<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1994 COMMISSION FILE NUMBER 0-14633
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-3294820
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
27611 La Paz Road, Laguna Niguel, California 92656
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(Address of principal executive offices) (Zip Code)
</TABLE>
(714) 831-8031
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
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<S> <C>
NONE NONE
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</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
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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 twelve months and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's registration statement on Form S-11 (Commission
File No. 2-99421), dated August 5, 1985, filed under the Securities Act of 1933
are incorporated by reference into PART IV of this report.
<PAGE> 2
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C> <C>
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PART II
Item 5. Market for the Registrant's Limited Partnership
Interests and Related Security Holder Matters . . . . . . . . . . . . . 5
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . 6
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . 11
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . 11
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . 12
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 12
--- Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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<PAGE> 3
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
PART I
Item 1. Business
Damson/Birtcher Realty Income Fund-II, Limited Partnership (the "Partnership")
was formed on September 13, 1985, under the laws of the State of Delaware. The
General Partner of the Partnership is Birtcher/Liquidity Properties, a general
partnership, consisting of LF Special Fund I, L.P., a California limited
partnership, and Birtcher Investors, a California limited partnership. The
Partnership is engaged in the business of acquiring and operating existing
income-producing office buildings, research and development facilities,
shopping centers and other commercial or industrial properties as specified in
its prospectus (Commission File No. 2-99421) dated September 27, 1985, as
amended. See Item 2 for a description of the properties acquired by the
Partnership.
The Partnership commenced operations on November 14, 1985. The closing for the
final admission of Limited Partners to the Partnership occurred on June 19,
1986. Total limited partners' capital contributions through that date
aggregated $52,588,000.
The Partnership acquired its properties entirely for cash, free and clear of
mortgage indebtedness. However, the Partnership may incur mortgage
indebtedness on its properties, primarily for the purpose of funding capital
improvements to properties or obtaining financing proceeds for distribution to
partners.
The Partnership's objectives in operating the properties are: (i) to make
regular quarterly cash distributions to the Partners, of which a portion will
be tax sheltered; (ii) to achieve capital appreciation over a holding period of
at least five years; and (iii) to preserve and protect the Partnership's
capital. An Information Statement, dated May 5, 1993, mandates that the
General Partner shall seek a vote of the Limited Partners no later than
December 31, 1996, regarding prompt liquidation of the Partnership in the event
that properties with appraised values as of January 1993, which constituted at
least one-half of the aggregate appraised values of all Partnership properties
as of that date, are not sold or under contract for sale by the end of 1996.
The Partnership derives most of its revenue from rental income. Both Iomega
Corporation and Delta Dental Corporation represent significant portions of such
income. Rental income from Iomega Corporation totaled $1,207,000 in 1994,
$1,209,000 in 1993 and $1,196,000 in 1992, or approximately 26%, 29% and 30%,
respectively, of the Partnership's total rental income. Rental income from
Delta Dental Corporation totaled $694,000 in 1994, $643,000 in 1993 and
$645,000 in 1992, or approximately 15%, 16% and 16%, respectively, of the
Partnership's total rental income.
The Partnership's investments in real estate are subject to competition for
tenants from similar types of properties in the vicinities in which they are
located. The Partnership has no investments in real estate located outside the
United States.
The Partnership has no employees and, accordingly, the General Partner and its
affiliates perform services on behalf of the Partnership in connection with
administering the affairs of the Partnership and operating the Partnership's
properties. The General Partner and its affiliates receive compensation in
connection with such activities. See Item 11 and Note 4 to the Financial
Statements in Item 8 for a description of such charges.
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<PAGE> 4
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 2. PROPERTIES
<TABLE>
<CAPTION>
Number of
Net Tenant Percentage
Approximate Rentable Leases Occupied
Purchase Area in as of as of
Name/Location/Date Acquired Price(1) Description Sq. Ft. 12/31/94 12/31/94
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Atrium Place $ 2,230,000 A single-story office building 23,970 9 51%
Arlington Heights, Illinois located on 1.74 acres of land.
December 19, 1985
Lakeland Industrial Park, 5,875,000 Nine one-story office/warehouse 209,840 12 79%
Phases I-IV buildings located on 11.27 acres
Milwaukee, Wisconsin of land.
December 19, 1985 and
November 25, 1986
Kennedy Corporate Center, 4,599,000 Three-story office building 39,933 8 90%
Phase I located on 2.8 acres of land.
Palatine, Illinois
January 8, 1986
Iomega/Northpointe Center 7,980,000 Seven industrial/office buildings 210,165 6 90%
Roy, Utah located on 16.6 acres of land.
January 31, 1986
Ladera Shopping Center, 2,889,000 A neighborhood retail shopping 35,094 6 100%
Phase II center located on 3.8 acres of land.
Albuquerque, New Mexico
February 7, 1986
Creekridge Center 11,865,000 Two three-story office buildings 81,835 13 90%
Bloomington, Minnesota located on 5 acres of land.
September 23, 1986
Cooper Village 4,789,000(2) A single-story shopping center 59,978(2) 21 95%
Mesa, Arizona located on 10.88 acres of land.
December 30, 1987 and
December 30, 1988
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TOTAL $40,227,000 660,815
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</TABLE>
SEE NOTES TO TABLE ON THE FOLLOWING PAGE.
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<PAGE> 5
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 2. PROPERTIES (Cont'd.)
NOTES TO TABLE ON THE PRECEDING PAGE
(1) The purchase price does not include an allocable share of
acquisition fees of $2,629,000 paid to the General Partner.
Also, for certain properties, the purchase price has been
reduced by cash received at acquisition under rental
agreements for non-occupied space.
(2) An interest in Cooper Village was acquired by the Partnership
through a general partnership, Cooper Village Partners ("CV
Partners") consisting of the Partnership and Real Estate
Income Partners III, Limited Partnership, an affiliated
limited partnership. At December 31, 1994, the Partnership
had a 58% interest in CV Partners. (See Note 3 to Financial
Statements in Item 8 for a further discussion of the
Partnership's interest in CV Partners.) The amounts shown
herein for approximate purchase price and net rentable square
feet represent 58% of the respective amounts for CV Partners.
Item 3. LEGAL PROCEEDINGS
The Partnership is not a party to any pending legal proceedings, other than
ordinary routine litigation incidental to its business. It is the General
Partner's belief that the outcome of these proceedings will not be material to
the business, financial condition, or results of operations of the Partnership.
NASD Matter. In a matter not directly involving the Partnership or its General
Partner, in 1991, the National Association of Securities Dealers, Inc. (the
"Association") Business Conduct Committee for the Northern District of
California initiated a complaint against a broker-dealer affiliate of LF
Special Fund I, L.P. (a general partner of the General Partner of the
Partnership), alleging violations of the Association's Rules of Fair Practice.
Specifically, the complaint alleged that the affiliate (1) bought and sold
limited partnership units (but not interests in the Partnership) in the
secondary market, from or to unaffiliated parties, subject to mark-ups or
mark-downs in excess of the Association's guidelines and (ii) failed to
disclose the amount or existence of such mark-ups and mark-downs to buyers and
sellers of limited partnership units. Brent Donaldson and Richard Wollack,
executive officers of LF Special Fund I, L.P., were also named as respondents
in the complaint in their capacities as principals of the affiliate. The
complaint was settled as of January 3, 1992 on the following terms: the
Association made findings, which were neither admitted nor denied, of
violations by the affiliate and Mr. Donaldson of the Association's guidelines
with respect to mark-ups or mark-downs, and of the failure by the affiliate
(but not Mr. Donaldson) to disclose the amount of such mark-ups or mark-downs.
Both allegations were dismissed as to Mr. Wollack. The settlement further
provided that the affiliate would be censured and fined $125,000 and that Mr.
Donaldson would be censured and fined $7,500.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE> 6
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
PART II
Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND
RELATED SECURITY HOLDER MATTERS
There is no public market for the limited partnership interests and a market is
not expected to develop as such limited partnership interests are not publicly
traded or freely transferable.
As of February 28, 1995, the number of holders of the Partnership's interests
is as follows:
<TABLE>
<S> <C>
General Partner 1
Limited Partners 7,185
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7,186
=====
</TABLE>
The Partnership makes quarterly cash distributions to its partners out of
distributable cash pursuant to the Partnership's Agreement of Limited
Partnership. Distributable cash is generally paid 99% to the Limited Partners
and 1% to the General Partner.
The Partnership has paid the following quarterly cash distributions to its
Limited Partners:
<TABLE>
<CAPTION>
CALENDAR
QUARTERS 1990 1991 1992 1993 1994 1995
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<S> <C> <C> <C> <C> <C> <C>
First $842,000 $524,000 $416,000 $420,000 $358,000 $442,000
Second 756,000 394,000 372,000 262,000 421,000 -
Third 551,000 394,000 457,000 200,000 405,000 -
Fourth 525,000 394,000 430,000 289,000 465,000 -
</TABLE>
The Limited Partners and the General Partner are entitled to receive quarterly
cash distributions, as available, in the future.
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
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1994 1993 1992 1991 1990
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<S> <C> <C> <C> <C> <C>
Total Revenues $4,637,000 $4,181,000 $ 4,043,000 $4,173,000 $4,578,000
========== ========== =========== ========== ==========
Net Income (Loss):
General Partner $ 5,000 $ 5,000 $ (34,000) $ 2,000 $ 10,000
Limited Partners $ 457,000 $ 541,000 $(3,343,000) $ 204,000 $1,040,000
---------- ---------- ------------ ---------- ----------
$ 462,000 $ 546,000 $(3,377,000) $ 206,000 $1,050,000
========== ========== ============ ========== ==========
Total Distributions:
General Partner $ 17,000 $ 12,000 $ 17,000 $ 17,000 $ 27,000
========== ========== =========== ========== ==========
Limited Partners $1,649,000 $1,171,000 $ 1,675,000 $1,706,000 $2,674,000
========== ========== =========== ========== ==========
</TABLE>
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<PAGE> 7
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 6. SELECTED FINANCIAL DATA (Cont'd.)
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
1994 1993 1992 1991 1990
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<S> <C> <C> <C> <C> <C>
Total Assets $31,496,000 $32,737,000 $33,483,000 $38,516,000 $39,957,000
=========== =========== =========== =========== ===========
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Capital Resources and Liquidity
The Partnership completed its acquisition program in December 1988 and is
principally engaged in the operation of its properties. The Partnership
intends to hold its properties as long-term investments, although properties
may be sold at any time, depending upon the General Partner's judgment of the
anticipated remaining economic benefits of continued ownership. That
notwithstanding, the Information Statement, dated May 5, 1993, as described
below, mandates that the General Partner shall seek a vote of the Limited
Partners no later than December 31, 1996, regarding prompt liquidation of the
Partnership in the event that properties with appraised values as of January
1993, which constituted at least one-half of the aggregate appraised values of
all Partnership properties as of that date, are not sold or under contract for
sale by the end of 1996. Working capital is and will be principally provided
from the operation of the Partnership's properties and the working capital
reserve established for the properties. The Partnership may incur mortgage
indebtedness relating to such properties by borrowing funds primarily to fund
capital improvements or to obtain financing proceeds for distribution to the
partners.
Distributions for the year ended December 31, 1994, represent net cash flow
from operations of the Partnership's properties and interest earned on the
temporary investment of working capital, reduced by current year capital
reserve requirements. Future cash distributions will be made principally to
the extent of cash flow attributable to the operations of the Partnership's
properties after capital reserve requirements. See Item 5 for a description of
the Partnership's distribution history. The Partnership believes that the cash
generated from its operations will provide the Partnership the funds necessary
to meet all of its ordinary obligations.
Certain of the Partnership's properties are not fully leased. The Partnership
is actively marketing the vacant space in these properties, subject to the
competitive environment in each of the market areas. To the extent the
Partnership is not successful in maintaining or increasing occupancy levels at
these properties, the Partnership's future cash flow and distributions may be
reduced.
On June 24, 1993, the Partnership completed its solicitation of written
consents from its Limited Partners. A majority in interest of the
Partnership's Limited Partners approved each of the proposals contained in the
Information Statement, dated May 5, 1993. Those proposals have been
implemented by amending the Partnership Agreement as contemplated by the
Information Statement. The amendments include, among other things, the future
payment of asset management and leasing fees to the General Partner and the
elimination of the General Partner's residual interest and deferred leasing
fees that were previously subordinated to return of the Limited Partners' 9%
Preferential Return. See Item 8, Note 4 to the Financial Statements for
discussion of fees paid to the General Partner for the year ended December 31,
1994.
January 1, 1995 Property Appraisals and Net Asset Value
In accordance with the terms of the Partnership Agreement, each year the
Partnership secures an independent appraisal of each of the Partnership's
properties as of January 1. In past years, the independent appraiser has
estimated each property's "Investment Value," utilizing a seven to ten-year
cash flow model to estimate value based upon an income approach.
The amendment to the Partnership Agreement consented to by the Limited Partners
in June 1993 mandates, among other things, that the General Partner seek a vote
of (and provide an analysis and recommendation to) the Limited Partners no
later than December 31, 1996 regarding the prompt liquidation of the
Partnership in the event that properties with (then) current appraised values
constituting at least one-half of the total (then) current appraised values
of all of the Partnership's properties are not sold or under contract for sale
by the end of 1996.
Given this mandate, the General Partner has requested that the appraiser
provide an assessment of value that reflects a shorter investment holding term.
Although the General Partner does not currently have a specific liquidation
plan for the Partnership's properties, it requested that the appraiser assume
that the entire portfolio would be sold over the next four years.
Using the shorter-term investment methodology that is consistent with the
mandate of the 1993 amendment to the Partnership Agreement, the appraiser
estimated the value of the Partnership's properties at January 1, 1995 to be
$31,035,000, or $5,901 per $10,000 original investor subscription.
The foregoing appraised value of the properties indicates an estimated net
asset value of the Partnership of $32,200,000 or $6,123 per $10,000 of original
investor subscription. (Net asset value represents the appraised value of the
Partnership's properties, cash, and other assets, less all liabilities.) This
equates to a net asset value of $306 per $500 par value of Partnership
Interest. This compares to original purchase prices aggregating $7,716 and the
January 1, 1994 appraised value of $6,649 per $10,000 of original investor
subscription. Had the previously used appraisal methodology, which assumes a
seven to ten-year holding period, been employed, the estimated net asset value
would have been $6,729 per $10,000 of original investor subscription.
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<PAGE> 8
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations
Year Ended December 31, 1994
The increase in rental income for the year ended December 31, 1994, as compared
to 1993, was attributable to several factors. At Creekridge, Delta Dental's
lease was successfully renegotiated in November 1993, which resulted in an
additional 7,000-square foot occupancy for a 64-month term. In addition, three
new leases commenced: Title One in December 1993, and Global Access and
Independent Pension Consultants in January 1994. With the expansion of Delta
Dental's lease and three new leases, 1994 rental income and operating expense
recoveries increased by an aggregate of $138,000. At Kennedy Corporate
Center, expansion of four existing tenants and commencement of a new lease with
M.Z.M., Inc. in May 1994, increased rental income and operating expense
recoveries by $192,000. Also, a tenant lease settlement of $25,000 was
received from Wolowicki upon termination of its lease. At Lakeland, five new
leases commenced: in August 1993 with Copper & Brass Sales, in July 1994 with
Midwest Anodizing Corp., in August 1994 with Midwest Products & Engineering, in
September 1994 with the Courtney Company and in November 1994 with Barefoot
Grass Lawn. These leases encompassed an aggregate of 51,840 square feet and
increased 1994 rental income and operating expenses recoveries by an aggregate
of $74,000.
Interest income resulted from the temporary investment of Partnership working
capital. The increase for the year ended December 31, 1994, as compared to
1993, was attributable to an increase in working capital and a higher rate of
return on short-term investments.
The increase in operating expenses for the year ended December 31, 1994, as
compared to 1993, was primarily attributable to an increase in roof replacement
and repairs at Iomega ($15,000), an increase in legal and professional services
relating to a minor tenant dispute and real estate tax appeal ($29,000) at
Atrium, Lakeland and Ladera-II, an increase in building repairs, cleaning costs
and maintenance ($22,000), HVAC repairs and maintenance ($22,000) and
electricity costs ($24,000) at Creekridge.
The decrease in real estate taxes for the year ended December 31, 1994, as
compared to 1993, was primarily attributable to a lower tax assessment at
Lakeland and Creekridge. The aforementioned decreases were partially offset by
a higher tax assessment at Kennedy Corporate Center.
General and administrative expenses for the year ended December 31, 1994
included charges of $372,000 from the General Partner and its affiliates for
services rendered in connection with administering the affairs of the
Partnership and operating the Partnership's properties. Also included in
general and administrative expenses are direct charges of $266,000 relating to
audit and tax preparation fees, annual appraisals fees, legal fees, insurance,
costs incurred in providing information to the Limited Partners and other
miscellaneous costs.
The decrease in general and administrative expenses for the year ended December
31, 1994, as compared to 1993, was primarily attributable to a decrease in
legal and professional services, consultant fees, printing, postage and mailing
expenses relating to the Partnership's solicitation of the Limited Partners for
the Information Statement administered in 1993. In addition, the charge for
reimbursement of certain General Partner expenses allocated to the Partnership
decreased in 1994.
Provision is made for impairment loss if the General Partner determines that
the carrying amount of the Partnership's investment in a real estate asset may
not be recoverable. The General Partner obtains third party appraisals on the
Partnership's properties as required by the Partnership Agreement. If these
appraisals indicate that certain of the Partnership's properties have market
values below their then-current carrying values, management considers the
appraisals and analyzes the current and anticipated market conditions of the
respective properties and determines if an impairment has occurred. At
December 31, 1994, after evaluation of Atrium Place, management estimated a
$600,000 impairment of value as compared to its respective carrying value.
-7-
<PAGE> 9
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1993
The increase in rental income for the year ended December 31, 1993, as compared
to 1992, was attributable to several factors. At Kennedy, the expansion of two
existing tenants (encompassing an aggregate 7,406 square feet), resulted in an
increase in occupancy rate and an aggregate increase in rental income of
$106,000. In addition, bad debt charge-offs of $72,000 were recorded in 1992,
as a result of two tenant bankruptcies at Kennedy Corporate Center and Lakeland
Industrial Park. These charge-offs had the effect of lowering 1992 revenue as
compared to 1993. The aforementioned increases were partially offset by a
decrease in rental income at Atrium Place, which resulted from the property's
decrease in aggregate occupancy during 1993. The decreased occupancy
(currently 45%) reduced rental income by $130,000, when compared to 1992.
Interest income resulted from the temporary investment of Partnership working
capital. The decrease for the year ended December 31, 1993, as compared to
1992, was attributable to a reduced level of average working capital and a
lower rate-of-return on short-term investments.
The decrease in operating expenses for the year ended December 31, 1993, as
compared to 1992, was primarily attributable to the decrease in legal and
professional services relating to a tenant dispute and real estate tax appeals
at Creekridge and Kennedy Corporate Center. The aforementioned decreases were
partially offset by an increase in utilities, cleaning and HVAC repairs at
Lakeland Industrial Park.
The decrease in real estate taxes for the year ended December 31, 1993, as
compared to 1992, was primarily attributable to a lower tax assessment at
Atrium and Kennedy Corporate Center. The aforementioned decreases were
partially offset by an increase in real estate tax expense at Creekridge. The
increase was a result of a $134,000 tax refund in 1992, which had the effect of
lowering 1992 tax expense.
The decreases in depreciation expenses for the year ended December 31, 1993, as
compared to 1992, were a result of a $3,850,000 adjustment to the carrying
value of real estate assets during 1992. As part of this adjustment, the
depreciable bases (buildings and improvements) of Atrium Place, Creekridge and
Kennedy were reduced in December 1992, by $236,000, $2,822,000 and $370,000,
respectively, with the remaining adjustment of $422,000 allocated to land.
General and administrative expenses for the year ended December 31, 1993
included charges of $423,000 from the General Partner and its affiliates for
services rendered in connection with administering the affairs of the
Partnership and operating the Partnership's properties. Also included in
general and administrative expenses are direct charges of $414,000 relating to
audit and tax preparation fees, annual appraisal fees, legal fees, insurance,
costs incurred in providing information to the Limited Partners and other
miscellaneous costs.
The increase in general and administrative expenses for the year ended December
31, 1993, as compared to 1992, was primarily attributable to the payment of
asset management fees ($232,000) to the General Partner and its affiliates
pursuant to the amended Partnership Agreement. In addition, legal and
professional services, printing, postage and mailing expenses increased as a
result of the Partnership's solicitation of the Limited Partners for the
Information Statement.
-8-
<PAGE> 10
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1993 (Cont'd.)
The General Partner elected to terminate the Partnership's Property Management
Agreement with Glenborough Management Corporation ("Glenborough") effective
November 1, 1993. On that date, the General Partner caused the Partnership to
enter a new property management agreement with Birtcher Properties, an
affiliate of the General Partner. Pursuant to the Partnership Management
Agreement, Birtcher Properties will act as the Partnership's exclusive agent to
operate, rent, manage and maintain the Partnership's properties. In its
capacity as property manager for the Partnership's properties, Birtcher
Properties will perform substantially the same services that Glenborough
performed during the previous two-year period at fees similar to (and not
larger than) the fees it used to pay Glenborough, plus certain costs associated
with property management, as before. The contract is terminable upon a minimum
of 60 days' written notice by either party. As before, the General Partner
will continue to oversee the day-to-day management of the Partnership.
Year Ended December 31, 1992
The decrease in rental income for the year ended December 31, 1992, as compared
to 1991, was attributable to several factors. At Lakeland, three substantial
tenants downsized and consolidated their operations at another site. The lost
tenancy resulted in a net decrease to rental income of $312,000 for 1992. In
addition, operating expense recoveries declined at Atrium Place by $92,000 due
to the reconciliation of 1991 recoveries, a reduced real estate tax assessment
and lower operating expenses incurred during 1992. The aforementioned
decreases were partially offset by the substantial increase in occupancy from
44%, in September 1991, to the December 1992 level of 70% at Creekridge Center
in Bloomington, Minnesota. The increase in occupancy at Creekridge Center
resulted in $216,000 of additional rental income for 1992.
Interest income resulted from the temporary investment of Partnership working
capital. The decrease for 1992 as compared to 1991, was attributable to a
lower rate-of-return on short-term investments.
The decrease in operating expenses for the year ended December 31, 1992, as
compared to 1991, was primarily attributable to an overall decrease in property
management fees and related on-site expenses incurred during 1992. In
addition, maintenance and repair expenses were lower at Iomega and Atrium Place
in 1992. The aforementioned expense reductions were partially offset by
increased legal fees incurred during 1992, as a result of tenant business
failures, rent abatement, rental relief requests and bankruptcies associated
with the national economic downturn.
The decrease in real estate taxes for the year ended December 31, 1992, as
compared to 1991, was attributable to a successful tax appeal at Creekridge,
which resulted in a $134,000 tax refund in 1992. The overall decrease was
partially offset by increased tax assessments for Kennedy Corporate Center,
Iomega and Ladera II Shopping Center during 1992.
General and administrative expenses for the year ended December 31, 1992,
included charges of $224,000 from the General Partner and its affiliates for
services rendered in connection with administering the affairs of the
Partnership and operating the Partnership's properties. Also included in
general and administrative expenses were direct charges of $298,000 relating to
audit fees, tax preparation fees, legal fees, appraisal fees, business plans,
insurance,
-9-
<PAGE> 11
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd.)
Results of Operations (Cont'd.)
Year Ended December 31, 1992 (Cont'd.)
costs incurred in providing information to the Limited Partners and other
miscellaneous costs.
The decrease in general and administrative expenses for the year ended December
31, 1992, as compared to 1991, was primarily attributable to the payment of the
$311,000 of previously deferred property management fees to an affiliate of the
General Partner in 1991.
At December 31, 1992, after evaluation of the Atrium Place, Creekridge Center
and Kennedy Corporate Center-I, management estimated an aggregate $3,850,000
impairment of value as compared to their respective carrying values.
-10-
<PAGE> 12
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DAMSON/BIRTCHER REALTY INCOME FUND-II
LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Financial Statements:
Balance Sheets as of December 31, 1994 and 1993 . . . . . . . . . . . F-3
Statements of Operations for the Years Ended December 31, 1994,
1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Changes in Partners' Capital for the Years Ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows for the Years Ended December 31, 1994,
1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . F-7
Schedules:
III - Real Estate and Accumulated Depreciation as of
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . F-16
</TABLE>
Information required by other schedules called for under Regulation S-X is
either not applicable or is included in the financial statements.
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . F-19
Financial Statements:
Balance Sheets as of December 31, 1994 and 1993 . . . . . . . . . . . F-20
Statements of Operations for the Years Ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . F-21
Statements of Changes in Partners' Capital for the Years
Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . F-22
Statements of Cash Flows for the Years Ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . F-23
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . F-24
Schedules:
III - Real Estate and Accumulated Depreciation as of
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . F-28
</TABLE>
Information required by other schedules called for under Regulation S-X is
either not applicable or is included in the financial statements.
F-1
<PAGE> 13
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
INDEPENDENT AUDITORS' REPORT
To Birtcher/Liquidity Properties, as General Partner of
Damson/Birtcher Realty Income Fund-II, Limited Partnership:
We have audited the financial statements of Damson/Birtcher Realty Income
Fund-II, Limited Partnership as listed in the accompanying index. In
connection with our audits of the financial statements, we also have audited
the financial statement schedule listed in the accompanying index. These
financial statements and the financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Damson/Birtcher Realty Income
Fund-II, Limited Partnership as of December 31, 1994 and 1993, and the results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 1994, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.
KPMG Peat Marwick LLP
Orange County, California
January 25, 1995, except as to
Note 8, which is as of
February 28, 1995
F-2
<PAGE> 14
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1994 1993
-------------------------------------
<S> <C> <C>
ASSETS
------
Investments in real estate, net:
Land $ 3,506,000 $ 3,593,000
Buildings and improvements 32,309,000 32,407,000
------------ -----------
35,815,000 36,000,000
Less accumulated depreciation (10,954,000) (9,742,000)
------------ -----------
24,861,000 26,258,000
Investment in Cooper Village Partners 4,817,000 4,922,000
Cash and cash equivalents 1,058,000 1,000,000
Accounts receivable (net of allowance for
doubtful accounts of $23,000 in 1994
and 1993) 31,000 50,000
Accrued rent receivable 471,000 200,000
Prepaid expenses and other assets 258,000 307,000
------------ -----------
$ 31,496,000 $32,737,000
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Accounts payable and accrued liabilities $ 653,000 $ 690,000
------------ -----------
Partners' capital:
Limited Partners 30,987,000 32,179,000
General Partner (144,000) (132,000)
------------ -----------
30,843,000 32,047,000
------------ -----------
Commitments and contingencies - -
------------ -----------
$ 31,496,000 $32,737,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-3
<PAGE> 15
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
1994 1993 1992
----------------------------------------------
<S> <C> <C> <C>
REVENUES:
Rental income $4,569,000 $4,132,000 $ 3,988,000
Interest and other income 68,000 49,000 55,000
---------- ---------- -----------
Total revenues 4,637,000 4,181,000 4,043,000
---------- ---------- -----------
EXPENSES:
Operating expenses 1,139,000 1,011,000 1,044,000
Real estate taxes 705,000 715,000 814,000
Depreciation and amortization 1,290,000 1,229,000 1,371,000
General and administrative 638,000 837,000 522,000
Adjustment to carrying value of
real estate 600,000 - 3,850,000
----------- ---------- -----------
Total expenses 4,372,000 3,792,000 7,601,000
----------- ---------- -----------
Income (loss) before equity in earnings
of Cooper Village Partners 265,000 389,000 (3,558,000)
Equity in earnings of
Cooper Village Partners 197,000 157,000 181,000
---------- ---------- -----------
NET INCOME (LOSS) $ 462,000 $ 546,000 $(3,377,000)
========== ========== ===========
NET INCOME (LOSS) ALLOCABLE TO:
General Partner $ 5,000 $ 5,000 $ (34,000)
========== ========== ===========
Limited Partners $ 457,000 $ 541,000 $(3,343,000)
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-4
<PAGE> 16
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1994, 1993 AND 1992
-----------------------------------------------
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-----------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1991 $ (74,000) $37,827,000 $37,753,000
Net loss (34,000) (3,343,000) (3,377,000)
Distributions (17,000) (1,675,000) (1,692,000)
--------- ----------- -----------
Balance, December 31, 1992 (125,000) 32,809,000 32,684,000
Net income 5,000 541,000 546,000
Distributions (12,000) (1,171,000) (1,183,000)
--------- ----------- -----------
Balance, December 31, 1993 $(132,000) $32,179,000 $32,047,000
Net income 5,000 457,000 462,000
Distributions (17,000) (1,649,000) (1,666,000)
--------- ----------- -----------
Balance, December 31, 1994 $(144,000) $30,987,000 $30,843,000
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-5
<PAGE> 17
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
1994 1993 1992
----------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 462,000 $ 546,000 $(3,377,000)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 1,290,000 1,229,000 1,371,000
Equity in earnings of Cooper
Village Partners (197,000) (157,000) (181,000)
Adjustment to carrying value of
real estate 600,000 - 3,850,000
Changes in:
Accounts receivable 19,000 36,000 (13,000)
Accrued rent receivable (271,000) (48,000) (76,000)
Prepaid expenses and other assets (29,000) (164,000) (65,000)
Accounts payable and accrued
liabilities (37,000) (96,000) 23,000
Due to affiliates - (13,000) 13,000
---------- ---------- -----------
Net cash provided by operating
activities 1,837,000 1,333,000 1,545,000
---------- ---------- -----------
Cash flows from investing activities:
Investments in real estate (415,000) (527,000) (171,000)
Distributions received from
Cooper Village Partners 302,000 330,000 336,000
---------- ---------- -----------
Net cash provided by (used in)
investing activities (113,000) (197,000) 165,000
---------- ---------- -----------
Cash flows from financing activities:
Distributions (1,666,000) (1,183,000) (1,692,000)
---------- ---------- -----------
Net increase (decrease) in cash and
cash equivalents 58,000 (47,000) 18,000
Cash and cash equivalents, beginning
of year 1,000,000 1,047,000 1,029,000
---------- ---------- -----------
Cash and cash equivalents, end of year $1,058,000 $1,000,000 $ 1,047,000
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-6
<PAGE> 18
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Operations
Damson/Birtcher Realty Income Fund-II, Limited Partnership (the
"Partnership") is a limited partnership formed on September 13, 1985,
under the laws of the State of Delaware for the purpose of acquiring
and operating income-producing retail, commercial and industrial
properties. The General Partner of the Partnership is
Birtcher/Liquidity Properties, a general partnership consisting of LF
Special Fund I, L.P. ("LF-I"), a California limited partnership and
Birtcher Investors, a California limited partnership. Birtcher
Investors, or its affiliates, provides day-to-day administration,
supervision and management of the Partnership and its properties.
In January 1993, the General Partner filed an information statement
with the Securities and Exchange Commission seeking consent of the
Limited Partners to amend the Partnership Agreement. On June 24, 1993,
the Partnership completed its solicitation of written consent from its
Limited Partners. A majority in interest of the Partnership's Limited
Partners approved each of the proposals contained in the Information
Statements, dated May 5, 1993. Those proposals have been implemented
by the Partnership as contemplated by the Information Statement as
amendments to the Partnership Agreement, and are reflected in these
Financial Statements as such.
The amendment modifies the Partnership Agreement to eliminate the
General Partner's 10% subordinated interest in distributions of
Distributable Cash (net cash from operations) and to reduce its
subordinated interest in such distributions from 10% to 1%. The
amendment also modifies the Partnership Agreement to eliminate the
General Partner's 10% subordinated interest in Sale or Financing
Proceeds (net cash from sale or financing of Partnership property) and
to reduce its subordinated interest in such proceeds from 15% to 1%.
In lieu thereof, the Partnership Agreement now provides for the
Partnership's payment to the General Partner of an annual asset
management fee equal initially to .75% of the aggregate appraised value
of the Partnership's properties. At January 1, 1994 and 1993, the
portfolio was appraised at an aggregate value of approximately
$34,968,000 (unaudited) and $34,965,000 (unaudited), respectively,
which includes the Partnership's interest in Cooper Village Partners
which was appraised at $4,118,000 and $4,060,000, respectively. The
factor used to calculate the annual asset management fee will be
reduced by .10% each year beginning after December 31, 1996 (e.g., from
.75% in 1996 to .65% in 1997).
The amendment modifies the Partnership Agreement to eliminate the
subordination provisions with respect to future property disposition
fees payable under that section and authorizes payment to the General
Partner and its affiliates of the foregoing property disposition fees
as earned. The fees will not be subordinated to the return to the
Limited Partners Preferred Return and Adjusted Invested Capital or any
other amount. The disposition fees will be paid to the General Partner
or its affiliates in an amount equal to 50% of the competitive real
estate brokerage commission that would be charged by unaffiliated third
parties providing comparable services in the area in which a property
is located, but in no event more than three percent of the gross sale
price of the property, and is to be reduced by the amount by which any
brokerage or similar commissions paid to any unaffiliated third parties
in connection with the sale of the property exceed three percent of the
gross sale price. This amount is not payable, unless and to the extent
that the sale price of the property in question, net of any other
brokerage commissions (but not other costs of sale), exceeds the
appraised value of the property as of January 1, 1993.
F-7
<PAGE> 19
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
The amendment states that the Partnership is no longer authorized to
pay the General Partner or its affiliates any insurance commission or
any property financing fees. No such commission or fees have been paid
or accrued by the Partnership since its inception.
The amendment modifies the provisions of the Partnership Agreement
regarding allocations of Partnership income, gain and other tax items
between the General Partner and the Limited Partners primarily to
conform to the changes in the General Partner's interest in
distributions of Distributable Cash and Sale or Financing Proceeds
effected by the amendment.
It is not anticipated that the adoption and implementation of the
amendment will have any material adverse effect on future allocations
of income, gain, loss or other tax items to the Limited Partners.
However, if any of the Partnership's properties are sold for a gain, a
special allocation to the General Partner would have the effect of
reducing the amount of Sale or Financing Proceeds otherwise
distributable to the Limited Partners and correspondingly increasing
the amount of such distributions to be retained by the General Partner.
The amount of such distributions to be affected would be approximately
equal to any deficit balance in the General Partner's capital account
in the Partnership at the time of the allocation.
The Limited Partners have certain priorities in the allocation of cash
distributions by the Partnership. Out of each distribution of net
cash, the Limited Partners generally have certain preferential rights
to receive payments that, together with all previous payments to them,
would provide an overall 9% per annum (cumulative non-compounded)
return (a "9% Preferential Return") on their investment in the
Partnership. Any distributions not equaling this 9% Preferential
Return in any quarter are to be made up in subsequent periods if and to
the extent distributable cash is available.
Distributable cash from operations is paid out each quarter in the
following manner: 99% to the Limited Partners and 1% to the General
Partner. These payments are made each quarter to the extent that there
is sufficient distributable cash available.
Sale or financing proceeds are to be distributed, to the extent
available, as follows: (i) to the Limited Partners until all cash
distributions to them amount to a 9% Preferential Return on their
investment cumulatively from the date of their admission to the
Partnership, (ii) then to the Limited Partners in an amount equal to
their investment; and (iii) the remainder, 99% to Limited Partners and
1% to the General Partner.
The unpaid 9% Preferential Return to the Limited Partners aggregates
approximately $21,215,000 as of December 31, 1994.
Income or loss for financial statement purposes is allocated 99% to the
Limited Partners and 1% to the General Partner.
The amendment modifies the Partnership Agreement so as to restrict the
Partnership from entering into a future "Reorganization Transaction"
(as defined in the amendment) sponsored by the General Partner or any
of its affiliates unless such transaction is approved by a
"supermajority" of at least 80% in interest of the Limited Partners and
the General Partner.
F-8
<PAGE> 20
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
The amendment also prohibits the modification of this restriction on
Reorganization Transactions without the approval of at least 80% in
interest of the Limited Partners.
The Partnership's original investment objectives contemplated that it
would hold its properties for a period of at least five years, with
decisions about the actual timing of property sales or other
dispositions to be left to the General Partner's discretion based on
the anticipated remaining economic benefits of continued ownership and
other factors. Although the current market for real estate is
depressed, the General Partner is committed to selling the
Partnership's properties as soon as reasonably practicable. To that
end, the amendment mandates that the General Partner seek a vote of the
Limited Partners no later than December 31, 1996 regarding the prompt
liquidation of the Partnership in the event that properties with
appraised values as of January 1993 which constituted at least one-half
of the aggregate appraised value of all Partnership properties as of
that date are not sold or under contract for sale by the end of 1996.
In conjunction with the vote, the General Partner will provide an
analysis and recommendation regarding the advisability of liquidating
the Partnership.
(2) Summary of Significant Accounting Policies
Carrying Value of Real Estate
Provision is made for impairment loss if the General Partner determines
that the carrying amount of the Partnership's investment in a real
estate asset may not be recoverable. The General Partner obtains third
party appraisals on the Partnership's properties as required by the
Partnership Agreement. If these appraisals indicate that certain of
the Partnership's properties have market values below their
then-current carrying values, management considers the appraisals and
analyzes the current and anticipated market conditions of the
respective properties and determines if an impairment has occurred.
At December 31, 1994, after evaluation of the Atrium Place, management
estimated a $600,000 impairment of value as compared to its respective
carrying value. At December 31, 1992, after evaluation of the Atrium
Place, Creekridge Center and Kennedy Corporate Center-I, management
estimated an aggregate $3,850,000 impairment of value as compared to
their respective carrying values.
Cash and Cash Equivalents
The Partnership invests its excess cash balances in short-term
investments (cash equivalents). These investments are stated at cost,
which approximates market, and consist of money market, certificates of
deposit and other non-equity-type cash investments. Cash equivalents
at December 31, 1994 and 1993, totaled $973,000 and $926,000,
respectively. Cash equivalents are defined as temporary non-equity
investments with original maturities of three months or less, which can
be readily converted into cash and are not subject to changes in market
value.
F-9
<PAGE> 21
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Depreciation
Depreciation expense is computed using the straight-line method. Rates
used in the determination of depreciation are based upon the following
estimated useful lives:
<TABLE>
<CAPTION>
Years
---------
<S> <C>
Buildings 30
Building improvements 3 to 30
</TABLE>
Revenue Recognition
Rental income pertaining to operating lease agreements which specify
scheduled rent increases or free rent periods, is recognized on a
straight-line basis over the period of the related lease agreement.
Income Taxes
Income taxes are not levied at the Partnership level, but rather on the
individual partners; therefore, no provision or liability for Federal
and State income taxes has been reflected in the accompanying financial
statements.
Following are the Partnership's assets and liabilities as determined in
accordance with generally accepted accounting principles ("GAAP") and
for federal income tax reporting purposes at December 31:
<TABLE>
<CAPTION>
1994 1993
GAAP Basis Tax Basis GAAP Basis Tax Basis
(Unaudited) (Unaudited)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Assets $31,496,000 $38,570,000 $32,737,000 $39,811,000
Total
Liabilities $ 653,000 $ 653,000 $ 690,000 $ 690,000
</TABLE>
Following are the differences between Financial Statement and tax
return income:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) per Financial Statements $ 462,000 $ 546,000 $(3,377,000)
Adjustment to carrying value of real
estate 600,000 - 3,850,000
Depreciation differences on investments in
real estate (259,000) (328,000) (251,000)
Other (137,000) 89,000 (65,000)
------------------------------------------------------------------------------------------------------------
Taxable income per Federal tax return
(unaudited) $ 666,000 $307,000 $ 157,000
============================================================================================================
</TABLE>
F-10
<PAGE> 22
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd)
(2) Summary of Significant Accounting Policies (Cont'd.)
Significant Customers
Rental income from Iomega Corporation totaled $1,207,000 in 1994,
$1,209,000 in 1993 and $1,196,000 in 1992, or approximately 26%, 29%
and 30%, respectively, of the Partnership's total rental income.
Rental income from Delta Dental Corporation totaled $694,000 in 1994,
$643,000 in 1993, $645,000 in 1992, or approximately 15%, 16% and 16%,
respectively, of the Partnership's total rental income.
Earnings and Distributions Per Unit
The Partnership Agreement does not designate investment interests in
units. All investment interests are calculated on a "percent of
Partnership" basis, in part to accommodate reduced rates on sales
commissions for subscriptions in excess of certain specified amounts.
A Limited Partner who was charged a reduced sales commission or no
sales commission was credited with proportionately larger Invested
Capital and therefore had a disproportionately greater interest in the
capital and revenues of the Partnership than a Limited Partner who paid
commissions at a higher rate. As a result, the Partnership has no set
unit value as all accounting, investor reporting and tax information is
based upon each investor's relative percentage of Invested Capital.
Accordingly, earnings or loss per unit is not presented in the
accompanying financial statements.
Investment in Cooper Village
The Partnership uses the equity method of accounting to account for its
investment in Cooper Village Partners inasmuch as control of Cooper
Village Partners is shared jointly between the Partnership and Real
Estate Income Partners III, Limited Partnership. The accounting
policies of Cooper Village Partners are consistent with those of the
Partnership.
Reclassifications
Certain reclassifications have been made to conform prior year amounts
to the 1994 presentation.
F-11
<PAGE> 23
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Investment in Cooper Village Partners
During 1987 and 1988, Cooper Village Partners ("CV Partners"), a
California general partnership consisting of the Partnership and Real
Estate Income Partners III, Limited Partnership ("Fund III"), an
affiliated limited partnership, acquired Cooper Village. In connection
therewith, the Partnership and Fund III contributed capital
contributions of $5,937,000 (58%) and $4,300,000 (42%), respectively,
and share in the profits, losses and distributions of CV Partners in
proportion to their respective ownership interests.
Condensed summary financial information for CV Partners is presented
below.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1994 1993
-------------------------------------
<S> <C> <C>
Land, Buildings and
Equipment (net) $ 7,967,000 $8,141,000
Cash and Other Assets 521,000 523,000
----------- ----------
Total Assets 8,488,000 $8,664,000
=========== ==========
Accounts Payable and
Accrued Liabilities $ 85,000 $ 79,000
Partners' Capital 8,403,000 8,585,000
----------- ----------
Total Liabilities and
Partners' Capital $ 8,488,000 $8,664,000
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1993 1992
-----------------------------------------------
<S> <C> <C> <C>
Rental and Other Income $1,023,000 $ 989,000 $ 915,000
Operating and Other Expenses (428,000) (466,000) (362,000)
Depreciation and Amortization (256,000) (252,000) (241,000)
---------- --------- ----------
Net Income $ 339,000 $ 271,000 $ 312,000
========== ========= ==========
</TABLE>
F-12
<PAGE> 24
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(4) Transactions with Affiliates
The Partnership has no employees and, accordingly, the General Partner
and its affiliates perform services on behalf of the Partnership in
connection with administering the affairs of the Partnership. The
General Partner and affiliates are reimbursed for their general and
administrative costs actually incurred and associated with services
performed on behalf of the Partnership. For the years ended December
31, 1994, 1993 and 1992, the Partnership was charged with
approximately $101,000, $150,000 and $165,000, respectively, of such
expenses.
On November 1, 1993, the General Partner elected to terminate the
Partnership's property management agreement with an unaffiliated third
party. On that date, the General Partner entered into new property
management agreements with Birtcher Properties, an affiliate of the
General Partner. The contracts encompass terms at least as favorable
to the Partnership as the terminated contracts with the unaffiliated
third party and are terminable by the Partnership upon 60 days'
written notice to Birtcher Properties. Fees paid to the General
Partner's affiliate for property management services were not to
exceed 6% of the gross receipts from the properties under management,
provided that leasing services were performed, otherwise not to exceed
3%. Such fees amounted to approximately $159,000 in 1994, and $29,000
in 1993. The General Partner was also paid a leasing fee for services
rendered in connection with leasing space in a partnership property
after the expiration or termination of any lease of such space
including renewal options. Such fees amounted to $40,000, $41,000,
and $59,000 for the years ended December 31, 1994, 1993, and 1992
respectively. Those fees have been recorded in general and
administrative expenses in the accompanying statements of operations
for the years ended December 31, 1994, 1993, and 1992. As
reimbursement of costs for on-site property management personnel and
other related costs, an affiliate of the General Partner received
$119,000 in 1994 and $19,000 in 1993. In addition to the
aforementioned, the General Partner was also paid $52,000 and $10,000
related to the Partnership's portion (58%) of property management
fees, leasing fees, reimbursement of on-site property management
personnel and other reimbursable expenses for Cooper Village Partners
for the year ended December 31, 1994 and 1993, respectively.
The amended Partnership Agreement provides for the Partnership's
payment to the General Partner of an annual asset management fee equal
to .75% of the aggregate appraised value of the Partnership's
properties as determined by independent appraisal undertaken in
January of each year. Such fees for the year ended December 31, 1994
and 1993, amounted to $231,000 and $232,000, respectively. In
addition to the aforementioned, the General Partner was also paid
$31,000 and $30,000, related to the Partnership's portion (58%) of
asset management fees for Cooper Village Partners for the year ended
December 31, 1994 and 1993, respectively.
F-13
<PAGE> 25
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(5) Commitments and Contingencies
Litigation
The Partnership is not a party to any pending legal proceedings other
than ordinary routine litigation incidental to its business. It is
the General Partner's belief, that the outcome of these proceedings
will not be material to the business, financial condition, or results
of operations of the Partnership.
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed
as of December 31, 1994, are properly classified as operating leases
for financial reporting purposes. Future minimum annual rental income
to be received under such leases as of December 31, 1994, is as
follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1995 $3,054,000
1996 2,394,000
1997 1,844,000
1998 1,185,000
1999 565,000
Thereafter 163,000
----------
$9,205,000
==========
</TABLE>
Certain of these leases also provide for, among other things: tenant
reimbursements to the Partnership of certain operating expenses;
payments of additional rents in amounts equal to a set percentage of
the tenant's annual revenue in excess of specified levels; and
escalations in annual rents based upon the Consumer Price Index.
(6) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
------------------------
<S> <C> <C>
Real estate taxes $428,000 $465,000
Security deposits 135,000 147,000
Accounts payable and other 90,000 78,000
-------- --------
$653,000 $690,000
======== ========
</TABLE>
(7) Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1993 1992
-------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 23,000 $19,000 $ 33,000
Additions 27,000 9,000 72,000
Writeoffs (27,000) (5,000) (86,000)
-------- ------- --------
Balance at end of year $ 23,000 $23,000 $ 19,000
======== ======= ========
</TABLE>
F-14
<PAGE> 26
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(8) Subsequent Event
On February 28, 1995, the Partnership made an aggregate cash
distribution of $442,000 to its Limited Partners.
F-15
<PAGE> 27
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. C COL. D
------ ------ ------
COSTS CAPITALIZED
INITIAL COST SUBSEQUENT
TO PARTNERSHIP(C) TO THE ACQUISITION
------------------------ --------------------------
BUILDINGS AND CARRYING
DESCRIPTION(a) LAND IMPROVEMENTS IMPROVEMENTS COSTS(b)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Atrium Place
Arlington Heights, IL $ 332 $ 2,040 $ 532 $ (875)
Lakeland Industrial Park
Milwaukee, WI 270 5,973 1,134 (41)
Kennedy Corporate Center
Palatine, IL 641 4,252 625 (524)
Iomega/Northpointe
Business Center
Roy, UT 672 7,834 260 -
Ladera Shopping Center,
Phase II
Albuquerque, NM 829 2,241 83 (22)
Creekridge Center
Bloomington, MN 1,312 11,304 319 (3,376)
------ ------- ------- -------
TOTAL $4,056 $33,644 $ 2,953 $(4,838)
====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
COL. E COL. F COL. H COL. I
------ ------ ------ ------
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF PERIOD(b)
---------------------------------------
ACCUMULATED
BUILDINGS AND DEPRECIATION DATE DEPRECIABLE
DESCRIPTION(a) LAND IMPROVEMENTS TOTAL(d) (d) ACQUIRED LIFE(e)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Atrium Place
Arlington Heights, IL $ 205 $ 1,824 $ 2,029 $ 999 12/19/85 30 years
Lakeland Industrial Park
Milwaukee, WI 268 7,068 7,336 2,160 12/19/85 30 years
and
11/25/86
Kennedy Corporate Center
Palatine, IL 574 4,420 4,994 1,733 01/08/86 30 years
Iomega/Northpointe
Business Center
Roy, UT 672 8,094 8,766 2,415 01/31/86 30 years
Ladera Shopping Center,
Phase II
Albuquerque, NM 821 2,310 3,131 675 02/07/86 30 years
Creekridge Center
Bloomington, MN 966 8,593 9,559 2,972 09/23/86 30 years
------ ------- ------- -------
TOTAL $3,506 $32,309 $35,815 $10,954
====== ======= ======= =======
</TABLE>
NOTE: Columns B and G are either none or are not applicable.
See notes to table on following page.
F-16
<PAGE> 28
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO SCHEDULE III
(a) For a description of the properties, see "Item 2. Properties." This
schedule does not include the investment in Cooper Village Partners
which is accounted for under the equity method of accounting.
(b) Provision is made for impairment loss if the General Partner determines
that the carrying amount of the Partnership's investment in a real
estate asset may not be recoverable. The General Partner obtains third
party appraisals on the Partnership's properties as required by the
Partnership Agreement. If these appraisals indicate that certain of
the Partnership's properties have market values below their
then-current carrying values, management considers the appraisals and
analyzes the current and anticipated market conditions of the
respective properties and determines if an impairment has occurred.
At December 31, 1994, after evaluation of the Atrium Place, management
estimated a $600,000 impairment of value as compared to its respective
carrying value. At December 31, 1992, after evaluation of the Atrium
Place, Creekridge Center and Kennedy Corporate Center-I, management
estimated an aggregate $3,850,000 impairment of value as compared to
their respective carrying values.
The aggregate cost of land, buildings and improvements for Federal
income tax purposes (unaudited) was $40,872,000 as of December 31,
1994. The differences between the aggregate cost of land, buildings
and improvements for tax reporting purposes as compared to financial
reporting purposes are primarily attributable to: 1) amounts received
under rental agreements for non-occupied space, which were recorded as
income for tax reporting purposes but were recorded as a reduction of
the corresponding property basis for financial reporting purposes, and;
2) the adjustment to the carrying value of real estate which was
recorded as a reduction of the corresponding property basis for
financial statement purposes and has no effect for tax reporting
purposes.
(c) The initial cost to the Partnership includes acquisition fees paid to
the General Partner.
(d) RECONCILIATION OF REAL ESTATE
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1994 1993 1992
-------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $36,000,000 $35,473,000 $39,152,000
Additions during the year:
Improvements 415,000 527,000 171,000
Reductions during the year:
Adjustment to the carrying
value of real estate (600,000) - (3,850,000)
----------- ----------- -----------
Balance at end of year $35,815,000 $36,000,000 $35,473,000
=========== =========== ===========
</TABLE>
F-17
<PAGE> 29
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
NOTES TO SCHEDULE III (Cont'd.)
RECONCILIATION OF ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1994 1993 1992
-------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 9,742,000 $8,570,000 $7,241,000
Depreciation expense 1,212,000 1,172,000 1,329,000
----------- ---------- ----------
Balance at end of year $10,954,000 $9,742,000 $8,570,000
=========== ========== ==========
</TABLE>
(e) Depreciation expense is computed based upon the following estimated
useful lives:
<TABLE>
<CAPTION>
Years
---------
<S> <C>
Buildings 30
Building improvements 3 to 30
</TABLE>
F-18
<PAGE> 30
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
INDEPENDENT AUDITORS' REPORT
To Damson/Birtcher Realty Income Fund-II, Limited Partnership and
Real Estate Income Partners III, Limited Partnership as
General Partners of Cooper Village Partners:
We have audited the financial statements of Cooper Village Partners, a general
partnership as listed in the accompanying index. In connection with our audits
of the financial statements, we also have audited the financial statement
schedule listed in the accompanying index. These financial statements and the
financial statement schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cooper Village Partners as of
December 31, 1994 and 1993 and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1994, in
conformity with generally accepted accounting principles. Also in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Orange County, California
January 25, 1995, except
as to Note 7, which is as of
March 10, 1995.
F-19
<PAGE> 31
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1994 1993
------------------------------------
<S> <C> <C>
ASSETS
------
Investments in real estate, net:
Land $ 2,748,000 $ 2,748,000
Buildings and improvements 6,754,000 6,684,000
----------- -----------
9,502,000 9,432,000
Less accumulated depreciation (1,535,000) (1,291,000)
----------- -----------
7,967,000 8,141,000
Cash and cash equivalents 400,000 389,000
Accounts receivable (net of allowance for
doubtful accounts of $13,000 in 1993) 37,000 39,000
Accrued rent receivable 61,000 61,000
Prepaid expenses and other assets 23,000 34,000
----------- -----------
$ 8,488,000 $ 8,664,000
============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Accounts payable and accrued liabilities $ 85,000 $ 79,000
----------- -----------
Partners' capital 8,403,000 8,585,000
----------- -----------
Commitments and contingencies - -
----------- -----------
$ 8,488,000 $ 8,664,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-20
<PAGE> 32
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1994 1993 1992
------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Rental income $1,010,000 $971,000 $897,000
Interest and other income 13,000 18,000 18,000
---------- -------- --------
Total revenues 1,023,000 989,000 915,000
---------- -------- --------
EXPENSES:
Operating expenses 284,000 316,000 257,000
Real estate taxes 85,000 86,000 98,000
Depreciation and amortization 256,000 252,000 241,000
General and administrative 59,000 64,000 7,000
---------- -------- --------
Total expenses 684,000 718,000 603,000
---------- -------- --------
NET INCOME $ 339,000 $271,000 $312,000
========== ======== ========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-21
<PAGE> 33
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1994, 1993 AND 1992
--------------------------------------------------------
GENERAL GENERAL
PARTNER PARTNER TOTAL
Damson/Birtcher Real Estate Income
Realty Income Partners III
Fund II
--------------- ------------------ -----------
<S> <C> <C> <C>
Balance, December 31, 1991 $5,250,000 $3,899,000 $9,149,000
Net income 181,000 131,000 312,000
Distributions (336,000) (243,000) (579,000)
---------- ---------- ----------
Balance, December 31, 1992 5,095,000 3,787,000 8,882,000
Net income 157,000 114,000 271,000
Distributions (330,000) (238,000) (568,000)
---------- ---------- ----------
Balance, December 31, 1993 4,922,000 3,663,000 8,585,000
Net income 197,000 142,000 339,000
Distributions (302,000) (219,000) (521,000)
---------- ---------- ----------
Balance, December 31, 1994 $4,817,000 $3,586,000 $8,403,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-22
<PAGE> 34
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------
1994 1993 1992
-------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 339,000 $ 271,000 $ 312,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 256,000 252,000 241,000
Changes in:
Accounts receivable 2,000 67,000 11,000
Accrued rent receivable - 4,000 (26,000)
Prepaid expenses and other assets (1,000) (8,000) (24,000)
Accounts payable and accrued
liabilities 6,000 (22,000) 11,000
--------- --------- ---------
Net cash provided by operating
activities 602,000 564,000 525,000
Cash flows from investing activities:
Investments in real estate (70,000) (105,000) (12,000)
Cash flows from financing activities:
Distributions (521,000) (568,000) (579,000)
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 11,000 (109,000) (66,000)
Cash and cash equivalents,
beginning of year 389,000 498,000 564,000
--------- --------- ---------
Cash and cash equivalents,
end of year $ 400,000 $ 389,000 $ 498,000
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-23
<PAGE> 35
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(1) Organization
Cooper Village Partners, (the "Partnership") was formed on December 18,
1987 under the laws of the State of California. The General Partners
of the Partnership are Damson Birtcher Realty Income Fund II, Limited
Partnership ("Fund II") and Real Estate Income Partners III, Limited
Partnership ("Fund III"). During 1987 and 1988, The Partnership
acquired Cooper Village Shopping Center in Mesa, Arizona. In
connection with this acquisition, Fund II and Fund III contributed
capital of $5,937,000 (58%) and $4,300,000 (42%), respectively. Fund
II and Fund III share in the profits, losses and distributions of the
Partnership in proportion to their respective ownership interests. The
Partnership maintains its accounting records and prepares its financial
statements in accordance with generally accepted accounting principles.
(2) Summary of Significant Accounting Policies
Carrying Value of Real Estate
Provision is made for impairment loss if the General Partners
determine that the carrying amount of the Partnership's investment in
real estate may not be recoverable. The General Partners obtain a third
party appraisal on the Partnership's property as required by the
Partnership Agreement. If this appraisal indicates that the
Partnership's property has a market value below the then-current
carrying value, management considers the appraisal and analyzes the
current and anticipated market conditions of the property and
determines if an impairment has occurred.
Cash and Cash Equivalents
The Partnership invests its excess cash balances in short-term
investments ("cash equivalents"). These investments are stated at
cost, which approximates market, and consist of money market accounts,
certificates of deposit and other non-equity-type cash investments.
Cash equivalents at December 31, 1994 and 1993, totaled $392,000 and
$384,000, respectively. Cash equivalents are defined as temporary
non-equity investments with original maturities of three months or
less, which can be readily converted into cash and are not subject to
changes in market value.
Depreciation
Depreciation expense is computed using the straight-line method. Rates
used in the determination of depreciation are based upon the following
estimated useful lives:
<TABLE>
<CAPTION>
Years
---------
<S> <C>
Buildings 30
Building improvements 3 to 30
</TABLE>
Revenue Recognition
Rental income pertaining to operating lease agreements which specify
scheduled rent increases or free rent periods, is recognized on a
straight-line basis over the period of the related lease agreement.
Income Taxes
Income taxes are not levied at the Partnership level, therefore, no
provision or liability for Federal and State income taxes has been
reflected in the accompanying financial statements.
F-24
<PAGE> 36
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Income Taxes (Cont'd.)
Following are the Partnership's assets and liabilities as determined in
accordance with generally accepted accounting principles ("GAAP") and
for federal income tax reporting purposes at December 31:
<TABLE>
<CAPTION>
1994 1993
GAAP Basis Tax Basis GAAP Basis Tax Basis
(Unaudited) (Unaudited)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Assets $ 8,488,000 $ 8,488,000 $ 8,664,000 $ 8,664,000
Total Liabilities $ 85,000 $ 85,000 $ 79,000 $ 79,000
</TABLE>
Following are the differences between Financial Statement and tax
return income:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income per Financial Statements $ 339,000 $ 272,000 $ 313,000
Depreciation differences on investments in
real estate $ 26,000 23,000 16,000
Other (13,000) (13,000) (57,000)
----------------------------------------------------------------------------------------------------------
Taxable income per Federal tax return
(unaudited) $ 352,000 $ 282,000 $ 272,000
==========================================================================================================
</TABLE>
(3) Transactions with Affiliates
The Partnership has no employees and, accordingly, Birtcher Properties,
an affiliate of the General Partner of Fund II and Fund III and its
affiliates perform services on behalf of the Partnership in connection
with administering the affairs of the Partnership. Birtcher Properties
and affiliates are reimbursed for their general and administrative
costs actually incurred and associated with services performed on
behalf of the Partnership. For the years ended December 31, 1994, 1993
and 1992, the Partnership was charged with approximately $0, $1,000 and
$0, respectively, of such expenses.
F-25
<PAGE> 37
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Transactions with Affiliates (Cont'd.)
On November 1, 1993, the Partnership elected to terminate the
Partnership's property management agreement with an unaffiliated third
party. On that date, the Partnership entered into a new property
management agreement with Birtcher Properties. The contract
encompasses terms at least as favorable to the Partnership as the
terminated contract with the unaffiliated third party, and is
terminable by the Partnership upon 60 days' notice to Birtcher
Properties. Fees paid to Birtcher Properties for services were not to
exceed 6% of the gross receipts from the properties under management
provided that leasing services were performed, otherwise not to exceed
3%. Such fees amounted to approximately $52,000 in 1994 and $10,000 in
1993. In addition, Birtcher Properties received $32,000 in 1994 and
$5,000 in 1993, as reimbursement of costs for on-site property
management personnel and other reimbursable costs.
The amended Partnership Agreements for Fund II and Fund III provide for
payments to Birtcher Properties or its affiliates of an annual asset
management fee equal to .75% of the aggregate appraised value of Cooper
Village as determined by independent appraisal undertaken in January of
each year. Such fees for the years ended December 31, 1994 and 1993,
amounted to $53,000. In addition, the amended Partnership Agreements
for Fund II and Fund III provide for payment to Birtcher Properties or
its affiliates of a leasing fee for services rendered in connection
with leasing space in the Partnership property after the expiration or
termination of any lease of such space including renewal options. Fees
for leasing services for the years ended December 31, 1994 and 1993,
amounted to $5,000 and $1,000, respectively.
(4) Commitments and Contingencies
Litigation
The Partnership is not a party to any material pending legal
proceedings other than ordinary routine litigation incidental to its
business. It is the General Partners' belief, that the outcome of
these proceedings will not be material to the business, financial
condition, or results of operations of the Partnership.
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed
as of December 31, 1994, are properly classified as operating leases
for financial reporting purposes. Future minimum annual rental income
to be received under such leases as of December 31, 1994, are as
follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1995 $ 713,000
1996 663,000
1997 550,000
1998 422,000
1999 352,000
Thereafter 2,147,000
----------
$4,847,000
==========
</TABLE>
Certain of these leases also provide for, among other things: tenant
F-26
<PAGE> 38
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(4) Commitments and Contingencies (Cont'd.)
Future Minimum Annual Rentals (Cont'd.)
reimbursements to the Partnership of certain operating expenses;
payments of additional rents in amounts equal to a set percentage of
the tenant's annual revenue in excess of specified levels; and
escalations in annual rents based upon the Consumer Price Index.
(5) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993
------- -------
<S> <C> <C>
Real estate taxes $43,000 $43,000
Accounts payable and other 8,000 7,000
Security deposits 34,000 29,000
------- -------
$85,000 $79,000
======= =======
</TABLE>
(6) Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $13,000 $ 30,000 $ 23,000
Additions charged to expense - - 30,000
Write-offs (13,000) (17,000) (23,000)
------- -------- --------
Balance at end of year $ - $ 13,000 $ 30,000
======= ======== ========
</TABLE>
(7) Subsequent Events
On March 10, 1995, the Partnership made an aggregate cash distribution
of $130,000 to its General Partners.
F-27
<PAGE> 39
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. C COL. D COL. E
------ ------ ------ ------
COSTS CAPITALIZED
INITIAL COST SUBSEQUENT GROSS AMOUNT AT WHICH
TO PARTNERSHIP(c) TO THE ACQUISITION CARRIED AT CLOSE OF PERIOD(b)
--------------------- ----------------------- --------------------------------
BUILDINGS AND CARRYING BUILDINGS AND
DESCRIPTION(a) LAND IMPROVEMENTS IMPROVEMENTS COSTS LAND IMPROVEMENTS TOTAL
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cooper Village Shopping Center $2,756 $6,430 $693 $(377) $2,748 $6,754 $9,502
------ ------ ---- ----- ------ ------ ------
TOTAL $2,756 $6,430 $693 $(377) $2,748 $6,754 $9,502
====== ====== ==== ===== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
COL. A COL. F COL. H COL. I
------ ------ ------ ------
ACCUMULATED DATE DEPRECIABLE
DESCRIPTION(a) DEPRECIATION ACQUIRED LIFE(d)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cooper Village Shopping Center $1,535 12/30/87 and 12/30/88 30 years
------
TOTAL $1,535
======
</TABLE>
NOTE: Columns B and G are either none or are not applicable.
F-28
<PAGE> 40
COOPERS VILLAGE PARTNERSHIP
(A GENERAL PARTNERSHIP)
NOTES TO SCHEDULE III
(a) For a description of the property, see "Item 2. Properties."
(b) Provision is made for impairment loss if the General Partners determine
that the carrying amount of the Partnership's investment in real estate may
not be recoverable. The General Partners obtain a third party appraisal on
the Partnership's property as required by the Partnership Agreement. If
this appraisal indicates that the Partnership's property has a market
value below the then-current carrying value, management considers the
appraisal and analyzes the current and anticipated market conditions of
the property and determines if an impairment has occurred.
(c) The initial cost to the Partnership includes acquisition fees paid to
Birtcher Investments.
(d) Depreciation expense is computed based upon the following estimated useful
lives:
Years
-------
Buildings .................... 30
Building improvements ........ 3 to 30
F-29
<PAGE> 41
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership and the General Partner have no directors or executive
officers. The General Partner of the Partnership is Birtcher/Liquidity
Properties, a California general partnership of which Birtcher Investors, a
California limited partnership, and LF Special Fund I, L.P., a California
limited partnership, are the general partners. Under the terms of the
Partnership Agreement, Birtcher Investors is responsible for the day-to-day
management of the Partnership's assets.
The general partner of LF Special Fund I, L.P., is Liquidity Fund Asset
Management, Inc., a California corporation affiliated with Liquidity Financial
Group, L.P. The principals and officers of Liquidity Fund Asset Management,
Inc. are as follows:
o Richard G. Wollack, Chairman of the Board
o Brent R. Donaldson, President
o Deborah M. Richard, Chief Financial Officer
The general partner of Birtcher Investors is Birtcher Investments, a California
general partnership. Birtcher Investments' general partner is Birtcher
Limited, a California limited partnership and its general partner is BREICORP,
a California corporation. The principals and relevant officers of BREICORP are
as follows:
o Ronald E. Birtcher, Co-Chairman of the Board
o Arthur B. Birtcher, Co-Chairman of the Board
o Robert M. Anderson, Executive Director
Item 11. EXECUTIVE COMPENSATION
The following table sets forth the fees, compensation and other expense
reimbursements paid to the General Partner and its affiliates in all capacities
for each year in the three-year period ended December 31, 1994.
-11-
<PAGE> 42
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 11. EXECUTIVE COMPENSATION (Cont'd.)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1994 1993 1992
-------------------------------------------------
<S> <C> <C> <C>
General Partner's 1% share of
distributable cash $ 17,000 $ 12,000 $ 17,000
Asset management fees 231,000 232,000 -
Property management fees(1) 159,000 29,000 -
Property management expense
reimbursements(1) 119,000 19,000 -
Other expense reimbursements 101,000 150,000 165,000
Leasing fee 40,000 41,000 59,000
-------- -------- --------
TOTAL $667,000 $483,000 $241,000
======== ======== ========
--------------
</TABLE>
(1) The General Partner did not provide property management services to the
Partnership's properties from November 1, 1991 through October 31, 1993
and, consequently, the General Partner did not receive any similar
compensation during the first ten months of 1993, and fiscal year ended
December 31, 1992.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 31, 1995, there was no entity or individual holding more than 5%
of the limited partnership interests of the Registrant.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning transactions to which the Registrant was or is to be
a party in which the General Partner or its affiliates had or are to have a
direct or indirect interest, see Notes 1, 3, and 4 to the Financial Statements
in Item 8, which information is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
a) 1. and 2. Financial Statements and Financial Statements Schedules:
See accompanying Index to Financial Statements and Schedules to Item 8,
which information is incorporated herein by reference.
-12-
<PAGE> 43
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K (Cont'd.)
3. Exhibits:
Articles of Incorporation and Bylaws
(a) Agreement of Limited Partnership
incorporated by reference to Exhibit No. 3.1
to the Partnership's registration statement
on Form S-11 (Commission File No. 2-99421),
dated August 5, 1985, as filed under the
Securities Act of 1933.
10. Material Contracts
(a) Form of Property Management Agreement
between Birtcher Properties and the
Registrant incorporated by reference to
Exhibit No. 10.1 of the Partnership's
registration statement on Form S-11
(Commission File No. 2-99421), as filed
September 24, 1985, under the Securities Act
of 1933. (SUPERSEDED)
(b) Letter of Intent regarding Purchase and Sale
of Real Property (Cooper Village, Phase I)
dated September 3, 1987, by and between
Arizona Building and Development, the
Wolfswinkel Group and Birtcher Realty
Corporation incorporated by reference to
Exhibit 19(a) of the Partnership's Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1987.
(c) Agreement of Purchase and Sale of Real
Property (Cooper Village, Phase I) dated
November 13, 1987, by and between Broadway
Village Partners and Birtcher Acquisition
Corporation incorporated by reference to
Form 8-K, as filed December 30, 1987.
(d) Agreement of General Partnership, dated
December 15, 1987, by and between
Damson/Birtcher Realty Income Fund-II,
Limited Partnership and Real Estate Income
Partners III, Limited Partnership
incorporated by reference to Form 8-K, as
filed December 30, 1987.
(e) Property Management Agreement dated October
24, 1991, between Glenborough Management
Corporation and the Registrant for Atrium
Place, Creekridge Center, Iomega/Northpointe
Business Center, Kennedy Corporate Center I,
Ladera II Shopping Center and Lakeland
Industrial Park. Incorporated by reference
to Exhibit 1 of the Partnership's Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1991. (SUPERSEDED)
(f) Property Management Agreement dated October
24, 1991, between Glenborough Management
Corporation and Cooper Village Partners for
Cooper Village Shopping Center.
Incorporated by reference to Exhibit 2 of
the Partnership's Quarterly Report on Form
10-Q for the quarter ended September 30,
1991. (SUPERSEDED)
(g) Agreement for Partnership Administrative
Services dated October 24, 1991, between
Glenborough Management Corporation and the
Registrant for the services described
therein. Incorporated by reference to
Exhibit 3 of the Partnership's Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1991. (SUPERSEDED)
(h) Property Management Agreement, dated October
29, 1993, between Birtcher Properties and
the Registrant for Atrium Place, Creekridge
Center, Iomega Business Center, Kennedy
Corporate Center-I, Ladera-II Shopping
Center, and Lakeland Industrial Park.
Incorporated by reference to Exhibit 1 of
the Partnership's Quarterly Report on Form
10-Q for the quarter ended September 30,
-13-
<PAGE> 44
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K (Cont'd.) 1993.
1991. (SUPERSEDED)
(i) Property Management Agreement, dated October
29, 1993, between Birtcher Properties and
Cooper Village Partners for Cooper Village
Shopping Center. Incorporated by reference
to Exhibit 2 of the Partnership Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1993.
27 Financial Data Schedule.
b) Reports on Form 8-K:
None.
-14-
<PAGE> 45
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the Undersigned, thereunto duly authorized.
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
By: BIRTCHER/LIQUIDITY By: BIRTCHER INVESTORS,
PROPERTIES a California limited partnership
(General Partner)
By: BIRTCHER INVESTMENTS,
a California general partnership,
General Partner of Birtcher Investors
By: BIRTCHER LIMITED,
a California limited partnership,
General Partner of Birtcher
Investments
By: BREICORP,
a California corporation,
formerly known as Birtcher
Real Estate Inc., General
Partner of Birtcher Limited
Date: March 30, 1995 By: /s/ Robert M. Anderson
----------------------
Robert M. Anderson
Executive Director
BREICORP
By: LF Special Fund I, L.P.,
a California limited partnership
By: Liquidity Fund Asset Management, Inc.,
a California corporation, General
Partner of LF Special Fund I, L.P.
Date: March 30, 1995 By: /s/ Brent R. Donaldson
---------------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management,
Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
Birtcher/Liquidity Properties (General Partner of the Registrant) and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Arthur B. Birtcher Co-Chairman of the Board - March 30, 1995
---------------------- BREICORP
Arthur B. Birtcher
/s/ Ronald E. Birtcher Co-Chairman of the Board - March 30, 1995
---------------------- BREICORP
Ronald E. Birtcher
/s/ Richard G. Wollack Chairman of Liquidity Fund March 30, 1995
---------------------- Asset Management, Inc.
Richard G. Wollack
</TABLE>
-15-
<PAGE> 46
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- -----------
<S> <C> <C>
3(a) Agreement of Limited Partnership incorporated by reference to Exhibit No. 3.1 to the Partnership's
registration statement on Form S-11 (Commission File No. 2-99421), dated August 5, 1985, as filed under
the Securities Act of 1933 ..................................................................................
10(a) Form of Property Management Agreement between Birtcher Properties and the Registrant incorporated by reference
to Exhibit No. 10.1 of the Partnership's registration statement on Form S-11 (Commission File No. 2-99421),
as filed September 24, 1985, under the Securities Act of 1933. (SUPERSEDED)
10(b) Letter of Intent regarding Purchase and Sale of Real Property (Cooper Village, Phase I) dated September 3,
1987, by and between Arizona Building and Development, the Wolfswinkel Group and Birtcher Realty Corporation
incorporated by reference to Exhibit 19(a) of the Partnership's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1987 ....................................................................................
10(c) Agreement of Purchase and Sale of Real Property (Cooper Village, Phase I) dated November 13, 1987, by and
between Broadway Village Partners and Birtcher Acquisition Corporation incorporated by reference to Form 8-K,
as filed December 30, 1987 ..................................................................................
10(d) Agreement of General Partnership, dated December 15, 1987, by and between Damson/Birtcher Realty Income Fund-II,
Limited Partnership and Real Estate Income Partners III, Limited Partnership incorporated by reference to
Form 8-K, as filed December 30, 1987 .........................................................................
10(e) Property Management Agreement dated October 24, 1991, between Glenborough Management Corporation and the
Registrant for Atrium Place, Creekridge Center, Iomega/Northpointe Business Center, Kennedy Corporate Center I,
Ladera II Shopping Center and Lakeland Industrial Park. Incorporated by reference to Exhibit 1 of the
Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991. (SUPERSEDED) ..........
10(f) Property Management Agreement dated October 24, 1991, between Glenborough Management Corporation and Cooper
Village Partners for Cooper Village Shopping Center. Incorporated by reference to Exhibit 2 of the Partnership's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1991. (SUPERSEDED) ........................
10(g) Agreement for Partnership Administrative Services dated October 24, 1991, between Glenborough Management
Corporation and the Registrant for the services described therein. Incorporated by reference to Exhibit 3 of
the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991. (SUPERSEDED) ......
10(h) Property Management Agreement, dated October 29, 1993, between Birtcher Properties and the Registrant for Atrium
Place, Creekridge Center, Iomega Business Center, Kennedy Corporate Center-I, Ladera-II Shopping Center, and
Lakeland Industrial Park. Incorporated by reference to Exhibit 1 of the Partnership's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1991. (SUPERSEDED) .............................................
10(i) Property Management Agreement, dated October 29, 1993, between Birtcher Properties and Cooper Village Partners
for Cooper Village Shopping Center. Incorporated by reference to Exhibit 2 of the Partnership Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993 .................................................
27 Financial Data Schedule ......................................................................................
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) BALANCE
SHEET AND STATEMENT OF OPERATIONS OF DAMSON BIRTCHER REALTY INCOME FUND - II AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,058,000
<SECURITIES> 0
<RECEIVABLES> 54,000
<ALLOWANCES> 23,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,195,000
<PP&E> 35,815,000
<DEPRECIATION> 10,954,000
<TOTAL-ASSETS> 31,496,000
<CURRENT-LIABILITIES> 653,000
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 30,843,000
<TOTAL-LIABILITY-AND-EQUITY> 31,496,000
<SALES> 0
<TOTAL-REVENUES> 4,834,000
<CGS> 0
<TOTAL-COSTS> 3,772,000
<OTHER-EXPENSES> 600,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 462,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 462,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 462,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
