SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
McNEIL PACIFIC INVESTORS FUND 1972
(Name of Registrant as Specified in Its Charter)
McNEIL PACIFIC INVESTORS FUND 1972
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Units of Limited Partnership Interest
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2) Aggregate number of securities to which transaction applies:
13,752.5
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
1/50 of 1% of $6,750,000 (aggregate value to be received by
Registrant) = $1,350
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$6,750,000
----------------------------------------------------------------------
5) Total Fee Paid:
$1,350
----------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how
it was determined.
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:__________________________________________
2) Form Schedule or Registration Statement No.:_____________________
3) Filing Party:____________________________________________________
4) Date Filed:______________________________________________________
<PAGE>
McNeil Pacific Investors Fund 1972
13760 Noel Road
Suite 600, LB70
Dallas, Texas 75240
To the Limited Partners of
McNeil Pacific Investors Fund 1972
(the "Partnership")
July 14, 1997
Dear Limited Partner:
Enclosed is information concerning the Meeting of Limited Partners
which will be held on August 12, 1997. Details of the time and place of the
meeting are set forth in the accompanying Notice of Meeting.
McNeil Partners, L.P., the general partner of the Partnership (the
"General Partner"), has approved the proposals described below and recommends
that the Limited Partners vote in favor of such proposals because they are
believed to be in the best interests of the Limited Partners. Enclosed is a
Proxy Statement for your approval of a proposal (i) to amend the Restated
Certificate and Agreement of Limited Partnership, as amended, of the Partnership
to authorize the General Partner of the Partnership to sell the Palm Bay
Apartments located in Orlando, Florida (the "Property"), which Property
constitutes substantially all of the assets of the Partnership, to
Ceebraid-Signal Acquisition Corporation, a Florida corporation ("Purchaser");
and (ii) if the sale is consummated, to approve the dissolution and termination
of the Partnership and to authorize the General Partner to liquidate the
Partnership. The purchase agreement for the sale of the Property provides that
the gross value of the consideration for the Property will be approximately
$6,750,000, and based upon current estimates, (i) the net amount retained by the
Partnership from the sale will be approximately $4,540,024, after approximately
$1,924,929 of indebtedness secured by the Property and certain other debts and
obligations are repaid, and (ii) the amount available for distribution to the
Limited Partners will be approximately $4,360,825, or $317.09 per Unit. The
General Partner currently anticipates that the proposed sale by the Partnership
will be consummated as soon as practicable after the approval thereof by the
Limited Partners. However, the General Partner has not determined the precise
timing and amount of distributions to the Limited Partners that would occur
after the proposed sale and in connection with the liquidation of the
Partnership due to certain ongoing litigation. As described more fully in the
attached Proxy Statement, the General Partner will receive certain fees in
connection with the liquidation of the Partnership.
The General Partner urges you to read the enclosed documents carefully
and to return your signed proxy as quickly as possible. For your convenience a
self-addressed postage-paid return envelope has been included.
If you have any questions about the enclosed material, please call
McNeil Real Estate Management, Inc., Investor Operations at (800) 658-2007.
Very truly yours,
McNEIL PARTNERS, L.P.
By: McNeil Investors, Inc., a
Delaware corporation
and its General Partner
By: /s/ Ron K. Taylor
-------------------------------
Ron K. Taylor, President
<PAGE>
McNeil Pacific Investors Fund 1972
NOTICE OF MEETING OF LIMITED PARTNERS
TO BE HELD ON AUGUST 12, 1997
Notice is hereby given that a Meeting (the "Meeting") of the Limited
Partners (the "Limited Partners") of McNeil Pacific Investors Fund 1972 (the
"Partnership") will be held at the Quartz Room at the Dallas Parkway Hilton,
4801 LBJ Freeway, Dallas, Texas 75244 on August 12, 1997 at 1:00 p.m., Central
Time, for the following purposes:
(i) To approve an amendment to the Restated Certificate and Agreement
of Limited Partnership, as amended, of the Partnership to authorize
McNeil Partners, L.P. (the "General Partner") to sell the Palm Bay
Apartments located in Orlando, Florida (the "Property"), which Property
constitutes substantially all of the assets of the Partnership, to
Ceebraid-Signal Acquisition Corporation, a Florida corporation, on the
terms set forth herein;
(ii) If the sale of the Property is consummated, to approve the
dissolution and termination of the Partnership andv to authorize the
General Partner to liquidate the Partnership; and
(iii) To consider and act upon such other matters, if any, as may
properly come before the Meeting.
Matters incidental to the conduct of the Meeting which are properly
brought before the Meeting, including consideration of any adjournment or
postponement thereof, may also be voted upon at the Meeting. The General Partner
has fixed the close of business on July 14, 1997 as the record date for
determination of the Limited Partners entitled to notice of and to vote at the
Meeting.
The effectiveness of each of proposal (i) and proposal (ii) is
contingent on the approval of both proposal (i) and proposal (ii). Unless
proposal (i) and proposal (ii) are approved by the Limited Partners at the
meeting, neither proposal will be effected by the General Partner. The approval
of the proposals requires the affirmative vote of the Limited Partners who are
the holders of a majority of the Units and who are entitled to vote on the
proposals. Therefore, the failure to vote is the equivalent of a vote against
approval.
The General Partner recommends that the Limited Partners vote in favor
of the proposals because they are believed to be in the best interests of the
Limited Partners.
In order to assure that your interest will be represented, whether or
not you plan to attend the Meeting in person, please complete, date and sign the
enclosed proxy and return it promptly in the enclosed return envelope.
BY ORDER OF THE GENERAL PARTNER
McNEIL PARTNERS, L.P.
By: McNeil Investors, Inc., a
Delaware corporation and its
General Partner
By: /s/ Ron K. Taylor
--------------------------------
Ron K. Taylor, President
Dallas, Texas
July 14, 1997
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION 1
Matters to be Considered at Meeting 1
Summary 2
PROPOSAL NO. 1 3
Amendment to Partnership Agreement 3
The Purchase Agreement 3
General 3
Purchase Price 4
Inspection 4
Representations and Warranties 4
Partnership Representations and Warranties 4
Purchaser Representations and Warranties 4
Conditions 4
Closing and Closing Expenses 4
Existing Debt 5
Background and Reasons for the Proposed Sale 5
General 5
Icahn Tender Offers 5
Marketing of the Property; Agreement with Purchaser 6
Summary 8
Description of Real Estate 8
Interest of Certain Persons in Matters To Be Acted Upon 9
Recommendation of General Partner 10
PROPOSAL NO. 2 11
Introduction 11
Liquidation under the Partnership Agreement 11
Sources and Uses of Proceeds from the Proposed Sale and
Liquidation 12
Estimated Distributions to Limited Partners 13
Recommendation of the General Partner 14
Legal Proceedings 16
FINANCIAL STATEMENTS 17
SELECTED FINANCIAL DATA 17
MANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 18
Financial Condition 19
Results of Operations 19
Three Month Period ended March 31, 1997 compared to
Three Month Period Ended March 31, 1996 19
1996 compared to 1995 20
1995 compared to 1994 21
Liquidity and Capital Resources 22
MARKET FOR THE UNITS OF THE PARTNERSHIPAND RELATED
SECURITY HOLDER MATTERS 23
FEDERAL INCOME TAX CONSEQUENCES 23
Introduction 23
Income from Partnership Operations 24
Receipt of Liquidating Distributions 24
Taxation of Gains and Losses 24
Passive Activity Loss Provisions 24
Estimate of Tax Impact 25
OTHER MATTERS 25
Voting Rights and Vote Required 25
Effect of Negative Vote 25
Principal Holders of Units 26
Revocability 26
Proxy Solicitation 26
No Appraisal Rights 27
Effectuation of Proposals 27
APPENDIX A LEGAL OPINION A-1
APPENDIX B FINANCIAL STATEMENTS F-1
<PAGE>
McNeil Pacific Investors Fund 1972
13760 Noel Road
Suite 600, LB70
Dallas, Texas 75240
------------------------------
PROXY STATEMENT
------------------------------
MEETING OF
LIMITED PARTNERS
TO BE HELD AUGUST 12, 1997
------------------------------
INTRODUCTION
This Proxy Statement is being furnished to Limited Partners of McNeil
Pacific Investors Fund 1972, a California limited partnership (the
"Partnership"), in connection with the solicitation of proxies by McNeil
Partners, L.P., a Delaware limited partnership (the "General Partner"), to be
voted at the Meeting of Limited Partners to be held on August 12, 1997, at 1:00
p.m., Central Time, at the Quartz Room at the Dallas Parkway Hilton, 4801 LBJ
Freeway, Dallas, Texas 75244, and at any adjournment or postponement thereof
(the "Meeting"). This Proxy Statement and the enclosed form of proxy are first
being mailed to Limited Partners on or about July 14, 1997. The principal
executive offices of the Partnership are located at 13760 Noel Road, Suite 600,
LB70, Dallas, Texas 75240, and the telephone number at that location is (972)
448-5800.
Initially capitalized terms used in this Proxy Statement which are not
otherwise defined herein shall have the meanings ascribed to them in the
Restated Certificate and Agreement of Limited Partnership of the Partnership
dated as of March 8, 1972, as amended by the Amendment to Restated Certificate
and Agreement of Limited Partnership dated as of March 30, 1992 (the
"Partnership Agreement").
Matters to be Considered at Meeting
At the Meeting, Limited Partners will be asked to vote on two proposals
(the "Proposals") which will involve the following, as more fully described in
this Proxy Statement: (i) to approve an amendment to the Partnership Agreement
to authorize the General Partner to sell (the "Proposed Sale") the Palm Bay
Apartments located in Orlando, Florida (the "Property"), which Property
constitutes substantially all of the assets of the Partnership, to
Ceebraid-Signal Acquisition Corporation, a Florida corporation ("Purchaser"), on
the terms set forth herein; and (ii) if the Proposed Sale of the Property is
consummated, to approve the dissolution and termination of the Partnership and
to authorize the General Partner to liquidate the Partnership.
The effectiveness of each of proposal (i) and proposal (ii) is
contingent on the approval of both proposal (i) and proposal (ii). Unless
proposal (i) and proposal (ii) are approved by the Limited Partners at the
meeting, neither proposal will be effected by the General Partner. The approval
of the Proposals requires the affirmative vote of the Limited Partners who are
the holders of a majority of the Units and who are entitled to vote on the
Proposals. Therefore, the failure to vote is the equivalent of a vote against
approval.
<PAGE>
Representatives of the Partnership's principal accountants Arthur
Andersen LLP are expected to be present at the Meeting and are expected to be
available to respond to appropriate questions of the Limited Partners.
Matters incidental to the conduct of the Meeting which are properly
brought before the Meeting, including consideration of any adjournment or
postponement thereof, may also be voted upon at the Meeting.
The General Partner does not intend to bring any matters before the
Meeting other than those set forth in the Notice of Meeting and does not know of
any matters to be brought before the Meeting by others. If any matter should
come before the Meeting, it is the intention of the persons named in the
accompanying proxy to vote the units of limited partnership interest ("Units")
represented by the proxy in accordance with the judgment of the General Partner.
THE TRANSFER OF THE PARTNERSHIP'S PROPERTY MAY HAVE POTENTIALLY
SUBSTANTIAL TAX CONSEQUENCES TO THE LIMITED PARTNERS. SEE "FEDERAL INCOME TAX
CONSEQUENCES." LIMITED PARTNERS ARE STRONGLY URGED TO OBTAIN INDEPENDENT TAX
ADVICE IN CONNECTION WITH THEIR DECISION ON HOW TO VOTE AND TO READ THE "FEDERAL
INCOME TAX CONSEQUENCES" SECTION OF THIS PROXY STATEMENT CLOSELY.
Summary
The General Partner recommends that the Limited Partners vote in favor
of the Proposals because they are in the best interests of the Limited Partners.
The General Partner believes that the Proposed Sale and the subsequent
dissolution, liquidation and termination of the Partnership are in the best
interests of the Limited Partners. The Property is the only remaining property
of the Partnership. In October 1996, the General Partner determined to commence
marketing the sale of the Property, which resulted in the negotiation and
execution of a purchase agreement relating thereto. Pursuant to this agreement,
as amended, the Partnership agreed to sell the Property to Purchaser for
$6,750,000 cash if certain conditions are met, including obtaining the requisite
approval of the Limited Partners. The General Partner believes that at this time
the $6,750,000 purchase price fairly reflects the value of the Property, as more
particularly described below. See "Proposal No. 1 -- Background and Reasons for
the Proposed Sale."
The Proposed Sale, if consummated, will result in the disposition of
substantially all of the assets of the Partnership. After the distribution of
sales proceeds and the final accounting and administration, the General Partner
will liquidate and terminate the Partnership. The General Partner estimates that
following the consummation of the Proposed Sale and the payment of the debts and
liabilities of the Partnership, including the payment of an aggregate of
approximately $592,766 in fees and distributions to the General Partner, the
Partnership estimates that it will have approximately $4,360,825, or $317.09 per
Unit, available for distribution to the Limited Partners. However, due to
ongoing litigation, the precise timing and amount of distributions to the
Limited Partners has not yet been determined. See "Proposal No. 2 -- Estimated
Distributions to Limited Partners."
<PAGE>
PROPOSAL NO. 1
Amendment to Partnership Agreement
The Partnership Agreement must be amended to authorize the Proposed
Sale of the Property, which constitutes substantially all of the assets of the
Partnership. If the Proposals are approved, Paragraph 6.1(e) of the Partnership
Agreement will be amended to read in its entirety as follows:
"6.1 Powers and Rights. The General Partners shall have full, exclusive
and complete authority and discretion in the management and control of the
business of the Partnership for the purposes herein stated and shall make all
decisions affecting the business of the Partnership. The General Partners shall
manage and control the affairs of the Partnership to the best of their ability
and shall use their best efforts to carry out the business of the Partnership
set forth in Section 4, and in connection therewith the powers and rights of the
General Partners include, but are not limited to, the power and right to: . . .
(e) Sell, lease, trade, exchange or otherwise dispose of all or any
portion of Partnership property upon such terms and conditions and for
such consideration as the General Partners deem appropriate through
Agents paid on the terms set forth in Section 11.1; provided, that the
General Partners shall not sell or pledge substantially all of the
assets of the Partnership other than the pledge of assets upon and in
connection with the acquisition of such assets or the pledge of assets
in connection with the refinancing of substantially all of the assets
to obtain more favorable terms on obligations secured by the assets and
other than as provided for in any amendment to this Agreement adopted
in accordance with Section 12; provided that the General Partner is
authorized to sell, or cause the sale of, the Palm Bay Apartments
located in Orlando, Florida, which property constitutes substantially
all of the assets of the Partnership, to Ceebraid-Signal Acquisition
Corporation, or its assignee, pursuant to the terms and conditions in
that certain Real Estate Sales Agreement dated effective as of April
15, 1997 among MR Partners, Inc., Ceebraid-Signal Acquisition
Corporation and Pennsylvania Realty Group, Inc., as amended." (the
italicized words reflect the amendment)
In accordance with Paragraph 13.1 of the Partnership Agreement,
attached as Appendix A to this Proxy Statement is a legal opinion of Crosby,
Heafey, Roach & May as to the legality of the proposed amendment to the
Partnership Agreement.
The Purchase Agreement
General
MR Partners, Inc., a Nevada corporation and a wholly-owned subsidiary
of the Partnership (the "Subsidiary"), has entered into a Real Estate Sales
Agreement, as amended, dated effective as of April 15, 1997 (the "Purchase
Agreement") with Purchaser, which is unaffiliated with the Partnership or the
General Partner. In June 1991, the Partnership commenced foreclosure proceedings
pursuant to a mortgage on the Property, and in connection with such foreclosure
proceedings, the Subsidiary acquired title to the Property. However, pursuant to
the Nominee Agreement dated June 10, 1992 between the Partnership and the
Subsidiary, the Partnership is the beneficial and equitable owner of the
Property and the Subsidiary is merely the record owner of the Property.
<PAGE>
Therefore, for purposes of this Proxy Statement, the Partnership is referred to
as the owner of the Property. The Purchase Agreement was arrived at after
extensive arms length negotiation. The address of the Purchaser is 250 South
Australian Avenue, #1003, West Palm Beach, Florida 33401. Purchaser is a real
estate company.
The Purchase Agreement provides for the sale to Purchaser of all of the
Partnership's right, title and interest in the Property, the buildings and
improvements thereon, certain personal property, rental agreements and service
agreements relating to the Property, and all marks, names and trade names used
in connection with the Property. The Property comprises substantially all of the
assets of the Partnership.
Purchase Price
Pursuant to the Purchase Agreement, the Partnership will sell the
Property to Purchaser for $6,750,000. Purchaser has already paid $100,000 as
earnest money, and the balance of the purchase price will be paid in cash at the
Closing (defined below). The Purchase Agreement also provides that a brokerage
commission of two percent of the purchase price ($135,000) will be payable by
the Partnership to Smith Equities Corporation, a corporation that is not
affiliated with the Partnership or the General Partner.
Inspection
Purchaser has completed an inspection of the Property and of certain
documents and certain other materials provided by the Partnership.
Representations and Warranties
Partnership Representations and Warranties. Except to the extent
expressly stated in the Purchase Agreement, the Partnership will sell the
Property to Purchaser pursuant to the Purchase Agreement on an "AS IS, WHERE IS"
basis, with all faults, and without warranty or representation, express or
implied, as to merchantability or fitness for any particular use or purpose. In
the Purchase Agreement, the Partnership made representations and warranties to
Purchaser regarding the following environmental matters: except as disclosed in
environmental reports provided to Purchaser (i) the Partnership has not received
any written notices setting forth any violation of environmental laws; and (ii)
the Partnership has no actual knowledge of the existence of any hazardous
materials on the Property or the actual discharge, disbursal, release, storage,
treatment, etc. of hazardous materials on the Property.
Purchaser Representations and Warranties. Purchaser made
representations and warranties to the Partnership as to its authority to
purchase the Property and perform its obligations under the Purchase Agreement.
Conditions
The obligations of the parties to consummate the Proposed Sale are
subject to the fulfillment of certain conditions on or before the date of
Closing. The conditions to the Partnership's obligations to consummate the
Proposed Sale include the affirmative vote, pursuant to this Proxy Statement, in
favor of the Proposed Sale of the Limited Partners holding a majority of the
Limited Partner interests.
<PAGE>
No approval of any federal or state regulatory agency is required in
connection with the Proposed Sale.
Closing and Closing Expenses
If the Partnership satisfies or Purchaser waives the conditions in the
Purchase Agreement, the consummation of the Proposed Sale (the "Closing") will
take place pursuant to the Purchase Agreement on or before July 31, 1997,
subject to the Partnership's written notice to Purchaser that the Limited
Partners have approved the Proposed Sale and liquidation of the Partnership. The
Partnership may extend the closing thirty days to complete this proxy
solicitation. If the Limited Partners have not approved the Proposed Sale by the
time periods stated herein, Purchaser may terminate the Purchase Agreement,
require the Partnership to refund the earnest money deposit and require the
Partnership to pay Purchaser one-half of its due diligence costs and legal fees,
up to a maximum of $25,000.
The Partnership will be responsible for the following Closing expenses:
that portion of recordation fees, transfer taxes, escrow fees and closing costs
customarily paid by the seller, title insurance premiums, legal fees of its
counsel and pro rated ad valorem and personal property taxes. Purchaser will be
responsible for the following Closing expenses: that portion of recordation
fees, escrow fees and closing costs customarily paid by the purchaser, legal
fees of its counsel and pro rated ad valorem and personal property taxes.
Existing Debt
The Property is subject to a lien securing a loan payable to State
Street Bank and Trust Company (the "Lender"), as Indenture Trustee under an
Indenture dated as of December 18, 1995 between The Bank of New York, as Owner
Trustee, and the Lender, which loan is serviced by John Hancock Mutual Life
Insurance Company (the "Servicer"). The loan had a principal balance as of June
1, 1997 of approximately $1,950,131 (the "Existing Debt"). Although the loan
matured on June 1, 1997, the Servicer and the Partnership entered into a
forbearance letter dated May 16, 1997 pursuant to which the Servicer, on behalf
of the Lender, agreed to defer commencement of formal legal proceedings to
enforce the rights and remedies of the Lender under the loan documents until
September 1, 1997 provided that the Partnership makes monthly debt service
payments as in the past and provided that the balance is paid in full on or
before September 1, 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." At
Closing, the Partnership will repay all sums due on Existing Debt and any
accrued interest thereon, including a prepayment penalty of approximately
$19,249. See "Proposal No. 2 -- Sources and Uses of Proceeds from Proposed
Sale."
Background and Reasons for the Proposed Sale
General
The Partnership was formed in 1971 to engage in the business of owning,
operating and managing residential real estate. The original principal
objectives of the Partnership were to provide capital appreciation and
tax-deferred income to its partners. The Partnership acquired the buildings and
improvements on the Property on May 28, 1992 pursuant to foreclosure
proceedings. However, for accounting purposes the Partnership recorded the
mortgage note secured by the Property as an in-substance foreclosure on June 21,
1991. Since then, the Partnership has expended approximately $1,870,661 for
capital improvements on the Property.
<PAGE>
Icahn Tender Offers
In August 1995, High River Limited Partnership, a Delaware limited
partnership controlled by Carl C. Icahn ("High River"), made an unsolicited
tender offer (the "1995 Offer") to purchase from holders of Units up to
approximately 45% of the outstanding Units of the Partnership for a purchase
price of $110 per Unit. The Partnership recommended that the Limited Partners
reject the 1995 Offer and not tender their Units pursuant to the 1995 Offer. The
Partnership reached the conclusion to recommend rejection of the 1995 Offer
after considering a variety of factors, including, but not limited to, the
following: (i) the price per Unit offered by High River did not adequately
reflect the value inherent in the Units; (ii) the General Partner was
contemplating tender offers for the Units at a higher price than the offer made
by High River; (iii) Mr. Icahn's intentions were to take control of the
Partnership; and (iv) Mr. Icahn's suitability and intentions could not be fully
evaluated by the General Partner. Although the General Partner contemplated
making tender offers for the Units at a higher price than the High River offer,
the General Partner has not made any tender offers for the Units and is not
presently considering making a tender offer for the Units.
In September 1996, High River made another unsolicited tender offer
(the "1996 Offer") to purchase any and all of the outstanding Units of the
Partnership for a purchase price of $224.50 per Unit. In addition, High River
made unsolicited tender offers for certain other partnerships controlled by the
General Partner. The Partnership made no recommendation to the Limited Partners
concerning the tender offers made with respect to the Partnership. The General
Partner believes that, as of May 31, 1997, High River has purchased
approximately 11.68% of the outstanding Units. In addition, all litigation filed
by High River, Mr. Icahn and his affiliates in connection with the tender offers
has been dismissed without prejudice.
Marketing of the Property; Agreement with Purchaser
In October 1996, the General Partner determined to solicit offers for
the sale of the Property from a select group of persons who had either bought
properties from affiliates of the General Partner or had expressed an interest
in purchasing properties similar to the Property. In connection with this
solicitation, the General Partner prepared and sent written materials to a small
group of potential purchasers. In response to the General Partner's
solicitation, the General Partner received two offers to purchase the Property
(one offer to purchase at $5,800,000 and the other offer at either $7,500,000
with seller-carry financing or $7,000,000 cash).
As a result of the limited response to the Partner's initial
solicitation, the General Partner determined to market the sale of the Property
to a wider range of people to help realize the optimum market value of the
Property. In connection with this marketing effort, the General Partner prepared
a more detailed sales package and executive summaries announcing the sale of the
Property. The General Partner distributed approximately 230 executive summaries
and 59 sales packages in late December 1996 and early January 1997.
In response to the second solicitation, the General Partner received an
offer to purchase the Property for $7,200,000 cash. The parties soon executed a
letter of intent and began drafting the definitive sale contract. However,
during the contract negotiations, the prospective purchaser, after conducting
inspections of the Property, stated that it was not willing to purchase the
Property unless the price was lowered to cover the costs of deferred capital
needs which the prospective purchaser estimated at $800,000. The General Partner
rejected the price reduction and the transaction was canceled.
<PAGE>
While the proposed sale discussed above was pending, the General
Partner received other offers for the Property. After the first proposed sale
was canceled, the General Partner contacted the other offerors and made
counteroffers to the offers. However, each of the General Partner's
counteroffers was rejected.
The General Partner then received three new offers to purchase the
Property for prices ranging from $6,000,000 to $7,050,000. After reviewing these
offers, the General Partner determined to accept the $7,050,000 offer from
Pennsylvania Realty Group, Inc. ("PRG") subject to certain terms and conditions.
A letter of intent was executed on March 13, 1997, and the Purchase Agreement
was then negotiated and executed effective as of April 15, 1997.
In May 1997, after completing an inspection of the Property that
revealed the same deferred capital needs discovered by the previous prospective
purchaser, PRG determined not to purchase the Property. Pursuant to a letter
agreement dated May 14, 1997 among the Partnership, PRG and the Purchaser, PRG
assigned its rights under the Purchase Agreement to the Purchaser. Purchaser
replaced PRG's initial earnest money deposit of $50,000. The Partnership, PRG
and the Purchaser then executed and delivered the First Amendment to Real Estate
Sales Agreement dated as of May 22, 1997, which amendment reduced the purchase
price of the Property from $7,050,000 to $6,750,000 as a result of certain
deferred capital needs that had been identified as needed during an inspection
of the Property.
The General Partner believes that the $6,750,000 purchase price in the
Purchase Agreement fairly reflects the value of the Property and that the
Proposed Sale is in the best interest of the Limited Partners. In making this
determination, the General Partner took into account the recent estimates of
values of the Units by the General Partner in connection with the 1995 Offer and
the Partnership's financial advisor following the commencement of the 1996 Offer
as described below.
In response to the commencement of the 1995 Offer, the General Partner
prepared an estimate of the Partnership's net asset value per Unit for 1994 and
set forth such information in Amendment No. 6 to Schedule 14D-9 dated September
29, 1995. The estimate did not purport to be an estimate of fair market value of
the Units and did not purport to reflect the amounts the Limited Partners might
actually receive upon a liquidation of the Partnership because they did not take
into account transactional costs incurred on a sale of the Partnership's
Property or costs associated with winding up the Partnership. The estimate was
based on the General Partner's own estimates of the value of the Partnership's
Property and not on the basis of third party appraisals. The General Partner
derived its estimate of the value of the Partnership's Property from
capitalizing the net operating income derived from the Partnership's Property.
In estimating the aggregate value of the Partnership Property for 1994, the
General Partner first calculated the net operating income for that year. The
General Partner calculated the net operating income of $500,000 based on a
stabilized occupancy level of 90% because the actual net operating income for
1994 of $295,863 was low due to low occupancy levels during a renovation of the
Property and subsequent lease-up period. Then the General Partner capitalized
the net operating income amount at a 10% rate, which the General Partner
believed represents an appropriate capitalization rate for apartment properties.
The value of the Property was not adjusted for any specific market conditions.
The 1994 net asset value estimate per Unit of the Partnership determined as set
forth above was $271.70. The 1994 aggregate value estimate for the Partnership's
Property was $5,000,000.
<PAGE>
Further, in connection with the 1995 Offer, the General Partner made a
pro forma calculation of the amount each Limited Partner might receive in a
theoretical orderly liquidation based on the 1994 aggregate value estimate set
forth above, other financial information available to the General Partner and
certain other considerations. Based on the same method of estimating the
aggregate value of the Partnership's Property as the General Partner used in
calculating the 1994 aggregate value estimate, the General Partner estimated the
1995 aggregate value estimate of the Partnership's Property was $5,000,000. In
estimating the 1995 aggregate value estimate of the Partnership's Property, the
General Partner calculated the annualized net operating income of $500,000 based
on a stabilized occupancy level of 90% because the actual 1995 annualized net
operating income of $246,255 was low due to low occupancy levels during a
renovation of the Property and subsequent lease-up period. Then, the General
Partner made certain adjustments to complete its estimate of the amount of the
theoretical liquidation proceeds that would be distributable per Unit.
Specifically, the General Partner added the amounts of cash, escrows and other
investments shown on the Partnership's unaudited balance sheet at June 30, 1995.
The General Partner did not deduct any amounts in respect of the legal and other
costs which the General Partner expects would be incurred in a liquidation,
including costs of negotiating purchase and sale contracts, possibly conducting
a consent solicitation in order to obtain the Limited Partners' approval for the
sale, and winding up the Partnership because of the difficulty of estimating
those amounts. The estimated pro forma liquidation value per Unit of the
Partnership was $259.46.
In response to the commencement of the 1996 Offer, Crosson Dannis,
Inc., the Partnership's financial advisor ("Crosson Dannis"), prepared an
estimate of the present estimated liquidation value per Unit (the "Present
Estimated Liquidation Value") based on the assumptions that the Partnership
commence a theoretical orderly liquidation in January 1997 and complete such
liquidation by December 31, 1997 (the "Assumed Liquidation") and set forth such
information in the Partnership's Schedule 14D-9 dated October 4, 1996. The
Present Estimated Liquidation Value as of October 3, 1996 was between $233 and
$236 per Unit. The Present Estimated Liquidation Value represented Crosson
Dannis' estimate of the gross cash distributions that a Limited Partner would
receive between January 1997 and the completion of the Assumed Liquidation,
discounted to reflect the present value of such distributions. Crosson Dannis'
estimate of gross cash distributions per Unit following the liquidation of the
Partnership is $265.00. It should be noted that the Present Estimated
Liquidation Value did not represent an estimate by Crosson Dannis of the fair
market value of a Unit.
The Present Estimated Liquidation Value was based in part upon certain
estimated cash receipts and disbursements of the Partnership through the Assumed
Liquidation (the "Draft Projections"). The Draft Projections were reviewed by
various operating personnel for, among other things, appropriateness of
assumptions, timing of expected cash receipts and disbursements, cash reserves,
timing of scheduled loan repayments, and levels of cash flow. The Draft
Projections were considered by the management of the Partnership as the most
current long-term business plan of the Partnership. The Draft Projections were
prepared to estimate the level of cash flow each asset of the Partnership would
produce and the related expenditures and timing of the expenditures to achieve
the potential cash flow. The Draft Projections were based on the above and other
assumptions and on other general factors relating to the Partnership's business
or to more general economic conditions.
<PAGE>
The General Partner did not receive a fairness opinion regarding the
consideration to be received in connection with the Proposed Sale. The General
Partner did not believe that it was necessary to acquire a fairness opinion from
a financial advisor in connection with the Proposed Sale because the General
Partner is engaged in the business of buying, selling, and managing real estate,
including apartment buildings. Due to the General Partner's experience in
evaluating offers to purchase real estate, the General Partner did not believe
that it was in the best interests of the Limited Partners to incur substantial
fees for a fairness opinion.
Summary
As of the date of this Proxy Statement, since October 1996, the General
Partner has solicited offers for the sale of the Property, and other than as set
forth herein, the General Partner has not received an offer for the Property
which the General Partner perceives is as favorable as that received from
Purchaser. The purchase price to be paid by Purchaser exceeds the value of the
Property as estimated by the General Partner as described above. If the Proposed
Sale is not consummated, there can be no assurance that the Partnership will
receive additional offers with terms similar to those in the Purchase Agreement.
Description of Real Estate
The Property is an apartment community completed in 1974 which
currently consists of 346 units. The site of approximately 17.31 acres is
located in Orlando, Florida. The current mailing address of the Property is 2019
South Semoran Blvd., Orlando, Florida 32822. The Property consists of 33
buildings. Each unit contains a range with hood and fans, dishwasher, garbage
disposal, blinds, and central heating and air conditioning. Electricity is paid
directly by the tenants while the cost of water, gas, sewer and refuse removal
are billed to the Partnership. Each unit has either a balcony or a patio.
Set forth below is the Property's occupancy rate and approximate rent
per square foot on an annualized basis for the last five years and for the three
month period ended March 31, 1997.
As of March 31, As of December 31,
--------------- -------------------------------------------
1997 1996 1995 1994 1993 1992
Occupancy Rate
Rent Per Square Foot 97% 94% 86% 82% 77% 73%
$6.20* $5.83 $4.77 $4.58 $4.15 $3.71
* On an annualized basis.
Occupancy rate represents all units leased divided by the total number
of units of the Property as of December 31, or March 31, of the given year. Rent
per square foot represents all revenue, except interest, derived from the
Property's operations divided by the leasable square footage of the Property.
<PAGE>
Set forth below is certain other data relating to the Property as of
March 31, 1997.
<TABLE>
<CAPTION>
Net Basis 1997 Date
Property Description of Property Debt Property Tax Acquired
- -------- ----------- ----------- ---- ------------ --------
Palm Bay Apartments
<S> <C> <C> <C> <C> <C>
Orlando, Florida 346 Units $6,312,061 $1,987,254 $119,048* 5/92**
</TABLE>
* On an annualized basis.
** The Partnership acquired the buildings and improvements on the Property
on May 28, 1992 pursuant to foreclosure proceedings. However, for accounting
purposes the Partnership recorded the mortgage note secured by the Property as
an in-substance foreclosure on June 21, 1991.
For a discussion of the competitive conditions to which the Property
may be subject, see "Business -- Current Operations -- Competitive Conditions."
Interest of Certain Persons in Matters To Be Acted Upon
In connection with the consummation of the Proposed Sale and subsequent
liquidation and termination of the Partnership, the General Partner estimates
that it will receive (i) approximately $58,289 for the payment of the
Partnership Management Fee (defined below), (ii) approximately $135,000 for the
payment of the Agent Fee (defined below) and (iii) approximately $399,477 as the
General Partner's share of the Distribution Proceeds (defined below). Certain
statements in this "Interest of Certain Persons in Matters To Be Acted Upon,"
are forward-looking statements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The partnership management fee (the "Partnership Management Fee") is
payable to the General Partner pursuant to Paragraph 11.3 of the Partnership
Agreement as compensation for its services rendered in evaluating and selecting
the Property for the Partnership, making decisions as to the nature and terms of
the acquisition and disposition of the Property, selecting, retaining and
supervising consultants, contractors, architects, engineers, lenders, borrowers,
agents and others, and otherwise generally managing the day-to-day operations of
the Partnership. The Partnership Management Fee is an amount equal to 9.5% of
the distributions from the Cash From Operations (as defined in the Partnership
Agreement) and is payable only when distributions, including distributions other
than those in connection with the Proposed Sale, are made to the Limited
Partners. Based upon the information set forth below under "Proposal No. 2 --
Sources and Uses of Funds from the Proposed Sale and Liquidation" and "Proposal
No. 2 -- Estimated Distributions to Limited Partners," the General Partner has
estimated that the Partnership Management Fee will be approximately $58,289. No
Partnership Management Fee was incurred by the Partnership during 1996, 1995 or
1994.
<PAGE>
The agent fee (the "Agent Fee") is payable to the General Partner
pursuant to Paragraph 11.1 of the Partnership Agreement, for real estate
brokerage services in connection with the disposition of the Property. The
amount of the Agent Fee is the normal and competitive rate for similar services
in the locality where the services are performed but as to affiliates of the
General Partner is limited to 4%. The Agent Fee is payable upon the consummation
of the Proposed Sale. The General Partner has determined that the Agent Fee will
be approximately $135,000.
The General Partner is entitled to receive 9.5% of the Disposition
Proceeds (defined below) pursuant to Paragraph 11.3 of the Partnership
Agreement. Pursuant to the Partnership Agreement, "Disposition Proceeds" means
the net cash proceeds, which are not expended or held to defray charges and
expenses and to provide reserves in the manner set forth in the Partnership
Agreement and which are not reinvested, realized by the Partnership upon the
sale, refinancing or other disposition of any particular Partnership property or
investment (notes and other property other than cash received upon such sale,
refinancing or disposition shall not be included as net cash proceeds until and
to the extent actually paid, sold, refinanced or otherwise disposed of for
cash), and shall be determined on a property-by-property or
investment-by-investment basis. The General Partner has estimated that 9.5% of
the Disposition Proceeds from the Proposed Sale would be approximately $399,477.
The Partnership also currently pays property management fees equal to
6% of the gross rental receipts of the Property to an affiliate of the General
Partner for providing property management and leasing services. The Partnership
also reimburses affiliates of the General Partner for its costs, including
overhead, of administering the Partnership's affairs. For the year ended
December 31, 1996, the Partnership incurred $145,618 of property management fees
and reimbursable administrative costs.
Recommendation of General Partner
The General Partner recommends that the Limited Partners vote in favor
of Proposal No. 1 because it is believed to be in the best interests of the
Limited Partners. The General Partner has explored potential avenues to enhance
the value of the Limited Partners' Units in the Partnership. In addition, the
General Partner, in connection with the 1995 Offer, and the financial advisor of
the Partnership, in connection with the 1996 Offer, have undertaken a detailed
valuation of the Property held by the Partnership as well as the value of the
Units themselves as described above. Based on the General Partner's valuations
and efforts to enhance the value of the Partnership, the General Partner
believes that it can fairly evaluate the Proposed Sale. The General Partner
believes that the purchase price for the sale of the Property is an attractive
price and the Proposed Sale at this price is in the best interests of the
Limited Partners.
PROPOSAL NO. 2
Introduction
If the Proposals are approved and the Proposed Sale is consummated, the
Partnership will be dissolved, and the General Partner intends to liquidate and
terminate the affairs of the Partnership in accordance with the provisions of
the Partnership Agreement and California law, which governs the Partnership.
<PAGE>
Liquidation under the Partnership Agreement
Pursuant to Paragraph 10.7 of the Partnership Agreement, in the event
of dissolution, the General Partner shall wind up the affairs and sell or
otherwise liquidate or dispose of or abandon all of the Partnership assets as
promptly as is consistent with obtaining the fair value thereof and terminate
the Partnership.
Pursuant to Paragraph 10.7 of the Partnership Agreement, upon
liquidating the Partnership, the General Partner shall apply and distribute the
proceeds of the Partnership in the following order:
(i) all debts and liabilities of the Partnership, in the order as
provided by law, except debts and liabilities described below;
(ii) deduction of any reserves that the General Partner deems
reasonably necessary for contingent or unforeseen liabilities of the
Partnership (which reserves will be held in escrow);
(iii) distributions to the Limited Partners provided for in Paragraph
11.3 of the Partnership Agreement that had been allocated prior to the
date of dissolution but had not yet been paid;
(iv) the repayment of any loans or advances made by the General
Partner to the Partnership;
(v) payments and distributions to the General Partner provided for
in Paragraph 11.3 of the Partnership Agreement that had been
allocated prior to the date of dissolution but had not yet been paid;
and
(vi) 90.5% of the balance remaining, if any, to the Limited Partners
and 9.5% of the balance remaining, if any, to the General Partner.
If the Proposed Sale is consummated, the General Partner currently
intends to commence liquidation of the Partnership. However, the General Partner
has not yet determined the precise timing of distributions to the Limited
Partners that would occur after the consummation of the Proposed Sale and in
connection with the liquidation of the Partnership because the Partnership is
involved in certain litigation described below under "Business -- Legal
Proceedings." The Partnership believes that such litigation is without merit and
intends to vigorously defend such litigation. The actual amount of such
distributions will depend upon the Partnership's costs, expenses and potential
losses in connection with such litigation. Accordingly, there can be no
assurance as to the precise timing or amount of distributions to the Limited
Partners.
Sources and Uses of Proceeds from the Proposed Sale and Liquidation
<PAGE>
If the Limited Partners approve the Proposed Sale, and if the Closing
occurs based on a cash purchase price of $6,750,000, the General Partner
estimates that the Partnership will apply the cash payment and its existing cash
balances as follows:
Proposed Sale
Estimated Amounts
Sources of Funds in Connection with Proposed Sale: as of August 31, 1997
---------------------
Sale of Property $ 6,750,000
------------
Total $ 6,750,000
============
Use of Funds in Connection with Proposed Sale:
Transfer Tax $ (47,250)
Brokerage Commission (135,000)
Mortgage Loan
Principal Balance (1,924,929)
Accrued Interest/Prepayment Penalty and Mortgage Escrow 76,357
Property Taxes - 1997 (78,052)
Title Charges (23,075)
Legal Fees--Sale of Property (10,000)
Security Deposits (54,279)
Escrow Charges, Survey, Recording Fees (8,700)
Prepaid Rents (5,048)
------------
Total $ (2,209,976)
============
Net Sales Proceeds $ 4,540,024
------------------ ============
Liquidation and Termination
- ---------------------------
Sources of Fund in Connection with Liquidation and Termination:
- ---------------------------------------------------------------
Net Sales Proceeds $ 4,540,024
Cash (Inclusive of current year operations) 705,917
-------------
Total $ 5,245,941
=============
Use of Funds in Connection with Liquidation and Termination:
- ------------------------------------------------------------
Legal Fees--Proxy Statement $ (30,000)
Proxy Solicitation Costs, Including Copying and Mailing (6,000)
Securities and Exchange Commission Filing Fee (1,350)
Final Accounts Payable (35,000)
1997 Audit and K-1's (20,000)
-------------
Total $ (92,350)
=============
<PAGE>
Use of Funds in Connection with Debts and Obligations
Owing to General Partner:
Partnership Management Fee Payable $ (58,289)
Agent Fee* (135,000)
General Partner Share of Disposition Proceeds (399,477)
-------------
Total $ (592,766)
-------------
Net Proceeds Available for Distribution to
Limited Partners $ 4,560,825 **
=============
*Although the Agent Fee is due in connection with the Closing of the
Proposed Sale, the Agent Fee will not be paid to the General Partner until the
liquidation and termination of the Partnership.
**The General Partner intends to withhold approximately $200,000 to
cover legal fees and potential costs, expenses and losses from ongoing
litigation. There can be no assurance that funds withheld will be distributed to
Limited Partners due to the uncertainties inherent in the actual amount which
may be expended by the Partnership in connection with such litigation. If all or
a portion of the $200,000 reserve is not needed to cover litigation costs, such
amount will be distributed 90.5% to the Limited Partners and 9.5% to the General
Partner in accordance with the Partnership Agreement.
The statements made under "Sources and Uses of Proceeds from the
Proposed Sale and Liquidation" are forward-looking statements. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Estimated Distributions to Limited Partners
Set forth below is a table showing the aggregate distributions to
Limited Partners to date, and the estimated distributions to Limited Partners
and the estimated cash benefit to Limited Partners if the Proposed Sale is
consummated:
Distributions Total Per Unit
- ------------- -------------- ------------
Total Distributions to Date $ 40,155,620 $ 2,910.88
Distributions of Net
Proceeds Available
for Distribution after
Proposed Sale (Estimated):
To Limited Partners $ 4,360,825 $ 317.09
Estimated Tax Gain after Proposed Sale:
- ---------------------------------------
To Limited Partners $ 1,525,388 $ 110.92
Estimated Cash
Impact to Limited Partners Per Unit
- -----------------------------------
Tax Cost* -- $ (31.06)
Cash Distributions -- $ 317.09
Total Cash Benefit -- $ 286.03
<PAGE>
*Based on an estimated tax gain per Unit of $110.92, and an assumed tax
rate of 28%, the estimated tax cost to such Limited Partners per Unit will be
$31.06. The actual tax cost to a Limited Partner, however, will depend upon the
marginal tax rate of that Limited Partner and may be more than or less than this
amount. The above estimates are based solely on current year operations and the
tax gain to be recognized by the Partnership as a result of the Proposed Sale
and do not consider the possibility that a Limited Partner may recognize a tax
loss (or tax gain) on the liquidation of the Partnership. See "Federal Income
Tax Consequences" for additional information on the federal income tax
consequences of the Proposed Sale and distributions.
The estimated distributions, tax gain and cash impact set forth above
are based on the following assumptions: (i) the sources and uses of funds set
forth above will accurately reflect the actual expenses in connection with the
Proposed Sale and liquidation and (ii) $200,000 will be expended by the
Partnership to cover legal fees, costs, expenses and losses in connection with
the litigation described in "Business -- Legal Proceedings." See "Proposal No. 2
- -- Sources and Uses of Funds from the Proposed Sale and Liquidation." If all or
a portion of the $200,000 reserve is not needed to cover litigation costs, such
amount will be distributed 90.5% to the Limited Partners and 9.5% to the General
Partner in accordance with the Partnership Agreement.
The General Partner will receive certain fees and distributions from
the Partnership in connection with the Proposed Sale and the liquidation of the
Partnership. See "Proposal No. 1 -- Interest of Certain Persons in Matters To
Be Acted Upon."
Although the General Partner currently anticipates making distributions
to the Limited Partners set forth above if the Proposed Sale is consummated, the
precise timing and actual amount of such distributions has not been determined
and the amount of such distributions may be subject to change due to ongoing
litigation. See "Proposal No. 2 -- Liquidation under the Partnership Agreement."
The statements made under "Estimated Distributions to Limited Partners"
are forward-looking statements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Recommendation of the General Partner
The General Partner recommends that the Limited Partners vote in favor
of Proposal No. 2 because it is believed to be in the best interests of the
Limited Partners. The Partnership was formed to acquire, operate and ultimately
dispose of a portfolio of income-producing real properties. The Property is the
only remaining property of the Partnership. Once the Property is sold, the
Partnership will own no operating assets and it will no longer have a portfolio
of real property. The General Partner has determined that because the purpose of
the Partnership will have been fulfilled upon the consummation of the sale of
the Property, it is in the best interests of the Limited Partners to liquidate
any remaining assets and, at a future date determined appropriate by the General
Partner, make final distributions to the Limited Partners.
<PAGE>
BUSINESS
Organization
The Partnership was organized September 30, 1971 as a limited
partnership under provisions of the California Uniform Limited Partnership Act.
The General Partner is McNeil Partners, L.P., a Delaware limited partnership, an
affiliate of Robert A. McNeil ("McNeil"). The General Partner was elected at a
meeting of limited partners on March 30, 1992, at which time the Partnership
Agreement was amended. Prior to March 30, 1992, Pacific Investors Corporation
(the "Corporate General Partner"), an affiliate of Southmark Corporation
("Southmark"), and McNeil were the general partners of the Partnership. The
principal place of business for the Partnership and the General Partner is 13760
Noel Road, Suite 600, LB70, Dallas, Texas, 75240.
Current Operations
General
The Partnership is engaged in real estate activities, including the
ownership, operation and management of residential rental real estate and other
real estate related assets. The only income-producing property currently owned
by the Partnership is the Property.
The Partnership does not directly employ any personnel. The General
Partner conducts the business of the Partnership directly and through its
affiliates. The Partnership is managed by the General Partner. In accordance
with the Partnership Agreement, the Partnership reimburses affiliates of the
General Partner for certain expenses incurred by the affiliates in connection
with the management of the Partnership. See "Proposal No. 1 -- Interest of
Certain Persons in Matters to be Acted Upon."
The business of the Partnership to date has involved only one industry
segment. The Partnership has no foreign operations. The business of the
Partnership is not seasonal.
Business Plan
The Partnership determined to evaluate market and other economic
conditions to establish the optimum time to commence liquidation of the
Partnership's asset. However, there can be no assurance as to the timing of the
liquidation due to real estate market conditions, the general difficulty of
disposing of real estate, and other general economic factors. In this regard, in
October 1996 the Partnership placed the Property on the market for sale. See
"Proposal No. 1 -- Background and Reasons for the Proposed Sale." Until such
time as the Property is sold, the Partnership's plan of operations is to
preserve or increase the net operating income of the Property whenever possible,
while at the same time making whatever capital expenditures are reasonable under
the circumstances in order to preserve and enhance the value of the Property.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<PAGE>
Competitive Conditions
Since the principal business of the Partnership is to own and operate
real estate, the Partnership is subject to all of the risks incident to
ownership of real estate and interests therein, many of which relate to the
illiquidity of this type of investment. These risks include changes in general
or local economic conditions, changes in supply or demand for competing
properties in an area, changes in interest rates and availability of permanent
mortgage funds which may render the sale or refinancing of a property difficult
or unattractive, changes in real estate and zoning laws, increases in real
property tax rates and Federal or local economic or rent controls. The
illiquidity of real estate investments generally impairs the ability of the
Partnership to respond promptly to changed circumstances. The Partnership
competes with numerous established companies, private investors (including
foreign investors), real estate investment trusts, limited partnerships and
other entities (many of which have greater resources than the Partnership) in
connection with the sale, financing and leasing of properties. The impact of
these risks on the Partnership, including losses from operations and
foreclosures of the Partnership's properties, are described in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The financial performance of the Property has improved as a result of
the capital renovation program. Occupancy rates have risen from 63% at the date
the Partnership repossessed the Property in 1992 to 94% at the end of 1996.
Occupancy rates in the submarket average 90%. Rental rates have also improved
due to the renovation program. The renovation program has made the property much
more competitive in its market. The local area offers diverse competition from
high quality property to low quality subsidized housing. The property's location
and townhouse units give it a competitive edge in the market. Conversely,
several of the property's competitors offer tax-subsidized rental rates. An
interior upgrade program is addressing the dated appearance of the units'
interiors so that the property can compete effectively with the newer properties
in the area.
Other Information
The environmental laws of the Federal government and of certain state
and local governments impose liability on current property owners for the
clean-up of hazardous and toxic substances discharged on the property. This
liability may be imposed without regard to the timing, cause or person
responsible for the release of such substances onto the property. The
Partnership could be subject to such liability in the event that the property
has such environmental problems. The Partnership has no knowledge of any pending
claims or proceedings regarding such environmental problems.
Legal Proceedings
1. James F. Schofield, Gerald C. Gillett and Donna S. Gillett vs.
McNeil Partners, L.P., McNeil Investors, Inc., McNeil Real Estate
Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific
Investors Fund 1972, McNeil Real Estate Fund IX, Ltd., McNeil Real
Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real
Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real
Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real
Estate Fund XXV, L.P., et al. - Superior Court of the State of
California for the County of Los Angeles, Case No. BC13799 (Class and
Derivative Action Complaint)
<PAGE>
This is a corporate/securities class and derivative action brought in
state court by limited partners of each of the fourteen (14) limited
partnerships that are named as nominal defendants as listed above (as
defined in this Section 1, "Partnerships"). Plaintiffs allege that
McNeil Investors, Inc., its affiliate McNeil Estate Management, Inc.,
three (3) of their senior officers and/or directors and McNeil
Partners, L.P. (as defined in this Section 1, the "Defendants") have
breached their fiduciary duties and the Partnership Agreement. Among
other things, Plaintiffs allege that the management fees paid to the
McNeil affiliates over the last six years are excessive, that these
fees should be reduced retroactively and that the respective Amended
Partnership Agreements governing the Partnerships are in whole or in
part invalid. Plaintiffs also allege that Defendants have caused the
Partnerships to enter into several wasteful transactions that have no
business purposes or benefit to the Partnerships and which have
rendered such units highly illiquid and artificially depressed the
prices that are available for units on the limited resale market.
Plaintiffs also allege that Defendants have engaged in a course of
conduct to prevent the acquisition of units by Carl Icahn by
disseminating false, misleading and inadequate information. Plaintiffs
further allege that Defendants have acted to advance their own personal
interests at the expense of the Partnerships' public unit holders by
failing to sell Partnership properties and failing to make
distributions to unitholders and, thereby, have breached the
Partnership Agreements.
On December 16, 1996, the Plaintiffs filed a consolidated and amended
complaint. Plaintiffs are suing for breach of fiduciary duty, breach of
contract and an accounting. On January 7, 1997, the Court ordered
consolidation with three other similar actions listed below.
Defendants filed a demurrer to the consolidated and amended complaint
and a motion to strike on February 14, 1997, seeking to dismiss the
consolidated and amended complaint in all respects. A hearing on
Defendant's demurrer and motion to strike was held on May 5, 1997. The
Court granted Defendants' demurrer, dismissing the consolidated and
amended complaint with leave to amend.
The Defendants deny that there is any merit to Plaintiff's allegations
and intend to vigorously defend these actions.
2. Alfred Napoletano vs. McNeil Partners, L.P., McNeil Investors, Inc.,
Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972,
Ltd., McNeil Real Estate Fund V, Ltd., McNeil Real Estate Fund IX,
Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI,
Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV,
Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV,
L.P., McNeil Real Estate Fund XXV, L.P. - Superior Court of the State
of California, County of Los Angeles, Case No. BC133849 (class action
complaint).
On January 7, 1997, this action was consolidated by court order with
Schofield, et al., referenced above.
<PAGE>
3. Warren Heller vs. McNeil Partners, L.P., McNeil Investors, Inc.,
Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972,
Ltd., McNeil Real Estate Fund V, Ltd., McNeil Real Estate Fund IX,
Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI,
Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV,
Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXIV,
L.P., McNeil Real Estate Fund XXV, L.P. - Superior Court of the State
of California, County of Los Angeles, Case No. BC133957 (class action
complaint).
On January 7, 1997, this action was consolidated by court order with
Schofield, et al., referenced above.
4. Robert Lewis v. McNeil Partners, L.P., McNeil Investors, Inc.,
Robert A. McNeil et al. - District Court of Dallas County, Texas,
A-14th Judicial District, Cause No. 95-08535 (Class Action).
Plaintiff, Robert Lewis, is a limited partner with the Partnership,
McNeil Real Estate Fund X, Ltd. and McNeil Real Estate Fund XV, Ltd.
On April 11, 1996, the action was dismissed without prejudice in
anticipation of consolidation with other class action complaints. On
January 7, 1997, this action was consolidated by court order with
Schofield, et al., referenced above.
FINANCIAL STATEMENTS
The audited Balance Sheets of the Partnership as of December 31, 1996
and 1995 and the audited Statements of Operations, Statements of Partners'
Equity and Statements of Cash Flows for the years ended December 31, 1996, 1995
and 1994 are included in the Appendix B hereto. In addition, the financial
statements of the Partnership for the three months ended March 31, 1997 are
unaudited, but in the opinion of the General Partner include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair statement
of the unaudited interim period data. The results of operations of the interim
periods are not necessarily indicative of the results to be expected for an
entire year.
Pro forma financial statements illustrating the approximate financial
consequence to the Partnership of the Proposed Sale are not presented because
the financial consequence to the Partnership is shown above in "Proposal No. 2"
and because the Partnership will have no operations after the sale of the
Property.
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth a summary of certain financial data for
the Partnership. This summary should be read in conjunction with the
Partnership's financial statements and notes relating thereto appearing
elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
Statements of Years Ended December 31,
Operations 1996 1995 1994 1993 1992
- ------------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Rental revenue $ 1,688,524 $ 1,376,148 $ 1,475,264 $ 1,894,385 $ 1,815,723
Gain on sale of
real estate - - 574,701 - -
Total revenue 1,715,535 1,439,428 2,095,660 1,908,162 1,870,452
Write-down for
impairment
of real estate - - - 2,700,000 -
Net income (loss) 104,539 (285,886) 433,544 (3,102,551) (816,851)
Net income (loss) per
limited partnership unit $ 7.60 $ (20.79) $ 48.52 $ (224.90) $ (59.21)
=========== ========== ========== =========== ===========
As of December 31,
Balance Sheets 1996 1995 1994 1993 1992
- -------------------- ------------- ------------ ----------- ------------- ------------
Real estate
investments, net $ - $ 6,335,493 $ 6,239,081 $ 5,814,474 $11,528,672
Assets held for sale 6,253,753 - - 3,209,269 -
Total assets 6,957,388 6,993,903 7,516,368 9,405,117 12,665,342
Mortgage notes payable 2,023,577 2,161,204 2,287,341 4,523,714 4,738,775
Partners' equity 4,819,521 4,714,982 5,000,868 4,567,324 7,669,875
</TABLE>
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Partnership sold the Pacesetter Apartments on March 17, 1994.
Three Months Ended
March 31,
----------------------------------------
Statement of Operations 1997 1996
- ----------------------- -------------- --------------------
Rental revenue $ 446,579 $ 390,949
Net income (loss) $ 89,244 $ (40,478)
Net income (loss) per limited
partnership unit $ 6.49 $ (2.94)
As of March 31, As of December 31,
Balance Sheets 1997 1996
- -------------- ----------------- --------------------
Total assets $ 7,030,619 $ 6,957,388
Mortgage note payable $ 1,987,254 $ 2,023,577
Partners' equity $ 4,908,765 $ 4,819,521
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Information
Certain statements are made herein as to the expected occupancy trends,
financial condition, results of operations, and cash flows of the Partnership
for periods after March 31, 1997. All of these statements are forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These statements are not historical and involve
risks and uncertainties. The Partnership's actual occupancy trends, financial
condition, results of operations, and cash flows for future periods may differ
materially due to several factors. These factors include, but are not limited
to, the Partnership's ability to control costs, make necessary capital
improvements, negotiate the sale or refinancing of its property and respond to
changing economic and competitive factors, and the effect of severe weather or
natural disasters.
Financial Condition
Net income of the Partnership has increased in recent periods. For the
year ended December 31, 1996, net income increased $390,425 to $104,539 as
compared to a $285,886 net loss reported for the year ended December 31, 1995.
For the most recent quarter, net income increased $129,722 to $89,244 as
compared to a $40,478 net loss reported for the first quarter of 1995. The
capital improvement program begun shortly after the Partnership repossessed the
Property has allowed the Partnership (i) to improve the physical condition of
the Property, (ii) to improve the tenant profile of the Property and (iii) to
improve the occupancy rate at the Property. Accomplishment of these three steps
has allowed the Partnership to begin implementing selected rental rate increases
at the Property. In May 1997, the Partnership increased base rental rates at the
Property by an average of 4%.
Since the sale of Pacesetter Apartments on March 17, 1994, the focus of
the Partnership's efforts has been directed to the renovation program at the
Property. Since repossessing the Property, the Partnership has completed capital
renovation projects totalling $1,870,661. Occupancy rates have improved from 63%
shortly after the Partnership repossessed the Property, to 97% at March 31,
1997. In October 1996, the General Partner decided to begin marketing the
Property for sale. This decision was based on favorable market conditions, the
improved performance of the Property, and the June 1, 1997 maturity of the
Property's mortgage note.
As the Partnership's last real estate asset, a sale of the Property
would also begin the process of dissolving the Partnership and, after
establishing reserves for contingencies and winding up expenses, distributing
all remaining Partnership funds to the partners.
Results of Operations
Three Month Period ended March 31, 1997 compared to Three Month
Period Ended March 31, 1996
<PAGE>
Revenues
Rental revenues at the Property increased $55,630 or 14.2% for
the first quarter of 1997 as compared to the first quarter of 1996. Most of the
increase in rental revenue was obtained by improving the occupancy rate of the
Property. Vacancy losses decreased 52%, and other rental discounts and
concessions decreased 77%. The occupancy rate at March 31 improved to 97.1% from
94.2% at December 31, 1996 and 93.4% at March 31, 1996. The Partnership also
increased base rental rates an average of 2% for the Property's units. Although
small rental rate increases have been implemented, most of the increase in
rental revenues is from improved occupancy rates at the Property.
Expenses
Partnership expenses decreased $73,125 or 16.7% in the first
quarter of 1997 as compared to the first quarter of 1996. In accordance with
accounting standards, the Partnership ceased depreciating the Property after
deciding to sell the Property in October 1996. Thus, no depreciation is recorded
for the first quarter of 1997 as opposed to $95,676 of depreciation during the
first quarter of 1996.
Excluding depreciation, expenses increased $22,551 or 6.6% in
the first quarter of 1997. Increases in personnel expenses and other property
operating expenses were partially offset by decreased interest expense.
Personnel expenses increased $14,997 or 21% for the first
quarter of 1997 as compared to 1996. Incentive based compensation increased
during the first quarter reflecting improved operating results over the past
year. Also, expenses for contract and temporary workers increased during the
first quarter due to staff turnover.
Other property operating expenses increased $10,444 or 35% for
the first quarter of 1997 as compared to 1996. The Property recorded increased
costs related to advertising and other marketing expenses as well as increased
expenses related to tenant retention, credit and collection expenses.
Interest expense decreased $8,737 or 15.9% in the first
quarter of 1997 as compared to the first quarter of 1996. Interest expense on
the Property mortgage note continues to decrease as the balance of the note is
paid down through monthly debt service payments. Approximately half of the
decrease is attributable to a one-time adjustment that increased interest
expense in 1996.
1996 compared to 1995
Revenue
Rental revenue increased $312,376 or 23% in 1996 compared to
1995. Base rental rates were increased 1.7% at the Property during 1996.
However, most of the increased rental revenue came from improved occupancy at
the Property. The capital improvement program and other management strategies
have successfully improved the tenant profile, increased base rental rates, and
raised the occupancy rate to acceptable levels.
Interest revenue decreased 57% because the Partnership did not
have as much cash and cash equivalents invested in interest bearing accounts in
1996 compared to 1995.
<PAGE>
Expenses
Partnership expenses decreased $114,318 or 6.7% in 1996
compared to 1995. Increased expenses were concentrated in property taxes,
personnel expenses, property management fees, and general and administrative
expenses. However, these increases were more than offset by decreases in
depreciation, repairs and maintenance, utilities, and general and administrative
expenses paid to affiliates.
Property taxes increased 19% due to an increased assessed
valuation of the Property. Prior to 1994, the assessed value of the Property
remained relatively low as a result of the deferred maintenance at the property.
The extensive capital renovation program has enhanced the value of the property
and raised its assessed value for property tax purposes.
Personnel expenses increased $20,993 or 8.7% in 1996 compared
to 1995. The Partnership increased maintenance staffing at the Property. The
additional staffing enabled the property to assume some of the maintenance tasks
formerly done by outside contractors. The additional staffing also gives
management more flexibility in scheduling work orders for repairs requested by
tenants and thereby helps to improve relations with the Property's tenants.
Property management fees-affiliates increased $20,207 or 25%
in 1996 compared to 1995. The increase in net rental revenue of the Property
also caused a corresponding increase in property management fees that are based
on a percentage of rental receipts of the Property.
The increase in occupancy at the Property allowed the
Partnership to reduce expenditures for advertising and referral or locator fees.
Improving the tenant profile generally will decrease the amount of bad debts
incurred by a property.
These factors led to a $52,655 or 28% decrease in other property operating
expenses.
General and administrative expense increased $12,258 or 19.0%
in 1996 compared to 1995. Most of the increase was due to increased expenditures
incurred during 1996 to respond to and disseminate information about an
unsolicited tender offer for the Partnership's Units.
Depreciation expense decreased $50,493 or 14.7% in 1996
compared to 1995. The Partnership ceased depreciating its investment in the
Property after the October 1, 1996 decision to market the property for sale.
Otherwise, 1996 depreciation charges would have increased approximately 15% over
depreciation charges incurred in 1995.
Repairs and maintenance expense decreased $33,997 or 9.8% in
1996 compared to 1995. New capital assets have replaced older assets that needed
repairs. Furthermore, raising the occupancy rate, and improving both the tenant
profile and tenant turnover have decreased make-ready costs associated with
releasing apartments units to new tenants.
Improved occupancy means that more tenants are paying for
electricity for their individual units. Otherwise, the Partnership bears the
cost of keeping utilities turned on in vacant units. This factor led to a
$15,153 or 18.7% decrease in utility expenses for the Partnership.
<PAGE>
Finally, general and administrative expenses paid to
affiliates decreased $34,660 or 43% in 1996 compared to 1995. This decrease is
due to a reduced level of overhead expenses charged to the Partnership by
affiliates.
1995 compared to 1994
Revenue
Rental revenues for 1995 decreased $99,116 or 6.7% compared to
1994. The decrease was principally due to the sale of Pacesetter Apartments in
March 1994. Rental revenue from the Property increased $54,794 or 4.1%. The
Partnership was able to increase both occupancy and base rental rates due to the
major capital improvements undertaken at the Property. The occupancy rate at
December 31, 1995 was 86%, up from 82% at December 31, 1994. The Partnership
increased rental rates at the Property an average of 2.9% in 1995.
Revenues for 1994 also included the $574,701 gain on the sale
of Pacesetter Apartments.
Expenses
Partnership expenses increased $63,198 or 3.8% in 1995
compared to 1994. However, after excluding expenses pertaining to Pacesetter
Apartments, expenses increased $238,253 or 18% in 1995 compared to 1994.
Increased expenses were concentrated in depreciation, repair and maintenance,
other property operating, and general and administrative.
The largest increase, on both an absolute and percentage
basis, was the increase in depreciation expense. Depreciation expense at the
Property increased $121,331 or 54% in 1995 compared to 1994. The increase in
depreciation expense was due to the continued investment of Partnership
resources into capital improvements. During 1995, the Partnership invested
$440,906 in capital improvements. These capital improvements are generally being
depreciated over lives ranging from five to ten years.
Repairs and maintenance expenses at the Property increased
$54,740 or 19% in 1995 as compared to 1994. The increased level of repairs and
maintenance expenses are attributable to costs incurred preparing vacant units
for rental. Repairs and maintenance expenses were expected to increase until the
Property's occupancy rate stabilized.
Other property operating expenses increased substantially at
the Property. Efforts to refurbish down units and intensive leasing activity had
increased a number of expense categories to unusually high levels. The General
Partner anticipated that these expenses would decrease after the restored units
have been leased. The increase in other property operating expenses at the
Property totaled $61,564 or 47%.
Property management fees - affiliates at the Property
increased $14,390 or 22% in 1995 compared to 1994. An increase in rental
receipts, upon which such fees are based, and the increase in the management fee
percentage to 6% from 5% (effective January 1, 1995) were the reasons for the
increase.
<PAGE>
General and administrative for 1995 increased $34,678 or 116%
compared to 1994. The Partnership incurred $44,554 of costs during 1995 relating
to the evaluation and dissemination of information regarding an unsolicited
tender offer.
General and administrative - affiliates increased $14,312 or
22% in 1995 compared to 1994. Reimbursements to affiliates are based, in part,
on a declining number of properties managed by affiliates of the General
Partner.
Liquidity and Capital Resources
Cash generated by Partnership operating activities increased to $90,685
for the first quarter of 1997, a 61% increase over the $56,238 generated by
operating activities during the first quarter of 1996. For the year ended
December 31, 1996, cash generated by operating activities increased to $407,530
from $28,071 for the year ended December 31, 1995. The capital renovation
projects undertaken at the Property during the past three years have enabled the
Partnership to improve the condition of the Property, to improve the tenant
profile of the Property, and finally to improve the occupancy rate of the
Property. These steps, all beginning with the capital renovation program, now
allow the Property to compete effectively with other apartment communities in
the surrounding area.
For the balance of 1997, cash flow from operations is projected to be
sufficient to pay for current operating expenses, budgeted capital improvements,
and repayment of the Property's mortgage note through monthly debt service
payments. With the renovation of the Property now complete, and net operating
income restored to acceptable levels, the Partnership is now in a position to
dispose of its investment in the Property profitably.
The Partnership's investing activities since the March 17, 1994 sale of
Pacesetter Apartments have been limited to renovating the Property. Capital
expended for capital improvements at the Property totaled $212,261 and $440,906
for the years ended December 31, 1996 and 1995, respectively. An additional
$58,308 was expended for capital improvements during the first quarter of 1997.
Financing activities since the sale of Pacesetter Apartments have been
limited to repayment of the Property's mortgage note through regularly scheduled
monthly debt-service payments. Such payments totaled $137,627 and $126,137 for
the years ended December 31, 1996 and 1995, respectively. An additional $36,323
of principal payments occurred during the first quarter of 1997.
Short-term Liquidity
The Property's mortgage note was scheduled to mature on June 1, 1997.
The General Partner discussed the impending maturity of the mortgage note and
the prospects for sale of the Property with the holder of the mortgage note.
Pursuant to those discussions, the holder of the mortgage note executed a
forbearance letter on May 16, 1997, stating that the mortgage note holder will
forbear from exercising its rights under the loan documents until September 1,
1997 so long as the Partnership continues paying monthly debt service payments
as in the past. This agreement effectively extends the date the Partnership will
have to payoff the mortgage until September 1, 1997. If the sale of the Property
is consummated as scheduled on August 31, 1997, approximately $1,924,929 of
sales proceeds will be required to payoff the mortgage note.
<PAGE>
The Partnership does not have and will not have adequate cash reserves
to pay off the mortgage note before September 1, 1997 unless the Partnership can
successfully sell the Property before that date. Should the Partnership be
required to pay off the Property mortgage note prior to the sale of the
Property, the General Partner will attempt to arrange interim financing from an
affiliate of the General Partner or from a third party. The General Partner does
not anticipate unusual difficulties securing temporary financing for the
Property given the high level of equity the Partnership has in the Property and
the Partnership's decision to sell the Property. However, such temporary
financing, if needed, is not assured.
At March 31, 1997, the Partnership held $577,085 of cash and cash
equivalents, down $3,946 from the balance at the end of 1996. Except for the
impending maturity of the Property's mortgage note, the General Partner
considers the Partnership's cash reserves adequate for anticipated Partnership
operations for the balance of 1997, or until the Property is sold. Furthermore,
the General Partner believes that operations at the Property will generate
sufficient cash flow to pay the operating expenses of the Property, pay the
required monthly debt service payments on the Property's mortgage note, and
provide funds to make necessary capital improvements to the Property.
Long-term Liquidity
The Partnership has determined to begin an orderly liquidation of the
Partnership's remaining assets. Although there can be no assurance as to the
timing of any liquidation, it is anticipated that such liquidation would result
in distributions to the Limited Partners of the net cash proceeds from the sale
of the Property, subject to cash reserve requirements (including an estimated
reserve of $200,000 to provide for legal fees and potential costs, expenses and
losses from ongoing litigation), to be followed by a dissolution of the
Partnership. Consummation of any contract to sell the Property is contingent
upon the approval of the sale by the Limited Partners.
Distributions
Distributions to partners have been suspended as part of the General
Partner's policy of maintaining adequate cash reserves. Distributions to Limited
Partners will remain suspended until the Property is sold and all liabilities of
the Partnership are either paid or adequately reserved for. The General Partner
will continue to monitor the cash reserves and working capital needs of the
Partnership to determine when cash flows will support distributions to the
Limited Partners.
MARKET FOR THE UNITS OF THE PARTNERSHIP
AND RELATED SECURITY HOLDER MATTERS
There is no established public trading market for Units issued by the
Partnership, nor is one expected to develop.
Title of Class Number of Record Unit Holders
-------------- -----------------------------
Limited partnership units 1,186 as of May 31, 1997
No distributions were made to the Limited Partners in 1996 or 1995.
Subject to certain contingencies, distributions to the Limited Partners are
anticipated in 1997 or 1998 if the Proposed Sale is consummated. See
"Proposal No. 2 -- Estimated Distributions to Limited Partners."
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
Introduction
The following discussion is a summary of the material federal income
tax consequences of the Proposed Sale and liquidation of the Partnership to
Limited Partners that are United States individual taxpayers or domestic
corporate taxpayers. The discussion does not summarize the tax consequences
peculiar to nonresident foreign investors, tax exempt entities or other persons
subject to special treatment under federal income tax laws. No ruling has been
or will be requested from the Internal Revenue Service as to the federal income
tax matters discussed herein. The actual tax consequences to a particular
Limited Partner will depend on the Limited Partner's own tax circumstances.
Accordingly, Limited Partners are urged to consult their own tax advisors with
respect to the tax consequences of the Proposed Sale and liquidation as they are
individually affected. Further, persons who are assignees or successors in
interest with respect to the Partnership interest of another person should
consult their own tax advisor with respect to the tax consequences to them of
the Proposed Sale and liquidation. The discussion below is based upon the
Internal Revenue Code of 1986, as amended, existing judicial decisions,
administrative regulations and published rulings, each of which is subject to
change, possibly on a retroactive basis. No assurance can be given that future
legislative, judicial or administrative changes would not adversely affect the
tax consequences to Limited Partners of the Proposed Sale and liquidation.
Income from Partnership Operations
Any item of income, gain, loss, deduction or credit recognized by the
Partnership in addition to the income, gain or loss resulting from the transfer
of the Partnership's Property, whether recognized prior to the transfer and sale
or recognized during the period of liquidation, will continue to be allocated
among the Partners as provided in the Partnership Agreement. Each Limited
Partner will continue to receive Partnership income tax information to enable
the distributive share of all such Partnership taxable items allocated during
the period of liquidation to be reported.
Receipt of Liquidating Distributions
Because the liquidating distribution will consist entirely of cash, a
Limited Partner will recognize a tax loss (or tax gain) equal to the amount by
which the Limited Partner's tax basis in such Units is greater than (or less
than) the amount of liquidating distributions. A Limited Partner's tax basis in
his or her Units will generally equal the price originally paid for the Units
(or the tax basis of the property exchanged for the Units) increased by his or
her distributive share of Partnership taxable income and decreased by the
distributive share of Partnership taxable losses and the amount of cash
distributed to the Limited Partners. Any gain or loss recognized by the Limited
Partner upon liquidation of the Partnership is treated as gain or loss from the
sale or exchange of a capital asset, except in the case of Units held for sale
to customers in the ordinary course of a trade or business.
<PAGE>
Taxation of Gains and Losses
Individual and corporate taxpayers may utilize capital losses to offset
capital gains; however, a Limited Partner's capital losses can be deducted only
to the extent of a Limited Partner's capital gains plus, in the case of
noncorporate Limited Partners, ordinary income of up to $3,000. Noncorporate
Limited Partners may carry over a net capital loss for an unlimited time until
the loss is exhausted. Corporate Limited Partners may be allowed to carry the
unused capital losses to the three preceding tax years and to the five following
tax years.
Passive Activity Loss Provisions
The passive loss limitations generally provide that individuals,
estates, trusts and certain closely held corporations and personal service
corporations can deduct losses from passive activities only to the extent of the
taxpayer's income from such passive activities or investments. Passive
activities are, in general, business activities in which a taxpayer does not
materially participate, such as those of the Partnership. However, losses with
respect to the Partnership that were previously disallowed to a Limited Partner
under the passive activity loss rules may be used to offset income or gain from
the Proposed Sale, and to the extent not used to offset such income or gain,
generally may be deducted by such Limited Partner in the taxable year in which
the liquidation of the Partnership is completed. In addition, deductions
previously disallowed to a Limited Partner by certain other limitations may be
allowed to the extent of income and gain recognized in the Proposed Sale.
Estimate of Tax Impact
The General Partner estimates that the net taxable income per Unit to
Limited Partners, based on current year operations and the tax gain to be
recognized by the Partnership as a result of the Proposed Sale, will be $110.92.
See "Proposal No. 2 -- Estimated Distributions to Limited Partners." Based upon
this estimate and an assumed tax rate of 28%, the estimated tax cost to such
Limited Partners per Unit will be $31.06. The above estimates do not consider
the possibility that a Limited Partner may recognize a tax loss (or tax gain) on
the liquidation of the Partnership. The actual tax cost to a Limited Partner,
however, will depend upon the marginal tax rate of that Limited Partner and may
be more than or less than this amount. In addition, as noted above, these
transactions may allow a Limited Partner to deduct certain losses that have been
suspended under the passive loss or certain other loss deferral provisions of
the Code.
OTHER MATTERS
Voting Rights and Vote Required
The General Partner has fixed the close of business on July 14, 1997 as
the record date (the "Record Date") for determination of the Limited Partners
entitled to notice of and to vote at the Meeting. Each holder of Units on the
Record Date is entitled to cast one vote per Unit. The General Partner and its
affiliates own less than 1% of the Units. At the close of business on the Record
Date there were 13,752.5 Units issued and outstanding held by 1,186 holders of
record. As of the same date, no individual or group as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
was known by the Partnership to own more than 5% of the Units except as noted
below in "Principal Holders of Units."
<PAGE>
The affirmative vote of Limited Partners entitled to vote owning more
than 50% of the Units (6,876.25 Units) is required to approve and adopt the
Proposals. The presence, in person or by proxy, of Limited Partners entitled to
vote owning a majority of the Units is necessary to constitute a quorum at the
Meeting. In the event that there are insufficient proxies and votes at the
Meeting to constitute a quorum or to approve the Proposals (and proxies and
votes against the Proposals represent fewer than 50% of the Units), the Units
for which proxies have been received may be voted to adjourn the meeting to a
later date to permit the further solicitation of proxies. Notice of the
adjourned meeting need not be given if the time and place of the adjourned
meeting is announced at the Meeting (or the adjourned meeting) and the
adjournment is for not more than 30 days from the date of the original Meeting
and no new record date is set.
All Units represented at the Meeting by properly executed proxies
received prior to or at the Meeting, and not revoked, will be voted at the
Meeting in accordance with the instructions thereon. If no instructions are
indicated on a properly executed proxy, it will be voted for the approval and
adoption of the Proposals. Abstentions will be counted as no votes. Completed
proxies should be returned as soon as possible in the enclosed postage paid,
return envelope to McNeil Partners, L.P., c/o The Herman Group, Inc., 2121 San
Jacinto Street, 26th Floor, Dallas, Texas 75201-6705. An inspector of elections
will be appointed at the meeting to oversee the tabulation of the votes.
Effect of Negative Vote
If there is a negative vote on either or both of Proposal No. 1 or
Proposal No. 2, then the Proposed Sale will not be consummated, and the
Partnership will not be dissolved, liquidated and terminated. If the Proposed
Sale is not consummated, the Partnership's anticipated plan of operation is to
preserve or increase the Property's net operating income whenever possible,
while at the same time making whatever capital expenditures are reasonable under
the circumstances in order to preserve and enhance the value of the Property.
Principal Holders of Units
The following table sets forth as of May 31, 1997, certain information
regarding the beneficial ownership of the Units by each individual or group as
defined by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
who is known to the Partnership to be the beneficial owner of more than 5% of
the outstanding Units and by the General Partner:
Number of Units Percentage
--------------- ----------
Beneficially Owned
Liquidity Financial Group, L.P.*
2200 Powell Street, Suite 700
Emeryville, California 94608 825 6.0%
General Conference Corporation of
Seventh Day Adventists
12501 Old Columbia Pike
Silver Spring, Maryland 20904-6600 950 6.9%
High River Limited Partnership
100 S. Bedford Road
Mount Kisco, New York 10549 1,606 11.7%
McNeil Partners, L.P.
13760 Noel Road
Suite 600, LB70
Dallas, Texas 75240 50 **
- -----------------
*The general partner of ten (10) limited partnerships which collectively
own the Units described above and which have filed a joint Schedule 13D, as
amended, to report such ownership. Liquidity Financial Group, L.P. is owned by
Richard G. Wollack and Brent R. Donaldson.
**Represents less than 1%.
<PAGE>
Revocability
A proxy given pursuant to this solicitation may be revoked at any time
before it is voted. Proxies may be revoked (i) by filing with the Partnership
(at the address indicated above) at or before the Meeting a written notice of
revocation bearing a later date than the proxy, (ii) by duly executing a
subsequent proxy bearing a later date than the proxy relating to the same Units
and delivering it to the Partnership (at the address indicated above) at or
before the Meeting, or (iii) by attending the Meeting and voting in person
(although attendance at the Meeting will not in itself constitute such
revocation).
Proxy Solicitation
The Partnership is paying all costs of the proxy solicitation which
costs are estimated to be $6,000. In addition to solicitation by use of the
mails, proxies may be solicited by the General Partner, its partners, employees
and affiliates in person or by telephone, telegram or other means of
communication. Such persons and entities will be reimbursed for out-of-pocket
expenses in connection with such solicitation, including, without limitation,
personnel costs, overhead, telephone charges, etc. Arrangements will also be
made with brokerage houses and other custodians, nominees and fiduciaries for
forwarding solicitation materials to the beneficial owners of Units held of
record by such persons, and the Partnership will reimburse such persons for
their reasonable expenses incurred in that connection.
No Appraisal Rights
If Limited Partners entitled to vote at the Meeting and owning more
than 50% of the outstanding Units vote in favor of the Proposals, such approval
will bind all Limited Partners including those who vote against the Proposals or
abstain from voting at the Meeting. Neither the Partnership Agreement nor
California law, under which the Partnership is governed, gives rights of
appraisal or similar rights to Limited Partners who dissent from the vote of the
majority in approving or disapproving the Proposals. Accordingly, dissenting
Limited Partners do not have the right to have their Units appraised and to have
the value of those Units returned to them because they disapprove of the action
of a majority in interest of the Limited Partners.
Effectuation of Proposals
If the Proposals are approved by the required vote of the Limited
Partners, the General Partner will proceed to consummate the Proposed Sale. Even
if approved by the Limited Partners, there is no assurance that the Proposed
Sale of the Property will actually be consummated.
If the Proposed Sale is consummated, then the Partnership will be
dissolved, and the General Partner will liquidate and terminate the Partnership
in accordance with the Partnership Agreement. Limited Partners will receive such
distributions to which they are entitled pursuant to the Partnership Agreement.
However, the General Partner has not determined the precise timing and amount of
distributions to the Limited Partners that would occur after the Proposed Sale
and in connection with the liquidation of the Partnership due to certain ongoing
litigation and potential indemnification obligations pursuant to the Purchase
Agreement. See "Proposal No. 2 -- Liquidation under the Partnership Agreement"
and "Proposal No. 2 -- Estimated Distributions to Limited Partners."
By Order of the General Partner
McNEIL PARTNERS, L.P.
By: McNeil Investors, Inc., a Delaware corporation
and its General Partner
By: /s/ Ron K. Taylor
------------------------------------------
Ron K. Taylor, President
July 14, 1997
Dallas, Texas
<PAGE>
APPENDIX A
----------
[Letterhead of Crosby, Heafey, Roach & May]
July 14, 1997
The Limited Partners of
McNeil Pacific Investors Fund 1972
13760 Noel Road, Suite 600
Dallas, Texas 75240
Re: Proposed Amendment to the Restated Certificate and Agreement
of Limited Partnership of McNeil Pacific Investors Fund 1972
dated as of March 8, 1972 as amended by an Amendment thereto
dated as of March 30, 1992
Ladies and Gentlemen:
We have acted as special counsel to McNeil Pacific Investors Fund 1972,
a California limited partnership (the "Partnership"), in connection with the
proposed amendment set forth in Proposal No. 1 in the Proxy Statement of the
Partnership dated July 14, 1997 (the "Proposed Amendment") to the Restated
Certificate and Agreement of Limited Partnership of McNeil Pacific Investors
Fund 1972 dated as of March 8, 1972 as amended by an Amendment thereto dated as
of March 30, 1992 (collectively, the "Partnership Agreement"). This letter is
submitted to you pursuant to Section 13.1 of the Partnership Agreement.
Capitalized terms used in this letter that are not otherwise defined herein
shall have the respective meanings assigned to them in the Partnership
Agreement.
In rendering the opinions expressed in this letter, we have examined
and relied upon (I) the Partnership Agreement, (ii) those portions of the
original Prospectus ("Prospectus") disseminated to investors at the time of the
Partnership's formation entitled "Investment Objectives and Policies", (iii) the
Proposed Amendment and (iv) such other instruments and documents as we have
deemed necessary as a basis for the opinions expressed herein.
In rendering the opinions expressed in this letter, we have assumed
without independent investigation that (i) the Partnership is a limited
partnership duly organized, validly existing and in good standing under the laws
of the State of California, and has duly filed with the Secretary of State of
California a form LP-1 Certificate of Limited Partnership, (ii) the Partnership
Agreement was duly authorized, executed and delivered by the General Partner and
each of the Limited Partners, (iii) the Partnership has not made an election to
be governed by the Revised California Limited Partnership Act, (iv) the General
Partner is a partnership duly organized, validly existing and in good standing
under the laws of the State of Delaware, and (v) the Proposed Amendment and any
actions taken by the General Partner as authorized thereby are not acts which
would make it impossible to carry on the ordinary business of the Partnership.
However, we are aware of no circumstances that would indicate that any of the
foregoing assumptions is incorrect. With regard to the assumptions in clause
<PAGE>
(v), above, we believe that such assumption is not unreasonable in light of the
business purposes and objectives of the Partnership set forth in the Prospectus,
which are incorporated by reference into the Partnership Agreement, and in light
of the fact that the property which is the subject of the Proposed Amendment was
previously sold by the Partnership, which reacquired it upon foreclosure of a
purchase-money mortgage.
In making our investigation we have assumed the genuineness of all
signatures (including those in printed or typed form on conformed copies of
documents), the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as copies and
the authenticity of the originals of such documents submitted as copies.
Based on the foregoing, and subject to the qualifications and
limitations set forth herein, we are of the opinion that:
Upon obtaining the vote or consent of the General Partner and the
affirmative vote or written consent of Limited Partners comprising or having a
majority of the voting power of the Limited Partners entitled to vote on such
matter under Section 13.5 of the Partnership Agreement in a manner complying
with the applicable notice and other procedural requirements of the Partnership
Agreement, the Proposed Amendment will be legally adopted pursuant to the
Partnership Agreement.
The opinions expressed herein are specifically limited to the laws of
the State of California without reference to conflicts of laws or to matters of
federal law or regulation, and we do not purport to express any opinion on the
laws of any other jurisdiction.
The foregoing opinions are rendered solely for your benefit to satisfy
the requirement for a legal opinion set forth in Section 13.1 of the Partnership
Agreement and may not be relied on by any other person or entity or used for any
other purpose without our express consent.
Very truly yours,
/s/ CROSBY, HEAFEY, ROACH & MAY
Professional Corporation
<PAGE>
APPENDIX B
FINANCIAL STATEMENTS
Page
Number
INDEX TO FINANCIAL STATEMENTS
- -----------------------------
Financial Statements as of December 31, 1996:
- ---------------------------------------------
Report of Independent Public Accountants F-2
Balance Sheets at December 31, 1996 and 1995 F-3
Statements of Operations for each of the three years
in the period ended December 31, 1996 F-4
Statements of Partners' Equity for each of the three
years in the period ended December 31, 1996 F-5
Statements of Cash Flows for each of the three years
in the period ended December 31, 1996 F-6
Notes to Financial Statements F-8
Financial Statement Schedule:
Schedule III - Real Estate Investment and Accumulated
Depreciation F-15
All other schedules are omitted because they are not applicable or the financial
information required is included in the financial statements or the notes
thereto.
Financial Statements as of March 31, 1997 (unaudited):
- ------------------------------------------------------
Balance Sheets at March 31, 1997 and December 31, 1996 F-20
Statements of Operations for the three months ended
March 31, 1997 and 1996 F-21
Statements of Partners' Equity for the three months ended
March 31, 1997 and 1996 F-22
Statements of Cash Flows for the three months ended
March 31, 1997 and 1996 F-23
Notes to Financial Statements F-25
<PAGE>
[Letterhead of Arthur Andersen LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
McNeil Pacific Investors Fund 1972:
We have audited the accompanying balance sheets of McNeil Pacific Investors Fund
1972 (a California limited partnership) as of December 31, 1996 and 1995, and
the related statements of operations, partners' equity and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements and the schedule referred to below are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and the schedule 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.
As further discussed in Notes 4 and 5 to the financial statements, on October 1,
1996, the Partnership placed Palm Bay Apartments on the market for sale based
upon favorable market conditions and the June 1997 maturity of the property's
mortgage note payable. Should the Partnership be unable to sell Palm Bay
Apartments for an amount sufficient to retire the mortgage note payable, the
Partnership would pursue other financing options. As Palm Bay Apartments
represents substantially all of the assets of the Partnership, consummation of
any sale is subject to the satisfaction of certain conditions, including the
approval of the limited partners. If the sale of Palm Bay Apartments is
consummated, the Partnership's general partner will commence the dissolution and
termination of the Partnership. The accompanying financial statements have not
been prepared on the liquidation basis of accounting, as the sale of Palm Bay
Apartments is subject to limited partner approval.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of McNeil Pacific Investors Fund
1972 as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not a part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Dallas, Texas
March 17, 1997
<PAGE>
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996
McNEIL PACIFIC INVESTORS FUND 1972
BALANCE SHEETS
December 31,
----------------------------------
1996 1995
-------------- ------------------
ASSETS
- ------
Real estate investment:
Land $ - $ 2,336,000
Buildings and improvements - 5,010,483
------------- -------------
- 7,346,483
Less: Accumulated depreciation - (1,010,990)
------------- -------------
- 6,335,493
Asset held for sale 6,253,753 -
Cash and cash equivalents 581,031 523,389
Cash segregated for security deposits 57,204 43,885
Accounts receivable 4,147 3,849
Prepaid expenses and other assets 23,694 23,220
Escrow deposits 33,232 49,353
Deferred borrowing costs, net of accumulated
amortization of $47,607 and $37,220 at
December 31, 1996 and 1995, respectively 4,327 14,714
------------- -------------
$ 6,957,388 $ 6,993,903
============= =============
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Mortgage note payable $ 2,023,577 $ 2,161,204
Accounts payable - 20,363
Accrued interest 14,755 10,076
Other accrued expenses 24,346 24,853
Payable to affiliates - General Partner 17,108 15,227
Security deposits and deferred rental
revenue 58,081 47,198
------------- -------------
2,137,867 2,278,921
============= =============
Partners' equity:
Limited partners - 15,000 limited
partnership units authorized; 13,752.5
limited partnership units issued and
outstanding at December 31, 1996
and 1995 4,509,577 4,405,038
General Partner 309,944 309,944
------------- ------------
4,819,521 4,714,982
------------- ------------
$ 6,957,388 $ 6,993,903
============= ============
See accompanying notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996
McNEIL PACIFIC INVESTORS FUND 1972
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------------
1996 1995 1994
------------- -------------- -------------
Revenue:
<S> <C> <C> <C>
Rental revenue $ 1,688,524 $ 1,376,148 $ 1,475,264
Interest and other revenue 27,011 63,280 45,695
Gain on sale of real estate - - 574,701
------------ ------------ -----------
Total revenue 1,715,535 1,439,428 2,095,660
------------ ------------ -----------
Expenses:
Interest 198,739 198,948 249,827
Depreciation 294,001 344,494 257,825
Property taxes 121,352 101,961 123,227
Personnel expenses 263,324 242,331 293,231
Repairs and maintenance 311,527 345,524 316,627
Property management fees -
affiliates 99,681 79,474 72,765
Utilities 65,901 81,054 86,617
Other property operating expenses 133,627 186,282 165,741
General and administrative 76,907 64,649 29,971
General and administrative -
affiliates 45,937 80,597 66,285
----------- ----------- -----------
Total expenses 1,610,996 1,725,314 1,662,116
----------- ----------- -----------
Net income (loss) $ 104,539 $ (285,886) $ 433,544
=========== =========== ===========
Net income (loss) allocated to
limited partners $ 104,539 $ (285,886) $ 667,558
Net loss allocated to General Partner - - (234,014)
---------- ----------- -----------
Net income (loss) $ 104,539 $ (285,886) $ 433,544
========== =========== ===========
Net income (loss) per limited
partnership unit $ 7.60 $ (20.79) $ 48.52
========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL PACIFIC INVESTORS FUND 1972
STATEMENTS OF PARTNERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity
---------------- --------------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1993.............. $ 543,958 $ 4,023,366 $ 4,567,324
Net income (loss)......................... (234,014) 667,558 433,544
-------------- -------------- --------------
Balance at December 31, 1994.............. 309,944 4,690,924 5,000,868
Net loss.................................. - (285,886) (285,886)
-------------- -------------- --------------
Balance at December 31, 1995.............. 309,944 4,405,038 4,714,982
Net income................................ - 104,539 104,539
-------------- -------------- --------------
Balance at December 31, 1996.............. $ 309,944 $ 4,509,577 $ 4,819,521
============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL PACIFIC INVESTORS FUND 1972
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1996 1995 1994
-------------- --------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from tenants.............. $ 1,682,397 $ 1,333,612 $ 1,466,270
Cash paid to suppliers.................. (869,237) (909,351) (923,620)
Cash paid to affiliates................. (143,737) (238,173) (63,881)
Interest received....................... 27,011 63,280 45,695
Interest paid........................... (183,673) (195,164) (255,305)
Property taxes paid..................... (105,231) (26,133) (106,796)
------------- ------------- --------------
Net cash provided by operating
activities............................. 407,530 28,071 162,363
------------- ------------- --------------
Cash flows from investing activities:
Additions to real estate
investments........................... (212,261) (440,906) (647,770)
Proceeds from sale of real estate
investment............................ - - 3,749,308
------------- ------------- --------------
Net cash provided by (used in)
investing activities................... (212,261) (440,906) 3,101,538
------------- ------------- --------------
Cash flows from financing activities:
Principal payments on mortgage
notes payable......................... (137,627) (126,137) (142,238)
Repayment of advances from
affiliates............................ - - (50,000)
Retirement of mortgage note
payable............................... - - (2,094,135)
------------- ------------- --------------
Net cash used in financing activities...... (137,627) (126,137) (2,286,373)
------------- ------------- --------------
Net increase (decrease) in cash and
cash equivalents...................... 57,642 (538,972) 977,528
Cash and cash equivalents at
beginning of year..................... 523,389 1,062,361 84,833
------------- ------------- --------------
Cash and cash equivalents at end
of year............................... $ 581,031 $ 523,389 $ 1,062,361
============= ============= ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL PACIFIC INVESTORS FUND 1972
STATEMENTS OF CASH FLOWS
Reconciliation of Net Income (Loss) to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1996 1995 1994
-------------- --------------- ---------------
<S> <C> <C> <C>
Net income (loss).......................... $ 104,539 $ (285,886) $ 433,544
------------- ------------- --------------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation............................ 294,001 344,494 257,825
Amortization of deferred borrowing
costs................................. 10,387 10,387 10,387
Gain on sale of real estate............. - - (574,701)
Changes in assets and liabilities:
Cash segregated for security
deposits............................ (13,319) (7,576) 15,264
Accounts receivable................... (298) (108) 4,408
Prepaid expenses and other
assets.............................. (474) 1,374 29,469
Escrow deposits....................... 16,121 75,828 22,087
Accounts payable...................... (20,363) (10,965) (92,800)
Accrued property taxes................ - - (5,656)
Accrued interest...................... 4,679 (6,603) (15,865)
Other accrued expenses................ (507) (13,832) 12,227
Payable to affiliates - General
Partner............................. 1,881 (78,102) 75,169
Security deposits and deferred
rental revenue...................... 10,883 (940) (8,995)
------------- ------------- --------------
Total adjustments................. 302,991 313,957 (271,181)
------------- ------------- --------------
Net cash provided by operating
activities.............................. $ 407,530 $ 28,071 $ 162,363
============= ============= ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996
McNEIL PACIFIC INVESTORS FUND 1972
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
Organization
- ------------
McNeil Pacific Investors Fund 1972 (the "Partnership") was organized September
30, 1971 as a limited partnership under provisions of the California Uniform
Limited Partnership Act. The general partner of the Partnership is McNeil
Partners, L.P. (the "General Partner"), a Delaware limited partnership, an
affiliate of Robert A. McNeil ("McNeil"). The General Partner was elected at a
meeting of limited partners on March 30, 1992, at which time the Partnership's
restated certificate and agreement of limited partnership (the "Partnership
Agreement") was amended. Prior to March 30, 1992, Pacific Investors Corporation,
an affiliate of Southmark Corporation, and McNeil were the general partners of
the Partnership. The principal place of business for the Partnership and the
General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240.
The Partnership is engaged in real estate activities, including the ownership,
operation and management of residential rental real estate and other real estate
related assets. The Partnership has determined to evaluate market and other
economic conditions to establish the optimum time to commence a liquidation of
the Partnership's asset in accordance with the terms of the Partnership
Agreement. At December 31, 1996, the Partnership owned one income-producing
property as described in Note 4 - Real Estate Investment.
Basis of Presentation
- ---------------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"). The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Real Estate Investment
- ----------------------
The real estate investment is generally stated at the lower of depreciated cost
or fair value. The real estate investment is reviewed for impairment whenever
events or changes in circumstances indicate that its carrying amount may not be
recoverable. When the carrying value of a property exceeds the sum of all
estimated future cash flows, an impairment loss is recognized. At such time, a
write-down is recorded to reduce the basis of the property to its estimated
recoverable amount.
<PAGE>
The Partnership's method of accounting for real estate investments is in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" ("SFAS 121"), which the Partnership adopted effective January 1, 1996. The
adoption of SFAS 121 did not have a material impact on the accompanying
financial statements.
Improvements and betterments are capitalized and expensed through depreciation
charges. Repairs and maintenance are charged to operations as incurred.
Asset Held for Sale
- -------------------
The asset held for sale is stated at the lower of depreciated cost or fair value
less costs to sell. Depreciation on this asset ceased at the time it was placed
on the market for sale.
Depreciation
- ------------
Buildings and improvements were depreciated using the straight-line method over
the estimated useful lives of the assets, which ranged from 2 to 25 years.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include cash on hand and cash on deposit with
financial institutions with original maturities of three months or less.
Carrying amounts for cash and cash equivalents approximate fair value.
Escrow Deposits
- ---------------
The Partnership is required to maintain an escrow account in accordance with
terms of the Palm Bay mortgage note. This escrow account is controlled by the
mortgagee and is used for payment of property taxes. Carrying amounts for escrow
deposits approximate fair value.
Deferred Borrowing Costs
- ------------------------
Loan fees and other related costs incurred to obtain or modify long-term
financing on real property are capitalized and amortized using a method that
approximates the effective interest method over the term of the related mortgage
note payable. Amortization of deferred borrowing costs is included in interest
expense on the Statements of Operations.
Rental Revenue
- --------------
The Partnership leases its property under short-term operating leases. Lease
terms generally are less than one year in duration. Rental revenue is recognized
as earned.
<PAGE>
Income Taxes
- ------------
No provision for Federal income taxes is necessary in the financial statements
of the Partnership because, as a partnership, it is not subject to Federal
income tax and the tax effect of its activities accrues to the partners.
Allocation of Net Income and Net Loss
- -------------------------------------
The Partnership Agreement provides that income will be allocated to the General
Partner to the extent of distributions to the General Partner of cash from
sales, refinancings, or from working capital reserves. All remaining net income
and all losses are allocated 100% to the limited partners.
An estimated gain on the ultimate disposition of Pacesetter Apartments was
allocated to the General Partner in 1982 based upon a 1982 sales contract for
Pacesetter Apartments. An adjustment was made in 1994 to adjust the amount
allocated to the General Partner based on the 1994 sale of Pacesetter
Apartments.
Federal income tax law provides that the allocation of loss to a partner will
not be recognized unless the allocation is in accordance with a partner's
interest in the partnership or the allocation has substantial economic effect.
Internal Revenue Code Section 704(b) and accompanying Treasury Regulations
establish criteria for allocations of Partnership deductions attributable to
debt. The Partnership's tax allocations for 1996, 1995 and 1994 have been made
in accordance with these provisions. Distributions
At the discretion of the General Partner, distributions to partners are paid
from operations of the Partnership's property, from the sale or refinancing of
the property, or from cash maintained as working capital reserves. Cash from
operations is distributed 100% to the limited partners.
Distributions of cash from sales and refinancings and cash from working capital
reserves are made in the following order:
(a) First to the limited partners in an amount, when added to all prior
distributions to the limited partners of disposition proceeds, that equals
109.6% of the portion of net offering proceeds invested in property sold; then,
(b) of the remaining balance, 90.5% to the limited partners and 9.5% to the
General Partner.
No distributions were paid to the partners during 1996, 1995 or 1994.
Net Income (Loss) Per Limited Partnership Unit
Net income (loss) per limited partnership unit ("Units") is computed by dividing
net income (loss) allocated to the limited partners by the weighted average
number of Units outstanding. Per Unit information has been computed based on
13,752.5 Units outstanding in 1996 and 1995, and 13,757.5 Units outstanding in
1994.
<PAGE>
NOTE 2 - TRANSACTIONS WITH AFFILIATES
- -------------------------------------
The General Partner is entitled to receive a partnership management fee equal to
9.5% of distributions of cash from operations when distributable cash from
operations is distributed to the limited partners. No partnership management
fees were incurred during 1996, 1995 or 1994.
The Partnership pays property management fees equal to 6% of the gross rental
receipts of the Partnership's properties to McNeil Real Estate Management, Inc.
("McREMI"), an affiliate of the General Partner, for providing property
management and leasing services for the Partnership's properties. Prior to
January 1, 1995, the Partnership paid property management fees equal to 5% of
gross rental receipts.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
The General Partner is entitled to receive a sales commission as compensation
for selling Partnership property equal to the lesser of 4% of the sales price of
the property sold or the customary fee charged by independent real estate
brokers in the area where the property is located. The Partnership accrued an
$81,000 sales commission in connection with the 1994 sale of Pacesetter
Apartments. The sales commission was paid in 1995.
Compensation and reimbursements paid or accrued for the benefit of the General
Partner or its affiliates are as follows:
For the Years Ended December 31,
------------------------------------------
1996 1995 1994
----------- --------- --------------
Property management fees -
affiliates $ 99,681 $ 79,474 $ 72,765
Charged to general and
administrative - affiliates:
Partnership administration 45,937 80,597 66,285
Charged to gain on sale
of real estate:
Brokerage commission - - 81,000
--------- -------- --------
$ 145,618 $ 160,071 $ 220,050
========= ======== ========
Payable to affiliates - General Partner at December 31, 1996 and 1995 consists
of property management fees and reimbursable administrative costs. All amounts
are due and payable from current operations.
<PAGE>
NOTE 3 - TAXABLE INCOME
- -----------------------
McNeil Pacific Investors Fund 1972 is a partnership and is not subject to
Federal and state income taxes. Accordingly, no recognition has been given to
income taxes in the accompanying financial statements of the Partnership since
the income or loss of the Partnership is to be included in the tax returns of
the individual partners. The tax returns of the Partnership are subject to
examination by Federal and state taxing authorities. If such examinations result
in adjustments to distributive shares of taxable income or loss, the tax
liability of the partners could be adjusted accordingly.
The Partnership's net assets and liabilities for financial reporting purposes
exceeded the net assets and liabilities for tax purposes by $1,981,839 in 1996,
$1,948,374 in 1995 and $1,973,149 in 1994.
NOTE 4 - REAL ESTATE INVESTMENT
- -------------------------------
On October 1, 1996, the General Partner determined that the market timing was
right for placing the Partnership's sole remaining real estate asset, Palm Bay
Apartments, on the market for sale. This decision was based both on favorable
market conditions and the June 1997 maturity of the Palm Bay mortgage note.
Consequently, the Partnership has classified its investment in Palm Bay
Apartments as an asset held for sale on the accompanying Balance Sheet dated
December 31, 1996 at a net book value of $6,253,753.
The basis and accumulated depreciation of the Partnership's real estate
investment at December 31, 1995, is set forth in the following table:
Buildings and Accumulated Net Book
1995 Land Improvements Depreciation Value
------------- ------------ ------------- ------------- -----------
Palm Bay Apartments
Orlando, FL $ 2,336,000 $ 5,010,483 $ (1,010,990) $ 6,335,493
=========== ========== =========== ==========
The results of operations for the asset held for sale at December 31, 1996 are
$194,195, $(210,240) and $(26,866) for 1996, 1995 and 1994, respectively.
Results of operations are operating revenues less operating expenses including
depreciation and interest expense.
NOTE 5 - MORTGAGE NOTE PAYABLE
- ------------------------------
The following table sets forth the Partnership's mortgage note at December 31,
1996 and 1995. The mortgage note is secured by Palm Bay Apartments, the
Partnership's only real estate asset.
<TABLE>
<CAPTION>
Mortgage Annual Monthly
Lien Interest Payments/ December 31,
Property Position (a) Rates % Maturity Date 1996 1995
- --------- ------------ --------- ----------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Palm Bay First 8.750 $26,775 06/97(b) $ 2,023,577 $ 2,161,204
========== ============
</TABLE>
<PAGE>
(a) The debt is non-recourse to the Partnership.
(b) The Palm Bay mortgage note matures in June 1997. At that time, a balloon
payment of $1,974,969 will be due.
Based on borrowing rates currently available to the Partnership for a mortgage
loan with similar terms and average maturities, the fair value of the mortgage
note payable was approximately $1,945,000 and $2,102,000 at December 31, 1996
and 1995, respectively.
As indicated above, the mortgage note is secured by Palm Bay Apartments and is
due and payable on June 1, 1997. The General Partner intends to sell Palm Bay
Apartments and use the related sales proceeds to retire the mortgage note
payable. Should the Partnership be unable to sell Palm Bay Apartments for an
amount sufficient to retire the mortgage note payable, the Partnership would
pursue other financing options. If the sale of Palm Bay Apartments is
consummated, the General Partner will commence the dissolution and termination
of the Partnership. The accompanying financial statements have not been prepared
on the liquidation basis of accounting, as the sale of Palm Bay Apartments is
subject to limited partner approval.
NOTE 6 - SALE OF REAL ESTATE
- ----------------------------
On March 17, 1994, the Partnership sold its investment in Pacesetter Apartments
to an unaffiliated buyer for a cash sales price of $4,050,000. Cash proceeds
from this transaction, as well as the gain on sale are detailed below.
Gain on Sale Cash Proceeds
------------- --------------
Sales price $ 4,050,000 $ 4,050,000
Selling costs (300,692) (300,692)
Basis of real estate sold (3,174,607)
-----------
Gain on sale $ 574,701
=========== ------------
Proceeds from sale of real estate 3,749,308
Retirement of mortgage note (2,094,135)
------------
Net cash proceeds $ 1,655,173
============
NOTE 7 - LEGAL PROCEEDINGS
- --------------------------
1) James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners
L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert
A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd.,
McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil
Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real
Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate
Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund
XXII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund
XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund
XXVII, L.P., et al. - Superior Court of the State of California for the
County of Los Angeles, Case No. BC133799 (Class and Derivative Action
Complaint).
<PAGE>
The action involves purported class and derivative actions brought by
limited partners of each of the fourteen limited partnerships that were
named as nominal defendants as listed above (as defined in this Section 1,
the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its
affiliate McNeil Real Estate Management, Inc. and three of their senior
officers and/or directors (as defined in this Section 1, collectively, the
"Defendants") breached their fiduciary duties and certain obligations under
the respective Amended Partnership Agreement. Plaintiffs allege that
Defendants have rendered such Units highly illiquid and artificially
depressed the prices that are available for Units on the resale market.
Plaintiffs also allege that Defendants engaged in a course of conduct to
prevent the acquisition of Units by an affiliate of Carl Icahn by
disseminating purportedly false, misleading and inadequate information.
Plaintiffs further allege that Defendants acted to advance their own
personal interests at the expense of the Partnerships' public unit holders
by failing to sell Partnership properties and failing to make distributions
to Unitholders.
On December 16, 1996, the Plaintiffs filed a consolidated and amended
complaint. Plaintiffs are suing for breach of fiduciary duty, breach of
contract and an accounting, alleging, among other things, that the
management fees paid to the McNeil affiliates over the last six years are
excessive, that these fees should be reduced retroactively and that the
respective Amended Partnership Agreements governing the Partnerships are
invalid. On January 7, 1997, the Court ordered consolidation with three
other similar actions listed below.
The Partnerships filed a demurrer to the complaint and a motion to strike
on February 14, 1997, seeking to dismiss the complaint in all respects. The
demurrer is pending. The Partnerships deny that there is any merit to
Plaintiff's allegations and intend to vigorously defend this action.
2) Alfred Napoletano v. McNeil Partners, L.P., McNeil Investors, Inc.,
Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972,
Ltd., McNeil Real Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd.,
McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil
Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real
Estate Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real
Estate Fund XXV, L.P. - Superior Court of the State of California, County
of Los Angeles, Case No. BC133849 (Class Action Complaint). On January 7,
1997, this action was consolidated by court order with Schofield, et al.,
referenced above.
3) Warren Heller v. McNeil Partners, L.P., McNeil Investors, Inc., Robert A.
A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd.,
McNeil Real Estate Fund V, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil
Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real
Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate
Fund XX, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund
XXV, L.P. - Superior Court of the State of California, County of Los
Angeles, Case No. BC133957 (Class Action Complaint). On January 7, 1997,
this action was consolidated by court order with Schofield, et al.,
referenced above.
<PAGE>
4) Robert Lewis v. McNeil Partners, L.P., McNeil Investors, Inc., Robert A.
McNeil et al. - In the District Court of Dallas County, Texas, A-14th
Judicial District, Cause No. 95-08535 (Class Action) - Plaintiff, Robert
Lewis, is a limited partner with McNeil Pacific Investors Fund 1972, Ltd.,
McNeil Real Estate Fund X, Ltd. and McNeil Real Estate Fund XV, Ltd.
On April 11, 1996, the action was dismissed without prejudice in
anticipation of consolidation with other class action complaints. On
January 7, 1997, this action was consolidated by court order with
Schofield, et al., referenced above.
5) McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund V, Ltd.,
McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil
Real Estate Fund XI, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real
Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate
Fund XXIV, L.P., and McNeil Real Estate Fund XXV, L.P. v. High River
Limited Partnership, Riverdale Investors Corp., Carl C. Icahn, and Unicorn
Associates Corporation - United States District Court for the Central
District of California, Case No. 96-5680SVW.
On August 12, 1996, High River Limited Partnership (as defined in this
Section 5, "High River"), a partnership controlled by Carl C. Icahn, sent a
letter to the partnerships referenced above demanding lists of the names,
current residences or business addresses and certain other information
concerning the Unitholders of such partnerships. On August 19, 1996, these
partnerships commenced the above action seeking, among other things, to
declare that such partnerships are not required to provide High River with
a current list of Unitholders on the grounds that the defendants commenced
a tender offer in violation of the federal securities laws by filing
certain Schedule 13D Amendments on August 5, 1996.
On October 16, 1996, the presiding judge denied the partnerships' requests
for a permanent and preliminary injunction to enjoin High River's tender
offers and granted the defendants request for an order directing the
partnerships to turn over current lists of Unitholders to High River
forthwith. On October 24, 1996, the partnerships delivered the Unitholder
lists to High River. The judge's decision resolved all the issues in the
action.
NOTE 8 - PRO FORMA DISCLOSURE (UNAUDITED)
- -----------------------------------------
The following unaudited pro forma information for the year ended December 31,
1994 reflects the results of operations of the Partnership as if the sale of
Pacesetter Apartments had occurred as of January 1, 1994. The unaudited pro
forma information is not necessarily indicative of the results of operations
that actually would have occurred or those which might be expected to occur in
the future.
Total revenues $ 1,287,125.00
Net loss (77,885.00)
Net loss per limited partnership unit (5.66)
<PAGE>
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996
McNEIL PACIFIC INVESTORS FUND 1972
SCHEDULE III
REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Cumulative Costs
Initial Cost Write-down Capitalized
Related Buildings and and Permanent Subsequent
Description Encumbrances Land Improvements Impairment To Acquisition
- ----------- ------------ ---- ------------- ------------- --------------
<S> <C>
Asset Held for Sale (b):
Palm Bay Apartments
Orlando, FL $ 2,023,577
==========
</TABLE>
(b) The asset held for sale is stated at lower of depreciated cost or fair
value less costs to sell. Historical cost net of accumulated depreciation
and write-downs becomes the new cost basis when the asset is classified as
"held for sale." Depreciation ceases at the time the asset is placed on the
market for sale.
See accompanying notes to Schedule III.
<PAGE>
McNEIL PACIFIC INVESTORS FUND 1972
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Gross Amount at
Which Carried at Close of Period Accumulated
Buildings and Depreciation
Description Land Improvements Total (a) and Amortization
- ----------- ---- ------------- --------- ----------------
<S> <C>
Asset Held for Sale:
Palm Bay Apartments
Orlando, FL $ 6,253,753
==========
</TABLE>
(a) For Federal income tax purposes, the properties are depreciated over lives
ranging from 7-27.5 years using ACRS or MACRS methods. The aggregate cost
of real estate investments for Federal income tax purposes was
approximately $8,537,646 and accumulated depreciation was $1,328,120 at
December 31, 1996.
See accompanying notes to Schedule III.
<PAGE>
McNEIL PACIFIC INVESTORS FUND 1972
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Date of Date Depreciable
Description Construction Acquired lives (years)
- ----------- ------------ -------- -------------
<S> <C> <C>
Asset Held for Sale:
Palm Bay Apartments
Orlando, FL 1974 06/91
</TABLE>
See accompanying notes to Schedule III.
<PAGE>
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996
McNEIL PACIFIC INVESTORS FUND 1972
NOTES TO SCHEDULE III
REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION
A summary of activity for the Partnership's real estate investments and
accumulated depreciation for the years ended December 31, 1996, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1996 1995 1994
-------------- -------------- ---------------
<S> <C> <C> <C>
Real estate investments:
Balance at beginning of year............... $ 7,346,483 $ 6,905,577 $ 6,257,807
Improvements............................... 137,450 440,906 647,770
Reclassification to asset held
for sale................................ (7,483,933) - -
-------------- ------------- --------------
Balance at end of year..................... $ - $ 7,346,483 $ 6,905,577
============= ============= ==============
Accumulated depreciation:
Balance at beginning of year............... $ 1,010,990 $ 666,496 $ 443,333
Depreciation............................... 294,001 344,494 223,163
Reclassification to asset held
for sale................................ (1,304,991) - -
-------------- ------------- --------------
Balance at end of year..................... $ - $ 1,010,990 $ 666,496
============= ============= ==============
Assets Held for Sale:
Balance at beginning of year............... $ - $ - $ 3,209,269
Depreciation............................... - - (34,662)
Reclassification from real estate
investments, net........................ 6,178,942 - -
Improvements............................... 74,811 - -
Sale of real estate........................ - - (3,174,607)
------------- ------------- --------------
Balance at end of year..................... $ 6,253,753 $ - $ -
============= ============= ==============
</TABLE>
<PAGE>
FINANCIAL STATEMENTS AS OF MARCH 31, 1997
MCNEIL PACIFIC INVESTORS FUND 1972
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(unaudited*) (audited)
------------ ------------
ASSETS
- ------
<S> <C> <C>
Asset held for sale $ 6,312,061 $ 6,253,753
Cash and cash equivalents 577,085 581,031
Cash segregated for security deposits 57,512 57,204
Accounts receivable 282 4,147
Prepaid expenses and other assets 20,828 23,694
Escrow deposits 61,119 33,232
Deferred borrowing costs, net of accumulated
amortization of $50,202 and $47,607 at
March 31, 1997 and December 31, 1996,
respectively 1,732 4,327
----------- -----------
$ 7,030,619 $ 6,957,388
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Mortgage note payable $ 1,987,254 $ 2,023,577
Accrued interest 14,490 14,755
Accrued property taxes 29,762 -
Other accrued expenses 5,530 24,346
Payable to affiliates - General Partner 22,649 17,108
Security deposits and deferred rental revenue 62,169 58,081
----------- -----------
2,121,854 2,137,867
----------- -----------
Partners' equity:
Limited partners - 15,000 limited partnership
units authorized; 13,752.5 limited partnership
units issued and outstanding 4,598,821 4,509,577
General Partner 309,944 309,944
----------- -----------
4,908,765 4,819,521
----------- -----------
$ 7,030,619 $ 6,957,388
=========== ===========
</TABLE>
* The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS AS OF MARCH 31, 1997
MCNEIL PACIFIC INVESTORS FUND 1972
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
-----------------------------
1997 1996
----------- ------------
Revenue:
Rental revenue $ 446,579 $ 390,949
Interest 7,517 6,550
---------- -----------
Total revenue 454,096 397,499
Expenses:
Interest 46,334 55,071
Depreciation - 95,676
Property taxes 29,762 28,974
Personnel expenses 87,783 72,786
Utilities 18,267 16,879
Repair and maintenance 92,529 87,105
Property management fees - affiliates 26,687 23,867
Other property operating expenses 40,642 30,198
General and administrative 10,089 10,435
General and administrative - affiliates 12,759 16,986
--------- -----------
Total expenses 364,852 437,977
--------- -----------
Net income (loss) $ 89,244 $ (40,478)
========= ===========
Net income (loss) allocated to
limited partners $ 89,244 $ (40,478)
Net income (loss) allocated to
General Partner - -
Net income (loss) $ 89,244 $ (40,478)
========= ===========
Net income (loss) per limited
partnership unit $ 6.49 $ (2.94)
========= ===========
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS AS OF MARCH 31, 1997
MCNEIL PACIFIC INVESTORS FUND 1972
STATEMENTS OF PARTNERS' EQUITY
(Unaudited)
For the Three Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity
----------- ------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1995 $ 309,944 $ 4,405,038 $ 4,714,982
Net loss - (40,478) (40,478)
---------- ------------ ------------
Balance at March 31, 1996 $ 309,944 $ 4,364,560 $ 4,674,504
========== ============ ============
Balance at December 31, 1996 $ 309,944 $ 4,509,577 $ 4,819,521
Net income - 89,244 89,244
---------- ------------ ------------
Balance at March 31, 1997 $ 309,944 $ 4,598,821 $ 4,908,765
========== ============ ============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS AS OF MARCH 31, 1997
MCNEIL PACIFIC INVESTORS FUND 1972
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
Three Months Ended
March 31,
1997 1996
------------ ------------
Cash flows from operating activities:
Cash received from tenants $ 452,488 $ 405,624
Cash paid to suppliers (263,524) (242,422)
Cash paid to affiliates (33,905) (42,094)
Interest received 7,517 6,550
Interest paid (44,004) (47,035)
Property taxes paid and escrowed (27,887) (24,385)
---------- ----------
Net cash provided by operating activities 90,685 56,238
---------- ----------
Cash flows from investing activities:
Additions to real estate investments (58,308) (23,559)
---------- ----------
Cash flows from financing activities:
Principal payments on mortgage notes
payable (36,323) (33,290)
---------- ----------
Net decrease in cash and
cash equivalents (3,946) (611)
Cash and cash equivalents at beginning
of period 581,031 523,389
----------- ----------
Cash and cash equivalents at end of period $ 577,085 $ 522,778
=========== ==========
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS AS OF MARCH 31, 1997
MCNEIL PACIFIC INVESTORS FUND 1972
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Income (Loss) to Net Cash Provided by
Operating Activities
Three Months Ended
March 31,
-------------------------
1997 1996
---------- -----------
Net income (loss) $ 89,244 $ (40,478)
--------- ---------
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation - 95,676
Amortization of deferred borrowing costs 2,595 2,596
Changes in assets and liabilities:
Cash segregated for security deposits (308) (6,232)
Accounts receivable 3,865 3,284
Prepaid expenses and other assets 2,866 672
Escrow deposits (27,887) (24,385)
Accounts payable - (6,216)
Accrued interest (265) 5,440
Accrued property taxes 29,762 28,974
Other accrued expenses (18,816) (20,439)
Payable to affiliates - General Partner 5,541 (1,241)
Security deposits and deferred rental
revenue 4,088 18,587
--------- --------
Total adjustments 1,441 96,716
--------- --------
Net cash provided by operating activities $ 90,685 $ 56,238
========= ========
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS AS OF MARCH 31, 1997
MCNEIL PACIFIC INVESTORS FUND 1972
Notes To Financial Statements
(Unaudited)
March 31, 1997
NOTE 1.
- -------
McNeil Pacific Investors Fund 1972 (the "Partnership") is a limited partnership
organized under the laws of the State of California to invest in real property.
The general partner of the Partnership is McNeil Partners, L.P. (the "General
Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil. The
principal place of business for the Partnership and the General Partner is 13760
Noel Road, Suite 600, LB70, Dallas, Texas 75240.
In the opinion of management, the financial statements reflect all adjustments
necessary for a fair presentation of the Partnership's financial position and
results of operations. All adjustments were of a normal recurring nature.
However, the results of operations for the three months ended March 31, 1997,
are not necessarily indicative of the results to be expected for the year ending
December 31, 1997.
NOTE 2.
- -------
The financial statements should be read in conjunction with the financial
statements contained in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1996, and the notes thereto, as filed with the
Securities and Exchange Commission, which is available upon request by writing
to McNeil Pacific Investors Fund 1972, c/o The Herman Group, 2121 San Jacinto
St., 26th Floor, Dallas, Texas 75201.
NOTE 3.
- -------
The Partnership pays property management fees equal to 6% of the gross rental
receipts of the Partnership's property to McNeil Real Estate Management, Inc.
("McREMI"), an affiliate of the General Partner, for providing property
management and leasing services for the Partnership's property.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
The General Partner is entitled to receive a partnership management fee equal to
9.5% of distributions of cash from operations when distributable cash from
operations is distributed to the limited partners. No partnership management
fees were incurred or paid during the three month periods ended March 31, 1997
and 1996.
<PAGE>
The General Partner is entitled to receive a sales commission as compensation
for selling Partnership property equal to the lesser of 4% of the sales price of
the property sold or the customary fee charged by independent real estate
brokers in the area where the property is located.
The General Partner is also entitled to a distribution of cash from sales and
refinancings and cash from working capital reserves equal to 9.5% of such
distributions. No such distributions were paid to the partners during 1997 or
1996.
Compensation and reimbursements accrued for the benefit of the General Partner
and its affiliates are as follows:
Three Months Ended
March 31,
------------------------
1997 1996
--------- ----------
Property management fees - affiliates $ 26,687 $ 23,867
Charged to general and administrative -
affiliates:
Partnership administration 12,759 16,986
-------- ---------
$ 39,446 $ 40,853
======== =========
NOTE 4.
- -------
On October 1, 1996, the General Partner placed the Partnership's only remaining
property, Palm Bay Apartments, on the market for sale. Consequently, Palm Bay
Apartments is classified as an Asset Held for Sale on the accompanying financial
statements.
In 1996, the Partnership adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement requires the cessation of depreciation on assets held for sale.
Accordingly, no depreciation charges have been incurred since October 1, 1996.
<PAGE>
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE GENERAL PARTNER
The undersigned hereby appoints Ron K. Taylor and Larry Foster, or
either one of them, with full power of substitution, as attorneys, agents and
proxies (the "Proxies") to vote on behalf of the undersigned at the Meeting of
Limited Partners of McNeil Pacific Investors Fund 1972 to be held on August 12,
1997 at 1:00 p.m., Central Time, or any adjournment thereof:
I. PROPOSAL TO APPROVE an amendment to the Restated Certificate and
Agreement of Limited Partnership of McNeil Pacific Investors Fund 1972 to
authorize the General Partner to sell the Palm Bay Apartments located in
Orlando, Florida (the "Property"), which Property constitutes substantially all
of the assets of the partnership, to Ceebraid-Signal Acquisition Corporation on
the terms set forth in Proxy Statement dated July 14, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
II. PROPOSAL TO APPROVE, if the sale of the Property is consummated,
the dissolution of the Partnership and to authorize the General Partner to
liquidate and terminate the Partnership.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
The approval of each of Proposal I and Proposal II is contingent on the
approval on both Proposal I and Proposal II. Unless Proposal I and Proposal II
are approved by the Limited Partners at the meeting, neither will be effected by
the General Partner.
This form of proxy is first being mailed to Limited Partners on or about July
14, 1997
THIS PROXY IS CONTINUED ON THE REVERSE SIDE. PLEASE SIGN ON THE REVERSE
SIDE AND RETURN PROMPTLY.
<PAGE>
THE GENERAL PARTNER RECOMMENDS A VOTE "FOR" THE PROPOSALS. This proxy
when properly executed will be voted in the manner directed herein by the
undersigned limited partner. If no direction is made on this card, this proxy
will be voted FOR the proposals.
Dated ______________ __, 1997
----------------------------------------
Signature
----------------------------------------
Signature (if held jointly)
----------------------------------------
Title
Please sign exactly as name
appears hereon. When Units are
held by joint tenants, both should
sign. When signing as an attorney,
as executor, administrator,
trustee or guardian, please give
full title of such. If a
corporation, please sign name by
President or other authorized
officer. If a corporation, please
sign name by President or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED PREPAID ENVELOPE TO:
McNeil Partners, L.P., c/o The Herman Group, Inc., 2121 San Jacinto Street, 26th
Floor, Dallas, Texas 75201-6705.
If you have any questions, please call the McNeil Real Estate Management, Inc.,
Investor Operations at (800) 658-2007.
