<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File No. 0-13323
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NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-2803902
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Franklin Street, 25th Floor
Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 261-9000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
No voting stock is held by nonaffiliates of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
None
Page 1 of ____ pages (including exhibits). Exhibit Index on Page ____.
<PAGE>
PART I
------
Item 1. Business
--------
New England Life Pension Properties II; A Real Estate Limited
Partnership (the "Partnership") was organized under the Uniform Limited
Partnership Act of the Commonwealth of Massachusetts on September 15, 1983, to
invest primarily in newly constructed and existing income-producing real
properties.
The Partnership was initially capitalized with contributions of $2,000
from Copley Properties Company II, Inc. (the "General Partner") and $10,000 from
NELRECO Troy, Inc. (the "Initial Limited Partner"). The Partnership filed a
Registration Statement on Form S-11 (the "Registration Statement") with the
Securities and Exchange Commission on September 21, 1983, with respect to a
public offering of 50,000 units of limited partnership interest at a purchase
price of $1,000 per unit (the "Units") with an option to sell up to an
additional 60,000 Units (an aggregate of $110,000,000). The Registration
Statement was declared effective on November 23, 1983.
The first sale of Units occurred on June 15, 1984, at which time the
Initial Limited Partner withdrew its contribution from the Partnership.
Investors were admitted to the Partnership thereafter at monthly closings; the
offering of Units terminated on November 23, 1984, and the last group of initial
investors was admitted to the Partnership on November 30, 1984. As of November
30, 1984, a total of 39,917 Units had been sold, a total of 5,980 investors had
been admitted as limited partners (the "Limited Partners") and a total of
$39,654,700 had been contributed to the capital of the Partnership. The
remaining 70,083 units were de-registered on November 30, 1984.
The Partnership has no employees. Services are performed for the
Partnership by the General Partner and affiliates of the General Partner.
As of December 31, 1996, the Partnership owned the three real estate
investments described in B., C. and E. below. In December 1993, it sold its
fourth investment, an apartment complex in Grand Rapids, Michigan, which
resulted in a capital distribution of $50.11 per Unit. In 1996 the partnership
sold its fifth and sixth investments, two industrial buildings in Elkridge,
Maryland and a research and development building in Los Angeles County,
California. These sales resulted in a capital distribution of $123.85 per Unit
on January 30, 1997.
The Partnership and its affiliate, New England Life Pension Properties,
have provided the ground lessee of one of the Partnership's properties, the
Willows Shopping Center in Concord, California, with a $2.5 million leasehold
mortgage loan for the purpose of completing the renovation of the Center. New
England Life Pension Properties II will fund $1,875,000 of the loan, with the
balance funded by New England Life Pension Properties. The Partnership has no
other current plan to renovate, improve or further develop any of its real
property.
In the opinion of the General Partner of the Partnership, the properties
are adequately covered by insurance.
A. Light Industrial Facilities in Elkridge, Maryland ("Elkridge")
--------------------------------------------------------------
In 1984 the Partnership acquired two adjacent parcels of land containing
an aggregate of approximately five acres located in Elkridge, Maryland, for
$362,500 and leased it to Dorsey Associates. Situated on the land were two light
industrial buildings. In 1984 the Partnership also made a $2,062,500
non-recourse mortgage loan to Dorsey Associates, which was secured by a first
mortgage of the buildings and of the leasehold interest in the land.
On May 14, 1996, one of the buildings was sold and on December 20, 1996
the second building was sold. The Partnership received proceeds of $2,234,022 in
satisfaction of the mortgage loan and ground lease, of which $2,233,755 was
distributed to the Limited Partners as a capital distribution in the amount of
$55.96 per Unit on January 30, 1997.
B. Industrial/ Research and Development Building in Columbia,
Maryland ("Oakland")
---------------------------------------------------------
The Partnership continues to own a ground leasehold interest in a 2.5
acre parcel of land located in Columbia, Maryland, which is subleased to
Columbia Warehouse Limited Partnership ("CWLP"). Situated on the land is a
one-story light industrial building. The Partnership purchased the ground
leasehold interest in 1984 for $137,500. The ground lease, as amended on June 1,
1989, has an unexpired term of approximately 75 years. Annual rental under the
ground lease is approximately $3,420 and is adjusted at five-year intervals. The
Partnership receives an annual rent of $16,500 from the sublessee, plus an
annual percentage rent equal to 75% of
<PAGE>
gross revenues from the rental of the building in excess of a base amount. The
Partnership is entitled to receive 75% of the net proceeds from the sale of the
entire property after it has recovered its investment in the land and the
mortgage loan described below.
In 1984 the Partnership also made a $1,062,500 non-recourse mortgage
loan to CWLP that matured on June 29, 1994. The loan is secured by a first
mortgage of the building and of the leasehold interest in the land. Interest
only is payable monthly at the rate of 12% per annum.
In October 1996, the Partnership reached an agreement in principle with
the borrower on the mortgage loan, whereby the maturity date will be extended to
December 1997. In addition, the fixed interest and ground rental payments will
be reduced, but the Partnership's rate of participation in revenue from the
underlying property will be increased, effective January 1, 1997. Further, the
Partnership will be able to cause a sale of the property.
C. Shopping Center in Concord, California ("Willows Shopping Center")
------------------------------------------------------------------
On July 30, 1984, the Partnership and an affiliate of the Partnership
(the "Affiliate") jointly made land purchase-leaseback and leasehold mortgage
loan investments aggregating $15,719,317 in a 24.8 acre shopping center known as
The Willows Shopping Center in Concord, California. The Partnership's share of
these investments aggregated $11,789,488, giving the Partnership a 75% interest
in each component of the investment held in common with the Affiliate. The
investments entitled the Partnership and the Affiliate jointly to receive an
annual interest return of 13% on the $10,719,317 ten-year mortgage, together
with an annual fixed rental under the ground lease equal to a 12.2% return on
the $5,000,000 land purchase price plus an annual percentage rental equal to 50%
of the ground tenant's annual gross revenues in excess of specified base
amounts.
On August 15, 1985, the Partnership and the Affiliate consented to a
sale by the ground tenant, Willows Concord Venture ("Willows Concord"), of the
ground tenant's ownership interest in the buildings and leasehold interest in
the land to an affiliate of VMS Realty, Inc. In conjunction with the sale, the
ground lease was amended to provide that the Partnership and the Affiliate would
no longer participate in excess rental revenues from the Shopping Center or in
net appreciation from the sale of the property. The mortgage loan was also
amended to increase the principal amount by $3,880,683 to $14,600,000, to extend
the maturity date one year to August, 1995, and to lower the interest rate from
13% per annum to a stepped rate beginning at 9% per annum and increasing to 12%
over six years. Under the terms of the original ground lease, the joint ground
lessors were entitled to 50% of the net proceeds from a sale. The Partnership
received cash of $3,215,625 and an interest in the incremental mortgage loan
amount equal to $2,910,512, 50% of which was payable to the former ground lessee
upon full payment of the loan principal by the new mortgagor. The joint
mortgagees also entered into a Collection and Disbursement Agreement pursuant to
which Willows Concord was entitled to share in 50% of interest paid under the
new mortgage note in excess of the interest that would have been payable under
the original note.
The Partnership and the Affiliate had not received interest payments
currently on the mortgage loan since the payment due for March, 1990, and as a
result, the Partnership and the Affiliate began foreclosure proceedings to take
possession of the property. On October 4, 1990, Pacific First Bank, the second
leasehold mortgagee, filed an involuntary bankruptcy petition in the United
States Bankruptcy Court for the Northern District of California against the
ground lessee/debtor, to which filing the ground lessee/debtor subsequently
consented. The ground lessee/debtor later consented to relief from stay of
foreclosure proceedings. The Partnership and the Affiliate sold their interest
in the leasehold mortgage loan to Willows Concord on June 14, 1991. In return,
the Partnership and the Affiliate took back a note in the amount of $14,863,206.
Willows Concord foreclosed on the leasehold mortgage on June 18, 1991.
The Partnership, the Affiliate and Willows Concord entered into a replacement
promissory note in the same principal amount of $14,863,206, effective June 18,
1991. The new loan is secured by the leasehold interest, bears interest at the
rate of 9.323% per annum and provides for a reduction in principal if the note
is paid prior to maturity. The Partnership, the Affiliate and Willows Concord
also entered into a new ground lease which provides for annual rent in the
amount of $550,000 plus an annual percentage rent equal to 70% of the ground
lessee's annual gross revenues in excess of a specified amount. The Partnership
has a 75% share of such rent. To the extent that operating cash flow from the
shopping center is not sufficient to pay the ground rent, such rent was
accruable until June 1996 at which time Willows Concord was obligated to pay all
unpaid accrued rent and to pay all future ground rent on a current basis. The
Partnership and the Affiliate have permitted the accrual of additional ground
rent, and are currently in the process of evaluating various alternatives.
On January 1, 1995 the Partnership and the Affiliate committed to make a
$2.5 million construction loan to the ground lessee to fund the renovation of
the Center. The Partnership committed to fund $1,875,000 of this
<PAGE>
amount. The loan bears interest at 11% per annum, provides for payments of
principal and interest based on a 15-year amortization schedule, and matures on
December 31, 1997. In addition, the ground lease was amended to provide the
Partnership with the sole right to cause a sale of the Center on or after
January 1, 1996.
D. Research and Development Building in Los Angeles County,
California ("Susana Corporate Center")
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In 1985 the Partnership acquired a 4.02 acre parcel of land in Los
Angeles County, California, for $1,750,000 and leased it back to the seller.
Situated on the land was a one-story, 63,164 square foot research and
development facility leased to a single tenant. In 1985 the Partnership also
made a $3,250,000 non-recourse mortgage loan to the ground lessee. The loan was
secured by a first mortgage on the building and the leasehold interest in the
land.
During 1993, the Partnership agreed to a restructuring of the ground
lease and the mortgage loan. The mortgage loan was modified to increase the loan
amount by $192,000 to a total of $3,442,000. The increase was made to fund
tenant improvements.
On October 20, 1996, the Susana Corporate Center was sold. The
Partnership received proceeds of $2,710,014 in satisfaction of its mortgage loan
and ground lease, of which $2,709,965 was distributed to the Limited Partners as
a capital distribution in the amount of $67.89 per Unit on January 30, 1997.
E. Research and Development Facility in Columbia, Maryland ("Case
Communications Building")
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The Partnership continues to own a 19.2 acre parcel of land in Columbia,
Maryland, which it acquired for $2,570,379 and leased back to the seller. A
160,000 square foot research and development building has been constructed on
the land. The ground lease has a term of 60 years and provides for a fixed
annual rent of $262,392 plus additional rent equal to 65.864% of gross revenues
from the rental of the building in excess of a base amount. The Partnership is
entitled to receive 60% of the net proceeds from the sale of the entire property
after it has recovered its investment in the land and the mortgage loan
described below:
The Partnership has also fully funded a $8,814,621 non-recourse mortgage
loan to the ground lessee. Interest only is payable monthly at the rate of 11%
per annum. The loan matured on May 1, 1995 and is secured by a first mortgage of
the building and the leasehold interest in the land. The Partnership has also
fully funded an additional $1,000,000 loan. This loan bears interest at the rate
of 14% per annum, is secured by a second mortgage on the building and leasehold
interest in the land and matured simultaneously with the first mortgage loan
described above.
In October 1996, the Partnership reached an agreement in principle with
the borrower on the mortgage loan, whereby the maturity date will be extended to
December 1997. In addition, the fixed interest and ground rental payments will
be reduced, but the Partnership's rate of participation in revenue from the
underlying property will be increased, effective January 1, 1997. Further, the
Partnership will be able to cause a sale of the property.
<PAGE>
Item 2. Properties
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The following table sets forth the annual realty taxes for the
Partnership's properties and information regarding tenants who occupy 10% or
more of gross leasable area (GLA) in the Partnership's properties:
<TABLE>
<CAPTION>
ESTIMATED ANNUAL
1997 CONTRACT
ANNUAL NUMBER OF RENT
REALTY TENANTS NAME(S) OF SQUARE PER LEASE RENEWAL LINE OF
WITH 10% FEET OF BUSINESS
PROPERTY TAXES OR MORE OF TENANT(S) EACH TENANT SQ. FT. EXPIRATION OPTIONS OF PRINCIPAL
GLA TENANTS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping Center in $340,686 2 Comp USA 26,000 $15.50 10/2011 Three 5 Computer Retail
Concord, CA year
options
REI 29,486 $5.50 5/2003 Two 5 year Specialty Retail
options
Industrial/ R&D Building $27,000 2 Igene 8,480 $6.75 1/2001 One 5 Pharmaceutical
in Columbia, MD year
option
New Horizons 14,120 $7.00 9/2001 Two 3 year Pharmaceutical
options
R&D Building in Columbia, $191,380 1 US Government 160,000 $12.80 M-T-M (1) None Defense Research
MD
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A long-term lease is being negotiated.
<PAGE>
The following table sets forth for each of the last five years the gross
leasable area, occupancy rates, rental revenues and net effective rent for the
Partnership's properties:
- ------------------------------------------------------------------------------
GROSS YEAR-END RENTAL NET
LEASABLE REVENUE EFFECTIVE
RENT
PROPERTY AREA OCCUPANCY RECOGNIZED ($/SF/YR)*
- ------------------------------------------------------------------------------
Shopping Center in Concord, CA
1992 274,488 70% $2,346,938 $12.39
1993 274,488 78% $2,612,770 $12.52
1994 251,531 91% $2,595,391 $12.39
1995 251,531 91% $3,099,701 $13.54
1996 248,193 94% $3,139,424 $13.75
Industrial Buildings in
Elkridge, MD (1)
1992 84,630 60% $273,543 $5.46
1993 84,630 55% $254,478 $5.35
1994 84,630 76% $300,981 $5.43
1995 84,630 43% $266,751 $7.33
1996 N/A N/A $254,180 $5.66
Industrial Buildings in
Columbia, MD
1992 38,840 100% $325,425 $8.51
1993 38,840 82% $266,711 $7.55
1994 38,840 85% $291,556 $9.04
1995 38,840 91% $284,134 $8.04
1996 38,840 91% $289,967 $8.20
R&D Building in L.A. County,
CA (2)
1992 63,164 100% $710,412 $11.25
1993 63,164 100% $620,246 $9.82
1994 63,164 100% $518,234 $8.20
1995 63,164 100% $514,621 $8.15
1996 N/A N/A $514,336 $8.14
R&D Building in Columbia, MD
1992 160,000 100% $1,900,000 $11.88
1993 160,000 100% $2,300,000 $14.38
1994 160,000 100% $2,636,836 $16.48
1995 160,000 100% $2,283,934 $14.27
1996 160,000 100% $2,272,575 $14.20
- ------------------------------------------------------------------------------
* Net effective rent calculation is based on average occupancy during the
respective year.
(1) One building was sold May 14, 1996. The second building was sold December
20, 1996.
(2) The property was sold October 23, 1996.
<PAGE>
Following is a schedule of lease expirations for each of the next ten
years for the Partnership's properties based on the annual contract rent in
effect at December 31, 1996:
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TENANT AGING REPORT
PROPERTY # OF LEASE TOTAL TOTAL PERCENTAGE OF
EXPIRATIONS SQUARE FEET ANNUAL GROSS ANNUAL
RENTAL RENTAL*
- -------------------------------------------------------------------------------
Shopping Center in Concord, CA (1)
1997 5 13,146 $84,036 3%
1998 0 0 $0 0%
1999 3 23,650 $262,572 10%
2000 2 10,520 $128,748 5%
2001 2 10,690 $113,136 4%
2002 2 21,301 $231,456 9%
2003 4 44,779 $385,920 14%
2004 0 0 $0 0%
2005 6 49,494 $596,616 22%
2006 0 0 $0 0%
Industrial Building in Columbia, MD
1997 2 5,440 $42,204 18%
1998 0 0 $0 0%
1999 1 2,400 $13,200 6%
2000 1 4,800 $24,000 10%
2001 2 22,600 $156,084 66%
2002 0 0 $0 0%
2003 0 0 $0 0%
2004 0 0 $0 0%
2005 0 0 $0 0%
2006 0 0 $0 0%
R&D Building in Columbia, MD
1997 1 160,000 $2,228,000 100%
1998 0 0 $0 0%
1999 0 0 $0 0%
2000 0 0 $0 0%
2001 0 0 $0 0%
2002 0 0 $0 0%
2003 0 0 $0 0%
2004 0 0 $0 0%
2005 0 0 $0 0%
2006 0 0 $0 0%
- --------------------------------------------------------------------------------
(1) Remaining leases do not expire within 10 years.
* Does not include expenses paid by tenants.
<PAGE>
Following is information regarding the competitive market conditions for each of
the Partnership's properties. This information has been gathered from sources
deemed reliable. However, the Partnership has not independently verified the
information and, as such, cannot guarantee its accuracy or completeness.
Research & Development/Industrial Facilities in Columbia, MD
- ------------------------------------------------------------
The properties are located within the Howard County R&D market which contains
approximately 8.8 million square feet in a total of 179 buildings. As of
September 30, 1996, the Howard County market exhibited a vacancy rate of
approximately 5.6%, which represents an improvement from 1995, 1994, and 1993
when overall vacancy was 8.7%, 12%, and 18%, respectively. The Columbia R&D
submarket contains a total of approximately 6.9 million square feet and, at
September 30, 1996, had a vacancy rate of approximately 5.3%. The market has
strengthened to the point where speculative R&D construction is now underway in
Howard County and in the Columbia submarket.
Shopping Center in Concord, CA
- ------------------------------
This neighborhood shopping center lies within the Central Contra Costa
County market which incorporates several cities along the I-680 corridor
including Walnut Creek, Concord, Pleasant Hill and Martinez. The property's
competitive market includes a total of approximately 2 million square feet in
eight shopping centers. Within this competitive set, overall occupancy ranged
from a high of 100% to a low of 90% with an average of 97%. This is up slightly
from a year ago when overall occupancy was approximately 95%. Due to a scarcity
of space, new retail construction within central Contra Costa County has been
limited. However, two retail developments are presently under construction in
nearby Pleasant Hill and a new community center just opened four miles southwest
of the property in Walnut Creek.
<PAGE>
Item 3. Legal Proceedings.
-----------------
The Partnership is not a party to, nor are any of its properties subject
to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Annual Report on Form 10-K.
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
----------------------------------------------------------------------
There is no active market for the Units. Trading in the Units is
sporadic and occurs solely through private transactions.
As of December 31, 1996, there were 6,176 holders of Units.
The Partnership's Amended and Restated Agreement of Limited Partnership
dated June 15, 1984, as amended to date (the "Partnership Agreement"), requires
that any Distributable Cash (as defined therein) be distributed quarterly to the
Partners in specified proportions and priorities. There are no restrictions on
the Partnership's present or future ability to make distributions of
Distributable Cash. For the year ended December 31, 1996, cash distributions
paid in 1996 or distributed after year end with respect to 1996 to the Limited
Partners as a group totaled $7,429,752 including $4,943,720 ($123.85 per limited
partnership unit) representing a return of capital from the proceeds of property
sales. For the year ended December 31, 1995, cash distributions paid in 1995 or
distributed after year end with respect to 1995 to the Limited Partners as a
group totaled $2,486,032.
Distributions of operating cash flow were less than net income in 1996.
Cash distributions exceeded net income in 1995 and therefore, resulted in a
decrease in partners' capital. Distributions of operating cash flow were less
than cash provided by operating activities in both years. Reference is made to
the Partnership's Statement of Changes in Partners' Capital and Statement of
Cash Flows in Item 8 herein.
<PAGE>
Item 6. Selected Financial Data.
------------------------
<TABLE>
<CAPTION>
For Year For Year For Year For Year For Year
Ended or Ended or Ended or Ended or Ended or
as of as of as of as of as of
12/31/96(4) 12/31/95(3) 12/31/94(2) 12/31/93(1) 12/31/92
----------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $5,238,031 $5,313,944 $5,061,123 $4,902,277 $4,856,666
Net Income $3,108,675 $1,710,797 $2,340,707 $1,376,686 $2,364,385
Net Income
per Unit of
Limited
Partnership
Interest $77.10 $42.43 $58.05 $34.14 $65.34
Total Assets $40,338,664 $39,074,700 $39,868,957 $41,816,002 $42,526,793
Total Cash
Distributions
per Limited
Partnership Unit,
including amounts
distributed after
year end with
respect to the
previous year $186.13 $62.28 $109.84 $61.12 $61.12
</TABLE>
(1) The Partnership recorded a provision of $1,670,000 ($41.42 per Unit) for
impaired mortgage loans during 1993.
(2) The Partnership recorded a provision of $800,000 ($19.84 per Unit) for
impaired mortgage loans during 1994.
(3) The Partnership recorded a provision of $1,428,000 ($35.42 per Unit) for
impaired mortgage loans during 1995.
(4) The Partnership sold two investments in 1996 which resulted in capital
distributions of $4,943,720 ($123.85 per Unit). The Partnership also
recorded a credit of $17,291 ($0.43 per Unit) for impaired mortgage loans
during 1996.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnership completed its offering of units of limited partnership
interest in November 1984. A total of 39,917 units were sold. The Partnership
received proceeds of $36,296,995, net of selling commissions and other offering
costs, which were invested in real estate, used to pay related acquisition
costs, or retained as working capital reserves. The Partnership currently owns
the three real estate investments described in Item 1 hereof. In addition, three
investments have been sold, one in 1993 and two in 1996. As a result of sales
and similar transactions, capital of $4,395,261 was returned to the limited
partners through December 31, 1996. In addition, a capital distribution of
$4,943,720 was made on January 30, 1997.
On May 14, 1996, one of the two Elkridge buildings was sold; the second
Elkridge building was sold on December 20, 1996. The Susana Corporate Center was
sold on October 23, 1996. The Partnership received net proceeds of $864,302,
$1,369,720 and $2,710,014, respectively. The resulting capital distribution to
the limited partners ($123.85 per limited partnership unit) reduced the adjusted
capital contribution to $766.04 per unit.
At December 31, 1996 the Partnership had $9,790,586 in cash, cash
equivalents and short-term investments, of which $5,571,506 was used for cash
distributions to partners on January 30, 1997; the remainder is primarily being
retained as working capital reserves. The Partnership also has a commitment to
fund the balance of its share of the renovation of the Willows Shopping Center,
which approximates $948,000. The source of future liquidity and cash
distributions to partners will be cash generated by the Partnership's real
estate and short-term investments and proceeds from the sale of such
investments. Quarterly distributions of cash from operations relating to 1996
and 1995 were made at the annualized rate of 7% on the adjusted capital
contribution.
The carrying value of the Partnership's real estate investments in the
financial statements at December 31, 1996, other than impaired mortgage loans
(Case Communications), is at depreciated cost, or if the investment's carrying
value is determined not to be recoverable through expected undiscounted future
cash flows, the carrying value is reduced to estimated fair market value. The
fair market value of such investments is further reduced by the estimated cost
of sale for properties held for sale. Carrying value may be greater or less than
current appraised value. At December 31, 1996, the appraised value of all of the
Partnership's investments exceeded their respective carrying values by a total
of approximately $980,000. The current appraised value of real estate
investments has been estimated by the general partner and is generally based on
a correlation of traditional appraisal approaches performed by the Partnership's
advisor and independent appraisers. Because of the subjectivity inherent in the
valuation process, the estimated current appraised value may differ
significantly from that which could be realized if the real estate were actually
offered for sale in the marketplace.
RESULTS OF OPERATIONS
- ---------------------
FORM OF REAL ESTATE INVESTMENTS
The Willows Shopping Center is structured as a ground lease/mortgage
loan investment. However, for financial reporting purposes it is accounted for
as a property which is jointly owned with an affiliate. The Partnership's other
investments are structured and accounted for as ground lease/mortgage loan
investments.
<PAGE>
OPERATING FACTORS
At December 31, 1996, the Willows Shopping Center was 94% leased,
compared to approximately 91% at the end of 1995 and 1994. The ground
lessee/borrower has substantially completed the full rehabilitation of the
Center. The Partnership's share of the remaining cost is approximately $948,000
at December 31, 1996, which largely relates to the renovation of space occupied
by a significant new anchor tenant which began operating in October 1996.
In May 1996, one of the two Elkridge buildings was sold. The second
building was sold in December 1996. The Partnership received total proceeds of
$2,234,022 which were used to repay the ground lease investment and the carrying
value of the mortgage loan. Since the mortgage loan was impaired, its carrying
value had been previously reduced to estimated fair market value, less
anticipated costs of sale and thus no gain or loss was recognized. The total
valuation allowance was $476,377, which included a disposition fee of $70,848
payable to the advisor.
In October 1996, the Susana Corporate Center investment was sold. The
Partnership received proceeds of $2,710,014 which were used to repay the ground
lease investment and the carrying value of the mortgage loan. Since the mortgage
loan was impaired, its carrying value had been previously reduced to estimated
fair market value, less anticipated costs of sale and thus no gain or loss was
recognized. The total valuation allowance was $2,604,332, which included a
disposition fee of $87,000 payable to the advisor.
Occupancy at the Oakland property was 91% at December 31, 1996 and 1995,
up from 85% in 1994.
The Case Communications property has been fully occupied under a five
year lease with a government agency, which expired in November 1996. The tenant
has indicated its intention to renew, although a new lease agreement has not yet
been executed. In the meantime, the tenant has been occupying the space under
the same terms as the original lease.
The Partnership's mortgage loans on Oakland and Case Communications
expired in 1994 and 1995, respectively. In October 1996, the Partnership reached
an agreement in principle with the borrowers, whereby the maturity dates will be
extended to December 1997. In addition, the fixed interest and ground rental
payments will be reduced, but the Partnership's rate of participation in revenue
from the underlying properties will be increased, effective January 1, 1997. The
agreement will also allow the Partnership to cause a sale of the properties.
INVESTMENT RESULTS
In 1993, the Partnership determined that the mortgage loans secured by
Elkridge and Susana Corporate Center were impaired. During 1994 and 1995, the
estimated fair market value of the loan collateral further declined, resulting
in an increase to the valuation allowance of $800,000 and $328,000,
respectively. During 1996, a valuation provision of $282,709 was recognized to
adjust the carrying value to the amount of sale proceeds received, less
disposition costs.
During the fourth quarter of 1995, the Partnership determined that the mortgage
loans secured by the Case Communications Building were impaired, primarily due
to the change in the expected holding period for the property and a decrease in
market rental rates. This impairment resulted in an increase to the valuation
allowance of $1,100,000, which was charged to operations in 1995. During 1996,
the estimated fair market value of the loan collateral increased, resulting in a
recovery to the valuation allowance of $300,000. Ground rent and interest
payments from Case Communications continue to be made in accordance with
contractual terms.
<PAGE>
1996 Compared to 1995
Interest on cash equivalents and short-term investments in 1996
increased by $9,825 compared to 1995, primarily due to higher average investment
balances during the last eight months of 1996 as a result of the receipt of the
Elkridge and Susana sale proceeds, offset by lower average yields and lower
average balances during the first four months of the year.
Exclusive of the credit from (provision for) impaired mortgage loans and
the operating results from Susana Corporate Center ($384,239 in 1996 and
$480,793 in 1995) and Elkridge ($238,235 in 1996 and $123,000 in 1995), real
estate results were $2,559,474 in 1996 compared to $2,655,357 in 1995. Operating
income from the Case Communications and the Oakland investments both declined as
a result of lower percentage rent payments. These decreases were partially
offset by an increase in net operating income from the Willows Shopping Center
of approximately $43,000 as a result of increased occupancy.
Operating cash flow decreased $166,000, or 5%, between 1996 and 1995.
This decrease is primarily due to the above mentioned changes in operating
results and increased leasing costs at the Willows, partially offset by changes
in net working capital.
1995 Compared to 1994
Interest on cash equivalents and short-term investments increased
approximately 13% during 1995 compared to 1994, primarily due to an increase in
short-term interest rates.
Exclusive of the credit from (provision for) impaired mortgage loans,
real estate results were $3,259,150 in 1995, a slight decrease compared to
$3,287,302 in 1994. Operating income from the Case Communications Building
related to percentage rent decreased $120,000, and operating income from Susana
Corporate Center decreased by approximately $55,000. These decreases were
partially offset by an increase in net operating income from the Willows
Shopping Center of approximately $95,000, and from the Oakland property.
Operating cash flow, however, increased $217,000, or 6%, between 1995
and 1994. This change in cash flow primarily stems from a reduction in
expenditures for deferred leasing costs at the Willows Shopping Center,
partially offset by the increase in working capital items. In addition, cash
flow in 1994 was reduced by $114,000 as a result of advance rent receipts in the
prior year.
PORTFOLIO EXPENSES
The Partnership management fee is 9% of distributable cash flow from
operations after any increase or decrease in working capital reserves as
determined by the general partner. General and administrative expenses primarily
consist of real estate appraisal, printing, legal, accounting and investor
servicing fees.
1996 Compared to 1995
General and administrative expenses decreased approximately $20,000 or
12%, primarily due to a decrease in professional fees for 1996 as a result of
fewer investments. Management fee expense was unchanged between 1996 and 1995,
consistent with the level of distributable cash flow for each period.
<PAGE>
1995 Compared to 1994
General and administrative expenses were relatively unchanged.
Management fee expense increased 4% due to an increase in distributable cash
flow.
INFLATION
By their nature, real estate investments tend not to be adversely
affected by inflation. Inflation may result in appreciation in the value of the
Partnership's real estate investments over time if rental rates and replacement
costs increase. Declines in real property values, during the period of
Partnership operations, due to market and economic conditions, have overshadowed
the positive effect inflation may have on the value of the Partnership's
investments.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
See the Financial Statements of the Partnership included as a part of
this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
---------------------------------------------------------------
The Partnership has had no disagreements with its accountants on any
matters of accounting principles or practices or financial statement disclosure.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
(a) and (b) Identification of Directors and Executive Officers.
---------------------------------------------------
The following table sets forth the names of the directors and executive
officers of the General Partner and the age and position held by each of them as
of December 31, 1996, as well as subsequent changes through January 24, 1997.
Name Position(s) with the General Partner Age
- ---- ------------------------------------ ---
Joseph W. O'Connor President, Chief Executive Officer and Director 50
Daniel J. Coughlin Managing Director and Director 44
Peter P. Twining (1) Managing Director, General Counsel and Director 50
Wesley M. Gardiner, Jr. Vice President 38
Daniel C. Mackowiak Principal Financial and Accounting Officer 45
James J. Finnegan (2) Managing Director, General Counsel and Director 36
(1) Through January 24, 1997 only
(2) As of January 25, 1997
Mr. O'Connor and Mr. Coughlin have served in an executive capacity
since the organization of the General Partner on August 25, 1983. Mr. Gardiner
and Mr. Twining have served in their capacities since June 1994, and Mr.
Mackowiak has served in his capacity since January 1, 1996. All of these
individuals will continue to serve in such capacities until their successors are
elected and qualify.
(c) Identification of Certain Significant Employees.
------------------------------------------------
None.
(d) Family Relationships.
---------------------
None.
(e) Business Experience.
--------------------
The General Partner was incorporated in Massachusetts on August
25, 1983. The background and experience of the executive officers and directors
of the General Partner are as follows:
Joseph W. O'Connor has been President, Chief Executive Officer and a
Director of AEW Real Estate Advisors, Inc. ("AEW"), formerly known as Copley
Real Estate Advisors, Inc. since January, 1982. He was a Principal of AEW from
1985 to 1987 and has been a Managing Director of AEW since January 1, 1988. He
has been active in real estate for 28 years. From June, 1967, until December,
1981, he was
<PAGE>
employed by New England Mutual Life Insurance Company ("The New England"), which
has been merged with and into Metropolitan Life Insurance Company, most recently
as a Vice President in which position he was responsible for The New England's
real estate portfolio. He received a B.A. from Holy Cross College and an M.B.A.
from Harvard Business School.
Daniel J. Coughlin was a Principal of AEW from 1985 to 1987 and has
been a Managing Director of AEW since January 1, 1988 and a Director of AEW
since July 1994. Mr. Coughlin has been active in financial management and
control for 22 years. From June, 1974 to December, 1981, he was Real Estate
Administration Officer in the Investment Real Estate Department at The New
England. Since January, 1982, he has been in charge of the asset management
division of AEW. Mr. Coughlin is a Certified Property Manager and a licensed
real estate broker. He received a B.A. from Stonehill College and an M.B.A. from
Boston University.
Peter P. Twining was a Managing Director and General Counsel of AEW
until January 24, 1997 when he resigned from all offices and directorships. As
such, he was responsible for general legal oversight and policy with respect to
AEW and its investment portfolios. Before being promoted to this position in
January 1994, he was a Vice President/Principal and senior lawyer responsible
for assisting in the oversight and management of AEW's legal operations. Before
joining AEW in 1987, he was a senior member of the Law Department at The New
England and was associated with the Boston law firm, Ropes and Gray. Mr. Twining
is a graduate of Harvard College and received his J.D. in 1979 from Northeastern
University.
Wesley M. Gardiner, Jr. joined AEW in 1990 and has been a Vice
President at AEW since January, 1994. From 1982 to 1990, he was employed by
Metric Realty, a nationally-known real estate investment advisor and syndication
firm, as a portfolio manager responsible for several public and private limited
partnerships. His career at AEW has included asset management responsibility for
the company's Georgia and Texas holdings. Presently, as a Vice President and
Team Leader, Mr. Gardiner has overall responsibility for all the partnerships
advised by AEW whose securities are registered under the Securities and Exchange
Act of 1934. He received a B.A. in Economics from the University of California
at San Diego.
Daniel C. Mackowiak has been a Vice President of AEW since January 1989
and has been a Vice President and the Principal Financial and Accounting Officer
of the Managing General Partner since January 1996. Mr. Mackowiak previously
held the offices of Chief Accounting Officer of AEW from January 1989 through
April 1994 and Vice President and Principal Financial and Accounting Officer of
the Managing General Partner between January 1989 and May 1994. From 1975 until
joining AEW, he was employed by the public accounting firm of Price Waterhouse,
most recently as a Senior Audit Manager. He is a certified public accountant and
has been active in the field of accounting his entire business career. He
received a B.S. from Nichols College and an M.B.A. from Cornell University.
James J. Finnegan is the Assistant General Counsel of AEW Capital
Management, L.P. ("AEW Capital Management") and has succeeded Peter Twining as
Managing Director, General Counsel and Director of AEW, a subsidiary of AEW
Capital Management. Mr. Finnegan served as Vice President and Assistant General
Counsel of Aldrich, Eastman & Waltch, L.P., a predecessor to AEW Capital
Management. Mr. Finnegan has over ten years of experience in real estate law,
including seven years of experience in private practice with major New York City
and Boston law firms. Mr. Finnegan also serves as the AEW's securities and
regulatory compliance officer. Mr. Finnegan is a graduate of the University of
Vermont (B.A.) and Fordham University School of law (J.D.).
Mr. O'Connor is a director of Evans Withycombe Residential, Inc., a
Maryland corporation organized as a real estate investment trust which is listed
for trading in the New York Stock Exchange. None of the other directors of the
General Partner is a director of a company with a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934. All of the
directors and officers of the General Partner also serve as directors and
officers of one or more corporations which serve as
<PAGE>
general partners of publicly-traded real estate limited partnerships which are
affiliated with the General Partner.
(f) Involvement in Certain Legal Proceedings.
None.
Item 11. Executive Compensation.
-----------------------
Under the Partnership Agreement, the General Partner and its affiliates
are entitled to receive various fees, commissions, cash distributions,
allocations of taxable income or loss and expense reimbursements from the
Partnership. See Notes 1, 2 and 6 of Notes to Financial Statements.
The following table sets forth the amounts of the fees and cash
distributions and reimbursements for out-of-pocket expenses which the
Partnership paid to or accrued for the account of the General Partner and its
affiliates for the year ended December 31, 1996:
<TABLE>
<CAPTION>
Amount of
Compensation
and
Receiving Entity Type of Compensation Reimbursement
- --------------- -------------------- -------------
<S> <C> <C>
General Partner Share of Distributable Cash $ 25,112
AEW Real Estate Advisors, Inc. Management Fees and 248,355
(formerly known as Copley Real. Reimbursement of Expenses
Estate Advisors, Inc.)
New England Securities Corporation Servicing Fees and
Reimbursement of Expenses 8,834
-------------
TOTAL $ 282,301
=============
</TABLE>
For the year ended December 31, 1996, the Partnership allocated $10,070
of taxable income to the General Partner.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
No person or group is known by the Partnership to be the beneficial
owner of more than 5% of the outstanding Units at December 31, 1996. Under the
Partnership Agreement, the voting rights of the Limited Partners are limited
and, in some circumstances, are subject to the prior receipt of certain opinions
of counsel or judicial decisions.
Except as expressly provided in the Partnership Agreement, the right to
manage the business of the Partnership is vested exclusively in the General
Partner.
(b) Security Ownership of Management.
An affiliate of the General Partner of the Partnership owned 831 Units
at December 31, 1996.
<PAGE>
(c) Changes in Control.
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 Partnership has no relationships or transactions to report other
than as reported in Item 11, above.
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) Financial Statements--The Financial Statements listed on the
accompanying Index to Financial Statements and Schedules and Financial
Statements Index No. 2 are filed as part of this Annual Report.
(2) Financial Statement Schedules--The Financial Statement
Schedules listed on the accompanying Index to Financial Statements and Schedules
are filed as part of this Annual Report.
(3) Exhibits--The Exhibits listed in the accompanying Exhibit
Index are filed as a part of this Annual Report and incorporated in this Annual
Report as set forth in said Index.
(b) Reports on Form 8-K. During the last quarter of the year ended
December 31, 1996, the Partnership filed no Current Reports on Form 8-K.
<PAGE>
New England Life
Pension Properties II;
A Real Estate Limited Partnership
Financial Statements
* * * * * * *
December 31, 1996
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES II;
---------------------------------------
A REAL ESTATE LIMITED PARTNERSHIP
---------------------------------
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
-------------------------------------------
Page
Report of Independent Accountants.......................................
Financial Statements:
Balance Sheet - December 31, 1996 and 1995.....................
Statement of Operations - Years ended December 31, 1996, 1995
and 1994....................................................
Statement of Changes in Partners' Capital - Years ended
December 31, 1996, 1995 and 1994............................
Statement of Cash Flows - Years ended December 31, 1996, 1995
and 1994....................................................
Notes to Financial Statements..................................
Financial Statement Schedules:
Schedule III - Real Estate and Accumulated
Depreciation as of December 31, 1996.........................
Schedule IV - Mortgage Loans on Real Estate
as of December 31, 1996 .....................................
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Partners
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of New England
Life Pension Properties II; A Real Estate Limited Partnership (the
"Partnership") at December 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of Copley Properties Company II,
Inc., the General Partner of the Partnership; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by the General
Partner, and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
- ------------------------
Boston, Massachusetts
March 24, 1997
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
----------------------------------
1996 1995
-------------- -------------
ASSETS
Real estate investments:
<S> <C> <C>
Ground leases and mortgage loans, net $ 12,896,144 $ 17,575,746
Property, net 16,795,323 15,381,902
Deferred leasing costs and
other assets, net 809,629 528,022
-------------- --------------
30,501,096 33,485,670
Cash and cash equivalents 7,877,668 2,731,930
Short-term investments 1,912,918 2,525,926
Interest and rent receivable 46,982 331,174
-------------- --------------
$ 40,338,664 $ 39,074,700
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 1,014,398 $ 505,813
Accrued management fee 62,089 62,089
Deferred disposition fees 472,312 314,464
-------------- --------------
Total liabilities 1,548,799 882,366
-------------- --------------
Partners' capital:
Limited partners ($889.89 per
unit; 110,000 units authorized,
39,917 units issued and outstanding) 38,719,002 38,127,446
General partner 70,863 64,888
-------------- --------------
Total partners' capital 38,789,865 38,192,334
-------------- --------------
$ 40,338,664 $ 39,074,700
============== ==============
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------
1996 1995 1994
-------------- --------------- --------------
INVESTMENT ACTIVITY
<S> <C> <C> <C>
Property rentals $ 2,364,793 $ 2,340,380 $ 1,976,622
Property operating expenses (1,029,200) (1,063,651) (902,099)
Depreciation and amortization (706,119) (697,495) (612,513)
------------ --------------- ---------------
629,474 579,234 462,010
Ground rentals and interest
on mortgage loans 2,552,474 2,679,916 2,825,292
Credit from (provision for) impaired
mortgage loans 17,291 (1,428,000) (800,000)
------------ --------------- ---------------
Total real estate operations 3,199,239 1,831,150 2,487,302
Interest on cash equivalents
and short-term investments 303,473 293,648 259,209
------------ --------------- ---------------
Total investment activity 3,502,712 2,124,798 2,746,511
------------ --------------- ---------------
PORTFOLIO EXPENSES
Management fee 248,355 248,355 238,186
General and administrative 145,682 165,646 167,618
------------ --------------- ---------------
394,037 414,001 405,804
------------ --------------- ---------------
NET INCOME $ 3,108,675 $ 1,710,797 $ 2,340,707
============ =============== ===============
Net income per limited
partnership unit $ 77.10 $ 42.43 $ 58.05
============ ============== ===============
Cash distributions per limited
partnership unit $ 62.28 $ 61.17 $ 110.66
============ ============== ===============
Number of limited partnership units 39,917 39,917 39,197
============ ============== ===============
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------------
1996 1995 1994
------------------------ ------------------------ ----------------------
General Limited General Limited General Limited
Partner Partners Partner Partners Partner Partners
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of year $ 64,888 $ 38,127,446 $ 72,444 $ 38,875,480 $ 73,449 $ 40,975,393
Cash distributions (25,112) (2,486,032) (24,664) (2,441,723) (24,412) (4,417,213)
Net income 31,087 3,077,588 17,108 1,693,689 23,407 2,317,300
--------- ------------- ---------- ------------- ---------- -------------
Balance at end
of year $ 70,863 $ 38,719,002 $ 64,888 $ 38,127,446 $ 72,444 $ 38,875,480
========== ============== ========= ============== ========== =============
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------
1996 1995 1994
-------------- --------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,108,675 $ 1,710,797 $ 2,340,707
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 706,119 697,495 612,513
(Credit from) provision for impaired
mortgage loans (17,291) 1,428,000 800,000
Increase in deferred leasing costs and
other assets (348,491) (67,865) (376,568)
Decrease (increase) in operating receivables 191,725 (178,617) 1,909
Decrease in unearned revenue - - (114,336)
Increase (decrease) in operating liabilities (255,250) (38,668) 69,829
-------------- --------------- --------------
Net cash provided by operating activities 3,385,487 3,551,142 3,334,054
------------- --------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of investments 2,362,397 - -
Repayment of mortgage loan investments 2,423,791 - -
Capital expenditures on owned property (1,285,649) (1,247,337) (1,482,163)
Increase in mortgage loan - - (171,007)
Decrease (increase) in short-term
investments, net 613,008 (1,206,689) (213,717)
Increase in deferred disposition fees 157,848 - -
------------- --------------- -------------
Net cash provided by (used in)
investing activities 4,271,395 (2,454,026) (1,866,887)
------------- --------------- --------------
CASH FLOWS FROM FINANCING ACTIVITY:
Distributions to partners (2,511,144) (2,466,387) (4,441,625)
------------- --------------- --------------
Net cash used in financing activity (2,511,144) (2,466,387) (4,441,625)
------------- --------------- --------------
Net increase (decrease) in cash and cash
equivalents 5,145,738 (1,369,271) (2,974,458)
Cash and cash equivalents:
Beginning of year 2,731,930 4,101,201 7,075,659
------------- --------------- --------------
End of year $ 7,877,668 $ 2,731,930 $ 4,101,201
============= =============== ==============
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
- ----------------------------------
General
New England Life Pension Properties II; A Real Estate Limited
Partnership (the "Partnership") is a Massachusetts limited partnership organized
for the purpose of investing primarily in newly constructed and existing income
producing real properties. It primarily serves as an investment for qualified
pension and profit sharing plans and other entities intended to be exempt from
federal income tax. The Partnership commenced operations in June, 1984 and
acquired six real estate investments through 1986, three of which have been sold
as of December 31, 1996. It intends to dispose of its investments within twelve
years of their acquisition, and then liquidate; however, the general partner
could extend the investment period if it is in the best interest of the limited
partners.
The general partner of the Partnership is Copley Properties Company II,
Inc., a wholly-owned subsidiary of AEW Real Estate Advisors, Inc. ("AEW"),
formerly known as Copley Real Estate Advisors, Inc. ("Copley"). Subject to the
general partner's overall authority, the business of the Partnership is managed
by AEW pursuant to an advisory contract.
On December 10, 1996, Copley's parent, New England Investment Companies,
Limited Partnership ("NEIC"), a publicly traded master limited partnership,
acquired certain assets subject to then existing liabilities from Aldrich
Eastman & Waltch, Inc. and its affiliates and principals (collectively, "the AEW
operations"). Simultaneously, a new entity, AEW Capital Management L.P., was
formed into which NEIC contributed its interest in Copley and its affiliates. As
a result, the AEW operations were combined with Copley to form the business
operations of AEW Capital Management, L.P. This transaction is not expected to
have a material effect on the operations of the Partnership.
Prior to August 30, 1996, New England Mutual Life Insurance Company
("The New England") was NEIC's principal unit holder and owner of all of the
outstanding stock of NEIC's general partner. On August 30, 1996, The New England
merged with and into Metropolitan Life Insurance Company ("Met Life"). Met Life
is the surviving entity and, therefore, through a wholly-owned subsidiary,
became the owner of the units of partnership interest previously owned by The
New England and of the stock of NEIC's general partner. This transaction is not
expected to have a material effect on the operations of the Partnership.
At December 31, 1996 and 1995, an affiliate of the general partner owned
831 units and 699 units of limited partnership interest, respectively, which
were repurchased from certain qualified plans within specified annual
limitations provided for in the Partnership Agreement.
Management
AEW, as advisor, is entitled to receive stipulated fees from the
Partnership in consideration of services performed in connection with the
management of the Partnership and the acquisition and disposition of Partnership
investments in real property. Partnership management fees are 9% of
distributable cash from operations, as defined, before deducting such fees.
Acquisition fees were paid in an amount equal to 2% of the gross proceeds from
the offering. Disposition fees are generally 3% of the selling price of the
property, but are subject to the prior receipt by the limited partners of their
capital contributions plus a stipulated return thereon.
New England Securities Corporation, an indirect subsidiary of Met Life,
is engaged by the Partnership to act as its unit holder servicing agent. Fees
and out-of-pocket expenses for such services totaled $8,834, $7,973 and $11,784
in 1996, 1995 and 1994, respectively.
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the general partner to make estimates
affecting the reported amounts of assets and liabilities, and of revenues and
expenses. In the Partnership's business, certain estimates require an assessment
of factors not within management's control, such as the ability of tenants to
perform under long-term leases and the ability of the properties to sustain
their occupancies in changing markets. Actual results, therefore, could differ
from those estimates.
Ground Leases and Mortgage Loans
While the related land and loan investments are legally separable, the
terms thereof have been negotiated jointly and the investment performance is
evaluated on a combined basis. They are, therefore, presented together in the
accompanying balance sheet and statement of operations.
Investments in land subject to ground leases are stated at cost, plus
accrued revenue. Investments in mortgage loans to the related ground lessees are
originally stated at cost, plus accrued interest. If the investment is subject
to ownership accounting (see below), cost is adjusted for the accumulated cost
recovery allowance. If the mortgage loan is impaired (see "Impaired Mortgage
Loans" below), the carrying amount is adjusted to the estimated market value of
the underlying collateral less anticipated costs of sale.
Accrual of contractual ground rent and loan interest is discontinued if
the total of the Partnership's invested cash and such accrual approximates the
appraised value of the investment. Under this condition, the Partnership applies
ownership accounting whereby revenue is recognized only to the extent of net
operating income generated by the underlying property, before depreciation, to
which the Partnership is entitled. In addition, the cost of the investment
related to depreciable property is subject to a recovery allowance similar to
depreciation, which is computed using the straight-line method based on
estimated useful lives. The Partnership, however, retains a priority claim to
all unrecognized contractual revenue. If a mortgage loan is determined to be
impaired, the Partnership recognizes revenue only to the extent of operating
cash flow generated by the collateral underlying the loan and no longer
recognizes a cost recovery allowance.
Impaired Mortgage Loans
The Partnership considers a loan to be impaired when it is probable that
it will be unable to collect all amounts due under the contractual terms of the
loan agreement. Factors that the Partnership considers in determining whether a
loan is impaired include its past due status, fair value of the underlying
collateral and economic prospects of the borrower. When a loan is impaired, its
carrying value is periodically adjusted, through a valuation allowance, to its
estimated market value which is based on the appraised value of the underlying
collateral less anticipated costs of sale. Changes in the valuation allowance
are reported in the Statement of Operations.
Property
The Partnership and an affiliate share common ownership of an
investment. The form of the investment is a combination ground lease and
mortgage loan, as described above; however, in this case (Willows Shopping
Center), substantial economic risks of property ownership rest with the
Partnership and its affiliate. Accordingly, the investment is accounted for as
owned property, although the Partnership and its affiliate have a priority claim
to all unrecognized contractual revenue. The Partnership's financial statements
include its proportionate ownership share (75%) of the individual assets,
liabilities, revenue and expenses related to the property. Land and buildings
and improvements (net of accumulated depreciation) are classified as property in
the balance sheet.
<PAGE>
Capitalized Costs, Depreciation and Amortization
Maintenance and repair costs are expensed as incurred. Significant
improvements and renewals are capitalized. Depreciation is computed using the
straight-line method based on estimated useful lives of the buildings and
improvements. Leasing costs are also capitalized and amortized over the related
lease terms.
Acquisition fees have been capitalized as part of the cost of real
estate investments. Amounts not related to land are being amortized using the
straight-line method over the terms of the mortgage loans or the estimated
useful lives of the property.
Leases provide for rental increases over the respective lease terms.
Rental revenue is being recognized on a straight-line basis over the lease
terms.
Realizability of Real Estate Investments
The Partnership considers a real estate investment, other than a
mortgage loan, to be impaired when it determines the carrying value of the
investment is not recoverable through estimated undiscounted cash flows
generated from the operations and disposal of the property. The impairment loss
is based on the excess of the investment's carrying value over its fair market
value. For investments being held for sale, the impairment loss also includes
estimated costs of sale. Property held for sale is not depreciated during the
holding period.
The carrying value of an investment may be more or less than its current
appraised value. At December 31, 1996 the appraised values of all of the
Partnership's investments exceeded their respective carrying values by a total
of approximately $980,000. At December 31, 1995, the appraised value of certain
investments exceeded their related carrying values by an aggregate of $210,000,
while the carrying value of the remaining investments exceeded their appraised
values by an aggregate of $1,150,000.
The current appraised value of real estate investments has been
estimated by the general partner and is generally based on a correlation of
traditional appraisal approaches performed by the Partnership's advisor and
independent appraisers. Because of the subjectivity inherent in the valuation
process, the estimated current appraised value may differ significantly from
that which could be realized if the real estate were actually offered for sale
in the marketplace.
Cash Equivalents and Short-Term Investments
Cash equivalents are stated at cost, plus accrued interest. The
Partnership considers all highly liquid debt instruments purchased with a
maturity of ninety days or less to be cash equivalents; otherwise, they are
classified as short-term investments.
The Partnership has the positive intent and ability to hold all
short-term investments to maturity; therefore, short-term investments are
carried at cost, plus accrued interest, which approximates market value. At
December 31, 1996 and 1995, all investments were in commercial paper with less
than three and five months, respectively, remaining to maturity.
Deferred Disposition Fees
Disposition fees due to AEW related to sales or restructuring of
investments are included in the determination of gains or losses resulting from
such transactions. According to the terms of the advisory contract, payment of
such fees has been deferred until the limited partners first receive their
capital contributions, plus stipulated returns thereon.
Income Taxes
A partnership is not liable for income taxes and, therefore, no
provision for income taxes is made in the financial statements of the
Partnership. A proportionate share of the Partnership's income is reportable on
each partner's tax return.
<PAGE>
Per Unit Computations
Per unit computations are based on the number of units of limited
partnership interest outstanding during the year. The actual per unit amount
will vary by partner depending on the date of admission to, or withdrawal from,
the Partnership.
NOTE 3 - INVESTMENTS IN GROUND LEASES AND MORTGAGE LOANS
- --------------------------------------------------------
The following is a summary of the Partnership's investments in ground
leases and mortgage loans:
<TABLE>
<CAPTION>
Fixed
Rental/
Investment/ Acquisition Interest December 31,
Location Date Rate 1996 1995
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Elkridge 1984 12% (L) $ - $ 362,500
Elkridge, MD 12% (M) - 2,062,500
Oakland 1984 12% (G) 137,500 137,500
Columbia, MD 12% (M) 1,062,500 1,062,500
Susana Corporate
Center 1985 12.25% (L) 1,750,000
Los Angeles, CA 1993 8% (M) - 192,000
9.06% (M) - 3,250,000
Case Communications
Columbia, MD 1985-1986 11% (L) 2,570,379 2,570,379
11% (M) 8,814,621 8,814,621
14% (M) 1,000,000 1,000,000
------------ ------------
$ 13,585,000 $ 21,202,000
============ ============
<CAPTION>
(L) Ground lease (G) Ground leasehold interest
(M) Mortgage loan
December 31,
1996 1995
------------ -----------
<S> <C> <C>
Cash invested $ 13,585,000 $ 21,202,000
Unamortized
acquisition costs and fees, net 18,677 64,100
Accrued ground lease and
mortgage loan receivables 92,467 268,802
Cost recovery allowance - (61,156)
Valuation allowance for
impaired mortgage loans (800,000) (3,898,000)
------------- -------------
$ 12,896,144 $ 17,575,746
============== =============
</TABLE>
Ground leases have terms of sixty to seventy-five years and provide for
additional rent equal to a percentage, ranging from 60% to 75%, of gross
revenues in excess of a base amount from the rental of the buildings situated on
the land. Percentage rent totaled $414,000, $560,123, and $647,229 in 1996,
1995, and 1994, respectively. The Partnership is also entitled to that same
percentage of the net proceeds from the sale of the entire property after it has
recovered its cash investment in the land and mortgage loan and, for the Case
Communications Building, after payment to the ground lessee of an amount equal
to its cost of any capital improvements made during the lease term. The lease
agreements require the lessee to pay all operating expenses related to the
subject land.
<PAGE>
Generally, interest on the mortgage loans is payable monthly. The loans
are secured by first mortgages on the buildings, a second mortgage on the Case
Communications Building, and by the ground leasehold interests. The Columbia and
Case Communications loans have matured. In October 1996, the Partnership reached
an agreement in principle with the borrowers, whereby the maturity dates will be
extended to December 1997. In addition, the fixed interest and ground rental
payments will be reduced, but the Partnership's rate of participation in revenue
from the underlying properties will be increased effective January 1, 1997. The
agreements will also allow the Partnership to cause a sale of the respective
properties.
Sale of Elkridge Buildings
One of the two Elkridge buildings was sold on May 14, 1996. The second
building was sold on December 20, 1996. The net proceeds received by the
Partnership were used to repay the ground lease investment and the carrying
value of the mortgage loan. Since the mortgage loan was impaired, its carrying
value had been previously reduced to estimated fair market value, less
anticipated costs of sale and thus no gain of loss on the sale was recognized.
The total valuation allowance was $476,377, including $91,377 provided in 1996,
which included a disposition fee of $70,848 payable to the advisor. On January
30, 1997, the Partnership made a capital distribution to the limited partners in
the aggregate amount of $2,233,755 ($55.96 per limited partnership unit).
Sale of Susana Corporate Center
The Susana Corporate Center in Los Angeles, California was sold on
October 23, 1996. The net proceeds received by the Partnership were used to
repay the ground lease investment and the carrying value of the mortgage loan.
Since the mortgage loan was impaired, its carrying value had been previously
reduced to estimated fair market value, less anticipated costs of sale and thus
no gain or loss on the sale was recognized. The total valuation allowance was
$2,604,332, including $191,332 provided in 1996, which included a disposition
fee of $87,000 payable to the advisor. On January 30, 1997, the Partnership made
a capital distribution to the limited partners in the aggregate amount of
$2,709,965 ($67.89 per limited partnership unit).
Sale of Oxford Place
The Oxford Place apartment complex in Grand Rapids, Michigan was sold on
December 29, 1993 and the entire net proceeds were received by the Partnership
in full satisfaction of its ground lease and mortgage loan investment and
related accrued interest. The Partnership accrued a disposition fee payable to
the advisor of $172,425 in connection with the sale and made a capital
distribution of $2,000,241 ($50.11 per limited partnership unit) from sales
proceeds on July 28, 1994.
<PAGE>
Valuation Allowance
The activity in the valuation allowance during 1995 and 1996, together
with the related recorded and carrying values of the impaired mortgage loans at
the beginning and end of each year, are summarized in the table below.
<TABLE>
<CAPTION>
Recorded Valuation Carrying
Value Allowance Value
---------- ----------- -----------
<S> <C> <C> <C>
Balance at January 1, 1995 $ 5,787,874 $ (2,470,000) $ 3,317,874
============= ============= ==============
Decrease in estimated fair
market value of collateral, net (328,000)
Additional impaired loan (1,100,000)
------------
Balance at December 31, 1995 15,619,235 (3,898,000) 11,721,235
============= ============ ==============
Increase in estimated fair
market value of collateral, net 17,291
Sale of collateral 3,080,709
------------
Balance at December 31, 1996 $ 9,907,088 $ (800,000) $ 9,107,088
============= ============ ==============
</TABLE>
The entire valuation allowance at December 31, 1996 is attributable to
Case Communications. Ground rent and interest payments from the Case
Communications Building, however, continue to be made in accordance with
contractual terms. During 1996, the carrying value of the Case Communications
collateral increased which resulted in a $300,000 reduction to the valuation
allowance. This was substantially offset by impairment provisions of $282,709
related to Elkridge and Susana. At December 31, 1995 the valuation allowance is
attributable as follows:
Elkridge - $385,000; Susana Corporate Center - $2,413,000; Case Communications -
$1,100,000.
The average recorded value of the impaired mortgage loans did not differ
materially from the balances at the end of each period, except for the addition
of Case Communications in the fourth quarter of 1995 and the reduction due to
sales in 1996.
NOTE 4 - INVESTMENTS IN PROPERTIES
- ----------------------------------
The Willows Shopping Center investment (the "Willows"), acquired in
1984, is owned jointly with an affiliate of the Partnership (the "Affiliate");
the Partnership has a 75% ownership share. The ground lessee/mortgagor stopped
paying interest on the mortgage loan as of March 1990. As a result, the
Partnership and its Affiliate began foreclosure proceedings to take possession
of the property. A protracted series of legal interactions ensued, including the
filing of an involuntary bankruptcy petition by the second leasehold mortgagee.
In June 1991, the Partnership and its Affiliate sold the mortgage note to the
original owner of the Willows, who in turn undertook and completed the
foreclosure action. The Partnership and its Affiliate received a new mortgage
note; the principal related to the Partnership's share is $11,147,406. The note
bears interest at 9.323% per annum, payable monthly, however it may accrue with
interest compounded at 11%. The loan matures on June 18, 2001. The original
owner also assumed the ground lease. The ground lease provides for annual rental
payments to the Partnership of $412,500. Rental payments were accruable through
June 1996, with interest compounding at 11% however, the Partnership has
permitted additional accrual beyond that date as it evaluates various
alternatives. The ground lease also provides for participation rentals at 70% of
gross revenues in excess of a base amount to the Partnership and its Affiliate.
Under this investment arrangement, the Partnership and its Affiliate are bearing
substantial economic risks of ownership; accordingly, the investment is being
accounted for as a jointly owned property.
In connection with a major renovation of the property, on January 1,
1995, the Partnership and its Affiliate committed to make a construction loan to
the ground lessee in the amount of $2,500,000. This loan is also being accounted
for as an investment in property. The Partnership's share is $1,875,000, of
<PAGE>
which $927,540 has been funded as of December 31, 1996. Interest accrues at 11%
compounded monthly; debt service payments began on January 1, 1996, including
principal payments based upon a 15-year amortization schedule. The note matures
on December 31, 1997. In addition, the ground lease was amended, whereby after
January 1, 1996, the Partnership and the Affiliate may, at their sole
discretion, offer the entire property for sale.
At December 31, 1996 and 1995, the Partnership's proportionate share of
the carrying value of the property was comprised of land at $3,750,000, and
building and improvements of $13,045,323 and $11,641,902, respectively, (net of
accumulated depreciation of $2,906,746 and $2,270,683, respectively). The
buildings are being depreciated on a straight-line basis with an estimated
useful life ranging from 20 to 25 years.
The Partnership's proportionate share of future minimum rentals under
noncancelable operating leases are: $2,037,750 in 1997; $2,025,000 in 1998;
$1,985,250 in 1999; $1,889,250 in 2000; $1,773,750 in 2001; and $10,967,250
thereafter.
NOTE 5 - INCOME TAXES
- ---------------------
The Partnership's income for federal income tax purposes differs from
that reported in the accompanying statement of operations as follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1996 1995 1994
-------- --------- ---------
<S> <C> <C> <C>
Net income per financial
statements $ 3,108,675 $ 1,710,797 $ 2,340,707
Timing differences:
Ground rent and mortgage
loan interest (1) 1,800,239 1,779,246 1,518,282
Valuation allowances 17,291 1,428,000 800,000
Loss on sale (3,919,175) - -
------------ ------------- ------------
Taxable income $ 1,007,030 $ 4,918,043 $ 4,658,989
============ ============= =============
</TABLE>
(1) Represents additional contractual revenue recognized for tax purposes
related to the Willows Shopping Center, Elkridge, and Susana
Corporate Center.
NOTE 6 - PARTNERS' CAPITAL
- --------------------------
Allocations of net income (losses) from operations and distributions of
distributable cash from operations, as defined, are in the ratio of 99% to the
limited partners and 1% to the general partner. Cash distributions are made
quarterly.
Net sales proceeds and financing proceeds are allocated first to limited
partners to the extent of their contributed capital plus a stipulated return
thereon, as defined, second to pay disposition fees, and then 85% to the limited
partners and 15% to the general partner. As a result of such transactions the
adjusted capital contribution per limited partnership unit was reduced from
$1,000 to $940 during 1985 and further reduced to $889.89 during 1994. Income
from a sale is allocated in proportion to the distribution of related proceeds,
provided that the general partner is allocated at least 1%. Income or losses
from a sale, if there are no residual proceeds after the repayment of the
related debt, will be allocated 99% to the limited partners and 1% to the
general partner.
NOTE 7 - SUBSEQUENT EVENT
- -------------------------
Distributions of cash from operations relating to the quarter ended
December 31, 1996 were made on January 30, 1997 in the aggregate amount of
$627,786 ($15.57 per limited partnership unit). Additionally, a capital
distribution of $4,943,720 ($123.85 per limited partnership unit) was made from
the proceeds of the Elkridge and Susana Corporate Center sales.
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES II
A REAL ESTATE LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
Initial Costs to
Partnership
--------------------------------------------------
Encum - Buildings &
Description brances Land Improvements
- ----------- ------- -------------- ---------------
<S> <C> <C> <C>
Industrial Building
Columbia, Maryland Note A 140,250 --
75% Interest in Shopping
Center
Concord, California Note A 3,750,000 9,841,798
Research and Development
Buildings
Columbia, Maryland Note A 2,618,087 --
------------------------------------------------------
Total $6,508,337 $9,841,798
======================================================
<CAPTION>
Costs Capitalized Gross amount at which
to Aquisitions Carried at Close of Period
---------------------------------------------------------
Improve - Buildings &
Description ments Land Improvements
- ----------- ------------- -------------- ---------------
<S> <C> <C> <C>
Industrial Building
Columbia, Maryland -- 140,250 --
75% Interest in Shopping
Center
Concord, California 6,110,271 3,750,000 15,952,069
Research and Development
Buildings
Columbia, Maryland -- 2,618,087 --
-----------------------------------------------------------
Total $6,110,271 $6,508,337 $15,952,069
===========================================================
<CAPTION>
Accumulated
Depreciation Date Depreciable
Description Total & Amortization Acquired Life
- ----------- -------------- --------------- ----------- --------------
<S> <C> <C> <C> <C>
Industrial Building
Columbia, Maryland 140,250 -- 06/29/84 --
75% Interest in Shopping
Center
Concord, California 19,702,069 (2,906,746) 07/30/84 (L) 25 years
06/18/91 (B)
Research and Development
Buildings
Columbia, Maryland 2,618,087 (31,781) 05/02/85 --
-------------------------------------------------------------------------
Total $22,460,406 ($2,938,527)
=========================================================================
(L) Land
(B) Buildings & Improvements
</TABLE>
Notes:
(A) All senior mortgages on the properties are held by New England Life Pension
Properties II
(B) The Concord, California investment was accounted for as a jointly-owned
property effective June 1991
Reconciliation of real estate owned:
Balance at beginning of period $22,565,670
Acquisitions 2,049,486
Dispositions (2,154,750)
---------------
Balance at end of period $22,460,406
===============
Accumulated depreciation
at beginning of year $2,299,292
Depreciation expense 1996 636,063
Amortization expense 1996 3,172
---------------
Accumulated depreciation at end of year: $2,938,527
===============
<PAGE>
03/28/97 NEW ENGLAND LIFE PENSION PROPERTIES II
A REAL ESTATE LIMITED PARTNERSHIP
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
Final Periodic
Interest Maturity Payment
Description Rate Date Terms
- ----------- --------------- ----------- ---------------
<S> <C> <C> <C>
Industrial Building Interest
Columbia, Maryland 12.00% 06/29/94 Monthly
(See Note 3) Principal
at Maturity
Research and Development
Buildings 11.00% Interest
Columbia, Maryland (See Note 3) 05/01/95 Monthly
Principal
at Maturity
14.00% Interest
(See Note 3) 05/01/95 Monthly
Principal
at Maturity
-------------------------------------------------------
Total
=======================================================
<CAPTION>
Cost
Prior Face Amount Recovery
Description Liens of Mortgage Allowance
- ----------- ----------- --------------- -------------------
<S> <C> <C> <C>
Industrial Building
Columbia, Maryland -- 1,062,500 --
Research and Development
Buildings
Columbia, Maryland -- 8,814,621 --
-- 1,000,000 --
--------------------------------------------------------------
Total $10,877,121 $0
==============================================================
<CAPTION>
Valuation
Allowance Accrued Deferred Carrying
for Impaired Interest Aquisition Amount of
Description Mortgage Loans Receivable Fee Mortgage
- ----------- ------------------- ------------------- ------------------- --------------
<S> <C> <C> <C> <C>
Industrial Building
Columbia, Maryland -- -- -- $1,062,500
Research and Development
Buildings
Columbia, Maryland (800,000) 92,467 -- $8,107,088
-- -- -- $1,000,000
----------------------------------------------------------------------------------------
Total ($800,000) $92,467 $0 $10,169,588
========================================================================================
</TABLE>
Balance at beginning of period $12,691,267
Reclass of accrued interest receivable 92,467
Valuation allowance for impaired mortgage loan 17,291
Amortization 0
Dispositions (2,631,437)
------------
Balance at end of period $10,169,588
============
<PAGE>
FINANCIAL STATEMENTS
INDEX NO. 2
AUDITOR'S REPORT AND FINANCIAL STATEMENTS
OF M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
(REFERRED TO ELSEWHERE HEREIN AS CASE COMMUNICATIONS)
PAGE #
Independent Auditor's Report of Wolpoff & Company, LLP..........
Balance Sheet - December 31, 1996 and 1995......................
Statement of Income - For the Years Ended
December 31, 1996, 1995 and 1994............................
Statement of Partners' Capital - For the Years Ended
December 31, 1996, 1995 and 1994............................
Statement of Cash Flows - For the Years Ended
December 31, 1996, 1995 and 1994............................
Notes to Financial Statements...................................
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
FINANCIAL REPORT
DECEMBER 31, 1996
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
CONTENTS
--------
DECEMBER 31, 1996
-----------------
<TABLE>
<CAPTION>
<S> <C>
ACCOUNTANT'S REVIEW REPORT 1
FINANCIAL STATEMENTS
Statement of Assets, Liabilities and Partners' Capital - Income Tax Basis 2 - 3
Statement of Revenue and Expenses - Income Tax Basis 4
Statement of Changes in Partners' Capital - Income Tax Basis 5
Statement of Cash Flows - Income Tax Basis 6
Notes to Financial Statements 7 - 10
ACCOUNTANT'S REPORT ON SUPPLEMENTARY INFORMATION 11
SUPPLEMENTARY INFORMATION
Schedule of Supplemental Ground Rent Calculation 12
Schedule of Changes in Partners' Capital - Income Tax Basis 13
</TABLE>
<PAGE>
[LETTERHEAD OF WOLPOFF & COMPANY, LLP]
To the Partners
M.O.R. XXIX Associates Limited Partnership
Columbia, Maryland
We have reviewed the accompanying statement of assets, liabilities and partners'
capital - income tax basis of M.O.R. XXIX Associates Limited Partnership as of
December 31, 1996 and 1995, and the related statements of revenue and expenses -
income tax basis, changes in partners' capital - income tax basis, and cash
flows - income tax basis for the years ended December 31, 1996, 1995 and 1994,
in accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of M.O.R. XXIX Associates Limited Partnership.
A review consists principally of inquiries of Partnership personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
As described in Note 1, these financial statements were prepared on the basis of
accounting the Partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with the basis of accounting described in Note 1.
/s/ WOLPOFF & COMPANY, LLP
WOLPOFF & COMPANY, LLP
Baltimore, Maryland
February 14, 1997
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL - INCOME TAX BASIS
-------------------------------------------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
PROPERTY, AT COST - Notes 1, 3 and 6
Building and Improvements $4,532,735 $4,532,735
Tenant Improvements 4,343,486 4,343,486
Deferred Costs 1,026,429 1,016,069
--------------- ---------------
9,902,650 9,892,290
Less Accumulated Depreciation and Amortization 6,051,751 5,544,315
--------------- ---------------
PROPERTY, NET 3,850,899 4,347,975
--------------- ---------------
OTHER ASSETS
Cash and Cash Equivalents - Notes 1 and 7 2,612 133,515
Property Tax and Insurance Fund 47,204 1,264
Receivable, Affiliates - Note 4 100,040 497,162
Tenant Receivables 48,207 7,106
--------------- ---------------
TOTAL OTHER ASSETS 198,063 639,047
--------------- ---------------
$4,048,962 $4,987,022
============== ==============
</TABLE>
- -----------
See Accountant's Review Report.
The notes to financial statements are an integral part of this statement.
-2-
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL - INCOME TAX BASIS
-------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
LIABILITIES
Mortgages Payable - Note 2 $9,814,621 $9,814,621
Accrued Interest Payable 92,467 92,467
Payable to Tenant 4,405 50,064
Accounts Payable and Accrued Expenses 37,067 32,290
Accrued Ground Rent 38,361 1,318
Refundable Deposit - Note 5 -0- 299,963
--------------- ---------------
TOTAL LIABILITIES 9,986,921 10,290,723
COMMITMENTS AND CONTINGENCY - Notes 3 and 8
PARTNERS' CAPITAL (DEFICIT) (5,937,959) (5,303,701)
--------------- ---------------
$4,048,962 $4,987,022
============== ==============
</TABLE>
- ------------------
See Accountant's Review Report.
The notes to financial statements are an integral part of this statement.
-3-
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
STATEMENT OF REVENUE AND EXPENSES - INCOME TAX BASIS
----------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUE - Note 5
Rental Income
Base Rent $1,931,810 $1,940,000 $1,914,667
Special Rent 160,000 160,000 160,000
Operating Expense Reimbursement 180,765 183,934 146,032
-------------- -------------- --------------
2,272,575 2,283,934 2,220,699
Interest and Other Income 7,910 28,533 14,570
-------------- -------------- --------------
TOTAL REVENUE 2,280,485 2,312,467 2,235,269
-------------- -------------- --------------
OPERATING EXPENSES
Property Taxes 186,202 187,073 186,638
Reimburse to Tenant - Note 5 100,037 -0- -0-
Management Fees - Note 4 80,963 83,164 27,100
Legal and Accounting 3,767 4,190 3,734
General and Administrative 708 4,038 2,781
Bad Debts 541 -0- -0-
-------------- -------------- --------------
TOTAL OPERATING EXPENSES 372,218 278,465 220,253
-------------- -------------- --------------
OPERATING INCOME 1,908,267 2,034,002 2,015,016
-------------- -------------- --------------
MORTGAGE INTEREST AND GROUND RENT -
Notes 2 and 3
Mortgages 1,109,608 1,109,608 1,109,608
Ground Rent 713,435 718,830 702,144
-------------- -------------- --------------
1,823,043 1,828,438 1,811,752
-------------- -------------- --------------
INCOME BEFORE DEPRECIATION AND AMORTIZATION 85,224 205,564 203,264
DEPRECIATION AND AMORTIZATION (507,436) (525,263) (567,966)
-------------- -------------- --------------
NET LOSS $ (422,212) $ (319,699) $ (364,702)
============= ============= =============
</TABLE>
- ----------------
See Accountant's Review Report.
The notes to financial statements are an integral part of this statement.
-4-
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
STATEMENT OF CHANGES IN PARTNERS' CAPITAL - INCOME TAX BASIS
------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1996 1995 1994
--------------- ---------------- ----------------
<S> <C> <C> <C>
CAPITAL CONTRIBUTIONS $ 1,000 $ 1,000 $ 1,000
--------------- ---------------- ----------------
REDEMPTION OF PARTNER'S INTEREST - Note 6 259,800 259,800 259,800
--------------- ---------------- ----------------
DISTRIBUTIONS
Prior Years (914,624) (744,927) (540,714)
Current Year (212,046) (169,697) (204,213)
--------------- ---------------- ----------------
(1,126,670) (914,624) (744,927)
--------------- ---------------- ----------------
ACCUMULATED LOSSES
Prior Years (4,649,877) (4,330,178) (3,965,476)
Current Year (422,212) (319,699) (364,702)
--------------- ---------------- ----------------
(5,072,089) (4,649,877) (4,330,178)
--------------- ---------------- ----------------
TOTAL PARTNERS' CAPITAL (DEFICIT) $(5,937,959) $ (5,303,701) $ (4,814,305)
============== =============== ===============
</TABLE>
- --------------
See Accountant's Review Report.
The notes to financial statements are an integral part of this statement.
-5-
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (422,212) $ (319,699) $ (364,702)
------------ --------------- -------------
Adjustments to Reconcile Net Loss to
Net Cash Provided (Used) by Operating Activities
Depreciation and Amortization 507,436 525,263 567,966
Change in Tenant Receivables (41,101) 75,085 (82,191)
Change in Accounts Payable and Accrued Expenses 4,777 (52,564) 64,924
Change in Payable to Tenant (45,659) 29,280 (37,227)
Change in Accrued Interest Payable -0- -0- 92,467
Change in Accrued Ground Rent 37,043 (41,506) (177,477)
Change in Prepaid Expenses -0- -0- 21,866
------------ --------------- -------------
Total Adjustments 462,496 535,558 450,328
------------ --------------- -------------
Net Cash Provided by Operating Activities 40,284 215,859 85,626
------------ --------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Tenant Improvements and Deferred Costs (10,360) (39,278) (1,604)
Change in Property Tax and Insurance Fund (45,940) 39,086 1,523
Change in Receivable, Affiliates 397,122 (120,616) 324,378
Change in Refundable Deposit (299,963) -0- -0-
------------ --------------- -------------
Net Cash Provided (Used) by Investing Activities 40,859 (120,808) 324,297
------------ --------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Partners (212,046) (169,697) (204,213)
------------ --------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (130,903) (74,646) 205,710
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 133,515 208,161 2,451
------------ --------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,612 $ 133,515 $ 208,161
============= ============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Year for Interest $ 1,109,608 $ 1,109,608 $ 1,017,140
============= =============== ============
</TABLE>
_______________
See Accountant's Review Report.
The notes to financial statements are an integral part of this statement.
-6-
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
DECEMBER 31, 1996
-----------------
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
M.O.R. XXlX Associates Limited Partnership (the Partnership) was formed
in November 1984 pursuant to an agreement under the Maryland Uniform
Limited Partnership Act.
Income Tax Basis
----------------
The Partnership follows the policy of preparing its financial
statements on the basis utilized for income tax reporting.
Consequently, the financial statements are not prepared in accordance
with generally accepted accounting principles.
Cash and Cash Equivalents
-------------------------
The Partnership considers all highly liquid debt instruments purchased
with a maturity of 3 months or less to be cash equivalents.
Property
--------
The Partnership owns and operates an office building in Howard County,
Maryland containing approximately 160,000 square feet of leasable area.
All property is recorded at cost. The building was placed into service
on March 1, 1986, and has been 100% occupied since that date (see Note
5).
Interest Expense
----------------
Interest expense and real property taxes incurred during the
construction period were capitalized as a deferred cost and were
amortized over a 10-year period.
Depreciation
------------
Building costs are being depreciated using the Accelerated Cost
Recovery System (19 years, straight-line) for costs incurred prior to
December 31, 1986, and the Modified Accelerated Cost Recovery System
(31.5 and 39 years, straight-line) for costs incurred after 1986.
Amortization
------------
Various deferred costs are being amortized as follows:
Amortization
Amount Period
----------- --------------
Construction Period
Interest and Taxes $ 485,129 Fully Amortized
Leasing Commissions 426,321 10 Years
Permanent Mortgage Costs 114,980 Fully Amortized
-----------
$1,026,430
===========
Income Taxes
------------
Partnerships are not subject to income taxes. The individual partners
are required to report their respective shares of partnership income or
loss and other tax items on their individual income tax returns.
-7-
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
DECEMBER 31, 1996
-----------------
Note 1 - Use of Estimates
----------------
(Cont.) The preparation of financial statements requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures.
Note 2 - FINANCING
Mortgage Debt
-------------
Mortgage financing was provided by New England Life Pension Properties
II in the amount of $9,814,621, through two separate nonrecourse
mortgages. The first mortgage originated May 1, 1985, in the amount of
$8,814,621. The second mortgage was fully funded during 1986 in the
amount of $1,000,000. Pertinent information regarding these mortgages
is as follows:
<TABLE>
<CAPTION>
First Mortgage Second Mortgage
-------------- ---------------
<S> <C> <C>
Outstanding Balance, December 31, 1996 $8,814,621 $1,000,000
Interest Rate 11% 14%
Payment Constant Interest Only Interest Only
Original Term 10 Years 9 Years
Maturity Date May 1, 1995 May 1, 1995
Amount Due at Maturity $8,814,621 $1,000,000
</TABLE>
An agreement in principle was reached with the mortgage provider,
whereby the terms of the mortgages were extended through December 31,
1996. Effective January 1, 1997, both mortgages were amended to reduce
the interest rate to 9.5% and extend the maturity dates to December 31,
1997. Also see Note 3.
Note 3 - LAND SALE AND LEASEBACK
In 1985 the Partnership sold its land to New England Life Pension
Properties II for $2,385,379 and entered into a land lease with a term
of 60 years. The annual base rent is $262,392. The lease provides for
supplemental rent equal to 65.864% of the gross receipts of the
property which are in excess of $1,247,000. For this purpose the
special tenant rent amounting to $160,000 annually is not included in
gross receipts. The remaining minimum annual land lease payments total
$12,857,208 for 1997 through 2045. An agreement in principle was
reached with the land lessor, whereby, effective January 1, 1997, the
annual base rent was reduced to $226,611 and the supplemental rent was
adjusted to 80% of gross receipts, as defined, in excess of $1,237,560.
The total ground rent for 1996, 1995 and 1994 is as follows:
1996 1995 1994
--------- -------- ---------
Basic Annual Rent $262,392 $262,392 $262,392
Supplemental Rent* 451,043 456,438 439,752
--------- -------- ---------
$713,435 $718,830 $702,144
========= ======== =========
* See Schedule of Supplemental Ground Rent Calculation.
-8-
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
DECEMBER 31, 1996
-----------------
Note 4 - RELATED PARTY TRANSACTIONS
The Partnership has various contractual arrangements with Manekin
Corporation, an entity affiliated with certain partners.
Management Fees
---------------
The Partnership has entered into an agreement with Manekin Corporation
to act as management agent for the property. The management agreement
provided for management fees equal to 1% of rents and tenant expense
billings. On January 1, 1995, the management fee was increased to 3%.
For 1996, 1995 and 1994, management fees of $80,963, $83,164 and
$27,100, respectively, were incurred.
Receivable, Affiliates
----------------------
The Partnership participates in a central disbursing cash account with
various entities affiliated with the Partnership. As of December 31,
1996 and 1994, the Partnership's share of the cash account was $100,040
and $493,094, respectively, and is reflected as receivable, affiliates.
The funds earn interest at the applicable federal rate. As of December
31, 1995, other receivables from affiliates amounted to $4,068.
The majority of the Partnership's cash is held in one commercial bank.
Periodically, during the year, the balance may have exceeded the FDIC
insurance limitation.
Note 5 - LEASE
During 1989 the building was 100% leased to Case/Datatel, Inc., which
in December 1989 vacated the building and entered into a re-lease
agreement with the Partnership. As a condition to the re-lease,
Case/Datatel, Inc. agreed to pay rent during the new tenant's (U.S.
Government) rent-free period and to make a deposit of $299,963 with the
Partnership. Case/Datatel, Inc. also agreed to prepay property taxes in
the amount of $100,037, which would be refunded in the event the U.S.
Government remained through the lease term of February 29, 1996. The
deposit is refundable at the earlier of termination of the U.S.
Government's lease or February 29, 1996. In addition, Case/Datatel,
Inc. is responsible for all the terms and obligations of the lease
should the U.S. Government cause its lease to be terminated prior to
February 29, 1996.
Effective January 1, 1990, the U.S. Government leased the entire
building for a base rent plus operating expenses and real estate taxes.
The base rent increases every March 1. Effective March 1, 1995, the
annual rental amount is $2,048,000. The lease automatically renews
annually until October 31, 1996. The U.S. Government has the option to
renew beyond October 31, 1996, for five 1-year periods at the
prevailing market rate. As of December 31, 1996, an extension of the
U.S. Government lease was being negotiated. Included in the annual rent
is $160,000 of special rent associated with tenant improvements
initially required by Case/Datatel, Inc.
Note 6 - BASIS ADJUSTMENT
On December 18, 1986, the Partnership redeemed a partner's interest in
the partnership. Concurrently, the basis of the Partnership's real
property was adjusted pursuant to (S)734 of the Internal Revenue Code.
The increase in basis was $259,800.
<PAGE>
Note 7 - CASH RESTRICTIONS
On December 30, 1991, the Manekin Organization and the partners of
M.O.R. XXIX Associates Limited Partnership entered into a restructure
and loan agreement with Mercantile-Safe Deposit & Trust Company
(Mercantile). As a result, the organization entered into a lockbox
arrangement with Mercantile whereby all rent payments are received
directly by the bank. These funds are held for payment of monthly
expenses including escrow amounts. Additionally, at its discretion,
Mercantile may apply the remaining available funds to reduce debt owed
to Mercantile which is guaranteed by the Partnership and the partners.
<PAGE>
To the Partners
M.O.R. XXIX Associates Limited Partnership
Columbia, Maryland
ACCOUNTANT'S REPORT ON SUPPLEMENTARY INFORMATION
------------------------------------------------
The accompanying supplementary information contained on pages 12 and 13 is
presented for purposes of additional analysis. Such information has not been
subjected to the same inquiries and analytical procedures applied in the review
of the basic financial statements, but has been compiled from information that
is the representation of the management of M.O.R. XXIX Associates Limited
Partnership, without audit or review. Accordingly, we do not express an opinion
or any other form of assurance on such supplementary information.
/s/ WOLPOFF & COMPANY, LLP
WOLPOFF & COMPANY, LLP
Baltimore, Maryland
February 14, 1997
-11-
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
SCHEDULE OF SUPPLEMENTAL GROUND RENT CALCULATION
------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ------------- --------------
<S> <C> <C> <C>
GROSS RENT RECEIPTS $ 1,931,810 $ 1,940,000 $ 1,914,667
BASE 1,247,000 1,247,000 1,247,000
------------- -------------- --------------
GROSS RENT RECEIPTS IN EXCESS OF BASE 684,810 693,000 667,667
APPLICABLE PERCENTAGE 65.864% 65.864% 65.864%
------------- -------------- --------------
SUPPLEMENTAL GROUND RENT $ 451,043 $ 456,438 $ 439,752
============== =============== ==============
</TABLE>
- ---------------------
See Accountant's Report on Supplementary Information.
-12-
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
SCHEDULE OF CHANGES IN PARTNERS' CAPITAL - INCOME TAX BASIS
-----------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
----------------------------
<TABLE>
<CAPTION>
Partners' Partners'
Partners' Capital Current Year Capital
Ownership (Deficit) (Deficit)
Percentage 12/31/95 Distributions Net Loss 12/31/96
----------- ------------ --------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
GENERAL PARTNER
RA & DM, Inc. 1.00% $ (53,036) $ (2,120) $ (4,302) $ (59,458)
LIMITED PARTNER
MRU Limited Partnership 99.00% (5,250,665) (209,926) (425,939) (5,886,530)
---------- ------------- ----------- ----------- -------------
100.00% $ (5,303,701) $ (212,046) $ (430,241) $ (5,945,988)
============ ============= ============= ============ ==============
</TABLE>
- -------------------
See Accountant's Report on Supplementary Information.
-13-
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Page
Number Exhibit Number
- ------- ------- ------
<S> <C> <C>
4. Amended and Restated Agreement of Limited Partnership * of New England
Life Pension Properties II; A Real Estate Limited Partnership (filed as
Exhibit 28A to Form 8-K dated June 15, 1984, as filed with the
Commission on June 25, 1984).
10A. Form of Escrow Deposit Agreement among the Registrant, *
NEL Equity Services Corporation and The Bank of Boston
(filed as Exhibit 10A to the Registrant's Registration
Statement on Form S-11, file no. 2-86659 [the "Registration
Statement"]).
10B. Form of Advisory Contract between the Registrant and *
Copley Real Estate Advisors, Inc. (filed as Exhibit 10B
to the Registration Statement).
10C. Confirmatory Ground Sublease, dated as of June 29, 1984, *
between the Registrant, as Lessor, and Columbia Warehouse
Limited Partnership ("Columbia"), as Lessee [filed as
Exhibit 10D to Post-Effective Amendment No. 1 to the
Registration Statement, dated August 23, 1984
("Post-Effective Amendment No. 1")].
10D. Promissory Note, dated June 29, 1984, in the principal amount *
of $1,062,500 from Columbia to the Registrant (filed as
Exhibit 10E to Post-Effective Amendment No. 1).
10E. Deed of Trust, dated June 29, 1984, by and between Columbia *
and the Trustees named therein (filed as Exhibit 10F to Post-
Effective Amendment No. 1.).
10F. Confirmatory Ground Lease, dated as of June 29, 1984 *
between the Registrant, as Lessor, and Dorsey Associates
("Dorsey"), as Lessee (filed as Exhibit 10G to Post-
Effective Amendment No. 1.).
10G. Promissory Note, dated June 29, 1984, in the principal amount of *
$2,062,500 from Dorsey to the Registrant (filed as Exhibit 10H
to Post Effective Amendment No. 1).
10H. Deed of Trust, dated June 29, 1984, by and between Dorsey and *
the Trustees named therein (filed as Exhibit 10I to Post- Effective
Amendment No. 1).
10I. Deed of Trust and Security Agreement, dated as of July 30, 1984, *
among Willows Concord Venture, as Grantor, El Camino
Title Company, as Trustee, and New England Life Pension Properties; A
Real Estate Limited Partnership and the Registrant, as Beneficiaries
(filed as Exhibit 28.1 to Form 8-K dated July 29, 1984, as filed with
the Commission on August 4, 1984).
10J. Ground Lease dated as of July 30, 1984, between Willows Concord *
Venture, as Lessee, and New England Life Pension Properties; A
Real Estate Limited Partnership and the Registrant, as Lessors
(filed as Exhibit 28.2 to Form 8-K dated July 29, 1984, as
filed with the Commission on August 14, 1984).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Number Exhibit Number
- ------- ------- ------
<S> <C> <C>
10K. Ground Lease dated as of December 21, 1984, between the *
Registrant, as Lessor, and Susana Partners '82 ("Susana")
as Lessee (filed as Exhibit 10(i)a to Form 8-K dated February
4, 1985, as filed on or about February 15, 1985, as amended).
10L. Deed of Trust and Security Agreement dated as of December 21, 1984, *
among the Registrant, as Grantee, Susana, as Grantor, and First American
Title Insurance Company, as Trustee (filed as Exhibit 10(i)b to Form 8-K
dated February 15, 1985, as amended).
10N. Mortgage and Security Agreement, dated as of September 26, 1985, by *
and between Oxford Place Apartments Limited Partnership, Mortgagor, and
the Registrant, Mortgagee, in the amount of $4,250,000.
10O. Promissory Note, dated as of September 26, 1985, in the principal *
amount of $4,250,000 from the Registrant to Oxford Place Apartments
Limited Partnership.
10P. Ground Lease dated as of September 26, 1985 between the Registrant, as *
Landlord and Oxford Place Apartments Limited Partnership, as Tenant.
10Q. Contract of Sale dated as of September 26, 1985, by and between *
Oxford Apartments Limited Partnership, Seller, and the Registrant,
Purchaser.
10R. Letter Agreement between New England Life Pension Properties; *
A Real Estate Limited Partnership, the Registrant and Willows
Concord Venture dated June 14, 1991.
10S. Promissory Note dated July 14, 1991 in the principal amount of *
$14,863,206.38 from Willows Concord Venture to New England
Life Pension Properties; A Real Estate Limited Partnership
and the Registrant.
10T. Assignment of Note and Liens Including Deed of Trust dated as *
of June 13, 1991 by New England Life Pension Properties; A
Real Estate Limited Partnership and the Registrant to Willows
Concord Venture.
10U. Assignment of VMS Loan Documents dated June 14, 1991 by *
Willows Concord Venture to New England Life Pension Properties;
A Real Estate Limited Partnership and the Registrant.
10V. Deed of Trust and Security Agreement dated June 13, 1991 between *
Willows Concord Venture, as Trustor; Chicago Title Company, as Trustee;
and New England Life Pension Properties; A Real Estate Limited
Partnership and the Registrant, as Beneficiary.
10W. Assignment of Leases and Rents dated June 13, 1991 by Willows *
Concord Venture to New England Life Pension Properties;
A Real Estate Limited Partnership and the Registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Number Exhibit Number
- ------- ------- ------
<S> <C> <C>
10X. Amended and Completely Restated Ground Lease dated effective *
as of June 18, 1991 between Registrant, New England Life
Pension Properties II; A Real Estate Limited Partnership
and Willows Concord Venture.
10Y. Amended and Restated Secured Promissory Note effective as of June 14, *
1991, in the principal amount of $14,863,206.38 from Willows Concord
Venture to the Registrant and New England Life Pension Properties II; A
Real Estate Limited Partnership.
10Z. Modification Agreement and First Amendment to Loan Documents dated *
August 13, 1991, by and between Willows Concord Venture, the Registrant
and New England Life Pension Properties II; A Real Estate Limited
Partnership.
10AA. Modification Agreement and Second Amendment to Loan Documents dated *
September 12, 1991, by and between Willows Concord Venture, the
Registrant and New England Life Pension Properties II; A Real Estate
Limited Partnership.
10BB. Modification Agreement and Third Amendment to Loan Documents dated *
October 15, 1991, by and between Willows Concord Venture, the Registrant
and New England Life Pension Properties II; A Real Estate Limited
Partnership.
10CC. Fourth Amendment to Loan Documents dated December 17, 1992 by and *
between Willows Concord Venture Registrant and New England Life Pension
Properties II; A Real Estate Limited Partnership.
10DD. Special Warranty Deed by and between Registrant, Grantor, and Oxford *
Place Apartments Limited Partnership, Grantee, dated December, 1993.
10EE. Agreement to Cause Early Expiration of Term of Ground Lease by and *
between Oxford Place Apartments Limited Partnership and Registrant dated
as of December 29, 1993.
10FF. Discharge of Mortgage and Security Agreement executed by Registrant, *
dated December, 1993.
10GG. Termination of Collateral Assignment of Lease or Leases executed by *
Registrant, dated December, 1993.
10HH. Consent letter given by Registrant regarding sale of property dated *
December 29, 1993.
10II. Construction Loan Agreement dated January 1, 1996 by and between *
Willows Concord Venture, A California Limited Partnership as Borrower,
and New England Life Pension Properties II; A Real Estate Limited
Partnership as Lender.
</TABLE>
* Previously filed and incorporated herein by reference.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
Date: March 31, 1997 By: /s/ Joseph W. O'Connor
----------------------
Joseph W. O'Connor
President of the
General Partner
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
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Joseph W. O'Connor President, Principal March 31, 1997
- ----------------------------- Executive Officer and
Joseph W. O'Connor Director of the
General Partner
/s/ Daniel C. Mackowiak Principal Financial and March 31, 1997
- ----------------------------- Accounting Officer of the
Daniel C. Mackowiak General Partner
/s/ Daniel J. Coughlin Director of the March 31, 1997
- ----------------------------- General Partner
Daniel J. Coughlin
/s/ James J. Finnegan Director of the March 31, 1997
- ----------------------------- General Partner
James J. Finnegan
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 7877668
<SECURITIES> 1912918
<RECEIVABLES> 46982
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9837568
<PP&E> 29691467
<DEPRECIATION> 0
<TOTAL-ASSETS> 40338664
<CURRENT-LIABILITIES> 1076487
<BONDS> 472312
0
0
<COMMON> 0
<OTHER-SE> 38789865
<TOTAL-LIABILITY-AND-EQUITY> 40338664
<SALES> 4917267
<TOTAL-REVENUES> 5220740
<CGS> 1029200
<TOTAL-COSTS> 1029200
<OTHER-EXPENSES> 1100156
<LOSS-PROVISION> (17291)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3108675
<INCOME-TAX> 0
<INCOME-CONTINUING> 3108675
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3108675
<EPS-PRIMARY> 77.10
<EPS-DILUTED> 77.10
</TABLE>
