10-K 1 cam210k.txt TWELVE MONTHS 2001 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 March 25, 2001 OR _____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-14941 CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 13-3330195 -------------------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 625 Madison Avenue, New York, New York 10022 -------------------------------------- ----------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 421-5333 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Class -------------- Limited Partnership Interests 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] DOCUMENTS INCORPORATED BY REFERENCE None PART I Item 1. Business. General ------- Cambridge Advantaged Properties II Limited Partnership (formerly Hutton Advantaged Properties II Limited Partnership) (the "Partnership") is a limited partnership which was formed under the laws of the State of Delaware on June 25, 1985. Since November 25, 1997, the general partners of the Partnership have been Related Advantaged Residential Associates Inc., (the "Related General Partner"), a Delaware corporation and an affiliate of The Related Companies, L.P. ("Related"), a New York limited partnership, and Related and Cambridge Associates Limited Partnership (formerly Related and Hutton Associates Limited Partnership), a Delaware limited partnership, ("Related and Cambridge Associates"), and together with the Related General Partner, the "General Partners". The general partner of Related and Cambridge Associates is the Related General Partner. On November 25, 1997, the Related General Partner and one of the then other general partners of the Partnership, Advantaged Housing Associates, Inc. ("AHA"), consummated a Purchase Agreement pursuant to which the Related General Partner purchased AHA's general partner interest in the Partnership (the "Transfer"). In addition to the Transfer, the Related General Partner also acquired AHA's general partner interest in Related and Cambridge Associates, another General Partner which is also the special limited partner of the Partnership. The General Partners manage and control the affairs of the Partnership. See Item 10, Directors and Executive Officers of the Registrant, below. On May 19, 1994, the Partnership's name was changed to Cambridge Advantaged Properties II Limited Partnership. On August 9, 1985, pursuant to a prospectus dated August 9, 1985 as supplemented by the supplements thereto dated September 20, 1985 and October 25, 1985 (as so supplemented, the "Prospectus"), the Partnership commenced a public offering (the "Offering"). Pursuant to the Offering, the Partnership issued and sold 7,150 Limited Partnership Interests resulting in $35,750,000 in gross proceeds from 2,926 investors (before offering expenses and sales commissions of $3,896,518). The Offering was completed in January 1986 and no further issuance of limited partnership interests (the "Limited Partnership Interests") is anticipated. Investment Objectives/Government Incentives ------------------------------------------- The Partnership was formed to invest, as a limited partner, in other limited partnerships (referred to herein as "Local Partnerships", "subsidiaries" or "subsidiary partnerships"), each of which owns or leases and operates an existing residential housing development (collectively, "Apartment Complexes") which benefit from financing at rates below those otherwise available from conventional lenders that is made available through various Federal and State government programs or through the issuance of tax-exempt bonds ("Advantaged Financing"). In acquiring its interests in the Local Partnerships ("Local Partnership Interests"), the Partnership's investment objectives have been to: (1) provide current tax benefits in the form of tax losses which limited partners may use to offset passive income from other sources; (2) provide long-term capital appreciation through an increase in the value of the Partnership's investments in Local Partnerships; (3) provide cash distributions from sale or refinancing transactions; and (4) preserve and protect the Partnership's capital. The Partnership is in the process of winding up its operations as it continues to sell its assets; therefore investment objectives (1), (2) and (4) are no longer applicable. The Partnership will no longer be generating passive losses due to the sale of properties. However, passive losses previously allocated to limited partners (to the extent unused) are available to offset the income expected to be generated from the sales effort. Sales proceeds will first be used to satisfy Partnership obligations including advances and fees due the General Partners. It is not anticipated that there will be material cash available for distribution to the limited partners after satisfying these obligations. Federal, State and local government agencies have provided significant incentives in order to stimulate private investment in housing which benefits from Advantaged Financing. The intent of these incentives was to reduce certain market risks and provide investors with (i) tax benefits, (ii) long-term capital appreciation, and (iii) limited cash distributions. Notwithstanding these factors, there remain significant risks. These risks include, but are not limited to, the financial strength and expertise of the general partners of the Local Partnerships ("Local General Partners"); the long-term nature of investments in advantaged housing which limits the ability of the Partnership to vary its investments in response to changing economic, financial and investment conditions; and changes in local economic circumstances and housing patterns which have an impact on real estate values. Apartment Complexes benefiting from Advantaged Financing also require greater management expertise and may have higher operating expenses than conventional apartment buildings. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, below. Further information concerning the Advantaged Financing programs in which the Local Partnerships participate can be found in Item 2, Properties, below. The Partnership is subject to risks incident to potential losses arising from the management and ownership of improved real estate. The Partnership can also be affected by poor economic conditions. The remaining five properties are located in four different states across the United States so that if one area of the United States is experiencing downturns in the economy, the remaining properties in the portfolio may be experiencing upswings. However, the geographic diversification of the portfolio may not protect against a general downturn in the national economy. There are also substantial risks associated with owning properties receiving government assistance, for example the possibility that Congress may not appropriate funds to enable the U.S. Department of Housing and Urban Development ("HUD") to make rental assistance payments. HUD also restricts annual cash distributions to partners based on operating results and a percentage of the owners' equity contribution. The Partnership cannot sell or substantially liquidate its investments in subsidiary partnerships during the period that the subsidy agreements are in existence without HUD's approval. Furthermore, there may not be market demand for apartments at full market rents when the rental assistance contracts expire. Investments ----------- The Local Partnership Interests owned by the Partnership were acquired from unaffiliated sellers. The Partnership became the principal limited partner in these Local Partnerships pursuant to local limited partnership agreements. As a limited partner, the Partnership's liability for obligations of the Local Partnerships is limited to its investment. The Local General Partners of the Local Partnerships retain responsibility for maintaining, operating and managing the Apartment Complexes. However, Related and Cambridge Associates, a General Partner, is a special limited partner of each Local Partnership, and, under certain circumstances, has the right to replace the Local General Partners of the Local Partnership and also has certain rights with respect to voting on or approving of certain matters, including the sale of the Apartment Complex. These rights were given to Related and Cambridge Associates rather than the Partnership so as to avoid claims that by the existence or exercise of such rights the Partnership was taking part in the control of the Local Partnerships' operations and should thereby incur liability for all debts and obligations of the Local Partnerships (if this were found to be the case, the Partnership's interest in one Local Partnership could have been reached by creditors of another Local Partnership). Related and Cambridge Associates has agreed to exercise these rights as a fiduciary of the limited partners of the Partnership (the "Limited Partners"). The Partnership purchased the Local Partnership Interests for a purchase price consisting in each case of a cash down payment, and a deferred cash payment, as evidenced by an installment promissory note. Such notes were and are payable upon the occurrence of certain events, generally in two stages, upon completion of construction and upon the later of permanent loan closing or attainment of 95% occupancy. The cash payments were made in part as the purchase price of the Local Partnership Interests and in part as capital contributions to the Local Partnerships. Such contributions were generally used by the Local Partnership to pay partnership management fees to the Local General Partners, fees to the Local General Partners for guaranteeing the funding of operating deficits (generally for a period of three to five years and subject to a maximum amount), and payments to Related and Cambridge Associates or its affiliates for acquisition fees, development consulting fees, administrative service fees, and organizational expense reimbursements in an amount of up to 6.6% of the aggregate cash payments made by the Partnership to the Local Partnership and the persons from whom the Partnership purchased its Local Partnership Interest. Sales of Underlying Properties/Local Partnership Interests ---------------------------------------------------------- General ------- The Partnership is currently in the process of winding up its operations and disposing of its investments. As of March 25, 2001, the Partnership has disposed of seven of its twelve original investments. Subsequently, on May 8, 2001 and May 23, 2001, Sheridan Square Associates of Lawton and the Triangle/Oaks Limited Partnership were sold (see Note 13). Three additional investments are listed for sale and the General Partner anticipates that these remaining investments will be disposed of by December 31, 2001. There can be no assurance as to when the Partnership will dispose of its last remaining investments or the amount of proceeds which may be received. However, based on the historical operating results of the Local Partnership and the current economic conditions including changes in tax laws, it is unlikely that the proceeds from such sales will be sufficient to return the limited partners original investment. Brookwood Apartments, L.P. ("Brookwood") ---------------------------------------- On March 24, 2000, the property and related assets and liabilities of Brookwood were sold to an unaffiliated third party for a price of $7,300,000 inclusive of the mortgage assumption, resulting in a gain of approximately $2,950,000. Apple Creek Associates of Denton, Ltd. ("Apple Creek") ------------------------------------------------------ On July 28, 2000, the property and related assets and liabilities of Apple Creek were sold to an unaffiliated third party purchaser for a price of $9,100,000 inclusive of a note payable to the Partnership in the amount of $700,000, resulting in a gain of approximately $4,525,000 and forgiveness of indebtedness income of approximately $441,000. Woodridge, Ltd. ("Woodridge") ----------------------------- On December 29, 2000, the property and the related assets and liabilities of Woodridge were sold to an unaffiliated third party purchase for a price of $11,420,000, resulting in a gain of approximately $3,837,000, and a forgiveness of indebtedness income of approximately $225,000. Players Club at Fort Myers, Ltd. and Suntree at Fort Myers, Ltd. ("Players and -------------------------------------------------------------------------------- Suntree") --------- On December 29, 1999, the property and related assets and liabilities of Players and Suntree were sold to an unaffiliated third party for approximately $19,350,000 resulting in a gain of approximately $5,642,000 and forgiveness of indebtedness income of approximately $2,929,000 as a result of forgiveness of interest on mortgage debt and advances from the General Partners. Tax Matters ----------- The Tax Reform Act of 1986 (the "TRA") provides as of 1991 that the passive losses generated by the Partnership can only be used to shelter passive income or, in the alternative, may be carried forward to offset a gain upon the sale of properties. Competition ----------- The real estate business is highly competitive and each of the Local Partnerships in which the Partnership has invested owns an Apartment Complex which must compete for tenants with other rental housing in its area. However, the below market interest rates on Advantaged Financing generally make it possible to offer the apartments to eligible tenants at a cost to the tenant significantly below the market rate for comparable conventionally financed apartments in the area. Employees --------- The Partnership does not have any employees. All services are performed for the Partnership by its General Partners and their affiliates. The General Partners receive compensation in connection with such activities as set forth in Items 11 and 13 herein. In addition, the Partnership reimburses the General Partners and certain of their affiliates for expenses incurred in connection with the performance by their employees of services for the Partnership in accordance with the partnership agreement of the Partnership (the "Partnership Agreement"). Item 2. Properties. As of March 25, 2001, the Partnership holds a 98% Limited Partnership Interest in 5 Local Partnerships each of which owns an Apartment Complex. The original underlying properties in seven of the Local Partnerships in which the Partnership had an interest have been sold. See Item 1, Business-Sales of Underlying Properties, below. Set forth below is certain information concerning the Apartment Complexes and their operations and financing. See Schedule III to the consolidated financial statements included herein for additional information pertaining to the Apartment Complexes. Each of the Local Partnerships owns one Apartment Complex. The Apartment Complexes are located in California (1), Florida (1), Oklahoma (1) and Virginia (2). Three of the Apartment Complexes are in the suburbs of major cities, while the remaining Apartment Complexes are in close proximity to the downtown business districts of their respective cities. The Apartment Complexes are occupied by low, moderate and middle-income tenants. The occupancy rates are set forth below. The aggregate number of rental units contained in the Apartment Complexes is 1,616. The largest Apartment Complex contains 520 units and the smallest contains 156 units. All of the Apartment Complexes are subject to existing permanent first mortgage loans ("Mortgage Loans on Real Estate"). See Schedule III to the financial statements included herein.

(a) The Partnership invested in Local Partnerships owning existing Apartment Complexes which receive either Federal or State subsidies. HUD, through the Federal Housing Administration ("FHA"), administers a variety of subsidies for low and moderate-income housing. FHA administers similar housing programs for nonurban areas. The federal programs generally provide one or a combination of the following forms of assistance: (1) mortgage loan insurance and (2) rental subsidies. 1) Mortgage Loan Insurance. --------------------------- HUD provides mortgage insurance for rental housing projects pursuant to a number of sections of Title II of the National Housing Act ("NHA"), including Section 236, Section 221(d)(4), Section 221(d)(3) and Section 220. Under all of these programs, HUD will generally provide insurance equal to 100% of the total replacement cost of the project to nonprofit owners and 90% of the total replacement cost to limited-distribution owners. Mortgages are provided by institutions approved by HUD, including banks, savings and loan companies and local housing authorities. Section 221(d)(4) of NHA provides for Federal insurance of private construction and permanent mortgage loans to finance new construction of rental apartment complexes containing five or more units. The most significant difference between the 221(d)(4) program and the 221(d)(3) program is the maximum amount of the loan which may be obtained. Under the 221(d)(3) program, nonprofit sponsors may obtain a permanent mortgage equal to 100% of the total replacement cost; no equity contribution is required of a nonprofit sponsor. In all other respects the 221(d)(3) program is substantially similar to the 221(d)(4) program. 2) Rental Subsidies. --------------------- Many of the tenants in HUD insured projects receive some form of rental assistance payments. All leases are generally for periods not exceeding one to two years and no tenant occupies more than 10% of the rentable square footage. Rents from commercial tenants (to which average rental per square foot applies) comprised less than 5% of the rental revenues of the Local Partnerships. Rents for the residential units are determined annually by HUD and reflect increases in consumer price indices in various geographic areas. Management continuously reviews the physical state of the properties and budgets improvements when required, which are generally funded from cash flows from operations or release of replacement reserve escrows. Management continuously reviews the insurance coverage of the properties and believes such coverage is adequate. See Item 1, Business, above for the general competitive conditions to which the properties described above are subject. Real estate taxes are calculated using rates and assessed valuations determined by the township or city in which the property is located. Such taxes have approximated 1% of the aggregate cost of the properties as shown in Schedule III to the financial statements included herein. (b) On May 31, 1996, the property and the related assets and liabilities of McAdam were sold to an unaffiliated third party (see Item 7, below). (c) On November 12, 1997, the property and the related assets and liabilities of Galveston were sold to an unaffiliated third party (see Item 7, below). (d) On December 28, 1999, the property and the related assets and liabilities of Players Club at Fort Myers, Ltd. (the "Players Club") and Suntree at Fort Myers, Ltd. (the "Suntree") were sold to an unaffiliated third party (see Item 7, below). (e) On March 24, 2000, the property and the related assets and liabilities of Brookwood Apartments, L.P. (the "Brookwood") were sold to an unaffiliated third party (see Item 7, below). (f) On July 28, 2000 the property and the related assets of Apple Creek Associates of Denton, Ltd ("Apple Creek") were sold to an unaffiliated third party (see item 7, below). (g) On December 29, 2000 the property and the related assets and liabilities of Woodridge Ltd. ("Woodridge") were sold to an unaffiliated third party (see item 7, below). Item 3. Legal Proceedings. None Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of security holders during the fiscal year covered by this report through the solicitation of proxies or otherwise. PART II Item 5. Market for the Registrant's Limited Partnership Interests and Related Security Holder Matters. As of March 25, 2001, the Partnership had issued and outstanding 7,150 Limited Partnership Interests, each representing a $5,000 capital contribution per unit to the Partnership, for aggregate gross proceeds of $35,750,000. Limited Partnership Interests are not traded in any organized market. It is not anticipated that any public market will develop for the purchase and sale of the Limited Partnership Interests. Limited Partnership Interests may be transferred only if certain requirements are satisfied, including an opinion of counsel to the Partnership that such transfer would not cause a termination of the Partnership under Section 708 of the Internal Revenue Code and would not violate any federal or state securities laws. As of May 1, 2001, there were 2,943 registered holders of Limited Partnership Interests. The Partnership has made no distributions to its Limited Partners since its inception on June 25, 1985. There are no material restrictions upon the Partnership's present or future ability to make distributions in accordance with the provisions of the Partnership Agreement. The Partnership has invested as a limited partner in Local Partnerships owning Apartment Complexes which receive Governmental Assistance under programs which in some instances restrict the cash return available to owners (see Item 8, below). Therefore, the Partnership does not anticipate providing significant cash distributions from operations to its Limited Partners. Item 6. Selected Financial Data. The information set forth below presents selected financial data of the Partnership. Additional detailed financial information is set forth in the audited financial statements and footnotes contained in Item 8 hereof and in Schedules contained in Item 14 hereof.

During the years ended March 25, 1997 through 1999, total assets decreased primarily due to depreciation, partially offset by net additions to property and equipment. There was a decrease in long-term obligations and total liabilities in 2000 and 2001 primarily due to forgiveness of indebtedness at, Players Club, Suntree, Woodridge and Apple Creek. During the years ended March 25, 1997, 1998, 2000 and 2001, total assets decreased primarily due to depreciation and the sale of properties (see Note 10 in Item 8, Financial Statements and Supplementary Data, below), partially offset by net additions to property and equipment. Long-term obligations and total liabilities decreased for the years ended March 25, 1997, 1998, 2000 and 2001 primarily due to the decrease in mortgage notes payable satisfied by the sales price of the properties which were sold and the forgiveness of indebtedness of mortgage debt and payments to the note holders. Long-term obligations decreased for the year ended March 25, 1999 primarily due to the forgiveness of indebtedness related to the mortgage refinancing at Sheridan Square (See Note 7 in Item 8, Financial Statements and Supplementary Data, below). Total liabilities increased for the year ended March 25, 1999 primarily due to the advances made by the Related General Partners to meet third party obligations and the accrual of certain fees and expense reimbursements owed to the General Partners. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. Liquidity and Capital Resources ------------------------------- General ------- The Partnership's capital has been invested primarily in 12 Local Partnerships in which the Partnership made an initial investment of $29,354,485 (including acquisition expenses) in the Local Partnerships. These investments are highly illiquid. Through the fiscal year ended March 25, 2001, the properties and the related assets and liabilities owned by seven Local Partnerships were sold to unaffiliated third parties. As of March 25, 2001, the Partnership owned interests in 5 Local Partnerships. The Partnership has obtained loans from an affiliate of the Related General Partner, which together with Partnership funds, have been advanced to three Local Partnerships. Cash of the Partnership and its consolidated subsidiaries increased by approximately $564,000 during the fiscal year ended March 25, 2001 (the "2000 Fiscal Year"). This increase is attributable to net proceeds from the sale of properties ($7,109,000) and a decrease in mortgage escrow deposits-replacement reserves ($383,000) which exceeded cash used by operating activities ($1,578,000), net proceeds and principal payments of mortgage notes payable ($1,574,000), acquisition of property and equipment ($17,000), a decrease in minority interest ($458,000), an increase in deferred costs ($108,000) and costs paid related to the sale of properties ($3,183,000). Included in the adjustments to reconcile the net income to cash flow used in operating activities is forgiveness of indebtedness income ($666,000), gain on sale of property ($11,311,000) and depreciation and amortization ($2,341,000). The Partnership's primary source of funds are the cash distributions from operations and cash distributions from sales of the Local Partnerships in which the Partnership has invested. These sources are available to meet the obligations of the Partnership. Cash distributions received from the Local Partnerships to date have been sufficient to meet all current operating expenses other than the payment of fees to the General Partner. During the 2000 Fiscal Year, the year ended March 25, 2000 (the "1999 Fiscal Year") and the year ended March 25, 1999 (the "1998 Fiscal Year"), such distributions amounted to approximately $3,434,000, $596,000 and $192,000, respectively. However, the Related General Partner had advanced funds in prior years to meet the Partnership's third party obligations with the remaining unpaid balance of advanced funds equaling approximately $1,015,000, $2,950,000 and $2,859,000 as of March 25, 2001, 2000 and 1999, respectively. In addition, certain fees and expense reimbursements owed to the General Partners amounting to approximately $3,600,000, $3,745,000 and $3,122,000 were accrued and unpaid as of March 25, 2001, 2000 and 1999, respectively. Without the General Partners' continued accrual without payment of certain fees and expense reimbursements, the Partnership will not be in the position to meet its obligations. The General Partners have continued allowing the accrual without payment of these amounts, but are under no obligation to do so. Information Regarding Disposition --------------------------------- For a discussion of the sale of properties in which the Partnership owns direct and indirect interest, see Note 10 to the Financial Statements. For a discussion of contingencies affecting certain Local Partnerships, see Results of Operations of Certain Local Partnerships, below. Since the maximum loss the Partnership would be liable for is its net investment in the respective Local Partnerships, the resolution of the existing contingencies is not anticipated to impact future results of operations, liquidity or financial condition in a material way except the Partnership would lose its investment in the properties and any potential proceeds from the sale or refinancing of the properties. Except as described above, management is not aware of any trends or events, commitments or uncertainties, which have not otherwise been disclosed, that will or are likely to impact liquidity in a material way. Management believes the only impact would be for laws that have not yet been adopted. The remaining five properties are located in four different states across the United States so that if one area of the United States is experiencing downturns in the economy, the remaining properties in the portfolio may be experiencing upswings. However, the geographic diversification of the portfolio may not protect against a general downturn in the national economy. Results of Operations --------------------- Property and equipment to be held and used are carried at cost which includes the purchase price, acquisition fees and expenses, construction period interest and any other costs incurred in acquiring the properties. The cost of property and equipment is depreciated over their estimated useful lives using accelerated and straight-line methods. Expenditures for repairs and maintenance are charged to expense as incurred and major renewals and betterments are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the assets and accumulated depreciation accounts and the profit or loss on such disposition is reflected in earnings. A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the property on an undiscounted basis are below depreciated cost. At that time, property investments themselves are reduced to estimated fair value (generally using discounted cash flows) when the property is considered to be impaired and the depreciated cost exceeds estimated fair value. Management plans to dispose of the assets by December 31, 2001. These assets are now classified as property and equipment-held for sale and are not depreciated. Through March 25, 2001, the Partnership has recorded approximately $1,116,000 as a loss on impairment of assets. The following is a summary of the results of operations of the Partnership for the 2000, 1999 and 1998 Fiscal Years. The results of operations of the Partnership, as well as the Local Partnerships, excluding gain on sale of property, administrative and management, operating, repairs and maintenance and forgiveness of indebtedness income, remained fairly consistent for the 2000, 1999 and 1998 Fiscal Years. The Partnership's primary source of income continues to be its portion of the Local Partnerships' operating results. The majority of Local Partnership income continues to be in the form of rental income with the corresponding expenses being divided among operations, depreciation and amortization, and mortgage interest. Net income (loss) for the 2000, 1999 and 1998 Fiscal Years totaled $9,819,628, $6,463,010 and $(3,648,300), respectively. Excluding 2001 and 1999 in which the Partnership generated passive income, the Partnership has met the investment objective of generating tax benefits in the form of passive losses (which Limited Partners may use to offset passive income from other sources ). This passive income may be offset by the carryforward of any unused passive losses from prior years; however, the sale or refinancing transactions of the Local Partnerships to date have been insufficient to provide cash distributions to the Limited Partners. 2000 vs. 1999 ------------- Rental income decreased approximately 24% for the 2000 Fiscal Year as compared to the 1999 Fiscal Year. Excluding Suntree, Players Club, Brookwood, Apple Creek, and Woodridge (the "Sold Assets") rental income increased approximately 3% primarily due to rental rate increases. Other income decreased approximately 18% for the 2000 Fiscal Year as compared to the 1999 Fiscal Year. Excluding the Sold Assets, other income increased approximately 16% primarily due to an increase in interest income received from the Apple Creek Note. The Partnership received a note receivable upon the sale of Apple Creek in July 2000. Total expenses, excluding the operations for the Sold Assets and the categories of administration and management, operating and repairs and maintenance remained fairly consistent with an increase of approximately 1% for the 2000 Fiscal Year. Administration and management decreased approximately $677,000 for the 2000 Fiscal Year as compared to the 1999 Fiscal Year. Excluding the Sold Assets, administration and management increased approximately $228,000 primarily due to the write-off of old legal bills at the Partnership level in the 1999 Fiscal Year. Operating decreased approximately $486,000 for the 2000 Fiscal Year as compared to the 1999 Fiscal Year. Excluding the Sold Assets, operating increased approximately $83,000 primarily due to a utility rate increase at one Local Partnership and the installation of a cable television system at a second Local Partnership. Repairs and maintenance decreased approximately $583,000 for the 2000 Fiscal Year as compared to the 1999 Fiscal Year. Excluding the Sold Assets, repairs and maintenance increased approximately $331,000 primarily due to rehabilitation of neglected units at one Local Partnership. A gain on sale of properties of approximately $11,311,000 and a forgiveness of indebtedness income of approximately $666,000 was recorded in the 2000 Fiscal Year (see Notes 10 and 11, respectively, in item 8, Financial statements and Supplemental Data, below). Administrative and management-related parties, taxes and insurance, interest and depreciation and amortization decreased approximately $158,000, $273,000, $1,947,000 and $993,000 for the 2000 Fiscal Year as compared to the 1999 Fiscal Year primarily due to decreases relating to the Sold Assets. Excluding the Sold Assets, administrative and management-related parties, taxes and insurance and interest remained fairly consistent with (decreases) increases of approximately ($5,000), $34,000 and $75,000, respectively. Excluding the Sold Assets and Triangle/Oaks and Suncreek for depreciation and amortization only, depreciation and amortization remained fairly consistent with a decrease of approximately $6,000. Triangle/Oaks and Suncreek are not depreciated during the period because they are classified as assets held for sale. 1999 vs. 1998 ------------- Rental income increased approximately 2% for the 1999 Fiscal Year as compared to the 1998 Fiscal Year. Excluding Suntree and Players Club which sold their properties on December 28, 1999, rental income increased approximately 4% primarily due to rental sale increases. Other income increased by approximately 24% for the 1999 Fiscal Year as compared to 1998. Excluding Suntree and Players Club, other income increased approximately 20% primarily due to an increase in application, laundry and pet fees at two Local Partnerships. Total expenses, excluding Suntree and Players Club, remained fairly consistent with a decrease of approximately 2% for the 1999 Fiscal Year as compared to the 1998 Fiscal Year. Taxes and insurance decreased approximately $389,000 for the 1999 Fiscal Year as compared to the 1998 Fiscal Year. Excluding Suntree and Players Club, taxes and insurance decreased approximately $76,000. A gain on sale of properties of approximately $5,642,000 and forgiveness of indebtedness income of approximately $2,929,000 was recorded in the 1999 Fiscal Year (see Notes 10 and 11, respectively, in Item 8, Financial Statements and Supplemental Data, below). Results of Operations of Certain Local Partnerships --------------------------------------------------- Triangle/Oaks Limited Partnership ("Triangle/Oaks") --------------------------------------------------- During the years ended December 31, 2000, 1999 and 1998, the Local Partnership incurred losses of $236,278, $291,361 and $1,035,346, respectively. In addition, at December 31, 2000, accounts payable and accrued expenses excluding mortgage notes payable exceed available cash by $112,140 and total liabilities exceed total assets by $8,560,697. These factors among others may indicate that the Local Partnership will be unable to continue as a going concern for a reasonable period of time. The auditors for the Triangle/Oaks subsidiary partnership modified their report on the 2000 fiscal year financial statements due to the uncertainty of the subsidiary partnership's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability that might be necessary should the Local Partnership be unable to continue as a going concern. The Partnership has received a commitment from affiliates of the Local General Partner to provide additional cash funding anticipated to be $25,000 per month for the months of January to March 2001 and $21,000 per month from April to December 2001, or until the property is sold. During the 2000 Fiscal Year, the Partnership advanced approximately $300,000 to the Local Partnership. Approximately $3,865,000 and $3,565,000 was outstanding at March 25, 2001 and 2000, respectively. Such amounts will be voluntary loans. The Partnership's investments in Triangle/Oaks has been reduced to zero by prior years' losses. The minority interest balance for Triangle/Oaks was approximately $364,000 and $369,000 at March 25, 2001 and 2000, respectively. Triangle/Oaks net loss after minority interest amounted to approximately $232,000, $301,000 and $1,015,000 for the 2000, 1999 and 1998 Fiscal Years, respectively. On May 23, 2001, the property and the related assets and liabilities of Triangle/Oaks were sold to an unaffiliated third party purchaser for a price of $20,476,000, resulting in a gain of approximately $5,200,000. Triangle/Oaks has a filed a claim with their insurance company for $4,300,000 with respect to termite damage. No assurance can be given that the claim will be settled favorably. Sheridan Square Associates of Lawton ("Sheridan") ------------------------------------------------- On May 8, 2001, the Partnership's limited partnership interest was assigned to an unaffiliated third party for $10, resulting in a gain of approximately $5,300,000. Brookwood Apartments, L.P. ("Brookwood") ---------------------------------------- On March 24, 2000, the property and related assets and liabilities of Brookwood were sold to an unaffiliated third party for a price of $7,300,000 inclusive of the mortgage assumption, resulting in a gain of approximately $2,950,000. Apple Creek Associates of Denton, Ltd. ("Apple Creek") ------------------------------------------------------ On July 28, 2000, the property and related assets and liabilities of Apple Creek were sold to an unaffiliated third party purchaser for a price of $9,100,000 inclusive of a note payable to the Partnership in the amount of $700,000, resulting in a gain of approximately $4,525,000 and forgiveness of indebtedness income of approximately $441,000. Suncreek - 268 Ltd. (Suncreek") ------------------------------- On October 19, 2000, Suncreek entered into a purchase and sale agreement to sell the property and the related assets and liabilities with an unaffiliated third party purchase for a purchase price of $13,668,000. The closing is expected to occur in June 2001. No assurances can be given that the closing will occur. Woodridge, Ltd. ("Woodridge") ----------------------------- On December 29, 2000, the property and the related assets and liabilities of Woodridge were sold to an unaffiliated third party purchase for a price of $11,420,000, resulting in a gain of approximately $3,837,000, and a forgiveness of indebtedness income of approximately $225,000. Players Club at Fort Myers, Ltd. and Suntree at Fort Myers, Ltd. ("Players and -------------------------------------------------------------------------------- Suntree") ---------- On December 28, 1999, the property and related assets and liabilities of Players and Suntree were sold to an unaffiliated third party for approximately $19,350,000 resulting in a gain of approximately $5,642,000 and forgiveness of indebtedness income of approximately $2,900,000 as a result of forgiveness of interest on mortgage debt and advances from the General Partners. Other ----- Management's Intentions ----------------------- In view of the matters described in the preceding paragraphs, recoverability of the Partnership's investment in the subsidiary partnerships is dependent upon continued operations of the subsidiary partnerships, which in turn is dependent upon the subsidiary partnership's ability to meet financing requirements on a continuing basis and to succeed in future operations. Management of the Partnership intends to continue to support the efforts of the Local General Partners of these subsidiary partnerships to refinance or restructure mortgage indebtedness and to provide consultation and advice in such matters as required, however, there can be no assurance that such efforts will be successful. General ------- The Partnership's investment as a limited partner in the Local Partnerships is subject to the risks incident to the management and ownership of improved real estate. The Partnership's investments also could be adversely affected by poor future economic conditions generally, which could increase vacancy levels, rental payment defaults, and increased operating expenses, any or all of which could threaten the financial viability of one or more of the Local Limited Partnerships. There are substantial risks associated with the operation of Apartment Complexes benefiting from Advantaged Financing. These include governmental regulations concerning tenant eligibility, which may make it more difficult to rent apartments in the complexes; difficulties in obtaining government approval for rent increases; and limitations on the percentage of income which low and moderate-income tenants may pay as rent. The Local Partnerships are impacted by inflation in several ways. Inflation allows for increases in rental rates generally to reflect the impact of higher operating and replacement costs. Inflation also affects the Local Partnerships adversely by increasing operating costs, for example, for such items as fuel, utilities and labor. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Not Applicable. Item 8. Financial Statements and Supplementary Data. Sequential Page ---------- (a) 1. Financial Statements Independent Auditors' Report 18 Consolidated Balance Sheets at March 25, 2001 and 2000 42 Consolidated Statements of Operations for the Years Ended March 25, 2001, 2000 and 1999 43 Consolidated Statements of Changes in Partners' Deficit for the Years Ended March 25, 2001, 2000 and 1999 44 Consolidated Statements of Cash Flows for the Years Ended March 25, 2001, 2000 and 1999 45 Notes to Consolidated Financial Statements 47 INDEPENDENT AUDITORS' REPORT ---------------------------- To the Partners of Cambridge Advantaged Properties II Limited Partnership and Subsidiaries We have audited the consolidated balance sheets of Cambridge Advantaged Properties II Limited Partnership and Subsidiaries as of March 25, 2001 and 2000, and the related consolidated statements of operations, changes in partners' deficit, and cash flows for the years ended March 25, 2001, 2000 and 1999 (the 2000, 1999 and 1998 Fiscal Years, respectively). 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 did not audit the financial statements for 8 subsidiary partnerships whose income (losses) aggregated $10,529,584, $7,164,359 and ($2,845,749) during the 2000, 1999 and 1998 Fiscal Years, respectively, and whose assets constituted 95% and 99% of the Partnership's assets at March 25, 2001 and 2000, respectively, presented in the accompanying consolidated financial statements. The financial statements of these subsidiary partnerships were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for these subsidiary partnerships, is based solely upon the reports of the other auditors. We conducted our audits in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audits 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, based upon our audits, and the reports of the other auditors, the accompanying consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cambridge Advantaged Properties II Limited Partnership and Subsidiaries at March 25, 2001 and 2000, and the results of their operations, and their cash flows for the years ended March 25, 2001, 2000 and 1999, in conformity with U.S. generally accepted accounting principles. The Partnership is currently in the process of winding up its operations and disposing of its investments. It is anticipated that this process will take place within the next twelve months. As discussed in Note 12, the auditors of one subsidiary partnership have modified their report due to the uncertainty of the subsidiary partnership's ability to continue as a going concern. This subsidiary partnership's loss aggregated $236,278, $306,986 and $1,035,345 for the 2000, 1999 and 1998 Fiscal Years, respectively, and their assets constituted 34% and 26% of the Partnership's assets at March 25, 2001 and 2000, respectively. Management's plans in regard to these matters are also described in Note 12. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. TRIEN ROSENBERG ROSENBERG WEINBERG CIULLO & FAZZARI LLP New York, New York June 5, 2001 [DICKEY, WOLF & HUMBARD, LLC letterhead] INDEPENDENT AUDITORS' REPORT To the Partners Triangle/Oaks Limited Partnership We have audited the accompanying balance sheets of TRIANGLE/OAKS LIMITED PARTNERSHIP (a Massachusetts Limited Partnership) as of December 31, 2000 and 1999, and the related statements of operations, partners' equity/(deficit) and cash flows for the years then ended. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 TRIANGLE/OAKS LIMITED PARTNERSHIP as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 9, the Partnership is experiencing difficulty in generating sufficient cash flow to meet its obligations and sustain its operations, which raises substantial doubt about its ability to continue as a going concern at December 31, 2000. Management's plans in regard to these matters are also described in Note 9. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/Dicky, Wolf & Humbard, LLC Certified Public Accountants Harrisonville, Missouri February 9, 2001 [DICKEY & WOLF, LLC letterhead] INDEPENDENT AUDITORS' REPORT To the Partners Triangle/Oaks Limited Partnership We have audited the accompanying balance sheets of TRIANGLE/OAKS LIMITED PARTNERSHIP (a Massachusetts Limited Partnership) as of December 31, 1999 and 1998, and the related statement of operations, partners' equity/(deficit) and cash flows for the years then ended. 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 TRIANGLE/OAKS LIMITED PARTNERSHIP as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 9, the Partnership is experiencing difficulty in generating sufficient cash flow to meet its obligations and sustain its operations, which raises substantial doubt about its ability to continue as a going concern at December 31, 1999. Management's plans in regard to these matters are also described in Note 9. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/Dicky, & Wolf, LLC Certified Public Accountants Harrisonville, Missouri January 29, 2000 [DICKEY, WOLF & HUMBARD, LLC letterhead] INDEPENDENT AUDITORS' REPORT To the Partners Sheridan Square Associates of Lawton We have audited the accompanying balance sheets of SHERIDAN SQUARE ASSOCIATES OF LAWTON, (a Massachusetts Limited Partnership) as of December 31, 2000 and 1999, and the related statements of operations, changes in partners' equity/(deficit) and cash flows for the years then ended. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 SHERIDAN SQUARE ASSOCIATES OF LAWTON as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/Dickey, Wolf & Humbard, LLC Certified Public Accountants Harrisonville, Missouri January 18, 2001 [DICKEY & WOLF, LLC letterhead] INDEPENDENT AUDITORS' REPORT To the Partners Sheridan Square Associates of Lawton, We have audited the accompanying balance sheets of SHERIDAN SQUARE ASSOCIATES OF LAWTON, (a Oklahoma Limited Partnership) as of December 31, 1999 and 1998, and the related statements of operations, changes in partners' equity (deficit), and cash flows for the years then ended. 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 SHERIDAN SQUARE ASSOCIATES OF LAWTON as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Dickey & Wolf, LLC Certified Public Accountants Harrisonville, MO January 21, 2000 [DICKEY, WOLF & HUMBARD, LLC letterhead] INDEPENDENT AUDITORS' REPORT To the Partners Apple Creek Associates of Denton, Ltd. We have audited the accompanying balance sheets of APPLE CREEK ASSOCIATES OF DENTON, LTD., (a Texas Limited Partnership) as of December 31, 2000 and 1999, and the related statements of operations, statements of changes in partners' equity/(deficit), and statements of cash flows for the years then ended. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 APPLE CREEK ASSOCIATES OF DENTON, LTD. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the Unites States of America. /s/Dickey, Wolf & Humbard, LLC Certified Public Accountants Harrisonville, MO January 18, 2001 [DICKEY & WOLF, LLC letterhead] INDEPENDENT AUDITORS' REPORT To the Partners Apple Creek Associates of Denton, Ltd. We have audited the accompanying balance sheets of APPLE CREEK ASSOCIATES OF DENTON, LTD., (a Texas Limited Partnership) as of December 31, 1999 and 1998, and the related statements of operations, statements of changes in partners' equity/(deficit), and statements of cash flows for the years then ended. These financial statements are the responsibility of 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 audits 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 APPLE CREEK ASSOCIATES OF DENTON, LTD. as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the Unites States of America. /s/Dickey & Wolf, LLC Certified Public Accountants Harrisonville, MO January 21, 2000 [DICKEY, WOLF & HUMBARD, LLC letterhead] INDEPENDENT AUDITORS' REPORT To the Partners Woodridge, Ltd. We have audited the accompanying balance sheets of WOODRIDGE, LTD. (a Massachusetts Limited Partnership) as of December 31, 2000 and 1999, and the related statements of operations, partners' equity/(deficit) and cash flows for the years then ended. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 WOODRIDGE, LTD. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/Dickey, Wolf & Humbard, LLC Certified Public Accountants Harrisonville, Missouri January 18, 2001 [DICKEY & WOLF, LLC letterhead] INDEPENDENT AUDITORS' REPORT To the Partners Woodridge, Ltd. We have audited the accompanying balance sheets of WOODRIDGE, LTD. (a Massachusetts Limited Partnership) as of December 31, 1999 and 1998, and the related statement of operations, partners' equity/(deficit) and cash flows for the years then ended. 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 WOODRIDGE, LTD. as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/Dickey & Wolf, LLC Certified Public Accountants Harrisonville, MO January 21, 2000 [Reznick Fedder & Silverman letterhead] INDEPENDENT AUDITORS' REPORT To the Partners Players Club at Fort Myers, Ltd. We have audited the accompanying balance sheet of Players Club at Fort Myers, Ltd. as of December 31, 1998, and the related statements of operations, partners' deficit and cash flows for each of the two years ended December 31, 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Players Club at Fort Myers, Ltd. as of December 31, 1999 and 1998, and the results of its operations, the changes in partners' deficit and its cash flows for each of the two years ended December 31, 1999 in conformity with generally accepted accounting principles. /s/ Reznick Fedder & Silverman Boston, Massachusetts February 14, 2000 [Reznick Fedder & Silverman letterhead] INDEPENDENT AUDITORS' REPORT To the Partners Suntree at Fort Myers, Ltd. We have audited the accompanying balance sheet of Suntree at Fort Myers, Ltd. as of December 31, 1998, and the related statements of operations, partners' deficit and cash flows for each of the years ended December 31, 1999 and 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 Suntree at Fort Myers, Ltd. as of December 31, 1998, and the results of its operations, and its cash flows for each of the years ended December 31, 1999 and 1998 in conformity with generally accepted accounting principles. /s/ Reznick Fedder & Silverman Boston, Massachusetts February 4, 2000 [BDO SEIDMAN, LLP LETTERHEAD] Independent Auditors' Report To the Partners of The Harbours Associates We have audited the accompanying balance sheet of The Harbours Associates, VHDA Project No. 95-0759, (a limited partnership) as of December 31, 2000, and the related statements of profit and loss, partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with 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 audit provides 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 Harbours Associates as of December 31, 2000, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ BDO Seidman, LLP Richmond, Virginia February 5, 2001 [BDO SEIDMAN, LLP LETTERHEAD] Independent Auditors' Report To the Partners of The Harbours Associates We have audited the accompanying balance sheet of The Harbours Associates, VHDA Project No. 95-0759, (a limited partnership) as of December 31, 1999, and the related statements of profit and loss, partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with 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 audit provides 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 Harbours Associates as of December 31, 1999, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ BDO Seidman, LLP Richmond, Virginia February 7, 2000 [BDO SEIDMAN, LLP LETTERHEAD] Independent Auditors' Report To the Partners of The Harbours Associates We have audited the accompanying balance sheet of The Harbours Associates, VHDA Project No. 95-0759, (a limited partnership) as of December 31, 1998, and the related statements of profit and loss, partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with 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 audit provides 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 Harbours Associates as of December 31, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ BDO Seidman, LLP Richmond, Virginia February 11, 1999 [GEORGE, BOWERMAN & NOEL, P.A. LETTERHEAD] INDEPENDENT AUDITOR'S REPORT The Partners Brookwood Apartments, L.P. (A Kansas Limited Partnership) Wichita, Kansas We have audited the accompanying balance sheet of Brookwood Apartments, L.P. (A Kansas Limited Partnership) as of March 24, 2000, and the related statements of operations, partners' capital (deficit) and cash flows for the period from January 1, 2000 to March 24, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with 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 audit provides a reasonable basis for our opinion. As described in Note 7, the Partnership sold all real and personal property of the rental housing project on March 24, 2000. The Partnership discontinued operating the project as of the sale date. After payment of liabilities, all remaining assets are to be liquidated and the proceeds distributed to the partners. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Brookwood Apartments, L.P. (A Kansas Limited Partnership) for the period from January 1, 2000 to March 24, 2000 and its financial position at March 24, 2000 in conformity with generally accepted accounting principles. /s/ George, Bowerman & Noel, P.A. Wichita, Kansas April 28, 2000 [GEORGE, BOWERMAN & NOEL, P.A. LETTERHEAD] INDEPENDENT AUDITOR'S REPORT The Partners Brookwood Apartments, L.P. (A Kansas Limited Partnership) Wichita, Kansas We have audited the accompanying balance sheet of Brookwood Apartments, L.P. (A Kansas Limited Partnership) as of December 31, 1999, and the related statements of operations, partners' capital (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with 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 audit provides a reasonable basis for our opinion. As described in Note 1, the accompanying financial statements reflect certain reorganization adjustments of the Partnership on a "push-down" basis. However, in connecton with the reorganization, the Partnership has not discounted certain deferred financing costs which, in our opinion, should have been written off in order to conform with generally accepted accounting principles. If these additional reorganization adjustments had been made, deferred financing costs and mortgage note payable would have been reduced by $244,708 in the accompanying balance sheet. These departures from generally accepted accounting principles do not have a material effect on the results of operations or cash flows of Brookwood Apartmentsm L.P. (A Kansas Limited Partnership) for the year ended December 31, 1999. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Brookwood Apartments, L.P. (A Kansas Limited Partnership) for the yearended december 31, 1999 and its financial position at December 31, 1999 in conformity with generally accepted accounting principles. /s/ George, Bowerman & Noel, P.A. Wichita, Kansas February 11, 2000 [GEORGE, BOWERMAN & NOEL, P.A. LETTERHEAD] INDEPENDENT AUDITOR'S REPORT The Partners Brookwood Apartments, L.P. (A Kansas Limited Partnership) Wichita, Kansas We have audited the accompanying balance sheet of Brookwood Apartments, L.P. (A Kansas Limited Partnership) as of December 31, 1998, and the related statements of operations, partners' capital (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with 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 audit provides a reasonable basis for our opinion. As described in Note 1, the accompanying financial statements reflect certain reorganization adjustments of the Partnership on a "push-down" basis. However, in connecton with the reorganization, the Partnership has not discounted certain deferred financing costs which, in our opinion, should have been written off in order to conform with generally accepted accounting principles. If these additional reorganization adjustments had been made, deferred financing costs and mortgage note payable would have been reduced by $259,602 in the accompanying balance sheet. These departures from generally accepted accounting principles do not have a material effect on the results of operations or cash flows of Brookwood Apartmentsm L.P. (A Kansas Limited Partnership) for the year ended December 31, 1998. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Brookwood Apartments, L.P. (A Kansas Limited Partnership) for the year ended December 31, 1998 and its financial position at December 31, 1998 in conformity with generally accepted accounting principles. /s/ George, Bowerman & Noel, P.A. Wichita, Kansas February 11, 1999 [BDO SEIDMAN, LLP LETTERHEAD] Independent Auditors' Report To the Partners Westwind II Associates We have audited the accompanying balance sheet of Westwind II Associates, F.H.A. Project No. 051-11092, (a limited partnership), as of December 31, 2000, and the related statements of profit and loss, partners' deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs, issued by the U.S. Department of Housing and Urban Development, Office of Inspector General, in August 1997. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Westwind II Associates as of December 31, 2000, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued a report dated February 6, 2001 on our consideration of the Partnership's internal control structure. Furthermore, in accordance with the Consolidated Audit Guide, we have also issued a report dated February 6, 2001 on its compliance with specific requirements of HUD projects. /s/ BDO Seidman, LLP Richmond, Virginia February 6, 2001 [BDO SEIDMAN, LLP LETTERHEAD] Independent Auditors' Report To the Partners Westwind II Associates We have audited the accompanying balance sheet of Westwind II Associates, F.H.A. Project No. 051-11092, (a limited partnership), as of December 31, 1999, and the related statements of profit and loss, partners' deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs, issued by the U.S. Department of Housing and Urban Development, Office of Inspector General, in August 1997. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Westwind II Associates as of December 31, 1999, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued a report dated February 7, 2000 on our consideration of the Partnership's internal control structure. Furthermore, in accordance with the Consolidated Audit Guide, we have also issued a report dated February 7, 2000 on its compliance with specific requirements of HUD projects. /s/ BDO Seidman, LLP Richmond, Virginia February 7, 2000 [BDO SEIDMAN, LLP LETTERHEAD] Independent Auditors' Report To the Partners Westwind II Associates We have audited the accompanying balance sheet of Westwind II Associates, F.H.A. Project No. 051-11092, (a limited partnership), as of December 31, 1998, and the related statements of profit and loss, partners' deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs, issued by the U.S. Department of Housing and Urban Development, Office of Inspector General, in August 1997. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Westwind II Associates as of December 31, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued a report dated February 11, 1999 on our consideration of the Partnership's internal control structure. Furthermore, in accordance with the Consolidated Audit Guide, we have also issued a report dated February 11, 1999 on its compliance with specific requirements of HUD projects. /s/ BDO Seidman, LLP Richmond, Virginia February 11, 1999 [PRICEWATERHOUSECOOPERS L.L.P. LETTERHEAD] Report of Independent Accountants To the Partners Suncreek - 268, Ltd. In our opinion, the accompanying balance sheet and the related statements of income, changes in partners' equity (deficit) and cash flows present fairly, in all material respects, the financial position of Suncreek - 268, Ltd. (the Partnership) at December 31, 2000, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers L.L.P. Portland, Oregon February 2, 2001 [PRICEWATERHOUSECOOPERS L.L.P. LETTERHEAD] Report of Independent Accountants To the Partners Suncreek - 268, Ltd. In our opinion, the accompanying balance sheet and the related statements of income, changes in partners' equity (deficit) and cash flows present fairly, in all material respects, the financial position of Suncreek - 268, Ltd. (the Partnership) at December 31, 1999, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above /s/ PricewaterhouseCoopers L.L.P. Portland, Oregon January 28, 2000 [PRICEWATERHOUSECOOPERS L.L.P. LETTERHEAD] Report of Independent Accountants To the Partners Suncreek - 268, Ltd. In our opinion, the accompanying balance sheet and the related statements of operations, changes in partners' equity (deficit) and cash flows present fairly, in all material respects, the financial position of Suncreek - 268, Ltd. (the Partnership) at December 31, 1998, and the results of its operations and its cash flows for the year in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers L.L.P. Portland, Oregon February 9, 1999 CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS March 25, -------------------- 2001 2000 --------- --------- Property and equipment - at cost, less accumulated depreciation (Notes 2, 4 and 7) $ 0 $ 34,237,818 Property and equipment held for sale - net, less accumulated depreciation (Notes 2, 4 and 7) 38,338,237 18,695,807 Cash and cash equivalents (Notes 2 and 12) 2,068,675 1,504,490 Cash - restricted for tenants' security deposits 290,573 435,137 Mortgage escrow deposits (Notes 5 and 7) 1,300,124 1,961,983 Deferred costs, net of accumulated amortization (Notes 2 and 6) 823,935 1,441,913 Prepaid expenses and other assets 816,453 173,093 ------------ ------------ Total assets $ 43,637,997 $ 58,450,241 ============ ============ LIABILITIES AND PARTNERS' DEFICIT Liabilities Mortgage notes payable (Notes 7 and 10) $ 50,396,675 $ 71,887,945 Accounts payable, accrued expenses and other liabilities 3,682,893 4,100,178 Tenants' security deposits payable 290,573 435,137 Due to general partners of subsidiaries and their affiliates (Note 8) 527,589 562,541 Due to general partners and affiliates (Note 8) 4,648,852 6,726,899 ------------- ------------- Total liabilities 59,546,582 83,712,700 ------------ ------------ Minority interest (Note 2) 3,771,395 4,237,149 ------------- ------------- Commitments and contingencies (Note 12) Partners' deficit: Limited Partner (19,165,633) (28,887,065) General Partner (514,347) (612,543) ------------- -------------- Total partners' deficit (19,679,980) (29,499,608) ----------- ------------ Total liabilities and partners' deficit $ 43,637,997 $ 58,450,241 ============ ============ See accompanying notes to consolidated financial statements. CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended March 25, 2001 2000 1999* ---------- --------- -------- Revenues Rental, net $13,005,928 $17,172,048 $16,886,576 Other 793,328 967,009 782,909 Gain on sale of property (Note 10) 11,311,467 5,642,249 0 ---------- --------- --------- Total revenues 25,110,723 23,781,306 17,669,485 ---------- ---------- ---------- Expenses Administrative and management 1,891,159 2,568,002 2,796,876 Administrative and management-related parties (Note 8) 1,039,864 1,197,774 1,289,992 Operating 994,810 1,480,735 1,636,671 Repairs and maintenance 3,147,938 3,731,093 3,696,346 Taxes and insurance 1,306,647 1,579,709 1,968,689 Interest 5,243,490 7,190,351 7,217,812 Depreciation and amortization 2,340,592 3,333,552 3,254,885 --------- ----------- ----------- Total expenses 15,964,500 21,081,216 21,861,271 ---------- ---------- ---------- Income (loss) before minority interest and extraordinary item 9,146,223 2,700,090 (4,191,786) Minority interest in loss of subsidiaries 7,764 833,691 41,717 ------------- ------------ ------------- Income (loss) before extraordinary item 9,153,987 3,533,781 (4,150,069) Extraordinary item - forgiveness of indebtedness income (Note 11) 665,641 2,929,229 501,769 ------------ ----------- ------------ Net income (loss) $ 9,819,628 $ 6,463,010 $ (3,648,300) =========== =========== =========== Income (loss) before extraordinary item - limited partners $ 9,062,447 $ 3,498,443 $ (4,108,568) Extraordinary item - limited partners 658,985 2,899,937 496,751 ------------ ----------- ------------ Net income (loss) - limited partners $ 9,721,432 $ 6,398,380 $ (3,611,817) ========== =========== =========== Number of limited partnership units outstanding 7,150 7,150 7,150 =========== ========== =========== Per limited partnership unit: Income (loss) before extraordinary item $ 1,267 $ 489 $ (575) Extraordinary item 92 406 69 ------------ ---------- ----------- Net income (loss) $ 1,359 $ 895 $ (506) =========== ============ =============== *Reclassified for comparative purposes. See accompanying notes to consolidated financial statements. CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT Limited General Total Partners Partners ----- -------- -------- Balance - March 26, 1998 $(32,314,318) $(31,673,628) $(640,690) Net loss (3,648,300) (3,611,817) (36,483) ------------ ------------ --------- Balance - March 25, 1999 (35,962,618) (35,285,445) (677,173) Net income 6,463,010 6,398,380 64,630 ------------ ------------ --------- Balance - March 25, 2000 (29,499,608) (28,887,065) (612,543) Net income 9,819,628 9,721,432 98,196 ------------ ------------ --------- Balance - March 25, 2001 $(19,679,980) $(19,165,633) $(514,347) =========== =========== ======== See accompanying notes to consolidated financial statements.

CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 25, 2001 NOTE 1 - Organization Cambridge Advantaged Properties II Limited Partnership (formerly Hutton Advantaged Properties II Limited Partnership) ("the Partnership") was formed pursuant to the laws of the State of Delaware on June 25, 1985. The Partnership invests, as a limited partner, in limited partnerships ("Local Partnerships", "subsidiaries" and "subsidiary partnerships"), each of which owns and operates residential housing developments ("Apartment Complexes"), which benefit from financing at rates below those otherwise available from conventional lenders, made available through various Federal and State government programs or through the issuance of tax-exempt bonds ("Advantaged Financings"). As of March 25, 2001, the Partnership holds an interest in 5 Local Partnerships which own 5 Apartment Complexes. Through the fiscal year ended March 25, 2001, the properties and related assets and liabilities owned by seven Local Partnerships were sold to unaffiliated third parties (see Note 10, below). The general partners of the Partnership are Related Advantaged Residential Associates Inc. (the "Related General Partner"), a Delaware corporation and an affiliate of The Related Companies, L.P. ("Related"), a New York limited partnership and Related and Cambridge Associates Limited Partnership, a Delaware limited partnership ("Related and Cambridge Associates" and together with the Related General Partner, the "General Partners"). The general partner of Related and Cambridge Associates is the Related General Partner. Pursuant to the public offering, which occurred from 1985 through 1986, the Partnership received $35,750,000 of gross proceeds from 7,150 Limited Partnership Interests (as defined below). No further issuance of limited partnership interests ("Limited Partnership Interests") is anticipated. The terms of the Partnership's Restated Agreement of Limited Partnership (the "Limited Partnership Agreement") provide, among other things, that, subject to certain exceptions, profits and losses be shared 99% by the limited partners and 1% by the general partners. Effective May 19, 1994, the Partnership's name was changed from Hutton Advantaged Properties II Limited Partnership to Cambridge Advantaged Properties II Limited Partnership. NOTE 2 - Summary of Significant Accounting Policies a) Basis of Consolidation The consolidated financial statements include the accounts of the Partnership and eight subsidiary partnerships fiscal year ended March 25, 2001 (the "2000 Fiscal Year") three of which only have activity through the date of sale of their property and the related assets and liabilities, ten subsidiary partnerships fiscal year ended March 25, 2000 (the "1999 Fiscal Year"), two of which only have activity through the date of sale of their property and the related assets and liabilities and ten subsidiary partnerships fiscal year ended March 25, 1999 (the "1998 Fiscal Year"). The Partnership is a limited partner, with an ownership interest of 98% in each of the subsidiary partnerships. Through the rights of the Partnership and/or a General Partner, which General Partner has a contractual obligation to act on behalf of the Partnership, to remove the general partner of the subsidiary local partnerships and to approve certain major operating and financial decisions, the Partnership has a controlling financial interest in the subsidiary local partnerships. For financial reporting purposes, the Partnership's fiscal year ends March 25. The Partnership's fiscal year ends March 25 in order to allow adequate time for the subsidiaries' financial statements to be prepared and consolidated. The books and records of the Partnership are maintained on the accrual basis of accounting, in accordance with U.S. generally accepted accounting principles ("GAAP"). All subsidiaries have fiscal years ending December 31. Accounts of subsidiaries have been adjusted for intercompany transactions from January 1 through March 25. All intercompany accounts and transactions have been eliminated in consolidation. Increases (decreases) in the capitalization of consolidated subsidiaries attributable to minority interest arise from cash contributions and cash distributions to the minority interest partners. The Partnership's investment in each subsidiary is equal to the respective subsidiary partners' equity less minority interest capital, if any. Losses attributable to minority interests which exceed the minority interests' investment in a subsidiary have been charged to the Partnership. Such losses aggregated approximately $1,000, $0 and $15,000, for the 2000, 1999 and 1998 Fiscal Years, respectively. In consolidation, all subsidiary partnership losses are included in the Partnership's capital account except for losses allocated to minority interest capital. b) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, cash in banks and investments in short-term highly liquid instruments purchased with original maturities of less than three months. c) Property and Equipment Property and equipment to be held and used are carried at cost which includes the purchase price, acquisition fees and expenses, construction period interest and any other costs incurred in acquiring the properties. The cost of property and equipment is depreciated over their estimated useful lives using accelerated and straight-line methods. Expenditures for repairs and maintenance are charged to expense as incurred; major renewals and betterments are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the assets and accumulated depreciation accounts and the profit or loss on such disposition is reflected in earnings. A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the property on an undiscounted basis are below depreciated cost. At that time, property investments themselves are reduced to estimated fair value (generally using discounted cash flows) when the property is considered to be impaired and the depreciated cost exceeds estimated fair value. Management plans to dispose of the assets by December 31, 2001. These assets are now classified as property and equipment-held for sale and are not depreciated. Through March 25, 2001, the Partnership has recorded approximately $1,116,000 as a loss on impairment of assets. d) Amortization Deferred costs are being amortized over their respective periods of benefit. e) Income Taxes No provision has been made for income taxes in the accompanying financial statements since such taxes, if any, are the responsibility of the individual partners. For income tax purposes, the Partnership has a fiscal year ending December 31 (see Note 9, below). f) Loss Contingencies The Partnership records loss contingencies as a charge to income when information becomes available which indicates that it is probable that an asset has been impaired or a liability has been incurred as of the date of the financial statements and the amount of loss can be reasonably estimated. g) Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTE 3 -Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments (all of which are held for non-trading purposes) for which it is practicable to estimate that value: Cash and Cash Equivalents, Mortgage Escrow Deposits and Cash-Restricted for --------------------------------------------------------------------------- Tenants' Security Deposits -------------------------- The carrying amount approximates fair value. Mortgage Notes Payable ---------------------- The fair value of mortgage notes payable is estimated, where practicable, based on the borrowing rate currently available for similar loans. The estimated fair values of the Partnership's mortgage note payable are as follows:

Accounts Payable and Accrued Expenses ------------------------------------- The estimated fair value of the Partnership's accounts payable and accrued expenses which are different than carrying value are as follows: March 25, 2001 March 25, 2000 ---------------------- ------------------------ Carrying Carrying Amount Fair Value Amount Fair Value ------ ---------- ------ ---------- Accounts payable and accrued expenses for which it is: Practicable to estimate fair value $3,160,691 $39,876 $3,193,191 $264,130 The carrying amount of other financial instruments that require such disclosure approximates fair value. NOTE 4 - Property and Equipment and Property and Equipment Held for Sale The components of property and equipment and their estimated useful lives are as follows: March 25, ------------------------ Estimated 2001 2000 Useful Lives ---------- ------------ ------------ Land $ 0 $ 6,497,186 Buildings and improvements 0 54,543,782 10-40 Years Furniture and fixtures 0 2,572,546 5-10 Years ------------ ------------ 0 63,613,514 Less: Accumulated depreciation 0 (29,375,696) ----------- ------------ $ 0 $ 34,237,818 =========== =========== Depreciation expense for the 2000, 1999 and 1998 Fiscal Years amounted to $1,666,319, $2,723,439 and $3,050,685, respectively. During the 2000 and 1999 Fiscal Years, there was a decrease in accumulated depreciation in the amounts of $11,967,349 and $7,239,340 due to the sale of Apple Creek, Brookwood and Woodridge and Players Club and Suntree, respectively. The components of property and equipment held for sale and their estimated useful lives are as follows: March 25, --------------------------- 2001 2000 ----------------------------- Land $ 6,748,745 $ 2,251,249 Buildings and improvements 58,676,826 26,257,945 Furniture and fixtures 4,811,860 3,011,141 ------------ ------------ 70,237,431 31,520,335 Less: Accumulated depreciation (31,899,194) (12,824,528) ----------- ------------ $ 38,338,237 $ 18,695,807 =========== =========== NOTE 5 - Mortgage Escrow Deposits Mortgage escrow deposits consist of the following: March 25, --------------------- 2001 2000 ---------- ---------- Reserve for replacements $ 643,816 $ 1,075,120 Real estate taxes, insurance and other 656,308 886,863 ----------- ----------- $ 1,300,124 $ 1,961,983 =========== =========== NOTE 6 - Deferred Costs The components of deferred costs and their periods of amortization are as follows: March 25 -------------------------- Period 2001 2000 (Months) ---------- ------------- ------- Bond and financing fees $1,730,949 $1,895,150 65-240 Less: Accumulated amortization (907,014) (453,237) -------- ---------- $ 823,935 $1,441,913 ========= ========= Amortization of deferred costs for the 2000, 1999 and 1998 Fiscal Years aggregated $674,273, $610,113 and $204,200, respectively. During the 2000 and 1999 Fiscal Years, fully amortized deferred costs of approximately $220,000 and $1,228,000, respectively, were written off. NOTE 7 - Mortgage Notes Payable The mortgage notes are payable in aggregate monthly installments of approximately $296,000, including principal and interest at rates varying from 3.9% to 10.5% per annum, through 2030. Each subsidiary partnership's mortgage note payable is collateralized by the land and buildings of the respective subsidiary partnership, the assignment of certain subsidiary partnership's rents and leases and is without further recourse. Annual principal payment requirements for each of the next five fiscal years are as follows: Year Ending December 31 Amount ----------------------- ------ 2001 $ 516,736 2002 546,425 2003 578,337 2004 9,437,641 2005 5,774,514 Thereafter 33,543,022 ---------- $50,396,675 =========== The mortgage agreements require monthly deposits to replacement reserves of approximately $15,000 and monthly deposits to escrow accounts for real estate taxes, hazard and mortgage insurance and other (see Note 5, above). NOTE 8 - Related Party Transactions One of the general partners of the Partnership, Related and Cambridge Associates, has a 1% interest as a special limited partner in each of the subsidiary partnerships. Fees incurred to related parties for the years ended March 25, 2001, 2000 and 1999 were as follows: Year Ended March 25 2001 2000 1999* ---------- ----------- --------- Partnership management fees (a) $ 477,000 $ 505,171 $ 644,526 Expense reimbursement (b) 123,240 116,470 89,257 Property management fees incurred to affiliates of the General Partners (c) 175,287 321,505 310,961 Local administrative fee (d) 5,000 7,500 7,500 ------------ ------------ --------- Total general and administrative General Partners 780,527 950,646 1,052,244 ---------- ---------- --------- Property management fees incurred to affiliates of the subsidiary partnerships' general partners (c) 259,337 247,128 237,748 ---------- ---------- ---------- Total general and administrative related parties $1,039,864 $1,197,774 $1,289,992 ========= ========= ========= *Reclassified for comparative purposes. (a) After all other expenses of the Partnership are paid, an annual partnership management fee of up to .5% of invested assets is payable to the Partnership's general partners and affiliates. Partnership management fees have been charged to operations and are included in administrative and management-related parties expenses. Partnership management fees owed to the general partners amounting to approximately $3,466,000 and $3,002,000 were accrued and unpaid as of March 25, 2001 and 2000, respectively. Without the General Partners' continued accrual without payment of certain fees and expense reimbursements, the Partnership will not be in the position to meet its obligations. The General Partners have continued allowing the accrual without payment of these amounts, but are under no obligation to do so. (b) An affiliate of the Related General Partner performs services for the Partnership which include, but are not limited to: accounting and financing management, registrar, transfer and assignment functions, asset management, investor communications, printing and other administrative services. The amount of reimbursement from the Partnership is limited by the provisions of the Partnership agreement. Another affiliate of the Related General Partner performs asset monitoring for the Partnership. These services include site visits and evaluations of the subsidiary partnerships' performance. Expense reimbursements and asset monitoring fees owed to the Related General Partner amounting to approximately $134,000 and $743,000 were accrued and unpaid as of March 25, 2001 and 2000, respectively. (c) Property management fees paid by subsidiary partnerships amounted to $648,681, $857,710 and $835,445 for the 2000, 1999 and 1998 Fiscal Years, respectively. Of these fees, $434,624, $568,633 and $548,709 were incurred to affiliates of the subsidiary partnerships. Of such amounts incurred to affiliates of the subsidiary partnerships, $175,287 , $321,505 and $310,961 were also incurred to affiliates of the Related General Partner. (d) Related and Cambridge Associates, a limited partner of the subsidiary partnerships, is entitled to receive a local administrative fee of up to $2,500 from each subsidiary partnership. Related and Cambridge Associates, a General Partner of the Partnership, is a special limited partner of each Local Partnership, with a 1% interest in profits, losses and distributions. Distributions aggregating $29,435 and $4,739 were made to Related and Cambridge Associates for the 2000 and 1999 Fiscal Years, respectively. During September 1988, the Partnership obtained a $793,867 loan from an affiliate of the Related General Partner. This loan accrues interest at the bank's prime rate plus 1% and is repayable from all available cash sources. These funds, together with $2,545,223 of Partnership funds, were advanced by the Partnership to complete the Triangle/Oaks refinancing and to provide adequate working capital for that Local Partnership. During the 2000 Fiscal Year the Partnership advanced an additional $300,000 to the Local Partnership. Approximately $3,865,000 and $3,565,000 was outstanding at March 25, 2001 and 2000 (see Note 12, below). As of March 25, 2001, an affiliate of the Related General Partner had advanced $310,926 to the Partnership, none of which was advanced in the 2000, 1999 or 1998 Fiscal Years. These funds were advanced by the Partnership to Sheridan to provide working capital. During the 1998 Fiscal Year, $115,020 was repaid and during the 1997 Fiscal Year, $74,587 was repaid. Such note is non-interest bearing. Due to Local General Partners and affiliates at March 25, 2001 and 2000 consists of the following: December 31, ------------------ 2000 1999 --------- ------- Operating deficit loans (*) $514,166 $549,118 Management and other operating advances 13,423 13,423 ------ -------- $527,589 $562,541 ======= ======= (*) Operating deficit loans include one and three loans payable to Local General Partners and affiliates, respectively, which are unsecured, non-interest bearing and are payable out of available surplus cash, of the respective subsidiary partnership, or at the time of sale or refinancing. NOTE 9 - Income Taxes A reconciliation of the financial statement net income to the income tax income for the Partnership and its consolidated subsidiaries is as follows: Year Ended December 31 2000 1999 1998 ----------- ------------ --------- Financial statement net income (loss) $ 9,819,628 $ 6,463,010 $(3,648,300) Difference between depreciation expense recorded for financial reporting purposes and the accelerated cost recovery system utilized for income tax purposes (781,939) 1,670,055 (796,677) Gain on sale of property 8,903,828 5,335,164 0 Extraordinary item - forgiveness of indebtedness (665,641) (2,786,768) (545,532) Debt restructuring 0 0 (289,710) Other (160,680) (466,431) 84,592 ------------ ------------ ------------ Income (loss) as shown on the income tax return for the calendar year ended $17,115,196 $10,215,030 $(5,195,627) ========== ========== ========== NOTE 10 - Sale of Properties General ------- The Partnership is currently in the process of winding up its operations and disposing of its investments. As of March 25, 2001, the Partnership has disposed of seven of its twelve original investments. Subsequently, on May 8, 2001 and May 23, 2001, Sheridan Square Associates of Lawton and the Triangle/Oaks Limited Partnership were sold. Three additional investments are listed for sale and the General Partner anticipates that these remaining investments will be disposed of by December 31, 2001. There can be no assurance as to when the Partnership will dispose of its last remaining investments or the amount of proceeds which may be received. However, based on the historical operating results of the Local Partnership and the current economic conditions including changes in tax laws, it is unlikely that the proceeds from such sales will be sufficient to return the limited partners original investment. Players Club at Fort Myers, Ltd. and Suntree at Fort Myers, Ltd. ("Players and -------------------------------------------------------------------------------- Suntree") ------- On December 28, 1999, the property and related assets and liabilities of Players and Suntree were sold to an unaffiliated third party for approximately $19,350,000 resulting in a gain of approximately $5,642,000 and forgiveness of indebtedness income of approximately $2,900,000 as a result of forgiveness of interest on mortgage debt and advances from the General Partners. Brookwood Apartments, L.P. ("Brookwood") ---------------------------------------- On March 24, 2000, the property and related assets and liabilities of Brookwood were sold to an unaffiliated third party for a price of $7,300,000 inclusive of the mortgage assumption, resulting in a gain of approximately $2,950,000. Triangle/Oaks Limited Partnership ("Triangle/Oaks") --------------------------------------------------- On July 11, 2000, Triangle/Oaks entered into a letter of intent to sell the property and related assets and liabilities to an unaffiliated third party purchaser for a price of approximately $22,400,000. This offer to purchase was subsequently terminated. On October 20, 2000, Triangle/Oaks entered into a contract with another unaffiliated third party purchaser for a reduced sales price of $20,550,000. The price reduction was due to termite damage to the property. Subsequently on May 23, 2001, the property and the related assets and liabilities of Triangle/Oaks were sold (see note 13 below). Apple Creek Associates of Denton, Ltd. ("Apple Creek") ------------------------------------------------------ On July 28, 2000, the property and related assets and liabilities of Apple Creek were sold to an unaffiliated third party purchaser for a price of $9,100,000 inclusive of a note payable to the Partnership in the amount of $700,000, resulting in a gain of approximately $4,525,000 and forgiveness of indebtedness income of approximately $441,000. Suncreek - 268 Ltd. (Suncreek") ------------------------------- On October 19, 2000, Suncreek entered into a purchase and sale agreement to sell the property and the related assets and liabilities with an unaffiliated third party purchase for a purchase price of $13,668,000. The closing is expected to occur in June 2001. No assurances can be given that the closing will occur. Woodridge, Ltd. ("Woodridge") ----------------------------- On December 29, 2000, the property and the related assets and liabilities of Woodridge were sold to an unaffiliated third party purchase for a price of $11,420,000, resulting in a gain of approximately $3,837,000, and a forgiveness of indebtedness income of approximately $225,000. Sheridan Square Associates of Lawton ("Sheridan") ------------------------------------------------- On May 8, 2001, the Partnership's limited partnership interest was assigned to an unaffiliated third party for $10, resulting in a gain of approximately $5,300,000. NOTE 11 - Extraordinary Item - Forgiveness of Indebtedness Income Extraordinary items-forgiveness of indebtedness consist of the following: Year Ended March 25 2001 2000 1999 ---------- ----------- ------------------ Sheridan $ 0 $ 0 $ 501,769 Suntree 0 891,649 0 Players Club 0 2,037,580 0 Apple Creek 440,807 0 0 Woodridge 224,834 0 0 ----------- ---------------- ------------------- $ 665,641 $2,929,229 $ 501,769 ========= ========= =========== Sheridan -------- On September 17, 1998, Sheridan obtained financing of its first mortgage debt. As a result of the refinancing, the previous mortgage including past due interest was discounted and extraordinary gain of $501,769 was realized. NOTE 12 - Commitments and Contingencies a) Events of Default and Going Concern Triangle/Oaks Limited Partnership --------------------------------- During the years ended December 31, 2000, 1999 and 1998, the Local Partnership incurred losses of $236,278, $291,361 and $1,035,346, respectively. In addition, at December 31, 2000, accounts payable and accrued expenses excluding mortgage notes payable exceed available cash by $112,140 and total liabilities exceed total assets by $8,560,697. These factors among others may indicate that the Local Partnership will be unable to continue as a going concern for a reasonable period of time. The auditors for the Triangle/Oaks subsidiary partnership modified their report on the 2000 fiscal year financial statements due to the uncertainty of the subsidiary partnership's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability that might be necessary should the Local Partnership be unable to continue as a going concern. The Partnership has received a commitment from affiliates of the Local General Partner to provide additional cash funding anticipated to be $25,000 per month for the months of January to March 2001 and $21,000 per month from April to December 2001, or until the property is sold. During the 2000 Fiscal Year, the Partnership advanced approximately $300,000 to the Local Partnership. Approximately $3,865,000 and $3,565,000 was outstanding at March 25, 2001 and 2000, respectively. Such amounts will be voluntary loans. The Partnership's investments in Triangle/Oaks Limited Partnership ("Triangle/Oaks") has been reduced to zero by prior years' losses. The minority interest balance for Triangle/Oaks was approximately $364,000 and $369,000 at March 25, 2001 and 2000, respectively. Triangle/Oaks net loss after minority interest amounted to approximately $232,000, $301,000 and $1,015,000 for the 2000, 1999 and 1998 Fiscal Years, respectively. On May 23, 2001, the property and the related assets and liabilities of Triangle/Oaks were sold to an unaffiliated third party purchaser for a price of $20,476,000, resulting in a gain of approximately $5,200,000. Triangle/Oaks has a filed a claim with their insurance company for $4,300,000 with respect to termite damage. No assurance can be given that the claim will be settled favorably. b) Uninsured Cash and Cash Equivalents The Partnership maintains cash and cash equivalents in various banks. Accounts at each bank are guaranteed by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. As of March 25, 2001, uninsured cash and cash equivalents approximated $1,762,000. c) Other The Partnership is subject to risks incident to potential losses arising from the management and ownership of improved real estate. The Partnership can also be affected by poor economic conditions. The remaining five properties are located in four different states across the United States so that if one area of the United States is experiencing downturns in the economy, the remaining properties in the portfolio may be experiencing upswings. However, the geographic diversification of the portfolio may not protect against a general downturn in the national economy. There are also substantial risks associated with owning properties receiving government assistance, for example the possibility that Congress may not appropriate funds to enable the U.S. Department of Housing and Urban Development ("HUD") to make rental assistance payments. HUD also restricts annual cash distributions to partners based on operating results and a percentage of the owners' equity contribution. The Partnership cannot sell or substantially liquidate its investments in subsidiary partnerships during the period that the subsidy agreements are in existence, without HUD's approval. Furthermore, there may not be market demand for apartments at full market rents when the rental assistance contracts expire. Each subsidiary partnership with restricted assets had liabilities in excess of assets at December 31, 2000. Note 13 - Subsequent Events On May 8, 2001, the Partnership's limited partnership interest in Sheridan was assigned to an unaffiliated third party for $10, resulting in a gain of approximately $5,300,000. On May 23, 2001, the property and the related assets and liabilities of Triangle/Oaks were sold to an unaffiliated third party purchaser for a price of $20,476,000, resulting in a gain of approximately $5,200,000. Triangle/Oaks has a filed a claim with their insurance company for $4,300,000 with respect to termite damage. No assurance can be given that the claim will be settled favorably. 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 Registrant. The Partnership has no directors or executive officers. Since November 25, 1997, the General Partners of the Partnership have been Related Advantaged Residential Associates Inc., ("Related General Partner"), and Related and Cambridge Associates Limited Partnership, both of which are affiliates of The Related Companies, L.P. ("Related"). The general partner of Related is The Related Realty Group, Inc., of which Stephen M. Ross is president, director and a stockholder. The General Partners manage and control the affairs of the Partnership directly and engage other affiliates of Related to assist them in connection herewith. Certain information concerning the directors and executive officers of the Related General Partner (which is also the general partner of Related and Cambridge Associates, the other General Partner of the Partnership) is set forth below. On November 25, 1997, the Related General Partner and one of the then other general partners of the Partnership, Advantaged Housing Associates, Inc. ("AHA"), consummated a Purchase Agreement pursuant to which the Related General Partner purchased AHA's general partner interest in the Partnership (the "Transfer"). In addition to the Transfer, the Related General Partner also acquired AHA's general partner interest in Related and Cambridge Associates which is also the special limited partner of the Partnership. Related Advantaged Residential Associates Inc. ---------------------------------------------- Related Advantaged Residential Associates Inc. was incorporated in Delaware on January 25, 1985. The directors and executive officers of the Related General Partner are as follows: STEPHEN M. ROSS, 61, is president, director and a shareholder of The Related Realty Group, Inc., the general partner of The Related Companies, L.P. He graduated from the University of Michigan School of Business Administration with a bachelor of science degree and from Wayne State University School of Law with a Juris Doctor degree. Mr. Ross then received a master of laws degree in taxation from New York University School of Law. He joined the accounting firm of Coopers & Lybrand in Detroit as a tax specialist and later moved to New York, where he worked for two large Wall Street investment banking firms in their real estate and corporate finance departments. Mr. Ross formed the predecessor of The Related Companies, L.P. in 1972 to develop, manage, finance and acquire subsidized and conventional apartment developments. Mr. Ross also serves on the Board of Trustees of Charter Municipal Mortgage Acceptance Company. ALAN P. HIRMES, 46, has been a Certified Public Accountant in New York since 1978. Prior to joining Related Capital Company ("Capital") in October 1983, Mr. Hirmes was employed by Weiner & Co., certified public accountants. Mr. Hirmes is also a Vice President of Capital. Mr. Hirmes graduated from Hofstra University with a bachelor of arts degree. Mr. Hirmes also serves on the Board of Directors of Aegis Realty, Inc. and Charter Municipal Mortgage Acceptance Company. STUART J. BOESKY, 45, practiced real estate and tax law in New York City with the law firm of Shipley & Rothstein from 1984 until February 1986 when he joined Capital. From 1983 to 1984, Mr. Boesky practiced law with the Boston law firm of Kaye Fialkow Richard & Rothstein and from 1978 to 1980, was a consultant specializing in real estate at the accounting firm of Laventhol & Horwath. Mr. Boesky graduated from Michigan State University with a bachelor of arts degree and from Wayne State School of Law with a Juris Doctor degree. He then received a master of laws degree in taxation from Boston University School of Law. Mr. Boesky also serves on the Board of Directors of Aegis Realty, Inc., Charter Municipal Mortgage Acceptance Company and American Mortgage Acceptance Company. GLENN F. HOPPS, 38, joined Related in December, 1990, and prior to that date was employed by Marks Shron & Company and Weissbarth, Altman and Michaelson, certified public accountants. Mr. Hopps graduated from New York State University at Albany with a Bachelor of Science Degree in Accounting. TERESA WICELINSKI, 35, joined Related in June 1992, and prior to that date was employed by Friedman, Alpren & Green, certified public accountants. Ms. Wicelinski, graduated from Pace University with a Bachelor of Arts Degree in Accounting. Item 11. Executive Compensation. The Partnership has no officers or directors. The Partnership does not pay or accrue any fees, salaries or other forms of compensation to directors or officers of the General Partners for their services. However, under the terms of the Partnership Agreement, the General Partners and their affiliates are entitled to receive compensation from the Partnership in consideration of certain services rendered to the Partnership by such parties. In addition, the General Partners collectively hold a 1% interest in all profits, losses and distributions attributable to sales and refinancings. Certain directors and officers of the General Partners receive compensation from the General Partners and their affiliates for services performed for various affiliated entities which may include services performed for the Partnership. See Note 9 to the Financial Statements, which is incorporated by reference. Tabular information concerning salaries, bonuses and other types of compensation payable to executive officers has not been included in this annual report. As noted above, the Partnership has no executive officers. The levels of compensation payable to the General Partners and/or their affiliates is limited by the terms of the Amended and Restated Agreement of Limited Partnership and may not be increased therefrom on a discretionary basis. Item 12. Security Ownership of Certain Beneficial Owners and Management. The General Partners own all of the outstanding general partnership interests in the Partnership. The General Partners have a 1% interest in all profits, losses and distributions of the Partnership from operations and a subordinated 15% interest in such items from sale or refinancing proceeds. Except as aforesaid, no person is known to own beneficially in excess of 5% of the outstanding partnership interests. At March 25, 2001, security ownership by the General Partners and their affiliates is as listed: Percentage of Outstanding Name of General Partner Title of Class Beneficial Ownership Amount Interest -------------- -------------------- ------ ----------------- General Partnership Related Advantaged Interest in the Residential $16 33.0% Partnership Associates Inc. General Partnership Related and Cambridge Interest in the Associates Limited Partnership 4 67.0% ------ Partnership 100.0% Item 13. Certain Relationships and Related Transactions. The Partnership has and will continue to have certain relationships with the General Partners and their affiliates, as discussed in Item 11 and also Note 8 to the Financial Statements in Item 8 above. However, there have been no direct financial transactions between the Partnership and the directors and officers of the General Partners. Related and Cambridge Associates is a special limited partner of each Local Partnership, with a 1% interest in profits, losses and distributions from such Local Partnerships. As discussed in Item 1, above, Related and Cambridge Associates has been admitted to the Local Partnerships for the purpose of monitoring the Local Partnerships and exercising certain rights under the Local Partnership Agreements on behalf of the Partnership. Related and Cambridge Associates, an affiliate of the Related General Partner, is also the general partner of four of the Local Partnerships. Related Service Group, an affiliate of the Related General Partner, provided property management services to three Local Partnerships through July 1997, for which it was paid its usual and customary management fees, aggregating approximately $168,000 and during the 1997 Fiscal Year. Commencing August 1, 1997 the properties have been managed by Related Management Company, another affiliate of the Related General Partner, and were paid approximately $175,287, $322,000 and $311,000 during the 2000, 1999 and 1998 Fiscal Years, respectively. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

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. CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP (Registrant) By: RELATED ADVANTAGED RESIDENTIAL ASSOCIATES INC., a General Partner Dated: By: _________________________ Alan P. Hirmes, President By: RELATED AND CAMBRIDGE ASSOCIATES, LIMITED PARTNERSHIP, a General Partner By: Related Advantaged Residential Associates Inc., its General Partner Dated: By: _________________________ Alan P. Hirmes, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf by the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- President (principal executive ____________________ and financial officer) of Related Advantaged Alan P. Hirmes Residential Associates, Inc. Treasurer (principal accounting officer) ____________________ of Related Advantaged Residential Glenn F. Hopps Associates, Inc. ____________________ Director of Related Advantaged Stephen M. Ross Residential Associates, Inc. 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. CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP (Registrant) By: RELATED ADVANTAGED RESIDENTIAL ASSOCIATES INC., a General Partner Dated: June 5, 2001 By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes, President By: RELATED AND CAMBRIDGE ASSOCIATES, LIMITED PARTNERSHIP, a General Partner By: Related Advantaged Residential Associates Inc., its General Partner Dated: June 5, 2001 By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf by the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- President (principal executive June 5, 2001 /s/ Alan P. Hirmes and financial officer) of Related Advantaged ------------------ Alan P. Hirmes Residential Associates, Inc. Treasurer (principal accounting officer) June 5, 2001 /s/ Glenn F. Hopps of Related Advantaged Residential ------------------ Associates Glenn F. Hopps /s/ Stephen M. Ross Director of Related Advantaged June 5, 2001 ------------------- Residential Associates, Inc. Stephen M. Ross INDEPENDENT AUDITORS' REPORT ---------------------------- To the Partners of Cambridge Advantaged Properties II Limited Partnership and Subsidiaries In connection with our audits of the consolidated financial statements of Cambridge Advantaged Properties II Limited Partnership and Subsidiaries included in this Form 10-K as presented in our opinion dated June 5, 2001 on pages 18 and 19, which is based in part on the reports of other auditors, we have also audited supporting Schedule III at March 25, 2001. In our opinion, and based on the reports of other auditors (certain of which were modified due to the uncertainty of these subsidiary partnerships' abilities to continue in existence), this consolidated schedule presents fairly, when read in conjunction with the related consolidated financial statements, the financial data required to be set forth therein. The Partnership is currently in the process of winding up its operations and disposing of its investments. It is anticipated that this process will take place within the next twelve months. As discussed in Note 12, the auditors of one subsidiary partnership have modified their report due to the uncertainty of the subsidiary partnership's ability to continue as a going concern. This subsidiary partnership's loss aggregated $236,278, $306,986 and $1,035,345 for the 2000, 1999 and 1998 Fiscal Years, respectively, and their assets constituted 34% and 26% of the Partnership's assets at March 25, 2001 and 2000, respectively. Management's plans in regard to these matters are also described in Note 12. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. TRIEN ROSENBERG ROSENBERG WEINBERG CIULLO & FAZZARI LLP New York, New York June 5, 2001 Exhibit 22 ---------- Subsidiaries of Registrant State of Organization -------------------------- --------------------- Triangle/Oaks Limited Partnership MA Sheridan Square Associates of Lawton OK The Harbours Associates VA Westwind II Associates VA Suncreek-268, Ltd. OR

(a) The total loss on impairment of assets in the amount of $1,116,378 is included in Costs Capitalized Subsequent to Acquisition. See Note 4 in Item 8, Financial Statements and Supplementary Data. (b) Property was subject to a 99 year land lease expiring 2084. In connection with ) primarily the straight-line method over the estimated useful lives determined by the Partnership date of acquisition. (c) Since all properties were acquired as operating properties, depreciation is computed using primarily the straight-line method over the estimated useful lives ranging from 5 to 15 years. (d) Furniture and fixtures, included in buildings and improvements, are depreciated primarily by the straight-line method over the estimated useful lives ranging from 5 to 15 years. (e) Land was leased from the former general partner. During December 1991, the bankruptcy court approved the termination of said lease and transfer of title of the property to McAdam Park-336. (f) On May 31, 1996, the property and the related assets and liabilities of McAdam Park-336 were sold to an unaffiliated third party. (See Note 10 in Item 8. Financial Statements and Supplemental Data). (g) On November 12, 1997, the property and the related assets and liabilities of Galveston-Stewart Landing, Ltd. were sold to an unaffiliated third party. (See Note 10 in Item 8. Financial Statements and Supplemental Data). (h) On December 28, 1999, the property and the related assets and liabilities of Players Club at Fort Myers, Ltd. and Suntree at Fort Myers, Ltd. were sold to an unaffiliated third party. (See Note 10 in Item 8. Financial Statements and Supplemental Data). (i) On March 24, 2000, the property and the related assets and liabilities of Brookwood were sold to an unaffiliated third party purchaser. (See Note 10 in Item 8. Financial Statements and Supplemental Data). (j) On July 28, 2000, the property and the related assets and liabilities of Apple Creek were sold to an unaffiliated third party purchaser (see Note 10 in Item 8. Financial Statements and Supplemental Data). (k) On December 29, 2000, the property and the related assets and liabilities of Woodridge were sold to an unaffiliated third party purchaser (see Note 10 in Item 8. Financial Statements and Supplemental Data). Geographic Locations: --------------------- (1) California, (2) Florida, (3) Kansas, (4) Oklahoma, (5) Texas, (6) Virginia.

At the time the local partnerships were acquired by Cambridge Advantaged Properties II Limited Partnership, the entire purchase price paid by Cambridge Advantaged Properties II Limited Partnership was pushed down to the local partnerships as property and equipment with an offsetting credit to capital. Since the projects were in the construction phase at the time of acquisition, the capital accounts were insignificant at the time of purchase. Therefore, there are no material differences between the original cost basis for tax and GAAP.

CAMBRIDGE ADVANTAGED PROPERTIES II LIMITED PARTNERSHIP 10-K