UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED MARCH 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______ to _______ .
Commission File Number: 0-10995
PAINE WEBBER GROWTH PROPERTIES LP
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2772109
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
- ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. Not applicable.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
- --------- -------------------
Prospectus of registrant dated Part IV
November 15, 1982, as supplemented
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
1998 FORM 10-K
TABLE OF CONTENTS
Part I Page
- -------- -----
Item 1 Business I-1
Item 2 Properties I-3
Item 3 Legal Proceedings I-3
Item 4 Submission of Matters to a Vote of Security Holders I-5
Part II
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Item 5 Market for the Partnership's Limited Partnership
Interests and Related Security Holder Matters II-1
Item 6 Selected Financial Data II-1
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations II-2
Item 8 Financial Statements and Supplementary Data II-7
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure II-7
Part III
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Item 10 Directors and Executive Officers of the Partnership III-1
Item 11 Executive Compensation III-2
Item 12 Security Ownership of Certain Beneficial Owners
and Management III-3
Item 13 Certain Relationships and Related Transactions III-3
Part IV
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Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K IV-1
Signatures IV-2
Index to Exhibits IV-3
Financial Statements and Supplementary Data F-1 to F-27
<PAGE>
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Partnership's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference are discussed in Item 7 in the section entitled
"Certain Factors Affecting Future Operating Results" beginning on page II-6 of
this Form 10-K.
PART I
Item 1. Business
Paine Webber Growth Properties LP (the "Partnership") is a limited
partnership formed in August 1982, under the Uniform Limited Partnership Act of
the State of Delaware, for the purpose of investing in a portfolio of rental
apartment properties which had potential for near-term capital appreciation. It
is the Partnership's intention to enhance the value of the properties through
the use of capital reserves and by reinvesting cash flow from operations. The
Partnership sold $29,193,000 in Limited Partnership units (29,193 units at
$1,000 per unit) from November 15, 1982 through September 30, 1983 pursuant to a
Registration Statement on Form S-11 filed under the Securities Act of 1933
(Registration No. 2-78818). In addition, the Initial Limited Partner contributed
$1,000 for one unit (a "Unit") of Limited Partnership Interest. Limited Partners
will not be required to make any additional capital contributions.
As of March 31, 1998, the Partnership owned, through joint venture
partnerships, interests in the operating properties set forth in the following
table:
<TABLE>
<CAPTION>
Name of Joint Venture Date of
Name and Type of Property Acquisition Type of
Location Size of Interest Ownership (1)
- -------- ---- ----------- -------------
<S> <C> <C> <C>
Rocky Mountain Partners 301 2/17/83 Fee ownership of land and improvements
Tantra Lake Apartments Units (through joint venture)
Boulder, Colorado
Grouse Run Associates I & II 158 3/31/83 Fee ownership of land and improvements
Grouse Run Apartments Units (through joint venture)
Stockton, California
Plano Chisholm Place 142 5/31/83 Fee ownership of land and improvements
Associates Units (through joint venture)
Chisholm Place Apartments
Plano, Texas
</TABLE>
(1) See Notes to the Financial Statements of the Partnership filed in Item
14(a)(1) of this Annual Report for a description of the long-term
mortgage indebtedness secured by the Partnership's operating property
investments and for a description of the agreements through which the
Partnership has acquired these real estate investments.
The Partnership originally owned interests in six operating investment
properties. In addition to the properties listed above, the Partnership owned
interests in the Parkwoods Apartments, the Northcastle Apartments and the Nob
Hill Apartments. On October 20, 1991, the 433-unit Parkwoods Apartments complex
was completely destroyed by a fire which devastated a large section of the hills
over Oakland, California. On May 27, 1992, the joint venture received a full and
final insurance settlement of approximately $29,361,000 for coverage on the
damage to the buildings and the loss of rental income. On April 15, 1994, the
land at the former Parkwoods site was sold to an affiliate of the Partnership's
co-venture partner for $4,750,000. See the discussion in the notes to the
financial statements of the Partnership accompanying this Annual Report for a
further discussion of these events. On December 23, 1994, Austin Northcastle
Partners, a joint venture in which the Partnership had an interest, sold its
operating investment property (Northcastle Apartments) to an unaffiliated third
party for $6,100,000. Final approval of the sale, which involved the assumption
of the outstanding first mortgage loan secured by the property, was received
from the Department of Housing and Urban Development on April 26, 1995. After
transaction costs and the assumption of the outstanding first mortgage loan, the
joint venture received net proceeds of approximately $1,620,000 from the sale.
The Partnership's share of such proceeds was $1,581,000, in accordance with the
terms of the joint venture agreement. See the discussion in the notes to the
financial statements of the Partnership accompanying this Annual Report for a
further discussion of this transaction. On February 7, 1997, Nob Hill Partners,
a joint venture in which the Partnership had an investment, sold its operating
investment property, the Nob Hill Apartments, a 368-unit apartment complex
located in San Antonio, Texas, to an unrelated third party for $9.5 million.
Final approval of the sale, which involved the assumption of the outstanding
mortgage loan secured by the property, was received by the Department of Housing
and Urban Development on June 9, 1997. The sale generated net proceeds of
approximately $2.3 million. In addition, the venture had excess working capital
of approximately $360,000 at the time of the sale. All of the net proceeds and
excess working capital were due to the Partnership under the terms of the Nob
Hill joint venture agreement. See the discussion in the notes to the financial
statements of the Partnership accompanying this Annual Report for a further
discussion of this transaction.
The Partnership is currently pursuing potential disposition strategies for
the three remaining investments in its portfolio. General improvements in the
apartment segment of the real estate market are expected to provide the
Partnership with the opportunities to market and sell these three properties in
the near term. Active marketing efforts on all three properties began subsequent
to year-end. It is currently contemplated that the sales of the remaining assets
and a liquidation of the Partnership could be accomplished prior to the end of
calendar year 1998. There are no assurances, however, that the sales of the
remaining assets and the liquidation of the Partnership will be completed within
this time frame.
The Partnership's principal investment objectives are to invest the net
cash proceeds from the offering of limited partnership units in rental apartment
properties with the goals of obtaining:
(1) capital appreciation;
(2) tax losses during the early years of operations from deductions
generated by investments;
(3) equity build-up through principal repayments of mortgage loans on
Partnership properties; and
(4) cash distributions from rental income.
The primary investment objective of the Partnership is capital
appreciation. The Partnership may sacrifice attainment of its other objectives
to the extent required to achieve the capital appreciation objective. The
Partnership has generated tax losses from operations since inception. However,
the benefits of such losses to investors have been significantly reduced by
changes in federal income tax law subsequent to the organization of the
Partnership. Through March 31, 1998, the Limited Partners had received
cumulative cash distributions totalling $20,954,000, or approximately $718 per
original $1,000 investment for the Partnership's earliest investors. The
cumulative cash returns described above include special distributions made on
June 13, 1997 and June 15, 1995 of $115 and $90, respectively, per original
$1,000 investment, consisting of the Partnership's share of the net proceeds of
the Nob Hill and Northcastle sale transactions, along with the release of
certain excess reserve funds. Such cumulative cash returns also include $312 per
original $1,000 investment from the proceeds from the Parkwoods insurance
settlement and the subsequent land sale and $60 per original $1,000 investment
from the 1986 refinancing of the Tantra Lake Apartments. The remaining cash
distributions have been paid from operating cash flow of the Partnership. The
Partnership resumed regular quarterly distributions with the payment made on
November 15, 1994 for the quarter ended September 30, 1994. During the first
half of fiscal 1997, distributions were paid at a rate of 2% per annum on a
Limited Partner's remaining capital account of $538 per original $1,000
investment. Effective for the quarter ended December 31, 1996, the distribution
rate was increased to 3% per annum. Subsequent to the sale of the Nob Hill
Apartments and the related special capital distribution to investors in June
1997, the Partnership's annual distribution rate was increased to 5% per annum
on a Limited Partner's remaining capital account of $423 per original $1,000
Unit. The Partnership increased the distribution rate to 6% per annum for the
distribution paid on May 15, 1998 for the quarter ended March 31, 1998. As of
March 31, 1998, the Partnership retained an ownership interest in three of its
six original investment properties. The Partnership's success in meeting its
capital appreciation objective will depend upon the proceeds received from the
final liquidation of the remaining investments, which collectively comprise 37%
of the Partnership's original investment portfolio. The amount of such proceeds
will ultimately depend upon the value of the underlying investment properties at
the time of such liquidations, which cannot presently be determined.
All of the Partnership's investment properties are located in real estate
markets in which they face significant competition for the revenues they
generate. The apartment complexes compete with numerous projects of similar type
generally on the basis of price and amenities. Apartment properties in all
markets also compete with the local single family home market for prospective
tenants. The availability of low interest rates on home mortgage loans has
increased the level of this competition over the past few years. However, the
impact of the competition from the single-family home market has generally been
offset by the lack of significant new construction activity in the multi-family
apartment market over most of this period. Over the past two years, development
activity for multi-family properties in many markets, including the greater
Dallas area when the Chisholm Place property is located, has escalated
significantly. Development activity in the Boulder and Stockton markets, where
the Tantra Lake and Grouse run properties are located, has not been a major
factor to date.
The Partnership has no real property investments located outside the
United States. The Partnership is engaged solely in the business of real estate
investment, therefore, presentation of information about industry segments is
not applicable.
The Partnership has no employees; it has, however, entered into an
Advisory Contract with PaineWebber Properties Incorporated (the "Adviser"),
which is responsible for the day-to-day operations of the Partnership. The
Adviser is a wholly-owned subsidiary of PaineWebber Incorporated ("PWI"), a
wholly-owned subsidiary of PaineWebber Group Inc. ("PaineWebber").
The general partners of the Partnership (the "General Partners") are First
PW Growth Properties, Inc. and Properties Associates. First PW Growth
Properties, Inc. (the "Managing General Partner"), a wholly-owned subsidiary of
PaineWebber Group Inc., is the managing general partner of the Partnership.
Properties Associates (the "Associate General Partner"), a Massachusetts general
partnership, certain general partners of which are officers of the Adviser and
the Managing General Partner, is the associate general partner of the
Partnership.
The terms of transactions between the Partnership and affiliates of the
Managing General Partner of the Partnership are set forth in Items 11 and 13
below to which reference is hereby made for a description of such terms and
transactions.
Item 2. Properties
As of March 31, 1998, the Partnership had interests in three operating
properties through joint venture partnerships. The joint venture partnerships
and the related properties are referred to under Item 1 above to which reference
is made for the name, location, and description of each property.
Occupancy figures for each fiscal quarter during 1998, along with an
average for the year, are presented below for each property owned during fiscal
1998:
Percent Occupied At
------------------------------------------------------
Fiscal
1998
Property 6/30/97 9/30/97 12/31/97 3/31/98 Average
- -------- ------- ------- -------- ------- -------
Tantra Lake Apartments 91% 95% 94% 92% 93%
Grouse Run Apartments 95% 96% 96% 93% 95%
Chisholm Place Apartments 99% 99% 99% 98% 99%
Item 3. Legal Proceedings
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated's sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group Inc. (together "PaineWebber"), among others, by allegedly
dissatisfied partnership investors. In March 1995, after the actions were
consolidated under the title In re PaineWebber Limited Partnership Litigation,
the plaintiffs amended their complaint to assert claims against a variety of
other defendants, including First PW Growth Properties, Inc. and Properties
Associates, which are the General Partners of the Partnership and affiliates of
PaineWebber. On May 30, 1995, the court certified class action treatment of the
claims asserted in the litigation.
The amended complaint in the New York Limited Partnership Actions alleged
that, in connection with the sale of interests in Paine Webber Growth Properties
LP, PaineWebber, First PW Growth Properties, Inc. and Properties Associates (1)
failed to provide adequate disclosure of the risks involved; (2) made false and
misleading representations about the safety of the investments and the
Partnership's anticipated performance; and (3) marketed the Partnership to
investors for whom such investments were not suitable. The plaintiffs, who
purported to be suing on behalf of all persons who invested in Paine Webber
Growth Properties LP, also alleged that following the sale of the partnership
interests, PaineWebber, First PW Growth Properties, Inc. and Properties
Associates misrepresented financial information about the Partnerships value and
performance. The amended complaint alleged that PaineWebber, First PW Growth
Properties, Inc. and Properties Associates violated the Racketeer Influenced and
Corrupt Organizations Act ("RICO") and the federal securities laws. The
plaintiffs sought unspecified damages, including reimbursement for all sums
invested by them in the partnerships, as well as disgorgement of all fees and
other income derived by PaineWebber from the limited partnerships. In addition,
the plaintiffs also sought treble damages under RICO.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which provides for the complete resolution of the class action litigation,
including releases in favor of the Partnership and PWPI, and the allocation of
the $125 million settlement fund among investors in the various partnerships and
REITs at issue in the case. As part of the settlement, PaineWebber also agreed
to provide class members with certain financial guarantees relating to some of
the partnerships and REITs. The details of the settlement are described in a
notice mailed directly to class members at the direction of the court. A final
hearing on the fairness of the proposed settlement was held in December 1996,
and in March 1997 the court announced its final approval of the settlement. The
release of the $125 million of settlement proceeds had been delayed pending the
resolution of an appeal of the settlement agreement by two of the plaintiff
class members. In July 1997, the United States Court of Appeals for the Second
Circuit upheld the settlement over the objections of the two class members. As
part of the settlement agreement, PaineWebber agreed not to seek indemnification
from the related partnerships and real estate investment trusts at issue in the
litigation (including the Partnership) for any amounts that it is required to
pay under the settlement.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiffs' purchases of various limited partnership interests, including those
offered by the Partnership. The complaint alleged, among other things, that
PaineWebber and its related entities committed fraud and misrepresentation and
breached fiduciary duties allegedly owed to the plaintiffs by selling or
promoting limited partnership investments that were unsuitable for the
plaintiffs and by overstating the benefits, understating the risks and failing
to state material facts concerning the investments. The complaint sought
compensatory damages of $15 million plus punitive damages against PaineWebber.
In September 1996 the court dismissed many of the plaintiffs' claims as barred
by applicable securities arbitration regulations. Mediation with respect to the
Abbate action was held in December 1996. As a result of such mediation, a
settlement between PaineWebber and the plaintiffs was reached which provided for
the complete resolution of this action. Final releases and dismissals with
regard to this action were received during fiscal 1998.
Based on the settlement agreements discussed above covering all of the
outstanding unitholder litigation, management believes that the resolution of
these matters will not have a material impact on the Partnership's financial
statements, taken as a whole.
Rocky Mountain Partners, a joint venture in which the Partnership has an
interest, was named as a defendant in a lawsuit brought in February 1998 by two
individuals and an entity, among others, who had previously performed repair
work at the Tantra Lake property. The lawsuit alleges, among other things, that
the individuals were exposed, without their knowledge, to unsafe levels of
asbestos hazards in the course of performing work at the Tantra Lake Apartments.
The joint venture plans to vigorously defend itself against the allegations in
this lawsuit. The joint venture's insurer has preliminarily denied coverage for
the costs of defending the lawsuit by citing a contract exclusion. The eventual
outcome of this litigation and the applicability of insurance coverage related
thereto cannot be determined at this time. Accordingly, no liability for any
expenses which might result from this litigation has been provided for in the
venture's financial statements.
The Partnership is not subject to any other material pending legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and
Related Security Holder Matters
At March 31, 1998, there were 2,675 record holders of Units in the
Partnership. There is no public market for the Units, and it is not anticipated
that a public market for Units will develop. Upon request, the Managing General
Partner will endeavor to assist a Unitholder desiring to transfer his Units and
may utilize the services of PWI in this regard. The price to be paid for the
Units will be subject to negotiation by the Unitholder. The Managing General
Partner will not redeem or repurchase Units.
Reference is made to Item 6 below for a discussion of cash distributions
made to the Limited Partners during fiscal 1998.
Item 6. Selected Financial Data
<TABLE>
Paine Webber Growth Properties LP
For the years ended March 31, 1998, 1997, 1996, 1995 and 1994
(in thousands, except for per Unit data)
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 287 $ 2,825 $ 2,446 $ 2,471 $ 2,393
Operating income (loss) $ (16) $ (559) $ (422) $ (324) $ 31
Partnership's share of gains
on settlement of insurance
claims - - - - $ 225
Loss on sale of operating
investment property - $ (138) - - -
Partnership's share of
unconsolidated
ventures' income (losses) $ 202 $ 94 $ 96 $ 644 $ (2,546)
Net income (loss) $ 186 $ (580) $ (322) $ 325 $ (2,289)
Per Limited Partnership Unit:
Net income (loss) $ 6.29 $(19.67) $ (10.93) $ 8.70 $ (77.63)
Cash distributions
from operations $ 21.35 $ 12.12 $ 11.66 $ 6.28 -
Cash distributions from sale,
refinancing and other
capital transactions $115.00 - $ 90.00 $ 158.00 -
Total assets $ 1,034 $ 4,422 $ 12,979 $ 16,086 $ 20,510
Mortgage note payable - - $ 6,890 $ 6,962 $ 7,029
</TABLE>
The above selected financial data should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere in this
Annual Report.
The above per Limited Partnership Unit information is based upon the
29,194 Limited Partnership Units outstanding during each year.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Information Relating to Forward-Looking Statements
- --------------------------------------------------
The following discussion of financial condition includes forward-looking
statements which reflect management's current views with respect to future
events and financial performance of the Partnership. These forward-looking
statements are subject to certain risks and uncertainties, including those
identified below under the heading "Certain Factors Affecting Future Operating
Results," which could cause actual results to differ materially from historical
results or those anticipated. The words "believe," "expect," "anticipate," and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which were made
based on facts and conditions as they existed as of the date of this report. The
Partnership undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Liquidity and Capital Resources
- -------------------------------
The Partnership offered limited partnership interests to the public from
November 1982 to September 1983 pursuant to a Registration Statement filed under
the Securities Act of 1933. Gross proceeds of $29,194,000 were received by the
Partnership and, after deducting selling expenses and offering costs,
approximately $24,560,000 was initially invested in joint venture interests in
six operating investment properties. As of March 31, 1998 the Partnership
retained interests in three operating investment properties. During fiscal 1997,
the Partnership completed a sale transaction with respect to the Nob Hill
Apartments and during fiscal 1995, the Partnership completed sales transactions
with respect to the Northcastle Apartments and the land at the former site of
the Parkwoods Apartments. While the sale of the Nob Hill Apartments had been
executed and control of the property had been transferred to the buyer on
February 7, 1997, the distribution of the net sale proceeds was delayed pending
the receipt of the formal consent of the Secretary of Housing and Urban
Development ("HUD") to the sale of the property and the assumption of the loan
by the purchaser. Such final approval was received on June 9, 1997. As a result,
the Partnership made a special distribution to the Limited Partners of
approximately $3,357,000, or $115 per original $1,000 Unit, on June 13, 1997. Of
this amount, $90.65 represented the net proceeds and excess working capital from
the sale of the Nob Hill Apartments and $24.35 represented a distribution of
Partnership reserves, which exceeded expected future requirements. After this
special capital distribution to investors, the Partnership's annual distribution
rate was increased from 3% to 5% on a Limited Partner's remaining capital
account of $423 per original $1,000 Unit. Subsequent to year-end, the quarterly
distribution was increased to $6.35 per original $1,000 Unit, which is
equivalent to a 6% annualized rate of return on remaining capital, effective for
the distribution paid on May 15, 1998 for the quarter ended March 31, 1998. The
reasons for the increases in the distribution rate are the improved cash flow
being generated by the Tantra Lake Apartments and the fact that nearly all of
Nob Hill's operating cash flow for the past several years had been used at the
property for repairs and improvements. The Partnership does not have any
commitments for additional capital expenditures or investments but may be called
upon to advance funds to its existing investments in accordance with the
respective joint venture agreements. The Partnership's primary objective has
been to maximize the capital appreciation of its operating investment
properties.
The Partnership has ownership interests in three remaining apartment
properties located in the markets of Boulder, Colorado (Tantra Lake), greater
Dallas, Texas (Chisholm Place) and Stockton, California (Grouse Run). The
Partnership is currently pursuing potential disposition strategies for the three
remaining investments in its portfolio. General improvements in the apartment
segment of the real estate market are expected to provide the Partnership with
the opportunities to market and sell these three properties in the near term. As
discussed further below, active marketing efforts on all three properties began
subsequent to year-end. It is currently contemplated that the sales of the
remaining assets and a liquidation of the Partnership could be accomplished
prior to the end of calendar year 1998. There are no assurances, however, that
the sales of the remaining assets and the liquidation of the Partnership will be
completed within this time frame.
As previously reported, the Partnership received some unsolicited interest
from prospective buyers for the Tantra Lake Apartments during fiscal 1997. In
response to this interest, management initiated discussions with local real
estate brokerage firms concerning potential sale strategies for Tantra Lake
during fiscal 1998. During the fourth quarter, the Partnership solicited
marketing proposals from three of these firms. After reviewing their respective
proposals and conducting extensive interviews, the Partnership selected a
national brokerage firm that is a leading seller of apartment properties in the
Denver area. Subsequent to year-end, a marketing package was prepared, and
comprehensive sales efforts began in April. In conjunction with the marketing
program, certain improvements to the property are being implemented to enhance
the market value of the Tantra Lake property. In addition to the fitness center
improvements which were completed during the third quarter of fiscal 1998, the
property's management team recently updated the property's model apartments,
completed clubhouse renovations, and installed new washers and dryers in the
laundry facilities. In the first quarter of fiscal 1999, the property's
management team plans to enhance the property's landscaping, reseal the parking
areas and finish the painting projects to the interior hallways and exteriors of
the buildings. Rocky Mountain Partners, the joint venture which owns the Tantra
Lake property, was named as a defendant in a lawsuit brought in February 1998 by
two individuals and an entity, among others, who had previously performed repair
work at the property. The lawsuit alleges, among other things, that the
individuals were exposed, without their knowledge, to unsafe levels of asbestos
hazards in the course of performing work at the Tantra Lake Apartments. The
joint venture plans to vigorously defend itself against the allegations in this
lawsuit. The joint venture's insurer has preliminarily denied coverage for the
costs of defending the lawsuit by citing a contract exclusion. The eventual
outcome of this litigation and the applicability of insurance coverage related
thereto cannot be determined at this time. Accordingly, no liability for any
expenses which might result from this litigation has been provided for in the
venture's financial statements.
Although the performance of the Chisholm Place Apartments remained strong
throughout fiscal 1998 due to the property's larger unit sizes, its excellent
location and its well-maintained physical appearance, the property's management
and leasing team reports that visits by qualified prospective tenants have
decreased from previous quarters and the vacancy rate of 2.6% at March 31, 1998
was at the highest level since 1996. According to the property's management and
leasing team, the development of several new apartment communities in the
vicinity of Chisholm Place appears to be affecting the market. As noted above,
the Partnership is formulating disposition strategies for its remaining
investments that could result in the sale of Chisholm Place in calendar year
1998. During the fourth quarter of fiscal 1998, the Partnership and its
co-venture partner requested proposals from two real estate brokerage firms with
offices in Texas to market the Chisholm Place property for sale. After reviewing
their respective proposals and conducting interviews, the Partnership and the
co-venturer selected a local brokerage firm with extensive experience marketing
apartment properties. Sales materials have been prepared, and extensive
marketing efforts began subsequent to year-end.
The occupancy level at the Grouse Run Apartments in Stockton, California,
averaged 93% for the quarter ended March 31, 1998, down from 96% in the third
quarter and down from 97% for the same period a year ago. Conditions in
Stockton's apartment market have been generally soft over the past year, and
rental rates have remained relatively flat. The property's management and
leasing team reports that its competition continues to offer leasing concessions
in the form of free rent. During the fourth quarter of fiscal 1998, the
Partnership requested proposals from four brokerage firms with offices in
California to market the Grouse Run property for sale. After reviewing their
respective proposals and conducting in-depth interviews, the Partnership
selected a national brokerage firm that is a leading seller of apartment
properties in the Stockton area. Sales materials have been prepared, and an
extensive marketing campaign began subsequent to year-end.
As previously reported, management had filed for a refund of approximately
$450,000 in costs incurred to secure the necessary building permits which were
obtained prior to the sale of the land underlying the former Parkwoods
Apartments from a federal agency responsible for administering federal aid in
connection with the 1991 Oakland fire. An agreement was reached during the
second quarter of fiscal 1996 to a release schedule for money previously funded
by the Parkwoods joint venture to pay for building permits. The joint venture
received a partial refund of such expenses totalling approximately $146,000 in
December 1995. However, the federal agency subsequently denied the joint
venture's claim for a refund of the remaining $300,000 in costs incurred.
Management believed that the joint venture was entitled to a full refund of the
costs incurred and had been pursuing such a refund. However, during fiscal 1998
the federal agency denied the Partnership's appeal regarding the reimbursement
claim, and, at the present time, the Partnership does not plan any further legal
action. In addition, it is possible that the federal agency will seek the return
of the $146,000 which was disbursed in December 1995. A liability for this
potential obligation is accrued on the Partnership's balance sheet as of March
31, 1998. Assuming that the sales of the Partnership's remaining assets proceed
as expected, as discussed further above, management will attempt to resolve this
matter fully during calendar year 1998 in order to complete the liquidation of
the Partnership as planned.
At March 31, 1998, the Partnership and its consolidated joint venture had
available cash and cash equivalents of approximately $1,034,000. Such cash and
cash equivalents, along with future cash flow distributions from the
Partnership's operating properties, will be used for the working capital needs
of the Partnership, for the funding of the Partnership's share of capital
improvements or operating deficits of the investment properties, if necessary,
and for distributions to the partners. Such sources of liquidity are expected to
be adequate to cover the Partnership's needs on both a short-term and long-term
basis. The source of future liquidity and distributions to the partners is
expected to be through proceeds received from the sales or refinancings of the
three remaining investment properties.
As noted above, the Partnership expects to be liquidated during calendar
year 1998. Notwithstanding this, the Partnership believes that it has made all
necessary modifications to its existing systems to make them year 2000 compliant
and does not expect that additional costs associated with year 2000 compliance,
if any, will be material to the Partnership's results of operations or financial
position.
Results of Operations
1998 Compared to 1997
- ---------------------
The Partnership reported net income of $186,000 for the year ended March
31, 1998, as compared to a net loss of $580,000 for the prior year. This
$766,000 favorable change in net operating results is primarily due to a loss of
$138,000 realized in the prior year on the final sale of the Nob Hill
Apartments, a $543,000 decrease in the Partnership's operating loss and a
$108,000 increase in the Partnership`s share of unconsolidated ventures' income.
The loss on the final sale of the Nob Hill Apartments represented the difference
between the gross purchase price of $9.5 million net of selling costs, and the
net carrying value of the operating investment property as of the date of the
sale. The Partnership's operating loss decreased mainly due to the sale of the
consolidated Nob Hill Apartments. In the prior year, the Nob Hill joint venture
had net operating income of $69,000 before recording an $856,000 loss on the
impairment of the consolidated venture's operating property. Prior to the sale,
as of December 31, 1996, the Nob Hill joint venture recognized an impairment
loss to write down the net carrying value of the operating investment property
and related deferred expenses to management's estimate of the net proceeds which
were realizable from a sale transaction.
The Partnership's share of unconsolidated ventures' income increased in
fiscal 1998 due to a $161,000 increase in combined revenues which was partially
offset by a $46,000 increase in combined expenses. Revenues increased mainly due
to a $167,000 increase in rental income. While rental income improved at all
three properties in the current year, the most significant increase occurred at
the Tantra Lake Apartments where rental revenue was up by more than 3% from the
prior year. Expenses increased, despite a decrease in combined interest expense
of $163,000, mainly due to an increase in certain administrative expenses of the
Parkwoods joint venture. Interest expense decreased due to the full 12-month
effect of the August 1996 refinancing of Tantra Lake's mortgage loan which
significantly reduced the venture's annual debt service.
1997 Compared to 1996
- ---------------------
The Partnership reported a net loss of $580,000 for the year ended March
31, 1997, as compared to a net loss of $322,000 for the prior year. This
$258,000 unfavorable change in net operating results was primarily due to a
$138,000 loss realized from the sale of the Nob Hill Apartments on February 7,
1997 and a $137,000 increase in the Partnership's operating loss. The loss on
the sale of the Nob Hill Apartments amounted to $138,000, which represented the
difference between the gross purchase price of $9.5 million net of selling
costs, and the net carrying value of the operating investment property as of the
date of the sale. The Partnership's operating loss increased due to a $516,000
increase in expenses that was partially offset by a $379,000 increase in
revenues. Expenses increased mainly due to an $856,000 loss recorded on the
impairment of the consolidated venture's operating property. Prior to the sale,
as of December 31, 1996, the Nob Hill joint venture recognized an impairment
loss to write down the net carrying value of the operating investment property
and related deferred expenses to management's estimate of the net proceeds which
were realizable from a sale transaction. The additional loss on the sale
referred to above, of $138,000, was recorded as of the date of the sale based on
the final negotiated amount of the net proceeds. Decreases in depreciation and
general and administrative expenses of $457,000 and $147,000, respectively,
partially offset the impairment loss on the Nob Hill property. Depreciation
expense decreased as the consolidated joint venture ceased recording
depreciation expense on the Nob Hill property as of April 30, 1996 as it began
to actively market the property for sale. General and administrative expenses
decreased largely due to a reduction in certain required professional services
when compared to fiscal 1996. In addition, property operating expenses increased
by $191,000. Due to the Partnership's three-month reporting lag and the sale of
the Nob Hill Apartments on February 7, 1997, as discussed further in Notes 2 and
4 to the consolidated financial statements, the Partnership reported operations
of the consolidated venture from January 1, 1997 through the date of sale in the
consolidated fiscal 1997 operating results. Accordingly, the consolidated
statements of operations for fiscal 1997 reflect slightly more than one
additional month of Nob Hill's operations. Revenues increased due to a $230,000
increase in rental revenue and a $162,000 increase in interest and other income.
The increases in both revenue categories was primarily due to the inclusion of
the additional lag-period operations of the Nob Hill joint venture in fiscal
1997 results, as explained above.
The Partnership's share of unconsolidated ventures' income decreased by
$2,000 for fiscal 1997 when compared to the prior year. The Partnership's share
of unconsolidated ventures' income decreased due to a $71,000 decline in
combined revenues which was partially offset by a $67,000 decrease in combined
expenses. Revenues decreased mainly due to a $138,000 decrease in interest and
other income. Interest and other income decreased primarily due to the $146,000
partial refund received in fiscal 1996 for costs incurred to secure the
necessary building permits which were obtained prior to the sale of the land
underlying the former Parkwoods Apartments, as discussed further above. A
$67,000 increase in rental income partially offset the decrease in interest and
other income. Rental revenues increased mainly due to an increase in average
monthly rental rates at the Tantra Lake Apartments during fiscal 1997. Expenses
decreased mainly due to reductions in combined depreciation expense and combined
interest expense of $54,000 and $39,000, respectively. Depreciation expense
declined primarily due to a significant asset at Tantra Lake having become fully
depreciated during fiscal 1997. Interest expense decreased due to the August
1996 refinancing of Tantra Lake's mortgage loan which significantly reduced the
venture's annual debt service.
1996 Compared to 1995
- ---------------------
The Partnership reported a net loss of $322,000 for the year ended March
31, 1996, as compared to net income of $325,000 reported for the prior year. The
primary reason for the unfavorable change in net operating results was a
decrease in the Partnership's share of unconsolidated ventures' income. The
Partnership realized net income of $96,000 from its share of unconsolidated
ventures' operations in fiscal 1996 as compared to net income of $644,000 in the
prior year. The net income of the unconsolidated joint ventures during calendar
1994 included the net gain on the sales of the Northcastle Apartments and the
Parkwoods land of $1,043,000. The impact of this net gain on the Partnership's
share of unconsolidated ventures' income was partially offset by rental income
increases at Tantra Lake and Chisholm Place in calendar 1995, mainly as a result
of rental rate increases. The Partnership achieved rental income increases of 4%
and 2% at Tantra Lake and Chisholm Place, respectively, for calendar 1995.
Average occupancy at Tantra Lake increased slightly from 95% for calendar 1994
to 96% for calendar 1995. Average occupancy at Chisholm Place was unchanged
between calendar 1995 and 1994. Rental income was also up slightly at Grouse Run
due to an increase in average occupancy from 94% for calendar 1994 to 95% for
calendar 1995. Rental rates at Grouse Run were relatively unchanged between
calendar 1995 and 1994 as a result of soft market conditions in the state of
California in general.
The decrease in net income during fiscal 1996 was also partly the result
of an increase in the Partnership's operating loss of $98,000. This increase was
mainly due to increases in depreciation expense and general and administrative
expenses of $93,000 and $87,000, respectively, and a decrease in interest income
of $151,000. Depreciation expense increased due to significant fixed asset
additions to the Nob Hill operating investment property during fiscal 1995.
General and administrative expenses increased primarily due to an increase in
certain required professional services during fiscal 1996. Interest income
decreased in fiscal 1996 due to a significant decrease in average outstanding
cash balances for the year due to the receipt of the proceeds from the sales of
the Parkwoods and Northcastle properties during the prior year. The increases in
depreciation expense and general and administrative expenses and the decrease in
interest income were offset by a decrease in interest expense and an increase in
rental income in fiscal 1996. Interest expense decreased due to the scheduled
principal amortization on the mortgage note and a decrease in the mortgage
insurance premium for the Nob Hill loan. Rental income increased by $152,000 at
the consolidated Nob Hill Apartments for calendar 1995 due to an increase in
rental rates over the prior year. Average occupancy actually declined slightly
at Nob Hill from 93% for calendar 1994 to 92% for calendar 1995.
Certain Factors Affecting Future Operating Results
- --------------------------------------------------
The following factors could cause actual results to differ materially from
historical results or those anticipated:
Real Estate Investment Risks. Real property investments are subject to
varying degrees of risk. Revenues and property values may be adversely affected
by the general economic climate, the local economic climate and local real
estate conditions, including (i) the perceptions of prospective tenants of the
attractiveness of the property; (ii) the ability to retain qualified individuals
to provide adequate management and maintenance of the property; (iii) the
inability to collect rent due to bankruptcy or insolvency of tenants or
otherwise; and (iv) increased operating costs. Real estate values may also be
adversely affected by such factors as applicable laws, including tax laws,
interest rate levels and the availability of financing.
Effect of Uninsured Loss. The Partnership carries comprehensive liability,
fire, flood, extended coverage and rental loss insurance with respect to its
properties with insured limits and policy specifications that management
believes are customary for similar properties. There are, however, certain types
of losses (generally of a catastrophic nature such as wars, floods or
earthquakes) which may be either uninsurable, or, in management's judgment, not
economically insurable. Should an uninsured loss occur, the Partnership could
lose both its invested capital in and anticipated profits from the affected
property.
Possible Environmental Liabilities. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may become liable for the costs of the investigation,
removal and remediation of hazardous or toxic substances on, under, in or
migrating from such property. Such laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances.
The Partnership is not aware of any notification by any private party or
governmental authority of any non-compliance, liability or other claim in
connection with environmental conditions at any of its properties that it
believes will involve any expenditure which would be material to the
Partnership, nor is the Partnership aware of any environmental condition with
respect to any of its properties that it believes will involve any such material
expenditure. However, there can be no assurance that any non-compliance,
liability, claim or expenditure will not arise in the future.
Competition. The financial performance of the Partnership's remaining real
estate investments will be significantly impacted by the competition from
comparable properties in their local market areas. The occupancy levels and
rental rates achievable at the properties are largely a function of supply and
demand in the market. In many markets across the country, including the greater
Dallas area in which the Chisholm Place property is located, development of new
multi-family properties has increased significantly over the past two years.
Existing properties in such markets could be expected to experience increased
vacancy levels, declines in effective rental rates and, in some cases, declines
in estimated market values as a result of the increased competition. Development
activity in the Boulder and Stockton markets, where the Tantra Lake and Grouse
Run properties are located, has not been a major factor to date. There are no
assurances that these competitive pressures will not adversely affect the
operations and/or market values of the Partnership's investment properties in
the future.
Impact of Joint Venture Structure. The ownership of the remaining
investments through joint venture partnerships could adversely impact the timing
of the Partnership's planned dispositions of its remaining assets and the amount
of proceeds received from such dispositions. It is possible that the
Partnership's co-venture partners could have economic or business interests
which are inconsistent with those of the Partnership. Given the rights which
both parties have under the terms of the joint venture agreements, any conflict
between the partners could result in delays in completing a sale of the related
operating property and could lead to an impairment in the marketability of the
property to third parties for purposes of achieving the highest possible sale
price.
Availability of a Pool of Qualified Buyers. The availability of a pool of
qualified and interested buyers for the Partnership's remaining assets is
critical to the Partnership's ability to realize the estimated fair market
values of such properties at the time of their final dispositions. Demand by
buyers of multi-family apartment properties is affected by many factors,
including the size, quality, age, condition and location of the subject
property, potential environmental liability concerns, the existing debt
structure, the liquidity in the debt and equity markets for assets acquisitions,
the general level of market interest rates and the general and local economic
climates.
Inflation
- ---------
The Partnership commenced operations in 1983 and completed its fifteenth
full year of operations in the current fiscal year. The effects of inflation and
changes in prices on the Partnership's operating results to date have not been
significant.
Inflation in future periods may increase revenues as well as operating
expenses at the Partnership's operating investment properties. Tenants at the
Partnership's apartment properties have short-term leases, generally of one year
or less in duration. Rental rates at these properties can be adjusted to keep
pace with inflation, to the extent market conditions allow, as the leases are
renewed or turned over. Such increases in rental income would be expected to at
least partially offset the corresponding increases in Partnership and property
operating expenses resulting from inflation.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are included under Item 14
of the Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Partnership
The Managing General Partner of the Partnership is First PW Growth
Properties, Inc., a Delaware corporation, which is a wholly-owned subsidiary of
PaineWebber. The Associate General Partner of the Partnership is Properties
Associates, a Massachusetts general partnership, certain general partners of
which are officers of the Adviser and the Managing General Partner. The Managing
General Partner has overall authority and responsibility for the Partnership's
operations, however, the day-to-day business of the Partnership is managed by
the Adviser pursuant to an advisory contract.
(a) and (b) The names and ages of the directors and principal executive
officers of the Managing General Partner of the Partnership are as follows:
Date
elected
Name Office Age to Office
---- ------ --- ---------
Bruce J. Rubin President and Director 38 8/22/96
Terrence E. Fancher Director 44 10/10/96
Walter V. Arnold Senior Vice President and
Chief Financial Officer 50 10/29/85
David F. Brooks First Vice President and
Assistant Treasurer 55 7/20/82 *
Timothy J. Medlock Vice President and Treasurer 37 6/1/88
Thomas W. Boland Vice President and Controller 35 12/1/91
* The date of incorporation of the Managing General Partner
(c) There are no other significant employees in addition to the directors
and executive officers mentioned above.
(d) There is no family relationship among any of the foregoing directors
or executive officers of the Managing General Partner of the Partnership. All of
the foregoing directors and officers have been elected to serve until the annual
meeting of the Managing General Partner.
(e) All of the directors and officers of the Managing General Partner hold
similar positions in affiliates of the Managing General Partner, which are the
corporate general partners of other real estate limited partnerships sponsored
by PWI, and for which PaineWebber Properties Incorporated ("PWPI") serves as the
Adviser. The business experience of each of the directors and principal
executive officers of the Managing General Partner is as follows:
Bruce J. Rubin is President and Director of the Managing General
Partner. Mr. Rubin was named President and Chief Executive Officer of PWPI
in August 1996. Mr. Rubin joined PaineWebber Real Estate Investment Banking
in November 1995 as a Senior Vice President. Prior to joining PaineWebber,
Mr. Rubin was employed by Kidder, Peabody and served as President for KP
Realty Advisers, Inc. Prior to his association with Kidder, Mr. Rubin was a
Senior Vice President and Director of Direct Investments at Smith Barney
Shearson. Prior thereto, Mr. Rubin was a First Vice President and a real
estate workout specialist at Shearson Lehman Brothers. Prior to joining
Shearson Lehman Brothers in 1989, Mr. Rubin practiced law in the Real Estate
Group at Willkie Farr & Gallagher. Mr. Rubin is a graduate of Stanford
University and Stanford Law School.
Terrence E. Fancher was appointed a Director of the Managing General
Partner in October 1996. Mr. Fancher is the Managing Director in charge of
PaineWebber's Real Estate Investment Banking Group. He joined PaineWebber as
a result of the firm's acquisition of Kidder, Peabody. Mr. Fancher is
responsible for the origination and execution of all of PaineWebber's REIT
transactions, advisory assignments for real estate clients and certain of the
firm's real estate debt and principal activities. He joined Kidder, Peabody
in 1985 and, beginning in 1989, was one of the senior executives responsible
for building Kidder, Peabody's real estate department. Mr. Fancher
previously worked for a major law firm in New York City. He has a J.D. from
Harvard Law School, an M.B.A. from Harvard Graduate School of Business
Administration and an A.B. from Harvard College.
Walter V. Arnold is a Senior Vice President and Chief Financial Officer of
the Managing General Partner and a Senior Vice President and Chief Financial
Officer of the Adviser which he joined in October 1985. Mr. Arnold joined PWI in
1983 with the acquisition of Rotan Mosle, Inc. where he had been First Vice
President and Controller since 1978, and where he continued until joining the
Adviser. He began his career in 1974 with Arthur Young & Company in Houston. Mr.
Arnold is a Certified Public Accountant licensed in the state of Texas.
David F. Brooks is a First Vice President and Assistant Treasurer of the
Managing General Partner and a First Vice President and Assistant Treasurer of
the Adviser. Mr. Brooks joined the Adviser in March 1980. From 1972 to 1980, Mr.
Brooks was an Assistant Treasurer of Property Capital Advisors, Inc. and also,
from March 1974 to February 1980, the Assistant Treasurer of Capital for Real
Estate, which provided real estate investment, asset management and consulting
services.
Timothy J. Medlock is a Vice President and Treasurer of the Managing
General Partner and Vice President and Treasurer of the Adviser which he joined
in 1986. From June 1988 to August 1989, Mr. Medlock served as the Controller of
the Managing General Partner and the Adviser. From 1983 to 1986, Mr. Medlock was
associated with Deloitte Haskins & Sells. Mr. Medlock graduated from Colgate
University in 1983 and received his Masters in Accounting from New York
University in 1985.
Thomas W. Boland is a Vice President and Controller of the Managing
General Partner and a Vice President and Controller of the Adviser which he
joined in 1988. From 1984 to 1987, Mr. Boland was associated with Arthur
Young & Company. Mr. Boland is a Certified Public Accountant licensed in the
state of Massachusetts. He holds a B.S. in Accounting from Merrimack College
and an M.B.A. from Boston University.
(f) None of the directors and officers was involved in legal proceedings
which are material to an evaluation of his or her ability or integrity as a
director or officer.
(g) Compliance With Exchange Act Filing Requirements: The Securities
Exchange Act of 1934 requires the officers and directors of the Managing General
Partner, and persons who own more than ten percent of the Partnership's limited
partnership units, to file certain reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and ten-percent
beneficial holders are required by SEC regulations to furnish the Partnership
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Partnership believes that, during the year ended March 31, 1998, all filing
requirements applicable to the officers and directors of the Managing General
Partner and ten-percent beneficial holders were complied with.
Item 11. Executive Compensation
The directors and officers of the Partnership's Managing General Partner
receive no current or proposed remuneration from the Partnership.
The Partnership is required to pay certain fees to the Adviser and the
General Partners are entitled to receive a share of Partnership cash
distributions, and a share of profits and losses. These items are described in
Item 13.
The Partnership resumed paying regular quarterly distributions with the
payment made on November 15, 1994 for the quarter ended September 30, 1994 at a
rate of 2% per annum on remaining invested capital. The annual distribution rate
was increased to 3% with the payment made on February 15, 1997 for the quarter
ended December 31, 1996. As discussed further in Item 7, the Partnership
increased the distribution rate to 5% on remaining invested capital for the
distribution paid on August 15, 1997 with the quarter ended June 30, 1997 and
then increased the distribution rate to 6% with the distribution paid on May 15,
1998 for the quarter ended March 31, 1998. However, the Partnership's Limited
Partnership Units are not actively traded on any organized exchange, and no
efficient secondary market exists. Accordingly, no accurate price information is
available for these Units. Therefore, a presentation of historical unitholder
total returns would not be meaningful.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) The Partnership is a limited partnership issuing Units of limited
partnership interest, not voting securities. All the outstanding stock of the
Managing General Partner, First PW Growth Properties, Inc. is owned by
PaineWebber. Properties Associates, the Associate General Partner, is a
Massachusetts general partnership, certain general partners of which are also
officers of the Adviser and the Managing General Partner. Properties Associates
is also the Initial Limited Partner of the Partnership and owns one Unit of
Limited Partnership interest. No limited partner is known by the Partnership to
own beneficially more than 5% of the outstanding interests of the Partnership.
(b) Neither directors and officers of the Managing General Partner nor the
general partners of the Associate General Partner, individually, own any Units
of limited partnership interest of the Partnership. No director or officer of
the Managing General Partner, nor any general partner of the Associate General
Partner, possesses a right to acquire beneficial ownership of Units of Limited
Partnership Interest of the Partnership.
(c) There exists no arrangement, known to the Partnership, the operation
of which may at a subsequent date result in a change in control of the
Partnership.
Item 13. Certain Relationships and Related Transactions
The General Partners of the Partnership are First PW Growth Properties,
Inc. (the "Managing General Partner"), a wholly-owned subsidiary of PaineWebber
Group Inc. ("PaineWebber"), and Properties Associates (the "Associate General
Partner"), a Massachusetts general partnership, certain general partners of
which are officers of PaineWebber Properties Incorporated (the "Adviser") and
the Managing General Partner. Subject to the Managing General Partner's overall
authority, the business of the Partnership is managed by the Adviser pursuant to
an advisory contract. The Adviser is a wholly-owned subsidiary of PaineWebber
Incorporated ("PWI"), a wholly-owned subsidiary of PaineWebber. The General
Partners, the Adviser and PWI receive fees and compensation determined on an
agreed upon basis, in consideration of various services performed in connection
with the sale of the Units, the management of the Partnership and the
acquisition, management, financing and disposition of Partnership investments.
The Managing General Partner, the Adviser and their affiliates are reimbursed
for their direct expenses relating to the offering of Units, the administration
of the Partnership and the acquisition and operations of the Partnership's real
property investments.
All distributable cash, as defined, for each fiscal year shall be
distributed quarterly in the ratio of 99% to the Limited Partners and 1% to the
General Partners. All sale or refinancing proceeds shall be distributed in
varying proportions to the Limited and General Partners, as specified in the
Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, taxable income or tax
losses of the Partnership will be allocated 99% to the Limited Partners and 1%
to the General Partners. Taxable income or tax loss arising from a sale or
refinancing of investment properties will be allocated to the Limited and
General Partners in proportion to the amount of sale or refinancing proceeds to
which they are entitled; that is, as much as 99% but not less than 85% to the
Limited Partners. However, the General Partners shall be allocated an amount of
taxable income from a capital transaction at least sufficient to eliminate their
deficit capital account balance. If there are no sale or refinancing proceeds,
tax losses and taxable income from a sale or refinancing will be allocated 99%
to the Limited Partners and 1% to the General Partners. Allocations of the
Partnership's operations between the General Partners and the Limited Partners
for financial accounting purposes have been made in conformity with the
allocations of taxable income or tax loss.
Under the advisory contract, the Adviser has specific management
responsibilities; to administer day-to-day operations of the Partnership, and to
report periodically the performance of the Partnership to the Managing General
Partner. The Adviser is due to be paid an annual management fee equal to 1% of
the gross offering proceeds. However, the cumulative amount of acquisition fees
and management fees which can be paid to the Adviser is limited to the sum of
18% of the gross offering proceeds plus 10% of Distributable Cash, as defined in
the Prospectus. During 1986, this limitation was reached and, as a result,
future management fee payments are limited to 10% of any additional
Distributable Cash. In fiscal 1998, based on additional Distributable Cash paid
to the partners, management fees totalling $62,000 were paid to the Adviser.
In connection with investing Partnership capital, the Adviser earned
acquisition fees totalling $2,248,000, of which $1,664,000 was paid to the
Adviser at the time the Partnership acquired its interests in the operating
investment properties and $584,000 was deferred and was payable from the
distributable net cash flow of the operating investment properties, as defined.
As of March 31, 1992, all deferred acquisition fees had been paid in full. Total
acquisition fees to be received by the Adviser was limited to not more than 9%
of the gross offering proceeds per the terms of the Prospectus. The Adviser may
receive a real estate brokerage commission, in an amount of up to 1% of the
selling prices of properties sold, upon the disposition of Partnership
investments. Payment of such fee will be subordinated to the payment of certain
amounts to the Limited Partners.
An affiliate of the Managing General Partner performs certain accounting,
tax preparation, securities law compliance and investor communications and
relations services for the Partnership. The total costs incurred by this
affiliate in providing such services are allocated among several entities,
including the Partnership. Included in general and administrative expenses for
the year ended March 31, 1998 is $95,000, representing reimbursements to this
affiliate of the Managing General Partner for providing such services to the
Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets. Mitchell
Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc., an
independently operated subsidiary of PaineWebber. Mitchell Hutchins earned fees
of $6,000 (included in general and administrative expenses) for managing the
Partnership's cash assets during fiscal 1998. Fees charged by Mitchell Hutchins
are based on a percentage of invested cash reserves which varies based on the
total amount of invested cash which Mitchell Hutchins manages on behalf of the
Adviser.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) and (2) Financial Statements and Schedules:
The response to this portion of Item 14 is submitted as a
separate section of this report. See Index to Financial
Statements and Financial Statement Schedules at page F-1.
(3) Exhibits:
The exhibits listed on the accompanying index to exhibits at
page IV-3 are filed as part of this Report.
(b) No Current Reports on Form 8-K were filed during the last quarter of
fiscal 1998.
(c) Exhibits
See (a)(3) above.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a
separate section of this Report. See Index to Financial
Statements and Financial Statement Schedules at page F-1.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PAINE WEBBER GROWTH PROPERTIES LP
By: First PW Growth Properties, Inc.
--------------------------------
Managing General Partner
By: /s/ Bruce J. Rubin
------------------
Bruce J. Rubin
President and
Chief Executive Officer
By: /s/ Walter V. Arnold
--------------------
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
By: /s/ Thomas W. Boland
--------------------
Thomas W. Boland
Vice President and Controller
Dated: June 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Partnership and
in the capacities and on the dates indicated.
By:/s/ Bruce J. Rubin Date: June 26, 1998
--------------------------- -------------
Bruce J. Rubin
Director
By:/s/ Terrence E. Fancher Date: June 26, 1998
--------------------------- -------------
Terrence E. Fancher
Director
<PAGE>
<TABLE>
ANNUAL REPORT ON FORM 10-K
Item 14(a)(3)
PAINE WEBBER GROWTH PROPERTIES LP
INDEX TO EXHIBITS
<CAPTION>
Page Number in the Report
Exhibit No. Description of Document Or Other Reference
----------- ----------------------- -------------------------
<S> <C> <C>
(3) and (4) Prospectus of the Partnership Filed with the Commission
dated November 18, 1982, as pursuant to Rule 424(c) and
supplemented, with particular incorporated herein by reference.
reference to the Amended and
Restated Certificate and
Agreement of Limited Partnership
(10) Material contracts previously Filed with the Commission pursuant
filed as exhibits to registration to Section 13 or 15(d) of the
statements and amendments thereto Securities Act of 1934 and
of the registrant together with incorporated herein by reference.
all such contracts filed as
exhibits of previously filed
Forms 8-K and Forms 10-K are
hereby incorporated herein by
reference.
(13) Annual Report to Limited Partners No Annual Report for fiscal year
1998 has been sent to the Limited
Partners. An Annual Report will be
sent to the Limited Partners
subsequent to this filing.
(22) List of subsidiaries Included in Item I of Part 1 of
this Report Page I-1, to which
reference is hereby made.
(27) Financial data schedule Filed as the last page of EDGAR
submission following the Financial
Statements and Financial Statement
Schedule required by Item 14.
</TABLE>
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a)(1) and (2) and 14(d)
PAINE WEBBER GROWTH PROPERTIES LP
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Reference
---------
Paine Webber Growth Properties LP:
Report of independent auditors F-2
Consolidated balance sheets as of March 31, 1998 and 1997 F-3
Consolidated statements of operations for the years ended
March 31, 1998, 1997 and 1996 F-4
Consolidated statements of changes in partners' capital
(deficit) for the years ended March 31, 1998, 1997 and 1996 F-5
Consolidated statements of cash flows for the years ended
March 31, 1998, 1997 and 1996 F-6
Notes to consolidated financial statements F-7
Combined Joint Ventures of Paine Webber Growth Properties LP:
Report of independent auditors F-17
Combined balance sheets as of December 31, 1997 and 1996 F-18
Combined statements of operations and changes in venturers'
deficit for the years ended December 31, 1997, 1996 and 1995 F-19
Combined statements of cash flows for the years ended
December 31, 1997, 1996 and 1995 F-20
Notes to combined financial statements F-21
Schedule III - Real Estate and Accumulated Depreciation F-27
Other Financial Statement Schedules have been omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the financial statements, including the notes thereto.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
Paine Webber Growth Properties LP:
We have audited the accompanying consolidated balance sheets of Paine
Webber Growth Properties LP as of March 31, 1998 and 1997, and the related
consolidated statements of operations, changes in partners' capital (deficit),
and cash flows for each of the three years in the period ended March 31, 1998.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements and 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.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Paine Webber Growth Properties LP at March 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended March 31, 1998, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
Boston, Massachusetts
June 12, 1998
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and 1997
(In thousands, except for per Unit data)
ASSETS
1998 1997
---- ----
Investments in unconsolidated joint
ventures, at equity $ - $ 304
Cash and cash equivalents 1,034 4,118
-------- ---------
$ 1,034 $ 4,422
======== =========
LIABILITIES AND PARTNERS' CAPITAL
Losses from unconsolidated joint ventures in excess of
investments and advances $ 266 $ -
Accounts payable and accrued expenses 44 39
Other liabilities 146 4
-------- ---------
Total liabilities 456 43
Partners' capital:
General Partners:
Capital contributions 1 1
Cumulative net income 20 18
Cumulative cash distributions (41) (35)
Limited Partners ($1,000 per Unit, 29,194
Units outstanding):
Capital contributions, net of offering costs 26,345 26,345
Cumulative net losses (4,793) (4,977)
Cumulative cash distributions (20,954) (16,973)
--------- ---------
Total partners' capital 578 4,379
--------- ---------
$ 1,034 $ 4,422
========= =========
See accompanying notes.
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 1998, 1997 and 1996
(In thousands, except for per Unit data)
1998 1997 1996
---- ---- ----
Revenues:
Rental income $ - $ 2,251 $ 2,021
Reimbursements from affiliates 182 176 189
Interest and other income 105 398 236
------- -------- --------
287 2,825 2,446
Expenses:
Loss due to impairment of long-lived
assets - 856 -
Interest expense - 665 617
Real estate taxes - 231 207
Depreciation expense - 229 686
Property operating expenses - 1,151 960
Partnership management fees 62 35 34
General and administrative 241 217 364
------- -------- --------
303 3,384 2,868
------- -------- --------
Operating loss (16) (559) (422)
Loss on sale of operating investment
property - (138) -
Venture partner's share of consolidated
venture's loss - 23 4
Partnership's share of unconsolidated
ventures' income 202 94 96
------- -------- --------
Net income (loss) $ 186 $ (580) $ (322)
======= ======== ========
Per Limited Partnership Unit:
Net income (loss) $ 6.29 $ (19.67) $ (10.93)
======= ======== ========
Cash distributions $136.35 $ 12.12 $ 101.66
======= ======== ========
The above per Limited Partnership Unit information is based upon the 29,194
Units of Limited Partnership Interest outstanding during each year.
See accompanying notes.
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the years ended March 31, 1998, 1997 and 1996
(In thousands)
General Limited
Partners Partners Total
-------- -------- -----
Balance at March 31, 1995 $ - $ 8,610 $ 8,610
Net loss (3) (319) (322)
Cash distributions (3) (2,968) (2,971)
------- -------- --------
Balance at March 31, 1996 (6) 5,323 5,317
Net loss (6) (574) (580)
Cash distributions (4) (354) (358)
------- -------- --------
Balance at March 31, 1997 (16) 4,395 4,379
Net income 2 184 186
Cash distributions (6) (3,981) (3,987)
------- -------- --------
Balance at March 31, 1998 $ (20) $ 598 $ 578
======= ======== ========
See accompanying notes
<PAGE>
<TABLE>
PAINE WEBBER GROWTH PROPERTIES LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 1998, 1997 and 1996
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 186 $ (580) $ (322)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Reimbursements from affiliates (182) (176) (189)
Loss due to impairment of long-lived assets - 856 -
Loss on sale of operating investment property - 138 -
Venture partner's share of consolidated venture's loss - (23) (4)
Partnership's share of unconsolidated ventures' income (202) (94) (96)
Depreciation expense - 229 686
Amortization of deferred loan costs - 18 17
Changes in assets and liabilities:
Accounts receivable - 1 7
Advances from consolidated venture - (250) 250
Real estate tax and insurance escrow deposit - 247 (3)
Other assets - 61 (21)
Accounts payable and accrued expenses 5 (227) (38)
Accrued interest payable - (211) 56
Tenant security deposits - (18) (6)
Other liabilities (4) - -
------- ------- -------
Total adjustments (383) 551 659
------- ------- -------
Net cash (used in) provided by operating activities (197) (29) 337
------- ------- -------
Cash flows from investing activities:
Distributions from unconsolidated joint ventures 1,100 953 627
Net withdrawals from capital improvement
and replacement escrow - 146 58
Additions to operating investment property - (158) (149)
Net proceeds from sale of operating investment property - 2,332 -
------- ------- -------
Net cash provided by investing activities 1,100 3,273 536
------- ------- -------
Cash flows from financing activities:
Repayment of long-term debt - (91) (72)
Distributions to partners (3,987) (358) (2,971)
------- ------- -------
Net cash used in financing activities (3,987) (449) (3,043)
------- ------- -------
Net (decrease) increase in cash and cash equivalents (3,084) 2,795 (2,170)
Cash and cash equivalents, beginning of year 4,118 1,323 3,493
------- ------- -------
Cash and cash equivalents, end of year $ 1,034 $ 4,118 $ 1,323
======= ======= =======
Supplemental Disclosures:
Cash paid during the year for interest $ - $ 781 $ 511
======= ======= =======
Long-term debt assumed by buyer $ - $(6,799) $ -
======= ======= =======
</TABLE>
See accompanying notes.
<PAGE>
PAINE WEBBER GROWTH PROPERTIES LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Nature of Operations
-------------------------------------
Paine Webber Growth Properties LP (the "Partnership") is a limited
partnership organized pursuant to the laws of the State of Delaware in August
1982 for the purpose of investing in a portfolio of rental apartment properties
which have potential for near-term capital appreciation. The Partnership
authorized the issuance of Units (at $1,000 per Unit) of which 29,194 were
subscribed and issued between November 15, 1982 and September 30, 1983.
The net proceeds of the Partnership's offering were originally invested in
six operating investment properties. Through March 31, 1998, two of these
investments had been sold and one was completely destroyed by fire. The
Partnership is currently pursuing potential disposition strategies for the three
remaining investments in its portfolio. General improvements in the apartment
segment of the real estate market are expected to provide the Partnership with
the opportunities to market and sell these three properties in the near term.
Active marketing efforts on all three properties began subsequent to March 31,
1998. It is currently contemplated that the sales of the remaining assets and a
liquidation of the Partnership could be accomplished prior to the end of
calendar year 1998. There are no assurances, however, that the sales of the
remaining assets and the liquidation of the Partnership will be completed within
this time frame. See Notes 4 and 5 to the financial statements for further
discussions of the Partnership's investments.
2. Use of Estimates and Summary of Significant Accounting Policies
---------------------------------------------------------------
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles
which requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities as of March 31, 1998 and 1997 and revenues and expenses for each
of the three years in the period ended March 31, 1998. Actual results could
differ from the estimates and assumptions used.
The accompanying financial statements include the Partnership's
investments in certain joint venture partnerships which own or owned operating
properties. Except as described below, the Partnership accounts for its
investments in joint venture partnerships using the equity method because the
Partnership does not have majority voting control in the ventures. Under the
equity method, the ventures are carried at cost adjusted for the Partnership's
share of the ventures' earnings, losses and distributions and certain
reimbursements receivable from the ventures (see Note 5). The Partnership's
joint venture investees are required to maintain their accounting records on a
calendar year basis for income tax reporting purposes. As a result, the
Partnership recognizes its share of the ventures' income or losses based on
financial information which is three months in arrears to that of the
Partnership. See Note 5 for a description of the unconsolidated joint venture
partnerships.
As further discussed in Note 4, the Partnership acquired control of Nob
Hill Partners, which owned the Nob Hill Apartments, in fiscal 1993. Accordingly,
the accompanying financial statements present the financial position, results of
operations and cash flows of Nob Hill Partners on a consolidated basis. As
discussed above, the joint ventures have December 31 year-ends, and operations
of the consolidated venture were reported on a three-month lag until the date of
the sale of the venture's operating investment property in February 1997. Due to
the Partnership's policy of accounting for significant lag-period transactions
in the period in which they occur, the loss on this transaction was recognized
in fiscal 1997. All material transactions between the Partnership and the
consolidated joint venture have been eliminated in consolidation, except for
lag-period cash transfers. See Note 4 for a description of the consolidated
joint venture partnership and a discussion of the significant lag-period sale
transaction which was recorded in fiscal 1997.
Prior to its sale during fiscal 1997, the operating investment property of
the consolidated joint venture was carried at cost, reduced by accumulated
depreciation, or an amount less than cost if indicators of impairment were
present in accordance with statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets carrying amount. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The Nob
Hill venture recognized an impairment loss in fiscal 1997 when it became
apparent that the net carrying amount of the operating investment property would
not be recovered from the net proceeds of a pending sale transaction (see Note
4).
Depreciation expense was computed using the straight-line method over the
estimated useful lives of the operating investment properties, generally five
years for the furniture and fixtures and thirty years for the buildings and
improvements. Costs and fees (including the acquisition fee paid to PaineWebber
Properties Incorporated) related to the acquisition of the property had been
capitalized and were included in the cost of the operating investment property.
Maintenance and repairs were charged to expense when incurred. The consolidated
venture ceased recording depreciation expense on the Nob Hill property as of
April 30, 1996 as it began to actively market the property for sale.
The consolidated joint venture leased apartment units under leases with
terms generally of one year or less. Rental income was recorded monthly as
earned.
For purposes of reporting cash flows, the Partnership considers all highly
liquid investments with original maturities of 90 days or less to be cash
equivalents.
The cash and cash equivalents appearing on the accompanying consolidated
balance sheets represent financial instruments for purposes of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments." The carrying amount of these cash and cash equivalents
approximates their fair value as of March 31, 1998 and 1997 due
to the short-term maturities of these instruments.
No provision for income taxes is made in the accompanying financial
statements as the liability for such taxes is that of the partners rather than
the Partnership.
3. The Partnership Agreement and Related Party Transactions
--------------------------------------------------------
The General Partners of the Partnership are First PW Growth Properties,
Inc. (the "Managing General Partner"), a wholly-owned subsidiary of PaineWebber
Group Inc. ("PaineWebber"), and Properties Associates (the "Associate General
Partner"), a Massachusetts general partnership, certain general partners of
which are officers of PaineWebber Properties Incorporated (the "Adviser") and
the Managing General Partner. Subject to the Managing General Partner's overall
authority, the business of the Partnership is managed by the Adviser pursuant to
an advisory contract. The Adviser is a wholly-owned subsidiary of PaineWebber
Incorporated ("PWI"), a wholly-owned subsidiary of PaineWebber. The General
Partners, the Adviser and PWI receive fees and compensation determined on an
agreed upon basis, in consideration of various services performed in connection
with the sale of the Units, the management of the Partnership and the
acquisition, management, financing and disposition of Partnership investments.
The Managing General Partner, the Adviser and their affiliates are reimbursed
for their direct expenses relating to the offering of Units, the administration
of the Partnership and the acquisition and operations of the Partnership's real
property investments.
All distributable cash, as defined, for each fiscal year shall be
distributed quarterly in the ratio of 99% to the Limited Partners and 1% to the
General Partners. All sale or refinancing proceeds shall be distributed in
varying proportions to the Limited and General Partners, as specified in the
Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, taxable income or tax
losses of the Partnership will be allocated 99% to the Limited Partners and 1%
to the General Partners. Taxable income or tax loss arising from a sale or
refinancing of investment properties will be allocated to the Limited and
General Partners in proportion to the amount of sale or refinancing proceeds to
which they are entitled; that is, as much as 99% but not less than 85% to the
Limited Partners. However, the General Partners shall be allocated an amount of
taxable income from a capital transaction at least sufficient to eliminate their
deficit capital account balance. If there are no sale or refinancing proceeds,
tax losses and taxable income from a sale or refinancing will be allocated 99%
to the Limited Partners and 1% to the General Partners. Allocations of the
Partnership's operations between the General Partners and the Limited Partners
for financial accounting purposes have been made in conformity with the
allocations of taxable income or tax loss.
Under the advisory contract, the Adviser has specific management
responsibilities; to administer day-to-day operations of the Partnership, and to
report periodically the performance of the Partnership to the Managing General
Partner. The Adviser is due to be paid an annual management fee equal to 1% of
the gross offering proceeds. However, the cumulative amount of acquisition fees
and management fees which can be paid to the Adviser is limited to the sum of
18% of the gross offering proceeds plus 10% of Distributable Cash, as defined in
the Prospectus. During 1986, this limitation was reached and, as a result,
future management fee payments are limited to 10% of any additional
Distributable Cash. In fiscal 1998, 1997 and 1996, based on additional
Distributable Cash paid to the partners, management fees totalling $62,000,
$35,000 and $34,000, respectively, were paid to the Adviser.
The Adviser may receive a real estate brokerage commission, in an amount
of up to 1% of the selling prices of properties sold, upon the disposition of
Partnership investments. Payment of such fee will be subordinated to the payment
of certain amounts to the Limited Partners.
Included in general and administrative expenses for the years ended March
31, 1998, 1997 and 1996 is $95,000, $88,000 and $93,000, respectively,
representing reimbursements to an affiliate of the Managing General Partner for
providing certain financial, accounting and investor communication services to
the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets. Mitchell
Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc., an
independently operated subsidiary of PaineWebber. Mitchell Hutchins earned fees
of $6,000, $3,000 and $5,000 (included in general and administrative expenses)
for managing the Partnership's cash assets during fiscal 1998, 1997 and 1996,
respectively.
4. Sale of Nob Hill Apartments
---------------------------
On February 7, 1997, the joint venture which owned the Nob Hill Apartments
sold the operating investment property to an unrelated third party. Due to the
Partnership's policy of accounting for significant lag-period transactions in
the period in which they occur, the loss on this transaction was recognized in
fiscal 1997. Accordingly, in addition to the operations for the twelve months
ended December 31, 1996, the operations of the Nob Hill joint venture for the
period January 1, 1997 through the date of sale on February 7, 1997 are also
reflected in the accompanying consolidated financial statements. Such operations
in calendar 1997 reflected total revenues of $224,000 and total expenses of
$290,000 for a net operating loss of $66,000, of which the Partnership's share
was $65,000. Prior to the sale, the consolidated venture recognized an
impairment loss of $856,000 to write down the net carrying value of the
operating investment property and related deferred expenses to management's
estimate of the net proceeds which were realizable from the pending sale
transaction. An additional loss on the sale totalling $138,000 was recorded as
of the date of the sale based on the final negotiated amount of the net
proceeds.
During fiscal 1997, a purchase and sale agreement on the Nob Hill property
was signed with a prospective buyer for a purchase price of $10 million. In
October 1996, the terms of the agreement were amended to reflect a reduction in
the purchase price to $9.5 million as a result of certain required repair work
at the property. The transaction closed in the fourth quarter of fiscal 1997, on
February 7, 1997, and the Partnership received net proceeds from the sale of
approximately $2.3 million. In addition, the venture had excess working capital
of approximately $360,000 at the time of the sale. All of the net proceeds and
excess working capital were distributed to the Partnership in accordance with
the terms of the Nob Hill joint venture agreement. While the sale had been
executed and control of the property had been transferred to the buyer on
February 7, 1997, the distribution of the net sale proceeds was delayed pending
the receipt of the formal consent of the Secretary of Housing and Urban
Development ("HUD") to the sale of the property and the assumption of the loan
by the purchaser. Such final approval was received on June 9, 1997. As a result,
the Partnership made a special distribution to the Limited Partners of
approximately $3,357,000, or $115 per original $1,000 Unit, on June 13, 1997. Of
this amount, $90.65 represented the net proceeds and excess working capital from
the sale of the Nob Hill Apartments and $24.35 represented a distribution of
Partnership reserves which exceeded expected future requirements.
The following is a summary of property operating expenses for the years
ended December 31, 1996 and 1995.
1996 (1) 1995
-------- ----
Property operating expenses:
Salaries and related costs $ 301 $269
Repairs and maintenance 279 249
Utilities 152 121
Insurance 100 67
Management fees 92 84
Administrative and other 227 170
------ ----
$1,151 $960
====== ====
(1)Due to the Partnership's three-month reporting lag and the sale of the
Nob Hill Apartments on February 7, 1997, as discussed above, the
Partnership reported operations of the consolidated venture from
January 1, 1997 through the date of sale in the results for the twelve
months ended December 31, 1996. Accordingly, the property operating
expenses summarized above for the twelve months ended December 31, 1996
reflect slightly more than one additional month of operations which
amounted to approximately $216,000.
5. Investments in Unconsolidated Joint Ventures
--------------------------------------------
The Partnership had investments in four unconsolidated joint ventures at
March 31, 1998 and 1997. The unconsolidated joint ventures are accounted for on
the equity method in the Partnership's financial statements. As discussed in
Note 2, these joint ventures report their operations on a calendar year basis.
Condensed combined financial statements of the unconsolidated joint
ventures, for the periods indicated, are as follows:
Condensed Combined Balance Sheets
December 31, 1997 and 1996
(in thousands)
Assets
1997 1996
---- ----
Current assets $ 1,152 $ 1,264
Operating investment properties, net 15,182 15,683
Other assets 297 379
-------- --------
$ 16,631 $ 17,326
======== ========
Liabilities and Venturers' Deficit
Current liabilities $ 848 $ 782
Other liabilities 1,833 1,719
Long-term mortgage debt, less current portion 16,007 16,065
Partnership's share of combined deficit (1,824) (1,068)
Co-venturers' share of combined deficit (233) (172)
-------- --------
$ 16,631 $ 17,326
======== ========
Condensed Combined Summary of Operations
For the years ended December 31, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
---- ---- ----
Revenues:
Rental revenue $ 4,997 $ 4,830 $ 4,763
Interest and other income 151 157 295
-------- -------- --------
5,148 4,987 5,058
Expenses:
Property operating expenses 2,084 2,053 1,975
Depreciation 815 794 848
Interest expense 1,392 1,555 1,594
Administrative and other 665 508 560
-------- -------- --------
4,956 4,910 4,977
-------- -------- --------
Net income $ 192 $ 77 $ 81
======== ======== ========
Net income (loss):
Partnership's share of net
income (loss) $ 202 $ 94 $ 96
Co-venturers' share of net
income (loss) (10) (17) (15)
-------- -------- --------
$ 192 $ 77 $ 81
======== ======== ========
Reconciliation of Partnership's Investment
March 31, 1998 and 1997
(in thousands)
1998 1997
---- ----
Partnership's share of venturers' deficit
at December 31, as shown above $ (1,824) $ (1,068)
Reimbursements of management fees and expenses
receivable from joint ventures (1) 1,873 1,769
Timing differences due to contributions made and
distributions received subsequent to December
31 (see Note 2) (315) (397)
--------- --------
Investments in joint ventures, at equity,
at March 31 $ (266) $ 304
========= ========
(1)The Partnership records as income reimbursements due from the joint
ventures for the Partnership management fee and certain out-of-pocket
expenses as specified in the respective joint venture agreements. The
Partnership earned reimbursements totalling $182,000, $176,000 and
$189,000 for the years ended March 31, 1998, 1997 and 1996,
respectively. The Partnership's joint venture investees record
comparable reimbursement expenses in their statements of operations,
which are reflected in the Partnership's share of ventures' losses.
Accordingly, the accounting for these reimbursements has no significant
effect on the Partnership's net capital or its results of operations.
These reimbursements are paid from cash flow of the joint ventures as
available, or from sale or refinancing proceeds, and are cumulative to
the extent not paid currently. Such cumulative reimbursements payable
to the Partnership totalled $1,873,000 and $1,769,000 at March 31, 1998
and 1997, respectively. These amounts have been included in the balance
of investments in joint ventures on the accompanying balance sheets.
Investments in unconsolidated joint ventures, at equity, is the
Partnership's net investment in the unconsolidated joint venture partnerships.
These joint ventures are subject to partnership agreements which determine the
distribution of available funds, the disposition of the venture's assets and the
rights of the partners, regardless of the Partnership's percentage ownership
interest in the venture. As a result, substantially all of the Partnership's
investments in these joint ventures are restricted as to distributions.
Investments in unconsolidated joint ventures, at equity, on the
accompanying balance sheets is comprised of the following investment carrying
values (in thousands):
1998 1997
---- ----
Rocky Mountain Partners $ (1,700) $ (1,339)
Grouse Run Associates I and II 281 295
Plano Chisholm Place Associates 971 1,151
Parkwood Montclair Partners 182 197
-------- --------
$ (266) $ 304
======== ========
Cash distributions received (including reimbursements of management fees
and out-of-pocket expenses) from the Partnership's unconsolidated joint venture
investments during the years ended March 31, 1998, 1997 and 1996 are as follows
(in thousands):
1998 1997 1996
---- ---- ----
Rocky Mountain Partners $ 935 $ 619 $ 396
Grouse Run Associates I and II - 193 89
Plano Chisholm Place Associates 165 141 142
------- -------- -------
$ 1,100 $ 953 $ 627
======= ======== =======
A description of the ventures' properties and the terms of the joint venture
agreements are summarized below:
(a) Rocky Mountain Partners
-----------------------
On February 1, 1983, the Partnership acquired an interest in Rocky
Mountain Partners, a Colorado limited partnership which owns and operates Tantra
Lake Apartments, a 301-unit apartment complex in Boulder, Colorado. The
Partnership is a general partner in the joint venture. The Partnership's
co-venture partner is an affiliate of Sares Regis Group (formerly Regis Homes
Corporation). The property was purchased on February 17, 1983.
The aggregate cash investment by the Partnership for its interest was
approximately $4,698,000 (including an acquisition fee of $300,000 and a
consulting fee of $20,000 paid to the Adviser of the Partnership, and fees
totalling $210,000 paid to affiliates of the co-venturer). In addition, deferred
acquisition fees aggregating $95,000 have been paid to the Adviser from
distributable net cash flow. The apartment complex was acquired subject to
mortgages totalling $6,582,000 at the time of closing. On June 4, 1986, the
joint venture refinanced the property by replacing the original mortgages which
had remaining balances of approximately $6,299,000 with an $8,900,000 new first
mortgage. The Partnership received a distribution totalling $2,275,000 from the
refinancing proceeds in 1986. The outstanding first mortgage loan was
nonrecourse to the venture, had a balance of $8,482,000 as of December 31, 1995
and was scheduled to mature on July 1, 1996. On August 6, 1996, the Partnership
closed on a new loan for the Tantra Lake joint venture and the existing first
mortgage loan was repaid in full. The new mortgage loan, in the principal amount
of $8,850,000, bears interest at 7.68% per annum, requires interest-only
payments throughout its term and is scheduled to mature on September 1, 2001.
The terms of the new loan reduce Tantra Lake's required annual debt service by
more than $300,000 which has significantly improved cash flow to the Partnership
from this investment. In addition, the new loan is assumable upon a sale and
allows for prepayment in full at any time. A penalty tied to a yield maintenance
calculation would be charged for any prepayment in the first two years of the
term. Thereafter, a penalty equal to 1% of the outstanding principal balance
would be due in conjunction with any prepayment transaction.
The joint venture agreement provides that distributable net cash flow, as
defined, will be allocated first to the payment of interest and principal on
certain interim borrowings, if such borrowings have been made, and then any
remaining amounts are to be distributed 99% to the Partnership and 1% to the
co-venturer. Distributions to the Partnership and the co-venturer totalling
$2,718,000 and $27,000, respectively, had been made from inception through
December 31, 1997.
Taxable income and tax loss from operations is allocated 99% to the
Partnership and 1% to the co-venturer. Allocations of the joint venture
operations between the partners for financial accounting purposes have been made
in conformity with the allocations of taxable income or loss.
Upon sale or refinancing the Partnership will receive an amount equal to
its initial investment in the property plus $732,000 as a first priority, after
payment of mortgage debt and other indebtedness of the joint venture. The
remaining proceeds will be split between the Partnership and the co-venturer in
varying proportions, in accordance with the joint venture agreement.
Taxable income and tax loss resulting from a sale of the property will
generally be allocated between the Partnership and the co-venturer as sales
proceeds are distributed.
The joint venture entered into a property management agreement with an
affiliate of the co-venturer, cancellable at the Partnership's option upon the
occurrence of certain events. The management fee is equal to 5% of gross
receipts, as defined in the agreement.
In the event the joint venture requires additional funds, the first
$100,000 was to be provided by the Partnership. Thereafter, funds are to be
provided 90% by the Partnership and 10% by the co-venturer as capital
contributions or interim borrowings in accordance with the terms of the joint
venture agreement. The agreement has been informally modified by the partners
resulting in additional contributions by the Partnership and the Co-Venturer
from inception through December 31, 1997 totalling approximately $818,000 and
$8,000, respectively.
Rocky Mountain Partners was named as a defendant in a lawsuit brought in
February 1998 by two individuals and an entity, among others, who had previously
performed repair work at the Tantra Lake property. The lawsuit alleges, among
other things, that the individuals were exposed, without their knowledge, to
unsafe levels of asbestos hazards in the course of performing work at the Tantra
Lake Apartments. The joint venture plans to vigorously defend itself against the
allegations in this lawsuit. The joint venture's insurer has preliminarily
denied coverage for the costs of defending the lawsuit by citing a contract
exclusion. The eventual outcome of this litigation and the applicability of
insurance coverage related thereto cannot be determined at this time.
Accordingly, no liability for any expenses which might result from this
litigation has been provided for in the venture's financial statements.
(b) Grouse Run Associates I and II
------------------------------
On December 15, 1982, the Partnership acquired an interest in Grouse Run
Associates I and Grouse Run Associates II, two California general partnerships
organized to purchase and operate Grouse Run Apartments, a 158-unit apartment
complex in Stockton, California. The Partnership is a general partner in each of
the joint ventures. The Partnership's co-venture partner is an affiliate of
Sares Regis Group (formerly Regis Homes Corporation). The property was acquired
on March 31, 1983.
The aggregate cash investment by the Partnership for its interests was
approximately $2,192,000 (including an acquisition fee of $125,000 and a
consulting fee of $10,000 paid to the Adviser of the Partnership and fees
aggregating $90,000 paid to affiliates of the co-venturer). In addition,
deferred acquisition fees aggregating $38,000 have been paid from distributable
net cash flow to the Adviser. The apartment complex was acquired subject to two
nonrecourse first mortgages with balances totalling $3,557,000 at the time of
closing. The mortgage loans had an aggregate balance of $3,055,000 as of
December 31, 1997 and are scheduled to mature in February 2019 and February
2020.
The joint venture agreement provides that the net cash flow, as defined,
will be allocated first to the payment of interest and principal on certain
interim borrowings, if such borrowings have been made, and then any remaining
amounts are to be distributed 99% to the Partnership and 1% to the co-venturer.
This joint venture agreement has been informally modified by the partners
resulting in distributions to the Partnership totalling $981,000 from inception
through December 31, 1997.
Taxable income and tax loss from operations is allocated 99% to the
Partnership and 1% to the co-venturer. Allocations of the joint venture
operations between the partners for financial accounting purposes have been made
in conformity with the allocations of taxable income or loss.
Upon sale or refinancing, the Partnership will receive an amount equal to
its initial investment in the property plus $310,000 as a first priority, after
payment of mortgage debt and other indebtedness of the joint venture. Remaining
proceeds will be split between the Partnership and the co-venturer in varying
proportions in accordance with the joint venture agreement.
Taxable income and tax loss resulting from a sale of the apartment complex
will be allocated between the Partnership and the co-venturer generally as sales
proceeds are distributed.
The joint venture entered into a property management agreement with an
affiliate of the co-venturer, cancellable at the Partnership's option upon the
occurrence of certain events. The management fee is equal to 5% of gross
receipts, as defined in the agreement.
In the event the joint venture requires additional funds, the first
$40,000 was to be provided by the Partnership. Thereafter, funds are to be
provided 90% by the Partnership and 10% by the co-venturer as capital
contributions or interim borrowing in accordance with the terms of the joint
venture agreement. Additional contributions from inception through December 31,
1997 totalling approximately $380,000 have been made 100% by the Partnership.
(c) Plano Chisholm Place Associates
--------------------------------
On March 1, 1983, the Partnership acquired an interest in Plano Chisholm
Place Associates, a Texas general partnership organized to purchase and operate
Chisholm Place Apartments, a 142-unit apartment complex in Plano, Texas. The
Partnership is a general partner in the joint venture. The Partnership's
co-venture partner is an affiliate of The Horn-Barlow Companies. The property
was acquired on May 31, 1983.
On September 9, 1991, an Amended and Restated Partnership Agreement was
entered into in connection with a refinancing of the venture's mortgage debt.
The mortgage lender agreed to accept a discount on an immediate repayment of the
outstanding obligations, which included a principal balance of $6,993,000. In
return for a payment of $4,200,000, the lender forgave the resulting principal
balance of $2,793,000 and accrued interest of $975,000. The payment to the
lender and transaction closing costs were funded by a new mortgage loan in the
amount of $4,160,000 and contributions totalling $211,000 from the Partnership
and its co-venture partner made in the ratios of 80% and 20%, respectively. The
outstanding mortgage loan is nonrecourse to the venture and is scheduled to
mature on October 1, 2001. The co-venturer was not obligated under the terms of
the original joint venture agreement to make additional contributions in
connection with the refinancing, but agreed to do so in return for the
Partnership's agreement to certain modifications to the venture agreement which
would allow the co-venturer to recover its additional investment, plus earn a
current return thereon.
The original aggregate cash investment by the Partnership for its interest
was approximately $2,233,000 (including an acquisition fee of $150,000 paid to
the Adviser of the Partnership and consulting fees aggregating $20,000 paid to
an affiliate of the co-venturer). In addition, acquisition fees aggregating
$75,000 were deferred and were to be paid to the Adviser from distributable net
cash flow from operations, if available, in twelve quarterly installments
commencing June 1984. Unpaid acquisition fees were to be payable no later than
the earlier of September 30, 1989 or upon the sale or refinancing of the
investment property. During fiscal 1992, the joint venture paid the remaining
deferred acquisition fee of $75,000 to the Adviser from the proceeds of a
capital contribution by the Partnership.
The amended joint venture agreement provides that net cash flow, as
defined, will be allocated first, to the partners until they have received an
aggregate amount equal to the deferred fees payable to the partners as of
January 1, 1991; second, to the payment of interest and principal on certain
interim borrowings, if such borrowings have been made; third, to the payment of
any reimbursements of management fees and expenses owed to the Partnership;
fourth, 80% to the Partnership and 20% to the co-venturer until each has
received the amount of its contribution of New Net Equity, as defined, plus a
10% simple return thereon; and fifth, any remaining amounts are to be allocated
80% to the Partnership and 20% to the co-venturer.
Taxable income and tax loss from operations in each year are allocated 80%
to the Partnership and 20% to the co-venturer. Allocations of the joint venture
operations between the partners for financial accounting purposes have been made
in conformity with the allocations of taxable income or tax loss.
Sale or refinancing proceeds will be distributed to the Partnership and
the co-venturer in varying proportions in accordance with the terms of the
amended joint venture agreement.
Profits resulting from the sale or refinancing of the property will be
first allocated to the Partnership and the co-venturer on a proportionate basis
to restore any negative capital accounts to zero. Any remaining gain will be
allocated to the Partnership and the co-venturer in a manner similar to cash
distributions. Losses from the sale or refinancing of the property will be first
allocated to the Partnership and the co-venturer on a proportionate basis to any
positive capital balances after giving effect to the distribution of proceeds
described above, and then 95% to the Partnership and 5% to the co-venturer.
The joint venture entered into a property management agreement with an
affiliate of the co-venturer, cancellable at the Partnership's option upon the
occurrence of certain events. The management fee is equal to 5% of gross
receipts, as defined. In addition, the management agreement provides for an
incentive management fee of 1% of gross receipts, as defined. The 1% incentive
management fee is payable only from distributable net cash flow, as defined.
If additional cash is required for any reason in connection with the joint
venture, it is to be provided by the Partnership and the co-venturer as
additional capital contributions or operating or default loans in accordance
with the terms of the amended joint venture agreement. Additional contributions
made by the Partnership from inception through December 31, 1997 total
approximately $254,000.
(d) Parkwood Montclair Partners
---------------------------
On September 30, 1983, the Partnership acquired an interest in Parkwood
Montclair Partners, a California general partnership organized to purchase and
operate Parkwoods Apartments, a 433-unit apartment complex in Oakland,
California. The Partnership is a general partner in the joint venture. The
Partnership's co-venture partner is an affiliate of Sares Regis Group (formerly
Regis Homes Corporation). The property was purchased on October 31, 1983. The
aggregate cash investment by the Partnership for its interest was approximately
$8,153,000 (including an acquisition fee of $570,000 and a consulting fee of
$45,000 paid to the Adviser of the Partnership and fees totalling $308,000 paid
to an affiliate of the co-venturer). In addition, acquisition fees aggregating
$135,000 and $53,000 were deferred and paid to the Adviser and an affiliate of
the co-venturer, respectively, from the cash flow of the venture.
On October 20, 1991, the Parkwoods Apartments was completely destroyed by
a firestorm that devastated a large section of the hills over Oakland,
California. Subsequent to the fire, on May 27, 1992, the joint venture reached a
full and final insurance settlement, which called for the venture to receive a
total of approximately $29,361,000 for coverage on the damage to the buildings
and the loss of rental income. Additionally, in September of 1993, the joint
venture entered into a cash settlement of $250,000 with another insurance
carrier related to supplemental hazard insurance. In June 1992, the venture
partners decided not to rebuild the operating property and agreed to distribute
the net insurance proceeds after the repayment of the outstanding mortgage loan
and certain other liabilities. The mortgage loan balance of $19,000,000 was
repaid in full on June 24, 1992 with a portion of the proceeds from the
insurance settlement. Approximately $5 million of the remaining net insurance
proceeds was used or set aside to pay for post-fire clean up and operating
expenses of the Parkwoods joint venture and the costs associated with pursuing
the redevelopment permits discussed further below. The remaining $5 million of
net proceeds was paid to the Partnership under the terms of the venture
agreement. Approximately $4,500,000 of the proceeds received by the Partnership
was distributed to the Limited Partners in August 1992.
During fiscal 1994, the joint venture was successful in obtaining approval
for the construction of a condominium complex on the land. The reconstruction
plans were for a project of similar size and density to that of the former
Parkwood Apartment complex. Management believed that obtaining these condominium
conversion and site plan approvals would substantially facilitate the future
sale of the land. During calendar 1994, the joint venture paid approximately
$500,000 to secure certain building permits required in order to proceed with
the planned reconstruction. In connection with obtaining the site plan
approvals, the joint venture entered into a settlement agreement with the former
tenants of the operating investment property related to their rights in the
condominium conversion. Under the terms of this agreement, the joint venture
agreed to pay the former tenants approximately $250,000 and to offer certain
discounts to former tenants who wish to purchase a condominium unit in the
redeveloped project.
On April 15, 1994, subsequent to obtaining the building permits, the joint
venture sold the Parkwoods land to an affiliate of the co-venture partner for
$4,750,000. Terms of the sale allow for the aforementioned discounts to be
provided to the former tenants. After transaction costs, net proceeds from the
sale totalled approximately $4,699,000. A portion of the proceeds was retained
by the joint venture to pay for the ongoing costs associated with certain
outstanding legal claims. The remaining portion of the proceeds was distributed
to the venture partners in accordance with the terms of the joint venture
agreement, with the Partnership receiving approximately $4,139,000 and the
co-venturer receiving approximately $49,000. Due to the outstanding legal claims
involving the joint venture, the joint venture was not liquidated at the time of
the sale of the land. Except as discussed below, such legal claims had all been
settled as of December 31, 1996.
Management had filed for a refund of approximately $450,000 in costs
incurred to secure the necessary building permits which were obtained prior to
the sale of the land underlying the former Parkwoods Apartments from a federal
agency responsible for administering federal aid in connection with the 1991
Oakland fire. An agreement was reached during the second quarter of fiscal 1996
to a release schedule for money previously funded by the Parkwoods joint venture
to pay for building permits. The joint venture received a partial refund of
these amounts totalling approximately $146,000 in December 1995, which was
recorded as income by the joint venture in calendar 1995. However, the federal
agency subsequently denied the joint venture's claim for a refund of the
remaining $300,000 in costs incurred. Management believed that the joint venture
was entitled to a full refund of the costs incurred and had been pursuing such a
refund. However, during fiscal 1998 the federal agency denied the Partnership's
appeal regarding the reimbursement claim, and, at the present time, the
Partnership does not plan any further legal action. In addition, it is possible
that the federal agency will seek the return of the $146,000 which was disbursed
in December 1995. A liability for this potential obligation is accrued on the
Partnership's balance sheet as of March 31, 1998.
Per the terms of the joint venture agreement, taxable income or tax loss
from operations is allocated 99% to the Partnership and 1% to the co-venturer.
Taxable income or tax loss resulting from the sale or other disposition of the
apartment complex was allocated between the Partnership and the co-venturer
generally as proceeds were distributed. Allocations of the joint venture
operations between the partners for financial accounting purposes have been made
in conformity with the allocations of taxable income or tax loss.
6. Subsequent Events
-----------------
On May 15, 1998, the Partnership distributed $185,000 to the Limited
Partners and $1,800 to the General Partners for the quarter ended March 31,
1998.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
Paine Webber Growth Properties LP:
We have audited the accompanying combined balance sheets of the Combined
Joint Ventures of Paine Webber Growth Properties LP as of December 31, 1997 and
1996, and the related combined statements of operations and changes in
venturers' deficit, and cash flows for each of the three years in the
period ended December 31, 1997. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
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.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of the
Combined Joint Ventures of Paine Webber Growth Properties LP at December 31,
1997 and 1996, and the combined results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
Boston, Massachusetts
March 4, 1998
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER GROWTH PROPERTIES LP
COMBINED BALANCE SHEETS
December 31, 1997 and 1996
(In thousands)
Assets
1997 1996
---- ----
Current assets:
Cash and cash equivalents $ 915 $ 957
Accounts receivable 1 2
Prepaid expenses 236 195
Deposit for repair and improvements - 110
---------- ---------
Total current assets 1,152 1,264
Operating investment properties:
Land 4,325 4,325
Buildings, improvements and equipment 23,263 22,949
---------- ---------
27,588 27,274
Less: accumulated depreciation (12,406) (11,591)
---------- ---------
15,182 15,683
Reserves for repairs and capital improvements 60 78
Deferred expenses, net of accumulated amortization
of $174 in 1997 ($110 in 1996) 237 301
---------- ---------
$ 16,631 $ 17,326
========== =========
Liabilities and Venturers' Deficit
Current liabilities:
Accounts payable and other liabilities $ 350 $ 266
Accrued real estate taxes 251 246
Accrued management fee 10 16
Tenant security deposits 179 200
Current portion of long-term debt 58 54
---------- ---------
Total current liabilities 848 782
Reimbursements payable to Venturer 1,833 1,719
Long-term debt 16,007 16,065
Venturers' deficit (2,057) (1,240)
---------- ---------
$ 16,631 $ 17,326
========== =========
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER GROWTH PROPERTIES LP
COMBINEDSTATEMENTS OF OPERATIONS AND CHANGES IN VENTURERS' DEFICIT
For the years ended December 31, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
---- ---- ----
Revenues:
Rental income $ 4,997 $ 4,830 $ 4,763
Interest and other income 151 157 295
-------- -------- -------
5,148 4,987 5,058
Expenses:
Interest expense 1,392 1,555 1,594
Depreciation expense 815 794 848
Salaries 518 508 496
Repairs and maintenance 537 610 573
Property operating expenses 479 459 441
Real estate taxes 315 306 304
General and administrative 337 165 164
Management fees 256 246 245
Reimbursements to partner 191 170 193
Professional fees 116 97 119
-------- -------- -------
4,956 4,910 4,977
-------- -------- -------
Net income 192 77 81
Contributions from venturers 146 - -
Distributions to venturers (1,154) (499) (664)
Venturers' deficit, beginning of year (1,241) (818) (235)
-------- -------- -------
Venturers' deficit, end of year $ (2,057) $ (1,240) $ (818)
========= ======== =======
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER GROWTH PROPERTIES LP
COMBINED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996 and 1995
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income $ 192 $ 77 $ 81
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense 815 794 848
Amortization of loan acquisition costs 64 44 30
Changes in assets and liabilities:
Accounts receivable 1 11 1,581
Prepaid expenses (41) (125) 6
Accounts payable and other liabilities 84 10 (130)
Accrued interest - (74) 74
Accrued real estate taxes 5 - 5
Accrued management fees (6) - 1
Tenant security deposits (21) (9) 18
Due to venturers - - (1,619)
Reimbursements payable to partner 114 20 70
------- ------ -------
Total adjustments 1,015 671 884
------- ------ -------
Net cash provided by operating activities 1,207 748 965
------- ------ -------
Cash flows from investment activities:
Additions to operating investment properties (314) (256) (228)
Decrease (increase) in reserve for capital
expenditures 128 (124) (15)
------- ------ -------
Net cash used in investing activities (186) (380) (243)
------- ------ -------
Cash flows from financing activities:
Repayment of long-term debt (54) (8,529) (159)
Contributions from venturers 146 - -
Distributions to venturers (1,155) (499) (664)
Proceeds from issuance of long-term debt - 8,850 -
Financing fees - (240) -
------- ------ -------
Net cash used in financing activities (1,063) (418) (823)
------- ------ -------
Net decrease in cash and cash equivalents (42) (50) (101)
Cash and cash equivalents, beginning of year 957 1,007 1,108
------- ------ -------
Cash and cash equivalents, end of year $ 915 $ 957 $ 1,007
======= ====== =======
Cash paid during the year for interest $ 1,327 $1,585 $ 1,478
======= ====== =======
See accompanying notes.
<PAGE>
COMBINED JOINT VENTURES OF
PAINE WEBBER GROWTH PROPERTIES LP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
------------------------------------------
Organization
------------
The accompanying financial statements of the Combined Joint Ventures of
PaineWebber Growth Properties, LP include the accounts of Rocky Mountain
Partners, a Colorado general partnership; Grouse Run Associates I and II,
California general partnerships; Plano Chisholm Place Associates, a Texas
general partnership; and Parkwood Montclair Partners, a California general
partnership. The financial statements of the Combined Joint Ventures are
presented in combined form due to the nature of the relationship between each of
the co-ventures and PaineWebber Growth Properties, LP (PWGP) which owns an
interest in each of the joint ventures mentioned below. As further described in
Note 2, Parkwood Montclair Partners sold the land at the former site of the
Parkwood Apartments on April 15, 1994 to an affiliate of the co-venture partner.
Due to certain outstanding legal claims involving the Parkwoods joint venture,
the venture was not liquidated subsequent to the sale of the land (see Note 2).
The dates of PWGP's acquisition of interests in the joint ventures are as
follows:
Date of Acquisition
Joint Venture of Interest
------------- -------------------
Rocky Mountain Partners February 17, 1983
Grouse Run Associates I and II March 31, 1983
Plano Chisholm Place Associates May 31, 1983
Parkwood Montclair Partners October 31, 1983
Basis of presentation
---------------------
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles
which requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities as of December 31, 1997 and 1996 and revenues and expenses for
each of the three years in the period ended December 31, 1997. Actual results
could differ from the estimates and assumptions used.
Certain of the records of the Combined Joint Ventures are maintained on
the income tax basis of accounting and are adjusted, principally for
depreciation, to conform with generally accepted accounting principles for
financial reporting purposes.
Operating investment properties
-------------------------------
The operating investment properties are carried at cost, reduced by
accumulated depreciation, or an amount less than cost if indicators of
impairment are present in accordance with statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets carrying amount. SFAS No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of.
Depreciation expense is computed on a straight-line basis over the
estimated useful lives of the operating investment properties, generally five
years for the equipment and fixtures and thirty years for the buildings and
improvements. Professional fees (including deferred acquisition fees paid to an
affiliate of the general partner - see Note 3), and other costs incurred in
connection with the acquisition of the properties have been capitalized and are
included in the cost of the land and buildings.
Deferred expenses
-----------------
Deferred expenses consist primarily of loan fees which are being amortized
on a straight-line basis, which approximates the effective interest method, over
the terms of the related loans. Such amortization expense is included in
interest expense on the accompanying statements of operations.
Income tax matters
------------------
The Combined Joint Ventures are comprised of entities which are not
taxable and accordingly, the results of their operations are included on the tax
returns of the various partners. Accordingly, no income tax provision is
reflected in the accompanying combined financial statements.
Cash and cash equivalents
-------------------------
For purposes of the statement of cash flows, the Combined Joint Ventures
consider all highly liquid investments with original maturity dates of 90 days
or less to be cash equivalents.
In accordance with certain of the joint venture agreements, specific cash
balances are restricted for insurance, real estate taxes and tenant security
deposits. However, should cash be required for operating expenditures, the
partners may modify the joint venture agreements. Included in the cash and cash
equivalents balance are the following restricted amounts:
December 31, December 31
1997 1996
------------ -----------
Reserve for tenant security deposits $ 69 $ 65
Reserve for insurance and tax deposits 149 126
-------- --------
$ 218 $ 191
======== ========
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of cash and cash equivalents and cash reserves
approximate their fair values as of December 31, 1997 and 1996 due to the
short-term maturities of these instruments. It is not practicable for management
to estimate the fair value of reimbursements payable to Venturer without
incurring excessive costs due to the unique nature of such obligations. The fair
value of long-term debt is estimated using a discounted cash flow analysis,
based on the current market rate for similar types of borrowing arrangements
(see Note 5).
Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the
current year presentation.
2. Joint Ventures
--------------
See Note 5 to the financial statements of PWGP in this Annual Report for a
more detailed description of the joint venture partnerships. Descriptions of the
ventures' properties are summarized below:
a. Rocky Mountain Partners
-----------------------
The joint venture owns and operates Tantra Lake Apartments, a 301-unit
apartment complex located in Boulder, Colorado. Rocky Mountain Partners was
named as a defendant in a lawsuit brought in February 1998 by two individuals
and an entity, among others, who had previously performed repair work at the
Tantra Lake property. The lawsuit alleges, among other things, that the
individuals were exposed, without their knowledge, to unsafe levels of asbestos
hazards in the course of performing work at the Tantra Lake Apartments. The
joint venture plans to vigorously defend itself against the allegations in this
lawsuit. The joint venture's insurer has preliminarily denied coverage for the
costs of defending the lawsuit by citing a contract exclusion. The eventual
outcome of this litigation and the applicability of insurance coverage related
thereto cannot be determined at this time. Accordingly, no liability for any
expenses which might result from this litigation has been provided for in the
venture's financial statements.
b. Grouse Run Associates I and II
------------------------------
The joint venture owns and operates Grouse Run Apartments - Phases I and
II, a 158-unit apartment complex located in Stockton, California.
c. Plano Chisholm Place Associates
-------------------------------
The joint venture owns and operates Chisholm Place Apartments, a 142-unit
apartment complex located in Plano, Texas.
d. Parkwood Montclair Partners
---------------------------
The joint venture owned and operated Parkwoods Apartments, a 433-unit
apartment complex located in Oakland, California. The operating investment
property was entirely destroyed by fire on October 20, 1991. The joint venture
had in place sufficient insurance coverage on the investment property as of the
date of the fire. In May 1992, the joint venture and the insurance carrier
agreed on the extent of the losses and entered into a cash settlement of
$29,361,000. In September 1993, the joint venture and another insurance carrier
entered into a cash settlement of $250,000 related to supplemental hazard
insurance. The net settlement proceeds were used as follows: (i) $19,000,000 in
full payment of first mortgage loan, (ii) $1,418,000 ($65,000 of accrued
interest) in full payment of operating loans payable to PWGP, (iii) $171,000 in
payment of reimbursements payable to PWGP, (iv) $4,691,000 distributed to PWGP,
and (v) $2,547,000 retained by the joint venture.
During 1993, the joint venture was successful in obtaining approval for
the construction of a condominium complex on the land. The reconstruction plans
were for a project of similar size and density to that of the former Parkwood
Apartment complex. Management believed that obtaining these condominium
conversion and site plan approvals would substantially facilitate the future
sale of the land. During calendar 1994, the joint venture paid approximately
$500,000 to secure certain building permits required in order to proceed with
the planned reconstruction. In connection with obtaining the site plan
approvals, the joint venture entered into a settlement agreement with the former
tenants of the operating investment property related to their rights in the
condominium conversion. Under the terms of this agreement, the venture agreed to
pay the former tenants approximately $250,000 and to offer certain discounts to
former tenants who wish to purchase a condominium unit in the redeveloped
project.
On April 15, 1994, Parkwood Montclair Partners sold the land on the former
site of the Parkwoods Apartments to an affiliate of PWGP's co-venture partner.
The property was sold for $4,750,000. After paying all closing costs, the net
sales proceeds amounted to approximately $4,699,000. Parkwood Montclair Partners
retained a portion of the proceeds to pay the $250,000 settlement amount
pursuant to the agreement with the former tenants of the Parkwoods Apartments
and to fund ongoing costs associated with certain outstanding legal claims. The
remaining portion of the proceeds was distributed to the venture partners in
accordance with the terms of the joint venture agreement, with PWGP receiving
approximately $4,139,000 and the co-venturer receiving approximately $49,000.
The net sales price of the land was less than its net carrying value at the date
of the sale by approximately $163,000. A loss equal to such amount was
recognized in 1994. Due to the outstanding legal claims involving the venture,
Parkwood Montclair Partners was not liquidated at the time of the sale of the
land. Except as discussed below, such legal claims had all been settled as of
December 31, 1996.
Management had filed for a refund of approximately $450,000 in costs
incurred to secure the necessary building permits which were obtained prior to
the sale of the land underlying the former Parkwoods Apartments from a federal
agency responsible for administering federal aid in connection with the 1991
Oakland fire. An agreement was reached during 1995 to a release schedule for
money previously funded by the Parkwood joint venture to pay for building
permits. The joint venture received a partial refund of these amounts totalling
approximately $146,000 in December 1995. Such amount is recorded as other income
on the accompanying 1995 statement of operations. However, the federal agency
subsequently denied the joint venture's claim for a refund of the remaining
$300,000 in costs incurred. Management believed that the joint venture was
entitled to a full refund of the costs incurred had been pursuing such a refund.
However, during fiscal 1998 the federal agency denied the venture's appeal
regarding the reimbursement claim, and at the present time, the venture does not
plan any further legal action. In addition, it is possible that the federal
agency will seek the return of the $146,000 which was disbursed in December
1995. The venture recorded an expense in 1997 for the amount of this potential
liability.
The following description of the joint venture agreements provides certain
general information.
Allocations of net income and loss
----------------------------------
The joint venture agreements provide that taxable income and tax loss from
operations in each year are generally to be allocated 99% to PWGP and 1% to the
co-venturers. During 1991, the terms of the Chisholm Place joint venture
agreement were amended in conjunction with the debt refinancing described in
Note 5. Taxable income and tax loss from operations are now allocated 80% to
PWGP and 20% to the co-venturer. Gains or losses resulting from sales or other
dispositions of the projects shall be allocated as specified in the joint
venture agreements. Allocations of income and loss for financial reporting
purposes have been made in accordance with the allocations of taxable income or
loss.
Distributions
-------------
The joint venture agreements provide that distributable net cash flow, as
defined, will generally be allocated first to the payment of the deferred
acquisition and consulting fees payable to affiliates of the general partners,
then to the payment of interest and principal on certain interim borrowings, if
such borrowings have been made, and then any remaining amounts are to be
distributed 99% to PWGP and 1% to the co-venturers. In accordance with the
amendment to the Chisholm Place joint venture agreement referred to above,
beginning in 1991, cash flow of this venture, after the payment of certain
priority distributions, is to be distributed 80% to PWGP and 20% to the
co-venturer.
Distribution of proceeds resulting from the sale or refinancing of the
property shall be made in accordance with formulas provided in the joint venture
agreements.
Additional cash
---------------
Additional cash required by the Joint Ventures is generally to be
provided, either in the form of capital contributions or as loans to the joint
ventures, 90% by PWGP and 10% by the co-venturers.
3. Related party transactions
--------------------------
The Combined Joint Ventures originally executed property management
agreements with affiliates of the co-venturers, cancellable at the joint
ventures' option upon the occurrence of certain events. The management fees are
equal to 4% to 5% of gross receipts, as defined in the agreements.
The joint venture agreements provide that the co-venturers will reimburse
PWGP for their proportionate share of PWGP's management fees and certain
out-of-pocket expenses incurred by PWGP in connection with the general
management of the joint ventures. Such reimbursements are payable only to the
extent of available cash flow from operations and are cumulative to the extent
not paid. The Combined Joint Ventures owed PWGP reimbursements totalling
$191,000, $170,000 and $193,000 for the years ended December 31, 1997, 1996 and
1995, respectively. Cumulative unpaid reimbursements aggregated $1,833,000 and
$1,719,000 at December 31, 1997 and 1996, respectively, which amounts are
accrued on the accompanying balance sheets.
4. Reserves for repairs and capital improvements
---------------------------------------------
Under the terms of certain joint venture agreements, the joint ventures
are required to maintain a cash reserve for capital expenditures consisting of
an initial amount to be increased for each month of operations of the operating
investment property by the joint ventures by an amount equal to 2% of the gross
rents. Unless otherwise determined by the joint ventures, the principal amount
of funds in the capital reserve shall only be expended for capital repairs to,
or replacement of, portions of the operating properties as set forth in a budget
or approved by the joint ventures. As of December 31, 1997 and 1996, the amount
of capitalized expenditures have exceeded the amounts of the required deposits
to such reserves. Accordingly, no such reserve balances were required.
5. Long-term debt
--------------
Long-term debt at December 31, 1997 and 1996 consists of the following
(in thousands):
1997 1996
---- ----
Nonrecourse mortgage note secured
by a first deed of trust on the
Tantra Lake Apartments (see
discussion below). The loan bears
interest at 7.68% per annum,
monthly interest-only payments of
$57 will be made through September
1, 2001 when the remaining unpaid
balance is due. The fair value of
this note approximated it carrying
value as of December 31, 1997 and
1996. $ 8,850 $ 8,850
Nonrecourse mortgage note secured
by a deed of trust on the Grouse
Run I operating property and
guaranteed by the Federal Housing
Administration. The loan bears
interest at a rate of 7.5% per
annum and is payable in monthly
principal and interest installments
of $11. The remaining unpaid
balance is due February 1, 2019.
The fair value of this mortgage
note approximated its carrying
value as of December 31, 1997 and
1996. 1,352 1,377
Nonrecourse mortgage note secured
by a deed of trust on the Grouse
Run II operating property and
guaranteed by the Federal Housing
Administration. The loan bears
interest at a rate of 7.5% per
annum and is payable in monthly
principal and interest installments
of $13 with the remaining unpaid
balance due February 1, 2020. The
fair value of this mortgage note
approximated its carrying value as
of December 31, 1997 and 1996. 1,703 1,732
Real estate lien note payable
secured by the Chisholm Place
operating property and an
assignment of rents. The note is
nonrecourse, bears interest on the
unpaid principal balance at a rate
of 10% per annum and is payable in
monthly interest-only installments,
with the entire principal balance
due on October 1, 2001. The fair
value of this note approximated
$4,394 and $4,449 as of December
31, 1997 and 1996, respectively. 4,160 4,160
------- -------
Total long-term debt 16,065 16,119
Less: current portion (58) (54)
------- -------
$16,007 $16,065
======= =======
Maturities of long-term debt for each of the next five years and
thereafter are as follows:
1998 $ 58
1999 63
2000 68
2001 13,083
2002 79
Thereafter 2,714
--------
$ 16,065
========
<PAGE>
<TABLE>
Schedule III - Real Estate and Accumulated Depreciation
COMBINED JOINT VENTURES OF
PAINE WEBBER GROWTH PROPERTIES LP
Schedule of Real Estate and Accumulated Depreciation
December 31, 1997
(In thousands)
<CAPTION>
Costs
Capitalized Life on Which
(Removed) Depreciation
Initial Cost to Subsequent to Gross Amount at Which Carried at in Latest
Partnership Acquisition End of Year Income
Buildings & Buildings & Buildings & Accumulated Date of Date Statement
Description Encumbrances(B) Land Improvements Improvements Land Improvements Total Depreciation Construction Acquired is Computed
- ----------- --------------- ----- ----------- ------------ ---- ------------ ----- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMBINED JOINT VENTURES:
Apartment
Complex
Plano, TX $ 4,160 $1,744 $ 6,250 $ 197 $1,744 $ 6,447 $ 8,191 $ 3,239 1982 5/31/83 5-30 yrs
Apartment
Complex
Stockton, CA 3,055 545 4,914 564 545 5,478 6,023 2,929 1980 3/31/83 5-30 yrs
Apartment
Complex
Boulder, CO 8,850 2,036 8,747 2,591 2,036 11,338 13,374 6,238 1974 2/17/83 5-30 yrs
------- ------ ------- ------ ------ ------- - ------- -------
$16,065 $4,325 $19,911 $3,352 $4,325 $23,263 $27,588 $12,406
======= ====== ======= ====== ====== ======= ======= =======
Notes:
(A) The aggregate cost of real estate owned at December 31, 1997 for Federal income tax purposes is approximately $27,588.
(B) See Note 5 of Notes to Financial Statements for a description of the debt encumbering the operating
investment properties.
(C) Reconciliation of real estate owned:
December 31 December 31, December 31,
1997 1996 1995
---- ---- ----
Balance at beginning of year $27,274 $27,018 $26,790
Acquisitions and improvements 314 256 228
------- ------- --------
Balance at end of year $27,588 $27,274 $27,018
======= ======= =======
(D) Reconciliation of accumulated depreciation:
Balance at beginning of year $11,591 $10,797 $ 9,949
Depreciation expense 815 794 848
------- ------- -------
Balance at end of year $12,406 $11,591 $10,797
======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's unaudited financial statements for the year ended March 31, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,034
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,034
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,034
<CURRENT-LIABILITIES> 190
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 578
<TOTAL-LIABILITY-AND-EQUITY> 1,034
<SALES> 0
<TOTAL-REVENUES> 489
<CGS> 0
<TOTAL-COSTS> 303
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 186
<INCOME-TAX> 0
<INCOME-CONTINUING> 186
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 186
<EPS-PRIMARY> 6.29
<EPS-DILUTED> 6.29
</TABLE>
