-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tf9tMqg7fvHPPNRSo0IKZzpDQx8MEwlL5Ut4Z1D7x9qWHPqkYFmcMrKZlHQDa/Pi xn3YC2PfHrV09SevstdiGg== 0000841501-01-000004.txt : 20010402 0000841501-01-000004.hdr.sgml : 20010402 ACCESSION NUMBER: 0000841501-01-000004 CONFORMED SUBMISSION TYPE: 10KT405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OWENS MORTGAGE INVESTMENT FUND CENTRAL INDEX KEY: 0000841501 STANDARD INDUSTRIAL CLASSIFICATION: [6221] IRS NUMBER: 680023931 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KT405 SEC ACT: SEC FILE NUMBER: 000-17248 FILM NUMBER: 1584928 BUSINESS ADDRESS: STREET 1: 2221 OLYMPIC BLVD STREET 2: P O BOX 2308 CITY: WALNUT CREEK STATE: CA ZIP: 94595 BUSINESS PHONE: 5109353840 MAIL ADDRESS: STREET 1: 2221 OLYMPIC BLVD STREET 2: P O BOX 2308 CITY: WALNUT CREEK STATE: CA ZIP: 94595 FORMER COMPANY: FORMER CONFORMED NAME: OWENS MORTGAGE INVESTMENT FUND II DATE OF NAME CHANGE: 19920703 10KT405 1 0001.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------- FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the fiscal year ended December 31, 2000 Commission file number 0-17248 OWENS MORTGAGE INVESTMENT FUND, a California Limited Partnership (Exact name of registrant as specified in its charter) California 68-0023931 ------------ ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2221 Olympic Boulevard Walnut Creek, California 94595 - ------------------------ ----- (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code (925) 935-3840 -------------- Securities to be registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Not applicable Not applicable Securities to be registered pursuant to Section 12(g) of the Act: Limited Partnership Units (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the 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] DOCUMENTS INCORPORATED BY REFERENCE Certain exhibits filed with Registrant's Registration Statement No.333-71299 are incorporated by reference into Part IV. Exhibit Index at page 49. Part I Item 1. Business The Partnership is a California limited partnership organized on June 14, 1984, which invests in first, second, third, wraparound and construction mortgage loans and loans on leasehold interest mortgages. In June 1985, the Partnership became the successor-in-interest to Owens Mortgage Investment Fund I, a California limited partnership formed in June 1983 with the same policies and objectives as the Partnership. In October 1992, the Partnership changed its name from Owens Mortgage Investment Partnership II to Owens Mortgage Investment Fund, a California Limited Partnership. The address of the Partnership is P.O. Box 2400, 2221 Olympic Blvd., Walnut Creek, CA 94595. Its telephone number is (925) 935-3840. Owens Financial Group, Inc. (the General Partner) makes and arranges or purchases all of the loans invested in by the Partnership. The Partnership's mortgage loans are secured by mortgages on unimproved, improved, income-producing and non-income-producing real property, such as apartments, shopping centers, office buildings, and other commercial or industrial properties. No single Partnership loan may exceed 10% of the total Partnership assets as of the date the loan is made. The following table shows the growth in total Partnership capital, mortgage investments and net income as of and for the years ended December 31, 2000, 1999, 1998, 1997, 1996 and 1995.
Total Partners' Mortgage Net Capital Investments Income 2000 ........................... $ 238,757,190 $ 223,273,464 $ 22,535,056 1999 ........................... $ 214,611,813 $ 200,356,517 $ 17,479,853 1998 ........................... $ 201,340,802 $ 182,721,465 $ 16,978,692 1997............................ $ 190,731,135 $ 174,714,607 $ 15,420,247 1996............................ $ 176,840,104 $ 154,148,933 $ 14,758,412 1995............................ $ 164,744,443 $ 151,350,591 $ 13,491,375
As of December 31, 2000, the Partnership held investments in 116 mortgage loans, secured by liens on title and leasehold interests in real property, and one loan secured by a collateral assignment of a limited liability company that owns and is developing commercial real property in Arizona. 54% of the mortgage loans are located in Northern California. The remaining 46% are located in Southern California, Arizona, Colorado, Hawaii, Louisiana, Nevada, Oregon, South Carolina, Texas, Virginia and Washington. The following table sets forth the types and maturities of mortgage investments held by the Partnership as of December 31, 2000:
TYPES AND MATURITIES OF MORTGAGE INVESTMENTS (As of December 31, 2000) Number of Loans Amount Percent 1st Mortgages.................................... 97 $ 212,831,212 95.32% 2nd Mortgages.................................... 18 10,377,607 4.65% 3rd Mortgages.................................... 1 64,645 .03% --- ------------- ------- 116 $ 223,273,464 100.00% === ============= ======= Maturing on or before December 31, 2001 (1)...... 54 $ 128,697,523 57.64% Maturing on or between January 1, 2002 and December 31, 2004....................................... 41 81,166,265 36.35% Maturing on or between January 1, 2005 and September 1, 2018 21 13,409,676 6.01% --- ------------- ------- 116 $ 223,273,464 100.00% === ============= ======= Income Producing Properties...................... 97 $ 169,840,446 76.07% Construction..................................... 9 41,417,905 18.55% Unimproved Land.................................. 9 11,870,113 5.32% Residential...................................... 1 145,000 0.06% ----- ----------------- --------- 116 $ 223,273,464 100.00% === ============= ======= (1) Approximately $46,070,000 was past maturity as of December 31, 2000.
The average loan balance of the mortgage loan portfolio of $1,925,000 as of December 31, 2000 is considered by the General Partner to be a reasonable diversification of investments concentrated in mortgages secured by commercial properties. Of such investments, 9.4% earn a variable rate of interest and 90.6% earn a fixed rate of interest. All were negotiated according to the Partnership's investment standards. Most sectors of the commercial real estate market have continued to experience increased values and rental rates and decreased vacancy rates. When the General Partner experiences increased competition for quality loans, it continues to use relatively low loan-to-value ratios as a major criterion in making loans to minimize the risk of being undersecured. As of December 31, 2000, the Partnership was invested in construction loans in the amount of approximately $41,418,000 and in loans partially secured by a leasehold interest of $24,050,000. The Partnership has other assets in addition to its mortgage investments, comprised principally of the following: o $6,284,000 in cash, cash equivalents and certificates of deposit, required to transact the business of the Partnership, or in conjunction with contingency reserve requirements; o $18,626,000 in real estate held for sale and investment; and o $2,016,000 in interest receivable. Delinquencies The General Partner does not regularly examine the existing loan portfolio to see if acceptable loan-to-value ratios are being maintained because the majority of loans mature in a period of only 1-3 years. The General Partner will perform an internal review on a property securing a loan in the following circumstances: o payments on the loan securing the property become delinquent; o the loan is past maturity; o it learns of physical changes to the property securing the loan or to the area in which the property is located; or o it learns of changes to the economic condition of the borrower or of leasing activity of the property securing the loan. A review includes a physical evaluation of the property and the area in which the property is located, the financial stability of the borrower, and the property's tenant mix. The General Partner may then work with the borrower to attempt to bring the loan current. As of December 31, 2000, the Partnership's portfolio included $8,014,000 (compared with $7,415,000 as of December 31, 1999) of loans delinquent more than 90 days, representing 3.6% of the Partnership's investment in mortgage loans. Loans delinquent more than 90 days have historically represented between 3% to 10% of the total loans outstanding at any given time. The balance of delinquent loans at December 31, 2000 includes $5,202,000 (compared with $850,000 as of December 31, 1999) in the process of foreclosure and $65,000 (compared with $0 as of December 31, 1999) involving loans to borrowers who are in bankruptcy. The General Partner believes that these loans may result in a loss of principal and foregone interest. However, the General Partner believes that the $4,000,000 allowance for losses on loans which is maintained in the financial statements of the Partnership as of December 31, 2000 is sufficient to cover any potential losses of principal. With the exception of the Sonora property on which the Partnership recorded a loss of $712,000 in 1997, the Partnership has not suffered material losses on defaults or foreclosures. Of the $7,415,000 that was delinquent as of December 31, 1999, $2,447,000 remained delinquent as of December 31, 2000, $4,283,000 was paid off, and $685,000 became real estate acquired through foreclosure of the Partnership. Although not required to do so, the General Partner has at times in the past purchased certain loans from the Partnership at the time of foreclosure for the unpaid principal amount in order to prevent the Partnership from suffering a loss upon foreclosure. This generally occurred where there was more than one investor in the loan for which the property provided security and because the General Partner wanted to avoid administrative problems associated with multiple ownership of real property. For the most part, the General Partner will no longer purchase defaulted loans from the Partnership and will act to cause the Partnership to foreclose and obtain title to the real property securing the loan when necessary to enforce the Partnership's rights to the security. Losses from delinquencies may increase as a result. However, during the year ended December 31, 2000, the General Partner purchased two delinquent loans from the Partnership prior to foreclosure at face value in the total amount of $1,178,000 for a note with interest at 9% per annum. The notes were repaid in full during 2000. The General Partner advances certain payments to the Partnership on behalf of borrowers, such as property taxes, insurance and mortgage interest pursuant to senior indebtedness. Such payments made on loans by the General Partner during 2000 but not collected as of December 31, 2000 totaled approximately $95,000. The Partnership has no obligation to repay such amounts to the General Partner. Following is a table representing the Partnership's delinquency experience (over 90 days) as of December 31, 1997, 1998, 1999 and 2000 and foreclosures by the Partnership during the years ended December 31, 1997, 1998, 1999 and 2000:
1997 1998 1999 2000 ---- ---- ---- ---- Delinquent Loans....................... $ 5,236,000 $ 8,710,000 $ 7,415,000 $ 8,014,000 Nonperforming Delinquent Loans......... $ 3,751,000 $ 7,904,000 $ 7,415,000 $ 8,014,000 Loans Foreclosed....................... $ 3,279,000 $ 508,000 $ 2,001,000 $ 685,000 Total Mortgage Investments............. $ 174,715,000 $ 182,721,000 $ 200,357,000 $ 223,273,000 Percent of Delinquent Loans to Total Loans 3.00% 4.77% 3.70% 3.59% Percent of Nonperforming Delinquent Loans to Total Loans....................... 2.15% 4.33% 3.70% 3.59%
If the delinquency rate increases on loans held by the Partnership, the interest income of the Partnership will be reduced by a proportionate amount. For example, if an additional 10% of the Partnership loans become delinquent, the mortgage interest income of the Partnership would be reduced by approximately 10%. If a mortgage loan held by the Partnership is foreclosed on, the Partnership will acquire ownership of real property and the inherent benefits and detriments of such ownership. Compensation to the General Partner The General Partner receives various forms of compensation and reimbursement of expenses from the Partnership and compensation from borrowers under mortgage loans held by the Partnership. Compensation and Reimbursement from the Partnership Management Fees The Partnership pays the General Partner a management fee monthly that cannot exceed 2 3/4% annually of the average unpaid balance of the Partnership's mortgage loans at the end of each of the 12 months in the calendar year. Since this fee is paid monthly, it could exceed 2 3/4% in one or more months, but the total fee in any one year is limited to a maximum of 2 3/4%, and any amount paid above this must be repaid by the General Partner to the Partnership. The General Partner is entitled to receive a management fee on all loans, including those that are delinquent. The General Partner believes this is justified by the added effort associated with such loans. The management fees may vary from month to month and are at the discretion of the General Partner. Servicing Fees The General Partner has serviced all of the mortgage loans held by the Partnership and expects to continue this policy. The Partnership Agreement permits the General Partner to receive from the Partnership a monthly servicing fee of 1/4 of 1% per annum of the unpaid balance of mortgage loans held by the Partnership. Carried Interest The General Partner receives a carried interest of 1/2 of 1% of the aggregate capital accounts of the limited partners, which is additional compensation to the General Partner. As a result, the General Partner could receive additional distributions of Partnership income from its carried interest. For example, if the Partnership generates an annual yield on capital of the limited partners of 10%, the General Partner would receive additional distributions on its carried interest of approximately $150,000 per year if $300,000,000 of Units were outstanding. If the Partnership were liquidated, the General Partner could receive up to $1,500,000 in capital distributions without having made equivalent cash contributions as a result of its carried interest. These capital distributions, however, will be made only after the limited partners have received 100% of their capital contributions. Reimbursement of Other Expenses The General Partner is reimbursed by the Partnership for the actual cost of goods and materials used for or by the Partnership and obtained from unaffiliated entities and the actual cost of services of non-management and non-supervisory personnel related to the administration of the Partnership (subject to certain limitations contained in the Partnership Agreement). Compensation from Borrowers In addition to compensation from the Partnership, the General Partner also receives compensation from borrowers under the mortgage loans placed by the General Partner with the Partnership. Loan Origination Fees Loan origination fees, also called mortgage placement fees or points, are paid to the General Partner from the borrowers under loans held by the Partnership. These fees are compensation for the evaluation, origination, extension and refinancing of loans for the borrowers and may be paid at the placement, extension or refinancing of the loan or at the time of final repayment of the loan. The amount of these fees is determined by competitive conditions and the General Partner and may have a direct effect on the interest rate borrowers are willing to pay the Partnership. Late Payment Charges All late payment charges paid by borrowers of delinquent mortgage loans, including additional interest and late payment fees, are retained by the General Partner. Table of Compensation and Reimbursed Expenses The following table summarizes the compensation and reimbursed expenses paid to the General Partner or its affiliates for the years ended December 31, 2000 and 1999, showing actual amounts and the maximum allowable amounts for management and servicing fees. No other compensation was paid to the General Partner during these periods. The fees were established by the General Partner and were not determined by arms'-length negotiation.
Year Ended Year Ended ---------- ---------- December 31, 2000 December 31, 1999 ----------------- ----------------- Maximum Maximum Form of Compensation Actual Allowable Actual Allowable - -------------------- ------ --------- ------ --------- Management Fees*..................... $3,914,000 $ 5,845,000 $ 2,653,000 $ 5,276,000 Carried Interest..................... 102,000 102,000 68,000 68,000 ------------ ---------------- ---------------- ----------------- Subtotal $4,016,000 $ 5,947,000 $ 2,721,000 $ 5,344,000 ----------- -------------- -------------- -------------- Loan Origination Fees................ $7,936,000 $7,936,000 $ 6,681,000 $ 6,681,000 Servicing Fees....................... 531,000 531,000 480,000 480,000 Late Payment Charges................. 1,118,000 1,118,000 395,000 395,000 ---------- ------------ --------------- ---------------- Subtotal $9,585,000 $9,585,000 $ 7,556,000 $ 7,556,000 ---------- ---------- ------------- -------------- Grand Total $13,601,000 $15,532,000 $ 10,277,000 $ 12,900,000 =========== =========== ============ ============ Reimbursement of Other Expenses $ 32,000 $ 32,000 $ 44,000 $ 44,000 =============== =============== =============== ===============
- ------- * The management fees paid to the General Partner are determined by the General Partner within the limits set by the Partnership Agreement. An increase or decrease in the management fees paid directly impacts the yield paid to the partners. Aggregate actual compensation paid by the Partnership and by borrowers to the General Partner during the years ended December 31, 2000 and 1999, exclusive of expense reimbursement, was $13,601,000 and $10,277,000, respectively, or 5.7% and 4.8%, respectively, of partners' capital. If the maximum amounts had been paid to the General Partner during these periods, the compensation, excluding reimbursements, would have been $15,532,000 and $12,900,000, respectively, or 6.5% and 6.0%, respectively, of partners' capital, which would have reduced net income allocated to limited partners by approximately 8.7% and 15.0%, respectively. Loan origination fees as a percentage of loans purchased by the Partnership were 6.8%, 5.6% and 2.1% for the years ended December 31, 2000, 1999, and 1998, respectively. In the year ended December 31, 2000, two loans in the total amount of $45,419,000 had loan origination fees totaling $4,542,000. In the year ended December 31, 1999, one loan in the amount of $12,025,000 had a loan origination fee of $2,900,000. The General Partner believes that the maximum allowable compensation payable to the General Partner is commensurate with the services provided. However, in order to maintain a competitive yield for the Partnership, the General Partner in the past has chosen not to take the maximum allowable compensation. If it chooses to take the maximum allowable, the amount of net income available for distribution to limited partners would be reduced during each such year. Principal Investment Objectives The Partnership invests primarily in mortgage loans on commercial, industrial and residential income-producing real property and land. The General Partner negotiates the terms of and makes or purchases all loans, which are then acquired by the Partnership, on a loan-by-loan basis. The Partnership's two principal investment objectives are to preserve the capital of the Partnership and provide monthly cash distributions to the limited partners. It is not an objective of the Partnership to provide tax-sheltered income. Under the Partnership Agreement, the General Partner would be permitted to modify these investment objectives without the vote of limited partners but has no authority to do anything that would make it impossible to carry on the ordinary business as a mortgage investment limited partnership. The General Partner locates and identifies virtually all mortgages the Partnership invests in and makes all investment decisions on behalf of the Partnership in its sole discretion. The limited partners are not entitled to act on any proposed investment. In evaluating prospective investments, the General Partner considers such factors as the following: o the ratio of the amount of the investment to the value of the property by which it is secured; o the property's potential for capital appreciation; o expected levels of rental and occupancy rates; o current and projected cash flow of the property; o potential for rental increases; o the degree of liquidity of the investment; o geographic location of the property; o the condition and use of the property; o the property's income-producing capacity; o the quality, experience and creditworthiness of the borrower; o general economic conditions in the area where the property is located; and o any other factors which the General Partner believes are relevant. Substantially all investment loans of the Partnership are originated by the General Partner, which is licensed by the State of California as a real estate broker and California Finance Lender. During the course of its business, the General Partner is continuously evaluating prospective investments. The General Partner originates loans from mortgage brokers, previous borrowers, and by personal solicitations of new borrowers. The Partnership may purchase existing loans that were originated by other lenders. Such a loan might be obtained by the General Partner from a third party and sold to the Partnership at an amount equal to or less than its face value. The General Partner evaluates all potential mortgage loan investments to determine if the security for the loan and the loan-to-value ratio meets the standards established for the Partnership, and if the loan can meet the Partnership's investment criteria and objectives. An appraisal will be ordered on the property securing the loan, and an officer, director, agent or employee of the General Partner will inspect the property during the loan approval process. The Partnership requires that each borrower obtain a title insurance policy as to the priority of the mortgage and the condition of title. The Partnership obtains an independent, on-site appraisal from a qualified appraiser for each property in which it invests. Appraisals will ordinarily take into account factors such as property location, age, condition, estimated building cost, community and site data, valuation of land, valuation by cost, valuation by income, economic market analysis, and correlation of the foregoing valuation methods. The General Partner additionally relies on its own independent analysis in determining whether or not to make a particular mortgage loan. Types of Mortgage Loans The Partnership invests in first, second, and third mortgage loans, wraparound mortgage loans, construction mortgage loans on real property, and loans on leasehold interest mortgages. The Partnership does not ordinarily make or invest in mortgage loans with a maturity of more than 15 years, and most loans have terms of 1-3 years. All loans provide for monthly payments of interest and some also provide for principal amortization, although many Partnership loans provide for payments of interest only and a payment of principal in full at the end of the loan term. The General Partner does not originate loans with negative amortization provisions. First Mortgage Loans First mortgage loans are secured by first deeds of trust on real property. Such loans are generally for terms of 1-3 years. In addition, such loans do not usually exceed 80% of the appraised value of improved residential real property, 50% of the appraised value of unimproved real property, and 75% of the appraised value of commercial property. Second and Wraparound Mortgage Loans Second and wraparound mortgage loans are secured by second or wraparound deeds of trust on real property which is already subject to prior mortgage indebtedness, in an amount which, when added to the existing indebtedness, does not generally exceed 75% of the appraised value of the mortgaged property. A wraparound loan is one or more junior mortgage loans having a principal amount equal to the outstanding balance under the existing mortgage loans, plus the amount actually to be advanced under the wraparound mortgage loan. Under a wraparound loan, the Partnership generally makes principal and interest payments on behalf of the borrower to the holders of the prior mortgage loans. Third Mortgage Loans Third mortgage loans are secured by third deeds of trust on real property which is already subject to prior first and second mortgage indebtedness, in an amount which, when added to the existing indebtedness, does not generally exceed 75% of the appraised value of the mortgaged property. Construction Loans Construction loans are loans made for both original development and renovation of property. Construction loans invested in by the Partnership are generally secured by first deeds of trust on real property for terms of six months to two years. In addition, if the mortgaged property is being developed, the amount of such loans generally will not exceed 75% of the post-development appraised value. The Partnership will not usually disburse funds on a construction loan until work in the previous phase of the project has been completed, and an independent inspector has verified certain aspects of the construction and its costs. In addition, the Partnership requires the submission of signed labor and material lien releases by the borrower in connection with each completed phase of the project prior to making any periodic disbursements of loan proceeds. Leasehold Interest Loans Loans on leasehold interests are secured by an assignment of the borrower's leasehold interest in the particular real property. Such loans are generally for terms of from six months to 15 years. Leasehold interest loans generally do not exceed 75% of the value of the leasehold interest and require personal guarantees of the borrowers. The leasehold interest loans are either amortized over a period that is shorter than the lease term or have a maturity date prior to the date the lease terminates. These loans all permit the General Partner to cure any default under the lease. Variable Rate Loans Approximately 9.4% ($21,087,000) of the Partnership's loans as of December 31, 2000 bear interest at a variable rate. Variable rate loans originated by the General Partner may use as indices the one and five year Treasury Constant Maturity Index, the Prime Rate Index and the Monthly Weighted Average Cost of Funds Index for Eleventh District Savings Institutions (Federal Home Loan Bank Board). The General Partner may negotiate spreads over these indices of from 2.5% to 5.5%, depending upon market conditions at the time the loan is made. The following is a summary of the various indices described above as of December 31, 2000 and 1999: 2000 1999 ---- ----- One-year Treasury Constant Maturity Index 5.34% 5.95% Five-year Treasury Constant Maturity Index 4.98% 6.33% Prime Rate Index 9.50% 8.50% Monthly Weighted Average Cost of Funds for Eleventh District Savings Institutions 5.61% 4.77% It is possible that the interest rate index used in a variable rate loan will rise (or fall) more slowly than the interest rate of other loan investments available to the Partnership. The General Partner attempts to minimize such interest rate differential by tying variable rate loans to indices that are more sensitive to fluctuations in market rates. In addition, most variable rate loans originated by the General Partner contain provisions under which the interest rate cannot fall below the starting rate. Interest Rate Caps All variable rate loans acquired by the Partnership have interest rate caps. The interest rate cap is generally a ceiling that is 2-4% above the starting rate with a floor rate equal to the starting rate. The inherent risk in interest rate caps occurs when general market interest rates exceed the cap rate. Assumability Variable rate loans of 5 to 10 year maturities are generally not assumable without the prior consent of the General Partner. The Partnership does not typically make or invest in other assumable loans. To minimize risk to the Partnership, any borrower assuming a loan is subject to the same stringent underwriting criteria as the original borrower. Prepayment Penalties The Partnership's loans typically do not contain prepayment penalties. If the Partnership's loans are at a high rate of interest in a market of falling interest rates, the failure to have a prepayment penalty provision in the loan allows the borrower to refinance the loan at a lower rate of interest, thus providing a lower yield to the Partnership on the reinvestment of the prepayment proceeds. However, as of December 31, 2000, $21,087,000 (approximately 9.4%) of the mortgage loans held in the Partnership's portfolio were variable rate loans which by their terms generally have lower interest rates in a market of falling interest rates, thereby providing lower yields to the Partnership. However, these loans are written with relatively high minimum interest rates, which generally minimizes the risk of lower yields. Balloon Payment A majority of the loans made or invested in by the Partnership require the borrower to make a "balloon payment" on the principal amount upon maturity of the loan. To the extent that a borrower has an obligation to pay mortgage loan principal in a large lump sum payment, its ability to satisfy this obligation may be dependent upon its ability to sell the property, obtain suitable refinancing or otherwise raise a substantial cash amount. As a result, these loans involve a higher risk of default than fully amortizing loans. Equity Interests and Participation in Real Property As part of investing in or making a mortgage loan the Partnership may acquire an equity interest in the real property securing the loan in the form of a shared appreciation interest or other equity participation. As of December 31, 2000 and 1999, the Partnership was invested in a loan in the amount of $2,000,000 that is secured by an assignment of a 49% interest in a limited liability company (LLC) and a direct 2% ownership in the LLC. The LLC owns a retail shopping center located in Sedona, Arizona. Debt Coverage Standard for Mortgage Loans Loans on commercial property require the net annual estimated cash flow to equal or exceed the annual payments required on the mortgage loan. Loan Limit Amount The Partnership limits the amount of its investment in any single mortgage loan, and the amount of its investment in mortgage loans to any one borrower, to 10% of the total Partnership assets as of the date the loan is made. Loans to Affiliates The Partnership will not provide loans to the General Partner, affiliates of the General Partner, or any limited partnership or entity affiliated with or organized by the General Partner except as provided in Article IV.5. of the Partnership Agreement. Purchase of Loans from Affiliates The Partnership may purchase loans from the General Partner or its Affiliates only if the General Partner acquires such loans in its own name and temporarily holds title thereto for the purpose of facilitating the acquisition of such loans, and provided that such loans are purchased by the Partnership for a price no greater than the cost of such loans to the General Partner (except compensation in accordance with Article IX of the Partnership Agreement), there is no other benefit arising out of such transactions to the General Partner, such loans are not in default, and otherwise satisfy all requirements of Article VI of the Partnership Agreement. Borrowing The Partnership has not incurred indebtedness for the purpose of investing in mortgage loans. However, the Partnership may incur indebtedness in order to prevent default under mortgage loans that are senior to the Partnership's mortgage loans or to discharge senior mortgage loans if this becomes necessary to protect the Partnership's investment in mortgage loans. Such short-term indebtedness may be with recourse to the Partnership's assets. In addition, the Partnership may incur indebtedness in order to operate or develop a property that the Partnership acquires under a defaulted loan. The total amount of indebtedness incurred by the Partnership cannot exceed the sum of 10% of the aggregate fair market value of all Partnership loans. Repayment of Mortgages on Sales of Properties The Partnership invests in mortgage loans and does not acquire real estate or engage in real estate operations or development (other than when the Partnership forecloses on a loan or takes over management of such foreclosed property). The Partnership also does not invest in mortgage loans primarily for sale or other disposition in the ordinary course of business. The Partnership may require a borrower to repay a mortgage loan upon the sale of the mortgaged property rather than allow the buyer to assume the existing loan. This may be done if the General Partner determines that repayment appears to be advantageous to the Partnership based upon then-current interest rates, the length of time that the loan has been held by the Partnership, the credit-worthiness of the buyer and the objectives of the Partnership. The net proceeds to the Partnership from any sale or repayment are invested in new mortgage loans, held as cash or distributed to the partners at such times and in such intervals as the General Partner in its sole discretion determines. No Trust or Investment Company Activities The Partnership has not qualified as a real estate investment trust under the Internal Revenue Code of 1986, as amended, and, therefore, is not subject to the restrictions on its activities that are imposed on real estate investment trusts. The Partnership conducts its business so that it is not an "investment company" within the meaning of the Investment Company Act of 1940. It is the intention of the Partnership to conduct its business in such manner as not to be deemed a "dealer" in mortgage loans for federal income tax purposes. Miscellaneous Policies and Procedures The Partnership will not: o issue securities senior to the Units or issue any Units or other securities for other than cash; o invest in the securities of other issuers for the purpose of exercising control, except in connection with the exercise of its rights as a secured lender; o underwrite securities of other issuers; or o offer securities in exchange for property. Competition and General Economic Conditions The Partnership's major competitors in providing mortgage loans are banks, savings and loan associations, thrifts, conduit lenders, and other entities both larger and smaller than the Partnership. The Partnership is competitive in large part because the General Partner generates all of its loans. The General Partner has been in the business of making or investing in mortgage loans in Northern California since 1951 and has developed a quality reputation and recognition within the field. In general, mortgage interest rates have fallen in the latter half of 2000. This has been partially due to actions by the Federal Reserve Bank to reduce the Discount Rate on borrowings charged to member banks, a slowing economy and low threat of inflation. Although the general trend for interest rates has been down, many lenders have tightened their credit and reduced their lending exposure in various markets and property types. Due to this credit tightening, the Partnership has recently been provided with lending opportunities at above-market rates providing relatively high yields to its limited partners. However, potential increased competition from lenders expanding their credit, continued rate reductions by the Federal Reserve Bank, a slowing economy and a continued low threat of inflation could have the effect of reducing mortgage yields in the future. Current loans with relatively high yields could be replaced with loans with lower yields, which in turn could reduce the net yield paid to the limited partners. In addition, if there is less demand by borrowers for loans and, thus, fewer loans for the Partnership to invest in, it will invest its excess cash in shorter-term alternative investments yielding considerably less than the current investment portfolio. Item 2. Properties Between 1993 and 2000, the Partnership foreclosed on $17,105,000 of delinquent mortgage loans and acquired title to 22 properties securing the loans. As of December 31, 2000, the Partnership still holds title to 12 of these properties in the amount of $9,183,000, net of an allowance for losses of $1,136,000. Two of the properties are being held for long-term investment and the remaining ten properties are being marketed for sale or will be marketed for sale in the foreseeable future. All of the properties individually has a book value less than 2% of total Partnership assets as of December 31, 2000. See also discussion of the property within the Corporate Joint Venture below. o The Partnership's title to all properties is held as fee simple. o There are no mortgages or encumbrances on any of the Partnership's real estate properties. o Of the twelve properties held, eight of the properties are either partially or fully leased to various tenants. Only minor renovations, repairs and tenant improvements to the properties are currently being made or planned. o Management of the General Partner believes that all properties owned by the Partnership are adequately covered by customary casualty insurance. o The Partnership maintains an allowance for losses on real estate held for sale in its financial statements of $1,136,000 as of December 31, 2000. Real estate acquired through foreclosure is typically held for a number of years before ultimate disposition. During the time that the real estate is held, the Partnership may earn less income on these properties than could be earned on mortgage loans. Investment in Corporate Joint Venture In 1995, the Partnership foreclosed on a $571,853 loan and obtained title to a commercial lot in Los Gatos, California that secured the loan. In 1997, the Partnership contributed the lot to a limited liability company (the Company) formed with an unaffiliated developer to develop and sell a commercial office building on the lot. The Partnership provided construction financing to the Company at the rate of prime plus two percent. During the years ended December 31, 2000 and 1999, the Partnership advanced an additional $2,846,000 and $1,417,000, respectively, to the Company for development. In addition, the Partnership received repayment of advances from the Company in the amount of $581,000 during the year ended December 31, 2000. Construction of the building was substantially completed in June 2000. Prior to the sale of the building in July 2000, the Company entered into a reverse, like-kind exchange, whereby the proceeds attributable to the Partnership's interest in the Company from the sale of the building (approximately $3,338,000), net of repayment of the outstanding advances to the Partnership in the amount of $3,858,000, were reinvested into the purchase of a retail commercial development in Greeley, Colorado. The purpose of this exchange was to defer the recognition of gain for tax purposes to the Company and, hence, the Partnership. The sale resulted in a book gain to the Partnership of approximately $2,691,000. The Company also incurred a note payable in the amount of $6,023,000 as part of the purchase of the new property. A new member that will act as the property manager of the Greeley property was admitted to the Company in August, 2000. Operation of the new property began in August 2000, and net income to the Partnership was approximately $110,000 for the year ended December 31, 2000. The assets, liabilities, income and expenses of the Company have been consolidated into the accompanying consolidated balance sheet and income statement of the Partnership. The minority interest of the joint venture partner of $102,000 as of December 31, 2000 is reported in the accompanying consolidated balance sheet. Item 3. Legal Proceedings The Partnership is not presently involved in any material pending legal proceedings other than ordinary routine litigation incidental to the business. Item 4. Submission of Matters to a Vote of Security Holders None Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Market Information a. There is no established public trading market for the trading of Units. b. Holders: As of December 31, 2000, approximately 2,735 Limited Partners held 236,618,365 Units of limited partnership interest in the Partnership. c. The Partnership generally distributes all net income of the Partnership to Unit holders on a monthly basis. The Partnership made distributions of net income to the Limited Partners of approximately $17,308,000 and $22,313,000 (prior to reinvested distributions) during 1999 and 2000, respectively. It is the intention of the General Partner to continue to distribute all net income earned by the Partnership to the Unit holders. Item 6. Selected Financial Data
OWENS MORTGAGE INVESTMENT FUND, a California Limited Partnership As of and for the year ended December 31 ---------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Loans secured by trust deeds $ 223,273,464 $ 200,356,517 $ 182,721,465 $ 174,714,607 $ 154,148,933 Less: Allowance for loan losses................... (4,000,000) (4,000,000) (3,500,000) (3,500,000) (3,500,000) Real estate held for investment 13,078,189 -- -- -- -- Real estate held for sale.. 6,683,419 13,733,722 11,155,202 16,047,141 13,221,093 Less: Allowance for losses on real estate........... (1,136,000) (1,336,000) (1,184,000) (1,896,000) (600,000) Cash, cash equivalents and ------------ ----------- ----------- ----------- ---------- other assets............. 8,300,109 7,617,278 13,218,253 5,959,306 14,105,992 --------- --------- ---------- --------- ---------- Total assets............... $ 246,199,181 $ 216,371,517 $ 202,410,920 $ 191,325,054 $ 177,376,018 ============= ============= ============= ============= ============= Liabilities................ $ 7,339,888 $ 1,759,704 $ 1,070,118 $ 593,919 $ 535,914 Minority interest.......... 102,103 -- -- -- -- Partners' capital General partners......... 2,334,845 2,104,936 1,967,069 1,864,033 1,731,874 Limited partners......... 236,422,345 212,506,877 199,373,733 188,867,102 175,108,230 ----------- ----------- ----------- ----------- ----------- Total partners' capital 238,757,190 214,611,813 201,340,802 190,731,135 176,840,104 ----------- ----------- ----------- ----------- ----------- Total liabilities / Partners' capital.... $ 246,199,181 $ 216,371,517 $ 202,410,920 $ 191,325,054 $ 177,376,018 ============= ============= ============= ============= ============= Revenues................... $ 28,268,431 $ 22,184,072 $ 21,685,398 $ 21,699,728 $ 17,217,195 Operating expenses 102,212 67,907 49,545 70,747 57,395 Carried interest......... 3,914,488 2,652,882 3,249,824 3,879,454 866,985 Management fee........... 531,337 479,592 472,390 420,742 384,004 Servicing fee............ 763,754 581,537 697,839 444,094 737,014 Rental expenses.......... 235,311 -- -- -- -- Interest expense......... 2,103 -- -- -- -- Minority interest........ -- 500,000 -- -- 250,000 Provision for losses on loans.................. Provision for losses on -- 152,000 -- 1,296,000 -- real estate held for sale -------- -------- -------- -------- -------- Other.................... 184,170 270,301 237,108 168,444 163,385 ------- ------- ------- ------- ------- Net Income $ 22,535,056 $ 17,479,853 $ 16,978,692 $ 15,420,247 $ 14,758,412 ============ ============ ============ ============ ============ Net income allocated to general partners......... $ 221,684 $ 172,335 $ 168,106 $ 154,202 $ 146,960 ========== ========== ========== ========== ========== Net income allocated to limited partners......... $ 22,313,372 $ 17,307,518 $ 16,810,586 $ 15,266,045 $ 14,611,452 ============ ============ ============ ============ ============ Net income allocated to limited partners per limited partnership unit. $ .10 $ .08 $ .09 $ .08 $ .08 ==== ==== ==== ==== ====
The information in this table should be read in conjunction with the accompanying audited financial statements and notes to financial statements. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Forward Looking Statements Some of the information in this Form 10-K may contain forward-looking statements. Such statements can be identified by the use of forward-looking words such as "may," "will," "expect," "anticipate," "estimate," "continue" or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial conditions or state other forward-looking information. When considering such forward-looking statements you should keep in mind the risk factors and other cautionary statements in the Partnership's Prospectus. Although management of the Partnership believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, there are certain factors, in addition to these risk factors and cautioning statements, such as general economic conditions, local real estate conditions, adequacy of reserves, or weather and other natural occurrences that might cause a difference between actual results and those forward-looking statements. Results of Operations 2000 Compared to 1999 The net income increase of $5,055,000 (28.9%) for 2000 as compared to 1999, was due to: o an increase in interest income of $3,148,000 from $20,221,000 to $23,369,000; o an increase in gain on sale of real estate of $2,131,000; o an increase in rental income of $962,000; o a decrease in other expenses of $86,000; and o a decrease in provision for loan and real estate losses of $652,000. The net income increase in 2000 as compared to 1999, was offset by: o a decrease in interest income from investments of $157,000; o an increase in management fees to general partner of $1,262,000; o an increase in service fees to general partner of $52,000; o an increase in carried interest to general partner of $34,000; o an increase in rental expenses of $182,000; and o an increase in interest expense of $235,000. The increase in interest income on loans secured by trust deeds of $3,148,000 or 15.6% was primarily a result of the growth in the average loan portfolio of approximately 10.8% and an increase in the weighted average yield of the loan portfolio from 10.84% for the year ended December 31, 1999 to 11.33% for the year ended December 31, 2000. Gain on sale of real estate increased by $2,131,000 (253.5%). The increase in gain on sale of real estate was primarily a result of the tax-deferred sale of the building in the Corporate Joint Venture (see "Investment in Corporate Joint Venture" below). The increase in rental income of $962,000 (132.4%) during the year ended December 31, 2000 as compared to 1999 was a result of the purchase of the retail development in Greeley, Colorado (see "Investment in Corporate Joint Venture" below) and increased occupancy and rental rates on several of the Partnership's properties. Other expenses decreased by $86,000 (31.9%) during the year ended December 31, 2000 as compared to 1999. This decrease was due primarily to legal, accounting and registration fees and expenses incurred during the year ended December 31, 1999 as a result of a new Form S-11 Registration Statement filed with the Securities and Exchange Commission. Such a filing did not occur during the year ended December 31, 2000. Interest income from investments decreased by $157,000 (39.8%) as a result of less cash held in interest-bearing accounts pending investment in loans during 2000 as compared to 1999 as the Partnership was able to stay fully invested in loans for most of the year. The management fees and service fees to the general partner were paid pursuant to the Partnership Agreement. Management fees and service fees increased by $1,262,000 (47.6%) and $52,000 (10.8%), respectively, during the year ended December 31, 2000 as compared to 1999, because the Partnership remained fully invested in loans during this period and because the Partnership's average investment in loans secured by trust deeds increased by 10.8% during 2000. The carried interest to the general partner is paid pursuant to the Partnership Agreement. Carried interest increased $34,000 (50.5%) during the year ended December 31, 2000 as compared to 1999 as a result of the increase in the capital accounts of limited partners during 2000. The increase in rental expenses of $182,000 (31.3%) during the year ended December 31, 2000 as compared to 1999 was a result of the purchase of the retail development in Greeley, Colorado (see "Investment in Corporate Joint Venture" below) and increased occupancy on several of the Partnership's properties. The increase in interest expense of $235,000 (100%) during the year ended December 31, 2000 as compared to 1999 was a result of the purchase of the retail development in Greeley, Colorado and the related incurrment of debt on the new property (see "Investment in Corporate Joint Venture" below). Results of Operations 1999 Compared to 1998 The net income increase of $501,000 (3.0%) for 1999 as compared to 1998, was due to: o an increase in interest income of $1,121,000 from $19,100,000 to $20,221,000; o a decrease in management fees to the general partner of $597,000; and o an increase in net income from rental operations from a loss of $54,000 to net income of $145,000. The net income increase in 1999 as compared to 1998, was offset by: o a decrease in the gain on sale of real estate of $431,000; o a decrease in interest income from investments of $274,000; o an increase in the provision for loan losses of $500,000; and o an increase in the provision for losses on real estate held for sale of $152,000. The increase in interest income on loans secured by trust deeds of $1,121,000 or 5.9% was primarily a result of the growth in the loan portfolio of approximately 9.7% even though its weighted average yield decreased from 10.94% for the year ended December 31, 1998 to 10.84% for the year ended December 31, 1999. The management fees to the general partner were paid pursuant to the Partnership Agreement. Real estate operations resulted in income of $145,000 during the year ended December 31, 1999 as compared to a loss of $54,000 during 1998. This increase in income is a result of increased occupancy on two of the Partnership's properties and reduced operating costs due to legal, insurance and payroll expenses incurred on the Merced and Oakland properties in the year ended December 31, 1998 which were not incurred in 1999. Gain on sale of real estate decreased by $431,000 (33.9%). The decrease in gain on sale of real estate was a result of a decrease in the gain on sales of homes from the development limited partnership between the Partnership and Wood Valley Development, Inc. as the final homes in the development were completed and sold during 1998. The decrease in gain on sale of homes from the development limited partnership was partially offset by gains recognized from the sales of two properties located in Oakland and Vallejo, California during the year ended December 31, 1999 (see "Real Estate Properties Held for Sale" below). Interest income from investments decreased as a result of less cash held in interest-bearing accounts pending investment in loans during 1999 as compared to 1998 as the Partnership was able to stay fully invested in loans for most of the year. Financial Condition December 31, 2000, 1999 and 1998 Loan Portfolio At the end of 1998 and 1999 the number of Partnership mortgage investments was 188 and 142, respectively, and decreased to 116 by the end of 2000. The average loan balance was $972,000 and $1,411,000 at the end of 1998 and 1999 respectively, and increased to $1,925,000 as of December 31, 2000. Approximately $8,014,000 (3.6%) and $7,415,000 (3.7%) of the loans invested in by the Partnership were more than 90 days delinquent in payment as of December 31, 2000 and 1999, respectively. Of these amounts, approximately $5,202,000 (2.3%) and $850,000 (0.4%) were in the process of foreclosure. Loans more than 90 days delinquent increased by $599,000 (8.1%) from December 31, 1999 to December 31, 2000. A loan loss reserve in the amount of $4,000,000, $4,000,000 and $3,500,000 was recorded on the books of the Partnership as of December 31, 2000, 1999 and 1998. The General Partner believes that the loan loss reserve is adequate. As of December 31, 2000, 1999 and 1998, approximately 54%, 40% and 48% of the Partnership's mortgage loans were secured by real property in Northern California. The increase in the percentage of loans secured by real property in Northern California has primarily been due to the payoff of several large loans secured by real property outside of California and the investment in new loans secured by real property located in Northern California during 2000. As of December 31, 2000, 1999 and 1998, approximately 76.1%, 80.7% and 83.8%, respectively, of the loan portfolio was invested in loans on income-producing properties, 18.5%, 11.3% and 7.6%, respectively, in construction loans, 5.3%, 7.7% and 7.3%, respectively, in land loans and 0.1%, 0.3% and 1.3%, respectively, in residential loans. Also, as of these dates, approximately 95.3%, 91.2% and 89.0%, respectively, of the loan portfolio was invested in first deeds of trust, 4.7%, 8.8% and 10.5%, respectively, in second deeds of trust and 0.0%, 0.0% and 0.5%, respectively, in third and fourth deeds of trust. The Partnership's investment in construction loans increased by 83% since December 31, 1999. Improvement in real estate market conditions has made development and, thus, construction loans more attractive. All of the Partnership's construction loans are first trust deeds. In addition, none of these loans is more than 90 days delinquent in payment as of December 31, 2000. The Partnership was invested in mortgage loans with variable interest rates in the amount of $66,852,000 (36.6%), $29,024,000 (14.5%), and $21,087,000 (9.4%) as of December 31, 1998, 1999 and 2000, respectively. The decrease in the volume of variable rate loans invested in by the Partnership during 1999 and 2000 was primarily a result of the market and competitive conditions surrounding the General Partner's loan underwriting. Because competition in the lending industry has increased substantially over the past two years, borrowers seeking construction loans or loans to purchase properties have wanted shorter-term loans as their ability to refinance is much stronger in this environment. Such shorter-term loans (less than two years) are normally originated with fixed interest rates. Real Estate Properties Held for Sale and Investment The Partnership currently holds title to twelve properties that were foreclosed on from January 1, 1993 through December 31, 2000 in the amount of $9,183,000, net of allowance for losses of $1,136,000. As of December 31, 2000, properties held for sale total $5,547,000 and properties held for investment total $3,635,000 (excluding the property held in the corporate joint venture - see below). When the Partnership acquires property by foreclosure, it typically earns less income on those properties than could be earned on mortgage loans and may not be able to sell the properties in a timely manner. During 2000, an industrial building located in Lathrop, California that was acquired by the Partnership through foreclosure in April 2000 was sold for cash of $90,000 and a note of $814,000, resulting in a gain to the Partnership of approximately $142,000. In addition, 87 residential lots located in Lake Don Pedro, California were sold for cash resulting in a gain to the Partnership of approximately $46,000 and a residential/retail building located in Oakland, California was sold for cash resulting in a gain to the Partnership of approximately $92,000. During the year ended December 31, 1999, the Partnership acquired through foreclosure a 91% interest in 92 residential lots in Lake Don Pedro, California, on which it had a trust deed investment of $541,000 and 100% interests in a commercial building located in San Ramon, California and an apartment/retail building located in Oakland, California, on which it had trust deed investments of $1,442,000 and $17,000, respectively. During the year ended December 31, 1999, a 6-unit residential building located in Oakland, California, of which the Partnership owned a 22% interest, was sold resulting in a gain to the Partnership of $18,000. In addition, during the year ended December 31, 1999, a 66-acre residential parcel located in Vallejo, California was sold for cash of $500,000 and a note of $1,000,000 resulting in a gain to the Partnership of $822,000. Four of the Partnership's twelve properties do not currently generate revenue. Expenses from rental properties (including expenses from the Corporate Joint Venture - see below) have increased from approximately $582,000 to $764,000 (31.3%) for the year ended December 31, 1999 and 2000, respectively, and revenues associated with these properties (including revenues from the Corporate Joint Venture - see below) have increased from $727,000 to $1,689,000 (132.4%), thus generating a net income from real estate of $925,000 during the year ended December 31, 2000. The increases in income and expenses are a result of increased occupancy and rental rates on several of the Partnership's properties during 2000 and the purchase of the retail commercial development in Greeley, Colorado during 2000 (see "Investment in Corporate Joint Venture" below). As of December 31, 1999 and 1998, the Partnership owned thirteen and eleven properties, respectively. Prior to foreclosure, these properties secured Partnership loans aggregating $10,584,000 and $7,903,000 in 1999 and 1998, respectively. During the years ended December 31, 1999 and 1998, the Partnership acquired certain properties through foreclosure on which it had trust deed investments totaling $2,000,000 and $508,000, respectively. Investment in Corporate Joint Venture In 1995, the Partnership foreclosed on a $571,853 loan and obtained title to a commercial lot in Los Gatos, California that secured the loan. In 1997, the Partnership contributed the lot to a limited liability company (the Company) formed with an unaffiliated developer to develop and sell a commercial office building on the lot. The Partnership provided construction financing to the Company at the rate of prime plus two percent. During the years ended December 31, 2000, 1999 and 1998, the Partnership advanced an additional $2,846,000, $1,417,000 and $166,000, respectively, to the Company for development. In addition, the Partnership received repayment of advances from the Company in the amount of $581,000 during the year ended December 31, 2000. Construction of the building was substantially completed in June 2000. Prior to the sale of the building in July 2000, the Company entered into a reverse, like-kind exchange, whereby the proceeds attributable to the Partnership's interest in the Company from the sale of the building (approximately $3,338,000), net of repayment of the outstanding advances to the Partnership in the amount of $3,858,000, were reinvested into the purchase of a retail commercial development in Greeley, Colorado. The purpose of this exchange was to defer the recognition of gain for tax purposes to the Company and, hence, the Partnership. The sale resulted in a book gain to the Partnership of approximately $2,691,000. The Company also incurred a note payable in the amount of $6,023,000 as part of the purchase of the new property. A new member that will act as the property manager of the Greeley property was admitted to the Company in August, 2000. Operation of the new property began in August 2000, and net income to the Partnership was approximately $110,000 for the year ended December 31, 2000. The assets, liabilities, income and expenses of the Company have been consolidated into the accompanying consolidated balance sheet and income statement of the Partnership. The minority interest of the joint venture partner of $102,000 as of December 31, 2000 is reported in the accompanying consolidated balance sheet. Interest Receivable, Due to General Partner, and Accounts Payable and Accrued Liabilities Interest receivable decreased from approximately $2,151,000 as of December 31, 1999 to $2,016,000 as of December 31, 2000 ($135,000 or 6.3%), due primarily to deferred interest accrued on two loans in the amount of approximately $427,000 as of December 31, 1999, which was collected during 2000. There were no large amounts of deferred interest accrued as of December 31, 2000. The offsetting increase in interest receivable was due to the growth of the loan portfolio of 10.8% during 2000. Due to General Partner decreased from approximately $752,000 as of December 31, 1999 to $569,000 as of December 31, 2000 ($183,000 or 24.3%), due primarily to lower accrued management fees for the months of November and December 2000 as compared to November and December 1999. These fees are paid pursuant to the Partnership Agreement. Accounts payable and accrued liabilities decreased from approximately $431,000 as of December 31, 1999 to $106,000 as of December 31, 2000 ($325,000 or 75.5%), due primarily to an accrual for construction costs related to the building within the Corporate Joint Venture (see above) in the amount of approximately $403,000 as of December 31, 1999. There was no such accrual as of December 31, 2000 because construction was completed in June 2000. Cash and Cash Equivalents, Certificates of Deposit and Commercial Paper Cash and cash equivalents, certificates of deposit and commercial paper increased from approximately $5,466,000 as of December 31, 1999 to $6,284,000 as of December 31, 2000, respectively ($818,000 or 15.0%). This increase is primarily attributable to loan payoffs that occurred on December 29, 2000 that did not allow the Partnership sufficient time to fully reinvest in new loans and due to cash held in the corporate joint venture in the amount of approximately $260,000. Cash and cash equivalents, certificates of deposit and commercial paper decreased from approximately $11,779,000 as of December 31, 1998 to $5,466,000 as of December 31, 1999, respectively ($6,313,000 or 53.6%). This decrease is primarily attributable to loan payoffs that occurred on December 31, 1998 that did not allow the Partnership sufficient time to reinvest in new loans. Similar payoffs did not occur on December 31, 1999 and the Partnership was fully invested in loans on December 31, 1999. Asset Quality Some losses are normal when lending money and the amounts of losses vary as the loan portfolio is affected by changing economic conditions and financial experiences of borrowers. There is no precise method of predicting specific losses or amounts that ultimately may be charged off on particular segments of the loan portfolio. The conclusion that a Partnership loan may become uncollectible, in whole or in part, is a matter of judgment. Although lenders such as banks and savings and loans are subject to regulations that require them to perform ongoing analyses of portfolio, loan to value ratios, reserves, etc., and to obtain current information regarding its borrowers and the securing properties, the Partnership is not subject to these regulations and has not adopted these practices. Rather, management of the General Partner, in connection with the quarterly closing of the accounting records of the Partnership and the preparation of the financial statements, evaluates the Partnership's mortgage loan portfolio. Based upon this evaluation, a determination is made as to whether the allowance for loan losses is adequate to cover potential losses of the Partnership. As of December 31, 2000, management believes that the allowance for loan losses of $4,000,000 is adequate. As of then, loans secured by trust deeds include $8,014,000 in loans delinquent over 90 days, of which $5,202,000 was invested in loans that were in the process of foreclosure. Due to the loan-to-value criteria established by the General Partner, in its opinion, the mortgage loans held by the Partnership appear in general to be adequately secured. The General Partner's judgment of the adequacy of loan loss reserves includes consideration of: o economic conditions; o borrower's financial condition; o evaluation of industry trends; o review and evaluation of loans identified as having loss potential; and o quarterly review by the Board of Directors. Liquidity and Capital Resources Purchases of Units and loan payoffs provide the capital for mortgage investments. A substantial increase in general market interest rates could have an adverse affect on the Partnership, because then the Partnership's investment yield could be lower than other debt-related investments. In that event, purchases of additional Units could decline, which, in turn, would reduce the liquidity of the Partnership and its ability to make additional mortgage investments. In contrast, a significant increase in the dollar amount of loan payoffs and/or additional limited partner investments without the origination of new loans of the same amount would increase the liquidity of the Partnership. This increase in liquidity could result in a decrease in the yield paid to limited partners as the Partnership would be required to invest the additional funds in lower yielding, short term investments. There was little variation in the percentage of capital withdrawals to total capital invested by the limited partners between 1994 and 1998, excluding regular distributions of net income to limited partners. The annualized withdrawal percentage increased during 1999 and 2000 primarily due to an increase in the maximum quarterly amount which could be withdrawn by limited partners from $75,000 to $100,000 as a result of a change in the Partnership Agreement in December 1998. Withdrawal percentages have been 7.37%, 6.11%, 7.85%, 6.63%, 7.33%, 7.99%, and 6.64% for the years ended December 31, 1994, 1995, 1996, 1997, 1998, 1999 and 2000. These percentages are the annual average of the limited partners capital withdrawals in each calendar quarter divided by the total limited partner capital as of the end of each quarter. The limited partners may withdraw, or partially withdraw, from the Partnership and obtain the return of their outstanding capital accounts at $1.00 per Unit (book value) within 61 to 91 days after written notices are delivered to the General Partner, subject to the following limitations, among others: o No withdrawal of Units can be requested or made until at least one year from the date of purchase of those Units, for Units purchased on or after February 16, 1999, other than Units received under the Partnership's Reinvested Distribution Plan. o Any such payments are required to be made only from net proceeds and capital contributions (as defined) during said 91-day period. o A maximum of $100,000 per partner may be withdrawn during any calendar quarter. o The General Partner is not required to establish a reserve fund for the purpose of funding such payments. o No more than 10% of the outstanding limited partnership interest may be withdrawn during any calendar year except upon dissolution of the Partnership. Contingency Reserves The Partnership maintains cash, cash equivalents and marketable securities as contingency reserves in an aggregate amount of 2% of the limited partners' capital accounts to cover expenses in excess of revenues or other unforeseen obligations of the Partnership. Although the General Partner believes that contingency reserves are adequate, it could become necessary for the Partnership to sell or otherwise liquidate certain of its investments to cover such contingencies on terms which might not be favorable to the Partnership. Current Economic Conditions The current economic climate in Northern California and the Western United States is generally strong. Despite the Partnership's ability to purchase mortgage loans with relatively strong yields which has resulted in increased net yields paid to the limited partners, increased competition or changes in the economy could have the effect of reducing mortgage yields in the future. Current loans with relatively high yields could be replaced with loans with lower yields, which in turn could reduce the net yield paid to the limited partners. In addition, if there is less demand by borrowers for loans and, thus, fewer loans for the Partnership to invest in, the Partnership will invest its excess cash in shorter-term alternative investments yielding considerably less than the current investment portfolio. The General Partner has the ability to purchase delinquent loans from the Partnership as long as certain criteria outlined in the Partnership Agreement are met. Although the General Partner has purchased delinquent loans from the Partnership in the past, they are not required to do so; therefore, the Partnership could sustain losses with respect to loans secured by properties located in areas of declining real estate values. This could result in a reduction of the net income of the Partnership for a year in which those losses occur. There is no way of making a reliable estimate of these potential losses at the present time. Item 8. Financial Statements and Supplementary Data See pages 25-43 and pages 50-53 of this Form 10-K. Report of Independent Certified Public Accountants The Partners Owens Mortgage Investment Fund We have audited the accompanying consolidated balance sheet of Owens Mortgage Investment Fund, a California Limited Partnership, as of December 31, 2000, and the related consolidated statements of income, partners' capital and cash flows for the year ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Owens Mortgage Investment Fund as of December 31, 2000, and the results of their consolidated operations and their consolidated cash flows for the year ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/Grant Thornton LLP Reno, Nevada February 9, 2001 Independent Auditors' Report The Partners Owens Mortgage Investment Fund: We have audited the accompanying balance sheet of Owens Mortgage Investment Fund, a California limited partnership, as of December 31, 1999, and the related statements of income, partners' capital and cash flows for each of the years in the two-year period ended December 31, 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Owens Mortgage Investment Fund as of December 31, 1999, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 1999, in conformity with generally accepted accounting principles. /s/KPMG LLP San Francisco, California February 11, 2000
OWENS MORTGAGE INVESTMENT FUND, A CALIFORNIA LIMITED PARTNERSHIP Consolidated Balance Sheets December 31, 2000 and 1999 Assets 2000 1999 ------------------- ------------------- Cash and cash equivalents $ 6,234,479 5,216,326 Certificates of deposit 50,000 250,000 Loans secured by trust deeds, net of allowance for losses of $4,000,000 in 2000 and 1999 219,273,464 196,356,517 Interest and other receivables 2,015,630 2,150,952 Real estate held for sale, net of allowance for losses of $1,136,000 in 2000 and $1,336,000 in 1999 5,547,419 12,397,722 Real estate held for investment, net of depreciation and amortization of $100,797 in 2000 13,078,189 -- ------------------- ------------------- $ 246,199,181 216,371,517 =================== =================== Liabilities and Partners' Capital Liabilities: Accrued distributions payable $ 641,764 577,281 Due to general partner 569,267 751,759 Accounts payable and accrued liabilities 105,640 430,664 Note payable 6,023,217 -- ------------------- ------------------- Total liabilities 7,339,888 1,759,704 ------------------- ------------------- Minority interest 102,103 -- ------------------- ------------------- Partners' capital: General partner 2,334,845 2,104,936 Limited partners (units subject to redemption): Authorized 500,000,000 units in 2000 and 1999; 377,228,248 and 340,956,729 units issued and 236,618,365 and 212,702,897 units outstanding in 2000 and 1999, respectively 236,422,345 212,506,877 ------------------- ------------------- Total partners' capital 238,757,190 214,611,813 ------------------- ------------------- $ 246,199,181 216,371,517 =================== ===================
The accompanying notes are an integral part of these financial statements.
OWENS MORTGAGE INVESTMENT FUND, A CALIFORNIA LIMITED PARTNERSHIP Consolidated Statements of Income Years ended December 31, 2000, 1999 and 1998 2000 1999 1998 ------------------ ------------------ ------------------ Revenues: Interest income on loans secured by trust deeds $ 23,369,474 20,221,120 19,099,723 Gain on sale of real estate 2,971,454 840,640 1,271,757 Rental income 1,689,256 726,880 644,183 Other income 238,247 395,432 669,735 ------------------ ------------------ ------------------ Total revenues 28,268,431 22,184,072 21,685,398 ------------------ ------------------ ------------------ Expenses: Management fees to general partner 3,914,488 2,652,882 3,249,824 Servicing fees to general partner 531,337 479,592 472,390 Carried interest to general partner 102,212 67,907 49,545 Administrative 31,500 30,000 73,849 Legal and accounting 130,201 168,142 144,195 Rental expenses 763,754 581,537 697,839 Interest expense 235,311 -- -- Minority interest 2,103 -- -- Other 22,469 72,159 19,064 Provision for loan losses -- 500,000 -- Provision for losses on real estate held for sale -- 152,000 -- ------------------ ------------------ ------------------ Total expenses 5,733,375 4,704,219 4,706,706 ------------------ ------------------ ------------------ Net income $ 22,535,056 17,479,853 16,978,692 ================== ================== ================== Net income allocated to general partner $ 221,684 172,335 168,106 ================== ================== ================== Net income allocated to limited partners $ 22,313,372 17,307,518 16,810,586 ================== ================== ================== Net income allocated to limited partners per weighted average limited partnership unit $ 0.10 0.08 0.09 ================== ================== ==================
The accompanying notes are an integral part of these financial statements.
OWENS MORTGAGE INVESTMENT FUND, A CALIFORNIA LIMITED PARTNERSHIP Consolidated Statements of Partners' Capital Years ended December 31, 2000, 1999 and 1998 Total General Limited partners partners' --------------------------------------- partner Units Amount capital ------------------ ------------------ ------------------ ------------------ Balances, December 31, 1997 $ 1,864,033 189,063,122 $ 188,867,102 190,731,135 Net income 168,106 16,810,586 16,810,586 16,978,692 Sale of partnership units 99,084 14,210,969 14,210,969 14,310,053 Partners' withdrawals -- (14,377,618) (14,377,618) (14,377,618) Partners' distributions (164,154) (6,137,306) (6,137,306) (6,301,460) ------------------ ------------------ ------------------ ------------------ Balances, December 31, 1998 1,967,069 199,569,753 199,373,733 201,340,802 Net income 172,335 17,307,518 17,307,518 17,479,853 Sale of partnership units 135,814 20,537,603 20,537,603 20,673,417 Partners' withdrawals -- (18,306,472) (18,306,472) (18,306,472) Partners' distributions (170,282) (6,405,505) (6,405,505) (6,575,787) ------------------ ------------------ ------------------ ------------------ Balances, December 31, 1999 2,104,936 212,702,897 212,506,877 214,611,813 Net income 221,684 22,313,372 22,313,372 22,535,056 Sale of partnership units 204,424 23,801,227 23,801,227 24,005,651 Partners' withdrawals -- (15,121,766) (15,121,766) (15,121,766) Partners' distributions (196,199) (7,077,365) (7,077,365) (7,273,564) ------------------ ------------------ ------------------ ------------------ Balances, December 31, 2000 $ 2,334,845 236,618,365 $ 236,422,345 238,757,190 ================== ================== ================== ==================
The accompanying notes are an integral part of these financial statements.
OWENS MORTGAGE INVESTMENT FUND, A CALIFORNIA LIMITED PARTNERSHIP Consolidated Statements of Cash Flows Years ended December 31, 2000, 1999 and 1998 2000 1999 1998 ------------------ ------------------- ------------------ Cash flows from operating activities: Net income $ 22,535,056 17,479,853 16,978,692 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of real estate by limited partnership -- -- (1,246,884) Gain on sale of real estate properties (2,971,454) (840,640) (24,873) Provision for loan losses -- 500,000 -- Provision for losses on real estate properties held for sale -- 152,000 -- Depreciation and amortization 100,797 -- -- Changes in operating assets and liabilities: Interest and other receivables 135,322 (711,348) 446,587 Accounts payable and accrued liabilities (325,024) 274,471 156,193 Due to general partner (182,492) 360,661 341,564 ------------------ ------------------- ------------------ Net cash provided by operating activities 19,292,205 17,214,997 16,651,279 ------------------ ------------------- ------------------ Cash flows from investing activities: Purchases of loans secured by trust deeds (117,409,372) (119,403,718) (83,714,828) Principal collected on loans 1,124,071 1,663,685 1,793,240 Loan payoffs 86,831,041 91,288,643 74,556,044 Sales of loans to third and related parties at face value 6,665,913 7,816,294 -- Investment in real estate properties (384,513) (263,886) (350,225) Net proceeds from disposition of real estate properties 1,346,769 942,659 267,799 Investment in limited partnership -- -- (1,409,099) Distributions received from limited partnership -- -- 6,468,105 Investment in corporate joint venture (2,863,870) (1,416,609) (166,198) Repayment received from corporate joint venture 581,250 -- -- Proceeds from sale of real estate in corporate -- -- joint venture 7,195,640 Purchase of real estate in corporate joint venture (3,337,888) -- -- Minority interest in corporate joint venture 102,103 -- -- Maturity of (investment in) commercial paper 200,000 3,084,044 (3,084,044) Maturities of certificates of deposit, net -- 184,006 565,994 ------------------ ------------------- ------------------ Net cash used in investing activities (19,948,856) (16,104,882) (5,073,212) ------------------ ------------------- ------------------ Cash flows from financing activities: Proceeds from sale of partnership units 24,005,651 20,673,417 14,310,053 Accrued distributions payable 64,483 54,454 (21,558) Partners' cash distributions (7,273,564) (6,575,787) (6,301,460) Partners' capital withdrawals (15,121,766) (18,306,472) (14,377,618) ------------------ ------------------- ------------------ Net cash provided by (used in) financing 1,674,804 (4,154,388) (6,390,583) activities ------------------ ------------------- ------------------ Net increase (decrease) in cash and cash equivalents 1,018,153 (3,044,273) 5,187,484 Cash and cash equivalents at beginning of year 5,216,326 8,260,599 3,073,115 ------------------ ------------------- ------------------ Cash and cash equivalents at end of year $ 6,234,479 5,216,326 8,260,599 ================== =================== ================== Supplemental Disclosures of Cash Flow Information Cash paid during the year for interest 187,732 -- --
See notes 4 and 5 for supplemental disclosure of noncash investing and financing activities. The accompanying notes are an integral part of these financial statements. OWENS MORTGAGE INVESTMENT FUND, A CALIFORNIA LIMITED PARTNERSHIP Notes to Consolidated Financial Statements December 31, 2000, 1999 and 1998 (1) Organization Owens Mortgage Investment Fund, a California Limited Partnership, (the Partnership) was formed on June 14, 1984 to invest in loans secured by first, second and third trust deeds, wraparound, participating and construction mortgage loans and leasehold interest mortgages. The Partnership commenced operations on the date of formation and will continue until December 31, 2034 unless dissolved prior thereto under the provisions of the Partnership Agreement. The general partner of the Partnership is Owens Financial Group, Inc. (OFG), a California corporation engaged in the origination of real estate mortgage loans for eventual sale and the subsequent servicing of those mortgages for the Partnership and other third-party investors. OFG is authorized to offer and sell units in the Partnership up to an aggregate of 500,000,000 units outstanding at $1.00 per unit, representing $500,000,000 of limited partnership interests in the Partnership. Limited partnership units outstanding were 236,618,365, 212,702,897 and 199,569,753 as of December 31, 2000, 1999 and 1998, respectively. (2) Summary of Significant Accounting Policies (a) Basis of Presentation The consolidated financial statements include the accounts of the Partnership and its majority-owned limited liability company (see Note 4). All significant inter-company transactions and balances have been eliminated in consolidation. Certain reclassifications not affecting net income have been made to the 1999 and 1998 consolidated financial statements to conform to the 2000 presentation. (b) Management 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 statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (c) Loans Secured by Trust Deeds Loans secured by trust deeds are acquired from OFG and are recorded at cost. Interest income on loans is accrued by the simple interest method. The Partnership does not recognize interest income on loans once they are determined to be impaired until the interest is collected in cash. A loan is impaired when, based on current information and events, it is probable that the Partnership will be unable to collect all amounts due according to the contractual terms of the loan agreement or when the payment of principal or interest is 90 days past due. Cash receipts are allocated to interest income, except when such payments are specifically designated as principal reduction or when management does not believe the Partnership's investment in the loan is fully recoverable. (d) Allowance for Loan Losses The Partnership had an allowance for loan losses equal to $4,000,000 as of December 31, 2000 and 1999, respectively. Management of the Partnership believes that based on historical experience and a review of the loans and their respective collateral, the allowance for loan losses is adequate in amount. The outstanding balance of all loans delinquent in monthly payments greater than 90 days is $8,014,000 and $7,415,000 as of December 31, 2000 and 1999, respectively. The Partnership discontinues the accrual of interest on loans when, in the opinion of management, there is significant doubt as to the collectibility of interest or principal from the borrower or when the payment of principal or interest is 90 days past due, unless OFG purchases the interest receivable from the Partnership. OFG did not purchase interest receivable on any delinquent Partnership loans during the years ended December 31, 2000 and 1999. As of December 31, 2000 and 1999, loans totaling $8,014,000 and $7,415,000, respectively, are classified as non-accrual loans. OFG advances certain payments to the Partnership on behalf of borrowers, such as property taxes, insurance and mortgage interest pursuant to senior indebtedness. Such payments made on loans by OFG during 2000 and 1999 but not collected as of December 31, 2000 and 1999, respectively, totaled approximately $95,000 and $230,000, respectively. (e) Cash and Cash Equivalents For purposes of the statements of cash flows, cash and cash equivalents include interest-bearing and noninterest-bearing bank deposits, money market accounts and short-term certificates of deposit with original maturities of three months or less. The Partnership maintains its cash in bank deposit accounts which, at times, may exceed Federally insured limits. The Partnership has not experienced any losses in such accounts. The Partnership believes it is not exposed to any significant credit risk on cash and cash equivalents. (f) Marketable Securities At various times during the year, the Partnership may purchase marketable securities with various financial institutions with original maturities of up to one year. The Partnership classifies its debt securities as held-to-maturity, as the Partnership has the ability and intent to hold the securities until maturity. These securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. A decline in the market value of any held-to-maturity security below cost that is deemed to be other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method. Interest income is recognized when earned. (g) Real Estate Held for Sale and Investment Real estate held for sale includes real estate acquired through foreclosure and is carried at the lower of the recorded investment in the loan, inclusive of any senior indebtedness, or the property's estimated fair value, less estimated costs to sell. Real estate held for investment includes real estate purchased or acquired through foreclosure and is initially stated at the lower of cost or the recorded investment in the loan, or the property's estimated fair value. Depreciation is provided on the straight-line method over the estimated useful lives of buildings and improvements of 39 years. Amortization of lease commissions is provided on the straight-line method over the lives of the related leases. In accordance with Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-lived Assets and Long-lived Assets to Be Disposed Of, the Partnership periodically compares the carrying value of real estate to expected future cash flows for the purpose of assessing the recoverability of the recorded amounts. If the carrying value exceeds future cash flows, the assets are reduced to fair value. There were no required reductions to the carrying value of real estate held for sale or investment made for the year ended December 31, 2000. The Partnership increased the allowance for losses on real estate held for sale by $152,000 during the year ended December 31, 1999. (h) Income Taxes No provision is made for income taxes since the Partnership is not a taxable entity. Accordingly, any income or loss is included in the tax returns of the partners. (3) Loans Secured by Trust Deeds Loans secured by trust deeds as of December 31, 2000 and 1999 are as follows:
2000 1999 -------------------- -------------------- Income-producing properties $ 169,840,446 161,664,440 Construction 41,417,905 22,698,154 Unimproved land 11,870,113 15,438,923 Residential 145,000 555,000 ------------------- ------------------- $ 223,273,464 200,356,517 ==================== ==================== First mortgages $ 212,831,212 182,725,684 Second mortgages 10,377,607 17,566,188 Third mortgages 64,645 64,645 -------------------- -------------------- $ 223,273,464 200,356,517 ==================== ====================
Scheduled maturities of loans secured by trust deeds as of December 31, 2000 and the interest rate sensitivity of such loans is as follows:
Fixed Variable Total interest interest rate rate ------------------- ----------------- ------------------ Year ending December 31: 2000 (past maturity) $ 46,014,303 55,411 46,069,714 2001 82,627,809 -- 82,627,809 2002 52,563,146 2,068,142 54,631,288 2003 13,175,698 2,298,993 15,474,691 2004 2,509,730 8,550,556 11,060,286 2005 1,663,864 3,972,651 5,636,515 Thereafter (through 2018) 3,632,363 4,140,798 7,773,161 -------------------- ----------------- ------------------ $ 202,186,913 21,086,551 223,273,464 ==================== ================= ==================
Variable rate loans use as indices the one- and five-year Treasury Constant Maturity Index (5.34% and 4.98%, respectively, as of December 31, 2000), the prime rate (9.50% as of December 31, 2000) and the weighted average cost of funds index for Eleventh District savings institutions (5.617% as of December 31, 2000). Premiums over these indices have varied from 250-550 basis points depending upon market conditions at the time the loan is made. The scheduled maturities for 2000 include approximately $46,070,000 of loans which are past maturity as of December 31, 2000, of which $1,797,000 represents loans for which interest payments are delinquent over 90 days. During the years ended December 31, 2000 and 1999, the Partnership refinanced loans totaling $25,126,000 and $7,436,000, respectively, thereby extending the maturity dates of such loans. The Partnership's investment in loans delinquent over 90 days as of December 31, 2000 totals approximately $8,014,000, of which $1,717,000 has a specific related allowance for credit losses totaling approximately $650,000. There is a specific and non-specific allowance for credit losses of $3,350,000 for the remaining delinquent loans of $6,297,000 and for other current loans. There was no net additional allowance for credit losses during the year ended December 31, 2000. There was an additional allowance for credit losses of $500,000 during the year ended December 31, 1999. Of the delinquent loans, approximately $5,202,000 and $850,000 were in the process of foreclosure as of December 31, 2000 and 1999. The average recorded investment in impaired loans was $10,432,000 and $7,944,000 during the years ended December 31, 2000 and 1999, respectively. Interest income received on impaired loans during the years ended December 31, 2000, 1999 and 1998 totaled approximately $559,000, $213,000 and $546,000, respectively. As of December 31, 2000 and 1999, the Partnership's loans secured by deeds of trust on real property collateral located in Northern California totaled approximately 54% ($121,305,000) and 40% ($79,542,000), respectively, of the loan portfolio. The Northern California region (which includes the following counties and all counties north: Monterey, Fresno, Kings, Tulare and Inyo) is a large geographic area which has a diversified economic base. The ability of borrowers to repay loans is influenced by the economic strength of the region and the impact of prevailing market conditions on the value of real estate. During the year ended December 31, 2000, the Partnership sold for cash full interests in five loans to third parties and to related parties in the amounts of $6,366,000 and $300,000, respectively. The sale of all the loans resulted in no gain or loss in the accompanying financial statements. During the year ended December 31, 1999, the Partnership sold for cash full interests in ten loans to third parties and to related parties in the amounts of $7,052,000 and $764,000, respectively. The sale of all the loans resulted in no gain or loss in the accompanying financial statements. (4) Real Estate Held for Sale Real estate held for sale includes the following components as of December 31, 2000 and 1999:
2000 1999 -------------------- -------------------- Real estate held for sale $ 5,547,419 10,175,552 Investment in corporate joint venture -- 2,222,170 -------------------- -------------------- $ 5,547,419 12,397,722 ==================== ====================
Gain on sale of real estate includes the following components for the years ended December 31, 2000, 1999 and 1998:
2000 1999 1998 ----------------- ------------- -------------- Gain on sale of real estate properties $ 2,971,454 840,640 24,873 Gain on sale of real estate by limited partnership -- -- 1,246,884 ----------------- ------------- ------------- $ 2,971,454 840,640 1,271,757 ================= ============= =============
Real estate properties held for sale as of December 31, 2000 and 1999 consists of the following properties acquired through foreclosure in 1993 through 2000:
2000 1999 --------------- --------------- Light industrial warehouse, Merced, California, net of valuation allowance of $350,000 as of December 31, 2000 and 1999 $ 522,121 522,121 Commercial lot/residential development, Vallejo, California 361,432 361,432 Commercial lot, Sacramento, California, net of valuation allowance of $250,000 as of December 31, 2000 and 1999 299,828 299,828 Office building and undeveloped land, Monterey, California, net of valuation allowance of $200,000 as of December 31, 1999 -- 2,053,163 Manufactured home subdivision development, Ione, California, net of valuation allowance of $384,000 as of December 31, 2000 and 1999 1,764,367 2,366,289 Light industrial building, Oakland, California 453,815 453,815 Undeveloped land, Reno, Nevada 219,553 215,895 Light industrial building, Paso Robles, California -- 1,557,502 Commercial building, Sacramento, California 30,000 30,000 Commercial building, Gresham, Oregon 448,444 448,444 91% interest in 2 and 89 residential lots as of December 31, 2000 and 1999, respectively, Lake Don Pedro, California 209,130 560,184 Commercial building, San Ramon, California, net of valuation allowance of $152,000 as of December 31, 2000 and 1999 1,238,729 1,289,746 Residential/retail building, Oakland, California -- 17,133 --------------- --------------- $ 5,547,419 10,175,552 =============== ===============
The acquisition of certain of these properties resulted in non-cash increases in real estate held for sale and non-cash decreases in loans secured by trust deeds of approximately $685,000, $2,000,000 and $509,000 for the years ended December 31, 2000, 1999 and 1998, respectively. During 2000, the Partnership transferred the office building and undeveloped land located in Monterey, California and the light industrial building located in Paso Robles, California from held for sale to held for investment (see note 5). During 2000, an industrial building located in Lathrop, California that was acquired by the Partnership through foreclosure in April 2000 was sold for cash of $90,000 and a note of $814,000, resulting in a gain to the Partnership of approximately $142,000. In addition, 87 residential lots located in Lake Don Pedro, California were sold for cash resulting in a gain to the Partnership of approximately $46,000 and the residential/retail building located in Oakland, California was sold for cash resulting in a gain to the Partnership of approximately $92,000. During 1999, a six-unit residential building located in Oakland, California, in which the Partnership owned a 22% interest, was sold resulting in a gain to the Partnership of $18,000. In addition, a 66-acre residential parcel located in Vallejo, California was sold by the Partnership for cash of $500,000 and a note of $1,000,000 resulting in a gain to the Partnership of $822,000. In February 1998, OFG purchased the manufactured home subdivision development property located in Sonora, California, from the Partnership for $1,150,000. The Partnership carried back a loan secured by a trust deed on the property for the full purchase price. The note included interest at 8% per annum and was due on demand. The loan was repaid by OFG in November 1998. (a) Investment in Limited Partnership In 1993, the Partnership foreclosed on a loan in the amount of $600,000 secured by a junior lien on 30 residential lots located in Carmel Valley, California, and in 1994, paid off the senior loan in the amount of $500,000. During 1995, the Partnership entered into a limited partnership, WV-OMIF Partners, L.P. (WV-OMIF Partners) with an unrelated developer/builder, Wood Valley Development, Inc. (Woodvalley), for the purpose of constructing single-family homes on the 30 lots. The Partnership contributed the lots to WV-OMIF Partners in 1996 in exchange for a limited partnership interest. The Partnership provided advances to the WV-OMIF Partners to develop and construct the homes. The Partnership received interest at a rate of prime plus 2% on the advances to WV-OMIF Partners. During 1998, the Partnership advanced an additional $1,409,000 to WV-OMIF Partners for the continued development and construction of the homes. WV-OMIF sold fourteen homes during the year ended December 31, 1998 for proceeds of $6,987,101 and the net gain allocable to the Partnership was $1,246,884, including interest income of $176,440. WV-OMIF Partners distributed $6,468,105 (including $102,579 in reimbursements from OFG and Woodvalley) to OMIF during the year ended December 31, 1998. The final home in WV-OMIF Partners was completed and sold in October 1998. (b) Investment in Corporate Joint Venture In 1995, the Partnership foreclosed on a $571,853 loan and obtained title to a commercial lot in Los Gatos, California that secured the loan. In 1997, the Partnership contributed the lot to a limited liability company (the Company) formed with an unaffiliated developer to develop and sell a commercial office building on the lot. The Partnership provided construction financing to the Company at the rate of prime plus two percent. During the years ended December 31, 2000, 1999 and 1998, the Partnership advanced an additional $2,864,000, $1,417,000 and $166,000, respectively, to the Company for development. In addition, the Partnership received repayment of advances from the Company in the amount of $581,000 during the year ended December 31, 2000. Construction of the building was substantially completed in June 2000. Prior to the sale of the building in July 2000, the Company entered into a reverse, like-kind exchange, whereby the proceeds attributable to the Partnership's interest in the Company from the sale of the building (approximately $3,338,000), net of repayment of the outstanding advances to the Partnership in the amount of $3,858,000, were reinvested into the purchase of a retail commercial development in Greeley, Colorado, which will be held for investment purposes (see note 5). The purpose of this exchange was to defer the recognition of gain for tax purposes to the Company and, hence, the Partnership. The sale resulted in a book gain to the Partnership of approximately $2,691,000. The Company also incurred a note payable in the amount of $6,023,000 as part of the purchase of the new property. A new member that will act as the property manager of the Greeley property was admitted to the Company in August, 2000. Operation of the new property began in August 2000, and net income to the Partnership was approximately $110,000 for the year ended December 31, 2000. The assets, liabilities, income and expenses of the Company have been consolidated into the accompanying consolidated balance sheet and income statement of the Partnership. The minority interest of the joint venture partner of $102,000 as of December 31, 2000 is reported in the accompanying consolidated balance sheet. (5) Real Estate Held for Investment Real estate held for investment is comprised of the retail property located in Greeley, Colorado held within the corporate joint venture, the office building and undeveloped land located in Monterey, California and the light industrial building located in Paso Robles, California (see Note 4) as follows: Land $ 4,924,291 Buildings 7,459,271 Improvements 674,218 Other 127,625 ---------------- 13,185,405 Less: Accumulated depreciation and amortization (107,216) ----------------- $ 13,078,189 ================= Depreciation and amortization expense was $101,000 for the year ended December 31, 2000. (6) Note Payable The Partnership has a note payable with a bank through its investment in the limited liability company (see note 4), which is secured by the retail development in Greeley, Colorado. The note requires monthly interest payments with the balance of unpaid principal and interest due on May 22, 2003. The interest rate on the note is variable based on the LIBOR rate plus 2.75% (9.5% at December 31, 2000). Interest expense for the year ended December 31, 2000 was approximately $235,000. The principal balance on the note as of December 31, 2000 is approximately $6,023,000. The Company also has the option to draw an additional $1,370,000 on the note for capital expenditures, tenant improvements or leasing commissions. The note contains certain covenants, which the Company has complied with as of December 31, 2000. (7) Partners' Capital In December 1998, the limited partners voted to amend the Partnership Agreement and there were further amendments by OFG in February 1999 and April 2000. All such changes have been incorporated into this note and elsewhere in the consolidated financial statements where applicable. (a) Allocations, Distributions and Withdrawals In accordance with the Partnership Agreement, the Partnership's profits, gains and losses are allocated to each limited partner and OFG in proportion to their respective capital accounts. Distributions of net income are made monthly to the limited partners in proportion to their weighted-average capital accounts as of the last day of the preceding calendar month. Accrued distributions payable represent amounts to be distributed to partners in January of the subsequent year based on their capital accounts as of December 31. The Partnership makes monthly net income distributions to those limited partners who elect to receive such distributions. Those limited partners who elect not to receive cash distributions have their distributions reinvested in additional limited partnership units. Such reinvested distributions totaled $12,689,435, $10,703,230 and $10,326,334 for the years ended December 31, 2000, 1999, and 1998, respectively. Reinvested distributions are not shown as partners' cash distributions or proceeds from sale of partnership units in the accompanying consolidated statements of partners' capital and cash flows. The limited partners may withdraw, or partially withdraw, from the Partnership and obtain the return of their outstanding capital accounts at $1.00 per unit (book value) within 61 to 91 days after written notices are delivered to OFG, subject to the following limitations, among others: o No withdrawal of units can be requested or made until at least one year from the date of purchase of those units, for units purchased on or after February 16, 1999, other than units received under the Partnership's Reinvested Distribution Plan. o Any such payments are required to be made only from net proceeds and capital contributions (as defined) during said 91-day period. o A maximum of $100,000 per partner may be withdrawn during any calendar quarter. o The general partner is not required to establish a reserve fund for the purpose of funding such payments. o No more than 10% of the outstanding limited partnership interest may be withdrawn during any calendar year except upon dissolution of the Partnership. (b) Carried Interest of General Partner OFG has contributed capital to the Partnership in the amount of 0.5% of the limited partners' aggregate capital accounts and, together with its carried interest (formerly "promotional interest"), OFG has an interest equal to 1% of the limited partners' capital accounts. This carried interest of OFG of up to 1/2 of 1% is recorded as an expense of the Partnership and credited as a contribution to OFG's capital account as additional compensation. As of December 31, 2000, OFG had made cash capital contributions of $1,176,824 to the Partnership. OFG is required to continue cash capital contributions to the Partnership in order to maintain its required capital balance. The carried interest expense charged to the Partnership was $102,212, $67,907 and $49,545 for the years ended December 31, 2000, 1999 and 1998, respectively. (8) Contingency Reserves In accordance with the Partnership Agreement and to satisfy the Partnership's liquidity requirements, the Partnership is required to maintain contingency reserves in an aggregate amount of at least 1-1/2% of the capital accounts of the limited partners. The cash capital contribution of OFG (amounting to $1,176,824 as of December 31, 2000), up to a maximum of 1/2 of 1% of the limited partners' capital accounts will be available as an additional contingency reserve, if necessary. The contingency reserves required as of December 31, 2000 and 1999 were approximately $4,743,000 and $4,320,000, respectively. Certificates of deposit and certain cash equivalents as of the same dates were accordingly maintained as reserves. (9) Income Taxes The net difference between partners' capital per the Partnership's federal income tax return and these financial statements is comprised of the following components:
2000 1999 ------------------- -------------------- Partners' capital per financial statements $ 238,757,190 214,611,813 Accrued interest income (2,015,630) (2,150,952) Allowance for loan losses 4,000,000 4,000,000 Allowance for real estate held for sale and investment 1,336,000 1,336,000 Accrued distributions 641,764 577,281 Tax-deferred gains on sales of real estate (3,442,651) -- Other 243,524 (208,121) ------------------- -------------------- Partners' capital per federal income tax return $ 239,520,197 218,166,021 =================== ====================
(10) Transactions with Affiliates OFG is entitled to receive from the Partnership a management fee of up to 2.75% per annum of the average unpaid balance of the Partnership's mortgage loans at the end of the twelve months in the calendar year for services rendered as manager of the Partnership. All of the Partnership's loans are serviced by OFG, in consideration for which OFG receives up to .25% per annum of the unpaid principal balance of the loans. OFG, at its sole discretion may, on a monthly basis, adjust the management and servicing fees as long as they do not exceed the allowable limits calculated on an annual basis. In determining the management and servicing fees and hence the yield to the Partnership, OFG may consider a number of factors, including the then-current market yields. Even though the fees for a month may exceed 1/12 of the maximum limits, at the end of the calendar year the sum of the fees collected for each of the 12 months is equal to or less than the stated limits. Management fees amounted to approximately $3,914,000, $2,653,000 and $3,250,000 for the years ended December 31, 2000, 1999 and 1998, respectively, and are included in the accompanying consolidated statements of income. Service fees amounted to approximately $531,000, $480,000 and $472,000 for the years ended December 31, 2000, 1999 and 1998, respectively, and are included in the accompanying consolidated statements of income. As of December 31, 2000 and 1999, the Partnership owed management and servicing fees to OFG in the amounts of $569,000 and $752,000, respectively. OFG receives late payment charges from borrowers who make delinquent payments. Such charges are in addition to the normal monthly loan payments and totaled approximately $1,118,000, $395,000, and $382,000 for the years ended December 31, 2000, 1999 and 1998, respectively. OFG originates all loans the Partnership invests in and receives a loan origination fee from borrowers. Such fees earned by OFG amounted to approximately $7,936,000, $6,681,000 and $1,724,000 on loans originated of $117,409,000, $119,404,000 and $83,715,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Such fees as a percentage of loans purchased by the Partnership were 6.8%, 5.6% and 2.1% for the years ended December 31, 2000, 1999 and 1998, respectively. In the year ended December 31, 2000, two loans in the total amount of $45,419,000 had loan origination fees totaling $4,542,000. In the year ended December 31, 1999, one loan in the amount of $12,025,000 had a loan origination fee of $2,900,000. During the year ended December 31, 2000, OFG purchased two delinquent loans from the Partnership at face value in the total amount of $1,178,000 for a note with interest at 9% per annum. The notes were repaid in full during 2000. Included in loans secured by trust deeds as of December 31, 1998 was a note in the amount of $180,000, which was secured by a property owned by an affiliate of OFG. The loan earned interest at 8% per annum and was repaid during 1999. The Partnership earned interest income of approximately $56,000 $4,000 and $143,000 during the years ended December 31, 2000, 1999 and 1998, respectively, from OFG and affiliates under loans secured by trust deeds. During the year ended December 31, 1998, OFG purchased the manufactured home subdivision development in Sonora, California from the Partnership at a loss of approximately $2,000. An allowance for loss on this property in the amount of $712,000 had been recorded in 1997, therefore, the loss for the year ended December 31, 1998 was an additional $2,000. The Partnership carried back a loan from OFG for the entire purchase price of $1,150,000 which was paid off in November 1998. (11) Net Income per Limited Partner Unit Net income per limited partnership unit is computed using the weighted average of limited partnership units outstanding during the year. These amounts were 225,427,296, 206,607,637 and 195,482,129 for the years ended December 31, 2000, 1999 and 1998, respectively. (12) Rental Income The Partnership's real estate properties held for investment are leased to tenants under noncancellable leases with remaining terms ranging from one to eight years. Certain of the leases require the tenant to pay all or some operating expenses of the properties. The future minimum rental income from noncancellable operating leases due within the five years subsequent to December 31, 2000, and thereafter are as follows: Year ending December 31: 2001 $ 1,233,495 2002 786,434 2003 581,950 2004 439,237 2005 272,645 Thereafter (through 2008) 399,250 --------------- $ 3,713,011 =============== (13) Fair Value of Financial Instruments The Financial Accounting Standards Board's Statement No. 107, Disclosures about Fair Value of Financial Instruments, requires the determination of fair value for certain of the Partnership's assets. The following methods and assumptions were used to estimate the value of the financial instruments included in the following categories: (a) Cash and Cash Equivalents and Commercial Paper The carrying amount approximates fair value because of the relatively short maturity of these instruments. (b) Loans Secured by Trust Deeds The carrying value of these instruments of $223,273,464 approximates the fair value as of December 31, 2000. The fair value is estimated based upon projected cash flows discounted at the estimated current interest rates at which similar loans would be made. The allowance for loan losses of $4,000,000 as of December 31, 2000 should also be considered in evaluating the fair value of loans secured by trust deeds. (c) Real Estate Owned The carrying value of these instruments approximates fair value. The fair value is estimated based upon projected cash flows, appraisals and current market conditions. The allowance for losses on real estate held for sale should also be considered in evaluating the fair value of real estate owned. (d) Note Payable The fair value of the Partnership's note payable is estimated based upon 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. (14) Selected Quarterly Financial Data (Unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter Year ------------- ------------- ------------- ------------- -------------- Revenues: 2000 $ 5,647,402 5,920,046 9,556,144 7,144,839 $ 28,268,431 1999 4,843,662 4,881,891 6,077,031 6,381,488 22,184,072 Expenses: 2000 1,170,686 983,717 1,701,959 1,877,013 5,733,375 1999 663,058 640,301 1,369,617 2,031,243 4,704,219 Net Income Allocated to General Partner 2000 44,004 48,514 77,324 51,842 221,684 1999 41,174 41,177 46,398 43,586 172,335 Net Income Allocated to Limited Partners 2000 4,432,712 4,887,815 7,776,861 5,215,984 22,313,372 1999 4,139,430 4,200,413 4,661,016 4,306,659 17,307,518 Net Income Allocated to Limited Partners per Weighted Average Limited Partnership Unit 2000 $ 0.02 0.02 0.03 0.03 $ 0.10 1999 0.02 0.02 0.02 0.02 0.08
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - ------------------------------------------------------------------------------- At a meeting of the Board of Directors of Owens Financial Group, Inc., the General Partner of the registrant, held on April 28, 2000, the accounting firm of Grant Thornton LLP was engaged by the General Partner to perform future independent audits of the registrant. Grant Thornton LLP thereby replaced KPMG LLP as the registrant's independent accountants. In connection with the audits of the two years ended December 31, 1999, there were no disagreements with KPMG LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement. During the registrant's two most recent fiscal years, the registrant did not engage any independent accountants other than KPMG LLP to audit the financial statements of the registrant. KPMG LLP's reports on the registrant's financial statements for the past two years did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. Part III Item 10. Directors and Executive Officers of the Registrant The General Partner is Owens Financial Group, Inc., a California corporation, 2221 Olympic Blvd., Walnut Creek, CA 94595. Its telephone number is (925) 935-3840. The General Partner manages and controls the affairs of the Partnership and has general responsibility and final authority in all matters affecting the Partnership's business. These duties include dealings with limited partners, accounting, tax and legal matters, communications and filings with regulatory agencies and all other needed management duties. The General Partner may also, at its sole discretion and subject to change at any time, o purchase from the Partnership the interest receivable or principal on delinquent mortgage loans held by the Partnership; o purchase from a senior lienholder the interest receivable or principal on mortgage loans senior to mortgage loans held by the Partnership; and o use its own funds to cover any other costs associated with mortgage loans held by the Partnership such as property taxes, insurance and legal expenses. In order to assure that the limited partners will not have personal liability as a General Partner, limited partners have no right to participate in the management or control of the Partnership's business or affairs other than to exercise the limited voting rights provided for in the Partnership Agreement. The General Partner has primary responsibility for the initial selection, evaluation and negotiation of mortgage investments for the Partnership. The General Partner provides all executive, supervisory and certain administrative services for the Partnership's operations, including servicing the mortgage loans held by the Partnership. The Partnership's books and records are maintained by the General Partner, subject to audit by independent certified public accountants. The General Partner had a net worth of approximately $19,800,000 on December 31, 2000. The following persons comprise the board of directors and management employees of the General Partner actively involved in the administration and investment activity of the Partnership. o Milton N. Owens - Mr. Owens, Chairman of the Board of Directors of the General Partner, age 89, is a licensed real estate broker and has been Chairman since October 1981. Mr. Owens is a lifetime member of the American Institute of Real Estate Appraisers (MAI) and holds other professional designations. Mr. Owens has conducted real estate appraisal courses at the University of California, Berkeley. From 1936 to 1951, prior to his formation of Owens Mortgage Company, Mr. Owens was employed with the mortgage loan division of the Travelers Insurance Company. Mr. Owens is the father of William C. Owens, also a member of the Board of Directors and President of the General Partner. o William C. Owens - Mr. Owens, age 50, has been President of the General Partner since April 1996 and is also a member of the Board of Directors and the Loan Committee of the General Partner. From 1989 until April 1996, he served as a Senior Vice President of the General Partner. Mr. Owens has been active in real estate construction, development, and mortgage financing since 1973. Prior to joining Owens Mortgage Company in 1979, Mr. Owens was involved in mortgage banking, property management and real estate development. As President of the General Partner, Mr. Owens is responsible for the overall activities and operations of the General Partner, including corporate investment, operating policy and planning. In addition, he is responsible for loan production, including the underwriting and review of potential loan investments. Mr. Owens is also the President of Owens Securities Corporation, a subsidiary of the General Partner. Mr. Owens is a licensed real estate broker and the son of Milton Owens, Chairman of the Board of Directors of the General Partner. o Bryan H. Draper - Mr. Draper, age 43, has been Chief Financial Officer and corporate secretary of the General Partner since December 1987 and is also a member of the board of directors of the General Partner. Mr. Draper is a Certified Public Accountant and is responsible for all accounting, finance, and tax matters for the General Partner and Owens Securities Corporation. Mr. Draper received a Masters of Business Administration degree from the University of Southern California in 1981. o William E. Dutra - Mr. Dutra, age 38, is a Senior Vice President and member of the Board of Directors and the Loan Committee of the General Partner and has been its employee since February 1986. In charge of loan production, Mr. Dutra has responsibility for loan committee review, loan underwriting and loan production. o Andrew J. Navone - Mr. Navone, age 44, is a Vice President and member of the Board of Directors and the Loan Committee of the General Partner and has been its employee since August 1985. Mr. Navone has responsibilities for loan committee review, loan underwriting and loan production. o Melina A. Platt - Ms. Platt, age 34, has been Controller of the General Partner since May 1998. Ms. Platt is a Certified Public Accountant and is responsible for all accounting, finance, and regulatory agency filings of the Partnership. Ms. Platt was previously a Senior Manager with KPMG LLP. Research and Acquisition The General Partner considers prospective investments for the Partnership. In that regard, the General Partner evaluates the credit of prospective borrowers, analyzes the return to the Partnership of potential mortgage loan transactions, reviews property appraisals, and determines which types of transactions appear to be most favorable to the Partnership. For these services, the General Partner generally receives mortgage placement fees (points) paid by borrowers when loans are originally funded or when the Partnership extends or refinances mortgage loans. These fees may reduce the yield obtained by the Partnership from its mortgage loans. Partnership Management The General Partner is responsible for the Partnership's investment portfolio. Its services include: o the creation and implementation of Partnership investment policies; o preparation and review of budgets, economic surveys, cash flow and taxable income or loss projections and working capital requirements; o preparation and review of Partnership reports; o communications with limited partners; o supervision and review of Partnership bookkeeping, accounting and audits; o supervision and review of Partnership state and federal tax returns; and o supervision of professionals employed by the Partnership in connection with any of the foregoing, including attorneys, accountants and appraisers. For these and certain other services the General Partner is entitled to receive a management fee of up to 2-3/4% per annum of the unpaid balance of the Partnership's mortgage loans. The management fee is payable on all loans, including nonperforming or delinquent loans. The General Partner believes that a fee payable on delinquent loans is justified because of the expense involved in the administration of such loans. See "Compensation of the General Partner--Management Fees," at page 6. Item 11. Executive Compensation The Partnership does not pay any compensation to any persons other than the General Partner. The Partnership has not issued, awarded or otherwise paid to any General Partner, any options, SAR's, securities, or any other direct or indirect form of compensation other than the management fees and carried interest permitted under the Partnership Agreement. The following table summarizes the forms and amounts of compensation paid to the General Partner for the year ended December 31, 2000. Such fees were established by the General Partner and were not determined by arms-length negotiation. Year Ended December 31, 2000 Maximum Form of Compensation Actual Allowable Management Fees...................... $ 3,914,000 $ 5,845,000 Carried Interest..................... 102,000 102,000 ------------- -------------- Subtotal............................. $ 4,016,000 $ 5,947,000 ------------- -------------- Investment Evaluation Fees........... $7,936,000 $7,936,000 Servicing Fees....................... 531,000 531,000 Late Payment Charges................. 1,118,000 1,118,000 ------------- -------------- Subtotal. $ 9,585,000 $9,585,000 ------------- -------------- Grand Total $ 13,601,000 $15,532,000 ============= ============== Reimbursement of Other Expenses $ 32,000 $ 32,000 ============= ============== Item 12. Security Ownership of Certain Beneficial Owners and Management No person or entity owns beneficially more than 5% of the ownership interests in the Partnership. The General Partner owns approximately 2,804,000 units (1.2%) of the Partnership as of December 31, 2000. The voting common stock of the General Partner is owned as follows: 39.7% by William C. Owens, 28.8% by Milton N. Owens, and 10.5% each by Bryan H. Draper, William E. Dutra and Andrew J. Navone. Item 13. Certain Relationships and Related Transactions Transactions with Management and Others Management Fee The General Partner is entitled to receive from the Partnership a management fee of up to 2.75% per annum of the average unpaid balance of the Partnership's mortgage loans at the end of each of the preceding twelve months for services rendered as manager of the Partnership. The amount of management fees to the General Partner for the year ended December 31, 2000 was approximately $3,914,000. Servicing Fee All of the Partnership's loans are serviced by the General Partner, in consideration for which the General Partner receives up to .25% per annum of the unpaid principal balance of the loans on a monthly basis. The amount of servicing fees to the General Partner for the year ended December 31, 2000 was approximately $531,000. Carried Interest The General Partner is required to continue cash capital contributions to the Partnership in order to maintain its required capital balance equal to 1% of the limited partners' capital accounts. The General Partner has contributed capital to the Partnership in the amount of 0.5% of the limited partners' aggregate capital accounts and, together with its carried interest, the General Partner has an interest equal to 1% of the limited partners' capital accounts. This carried interest of up to 1/2 of 1% is recorded as an expense of the Partnership and credited as a contribution to the General Partner's capital account as additional compensation. As of December 31, 2000, the General Partner had made cash capital contributions of $1,177,000 to the Partnership. During 2000, the Partnership incurred carried interest expense of $102,000. Reimbursement of Other Expenses The General Partner is reimbursed by the Partnership for the actual cost of goods and materials used for or by the Partnership and obtained from unaffiliated entities and the actual cost of services of non-management and non-supervisory personnel related to the administration of the Partnership (subject to certain limitations contained in the Partnership Agreement). During 2000, the Partnership reimbursed the General Partner for expenses in the amount of $32,000. Compensation from Others In addition to compensation from the Partnership, the General Partner also receives compensation from borrowers under the mortgage loans placed by the General Partner with the Partnership. Loan Origination Fees Loan origination fees, also called mortgage placement fees or points, are paid to the General Partner from the borrowers under loans held by the Partnership. These fees are compensation for the evaluation, origination, extension and refinancing of loans for the borrowers and may be paid at the placement, extension or refinancing of the loan or at the time of final repayment of the loan. The amount of these fees is determined by competitive conditions and the General Partner and may have a direct effect on the interest rate borrowers are willing to pay the Partnership. During 2000, the General Partner earned investment evaluation fees on Partnership loans in the amount of $7,936,000. Late Payment Charges All late payment charges paid by borrowers of delinquent mortgage loans, including additional interest and late payment fees, are retained by the General Partner. During 2000, the General Partner received late payment charges from borrowers in the amount of $1,118,000. Part IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K Form 10-K Pg. (a)(1) List of Financial Statements: ------------- ----------------------------- Report of Independent Certified Public Accountants p. 25 Independent Auditors' Report p. 26 Consolidated Balance Sheets - December 31, 2000 and 1999 p. 27 Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 p. 28 Consolidated Statements of Partners' Capital for the years ended December 31, 2000, 1999 and 1998 p. 29 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 p. 30 Notes to Consolidated Financial Statements pp. 31-43 (2) Schedule II- Valuation and Qualifying Accounts p. 50 (3) Schedule IV- Mortgage Loans on Real Estate pp. 51-53 (4) Exhibits: --------- 3. Amended and Restated Limited Partnership Agreement, incorporated by reference to Exhibit A to Post-Effective Amendment No. 2 to the Form S-11 Registration Statement No. 333-71299 filed April 18, 2000 and the Prospectus Supplement dated November 15, 2000. 10(a). Subscription Agreement and Power of Attorney, incorporated by reference to Exhibit B to Post-Effective Amendment No. 2 to the Form S-11 Registration Statement No. 333-71299 filed April 18, 2000 and the Prospectus Supplement dated November 15, 2000. (b) Reports on Form 8-K - Form 8-K filed on April 28, 2000 to report the change in accounting firms from KPMG LLP to Grant Thornton LLP. (c) Exhibits: --------- 3. Amended and Restated Limited Partnership Agreement, incorporated by reference to Exhibit A to Post-Effective Amendment No. 2 to the Form S-11 Registration Statement No. 333-71299 filed April 18, 2000 and the Prospectus Supplement dated November 15, 2000. 10(a). Subscription Agreement and Power of Attorney, incorporated by reference to Exhibit B to Post-Effective Amendment No. 2 to the Form S-11 Registration Statement No. 333-71299 filed April 18, 2000 and the Prospectus Supplement dated November 15, 2000. (d) Schedules: ---------- Schedule II - Valuation and Qualifying Accounts Schedule IV - Mortgage Loans on Real Estate SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS PROVISION FOR LOAN LOSSES ROLLFORWARD Balance at January 1, 1998 $ 3,500,000 Charges to costs and expenses -- Deductions -- ------------ Balance at December 31, 1998 3,500,000 Charges to costs and expenses 500,000 Deductions -- ------------ Balance at December 31, 1999 4,000,000 Charges to costs and expenses -- Deductions -- ------------ Balance at December 31, 2000 $ 4,000,000 ============ PROVISION FOR LOSSES ON REAL ESTATE ROLLFORWARD Balance at January1, 1998 $ 1,184,000 Charges to costs and expenses -- Deductions -- ------------ Balance at December 31, 1998 1,184,000 Charges to costs and expenses 152,000 Deductions -- ------------ Balance at December 31, 1999 1,336,000 Charges to costs and expenses -- Deductions (200,000) ------------ Balance at December 31, 2000 $ 1,136,000 == ==========
SCHEDULE IV OWENS MORTGAGE INVESTMENT FUND MORTGAGE LOANS ON REAL ESTATE -- DECEMBER 31, 2000 Principal Amount of Loans Subject to Delinquent Description Interest Final Carrying Amount Principal or ----------- Rate Maturity date of Mortgages Interest TYPE OF LOAN Income Producing................ 8.50-15.00% Current to Sept., 2018 $169,840,446 $ 7,212,141 Construction.................... 10.25-12.75% Current to Sept., 2003 41,417,905 0 Land .......................... 10.00-14.00% Current to April, 2004 11,870,113 802,200 Residential..................... 11.00% April, 2002 145,000 0 ------------ ---------- TOTAL $223,273,464 $ 8,014,341 ============ =========== AMOUNT OF LOAN $0-250,000...................... 8.50-14.50% Current to Sept., 2014 $2,926,416 $ 144,645 $250,001-500,000................ 10.00-12.75% Current to Sept., 2018 5,002,757 322,562 $500,001-1,000,000.............. 9.00-14.00% Current to Jan., 2014 11,817,451 1,652,200 Over $1,000,000................. 8.50-15.00% Current to May, 2015 203,526,840 5,894,934 - ----------- -- --------- TOTAL $223,273,464 $8,014,341 ============ ========== POSITION OF LOAN First .......................... 8.50-14.50% Current to Sept., 2018 $212,831,212 $ 7,627,134 Second ......................... 10.00-15.00% Current to Aug., 2010 10,377,607 322,562 Third .......................... 10.00% Current 64,645 64,645 ------------ ----------- TOTAL $223,273,464 $ 8,014,341 ============ ===========
- --------------- NOTE 1: All loans are acquired from an affiliate of the Partnership, namely Owens Financial Group, Inc., the General Partner. NOTE 2: Balance at beginning of period (1/1/98).............................$174,714,607 Additions during period: New mortgage loans..............................................83,714,828 Loan carried back on sale of real estate.........................1,150,000 ----------- Subtotal.......................................................259,579,435 Deductions during period: Collection of principal.........................................76,349,284 Foreclosures.......................................................508,686 ----------- Balance at end of period (12/31/98)...........................$182,721,465 =========== Balance at beginning of period (1/1/99).............................$182,721,465 Additions during period: New mortgage loans.............................................119,403,718 Loan carried back on sale of real estate to general partner......1,000,000 ----------- Subtotal.......................................................303,125,183 Deductions during period: Collection of principal.........................................92,952,328 Sales of loans secured by trust deeds at face value..............7,816,294 Foreclosures.....................................................2,000,044 ----------- Balance at end of period (12/31/99)...........................$200,356,517 =========== Balance at beginning of period (1/1/00).............................$200,356,517 Additions during period: New mortgage loans.............................................117,409,372 Loan carried back on sale of real estate...........................813,600 ----------- Subtotal.......................................................318,579,489 Deductions during period: Collection of principal.........................................87,955,112 Sales of loans secured by trust deeds at face value..............6,665,913 Foreclosures.......................................................685,000 ----------- Balance at end of period (12/31/00)...........................$223,273,464 =========== During the years ended December 31, 2000, 1999 and 1998, the Partnership refinanced loans totaling $25,126,000, $7,436,000 and $9,941,000, respectively, thereby extending the maturity date. During the year ended December 31, 2000, the Partnership sold two delinquent loans at book value to the General Partner for notes receivable in the total amount of $1,178,000. The General Partner subsequently foreclosed on the loans. The notes were repaid by the General Partner in September 2000. During 1998, the Partnership sold a property located in Sonora, California to the General Partner for $1,150,000. The Partnership carried back a loan secured by a trust deed on the property for the full purchase price. - -------------- NOTE 3: Included in the above loans are the following loans which exceed 3% of the total loans as of December 31, 2000. There are no other loans that exceed 3% of the total loans as of December 31, 2000:
Principal Amount of Loans Subject Final Face Carrying to Delinquent Interest Maturity Periodic Payment Prior Amount of Amount of Principal or Description Rate Date Terms Liens Mortgages Mortgages Interest ----------- -------- -------- ------------- ----- --------- --------- ------------- Condominium Complex Alpine, CA............. 11.00% 11/30/00 Interest only, None $12,000,000 $11,661,555 $0 balance due at maturity Commercial Retail Center 12.00% 6/1/01 Interest only, None $8,600,000 $ 7,121,292 $0 Sedona, AZ............. balance due at maturity Office Building 12.00% 1/7/02 Interest only, None $11,250,000 $10,712,528 $0 Oakland, CA............ balance due at maturity Movie Theaters 12.00% 4/27/01 Interest only, None $ 8,500,000 $ 7,300,000 $0 Stockton, Clovis, Walnut balance due at Creek, San Ramon, Fresno maturity and Modesto, CA........ Race Track 14.00% 6/1/01 Interest only, None $14,000,000 $14,000,000 $0 Vinton, LA............. balance due at maturity Housing Development 11.50% 8/2/03 Interest only, None $ 7,562,630 $ 7,562,630 $0 Hayward, CA............ balance due at maturity
- --------------- NOTE 4: All amounts reported in this Schedule IV represent the aggregate cost for Federal income tax purposes. NOTE 5: There are no write-downs or reserves on any of the individual loans listed under Note 3 above. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Dated: March 29, 2001 OWENS MORTGAGE INVESTMENT FUND, a California Limited Partnership By: Owens Financial Group, Inc., General Partner Dated: _______________ By: _________________________________ William C. Owens, President Dated: _______________ By: _________________________________ Bryan H. Draper, Chief Financial Officer Dated: _______________ By: _________________________________ Melina A. Platt, Controller EX-27 2 0002.txt FDS --
5 (Replace this text with the legend) 841501 Owens Mortgage Investment Fund 1 U.S. DOLLARS Year DEC-31-2000 JAN-01-2000 DEC-31-2000 1 6234479 50000 2015630 0 0 8300109 18726405 100797 246199181 1316671 0 0 0 0 238757190 246199181 0 28268431 0 5733375 0 0 0 22535056 0 22535056 0 0 0 22535056 .10 .10
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