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, 1998
For Quarter Ended Commission File Number
March 31, 1998 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, 1998 and December 31, 1997.
Consolidated Statements of Operations
for the Three Months Ended March 31, 1998 and March 31, 1997
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1998 and March 31, 1997
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)
(Unaudited)
<S> <C> <C>
March 31, December 31,
1998 1997
---------- ---------
ASSETS:
REAL ESTATE INVESTMENTS HELD FOR SALE (Note 1):
Land $ 26,716 $ 26,716
Other real estate assets 8,133 7,696
--------- ---------
Total real estate investments 34,849 34,412
--------- ---------
OTHER ASSETS:
Cash and equivalents (Note 1) 5,773 6,434
Interest and other receivables, net of allowances
of $848,000 in 1998 and $1,091 in 1997 18 62
Prepaid expenses and other 25 8
--------- ---------
Total other assets 5,816 6,504
--------- ---------
TOTAL $ 40,665 $ 40,916
========= =========
LIABILITIES:
Accounts payable and accrued expenses $ 332 $ 367
Other liabilities 514 514
--------- ---------
Total liabilities 846 881
--------- ---------
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 104,132 104,348
Cumulative distributions (359,281) (359,281)
--------- ---------
39,819 40,035
--------- ---------
Total Partners' capital 39,819 40,035
--------- ---------
TOTAL $ 40,665 $ 40,916
========= =========
</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, March 31,
1998 1997
-------- -------
OPERATING REVENUES:
Rental $ 49 $ 33
Interest 83 82
-------- -------
Total operating revenues 132 115
-------- -------
OPERATING EXPENSES:
property operating 280 453
General and administrative 68 118
-------- -------
Total operating expenses 348 571
-------- -------
NET LOSS $ 216 $ 456
======== =======
NET INCOME ALLOCATED TO
GENERAL PARTNERS $ -- $ --
======== =======
NET LOSS ALLOCATED TO
LIMITED PARTNERS $ 216 $ 456
======== =======
NET LOSS PER UNIT OF LIMITED
Partnership INTEREST $ 0.67 $ 1.41
======== =======
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, March 31,
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (216) $ (456)
Items reconciling net loss to net cash
used in operating activities:
Bad Debt Expense (16) 258
Changes in operating assets and liabilities:
Interest and other receivables 60 (264)
Accounts payable and accrued expenses (35) 196
Other assets and other liabilities, net (17) 3
--------- ---------
Net cash used in operating activities (224) (263)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
property improvements (437) (348)
--------- ---------
Net cash used in investing activities (437) (348)
--------- ---------
NET DECREASE IN CASH AND EQUIVALENTS (661) (611)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 6,434 8,921
--------- ---------
CASH AND EQUIVALENTS, END OF PERIOD 5,773 $ 8,310
========= =========
</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.
The Partnership's last remaining real estate investment is the land
formerly known as Treasure Island (the "property"), a scenic, oceanfront
property situated on approximately 27 acres, including 4,000 feet of coastline
along the Pacific Ocean, in Laguna Beach, California. Existing zoning permits
use of the property only as a mobile home park; 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. The property was
officially closed as a mobile park on March 15, 1996 and all former tenants have
vacated the property. Treasure Island Associates ("TIA"), the joint venture
between the Partnership and an unaffiliated entity through which the Partnership
owns an interest in the property, was involved in lawsuits concerning certain
tenants. (see Note 3, Litigation, for a discussion of local legislation,
administrative requirements and litigation affecting this property).
Future Developements of the Property
On February 10, 1998, TIA announced that it has entered into a non-binding
agreement in principle with The Athens Group for the sale of the property. The
Athens Group, a Phoenix, Arizona based real estate developer, plans to purchase
the property and to develop it as an oceanfront resort community. The purchase
price of the property will be based in part on the entitlements which are
obtained. However, consummation of the sale is subject to several conditions,
including approval by the Laguna Beach Planning Commission, the City Council of
Laguna Beach and the California Coastal Commission of the master plan (Plan) for
the property. The Partnership had anticipated that the sale would close after
City Council approval of the Plan; the Partnership presently anticipates that
the closing of the sale will be subject to and occur only after California
Coastal Commission approval of the Plan. However, there can be no assurance that
a sale will be consummated. If a sale to The Athens Group does not take place,
the Partnership will assess available alternatives, but expects to sell the
property to another buyer.
After a series of public hearings before the Planning Commission and the
City Council, on April 15, 1998, the Planning Commission approved the Plan which
now must be considered and approved by the City Council. The City Council is
scheduled to consider the Plan in June 1998. Because the property is oceanfront
property, the Plan must be approved by the California Coastal Commission before
the City of Laguna Beach can issue further permits and approvals to implement
the Plan. TIA and the City will submit the Plan to the California Coastal
Commission for an expected approval in the fall of 1998. Assuming the California
Coastal Commission approves the Plan as submitted, the Planning Commission and
City Council must then consider further approvals that implement the Plan, such
as a subdivision map and local coastal permit. If the California Coastal
Commission modifies the Plan as a condition to approval, such modifications must
be accepted and approved by the City Council before the Plan, as modified, is
final. The entitlements for the property that are actually granted by the
Planning Commission, the City Council and the California Coastal Commission will
affect the value, and therefore, pricing, of the property.
The Partnership wishes to insure that statements made regarding expected
future developments regarding the property are accompanied by meaningful
cautionary statements pursuant to the safe harbor established in the Private
Securities Litigation Reform Act of 1995. These forward looking statements are
based upon current available data and reflect the Partnership's expectations
that the Partnership will successfully receive acceptance by the Planning
Commission, the City Council and the California Coastal Commission and that the
property will be sold to The Athens Group. While the Partnership expects that it
will successfully receive approvals from the Planning Commission, the City
Council and the California Coastal Commission and that the property will be sold
to the Athens Group, receipt of such approvals and closing of the sale are
subject to future events and uncertainties which could materially affect the
ability of the Partnership to receive these approvals and consummate the sale.
Among these factors are: (i) uncertainties regarding the granting of approvals
by the Planning Commission, the City Council and the California Coastal
Commission, (ii) possible delays in the administrative process required to
obtain the approvals which are outside the control of the Partnership, (iii)
objections by third parties to the development plan proposed by the Partnership
for the property, including possible litigation, which could significantly delay
or ultimately prevent the receipt of the approvals, and (iv) failure of The
Athens Group to close for any reason. There can be no assurance that the
approvals will be obtained or that the sale will be consummated. If the sale to
The Athens Group is not consummated and the Partnership determines to sell the
property to another buyer, there can be no assurance that such sale will be
consummated.
<PAGE>
Since this is the last remaining property investment of the Partnership,
pursuant to Section 8.1 (ii) of the Partnership's Amended and Restated Agreement
of Limited Partnership, the sale of this last property will cause the
dissolution of the Partnership. The Partnership will not be liquidated, however,
until payment of a final liquidating distribution to the Partnership's partners
of all of the Partnership's remaining assets.
The following is a summary of significant accounting policies followed by
the Partnership in the preparation of its consolidated financial statements:
Basis of Presentation
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 December 31, 1997, which is hereby incorporated by reference, has
been omitted.
Cash Equivalents
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 "cash and equivalents". All
such securities mature within one year, and any unrealized gains or losses on
these securities for the three months ended March 31, 1998 are immaterial.
Income Taxes
No provision for income taxes has been made since all income and losses are
allocated to the partners for inclusion in their tax returns.
Allocations Among Partners
Pursuant to the Partnership Agreement, Distributable Cash from operations
if any, will be allocated 90.16% to the Limited Partners and 9.84% to the
Managing General Partners. In addition to the distribution of cash from
operations, the Partnership Agreement provides for the General Partners, as a
class, to receive 2% of Sale or Financing Proceeds to be distributed,
representing their residual carried interest.
Net income or loss is allocated to the Partners in accordance with the
Partnership Agreeement.
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 ended on December
31, 1997.
<PAGE>
3. LITIGATION
TREASURE ISLAND ASSOCIATES LITIGATION
The Partnership owns a joint venture Partnership interest in the property
formerly known as Treasure Island (the "property"), which was 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 park owners to apply for a conditional use permit ("CUP")
prior to a closure of a mobile home park. On April 30, 1992 in compliance with
the ordinance TIA applied to the City 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. The Resolution required TIA to mitigate the adverse impact of
the closure on tenants through conditions TIA deemed violative of California
law.
On March 24, 1994, TIA filed a lawsuit in the California Superior Court for
the County of Orange ("the Court") challenging the mitigation conditions.
Treasure Island Residents and Owners Association ("TIROA") intervened in this
action. On October 4, 1994, the Court issued a Writ of Mandate directing, among
other things, the City to amend the resolution limiting mitigation measures,
i.e., payment of relocation benefits to tenants whose principal place of
residence on May 1, 1992, was Treasure Island. On December 21, 1994, the Court
filed its final decision from which TIROA appealed and TIA cross-appealed.
On November 15, 1994, the City adopted an Amended Resolution ("Amended
Resolution") effectively complying with the Court's Writ of Mandate although
TIA, again, deemed the mitigation measures legally invalid. Accordingly, on
February 14, 1995, in order to preserve TIA's right to challenge the validity of
the mitigation measures reimposed by the Amended Resolution, TIA filed a second
lawsuit with the Court. TIROA also intervened in this action.
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 as a mitigation measure. Accordingly,
on 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 park. Under the settlement agreement, TIA agreed to (i) deliver a
letter of credit to the City in the amount of $1,270,990 to secure TIA's
obligations under the settlement agreements with residents (described in the
following paragraph), and (ii) pay an additional sum of approximately $1,000,000
to the City to mitigate the adverse impact 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 between the City
and TIA, the letter of credit expired on June 30, 1996, and was not renewed.
Following the adoption of the Second Amended Resolution, TIA entered into
settlement agreements covering 84 tenant spaces, out of a total of approximately
159 remaining tenant spaces, under which the settling tenants released TIA from
all claims in consideration of cash payments and/or up to one year free rent.
These agreements required TIA to pay a total of approximately $2,400,000, which
has been paid. All but one of the tenants who signed a settlement agreement at
that time have vacated the property. The one remaining settling tenant, who is
an employee of the managing agent, is expected to vacate when his employment
terminates.
Of the 75 remaining tenants who did not enter into a settlement agreement
with TIA in 1995 following adoption of the Second Amended Resolution, 62 began
or had begun, withholding rent and refusing to vacate the property, claiming
they were owed relocation benefits under the Amended Resolution and that the
Second Amended Resolution was invalid. On or about April 1995, TIA initiated
unlawful detainer actions (the "non-payment unlawful detainers") against these
tenants in the South Orange County Municipal Court to obtain possession of its
property, back rent, and damages.
On May 26, 1995, TIROA filed a lawsuit with the Court 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. In addition, on June 16, 1995, 73 tenants and former tenants, some of
whom had been named in the non-payment unlawful detainers, filed with the Court
a lawsuit alleging TIA had breached the implied covenant of good faith and fair
dealing, unlawfully discriminated, breached the covenant of quiet enjoyment
and/or constructive eviction, violated antitrust laws, and committed unlawful,
unfair and fraudulent business practices, and for declaratory relief. The
complaint sought damages and injunctive relief. These same tenants and former
tenants also on June 16, 1995, filed an action in the United States District
Court for the Central District of California (the "Federal Action") alleging
violations of the antitrust provisions of the Sherman and Clayton Acts and
seeking damages in the estimated amount of $15,000,000 as well as injunctive
relief. The allegations contained in the Federal Action mirrored those contained
in the action filed with the State Court the same day.
On September 1, 1995, TIA, pursuant to the Second Amended Resolution and
California law, gave written notice that all tenancies in Treasure Island,
exclusive of those tenancies for which tenants who had signed a settlement
agreement earlier in 1995, would terminate upon park closure on March 15, 1996.
In accordance with the Second Amended Resolution, on February 6, 1996, TIA,
mailed to all tenants who had not entered into a settlement agreement in 1995
and who TIA determined qualified for relocation benefits, checks in amounts not
exceeding $20,000 per tenant.
In March 1996, TIA initiated unlawful detainer actions against tenants who
did not execute settlement agreements and had not vacated upon closure.
On March 26, 1996, K.P. Rice and 100 other tenants filed another action
against TIA with the Court alleging claims for declaratory relief, damages for
statutory violations, and unlawful, unfair or fraudulent business practices.
On June 10, 1996, one tenant, David B. Mautner, filed an action against TIA
claiming to have been improperly denied relocation benefits. This case has been
dismissed with prejudice.
On May 2, 1996, George Posey, a nonresident tenant, filed an action with
the Court against TIA for trespass, constructive eviction, breach of covenant of
quiet enjoyment, declaratory relief, and unfair business practices. TIA
successfully demurred to the complaint and a first amended complaint was filed
July 19, 1996, seeking to set aside warehouseman's lien sale, cancellation of
instrument, declaratory relief, malicious prosecution, constructive eviction,
breach of covenant of quiet enjoyment, trespass, and unfair business practices.
Mr. Posey claims that TIA wrongfully sold his mobilehome at a warehouseman's
lien sale and thereafter denied him entry to the mobilehome. He seeks special
damages of $50,000, general damages of $250,000, and punitive damages of
$500,000. No trial date has been set.
TIROA's lawsuit challenging the Second Amended Resolution, the tenants'
actions filed with the Court and the non-payment unlawful detainers and closure
unlawful detainers were consolidated and transferred to the Court's Complex
Litigation Panel. The Court rejected TIROA's challenge to the Second Amended
Resolution and entered judgment against TIROA and in favor of TIA. In addition,
the Court entered a judgment of possession in favor of TIA against all tenants
in the consolidated unlawful detainer actions. TIROA and the tenants appealed
the adverse judgments.
While these appeals were pending TIA, the tenants and TIROA entered into
settlement discussions which resulted in a settlement of all litigation among
them. Pursuant to the settlement the tenants agreed to pay TIA approximately
$807,000, (the "Settlement Amount") of which $538,000 has been collected.
Additionally, the Settlement Amount has been further reduced by (i) certain
assignments of tenant receivables and, (ii) relocation benefits due to qualified
tenants. The tenants and TIROA have released all claims against TIA and all
tenants have vacated the property and dismissed the appeal of the judgment of
possession. Upon full performance by the tenants of the settlement agreements,
TIA will dismiss the unlawful detainer actions. Some tenants have refused to
sign a settlement agreement, or have not fully performed their obligations under
their settlement agreement, or are attempting to renegotiate their settlement.
TIA anticipates that the 11 unsigned or unperformed tenant settlement agreements
will either be signed, fully performed, or that a judgment will be entered for
money damages against the tenants by mid June 1998.
The Federal Action has been dismissed and judgment was entered in favor of
TIA. The United States Court of Appeals for the Ninth Circuit affirmed the
dismissal.
In February 1996, the Partnership submitted a development proposal to the
City of Laguna Beach for the redevelopment of the property. The initial
application included a combination of detached single-family residences,
multi-family housing and a resort hotel complex including meeting rooms and
restaurants. The application consisted of a local coastal program ("LCP") and a
specific plan reflecting such uses. An LCP is required by California law because
the City has not obtained approval from the California Coastal Commission for a
Local Coastal Program for the property as required by the California Coastal
Act.
The Planning Commission approved a development proposal for the property
consisting of up to 275 hotel rooms and 37 residences on April 15, 1998. Final
condiseration of the proposal by the City Council is expected in June 1998.
On February 10, 1998, TIA announced that it has entered into a non-binding
agreement in principle with The Athens Group for the sale of the property. The
Athens Group, a Phoenix, Arizona based real estate developer, plans to purchase
the property and to develop it as an oceanfront resort community. The purchase
price of the property will be based in part on the entitlements which are
obtained. However, consummation of the sale is subject to several conditions,
including approval by the Laguna Beach Planning Commission, the City Council of
Laguna Beach and the California Coastal Commission of the master plan (Plan) for
the property. The Partnership had anticipated that the sale would close after
City Council approval of the Plan; the Partnership presently anticipates that
the closing of the sale will be subject to and occur only after California
Coastal Commission approval of the Plan. However, there can be no assurance that
a sale will be consummated. If a sale to The Athens Group does not take place,
the Partnership will assess available alternatives, but expects to sell the
property to another buyer.
After a series of public hearings before the Planning Commission and the
City Council, on April 15, 1998, the Planning Commission approved the Plan which
now must be considered and approved by the City Council. The City Council is
scheduled to consider the Plan in June 1998. Because the property is oceanfront
property, the Plan must be approved by the California Coastal Commission before
the City of Laguna Beach can issue further permits and approvals to implement
the Plan. TIA and the City will submit the Plan to the California Coastal
Commission for an expected approval in the fall of 1998. Assuming the California
Coastal Commission approves the Plan as submitted, the Planning Commission and
City Council must then consider further approvals that implement the Plan, such
as a subdivision map and local coastal permit. If the California Coastal
Commission modifies the Plan as a condition to approval, such modifications must
be accepted and approved by the City Council before the Plan, as modified, is
final. The entitlements for the property that are actually granted by the
Planning Commission, the City Council and the California Coastal Commission will
affect the value, and therefore, pricing, of the property.
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.
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 certain of 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. On August 26, 1997,
the Honorable Michael B. Mukasey, United States District Judge in the Southern
District of New York, issued a 51-page Opinion and Order granting the
Defendants' motion to dismiss the Consolidated Action. Finding that plaintiffs'
RICO claims were barred by the applicable statutes of limitations, the District
Court dismissed plaintiffs' RICO claims with prejudice and dismissed the
remaining state law claims for lack of subject matter jurisdiction. The District
Court declined to grant plaintiffs leave to replead. On September 24, 1997,
plaintiffs filed a notice of appeal with Second Circuit Court of Appeals.
Plaintiffs' appeal has now been briefed and argued and the parties are awaiting
a decision by the Second Circuit Court of Appeals. 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 ultimate outcome of this action is not determinable at this
time.
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 without
prejudice 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
Because the land formerly known as Treasure Island is the last remaining
property investment of the Partnership, pursuant to Section 8.1 (ii) of the
Partnership's Amended and Restated Agreement of Limited Partnership, the sale of
this last property will cause the dissolution of the Partnership. The
Partnership will not be liquidated, however, until payment of a final
liquidating distribution to the Partnership's partners of all of the
Partnership's remaining assets. (see Part II, Item 1, Legal Proceedings, for a
discussion of local legislation, administrative requirements and litigation
affecting the potential disposition and value of this property).
At March 31, 1998, the Partnership and its consolidated joint venture had
cash and equivalents of approximately $5.8 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 decreased $661,000 from December 31,
1997 to March 31, 1998 primarily due to disbursements for certain costs related
to the redevelopment of the property, net of interest income earned on the
Partnership's portfolio of cash equivalents.
Cash flows are affected by disbursements for the redevelopment of the
property. Cash used in investing activities increased from 1997 to 1998
primarily due to disbursments for the redevelopment of the property.
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 1,075.10 108%
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, 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.
Results of Operations
Fluctuations in the Partnership's operating results for the three months
ended March 31, 1998, as compared to the three months ended March 31, 1997, are
primarily attributable to the following:
The decreases in property operating expenses and general and administrative
expenses primarily relate to declined activities at the Partnership's last
remaining property.
<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 (the "property"), which was 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 park owners to apply for a conditional use permit ("CUP")
prior to a closure of a mobile home park. On April 30, 1992 in compliance with
the ordinance TIA applied to the City 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. The Resolution required TIA to mitigate the adverse impact of
the closure on tenants through conditions TIA deemed violative of California
law.
On March 24, 1994, TIA filed a lawsuit in the California Superior Court for
the County of Orange ("the Court") challenging the mitigation conditions.
Treasure Island Residents and Owners Association ("TIROA") intervened in this
action. On October 4, 1994, the Court issued a Writ of Mandate directing, among
other things, the City to amend the resolution limiting mitigation measures,
i.e., payment of relocation benefits to tenants whose principal place of
residence on May 1, 1992, was Treasure Island. On December 21, 1994, the Court
filed its final decision from which TIROA appealed and TIA cross-appealed.
On November 15, 1994, the City adopted an Amended Resolution ("Amended
Resolution") effectively complying with the Court's Writ of Mandate although
TIA, again, deemed the mitigation measures legally invalid. Accordingly, on
February 14, 1995, in order to preserve TIA's right to challenge the validity of
the mitigation measures reimposed by the Amended Resolution, TIA filed a second
lawsuit with the Court. TIROA also intervened in this action.
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 as a mitigation measure. Accordingly,
on 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 park. Under the settlement agreement, TIA agreed to (i) deliver a
letter of credit to the City in the amount of $1,270,990 to secure TIA's
obligations under the settlement agreements with residents (described in the
following paragraph), and (ii) pay an additional sum of approximately $1,000,000
to the City to mitigate the adverse impact 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 between the City
and TIA, the letter of credit expired on June 30, 1996, and was not renewed.
Following the adoption of the Second Amended Resolution, TIA entered into
settlement agreements covering 84 tenant spaces, out of a total of approximately
159 remaining tenant spaces, under which the settling tenants released TIA from
all claims in consideration of cash payments and/or up to one year free rent.
These agreements required TIA to pay a total of approximately $2,400,000, which
has been paid. All but one of the tenants who signed a settlement agreement at
that time have vacated the property. The one remaining settling tenant, who is
an employee of the managing agent, is expected to vacate when his employment
terminates.
Of the 75 remaining tenants who did not enter into a settlement agreement
with TIA in 1995 following adoption of the Second Amended Resolution, 62 began
or had begun, withholding rent and refusing to vacate the property, claiming
they were owed relocation benefits under the Amended Resolution and that the
Second Amended Resolution was invalid. On or about April 1995, TIA initiated
unlawful detainer actions (the "non-payment unlawful detainers") against these
tenants in the South Orange County Municipal Court to obtain possession of its
property, back rent, and damages.
On May 26, 1995, TIROA filed a lawsuit with the Court 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. In addition, on June 16, 1995, 73 tenants and former tenants, some of
whom had been named in the non-payment unlawful detainers, filed with the Court
a lawsuit alleging TIA had breached the implied covenant of good faith and fair
dealing, unlawfully discriminated, breached the covenant of quiet enjoyment
and/or constructive eviction, violated antitrust laws, and committed unlawful,
unfair and fraudulent business practices, and for declaratory relief. The
complaint sought damages and injunctive relief. These same tenants and former
tenants also on June 16, 1995, filed an action in the United States District
Court for the Central District of California (the "Federal Action") alleging
violations of the antitrust provisions of the Sherman and Clayton Acts and
seeking damages in the estimated amount of $15,000,000 as well as injunctive
relief. The allegations contained in the Federal Action mirrored those contained
in the action filed with the State Court the same day.
On September 1, 1995, TIA, pursuant to the Second Amended Resolution and
California law, gave written notice that all tenancies in Treasure Island,
exclusive of those tenancies for which tenants who had signed a settlement
agreement earlier in 1995, would terminate upon park closure on March 15, 1996.
In accordance with the Second Amended Resolution, on February 6, 1996, TIA,
mailed to all tenants who had not entered into a settlement agreement in 1995
and who TIA determined qualified for relocation benefits, checks in amounts not
exceeding $20,000 per tenant.
In March 1996, TIA initiated unlawful detainer actions against tenants who
did not execute settlement agreements and had not vacated upon closure.
On March 26, 1996, K.P. Rice and 100 other tenants filed another action
against TIA with the Court alleging claims for declaratory relief, damages for
statutory violations, and unlawful, unfair or fraudulent business practices.
On June 10, 1996, one tenant, David B. Mautner, filed an action against TIA
claiming to have been improperly denied relocation benefits. This case has been
dismissed with prejudice.
On May 2, 1996, George Posey, a nonresident tenant, filed an action with
the Court against TIA for trespass, constructive eviction, breach of covenant of
quiet enjoyment, declaratory relief, and unfair business practices. TIA
successfully demurred to the complaint and a first amended complaint was filed
July 19, 1996, seeking to set aside warehouseman's lien sale, cancellation of
instrument, declaratory relief, malicious prosecution, constructive eviction,
breach of covenant of quiet enjoyment, trespass, and unfair business practices.
Mr. Posey claims that TIA wrongfully sold his mobilehome at a warehouseman's
lien sale and thereafter denied him entry to the mobilehome. He seeks special
damages of $50,000, general damages of $250,000, and punitive damages of
$500,000. No trial date has been set.
TIROA's lawsuit challenging the Second Amended Resolution, the tenants'
actions filed with the Court and the non-payment unlawful detainers and closure
unlawful detainers were consolidated and transferred to the Court's Complex
Litigation Panel. The Court rejected TIROA's challenge to the Second Amended
Resolution and entered judgment against TIROA and in favor of TIA. In addition,
the Court entered a judgment of possession in favor of TIA against all tenants
in the consolidated unlawful detainer actions. TIROA and the tenants appealed
the adverse judgments.
While these appeals were pending TIA, the tenants and TIROA entered into
settlement discussions which resulted in a settlement of all litigation among
them. Pursuant to the settlement the tenants agreed to pay TIA approximately
$807,000, (the "Settlement Amount") of which $538,000 has been collected.
Additionally, the Settlement Amount has been further reduced by (i) certain
assignments of tenant receivables and, (ii) relocation benefits due to qualified
tenants. The tenants and TIROA have released all claims against TIA and all
tenants have vacated the property and dismissed the appeal of the judgment of
possession. Upon full performance by the tenants of the settlement agreements,
TIA will dismiss the unlawful detainer actions. Some tenants have refused to
sign a settlement agreement, or have not fully performed their obligations under
their settlement agreement, or are attempting to renegotiate their settlement.
TIA anticipates that the 11 unsigned or unperformed tenant settlement agreements
will either be signed, fully performed, or that a judgment will be entered for
money damages against the tenants by mid June 1998.
The Federal Action has been dismissed and judgment was entered in favor of
TIA. The United States Court of Appeals for the Ninth Circuit affirmed the
dismissal.
In February 1996, the Partnership submitted a development proposal to the
City of Laguna Beach for the redevelopment of the property. The initial
application included a combination of detached single-family residences,
multi-family housing and a resort hotel complex including meeting rooms and
restaurants. The application consisted of a local coastal program ("LCP") and a
specific plan reflecting such uses. An LCP is required by California law because
the City has not obtained approval from the California Coastal Commission for a
Local Coastal Program for the property as required by the California Coastal
Act.
The Planning Commission approved a development proposal for the property
consisting of up to 275 hotel rooms and 37 residences on April 15, 1998. Final
condiseration of the proposal by the City Council is expected in June 1998.
On February 10, 1998, TIA announced that it has entered into a non-binding
agreement in principle with The Athens Group for the sale of the property. The
Athens Group, a Phoenix, Arizona based real estate developer, plans to purchase
the property and to develop it as an oceanfront resort community. The purchase
price of the property will be based in part on the entitlements which are
obtained. However, consummation of the sale is subject to several conditions,
including approval by the Laguna Beach Planning Commission, the City Council of
Laguna Beach and the California Coastal Commission of the master plan (Plan) for
the property. The Partnership had anticipated that the sale would close after
City Council approval of the Plan; the Partnership presently anticipates that
the closing of the sale will be subject to and occur only after California
Coastal Commission approval of the Plan. However, there can be no assurance that
a sale will be consummated. If a sale to The Athens Group does not take place,
the Partnership will assess available alternatives, but expects to sell the
property to another buyer.
After a series of public hearings before the Planning Commission and the
City Council, on April 15, 1998, the Planning Commission approved the Plan which
now must be considered and approved by the City Council. The City Council is
scheduled to consider the Plan in June 1998. Because the property is oceanfront
property, the Plan must be approved by the California Coastal Commission before
the City of Laguna Beach can issue further permits and approvals to implement
the Plan. TIA and the City will submit the Plan to the California Coastal
Commission for an expected approval in the fall of 1998. Assuming the California
Coastal Commission approves the Plan as submitted, the Planning Commission and
City Council must then consider further approvals that implement the Plan, such
as a subdivision map and local coastal permit. If the California Coastal
Commission modifies the Plan as a condition to approval, such modifications must
be accepted and approved by the City Council before the Plan, as modified, is
final. The entitlements for the property that are actually granted by the
Planning Commission, the City Council and the California Coastal Commission will
affect the value, and therefore, pricing, of the property.
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.
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 certain of 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. On August 26, 1997,
the Honorable Michael B. Mukasey, United States District Judge in the Southern
District of New York, issued a 51-page Opinion and Order granting the
Defendants' motion to dismiss the Consolidated Action. Finding that plaintiffs'
RICO claims were barred by the applicable statutes of limitations, the District
Court dismissed plaintiffs' RICO claims with prejudice and dismissed the
remaining state law claims for lack of subject matter jurisdiction. The District
Court declined to grant plaintiffs leave to replead. On September 24, 1997,
plaintiffs filed a notice of appeal with Second Circuit Court of Appeals.
Plaintiffs' appeal has now been briefed and argued and the parties are awaiting
a decision by the Second Circuit Court of Appeals. 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 ultimate outcome of this action is not determinable at this
time.
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 without
prejudice 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>
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, 1998.
b) Reports on Form 8-K:
Report filed on February 18, 1998 disclosing under Item 5, Other
Events, the execution of an Agreement in Principle to sell the land
formerly known as Treasure Island.
<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: /s/ Audrey Bommer
Audrey Bommer
Vice President and
Chief Financial Officer
May 15, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary information extracted from the first quarter
of 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 44,171,963
<INVESTMENTS-AT-VALUE> 26,715,816
<RECEIVABLES> 18,364
<ASSETS-OTHER> 25,014
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 40,665,032
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 845,395
<TOTAL-LIABILITIES> 845,395
<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> 39,819,638
<DIVIDEND-INCOME> 60,343
<INTEREST-INCOME> 22,165
<OTHER-INCOME> 0
<EXPENSES-NET> 348,217
<NET-INVESTMENT-INCOME> (215,844)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> (215,844)
<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> 39,927,560
<PER-SHARE-NAV-BEGIN> 124.23
<PER-SHARE-NII> (0.67)
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 123.56
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
