1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
Commission file number 0-8444
-----------
Yager/Kuester Public Fund Limited Partnership
- ------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1560476
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1300 Altura Road, P.O. Box 1329
Fort Mill, South Carolina 29715
- ----------------------------- ----------
(Address of principal offices) (Zip Code)
Registrant's telephone number, including area code: (803) 547-9100
------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
- -------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. Not
Applicable.
Documents Incorporated By Reference
Exhibits (4) and (10.1) of Part IV, required by Item 601 of Regulation
S-K, are incorporated by reference from the prospectus of the registrant, dated
December 1, 1987, Registration Number 33-07056-A (hereinafter "Prospectus").
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PART I
Item 1. Business. The registrant is a North Carolina limited partnership
formed in July 1986 (hereinafter referred to as the "Partnership"). The
Partnership engaged in a "blind pool offering," the proceeds of which were used
to purchase income-producing real property. During the year ended December 31,
1988, the Partnership received the minimum investment required to remove
subscribers' funds from escrow. The Partnership's offering terminated with a
total subscription of $3,195,000 from investor limited partners. The net
proceeds were used to purchase the properties described in Item 2 below, to pay
the expenses of the offering and to fund the working capital account. The funds
not required for those purposes, totaling $84,273, were returned to investors.
The sole business of the Partnership currently is the operation of the
EastPark Executive Center located in Charlotte, North Carolina ("EastPark").
This commercial office building was purchased with the proceeds of the public
offering and loan funds (described below). The Partnership previously owned a
second office building that was sold on April 24, 1998. (See Item 2 below for a
description of the properties.) The lease terms with the major tenants at
EastPark are summarized below.
(i) EastPark Executive Center, Charlotte, NC - the General Services
Administrator ("GSA") has a lease term for a ten (10) year period ending on
October 31, 2004, at a rental rate of $14.15 per square foot. GSA may, at
its election, terminate the lease after eight (8) years. The GSA leased
premises include approximately 32,000 square feet. The Partnership incurred
leasehold improvements expense of approximately $1,092,000 for the GSA
space. Such improvements were completed in October 1996. The GSA lease
accounts for approximately 75% of the rental income related to the EastPark
Executive Center. The remaining leasehold space is leased to three other
tenants.
The Partnership has no employees of its own; management of the Partnership's
property is performed by FSK Properties, LLC, an affiliate of FSK Limited
Partnership. Administration of the Partnership is performed by the General
Partners. (See Items 10 and 13 below.)
Item 2. Properties. On June 23, 1989, the Partnership purchased the EastPark
Executive Center, an office complex comprised of two buildings located in
Charlotte, North Carolina with net leasable area of 45,300 square feet, for a
purchase price of $3,155,138 of which $1,500,000 was provided by a first
mortgage loan bearing interest at 10.5% per annum and having a term of 10 years.
The lender, United of Omaha Life Insurance Company ("United Omaha"), is not
affiliated with the Partnership. In 1998, the Partnership recorded a loss of
$1,392,468 to reflect the $2,365,800 estimated sales value of the EastPark
facility, net of related costs to sell.
On November 30, 1989, the Partnership acquired the BB&T Bank Building
(formerly the UCB Building), a three-story office building in Greenville, South
Carolina with net leasable area of 39,138 square feet, for a purchase price of
$4,202,544 of which $3,110,000 was provided by a first mortgage loan from United
Omaha. This mortgage loan became due on December 1, 1996 and was refinanced with
First Union. On April 24, 1998 this property was sold for $3,471,000, resulting
in a loss to the Partnership of $206,428. (See Item 7 below, "Liquidity and
Capital Resources" for use of proceeds from this sale).
In connection with the office building purchases, $26,312 of acquisition
costs were capitalized.
No further purchases of real property are projected and no funds are
available for that purpose. (See Item 7 below, "Status of EastPark Facility" for
recent developments regarding the properties.)
Item 3. Legal Proceedings. The Partnership is not involved in any legal
proceedings and was not so involved during the year ended December 31, 1998.
Item 4. Submission of Matters to a Vote of Security Holders. Not applicable.
PART II
Item 5. Market for the Partnership's Common Equity and Related Stockholder
Matters. There is no established public trading market for the Partnership's
securities. The Partnership has approximately 535 limited partners. Cash
distributions made to the limited partners during the past years are set out in
the Statements of Cash Flow included in the Financial Statements included in
Part II, Item 8 of this Report.
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Item 6. Selected Financial Data.
At or For
Year Ended December 31,
-----------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Summary of Operations
Rental income $ 685,156 $ 1,158,468 $1,150,758 $1,172,935 $1,114,741
Net income (loss) (1,588,616) (51,497) 40,561 29,787 17,865
Net income (loss)
per limited
partnership unit (246.90) (8.00) 6.30 4.63 2.77
Summary of Financial
Position:
Total assets $ 2,570,012 $ 7,633,602 $7,864,107 $7,214,881 $6,951,442
Long-term debt, less
current maturities -- 1,145,441 4,059,909 1,288,754 4,220,469
Distribution per
limited partner-
ship unit -- -- -- -- --
Number of limited
partnership units 6,370 6,370 6,370 6,370 6,370
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
During the year ended December 31, 1998, the Partnership continued to fund
working capital requirements. The working capital deficiency decreased from
($3,581,543) at December 31, 1997 to ($1,465,522) at December 31, 1998. The
reduction in the working capital deficit is mainly attributable to the use of
the proceeds from the sale of the BB&T Building to payoff the First Union note
on this property as well as to pay down $500,000 on the First Union line of
credit for the upfit of the EastPark facility. The loans on the EastPark
facility with First Union and United of Omaha mature on June 30, 1999 and
July 1, 1999, respectively. The General Partners have received a verbal
commitment from First Union to refinance both of these loans if a sale does not
occur before maturity.
The cumulative unpaid priority return to the unit holders increased from
$2,166,833 at December 31, 1997 to $2,409,617 at December 31, 1998. This
increase resulted from no distributions being made to partners during the year
and the pro rata share due partners pursuant to the Limited Partnership
Agreement. Based on current and projected commercial real estate market
conditions, the General Partners believe that it is reasonably unlikely that a
sale of the Partnership properties would produce net sale proceeds sufficient to
pay any of such priority return. Furthermore, the General Partners believe that
it is reasonably unlikely that the Partnership's operating income or any
refinancing of Partnership debt would generate sufficient funds to pay the
priority return.
During the year ended December 31, 1998, the Partnership had net (loss) of
($1,588,616) compared to the net (loss) of ($51,497) in 1997 and net income of
$40,561 in 1996. Rental income, operating expenses, and interest expense for the
years ended December 31, 1998 and 1997 resulted exclusively from the operations
of the Partnership's commercial real estate properties. The EastPark Executive
Center buildings, purchased June 23, 1989, were 99% leased at December 31, 1997.
At December 31, 1998 the buildings were 91% leased but only 81% occupied. A
three-year lease was signed in the third quarter of 1998 for 4,046 square feet
to commence on February 1, 1999. The terms of this lease call for
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an initial rental per square foot of $13.80 escalating to $14.64 in year three.
As a condition of this lease, approximately $40,000 in upfit costs were
incurred.
See Item 13 (Certain Relationships and Related Transactions) for a
discussion regarding leasing commissions, management fees and repair service
fees paid to FSK Properties, LLC, a General Partner of the Partnership, as well
as administrative reimbursements paid to Internet Services Corporation.
In the event that funds derived from operations are insufficient to meet the
Partnership's working capital needs, the General Partners have agreed to fund
the shortfall.
Risks Associated with Year 2000
The Partnership, in its day to day operations, relies upon various computer
software and hardware that may be adversely affected by the change in the
millennium, from 1999 to 2000. In general, information system experts have
predicted that a wide variety of problems, from systems failures to data entry
and transfer errors, will result from the turn of the century. Repeated systems
failures, data entry and transfer errors and similar computer problems would
result in a material adverse effect on the Partnership and its operations.
However, the Partnership has examined its commuter software and hardware and,
based on such examination, does not reasonably anticipate any significant
internal problems as a result of the change in the millennium. The Partnership
may, however, be materially and adversely affected by external systems problems,
problems over which the Partnership has minimal control.
Forward-Looking Statements
This report contains certain forward-looking statements with respect to the
financial condition, results of operations, plans, objectives, future
performance and business of the Partnership. These forward-looking statements
involve certain risks and uncertainties. Actual results may differ materially
from those contemplated by such forward-looking statements.
Results of Operations
Comparison of 1998 results with 1997.
Operating results decreased from an operating income of $355,399 during the
year ended December 31, 1997 to an operating loss of ($1,150,221) for the
comparable year 1998. The recording of an allowance for impairment of value for
the EastPark facility in the amount of $1,392,468 is the main cause for the
decrease in operating income. The second factor contributing to the decrease in
operating income is the disposition of the BB&T building in April. Rental income
from the BB&T building was down approximately 68% from the comparable year 1997.
A decrease in occupancy at the EastPark facility resulted in a 15% decline of
rental income as compared to the prior year. Operating expenses, not inclusive
of the impairment of rental property, were lower overall in 1998 by
approximately $360,000 or 45%. This decrease mainly attributed to the
disposition of the BB&T building. Depreciation and amortization expense were not
recorded on the EastPark facility in 1998 after the recording of the impairment.
This factor also contributed to the decrease in operating expenses.
Comparison of 1997 results with 1996.
Operating results decreased from an operating income of $449,277 during the
year ended December 31, 1996 to an operating income of $355,399 for the
comparable year 1997. Operating income expressed as a percentage of rental
income decreased from 39.0% for the year ended December 31, 1996 to 31.0% for
the comparable year 1997. While common area maintenance ("CAM") charges were
down $22,000 at the BB&T facility, rental escalations and increased occupancy at
both facilities compensated for this decrease. This resulted in rental income
increasing by approximately $8,000 from the prior year. Operating expenses were
higher overall in 1997 by approximately $102,000. Increased depreciation
relating to the IRS upfit comprised the greatest increase in the expenses. The
remaining expense increase can be attributed to increased repairs and
maintenance. Nonoperating expenses for the year ended December 31, 1997
decreased 0.4% from the comparable year 1996.
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Status of EastPark Facility
The General Partners are continuing to focus on selling the EastPark facility
and continue to have it listed with a commercial real estate broker. The General
Partners are also working on increasing the occupancy at EastPark. The General
Partners believe that the higher occupancy would support a higher asking price
for the EastPark facility. In the first quarter of 1999, the General Partners
did receive a Letter of Intent from a real estate investment entity for a sales
price of $2,025,000, which was declined. The General Partners believe that the
offer was below the fair market value of the facility.
Item 8. Financial Statements and Supplementary Data. The financial
statements are attached hereto.
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[MCGLADREY & PULLEN, LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Partners
Yager/Kuester Public Fund
Limited Partnership
Fort Mill, South Carolina
We have audited the accompanying balance sheets of Yager/Kuester Public Fund
Limited Partnership as of December 31, 1998 and 1997, and the related statements
of operations, partners' equity and cash flows for each of the three years in
the period ended December 31, 1998. 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 Yager/Kuester Public Fund
Limited Partnership as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Charlotte, North Carolina /S/ MCGLADREY & PULLEN, LLP
February 8, 1999
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS 1998 1997
- -----------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents (Note 2) $ 45,738 $ 92,544
Accounts receivable, tenants (Note 8) 39,695 38,196
Prepaid expenses - 7,053
Securities available for sale (Note 3) 118,779 267,629
--------------------------------
Total current assets 204,212 405,422
--------------------------------
Investments and Noncurrent Receivables
Properties on operating leases and leased properties held
for sale, net (Notes 4 and 5) 2,333,320 7,155,595
Accrued rent receivable - 29,683
--------------------------------
2,333,320 7,185,278
--------------------------------
Other Assets
Deferred charges, net of accumulated amortization
1998 $12,190; 1997 $12,190 2,810 2,810
Deferred leasing commissions, net of accumulated
amortization 1998 $19,265; 1997 $45,826 29,670 40,092
--------------------------------
32,480 42,902
--------------------------------
$ 2,570,012 $7,633,602
================================
LIABILITIES AND PARTNERS' EQUITY
- -----------------------------------------------------------------------------------------------------
Current Liabilities
Note payable, bank (Note 5) $ 500,000 $1,000,000
Current maturities of long-term debt (Note 5) 1,145,441 2,834,990
Accounts payable 5,997 14,423
Accrued expenses 18,296 137,552
--------------------------------
Total current liabilities 1,669,734 3,986,965
--------------------------------
Long-Term Debt, less current maturities (Note 5) - 1,145,441
--------------------------------
Commitment and Contingency (Notes 4 and 6)
Partners' Equity
General partners (14,202) 1,684
Limited partners (Note 6) 921,681 2,494,411
Other comprehensive income, unrealized gain (loss) on
investment securities (Note 3) (7,201) 5,101
--------------------------------
900,278 2,501,196
--------------------------------
$ 2,570,012 $7,633,602
================================
See Notes to Financial Statements.
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
Rental income (Notes 4 and 8) $ 685,156 $ 1,158,468 $ 1,150,758
-------------------------------------------------------
Operating expenses:
Contract labor 13,725 27,733 18,028
Depreciation and amortization 34,399 261,240 204,261
Repairs and maintenance 135,148 165,877 146,900
Management fees (Note 7) 54,465 60,796 53,845
Utilities 109,586 155,487 147,098
Professional fees 29,678 20,723 24,281
Property taxes 52,449 89,386 88,857
Loss on impairment of rental property (Note 4) 1,392,468 - -
Miscellaneous 13,459 21,827 18,211
-------------------------------------------------------
1,835,377 803,069 701,481
-------------------------------------------------------
Operating income (1,150,221) 355,399 449,277
-------------------------------------------------------
Nonoperating income (expense):
Interest income 6,409 7,512 651
Interest expense (248,057) (426,557) (425,669)
Loss on sale of property (Note 4) (206,428) - -
Other 9,681 12,149 16,302
-------------------------------------------------------
(438,395) (406,896) (408,716)
-------------------------------------------------------
Net income (loss) (1,588,616) (51,497) 40,561
Deduct net income (loss) applicable to limited
partners (per limited partner unit)
1998 $(246.90); 1997 $(8.00); 1996 $6.30 (1,572,730) (50,982) 40,157
-------------------------------------------------------
Net income (loss) applicable to
general partners (per general
partner unit) 1998 $(2.49);
1997 $(.08); 1996 $.06 $ (15,886) $ (515) $ 404
========================================================
See Notes to Financial Statements.
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
Comprehensive General
Total Income Partners
- --------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $ 2,518,277 $ 1,795
Comprehensive income
Net income 40,561 $ 40,561 404
Other comprehensive income, net of tax:
Unrealized loss on securities available for
sale, net of reclassification entry below (6,410) (6,410)
-----------
Comprehensive income $ 34,151
----------------------===========-------------------
Balance, December 31, 1996 2,552,428 2,199
Comprehensive income
Net loss (51,497) $ (51,497) (515)
Other comprehensive income, net of tax:
Unrealized gain on securities available for
sale, net of reclassification entry below 265 265
-----------
Comprehensive income $ (51,232)
----------------------===========-------------------
Balance, December 31, 1997 2,501,196 1,684
Comprehensive income
Net loss (1,588,616) $(1,588,616) (15,886)
Other comprehensive income, net of tax:
Unrealized gain on securities available for
sale, net of reclassification entry below (12,302) (12,302)
-----------
Comprehensive income $(1,600,918)
----------------------===========-------------------
Balance, December 31, 1998 $ 900,278 $(14,202)
=========== ========
Reclassification adjustment 1998 1997 1996
-----------------------------------------------------
Unrealized holding gain (loss) arising during $ (12,249) $ 2,569 $ (3,292)
Less reclassification adjustment for (loss)
included in net income (loss) (53) (2,304) (3,118)
-----------------------------------------------------
Net unrealized gain (loss) on investment $ (12,302) $ 265 $ (6,410)
=====================================================
See Notes to Financial Statements.
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Accumulated
Other
Limited Comprehensive
Partners Income
- ---------------------------------
$ 2,505,236 $ 11,246
40,157
(6,410)
- ------------------------------
2,545,393 4,836
(50,982)
265
- ------------------------------
2,494,411 5,101
(1,572,730)
(12,302)
- ------------------------------
$ 921,681 $ (7,201)
==============================
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income (loss) $(1,588,616) $ (51,497) $ 40,561
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 31,101 238,882 184,825
Amortization 3,298 22,358 19,436
Net realized (gains) on sale of securities
available for sale (53) (2,304) (3,118)
Loss on sale of property 206,428 - -
Loss on impairment of rental property 1,392,468 - -
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable, tenant and accrued
rent receivable 28,184 68,130 (41,161)
Prepaid expenses 7,053 (4,853) (1,100)
Decrease in accounts payable and accrued
expenses (127,681) (88,444) (15,933)
-------------------------------------------------------
Net cash provided by (used in)
operating activities (47,818) 182,272 183,510
-------------------------------------------------------
Cash Flows From Investing Activities
Purchase of securities available for sale (381,027) (293,255) (145,542)
Proceeds from sale of securities available for sale 517,628 218,576 86,920
Purchase of investment property (17,659) (23,248) (781,295)
Proceeds from sale of investment property 3,240,946 - -
Disbursements for deferred leasing commissions (23,886) (4,008) (4,395)
Disbursements for deferred charges - - (7,100)
-------------------------------------------------------
Net cash provided by (used in)
investing activities 3,336,002 (101,935) (851,412)
-------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from long-term borrowings - - 2,840,000
Principal payments on long-term borrowings
and notes payable (3,334,990) (148,346) (2,931,692)
Proceeds from note payable, net - 57,517 722,700
-------------------------------------------------------
Net cash provided by (used in)
financing activities (3,334,990) (90,829) 631,008
-------------------------------------------------------
Net (decrease) in cash and cash
equivalents (46,806) (10,492) (36,894)
Cash and cash equivalents:
Beginning 92,544 103,036 139,930
-------------------------------------------------------
Ending $ 45,738 $ 92,544 $ 103,036
=======================================================
(Continued)
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash payment for interest, net of interest
capitalized $ 270,567 $ 432,193 $ 424,000
Supplemental Disclosures of Noncash Transactions:
Net unrealized gain (loss) on securities available
for sale $ (12,302) $ 265 $ (6,410)
See Notes to Financial Statements.
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Organization, Partnership Agreement and
Significant Accounting Policies
Nature of business and organization: The Partnership is a North Carolina limited
partnership formed in July 1986. The purpose of the Partnership is to acquire,
operate, hold for investment and sell commercial rental property. The
Partnership sold the property located in Greenville, South Carolina during the
year and held property located in Charlotte, North Carolina at December 31,
1998.
The general partners of the Partnership are DRY Limited Partnership, a North
Carolina limited partnership in which Dexter R. Yager, Sr. is the general
partner and FSK Limited Partnership, a North Carolina limited partnership in
which Faison S. Kuester, Jr. is the general partner.
Partnership agreement: Under the terms of the partnership agreement, all taxable
income, tax losses and cash distributions from operations are to be allocated
99% to the limited partners and 1% to the general partners until the limited
partners receive a return of their initial capital contributions and a "Priority
Return". The Priority Return is a sum equal to 8% per annum cumulative, but not
compounded, (prorated for any partial year) of the adjusted capital
contributions of the limited partners, calculated from the last day of the
calendar quarter in which each limited partner is admitted to the Partnership to
the date of payment. Thereafter, taxable income, tax losses and cash
distributions from operations will be allocated 75% to the limited partners and
25% to the general partners.
Upon the sale or refinancing of any future partnership properties, the
partnership agreement specifies certain allocations of net proceeds and taxable
gain or loss from the transaction.
A summary of the Partnership's significant accounting policies follows:
Use of management's 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.
Cash and cash equivalents: For purposes of reporting the statements of cash
flows, the Partnership includes all cash accounts, which are not subject to
withdrawal restrictions or penalties, and all highly liquid debt instruments
purchased with an original maturity of three months or less as cash and cash
equivalents on the accompanying balance sheets. At various times throughout the
year, the Partnership may have cash balances at financial institutions which
exceed federally-insured amounts.
Investments: Properties on operating leases and leased properties held for sale
are stated at the lower of cost less accumulated depreciation or fair market
value. Depreciation is computed by the straight-line method over 40 years for
buildings and over 15 years for building improvements.
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Organization, Partnership Agreement and
Significant Accounting Policies (Continued)
Investment in securities available for sale: Financial Accounting Standards
Board Statement No. 115 requires that management determine the appropriate
classification of securities at the date individual investment securities are
acquired, and that the appropriateness of such classification be reassessed at
each balance sheet date. Since the Partnership neither buys securities in
anticipation of short-term fluctuations in market prices nor can commit to
holding debt securities to their maturities, the investment in debt and
marketable equity securities have been classified as available for sale in
accordance with Statement No. 115. Available-for-sale securities are stated at
fair value, and unrealized holding gains and losses are reported as a separate
component of partners' equity. Realized gains and losses, including losses from
declines in value of specific securities determined by management to be
other-than-temporary, are included in income. Realized gains and losses are
determined on the basis of the specific securities sold.
Deferred charges: Deferred charges are related to prepaid fees which are
amortized over the length of the related loans, 1 to 10 years, on a
straight-line basis.
Deferred leasing commissions: Deferred leasing commissions related to obtaining
specific leases are amortized using the straight-line method over the
noncancelable lease terms which range from three to seven years.
Revenue recognition: Rental revenue is recognized evenly over the term of the
lease. In connection with negotiating and obtaining leases, the Partnership's
management may at times grant concessions, such as free rent for a specific
number of months during the lease. These costs are amortized over the life of
the lease.
Disclosures about the fair value of financial instruments: Financial Accounting
Standards Board Statement No. 107, Disclosures About Fair Value of Financial
Instruments, requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. Statement 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
At December 31, 1998 and 1997 the carrying values of the Partnership's financial
instruments, including accounts receivable which are due on demand and the
mortgage payable which bears interest at market rates, approximate their fair
values.
Partnership equity: Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share. The Statement specifies the computation, presentation,
and disclosure requirements for earnings per share. Management believes that
statement No. 128 is analogous to limited partnership units and accordingly,
additional disclosures for partnership units are presented in the accompanying
financial statements.
Income taxes: Under current income tax laws, income or loss of the Partnership
is included in the income tax returns of the partners. Accordingly, the
Partnership will make no provision for federal or state income taxes.
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YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 2. Working Capital Reserve
Per the Partnership Agreement, a minimum cash and cash equivalents reserve of
$94,500 must be maintained to fund any expenditures that the cash flow generated
from properties on operating leases is insufficient to meet. The Partnership did
not meet the minimum requirement by $48,762 and $1,956 at December 31, 1998 and
December 31, 1997, respectively.
Securities available for sale may be sold in order to fund future operating cash
flow expenditures.
Note 3. Securities Available for Sale
The following is a summary of the Partnership's securities available for sale as
of December 31, 1998 and 1997:
Gross Gross
Unrealized Unrealized
Cost Gains Losses Fair Value
-----------------------------------------------------------------
1998
-----------------------------------------------------------------
Securities available for sale:
Mutual funds $ 45,980 $ - $ (1,477) $ 44,503
Other equity investments 80,000 - (5,724) 74,276
-----------------------------------------------------------------
$125,980 $ - $ (7,201) $118,779
=================================================================
-----------------------------------------------------------------
1997
-----------------------------------------------------------------
Securities available for sale:
Preferred and common stock $121,536 $ 4,339 $ (187) $125,688
Corporate bonds and notes 120,563 788 - 121,351
Government securities 20,429 161 - 20,590
-----------------------------------------------------------------
$262,528 $ 5,288 $ (187) $267,629
=================================================================
At December 31, 1998, the Partnership did not have trading or held to maturity
securities.
15
16
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 3. Securities Available for Sale (Continued)
Gross realized gains and losses from the sale of securities available for sale
for the years ended December 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996
--------------------------------------------
Realized gains $ 4,712 $ 2,396 $ 3,162
Realized (losses) (4,659) (92) (44)
--------------------------------------------
$ 53 $ 2,304 $ 3,118
============================================
Unrealized gains (losses) on available-for-sale securities:
Unrealized holding gains (losses) arising
during the period $(12,249) $ 2,569 $(3,292)
Less: Reclassification adjustment for gains
realized in net income (loss) 53 2,304 3,118
--------------------------------------------
Other comprehensive income (loss) $(12,302) $ 265 $(6,410)
============================================
The Partnership has only equity securities. Equity securities have no maturity
date. Therefore, there are no amortized cost or fair values of securities
available for sale as of December 31, 1998 by contractual maturity shown below.
Amortized Fair
Cost Value
--------------------------
Due after one year through five years $ - $ -
Due after five years through ten years - -
Due thereafter - -
--------------------------
Other securities 125,980 118,779
--------------------------
$125,980 $118,779
==========================
Proceeds from sales of securities available for sale during the years ended
December 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996
-------------------------------------------
Proceeds from sales of securities available for sale $517,628 $218,576 $86,920
===========================================
Dividend income included in nonoperating income (expense) in the accompanying
Statements of Operations totaled $8,644, $5,132, and $6,980 for the years ended
December 31, 1998, 1997 and 1996, respectively.
The changes in the net unrealized gain (loss) on securities available for sale
during the years ended December 31, 1998 and 1997 were ($12,302) and $265,
respectively, which have been included in the separate component of partners'
equity.
16
17
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 4. Properties on Operating Leases and Leased Properties Held for Sale
The Partnership leases office facilities under various lease agreements. The
following schedule provides an analysis of the Partnership's investment in
properties held for lease by major classes as of December 31, 1998 and 1997,
respectively.
1998 1997
------------------------------
Land $ 631,028 $1,168,953
Building 2,524,110 6,188,729
Building improvements 1,261,130 1,280,815
Building improvement in progress (estimated additional cost to
complete $25,317) 15,000 -
------------------------------
4,431,268 8,638,497
Less accumulated depreciation 705,480 1,482,902
------------------------------
3,725,788 7,155,595
Less allowance on impairment of property 1,392,468 -
------------------------------
$2,333,320 $7,155,595
==============================
The following is a schedule by years of all minimum future rentals on
noncancelable operating leases as of December 31, 1998:
Year Ending
December 31, Amount
- -------------------------------------------------------------------------------
1998 $ 494,277
1999 486,051
2000 475,154
2001 383,249
2002 -
Thereafter -
-----------
$ 1,838,731
===========
During the year ended December 31, 1998, the Partnership sold one of the
properties for $3,471,000, resulting in a loss of $206,428. The net cash
proceeds from the sale, after related costs and debt payoff, was $464,425. The
net cash proceeds were used in a $500,000 payment on other debt. The carrying
value of the building was approximately $3,425,000 at December 31, 1997.
The remaining property is currently contracted with a real estate broker. It is
the intention of the General Partners to market and sell the property. The sales
proceeds will be used to payoff debt/liabilities and return partners' equity. In
1998, the Partnership recorded a loss of $1,392,468 to reflect the $2,365,800
estimated sales value of the assets, net of related costs to sell.
17
18
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 5. Note Payable, Bank, Long-Term Debt and Pledged Assets
The Partnership has a $1,000,000 line-of-credit with an outstanding balance of
$500,000 and $1,000,000 at December 31, 1998 and 1997, respectively. The
line-of-credit allows borrowings and repayments to be made on a daily basis.
Outstanding balances on the line-of-credit bear interest at a variable rate tied
to the bank's prime rate (prime rate was 7.75% at December 31, 1998). The
line-of-credit is unsecured, payable on demand and is guaranteed by a general
partner.
Long-term debt and pledged assets consists of the following at December 31, 1998
and 1997:
1998 1997
-------------------------------
Note payable due in monthly installments of $14,976, including interest at
10.5%, through June 1999, with $1,115,064 due in July 1999, collateralized by
mortgage on land and building $ 1,145,441 $1,201,631
Note payable, interest only at the 3-month LIBOR plus 1.75% (7.52% at
December 31, 1997), due monthly, through November 1998, balance paid in
full April 1998 with sale of land and building - 2,778,800
-------------------------------
1,145,441 3,980,431
Less current maturities 1,145,441 2,834,990
-------------------------------
$ - $1,145,441
===============================
Interest expense to Internet Services Corporation, an affiliate of the general
partners, for the years ended December 31, 1998, 1997 and 1996 was $-0-, $669,
and $3,834, respectively.
Note 6. Priority Return
The cumulative unpaid priority return to the limited partners is $2,409,617 and
$2,166,833 at December 31, 1998 and 1997, respectively. There were no cash
distributions to the limited partners for the priority return for the years
ended December 31, 1998, 1997 and 1996. Based on the sale of the building in
1998 and current and projected real estate market conditions, the General
Partners believe that it is reasonably unlikely that a future sale of the
Partnership properties would produce sufficient net sales proceeds to pay the
priority return.
18
19
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 7. Related Party Transactions
Management expenses paid to a General Partner and to Internet Services
Corporation in connection with day-to-day operations of the Partnership amounted
to $54,465, $60,796 and $53,845 for the years ended December 31, 1998, 1997 and
1996, respectively. Also, allocated expenses were paid to related parties in the
amounts of $56,792, $34,620 and $28,200 for the years ended December 31, 1998,
1997 and 1996, respectively.
Note 8. Major Tenants
Rental income for the years ended December 31, 1998, 1997 and 1996,
respectively, included approximate rentals from the following major tenants each
of which accounted for 10% or more of the total rental income of the Partnership
for those years:
Approximate Amount of Rental Income
Year Ended December 31,
--------------------------------------------
1998 1997 1996
--------------------------------------------
Tenant A $459,898 $451,000 $455,000
Tenant B 111,249 350,000 353,000
Tenant C(*) - 138,000 117,000
(*) Tenant C did not exceed 10% of total rental income in 1998.
Accounts receivable from each of the major tenants identified above were as
follows at December 31, 1998 and 1997, respectively:
December 31,
------------------------
1998 1997
------------------------
Tenant A $39,695 $38,196
Tenant B - -
Tenant C - -
19
20
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 9. Future Reporting Requirements
The FASB has issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, which the Partnership has not been required to adopt as of
December 31, 1998. This Statement, which is effective for fiscal years beginning
after June 15, 1998, establishes accounting and reporting standards for
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. This Statement is not expected to have a significant impact on the
Partnership.
20
21
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure. Not applicable.
PART III
Item 10. Directors and Executive Officers of the Partnership. The
Partnership has no executive officers and directors. The General Partners of the
partnership are DRY Limited Partnership, the sole General Partner of which is
Dexter R. Yager, Sr., and FSK Limited Partnership, the sole General Partner of
which is Faison S. Kuester, Jr.
Following is a brief discussion of the background and experience of Messrs.
Kuester and Yager.
Faison S. Kuester, Jr., 53, graduated from the University of North Carolina
at Chapel Hill with a Bachelor of Arts Degree in History in 1967. He is a
resident of Charlotte, North Carolina. After three years service in the United
States Army as a Lieutenant, Mr. Kuester joined Independence Development
Corporation in 1972 serving as a director of leasing and management for a period
of three years. In 1974, Mr. Kuester formed his own company, Kuester Realty and
Management, in order to lease and manage commercial properties in Charlotte,
North Carolina and surrounding communities. In addition to leasing and managing
various commercial properties, Kuester Realty had developed two medical clinics
in the Charlotte area. In 1980, Kuester Properties, Inc. ("KPI") was formed to
specialize in on-site management of apartment communities in the southeastern
United States. The following year Cauble and Kuester Company, Inc. was organized
to lease and manage commercial properties in the metropolitan Atlanta area. This
partnership brought together Cauble and Company, experienced mortgage lenders
and leasing agents in the Atlanta market, and Kuester Realty and Management.
Finally, in 1983, Kuester Development Corporation was formed to allow the
Kuester companies to engage in selective real estate development projects in the
southeastern United States.
Through Kuester Development Corporation, a wholly-owned subsidiary of KPI,
Mr. Kuester has been directly involved with the development of several
commercial real estate properties in North and South Carolina and Georgia. These
include the First United National Bank Building in Wilmington, North Carolina,
two retail office showroom projects, two medical office buildings and
residential condominiums in Charlotte, North Carolina, an office building in
Savannah, Georgia, and an office building in Greenville, South Carolina. Kuester
Development Corporation also has developed over 700 apartment units throughout
Charlotte, North Carolina since 1983.
In October 1996, Mr. Kuester formed FSK Properties, LLC to provide
management, leasing and brokerage services to his clients. FSK Properties, LLC
serves as property manager of the Partnership property.
Dexter R. Yager, Sr., 59, is the President and founder of D&B Yager
Enterprises, Inc., Mr. Yager's Amway distributorship business. Through D&B Yager
Enterprises, Inc., Mr. Yager has been an independent distributor for Amway
Corporation for over 30 years during which time he has achieved the status of
Crown Ambassador, which is the highest level attainable as an Amway distributor.
The Amway Corporation is one of the largest manufacturers of home care products
in the world. He is also a former member and past president of the Amway
Distributor Association Board of Directors. Mr. Yager has many other
family-owned businesses and is responsible for the development of several
businesses, including the following: Yager Personal Development, Inc., which
handles Mr. Yager's services as a speaker at Amway events, Yager Construction
Company, Inc., which is a general building contractor; and Dexter and Birdie
Yager Family Limited Partnership, which owns various real estate investments and
manages real estate for the Yager family.
Mr. Yager has significant experience in real estate investment for his own
account. Mr. Yager personally, and through partnerships in which he and his wife
own a majority interest, has made investments in raw land, office buildings, a
shopping center, and other commercial and residential real estate having a
market value in excess of $10,000,000. He has made substantial additional real
estate investments through partnerships in which he does not own a majority
interest.
Item 11. Executive Compensation. The Partnership does not employ any
executive officers or directors and no compensation is paid to any person for
performing services typically provided by such an officer or director. Dexter R.
Yager, Sr. and Faison S. Kuester have policy making functions with regard to
Partnership operations. See Item 10 for the relationship of such persons to the
Partnership. See Item 13 for a description of payments made to FSK Properties,
LLC for property management services and to Internet Services Corporation, Inc.
for accounting and management services.
21
22
Item 12. Security Ownership of Certain Beneficial Owners and Management. The
General Partners initially contributed a total of $2,500 to the capital of the
Partnership, consisting of a $1,600 contribution from DRY Limited Partnership
and $900 from FSK Limited Partnership. The General Partners own a 1% interest in
all items of Partnership income, gain, loss, deductions or credits including 1%
of net cash from operations. The General Partners also own a residual 25%
interest in net cash from a sale or refinancing of the Partnership Property,
subordinated to the receipt by the Limited Partners of the return of their
capital contributions and their priority return and to the payment of any
subordinated real estate commissions due to affiliates of the General Partners.
The General Partners do not own any Limited Partnership interest in the
Partnership.
Item 13. Certain Relationships and Related Transactions. During the fiscal
year ended December 31, 1998, FSK Properties, LLC received $73,143 for
management fees, commissions and repair service fees. Internet Services
Corporation, Inc. received $38,114 for providing accounting/management services.
Internet Services Corporation, is owned equally by three trusts, the beneficial
interests of which inure to the benefit of three children of Dexter R. Yager,
Sr., the sole General Partner of DRY Limited Partnership, which limited
partnership is one of the two general partners of the Partnership. Janitorial
services for the EastPark Executive Center are provided by Marquis Cleaning
Services, which is operated and owned by Dexter R. Yager's nephew.
The General Partners believe that the terms for the above mentioned services
are as favorable as those the Partnership might have obtained from unaffiliated
parties.
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K.
(a)(1) The following financial statements of the Partnership are included in
Part II, Item 8 hereof.
(i) Independent Auditor's Report
(ii) Balance Sheets as of December 31, 1998 and 1997
(iii) Statements of Operations for years ended December 31, 1998, 1997 and
1996
(iv) Statements of Partners' Equity for years ended December 31, 1998,
1997 and 1996
(v) Statements of Cash Flows for years ended December 31, 1998, 1997 and
1996
(vi) Notes to Financial Statements
(a)(2) All schedules have been omitted because they are inapplicable, not
required, or the information is included elsewhere in the financial
statements or notes thereto.
(a)(3) Exhibits:
(4) Instrument defining rights of securities holders -
set forth in the Limited Partnership Agreement which
is contained in the Prospectus incorporated herein by
reference.
(10.1)* Limited Partnership Agreement
(10.2)** Exclusive Leasing and Management Agreement dated
October 1, 1994 (EastPark Executive Center).
(10.3) Listing Agreement of Property For Lease and/or Sale
(EastPark Executive Center)
(23) Consent of Independent Auditor
(27) Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K: None.
(c) Exhibits: The exhibits listed in Item 14(a)(3) above and not
incorporated herein by reference are filed with this Form 10-K.
22
23
(d) Financial Statement Schedules: There are no financial statement
schedules included in this Form 10-K report.
- --------------------------------------------------------------------------------
* Incorporated by reference to Exhibit A of the Partnership's Prospectus dated
December 1, 1987, Registration Number 33-07056-A.
** Incorporated by reference to Exhibit 3 of the Partnership's Form 10-K for the
year ended December 31, 1995.
23
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
YAGER/KUESTER PUBLIC FUND
LIMITED PARTNERSHIP
By: FSK Limited Partnership
March 30, 1999 By: /s/ Faison S. Kuester, Jr.
--------------------------------
Faison S. Kuester, Jr.
General Partner
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 30, 1999 by the following persons on
behalf of the Partnership and in the capacities and on the dates indicated.
/s/ Jerry R. Haynes /s/ Faison S. Kuester
- --------------------------------------- -------------------------------------
Jerry R. Haynes Faison S. Kuester, Jr., General
(Principal Accounting Officer) Partner of FSK Limited Partnership,
General Partner of the Partnership
Date March 30, 1999 Date March 30, 1999
---------------------------------- -------------------------------
/s/ Dexter R. Yager, Sr.
-------------------------------------
Dexter R. Yager, Sr., General
Partner of DRY Limited Partnership,
General Partner of the Partnership
Date March 30, 1999
-------------------------------
24