through the loan maturity date of June 1, 2001 (5 years). The Partnership recognized a gain of $352,227 upon refinancing of the note in 1996. All of the deferred interest relating to the original note was forgiven by the lender. Thomasbrook Apartments (Thomasbrook) A purchase money note with a current balance of $4,984,179 is collateralized by Thomasbrook at December 31, 1997. Principal and interest payments are due monthly in an amount necessary to amortize the principal over thirty years. The interest rate is 9.5% through the maturity date of September 1, 2000. No principal payments were made in 1997 and 1996 and as of December 31, 1997, accrued interest for Thomasbrook Apartments is past due by $722,760 due to the negative cash flow status of the apartment complex. During 1998, the purchase money note and accrued interest were subject to the settlement agreement discussed in Note J. As a result, the purchase money and accrued interest was assumed by the purchaser. NOTES TO FINANCIAL STATEMENTS--CONT'D. NOTE C--MORTGAGE--CONT'D. Oak Terrace Active Retirement Center (OTARC) and Oak Terrace Healthcare Center (OTHCC) A bond financing agreement is collateralized by OTARC, OTHCC, and interest earned on bond cash reserves and debt service reserves invested in Money Market Mutual Funds ($1,510,000) and Certificates of Deposits ($582,668). The original principal balance of $15,100,000 consisted of variable rate demand multi-family housing revenue bonds, which mature serially from December 31, 1991 to December 2015. The effective rate was fixed on the commencement date of the bonds based on 20 Year U.S. Treasury Bonds futures contracts. The bonds contained a financing agreement providing for the financial institution to receive a fee to fix the interest rate at 6.2% on $10,700,000 of the principal balance. The bond discount paid to obtain this agreement is amortized over the life of the bonds using an effective interest rate method. The remaining $4,400,000 of the original principal balance bears interest at variable rates. This rate, which is determined weekly by the Remarketing Agent, is based upon his opinion as to the minimum rate necessary to sell the Bonds (at par) in a secondary market. At December 31, 1998 the variable rate was 3.5%. The current $12,800,000 balance of bonds consist $2,100,000 at a variable interest rates and $10,700,000 at the fixed interest rates. Pursuant to the terms of the bond financing agreement, certain cash reserves are required and are designated for scheduled principal payments and replacement reserves. Interest earned on these reserves is recorded as a reduction of interest expense and is considered in the computation of the amortization of the bond discount. As of December 31, 1998 and 1997, the unamortized balance of the bond discount was $1,899,442 and $2,050,642. In 1993, the Partnership reached an agreement with the lender whereby the lender released $2,096,949 of bond cash reserves to the Partnership in exchange for a principal paydown of $1,900,000 on the variable rate portion of the bonds. The principal paydown was a prepayment of scheduled principal reductions through December 31, 1998. Therefore, no additional principal payments are required until December 1999. NOTES TO FINANCIAL STATEMENTS--CONT'D. NOTE C--MORTGAGE--CONT'D. Cash paid for interest totaled $1,998,893, $2,132,805 and $2,636,889 during 1998, 1997, and 1996, respectively. Maturities of mortgage debt are as follows: 1999 $ 2,709,106 2000 168,051 2001 7,873,231 2002 87,387 2003 87,387 Thereafter 13,389,862 24,315,024 Bond discount (1,899,442) $ 22,415,582 NOTE D--RELATED PARTY TRANSACTIONS SPECS, Inc., a Kansas Corporation in which the individual General Partner has a minority interest during 1996 and 1997 and owned 100% in 1998, receives property management fees for providing property management services. SPECS, Inc. also performs various professional services for the Partnership, primarily tax accounting, audit preparation, SEC 10Q and 10K preparation, and investor services. Amounts paid by the Partnership to SPECS, Inc. are as follows: Years Ended December 31, 1998 1997 1996 Property management fees $ 234,942 $ 265,549 $ 273,374 Professional Services 31,200 46,592 48,668 $ 266,142 $ 312,141 $ 322,042 The General Partners are entitled to receive a Partnership Management Fee equal to 5% of Cash Flow From Operations (as defined) for managing the day to day operations of the Partnership excluding those related to Forest Park for which the Management Fee is equal to 3%, Oak Terrace Health Care which pays 2% in Management Fees, and Sunwood Village whose Management Fee is equal to 3%. Management fees due to SPECS, Inc. was $4,190 and $17,802 for the years ended December 31, 1998 and 1997. NOTES TO FINANCIAL STATEMENTS--CONT'D. NOTE D--RELATED PARTY TRANSACTIONS--CONT'D. Amounts due from related parties consist of the following: December 31, 1998 1997 Secured Investment Resources II, Inc. $ 174,423 $ 174,423 Secured Investment Resources Fund, L.P. $ 94,623 $ 5,000 $ 269,046 $ 179,423 The amount due from Secured Investment Resources II, Inc. represents excess syndication costs. Because of many factors, the Partnership did not raise the level of capital anticipated during the initial offering period. As a result, syndication and acquisition costs exceeded the amount allowed per the Partnership Agreement. The General Partners are obligated to reimburse these excess costs/fees. The amounts due from Secured Investment Resources Fund, L.P. represent funds loaned from the Partnership to provide support for the related entity operations. NOTE E--CASH DISTRIBUTIONS During 1998 the Partnership made distributions of $321,786. Prior to 1998 the Partnership had made no distributions since April 1990. Future distributions will only be made from excess cash flow not needed for working capital reserves. NOTE F--PARTNERSHIP LIQUIDITY The Partnership operates within the real estate industry and is subject to its economic forces, which contributes additional liquidity risk to the Partnership's investment portfolio. These risks include, but are not limited to, changes in general or local economic conditions, changes in interest rates and the availability of permanent mortgage financing which may render the acquisition, sale or refinancing of a property difficult or unattractive, changes in real estate and zoning laws, increases in real estate taxes, federal or local economic or rent controls, floods, earthquakes and other acts of God and other factors beyond the control of the Partnership's management. The illiquidity of real estate investments generally may impair the ability of the Partnership to respond promptly to changing economic conditions. Management believes that with the disposition of Thomasbrook, which could not produce sufficient cash flow to support it's cash requirements, the Partnership shall experience greater cash flow and increased net income for 1999. The General Partners believe that sufficient working capital will be available to fund known, ongoing operating and capital expenditure requirements of the Partnership during 1999. The primary source of working capital is expected to be cash flow from operations which is expected to improve over that of the previous year due to improved operations. NOTES TO FINANCIAL STATEMENTS--CONT'D. Certain positive factors are expected to affect 1999 operations are improved occupancy on the commercial properties, residential rental rate increases and decreased usage of promotional rent discounts. It is also expected that stringent controls over expenditures will be maintained. The availability of the liquidity sources and accomplishment of these objectives are partially predicated on the real estate economic conditions discussed above, which are beyond the control of the Partnership, and will influence the achieved results. NOTE G--ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consists of the following: December 31, 1998 1997 Vendor accounts payable $ 64,800 $ 81,153 Real estate / property taxes 147,962 382,968 Professional fees 49,488 45,803 Utilities 9,175 15,300 Payroll reimbursement 0 23,041 $ 271,425 $ 548,265 (The remainder of this page intentionally left blank.) NOTES TO FINANCIAL STATEMENTS--CONT'D. NOTE H--INCOME TAXES The Partners' capital accounts differ for financial reporting purposes and federal income tax purposes. The primary differences result from: 1) depreciation and amortization; 2) losses and provision for losses on investment properties; and 3) provision for doubtful accounts. The effect of these items is summarized as follows: December 31, 1998 1997 Financial reporting basis: Total assets $ 23,748,135 $ 29,004,960 Total liabilities 23,625,505 (29,689,576) Total Partners' capital (deficit) $ 122,630 $ (684,616) Tax basis: Total assets $ 22,818,713 $ 36,661,645 Total liabilities (20,123,790) (34,655,327) Total Partners' capital $ 2,694,923 $ 2,006,318 Years Ended December 31, 1998 1997 1996 Partnership income (loss)--financial reporting purposes $ 1,129,032 $(835,438) $ (193,460) Book versus tax differences due to: Depreciation and amortization (7,208) (6,649) (17,931) Bond discount amortization (51,342) (98,009) (98,010) Unearned income 19,679 (23,566) 21,944 Provision for doubtful accounts (8,387) 67,750 9,125 Other (71,383) 3,001 2,476 (118,641) (57,473) (82,396) Partnership loss--federal income tax purposes $ 1,010,391 $ (892,911) $ (275,856) NOTES TO FINANCIAL STATEMENTS--CONT'D. NOTE I--LEASES Rental income on investment properties is reported when earned. The Partnership leases its commercial properties under non-cancelable operating lease agreements. The Partnership's residential properties are leased under short-term lease agreements. Future minimum rents to be received on commercial properties as of December 31, 1998 are as follows: 1999 $ 484,825 2000 360,076 2001 182,152 2002 94,697 2003 78,505 Thereafter $ 142,809 TOTAL $ 1,343,064 NOTE J--GAIN ON SALE OF THOMASBROOK APARTMENTS During September 1998, the Partnership consummated a settlement agreement in which it sold Thomasbrook Apartments to a third party. The sale price was approximately $150,000 and the property was subject to all debts of the property including the purchase money note in the amount of $4,984,179 plus accrued interest of $1,030,118. As a result of the sale, the difference between the Fund's basis and the total of the outstanding debt, net of depreciation, restricted deposits and cash received of $150,000, or $2,075,587, was treated as a gain on disposition of the asset. (The remainder of this page intentionally left blank.) NOTES TO FINANCIAL STATEMENTS--CONT'D. NOTE K--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value: Cash and Short-term Investments. The carrying amount approximates fair value because of the short maturity of those instruments. Long-Term Debt. The fair value of the Partnership's long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Partnership for debt of the same remaining maturities. The estimated fair values of the Partnership's financial instruments are as follows: Carrying Fair 1998 Amount Value Cash and short-term investments $ 2,671,594 $ 2,671,594 Long-term debt $ 22,415,582 $ 19,640,235 NOTE L--SUPPLEMENTAL CASH FLOW INFORMATION Non-cash activity: Year ended December 31, 1996 In 1996 the Partnership refinanced debt from various lending institutions for the Bayberry Crossing Shopping Center and the Sunwood Village Apartments. Gain on debt restructuring consisted of the following: Bayberry Crossing Shopping Center Principal, interest and other related incurred fees $ 2,689,262 Refinanced note issued by bank 2,628,691 Gain debt restructuring 60,571 Sunwood Village Apartments Interest incurred from debt, net of refinancing costs 352,227 Total gain on debt restructuring $ 412,798 NOTES TO FINANCIAL STATEMENTS--CONT'D. NOTE L--SUPPLEMENTAL CASH FLOW INFORMATION--Cont'd Year Ended December 31, 1998 As discussed in Note J, the Partnership sold Thomasbrook Apartments to a third party for $150,000 and the party was subject to all debts of the property. The following is a summary of the assets and liabilities that were sold by the Partnership: Current assets $ (19,997) Investment property (6,858,015 Accumulated depreciation 2,555,223 Current liabilities 239,463 Purchase money note 4,984,179 Accrued interest 1,030,118 Other liabilities 144,626 Total gain on sale of Thomasbrook Apartments $ 2,075,597 Item 9. Changes in and Disagreements with Registrant's Certifying Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The General Partners of the Partnership are James R. Hoyt and Secured Investment Resources II, Inc. Secured Investment Resources II, Inc. (the Corporate General Partner) was incorporated under the laws of the state of Missouri on June 20, 1986 for the purpose of acting as General Partner and Acquisition Agent of the Partnership. Mr. James R. Hoyt is the sole officer and director. James R. Hoyt (the Individual General Partner), age 61, holds a Bachelor's Degree in Business Administration and is a licensed real estate broker in two states. Mr. Hoyt has been actively involved for more than the past twenty years in various real estate endeavors including development, syndication, property management and brokerage. Mr. Hoyt is the Individual General Partner and sponsor of Secured Investment Resources Fund, L.P. (S.I.R.). Since 1983, Mr. Hoyt has also been involved as the Individual General Partner in ten specified real estate private placement offerings. As of December 31, 1998, these partnerships, including Secured Investment Resources Fund, L.P. II, have raised a total of $60,709,750. Item 11. Management Compensation During 1998, the Partnership paid $234,942 in fees to related parties for property management services. Item 12. Security Ownership of Certain Beneficial Owners and Management. (a) Security Ownership of certain beneficial owners. No individual or group as defined by Section 13(d)(3) of the Securities Exchange Act of 1934, known to the registrant is the beneficial owner of more than 5 percent of the registrant's securities. (b) Security ownership of Management. The General Partners own less than 1%. (c) Change in Control. None. Item 13. Certain Relationships and Related Transactions. See Notes to Financial Statements, Note D appearing in Item 8. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a)(1) The following Financial Statements of Secured Investment Resources Fund, L.P. II are included in Item 8: Page (i) Report of Independent Certified Public Accountants 14 (ii) Balance Sheets - December 31, 1998 and 1997 15-16 (iii) Statements of Operations - Years Ended December 31, 1998, 1997 and 1996 17 (iv) Statements of Partnership Capital (Deficit) - Years Ended December 31, 1998, 1997 and 1996 18 (v) Statements of Cash Flows Years Ended December 31, 1998, 1997 and 1996 19-20 (vi) Notes to Financial Statements 21-34 (a)(2) The following Financial Statement Schedules are filed as part of this report: (i) Schedule II - Valuation and Qualifying Accounts 41 (ii) Schedule III - Real Estate and Accumulated Depreciation 42-44 All schedules other than those indicated in the index have been omitted as the required information is presented in the financial statements, related notes or is inapplicable. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K--Cont'd. (a)(3) The following Exhibits are Incorporated by Reference and are an integral part of this Form 10-K. Exhibit Number Description (1) (a) Amendment to Dealer Manager Agreement dated April 30, 1987. (ix) (3) (a) Amended and Restated Agreement of Limited Partnership. (iii) (b) Second Amendment to Restated Certificate and Agreement of Limited Partnership. (vii) (c) Certificate of Limited Partnership. (i) (4) (a) Form of Subscription Agreement. (iii) (b) Form of Certificate evidencing units. (I) (c) See 3(a) & 3(b) above. (iii) (d) See 3(c) above. (i) (10) (a) Property Management Agreement between the Partnership and The Hoyt Group Limited Partnership. (i) (b) Escrow Agreement between the Partnership and The Mission Bank. (ii) (c) Administrative Services Agreement between Secured Investment Resources II, Inc. and the Partnership. (i) (d) Real Estate Contract of Sale and Exhibit for Sunwood Apartments. (iv) (e) Deed of Trust, Promissory Note and Exhibits for Sunwood Apartments. (vi) (f) Real Estate Contract of Sale and Exhibits for Bayberry Crossing Shopping Center. (v) Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K--Cont'd. Exhibit Number Description (g) Deed of Trust, Promissory Note and Exhibits for Bayberry Crossing Shopping Center. (vi) (h) Real Estate Purchase Agreement and Exhibits for Country Club Place Shopping Center. (vi) (i) Deed of Trust, Promissory Note and Exhibits for Country Club Place Shopping Center. (vi) (j) Real Estate Purchase Agreement and Exhibits for In The Pines Apartments. (viii) (k) Deed of Trust, Promissory Note and Exhibits for In The Pines Apartments. (viii) (l) Asset Purchase Agreement and Exhibits for Oak Terrace Active Retirement Community. (x) (m) Asset Purchase Agreement and Exhibits for Oak Terrace Health Care Center. (x) (n) Lease for Oak Terrace Health Care Center. (x) (o) Loan Agreement for Bond Financing on OakTerrace Active Retirement Community. (x) (p) Real Estate Contract of Sale and Exhibits for Forest Park Shopping Center. (xi) (q) Real Estate Contract of Sale and Exhibits for Thomasbrook Apartments. (xii) (r) Loan Assumption Documents for Thomasbrook Apartments. (xii) (25) (a) Power of Attorney (i) (28) (a) Guarantee of General Partners. (I) Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K--Cont'd. (i) Previously filed on July 17, 1986 as an Exhibit to the Registration Statement on Form S-11 (file no. 33-7302) such Exhibit and Registration Statement incorporated herein by reference. (ii) Previously filed on September 25, 1986 as an Exhibit to Amendment #1 to the Registration Statement of Form S-11 such Exhibit and Registration Statement incorporated herein by reference. (iii) Previously filed on September 25, 1986 in the Prospectus as part of Amendment #1 to Registration Statement and incorporated herein by reference. (iv) Previously filed as an exhibit to Form 8-K dated June 2, 1987 and incorporated herein by reference. (v) Previously filed as an exhibit to Form 8-K dated June 5, 1987 and incorporated herein by reference. (vi) Previously filed as an exhibit to Registration Statement on Form S-11 (file No. 33-7302) dated August 13, 1987 and incorporated herein by reference. (vii) Previously filed as an Exhibit to the Supplement Prospectus dated August 13, 1987 as part of Post-effective Amendment No. 4 to the Registration Statement on Form S-11 (file No. 33-7302) and incorporated herein by reference. (viii) Previously filed as an Exhibit to Form 8-K dated January 13, 1988 and incorporated herein by reference. (ix) Previously filed as an Exhibit to Form 8, Amendment to Form 8-K dated February 29, 1988 and incorporated herein by reference. (x) Previously filed as an Exhibit to Form 8-K dated September 14, 1988 and incorporated herein by reference. (xi) Previously filed as an Exhibit to Form 8-K dated December 7, 1988 and incorporated herein by reference. (xii) Previously filed as an Exhibit to Form 10-K dated March 30, 1989 and incorporated herein by reference. (xiii) Previously filed as an Exhibit to Form 8-K dated December 4, 1989 and incorporated herein by reference. (b) Report of Form 8-K filed during the fourth quarter None. Secured Investment Resources Fund L.P. II Schedule II - Valuation and Qualifying Accounts December 31, 1998 Balance at Additions Deductions Balance at Beginning of Charged to Bad Debt End Period Operations Write-Offs of Period Allowance for Doubtful Accounts For Years Ended December 31, 1998 $ 122,350 $ 75,079 $ 83,466 $ 113,963 1997 $ 54,600 $ 71,536 $ 3,786 $ 122,350 1996 $ 45,475 $ 65,590 $ 56,465 $ 54,600
Secured Investment Resources Fund, L.P. II Schedule III - Real Estate & Accumulated Depreciation December 31, 1998 Initial Cost to Partnership (A) Subsequent to Acquisition Buildings & Furniture Reduction Encumbrances Land Improvements Equipment Improvements of Basis (B) Other Equipment $ --- $ --- $ --- $ --- $ 8,479 $ --- Garden Apartments: Sunwood Apartments 7,940,528 1,375,448 9,706,178 123,000 829,034 (269,890) Las Vegas, NV Strip Shopping Centers Bayberry Crossings 2,547,699 607,184 3,729,847 --- 399,889 (240,895) Lee's Summit, MO Forest Park 1,026,797 504,761 2,372,378 --- 113,070 (43,211) St. Louis, MO Retirement Center: Oak Terrace Active Retirement Center Springfield, IL 11,744,225 258,269 8,174,500 172,000 353,273 --- Nursing Home: Oak Terrace Health Care Center 1,055,775 273,834 3,412,956 293,550 --- --- Springfield, IL Less Bond Discount on Oak Terrace Active Retirement Center and (1,899,442) --- --- --- --- --- Health Care Center $ 22,415,582 $ 3,019,496 $ 27,395,859 $ 588,550 $ 1,703,745 $ (553,996)
Gross Amount at Which Carried at Close of Period Buildings & Furniture Accumulated Accumulated Date Depreciation Land Improvements Equipment Total Depreciation Acquired Life Other Equipment $ --- $ --- $ 8,479 $ 8,479 $ 8,475 5 Yrs(2) Garden Apartments: Sunwood Apartments 1,340,363 10,300,555 122,852 11,763,770 4,132,658 15-May-87 30 Yrs(1) Las Vegas, NV 5 Yrs(2) Strip Shopping Centers Bayberry Crossing 574,761 3,921,264 -- 4,496,025 1,588,303 30-Jun-87 30 Yrs(1) Lee's Summit, MO 5 Yrs(2) Forest Park Shopping Center 492,694 2,454,304 -- 2,946,998 1,564,406(3) 23-Nov-88 30 Yrs(1) St. Louis, MO 5 Yrs(2) Retirement Center: Oak Terrace Active Retirement Center Springfield, IL 366,834 8,513,520 77,688 8,958,042 3,143,529 31-Aug-88 30 Yrs(1) 5 Yrs(2) Nursing Home: Oak Terrace Health Care Center 273,834 3,706,506 -- 3,980,340 1,469,124 31-Aug-88 30 Yrs(1) Springfield, IL 5 Yrs(2) $ 3,048,486 $ 28,896,149 $ 209,019 $ 32,153,654 $ 11,856,495 (1) Estimated useful life of buildings. (2) Estimated useful life of furniture and fixtures. (3) Includes allowance for losses of $750,000. NOTES: (A) The initial cost to the Partnership represents the original purchase price of the properties, including $205,582 and $145,578 of improvements incurred in 1988 and 1987, respectively, which were contemplated at the time the property was acquired. (B) Receipts received under the terms of certain guarantee agreements are recorded by the Partnership as a reduction of the basis of the property to which the guaranteed income relates
Secured Investment Resources Fund, L.P. II Schedule III - Real Estate & Accumulated Depreciation -- Continued December 31, 1998 Buildings & Furniture & Total Land Improvements Equipment (C) Reconciliation of Real Estate owned: Balance at January 1, 1997 38,338,431 3,449,545 32,855,070 1,983,816 Additions during year: Improvements 257,426 --- 145,281 112,145 Balance at December 31, 1997 38,595,857 3,499,545 33,000,351 2,095,961 Additions during year: Improvements 415,812 --- 288,349 127,463 Reductions - Sale of property (6,858,015) (451,059) (5,878,587) (528,369) Balance at December 31, 1998 $ 32,153,654 $ 3,048,486 $ 27,410,113 $ 1,695,055 (D) Reconciliation of Accumulated Depreciation Balance at January 1, 1997 11,946,482 --- 10,272,635 1,673,847 Additions during year: Depreciation Expense 1,237,778 --- 1,091,038 146,740 Balance at December 31, 1997 13,184,260 --- 11,363,673 1,820,587 Additions during year: Depreciation Expense 1,227,458 --- 1,142,430 85,028 Reductions - Sale of property (2,555,223) --- (1,410,087) (1,147,136) Balance at December 31, 1998 $ 11,856,495 $ --- $ 11,098,016 $ 758,479 (E) The total gross amount of real estate at December 31, 1998 includes $3,085,450 of acquisition fees paid to affiliates.
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. SECURED INVESTMENT RESOURCES FUND, L.P. II A Delaware Limited Partnership (Registrant) By: James R. Hoyt as Individual General Partner Date: Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: Secured Investment Resources II, Inc. as Corporate General Partner By: James R. Hoyt, President Date: Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act. No annual report or proxy material has been sent to security holders. 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. SECURED INVESTMENT RESOURCES FUND, L.P. II A Delaware Limited Partnership (Registrant) By: /s/ James R. Hoyt James R. Hoyt as Individual General Partner Date: Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: Secured Investment Resources II, Inc. as Corporate General Partner By: /s/ James R. Hoyt James R. Hoyt, President Date: Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act. No annual report or proxy material has been sent to security holders.