UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 2-89185
GULLEDGE REALTY INVESTORS II
Virginia 54-1191237
(State of incorporation) (I.R.S. Employer Identification No.)
One North Jefferson, St. Louis, Missouri 63103
Registrant's telephone number: 314-289-3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Limited Partnership Interests
(Title of class)
________________
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Documents Incorporated by Reference:
1. Registration Statement (No. 2-89185) of Registrant effective April 30, 1984
(the "Registration Statement").
2. Prospectus of Registrant dated April 30, 1984 (the "Prospectus").
3. Supplement No. 1 dated October 8, 1984 to Prospectus.
4. Supplement No. 2 dated February 6, 1985 to Prospectus.
5. Supplement No. 3 dated April 18, 1985 to Prospectus.
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K
SIGNATURES
PART I
ITEM 1. BUSINESS.
Gulledge Realty Investors II, L.P., ("Registrant" or "Partnership") is a
Virginia limited partnership formed to invest as a limited partner in other
limited partnerships ("Project Partnerships") that own and operate apartment
complexes ("Projects") that are financed and/or operated under federal or state
housing assistance programs. Part of the objective of the Registrant is to
generate tax losses for investors. However, due to changes in the tax
regulations, the use of these losses has been restricted for most investors.
Gull-AGE Properties, Inc. ("General Partner"), a Delaware corporation, is the
General Partner of the Registrant. The stock of the General Partner is owned by
Gull-AGE Capital Group, Inc., whose stock was originally owned 50% by the
Gulledge Corporation ("Gulledge"), the former General Partner, and 50% by A.G.
Edwards, Inc. ("Edwards"), a St. Louis based financial services holding company.
In March of 1988, Edwards, through an affiliate, acquired all the shares of
Gull-AGE Capital Group, Inc. formerly held by Gulledge. Edwards principal
subsidiary, A.G. Edwards & Sons, Inc., a securities and commodities broker-
dealer, was a principal distributor of Units of the Registrant. As a result,
neither the General Partner nor Gull-AGE Capital Group, Inc. has any current
affiliation with Gulledge.
On November 1, 1990, Gull-AGE Properties, Inc. was approved by a majority-of-
interest of holders of limited partner units to become the sole General Partner
of the Registrant. Gull-AGE Properties, Inc. replaced the Gulledge Corporation
as Managing General Partner and Eugene A. Gulledge and Keith A. Gulledge as
individual General Partners.
Pursuant to the Securities Act of 1933, the Registrant filed a Form S-11
Registration Statement with the Securities and Exchange Commission. Reference
is made to the Prospectus contained in said Registration Statement declared
effective April 30, 1984.
Commencing on April 30, 1984, the Registrant began offering through Gulledge
Securities Corporation ("Selling Agent") and other broker-dealers up to 10,000
units (with an option to sell up to 25,000 units) of limited partnership
interest (the "Units") at $1,000 per unit ("Offering"), with a minimum purchase
of five Units ($5,000).
As of September 30, 1985, the date that the offering terminated, the
Registrant had accepted subscriptions for 11,458 units from 1,041 Investor
Limited Partners and 356 units from General and Special Limited Partners.
<TABLE>
<CAPTION>
As of December 31, 1996, the Registrant has investments in Project
Partnerships which own the Projects listed below:
Year Housing Original Offering Acquisition Government
PROJECT Completed Units Mortgages Proceeds Fees Programs
<S> <C> <C> <C> <C> <C> <S>
1. Carriage House 1973 240 $4,860,050 $ 2,175,000 $195,750 HUD Section
of Florence Apts 236
Florence, KY
2. Olympic Village Apts 1977 320 $5,989,253 $ 2,720,000 $244,800 HUD Sections
Chicago Heights, IL 8 and
221(d)(4);
Illinois HDA
3. Hawthorn Ridge Apts. 1977 176 $4,196,243 $ 1,836,000 $164,700 HUD Section
Woodbridge, IL 8; IL HDA
4. Greentree Apts. 1977 100 $1,783,912 $ 591,250 $ 53,200 HUD Sections
Wilmington, NC 8 and 236
5. Colony Place Apts. 1970 100 $1,744,265 $ 598,750 $ 53,950 HUD Sections
Fayetteville, NC 8 and 236
6. Country Oaks Apts. 1986 36 $1,054,350 $ 264,000 $ 23,760 FmHA 515
Somerville, TN
7. Rancho Vista Apts. 1986 28 $ 992,920 $ 239,500 $ 21,500 FmHA 515
Wickenburg, AZ
8. Pine West Apts. 1986 48 $1,282,500 $ 300,000 $ 27,000 FmHA 515
Indianola, MS
Total 1,238 $24,129,046 $10,174,500 $915,160
</TABLE>
Although each Project must compete in the market place for tenants, interest
subsidies and/or rent supplements from governmental agencies make it possible to
offer certain of these dwelling units to eligible tenants at a cost
significantly below the market rate for comparable conventionally-financed
dwelling units.
ITEM 2. PROPERTIES.
Other than its interests in the Project Partnerships, the Registrant does not
own any property. The General Partner believes that the projects described
below are all in satisfactory physical condition.
Average Effective
Occupancy Monthly Rental
Project 1996 1995 1996 1995
Carriage House of Florence Apts. 96% 94% $324 $295
Olympic Village Apts. 96% 95% $797 $797
Hawthorn Ridge Apts. 97% 98% $752 $735
Greentree Apts. 98% 99% $328 $280
Colony Place Apts. 96% 98% $299 $252
Country Oaks Apts. 96% 95% $224 $224
Rancho Vista Apts. 98% 100% $290 $290
Pine West Apts. 93% 97% $264 $259
The Registrant had owned an investment in Camelot Housing which defaulted on its
mortgage in June 1995. The default was primarily caused by a decrease in
housing assistance payments from HUD and a resulting decline in occupancy.
Due to asignificant amount of housing quality standard violations noted by
HUD in a physical inspection report, HUD greatly reduced its housing
assistance payments until such time as the repairs were completed. Without
the payments from HUD, the Project Partnership was unable to make its
mortgage payments. The mortgage was assigned to HUD at which time HUD
initiated foreclosure proceedings. The proceedings concluded during 1996.
The effect on the Registrant's financial statements was negligible
because the investment in Project Partnerships was reduced to zero several
years ago. Also, this Project Partnership never paid distributions nor was
it expected to do so for the foreseeable future. In addition, the tax effect
of the foreclosure is negligible as losses from other Project Partnerships
are available to offset the gain due to the foreclosure.
ITEM 3. LEGAL PROCEEDINGS.
The Registrant is not currently subject to any pending material legal
proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
As of December 31, 1996, the number of holders of units was 1,043.
The Registrant is a limited partnership and thus has no common stock. There
is no ready market for the Units and it is not anticipated that there will be
any market. Any acquisitions or dispositions of Units that have occurred have
been the result of private transactions, usually between related parties, and
the Registrant has no knowledge of the prices bid for or asked with respect to
the Units. The General Partner has no plans to offer any services that would
match prospective buyers with prospective sellers of Units.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Income from Distributions
and Other Miscellaneous
Revenue $ 45,946 $ 83,495 $ 109,886 $ 13,434 $ 124,436
Operating Expenses (159,279) (132,509) (142,197) (137,285) (138,155)
Equity Losses of Project
Partnerships 0 0 0 0 (5,090)
Net Loss $(113,333) $ (49,014) $ (32,311) $(123,851) $ (18,809)
Investment in Project
Partnerships $ 0 $ 0 $ 0 $ 0 $ 0
Total Assets $ 449,902 $ 448,855 $ 387,789 $ 303,545 $ 312,916
Net Loss per
partnership unit $ (10) $ (4) $ (3) $ (10) $ (2)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULT OF OPERATIONS.
The net loss for 1996 is $113,333 compared to $49,014 for 1995 and $32,311
for 1994 (see Items 6 and 14(a)1). The significant difference in net loss in
1996 as compared to 1995 and 1994 is primarily due to a decrease in distribution
income received by the Registrant from one Project Partnership. Under the terms
of its renegotiated promissory note, the noteholder now receives a greater
portion of the Project Partnership's surplus cash available for distribution as
partial payment of the annual interest due on the promissory note.
The accounting for Project Partnerships involves decreasing the Registrant's
investment in the Projects for losses until that investment reaches zero.
Losses incurred by the Projects subsequent to the Registrant's investment
reaching zero are not reflected in the Registrant's financial statements for
book purposes. The losses reported from the Project Partnerships are primarily
the result of depreciation expense and interest expense incurred on nonrecourse
government backed debt and nonrecourse secondary financing loans. These losses,
in and of themselves, do not accurately portray the surplus cash or excess cash
(as defined by HUD and Farmer's Home regulations) generating potential of the
projects, such surplus cash being available for distribution to the partners of
the Project Partnerships. The Registrant treats these distributions as income,
if the investment in the Project Partnership is zero, or as a return or
withdrawal of capital invested in the Project Partnership, if the investment is
above zero.
As of December 31, 1992, all investments in Project Partnerships were reduced
to a zero book basis, therefore, future losses will no longer be reported for
financial statement purposes. Although the book basis of investments in Project
Partnerships have been reduced to zero, tax basis losses from all nine Project
Partnerships remain available to the Registrant's investors.
The results from future operations may vary due to several factors, among
which are:
The deduction for depreciation taken by the Project Partnerships will
normally decrease over time as the method of depreciation used provides for a
declining deduction. However, in recent years some Project Partnerships have
made additions or improvements to their properties which has caused their
depreciation deduction to increase.
Inflation and changing economic conditions could affect the operations of the
Project Partnerships, since all of the Project Partnerships in which the
Registrant has invested own Projects subject to the risks involved with
management and ownership of rental real estate. Vacancy levels, rental payment
defaults, and operating expenses are all dependent on general and local economic
conditions. Shifts in these conditions could impact operating results for each
of the Project Partnerships.
The Registrant's ownership interest in several of the Project Partnerships is
pledged as collateral in connection with promissory notes issued by the Project
Partnerships. The general partner renegotiated three promissory notes which
came due in 1995 and is attempting to renegotiate a fourth promissory note which
came due in 1996. One renegotiated promissory note included payment terms that
gives the noteholder a significantly larger portion of the Project Partnership's
surplus cash available for distribution as payment of the annual interest due on
the promissory note. The effect on the Registrant's operating statements is
significant because distributions from Project Partnerships are the primary
source of revenue to the Registrant. Refer to Note F of the financial statement
for additional information regarding the promissory notes. The effect on the
Registrant's balance sheets would be minimal as the investment in Project
Partnerships was reduced to zero in 1992.
The assets of the Partnership are illiquid. The primary source of cash to
finance day-to-day operations is from distributions, if any, to the Registrant
from the Project Partnerships. Due to a low volume of transactional activity,
the Registrant's need for cash to finance day-to-day operations is mimimal. The
ability to sell the Registrant's assets, i.e. the Project Partnerships, is
limited by the overall market conditions in the geographic areas where the
Projects operate and, potentially, the ability of the Projects to qualify for
the Low Income Housing Tax Credits. In addition, the purchase of these
interests was intended, and remains, to be for long-term investment purposes.
Total distributions received from all Project Partnerships was $26,763 in
1996 compared to $63,895 in 1995 and $99,193 in 1994. The decrease in total
distributions received in 1996 compared to 1995 and 1994 is primarily due to a
decrease in distributions received from one Project Partnership. Under the new
terms of its promissory note, that Project Partnership must now pay a greater
portion of its surplus cash to the noteholder as payment of interest on the
promissory note. The decrease in total distributions received in 1995 compared
to 1994 is primarily due to a decrease in distributions received from one
Project Partnership that experienced an increase in operating expenses.
Distributions received from Project Partnerships are reported as income to the
Registrant for financial reporting purposes instead of a reduction of
investments from Project Partnerships. However, distributions are not
considered income for Federal Tax reporting purposes.
The distributions received from Project Partnerships in a given year may be
influenced by the same factors that affect the operations of the Project
Partnerships, as discussed above. In addition, such factors as the need for
capital additions or improvements, and regulatory restrictions and limitations
may also affect the amount of funds available for Project Partnerships to
distribute.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements of the Registrant are filed herewith (See
Item 14(a)1). The supplementary financial information specified by Item
302 of Regulation S-K is not applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant has no officers or directors. The General Partner is Gull-AGE
Properties, Inc. The following is information concerning the officers and
directors of the General Partner, all of which are compensated by A.G. Edwards &
Sons, Inc., an affiliate of the General Partner:
Name Position
Robert L. Proost Director, President and
Treasurer
Robert J. Herleth Vice President and
Assistant Secretary
Douglas L. Kelly Secretary
Eugene J. King Assistant Treasurer
Robert L. Proost, age 59, has been a Director of the General Partner,
President and Treasurer since March 1, 1997. Mr. Proost succeeds David W.
Mesker who retired on February 28, 1997. Mr. Proost is Treasurer of Edwards
since March 1, 1997. He is currently Treasurer, Corporate Vice President,
Assistant Secretary and Director of Administration of A.G. Edwards & Sons, Inc.,
of which he has been an employee since 1988. Prior to joining A.G. Edwards &
Sons, Inc. he was a partner in Peper, Martin, Jensen, Maichel and Hetlage, a
St. Louis area law firm. He is also President of A.G.E. Realty Corp., the
Special Limited Partner, which owns other real estate properties and interests,
and President of The Ceres Investment Company, a wholly-owned subsidiary of A.G.
Edwards & Sons, Inc., which serves as general partner in several limited
partnerships which invest in commodities futures.
Robert J. Herleth, age 44, is a Vice President of the General Partner and
manages the operations of the General Partner. Mr. Herleth joined A.G. Edwards
& Sons, Inc., an affiliate of the General Partner, in 1980. Since then he has
specialized in the areas of real estate and finance. He is also Vice President
of A.G.E. Realty Corp., the Special Limited Partner, which owns other real
estate properties and interests and Vice President of Edwards Development
Corporation which serves as general partner for a limited partnership that owned
a large apartment project in Indianapolis, Indiana. Prior to joining A.G.
Edwards & Sons, Inc., Mr. Herleth was employed by Pantheon Corporation, a St.
Louis area real estate development firm.
Douglas L. Kelly, age 48, is Secretary of the General Partner. Mr. Kelly
succeeds Ronald E. Buesinger who retired on February 28, 1994. Mr. Kelly joined
A.G. Edwards & Sons, Inc., an affiliate of the General Partner, on January 1,
1994 and serves as Director, Vice President, Corporate Secretary and Director of
Law and Compliance. Prior to joining A.G. Edwards & Sons, Inc., Mr. Kelly was a
partner in Peper, Martin, Jensen, Maichel & Hetlage, a St. Louis area law firm,
where he served as outside council to A.G. Edwards & Sons, Inc. for 8 years.
Eugene J. King, age 65, is the Assistant Treasurer of the General Partner.
Mr. King joined A.G. Edwards & Sons, Inc., an affiliate of the General Partner
in 1971 as Corporate Controller. He also serves as Director and Senior Vice
President of A.G. Edwards & Sons, Inc.
The General Partner does not have any standing audit, nominating or
compensation committees.
ITEM 11. EXECUTIVE COMPENSATION.
Under the provisions of the Registrant's Limited Partnership Agreement, the
General Partner is entitled to receive an asset management fee (an annual
cumulative amount of $114,580) and a program management fee (an annual
noncumulative amount up to $59,250). The amount of these fees paid during 1996
were $0 for the asset management fee and $0 for the program management fee. The
accumulated amount of these fees accrued but not paid to the General Partner at
December 31, 1996 are $916,560 and $0, respectively. Additionally, $228,223 of
accrued asset management fees remain unpaid to a former General Partner. The
ability to pay the program management fee is limited by payment of priority
items as outlined in the Registrant's Limited Partnership Agreement.
The General Partner is also to receive a fee of 1% of the gross capital
proceeds generated by the Project Partnerships, for services connected with the
disposition of Partnership investments. This payment is limited by payment of
priority items as outlined in the Registrant's Limited Partnership Agreement.
In addition, the General Partner will receive any fees to which the prior
General Partners would be entitled for performing services with respect to the
Project Partnerships of which the Registrant is the limited partner.
Please refer to Note C of the financial statements referenced under Item
14(a)1 for additional information.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The General Partner owns a 1.1% interest in the Registrant and its affiliate,
A.G.E. Realty Corp., owns a 0.10% interest in the Partnership as Special Limited
Partner. As of
December 31, 1996, no person was known by the Registrant to be the beneficial
owner of more than a 5% interest in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
An affiliate of Gull-AGE Properties, Inc., A.G.E. Realty Corp. holds a .10%
interest in the Registrant as a Special Limited Partner.
Please refer to Item 11 for additional information.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements are included:
1. Financial Statements of the Registrant (filed herewith as
Exhibit 13).
Independent Auditors' Report.
Balance Sheets as of December 31, 1996 and 1995.
Statements of Operations for the three years in the period ended
December 31, 1996.
Statements of Changes in Partners' Capital (Deficit) for the three
years in the period ended December 31, 1996.
Statements of Cash Flows for the three years in the period ended
December 31, 1996.
Notes to Financial Statements.
2. No financial schedules are applicable.
3. Exhibit 13 Annual Report for the Year Ended December 31, 1996
Management will provide, without charge, a copy of the Registrant's
annual report on Form 10-K.
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the year ended
December 31, 1996.
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.
March 27, 1997 GULLEDGE REALTY INVESTORS II
(Registrant)
By: Gull-AGE Properties, Inc.
(General Partner)
By: /s/Robert L. Proost
Robert L. Proost
President & Treasurer
& Director
By: /s/Robert J. Herleth
Robert J. Herleth
Vice President
By: /s/Eugene J. King
Eugene J. King
Assistant Treasurer
EXHIBIT 13
GULLEDGE REALTY INVESTORS II, L.P.
(A VIRGINIA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
INDEPENDENT AUDITORS' REPORT
To the Partners of
Gulledge Realty Investors II:
We have audited the accompanying balance sheets of Gulledge Realty Investors II
(a limited partnership) as of December 31, 1996 and 1995, and the related
statements of operations, changes in partners' capital (deficit) and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Gulledge Realty Investors II as of December
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/Deloitte & Touche LLP
St. Louis, MO
March 21, 1997
<TABLE>
<CAPTION>
GULLEDGE REALTY INVESTORS II, L.P.
(A VIRGINIA LIMITED PARTNERSHIP)
BALANCE SHEETS
December 31,
1996 1995
<S> <C> <C>
Assets
Cash $ 366,271 $ 371,220
Advances to Project Partnerships 62,158 50,033
Intangible assets, net of accumulated amortization
of $2,246,821 and $2,240,692 (Note B) 21,473 27,602
Total Assets $ 449,902 $ 448,855
Liabilities and Partners' Capital (Deficit)
Accounts payable $ 14,000 $ 14,200
Payable to affiliates (Note E) 1,144,783 1,030,203
Capital contributions payable 50,000 50,000
Total Liabilities 1,208,783 1,094,403
Partners' Capital (Deficit) (Note C) (758,881) (645,548)
Total Liabilities and
Partners' Capital (Deficit) $ 449,902 $ 448,855
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
GULLEDGE REALTY INVESTORS II, L.P.
(A VIRGINIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Revenue and equity in
Project Partnerships' operations:
Interest $ 19,183 $ 19,600 $ 10,618
Distributions from
Project Partnership 26,763 63,895 99,193
Miscellaneous revenue 4,274 75
45,946 87,769 109,886
Expenses:
Asset management fee (Note E) 114,580 114,580 114,580
Professional fees 29,055 14,000 16,023
Amortization 6,129 6,129 6,129
Operating expenses 9,515 2,074 5,465
159,279 136,783 142,197
Net Loss $(113,333) $(49,014) $ (32,311)
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
GULLEDGE REALTY INVESTORS II, L.P.
(A VIRGINIA LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
THREE YEARS ENDED DECEMBER 31, 1996
Special
Total General Limited Limited
<S> <C> <C> <C> <C>
Balances at January 1, 1994 $ (564,223) $ (14,798) $ (26,732) $(522,693)
Net loss for 1994 (32,311) (355) (614) (31,342)
Balances at December 31, 1994 (596,534) (15,153) (27,346) (554,035)
Net loss for 1995 (49,014) (539) (931) (47,544)
Balances at December 31, 1995 (645,548) (15,692) (28,277) (601,579)
Net loss for 1996 (113,333) (1,247) (2,153) (109,933)
Balances at December 31, 1996 $ (758,881) $ (16,939) $ (30,430) $(711,512)
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
GULLEDGE REALTY INVESTORS II, L.P.
(A VIRGINIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $(113,333) $ (49,014) $ (32,311)
Adjustments to reconcile net loss to
net cash used in operating activities:
Distributions from
Project Partnerships (26,763) (63,895) (99,193)
Amortization 6,129 6,129 6,129
Change in assets and liabilities:
(Increase) decrease in advances to
Project Partnerships (12,125) (48,167) 3,495
(Decrease) increase in accounts payable (200) (4,500) 1,975
Increase in payable to affiliates 114,580 114,580 114,580
Net Cash Used In Operating Activities (31,712) (44,867) (5,325)
Cash Flows From Investing Activities:
Distributions from Project Partnerships 26,763 63,895 99,193
Net Cash Provided By Investing Activities 26,763 63,895 99,193
(Decrease) Increase In Cash (4,949) 19,028 93,868
Cash-Beginning of year 371,220 352,192 258,324
Cash-End of year $ 366,271 $ 371,220 $ 352,192
</TABLE>
See notes to financial statements.
GULLEDGE REALTY INVESTORS II, L.P.
(A VIRGINIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
Note A Summary of Significant Accounting Policies
Partnership Organization
Gulledge Realty Investors II (the Partnership) is a limited
partnership organized on December 1, 1983 under the laws of the
Commonwealth of Virginia for the purpose of acquiring limited partner
interests in real estate limited partnerships (Project Partnerships).
These Project Partnerships are known as Florence Housing Partnership,
Colony Place Associates, Ltd., Greentree Housing Limited Partnership,
Camelot Housing Limited Partnership, Hawthorn Housing Limited
Partnership, Olympic Housing Limited Partnership, Country Oaks
Apartments Limited Partnership, Pine West Ltd., and Rancho Vista
Associates. Except for Camelot Housing (see Note F), each of the
Project Partnerships is an operating real estate project which
receives mortgage interest and/or rental assistance from the United
States Department of Housing and Urban Development (HUD) or Farmer's
Home Administration. The Partnership commenced operations on March 1,
1984.
The financial statements include only those assets, liabilities, and
results of operations which relate to the business of Gulledge Realty
Investors II and do not include any assets, liabilities, or operating
results attributable to the partners' individual activities.
In November 1988, the General Partners (Eugene A. Gulledge, Keith A.
Gulledge and The Gulledge Corporation) filed for bankruptcy. The
Limited Partnership Agreement allows for the replacement of a General
Partner in such circumstances subject to Limited Partner approval. In
November 1990, by approval of a majority vote of the limited
partnership units, Gull-AGE Properties, Inc. (GAP) replaced Eugene A.
Gulledge, Keith A. Gulledge and The Gulledge Corporation as the sole
General Partner. GAP is not affiliated with the Gulledges or their
affiliates. GAP had been performing certain administrative duties on
behalf of the Gulledges since the bankruptcy filing. As General
Partner, GAP will continue the operation of the Partnership in
accordance with the Limited Partnership Agreement.
Investment in Project Partnerships
The investment in Project Partnerships is accounted for using the
equity method of accounting. Under the equity method, investments are
reflected at cost, adjusted for the Partnership's share of the Project
Partnerships' income or loss. The Partnership is under no obligation
to contribute additional capital, or to lend monies necessary to
fund cash flow deficiencies of the Project Partnerships, because
the Partnership is a limited partner in such partnerships. The
investment account will not be reduced below zero because the
Partnership is not liable for Project Partnership losses in excess of
such investment. Any distributions received from the Project
Partnerships subsequent to reducing the investment account to zero,
will be recognized as income in the year received.
Income Taxes
No provision has been made for current or deferred income taxes since
they are the responsibility of each partner. Profits (or gains) and
losses of the Partnership are allocated to the partners in accordance
with the partnership agreement.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ
significantly from those estimated.
Note B Intangible Assets
Intangible assets include costs and fees paid to The Gulledge
Corporation for providing services relating to organization and
management, and the acquisition of the properties on behalf of the
Project Partnerships. The fees are amortized on a straight-line basis
over the period of estimated future benefit as follows:
Initial management fee 70 months
Organization costs and fees 60 months
Acquisition fee 180 months
The Initial management fee and organization costs and fees were fully
amortized in 1990.
Note C Partners' Capital (Deficit)
Profits and losses of the Partnership are allocated pro-rata to the
partners in accordance with their interest as follows:
General partner (131 units) 1.1%
Special limited partners (225 units) 1.9
Investor limited partners (11,458 units) 97.0
100.0%
Upon dissolution and termination of the Partnership, the net proceeds
resulting from the sale of Partnership assets are first used to pay
all debts and liabilities of the Partnership; next, to repay capital
contributions of the partners less any prior cash distributions; then,
to the payment of a cumulative disposition fee to the General Partner,
with any remaining funds allocated as follows:
General partner 4.0%
Special limited partners 6.0
Investor limited partners 90.0
100.0%
In the event that net operating revenues, as defined, are realized
during any fiscal year, an annual noncumulative program management fee
of up to $59,250 is payable to the managing General Partner. The fee
represents compensation for maintaining the Partnership's books,
records and accounts per the Partnership agreement. The amount of the
program management fee plus the asset management fee accrued each year
shall not exceed .5% of invested assets, as defined in the
Partnership's Limited Partnership Agreement.
Upon the distribution of capital proceeds by the Partnership, the
General Partner is authorized to receive a cumulative disposition fee
equal to 1% of the capital proceeds generated through the sale of
Project Partnerships to the extent such proceeds exceed priority
payments as defined in the Partnership Agreement.
Note D Reconciliation of Operations: Financial Statement Versus Income Tax
Return
<TABLE>
<CAPTION>
The financial statement loss is reconciled to income tax gain (loss)
for the years ended December 31, 1996, 1995 and 1994 as follows:
1996 1995 1994
<S> <C> <C> <C>
Net Loss per financial statements $(113,333) $ (49,014) $ (32,311)
Less: equity in gains (losses) of
Project Partnerships for tax
return purposes in excess of
equity in gains (losses) of
Project Partnerships for financial
statement purposes 1,121,625 (1,743,656) (1,941,128)
Distributions received (26,763) (63,895) (99,193)
Net Gain (Loss) per income tax return $ 981,529 $ (1,856,565) $ (2,072,632)
</TABLE>
The Net Gain per income tax return in 1996 is a result of the foreclosure
against Camelot Housing (see Note F).
Note E Payable To Affiliates
In accordance with the Partnership Agreement, the Partnership is
required to pay to the General Partner an annual asset management fee
of $114,580. Amounts due in accordance with this agreement are
included in payable to affiliates in the accompanying balance sheets.
Note F Project Partnerships
Other than Camelot, none of the Project Partnerships are experiencing
significant cash flow deficiencies after adding back non-cash items
such as depreciation, amortization and accrued interest on promissory
notes not currently payable to the operating losses of the Project
Partnerships.
Camelot Housing defaulted on its mortgage in June, 1995. The mortgage
was assigned to HUD and HUD initiated foreclosure proceedings. The
proceedings concluded during 1996. The effect on the Partnership's
financial statements is negligible because the investment in Camelot
was reduced to zero several years ago and Camelot was not expected to
pay distributions in the foreseeable future. Any tax gain caused by
the foreclosure should be offset by losses from other Project
Partnership and suspended losses from prior years.
The Hawthorn project partnership has pledged its rental property as
collateral in connection with a promissory note issued by Hawthorn.
The promissory note plus accrued interest totaled $5,421,000 at
December 31, 1996. Interest is compounded annually at 11% and the
principal and unpaid interest was payable on December 31, 1996. The
General Partner is negotiating an extension of the maturity date and
attempting to refinance Hawthorn's first mortgage and use the proceeds
from the refinancing to make a partial payment to the noteholder. The
remaining balance of the promissory note would then be renegotiated
with a new maturity date.
The Partnership's investment in the following Project Partnerships
(the "Projects") serves as collateral in connection with promissory
notes issued by the Projects as described below:
Promissory Note
Project Partnership Including
(Debtor) Accrued Interest Payment Terms
Colony Place $1,713,000 9% interest due annually.
Principal plus unpaid interest
due on June 30, 1997
Florence Housing $4,435,000 13% interest due annually.
Principal plus unpaid interest
due on December 31, 1997
Greentree Housing $1,298,000 11% interest due annually.
Principal plus unpaid interest
due on December 31, 1999
Olympic Housing $6,306,000 10% interest due annually.
Principal plus unpaid interest
due on December 31, 2000
The ability of the Projects to refinance or renegotiate these
Promissory Notes when due is uncertain at this time. Factors that may
affect the Projects' ability to refinance or renegotiate include
changes in tax laws, changes in interest rates, and the operations of
the Projects.
The Partnership could lose its ownership interest in the Project
Partnerships if it is unsuccessful in renegotiating these notes.
Though the Partnership's investment in these Project Partnerships is
zero, the impact on future operations could be significant as
distributions from Project Partnerships is the primary source of
revenue for the Partnership.
Colony Place's promissory note was originally due December 31, 1995,
but was extended until June 30, 1997, while a sale of the project is
being pursued under the Low Income Housing Preservation and Resident
Homeownership Act ("LIHPRHA"). Sales proceeds under LIHPRHA would be
sufficient to satisfy the noteholder. LIHPRHA is a program
administered by the Department of Housing and Urban Development
("HUD").
Florence Housing's promissory note was originally due December 31,
1995, but was extended to December 31, 1997, with additional one year
extensions available. Olympic Housing's promissory note was
originally due December 31, 1995, but was extended to December 31,
2000. In addition, the interest rate on Olympic's note was reduced
from 12% to 10% and payment terms were changed to allow more of the
project's available surplus cash to be paid to the noteholder as
partial payment of the annual interest due on the promissory note.
Note G Condensed Financial Data of Project Partnerships
The following is a summary of the condensed financial position and
results of operations of the Project Partnerships which have been
extracted from audited financial statements and are not covered by the
accompanying independent auditors' reports. (dollars in thousands):
Camelot Housing Limited Partnership
Condensed Balance Sheets
December 31,
1995 1994
Assets:
Rental Property (Net) $3,402 $3,482
Other Assets 355 234
$3,757 $3,716
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $4,888 $4,762
Other Liabilities 80 19
Partners' Capital (Deficit) (1,211) (1,065)
$3,757 $3,716
Condensed Statements of Operations
For The Year Ended December 31,
1995 1994
Revenues:
Rental Income $ 568 $ 563
Other Income 17 53
Total Revenue 585 616
Expenses:
Operating Expenses 450 476
Financial Expenses 171 182
Depreciation 110 109
Total Expenses 731 767
Net Loss $(146) $(151)
See Note F as Camelot Housing was in foreclosure during 1996 and no audited
financial statements are available, no audited financial information has been
provided.
Colony Place Associates, Ltd.
Condensed Balance Sheets
December 31,
1996 1995 1994
Assets:
Rental Property (Net) $ 1,291 $ 1,357 $ 1,370
Other Assets 95 105 126
$ 1,386 $ 1,462 $ 1,496
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $ 2,515 $ 2,402 $ 2,299
Other Liabilities 71 97 97
Partners' Capital (Deficit) (1,200) (1,037) (900)
$ 1,386 $ 1,462 $ 1,496
Condensed Statements of Operations
For The Year Ended December 31,
1996 1995 1994
Revenues:
Rental Income $ 347 $ 303 $ 302
Interest Income 1 1 1
Other Income 10 10 8
Total Revenue 358 314 311
Expenses:
Operating Expenses 307 273 259
Financial Expenses 148 138 129
Depreciation 66 66 66
Total Expenses 521 477 454
Net Loss $ (163) $ (163) $ (143)
Country Oaks Apartments, Ltd.
Condensed Balance Sheets
December 31,
1996 1995 1994
Assets:
Rental Property (Net) $ 378 $ 440 $ 511
Other Assets 184 174 167
$ 562 $ 614 $ 678
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $ 1,038 $ 1,042 $ 1,044
Other Liabilities 58 56 57
Partners' Capital (Deficit) (534) (484) (423)
$ 562 $ 614 $ 678
Condensed Statements of Operations
For The Year Ended December 31,
1996 1995 1994
Revenues:
Rental Income $ 157 $ 156 $ 152
Interest Income 4 4 2
Other Income 6 7 5
Total Revenue 167 167 159
Expenses:
Operating Expenses 55 64 58
Financial Expenses 88 88 94
Depreciation 71 71 71
Total Expenses 214 223 223
Net Loss $ (47) $ (56) $ (64)
Florence Housing Associates
Condensed Balance Sheets
December 31,
1996 1995 1994
Assets:
Rental Property (Net) $ 3,465 $ 3,593 $ 3,702
Other Assets 849 849 873
$ 4,314 $ 4,442 $ 4,575
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $ 6,944 $ 6,810 $ 6,291
Other Liabilities 179 107 90
Partners' Capital (Deficit) (2,809) (2,475) (1,806)
$ 4,314 $ 4,442 $ 4,575
Condensed Statements of Operations
For The Year Ended December 31,
1996 1995 1994
Revenues:
Rental Income $ 855 $ 802 $ 812
Interest Income 39 45 32
Other Income 12 13 13
Total Revenue 906 860 857
Expenses:
Operating Expenses 840 738 734
Financial Expenses 257 641 567
Depreciation 143 143 142
Total Expenses 1,240 1,522 1,443
Net Loss $ (334) $ (662) $ (586)
Greentree Housing, Ltd.
Condensed Balance Sheets
December 31,
1996 1995 1994
Assets:
Rental Property (Net) $ 1,554 $ 1,622 $ 1,673
Other Assets 127 118 92
$ 1,681 $ 1,740 $ 1,765
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $ 2,423 $ 2,355 $ 2,271
Other Liabilities 35 60 33
Partners' Capital (Deficit) (777) (675) (539)
$ 1,681 $ 1,740 $ 1,765
Condensed Statements of Operations
For The Year Ended December 31,
1996 1995 1994
Revenues:
Rental Income $ 389 $ 345 $ 337
Interest Income 1 1 1
Other Income 40 12 11
Total Revenue 430 358 349
Expenses:
Operating Expenses 341 311 288
Financial Expenses 140 126 122
Depreciation 50 50 51
Total Expenses 531 487 461
Net Loss $ (101) $ (129) $ (112)
Hawthorn Housing Limited Partnership
Condensed Balance Sheets
December 31,
1996 1995 1994
Assets:
Rental Property (Net) $ 4,716 $ 4,996 $ 5,172
Other Assets 1,450 1,075 965
$ 6,166 $ 6,071 $ 6,137
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $ 8,388 $ 7,936 $ 7,530
Other Liabilities 181 179 204
Partners' Capital (Deficit) (2,403) (2,044) (1,597)
$ 6,166 $ 6,071 $ 6,137
Condensed Statements of Operations
For The Year Ended December 31,
1996 1995 1994
Revenues:
Rental Income $ 1,516 $1,513 $ 1,444
Interest Income 63 51 47
Other Income 16 11 9
Total Revenue 1,595 1,575 1,500
Expenses:
Operating Expenses 876 1,005 980
Financial Expenses 772 724 681
Depreciation 289 276 275
Total Expenses 1,937 2,005 1,936
Net Loss $ (342) $ (430) $ (436)
Olympic Housing Limited Partnership
Condensed Balance Sheets
December 31,
1996 1995 1994
Assets:
Rental Property (Net) $ 7,762 $ 7,745 $ 8,010
Other Assets 1,042 1,075 914
$ 8,804 $ 8,820 $ 8,924
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $11,018 $10,775 $10,576
Other Liabilities 1,346 1,174 1,103
Partners' Capital (Deficit) (3,560) (3,129) (2,755)
$ 8,804 $ 8,820 $ 8,924
Condensed Statements of Operations
For The Year Ended December 31,
1996 1995 1994
Revenues:
Rental Income $ 2,347 $ 2,348 $ 2,321
Interest Income 12 6 6
Other Income 36 38 37
Total Revenue 2,395 2,392 2,364
Expenses:
Operating Expenses 1,756 1,754 1,845
Financial Expenses 835 691 702
Depreciation 296 291 289
Total Expenses 2,887 2,736 2,836
Net Loss $ (492) $ (344) $ (472)
Pine West, Ltd.
Condensed Balance Sheets
December 31,
1996 1995 1994
Assets:
Rental Property (Net) $ 1,073 $ 1,103 $ 1,133
Other Assets 120 123 112
$ 1,193 $ 1,226 $ 1,245
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $ 1,263 $ 1,266 $ 1,269
Other Liabilities 36 34 34
Partners' Capital (Deficit) (106) (74) (58)
$ 1,193 $ 1,226 $ 1,245
Condensed Statements of Operations
For The Year Ended December 31,
1996 1995 1994
Revenues:
Rental Income $ 138 $ 138 $ 137
Interest Income 2 2 2
Other Income 8 4 6
Total Revenue 148 144 145
Expenses:
Operating Expenses 113 94 93
Financial Expenses 31 31 31
Depreciation 30 30 30
Total Expenses 174 155 154
Net Loss $ (26) $ (11) $ (9)
Rancho Vista Associates
Condensed Balance Sheets
December 31,
1996 1995 1994
Assets:
Rental Property (Net) $ 725 $ 733 $ 765
Other Assets 45 63 47
$ 770 $ 796 $ 812
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $ 912 $ 916 $ 919
Other Liabilities 10 10 8
Partners' Capital (Deficit) (152) (130) (115)
$ 770 $ 796 $ 812
Condensed Statements of Operations
For The Year Ended December 31,
1996 1995 1994
Revenues:
Rental Income $ 158 $ 160 $ 153
Interest Income 1 1 1
Other Income 4 3 6
Total Revenue 163 164 160
Expenses:
Operating Expenses 65 61 69
Financial Expenses 84 84 85
Depreciation 33 32 32
Total Expenses 182 177 186
Net Loss $ (19) $ (13) $ (26)
Combined Total of Project Partnerships
Condensed Balance Sheets
December 31,
1996 1995 1994
Assets:
Rental Property (Net) $20,964 $24,991 $25,818
Other Assets 3,912 3,937 3,530
$24,876 $28,928 $29,348
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $34,501 $38,390 $36,961
Other Liabilities 1,916 1,797 1,645
Partners' Capital (Deficit) (11,541) (11,259) (9,258)
$24,876 $28,928 $29,348
Condensed Statements of Operations
For The Year Ended December 31,
1996 1995 1994
Revenues:
Rental Income $ 5,907 $ 6,333 $ 6,221
Interest Income 123 111 93
Other Income 132 115 147
Total Revenue 6,162 6,559 6,461
Expenses:
Operating Expenses 4,353 4,750 4,802
Financial Expenses 2,355 2,694 2,593
Depreciation 978 1,069 1,065
Total Expenses 7,686 8,513 8,460
Net Loss $(1,524) $(1,954) $(1,999)
Note H Fair Value of Financial Instruments
FASB Statement No. 107, Disclosures About Fair Value of Financial
Instruments, requires disclosure of fair value information about
financial instruments, when it is practicable to estimate fair value.
The carrying amounts of assets and liabilities reported on the
statements of financial position that require such disclosure
approximate fair value.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 366,271
<SECURITIES> 0
<RECEIVABLES> 62,158
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 428,429
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 449,902
<CURRENT-LIABILITIES> 1,208,783
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (758,881)
<TOTAL-LIABILITY-AND-EQUITY> 449,902
<SALES> 0
<TOTAL-REVENUES> 45,946
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 159,279
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (113,333)
<INCOME-TAX> 0
<INCOME-CONTINUING> (113,333)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (113,333)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
