<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, 1998
Commission File No. 0-14052
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NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-2847256
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Franklin Street
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>
PART I
------
Item 1. Business.
New England Life Pension Properties III; A Real Estate Limited
Partnership (the "Partnership") was organized under the Uniform Limited
Partnership Act of the Commonwealth of Massachusetts on November 1, 1984, to
invest primarily in newly constructed and existing income-producing real
properties.
The Partnership was initially capitalized with contributions of $2,000
in the aggregate from Copley Properties Company III, Inc. (the "Managing General
Partner") and ACOP Associates Limited Partnership (the "Associate General
Partner") (collectively, the "General Partners") and $10,000 from Copley Real
Estate Advisors, 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 November 15, 1984, 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 25,000 Units (an aggregate of $75,000,000). The Registration
Statement was declared effective on January 25, 1985.
The first sale of Units occurred on July 15, 1985, 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 terminated and the last group of initial investors was admitted to the
Partnership on December 19, 1985. A total of 68,414 Units had been sold, a total
of 11,437 investors had been admitted as limited partners (the "Limited
Partners") and a total of $67,748,960 had been contributed to the capital of the
Partnership. The remaining 6,586 Units were de-registered on February 18, 1986.
The Partnership has no employees. Services are performed for the
Partnership by the Managing General Partner and affiliates of the Managing
General Partner.
As of December 31, 1998, the Partnership had investments in the two real
property investments described below. Additionally, the Partnership sold seven
other real estate investments between 1987 and 1998. The principal terms of
these sales are set forth in the following table:
<TABLE>
<CAPTION>
Investment Month/Year of Sale Net Sale Proceeds Distribution/Unit(1) Distribution
Month/Year
<S> <C> <C> <C> <C>
Investment Four 12/87 $15,771,830 $17.86 1/88
Investment Five 9/88 $3,002,643 $36.00 10/88
Investment Six 3/89 $10,943,495 $150.00 4/89
Investment Seven 2/92 $7,724,589 $102.00 4/92
Investment Eight(2) 12/92 $11,600,183 $170.00 1/93
Investment Nine 12/93 $2,161,552 $31.00 1/94
Investment Ten 8/98 $16,985,000 $248.00 8/98
</TABLE>
In the opinion of the Managing General Partner, the properties are
adequately covered by insurance.
- --------------------
(1) In October 1996 and October 1998, additional distributions of $7.60 and
$6.00 per Unit, respectively, were made, representing proceeds from several
prior sales which were being held in working capital reserves.
(2) These sale proceeds represent the proceeds received by the Partnership when
two mortgage loans made by the Partnership were paid off and the investment was
liquidated.
<PAGE>
A. Light Industrial Facility in Hayward, California ("North Cabot
Industrial Park").
The Partnership continues to own a 3.8-acre parcel of land in Hayward,
California, which it acquired in 1985 for $786,130 and leased back to the
seller. In addition, the Partnership also made a loan to the ground lessee in
the amount of $2,663,870. Two single-story research and development buildings
containing an aggregate of approximately 51,089 square feet of space are
situated on the land. These buildings were 92% leased as of December 31, 1998.
The Partnership entered into a ground lease with the seller which had a
term of 60 years. On November 15, 1994, the Partnership obtained fee simple
title to this property because the ground lessee defaulted on its obligations.
The Partnership accepted $85,000 as a settlement which released the guarantors
from all of their obligations under the lease guaranty. This payment was applied
to past due rent under the ground lease.
B. Research and Development/Office Buildings in Frederick, Maryland ("270
Technology Park").
In August, 1987, the Partnership exercised its option to purchase for
$247,650 an 8.288-acre parcel of land in 270 Technology Park, Frederick,
Maryland. Situated on the land are three single-story research and
development/office buildings containing an aggregate of 86,169 square feet of
space. The Partnership simultaneously leased the land back to the seller for a
term of 60 years. The ground lease provided for a fixed annual rent of $26,003
plus additional rent equal to 50% of gross revenues from the rental of the
buildings in excess of a base amount. Upon exercising its option, the
Partnership also made a non-recourse mortgage loan to the ground lessee of
$5,712,350.
On January 1, 1988, the Partnership converted this investment to a joint
venture in which it has a 50% interest. The Partnership contributed the land and
funds to retire the mortgage debt. In addition, the Partnership contributed an
additional $260,000 of capital. The Partnership is entitled to receive a 10.5%
per annum preferred return on its invested capital payable currently, and 50% of
remaining cash flow and of sale and refinancing proceeds after return of its
equity. The preferred return may accrue if sufficient cash flow is not
available. Effective January 1, 1998, ownership of the joint venture was
restructured whereby the Partnership obtained full control over the business of
the joint venture.
As of December 31, 1998, the buildings were 100% leased.
C. Apartment Building in Gaithersburg, Maryland ("Bayberry Apartments").
On April 4, 1988, the Partnership acquired a 65% interest in Bayberry
Associates, a joint venture formed with Christopher B.A. Limited Partnership
(the "Developer"). As of December 31, 1997, the Partnership had contributed
$14,575,940 to the capital of the joint venture out of a maximum commitment of
$14,580,000, $9,327,500 of which was characterized as Senior Capital and
$5,252,500 of which was characterized as Junior Capital. The joint venture
agreement entitled the Partnership to receive a senior priority cumulative
return of 10.25% per annum on the outstanding invested Senior Capital and a
junior priority cumulative return of 10.25% per annum on the outstanding
invested Junior Capital; however, up to $230,000 of Junior Capital was entitled
to a return at the greater of 10.25% per annum or the prime rate of the Maryland
National Bank plus 2% ($225,957 of such amount was contributed as of December
31, 1997). When an aggregate of $982,107 of priority returns had been paid, (i)
a portion of the senior priority return of up to 1.25% per annum could accrue if
sufficient cash were not available therefore, with 9.0% per annum to be paid
currently, and (ii) the full amount of the junior priority return equal to
10.25% per annum could accrue if sufficient cash were not available therefore.
The joint venture agreement also entitled the Partnership to receive 65% of net
cash flow and of refinancing proceeds and sale proceeds following the return of
the Partnership's equity capital and accrued preferential returns.
The joint venture owned approximately 7.14 acres of land in
Gaithersburg, Maryland on which it completed development of a 230-unit garden
apartment community. At the time of the sale, the apartments were 95% leased.
On August 7, 1998 the joint venture sold the Bayberry Apartments. The
Partnership received net proceeds totaling $16,985,000. On August 26, 1998, the
Partnership made a capital distribution of $16,966,672 ($248 per Unit) from the
proceeds of the sale.
<PAGE>
Item 2. Properties.
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>
- -----------------------------------------------------------------------------------------------------
Annual
Estimated Number of Contract
1998 Tenants with 10% Name(s) of Square Feet of Rent
Property Realty Taxes or More of GLA Tenant(s) Each Tenant Per Square Foot
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Light Industrial Facility $33,600 1 Integrated 6,691 $6.24
in Hayward, CA Semiconductor
R&D Buildings in $79,780 4 Sac-Tec 15,000 $13.75
Frederick, MD Abbie Business 13,209 $10.77
School
Bechtel 15,591 $10.50
Horizon Cellular 10,111 $12.13
Telephone
- -----------------------------------------------------------------------------------------------------
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Lease Renewal Line of Business
Property Expiration Options of Principal Tenants
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Light Industrial Facility July, 2001 Two 3 Year Options
in Hayward, CA
R&D Buildings in March, 2000 Two 3 Year Options Defense
Frederick, MD August, 2001 Two 5 Year Options Business School
May, 2001 None Engineering/Design
October, 2001 Two 5 Year Options Cellular Communications
- -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The following table sets forth for each of the last five years the gross
leasable area, occupancy rates, rental revenue, and net effective rent for the
Partnership's properties:
- ------------------------------------------------------------------------------
Gross Leasable Year-End Rental Net Effective
PROPERTY Area Occupancy Revenue Rent ($/sf/yr)*
Recognized
- ------------------------------------------------------------------------------
Industrial Facility in
Hayward, CA
- ----------------------
1994 51,089 58% $168,705 $5.37
1995 51,089 94% $197,581 $5.07
1996 51,089 100% $206,603 $4.51
1997 51,089 100% $267,263 $5.23
1998 51,089 92% $275,671 $5.83
R&D Buildings in
Frederick, MD
- ----------------------
1994 86,169 95% $958,157 $11.83
1995 86,169 98% $968,980 $11.56
1996 86,169 98% $976,011 $11.56
1997 86,169 98% $924,087 $11.95
1998 86,169 95% $988,950 $11.62
- ------------------------------------------------------------------------------
* Net effective rent calculation is based on average occupancy during the
respective year.
<PAGE>
Following is a schedule of lease expirations for each of the next ten
years for the Partnership's properties:
- --------------------------------------------------------------------------------
TENANT AGING REPORT
- --------------------------------------------------------------------------------
Property # of Lease Total Total Percentage of
Expirations Square Annual Gross Annual
Feet Rental Rental*
- --------------------------------------------------------------------------------
Light Industrial Facility in
Hayward, CA
- ------------------------------
1999 1 3,888 $20,334 7%
2000 4 14,867 $86,520 32%
2001 6 25,304 $139,416 52%
2002 0 0 $0 0%
2003 1 3,924 $22,925 9%
2004 0 0 $0 0%
2005 0 0 $0 0%
2006 0 0 $0 0%
2007 0 0 $0 0%
2008 0 0 $0 0%
R&D Buildings in Frederick, MD
- ------------------------------
1999 1 3,000 $133,930 4%
2000 2 18,090 $243,330 28%
2001 3 38,911 $428,612 49%
2002 0 0 $0 0%
2003 3 11,332 $132,630 15%
2004 0 0 $0 0%
2005 1 2,555 $34,671 4%
2006 0 0 $0 0%
2007 0 0 $0 0%
2008 0 0 $0 0%
- --------------------------------------------------------------------------------
* Does not include expenses paid by tenants.
<PAGE>
The following information sets forth for each of the Partnership's
properties the: (i) federal tax basis, (ii) rate of depreciation, (iii) method
of depreciation, (iv) life claimed and (v) accumulated depreciation, with
respect to each property or component thereof for purposes of depreciation:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Rate of Life Accumulated
Entity / Property Tax Basis Depreciation Method in years Depreciation
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Light Industrial Facility in
Hayward, California.
- ---------------------------------
Buildings $ 846,184 2.50% SL 40 $ 87,263
Improvements 206,565 2.50% SL 40 16,738
------- ------
Total Depreciable Assets $ 1,052,749 $104,001
Researh and Development/Office
Buildings
Frederick, Maryland.
- ---------------------------------
Buildings $ 6,080,008 3.18% SL 31.5 $ 2,087,357
Improvements 414,946 2.56% SL 39 33,373
------- ------
Total Depreciable Assets $ 6,494,954 $ 2,120,730
Total Depreciable Assets $ 7,547,703 $ 2,224,731
========== ===========
- -----------------------------------------------------------------------------------------------------------
</TABLE>
SL= Straight Line
<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:
Light Industrial Facility in Hayward, California
- ------------------------------------------------
The property is located in the Hayward/Union City industrial market, east of San
Francisco Bay in Alameda County. Hayward's industrial market continued to be
active in 1998, with approximately one million square feet of new product
entering the market. With a total 1998 net absorption in the
Warehouse/Distribution market of approximately 107,000 square feet, vacancy in
the Hayward industrial market increased from 7.3% at year-end 1997 to
approximately 9.7% at year-end 1998. Year-end asking rental rates averaged
approximately $5.74 per square foot, more than 15% higher than in 1997.
The Hayward property was sold for gross proceeds of $2,800,000 on March 18,
1999.
R&D/Office Buildings in Frederick, MD
- -------------------------------------
The property is located in the Frederick County office/flex and light industrial
market. The I-270 Technology Corridor, which is comprised of the Rockville,
North Rockville/Shady Grove, Gaithersburg, Germantown and Frederick submarkets,
contains approximately 25 million square feet of office and flex space. During
1998, an increase in development (speculative as well as build-to-suit) was
observed along the I-270 Corridor. The Frederick R&D/office submarket contained
approximately five million square feet of space and had a vacancy rate of
approximately 6% at year-end 1998. Recent Frederick submarket rents range from
$9.00 to $10.75 per square foot for R&D and $10.00 to $13.00 per square foot for
office. These rates represent a slight increase over rents at year-end 1997.
Several R&D/flex buildings, totaling approximately 175,000 square feet of space,
were added to the Frederick submarket in 1998.
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
-------
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, 1998, there were 10,700 holders of Units.
<PAGE>
The Partnership's Amended and Restated Agreement of Limited Partnership
dated July 15, 1985, 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, 1998, cash distributions
paid in 1998 or distributed after year-end with respect to 1998 to the Limited
Partners as a group totaled $18,876,791, including $16,966,672 ($248 per Limited
Partnership Unit) from the proceeds of a property sale and $410,484 ($6.00 per
Limited Partnership Unit) from reserves established from the proceeds of
previous sales. For the year ended December 31, 1997, cash distributions paid in
1997 or distributed after year-end with respect to 1997 to the Limited Partners
as a group totaled $1,828,022. Cash distributions exceeded net income in 1998
and, therefore, resulted in a reduction of partners' capital. Regular
distributions from operations, however, were less than cash provided by
operations in 1998. Reference is made to the Partnership's Statement of
Partners' Capital (Deficit) and Statement of Cash Flows in Item 8 hereof.
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
For Year For Year For Year For Year For Year
Ended Ended Ended Ended Ended
or as of or as of or as of or as of or as of
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 8,472,836 $ 1,942,159 $ 1,961,564 $ 1,912,590 $ 1,760,463
Net Income $ 7,526,363 $ 1,310,288 $ 1,313,894 $ 1,287,403 $ 1,360,923
Net Income
per Limited
Partnership
Unit $ 108.91 $ 18.96 $ 19.01 $ 18.63 $ 19.69
Total Assets $ 9,306,143 $ 20,946,631 $ 21,459,173 $ 22,871,014 $ 23,284,224
Total Cash
Distributions
per Limited
Partnership
Unit, including
amounts
distributed
after year end
with respect to
such year $ 275.92 $ 26.72 $ 39.91 $ 24.64 $ 21.60
----------- ------------ ------------ ------------- -------------
</TABLE>
See financial statements for description of significant transactions.
<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 December 1985 and a total of 68,414 units were sold. The Partnership
received proceeds of $61,950,285, 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 made the real
estate investments described in Item 1 herein, six of which were sold prior to
1994 and one of which was sold in 1998. As a result of the sales and similar
transactions, capital of $52,573,422 has been returned to the limited partners
through December 31, 1998.
On August 7, 1998 the Bayberry Apartments, in Gaithersburg, Maryland,
was sold to an institutional buyer, which is unaffiliated with the Partnership.
The gross sale price was $17,000,000. The Partnership received net proceeds
totaling $16,985,000, after closing costs. The Partnership recognized a gain of
$6,391,800 ($92.49 per limited partnership unit). On August 26, 1998, the
Partnership made a capital distribution to the limited partners of $16,966,672
($248 per limited partnership unit) from the proceeds of the sale. This
distribution reduced the adjusted capital contribution to $231.54 per limited
partnership unit.
At December 31, 1998, the Partnership had $1,952,504 in cash and cash
equivalents, of which $211,827 was used for operating cash distributions to
partners on January 28, 1999; the remainder is being retained as working capital
reserves. The source of future liquidity and cash distributions to partners will
primarily be cash generated by the Partnership's real estate and invested cash
and cash equivalents. Regular distributions of cash from operations for the four
quarters of 1997 and 1998 were made at the annualized rate of 5.5% on the
adjusted capital contribution.
The carrying value of real estate investments in the financial
statements at December 31, 1998 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, 1998, the appraised value of each
real estate investment exceeded its related carrying value; the aggregate excess
was approximately $2,300,000. The current appraised value of real estate
investments has been determined by the Managing General Partner and is generally
based on a combination of traditional appraisal approaches performed by AEW Real
Estate Advisors, Inc. ("AEW") and independent appraisers. Because of the
subjectivity inherent in the valuation process, the current appraised value may
differ significantly from that which could be realized if the real estate were
actually offered for sale in the marketplace.
Year 2000 Readiness Disclosure
- ------------------------------
The Year 2000 Issue is a result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in normal
business operations.
The Partnership relies on AEW Capital Management L.P. ("AEW Capital
Management"), the parent of AEW Real Estate Advisors, Inc., to generate
financial information and to provide
<PAGE>
other services which are dependent on the use of computers. The Partnership has
obtained assurances from AEW Capital Management that:
* AEW Capital Management has developed a Year 2000 Plan (the
"Plan") consisting of five phases: inventory, assessment,
testing, remediation/repair and certification.
* As of September 30, 1998, AEW Capital Management had completed
the inventory and assessment phases of this Plan and had
commenced the testing and remediation/repair of internal
systems.
* AEW Capital Management expects to conclude the internal testing,
remediation/repair and certifications of its Plan no later than
June 30, 1999.
The Partnership also relies on joint venture partners and/or property managers
to supply financial and other data with respect to its real properties. The
Partnership is in the process of surveying these third party providers and
assessing their compliance with Year 2000 requirements. To date, the Partnership
is not aware of any problems that would materially impact its results of
operations, liquidity or capital resources. However, the Partnership has not yet
obtained written assurances that these providers would be Year 2000 compliant.
The Partnership currently does not have a contingency plan in the event of a
particular provider or system not being Year 2000 compliant. Such a plan will be
developed if it becomes clear that a provider (including AEW Capital Management)
is not going to achieve its scheduled compliance objectives by June 30, 1999.
The inability of one of these providers to complete its Year 2000 resolution
process could materially impact the Partnership. In addition, the Partnership is
also subject to external forces that might generally affect industry and
commerce, such as utility or transportation company Year 2000 compliance
failures and related service interruptions. Given the nature of its operations,
the Partnership will not incur any costs associated with Year 2000 compliance.
All such costs are borned by AEW Capital Management and the property managers.
Results of Operations
- ---------------------
Form of Real Estate Investments
Effective November 15, 1994, North Cabot Industrial Park (formerly
Marathon/Hayward) was converted to a wholly-owned property; it was previously
structured as a ground lease with a mortgage loan to the ground lessee.
Effective January 1, 1998, ownership of the 270 Technology Park joint venture
was restructured whereby the Partnership obtained full control over the business
of the joint venture. Bayberry Apartments was structured as a joint venture with
real estate management/development firms.
Operating Factors
Occupancy at North Cabot Industrial Park was 92%, 100% and 100% at
December 31, 1998, 1997, and 1996, respectively.
<PAGE>
As previously discussed, the Bayberry Apartments was sold on August 7,
1998, and the Partnership recognized a gain of $6,391,800. At the time of the
sale, the Bayberry Apartments was 95% leased compared to 93% and 89% at December
31, 1997 and December 31, 1996, respectively.
Occupancy at 270 Technology Park was 95% at December 31, 1998 and 98% at
December 1997 and 1996, although the average occupancy in 1997 was 91% as a
tenant representing 18% of the space vacated on March 31, 1997.
Investment Results
------------------
1998 Compared to 1997
Interest on cash equivalents and short-term investments increased
$45,000 or 36% primarily due to higher average investment balances in 1998 as a
result of the receipt of the Bayberry Apartments sales proceeds.
Real estate operating results were $1,321,142 and $1,608,252 in 1998 and
1997, respectively. The decrease of approximately $287,000 is primarily due to
lower joint venture earnings due to the sale of Bayberry Apartments in August
1998. At North Cabot Industrial Park, 1998 operations improved due to increased
tenant reimbursements as well as lower operating costs due to decreases in
professional fees and repairs and maintenance expenses. At 270 Technology Park,
operating results increased, consistent with an increase in occupancy and
expense reimbursements from tenants. Partially offsetting these increases are
higher utility and repairs and maintenance expenses.
Cash from operations decreased by approximately $423,000 between 1997
and 1998. The decrease is primarily due to decreases in working capital and a
decrease in distributions from joint ventures due to the sale of Bayberry
Apartments and the conversion of 270 Technology Park to a wholly-owned property.
1997 Compared to 1996
Interest on cash equivalents and short-term investments decreased
$43,000, or 26% due to lower invested balances as a result of additional
distributions from reserves in October 1996. This decrease was partially offset
by higher short-term yields in 1997.
Real estate operating results were $1,608,252 and $1,594,354 in 1997 and
1996, respectively. At North Cabot Industrial Park, 1997 operations improved due
to increased occupancy as well as a slight reduction in operating costs. These
increases in operations were partially offset by increased amortization expense,
commencing in mid-1996, related to certain tenant improvements. Operating income
also increased at Bayberry Apartments primarily due to the increase in
occupancy, in addition to lower depreciation in 1997. These effects were
partially offset by an increase in real estate taxes in 1997. At 270 Technology
Park, operating results declined, consistent with the occupancy decrease
discussed above. Additionally, approximately $56,000 of tenant improvements
related to the vacated tenant mentioned above was written off during 1997.
Cash from operations increased by approximately $360,000 between 1996
and 1997. The increase is primarily due to increased distributions from 270
Technology Park. In addition, the Partnership received increased cash flow from
North Cabot Industrial Park in 1997 as a result of the increase in occupancy
mentioned above.
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 Managing General Partner.
<PAGE>
General and administrative expenses primarily consist of real estate appraisal,
printing, legal, accounting and investor servicing fees.
1998 Compared to 1997
The Partnership management fee decreased approximately $33,000 due to
less operational cash available for distribution as a result of the sale of
Bayberry Apartments on August 7, 1998. General and administrative expenses
decreased by approximately $34,000 or 14% between the respective years primarily
due to decreased investor servicing fees and accounting fees.
1997 Compared to 1996
The Partnership management fee decreased due to the decrease in
distributable cash flow. General and administrative expenses increased by
$12,000 or 5% between the respective years primarily due to increased investor
servicing fees and accounting fees.
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 overall positive effect inflation may have on the value of the Partnership's
investments.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Partnership was not party to derivative financial instruments or
derivative commodity instruments at or during the year ended December 31, 1998.
The Partnership's only other financial instruments (as defined by Financial
Accounting Standards Board Statement No. 107) are its cash and cash equivalents
for which cost approximates market value.
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.
<PAGE>
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 Managing General Partner and the age and position held by each
of them as of December 31, 1998.
Name Position(s) with the Managing General Partner Age
- ---- --------------------------------------------- ---
J. Christopher Meyer, III President, Chief Executive Officer and Director 51
Pamela J. Herbst Vice President and Director 43
J. Grant Monahon Vice President and Director 53
James J. Finnegan Vice President 38
Karin J. Lagerlund Treasurer and Principal Financial and
Accounting Officer 34
(c) Identification of Certain Significant Employees.
None.
(d) Family Relationships.
None.
(e) Business Experience.
The Managing General Partner was incorporated in Massachusetts on
November 1, 1984. The background and experience of the executive officers and
directors of the Managing General Partner are as follows:
J. Christopher Meyer, III. joined AEW Real Estate Advisors, Inc.
("AEW"), formerly known as Copley Real Estate Advisors, Inc., in 1987 and has
been an officer at AEW since then. AEW is a subsidiary of AEW Capital
Management, L.P. ("AEW Capital Management"), of which he is also a Director.
Prior to joining AEW, he had senior positions with several regional real estate
development concerns, including Chief Financial Officer of Ford Motor Land
Development Corporation. His career at AEW has included asset management
responsibility for the company's Eastern Region, and portfolio manager for
several commingled real estate funds. Presently, Mr. Meyer has overall
responsibility for all the partnerships advised by AEW whose securities are
registered under the Securities and Exchange Act of 1934, and for several
commingled funds. He received a B.A. in Statistics from Princeton University and
an MBA from the Wharton School of the University of Pennsylvania.
Pamela J. Herbst directs AEW Capital Management's Institutional Real
Estate Services, with oversight responsibility for the asset and portfolio
management areas. Ms. Herbst is a member of AEW Capital Management's Investment
Policy Group and Management Committee. She came to AEW Capital Management in
December 1996 as a result of the firm's merger with Copley Real Estate Advisors,
Inc., where she held various senior level positions in asset and portfolio
management,
<PAGE>
acquisitions, and corporate operations since 1982. Ms. Herbst is a graduate of
the University of Massachusetts (B.A.) and Boston University (M.B.A.).
J. Grant Monahon is AEW Capital Management's General Counsel and a
member of the firm's Management Committee and Investment Policy Group. He has
over 25 years of experience in real estate law and investments. Prior to joining
the predecessor of AEW Capital Management in 1987, Mr. Monahon was a partner
with a major Boston law firm. As the head of that firm's real estate finance
department, he represented a wide variety of institutional clients, both
domestic and international, in complex equity and debt transactions. He is the
former Chairman of the General Counsel section of the National Association of
Real Estate Investment Managers. Mr. Monahon is a graduate of Dartmouth College
(B.A.) and Georgetown University Law Center (J.D.).
James J. Finnegan is the Assistant General Counsel 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 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.).
Karin J. Lagerlund directs the Institutional Real Estate Services
Portfolio Accounting Group at AEW Capital Management, overseeing portfolio
accounting, performance measurement and client financial reporting for AEW's
private equity investment portfolios. Ms. Lagerlund is a Certified Public
Accountant and has over ten years experience in real estate consulting and
accounting. Prior to joining AEW Capital Management in 1994, she was an Audit
Manager at EY/Kenneth Leventhal LLP. Ms. Lagerlund is a graduate of Washington
State University (B.A.).
(f) Involvement in Certain Legal Proceedings.
None.
Item 11. Executive Compensation.
Under the Partnership Agreement, the General Partners and their
affiliates are entitled to receive various fees, commissions, cash
distributions, allocations of taxable income or loss and expense reimbursements
from the Partnership. See Note 1, Note 2 and Note 6 of Notes to Financial
Statements.
<PAGE>
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 Partners and their
affiliates for the year ended December 31, 1998. Cash distributions to General
Partners include amounts distributed after year end with respect to 1998.
Amount of
Compensation
and
Receiving Entity Type of Compensation Reimbursement
- ---------------- -------------------- -------------
AEW Real Estate Advisors, Inc. Management Fees and
Reimbursement of Expenses $ 161,814
General Partners Share of Distributable Cash 15,148
New England Securities Corporation Servicing Fees and 19,489
-----------
Reimbursement of Expenses
TOTAL $ 196,451
===========
For the year ended December 31, 1998, the Partnership allocated $114,844
of taxable income to the General Partners. See Note 1 of Notes to Financial
Statements for aditional information about transactions between the Partnership
and the General Partners and their affiliates.
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, 1998. 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 Managing
General Partner.
(b) Security Ownership of Management.
An affiliate of the Managing General Partner of the Partnership owned
803 Units as of December 31, 1998.
(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.
<PAGE>
The Partnership has no relationships or transactions to report other
than as reported in Item 11, above.
PART IV
-------
Item 14. Exhibits, Financial Statements, 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 Schedule and Financial Statements
Index No. 2 are filed as part of this Annual Report.
(2) Financial Statement Schedule--The Financial Statement
Schedule listed on the accompanying Index to Financial Statements and Schedule
is 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. No Current Reports on Form 8-K were filed
during the fourth quarter of 1998.
<PAGE>
New England Life Pension Properties III;
A Real Estate Limited Partnership
Financial Statements
* * * * * * *
December 31, 1998
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants
Financial Statements:
Balance Sheets - December 31, 1998 and 1997
Statements of Operations - Years ended December 31, 1998, 1997 and 1996
Statement of Partners' Capital (Deficit) - Years ended December 31, 1998,
1997 and 1996
Statements of Cash Flows - Years ended December 31, 1998, 1997 and 1996
Notes to Financial Statements
Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation at December 31,
1998, 1997 and 1996
<PAGE>
Report of Independent Accountants
---------------------------------
To the Partners
New England Life Pension Properties III;
A Real Estate Limited Partnership
In our opinion, based upon our audits and the reports of other auditors for the
years ended December 31, 1998, 1997 and 1996, the financial statements listed in
the accompanying index present fairly, in all material respects, the financial
position of New England Life Pension Properties III; A Real Estate Limited
Partnership (the "Partnership") at December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Copley
Properties Company III, Inc., the Managing General Partner of the Partnership;
our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of the Partnership's
Bayberry Apartments and 270 Technology Park joint venture investees for the year
ended December 31, 1996 which results of operations are recorded using the
equity method of accounting in the Partnership's financial statements and for
which equity in joint venture income aggregated $1,587,249 for the year ended
December 31, 1996. Those statements were audited by other auditors whose reports
thereon have been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for the equity in joint venture income for
the year ended December 31, 1996 is based solely on the reports of the other
auditors. 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
Managing General Partner, and evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors for
the years ended December 31, 1998, 1997 and 1996 provide a reasonable basis for
the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- ---------------------------------
Boston, Massachusetts
March 18, 1999
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
BALANCE SHEETS
December 31,
---------------------------
1998 1997
------------ ------------
Assets
Real estate investments:
Joint ventures $ -- $ 17,184,075
Property, net 6,156,334 1,170,476
Property held for disposition, net 1,197,305 --
------------ ------------
7,353,639 18,354,551
Cash and cash equivalents 1,952,504 1,645,244
Short-term investments -- 946,836
------------ ------------
$ 9,306,143 $ 20,946,631
============ ============
Liabilities and Partners' Capital
Accounts payable $ 87,947 $ 99,348
Accrued management fee 21,939 45,655
------------ ------------
Total liabilities 109,886 145,003
------------ ------------
Partners' capital (deficit):
Limited partners ($231.54 and $485.54 per
unit, respectively; 75,000 units authorized,
68,414 units issued and outstanding) 9,196,048 20,859,138
General partners 209 (57,510)
------------ ------------
Total partners' capital 9,196,257 20,801,628
------------ ------------
$ 9,306,143 $ 20,946,631
============ ============
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Year ended December 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
Investment Activity
Property rentals $ 1,294,563 $ 267,791 $ 208,142
Property operating expenses (295,874) (79,665) (96,953)
Depreciation and amortization (293,460) (121,979) (94,620)
----------- ----------- -----------
705,229 66,147 16,569
Joint venture earnings 619,051 1,551,569 1,587,249
Amortization (3,138) (9,464) (9,464)
----------- ----------- -----------
Total real estate operations 1,321,142 1,608,252 1,594,354
Gain on sale of joint venture 6,391,800 -- --
----------- ----------- -----------
Total real estate activity 7,712,942 1,608,252 1,594,354
Interest on cash equivalents
and short-term investments 167,422 122,799 166,173
----------- ----------- -----------
Total investment activity 7,880,364 1,731,051 1,760,527
----------- ----------- -----------
Portfolio Expenses
General and administrative 204,187 238,143 225,808
Management fee 149,814 182,620 220,825
----------- ----------- -----------
354,001 420,763 446,633
----------- ----------- -----------
Net Income $ 7,526,363 $ 1,310,288 $ 1,313,894
=========== =========== ===========
Net income per limited
partnership unit $ 108.91 $ 18.96 $ 19.01
=========== =========== ===========
Cash distributions per limited
partnership unit $ 279.39 $ 26.74 $ 39.37
=========== =========== ===========
Number of limited partnership units
outstanding during the year 68,414 68,414 68,414
=========== =========== ===========
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,526,363 $ 1,310,288 $ 1,313,894
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 296,598 131,443 104,084
Equity in joint venture net income (619,051) (1,551,569) (1,587,249)
Cash distributions from joint ventures 1,148,092 2,120,676 1,931,140
Gain on sale of joint venture (6,391,800) -- --
Increase in investment income
receivable 15,711 1,278 16,268
Increase in deferred leasing costs (78,894) (14,794) (21,954)
Increase in property
working capital (263,595) (1,365) (84,741)
Increase (decrease) in liabilities (35,117) 25,039 (10,321)
------------ ------------ ------------
Net cash provided by operating activities 1,598,307 2,020,996 1,661,121
------------ ------------ ------------
Cash flows from investing activities:
Net proceeds from sale of joint venture 16,985,000 -- --
Capital expenditures on owned property (75,438) (10,327) (10,394)
Decrease in short-term
investments, net 931,125 221,552 925,674
------------ ------------ ------------
Net cash provided by investing
activities 17,840,687 211,225 915,280
------------ ------------ ------------
Cash flows from financing activity:
Distributions to partners (19,131,734) (1,847,869) (2,715,414)
------------ ------------ ------------
Net cash used in financing activity (19,131,734) (1,847,869) (2,715,414)
Net increase (decrease) in cash
and cash equivalents 307,260 384,352 (139,013)
Cash and cash equivalents:
Beginning of year 1,645,244 1,260,892 1,399,905
------------ ------------ ------------
End of year $ 1,952,504 $ 1,645,244 $ 1,260,892
============ ============ ============
</TABLE>
Supplemental disclosure of non-cash transaction:
Effective January 1, 1998, the Partnership's joint venture investment in 270
Technology Park was converted to a wholly-owned property. The carrying value of
this investment at conversion was $6,162,959.
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------------------------
1998 1997 1996
------ ------ ------
General Limited General Limited General Limited
Partners Partners Partners Partners Partners Partners
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of year $ (57,510) $ 20,859,138 $ (52,135) $ 21,391,344 $ (43,319) $ 22,784,048
Cash distributions (17,545) (19,114,189) (18,478) (1,829,391) (21,955) (2,693,459)
Net income 75,264 7,451,099 13,103 1,297,185 13,139 1,300,755
------------ ------------ ------------ ------------ ------------ ------------
Balance at end
of year $ 209 $ 9,196,048 $ (57,510) $ 20,859,138 $ (52,135) $ 21,391,344
============ ============ ============ ============ ============ ============
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES III;
A REAL ESTATE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS
- ----------------------------------
General
-------
New England Life Pension Properties III; 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 July
1985, and acquired the two investments it currently owns prior to the end of
1988. It intends to dispose of its investments within twelve years of their
acquisition, and then liquidate; however, the Managing General Partner could
extend the investment period if it is in the best interest of the limited
partners.
The Managing General Partner of the Partnership is Copley Properties
Company III, Inc., a wholly-owned subsidiary of AEW Real Estate Advisors, Inc.
("AEW"), formerly known as Copley Real Estate Advisors, Inc. ("Copley"). The
associate general partner is ACOP Associates Limited Partnership, a
Massachusetts limited partnership. Subject to the Managing 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. At year end 1997, NEIC completed a
restructuring plan under which it contributed all of its operations to a newly
formed private partnership, NEIC Operating Partnership, L.P., in exchange for a
general partnership interest in the newly formed entity. Accordingly, at
December 31, 1997, AEW Capital Management, L.P. is wholly owned by NEIC
Operating Partnership, L.P. AEW is a subsidiary of AEW Capital Management, L.P.
Effective April 1, 1998, NEIC changed its name to Nvest, L.P. and NEIC Operating
Partnership, L.P. changed its name to Nvest Companies, L.P.
Prior to August 30, 1996, New England Mutual Life Insurance Company
("The New England") was NEIC's principal unit holder and owner of all 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.
At December 31, 1998 and 1997, an affiliate of the Managing General
Partner owned 803 and 778 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 flow from operations, as defined, before deducting such fees.
AEW is also reimbursed for expenses incurred in connection with administering
the Partnership ($12,000 in 1998, $13,000 in 1997, and $12,000 in 1996).
Acquisition fees paid were based on 2% of the gross proceeds from the offering.
Disposition fees are limited to the lessor of 3% of the selling price of
property, or 50% of the standard real estate commission customarily charged by
an independent real estate broker. Payment of disposition fees is subject to the
prior receipt by the limited partners of their capital contributions plus a
stipulated return thereon. See further discussion in Note 2.
<PAGE>
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 $19,489, $18,315 and
$17,501 in 1998, 1997 and 1996, respectively.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Accounting Estimates
--------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Managing 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.
Real Estate Joint Ventures
--------------------------
Investments in joint ventures, which are in substance real estate
investments, are stated at cost plus (minus) equity in undistributed joint
venture income (losses). Allocations of joint venture income (losses) were made
to the Partnership's venture partners as long as they had substantial economic
equity in the project. Economic equity is measured by the excess of the
appraised value of the property over the Partnership's total cash investment
plus accrued preferential returns thereon. Currently, the Partnership records an
amount equal to 100% of the operating results of the property, after the
elimination of all inter-entity transactions. Joint ventures are consolidated
with the accounts of the Partnership if, and when, the venture partner no longer
shares in the control of the business.
Property
--------
Property includes land and buildings and improvements, which are stated
at cost less accumulated depreciation, and other operating net assets
(liabilities). The Partnership's initial carrying value of a property previously
subject to a ground lease/mortgage loan arrangement equals the Partnership's
carrying value of the predecessor investment on the conversion date.
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.
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 estimated useful lives of the underlying real
property.
Leases are accounted for as operating leases. Leasing commissions are
amortized over the terms of the respective leases. Rental income is being
recognized on a straight-line basis over the respective lease terms.
<PAGE>
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 expected undiscounted cash flows generated
from the operations and disposal of the property. The impairment loss is based
on the excess of the investments' carrying value over its estimated 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. Prior to the adoption of Statement of Financial Accounting
Standards No. 121, effective January 1, 1995, the impairment loss was measured
based on the excess of the investment's carrying value over its net realizable
value.
The carrying value of an investment may be greater or less than its
current appraised value. At December 31, 1998 and 1997, the appraised value of
each of the Partnership's investments exceeded its related carrying value; the
aggregate excess was approximately $2,300,000 and $6,600,000, respectively. The
current appraised value of real estate investments has been estimated by the
Managing General Partner and is generally based on a combination of traditional
appraisal approaches performed by AEW 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, 1997, all short-term investments are in commercial paper with less
than one month remaining to maturity.
Deferred Disposition Fees
-------------------------
According to the terms of the advisory contract, AEW is entitled to
disposition fees related to sales of real estate investments. Payment of these
fees, however, is contingent upon the limited partners' first receiving their
capital, plus stipulated returns thereon. In light of the current value of the
Partnership's remaining investments and the expectations for improvement over
the Partnership's investment horizon, the Managing General Partner has
determined that the likelihood of payment of these fees is remote. Accordingly,
no disposition fees have been accrued in conjunction with the sale of the
Partnership's investments.
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.
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.
<PAGE>
Segment Data
------------
Effective January 1, 1998, the Partnership adopted Financial Accounting
Standards Board Statement No. 131, "Disclosure about Segments on an Enterprise
and Related Information" (FAS 131). Based on the criteria established in FAS
131, the Managing General Partner has determined that the Partnership operates
in one operating segment which is investing in real estate properties which are
domiciled in the United States of America.
Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the
current year's presentation.
NOTE 3 - REAL ESTATE JOINT VENTURES
- -----------------------------------
The Partnership invested in two real estate joint ventures, each of
which was organized as a general partnership with a real estate
management/development firm. It made capital contributions to the ventures,
which were subject to preferential cash distributions at a specified rate and to
priority distributions with respect to sale or refinancing proceeds. The joint
venture agreements provided for the funding of cash flow deficits by the venture
partners in proportion to ownership interests, and for the dilution of ownership
share in the event a venture partner did not contribute proportionately.
The respective real estate management/development firms were responsible
for day-to-day development and operating activities, although overall authority
and responsibility for the businesses was shared by the venturers. The real
estate management/development firm, or its affiliates, also provided various
services to the respective joint venture for a fee.
270 Technology Park
-------------------
Effective January 1, 1988, one of the Partnership's ground
lease/mortgage loan investments was converted to a 50% ownership interest in a
joint venture with an affiliate of Manekin Corporation. The venture owns and
operates three research and development/office buildings in Frederick, Maryland.
The Partnership was credited with a capital contribution of $5,960,000, an
amount equal to the cost of the land plus the then outstanding principal on the
mortgage loan. In addition, during 1988, the Partnership contributed cash of
$260,000. The preferential return rate on the capital contributed is 10.50% per
annum. Effective January 1, 1998, ownership of the joint venture was
restructured whereby the Partnership obtained full control over the business of
the joint venture. (See Note 4).
Bayberry Apartments
-------------------
On April 4, 1988, the Partnership entered into a joint venture with an
affiliate of Bozzuto and Associates to construct and operate a garden apartment
community in Gaithersburg, Maryland. The Partnership had a 65% ownership
interest and committed to a maximum capital contribution of $14,350,000, and a
maximum deficit contribution (characterized as junior capital) of $230,000. The
preferential return rate was 10.25% per annum on the capital contributed and the
greater of the prime rate plus 2% or 10.25% on the deficit contribution. At
December 31, 1997 the Partnership had contributed $14,349,983 of its capital
commitment, plus $225,957 as a prorata deficit contribution. Sixty-five percent
of the Partnership's capital contribution was characterized as "senior" capital.
If senior capital was prepaid, the Partnership was entitled to a special
distribution intended to preserve the preferential return yield on senior
capital through the ninth anniversary of the venture. No senior capital had been
prepaid as of the date of sale of the property discussed below.
On August 7, 1998 the joint venture sold its property to an
institutional buyer which is unaffiliated with the Partnership. The gross sale
price was $17,000,000. The Partnership received its share of the net proceeds
totaling $16,985,000. The Partnership recognized a gain of $6,391,800 ($92.49
per limited partnership unit). On August 26, 1998, the Partnership made a
capital distribution to the limited partners of $16,966,672 ($248 per limited
partnership unit) from the proceeds of the sale.
<PAGE>
Summarized Financial Information
- --------------------------------
The following summarized financial information is presented in the
aggregate for the joint ventures:
Assets and Liabilities
----------------------
December 31,
-----------------------------------
1998 1997
------------- ------------
Assets
Real property, net of accumulated
depreciation of $5,110,304
at December 31, 1997 $ - $ 14,786,221
Other assets - 639,480
------------- ------------
- 15,425,701
Liabilities - 125,700
------------- ------------
Net assets $ - $ 15,300,001
============= ============
Results of Operations
---------------------
Year ended December 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
Revenue
Rental income $1,444,678 $3,204,670 $3,204,233
Other income 3,862 36,252 7,637
---------- ---------- ----------
1,448,540 3,240,922 3,211,870
---------- ---------- ----------
Expenses
Operating expenses 650,935 1,126,065 1,085,295
Depreciation and amortization 198,187 563,288 539,326
---------- ---------- ----------
849,122 1,689,353 1,624,621
---------- ---------- ----------
Net income $ 599,418 $1,551,569 $1,587,249
========== ========== ==========
Liabilities and expenses exclude amounts owed and attributable to the
Partnership on behalf of its various financing arrangements with the joint
ventures.
Effective January 1, 1998, the 270 Technology Park joint venture was
converted to a wholly-owned property. Accordingly, the 1998 amounts relate only
to the Bayberry joint venture.
<PAGE>
NOTE 4 - PROPERTY
- -----------------
270 Technology Park
-------------------
Effective January 1, 1998, the 270 Technology Park joint venture was
restructured and the venture partner's ownership of interest was assigned 99% to
the Partnership, and 1% to an affiliate of the Partnership. Accordingly, as of
this date, the investment is being accounted for as a wholly-owned property. The
carrying value of the joint venture investment at conversion ($6,162,959) was
allocated to land, building and improvements, and other net operating assets.
The building is being depreciated over 30 years, beginning January 1,
1998.
North Cabot Industrial Park (formerly Marathon/Hayward)
-------------------------------------------------------
In September 1985, the Partnership acquired land in Hayward, California,
for $786,130 and leased it back to the seller. The Partnership also made a
nonrecourse permanent mortgage loan of $2,663,870 to the ground lessee to
finance the two research and development buildings.
On November 15, 1994, the Partnership restructured this ground
lease/mortgage loan investment into a wholly-owned property, due to the
inability of the ground lessee/mortgagee to meet its financial obligations. The
Partnership received $85,000 in settlement of the guaranty provided by
principals of the ground lessee. The Partnership obtained title to the
improvements on the land, and to certain other operating assets in full
satisfaction of the related mortgage loan and obligations under the ground
lease, and in consideration of the assumption by the Partnership of certain
operating liabilities. The carrying value of the ground lease/mortgage loan
investment as of the date of restructuring was allocated to land, buildings and
net operating assets.
The buildings and improvements (two industrial buildings in Hayward,
California) are being depreciated over 25 years beginning November 15, 1994.
Prior to 1994, the Managing General Partner determined that the carrying
value of the North Cabot Industrial Park investment should be reduced to
estimated fair market value. Accordingly, the carrying value was reduced by
$2,500,000.
The Partnership executed a Purchase and Sale agreement on February 1,
1999, and on March 18, 1999 sold the North Cabot property for a gross price of
$2,800,000. The Partnership received its share of net proceeds totaling
$2,664,000. The Partnership recognized a gain of $1,509,931.
The following is summary of the Partnership's investment in property
(two at December 31, 1998; and one at December 31, 1997):
December 31,
--------------------------
1998 1997
----------- -----------
Land $ 215,404 $ 347,772
Buildings and improvements 5,653,391 1,041,839
Accumulated depreciation and amortization (156,156) (244,868)
Net operating assets 443,695 25,733
Property held for disposition 1,197,305 -
----------- -----------
$ 7,353,639 $ 1,170,476
=========== ===========
The buildings are being depreciated over a period ranging from 25-30
years. The minimum future rentals under non-cancelable operating leases are:
$1,072,598 in 1999; $655,321 in 2000; $400,778 in 2001; $132,243 in 2002 and
$98,882 in 2003.
<PAGE>
NOTE 5 - INCOME TAXES
- ---------------------
The Partnership's income (loss) for federal income tax purposes differs
from that reported in the accompanying statement of operations as follows:
Year ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
Net income per financial
statements $ 7,526,363 $ 1,310,288 $ 1,313,894
Timing differences:
Joint venture earnings (14,989) (154,870) (224,467)
Depreciation and amortization 31,269 85,777 58,395
Property sales and operations -- -- --
Expenses 3,139 3,188 3,188
Gain on Sale 3,938,614 -- --
------------ ------------ ------------
Taxable income $ 11,484,396 $ 1,244,383 $ 1,151,010
============ ============ ============
NOTE 6 - PARTNERS' CAPITAL
- --------------------------
Allocation 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 partners. Cash distributions are made
quarterly.
Net sale 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 partners. As a result of returns of capital from
sale transactions, the adjusted capital contribution per limited partnership
unit was reduced from $1,000 to $982.14 during 1987, to $946.14 during 1988, to
$796.14 during 1989, to $694.14 during 1992, to $524.14 during 1993, to $493.14
during 1994, to $485.54 during 1996 and to $231.54 during 1998. No capital
distributions have been made to the general partners. Income from sales will be
allocated in proportion to the distribution of related proceeds, provided that
the general partners are allocated at least 1%. Income or losses from sales, 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 partners.
NOTE 7 - SUBSEQUENT EVENT
- -------------------------
Distributions of cash from operations relating to the quarter ended
December 31, 1998 were made on January 28, 1999 in the aggregate amount of
$221,827 ($3.21 per limited partnership unit). See Note 4 for discussion of the
sale of the Partnership's North Cabot investment on March 18, 1999.
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES III
A REAL ESTATE LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Initial Cost to Costs Capitalized Gross amount at which
the Partnership Subsequent to Acquisition Carried at Close of Period
--------------------------------- --------------------------------- --------------------------
Buildings & Other Carrying Additions Buildings &
Description Land Improvements (Net) Costs (Dispositions) Other Land Improvements
- ----------- ---- ------------ ----- ----- -------------- ----- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
An R & D building (51,089 sq.ft)
on 3.8 acres of land in $347,772 $0 $0 $0 $1,052,749 $99,035 $347,772 $1,052,749
Hayward, California (See Note A)
Converted to wholly-owned 1/1/98 $215,404 $5,620,041 $327,514 $0 $64,528 $85,003 $215,404 $5,684,569
Park. Owner of three R & D
buildings (86,169 square feet)
situated on 8.3 acres of land
in Frederick, Maryland.
------------------------------------------------------------------------------------------------
Total Wholly-Owned $563,176 $5,620,041 $327,514 $0 $1,117,277 $184,038 $563,176 $6,737,318
================================================================================================
60% Interest in Bayberry Associates.
Owner of nine apartment buildings
(230 units) situated on 17.1 acres ------------------------------ See Note B -------------------------------------------------
of land in Gaithersburg, Maryland.
Total Joint Ventures
Total Real Estate
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
Gross amount at which
Carried at Close of Period
---------------------------------------------
Investment Accumulated
Valuation Depreciation Date of Date Depreciable
Description Other Allowances Dispositions Total & Amortization Construction Acquired Life
- ----------- ----- ---------- ------------ ----- -------------- ------------ -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
An R & D building (51,089 sq.ft)
on 3.8 acres of land in $99,035 $0 $0 $1,499,556 ($302,251) Completed 3/20/89 25 Years
Hayward, California (See Note A) (Converted to
Converted to wholly-owned 1/1/98 $412,517 $0 $0 $6,312,490 ($156,156) Completed 8/27/97 30 years
Park. Owner of three R & D
buildings (86,169 square feet)
situated on 8.3 acres of land
in Frederick, Maryland.
------------------------------------------------------------
Total Wholly-Owned $511,552 $0 $0 $7,812,046 ($458,407) $ 7,353,639
============================================================
60% Interest in Bayberry Associates.
Owner of nine apartment buildings
(230 units) situated on 17.1 acres -- See Note B -- ($10,593,201) $0 N/A Completed 4/4/88 30/15 Yrs
of land in Gaithersburg, Maryland.
------
Total Joint Ventures $0
---------- ----------
Total Real Estate $7,812,046 ($458,407)
========== ==========
</TABLE>
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES III
NOTE A TO SCHEDULE III
<TABLE>
<CAPTION>
1996 1996
COST CONVERSION TO INVESTMENT INCREASE IN 1996 INCREASE
AS OF WHOLLY-OWNED IN DEFERRED IN PROPERTY
DESCRIPTION 12/31/95 PROPERTY PROPERTY LEASING COSTS WORKING CAPITAL
- ---------------------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
North Cabot Industrial Park $1,301,540 $10,394 21,954 70,583
========== ======= ====== ======
1997 1997
COST CONVERSION TO INVESTMENT INCREASE IN 1997 INCREASE
AS OF WHOLLY-OWNED IN DEFERRED IN PROPERTY
DESCRIPTION 12/31/96 PROPERTY PROPERTY LEASING COSTS WORKING CAPITAL
- ---------------------------- -------------------------------------------------------------------------
North Cabot Industrial Park $1,404,471 $10,327 14,794 (14,248)
========== ======= ====== =======
1998 1998
COST CONVERSION TO INVESTMENT INCREASE IN 1998 INCREASE
AS OF WHOLLY-OWNED IN DEFERRED IN PROPERTY
DESCRIPTION 12/31/97 PROPERTY PROPERTY LEASING COSTS WORKING CAPITAL
- ---------------------------- -------------------------------------------------------------------------
North Cabot Industrial Park $1,415,344 $10,910 31,921 41,381
270 Technology Park 0 6,162,959 64,528 46,973 38,030
- ----------------------------------------------------------------------------------------------------------
1,415,344 6,162,959 75,438 78,894 79,411
==========================================================================================================
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
ACCUMULATED 1996 ACCUMULATED
COST AMORTIZATION & AMORTIZATION & AMORTIZATION & 12/31/96
BALANCE AT DEPRECIATION DEPRECIATION DEPRECIATION PROPERTY
DESCRIPTION 12/31/96 AS OF 12/31/95 EXPENSE AS OF 12/31/96 NET
- ---------------------------- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
North Cabot Industrial Park $1,404,471 $58,041 $80,462 $138,503 $1,265,968
========== ======= ======= ======== ==========
ACCUMULATED 1997 ACCUMULATED
COST AMORTIZATION & AMORTIZATION & AMORTIZATION & 12/31/97
BALANCE AT DEPRECIATION DEPRECIATION DEPRECIATION PROPERTY
DESCRIPTION 12/31/97 AS OF 12/31/96 EXPENSE AS OF 12/31/97 NET
- ---------------------------- --------------------------------------------------------------------------------
North Cabot Industrial Park $1,415,344 $138,503 $106,365 $244,868 $1,170,476
========== ======== ======== ======== ==========
ACCUMULATED 1998 ACCUMULATED
COST AMORTIZATION & T.I. AMORTIZATION & AMORTIZATION & 12/31/98
BALANCE AT DEPRECIATION DEPRECIATION DEPRECIATION PROPERTY
DESCRIPTION 12/31/98 AS OF 12/31/97 EXPENSE AS OF 12/31/98 NET
- ---------------------------- --------------------------------------------------------------------------------
North Cabot Industrial Park $1,499,556 $244,868 $57,383 $302,251 $1,197,305
270 Technology Park $6,312,490 0 187,336 $156,156 $6,156,334
- -----------------------------------------------------------------------------------------------------------------
7,812,046 244,868 244,719 458,407 7,353,639
=================================================================================================================
</TABLE>
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES III
NOTE B TO SCHEDULE III
<TABLE>
<CAPTION>
1996
1996 CASH AMORTIZATION
BALANCE 1996 RECEIVED OF
PERCENT OF AS OF INVESTMENT 1996 EQUITY IN FROM ACQUISITION
DESCRIPTION OWNERSHIP 12/31/95 IN PROPERTY INCOME (LOSS) JOINT VENTURES FEES
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
270 Technology Park 50% $6,327,493 0 $619,367 ($541,400) ($3,188)
Bayberry Associates 65% 11,788,509 0 967,882 (1,389,740) (6,276)
------------- ----------- ------------- ------------ -----------
$18,116,002 $0 $1,587,249 ($1,931,140) ($9,464)
============= =========== ============= ============ ===========
1997
1997 CASH AMORTIZATION
BALANCE 1997 RECEIVED OF
PERCENT OF AS OF INVESTMENT 1997 EQUITY IN FROM ACQUISITION
OWNERSHIP 12/31/96 IN PROPERTY INCOME (LOSS) JOINT VENTURES FEES
- ------------------------------------------------------------------------------------------------------------
270 Technology Park 50% $6,402,272 0 $531,484 ($767,609) ($3,188)
Bayberry Associates 65% 11,360,375 0 1,020,085 (1,353,067) (6,277)
------------- ----------- ------------- ------------ -----------
$17,762,647 $0 $1,551,569 ($2,120,676) ($9,465)
============= =========== ============= ============ ===========
1998
1998 CASH AMORTIZATION
BALANCE 1998 RECEIVED OF
PERCENT OF AS OF INVESTMENT 1998 EQUITY IN FROM ACQUISITION
OWNERSHIP 12/31/97 IN PROPERTY INCOME (LOSS) JOINT VENTURES FEES
- ------------------------------------------------------------------------------------------------------------
270 Technology Park 50% $6,162,959 0 $0 $0 $0
Bayberry Associates 65% 11,021,116 0 619,051 (1,043,829) (3,138)
- ------------------------------------------------------------------------------------------------------------
$17,184,075 $0 $619,051 ($1,043,829) ($3,138)
============================================================================================================
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
CONVERSION TO 1996 BALANCE
WHOLLY-OWNED DISPOSALS AS OF
DESCRIPTION PROPERTY 12/31/96
- --------------------------------------------------------------------
270 Technology Park 0 0 $6,402,272
Bayberry Associates 0 0 11,360,375
------------ ------------ ------------
0 0 $17,762,647
============ ============ ============
CONVERSION TO 1997 BALANCE
WHOLLY-OWNED DISPOSALS AS OF
PROPERTY 12/31/97
- --------------------------------------------------------------------
270 Technology Park 0 0 $6,162,959
Bayberry Associates 0 0 11,021,116
------------ ------------ ------------
$0 $0 $17,184,075
============ ============ ============
CONVERSION TO 1998 BALANCE
WHOLLY-OWNED DISPOSALS AS OF
PROPERTY 12/31/98
- --------------------------------------------------------------------
270 Technology Park (6,162,959) 0 $0
Bayberry Associates 0 (10,593,201) (0)
- --------------------------------------------------------------------
($6,162,959) ($10,593,201) ($0)
====================================================================
<PAGE>
FINANCIAL STATEMENTS
INDEX NO. 2
Independent Auditor's Report and Financial Statements
of Bayberry Associates
Independent Auditor Report of Reznick Fedder and Silverman
Balance Sheets - August 6, 1998 and December 31, 1997
Statements of Operations - For the Period ended January 1, 1998 through
August 6, 1998 and For the Years ended December 31, 1997 and 1996
Statements of Partners' Equity - For the Period ended January 1, 1998
through August 6, 1998 and For the Years ended December 31, 1997 and
1996
Statements of Cash Flows - For the Period ended January 1, 1998 through
August 6, 1998 and For the Years ended December 31, 1997 and 1996
Notes to Financial Statements
<PAGE>
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
BAYBERRY ASSOCIATES
AUGUST 6, 1998 AND DECEMBER 31, 1997
<PAGE>
Bayberry Associates
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
BALANCE SHEETS 4
STATEMENTS OF OPERATIONS 5
STATEMENTS OF PARTNERS' EQUITY 6
STATEMENTS OF CASH FLOWS 7
NOTES TO FINANCIAL STATEMENTS 8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Bayberry Associates
We have audited the accompanying balance sheets of Bayberry Associates
as of August 6, 1998 and December 31, 1997, and the related statements of
operations, partners' equity and cash flows for the period January 1, 1998
through August 6, 1998, and for the two years ended December 31, 1997 and 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, the financial statements referred to above present
fairly, in all material respects, the financial position of Bayberry Associates
as of August 6, 1998 and December 31, 1997 and 1996, and the results of its
operations, the changes in partners' equity and its cash flows for the period
January 1, 1998 through August 6, 1998, and for the two years ended December 31,
1997 and 1996, in conformity with generally accepted accounting principles.
Baltimore, Maryland
January 5, 1999
-3-
<PAGE>
Bayberry Associates
BALANCE SHEETS
August 6, 1998 and December 31, 1997
1998 1997
----------- -----------
ASSETS
INVESTMENT IN REAL ESTATE
Land $ 3,754,558 $ 3,754,558
Building and improvements 8,503,711 8,503,711
Personal property 778,494 778,494
----------- -----------
13,036,763 13,036,763
Less accumulated depreciation 3,991,404 3,788,765
----------- -----------
9,045,359 9,247,998
OTHER ASSETS
Cash -- 149,528
Tenants' security deposits -- 27,006
Tenants' accounts receivable -- 21,306
Prepaid expenses 194,125 112,238
----------- -----------
$ 9,239,484 $ 9,558,076
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 57,203 $ 22,936
Deferred rental income 120,307 12,304
Accrued preferred return 2,891,573 2,846,924
Accrued guaranteed payments 1,557,000 1,532,960
Tenants' security deposits 30,479 27,006
Due to affiliates -- 8,830
----------- -----------
4,656,562 4,450,960
PARTNERS' EQUITY 4,582,922 5,107,116
----------- -----------
$ 9,239,484 $ 9,558,076
=========== ===========
See notes to financial statements
-4-
<PAGE>
Bayberry Associates
STATEMENTS OF OPERATIONS
For the period January 1, 1998 through August 6, 1998 and
the years ended December 31, 1997 and 1996
1998 1997 1996
---------- ---------- ----------
Revenue
Rent $1,382,056 $2,221,106 $2,168,867
Other lease related income 62,680 59,477 59,355
Interest 3,863 4,500 4,148
---------- ---------- ----------
1,448,599 2,285,083 2,232,370
---------- ---------- ----------
Expenses
Furnished apartment expense 57 14,080 17,384
Advertising and promotion 28,521 45,076 52,631
Salaries 170,087 218,230 203,722
Administrative 47,757 54,985 49,218
Management fee 50,288 79,485 77,525
Maintenance 139,551 169,586 158,702
Utilities 39,298 53,926 72,901
Real estate taxes 124,645 213,150 190,670
Insurance 10,040 18,084 20,338
Dues and fees 41,113 57,802 46,305
Depreciation 202,612 340,594 375,092
Guaranteed payments 410,197 671,616 651,048
---------- ---------- ----------
1,264,166 1,936,614 1,915,536
---------- ---------- ----------
EXCESS OF REVENUE
OVER EXPENSES $ 184,433 $ 348,469 $ 316,834
========== ========== ==========
See notes to financial statements
-5-
<PAGE>
Bayberry Associates
STATEMENTS OF PARTNERS' EQUITY
For the period January 1, 1998 through August 6, 1998 and
the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Christopher
Bozzuto New England
Limited Life Pension
Partnership Properties III Total
----------- ----------- -----------
<S> <C> <C> <C>
Partners' equity (deficit), December 31, 1995 $ (345,536) $ 7,243,238 $ 6,897,702
Distributions (24,136) (1,184,953) (1,209,089)
Excess of revenue over expenses 24,136 292,698 316,834
----------- ----------- -----------
Partners' equity (deficit), December 31, 1996 (345,536) 6,350,983 6,005,447
Distributions (26,730) (1,220,070) (1,246,800)
Excess of revenue over expenses 26,730 321,739 348,469
----------- ----------- -----------
Partners' equity (deficit), December 31, 1997 (345,536) 5,452,652 5,107,116
Contributions 169,881 -- 169,881
Distributions (16,899) (861,609) (878,508)
Excess of revenue over expenses 16,899 167,534 184,433
----------- ----------- -----------
Partners' equity (deficit), August 6, 1998 $ (175,655) $ 4,758,577 $ 4,582,922
=========== =========== ===========
</TABLE>
See notes to financial statements
-6-
<PAGE>
Bayberry Associates
STATEMENTS OF CASH FLOWS
For the period January 1, 1998 through August 6, 1998 and the
years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flow from operating activities
Excess of revenue over expenses $ 184,433 $ 348,469 $ 316,834
Adjustments to reconcile excess of revenue over expenses
to net cash provided by operating activities
Depreciation 202,612 340,594 375,092
Changes in assets and liabilities
Decrease (increase) in tenants' accounts receivable 21,306 (13,853) (42)
(Increase) decrease in prepaid expenses (81,887) 7,315 (13,882)
Increase (decrease) in accounts payable 34,293 5,187 (36,066)
Increase (decrease) in deferred rental income 108,003 (655) (103,044)
Increase in accrued guaranteed payments 83,499 197,781 192,524
(Decrease) increase in due to affiliate (8,830) 2,710 (25,211)
Net security deposits received (paid) 30,479 937 (373)
--------- --------- ---------
Net cash provided by operating activities 573,908 888,485 705,832
--------- --------- ---------
Cash flows from financing activities
Distributions to general partner (723,436) (879,495) (851,543)
--------- --------- ---------
Net cash used in financing activities (723,436) (879,495) (851,543)
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH (149,528) 8,990 (145,711)
Cash, beginning 149,528 140,538 286,249
--------- --------- ---------
Cash, ending $ -- $ 149,528 $ 140,538
========= ========= =========
Supplemental disclosure of cash flow information
Cash paid during the year for guaranteed payments $ 326,698 $ 473,835 $ 458,524
========= ========= =========
Supplemental disclosure of non-cash activities
During 1998, $110,422 of accrued preferred return and
$59,459 of accrued guaranteed payments was converted to
capital.
</TABLE>
See notes to financial statements
-7-
<PAGE>
Bayberry Associates
NOTES TO FINANCIAL STATEMENTS
August 6, 1998 and December 31, 1997
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Bayberry Associates (the Partnership) was formed as a general partnership
under the laws of the State of Maryland on April 4, 1988, for the purpose of
constructing, owning and operating a rental housing project. The project
consists of 230 units located in Montgomery County, Maryland, and is
operating as Bayberry Apartments. On August 6, 1998, New England Life
Pension Properties III (NELP) sold their entire interest in the Partnership
and Christopher Bozzuto Limited Partnership (CBLP) sold 34% of their 35%
interest in the Partnership and distributed the remaining 1% to an
affiliate. Prior to such sale, all leases between the Partnership and
tenants of the property were operating leases.
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 revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Investment in Real Estate
-------------------------
Investment in real estate is carried at cost. Depreciation is provided for
in amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives using accelerated methods.
Rental Income
-------------
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned.
Income Taxes
------------
No provision or benefit for income taxes has been included in these
financial statements since taxable income or loss passes through to, and is
reportable by, the partners individually.
-8-
<PAGE>
Bayberry Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
August 6, 1998 and December 31, 1997
NOTE B - SALE OF PARTNERSHIP INTEREST
At the close of business on August 6, 1998, NELP sold their entire interest
in the Partnership and CBLP sold 34% of their 35% interest in the
Partnership and distributed the remaining 1% to an affiliate. The contract
sales price for this transaction was $17,000,000. Property and equipment
transferred had a net book value of $9,045,359. In addition, assets totaling
$194,125 and liabilities totaling $207,989 which includes tenant security
deposits of $30,479 were transferred in the sale to the new partners. The
additional liabilities of $4,448,573 were assumed by the selling partners.
NOTE C - RELATED PARTY TRANSACTIONS
Management Fee
--------------
The Partnership is required to pay a management fee to Bozzuto Management
Company, an affiliate of Christopher Bozzuto Limited Partnership, a general
partner, in an amount equal to 3.5% of gross receipts collected. Management
fees of $50,288 and $79,485, $77,525, were expensed in 1998, 1997 and 1996,
respectively. At December 31, 1997, $8,830 remained unpaid.
Expenses Incurred and Reimbursed to Affiliates
----------------------------------------------
The Partnership reimburses payroll and other costs incurred by Bozzuto &
Associates, Inc. and Subsidiaries, affiliates of Christopher Bozzuto Limited
Partnership, a general partner, for various administrative and operating
costs relating to the project. During 1998, 1997 and 1996, $186,272,
$236,313, and $224,059, were incurred and paid, respectively.
NOTE D - PARTNERS' EQUITY
The acquisition and development of the project was funded by capital
contributions from NELP, a general partner, in the cumulative amount of
$14,350,000, which consisted of senior and junior capital of $9,327,500 and
$5,022,500, respectively. The Partnership agreement provides for both a
"Senior and Junior Priority Return," on the outstanding capital, on a
monthly basis, which is calculated at the rate of 10.25% per annum on the
outstanding capital. The Priority Returns are payable monthly from Operating
Cash Flow as defined in the Partnership agreement, however, (a) to the
extent the full amount of the Senior Priority Return cannot be made from
such sources on a monthly basis, an amount thereof equal to 10.25% per annum
cumulative return on the Senior Invested Capital may accrue, and such
accruals shall bear an interest at the rate of 10.25%.
-9-
<PAGE>
Bayberry Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
August 6, 1998 and December 31, 1997
NOTE D - PARTNERS' EQUITY (Continued)
per annum compounded monthly and (b) to the extent the full amount of the
Junior Priority Return cannot be made from such sources on a monthly basis,
the amount of the Junior Priority Return may accrue and such accruals shall
bear interest at the rate of 10.25% per annum compounded monthly. To the
extent the Senior Priority Return is required to be paid currently (and may
not be accrued), it will be funded, if necessary, out of the proceeds of
Deficit Contribu tions and Default Capital Contributions. These Deficit
Contributions and Default Capital Contributions accrue a return (Deficit
Preferred Return) equal to the greater of NationsBank's prime rate plus 2%
(10.25% at August 6, 1998) or 10.25% per annum. As of August 6, 1998 and
December 31, 1997, NELP and Christopher Bozzuto Limited Partnership had made
deficit capital contributions in the amounts of $225,956 and $122,500,
respectively.
At August 6, 1998 and December 31, 1997, the accrued Junior Priority Return
(including accrued interest of $1,622,839 and $1,372,467, respectively) due
totaled $4,210,068 and $4,011,869. The Senior Priority Return was paid in
full on an annual basis. The accrued Deficit Preferred Return payable to
NELP and CBLP at August 6, 1998, was $238,505 and $- 0 -, respectively, and
at December 31, 1997, was $215,034 and $152,981, respectively. On August 6,
1998, the accrued deficit preferred return payable to CBLP in the amount of
$169,881 was converted to capital. Effective August 7, 1998, the Partnership
is no longer subject to this agreement.
Subsequent to the financial statement date and in connection with the August
6, 1998, sale of its partnership interest, NELP received $16,986,136 out of
the sales proceeds and applied it to the repayment of the following
accounts:
Accrued preferred return $ 2,653,068
Accrued guaranteed payments 1,557,000
Deficit capital contributions 225,956
Deficit preferred return payable 238,505
Return of initial capital contribution 12,311,607
-----------
$ 16,986,136
===========
Additionally, the Partnership distributed the remaining operating proceeds
in the amount of $115,821 to NELP.
-10-
<PAGE>
Bayberry Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
August 6, 1998 and December 31, 1997
NOTE E - RECONCILIATION OF FINANCIAL STATEMENTS TO TAX RETURN
The following is a reconciliation of the excess of revenue over expenses and
partners' equity per the financial statements to the tax basis excess of
revenue over expenses and partners' equity for the period January 1, 1998
through August 6, 1998, and the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Excess of revenue over expenses
(financial statement basis) $ 184,433 $ 348,469 $ 316,834
Deferred rental income (12,304) (655) (103,044)
Real estate tax deduction under IRS
Code Section 461 102,905 5,965 (14,787)
----------- ----------- -----------
Tax basis $ 275,034 $ 353,779 $ 199,003
=========== =========== ===========
Partners' equity (financial statement basis) $ 4,582,922 $ 5,107,116 $ 6,005,447
Deferred rental income -- 12,304 12,959
Real estate tax deduction under IRS Code
Section 461 -- (103,871) (109,836)
Net adjustment for technical termination (4,582,922) -- --
----------- ----------- -----------
Tax basis $ -- $ 5,015,549 $ 5,908,570
=========== =========== ===========
</TABLE>
-11-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
Number Number
- ------ ------
4. Amended and Restated Agreement of Limited Partnership of New
England Life Pension Properties III; A Real Estate Limited
Partnership (filed as Exhibit 28A to Form 8-K dated July 15,
1985, as filed with the Commission on July 16, 1985). *
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. 2-94351 (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. Letter dated June 27, 1985 from Copley Real Estate Advisors,
Inc. on behalf of the Registrant to Norris, Beggs & Simpson,
the Developer. *
10D. Lease dated August 29, 1985 by and between the Registrant and
NBS No. VI, a California Limited Partnership. *
10E. Memorandum of Ground Lease dated as of August 29, 1985 by and
between the Registrant and NBS No. VI, a California Limited
Partnership. *
10F. Promissory Note dated August 29, 1985 in the principal amount
of $2,663,870 from NBS No. VI to the Registrant. *
10G. Deed of Trust and Security Agreement dated as of August 29,
1985 among NBS No. VI, as Grantor, Santa Clara Land Title
Company, as Trustee, and the Registrant, as Beneficiary. *
10H. Loan Agreement dated August 29, 1985 in the amount of
$2,663,870 between NBS No. VI and the Registrant. *
10I. Ground Lease dated as of November 1, 1985 by and between the
Registrant, as Landlord and Vance Charles Mape and Vance
Charles Mape III, as Tenant. *
10J. Construction Loan Agreement dated November 11, 1985 between
Vance Charles Mape and Vance Charles Mape III, and the
Registrant. *
10K. Promissory Note dated November 11, 1985 between Vance Charles
Mape and Vance Charles Mape III and the Registrant. *
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
Number Number
- ------ ------
10L. Deed of Trust, Assignment of Rents and Security Agreement
dated November 11, 1985 by Vance Charles Mape and Vance
Charles Mape III, Trustor, to Ticor Title Insurance Company,
Trustee, for the Registrant, Beneficiary. *
10M. Joint Venture Agreement dated as of January 31, 1986 by and
between the Registrant and Santa Fe Springs Corporate Center
Partnership. *
10N. Promissory Note dated December 30, 1985 in the principal
amount of $4,750,000 by Heritage Green Associates, a Colorado
general partnership to the Registrant. *
10O. Deed of Trust and Security Agreement dated December 30, 1985,
made by Heritage Green Associates for the benefit of the
Registrant. *
10P. Ground Lease dated December 30, 1985, between the Registrant,
Landlord, and Heritage Green Associates, Tenant. *
10Q. First Amended and Restated Limited Partnership Agreement and
First Amended and Restated Certificate of Reston Two - Oxford
Limited Partnership, dated February 1, 1986. *
10R. Loan Agreement dated March 19, 1986 by and between Reston Two
- Oxford Limited Partnership and the Registrant. *
10S. Combination Promissory Note in the amount of $9,000,000, dated
March 19, 1986 given by Reston Two - Oxford Limited
Partnership to the Registrant. *
10T. Credit Line Deed of Trust and Security Agreement dated March
19, 1986 given by Reston Two - Oxford Limited Partnership to
William J. Dorn and William L. Stauffer, Jr., Trustees. *
10U. Second Promissory Note in the amount of $1,500,000 dated March
19, 1986 given by Reston Two - Oxford Limited Partnership to
The Registrant. *
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
Number Number
- ------ ------
10V. Second Credit Line Deed of Trust and Security Agreement dated
March 19, 1986 given by Reston Two - Oxford Limited
Partnership to William J. Dorn and William L. Stauffer, Jr.,
Trustees. *
10W. Webb-Brown Collier Associates Joint Venture Agreement dated
May 23, 1984. *
10X. Ground Lease between the Registrant, as Landlord and
Webb-Brown Collier Associates, dated July 24, 1986. *
10Y. Promissory Note dated July 24, 1986 in the amount of
$13,009,000 from Webb-Brown Collier Associates to the
Registrant. *
10Z. Mortgage and Security Agreement, dated as of July 24, 1986, by
and between Webb-Brown Collier Associates, as Borrower, and
the Registrant, as Lender, in the amount of $13,009,000. *
10AA. General Partnership Agreement of Bayberry Associates dated as
of April 4, 1988 between Christopher Bozzuto Limited
Partnership and the Registrant. *
10BB. Termination of Lease Agreement dated August 1988 involving New
England Life Pension Properties III and Volpey Way Properties. *
10CC. Purchase and Sale Agreement and Escrow Instructions dated July
28, 1988 by and among the Registrant and Volpey Way Properties
(Sellers) and Rlajm Land Co., Inc. (Buyer). *
10DD. MORF Associates III General Partnership Agreement dated as of
January 1, 1988 between M.O.R.F. III Associates Limited
Partnership and the Registrant. *
10EE. First Amendment to Promissory Note dated as of May 1, 1987 by
NBS No. VI in favor of the Registrant. *
10FF. First Amendment to Ground Lease dated as of May 1, 1987
between the Registrant ("Landlord") and NBS No. VI ("Tenant"). *
10GG. Termination of Lease by and between New England Life Pension
Properties III; A Real Estate Limited Partnership ("Landlord")
and Webb Brown Collier Associates ("Tenant"). *
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
Number Number
- ------ ------
10HH. Promissory Note in the principal amount of $469,154 dated
January 31, 1989 by Stan Brown Associates, Inc. in favor of
Webb-Brown Collier Associates. *
10II. Agreement by and between the Registrant and Heritage Green
Associates dated as of January 1,1989. *
10JJ. Bill of Sale dated as of January 1, 1989 by and between
Heritage Green Associates and the Registrant. *
10KK. Termination of Ground Lease dated as of January 1, 1989 by and
between Heritage Green Associates and the Registrant. *
10LL. Assignment and Assumption Agreement (Contracts) dated as of
January 1, 1989 by and between Heritage Green Associates and
the Registrant. *
10MM. Assignment and Assumption Agreement (Leases and Easements)
dated as of January 1, 1989 by and between Heritage Green
Associates and the Registrant. *
10NN. Assignment and Assumption Agreement (Trade Names) dated as of
January 1, 1989 by and between Heritage Green Associates and
the Registrant. *
10OO. Modification Agreement dated as of January 31, 1990 by and
between Reston Two-Oxford Limited Partnership and the
Registrant. *
10PP. Modification Agreement dated as of January 31, 1990 by and
between Reston Two-Oxford Limited Partnership and the
Registrant. *
10QQ. Agreement of Sale made as of December 20, 1991, by and among
the Registrant, as successor-in-interest to Webb-Brown Metro
One Associates and Metro Parkway Investment Limited
Partnership and Josias & Goren, P.A., as escrow agent. *
10RR. First Amendment to Agreement of Sale made as of February 20,
1992, by and among the Registrant, as successor-in-interest to
Webb-Brown Metro One Associates and Metro Parkway Investment
Limited Partnership and Josias & Goren, P.A., as escrow agent. *
10SS. Warranty Deed dated February 20, 1992, between the Registrant
and Metro Parkway Investment Limited Partnership. *
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
Number Number
- ------ ------
10TT. Agreement of Sale made as of December 20, 1991, by and among *
the Registrant, as successor-in- interest to Webb-Brown Metro
One Associates and Metro Parkway Investment Limited
Partnership and Josias & Goren, P.A. as escrow agent.
10UU. Warranty Deed dated February 13, 1992, between the Registrant
and Metro Parkway Investment Limited Partnership. *
10VV. Purchase and Sale Agreement effective November 3, 1993, by and
between the Registrant and Peter L. Rhulen as amended by the
First Amendment to Purchase and Sale Agreement effective
November 26, 1993 and a letter dated December 2, 1993. *
10WW. Assignment of Purchase Agreement dated November 9, 1993, by
Peter L. Rhulen to Heritage Green L. L. C. *
10XX. Special Warranty Deed effective December 17, 1993, by and
between Registrant and Heritage Green, L. L. C. *
10YY. Leasehold Assignment, Transfer and Release Agreement dated as
of August 15, 1994 by and between the Registrant and NBS No.
VI. *
10ZZ. Assignment of Ground Lease and Transfer of Property in Lieu of
Foreclosure dated as of August 25, 1994 by and between the
Registrant and NBS No. VI. *
10AAA. Assignment of Subleases dated as of August 23, 1994 by and
between the Registrant and NBS No. VI. *
27. Financial Data Schedule
*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 III;
A REAL ESTATE LIMITED PARTNERSHIP
Date: March 25, 1999 By: /s/ J. Christopher Meyer, III
------------------------------------
J. Christopher Meyer, III
President of the
Managing 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
--------- ----- ----
President, Chief
Executive Officer and
/s/ J. Christopher Meyer, III Director March 25, 1999
- ---------------------------------
J. Christopher Meyer, III
Vice President and
/s/ Pamela J. Herbst Director March 25, 1999
- ---------------------------------
Pamela J. Herbst
Vice President and
/s/ J. Grant Monahon Director March 25, 1999
- ---------------------------------
J. Grant Monahon
/s/ James J. Finnegan Vice President March 25, 1999
- ---------------------------------
James J. Finnegan
/s/ Karin J. Lagerlund Treasurer and Principal
- --------------------------------- Financial and Accounting
Karin J. Lagerlund Officer March 25, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,952,504
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,952,504
<PP&E> 7,353,639
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,306,143
<CURRENT-LIABILITIES> 109,886
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,196,257
<TOTAL-LIABILITY-AND-EQUITY> 9,306,143
<SALES> 1,913,614
<TOTAL-REVENUES> 8,472,836
<CGS> 295,874
<TOTAL-COSTS> 295,874
<OTHER-EXPENSES> 650,599
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,526,363
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,526,363
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,526,363
<EPS-PRIMARY> 108.91
<EPS-DILUTED> 108.91
</TABLE>
