-----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, HVpwgVaN/c/R9eUSJrp8NW+3Y2/j73+SLP+BFyj666vfC4qyoZI2AZwYgx3MdM4x eH6/ZELc3nMALugW9V15ow== 0000841501-99-000004.txt : 19990514 0000841501-99-000004.hdr.sgml : 19990514 ACCESSION NUMBER: 0000841501-99-000004 CONFORMED SUBMISSION TYPE: 10-QT PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OWENS MORTGAGE INVESTMENT FUND CENTRAL INDEX KEY: 0000841501 STANDARD INDUSTRIAL CLASSIFICATION: [6221] IRS NUMBER: 680023931 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-QT SEC ACT: SEC FILE NUMBER: 000-17248 FILM NUMBER: 99618965 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 10-QT 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM l0-Q Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For Quarter Ended March 31, 1999 Commission file number O-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 office) (Zip Code) (925) 935-3840 (Registrant's Telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No_________ PART I. FINANCIAL INFORMATION Item 1. Financial Statements
OWENS MORTGAGE INVESTMENT FUND (A California Limited Partnership) BALANCE SHEETS March 31, 1999 and December 31, 1998 March 31 December 31 1999 1998 (Unaudited) ASSETS Cash and cash equivalents $ 16,825,716 $ 8,260,599 Certificates of deposit 350,000 434,006 Commercial paper - 3,084,044 Loans secured by trust deeds 179,834,286 182,721,465 Less: Allowance for loan losses (3,500,000) (3,500,000) ----------- ------------ 176,334,286 179,221,465 Real estate held for sale, net of allowance for losses 10,505,942 9,971,202 Interest receivable 1,589,982 1,380,530 Other receivables - 59,074 ----------- ----------- Total Assets $205,605,926 $202,410,920 =========== =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES: Accrued distributions payable $ 537,933 $ 522,827 Due to General Partner 349,436 391,098 Accounts payable and accrued liabilities 150,660 156,193 ----------- ----------- Total Liabilities 1,038,029 1,070,118 ----------- ----------- PARTNERS' CAPITAL: General partners 2,015,755 1,967,069 Limited partners (Units Subject to Redemption) 202,552,142 199,373,733 ----------- ----------- Total Partners' Capital 204,567,897 201,340,802 ----------- ----------- Total Liabilities and Partners' Capital $205,605,926 $202,410,920 =========== ===========
The accompanying notes are an integral part of these financial statements.
OWENS MORTGAGE INVESTMENT FUND (A California Limited Partnership) STATEMENTS OF INCOME For the Three Months Ended March 31, 1999 and 1998 (Unaudited) For the Three Months Ended March 31 March 31 1999 1998 ---- ---- REVENUES: Interest income on loans secured by trust deeds $ 4,688,720 $ 4,707,266 Gain on sale of real estate - 1,042,704 Other income 154,942 112,841 ------------ ------------ Total revenues 4,843,662 5,862,811 ----------- ----------- OPERATING EXPENSES: Management fees to General Partner 400,171 486,171 Servicing fees to General Partner 113,027 107,641 Promotional interest 24,317 23,969 Administrative 7,500 14,129 Legal and accounting 86,473 55,786 Real estate operations, net (28,882) 49,973 Other 60,452 3,435 ------------- --------------- Total operating expenses 663,058 741,104 ------------ ------------- Net income $ 4,180,604 $ 5,121,707 ========= =========== Net income allocated to general partner $ 41,174 $ 50,710 =========== ============= Net income allocated to limited partners $ 4,139,430 $ 5,070,997 ========= =========== Net income allocated to limited partners per weighted average limited partnership unit (203,312,000 and 192,678,000 average units) $ .020 $.026 ==== ====
The accompanying notes are an integral part of these financial statements.
OWENS MORTGAGE INVESTMENT FUND (A California Limited Partnership) STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 1999 and 1998 (Unaudited) March 31 March 31 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 4,180,604 $ 5,121,707 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of real estate by limited partnership - (1,017,831) Loss on sale of real estate properties - 2,701 Changes in operating assets and liabilities: Interest receivable (209,452) (142,718) Other receivables 59,074 53,509 Accrued distributions payable 15,106 (15,191) Due to General Partner (41,662) 410,932 Accounts payable and accrued liabilities (5,533) - ----------- ------------ Net cash provided by operating activities 3,998,137 4,413,109 ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of loans secured by trust deeds (9,788,276) (8,164,033) Principal collected 396,324 488,794 Loan payoffs 11,737,965 9,863,394 Investment in real estate properties (56,544) (19,127) Net proceeds from disposition of real estate properties 90,331 - Investment in limited partnership - (838,419) Distributions received from limited partnership - 3,575,910 Investment in corporate joint venture (27,361) (26,142) Maturity of commercial paper 3,084,044 - Maturity of certificate of deposit 84,006 - ----------- ----------- Net cash provided by investing activities 5,520,489 4,880,377 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of partnership Units 5,367,556 5,509,894 Partners' cash distributions (1,593,383) (1,575,916) Partners' capital withdrawals (4,727,682) (3,275,561) ----------- ----------- Net cash (used in) provided by financing activities (953,509) 658,417 ----------- ----------- INCREASE IN CASH AND CASH EQUIVALENTS 8,565,117 9,951,903 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,260,599 3,073,115 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,825,716 $ 13,025,018 =========== =========== See note 3 for supplemental disclosure of non-cash investing activities.
The accompanying notes are an integral part of these financial statements. OWENS MORTGAGE INVESTMENT FUND (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1999 (1) Summary of Significant Accounting Policies In the opinion of the management of the Partnership, the accompanying unaudited financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial information included therein. These financial statements should be read in conjunction with the audited financial statements included in the Partnership's Form 10-K for the fiscal year ended December 31, 1998 filed with the Securities and Exchange Commission. The results of operations for the three-month period ended March 31, 1999 are not necessarily indicative of the operating results to be expected for the full year. (2) Loans Secured by Trust Deeds The Partnership's investment in loans delinquent greater than ninety days is $9,376,000 and $8,710,000 as of March 31, 1999 and December 31, 1998, respectively. As of March 31, 1999, $7,393,000 of the delinquent loans has a specific related allowance for credit losses totaling approximately $1,965,000. There is a non-specific allowance for credit losses of $1,535,000 for the remaining delinquent balance and for other current loans. There was no additional allowance for credit losses during the three months ended March 31, 1999. As of March 31, 1999 and December 31, 1998, loans past maturity totaled approximately $22,059,000 and $23,418,000, respectively. Of the past maturity loans at March 31, 1999, $7,436,000 represent loans for which interest payments are delinquent more than ninety days. (3) Real Estate Held for Sale During the three months ended March 31, 1999, the Partnership acquired through foreclosure a 91% interest in 92 residential lots in Lake Don Pedro, California, on which it had a trust deed investment of $541,165. (4) Transactions with Affiliates The General Partner of the Partnership, Owens Financial Group, Inc. (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. 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. OWENS MORTGAGE INVESTMENT FUND (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1999 (4) Transactions with Affiliates, Continued OFG, at its sole discretion may, on a monthly basis, adjust the management and servicing fees as long as they do not exceed the allowable limits calculated on an annual basis. In determining the management and servicing fees and hence the yield to the Partnership, OFG may consider a number of factors, including the then-current market yields. Even though the fees for a month may exceed one-twelfth of the maximum limits, at the end of the calendar year the sum of the fees collected for each of the twelve months is equal to or less than the stated limits. Management fees amounted to approximately $400,000 and $486,000 for the three months ended March 31, 1999 and 1998, respectively. Service fee payments to OFG approximated $113,000 and $108,000 for the three months ended March 31, 1999 and 1998, respectively. . Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three Months Ended March 31, 1999 Compared to 1998 The net income decrease of approximately $941,000 (18%) for the three months ended March 31, 1999 as compared to 1998 was due to: The decrease in gain on sale of real estate of approximately $1,043,000 (100%). The gain on sale of real estate for the three months ended March 31, 1998 was from sales of homes in the WV-OMIF Partners development limited partnership. The final homes in this limited partnership were sold in 1998. Therefore, there were no sales and no gain recognized in 1999. The decrease in gain on sale of real estate was partially offset by a decrease in management fees paid to the General Partner of $86,000 (18%) which are paid pursuant to the Partnership Agreement and net income from real estate operations of $29,000 for the quarter ended March 31, 1999 as compared to a net loss of $50,000 for the quarter ended March 31, 1998. Interest income on loans secured by trust deeds decreased $19,000 (0.4%) for the three months ended March 31, 1999, as compared to the same period in 1998. This decrease was a result of a decrease in the weighted average yield of the loan portfolio from 11.09% as of March 31, 1998 to 10.77% as of March 31, 1999 even though the average loan portfolio grew by approximately 4.0% for the quarter ended March 31, 1999 as compared to 1998. The decrease in interest income for the quarter was also due to an increase in delinquent loans of approximately 8% as of March 31, 1999 as compared to 1998. Financial Condition March 31, 1999 and December 31, 1998 Loan Portfolio The number of Partnership mortgage investments decreased from 188 to 177 and the average loan balance increased from approximately $972,000 to $1,016,000 as of December 31, 1998 and March 31, 1999, respectively. These average loan increases reflect the Partnership's ability to invest in larger mortgage loans meeting the Partnership's objectives. Prior to May 1, 1993, the General Partner followed a policy of purchasing all interest receivables of delinquent loans. However, on loans originated by the General Partner on or after May 1, 1993, and effective November 1, 1994, for certain other loans originated prior to May 1, 1993, the General Partner adopted the policy not to purchase delinquent interest or principal. As of March 31, 1999 and December 31, 1998, there were approximately $8,569,000 and $7,904,000, respectively, in loans held by the Partnership on which payments were more than 90 days delinquent and on which such delinquent interest was not being purchased by the General Partner. The General Partner purchased approximately $23,000 and $110,000 in delinquent interest receivables of the Partnership during the three months ended March 31, 1999 and the year ended December 31, 1998, respectively. Approximately $9,376,000 (5.2%) and $8,710,000 (4.8%) of the loans invested in by the Partnership were more than 90 days delinquent in payment as of March 31, 1999 and December 31, 1998, respectively. Of these amounts, approximately $3,111,000 (1.7%) and $3,657,000 (2.0%) were in the process of foreclosure. Loans more than 90 days delinquent increased by $666,000 (7.7%) from December 31, 1998 to March 31, 1999, primarily due to one large loan which became delinquent during the quarter. Management believes that the loan, with an outstanding principal balance of approximately $1,553,000, is adequately secured and that no additional loan loss reserve for this loan is necessary. A loan loss reserve in the amount of $3,500,000 was recorded on the books of the Partnership as of March 31, 1999 and December 31, 1998. The General Partner believes that this loan loss reserve is adequate. As of March 31, 1999 and December 31, 1998 approximately 55% and 48%, respectively, of the mortgage loans made or invested in by the Partnership are secured by real property located in Northern California. The increase in the percentage of loans secured by real property in Northern California has primarily been due to three new loans originated during the quarter in the total amount of $2,125,000 which are secured by properties in Northern California and the continued funding of construction loans located in Northern California. In addition, four large loans located outside of Northern California in the total amount of approximately $4,350,000 were paid off during the quarter. The Partnership's investment in loans secured by single family residences has decreased by 58% since December 31, 1998 primarily due to the foreclosure of one property located in Lake Don Pedro, California in the amount of $541,000 and the payoff of three loans in the total amount of $1,003,000. In addition, the Partnership's investment in loans secured by unimproved land has increased by 3%. All of the Partnership's loans secured by unimproved land or land in the process of being developed are first trust deeds. In addition, only one of these loans in the amount of $802,200 is more than 90 days delinquent in payment as of March 31, 1999. The following amount of delinquent loans held by the Partnership have been acquired and foreclosed upon by the General Partner from January 1, 1994 through March 31, 1999: Delinquent Year Principal Interest Foreclosed 58,000 4,417 1994 1,184,223 252,810 1995 2,320,000 86,981 1996 613,400 50,625 1997 -- -- 1998 -- -- 1999 The General Partner has purchased from the Partnership all delinquent interest receivable on those loans foreclosed on in 1994 and 1995, but did not purchase the delinquent interest on the loans foreclosed on in 1996 and 1997. Of these foreclosed loans, the Partnership held three mortgages due from the General Partner totaling $765,332. In addition, the Partnership held a mortgage in the amount of $1,150,000 secured by a property sold by the Partnership to the General Partner during the year ended December 31, 1998. All loans due to the Partnership by the General Partner were paid off in full in November 1998. Real Estate Properties Held for Sale The Partnership currently holds title to twelve properties that were foreclosed on from January 1, 1993 through March 31, 1999 in the amount of $9,673,000, net of allowance for losses of $1,184,000. Since 1993, the Partnership's investment in real estate held for sale has increased due to the General Partner's decision to stop acquiring from the Partnership property subject to foreclosure on which the Partnership has a trust deed investment on property acquired by the Partnership through foreclosure. When the Partnership acquires property by foreclosure, it typically earns less income on those properties than could be earned on mortgage loans. During the three months ended March 31, 1999, the Partnership acquired through foreclosure a 91% interest in 92 residential lots in Lake Don Pedro, California, on which it had a trust deed investment of $541,165. Six of the Partnership's twelve properties do not currently generate revenue. Expenses from rental properties have decreased from approximately $220,000 to $151,000 (31%) for the three months ended March 31, 1998 and 1999, respectively, due to expenses incurred on the Sonora Vista property in the first quarter of 1998 prior to the sale of the property to the General Partner and legal, insurance and payroll expenses incurred on the Merced and Oakland properties in the first quarter of 1998 which were not incurred in 1999. In addition, revenues associated with these properties have increased from $170,000 to $180,000 (5.9%), thus generating net income from real estate held for sale of $29,000 during the three months ended March 31, 1999. The increase in rental revenues is due to the increased number of properties held which are generating income and to increased occupancy rates on those properties as of March 31, 1999 as compared to 1998. Investment in Corporate Joint Venture In 1995, the Partnership foreclosed on a $571,853 loan and obtained title to a commercial lot in Los Gatos, California that secured the loan. In 1997, the Partnership contributed the lot to a limited liability company (the Company) formed with an unaffiliated developer to develop and sell a commercial office building on the lot. The Partnership is providing construction financing to the Company at prime plus two percent. During the three months ended March 31, 1999 and 1998, the Partnership advanced an additional $27,361 and $26,141, respectively, to the corporate joint venture for development. The total investment in the corporate joint venture was $832,922 and $805,561 as of March 31, 1999 and December 31, 1998, respectively. The Company received all development approvals in the third quarter of 1998 and expects to begin construction in June of 1999. Interest Receivable and Due to General Partner Interest receivable increased from approximately $1,381,000 as of December 31, 1998 to $1,590,000 as of March 31, 1999 ($209,000 or 15%), due primarily to payments on certain loans received from the General Partner on April 1, 1999 which were accrued as of March 31, 1999. Due to General Partner decreased from approximately $391,000 as of December 31, 1998 to $349,000 as of March 31, 1999 ($42,000 or 11%) due primarily to a decrease in the management fees owed to the General Partner for the quarter ended March 31, 1999. Management fees are paid pursuant to the Partnership Agreement. Cash and Cash Equivalents, Certificates of Deposit and Commercial Paper Cash and cash equivalents, certificates of deposit and commercial paper have increased from approximately $11,779,000 as of December 31, 1998 to $17,176,000 as March 31, 1999, respectively ($5,397,000 or 46%). This increase is primarily attributable to the rollover of limited partner income and principal collected on loans (including loan payoffs) during the quarter ended March 31, 1999 without the investment in new loans of the same amount. Asset Quality Some losses are normal when lending money and the amounts of losses vary as the loan portfolio is affected by changing economic conditions and financial experiences of borrowers. There is no precise method of predicting specific losses or amounts that ultimately may be charged off on particular segments of the loan portfolio. The conclusion that a Partnership loan may become uncollectible, in whole or in part, is a matter of judgment. Although lenders such as banks and savings and loans are subject to regulations that require them to perform ongoing analyses of portfolio, loan to value ratios, reserves, etc., and to obtain current information regarding its borrowers and the securing properties, the Partnership is not subject to these regulations and has not adopted these practices. Rather, management of the General Partner, in connection with the quarterly closing of the accounting records of the Partnership and the preparation of the financial statements, evaluates the Partnership's mortgage loan portfolio. Based upon this evaluation, a determination is made as to whether the allowance for loan losses is adequate to cover potential losses of the Partnership. As of March 31, 1999 management believes that the allowance for loan losses of $3,500,000 is adequate. As of then, loans secured by trust deeds include $9,376,000 in loans delinquent over 90 days, of which $3,111,000 was invested in loans that were in the process of foreclosure. Due to the loan-to-value criteria established by the General Partner, in its opinion, the mortgage loans held by the Partnership appear in general to be adequately secured. The General Partner's judgment of the adequacy of loan loss reserves includes consideration of: economic conditions; borrower's financial condition; evaluation of industry trends; review and evaluation of loans identified as having loss potential; and quarterly review by the Board of Directors. Liquidity and Capital Resources Purchases of Units and loan payoffs provide the 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, because then the Partnership's investment yield could be lower than other debt-related investments. In that event, purchases of additional Units could decline, which, in turn, would reduce the liquidity of the Partnership and its ability to make additional mortgage investments. In contrast, a significant increase in the dollar amount of loan payoffs and/or additional limited partner investments without the origination of new loans of the same amount would increase the liquidity of the Partnership. This increase in liquidity could result in a decrease in the yield paid to limited partners as the Partnership would be required to invest the additional funds in lower yielding, short term investments. The Partnership has not and does not intend to borrow money for investment purposes. There has been little variation in the percentage of capital withdrawals to total capital invested by the limited partners in recent years, excluding regular distributions of net income to limited partners, and no substantial change is expected. Withdrawal percentages have been 7.37%, 6.11%, 7.85%, 6.63% and 7.33% for the years ended December 31, 1994, 1995, 1996, 1997 and 1998 and 9.32% (annualized) for the three months ended March 31, 1999. These percentages are the annual average of the limited partners capital withdrawals in each calendar quarter divided by the total limited partner capital as of the end of each quarter. The limited partners may withdraw, or partially withdraw, from the Partnership and obtain the return of their outstanding capital accounts at $1.00 per Unit (book value) within 61 to 91 days after written notices are delivered to the General Partner, subject to the following limitations, among others: No withdrawal of Units can be requested or made until at least one year from the date of purchase of those Units, on or after the date of the most recent Prospectus dated 2/16/99, other than Units received under the Partnership's Reinvested Distribution Plan. Any such payments are required to be made only from Net Proceeds and Capital Contributions (as defined) during said 91-day period. A maximum of $100,000 per partner may be withdrawn during any calendar quarter. The General Partner is 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. Contingency Reserves The Partnership maintains cash, cash equivalents and marketable securities as contingency reserves in an aggregate amount of 2% of the limited partners' capital accounts to cover expenses in excess of revenues or other unforeseen obligations of the Partnership. Although the General Partner believes that contingency reserves are adequate, it could become necessary for the Partnership to sell or otherwise liquidate certain of its investments to cover such contingencies on terms which might not be favorable to the Partnership. Current Economic Conditions Although the current economic climate in Northern California and the Western United States is generally strong, many areas outside of the San Francisco Bay Area and throughout the Western United States continue to experience depressed values created by the real estate recession of the early 1990's. Other than the loss incurred in February 1998 on the sale to the General Partner of the manufactured-home development in Sonora, California, acquired through foreclosure, the Partnership has not sustained any material losses to date. This has been due primarily to the General Partner's pre-May 1, 1993 practice of purchasing delinquent interest and loans from the Partnership prior to foreclosure. The General Partner has ceased such practices, except as to loans that pre-exist the change in policy and other very limited exceptions. The General Partner expects that it will not purchase delinquent interest or principal on delinquent loans in the future, and therefore, the Partnership could sustain losses with respect to loans secured by properties located in areas of declining real estate values. This could result in a reduction of the net income of the Partnership for a year in which those losses occur. There is no way of making a reliable estimate of these potential losses at the present time. Despite the Partnership's ability to purchase mortgage loans with relatively strong yields during 1997, 1998 and the quarter ended March 31, 1999, there has been competition from a variety of lenders that has had the effect of reducing mortgage yields over the past two years and could have the effect of reducing mortgage yields further in the future. Current loans with relatively high yields could be replaced with loans with lower yields, which in turn could reduce the net yield paid to the limited partners. In addition, if there is less demand by borrowers for loans and, thus, fewer loans for the Partnership to invest in, it will invest its excess cash in shorter-term alternative investments yielding considerably less than the current investment portfolio. Year 2000 Readiness Many computer systems may experience difficulty processing dates beyond the year 1999; as a consequence, some computer hardware and software at most companies will need to be modified or replaced prior to the year 2000 in order to remain functional. The General Partner depends on the use of computers and related systems to provide timely, accurate information essential to the management and operation of the Partnership. These systems include both information technology (IT) and non-information technology (non-IT) systems. For IT and non-IT systems developed by independent third parties (externally-developed), the vendors and suppliers have represented that these systems are Year 2000 compliant; however, internal testing of these systems has not been completed. The computer programs used to account for mortgage loan investments, investments in Units and other items are internally-developed IT systems. These IT systems have been reviewed by independent consultants to determine whether these programs are able to recognize the year 2000 and all required modifications have been completed. The consultants are currently in the process of testing all modifications that have been made. The testing is expected to be completed by August of 1999. Although not anticipated by the General Partner, a failure to adequately address the Year 2000 issue could result in the misstatement of reported information, the inability to accurately track mortgage investments and payments due or other operational problems. If IT systems are not operational in the Year 2000, the General Partner has determined that they can operate manually for several months while correcting the system problems before experiencing material adverse effects on the Partnership's and the General Partner's business and results of operations. However, shifting portions of daily operations to manual processes may result in time delays and increased processing costs. Additionally, the Partnership and General Partner may not be able to provide borrowers and investors with timely and pertinent information, which may negatively affect customer relations and lead to the potential loss of new loans and limited partner investments. The General Partner is in the process of assessing Year 2000 issues with third parties, comprised primarily of certain financial institutions and other vendors, with whom the Partnership has a material business relationship (Third Parties). Currently, the Partnership believes that if a significant portion of these financial institutions is non-compliant for a substantial length of time, the Partnership's operations and financial condition would be materially adversely affected. Non-compliance by other Third Parties is not expected to have a material effect on the Partnership's results of operations and financial condition. The General Partner has sent letters to these and other Third Parties requesting representations of their Year 2000 readiness and is currently awaiting replies from the Third Parties. The total costs to remedy Year 2000 issues will be paid by the General Partner. None of such costs will be reimbursed by the Partnership. The worst case scenario from the impact of Year 2000 cannot presently be predicted. Forward Looking Statements and Other Year 2000 Risk Factors The foregoing analysis of Year 2000 issues includes forward-looking statements and predictions about possible or future events, results of operations and financial condition. As such, this analysis may prove to be inaccurate because of the assumptions made by the General Partner or the actual development of future events. No assurance can be given that any of these forward-looking statements and predictions will ultimately prove to be correct or even substantially correct. Various other risks and uncertainties could also affect the Year 2000 analysis causing the effect on the Partnership to be more severe than discussed above. The General Partner's Year 2000 compliance testing cannot guarantee that all computer systems will function without error beyond the Year 2000. Risks also exist with respect to Year 2000 compliance by Third Parties, such as the risk that an external party, who may have no relationship to the Partnership or the General Partner, but who also has a significant relationship with one or more Third Parties, may have a system failure that adversely affects the Partnership's ability to conduct business. While the General Partner is attempting to identify such external parties, no assurance can be given that it will be able to do so. Furthermore, Third Parties with direct relationships with the Partnership, whose systems have been identified as likely to be Year 2000 compliant, may suffer a breakdown due to unforeseen circumstances. It is also possible that the information collected by the General Partner for these Third Parties regarding their compliance with Year 2000 issues may be incorrect. Finally, it should be noted that the foregoing discussion of Year 2000 issues assumes that to the extent the General Partner's systems fail, whether because of unforeseen complications or because of Third Parties' failure, switching to manual operations will allow the Partnership to continue to conduct its business. While the General Partner believes this assumption to be reasonable, if it is incorrect, the Partnership's results of operations would likely be adversely affected. PART II. OTHER INFORMATION Item 1. Legal Proceedings The Partnership is not presently involved in any material legal proceedings. Item 6(b). Reports on Form 8-K No reports on Form 8-K have been filed during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Dated: May 12, 1999 OWENS MORTGAGE INVESTMENT FUND, a California Limited Partnership By: Owens Financial Group, Inc., General Partner Dated: May 12, 1999 By: /s/William C. Owens William C. Owens, President Dated: May 12, 1999 By: /s/ Bryan H. Draper Bryan H. Draper, Chief Financial Officer Dated: May 12, 1999 By: /s/ Melina A. Platt Melina A. Platt, Controller EX-27 2 FDS --
5 (Replace this text with the legend) 841501 Owens Mortgage Investment Fund 1 U.S. Dollars 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1 16,825,716 350,000 1,589,982 0 0 18,765,698 176,334,286 0 205,605,926 1,038,029 0 0 0 0 204,567,897 205,605,926 0 4,843,662 0 0 663,058 0 0 4,180,604 0 4,180,604 0 0 0 4,180,604 .02 .02
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