-----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, RpytTmpMQQxtnl2qywYhu3s8QP+1Zjst34RRo/dpcgS8R5w9pNWILJOx4XbqeBhY /YHJRGR5SChmAg9wMNpzMA== 0000841501-98-000002.txt : 19980122 0000841501-98-000002.hdr.sgml : 19980122 ACCESSION NUMBER: 0000841501-98-000002 CONFORMED SUBMISSION TYPE: 10KT405/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19980121 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OWENS MORTGAGE INVESTMENT FUND CENTRAL INDEX KEY: 0000841501 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 680023931 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KT405/A SEC ACT: SEC FILE NUMBER: 000-17248 FILM NUMBER: 98509619 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/A 1 AMENDED 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, 1996 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 (510) 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 reguired 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.33-81896 are incorporated by reference into Part IV. Exhibit Index at pages 51-52. Part I Item 1. Business Owens Mortgage Investment Fund, a California Limited Partnership, (the "Partnership") was organized on June 14, 1984 and 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, and acquired the assets and limited partners of Owens Mortgage Investment Fund I, a California limited partnership formed in June 1983 with the same policies and objectives as the Partnership. In September, 1992 the Partnership changed its name from Owens Mortgage Investment Fund II to Owens Mortgage Investment Fund. All of the loans invested in by the Partnership are arranged by the Corporate General Partner. In connection with the investment in such loans, the Partnership in limited instances acquires an equity interest in the underlying real property in the form of a shared appreciation interest. To date, the Partnership has not acquired any material shared appreciation interests. The Partnership's mortgage loans are secured by mortgages on unimproved as well as improved real property and nonincome producing as well as 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, 1996, 1995, 1994, 1993 and 1992. Mortgage Net Capital Investments Income 1996 $ 176,840,104 $ 154,148,933 $ 14,758,412 1995 $ 164,744,443 $ 151,350,591 $ 13,491,375 1994 $ 151,846,728 $ 145,050,213 $ 12,709,424 1993 $ 137,583,163 $ 133,549,495 $ 9,318,645 1992 $ 124,304,467 $ 119,224,512 $ 11,749,283 As of December 31, 1996, the Partnership held investments in 240 mortgage loans, secured by ownership and leasehold interests in real property, 69% of which are situated in Northern California. The remaining 31% were located in Southern California, Oregon, Nevada, Arizona and Hawaii. The following table sets forth the types and maturities of mortgage investments held by the Partnership as of December 31, 1996:
TYPES AND MATURITIES OF MORTGAGE INVESTMENTS (As of December 31, 1996) Number of Loans Amount Percent 1st Mortgages 190 $139,382,511 90.42% 2nd Mortgages 47 14,006,235 9.09% 3rd Mortgages or wraparound deeds of trust 3 760,187 .49% --- ------------ ------- 240 $154,148,933 100.00% === ============ ======= Maturing on or before December 31, 1998 (1) 148 $96,845,670 62.83% Maturing on or between January 1, 1999 and December 31, 2001 46 30,517,708 19.80% Maturing on or between January 1, 2002 and March 1, 2012 46 26,785,555 17.37% --- ------------ ------- 240 $154,148,933 100.00% === ============ ======= Income-Producing Properties 211 $145,999,756 94.71% Single-Family Residences 20 3,935,546 2.55% Unimproved land 9 4,213,631 2.74% --- ------------ -------- 240 $154,148,933 100.00% === ============ ======= - -------- (1) $22,603,000 was past maturity as of December 31, 1996.
The average loan balance of the mortgage loan portfolio of $639,622 as of December 31, 1996 is considered by the General Partners to be a reasonable diversification of investments concentrated in mortgages secured by commercial properties. Of such investments, 41% earn a variable rate of interest and 59% earn a fixed rate of interest. All were negotiated according to the Partnership's investment standards. Due to general economic conditions, certain sectors of the commercial real estate market have recently experienced decreases in both values and rental rates and an increase in vacancy rates. These conditions have helped to create stricter underwriting standards of the Corporate General Partner in relation to the financial strength of tenants, vacancy rates in comparable properties, existence and amounts of senior mortgages, general area economic development and growth, and other factors. The Corporate General Partner has continued to use relatively low loan-to-value ratios as a major criteria in making mortgage loans. As of December 31, 1996, the Partnership had invested in construction loans the aggregate amount of $2,240,000 and in loans partially secured by a leasehold interest of $13,535,000. The Partnership has other assets in addition to its mortgage investments, comprised principally of funds held in conjunction with contingency reserve requirements, cash held for investment, investment in the development limited partnership formed to develop certain property in Carmel Valley, California, acquired by the Partnership through foreclosure, real estate owned, mortgage interest receivable and unsecured notes from the Corporate General Partner. As of December 31, 1996, $12,236,661 ($3,400,000 representing contingency reserve funds) was primarily invested in certificates of deposit (with staggered maturity dates to a maximum of one year), money market accounts, and general banking accounts as required to transact the business of the Partnership. In addition, as of December 31, 1996, the Partnership held $7,743,295 in real estate owned, $4,877,798 in a limited partnership formed to develop the property located in Carmel Valley, California and acquired by the Partnership through foreclosure, $1,321,493 in mortgage interest receivable from the borrowers and $488,764 in unsecured notes due from the Corporate General Partner. The Partnership intends to continue to invest primarily in first deeds of trust secured by commercial properties. Delinquencies The Corporate General Partner does not regularly examine the maintenance of acceptable loan-to-value ratios for the existing portfolio because the majority of loans in the Partnership's portfolio mature in a period of 1-7 years. In the event that payments on a loan securing a property become delinquent, the loan is past maturity, the General Partners learn of physical changes to the property securing the loan or to the area in which the property is located or the General Partners learn of changes to the economic condition of the borrower or of leasing activity of the property securing the loan, the General Partners will perform an internal review on the property including, but not limited to, a physical evaluation of the property as well as for the area in which the property is located, the financial stability of the borrower and the property's tenant mix and, in its sole discretion, will work with the borrower to bring the loan current. Although the Corporate General Partner is not obligated to do so, it purchases the Partnership's receivables for delinquent interest from the Partnership with respect to certain Partnership loans originated prior to May 1, 1993, and which are delinquent more than 90 days. In exchange for purchasing such delinquent interest receivables or purchasing delinquent loans, the Corporate General Partner is entitled to receive a higher maximum management fee (see "Executive Compensation"). Such payments have been recorded by the Partnership as interest payments as if made by the borrower, and have not been classified as contributions by the Corporate General Partner or as loans made by the Corporate General Partner. The Partnership has no obligation to repay such amounts to the Corporate General Partner. As of December 31, 1996, the Partnership's portfolio included $11,348,000 (compared with $12,037,000 as of December 31, 1995) of loans delinquent more than 90 days, representing 7.4% of the Partnership's investment in mortgage loans. The balance of delinquent loans at December 31, 1996, includes $5,046,000 (compared with $3,728,000 as of December 31, 1995) in the process of foreclosure and $3,156,000 (compared with $850,000 as of December 31, 1995) involves loans to borrowers who are in bankruptcy. The General Partners believe that these loans may result in a loss of principal and/or interest. However, the General Partners believe that the $3,500,000 allowance for losses on loans which is maintained in the financial statements of the Partnership as of December 31, 1996 is sufficient to cover any potential losses of principal. Of the $12,037,000 that was delinquent as of December 31, 1995, $6,246,000 remained delinquent as of December 31, 1996, $1,193,000 was paid off, $2,045,000 became current, $1,683,000 became Real Estate Owned of the Partnership (see "Properties") and $870,000 represents a loan foreclosed upon by the Partnership and subsequently sold to the Corporate General Partner (see "Unsecured Loan to Corporate General Partner"). The General Partners believe that there could be partial losses of principal on these loans; therefore, an additional allowance for loan losses of $250,000 was provided for in the financial statements of the Partnership in 1996. An allowance for loan losses of $3,500,000 and $3,250,000 is maintained in the financial statements of the Partnership as of December 31, 1996 and 1995, respectively. Where payments on delinquent loans are not made currently by the borrowers, the Corporate General Partner has chosen to continue to purchase the Partnership's receivables for delinquent interest on a monthly basis on certain loans originated prior to May 1, 1993. Such loans totaled $1,336,000 as of December 31, 1996. At December 31, 1996, the amount of delinquent interest receivables purchased by the Corporate General Partner, together with amounts advanced by the Corporate General Partner in connection with these and other loans, including property taxes, insurance, legal fees, and interest to senior lenders that has not been repaid to the Corporate General Partner by borrowers was approximately $1,218,000. The Partnership is not obligated to reimburse the Corporate General Partner for such advances or to reacquire the delinquent interest receivables purchased by the Corporate General Partner. Finally, although not required to do so, prior to May 1, 1993, the Corporate General Partner would purchase certain loans from the Partnership at the time of foreclosure of such loans, for the unpaid principal amount and accrued interest, in order to prevent the Partnership from suffering a loss upon such foreclosure. However, commencing with loans originated on or after May 1, 1993, the Corporate General Partner has determined that, it no longer will purchase such loans except where the Corporate General Partner determines, in its sole discretion, that it will do so. In 1996 the Partnership foreclosed on an $870,000 loan and acquired title to the property providing security on the loan. Thereafter, the Corporate General Partner purchased the property from the Partnership for the amount of the loan by increasing the unsecured note payable to the Partnership by such amount (see "Business-Unsecured Loan to Corporate General Partner"). The Partnership foreclosed on another loan in the amount of $1,450,000 and acquired title to the property providing security for the loan also. The Corporate General Partner purchased the property from the Partnership, and the Partnership carried back a loan in the same amount as the original loan it had on the property prior to foreclosure. The loan is secured and due on demand. To date the Partnership has suffered no material losses on defaults or foreclosures, partially due to the prior practice of the Corporate General Partner to purchase loans from the Partnership which were at risk of causing a loss to the Partnership and its practice to date to voluntarily absorb such losses in very limited circumstances. Delinquent loans (defined as those loans for which the borrower is 90 days late in payment of installments due) have historically represented approximately 5-10% of the total loans that the Partnership has outstanding at any given time. However, due to the continuing practice of the Corporate General Partner to not purchase the Partnership's receivables for delinquent interest on any delinquent loans originated on or after May 1, 1993, and on the majority of delinquent loans originated prior to May 1, 1993, the amount of nonperforming delinquent loans (i.e., loans delinquent in payment over 90 days on which the Corporate General Partner historically has not purchased the Partnership's receivables for delinquent interest) has risen to $10,012,000 of the loan portfolio (6.5%). The Corporate General Partner, in all likelihood, will not continue to make payments to the Partnership on any delinquent loan originated prior to May 1, 1993 except in limited situations. If the Corporate General Partner should discontinue making purchases of delinquent interest receivables on additional delinquent loans originated prior to May 1, 1993, or discontinue entirely its practice of purchasing delinquent loans, there could be a further decrease in distributions. Following is a table representing the Partnership's delinquency experience (over 90 days) as of December 31, 1992, 1993, 1994, 1995 and 1996:
1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- Nonperforming Delinquent Loans $ 0 $ 0 $ 4,923,000 $ 8,309,000 $ 10,012,000 Total Delinquent Loans $ 11,064,500 $ 10,621,000 $ 12,849,000 $ 12,037,000 $ 11,348,000 Total Mortgage Investments $119,225,000 $133,549,000 $145,050,000 $151,351,000 $154,149,000 Percent of Nonperforming Loans to Total Mortgage Investments 0.00% 0.00% 3.39% 5.49% 6.50% Percent of Delinquent Loans to Total Mortgage Investments 9.28% 7.95% 8.86% 7.95% 7.36%
Allowance for Loan Losses An allowance for loan losses of $3,500,000 and $3,250,000 is maintained in the financial statements of the Partnership as of December 31, 1996 and 1995, respectively. The General Partners believe that, based on historical experience and a review of the loans and their respective collateral, the allowance for loan losses as of December 31, 1996 is adequate in amount. Unsecured Loan to Corporate General Partner In 1996, in order to protect the Partnership from operating losses and potential loss on disposition, the Corporate General Partner purchased a property from the Partnership which the Partnership had foreclosed on by increasing the amount of the unsecured loan from the Corporate General Partner in the amount of $870,000, the original loan amount on the foreclosed property. The Corporate General Partner disposed of the property in 1996 at a loss carrying back a mortgage in the amount of $629,000. The Corporate General Partner assigned this mortgage to the Partnership reducing the unsecured loan in the same amount. The Corporate General Partner has made additional principal payments against its unsecured loan aggregating $775,468 during 1996. At December 31, 1996, the outstanding principal balance of the Corporate General Partner's unsecured loan is $488,764. The loan is due upon demand, bears interest at the rate of 8% per annum, and is expected to be repaid by April 30, 1997. The Corporate General Partner continues to make monthly payments of principal and interest on this loan, and it is current. Although the terms of the loan between the Partnership and the Corporate General Partner may or may not be at market, they are considered fair and reasonable. Fee Structure Management Fee's are payable to the Corporate General Partner on a monthly basis at a maximum annual rate of 2 3/4% per annum on the average unpaid balance of the Partnership's mortgage loans at the end of each of the 12 months in the then current calendar year. This fee is reduced to 1 3/4% per annum if the Corporate General Partner has not provided during the preceding calendar year any of the following discretionary services: (1) advanced its own funds to purchase the Partnership's interest receivable on delinquent mortgage loans; (2) advanced its own funds to cover any other costs associated with delinquent loans held by the Partnership, such as property taxes, insurance and legal expenses; or (3) purchased any such defaulted loans from the Partnership. The Corporate General Partner is entitled to collect the Management Fee on all loans, including those that are delinquent. This is due to the added costs to the Corporate General Partner associated with such loans including legal fees. Servicing Fees charged for the twelve months ended December 31, 1996 were $384,000. Management Fees charged to the Partnership for the twelve months ended December 31, 1996 were $867,000. During this same period, the maximum Servicing Fees and Management Fees that could have been collected by the Corporate General Partner were $389,000 and $4,278,000, respectively. Principal Investment Objectives The Partnership invests primarily in mortgage loans on commercial, industrial and residential income producing real property, single-family residences and land. The terms of each loan are negotiated on a loan-by-loan basis by the Corporate General Partner. The Partnership's two principal investment objectives in making investments of the type described above are to: (i) preserve the capital of the Partnership; and (ii) provide monthly cash distributions to the Limited Partners. It is not an objective of the Partnership to provide tax-sheltered income. The General Partners have the authority, subject to the provisions of the Partnership Agreement, to change the Partnership's investment objectives. The Corporate General Partner locates and identifies all mortgages in which the Partnership invests and makes all investment decisions on behalf of the Partnership in its sole discretion. In evaluating prospective investments, the Corporate General Partner considers such factors as the ratio of the amount of the investment to the value of the property by which it is secured, the property's potential for capital appreciation, expected levels of rental and occupancy rates, current and projected cash flow of the property, potential for rental increases, the degree of liquidity of the investment, geographic location of the property, the condition and use of the property, its income-producing capacity, the quality, experience and creditworthiness of the borrower, general economic conditions in the area where the property is located, and any other factors which the Corporate General Partner believes are relevant. Almost all loans made or invested in by the Partnership are originated by the Corporate General Partner. During the course of its business, the Corporate General Partner is continuously evaluating prospective investments. The Corporate General Partner will originate loans from referrals, brokerage organizations, additional lending to previous borrowers and personal solicitations of new borrowers. All potential mortgage loans to be made or invested in are evaluated to determine if the mortgage loan is the type made by the Partnership, if the security for the loan and the loan-to-value ratio meets the standards established by the Partnership, and if the loan may be structured in a manner to meet the Partnership's investment criteria and objectives. If the Corporate General Partner approves the loan as presented, an appraisal will be ordered on the property securing the loan, and the property will be inspected by an officer, director, agent or employee of the Corporate General Partner. The Partnership requires that the borrower obtain a title insurance policy as to the priority of the mortgage and the condition of title. The Partnership receives independent, on-site appraisals for each property in which it invests. All independent appraisers used by the Partnership are licensed or qualified as independent fee appraisers and are certified by the state in which the property being appraised is located. Such appraisals will ordinarily take into account factors including: property location; age; condition; estimated building cost; community and site data; valuation of land; valuation by cost; economic market analysis; valuation by income; and correlation of the foregoing valuation methods. However, the General Partners generally rely on their own independent analysis and not exclusively on such appraisals in determining whether or not to arrange a particular mortgage loan. Types of Mortgage Loans As more fully described below, the Partnership makes and invests in first, second, third and wraparound mortgage loans, construction loans on real property, and loans on leasehold interests. The Partnership does not ordinarily make or invest in mortgage loans with a maturity of more than 15 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, with a payment of principal in full at the end of the loan term. The General Partners or their Affiliates do 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 from one year to 7 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 70 - 75% of the appraised value of commercial property. Second and Wrapround Mortgage Loans Second and wraparound mortgage loans are invested in by the Partnership 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 70% of the appraised value of the mortgaged property. A wraparound loan is one or more junior mortgage loans having principal amounts 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 invested in by the Partnership 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 70% of the appraised value of the mortgaged property. Construction Loans Construction loans are loans made for the renovation of developed property and for the development of undeveloped property. Construction loans invested in by the Partnership are secured by first deeds of trust on real property. Such loans are generally for terms of from six months to 2 years. In addition, if the mortgaged property is being developed, the amount of such loans does not generally exceed 70% of the appraised value of the mortgaged property, as developed. Generally the Partnership will not disburse funds with respect to a particular construction loan until work in the previous phase of the project on which the loan is made has been completed and an independent inspector has verified the quality of construction and adherence to the construction plans, and reviewed the estimated cost of completing the project. In addition, the Partnership generally requires the submission of signed labor and material lien releases by the borrower in connection with each completed phase of the project prior to rnaking any periodic disbursements of proceeds of the loan to the borrower. 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 70% of the value of the leasehold interest and are accompanied by personal guarantees of the borrowers. The leasehold interest loans either are amortized over a period which is shorter than the lease term or have a maturity date prior to the date the lease terminates. These loans all contain provisions allowing the Corporate General Partner to cure any default under the lease. Variable Rate Loans Approximately $63,105,000 (40.9%) of the Partnership's loan portfolio as of December 31, 1996, contain a variable interest rate feature. The variable rate loans originated by the General Partners 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). Premiums over the above described indices have varied from 250-550 basis points depending upon market conditions at the time the loan is made. Generally, an index based upon the prime rate or Treasury Bill rate is the most volatile, while an index based upon the cost of funds is the most stable. From January 1, 1996, through December 31, 1996, the one year Treasury Constant Maturity Index has increased from 5.21% to 5.50%, the five-year Treasury Constant maturity Index has increased from 5.44% to 6.12%, the Prime Rate Index decreased from 8.50% to 8.25% and the Monthly Weighted Average Cost of Funds Index for the Eleventh District Savings Institutions has decreased from 5.12% to 4.84%. It is possible that the interest rate index used in a variable rate loan will rise (or fall) more slowly than the rate of competing investments available to the Partnership. The General Partners attempt to minimize such 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 Corporate General Partner contain provisions under which the interest rate cannot fall below the starting rate. Interest Rate Caps Interest rate caps are found in all variable rate loans originated by the Corporate General Partner. The interest rate cap most frequently used is a 4% ceiling and a floor 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 Partners. The Partnership does not typically make or invest in other assumable loans. To minimize risk to the investors, 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 a prepayment penalty. 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, 1996, $63,105,000 (approximately 40.9%) of the mortgage loans held in the Partnership's portfolio were variable rate loans which by their terms generally will 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 operates to reduce this 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 a mortgage loan 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, such 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. The Partnership also may invest its funds directly in real property, if in the opinion of the General Partners, it is in the Partnership's best interest. See "Business-Real Estate Owned." No other properties (other than those that may be subject to foreclosure by the Partnership or a senior lender) are currently under review for acquisition by the Partnership. Standards for Mortgage Loans In arranging mortgage loans, the Corporate General Partner considers relevant real property and financial factors, including the condition and use of the property, its income-producing capacity and the quality, experience, and creditworthiness of the borrower. The Partnership does not normally invest in mortgage loans secured by multifamily residential property or commercial property unless the net annual estimated cash flow after vacancy, operating expense, and mortgage debt service deductions on senior liens equals or exceeds the annual payments required on the mortgage loan. In addition, 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. Mortgage Loans to Affiliates The Partnership will not invest in mortgage loans to any of the General Partners, Affiliates of the General Partners, or any limited partnership or entity affiliated with or organized by the General Partners. However, the Partnership may have an investment in a mortgage loan to the General Partners when the Corporate General Partner assumes by foreclosure the obligations of the borrower under a mortgage loan. As of December 31, 1996, the Partnership had secured loans outstanding to the Corporate General Partner of $1,942,332. Purchase of Loans from Affiliates Although the Partnership has never done so, the Partnership may purchase loans from the General Partners or their Affiliates that were originated by the General Partners or their Affiliates and held for such party's own portfolio, as long as any such loan is not in default and as long as such loan otherwise satisfies all of the requirements set forth above. In addition, if such loan was not made by the maker of the loan within the 90 days prior to its purchase by the Partnership from the General Partners or their Affiliates, the General Partners or their Affiliates, respectively, shall retain a minimum of a 10% interest in such loan. 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 which are senior to the Partnership's mortgage loans or to discharge such 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, although the Partnership has not historically had to do so, the Partnership may incur indebtedness in order to assist in the operation or development of a property securing a mortgage loan that the Partnership takes over as a result of default on the loan or foreclosure. Sale and Repayment of Mortgages The Partnership invests in mortgage loans and does not engage in real estate operations or real estate developments (other than when such operations are required when the Partnership forecloses on a loan in which it has made an investment or takes over management of such foreclosed property), and 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 the mortgage loan upon sale of the mortgaged property if the General Partners determine that such 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, and the objectives of the Partnership. The net proceeds to the Partnership from any such sale or repayment are invested in new mortgage loans or distributed to the Partners at such times and in such intervals as the General Partners in their sole discretion determine. 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 imposed on real estate investment trusts. The Partnership is not subject to registration as an investment company under 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: (i) issue securities senior to the Units or issue any Units or other securities for other than cash; (ii) invest in the securities of other issuers for the purpose of exercising control; (iii) underwrite securities of other issuers; or (iv) offer securities in exchange for property. No single Partnership loan may exceed 10% of the total Partnership assets as of the date that a loan is made. Competition and General Economic Conditions The Partnership's major competitors in providing mortgage loans secured by deeds of trust on income producing and residential property 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 Corporate General Partner generates all of its loans. The Corporate General Partner has been in the business of making or investing in mortgage loans in Northern California for more than 40 years and has developed a quality reputation and recognition within the field. In the past few years, the major institutional lenders had not been as active in the commercial mortgage market as in past years. In fact, some institutional lenders discontinued their commercial lending practice completely. Recently, however, many major institutional lenders have reentered the commercial mortgage market due to a stronger economy, stabilized property values and leasing rates and the decrease in demand for residential loans. This has created increased competition to the Partnership for investments in mortgages secured by commercial properties, creating downward pressure on interest rates. As such, interest rates of mortgage investments held by the Partnership may drop in the near future, reducing the net yield earned by the Limited Partners. In past years, due to general economic conditions, the commercial real estate market in California had experienced decreases in both values and rental rates and an increase in vacancy rates. These conditions prompted the Corporate General Partner to apply stricter underwriting standards. The Corporate General Partner continues to apply relatively low loan-to-value ratios as a practice in making mortgage loans. Item 2. Properties As of May 1, 1993, the Corporate General Partner changed its policy so as to generally not purchase mortgage loans from the Partnership prior to foreclosures. Subsequent to this change in policy, the Partnership acquired title to four properties through foreclosure on which it had loans totaling $4,233,000 during 1996. One of these properties, which provided security on a $1,450,000 Partnership loan, was sold to the Corporate General Partner, at no loss of principal to the Partnership, in exchange for a note secured by the property. Another property, which provided security on an $870,000 Partnership loan, was sold to the Corporate General Partner at no loss of principal to the Partnership in exchange for an unsecured note (see "Business-Unsecured Loan to Corporate General Partner"). During 1996, the Partnership (1) disposed of a property which originally provided security for a $29,855 loan at no loss of principal, (2) disposed of a property which orignally provided the primary security for a loan in the amount of $661,531 and received net proceeds from the sale of $619,452 and (3) received a personal judgment against a borrower in the amount of $300,000 on a property which originally provided secuirty on a $850,000 loan. The Partnership continues to own its interest in the development limited partnership that owns the residential lots in Carmel Valley, California (see "Development Partnership," below) and to hold title to the following 10 properties as of December 31, 1996:
REAL ESTATE OWNED (As of December 31, 1996) Additional Delinquent Year Partnership Capitalized Senior Interest at Description Foreclosed Loan Amount Costs Loans Foreclosure(1) ----------- ---------- ----------- ----------- ------ -------------- Light Industrial Warehouse Merced, CA 1993 $ 1,000,000 $ 0 $ 0 $ 175,333 Commercial Lot Sacramento, CA 1994 $ 500,000 $ 49,828 $ 0 $ 39,042 Light Industrial Warehouse Emeryville, CA 1994 $ 925,000 $ 0 $ 0 $ 235,721 Commercial Lot/Residential Development 1994 $ 525,000 $ 43,569 $ 0 $ 83,949(2) Vallejo, CA Office Building Monterey, CA 1995 $ 550,000 $ 151,426 $1,425,000(3) $ 30,077 Commercial Building Sacramento, CA 1995 $ 550,000(4) $ 0 $ 0 $ 30,817 Developed Land Los Gatos, CA 1995 $ 571,853 $ 0 $ 0 $ 140,282 Residence Campbell, CA 1995 $ 42,079 $ 0 $ 157,111 $ 0 Residential Lots Sonora, CA 1996 $ 1,683,000 $ 130,350 $ 0 $ 732,559 High Density Residential Lot 1996 $ 230,000 $ 0 $ 0 $ 15,439 Reno, NV - -------- (1) Approximately $989,000 of the aggregate delinquent interest receivable due to the Partnership or to the senior lienholder at foreclosure was purchased from the Partnership or advanced to the senior lienholder, if applicable, by the Corporate General Partner. Except for $83,949 that was reimbursed by the Partnership in connection with the Vallejo, California property, the Partnership has not reimbursed or repurchased receivables from the Corporate General Partner for any amounts, has no rights to any subsequent repayments of these amounts and has no obligation to reimburse the Corporate General Partner for such advances or repurchase any receivables purchased by the Corporate General Partner. (2) The delinquent interest receivable was purchased by the Corporate General Partner on behalf of the Partnership, which holds a 70% interest in the property and on behalf of the co-owner of the property, an independent, third-party. Under applicable law, the Partnership could only repurchase such receivable if all other lenders/owners of the property repurchased their respective receivables. Consequently, the Partnership repurchased from the Corporate General Partner $83,949 of the interest receivable purchased by the Corporate General Partner, although it was not obligated to do so. The remaining $38,550 of the delinquent interest receivable purchased by the Corporate General Partner was paid by the other owner of the property. (3) This senior loan was originally $2,102,646 including late charges and fees. The Corporate General Partner arranged for this loan to be discounted to $1,425,000 if the Partnership were to pay it off in full. The Partnership paid this loan off prior to March 31, 1995. (4) The original loan was in the amount of $850,000 but was paid down by $300,000 due to a personal judgment against the borrower acquired through judicial foreclosure.
The light industrial warehouse located in Merced, California is currently leased and is listed with a real estate broker for sale. The Partnership may sustain a loss on this property and has recorded a $350,000 allowance for loss on this property in its financial statements as of December 31, 1996. The commercial lot located in Sacramento, California is currently listed with a real estate broker for sale. The Partnership may sustain a loss on this property and has recorded a $250,000 allowance for loss on this property in its financial statements as of December 31, 1996. The light industrial warehouse located in Emeryville, California currently generates revenue from tenants and a commercial sign which is located on the property. The property was disposed of at a slight profit in January 1997. The Partnership is in the process of obtaining development rights on the parcels in Vallejo, California. The Partnership has brought suit against Solano County and three local cities in association with this process. The majority of the office building located in Monterey, California is leased to a publicly traded company. The Corporate General Partner expects the Partnership to be able to operate this property profitability, lease up the remaining space and place the property on the market for sale. The commercial building in Sacramento is on the market for sale. In addition, the Partnership obtained a personal judgment of $300,000 through a judicial foreclosure proceeding against the former borrower on this property. The Corporate General Partner does not expect the Partnership to suffer any loss on this property. The developed land in Los Gatos, California, currently consists of a small building that is leased out. The value in this property, however, would be with a larger commercial building. As such, the Corporate General Partner is evaluating the possibility of the Partnership constructing and either selling or leasing an office building on the property. In the meantime, the Corporate General Partner continues to negotiate a sale with several potential buyers. The single family residence located in Campbell, California was disposed of in January 1997, at no loss to the Partnership. There are 42 finished lots and 92 tentative mapped lots in the Sonora, California subdivision. The Corporate General Partner is researching the Partnership's options for disposing of these lots without risking additional capital of the Partnership. The Partnership successfully rezoned the Reno lot from commercial to high density residential suitable for apartment construction. The Partnership likely will either build out the lot or sell it to a developer. With the possible exceptions of the industrial warehouse located in Merced, California and the commercial lot located in Sacramento, California, the General Partners believe that due to the values of the properties owned by the Partnership, the Partnership should not sustain any material losses of principal on the ultimate disposition of these properties. The Partnership, however, has maintained a reserve for losses on real estate in its financial statements of $600,000 as of December 31, 1996. Development Limited Partnership In 1993, the Partnership foreclosed on a $600,000 loan secured by a junior lien on 30 residential lots located in Carmel Valley, California, and, in 1994, paid off the $500,000 senior loan. In 1995, the Partnership became the sole limited partner in a limited partnership formed with an unrelated developer/builder as the sole general partner, for the development and buildout of these lots. In exchange for its interest in this development limited partnership, the Partnership in 1996 contributed the lots to the development limited partnership and agreed to make additional advances to fund the development costs. As of February 28, 1997, the Partnership had advanced development costs aggregating $2,740,000, and the total amount invested in or advanced by the Partnership equaled $4,750,000, net of distributions through such date. Under the terms of the agreement governing the development limited partnership, the Partnership is entitled to receive certain distributions of cash before the developer receives any funds. The cash received by the development limited partnership from sales of developed lots is distributed as follows: (i) to third parties (e.g., contractors, taxing authorities, etc.) for amounts incurred by the development limited partnership and related to the lots sold; (ii) to the Partnership, in an amount equal to $70,000 per lot sold; (iii) to the Partnership, in an amount equal to a pro rata portion of the development costs advanced, plus interest at prime plus 2%; (iv) to the Partnership, in an amount equal to other out-of-pocket expenses incurred by the Partnership with respect to the lots sold, plus interest at prime plus 2%; and (v) the balance, if any, 70% to the Partnership, and 30% to the developer. The development limited partnership intends to build single-family residences of between approximately 2,200 and 2,800 square feet on the lots. At February 28, 1997, construction had been completed or commenced on 16 lots. In 1996, one developed lot was sold and $478,679 was distributed (capital and income) to the Partnership. Five homes were sold during the first two months of 1997 and $2,388,239 was distributed to the Partnership. Deposits have been received on the remaining 10 lots, but there can be no assurances the Partnership will realize similar amounts on the sales of these lots. Construction is expected to begin on the majority of the remaining 14 lots during 1997. The Corporate General Partner has entered into a joint venture with the same unrelated developer/builder to purchase and build out up to 34 lots that are contiguous to and interspersed with the lots in Carmel Valley owned by the partnership formed between the Partnership and the developer/builder. The Partnership does not have any direct or indirect interest in these 34 lots nor do any of these lots provide any security for the original Partnership loan which was foreclosed on in 1993. As sales of these 34 lots occur, the development limited partnership will be reimbursed on a pro rata basis, without interest, for development, infrastructure and soft costs incurred by the development limited partnership in the initial stages of its development of the lots. Upon receipt of any such funds the development limited partnership will distribute monies as outlined above. Reserve for Losses on Real Estate Held for Sale The Partnership has recorded a reserve of $600,000 for losses on real estate held for sale in the financial statements of the Partnership as of December 31, 1996. The General Partners believe that this allowance is adequate. 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 the 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, 1996, approximately 2,606 Limited Partners held 175,304,000 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 to the Limited Partners of approximately $13,491,000 and $14,758,000 during 1995 and 1996, respectively. It is the intention of the Corporate General Partner to continue to distribute all income earned by the Partnership to the Unit holders. Item 6. Selected Financial Data
OWENS MORTGAGE INVESTMENT FUND (A California Limited Partnership) Selected Financial Data December 31 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Loans secured by trust deeds $154,148,933 $151,350,591 $145,050,213 $133,549,495 $119,224,512 less: Allowance for loan losses (3,500,000) (3,250,000) (2,750,000) (2,750,000) 0 Real estate held for sale (net) 7,743,295 9,012,359 4,628,325 2,608,000 0 Investment in Limited Partnership 4,877,798 0 0 0 0 Cash, cash equivalent and other assets 14,105,992 8,288,818 5,697,459 5,202,246 5,540,580 ------------ ------------ ------------ ------------ ------------ Total assets $177,376,018 $165,401,768 $152,625,997 $138,609,741 $124,765,092 =========== =========== =========== =========== =========== Liabilities $ 535,914 $ 657,325 $ 779,269 $ 1,026,578 $ 460,625 Partners' Capital General Partners 1,731,874 1,623,526 1,488,360 1,342,578 1,228,400 Limited Partners 175,108,230 163,120,917 150,358,368 136,240,585 123,076,067 ----------- ----------- ----------- ----------- ----------- $176,840,104 $164,744,443 $151,846,728 $137,583,163 $124,304,467 ----------- ----------- ----------- ----------- ----------- Liabilities/Partners' Capital $177,376,018 $165,401,768 $152,625,997 $138,609,741 $124,765,092 =========== =========== =========== =========== =========== Revenues $17,217,195 $ 16,604,484 $ 15,600,859 $ 14,979,065 $ 13,905,067 Operating Expenses Management Fee 866,985 1,431,616 1,475,155 2,234,968 535,540 Servicing Fee 384,004 371,000 338,000 323,000 1,324,000 Promotional 57,395 69,255 72,984 72,359 97,694 Real Estate Held for Sale Operating Expenses 737,014 413,291 314,483 42,242 0 Provision for Loan Losses 250,000 500,000 0 2,750,000 0 Provision for Losses on Real Estate held for sale 0 200,000 400,000 0 0 Other 163,385 127,947 290,813 237,851 198,550 ------------ ------------ ----------- ------------ ------------ Net Income $ 14,758,412 $ 13,491,375 $ 12,709,424 $ 9,318,645 $ 11,749,283 =========== =========== =========== =========== =========== Net income allocated to general partner $ 146,960 $ 135,584 $ 127,726 $ 90,218 $ 113,750 =========== =========== =========== =========== =========== Net income allocated to limited partner $ 14,611,452 $ 13,355,791 $ 12,581,698 $ 9,228,427 $ 11,635,533 =========== =========== =========== ========== =========== Net income per limited partnership unit $.08 $.08 $.09 $.07 $.10 ==== ==== ==== ==== ====
This information 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 Results of Operations The net income increase of $1,267,000 (9.4%) for 1996 as compared to 1995 was attributable to (i) the increase in mortgage investments held by the Partnership from $151,351,000 to $154,149,000 as of December 31, 1995 and 1996, respectively, (ii) the decrease in management fees from $1,432,000 to $867,000, at December 31, 1995 and December 31, 1996, respectively, and (iii) the decrease in provision for losses on loans and real estate held for sale from $700,000 to $250,000 for the years ended December 31, 1995 and 1996, respectively. The net income increase in 1996, as compared to 1995, was negatively affected by (i) the increase in net operating loss from real estate held for sale from $224,000 to $310,000 for the years ended December 31, 1995 and 1996, respectively, and (ii) an increase in nonperforming loans from $8,309,000 to $10,012,000 as of December 31, 1995 and 1996, respectively. Nonperforming loans for the purposes of this discussion and analysis are defined as those loans which are 90 days or more delinquent in payment and on which the Corporate General Partner historically has not purchased the related Partnership receivables for delinquent interest payments to the Partnership. The net income increase of $782,000 (6.2%) for 1995 as compared to 1994 was primarily attributable to the increase in mortgage investments held by the Partnership from $145,050,000 to $151,351,000 as of December 31, 1994 and 1995, respectively. The net income increase for 1995 as compared to 1996 was negatively affected by (i) the addition to reserves for loan losses of $500,000 and losses on real estate held for sale of $200,000 in its financial statements for the year ended December 31, 1995, and (ii) the increase in nonperforming loans from $4,923,000 to $8,309,000 as of December 31, 1994 and 1995, respectively. All income was derived from investments in mortgage loans and short-term interest-bearing accounts, notes receivable from the Corporate General Partner and income from Real Estate Held For Sale. The Partnership has experienced a decrease in its average net yield per Unit from 8.88% in 1994 to 8.79% and 8.72% in 1995 and 1996, respectively. The average net yield represents the net income of the Partnership after all expenses, other than the provision for losses on loans or real estate held for sale. If the provisions for losses on loans or real estate held for sale are included, the Partnership experienced a decrease in its average yield per Unit from 8.60% to 8.31% in 1994 and 1995, respectively, and an increase in average yield per Unit from 8.31% to 8.58% in 1995 and 1996, respectively. The decrease was the result of the overall decrease in general market rates and changes in the Corporate General Partner's policies regarding purchasing delinquent interest receivables, purchasing loans subject to foreclosure and purchasing at foreclosure sale certain properties which provided security for Partnership loans. The amount of nonperforming loans held by the Partnership has increased from $8,309,000 (5.49% of loan portfolio) to $10,012,000 (6.50% of loan portfolio) as of December 31, 1995 and 1996, respectively, due to the diminishing amount of loans for which the Corporate General Partner purchases delinquent interest receivables. However, the yield decreases have been partially offset due to a decrease in the management fees paid to the Corporate General Partner from $1,475,000 for 1994 to $1,432,000 and $867,000 for 1995 and 1996, respectively. These represent decreases in the annualized rate of management fees to total trust deed investments of the Partnership from 1.07% in 1994 to 0.95% and 0.56% for 1995 and 1996, respectively. Due to the increase in nonperforming loans and the general decrease in market interest rates, the Corporate General Partner has in the past voluntarily reduced the fees it collects in order to maximize the yield to investors. The fees taken by the Corporate General Partner are well within the limitations on such fees as imposed by the Partnership Agreement. The Corporate General Partner has not yet determined the level of management fees for 1997. Loan Portfolio The number of Partnership mortgage investments have fluctuated from 254 as of December 31, 1994 to 238 as of December 31, 1995, and to 240 as of December 31, 1996. The average loan balance in these periods increased from $571,064 in 1994 to $635,927 and $639,622 in 1995 and 1996, respectively. These average loan balance increases reflect the Partnership's increased ability to invest in larger mortgage loans meeting the Partnership's objectives. The Partnership's loan portfolio consists primarily of short-term (1-7 years), fixed and variable rate loans secured by real estate. As of December 31, 1996, the Partnership's loans secured by deeds of trust on real property collateral located in Northern California totaled approximately 69% ($106,403,000) of the loan portfolio. As of December 31, 1996, approximately 95% of the loan portfolio was invested in loans on income-producing property, 3% in land loans and 2% in residential loans. Also, as of December 31, 1996, approximately 90% of the loan portfolio was invested in first deeds of trust, 9% in second deeds of trust and 1% in third and all-inclusive deeds of trust. The following table sets forth the principal amount of mortgage investments, by classification of property securing each loan, held by the Partnership as of December 31, 1996, 1995, 1994, 1993 and 1992, respectively:
LOAN PORTFOLIO (dollars in thousands) Principal Amount 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Single Family Residences $ 3,935 $ 2,250 $ 3,180 $ 3,004 $ 4,184 Unimproved Land 4,214 6,503 6,742 7,953 10,244 Income Producing Properties 146,000 142,598 135,128 122,592 104,797 -------- -------- -------- -------- -------- Total $ 154,149 $ 151,351 $ 145,050 $ 133,549 $ 119,225 ======== ======= ======== ======== ========
As of December 31, 1996, there were delinquent loans aggregating $10,012,000 for which the Corporate General Partner has elected not to purchase delinquent interest receivables. As of December 31, 1996, the Corporate General Partner continued to purchase from the Partnership receivables for delinquent interest related to $1,336,000 of delinquent loans held by the Partnership that were originated or invested in prior to May 1, 1993. Concentrations of credit risk arise when a number of borrowers are engaged in similar business activities or activities in the same geographic region, or when a number of loans are secured by property in the same geographic region that would cause the ability of the borrowers to meet contractual obligations to be similarly affected by changes in economic conditions. As of December 31, 1996, the Partnership's loans secured by deeds of trust on real property collateral located in Northern California (defined as those counties north of and including Monterey, Kings, Fresno, Tulare and Inyo counties) totaled approximately 69% ($106,403,000) of the loan portfolio as compared to 79% ($120,744,000) as of December 31, 1995. The Northern California region is a large geographic area which has a diversified economic base. The ability of borrowers to repay loans is influenced by the strength of the region and the impact of prevailing market conditions on the value of real estate. Such loans are secured by deeds of trust in real estate properties and are expected to be repaid from the cash flow of the properties or proceeds from the sale or refinancing of the properties. The policy of the Partnership is to require real property collateral with a value, net of senior indebtedness, that exceeds the carrying amount of the loan balance and to record a deed of trust on the underlying property. As of December 31, 1996, the Partnership's loans secured by deeds of trust on income producing properties totaled approximately 90% ($146,000,000) of the loan portfolio. However, no particular industry represents a significant portion of such loans. In 1993, the Partnership foreclosed on a $600,000 loan and obtained title to 30 lots in Carmel Valley, California, subject to a senior loan in the amount of $500,000. In 1994, the Partnership paid off the senior loan. In 1995, the Partnership entered into a development limited partnership with an unrelated builder/developer for the purpose of constructing single-family residences on the lots, and, in 1996, the Partnership contributed the lots to the development limited partnership. The development limited partnership is the only investment of this nature in which Partnership funds are invested. The Partnership is obligated to fund the costs of developing the lots. At December 31, 1996, the Partnership had advanced an aggregate of $3,387,500 toward the development of the lots, compared to $671,000 at December 31, 1995, and $0 at December 31, 1994. These figures do not include $390,298 of costs relating to the lots and paid by the Partnership prior to contributing the lots to the development limited partnership. At December 31, 1996, one of the developed lots sold, and the Partnership received distributions of capital and income aggregating $478,679 from the development limited partnership. During the period January 1, 1997, through February 28, 1997, the development limited partnership sold five additional developed lots and distributed $2,338,239 to the Partnership. See "Properties -Development Limited Partnership" for a discussion of this investment. Asset Quality A consequence of lending activities is that losses will be experienced and that the amount of such losses will vary from time to time depending upon the risk characteristics of the loan portfolio as affected by economic conditions and the 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, especially in light of the current economic environment. The conclusion that a Partnership loan may become uncollectible, in whole or in part, is a matter of judgment. Although institutional lenders are subject to requirements and regulations, that among other things, require a lender to perform ongoing analyses of its portfolio, loan to value ratio, reserves, etc., and to obtain and maintain current information regarding its borrowers and the securing properties, the Partnership is not subject to these regulations and has not adopted these practices. Rather, the Corporate General Partner, in connection with the periodic closing of the accounting records of the Partnership and the preparation of the financial statements, causes an evaluation of the mortgage loan portfolio of the Partnership to be performed by management and independent auditors. Based upon this evaluation, a determination is made as to whether the allowance for loan losses is adequate to cover potential loan losses of the Partnership. As of December 31, 1996, management has determined that the allowance for loan losses of $3,500,000 is adequate in amount. As of December 31, 1996, loans secured by trust deeds include $11,348,000 in loans delinquent over 90 days of which $5,046,000 was invested in loans which were in the process of foreclosure and $3,156,000 involves loans to borrowers that are in bankruptcy. The adequacy of the allowance for loan losses to cover possible loan losses is determined only on a judgmental basis, after full review, including consideration of: * Economic conditions; * Borrower's financial condition; * Evaluation of industry trends; * Review and evaluation of potential problem loans identified as having loss potential; and * Quarterly review by Board of Directors. Nonperforming Loans The amount of nonperforming loans increased from $8,309,000 (5.5% of the mortgage loan portfolio) as of December 31, 1995 to $10,012,000 (6.5% of the mortgage loan portfolio as of December 31, 1996. This increase is due to the increase in nonperforming loans originated prior to May 1, 1993, from $5,052,000 as of December 31, 1995, to $7,505,000 as of December 31, 1996. The amount of nonperforming loans originated on or after May 1, 1993 decreased from $3,257,000 as of December 31, 1995 to $2,453,000 as of December 31, 1996. The amount of loans that were originated on or after May 1, 1993, and subject to the Corporate General Partners revised policy regarding purchasing delinquent interest receivables totaled approximately $121,693,000 or 79% of the total trust deed portfolio as of December 31, 1996. As such, an ever increasing percentage of the Partnership's trust deed investments are in loans in which the Corporate General Partner has a policy to not purchase delinquent interest receivables. Should the delinquency rate on these loans increase, the interest income received by the Partnership would be reduced. As of December 31, 1996, of the loans held by the Partnership which were originated prior to May 1, 1993, 23% were nonperforming while, of the loans held by the Partnership which were originated on or after May 1, 1993, only 2% were nonperforming. This is due in large part to the fact that, historically, the older the loan, the more likely it is to be delinquent. The Partnership has the following amount of loans delinquent in payment by greater than 90 days:
DELINQUENT LOANS (dollars in thousands) Loan Amount as of December 31, 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Delinquent Loans $ 11,348 $ 12,037 $ 12,849 $ 10,621 $ 11,065 ========= ========= ========= ========= ========= Total Nonperforming Loans $ 10,012 $ 8,309 $ 4,923 $ 0 $ 0 ========= ========= ========= ========= ========= Total Mortgage Investment $ 154,149 $ 151,351 $ 145,050 $ 133,549 $ 119,235 ========= ======== ========= ========= ========= Percent of Delinquent Loans to Total Loans 7.36% 7.95% 8.86% 9.95% 9.28% ===== ===== ===== ===== ===== Percent of Nonperforming Loans to Total Loans 6.50% 5.49% 3.39% 0% 0% ===== ===== ===== == ==
During 1996 the Corporate General Partner foreclosed on and acquired title to two properties which provided security to the Partnership for loans in the amount of $2,320,000. One of the properties foreclosed on by the Partnership and purchased by the Corporate General Partner in 1996 that provided security for a loan in the amount of $870,000 was disposed of by the Corporate General Partner during 1996 at a principal loss to the Corporate General Partner of $205,000. Carryback financing on the sale of this property of $629,000 was assigned to the Partnership to reduce the Corporate General Partner's obligation under its unsecured note. See "Business-Unsecured Loan to Corporate General Partner". The other property foreclosed on by the Partnership and purchased by the Corporate General Partner in 1996 provided security for a loan in the amount of $1,450,000, was purchased by delivering a secured note in the same amount, and was still held by the Corporate General Partner as of December 31, 1996. As a result thereof, the Corporate General Partner owns three properties on which the Partnership currently has mortgage loans totaling $1,942,332 as of December 31, 1996. Liquidity and Capital Resources The Partnership relies upon purchases of Units and loan payoffs for the source of capital for mortgage investments. Although general market interest rates have most recently declined, a substantial increase in such rates could have an adverse affect on the Partnership. If general market interest rates were to increase substantially, the yield on the Partnership's mortgage investments may provide lower yields than other comparable debt-related investments. As such, additional Limited Partner investment into the Partnership could decline, which, in turn, would reduce the liquidity of the Partnership. The Partnership has not and does not intend to borrow money for investment purposes. See "Business--Borrowing." There has been little variation in the percentage of capital withdrawals to total capital invested by the limited partners in recent years excluding distributions of net income to limited partners. This withdrawal percentage has been 7.37%, 6.11% and 7.80% for the years ended December 31, 1994, 1995 and 1996, respectively. These percentages are calculated by averaging, on an annual basis, the sum of the capital withdrawals for each calendar quarter divided by the total limited partner capital as of the end of each quarter. Management of the Partnership does not expect the trend of capital withdrawals in relation to total capital invested to change substantially in subsequent periods. The limited partners may withdraw, or partially withdraw, from the Partnership and obtain the return of their outstanding capital accounts within 91 days after written notices are delivered to the general partners, subject to the following limitations: Any such payments are required to be made only from cash available for distribution, net proceeds and capital contributions (as defined) during said 91-day period. A maximum of $75,000 per partner may be withdrawn during any calendar quarter (or $100,000 in the case of a deceased limited partner). The general partners are not required to establish a reserve fund for the purpose of funding such payments. No more than 10% of the outstanding limited partnership interest may be withdrawn during any calendar year except upon dissolution of the Partnership. Item 8. Financial Statements and Supplementary Data See pages 28-43 and page 52 of this Form 10-K report. OWENS MORTGAGE INVESTMENT FUND (A California Limited Partnership) Financial Statements December 31, 1996, 1995 and 1994 (With Independent Auditors' Report Thereon) Independent Auditors' Report The Partners Owens Mortgage Investment Fund: We have audited the accompanying balance sheets of Owens Mortgage Investment Fund, a California limited partnership, as of December 31, 1996 and 1995, and the related statements of income, partners' capital and cash flows for each of the years in the three-year period ended December 31, 1996. 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, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. \s\ KPMG Peat Marwick Oakland, California February 14, 1997
OWENS MORTGAGE INVESTMENT FUND (a California limited partnership) Balance Sheets December 31, 1996 and 1995 Assets 1996 1995 ------ ------------- ------------- Cash and cash equivalents $ 11,386,661 5,056,358 Certificates of deposit 850,000 850,000 Loans secured by trust deeds 154,148,933 151,350,591 Less allowance for loan losses (3,500,000) (3,250,000) -------------- -------------- 150,648,933 148,100,591 Unsecured loans due from general partner 488,764 1,023,232 Interest receivable 1,321,493 1,359,228 Other receivables 59,074 -- Investment in limited partnership 4,877,798 -- Real estate held for sale, net 7,743,295 9,012,359 -------------- -------------- $ 177,376,018 165,401,768 ============== ============== Liabilities and Partners' Capital Liabilities: Accounts payable and accrued liabilities 24,458 16,168 Accrued distributions payable 511,456 489,157 Due to general partner -- 152,000 -------------- -------------- Total liabilities 535,914 657,325 -------------- -------------- Partners' Capital: General partners 1,732,726 1,623,526 Limited partners (units sbject to redemption): Authorized 250,000,000 units in 1996 and 1995; 253,948,052 and 224,117,641 units issued and 175,303,398 and 163,316,937 units outstanding in 1996 and 1995, respectively 175,107,378 163,120,917 -------------- -------------- Total partners' capital 176,840,104 164,744,443 -------------- -------------- $ 177,376,018 165,401,768 ============== ==============
OWENS MORTGAGE INVESTMENT FUND (a California limited partnership) Statements of Income Years ended December 31, 1996, 1995 and 1994 1996 1995 1994 ------------- ------------- ------------- Revenues: Interest income on loans secure trust deeds $ 16,424,906 16,132,544 15,197,276 Other interest income 228,849 282,757 306,258 Gain on sale of real estate 170,724 0 0 ------------- ------------- ------------- Total revenues 16,824,479 16,415,301 15,503,534 ------------- ------------- ------------- Operating expenses: Management fees paid to general partner 866,985 1,431,616 1,475,155 Mortgage servicing fees paid to general partner 384,004 371,000 338,000 Promotional interest 57,395 69,255 72,984 Administrative 56,516 56,516 56,516 Legal and accounting 97,175 60,254 137,118 Net real estate operations 344,298 224,108 270,038 Other 9,694 11,177 44,299 Provision for loan losses 250,000 500,000 -- Provision for losses on real estate held for sale -- 200,000 400,000 ------------- ------------- ------------- Total operating expenses 2,066,067 2,923,926 2,794,110 ------------- ------------- ------------- Net income $ 14,758,412 13,491,375 12,709,424 ============= ============= ============= Net income allocated to general partners $ 146,960 135,584 127,726 ============= ============= ============= Net income allocated to limited partners $ 14,611,452 13,355,791 12,581,698 ============= ============= ============= Net income per weighted average limited partner unit $ .08 .08 .09 ============= ============= =============
OWENS MORTGAGE INVESTMENT FUND (a California limited partnership) Statements of Partners' Capital Years ended December 31, 1996, 1995 and 1994 Total General Limited Partners Partners' Partners Units Amount Capital Balances, December 31, 1993 $ 1,342,578 136,436,605 $ 136,240,585 137,583,163 Net income 127,726 12,581,698 12,581,698 12,709,424 Sale of partnership units 145,970 17,580,479 17,580,479 17,726,449 Partners' withdrawals -- (10,925,360) (10,925,360) (10,925,360) Partners' distributions (127,914) (5,119,034) (5,119,034) (5,246,948) ----------- ------------ ------------ ------------ Balances, December 31, 1994 1,488,360 150,554,388 150,358,368 151,846,728 Net income 135,584 13,355,791 13,355,791 13,491,375 Sale of partnership units 138,507 15,119,315 15,119,315 15,257,822 Partners' withdrawals -- (10,090,062) (10,090,062) (10,090,062) Partners' distributions (138,925) (5,622,495) (5,622,495) (5,761,420) ----------- ------------ ------------ ------------ Balances, December 31, 1995 1,623,526 163,316,937 163,120,917 164,744,443 Net income 146,960 14,611,452 14,611,452 14,758,412 Sale of partnership units 114,781 16,834,406 16,834,406 16,949,187 Partners' withdrawals -- (13,665,872) (13,665,872) (13,665,872) Partners' distributions (152,541) (5,793,525) (5,793,525) (5,946,066) ----------- ------------ ------------ ------------ Balances, December 31, 1996 $ 1,732,726 175,303,398 $ 175,107,378 176,840,104 =========== ============ ============ ============
OWENS MORTGAGE INVESTMENT FUND (a California limited partnership) Statements of Cash Flows Years ended December 31, 1996, 1995 and 1994 1996 1995 1994 ---------- ----------- ------------ Cash flows from operating activities: Net income $ 14,758,412 13,491,375 12,709,424 Adjustments to reconcile net income to net cash provided by operating activities: Provision for losses on real estate held for sale -- 200,000 400,000 Provision for loan losses 250,000 500,000 -- Changes in operating assets and liabilities: Interest receivable (21,339) (165,464) (146,964) Deferred interest -- -- (39,845) Accrued distributions payable 22,299 42,532 18,801 Accounts payable 8,290 16,168 -- Due to general partner (152,000) (180,644) 273,735 ------------- ------------- ------------- Net cash provided by operating activities 14,865,662 13,903,967 13,215,151 ------------- ------------- ------------- Cash flows from investing activities: Investment in loans secured by trust deeds (51,365,781) (43,563,067) (55,071,750) Principal collected on secured and unsecured loans 2,773,553 2,513,912 2,193,668 Loan payoffs 44,978,479 32,452,735 39,137,003 Investment in limited partnership (2,841,836) -- -- Distribution received from limited partnership 237,954 -- -- Additions to real estate held for sale (96,540) (2,638,630) (415,325) Disposition of real estate held for sale 441,563 577,395 -- Investment in certificates of deposit, net -- 250,000 400,000 ------------- ------------- ------------- Net cash used in investing activities (5,872,608) (10,407,655) (13,756,404) ------------- ------------- ------------- Cash flows from financing activities: Repayment of mortgage payable -- -- (500,000) Proceeds from sale of partnership units 16,949,187 15,257,822 17,726,449 Cash distributions (5,946,066) (5,761,420) (5,246,948) Capital withdrawals (13,665,872) (10,090,062) (10,925,360) ------------- ------------- ------------- Net cash (used in) provided by financing activities (2,662,751) (593,660) 1,054,141 ------------- ------------- ------------- Net increase in cash and cash equivalents 6,330,303 2,902,652 512,888 Cash and cash equivalents at beginning of year 5,056,358 2,153,706 1,640,818 ------------- ------------- ------------- Cash and cash equivalents at end of year $ 11,386,661 5,056,358 2,153,706 ============= ============= =============
See notes 3, 4, 5, and 6 for supplemental disclosure of non-cash investing activities. OWENS MORTGAGE INVESTMENT FUND (a California limited partnership) Notes to Financial Statements December 31, 1996, 1995 and 1994 (1) Organization Owens Mortgage Investment Fund (the Partnership), a California limited partnership, was formed on June 14, 1984 to invest in loans secured by first, second and third trust deeds, wraparound 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 partners include Owens Financial Group, Inc. (OFG) and certain individuals who are OFG's shareholders and officers. The individual partners have assigned to OFG their interest in any present or future promotional allowance from the Partnership. OFG is 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. The general partners are authorized to offer and sell units in the Partnership up to an aggregate of 250,000,000 units outstanding at $1.00 per unit, representing $250,000,000 of limited partnership interests in the Partnership. Limited partnership units outstanding were 175,303,398, 163,316,937 and 150,554,388 at December 31, 1996, 1995 and 1994, respectively. (2) Summary of Significant Accounting Policies (a) 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. (b) 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. (2) Summary of Significant Accounting Policies, Continued Effective January 1, 1995, the Partnership adopted the Financial Accounting Standards Board's Statement No. 114, Accounting by Creditors for Impairment of a Loan, and No. 118, Accounting by Creditors for Impairment of a Loan--Income Recognition and Disclosures. Under Statement No. 114, a loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect the contractual interest and principal payments of a loan according to the contractual terms of the loan agreement. Statement No. 114 requires that impaired loans be measured on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. Statement No. 118 clarifies interest income recognition and disclosure provisions of Statement No. 114. The adoption of these statements did not have a material effect on the financial statements of the Partnership. In June 1996, the Financial Accounting Standards Board issued Statement No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. Statement 125 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities and provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The Partnership will be required to implement Statement 125 effective January 1, 1997. Management believes that the implementation of Statement 125 will not have a material impact on the financial statements. The Partnership recognizes interest income on impaired loans using the cash-basis method of accounting. 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. (c) Allowance for Loan Losses The Partnership maintains an allowance for loan losses equal to $3,500,000 and $3,250,000 as of December 31, 1996 and 1995, 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. Through October 31, 1994, OFG purchased the Partnership's receivables for delinquent interest on loans originated prior to May 1, 1993 from the Partnership on a non-recourse basis. However, effective November 1, 1994, OFG discontinued its practice of purchasing interest receivable for certain loans. The outstanding balance of all loans delinquent greater than ninety days is $11,348,000 and $12,037,000 as of December 31, 1996 and 1995, 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 ninety days past due, unless OFG purchases the interest receivable from the Partnership. As of December 31, 1996 and 1995, the aforementioned loans totaling $11,348,000 and $12,037,000, respectively, are classified as non-accrual loans. (2) Summary of Significant Accounting Policies, Continued OFG advances certain payments to the Partnership on behalf of borrowers, such as property taxes, mortgage interest pursuant to senior indebtedness, and development costs. Purchases of interest receivable and payments made on loans by OFG during 1996 and 1995, but not collected as of December 31, 1996 and 1995, totaled approximately $541,000 and $1,218,000, respectively. During 1995, OFG purchased the Partnership's receivable related to a shortfall in the discounted payoff of a Partnership loan in the amount of $525,000 and purchased the Partnership's interest in loans in the amount of $377,000. (d) Cash and Cash Equivalents For purposes of the statements of cash flows, cash and cash equivalents include interest-bearing and noninterest-bearing bank deposits and short-term certificates of deposit with original maturities of three months or less. (e) Certificates of Deposit Certificates of deposit are held with various financial institutions with original maturities of up to one year. (f) Investment in Limited Partnership The Partnership accounts for its investment in limited partnership as investment in real estate. The limited partnership investment is carried at the lower of cost or estimated fair value, less estimated costs to sell. The Partnership increases its investment by advances made to the limited partnership. Any profit generated from the investment in limited partnership is recorded as a gain on sale of real estate. (g) Real Estate Held for Sale 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. Effective January 1, 1996, the Partnership adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 121 (FAS 121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The adoption of FAS 121 did not result in a material impact on the Partnership's financial position. (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. (2) Summary of Significant Accounting Policies, Continued (i) Reclassifications Certain reclassifications not affecting net income have been made to the 1994 and 1995 financial statements to conform to the 1996 presentation. (3) Loans Secured by Trust Deeds Loans secured by trust deeds as of December 31, 1996 and 1995 are as follows:
1996 1995 ------------- ----------- Income-producing properties $ 145,999,756 142,597,751 Single-family residences 3,935,546 2,249,616 Unimproved land 4,213,631 6,503,224 -------------- -------------- $ 154,148,933 151,350,591 ============== ============== First mortgages 139,542,698 136,110,802 Second mortgages 14,006,235 14,660,759 Third mortgages or all-inclusive deeds of trust 600,000 579,030 -------------- -------------- $ 154,148,933 151,350,591 ============== ==============
Scheduled maturities of loans secured by trust deeds as of December 31, 1996 and the interest rate sensitivity of such loans is as follows:
Fixed Variable Year ending interest interest December 31, rate rate Total 1997 $ 45,776,142 12,027,295 57,803,437 1998 28,257,635 10,784,598 39,042,233 1999 4,035,752 8,363,487 12,399,239 2000 1,428,944 11,770,682 13,199,626 2001 2,976,977 1,941,866 4,918,843 Thereafter (through 2012) 8,568,389 18,217,166 26,785,555 ------------- ------------- ------------- $ 91,043,839 63,105,094 154,148,933 ============= ============= =============
Variable rate loans use as indices the one and five year Treasury Constant Maturity Index (5.50% and 6.12%, respectively, as of December 31, 1996), the prime rate (8.25% as of December 31, 1996) and the weighted average cost of funds index for Eleventh District savings institutions (4.84% as of December 31, 1996). Premiums over these indices have varied from 250-550 basis points depending upon market conditions at the time the loan is made. (3) Loans Secured by Trust Deeds, Continued The scheduled maturities for 1997 include approximately $22,603,000 of loans which are past maturity as of December 31, 1996, of which $7,005,000 represents loans for which interest payments are delinquent over 90 days. During the years ended December 31, 1996, 1995 and 1994, the Partnership refinanced loans totaling $5,400,000, $19,466,000 and $11,266,000, respectively, thereby extending the maturity dates of such loans. The Partnership's total investment in loans delinquent over 90 days is $11,348,000 and $12,037,000 as of December 31, 1996 and 1995, respectively. OFG has purchased the Partnership's receivables for delinquent interest of $173,000, $456,000 and $3,003,000 related to delinquent loans for the years ended December 31, 1996, 1995 and 1994, respectively. The Partnership's investment in delinquent loans as of December 31, 1996 totals approximately $11,348,000, of which $8,029,000 has a specific related allowance for credit losses totaling approximately $2,500,000. There is a non-specific allowance for credit losses of $1,000,000 for the remaining balance of $3,319,000. The only activity in the allowance for credit losses during the year ended December 31, 1996 was an addition to the allowance of $250,000. Interest income received on impaired loans during the year ended December 31, 1996 totaled approximately $691,000, $518,000 of which was paid by borrowers and $173,000 of which related to purchases of interest receivable by OFG. As of December 31, 1996 and 1995, the Partnership's loans secured by deeds of trust on real property collateral located in Northern California totaled approximately 69% ($106,403,384) and 79% ($120,744,304), 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. Such loans are secured by deeds of trust in real estate properties and are expected to be repaid from the cash flow of the properties or proceeds from the sale or refinancing of the properties. The policy of the Partnership is to require real property collateral with a value, net of senior indebtedness, that exceeds the carrying amount of the loan balance and to record a deed of trust on the underlying property. (4) Unsecured Loan Due from General Partner During 1995, OFG purchased the Partnership's receivable related to a shortfall in the discounted pay-off of a mortgage and was foreclosed out of the second position by the holder of the first deed of trust on a Partnership loan purchased in 1995. The purchase of the receivable and the loan in the amount of $902,000 was added to the outstanding balance of the unsecured loan due from general partner. (4) Unsecured Loan Due from General Partner, Continued During 1996, the Partnership sold a property to OFG which had been acquired through foreclosure proceedings by the Partnership on a Partnership loan. The purchase of the property in the amount of $870,000 was added to the outstanding balance of the unsecured loan due from general partner. OFG sold the property during 1996 for $21,700 in cash and a trust deed receivable in the amount of $629,000. The trust deed receivable was assigned by OFG to the Partnership in exchange for a reduction in the unsecured loan balance. OFG is under no obligation to enter into such transactions with the Partnership. The balance of the unsecured loan due from the general partner has been reduced by payments and totals $488,764 and $1,023,232 as of December 31, 1996 and 1995, respectively. The note bears interest at 8% and is due on demand. (5) 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. The Partnership incurred additional costs of $502,798 to protect its investment, increasing the carrying value of the lots to $1,602,798. The Partnership began to develop the lots and incurred an additional $671,118 in costs during 1995. During 1996, the Partnership contributed the lots into WV-OMIF Partners, L.P. (WV-OMIF Partners), a limited partnership formed between the Partnership and Wood Valley Development, Inc. (Woodvalley). The Partnership also provides advances to WV-OMIF Partners to develop and construct single family homes on the 30 lots contributed. The Partnership is entitled to receive interest at a rate of prime plus 2% on the advances to WV-OMIF Partners. OFG and Woodvalley have the option of purchasing and developing 34 similar lots which are interspersed among the 30 lots being developed by WV-OMIF Partners. WV-OMIF Partners is incurring the infrastructure costs which benefit all 64 lots, including the 34 lots that can be developed by OFG and Woodvalley. As of December 31, 1996, Woodvalley had purchased twelve lots. The remaining 22 lots are expected to be purchased during fiscal years 1997 and 1998. OFG and Woodvalley are expected to reimburse WV-OMIF Partners their pro rata share of the infrastructure costs with the funds received from the sale of the developed homes. During 1996, the Partnership advanced an additional $2,841,836 to WV-OMIF Partners for the continued development and construction of the homes. WV-OMIF Partners sold one home in 1996 and distributed $237,954 to OMIF. (5) Investment in Limited Partnership, Continued WV-OMIF Partners is distributing cash received from the sale of the lots in the following priority: (1) to third parties, such as real property taxes and assessments, lenders, contractors, etc.; (2) to pay the Partnership the amount of $70,000 per lot, as each lot sells; (3) to pay the Partnership the interest on the cash advances in full, as each lot sells; (4) to reimburse the Partnership for its out-of-pocket cash advances for each lot, as each lot sells; and (5) the remainder to Woodvalley and the Partnership at a rate of 30% to Woodvalley and 70% to the Partnership. The WV-OMIF Partners Partnership Agreement states that the Partnership shall take no part in the conduct or control of WV-OMIF Partners' business or in the operation, right or authority to act for WV-OMIF Partners. Thus, the Partnership does not have control of WV-OMIF Partners and accounts for its investment in WV-OMIF Partners under the equity method. (6) Real Estate Held for Sale Real estate held for sale at December 31, 1996 and 1995 consists of the following properties acquired through foreclosure in 1993 through 1996:
1996 1995 ----------- ----------- Warehouse, Merced, California, net of valuation allowance of $350,000 as of December 31, 1996 and 1995 $ 650,000 650,000 Light industrial, Emeryville, California 919,806 925,000 70% interest in undeveloped land, Vallejo, California 568,569 568,569 Commercial lot, Sacramento, California, net of valuation allowance of $250,000 as of December 31, 1996 and 1995 299,828 299,828 Undeveloped land, Grass Valley, California -- 55,380 Residence and commercial building, Campbell and Milpitas, California 42,079 661,531 Commercial property, Sacramento, California 550,000 850,000 Developed land, Los Gatos, California 571,853 571,853 Office building and undeveloped land, Monterey, California 2,097,810 2,126,426 Commercial building, Oakland, California -- 29,856 Residential lots, Carmel, California (see note 5) -- 2,273,916 Undeveloped land, Reno, Nevada 230,000 -- Manufactured home subdivision development, Sonora, California 1,813,350 -- ---------- ---------- $ 7,743,295 9,012,359 ========== ==========
The acquisition 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 $1,913,000 and $2,501,308 for the years ended December 31, 1996 and 1995, respectively. During 1996, the Partnership sold three properties for a sales price of approximately $845,000. On one of the three properties, the Partnership took back a loan secured by a trust deed in the amount of $563,125. (7) Partners' Capital (a) Contributions Limited partners of the Partnership contributed $1.00 for each unit subscribed. Registration costs incurred by the Partnership have been offset against contributed capital. Such costs, which were incurred in 1989, amounted to approximately $198,000. (b) Allocations, Distributions and Withdrawals In accordance with the partnership agreement, the Partnership's profits, gains and losses are allocated to each limited partner and the general partners in proportion to their respective capital contributions. Distributions are made monthly to the limited partners in proportion to their respective units as of the last day of the preceding calendar month. Accrued distributions payable represent amounts to be paid to the partners in January of the subsequent year based on their capital balances at December 31. The Partnership makes cash 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 $8,975,209, $8,395,180 and $7,863,379 for the years ended December 31, 1996, 1995 and 1994, respectively. Reinvested distributions are not shown as partners' distributions or sales of partnership units in the accompanying statements of partners' capital. 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 91 days after written notices are delivered to the general partners, subject to the following limitations: o Any such payments are required to be made only from cash available for distribution, net proceeds and capital contributions (as defined) during said 91-day period. o A maximum of $75,000 per partner may be withdrawn during any calendar quarter (or $100,000 in the case of a deceased limited partner). o The general partners are 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. (7) Partners' Capital, Continued (c) Promotional Interest of General Partners The general partners contributed capital to the Partnership in the amount of 0.5% of the limited partners' aggregate capital contributions and, together with their promotional interest, the general partners have an interest equal to 1% of the limited partners' contributions. This promotional interest of the general partners of up to 1/2 of 1% is recorded as an expense of the Partnership and credited as a contribution to the general partners' capital account as additional compensation. As of December 31, 1996, the general partners had made cash capital contributions of $886,418 to the Partnership. The general partners are required to continue cash capital contributions to the Partnership in order to maintain their required capital balance. The promotional interest expense charged to the Partnership was $57,395, $69,255 and $72,984 for the years ended December 31, 1996, 1995 and 1994, respectively. (8) Contingency Reserves In accordance with the partnership agreement and to satisfy the Partnership's liquidity requirements, the Partnership is required to maintain cash as contingency reserves (as defined) in an aggregate amount of at least 1-1/2% of the gross proceeds of the sale of limited partnership units. The cash capital contribution of the general partners (amounting to $886,418 at December 31, 1996), up to a maximum of 1/2 of 1% of the limited partners' capital contributions, will be available as an additional contingency reserve, if necessary. The contingency reserves required at December 31, 1996 and 1995 were approximately $3,400,000 and $3,324,000, 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:
1996 1995 ------------ ------------ Partners' capital per financial statements $ 176,873,914 164,744,443 Accrued interest income (1,321,493) (1,359,228) Allowance for loan losses 3,500,000 3,250,000 Valuation allowance - real estate held for sale 600,000 600,000 Accumulated depreciation -- 4,830 Accrued expenses due to general partner -- 152,000 Accrued distributions 511,456 489,157 -------------- -------------- Partners' capital per federal income tax return $ 180,163,877 167,881,202 ============== ==============
(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 each of the preceding twelve months for services rendered as manager of the Partnership. The maximum management fee is reduced to 1.75% per annum if OFG has not provided during the preceding calendar year any of the certain services defined in the limited partnership agreement. 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. Servicing fees are paid from the interest income of the loans collected from the borrowers. Interest income on loans secured by trust deeds is collected by OFG and is remitted monthly to the Partnership, net of servicing fees earned by OFG. Interest receivable from OFG amounted to $1,321,493 and $1,359,228 at December 31, 1996 and 1995, respectively. 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. 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. Management fees amounted to approximately $867,000, $1,432,000 and $1,475,000 for the years ended December 31, 1996, 1995 and 1994, respectively, and are included in the accompanying statements of income. Service fee payments to OFG approximated $384,000, $371,000 and $338,000 for the years ended December 31, 1996, 1995 and 1994, respectively, and are included in the accompanying statements of income. 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 $241,000, $152,000 and $447,000 for the years ended December 31, 1996, 1995 and 1994, respectively. OFG originates all loans the Partnership invests in and receives an investment evaluation fee payable from payments made by borrowers. Such fees earned by OFG amounted to approximately $1,930,000, $1,865,000 and $2,261,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Included in loans secured by trust deeds at December 31, 1996 and 1995 are notes totaling $1,942,332 and $494,549, respectively, which are secured by properties owned by OFG. The loans bear interest at 8% per annum and are due on demand. The Partnership received interest income of $72,427, $131,482 and $300,245 during the years ended December 31, 1996, 1995 and 1994, respectively, from OFG under loans secured by trust deeds and the unsecured loan due from OFG. Due to general partner as of December 31, 1995 consists of unreimbursed costs and expenses payable to OFG. (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, which was 172,364,058, 160,636,164 and 146,237,145 for the years ended December 31, 1996, 1995 and 1994, respectively. (12) Fair Value of Financial Instruments Effective December 31, 1995, the Partnership adopted the Financial Accounting Standards Board's Statement No. 107, Disclosures about Fair Value of Financial Instruments. This statement 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 Certificates of Deposit The carrying amount approximates fair value because of the relatively short maturity of these instruments. (b) Loans Secured by Trust Deeds The fair value of these instruments of approximately $153,700,000 as compared to the carrying value of approximately $154,149,000 as of December 31, 1996 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 $3,500,000 at December 31, 1996 should also be considered in evaluating the fair value of loans secured by trust deeds. ltem9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements on any items dealing with accounting or financial disclosure with the accountants during the fiscal year. Part IIl Item 10. Directors and Executive Officers of the Registrant The following information is provided about the General Partners of the Partnership, who are responsible for the management of the Partnership. The General Partners of the Partnership are David Adler, Milton N. Owens, William C. Owens, Larry R. Schultz, David K. Machado, and Owens Financial Group, Inc. , the Corporate General Partner. The Corporate General Partner's principal place of business is located at 2221 Olympic Boulevard, Walnut Creek, CA 94595. Its telephone number is (510) 935-3840. The Corporate 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. Such duties include dealings with Limited Partners, accounting, tax and legal matters, communications and filings with regulatory agencies and all other needed management duties. The Corporate General Partner may also, at its sole discretion and subject to change at any time, (1) advance its own funds to purchase the Partnership's receivable related to delinquent interest or principal payments on mortgage loans held by the Partnership, (2) advance its own funds to cover any other costs associated with delinquent loans held by the Partnership including, but not limited to, property taxes, insurance and legal expense or (3) purchase such defaulted loans at their book value from the Partnership. See "Business--Delinquencies". In order to assure that the Limited Partners will not have personal liability as General Partners, 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 Corporate General Partner has primary responsibility for the initial selection, evaluation and negotiation of mortgage investments for the Partnership. The Corporate General Partner provides all executive, supervisory and certain administrative services for the Partnership's operations, including servicing the mortgage loans made by the Partnership. The books and records of the Partnership are maintained by the Corporate General Partner, subject to audit by independent certified public accountants. Purchasers of Units will have no right to participate in the management of the Partnership, and it is not intended that there will be meetings of Limited Partners. David Adler, Milton N. Owens, William C. Owens, Larry R. Schultz and David K. Machado are the five individual General Partners of the Partnership. The individual General Partners, with the exception of David K. Machado, are also officers and directors of the Corporate General Partner. The individual General Partners have a net worth ranging from $2,000,000 to over $5,000,000, and the Corporate General Partner has a net worth of approximately $5,600,000 as of December 31, 1996. There is set forth below certain information about the General Partners and other employees of the Corporate General Partner that are actively involved in the administration and investment activity of the Partnership. David Adler, General Partner, age 75, became Vice Chairman of the Corporate General Partner in April 1996. From 1981 to April 1996, he served as President and Chief Executive Officer of the Corporate General Partner, and from 1966 to 1981, served as its Executive Vice President. He has had extensive experience in real estate financing and partnership management. Mr. Adler is a former director of Fairmont Foods Company, and for many years was Chairman of its Executive Committee. He also served on the Northern California Advisory Board of Union Bank. As a Presidential appointee, he was a member of the Postmaster Selection Committee under Postmaster General Winston Blount. Mr. Adler continues to be active in various civic and philanthropic enterprises. David K. Machado, General Partner, age 54, is a licensed real estate broker with extensive experience as a loan officer. He was a loan officer with Mason-McDuffie Investment Company from 1970 to 1975 and with American Savings & Loan Association from 1975 to 1980. Mr. Machado joined the Corporate General Partner in 1980 and served as its Vice President and Manager in charge of corporate loan production until May 1989. He has served as a loan officer with Owens Financial Group, Inc. since December 1, 1989. Milton N. Owens, General Partner, age 85, is a licensed real estate broker and has been Chairman of the Board of the Corporate General Partner since October 1981. Mr. Owens is a 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. Prior to his formation of Owens Mortgage Company, Mr. Owens was employed with the mortgage loan division of the Travelers Insurance Company from 1936 to 1951. Mr. Owens is the father of William C. Owens, also a General Partner of the Partnership. William C. Owens, General Partner, age 46, has been President of the Corporate General Partner since April 1996. From 1989 until April 1996, he served as a Senior Vice President of the Corporate 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 Corporate General Partner, Mr. Owens has responsibility for the overall activities and operations of the Corporate General Partner, including corporate investment, operating policy and planning. In addition, he has had responsibility for loan production, including the underwriting and review of potential loan investments. Mr. Owens is also the President of Owens Securities Corp., a subsidiary of the Corporate General Partner. Mr. Owens is a licensed real estate broker, and is the son of Milton Owens, also a General Partner of the Partnership. Larry R. Schultz, General Partner, age 54, is a licensed real estate broker and has been Executive Vice President of the Corporate General Partner since October 1981. Mr. Schultz began working at the Corporate General Partner in 1964, and has experience in all aspects of its operations. Mr. Schultz is responsible for loan committee review, loan underwriting, loan servicing, and compliance matters of the Corporate General Partner. In addition to his responsibilities with the Corporate General Partner, Mr. Schultz has on numerous occasions acted as a court appointed receiver. He has also acted as a general partner in various limited partnerships owning California real estate. Bryan H. Draper, age 39, has been Controller and Chief Financial Officer of Owens Financial Group, Inc. since December 1987. Mr. Draper is a Certified Public Accountant who previously worked as a public accountant for Deloitte, Haskins & Sells from 1981 to 1982, Arthur Andersen & Co. from 1982 to 1986 and finally with a closely held public accounting firm in Walnut Creek, California from 1986 to 1987. Mr. Draper is responsible for all accounting, regulatory agency filings, and tax matters for the Partnership, the Corporate General Partner, and Owens Securities Corporation. William E. Dutra, age 35, is a member of the Loan Committee of the Corporate General Partner and has been an employee of the Corporate General Partner since February 1986. As a Vice President in charge of loan production, Mr. Dutra has responsibility for loan committee review, loan underwriting and loan production. Owens Financial Group, Inc., incorporated in 1981 is the Corporate General Partner of the Partnership. Its predecessor, Owens Mortgage Company, was formed in 1951 by Milton N. Owens for the purpose of arranging and servicing real estate loans secured by deeds of trust on California real estate for private and institutional lenders. Except for a brief period from 1961-1963 when the servicing portfolio and six branch offices were sold to Palomar Mortgage Company, Milton N. Owens controlled the operations of Owens Mortgage Company. Presently, the Corporate General Partner is servicing approximately $201,000,000 of company-originated and purchased loans for the Partnership, private individuals, corporate pension plans, IRA and individual pension accounts, and institutional investors. Owens Financial Group, Inc. also serves as loan originator for the Partnership. Summary of Management Responsibilities The duties, responsibilities and services of the General Partners, include marketing the Units, mortgage investments, portfolio management, and the management and disposition of Partnership properties. Item 11. Executive Compensation The Partnership does not pay any compensation to any persons other than the Corporate 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 managment fees permitted under the Partnership's governing documents. The following table summarizes the forms and amounts of compensation paid to the General Partners or their affiliates for the year ended December 31, 1996. Such fees were established by the General Partners and were not determined by arms-length negotiation. Year Ended Form of Compensation December 3l, 1995 PAID BY PARTNERSHIP Management Fees $ 867,000 Promotional Interest 57,000 ------------ Subtotal $ 924,000 ----------- Reimbursement of Operating Expenses $ 867,000 ----------- Total $ 1,791,000 ========== PAID BY BORROWERS Investment Evaluation Fees $ 1,930,000 Servicing Fees 384,000 Late Payment Charges 241,000 ---------- Total $ 2,555,000 ========== Item 12. Security Ownership of Certain Beneficial Owners and Management. No person or entity owns beneficially more than 5% of the ownership interest in the Partnership. The following table sets forth the beneficial ownership interests in the Partnership as of December 31, 1996 by (i) each General Partner of the Partnership, and (ii) all General Partners as a group.
Amount of Title of Beneficial Percent Class Name and Address Ownership(1) of Class - ------- ---------------- ------------ -------- Units David Adler, P.O. Box 2308, Walnut Creek, CA 94595 $ 805,457 .45% David K. Machado, P.O. Box 2308, Walnut Creek, CA 94595 132,780 .07% Milton N. Owens, P.O. Box 2308, Walnut Creek, CA 94595 148,836 .08% Larry R. Schultz, P.O. Box 2308, Walnut Creek, CA 94595 37,003 .02% William C. Owens, P.O. Box 2308, Walnut Creek, CA 94595 3,536 .00% Owens Financial Group, Inc., P.O. Box 2308, Walnut Creek, CA 94595(2) 2,151,514 1.19% --------- ----- All General Partners as a group (6 persons) $ 3,279,096 1.81% ========= ===== - ----------- (1) All interests are subject to the named person's sole voting and investment power. (2) The ownership of the Corporate General Partner is held as follows: 26.49% by Milton N. Owens, 16.56% each by David Adler, William C. Owens and Larry R. Schultz, 6.62% each by David K. Machado and Bryan H. Draper, 3.97% each by William E. Dutra and Andrew J. Navone, and an aggregate of 2.65% by two unrelated individuals.
Item 13. Certain Relationships and Related Transactions Transactions with Management and others. Management Fee. The Corporate General Partner manages all aspects of the Partnership. The Corporate General Partner receives a fee for such services in an amount of up to 2 3/4% per annum of the total value of mortgages loans invested in by the Partnership. The arnount of management fees paid to the Corporate General Partner for the year ended December 31, 1996 was $867,000. Promotional Interest. The Corporate General Partner is required to maintain an ongoing interest in the Partnership equal to 1 percent of the Limited Partners' interests. To achieve this, the Corporate General Partner makes monthly cash contributions equal to one-half of this obligation. The other half of the obligation is funded through a promotional interest expense allocated to the Partnership on a monthly basis. During 1996, the Partnership incurred promotional interest costs of $57,000 which increased the Corporate General Partners interest in the Partnership in the same amount. See also Item 12 for a discussion of the interest in the Coroporate General Partner held by each individual General Partner. 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 Auditors...............................p. 29 Balance Sheets - December 31, 1996 and 1995..................p. 30 Statements of Income for the years ended December 31, 1996, 1995 and 1994......................................p. 31 Statements of Partners Capital for the years ended December 31, 1996, 1995 and 1994..........................p. 32 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994................................p. 33 Notes to Financial Statements................................pp. 34-44 (2) Schedule IV - Mortgage Loans on Real Estate..................p. 53 (3) Exhibits: 3. Amended and Restated Limited Partnership Agreement, incorporated by reference to Exhibit A to Prospectus filed with Registration Statement 33-81896 filed May 3, 1996. 4. Amended and Restated Limited Partnership Agreement, incorporated by reference to Exhibit A to Prospectus filed with Registration Statement 33-81896 filed May 3, 1996. 10(a). Subscription Agreement and Power of Attorney, incorporated by reference to Exhibit B To Prospectus filed with Registration Statement 33-81896 filed May 3, 1996. 27. Financial Data Schedule. (b) Reports on Form 8-K - None (c) Exhibits: 3. Amended and Restated Limited Partnership Agreement, incorporated by reference to Exhibit A to Prospectus filed with Registration Statement 33-81896 filed May 3, 1996. 4. Amended and Restated Limited Partnership Agreement, incorporated by reference to Exhibit A to Prospectus filed with Registration Statement 33-81896 filed May 3, 1996. 10(a). Subscription Agreement and Power of Attorney, incorporated by reference to Exhibit B to Prospectus filed with Registration Statement 33-81896 filed May 3, 1996. 27. Financial Data Schedule. (d) Schedules: Schedule IV - Mortgage Loans on Real Estate
OWENS MORTGAGE INVESTMENT FUND SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE Principal Amount of Loans Subject to Delinquent Final Carrying Amount Principal or Interest Rate Maturity date of Mortgages Interest Description TYPE OF LOAN Income Producing 6.62-14.50% Current to Mar., 2012 $145,999,756 $9,890,691 Single Family Residence 8.00-13.00% Current to Jun., 2001 3,935,546 655,000 Land 8.75-15.00% Current to Aug., 1999 4,213,631 802,200 ------------ ----------- TOTAL $154,148,934 $11,347,891 ============ =========== AMOUNT OF LOAN $0-250,000 6.87-15.00% Current to Aug., 2005 $10,252,163 $ 530,084 $250,001-500,000 7.87-14.00% Current to Aug., 2010 19,770,038 3,265,199 $500,001-1,000,000 7.37-14.50% Current to Mar., 2012 33,808,373 2,945,167 Over $1,000,000 6.62-14.50% Current to Oct., 2010 90,318,360 4,607,441 ------------ ----------- TOTAL $154,148,934 $11,347,891 ============ =========== POSITION OF LOAN First 6.62-15.00% Current to Mar., 2012 $139,382,512 $9,137,136 Second 9.90-14.50% Current to Dec., 2004 14,006,235 2,210,755 Third or all-inclusive deeds of trust 10.50-11.00% Current to Apr., 2000 760,187 0 ------------ ----------- TOTAL $154,148,934 $11,347,891 ============ =========== - ----------------------------- NOTE 1: All loans are acquired from an affiliate of the Partnership, namely Owens Financial Group, Inc., the Corporate General Partner. NOTE 2: Reconciliation of carrying amount of mortgages. Balance at beginning of period (1/1/94) $133,549,495 Additions during period New mortgage loans 66,337,750 ----------- Subtotal 199,887,245 Deductions during period Collection of principal 51,871,520 Foreclosures 2,005,000 Conversion to Unsecured Loan to Corporate General Partner 960,512 ----------- Balance at end of period (12/31/94) $145,050,213 =========== Balance at beginning of period (1/1/95) $145,050,213 Additions during period New mortgage loans 63,029,067 ----------- Subtotal 208,079,280 Deductions during period Collection of principal 53,325,024 Foreclosures 2,501,308 Conversion to Unsecured Loan to Corporate General Partner 902,357 ----------- Balance at end of period (12/31/95) $151,350,591 =========== Balance at beginning of period (1/1/96) $151,350,591 Additions during period New mortgage loans 51,365,781 Loan carried back on sale of real estate 563,125 ------------ Subtotal 203,279,497 Deductions during period Collection of principal 46,976,563 Foreclosures 1,913,000 Conversion to Unsecured Loan to Corporate General Partner 241,000 ----------- Balance at end of period (12/31/96) $154,148,934 =========== NOTE 3: Included in the above loans are the following loans which exceed 3% of the total loans as of December 31, 1996. There are no other loans which exceed 3% of the total loans as of December 31, 1996.:
Principal Amount of Loans Subject Final Periodic Carrying to Delinquent Interest Maturity Payment Prior Face Amount Amount of Principal Description Rate Date Terms Liens of Mortgages Mortgages or Interest ----------- ------- ------- ------ ----- ------------ --------- ----------- Commercial Retail Interest only, Center, So. Lake 10.0% 7/27/04 balance due at None $5,344,002 $5,344,002 $0 Tahoe, CA maturity Office Building, Interest only, San Jose, CA 11.25% 12/20/98 balance due at None $4,888,634 $4,888,634 $0 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. SIGNATURE 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 27, 1997 OWENS MORTGAGE INVESTMENT FUND, a California Limited Partnership By: Owens Financial Group, Inc. a General Partner Dated: March 27, 1997 By: /s/David Adler David Adler, Director Dated: March 27, 1997 By: /s/Larry R. Schultz Larry R. Schultz, Director Dated: March 27, 1997 By: /s/William C. Owens William C. Owens, Director EX-27 2 FDS --
5 (Replace this text with the legend) 841501 OWENS MORTGAGE INVESTMENT FUND 1 U.S. CURRENCY YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 11,386,661 850,000 156,018,264 3,500,000 0 0 12,654,903 0 177,409,828 535,914 0 0 0 0 176,873,914 177,409,828 0 16,824,479 0 0 1,816,067 250,000 0 14,758,412 0 14,758,412 0 0 0 14,758,412 .08 .08
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