10-K 1 cap10k.txt 2000 10-K MID-AMERICA CAPITAL PARTNERS, LP SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 Commission File Number: 333-42441 MID-AMERICA CAPITAL PARTNERS, L.P. (Exact Name of Registrant as Specified in Charter) TENNESSEE 62-1717980 (State of Incorporation) (I.R.S. Employer Identification Number) 6584 POPLAR AVENUE, SUITE 340 MEMPHIS, TENNESSEE 38138 (Address of principal executive offices) (901) 682-6600 Registrant's telephone number, including area code Securities registered pursuant to Section 12 (b) of the Act: Title of Each Class Commercial Mortgage Pass Through Certificates, Series 1998 -1 Representing Beneficial Ownership in Mid-America Capital Partners, L.P. 6.376% First Mortgage Bonds, Due 2003 Securities registered pursuant to Section 12 (g) of the Act: None 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. [ x ] Yes [ ] 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 ] MID-AMERICA CAPITAL PARTNERS, L.P. TABLE OF CONTENTS Item PART I 1. Business 2. Properties 3. Legal Proceedings 4. Submission of Matters to Vote of Security Holders PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters 6. Selected Financial Data 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 7.A. Quantitative and Qualitative Disclosures About Market Risk 8. Financial Statements and Supplementary Data 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III 10. Directors and Executive Officers of the Registrant 11. Executive Compensation 12. Security Ownership of Certain Beneficial Owners and Management 13. Certain Relationships and Related Transactions PART IV 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K PART I ITEM 1. BUSINESS THE COMPANY Mid-America Capital Partners, L.P. (the Partnership) is a special purpose Delaware limited partnership. The Partnership was formed on November 24, 1997 for the sole purpose to own and operate 26 apartment communities (the Mortgaged Properties) and manage, renovate, improve, lease, sell, transfer, exchange, mortgage and otherwise deal with the Mortgaged Properties. The sole limited partner of the Partnership is Mid-America Apartments, L.P., a Tennessee limited partnership (MAALP), which is a majority owned subsidiary of Mid-America Apartment Communities, Inc. (MAAC). MAAC owns, directly or through its subsidiaries, all of the outstanding units of partnership interest. MAAC is a self-administered and self-managed umbrella partnership real estate investment trust (REIT). MAAC conducts a substantial portion of its operations through MAALP and subsidiaries of MAALP. The sole general partner of the Partnership is MAACP, Inc., a Tennessee corporation (MAACP), a wholly-owned subsidiary of MAAC. The term of the Partnership shall be to December 31, 2020, unless terminated earlier as provided in the Partnership Agreement or as otherwise provided by law. The Partnership was formed to succeed substantially all the interests in Capital Properties Group (predecessor to the Partnership, "Predecessor"). Distributions to the Partners relating to operations of the Mortgaged Properties will be based upon net cash flow as defined in the Partnership Agreement. Profits and losses are allocated to the Partners in proportion with their ownership. Subsequent to the Partnership formation, MAALP contributed its interest in 20 of the Mortgaged Properties, and the right to acquire the Reorganization Properties (as defined below) to the Partnership in exchange for 99% limited partnership interest in the Partnership. MAACP contributed cash in exchange for a 1% general partnership interest in the Partnership. The Mortgaged Properties consist of (i) 20 properties contributed by MAALP comprising the Predecessor; (ii) 5 properties acquired on November 25, 1997 by the Partnership in connection with the consummation of the merger of Flournoy Development Company (FDC) with and into MAAC and the other transactions (collectively, the Reorganization Properties) as described in the Agreement and Plan of Reorganization dated as of September 15, 1997 (the Plan of Reorganization) between FDC, MAAC and MAALP consisting of 4 properties acquired from Brown-Flournoy Equity Income Fund Limited Partnership (the Brown-Flournoy Properties) and Willow Creek; and (iii) one property (Hermitage at Beechtree) which was acquired November 25, 1997 through the merger of Hermitage at Beechtree, L.L.C. with and into the Partnership. The Partnership recorded the five properties acquired in connection with the Plan of Reorganization using the purchase method of accounting. OPERATING PHILOSOPHY INTENSIVE MANAGEMENT FOCUS. The Partnership strongly emphasizes on-site property management. Particular attention is paid to opportunities to increase rents, raise average occupancy rates, and control costs, with property managers and regional management being given the responsibility for monitoring market trends and the discretion to react to such trends. DECENTRALIZED OPERATIONAL STRUCTURE. The Partnership's operational structure is organized on a decentralized basis. Management believes that its decentralized operating structure capitalizes on specific market knowledge, increases personal accountability relative to a centralized structure and is beneficial in the acquisition, redevelopment and development process. GROWTH STRATEGIES Management's goal is to maximize its return on investment in each community by increasing rental rates and reducing operating expenses while maintaining high occupancy levels. The Partnership seeks higher net rental revenues by enhancing and maintaining the competitiveness of the communities and manages expenses through its system of detailed management reporting and accountability in order to achieve increases in operating cash flow. The steps taken to meet these objectives include: o empowering the Partnership's property managers to adjust rents in response to local market conditions and to concentrate resident turnover in peak rental demand months; o offering new services to residents, including telephone, cable, and internet access on which it generates fee and commission income; o implementing programs to control expenses through investment in cost-saving initiatives, such as the installation of individual apartment unit water and utility meters in certain communities; o improving the "curb appeal" of the communities through extensive landscaping and exterior improvements and repositioning communities from time to time to maintain market leadership positions; COMPETITION All of the Partnership's Mortgaged Properties are located in areas that include other apartment communities. Occupancy and rental rates are affected by the number of competitive apartment communities in a particular area. The Partnership's properties compete with numerous other multifamily properties, the owners of which may have greater resources than the Partnership and whose management may have more experience than the Partnership's management. Moreover, single-family rental housing, manufactured housing, condominiums and the new and existing home markets provide housing alternatives to potential residents of apartment communities. ITEM 2. PROPERTIES The following table sets forth certain historical information on an historical basis for the 26 Mortgaged Properties owned at December 31, 2000: The following table presents information concerning the properties at December 31, 2000:

(1) All 26 of these communities are encumbered by the Bonds of $142 million which mature on March 3, 2003 and have an interest rate of 6.376%. ITEM 3. LEGAL PROCEEDINGS The Partnership is not presently subject to any material litigation nor, to the Partnership's knowledge, is any material litigation threatened against the Partnership, other than routine litigation arising in the ordinary course of business, some of which is expected to be covered by liability insurance and none of which is expected to have a material adverse effect on the business, financial condition, liquidity or results of operations of the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS None. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data on an historical basis for the Partnership. This data should be read in conjunction with the consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report on Form 10-K. Mid - America Capital Partners, L.P. (a limited partnership) Selected Financial Data (Dollars in thousands except per share data)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following is a discussion of the financial condition and results of operations of the Partnership and its Predecessor for the years ended December 31, 2000, 1999 and 1998. This discussion should be read in conjunction with the financial statements included in this report. The Partnership 26 communities consisting of 5,948 total apartment units at December 31, 2000, 1999 and 1998. RESULTS OF OPERATIONS COMPARISON OF THE PARTNERSHIP'S YEAR ENDED DECEMBER 31, 2000 TO THE YEAR ENDED DECEMBER 31, 1999 Total revenues increased $1,426,000 in 2000 mainly due to increased rental revenues. Rental revenues increased 3.5% from 1999 due to a 3.6% increase in the average rental rate. Property operating expenses include costs for personnel, building repairs and maintenance, real estate taxes and insurance, utilities, landscaping and other operating costs. Property operating expenses for 2000 increased by $235,000 mainly due to increases of $102,000 in personnel costs, $108,000 in landscaping, and $142,000 in other operating costs. These increases were offset by cost reductions of $69,000 in utilities, $27,000 in real estate taxes and insurance, and $21,000 in building repairs and maintenance. COMPARISON OF THE PARTNERSHIP'S YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED DECEMBER 31, 1998 Total revenues increased $941,000 in 1999 due to increased rental revenues. Rental revenues increased as compared to 1998 due to a 2.4% increase in the average rental rate and a .5% increase in the average occupancy during 1999 for the total 5,948 units owned. Property operating expenses for 1999 increased by $310,000 mainly due to increases of $218,000 in real estate taxes and insurance, $112,000 in landscaping, and $107,000 in other operating costs. These increases were offset by costs reductions of $89,000 in building repair and maintenance and $38,000 in utilities. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities decreased to $14,461,000 in 2000 from $17,128,000 in 1999. The decrease was primarily due to changes in operating assets and liabilities during the period primarily related to timing of payments for real estate taxes and amounts due to affiliates. The Partnership used $3,213,000 in cash for investing activities in 2000. The funds were used for preventive maintenance and recurring capital needs, as well as, improving the "curb appeal" of the properties through landscaping and exterior improvements. The Partnership used $14,056,000 in financing activities during 2000, all of which was related to payments of excess cash flows to the Limited Partner. The Partnership believes that cash provided by operations is adequate and anticipates that it will continue to be adequate in both the short and long-term to meet operating requirements (including recurring capital expenditures at the Mortgaged Properties). INSURANCE In the opinion of management, property and casualty insurance is in place which provides adequate coverage to provide financial protection against normal insurable risks such that it believes that any loss experienced would not have a significant impact on the Partnership's liquidity, financial position, or results of operations. INFLATION Substantially all of the resident leases at the Mortgaged Properties allow, at the time of renewal, for adjustments in the rent payable thereunder, and thus may enable the Partnership to seek rent increases. The substantial majority of these leases are for one year or less. The short-term nature of these leases generally serves to reduce the risk to the Partnership of the adverse effects of inflation. RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS The Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. These statements include, but are not limited to, the plans and objectives of management for future operations, including plans and objectives relating to capital expenditures, rehabilitation costs on the apartment communities, future development, and anticipated growth rates of revenues and expenses. Although the Partnership believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report on Form 10-K will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Partnership or any other person that the objectives and plans of the Partnership will be achieved. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership's primary market risk exposure is to changes in interest rates obtainable on the Bonds. The Partnership's interest rate risk objective is to limit the impact of interest rate fluctuations on earnings and cash flows and to lower its overall borrowing costs. To achieve this objective, the Partnership manages its exposure to fluctuations in market interest rates for its borrowings through the use of fixed rate debt instruments to the extent that reasonably favorable rates are obtainable with such arrangements and may enter into derivative financial instruments such as interest rate swaps, caps and treasury locks to mitigate its interest rate risk on a related financial instrument or to effectively lock the interest rate on a portion of its variable debt. The Partnership does not enter into derivative or interest rate transactions for trading purposes. The Bonds outstanding at December 31, 2000 have a fixed interest rate of 6.376% and mature in 2003. The Partnership estimates that as of December 31, 2000, the attainable interest rate on a debt instrument with similar terms was 7.0%. The Partnership does not have any other material market-sensitive financial instruments. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Independent Auditors' Report, Financial Statements and Selected Quarterly Financial Information are set forth herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements with the Partnership's independent accountants on any matter of accounting principles or practices or financial statement disclosure. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated herein by reference to the Registrant's filing on Form S-3 relating to the issuance of the Bonds, filed with the Securities and Exchange Commission December 17, 1997. ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference to the Registrant's filing on Form S-3 relating to the issuance of the Bonds, filed with the Securities and Exchange Commission December 17, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference to the Registrant's filing on Form S-3 relating to the issuance of the Bonds, filed with the Securities and Exchange Commission December 17, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS MAALP provides the Properties management and other services (including employee benefits) at a 4% management fee and also provides funds for the improvement of the Mortgaged Properties. Management fees incurred by the Partnership under the terms of the agreement with MAALP were approximately $1,642,000, $1,587,000, and $1,530,000 for the years ended 2000, 1999 and 1998, respectively. MAALP employees at the Mortgaged Properties participate in employee benefit plans sponsored by MAAC. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Annual Report on Form 10-K: 1. Independent Auditors' Report Balance Sheets as of December 31, 2000 and 1999 Statements of Operations for the years ended December 31, 2000, 1999 and 1998 Statements of Partners' Capital for the years ended December 31, 2000, 1999 and 1998 Statement of Cash Flows for the years ended December 31, 2000, 1999 and 1998 Notes to Financial Statements for the years ended December 31, 2000, 1999 and 1998 2. Financial Statement Schedule required to be filed by item 8 and Paragraph (d) of this item 14: Schedule III - Real Estate Investments and Accumulated Depreciation as of December 31, 2000 3. The exhibits required by Item 601 of Regulation S-K, except as otherwise noted, have been filed with previous reports by the registrant and are herein incorporated by reference. Exhibit Numbers Exhibit Description 1.1* Underwriting Agreement 3.1* Certificate of Limited Partnership of Mid-America Capital Partners, L.P. 3.2* Limited Partnership Agreement between MAAC, Inc., as General Partner and Mid-America Apartments, L.P., a limited partner relating to the formation of Mid-America Capital Partners, L.P., a Delaware limited partnership 3.3* Certificate of Incorporation of MAACP, Inc. 3.4* Bylaws of MAACP, Inc. 3.5* Certificate of Incorporation of Mid-America Finance, Inc. 3.6* Bylaws of Mid-America Finance, Inc. 4.1* Form of Amended and Restated Indenture among Mid-America Capital Partners, L.P. and Mid-America Apartments, as issuer and La Salle National Bank, as Trustee 4.2* Form of Trust Agreement between Mid-America Finance, Inc. as depositor and La Salle National Bank, as Trustee 4.3* Form of Certificate 4.4* Form of Bond 5.1* Opinion of Baker, Donelson, Bearman & Caldwell, a professional corporation 10.1* Cash Collateral Account Security, Pledge and Assignment Agreement among Mid-America Capital Partners, L.P. and Mid-America Apartments, L.P. and First Union Bank, and Morgan Stanley Mortgage Capital, Inc., and La Salle National Bank dated November 21, 1997 10.2* Form of Deed of Trust, Assignment of Leases and Rents and Security Agreement 25.1* Statement of Eligibility and Qualification of Indenture Trustee on Form ---------------------------------------- * Previously filed as exhibits to the Partnership's Registration Statement on Form S-3, filed with the Commission on December 17, 1997 under Commission File No. 333-42441. (b) Reports on Form 8-K The following reports were filed on Form 8-K by the registrant during the fourth quarter of 2000: Form Events Reported Date of Report None. (c) Exhibits: See Item 14(a)(3) above. (d) Financial Statement Schedules: See Item 14(a)(2) above. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MID-AMERICA CAPITAL PARTNERS, L.P. Date: March 27, 2001 /s/Simon R.C. Wadsworth President (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated. Date: March 27, 2001 /s/Simon R. C. Wadsworth President (Principal Executive Officer) Date: March 26, 2001 /s/Mark S. Martini (Principal Financial and Accounting Officer) Date: March 26, 2001 /s/George E. Cates Director Date: March 26, 2001 /s/H. Eric Bolton, Jr. Director Date: March 22, 2001 /s/Stephen M. Carpenter Director Date: March 14, 2001 /s/Howard Eddings, Jr. Director Independent Auditors' Report The Partners Mid-America Capital Partners, L.P.: We have audited the accompanying balance sheets of Mid-America Capital Partners, L.P. (the "Partnership") as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the years in the three-year period ended December 31, 2000. In connection with our audits of the financial statements we also have audited the financial statement Schedule III, Real Estate Investment and Accumulated Depreciation. These financial statements and the financial statement schedule are the responsibility of the management of the Partnership. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the Unites States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 the Partnership as of December 31, 2000 and 1999, and the results of operations and cash flows of the Partnership for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Memphis, Tennessee February 23, 2001 PART I. Financial Information ITEM 1. Mid-America Capital Partners, L.P. (a limited partnership) Balance Sheets December 31, 2000 and 1999 (Dollars in thousands)

Mid-America Capital Partners, L.P. (a limited partnership) Statements of Operations Years ended December 31, 2000, 1999 and 1998 (Dollars in thousands)

Mid-America Capital Partners, L.P. (a limited partnership) Statements of Partners' Capital Years ended December 31, 2000, 1999 and 1998 (Dollars in thousands)

Mid-America Capital Partners, L.P. (a limited partnership) Statements of Cash Flows Years ended December 31, 2000, 1999 and 1998 (Dollars in thousands)

MID-AMERICA CAPITAL PARTNERS, L.P. (a limited partnership) Notes to Financial Statements December 31, 2000, 1999 and 1998 (1) Organization and Summary of Significant Accounting Policies Organization Mid-America Capital Partners, L.P. (the Partnership) is a special purpose Delaware limited partnership. The Partnership was formed on November 24, 1997 for the sole purpose to own and operate 26 apartment communities (the Mortgaged Properties) and manage, renovate, improve, lease, sell, transfer, exchange, mortgage and otherwise deal with the Mortgaged Properties. The sole limited partner of the Partnership is Mid-America Apartments, L.P., a Tennessee limited partnership (MAALP), which is a majority owned subsidiary of Mid-America Apartment Communities, Inc. (MAAC). MAAC owns, directly or through its subsidiaries, all of the outstanding units of partnership interest. MAAC is a self-administered and self-managed umbrella partnership real estate investment trust (REIT). MAAC conducts a substantial portion of its operation through MAALP and subsidiaries of MAALP. The sole general partner of the Partnership is MAACP, Inc., a Tennessee corporation (MAACP), a wholly-owned subsidiary of MAAC. The term of the Partnership shall be to December 31, 2020, unless terminated earlier as provided in the Partnership Agreement or as otherwise provided by law. Distributions to the Partners relating to operations of the Mortgaged Properties will be based upon net cash flow as defined in the Partnership Agreement. Profits and losses are allocated to the Partners in proportion with their ownership. Distributions from ongoing operations of the Partnership are distributed 100% to MAALP and charged to its capital account. Basis of Presentation All significant intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition The Partnership leases residential apartments under operating leases with terms generally one year or less. Rental and other revenues are recorded when earned. Rental Operations The Partnership owns and operates apartment units which are leased to tenants on terms of one year or less, with monthly payments due in advance. In management's opinion, due to the number of tenants, the type and diversity of submarkets in which the Mortgaged Properties operate, and the collection terms, there is no concentration of credit risk. Restricted Cash Restricted cash consists of escrow deposits held by lenders for property taxes, insurance, debt service and replacement reserves. Real Estate Assets and Depreciation Real estate assets are carried at depreciated cost. Repairs and maintenance costs are expensed as incurred while significant improvements, renovations and replacements are capitalized. The cost of interior painting, vinyl flooring and blinds are expensed as incurred. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets which range from 8 to 40 years for land improvements and buildings and 5 years for furniture, fixtures and equipment. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Partnership accounts for long-lived assets in accordance with the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Deferred Financing Costs Deferred financing costs are amortized over the terms of the related debt using a method which approximates the interest method. Due from Limited Partner The Partnership periodically makes payments to the Limited Partner based upon the excess cash flows of the Mortgaged Properties (other than the five properties discussed below) from rental operations or receives cash from the limited partner to fund capital improvements on the Mortgaged Properties. These payments and receipts are recorded on the balance sheet of the Partnership as a receivable or payable to the Limited Partner. Due to Affiliate The Partnership has five properties, Hidden Lake II, High Ridge, Park Place, Southland Station I and Willow Creek that make payments or receive cash from MAAC in a manner similar to that of the Partnership and Limited Partner described above. These payments and receipts are recorded on the balance sheet of the Partnership as a receivable or payable to an affiliate, MAAC. Income Taxes No provision for federal income taxes has been made in the accompanying financial statements. Each partner is responsible for reporting his share of taxable income or loss from the real estate investments. Use of Estimates Management of the Partnership has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates. (2) Bridge Notes and Bonds Payable On November 24, 1997 the Mortgaged Properties were acquired by the Partnership and were pledged to secure a $140 million loan (the "Bridge Notes") received from Morgan Stanley Mortgage Capital Inc. A portion of the proceeds from the Bridge Notes were utilized in connection with the acquisition of certain of the Reorganization Properties, the funding of deferred financing costs, the establishment of replacement reserves and the remainder being distributed to MAALP. On March 6, 1998, the Partnership issued $142 million aggregate principal amount of 6.376% Bonds due 2003 (the "Bonds"). The Bonds are secured by a first priority deed of trust, security agreement and assignment of rents and leases in respect of the 26 mortgaged properties, with a net book value of $201.0 million at December 31, 2000. The net proceeds from the sale of the Bonds were applied to the Bridge Notes and utilized to fund costs of the issuance. In anticipation of the March 6, 1998 Bond issuance discussed above, the Partnership entered four separate forward treasury lock agreements in 1997 with notional amounts aggregating $140 million, the effect of which was to lock the interest rate on $140 million of the Bonds at an average rate of 6.62%. On March 6, 1998 the Partnership realized a $1.4 million loss on the interest rate contracts. The realized loss resulting from the change in the market value of these contracts is being amortized into interest expense over the life of the related debt issuance. Thus, the effective borrowing cost of the Bonds is 6.62% until maturity in March 2003. (3) Fair Value Disclosure of Financial Instruments Cash, restricted cash, accounts payable and accrued expenses and other liabilities and security deposits are carried at amounts which reasonably approximate their fair value. The fixed rate Bonds payable had a carrying value at December 31, 2000 and 1999 of $142 million. The Partnership estimates that their fair market value (excluding prepayment penalties) based upon interest rates available for the issuance of debt with similar terms and remaining maturities as of December 31, 2000 was $141 million. These notes are subject to prepayment penalties which would be required to retire these notes prior to maturity. The fair value estimates presented herein are based on information available to management as of December 31, 2000 and 1999. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and current estimates of fair value may differ significantly from the amounts presented herein. (4) Recent Pronouncements In June 2000, FASB Statement 138, "Accounting for Derivative Instruments and Hedging Activity-Deferral of Effective Date of FASB Statement 133", was issued. This Statement shall be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Partnership has only limited involvement with derivative financial instruments, and does not use them for trading purposes. This new accounting statement did not have a material impact on the Partnership's financial statements. (5) Commitments and Contingencies The Partnership is not presently subject to any material litigation nor, to the Partnership's knowledge, is any material litigation threatened against the Partnership or any of the Mortgaged Properties, other than routine litigation arising in the ordinary course of business, some of which is expected to be covered by liability insurance and none of which is expected to have a material adverse effect on the financial statements of the Partnership. (7) Related Party Transactions MAALP provides the properties management and other services (including employee benefits) at a 4% management fee and also provides funds for the improvement of the Mortgaged Properties. Management fees incurred by the Partnership under the terms of the agreement with MAALP were approximately $1,642,000, $1,587,000, and $1,530,000 for the years ended 2000, 1999 and 1998, respectively. MAALP employees at the Mortgaged Properties participate in employee benefit plans sponsored by MAAC. (8) Financial Instruments with Off-Balance Sheet Risk The Partnership has only limited involvement with derivative financial instruments and does not use them for trading purposes. The Partnership has utilized derivative financial instruments as hedges in anticipation of future debt transactions to manage well-defined interest rate risk. (9) Segment Information At December 31, 2000, the Partnership owned and operated 26 multifamily apartment communities from which it derives all significant sources of earnings and operating cash flows. The Partnership's operational structure is organized on a decentralized basis, with individual property managers having overall responsibility and authority regarding the operations of their respective properties. Each property manager individually monitors local and area trends in rental rates, occupancy percentages, and operating costs. Property managers are given the on-site responsibility and discretion to react to such trends in the best interest of the Partnership. The Partnership's chief operating decision maker evaluates the performance of each individual property based on its contribution to net operating income in order to ensure that the individual property continues to meet the Partnership's return criteria and long term investment goals. The Partnership defines each of its multifamily communities as an individual operating segment. It has also determined that all of its communities have similar economic characteristics and also meet the other criteria which permit the communities to be aggregated into one reportable segment, which is acquisition, development, and operation of the multifamily communities owned. The revenues, net operating income, assets and real estate investment capital expenditures for the aggregated multifamily segment are summarized as follows for the years ended December 31, 2000, 1999 and 1998 (in 000's):

(10) Selected Quarterly Financial Data (Unaudited) (Dollars in thousands)

MID-AMERICA CAPITAL PARTNERS, L.P. Schedule III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION December 31, 2000 (Dollars in thousands)

MID AMERICA CAPITAL PARTNERS, L.P. REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION Years ended December 31, 2000, 1999 and 1998 A summary of activity for real estate investments and accumulated depreciation is as follows: Mid - America Capital Partners, L.P. (a limited partnership) Real Estate Investments and Accumulated Depreciation (Dollars in thousands)

MID AMERICA CAPITAL PARTNERS L P 10-K