UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
For Quarter Ended Commission File Number
March 31, 1997 0-15532
MLH INCOME REALTY PARTNERSHIP VI
(Exact name of registrant as specified in its governing instrument)
New York 13-3272339
(State of Organization) (I.R.S. Employer Identification No.)
World Financial Center, South Tower
225 Liberty Street, New York, New York 10080-6112
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (800) 288-3694.
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 __.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets, March 31, 1997 and November 30, 1996.
Consolidated Statements of Operations for the Three Months Ended March 31, 1997
and February 29, 1996
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1997 and February 29, 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
<PAGE>
<TABLE>
<CAPTION>
MLH INCOME REALTY PARTNERSHIP VI
AND CONSOLIDATED JOINT VENTURES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<S> <C> <C>
(Unaudited)
March 31, 1997 November 30, 1996
--------------- ---------------
ASSETS:
REAL ESTATE INVESTMENTS HELD FOR SALE (Note 1):
Land $ 26,716 $ 26,716
Other real estate assets 6,199 5,841
--------------- ---------------
Total real estate investments 32,915 32,557
--------------- ---------------
OTHER ASSETS:
Cash and equivalents (Note 1) 8,310 9,083
Interest and other receivables, net of allowances
of $1,851 in 1997 and $1,600 in 1996 20 101
Prepaid expenses and other -- 4
--------------- ---------------
Total other assets 8,330 9,188
--------------- ---------------
TOTAL $ 41,245 $ 41,745
=============== ===============
LIABILITIES:
Accounts payable and accrued expenses $ 366 $ 319
Other liabilities 573 628
--------------- ---------------
Total liabilities 939 947
--------------- ---------------
PARTNERS' CAPITAL:
General Partners:
Capital contributions 25 25
Cumulative income 20,405 20,405
Cumulative distributions (20,430) (20,430)
--------------- ---------------
- -
--------------- ---------------
Limited Partners (322,275 Units):
Capital contributions, net of offering expenses 294,968 294,968
Cumulative income 104,619 105,111
Cumulative distributions (359,281) (359,281)
--------------- ---------------
40,306 40,798
--------------- ---------------
Total Partners' Capital 40,306 40,798
--------------- ---------------
TOTAL $ 41,245 $ 41,745
=============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
MLH INCOME REALTY PARTNERSHIP VI
AND CONSOLIDATED JOINT VENTURES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Unit Data)
(Unaudited)
<S> <C> <C>
For the Three Months Ended
----------------------------------------
March 31, 1997 February 29, 1996
-------------- -----------------
OPERATING REVENUES:
Rental $ 33 $ 1,174
Interest 82 852
Gains on sales of real estate
investments (Note 3) 0 1,382
--------------- ---------------
Total operating revenues 115 3,408
--------------- ---------------
OPERATING EXPENSES:
Property operating 453 822
Depreciation 0 288
General and administrative 118 247
Provision for loss on sale of
real estate investment (Note 3) 0 430
--------------- ---------------
Total operating expenses 571 1,787
--------------- ---------------
INCOME (LOSS) FROM OPERATIONS (456) 1,621
MINORITY INTEREST IN CONSOLIDATED
JOINT VENTURE'S OPERATIONS 0 1
--------------- ---------------
NET INCOME (LOSS) $ (456) $ 1,622
=============== ===============
NET INCOME (LOSS) ALLOCATED TO GENERAL PARTNERS $ 0 $ 66
=============== ===============
NET INCOME (LOSS) ALLOCATED TO LIMITED PARTNERS $ (456) $ 1,556
=============== ===============
NET INCOME (LOSS) PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ (1.41) $ 4.83
=============== ===============
UNITS OF LIMITED PARTNERSHIP INTEREST 322,275 322,275
=============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
MLH INCOME REALTY PARTNERSHIP VI
AND CONSOLIDATED JOINT VENTURES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<S> <C> <C>
For the Three Months Ended
------------------------------------
March 31, 1997 February 29, 1996
-------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $ (456) $ 1,622
Items reconciling net income(loss) to net cash
provided by operating activities:
Gains on sales of real estate investments (Note 3) -- (1,382)
Provision for loss on sale of real estate
investment (Note 3) -- 430
Depreciation -- 288
Minority interest in consolidated
joint venture's operations -- (1)
Distributions of earnings to venture partner
in consolidated joint venture -- (85)
Bad Debt Expense 258 97
Changes in operating assets and liabilities:
Interest and other receivables (264) 1,166
Accounts payable and accrued expenses 196 103
Other assets and other liabilities, net 3 163
-------------- ---------------
Net cash provided by (used in) operating activities (263) 2,401
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of real estate investments,
net of selling expenses (Note 3) -- 32,426
Property improvements (348) (1,722)
Maturities of marketable debt securities -- 54,604
Purchases of marketable debt securities -- (26,343)
-------------- ---------------
Net cash provided by (used in) investing activities (348) 58,965
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to partners -- (89,571)
-------------- ---------------
Net cash used in financing activities -- (89,571)
-------------- ---------------
NET DECREASE IN CASH AND EQUIVALENTS (611) (28,205)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 8,921 46,253
-------------- ---------------
CASH AND EQUIVALENTS, END OF PERIOD $ 8,310 $ 18,048
============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
MLH INCOME REALTY PARTNERSHIP VI
AND CONSOLIDATED JOINT VENTURES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
MLH Income Realty Partnership VI (the "Partnership") was formed under the
New York Uniform Limited Partnership Act on December 4, 1984. The Partnership
made equity investments in nineteen income-producing properties located
throughout the United States. All but one real estate investment has been sold.
The Partnership's last remaining real estate investment was formerly known as
Treasure Island, a mobile home property (the "property"). Existing zoning
permits use of the property only as a mobile home property; however, the
Managing General Partner believes that changing the use of the property may
maximize its value if appropriate zoning and land use entitlements can be
obtained. Although the property was officially closed as a mobile home park on
March 15, 1996, certain tenants remain in residence and are involved in a rent
strike. Treasure Island Associates, the joint venture between the Partnership
and an unaffiliated entity through which the Partnership owns an interest in the
property, is involved in several lawsuits concerning the closing of the property
as a mobile home park and the level of compensation to be paid to certain
tenants when they vacate the property (see Note 4 for a discussion of local
legislation, administrative requirements and litigation affecting the potential
disposition and value of the property). Although the Managing General Partner is
making every effort to resolve these issues as quickly as possible, at this time
it cannot determine how successful it will be, how long it will take, or at what
point this property can most effectively be marketed for sale.
The financial statements reflect all adjustments which are, in the opinion
of management, necessary for a fair presentation of the financial condition and
results of operations for the periods presented. Such adjustments were of a
normal, recurring nature. Footnote disclosure which substantially duplicates the
disclosure contained in the Partnership's Annual Report on Form 10-K for the
year ended November 30, 1996, which is hereby incorporated by reference, has
been omitted.
Cash Equivalents and Marketable Debt Securities
The Partnership classifies its investments in debt securities, including
those considered to be cash equivalents, as securities held-to-maturity and
carries them at amortized cost on the accompanying consolidated balance sheet.
The purchase cost of such securities is included in either "cash and
equivalents" or "marketable debt securities". All such securities mature within
one year, and any unrealized gains or losses on these securities for the three
months ended March 31, 1997 are immaterial.
2. CHANGE IN FISCAL YEAR
Effective January 1, 1997, the Partnership changed its fiscal year from a
twelve month period ending November 30 to a twelve month period ending December
31. The first such fiscal year began on January 1, 1997 and will end on December
31, 1997. The following is condensed information regarding the consolidated
results of operations and cash flows for the 31 day transition period of
December 1, 1996 through December 31, 1996 (dollars in thousands):
Condensed Consolidated Statement of Operations:
Operating revenues............................... $ 87
Operating expenses............................... (123)
------
Net loss......................................... $ (36)
======
Net loss per Unit of Limited Partnership interest $(0.11)
======
Condensed Consolidated Statement of Cash Flows:
Net loss......................................... $ (36)
Changes in operating assets and liabilities...... (116)
------
Net cash used in operating activities............ (152)
Net cash used in investing activities............ (10)
------
Net Decrease in cash and equivalents............. (162)
Cash and equivalents, beginning of period........ 9,083
------
Cash and equivalents, end of period.............. $8,921
======
<PAGE>
3. SALES OF REAL ESTATE INVESTMENTS
During the three months ended February 29, 1996, the Partnership sold four
real estate investments: Santa Paula Shopping Center ("Santa Paula"), Lompoc
Shopping Center ("Lompoc"), The Macy's Building and its ground lease interest in
1801 Century property East (the "1801 Land"). The sale of The Macy's Building
resulted in a gain to the Partnership of approximately $1.3 million, while no
gain or loss was recorded for the sale of the 1801 Land. For Santa Paula and
Lompoc, the Partnership had previously recorded provisions for the anticipated
loss on their sale totalling $11.7 million. A gain of $27,000 was recognized at
the time of their fiscal 1996 sale to adjust the provisions to the final loss
amount. These four sales resulted in net sales proceeds totalling approximately
$32.4 million, prior to the payment of the General Partners' 2% carried
interest. A fifth real estate investment, Fullerton Business Center South
("Fullerton"), was sold in March 1996. For Fullerton, the Partnership had
previously recorded provisions for the anticipated loss on its sale totalling
$7.8 million. A further provision of $430,000 was recognized as of February 29,
1996 to adjust the provision to the final March 1996 loss amount.
4. LITIGATION
Treasure Island Associates Litigation
The Partnership owns a joint venture partnership interest in the property
formerly known as Treasure Island, a mobile home community located in Laguna
Beach, California. The property was purchased by Treasure Island Associates
("TIA"), a joint venture partnership between the Partnership and an unaffiliated
entity, on August 1, 1989. In October 1991, the City of Laguna Beach (the
"City") enacted an ordinance (the "Ordinance") which requires mobile home
property owners to apply for a conditional use permit ("CUP") prior to a closure
of a mobile home property. The Ordinance provides, in part, that a closure is
deemed to have occurred whenever fewer than 75% of the spaces in a property
contain coaches owned by tenants unrelated to the property owner. The stated
purpose of the Ordinance was to allow the City to require mitigation of any
adverse impacts caused by a closure.
TIA has been purchasing mobile home coaches at this property and, in May
1992, reached the threshold described in the Ordinance and applied for a CUP.
On February 15, 1994, the Laguna Beach City Council adopted a resolution
(the "Resolution") approving the CUP and adopting findings that Treasure Island
was deemed to have closed on May 1, 1992, and that such closure adversely
impacted tenants. To mitigate the impact, the CUP, as adopted, required TIA to
do one of the following: (i) guarantee each tenant a 10-year right of occupancy
in the property; (ii) if the tenant agrees, relocate each tenant to a comparable
mobile home property; or (iii) pay each tenant the in-place value of a
comparable coach in a comparable coastal mobile home property. The CUP also
required TIA to pay the City approximately $2,856,000 to mitigate the loss of
affordable housing opportunities represented by Treasure Island.
Due to the lack of replacement spaces in other propertys in the region, TIA
had originally estimated that the CUP may require up to $23 million in payments
to tenants. The CUP also purported to give tenants a right of action against TIA
for the benefits due them under the CUP if TIA failed to timely pay these
amounts.
On March 24, 1994, TIA filed a lawsuit in the California Superior Court for
the County of Orange (the "Court") against the City to have certain conditions
of the CUP declared void. TIA believes that the requirements contained in the
CUP violate California law and constitute a taking of TIA's property in
violation of the California and United States Constitutions. TIA filed the
lawsuit in order to pursue vigorously its legal rights and remedies.
On March 24, 1994, TIA obtained a temporary restraining order, and on May
5, 1994 a preliminary injunction, prohibiting the City from enforcing the CUP
until the Court made a final ruling. On October 4, 1994, the Court rendered its
tentative decision, ordering issuance of a writ of mandate and remanding the
Resolution to the City for further proceedings consistent with the decision. The
Court agreed with TIA that non-resident coach owners are not entitled to
mitigation benefits under California law; however, the Court concluded that the
mitigation benefits imposed by the City were not illegal if limited to resident
owners who would be displaced by closure of the property.
On November 15, 1994, the City adopted an amended resolution ("Amended
Resolution") effectively complying with the tentative decision. On December 21,
1994, the Court filed its final decision and order issuing a writ of mandate,
which invalidated a provision of the CUP requiring binding arbitration but
otherwise confirmed the tentative decision. Thereafter, the Court ordered
dissolution of the preliminary injunction effective February 1, 1995. The
tenants have appealed from the final judgment in the case. TIA filed a
cross-appeal and has moved for a dismissal of the appeal and to vacate the
judgment.
<PAGE>
TIA filed a second lawsuit with the Court on February 14, 1995 in order to
preserve TIA's right to challenge the validity of the mitigation measures
re-imposed by the Amended Resolution. TIA continues to believe that the
mitigation measures imposed by the City, even when limited to resident owners
only, violate California statutory law and the California and United States
Constitutions. As in the first lawsuit, the Treasure Island Residents and Owners
Association ("TIROA") sought leave to intervene in the second lawsuit. TIA did
not oppose this request, which was granted on June 13, 1995.
After filing its second action, TIA entered into an agreement with the City
to stay further proceedings in order to pursue settlement negotiations among
TIA, the City and TIROA. The parties were unable to reach agreement and, on May
2, 1995, the City adopted a second amended resolution (the "Second Amended
Resolution") reducing substantially the total amount of relocation benefits
potentially payable to residents.
In or about April 1995, 58 tenants began withholding rent, in addition to
four tenants who earlier began withholding rent, claiming they were owed
relocation benefits under the Amended Resolution. TIA initiated unlawful
detainer actions against these tenants in the South Orange County Municipal
Court to obtain possession of its property. Prior to trial of these actions, TIA
had given notice that all tenancies in Treasure Island would terminate March 15,
1996 based upon TIA's CUP closing the property and payment of relocation
benefits. On March 15, 1996, these tenants, in addition to approximately seven
tenants who rented mobile homes from TIA ("renter tenants"), refused to vacate
the premises. Pursuant to a motion for summary judgment, two tenants had
judgments entered against them, have been evicted. Six of the renter tenant
cases were tried to a jury, and a verdict returned in favor of TIA against all
six renter tenants, who have now been evicted. TIA, in or about mid and late
March, 1996, initiated a second series of unlawful detainer actions against the
remaining tenants based upon property closure. All unlawful detainer actions
were consolidated and transferred to the Superior Court, Complex Litigation
Panel. The Superior Court entered judgment for possession in favor of TIA
against all remaining tenants, based on property closure. The Court permitted
the tenants to stay until August 1997, provided they pay rent, to allow time to
vacate. Trial is set for June 9, 1997 on TIA's damage claims against these
tenants.
On May 26, 1995, TIROA commenced an action alleging that the City Council's
attempt to reduce relocation benefits in the Second Amended Resolution was
illegal and therefore invalid. Alternatively, TIROA challenged the validity of
the Second Amended Resolution on environmental and other grounds. The Court
rejected TIROA's challenge and upheld the Second Amended Resolution, entering
judgment against TIROA. TIROA has appealed.
On June 16, 1995, 73 plaintiffs filed an action in the United States
District Court for the Central District of California alleging violations of the
antitrust provisions of the Sherman and Clayton Acts and seeking damages in the
estimated amount of $15 million dollars and injunctive relief. The allegations
of this complaint are virtually identical to those of the Orange County Superior
Court action discussed above. TIA's motion to dismiss was granted, and judgment
was entered in TIA's favor. The plaintiffs have appealed.
A separate action was also filed on June 16, 1995 in the Court on behalf of
the same 73 individually named tenants of the property alleging causes of action
for breach of implied covenant of good faith and fair dealing, unlawful
discrimination, breach of covenant of quiet enjoyment and/or constructive
eviction, violation of state antitrust law, and unlawful, unfair and fraudulent
business practices and declaratory relief. The complaint seeks damages and
injunctive relief for alleged wrongful conduct in a series of actions relating
to property closure and evictions of delinquent tenants. On August 22, 1995,
TIA's demurrer was sustained in part and overruled in part. Plaintiffs filed
their First Amended Complaint on September 6, 1995. TIA answered and initiated
discovery.
On March 26, 1996, Mr. K.P. Rice and 100 other tenants, including virtually
all 73 tenants who filed suit on June 16, 1995, filed a new action against TIA
in Superior Court alleging claims for declaratory relief, damages, damages for
statutory violations, and unlawful, unfair or fraudulent business practices. TIA
filed a timely demurrer to this new complaint. The Court ordered the tenants to
file a single amended complaint consolidating the claims in this action with the
claims the tenants assert in their June 16, 1995 suit. TIA filed a demurrer to
the amended complaint. The demurrer was heard on April 15, 1997. The Court
ordered the plaintiffs to file an amended, single complaint combining the
allegations of the damage suits (the action by the 73 tenants and the action by
the 101 tenants). TIA then demurred to that amended complaint. The Court
sustained the demurrer without leave to amend as to most claims in the amended
compliant, and struck the claim for punitive damages. Three causes of action
remain. TIA is conducting discovery in those claims. No trial date has been set.
<PAGE>
The aforementioned suits which remain pending have been consolidated under
a single action number in Superior Court. However, it is anticipated that the
Court will continue to sever or otherwise order the proceedings as appropriate
for the efficient administration of the claims.
Since June 13, 1995, TIA has executed settlement agreements with 83 tenants
out of a total of approximately 160 remaining tenants under which the settling
tenants released TIA from all claims in consideration of cash payments and/or up
to one year free rent. Also, those tenants agreed to vacate the property under
the terms of their settlement with TIA on or before June 11, 1996. By the end of
April 1997, all but two of the tenants who signed settlement agreements are
expected to vacate the property. The two remaining tenants, who are employees of
the managing agent, will vacate when their employment terminates.
The settlement agreements executed with tenants to date require the payment
of a total of approximately $2,400,000, most of which has been paid. At this
point in time, TIA is unable to quantify the total amount of any further
settlements which may be executed with the remaining tenants.
On September 1, 1995, TIA served a statutory notice of closure identifying
March 15, 1996 as the formal closure date. On February 6, 1996, TIA mailed
checks to all such tenants in an amount not to exceed $20,000 per tenant in
accordance with the Second Amended Resolution.
As of September 1, 1995, TIA executed a settlement agreement with the City
which settled all lawsuits filed by TIA against the City concerning the closure
of the mobile home property. Under the settlement agreement, TIA agreed to (i)
deliver a letter of credit to the City in the amount of $1,287,990 to secure
TIA's obligations under settlement agreements with residents (described in the
preceding paragraph), and (ii) pay an additional sum of approximately $1,000,000
to the City to mitigate the adverse impacts to the City's supply of low to
moderate income housing, $500,000 of which was paid in September 1995, with the
balance to be paid at a future date. According to the agreement of the City and
TIA, the letter of credit expired on June 30, 1996 and was not renewed.
TIA intends to capitalize the cost of all of the above settlements as part
of its investment in the property related to any redevelopment efforts.
On June 10, 1996, another action was filed against TIA by one individual,
David B. Mautner. Mr. Mautner claims to have been improperly denied relocation
benefits allegedly owed to him under the resolutions. In a statement of damages,
he seeks special damages of $40,000, general damages of $100,000 and punitive
damages of $200,000. Mr. Mautner's case has been consolidated with the damage
cases filed by the other tenants.
In February of 1996, the Partnership submitted an application to the City
of Laguna Beach for the redevelopment of Treasure Island. The initial
application included a combination of detached single-family residences,
multi-family housing and resort hotel complex including meeting rooms and
restaurants. After receiving input on the proposal from community groups in the
City of Laguna Beach, from the City Planning Staff and from various City Council
members and Planing Commissioners, the application was suspended on July 30,
1996 and a revised application was submitted in March, 1997. The revised
application continues to include a hotel resort component along with a
residential component with reduced density and intensity of use. TIA is
continuing to process entitlements and expects to participate in hearings before
the City Planning Commission in the third and fourth quarter of calendar year
1997 and to further participate in hearings before the City Council and the
California Coastal Commission during calendar year 1998.
<PAGE>
Partnership Litigation
On November 29, 1995, December 15, 1995, December 22, 1995, and February 6,
1996, certain putative class actions were filed purportedly on behalf of, among
others, all persons who purchased limited partnership interests in the
Partnership. Pursuant to an order of the United States District Court for the
Southern District of New York dated February 25, 1996, these actions have been
consolidated in that Court for pre-trial purposes under the caption In re
Merrill Lynch Limited Partnerships Litigation (the "New York Consolidated
Action"). Pursuant to that order, on March 29, 1996 the plaintiffs filed a First
Consolidated Amended Class Action Complaint (the "Amended Complaint"), which
superseded the allegations in the complaints mentioned above. In addition to
investors of the Partnership, the Amended Complaint was filed purportedly on
behalf of all persons who purchased limited partnership interests in certain
other limited partnerships formed by affiliates of the Managing General Partner
and for which the Managing General Partner has acted or acts as a general
partner, and certain other limited partnerships for whom Merrill Lynch, Pierce
Fenner & Smith Incorporated ("MLPF&S") acted as selling agent (all such
partnerships other than the Partnership are hereinafter referred to as the
"Other Partnerships"), against MLH property Managers Inc. and MLH Realprop
Associates VI L.P. (the "General Partners"), certain affiliates of the General
Partners, Merrill Lynch & Co., Inc. ("ML & Co."), MLPF&S, Merrill Lynch, Hubbard
Inc. ("MLH"), and certain direct or indirect subsidiaries and/or affiliates of
ML & Co., as defendants (collectively, the "Defendants 1"). The Partnership and
certain of the Other Partnerships were originally named as defendants in certain
of the actions, but those partnerships were not named in the Amended Complaint
with the understanding that the time for bringing such claims against those
partnerships would be tolled. Plaintiffs' complaint alleges that the Defendants
1 (i) violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"),
(ii) engaged in fraud and negligent misrepresentation in connection with the
sale of limited partnership interests in the Partnership and the Other
Partnerships, (iii) breached their fiduciary duties, and (iv) breached their
contracts or tortiously interfered with express or implied contracts and
covenants. The action seeks compensatory, consequential, treble, general and
punitive damages, disgorgement and restitution, the costs and expenses incurred
in connection with the action, reasonable attorneys' fees, and such other and
further relief as the Court may deem just and proper. On July 17, 1996, the
court endorsed a stipulation and order which provides for (a) the dismissal
without prejudice of claims relating to the Other Partnerships; (b) the
certification of a plaintiff class as to certain of the claims alleged in the
Amended Complaint; and (c) the filing of a supplemental pleading in the action
adding claims under the New Jersey Securities Fraud statute and the New Jersey
Criminal Justice Act of 1970. On September 27, 1996, the Partnership and other
defendants moved to dismiss the Amended Complaint pursuant to Federal Rules of
Civil Procedure 12(b)(6) and 9(b), on the grounds, among others, that the claims
contained in the Amended Complaint were barred by the statute of limitations. At
a hearing held on October 15, 1996, the Court granted plaintiffs until January
17, 1997 to file a second consolidated amended class action complaint ("Second
Amended Complaint") and held that Defendants 1's motion would be deemed
withdrawn. Plaintiffs filed their Second amended Complaint on January 17, 1997.
Defendants 1 moved to dismiss the Second amended Complaint on February 17, 1997.
Plaintiffs filed their opposition to the motion for summary judgment on March
28, 1997. Defendants 1 filed their reply papers on April 25, 1997. Defendants 1
intend to contest Plaintiffs' claims vigorously. The Partnership may be
obligated to indemnify certain of the Defendants 1 for loss, liability, claim,
damage and expense subject to the terms and conditions of the indemnity
provisions of the Agency Agreement dated March 5, 1986 among the Partnership,
its General Partners and MLPF&S. The outcome of this action is not determinable
at this time.
<PAGE>
On January 22, 1996, a putative class action was filed in the Superior
Court of New Jersey, Essex County, purportedly on behalf of all persons who
purchased limited partnership interests in the Partnership and other limited
partnerships formed by affiliates of the Managing General Partner and for which
the Managing General Partner has acted or acts as a general partner. As amended,
the complaint names MLH, MLPF&S, ML & Co., Merrill Lynch Realty, Inc., certain
past and present employees of MLH, the Partnership and certain other limited
partnerships for which MLPF&S acted as selling agent (collectively, the
"Defendants 2") as defendants. The complaint alleges (i) common law fraud and
deceit, (ii) equitable fraud, (iii) negligent misrepresentation, (iv) breach of
fiduciary duty, (v) breach of implied covenant of good faith and fair dealing,
(vi) violation of the New Jersey Securities Fraud statute; and (vii) violation
of the New Jersey Criminal Justice Act of 1970; allegedly as a result of
material misrepresentations and omissions of fact in connection with the sale of
limited partnership interests in the Partnership and such other limited
partnerships, the subsequent concealment of the fraud alleged, and the alleged
conduct of the Defendants 2 in the management and operation of the Partnership
and such other limited partnerships. The action seeks (i) unspecified damages
including compensatory, general, consequential, treble, incidental, punitive,
and exemplary damages, (ii) disgorgement and restitution of earnings, profits,
compensation and benefits received by Defendants 2, (iii) interest, (iv) costs
including attorneys', accountants' and experts' fees, and (v) such other relief
as the Court deems just and proper. Defendants 2 believe that they possess
meritorious defenses to the claims in this action, and intend to contest such
claims vigorously. On or about March 25, 1996, Defendants 2 moved to dismiss or
stay this action in favor of the New York Consolidated Action, and on June 24,
1996, the Court ordered the action stayed until August 9, 1996. On August 9,
1996, the Court orally ruled that the action would be dismissed in favor of the
New York Consolidated Action. The Court signed a written order of dismissal on
August 26, 1996. The Partnership may be obligated to indemnify certain of the
Defendants 2 for loss, liability, claim, damage and expense subject to the terms
and conditions of the indemnity provisions of the Agency Agreement dated March
5, 1986 among the Partnership, its General Partners and MLPF&S. The outcome of
this action is not determinable at this time.
On or about February 6, 1996, a putative class action was filed in the
Circuit Court for Baltimore City, Maryland and on February 13, 1996, an amended
complaint was filed, purportedly on behalf of all persons who purchased
unspecified limited partnership interests, which may include interests in the
Partnership, against ML & Co., MLPF&S, and a limited partnership for which
MLPF&S acted as selling agent, as defendants (collectively, the "Defendants 3").
The amended complaint alleges that the Defendants 3 (i) made material
misrepresentations and omitted material information in the offering of interests
in the specified limited partnership and other unspecified limited partnerships;
(ii) breached their fiduciary duties; (iii) were unjustly enriched; and (iv)
converted the personal property of the plaintiff and other putative class
members. The action seeks (i) unspecified compensatory and punitive damages;
(ii) equitable and injunctive relief, including disgorgement of gain, a
constructive trust on all fees, discounts and commissions, impounding or
attachment of ill-gotten moneys, freezing of assets, and restitution; (iii)
reasonable attorneys' fees, costs and expenses incurred in connection with the
action; (iv) pre- and post-judgment interest; and (v) such other and further
relief as the court may deem necessary or appropriate. Defendants 3 believe that
they possess meritorious defenses to the claims in the action, and intend to
contest such claims vigorously. The Partnership may be obligated to indemnify
certain of the Defendants 3 for loss, liability, claim, damage and expense
subject to the terms and conditions of the indemnity provisions of the Agency
Agreement dated March 5, 1986 among the Partnership, its General Partners and
MLPF&S. By stipulation the parties to the action have agreed to stay this matter
pending further proceedings in the New York Consolidated Action. The outcome of
this action is not determinable at this time.
On May 9, 1996, a putative class action was filed in the Supreme Court of
the State of New York, County of New York, purportedly on behalf of all persons
who purchased limited partnership interests in the Partnership and certain other
limited partnerships formed by affiliates of the Managing General Partner,
against ML & Co., MLPF&S, the General Partners, and certain affiliates of MLH,
as defendants (collectively, the "Defendants 4"). The complaint alleges (i)
fraud; (ii) negligent misrepresentation; (iii) breach of fiduciary duty; (iv)
breach of third party beneficiary contract; and (v) breach of implied covenant.
The action seeks (i) an order certifying the proposed Class; (ii) compensatory
damages; (iii) consequential damages; (iv) general damages; (v) punitive
damages; (vi) disgorgement and restitution; (vii) costs and disbursements;
(viii) reasonable attorneys' fees; and (ix) such other and further relief as the
Court may deem just and proper. On May 29, 1996, the parties entered into a
stipulation to dismiss the action without prejudice, based on the existence of
the New York Consolidated Action. Based on that stipulation, Defendants 4 moved
for an order dismissing the action without prejudice. On or about July 9, 1996,
the Court entered an order dismissing the action without prejudice.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The Partnership's last remaining real estate investment property was
formerly known as Treasure Island, a mobile home property (the "property").
Existing zoning permits use of the property only as a mobile home property;
however, the Managing General Partner believes that changing the use of the
property may maximize its value if appropriate zoning and land use entitlements
can be obtained. Although the property was officially closed as a mobile home
park on March 15, 1996, certain tenants remain in residence and are involved in
a rent strike. Treasure Island Associates, the joint venture between the
Partnership and an unaffiliated entity through which the Partnership owns an
interest in the property, is involved in several lawsuits concerning the closing
of the property as a mobile home park and the level of compensation to be paid
to certain tenants when they vacate the property (see Part II, Item 1, Legal
Proceedings for a discussion of local legislation, administrative requirements
and litigation affecting the potential disposition and value of the property).
Although the Managing General Partner is making every effort to resolve these
issues as quickly as possible, at this time it cannot determine how successful
it will be, how long it will take, or at what point the property can most
effectively be marketed for sale.
At March 31, 1997, the Partnership and its consolidated joint venture had
cash and equivalents of approximately $8.3 million. Such funds are expected to
be utilized for reserve requirements, redevelopment of the property, working
capital requirements and, to the extent available, cash distributions to the
Partners. In total, cash and equivalents and marketable debt securities
decreased $773,000 from November 30, 1996 to March 31, 1997 primarily due to
disbursements for certain costs related to the redevelopment of the property.
Cash used in operating activities primarily resulted from the Partnership's
operating loss as well as from disbursements for redevelopment costs of the
property, net of interest income earned on the Partnership's portfolio of cash
equivalents. Cash flows from operating activities decreased from 1996 to 1997
primarily due to the fiscal 1996 sales of various real estate investments.
Cash provided by investing activities includes the receipt of proceeds from
the sales of real estate investments during the first quarter of fiscal 1996
totalling $32.4 million. Cash flows from investing activities are also affected
by increases and decreases in the Partnership's portfolio of marketable debt
securities. Excess funds are moved between cash and equivalents and longer term
marketable debt securities depending on the Partnership's liquidity needs and
the relative yields on each type of investment. Additionally, such cash flows
are affected by disbursements for the redevelopment of the property.
Cash flows from financing activities relate entirely to distributions paid
to the Partners. Distributions of distributable cash and/or proceeds from the
sale of properties, if any, are made semi-annually on or before the last day of
the third month following the end of the six month period. Thus, distributions
relating to the second half of each year are paid in the first half of the
subsequent year. Distributions paid in the first quarter of fiscal 1996 included
$83.7 million ($259.60 per Unit paid in December 1995) relating to proceeds from
sales of four real estate investments in the second half of fiscal 1995 plus
$5.9 million ($16.53 per Unit paid in January 1996) of distributable cash
related to the second half of fiscal 1995.
<PAGE>
Cumulative Limited Partners' distributions paid through November 30, 1996
have been allocated to the Limited Partners based upon the dates they became
Unit Holders and are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Percentage
Return of
Cumulative Original
Date Became Cumulative Distributions Capital
Unit Holder Units Distributions Per Unit Contribution
- - -----------------------------------------------------------------------------------------------------
June 6, 1986 204,786 $229,684,000 $1,121.58 112%
August 7, 1986 64,730 72,050,000 1,113.08 111%
November 25, 1986 25,200 27,670,000 1,098.01 110%
January 20, 1987 7,477 8,153,000 1,090.41 109%
March 11, 1987 15,500 16,795,000 1,083.56 108%
April 23, 1987 253 272,000 1,077.67 108%
May 7, 1987 4,329 4,657,000 1,075.75 108%
</TABLE>
Such cumulative Limited Partners' distributions included sales proceeds and
related interest totalling $211,670,000, or $656.80 per Unit. For income tax
purposes all cash distributions are a tax-free return of capital until the cash
received exceeds the tax basis of his/her partnership investment. Taxable income
or losses of the Partnership are passed through to the Partners for inclusion in
their respective tax returns, as reflected on the Federal Schedules K-1
distributed to the Partners each year.
Considering reserve requirements for the costs associated with the
redevelopment and eventual sale of the property, the Partnership's last property
(which currently does not generate cash flows from operations), the Partnership
does not expect to make future cash distributions to Limited Partners until the
sale of this last property. Distributions of future sales proceeds will be made
in accordance with the Partnership's Amended and Restated Agreement of Limited
Partnership. Buyers and sellers of Units will receive such distributions in
accordance with the terms of the Partnership's transfer documents. The level and
timing of distributions of sales proceeds will be dependent on the timing of the
future sale of the remaining property and the ultimate sale price achieved, as
well as on reserve requirements.
Change in Fiscal Year
Effective January 1, 1997, the Partnership changed its fiscal year from a
twelve month period ending November 30 to a twelve month period ending December
31. During the 31 day transition period of December 1, 1996 through December 31,
1996 the Partnership incurred a net loss of approximately $36,000, which
reflects the net operations of the property and general and administrative
expenses of the Partnership, net of interest earned on the Partnership's
securities investments. The $162,000 decrease in cash and cash equivalents
primarily resulted from the operating loss as well as from disbursements for
redevelopment costs of the property.
Results of Operations
Fluctuations in the Partnership's operating results for the three months
ended March 31, 1997, as compared to the three months ended February 29, 1996,
are primarily attributable to the following:
The Partnership's interests in four real estate investments were sold
during the first quarter of fiscal 1996. The sale of The Macy's Building
resulted in a gain to the Partnership of approximately $1.3 million, while no
gain or loss was recorded for the sale of the ground lease interest in 1801
Century property East. For Santa Paula Shopping Center ("Santa Paula") and
Lompoc Shopping Center ("Lompoc"), the Partnership had recorded provisions for
the anticipated losses on their sales totalling $11.7. A gain of $27,000 was
recognized at the time of their fiscal 1996 sale to adjust the provisions to the
final loss amount. A fifth real estate investment, Fullerton Business Center
South ("Fullerton"), was sold in March 1996. For Fullerton, the Partnership had
recorded provisions for the anticipated loss on its sale totalling $7.8. A
further provision of $430,000 was recognized as of February 29, 1996 to adjust
the provision to the final March 1996 loss amount.
The decreases in rental income, property operating expenses, depreciation
expense and minority interest in consolidated joint venture's operations
primarily relate to various property sales in fiscal 1996.
<PAGE>
PART II
Item 1. Legal Proceedings
Response:
Treasure Island Associates Litigation
The Partnership owns a joint venture partnership interest in the property
formerly known as Treasure Island, a mobile home community located in Laguna
Beach, California. The property was purchased by Treasure Island Associates
("TIA"), a joint venture partnership between the Partnership and an unaffiliated
entity, on August 1, 1989. In October 1991, the City of Laguna Beach (the
"City") enacted an ordinance (the "Ordinance") which requires mobile home
property owners to apply for a conditional use permit ("CUP") prior to a closure
of a mobile home property. The Ordinance provides, in part, that a closure is
deemed to have occurred whenever fewer than 75% of the spaces in a property
contain coaches owned by tenants unrelated to the property owner. The stated
purpose of the Ordinance was to allow the City to require mitigation of any
adverse impacts caused by a closure.
TIA has been purchasing mobile home coaches at this property and, in May
1992, reached the threshold described in the Ordinance and applied for a CUP.
On February 15, 1994, the Laguna Beach City Council adopted a resolution
(the "Resolution") approving the CUP and adopting findings that Treasure Island
was deemed to have closed on May 1, 1992, and that such closure adversely
impacted tenants. To mitigate the impact, the CUP, as adopted, required TIA to
do one of the following: (i) guarantee each tenant a 10-year right of occupancy
in the property; (ii) if the tenant agrees, relocate each tenant to a comparable
mobile home property; or (iii) pay each tenant the in-place value of a
comparable coach in a comparable coastal mobile home property. The CUP also
required TIA to pay the City approximately $2,856,000 to mitigate the loss of
affordable housing opportunities represented by Treasure Island.
Due to the lack of replacement spaces in other propertys in the region, TIA
had originally estimated that the CUP may require up to $23 million in payments
to tenants. The CUP also purported to give tenants a right of action against TIA
for the benefits due them under the CUP if TIA failed to timely pay these
amounts.
On March 24, 1994, TIA filed a lawsuit in the California Superior Court for
the County of Orange (the "Court") against the City to have certain conditions
of the CUP declared void. TIA believes that the requirements contained in the
CUP violate California law and constitute a taking of TIA's property in
violation of the California and United States Constitutions. TIA filed the
lawsuit in order to pursue vigorously its legal rights and remedies.
On March 24, 1994, TIA obtained a temporary restraining order, and on May
5, 1994 a preliminary injunction, prohibiting the City from enforcing the CUP
until the Court made a final ruling. On October 4, 1994, the Court rendered its
tentative decision, ordering issuance of a writ of mandate and remanding the
Resolution to the City for further proceedings consistent with the decision. The
Court agreed with TIA that non-resident coach owners are not entitled to
mitigation benefits under California law; however, the Court concluded that the
mitigation benefits imposed by the City were not illegal if limited to resident
owners who would be displaced by closure of the property.
On November 15, 1994, the City adopted an amended resolution ("Amended
Resolution") effectively complying with the tentative decision. On December 21,
1994, the Court filed its final decision and order issuing a writ of mandate,
which invalidated a provision of the CUP requiring binding arbitration but
otherwise confirmed the tentative decision. Thereafter, the Court ordered
dissolution of the preliminary injunction effective February 1, 1995. The
tenants have appealed from the final judgment in the case. TIA filed a
cross-appeal and has moved for a dismissal of the appeal and to vacate the
judgment.
TIA filed a second lawsuit with the Court on February 14, 1995 in order to
preserve TIA's right to challenge the validity of the mitigation measures
re-imposed by the Amended Resolution. TIA continues to believe that the
mitigation measures imposed by the City, even when limited to resident owners
only, violate California statutory law and the California and United States
Constitutions. As in the first lawsuit, the Treasure Island Residents and Owners
Association ("TIROA") sought leave to intervene in the second lawsuit. TIA did
not oppose this request, which was granted on June 13, 1995.
After filing its second action, TIA entered into an agreement with the City
to stay further proceedings in order to pursue settlement negotiations among
TIA, the City and TIROA. The parties were unable to reach agreement and, on May
2, 1995, the City adopted a second amended resolution (the "Second Amended
Resolution") reducing substantially the total amount of relocation benefits
potentially payable to residents.
<PAGE>
In or about April 1995, 58 tenants began withholding rent, in addition to
four tenants who earlier began withholding rent, claiming they were owed
relocation benefits under the Amended Resolution. TIA initiated unlawful
detainer actions against these tenants in the South Orange County Municipal
Court to obtain possession of its property. Prior to trial of these actions, TIA
had given notice that all tenancies in Treasure Island would terminate March 15,
1996 based upon TIA's CUP closing the property and payment of relocation
benefits. On March 15, 1996, these tenants, in addition to approximately seven
tenants who rented mobile homes from TIA ("renter tenants"), refused to vacate
the premises. Pursuant to a motion for summary judgment, two tenants had
judgments entered against them, have been evicted. Six of the renter tenant
cases were tried to a jury, and a verdict returned in favor of TIA against all
six renter tenants, who have now been evicted. TIA, in or about mid and late
March, 1996, initiated a second series of unlawful detainer actions against the
remaining tenants based upon property closure. All unlawful detainer actions
were consolidated and transferred to the Superior Court, Complex Litigation
Panel. The Superior Court entered judgment for possession in favor of TIA
against all remaining tenants, based on property closure. The Court permitted
the tenants to stay until August 1997, provided they pay rent, to allow time to
vacate. Trial is set for June 9, 1997 on TIA's damage claims against these
tenants.
On May 26, 1995, TIROA commenced an action alleging that the City Council's
attempt to reduce relocation benefits in the Second Amended Resolution was
illegal and therefore invalid. Alternatively, TIROA challenged the validity of
the Second Amended Resolution on environmental and other grounds. The Court
rejected TIROA's challenge and upheld the Second Amended Resolution, entering
judgment against TIROA. TIROA has appealed.
On June 16, 1995, 73 plaintiffs filed an action in the United States
District Court for the Central District of California alleging violations of the
antitrust provisions of the Sherman and Clayton Acts and seeking damages in the
estimated amount of $15 million dollars and injunctive relief. The allegations
of this complaint are virtually identical to those of the Orange County Superior
Court action discussed above. TIA's motion to dismiss was granted, and judgment
was entered in TIA's favor. The plaintiffs have appealed.
A separate action was also filed on June 16, 1995 in the Court on behalf of
the same 73 individually named tenants of the property alleging causes of action
for breach of implied covenant of good faith and fair dealing, unlawful
discrimination, breach of covenant of quiet enjoyment and/or constructive
eviction, violation of state antitrust law, and unlawful, unfair and fraudulent
business practices and declaratory relief. The complaint seeks damages and
injunctive relief for alleged wrongful conduct in a series of actions relating
to property closure and evictions of delinquent tenants. On August 22, 1995,
TIA's demurrer was sustained in part and overruled in part. Plaintiffs filed
their First Amended Complaint on September 6, 1995. TIA answered and initiated
discovery.
On March 26, 1996, Mr. K.P. Rice and 100 other tenants, including virtually
all 73 tenants who filed suit on June 16, 1995, filed a new action against TIA
in Superior Court alleging claims for declaratory relief, damages, damages for
statutory violations, and unlawful, unfair or fraudulent business practices. TIA
filed a timely demurrer to this new complaint. The Court ordered the tenants to
file a single amended complaint consolidating the claims in this action with the
claims the tenants assert in their June 16, 1995 suit. TIA filed a demurrer to
the amended complaint. The demurrer was heard on April 15, 1997. The Court
ordered the plaintiffs to file an amended, single complaint combining the
allegations of the damage suits (the action by the 73 tenants and the action by
the 101 tenants). TIA then demurred to that amended complaint. The Court
sustained the demurrer without leave to amend as to most claims in the amended
compliant, and struck the claim for punitive damages. Three causes of action
remain. TIA is conducting discovery in those claims. No trial date has been set.
<PAGE>
The aforementioned suits which remain pending have been consolidated under
a single action number in Superior Court. However, it is anticipated that the
Court will continue to sever or otherwise order the proceedings as appropriate
for the efficient administration of the claims.
Since June 13, 1995, TIA has executed settlement agreements with 83 tenants
out of a total of approximately 160 remaining tenants under which the settling
tenants released TIA from all claims in consideration of cash payments and/or up
to one year free rent. Also, those tenants agreed to vacate the property under
the terms of their settlement with TIA on or before June 11, 1996. By the end of
April 1997, all but two of the tenants who signed settlement agreements are
expected to vacate the property. The two remaining tenants, who are employees of
the managing agent, will vacate when their employment terminates.
The settlement agreements executed with tenants to date require the payment
of a total of approximately $2,400,000, most of which has been paid. At this
point in time, TIA is unable to quantify the total amount of any further
settlements which may be executed with the remaining tenants.
On September 1, 1995, TIA served a statutory notice of closure identifying
March 15, 1996 as the formal closure date. On February 6, 1996, TIA mailed
checks to all such tenants in an amount not to exceed $20,000 per tenant in
accordance with the Second Amended Resolution.
As of September 1, 1995, TIA executed a settlement agreement with the City
which settled all lawsuits filed by TIA against the City concerning the closure
of the mobile home property. Under the settlement agreement, TIA agreed to (i)
deliver a letter of credit to the City in the amount of $1,287,990 to secure
TIA's obligations under settlement agreements with residents (described in the
preceding paragraph), and (ii) pay an additional sum of approximately $1,000,000
to the City to mitigate the adverse impacts to the City's supply of low to
moderate income housing, $500,000 of which was paid in September 1995, with the
balance to be paid at a future date. According to the agreement of the City and
TIA, the letter of credit expired on June 30, 1996 and was not renewed.
TIA intends to capitalize the cost of all of the above settlements as part
of its investment in the property related to any redevelopment efforts.
On June 10, 1996, another action was filed against TIA by one individual,
David B. Mautner. Mr. Mautner claims to have been improperly denied relocation
benefits allegedly owed to him under the resolutions. In a statement of damages,
he seeks special damages of $40,000, general damages of $100,000 and punitive
damages of $200,000. Mr. Mautner's case has been consolidated with the damage
cases filed by the other tenants.
In February of 1996, the Partnership submitted an application to the City
of Laguna Beach for the redevelopment of Treasure Island. The initial
application included a combination of detached single-family residences,
multi-family housing and resort hotel complex including meeting rooms and
restaurants. After receiving input on the proposal from community groups in the
City of Laguna Beach, from the City Planning Staff and from various City Council
members and Planing Commissioners, the application was suspended on July 30,
1996 and a revised application was submitted in March, 1997. The revised
application continues to include a hotel resort component along with a
residential component with reduced density and intensity of use. TIA is
continuing to process entitlements and expects to participate in hearings before
the City Planning Commission in the third and fourth quarter of calendar year
1997 and to further participate in hearings before the City Council and the
California Coastal Commission during calendar year 1998.
<PAGE>
PARTNERSHIP LITIGATION
On November 29, 1995, December 15, 1995, December 22, 1995, and February 6,
1996, certain putative class actions were filed purportedly on behalf of, among
others, all persons who purchased limited partnership interests in the
Partnership. Pursuant to an order of the United States District Court for the
Southern District of New York dated February 25, 1996, these actions have been
consolidated in that Court for pre-trial purposes under the caption In re
Merrill Lynch Limited Partnerships Litigation (the "New York Consolidated
Action"). Pursuant to that order, on March 29, 1996 the plaintiffs filed a First
Consolidated Amended Class Action Complaint (the "Amended Complaint"), which
superseded the allegations in the complaints mentioned above. In addition to
investors of the Partnership, the Amended Complaint was filed purportedly on
behalf of all persons who purchased limited partnership interests in certain
other limited partnerships formed by affiliates of the Managing General Partner
and for which the Managing General Partner has acted or acts as a general
partner, and certain other limited partnerships for whom Merrill Lynch, Pierce
Fenner & Smith Incorporated ("MLPF&S") acted as selling agent (all such
partnerships other than the Partnership are hereinafter referred to as the
"Other Partnerships"), against MLH property Managers Inc. and MLH Realprop
Associates VI L.P. (the "General Partners"), certain affiliates of the General
Partners, Merrill Lynch & Co., Inc. ("ML & Co."), MLPF&S, Merrill Lynch, Hubbard
Inc. ("MLH"), and certain direct or indirect subsidiaries and/or affiliates of
ML & Co., as defendants (collectively, the "Defendants 1"). The Partnership and
certain of the Other Partnerships were originally named as defendants in certain
of the actions, but those partnerships were not named in the Amended Complaint
with the understanding that the time for bringing such claims against those
partnerships would be tolled. Plaintiffs' complaint alleges that the Defendants
1 (i) violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"),
(ii) engaged in fraud and negligent misrepresentation in connection with the
sale of limited partnership interests in the Partnership and the Other
Partnerships, (iii) breached their fiduciary duties, and (iv) breached their
contracts or tortiously interfered with express or implied contracts and
covenants. The action seeks compensatory, consequential, treble, general and
punitive damages, disgorgement and restitution, the costs and expenses incurred
in connection with the action, reasonable attorneys' fees, and such other and
further relief as the Court may deem just and proper. On July 17, 1996, the
court endorsed a stipulation and order which provides for (a) the dismissal
without prejudice of claims relating to the Other Partnerships; (b) the
certification of a plaintiff class as to certain of the claims alleged in the
Amended Complaint; and (c) the filing of a supplemental pleading in the action
adding claims under the New Jersey Securities Fraud statute and the New Jersey
Criminal Justice Act of 1970. On September 27, 1996, the Partnership and other
defendants moved to dismiss the Amended Complaint pursuant to Federal Rules of
Civil Procedure 12(b)(6) and 9(b), on the grounds, among others, that the claims
contained in the Amended Complaint were barred by the statute of limitations. At
a hearing held on October 15, 1996, the Court granted plaintiffs until January
17, 1997 to file a second consolidated amended class action complaint ("Second
Amended Complaint") and held that Defendants 1's motion would be deemed
withdrawn. Plaintiffs filed their Second amended Complaint on January 17, 1997.
Defendants 1 moved to dismiss the Second amended Complaint on February 17, 1997.
Plaintiffs filed their opposition to the motion for summary judgment on March
28, 1997. Defendants 1 filed their reply papers on April 25, 1997. Defendants 1
intend to contest Plaintiffs' claims vigorously. The Partnership may be
obligated to indemnify certain of the Defendants 1 for loss, liability, claim,
damage and expense subject to the terms and conditions of the indemnity
provisions of the Agency Agreement dated March 5, 1986 among the Partnership,
its General Partners and MLPF&S.
<PAGE>
On January 22, 1996, a putative class action was filed in the Superior
Court of New Jersey, Essex County, purportedly on behalf of all persons who
purchased limited partnership interests in the Partnership and other limited
partnerships formed by affiliates of the Managing General Partner and for which
the Managing General Partner has acted or acts as a general partner. As amended,
the complaint names MLH, MLPF&S, ML & Co., Merrill Lynch Realty, Inc., certain
past and present employees of MLH, the Partnership and certain other limited
partnerships for which MLPF&S acted as selling agent (collectively, the
"Defendants 2") as defendants. The complaint alleges (i) common law fraud and
deceit, (ii) equitable fraud, (iii) negligent misrepresentation, (iv) breach of
fiduciary duty, (v) breach of implied covenant of good faith and fair dealing,
(vi) violation of the New Jersey Securities Fraud statute; and (vii) violation
of the New Jersey Criminal Justice Act of 1970; allegedly as a result of
material misrepresentations and omissions of fact in connection with the sale of
limited partnership interests in the Partnership and such other limited
partnerships, the subsequent concealment of the fraud alleged, and the alleged
conduct of the Defendants 2 in the management and operation of the Partnership
and such other limited partnerships. The action seeks (i) unspecified damages
including compensatory, general, consequential, treble, incidental, punitive,
and exemplary damages, (ii) disgorgement and restitution of earnings, profits,
compensation and benefits received by Defendants 2, (iii) interest, (iv) costs
including attorneys', accountants' and experts' fees, and (v) such other relief
as the Court deems just and proper. Defendants 2 believe that they possess
meritorious defenses to the claims in this action, and intend to contest such
claims vigorously. On or about March 25, 1996, Defendants 2 moved to dismiss or
stay this action in favor of the New York Consolidated Action, and on June 24,
1996, the Court ordered the action stayed until August 9, 1996. On August 9,
1996, the Court orally ruled that the action would be dismissed in favor of the
New York Consolidated Action. The Court signed a written order of dismissal on
August 26, 1996. The Partnership may be obligated to indemnify certain of the
Defendants 2 for loss, liability, claim, damage and expense subject to the terms
and conditions of the indemnity provisions of the Agency Agreement dated March
5, 1986 among the Partnership, its General Partners and MLPF&S.
On or about February 6, 1996, a putative class action was filed in the
Circuit Court for Baltimore City, Maryland and on February 13, 1996, an amended
complaint was filed, purportedly on behalf of all persons who purchased
unspecified limited partnership interests, which may include interests in the
Partnership, against ML & Co., MLPF&S, and a limited partnership for which
MLPF&S acted as selling agent, as defendants (collectively, the "Defendants 3").
The amended complaint alleges that the Defendants 3 (i) made material
misrepresentations and omitted material information in the offering of interests
in the specified limited partnership and other unspecified limited partnerships;
(ii) breached their fiduciary duties; (iii) were unjustly enriched; and (iv)
converted the personal property of the plaintiff and other putative class
members. The action seeks (i) unspecified compensatory and punitive damages;
(ii) equitable and injunctive relief, including disgorgement of gain, a
constructive trust on all fees, discounts and commissions, impounding or
attachment of ill-gotten moneys, freezing of assets, and restitution; (iii)
reasonable attorneys' fees, costs and expenses incurred in connection with the
action; (iv) pre- and post-judgment interest; and (v) such other and further
relief as the court may deem necessary or appropriate. Defendants 3 believe that
they possess meritorious defenses to the claims in the action, and intend to
contest such claims vigorously. The Partnership may be obligated to indemnify
certain of the Defendants 3 for loss, liability, claim, damage and expense
subject to the terms and conditions of the indemnity provisions of the Agency
Agreement dated March 5, 1986 among the Partnership, its General Partners and
MLPF&S. By stipulation the parties to the action have agreed to stay this matter
pending further proceedings in the New York Consolidated Action. The outcome of
this action is not determinable at this time.
<PAGE>
On May 9, 1996, a putative class action was filed in the Supreme Court of
the State of New York, County of New York, purportedly on behalf of all persons
who purchased limited partnership interests in the Partnership and certain other
limited partnerships formed by affiliates of the Managing General Partner,
against ML & Co., MLPF&S, the General Partners, and certain affiliates of MLH,
as defendants (collectively, the "Defendants 4"). The complaint alleges (i)
fraud; (ii) negligent misrepresentation; (iii) breach of fiduciary duty; (iv)
breach of third party beneficiary contract; and (v) breach of implied covenant.
The action seeks (i) an order certifying the proposed Class; (ii) compensatory
damages; (iii) consequential damages; (iv) general damages; (v) punitive
damages; (vi) disgorgement and restitution; (vii) costs and disbursements;
(viii) reasonable attorneys' fees; and (ix) such other and further relief as the
Court may deem just and proper. On May 29, 1996, the parties entered into a
stipulation to dismiss the action without prejudice, based on the existence of
the New York Consolidated Action. Based on that stipulation, Defendants 4 moved
for an order dismissing the action without prejudice. On or about July 9, 1996,
the Court entered an order dismissing the action without prejudice.
Items 2-5 are herewith omitted as the response to all items is either none or
not applicable.
Item 6. Exhibits and Reports on Form 8-K
Responses:
a) Exhibits: Exhibit 27 Financial Data Schedule
For the period ending March 31, 1997.
b) Reports on Form 8-K: None
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MLH INCOME REALTY PARTNERSHIP VI
By: MLH Property Managers Inc.
Managing General Partner
By: ______________________________
Joseph S. Valenti
Vice President and
Chief Financial Officer
Dated: May 14, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary information extracted from the first quarter of
1997 Form 10-Q Balance Sheets and Statements of Operations and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 42,238,007
<INVESTMENTS-AT-VALUE> 41,225,129
<RECEIVABLES> 19,556
<ASSETS-OTHER> 50
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41,244,735
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 938,997
<TOTAL-LIABILITIES> 938,997
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,012,878)
<NET-ASSETS> 40,305,738
<DIVIDEND-INCOME> 22,823
<INTEREST-INCOME> 59,600
<OTHER-INCOME> 32,759
<EXPENSES-NET> 571,255
<NET-INVESTMENT-INCOME> (456,073)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> (456,073)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (456,073)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 40,533,774
<PER-SHARE-NAV-BEGIN> 125.27
<PER-SHARE-NII> (1.41)
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 122.82
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
