UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997. Commission file number 0-11200
GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP
Minnesota 41-1398390
510 Marquette Avenue, Suite 300
Minneapolis, Minnesota 55402
Registrant's telephone number (612) 338-2828
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ----------------
None None
Securities registered pursuant to Section 12(g) of the act: $11,000,000
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 (229.405 of this chapter) 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. [ ]
Form 8-K dated June 12, 1997 is incorporated by reference in this report.
<PAGE>
GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP
TABLE OF CONTENTS
PAGE
PART I
Item 1 Business................................................. 1-2
Item 2 Properties................................................. 3
Item 3 Legal Proceedings.......................................... 3
Item 4 Submission of Matters to a Vote
of Limited Partner......................................... 3
PART II
Item 5 Market for the Partnership's Limited Partnership
Interests and Related Limited Partner Matters.................3
Item 6 Selected Financial Data.......................................4
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 5-8
Item 8 Financial Statements and Supplementary Data................ 9
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................ 9
PART III
Item 10 The General Partner of the Partnership.....................9-11
Item 11 Management Remuneration and Transactions................. 11-12
Item 12 Limited Partnership Ownership of Certain
Beneficial Owners and Management.......................... 12
Item 13 Certain Relationships and Related
Transactions.............................................. 13
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K................................... 13
SIGNATURES ........................................................... 14
<PAGE>
GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP
PART I
Item 1. Business
The registrant, Griffin Real Estate Fund-II, A Limited Partnership
(the "Partnership"), was organized on September 19, 1980 under the laws of the
State of Minnesota. The Partnership was formed by the general partner,
Investment Associates, a Minnesota general partnership, to acquire existing,
income-producing real properties for rental purposes. On February 2, 1981 the
Partnership commenced an offering of $10,000,000 pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933. The offering terminated
December 15, 1982 upon the acceptance of 2200 units ($11,000,000), the maximum
allowed under the registration.
The Partnership is engaged solely in the business of real estate
investment, and is limiting its investment to the real property acquired at its
inception plus reasonable repairs and capital improvements. The goal of these
investments is to generate both capital gain income and current income from cash
flow. The Partnership does not invest in real estate mortgages, securities of or
interests in persons primarily engaged in real estate activities, or in other
securities. A presentation of information about industry segments is not
applicable and would not be material to an understanding of the Partnership's
business taken as a whole.
The General Partner manages and controls all of the affairs of the
Partnership, including deciding when and on what terms properties should be sold
or refinanced.
As of December 31, 1997 the Partnership has made the real property
investments set forth in the following table:
Name, type of property Date of Type of
and location (a) Size Purchase Ownership (b)
------------ --- ---- -------- -------------
1. Lunnonhaus Village Apts. 285 units 5/06/82 Mortgage Note
Golden, Colorado
2. Olde English Village Apts. 264 units 8/31/82 Mortgage Note
West Des Moines, Iowa
(a) Reference is made to Schedule III of this annual report.
(b) Reference is made to Note 3 of Notes to Financial Statements
filed with this annual report for the current outstanding
principal balances and a description of the long-term
indebtedness secured by the Partnership's real property
investments;
The Terms of Transactions between the Partnership and affiliates of
the General Partner are described in Item 11 to which reference is hereby made.
It is the Partnership's policy to conduct its business activities in
accordance with the Partnership Agreement which may not be changed without a
vote of a majority of the Limited Partnership units outstanding. Pursuant to the
Partnership Agreement, the Partnership may not issue senior securities, make
loans to other persons, invest in the securities of other entities for the
purposes of exercising control, underwrite the securities of others or offer
securities in exchange for property.
<PAGE>
GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP
As circumstances dictate, the Partnership has the right under the
Partnership Agreement to borrow money, and to use its investments in real
property as collateral for that debt. The amount of debt for acquisitions was
subject to a maximum of 75% loan to value. Although not required, the General
Partner intends to maintain this limit with any subsequent refinancings. No
refinancings occurred in 1997, 1996, or 1995. There is no limit on the number of
mortgages that may be taken out on any one piece of the Partnership's real
properties.
The Partnership Agreement provides for the redemption of limited
partnership units under certain circumstances. In 1997, 1996, and 1995 the
Partnership redeemed zero, zero and two units respectively.
It is the policy of the General Partner to report on a quarterly
basis to the limited partners. Each interim report contains limited financial
reporting with a management discussion of operations and goals for the
Partnership. The annual report contains financial statements that are audited by
independent public accountants, and is accompanied by a management discussion of
operations and goals.
AVERAGE EFFECTIVE ANNUAL
RENTAL PER UNIT
Lunnonhaus Olde English Villas of
Candleridge Village Village Patricia Park
Apartments Apartments Apartments Apartments
Urbandale, IA Golden, CO W. Des Moines, IA Urbandale, IA
- ---------- ------------- -------------- --------------------- ---------------
1997 $ 6,397 $ 7,453 $ 5,996 $ 5,650
- ---------- ------------- -------------- --------------------- ---------------
1996 6,494 7,114 6,094 6,095
- ---------- ------------- -------------- --------------------- ---------------
1995 6,605 6,699 6,329 6,435
- ---------- ------------- -------------- --------------------- ---------------
1994 6,345 6,311 6,094 6,214
- ---------- ------------- -------------- --------------------- ---------------
1993 6,148 6,054 5,942 6,005
- ---------- ------------- -------------- --------------------- ---------------
SCHEDULE OF REAL
ESTATE TAXES
Lunnonhaus Olde English Villas of
Candleridge Village Village Patricia Park
Apartments Apartments Apartments Apartments
Urbandale, IA Golden, CO W.Des Moines, IA Urbandale, IA
- --------------- -------------- ------------ ---------------- --------------
1997 Tax Rate (a) 89.573 (a) (a)
Assessment (a) $74,071 (a) (a)
- --------------- -------------- ------------ ---------------- --------------
1996 Tax Rate 34.07312 89.059 34.07312 34.07312
Assessment $151,068 $65,983 $268,332 $127,987
- --------------- -------------- ------------ ---------------- --------------
1995 Tax Rate 33.32970 89.412 33.32970 33.32970
Assessment $143,756 $66,244 $261,864 $121,792
- --------------- -------------- ------------ ---------------- --------------
1994 Tax Rate 34.39191 90.98 34.66721 34.39191
Assessment $128,614 $59,799 $242,212 $119,900
- --------------- -------------- ------------ ---------------- --------------
1993 Tax Rate 35.11437 90.98 34.98463 35.11437
Assessment $131,314 $59,799 $244,138 $122,420
- --------------- -------------- ------------ ---------------- --------------
(a) Data not yet available.
It is the opinion of the General Partner that the Partnership's properties are
adequately covered by insurance.
<PAGE>
GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP
Item 2. Properties
The Partnership owns the real properties referred to in Item 1 to
which reference is hereby made.
Item 3. Legal Proceedings
On September 20, 1995 Everest Investors, LLC ("Everest") filed a
lawsuit in Hennepin County Minnesota's Fourth Judicial District Court against
Investment Associates ("General Partner"), the general partner of Griffin Real
Estate Fund-II, A Limited Partnership ("Partnership"). The lawsuit alleged that
the General Partner had wrongfully denied Everest access to the books and
records of the Partnership. The court granted, in part, Everest's request for
access to the books and records and ordered the General Partner to provide
Everest access to these records. The General Partner complied with this court
order. Everest continued to seek access to additional books and records of the
Partnership beyond the scope of the court order. The General Partner vigorously
defended the Partnership's right to keep its proprietary records from being
reviewed by Everest, who has not been admitted as a limited partner of the
Partnership despite having been assigned a financial interest in 126 units by
some original limited partners. The General Partner filed for a dismissal of the
matter. The court heard arguments on September 29, 1995, October 26, 1995 and
November 17, 1995. On November 27, 1995 the court dismissed Everest's lawsuit.
Everest appealed the dismissal in the Minnesota Court of Appeals on March 12,
1996. Briefs were filed and oral arguments were heard by the court on July 1,
1996. On September 10, 1996 the court affirmed the dismissal.
Item 4. Submission of Matters to a Vote of Limited Partners
There were no matters submitted to a vote of the Limited Partners.
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and
Related Limited Partner Matters
There are approximately 707 holders of record of units of the
Partnership. There is no public market for units and it is not anticipated that
a public market for units will develop. The General Partner will not redeem or
repurchase units except upon death of the original limited partner.
Reference is made to Item 6 in this annual report for a discussion
of cash distributions made to the Limited Partners.
<PAGE>
GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP
Item 6. Selected Financial Data
Griffin Real Estate Fund-II, A Limited Partnership
For the Years Ended December 31, 1997, 1996, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Revenues $9,542,670 $ 5,589,366 $ 5,472,890 $ 5,148,672 $ 4,885,147
Net Income before
extraordinary item 5,303,794 539,331 324,981 151,515 199,138
Net Income before
extraordinary item
per limited
partnership unit (c) 2,359.35 234.49 141.24 65.81 86.50
Extraordinary item -
Loss on extingishment
of debt (142,121) - - -
Extraordinary item -
Loss on extingishment
of debt per limited
unit (c) (63.23) - - -
Net Income 5,161,673 539,331 324,981 151,515 199,138
Net Income per limited
partner unit (c) 2,296.12 234.49 141.24 65.81 86.50
Total Assets 9,902,298 14,308,137 14,837,677 15,184,304 15,175,828
Mortgages and
Contracts for deed 9,031,201 14,510,958 14,801,452 15,067,907 15,245,768
Cash distributions
per limited
partner unit (b) $1,660.00 $ 357.54 $ 187.53 - -
</TABLE>
(a) The above selected financial data should be read in conjunction with the
financial statements and the related notes appearing in Exhibit 13 in
this annual report.
(b) Cash distributions of $3,518 per Limited Partnership unit have been made
to the Limited Partners since the inception of the Partnership. These
distributions have not resulted in taxable income to such Limited
Partners and have therefore represented a return of capital. Each
Partner's taxable income (or loss) from the Partnership in each year is
equal to his allocable share of the taxable income (loss) of the
Partnership, without regard to cash generated or distributed by the
Partnership.
(c) Net income before extraordinary item, extraordinary item and Net income
per limited partnership unit is based upon the weighted average number
of limited partnership units outstanding during the period, which is
2,185 for the current year.
<PAGE>
GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Summary of Operations - 1997 Compared to 1996
The year 1997 was a year of transition for the Partnership. The
General Partner began the marketing of the properties for sale, resulting in the
sale of two of the four apartment communities. The remaining two continue to be
marketed for sale. Quarterly distributions from operations for 1997 were
increased to $400 per unit (including distributions paid in January 1998) or an
annual return of 8% of the limited partners' original investment.
On May 27, 1997 the Partnership sold the Candleridge Apartments and
the Villas of Patricia Park Apartments, therefore comparison of results from one
year to the next is not possible for the Partnership taken as a whole. The
following discussion is therefore limited to the two remaining properties that
were held for the entire year.
Lunnonhaus Village Apartments:
Physical occupancy remained at or near 100% during 1997 which
compares closely to 1996. Rental rates increased 4.4% and with a slight increase
in other income, total revenues increased 5.0% over 1996.
Operating expenses in total were up only slightly from 1996.
Utilities increased 10% from $196,662 in 1996 to $216,333 in 1997. However,
there were other expenses that decreased enough to largely offset this. Most
notably, repairs and maintenance dropped 8.2% from $247,579 in 1996 to $228,727
in 1997. The decrease is mainly a result of fewer carpet and appliance
replacements during 1997. Real estate tax expense increased by $10,423 from
$65,871 in 1996 to $76,294 in 1997. Capital expenditures of $167,768 were used
to repair sidewalks, steps, siding, roofs to remodel the clubhouse and to
purchase laundry equipment.
Olde English Village Apartments:
Physical occupancy rebounded a bit during 1997 from the 87% level as
of December 31, 1996. However, after reaching the low 90's it had slipped back
to 88% by December 31, 1997 due to the soft Des Moines market. Rental rates
increased almost 3%, but with the increases in vacancy and a decrease in other
income, total income dropped 3.6% in 1997.
Increased tenant turnover caused a commensurate increase in expenses
in the areas of repairs and maintenance and in painting and decorating as the
apartments were made rent ready. Repairs and maintenance increased from $223,822
in 1996 to $317,835 in 1997. Advertising also increased 68% in an attempt to
lease the vacant units. The amount spent rose 68% from $16,011 in 1996 to
$26,907 in 1997.
Capital expenditures of $203,984 were used to patch and seal the
parking lot, replace concrete, for wood, roof and window replacement, for fence
repairs and restroom remodeling. The lease on the property's truck was also
bought out.
<PAGE>
GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP
YEAR 2000
The year 2000 compliance issue concerns the inability of
computerized information systems to accurately calculate, store or use a date
after 1999. This could result in a system failure or miscalculations causing
disruptions of operations. The General Partner is currently evaluating the
accounting software to find out if a Year 2000 problem exists. If the results of
that evaluation show that there is a problem, there will be a conversion to
another software that is widely used in the real estate industry, is readily
available and is Year 2000 compliant. Such a conversion, if necessary, would
occur in 1999. The General Partner's current estimate is that the costs
associated with the Year 2000 issue, and the consequences of incomplete or
untimely resolution of the Year 2000 issue, will not have a material adverse
affect on the results of operations or financial position of the Partnership in
any given year.
Summary of Operations - 1996 Compared to 1995
The year 1996 was a good one for the Partnership with consistent
income performances from its properties. This comes despite a decrease in
overall occupancy from 1995. Distributions continued and totaled $300 per unit
(including distributions paid in January 1997) or an annual return of 6%.
Physical occupancy decreased an average of 2.9% from 97.7% to 94.8%.
Individually, physical occupancy decreased at three of the four properties.
Candleridge Apartments decreased from an average of 97.5% to 95.3%, Olde English
Village decreased from an average of 98.3% to 91.8% and Villas of Patricia Park
Apartments decreased from an average of 95.5% to 92.8%. Physical occupancy of
Lunnonhaus Apartments, however, remained the same at an average of 99.5%.
Rental rates of the property portfolio increased 4.8%. Individually,
rental rates increased at all properties, with increases ranging from the
smallest increase of 2.6% at Villas of Patricia Park Apartments to the greatest
increase of 7.0% at Lunnonhaus Village Apartments.
As a result of increased rental rates and other income, the
Partnership was able to overcome the decreases in occupancy and interest income
to record an increase in overall revenue of approximately $116,500.
Interest expense decreased for two reasons, the first being that
three of the four properties have a fixed interest rate applied to steadily
decreasing principal payments each month. The other reason for the decrease is
that the variable interest rate for the loan on Olde English Village Apartments
was lower in 1996 than in 1995. The rate decreased from 8.8% in 1995 to 8.527%,
rose later in the year to a high of 8.719% and eventually declined again to end
the year at 8.628%. This mortgage note is due June 30, 1997 but the Partnership
intends to exercise its option to extend the maturity date.
Real estate tax expense increased in total by approximately $65,500
due to increased assessed values despite the slight decline in tax rates for all
properties.
Administrative expenses dropped about $84,600 and are much closer to
normal after the unusual legal fees incurred in 1995. These fees related to the
tender offer and unsuccessful solicitation of consent by Everest Investors as
discussed in Item 3 in this annual report.
<PAGE>
GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP
Despite increases in depreciation and in real estate taxes, the
Partnership was able to reduce overall expenses by approximately $97,900 due to
fewer repairs and maintenance expenditures and due to the decreases in interest
and administrative expenses discussed above. The improvements in revenues and
expenses combined to produce an increase in Net Income of about $214,400.
During the year, the Partnership invested approximately $501,000 in
physical improvements to the properties. The majority of the funds were spent at
Lunnonhaus Village and Olde English Village. At Lunnonhaus Village most of the
funds were spent on the clubhouse remodeling. At Olde English Village most of
the funds were spent on common areas for floor coverings and paint. All
properties did some landscaping and other smaller projects as well.
LIQUIDITY
The Partnership had approximately $628,333 of cash reserves on hand
at December 31, 1997. This should provide the Partnership with ample liquidity
with which to operate the properties and provide for capital improvements to the
property portfolio in the near term and into the future. The Partnership will be
committing approximately $65,000 each to external improvements to Lunnonhaus
Village Apartments and Olde English Village Apartments.
Although there can be no assurance of continuing cash flow from
property operations, if anticipated cash flow is realized, the Partnership
intends on continuing distributions in 1998 at an annual rate of $400 or 8% per
limited partner unit until another property is sold.
Candleridge and Villas of Patricia Park Apartments were both sold on May
27, 1997. Sales proceeds of $1,285 per unit were distributed on June 17, 1997 to
unitholders of record on May 27, 1997.
<PAGE>
GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP
OCCUPANCY TABLE
Lunnonhaus Olde English Villas
Candleridge Village Village of Patricia
Apartments Apartments Apartments Park Apartments
Urbandale, IA Golden, CO W. Des Moines, IA Urbandale, IA
------------- ---------- ----------------- -------------
3/31/97 96% 99% 89% 84%
6/30/97 * 100% 91% *
9/30/97 * 100% 93% *
12/31/97 * 100% 88% *
3/31/96 96% 100% 94% 96%
6/30/96 95% 98% 92% 91%
9/30/96 96% 100% 94% 95%
12/31/96 94% 100% 87% 89%
3/31/95 95% 100% 97% 93%
6/30/95 99% 99% 99% 96%
9/30/95 97% 99% 100% 98%
12/31/95 99% 100% 97% 95%
3/31/94 92% 100% 93% 97%
6/30/94 98% 99% 92% 95%
9/30/94 96% 100% 99% 98%
12/31/94 94% 99% 98% 98%
3/31/93 94% 99% 90% 95%
6/30/93 99% 98% 97% 100%
9/30/93 99% 99% 97% 98%
12/31/93 92% 99% 94% 94%
* Indicates the Partnership did not own the property at the end of the quarter.
<PAGE>
GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP
Item 8. Financial Statements and Supplementary Data
The Table of Contents to Financial Statements, Financial Statements
and Supplementary Data listed in Item 14 are referenced herein as included in
the exhibits attached to this report and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no changes in independent auditors and as of the
date of the filing, there were no material disagreements with the current
independent auditors (Larson, Allen, Weishair & Co.,LLP) regarding any of the
following:
1) Accounting principles or practices
2) Extent and quality of financial statement disclosure
3) Auditing scope or procedures
PART III
Item 10. The General Partner of the Partnership
The General Partner of the Partnership is Investment Associates, a
Minnesota general partnership formed in September of 1980 by certain directors
and officers of Griffin Companies for the sole purpose of acting as General
Partner of the Partnership. As General Partner, Investment Associates manages
and controls the affairs of the Partnership and has general responsibility and
authority in all matters affecting its business.
Griffin Companies, A Minnesota corporation organized in 1969, is
engaged in real estate brokerage, real estate investment counseling, and
management of commercial and multi-family real estate. Griffin Companies and its
Affiliates have organized and served as general partners in thirty-two privately
placed partnerships and six publicly offered partnerships, which were formed for
the purpose of real estate investment.
The General Partner and its Affiliates provide executive,
supervisory and certain administrative services for the Partnership's operations
and the General Partner is responsible for determining whether, when and on what
terms properties should be sold or refinanced. In addition, the books and
records of the Partnership are maintained by Griffin Companies, and are subject
to audit by independent certified public accountants. The partners of the
General Partner intend to devote only as much of their time to the business of
the Partnership as they determine to be reasonably required. Limited Partners
have no right to participate in the management of the Partnership.
Effective December 31, 1994 James R. Wadsworth, one of the partners
of the General Partner, withdrew as a partner. Also effective July 22, 1997
Frederick R. Lamb one of the partners of the General Partners, withdrew as a
partner. Their shares of ownership and their shares of future profits and losses
were assigned to and split equally between Larry D. Fransen and Robert S.
Dunbar. Mr. Fransen and Mr. Dunbar were already partners of the General Partner.
The identity and business experience of each of the partners of the
General Partner is as follows:
<PAGE>
GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP
Larry D. Fransen (age 57) founded Griffin Companies in 1969. He is a Director
and senior officer of each of its operating entities, in addition to serving as
Chairman.
Since 1969, he has acted as general partner in many partnerships
investing in apartments, office buildings, warehouses, land and motels.
Acting on behalf of Griffin Companies' clients, Mr. Fransen has
negotiated the acquisition and disposition of more than one billion dollars in
investment real estate properties nationwide.
He is a member of numerous professional organizations, including the Greater
Minneapolis Area Board of Realtors, the Minnesota Association of Realtors, the
National Association of Realtors (NAR), Minnesota Multi Housing Association
(MHA), National Multi-Housing Council (NMHC), the National Apartment Association
(NAA), Commercial and Investment Institute, National Association of Real Estate
Investment Trusts (NAREIT), and the Pension Real Estate Association (PREA).
Mr. Fransen holds the CCIM (Certified Commercial Investment Member)
designation of the Commercial Investment Institute, as well as the SRS
(Specialist in Real Estate Securities) designation. For 13 years, he was an
instructor for the Commercial Investment Institute and served as the group's
national president in 1983. He has been awarded the Omega Tau Rho Medal of
Service for his years of service to the National Association of Realtors.
Robert S. Dunbar (age 58) is Chief Executive Officer of Griffin
Companies.
Following several years with Control Data Corporation where he held
various administrative and management positions, he was named Executive Vice
President of the U.S. Jaycees in 1970, with responsibility for planning,
budgeting and administration of the national organization. In 1972, he joined
Ed. Phillips & Sons Company in Minneapolis, Minnesota as a sales manager. In
1975 he was elected President of Westland Capital Corporation, a Minneapolis
venture capital firm, where he was responsible for analyzing various companies
for potential investment opportunities. He joined Griffin Companies in 1977.
Mr. Dunbar is a member of the Institute of Real Estate Management (IREM) and the
Minnesota Multi Housing Association (MHA). He holds the Certified Apartment
Manager (CAM) designation of the National Apartment Association and is a
Certified Property Manager (CPM) as designated by the National Association of
Realtors. Mr. Dunbar also holds a Minnesota Real Estate Broker's License and has
completed the necessary course work for their prestigious Certified Commercial
Investment Member (CCIM) designation conferred by the Commercial Investment
Institute. He is a member of the national Multi-Housing Council and The
Executive Committee (T.E.C.). He also serves on the Board of Trustees of
Northwestern College.
Thomas A. Robeson (age 66) served as a Senior Vice President of Griffin
Companies, which he joined in April 1980, until his departure on February 29,
1988.
Mr. Robeson's previous business experience includes service in the
Investment Division of a national insurance company, from 1955 to 1957, and from
1957 to 1972, with IBM Corporation, where he held various sales and management
positions.
<PAGE>
GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP
Mr. Robeson entered the real estate field in 1972 when he joined a
real estate firm in St. Paul, Minnesota. His responsibilities included
brokerage, management and syndication of various types of real estate. In 1975,
Mr. Robeson joined a Minneapolis investment company where he was involved in the
brokerage of a wide range of commercial, industrial, and investment real estate.
In 1978, he was promoted to Vice President and Manager of the
Commercial-Investment Division of that company. He has experience in the
acquisition and disposition of shopping centers, apartment buildings, commercial
office buildings, motels, net leased industrial warehouse and manufacturing
facilities, and industrial, commercial and residential unimproved property.
Mr. Robeson holds the professional designation CCIM (Certified
Commercial Investment Member of the Realtors National Marketing Institute). He
is a member of the International Association for Financial Planning and of
several real estate organizations, including the National Association of
Industrial and Office Parks, the Upper Midwest Chapter of the Realtors National
Marketing Institute, the Greater Minneapolis Area Board of Realtors, the
Minnesota Association of Realtors and the National Association of Realtors.
Messrs. Fransen and Dunbar together own 100% of the issued and
outstanding shares of common stock of Griffin Companies. The partners of the
General Partner represent and warrant that they have a collective personal net
worth on an unaudited cost basis and on an unaudited estimated current value
basis (measured as total assets at estimated current value less all liabilities)
in excess of $1,500,000. The assets of the partners of the General Partner are
largely invested in interests in real property and in Griffin Companies,
therefore it may be difficult to precisely value such assets or to liquidate
such assets expeditiously or on terms favorable to the seller.
Item 11. Management Remuneration and Transactions
Partners of the General Partner receive no current or proposed
direct remuneration in such capacity. The Partnership is required to pay a
management fee to Griffin Companies and the General Partner is entitled to
receive a share of cash distributions, when and as cash distributions are made
to the Limited Partners, and a share of profits or losses as described below:
* Profits, losses, and cash flow distributions, other than
from refinancing or from the sale of Partnership properties,
are allocated 95% to the limited partners and 5% to the
general partner.
* Net proceeds from refinancing or from the sale of property
other than upon liquidation, less any necessary liability
reserves or debt payments, will be distributed in the
following order subject to the general partner receiving at
least 1% of the distributions:
** First, to the limited partners to the extent that
prior distributions are less than the original
capital contribution plus 6% per annum (as defined
in the Partnership Agreement);
** Second, any unpaid real estate commissions due to
the general partner on the resale of the
Partnership properties;
<PAGE>
GRIFFIN REAL ESTATE FUND II, A LIMITED PARTNERSHIP
** Third, any remaining balance, 80% to the limited
partners and 20% to the general partner.
The Partnership is entitled to engage in various transactions
involving affiliates of the General Partner of the Partnership.
Griffin Companies ("Griffin"), an affiliate of the General Partner,
may be reimbursed for direct expenses relating to the administration of the
Partnership and operation of the Partnership real property investments. Griffin
received approximately $23,857, $24,064 and $20,918 in 1997, 1996, and 1995
respectively, for these expenses.
Reference is made to Note 4 of Notes to Financial Statements appearing
elsewhere in this annual report for a description of related party transactions.
Item 12. Limited Partnership Ownership of Certain Beneficial Owners and
Management
Everest Investors, LLC, located at 11755 Wilshire Boulevard, Suite
2360 Los Angeles, California 90025, is the only person or "group" known by the
Partnership to own beneficially more than 5% of the outstanding units of the
Partnership. Everest Investors, LLC has only a financial interest in their units
which were assigned by the original owners of 126 units. Everest has not been
admitted as a limited partner of the partnership.
Amount and Nature Percent of Class
of Beneficial Outstanding at
Title of Class Ownership December 31, 1997
-------------- ----------------- -----------------
Limited Partnership Units 126 units, purchased at 5.8%
$2,387.50 per unit
The individual general partners of the General Partner as a group have
the following interest in the Partnership:
Amount and Nature Percent of Class
of Beneficial Outstanding at
Title of Class Ownership December 31, 1997
-------------- ----------------- -----------------
Limited Partnership Units 26 units purchased at 1.2%
$4,462 per unit
No partner of the General Partner possesses a right to acquire
beneficial ownership of interest of the Partnership.
There exists no arrangement, known to the Partnership, the
operation of which may at subsequent date result in a change in control of the
Partnership.
<PAGE>
GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP
Item 13. Certain Relationships and Related Transactions
The partners of Investment Associates, the general partner of the
Partnership, are also owners and employees of Griffin Companies, a Minnesota
corporation. Accounts payable - affiliates consists of unpaid management fees to
and advances from Griffin Companies. The following is a summary of approximate
fees incurred for the years ended December 31:
1997 1996 1995
---- ---- ----
Property management fees $259,996 $302,319 $ 292,361
Major improvement
supervisory fees 68,502 73,408 98,705
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following documents are filed as part of this report:
Exhibit 13: Financial Statements and Schedules.
An 8-K was filed on June 12, 1997 in regards to the sale of the
Candleridge Apartments and Villas of Patricia Park Apartments on May 27, 1997.
Proforma Financial Information was included with this filing.
No annual report or proxy material for the fiscal year 1997 has been
sent to the Partners of the Partnership. An annual report will be sent to the
Partners subsequent to this filing substantially similar to this form 10K.
<PAGE>
GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP
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.
Dated: March 30, 1998 Griffin Real Estate Fund-II,
A Limited Partnership
By: Larry D. Fransen\s\
Larry D. Fransen
for the General Partner
Investment Associates
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following person on behalf of the Registrant
and in the capacity and on the date indicated.
Dated: March 30, 1998 By: Larry D. Fransen\s\
Larry D. Fransen
Managing General Partner
of the General Partner
Investment Associates
EXHIBIT 13
GRIFFIN REAL ESTATE FUND-II,
A LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
INCLUDED IN ANNUAL REPORT (FORM 10-K)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
TABLE OF CONTENTS
Page
Independent Auditor's Report .......................................... 1
Balance Sheets, December 31, 1997 and 1996 ............................ 2
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 ...................................... 3
Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995 ................................ 4
Statements of Changes in Partners' Equity (Deficit)
for the Years Ended December 31, 1997, 1996 and 1995 .................. 5
Notes to Financial Statements ......................................... 6-10
Financial Statement Schedules ......................................... 11
III Real Estate and Accumulated Depreciation, December 31,
1997........................................................ 11
All schedules other than those indicated in the Table of Contents have been
omitted as the required information is inapplicable or the information is
presented in the financial statements or related notes.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Griffin Real Estate Fund-II,
A Limited Partnership
Minneapolis, Minnesota
We have audited the accompanying balance sheets of Griffin Real Estate Fund-II,
A Limited Partnership, as of December 31, 1997 and 1996 and the related
statements of operations, changes in partner's equity (deficit), and cash flows
for each of the years in the three-year period ended December 31, 1997. Our
audits also included the financial statement schedules listed in the table of
contents at Exhibit 13. These financial statements and financial statement
schedules 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 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 Griffin Real Estate Fund-II, A
Limited Partnership, as of December 31, 1997 and 1996, and the results of its
operations and its cash flows of each of the years in the three-year period
ended December 31, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, the financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
LARSON, ALLEN, WEISHAIR & CO., LLP
Minneapolis, Minnesota
March 10, 1998
-1-
<PAGE>
GRIFFIN REAL ESTATE FUND-II,
A LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSET
1997 1996
------------ ------------
Cash and cash equivalents $ 628,333 $ 1,001,510
Escrow deposits 224,511 338,312
Receivables and other assets 19,784 31,440
------------ ------------
Total 872,628 1,371,262
------------ ------------
PROPERTY AND EQUIPMENT:
Land 1,529,374 2,160,676
Buildings and improvements 16,430,929 22,530,068
Furniture and equipment 1,339,243 2,076,669
------------ ------------
Total 19,299,546 26,767,413
Less accumulated depreciation 10,292,116 13,959,999
------------ ------------
Property and equipment - net 9,007,430 12,807,414
------------ ------------
Debt financing costs (net of accumulated
amortization - 1997, $188,078;
1996, $241,738) 22,240 129,461
------------ ------------
TOTAL ASSETS $ 9,902,298 $ 14,308,137
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
LIABILITIES:
Accounts payable:
Affiliate $ 8,657 $ 2,275
Other 135,272 190,051
Security deposits 90,063 141,163
Accrued expenses:
Real estate taxes 342,403 593,395
Interest 60,576 99,256
Mortgage notes payable 9,031,201 14,510,958
------------ ------------
Total liabilities 9,668,172 15,537,098
------------ ------------
PARTNERS' EQUITY (DEFICIT):
General Partner (462,914) (536,068)
Limited Partners 697,040 (692,893)
------------ ------------
Total Partners' Equity (Deficit) 234,126 (1,228,961)
------------ ------------
TOTAL LIABILITIES AND PARTNERS'
EQUITY (DEFICIT) $ 9,902,298 $ 14,308,137
============ ============
See Notes to Financial Statements
-2-
<PAGE>
GRIFFIN REAL ESTATE FUND-II,
A LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rent (less vacancies: 1997, $268,496;
1996, $249,891; 1995, $117,629) $ 4,335,378 $ 5,263,634 $ 5,142,356
Interest 45,414 39,501 47,135
Other 208,541 286,231 283,399
Gain on sale of property 4,953,337 -- --
----------- ----------- -----------
Total revenues 9,542,670 5,589,366 5,472,890
----------- ----------- -----------
EXPENSES:
Interest 903,543 1,187,555 1,239,396
Depreciation and amortization 803,521 980,071 960,367
Real estate taxes 470,006 611,626 546,083
Repairs and maintenance 662,336 678,240 716,057
Utilities 411,435 452,082 460,305
Salaries and employee benefits 458,340 515,722 509,800
Management fees to related parties 259,996 302,319 292,361
Administrative 150,699 175,891 260,500
Insurance 108,003 133,277 151,849
Bad debts 5,479 3,336 (227)
Other 5,518 9,916 11,418
----------- ----------- -----------
Total expenses 4,238,876 5,050,035 5,147,909
----------- ----------- -----------
NET INCOME BEFORE
EXTRAORDINARY ITEM 5,303,794 539,331 324,981
EXTRAORDINARY ITEM -
LOSS ON EXTINGUISHMENT
OF DEBT (142,121) -- --
----------- ----------- -----------
NET INCOME $ 5,161,673 $ 539,331 $ 324,981
=========== =========== ===========
NET INCOME ALLOCATED
TO GENERAL PARTNER $ 144,640 $ 26,967 $ 16,249
=========== =========== ===========
NET INCOME ALLOCATED
TO LIMITED PARTNERS $ 5,017,033 $ 512,364 $ 308,732
=========== =========== ===========
PER UNIT:
NET INCOME BEFORE
EXTRAORDINARY ITEM $ 2,359.35 $ 234.49 $ 141.24
EXTRAORDINARY ITEM (63.23) -- --
----------- ----------- -----------
NET INCOME $ 2,296.12 $ 234.49 $ 141.24
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
-3-
<PAGE>
GRIFFIN REAL ESTATE FUND-II,
A LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,161,673 $ 539,331 $ 324,981
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Gain on sale of property (4,953,337) -- --
Extraordinary Item - Loss
on extinguishment of debt 142,121 -- --
Depreciation and amortization 803,521 980,071 960,367
Decrease (increase) in:
Receivables and other assets 11,656 14,121 4,340
Escrows 113,801 (6,364) 293,962
Increase (decrease) in:
Accounts payable (48,397) 13,264 28,647
Security deposits (51,100) (2,409) 11,795
Accrued expenses (289,672) 33,101 (5,571)
----------- ----------- -----------
Net cash provided by operating
activities 890,266 1,571,115 1,618,521
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property
and equipment 8,365,575 -- --
Purchase of property and equipment (371,752) (501,083) (596,924)
----------- ----------- -----------
Net cash provided (used) by
investing activities 7,993,823 (501,083) (596,924)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of limited
partner units -- -- (8,530)
Distributions to partners (3,698,586) (822,333) (431,494)
Payments on mortgages
and contracts for deed (5,479,757) (290,494) (266,455)
Prepayment penalties on mortgages (52,235) -- --
Payments for debt
financing costs (26,688) -- (13,485)
----------- ----------- -----------
Net cash used by financing
activities (9,257,266) (1,112,827) (719,964)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (373,177) (42,795) 301,633
CASH AND CASH EQUIVALENTS
- BEGINNING OF YEAR 1,001,510 1,044,305 742,672
----------- ----------- -----------
CASH AND CASH EQUIVALENTS
- END OF YEAR $ 628,333 $ 1,001,510 $ 1,044,305
=========== =========== ===========
CASH PAID FOR INTEREST $ 942,224 $ 1,188,805 $ 1,234,866
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
-4-
<PAGE>
GRIFFIN REAL ESTATE FUND-II,
A LIMITED PARTNERSHIP
CHANGES IN PARTNERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
GENERAL LIMITED
PARTNER'S PARTNERS'
EQUITY EQUITY
(DEFICIT) (DEFICIT) TOTAL
----------- ----------- -----------
PARTNERS' DEFICIT
DECEMBER 31, 1994 $ (516,592) $ (314,324) $ (830,916)
NET INCOME 16,249 308,732 324,981
REPURCHASE OF TWO UNITS -- (8,530) (8,530)
DISTRIBUTIONS (21,575) (409,919) (431,494)
----------- ----------- -----------
PARTNERS' DEFICIT
DECEMBER 31, 1995 (521,918) (424,041) (945,959)
NET INCOME 26,967 512,364 539,331
DISTRIBUTIONS (41,117) (781,216) (822,333)
----------- ----------- -----------
PARTNERS' DEFICIT
DECEMBER 31, 1996 (536,068) (692,893) (1,228,961)
NET INCOME 144,640 5,017,033 5,161,673
DISTRIBUTIONS (71,486) (3,627,100) (3,698,586)
----------- ----------- -----------
PARTNERS' EQUITY (DEFICIT)
DECEMBER 31, 1997 $ (462,914) $ 697,040 $ 234,126
=========== =========== ===========
See Notes to Financial Statements
-5-
<PAGE>
GRIFFIN REAL ESTATE FUND-II,
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Partnership - Griffin Real Estate Fund-II, A Limited
Partnership (the Partnership), was organized on September 18, 1980
under the laws of the State of Minnesota. As of December 31, 1997
there are 2,200 limited partnership units authorized and 2,185
outstanding.
Sale of Properties - On May 27, 1997 the Partnership sold the
Candleridge Apartments and Villas of Patricia Park Apartments for
$8,400,000. Sales costs of $34,427 were incurred as well as
prepayment penalties of $52,235 related to the properties' mortgage
notes.
Statements of Cash Flows - For the purpose of the statements of cash
flows, the Partnership considers all highly liquid debt instruments
with an original maturity of three months or less to be cash
equivalents. Cash equivalents of $628,333 and $1,001,510 at December
31, 1997 and 1996 respectively, consist of government money market
portfolios with banks and are recorded at cost which approximates
market value. The Partnership places its temporary cash investments
with high credit quality financial institutions. At times such
investments may be in excess of the FDIC insurance limit.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. Estimates also
affect the reported amounts of revenue and expense during the
reported period. Actual results could differ from those estimates.
Financial Instruments - The carrying amounts for all financial
instruments approximates fair value. The carrying amounts for cash,
receivables, accounts payable and accrued liabilities, and loans
payable approximate fair value because of the short maturity of these
instruments. The fair value of long-term debt approximates the
current rates at which the Partnership could borrow funds with
similar remaining maturities.
Properties and Depreciation - Properties are stated at cost including
capitalized acquisition fees and are depreciated using a
straight-line method over the estimated useful lives of the related
assets (buildings, 25 years; furnishings and equipment, 5 years). For
income tax purposes, the Partnership depreciates the buildings over
15 to 19 years using the Accelerated Cost Recovery System. Building
improvements made subsequent to January 1, 1987 are depreciated over
27.5 years using the Modified Cost Recovery System for tax purposes.
Escrow Deposits - The escrow deposits consist of funds held for future
payment of real estate taxes, insurance premiums and replacement
reserves for major expenditures.
Leases - Apartment leases are generally renewable on a six month to one
year basis.
-6-
<PAGE>
GRIFFIN REAL ESTATE FUND II,
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
Offering Costs - Expenses incurred in connection with the registration
and offering of the partnership units syndication costs, including
selling commissions and advertising, are recorded as a reduction of
Partners' Equity. Such costs are not deductible for income tax
purposes by the Partnership nor its partners.
Debt Financing Costs - Costs incurred in connection with securing
financing on Partnership properties have been capitalized and are
being amortized on the straight-line basis over the remaining life of
the related financing agreement.
Income Taxes - The financial statements of the Partnership do not
include a provision for income taxes as the income and losses of the
Partnership are allocated to the individual partners for inclusion in
their income tax returns.
Net Income Per Limited Partnership Unit - The net income per limited
partnership unit is computed by dividing the net income allocated to
limited partners by the weighted average number of limited
partnership units outstanding during the year.
2. ORGANIZATION
The Partnership was formed by the general partner, Investment
Associates, a Minnesota general partnership, to acquire existing,
income-producing real properties for rental purposes. Investment
Associates is not required to make any capital contributions to the
Partnership.
The Limited Partnership Agreement and Certificate of Limited Partnership
(Partnership Agreement) contains certain provisions, among others,
described as follows:
* The management and general responsibility of operating the
Partnership business shall be vested exclusively in the general
partner.
* Profits, losses, and cash flow distributions, other than from
refinancing or from the sale of Partnership properties, are
allocated 95% to the limited partners and 5% to the general
partner.
* Net proceeds from refinancing or from the sale of property other
than upon liquidation, less any necessary liability reserves or
debt payments, will be distributed in the following order
subject to the general partner receiving at least 1% of the
distributions:
** First, to the limited partners to the extent that prior
distributions are less than the original capital
contribution plus 6% per annum (as defined in the
Partnership Agreement);
** Second, any unpaid real estate commissions due to the
general partner on the resale of the Partnership
properties;
-7-
<PAGE>
GRIFFIN REAL ESTATE FUND-II,
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
** Third, any remaining balance, 80% to the limited
partners and 20% to the general partner.
* The Partnership will terminate on December 31, 2021 or earlier
upon the sale of substantially all of the properties or the
occurrence of certain other events as stated in the Partnership
Agreement.
3. MORTGAGE NOTES PAYABLE
Mortgage notes payable consist of the following at December 31:
1997 1996
----------- -----------
Mortgage note (Villas of Patricia Park),
monthly installments of $20,717
including interest at 8.375% $ - $ 2,443,129
Mortgage note (Candleridge)
monthly installments of $23,917
including interest at 8.375% - 2,820,469
Mortgage note (Olde English Village)
monthly installments of $48,411
Principal and interest (8.517% at
December 31, 1997) due July 1, 2000 5,263,528 5,373,502
Mortgage note (Lunnonhaus)
monthly installments of $31,166
including interest at 7%,
due June 2014 3,767,673 3,873,858
----------- -----------
Total mortgage notes payable $ 9,031,201 $14,510,958
=========== ===========
All property is pledged as collateral to the mortgage notes payable.
Future principal maturities are as follows:
1998 $ 229,848
1999 248,862
2000 5,151,693
2001 140,384
2002 150,532
Later 3,109,882
----------
Total $9,031,201
==========
During 1997, the Partnership extended the Olde English Village Mortgage
Note. On June 15, 1995, the prepayment provisions of the Candleridge
Apartments contract for deed and the Villas of Patricia Park mortgage
note were modified. Terms of these extensions and prepayment
provisions, as modified, were as follows:
Olde English Village: Loan amount of $5,600,000 with variable monthly
installments of principal and interest. Interest is adjusted
quarterly to 350 basis points above the Treasury yield. Although the
mortgage note was due June 30, 1997, it carried an option, which the
Partnership exercised, to extend the maturity date for an additional
term of 3 years to July 1, 2000. The extension
-8-
<PAGE>
GRIFFIN REAL ESTATE FUND-II,
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
required an extension fee payment equal to 1/2 of 1% of the
outstanding principal balance at the time of extension, or $26,688.
Candleridge Apartments: Prepayment of the note was subject to a prepayment
premium ranging from 1% to 3% depending on the year of the loan in
which it was prepaid. The prepayment premium did not apply if the
lender called the note.
Villas of Patricia Park: Prepayment of the note was subject to a prepayment
premium ranging from 1% to 3% depending upon the year of the loan in
which it was prepaid. The prepayment premium did not apply if the
lender called the note.
The lender has the right to call the Olde English Village note upon
certain events. The Lunnonhaus mortgage is subject to The Department
of Housing and Urban Development regulations.
All of the above debt is non-recourse to the individual partners.
4. RELATED PARTY TRANSACTIONS
The partners of Investment Associates, the general partner of the
Partnership, are also owners and employees of Griffin Companies, a
Minnesota corporation. Accounts payable - affiliates consists of
unpaid management fees to and advances from Griffin Companies. The
following is a summary of approximate fees incurred for the years
ended December 31:
1997 1996 1995
---- ---- ----
Property management fee $259,996 $302,319 $292,361
Major improvement
supervisory fees 68,502 73,408 98,705
5. TAXABLE INCOME
The net income shown on the financial statements is reconciled to the
taxable income as follows:
1997 1996 1995
---- ---- ----
Net income per
financial statements $5,161,673 $ 539,331 $ 324,981
Excess of tax depreciation
under(over) book depreciation 278,673 (60,174) (211,027)
Gain on sale of property for
tax purposes in excess of
gain for financial statements 2,140,024 -- --
Rental income for financial
statements in excess of
rental income for tax purposes 21,752 3,319 (5,670)
---------- ---------- ----------
Taxable income $7,602,122 $ 482,476 $ 108,284
========== ========== ==========
-9-
<PAGE>
GRIFFIN REAL ESTATE FUND-II,
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
6. PARTNERS' DEFICIT RECONCILIATION
Reconciliation of financial statement deficit to tax return deficit is
as follows:
1997 1996 1995
---- ---- ----
Equity (deficit) per
financial statements $ 234,126 $(1,228,961) $ (945,959)
Cumulative excess of tax
depreciation over financial
statement depreciation (5,344,720) (7,763,417) (7,703,316)
Prepaid rent recognized as
income for tax purposes 95,818 74,066 70,820
----------- ----------- -----------
Deficit per tax return $(5,014,776) $(8,918,312) $(8,578,455)
=========== =========== ===========
-10-
<PAGE>
GRIFFIN REAL ESTATE FUND-II,
A LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
SCHEDULE III
<TABLE>
<CAPTION>
Costs
Capitalized
Subsequent
Initial Cost to to Gross Amount at Which Carried
Partnership (a) Acquisition at Close of Period (b) (c)
--------------- ----------- --------------------------
Date
Bldgs/ Land/Bldg Buildings Accumulated of Date
Description Encumbrances Land Improve Improve Land & Improve Total Deprec. (d) Const Acquired
- ------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GOLDEN, CO
Lunnonhaus
Village $ 3,767,673 $ 714,045 $ 8,049,914 $ 1,373,020 $ 714,045 $ 9,422,934 $10,136,979 $ 5,526,988 1975 5/06/82
W. DES MOINES, IA
Olde English
Village 5,263,528 815,329 6,745,860 1,601,378 815,329 8,347,238 9,162,567 4,765,128 1972 8/31/82
----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------
Total $ 9,031,201 $ 1,529,374 $14,795,774 $ 2,974,398 $ 1,529,374 $17,770,172 $19,299,546 $10,292,116
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
(a) The cost to the Partnership represents the original purchase price of the
properties.
(b) The aggregate cost of real estate owned at December 31, 1997 for federal
income tax purposes is $19,299,546.
(c) Reconciliation of property:
1995 1996 1997
----------- ----------- -----------
Balance at beginning of period $25,669,406 $26,266,330 $26,767,413
Additions during period
Improvements 596,924 501,083 371,752
Dispositions - - (7,839,619)
----------- ----------- -----------
Balance at end of period $26,266,330 $26,767,413 $19,299,546
=========== =========== ===========
(d) Reconciliation of accumulated depreciation:
Balance at beginning of period $12,183,949 $13,062,669 $13,959,999
Depreciation expense for period 878,720 897,330 759,499
Dispositions - - (4,427,382)
----------- ----------- -----------
Balance at end of period $13,062,669 $13,959,999 $10,292,116
=========== =========== ===========
Depreciation calculated on 5-27.5 year lives using the straight-line method
on real porperty and accelerated for personal property.
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 628,333
<SECURITIES> 0
<RECEIVABLES> 19,784
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 872,628
<PP&E> 19,299,546
<DEPRECIATION> 10,292,116
<TOTAL-ASSETS> 9,902,298
<CURRENT-LIABILITIES> 636,971
<BONDS> 9,031,201
0
0
<COMMON> 0
<OTHER-SE> 234,126<F1>
<TOTAL-LIABILITY-AND-EQUITY> 9,902,298
<SALES> 0
<TOTAL-REVENUES> 9,497,256
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,335,333
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 858,129
<INCOME-PRETAX> 5,303,794
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,303,794
<DISCONTINUED> 0
<EXTRAORDINARY> (142,121)
<CHANGES> 0
<NET-INCOME> 5,161,673
<EPS-PRIMARY> 2,296.12<F2>
<EPS-DILUTED> 0
<FN>
<F1>THIS ENTITY IS A LIMITED PARTNERSHIP. THE OTHER STOCKHOLDERS EQUITY LINE
REPRESENTS TOTAL PARTNERSHIP EQUITY.
<F2>THE EPS-PRIMARY LINE REPRESENTS NET INCOME PER LIMITED PARTNERSHIP UNIT.
</FN>
</TABLE>
