<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, 1999 COMMISSION FILE NUMBER 0-14633
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DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 13-3294820
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
27611 La Paz Road, Laguna Niguel, California 92656
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(949) 643,7700
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- --------------------
NONE NONE
---- ----
Securities registered pursuant to Section 12(g) of the Act:
NONE
----
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, 1999
INDEX
Page
----
PART I
Item 1. Business............................................................ 3
Item 2. Properties.......................................................... 6
Item 3. Legal Proceedings................................................... 7
Item 4. Submission of Matters to a Vote of
Security Holders.................................................. 8
PART II
Item 5. Market for the Registrant's Limited Partnership
Interests and Related Security Holder Matters..................... 8
Item 6. Selected Financial Data............................................. 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 11
Item 7a. Quantitative and Qualitative Market Risk Disclosures................ 20
Item 8. Financial Statements and Supplementary Data.........................F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................... 21
PART III
Item 10. Directors and Executive Officers of the Registrant.................. 21
Item 11. Executive Compensation.............................................. 21
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................................... 22
Item 13. Certain Relationships and Related Transactions...................... 22
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.............................................. 22
--- Signatures......................................................... 25
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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.
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.
The Partnership's objectives in operating the properties were: (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, mandated that the General Partner
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, were
not sold or under contract for sale by the end of 1996.
Given the mandate of the May 5, 1993 Information Statement, the General Partner
decided to account for the Partnership's properties as assets held for sale,
instead of for investment as of December 31, 1995. In accordance with Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (see Note 2 to
the Financial Statements in Item 8), the carrying value of the properties was
evaluated to ensure that each property was carried on the Partnership's balance
sheets at the lower of cost or fair value, less estimated selling costs.
Accordingly, the General Partner compared the carrying value of each property to
its appraised value as of January 1, 1996. If the carrying value of a property
and certain related assets was greater than its appraised value, less estimated
selling costs, the General Partner reduced the carrying value of the property by
the difference.
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<PAGE> 4
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 1. Business (Cont'd.)
On February 18, 1997, the General Partner mailed a Consent Solicitation to the
Limited Partners which sought their consent to dissolve the Partnership and sell
and liquidate all of its remaining properties as soon as practicable, consistent
with obtaining reasonable value for the Partnership's properties. A majority in
interest of the Limited Partners consented by March 13, 1997. As a result, the
Partnership adopted the liquidation basis of accounting as of March 31, 1997.
The difference between the adoption of the liquidation basis of accounting as of
March 13, 1997 and March 31, 1997 was not material.
Under the liquidation basis of accounting, assets are stated at their estimated
net realizable values and liabilities are stated at their anticipated settlement
amounts. The valuation of assets and liabilities necessarily requires many
estimates and assumptions, and there are substantial uncertainties in carrying
out the dissolution of the Partnership. The actual values upon dissolution and
costs associated therewith could be higher or lower than the amounts recorded.
Since the approval of the February 18, 1997 Consent Solicitation, the General
Partner had been evaluating possible sales of Partnership properties,
individually and as a portfolio, to liquidate and wind up the Partnership. On
April 30, 1998 the General Partner accepted an offer to purchase all of the
Partnership's properties for $33,680,000 from Abbey Investments, Inc. ("Abbey"),
which was subject to certain customary contingencies, including due diligence
review by the purchaser and negotiation of a definitive Purchase and Sale
Agreement. On November 9, 1998, the Partnership and Abbey entered into a
definitive Purchase and Sale Agreement, for a purchase price ranging between
$32,250,000 and $33,000,000, depending upon occupancy rates at closing. Abbey
thereafter requested a material reduction in the purchase price, which the
Partnership did not agree to. Therefore, in late January 1999, the sale to Abbey
was terminated.
On April 30, 1999, the Partnership and Praedium Performance Fund IV ("Praedium")
executed a Purchase and Sale Agreement to sell all of the Partnership's
properties except its interest in Cooper Village shopping center to Praedium for
$29,000,000. Praedium deposited $222,400 into escrow, pending completion of its
due diligence inspection and review. Praedium's contingency period expired on
June 14, 1999. During and after the contingency period, Praedium, in a series of
negotiations with the Partnership, sought reductions in the purchase price of
each of the properties and declined to include Iomega and Ladera-II in its
offers. During this time, the General Partner negotiated with Praedium, and also
sought other purchasers for the properties, both individually and as a group.
Finally, in late July 1999, the Partnership declined Praedium's offer to
purchase only Creekridge Center, Kennedy Corporate Center-I and Lakeland
Industrial Park for a materially reduced purchase price and terminated its
dealings with Praedium.
The Partnership subsequently sold five of its six remaining properties
(including its 58% interest in Cooper Village Shopping Center) in three separate
transactions in September and October 1999. Then, on February 9, 2000, the
Partnership sold its last property (Iomega) in a separate transaction. See
Capital Resources and Liquidity in Item 7 for further discussion.
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<PAGE> 5
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 1. Business (Cont'd.)
The Partnership derived most of its revenue from rental income. Both Iomega
Corporation and Delta Dental Corporation have represented significant portions
of such income. Rental income from Iomega Corporation totaled $1,317,000 in
1999, $1,260,000 in 1998 and $1,216,000 in 1997, or approximately 30%, 23% and
25%, respectively, of the Partnership's total rental income. Rental income from
Delta Dental Corporation totaled $0 in 1999, $888,000 in 1998 and $860,000 in
1997, or approximately 0%, 17% and 18%, respectively, of the Partnership's total
rental income.
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> 6
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. 12/31/99(2) 12/31/99(2)
- --------------------------- -------- ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Iomega/Northpointe Center 7,980,000 Seven industrial/office buildings 210,165 7 100%
Roy, Utah located on 16.6 acres of land.
January 31, 1986
---------- -------
TOTAL $7,980,000 210,165
========== =======
</TABLE>
(1) The purchase price does not include an allocable share of acquisition
fees of $2,484,000 paid to the General Partner.
(2) See Item 7, Capital Resources and Liquidity, for discussion concerning
status of Iomega Business Center.
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<PAGE> 7
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 3. LEGAL PROCEEDINGS
So far as is known to the General Partner, neither the Partnership nor
its properties are subject to any material pending legal proceedings,
except for the following:
Bigelow Diversified Secondary Partnership Fund 1990 litigation
--------------------------------------------------------------
On March 25, 1997, a limited partner named Bigelow/Diversified
Secondary Partnership Fund 1990 L.P. filed a purported class action
lawsuit in the Court of Common Pleas of Philadelphia County against
Damson/Birtcher Partners, Birtcher Investors, Birtcher/Liquidity
Properties, Birtcher Investments, L.F. Special Fund II, L.P., L.F.
Special Fund I, L.P., Arthur Birtcher, Ronald Birtcher, Robert
Anderson, Richard G. Wollack and Brent R. Donaldson alleging breach of
fiduciary duty and breach of contract and seeking to enjoin the Consent
Solicitation dated February 18, 1997. On April 18, 1997, the court
denied the plaintiff's motion for a preliminary injunction. On June 10,
1997, the court dismissed the plaintiff's complaint on the basis of
lack of personal jurisdiction and forum non conveniens.
On June 13, 1997, the Partnership, its affiliated partnership, Real
Estate Income Partners III, and their general partner,
Birtcher/Liquidity Properties, filed a complaint for declaratory relief
in the Court of Chancery in Delaware against Bigelow/Diversified
Secondary Partnership Fund 1990 L.P. The complaint seeks a declaration
that the vote that the limited partners of the Partnership and Real
Estate Income Partners III took pursuant to the respective consent
solicitations dated February 18, 1997 were effective to dissolve the
respective partnerships and complied with applicable law, that the
actions of the General Partner in utilizing the consent solicitations
to solicit the vote of the limited partners did not breach any
fiduciary or contractual duty to such limited partners, and an award of
costs and fees to the plaintiffs. The defendant has answered the
complaint. The parties have initiated discovery. No motions are pending
at this time.
In September 1998, Bigelow/Diversified Secondary Partnership 1990
informed the Partnership that it was filing suit in the Delaware
Chancery Court against Damson/Birtcher Partners, Birtcher Investors,
Birtcher Liquidity Properties, Birtcher Investments, BREICORP, LF
Special Fund I, LP, LF Special Fund II. LP, Arthur Birtcher, Ronald
Birtcher, Robert Anderson, Richard G. Wollack and Brent R. Donaldson
alleging a purported class action on behalf of the limited partners of
Damson/Birtcher Realty Income Fund-I, Damson/Birtcher Realty Income
Fund-II and Real Estate Income Partners III alleging breach of
fiduciary duty and incorporating the allegations set forth in the
previously dismissed March 25, 1997 complaint filed in the Court of
Chancery of Philadelphia County. Plaintiff has engaged in preliminary
discovery and the parties have held settlement discussions. No motions
are pending at this time.
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<PAGE> 8
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 3. LEGAL PROCEEDINGS (Cont'd.)
Madison Partnership and ISA Partnership Litigation
--------------------------------------------------
On April 2, 1999, Madison Partnership Liquidity Investors XVI, LLC and
ISA Partnership Liquidity Investors filed a purported class and
derivative action in the California Superior Court in Orange County,
California against Damson Birtcher Partners, Birtcher/Liquidity
Properties, Birtcher Partners, Birtcher Investors, Birtcher
Investments, Birtcher Limited, Breicorp LP Special Fund II, L.P.,
Liquidity Fund Asset Management, Inc., Robert M. Anderson, Brent R.
Donaldson, Arthur B. Birtcher, Ronald E. Birtcher, and Richard G.
Wollack, Defendants, and Damson/Birtcher Realty Income Fund-I,
Damson/Birtcher Realty Income Fund-II, and Real Estate Income Partners
III, Nominal Defendants. The complaint asserts claims for breach of
fiduciary duty and breach of contract. The gravamen of the complaint is
that the General Partners of these limited partnerships have not
undertaken all reasonable efforts to expedite liquidation of the
Partnerships' properties and to maximize the returns to the
Partnerships' limited partners. The complaint seeks unspecified
monetary damages, attorneys' fees and litigation expenses, and an order
for dissolution of the partnerships and appointment of an independent
liquidating trustee. The Partnership moved to dismiss the case on the
grounds that the pending Bigelow class action, discussed above, raises
essentially the same claims. The court granted the Company's motion and
has ordered a stay of the litigation. The court will re-evaluate the
stay at a May 19, 2000 status conference.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
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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 29, 2000, the number of holders of the Partnership's
interests is as follows:
General Partner 1
Limited Partners 5,832
-----
5,833
=====
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.
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<PAGE> 9
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED
SECURITY HOLDER MATTERS (Cont'd.)
The Partnership has paid the following quarterly cash distributions to its
Limited Partners:
<TABLE>
<CAPTION>
CALENDAR
QUARTERS 2000 1999 1998 1997 1996 1995
- -------- ----------- ------------ -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
First $ 5,750,000 $ 426,000 $704,000 $ 600,000 $ 463,000 $441,000
Second 468,000 716,000 610,000 456,000 462,000
Third 600,000 652,000 562,000 504,000 462,000
Fourth 14,001,000 652,000 610,000 1,318,000 463,000
</TABLE>
The Limited Partners and the General Partner are entitled to receive
quarterly cash distributions, as available, in the future.
In December 1996, the Partnership made a $720,000 special distribution
to its limited partners from a portion of the proceeds from the sale of
Atrium Place. See Item 7, Liquidity and Capital Resources for further
discussion.
In December 1999, the Partnership made a $14,001,000 special
distribution to its limited partners from a portion of the proceeds
from the sales of Ladera-II shopping center, Lakeland Industrial
Center, Creekridge Business Center, Kennedy Corporate Center and the
Partnership's interest in Cooper Village shopping center.
In March 2000, the Partnership made a $5,750,000 special distribution
to its limited partners from a portion of the proceeds from the sales
of Ladera-II shopping center, Lakeland Industrial Center, Creekridge
Business Center, Kennedy Corporate Center and the Partnership's
interest in Cooper Village shopping center.
As of December 31, 1999, the Partnership has sold all of its operating
properties except for Iomega. Iomega was subsequently sold in February
2000. Due to the uncertainty involved with the ongoing litigation, it
is possible that future distributions may be limited to a liquidating
distribution upon Partnership wind down should funds be available at
that time.
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<PAGE> 10
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD ENDED YEARS ENDED DECEMBER 31,
MARCH 31, ------------------------
1997 1996 1995
----------- ------ ------
<S> <C> <C> <C>
Total Revenues $1,177,000 $ 4,859,000 $ 4,523,000
========== =========== ===========
Net Income (Loss):
General Partner $ 6,000 $ 19,000 $ (6,000)
Limited Partners 559,000 1,897,000 (569,000)
---------- ----------- -----------
$ 565,000 $ 1,916,000 $ (575,000)
========== =========== ===========
Total Distributions:
General Partner $ 5,000 $ 21,000 $ 18,000
========== =========== ===========
Limited Partners $ 600,000 $ 2,741,000 $ 1,828,000
========== =========== ===========
</TABLE>
<TABLE>
DECEMBER 31,
------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Total Assets $28,212,000 $29,134,000
=========== ===========
</TABLE>
The following summary of financial data is for the period since the Partnership
adopted the liquidation basis of accounting.
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED YEAR ENDED APRIL 1, 1997 THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Property Operating
Income, net $ 2,472,000 $ 3,350,000 $ 2,304,000
=========== =========== ===========
Distributions to
Partners $15,511,000 $ 2,752,000 $ 1,782,000
=========== =========== ===========
Net Assets in
Liquidation $14,183,000 $27,752,000 $27,394,000
=========== =========== ===========
</TABLE>
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<PAGE> 11
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Capital Resources and Liquidity
- -------------------------------
Since the completion of its acquisition program in December 1988, the
Partnership has been primarily engaged in the operation of its properties. The
Partnership's original objective had been to hold its properties as long-term
investments. However, an Information Statement, dated May 5, 1993, mandated that
the General Partner 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. Given the
mandate of the May 5, 1993 Information Statement, at December 31, 1995, the
General Partner decided to account for the Partnership's properties as assets
held for sale instead of for investment. In a Consent Solicitation dated
February 18, 1997, the Partnership solicited and received the consent of the
Limited Partners to dissolve the Partnership and dispose of and convey the
Partnership's property as soon as practicable, consistent with obtaining
reasonable value for the properties. The Partnership's properties were held for
sale throughout 1997 and 1998 and five of its six remaining properties
(including its 58% interest in Cooper Village Shopping Center) were sold in
1999. The Partnership's last remaining property was sold in February 2000.
Working capital is and will be principally provided from the working capital
reserve established by the General Partner.
Regular distributions for the year ended December 31, 1999 represent net cash
flow from the operation of the Partnership's properties and interest earned on
the temporary investment of working capital, net of capital reserve
requirements. On December 8, 1999, the Partnership made a special distribution
of $14,001,000 representing a portion of the proceeds from the sale of five of
its six remaining properties. Another special distribution of $5,750,000 was
made on March 1, 2000. This last special distribution arose out of discussions
with the named plaintiffs and their lawyers in the purported class action
lawsuits. It represents the culmination of further, private discussions with
representatives of Grape Investors, the holder of the largest investor position
in the Partnership. Grape Investors has agreed that for a period of 24 months,
it will not involve itself in any way or support any effort to seek, or cause
anyone else to seek, the addition of new general partners, the appointment of a
receiver, or the removal of the General Partner. Grape Investors also has agreed
to either abstain or vote against any such action or proposal.
Two lawsuits remain pending against the Partnership and its General Partner and
certain of its affiliates that seek, among other things, unspecified monetary
damages. Since these cases are in the preliminary discovery phase, there is
unavoidable uncertainty regarding their ultimate resolution. The Partnership
Agreement mandates that the General Partner provide for all of the Partnership's
liabilities and obligations, including contingent liabilities, before
distributing liquidation proceeds to its partners. Therefore, the amount and
timing of any distribution of liquidation proceeds will be determined by the
General Partner in light of these and other relevant considerations.
In June 1993, the Partnership completed its solicitation of written consents
from its Limited Partners. A majority in interest of the Partnership's Limited
Partners
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<PAGE> 12
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
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 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 years
ended December 31, 1999, 1998 and 1997.
On February 18, 1997, the General Partner mailed a Consent Solicitation to the
Limited Partners which sought their consent to dissolve the Partnership and sell
and liquidate all of its remaining properties as soon as practicable, consistent
with obtaining reasonable value for the properties. A majority in interest of
the Limited Partners consented by March 13, 1997. As a result, the Partnership
adopted the liquidation basis of accounting as of March 31, 1997. The difference
between the adoption of the liquidation basis of accounting as of March 13, 1997
and March 31, 1997 was not material.
Under the liquidation basis of accounting, assets are stated at their estimated
net realizable values and liabilities are stated at their anticipated settlement
amounts. The valuation of assets and liabilities necessarily requires many
estimates and assumptions, and there are substantial uncertainties in carrying
out the dissolution of the Partnership. The actual values upon dissolution and
costs associated therewith could be higher or lower than the amounts recorded.
Since the approval of the February 18, 1997 Consent Solicitation, the General
Partner had been evaluating possible sales of Partnership properties,
individually and as a portfolio, to liquidate and wind up the Partnership. On
April 30, 1998 the General Partner accepted an offer to purchase all of the
Partnership's properties for $33,680,000 from Abbey Investments, Inc. ("Abbey"),
which was subject to certain customary contingencies, including due diligence
review by the purchaser and negotiation of a definitive Purchase and Sale
Agreement. On November 9, 1998, the Partnership and Abbey entered into a
definitive Purchase and Sale Agreement, for a purchase price ranging between
$32,250,000 and $33,000,000 depending on occupancy rates at closing. Abbey
thereafter requested a material reduction in the purchase price, which the
Partnership did not agree to. Therefore, in late January 1999, the sale to Abbey
was terminated.
On April 30, 1999, the Partnership and Praedium Performance Fund IV ("Praedium")
executed a Purchase and Sale Agreement to sell all of the Partnership's
properties except its interest in Cooper Village shopping center to Praedium for
$29,000,000. Praedium deposited $222,400 into escrow, pending completion of its
due diligence inspection and review. Praedium's contingency period expired on
June 14, 1999. During and after the contingency period, Praedium, in a series of
negotiations with the Partnership, sought reductions in the purchase price of
each of the properties and declined to include Iomega and Ladera-II in its
offers. During this time, the General Partner negotiated with Praedium, and also
sought other purchasers for the properties, both individually and as a group.
Finally, in late July 1999, the
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<PAGE> 13
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
Partnership declined Praedium's offer to purchase only Creekridge Business
Center, Kennedy Corporate Center-I and Lakeland Industrial Park for a materially
reduced purchase price and terminated its dealings with Praedium.
During the year ended December 31, 1999, the Partnership sold five of its six
properties (including its 58% interest in Cooper Village Shopping Center) in
three separate transactions, as set forth below:
Cooper Village
- --------------
On September 21, 1999, the Partnership sold its 58% interest in Cooper Village
Shopping Center (co-owned with an affiliated partnership), in Mesa, Arizona to
Old Vine Corporation ("Old Vine"), a local shopping center operator that is not
affiliated in any way with the Partnership, its General Partner or any of its
principals or affiliates. The sale price for the Partnership's 58% interest was
$3,581,500.
The buyer was represented by a third-party broker in the transaction. The
Partnership's allocation of the broker commission paid was $46,000 from the sale
proceeds. The General Partner was not paid any property disposition fee in
connection with the sale. Old Vine has hired an affiliate of Birtcher to perform
certain onsite property management services (not accounting or asset
management), pursuant to a contract that is cancelable at any time upon 30 days
notice.
The proceeds from the sale of Cooper Village Shopping Center were distributed to
the Partnership and its affiliated partnership during the fourth quarter of
1999.
Ladera-II
- ---------
On September 22, 1999, the Partnership sold Ladera-II Shopping Center, in
Albuquerque, New Mexico to CA New Mexico, LLC, a wholly-owned subsidiary of
CenterAmerica Trust ("CenterAmerica"), a Houston-based real estate investment
trust that is not affiliated in any way with the Partnership, its General
Partner or any of its principals or affiliates. The sale price was $1,176,000.
CenterAmerica and the Partnership were each represented by third-party brokers
in the transaction. The brokers were paid an aggregate $49,657 from the sale
proceeds. The General Partner was not paid a disposition fee in connection with
the transaction. CenterAmerica did not hire the General Partner or any affiliate
to perform asset management or property management services for this property.
The Rubin Pachulsky Dew Transaction
- -----------------------------------
On September 23, 1999, the Partnership sold Creekridge Business Center, in
Bloomington, Minnesota, Kennedy Corporate Center, in Palatine, Illinois and
Lakeland Business Center, in Milwaukee, Wisconsin to Rubin Pachulsky Dew
Properties, LLC ("Rubin Pachulsky Dew") for $8,300,000, $2,600,000, and
$5,200,000, respectively, or an aggregate purchase price of $16,100,000. Rubin
Pachulsky Dew is a third-party real estate investment entity that is not
affiliated in any way with the Partnership, its General Partner or any of its
principals or affiliates.
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<PAGE> 14
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
The Rubin Pachulsky Dew Transaction (Cont'd.)
The purchase price for the Creekridge Business Center was effectively reduced by
approximately $905,000 in a tenant improvement allowance. As previously
reported, the Partnership had entered into a lease for the 42,203 square foot
space at Creekridge Business Center that was vacated by Delta Dental. Pursuant
to that lease, the Partnership granted the tenant an allowance of up to
approximately $905,000 for tenant improvements, pending agreement regarding the
design for building out the space.
Rubin Pachulsky Dew was represented by a third-party broker in the transaction.
The broker was paid $161,000 from the sale proceeds. Since the sale price of
Creekridge Business Center exceeded the January 1, 1993 appraised value
($6,400,000), pursuant to the 1993 Amendment of the Partnership Agreement, the
General Partner earned and was paid a property disposition fee of $207,500 in
connection with the sale.
Rubin Pachulsky Dew has hired an affiliate of Birtcher as property manager for
the properties for a fee that is approximately the same as the fee the
Partnership previously paid to the General Partner for property management. In
addition, Rubin Pachulsky Dew has hired an affiliate of Birtcher to provide
certain asset management services for the properties, and will pay an incentive
fee approximately equal to 10% of the profits, if any, after Rubin Pachulsky Dew
has received a 15% return on its investment. The incentive fee, if earned, is
not payable until the last property is sold or four years from date of purchase,
whichever comes first. The property management agreement is cancelable at any
time upon 60 days notice, but the incentive fee will survive termination of the
contract.
A portion of the proceeds from the sale of the properties to Rubin Pachulsky Dew
continues to be held in escrow. A sum equal to two and one-half percent of the
purchase price was held back as a potential source of payment for any claims
that may arise related to a Partnership breach of certain representations and
warranties related to the sale (expiring on September 23, 2000) and for any
litigation costs that may arise (released to the Partnership on March 23, 2000).
The remaining cash held in escrow relates to holdbacks for tax prorations. The
cash held in escrow is included in the calculation of loss from sale of real
estate.
Status of Iomega Business Center
- --------------------------------
On February 9, 2000, the Partnership sold Iomega Business Center to ANA
Development, L.C. ("ANA"), for a purchase price of $8,085,000. ANA is a local
real estate developer that is not affiliated in any way with the Partnership or
the General Partner, or any of the General Partner's principals or affiliates.
ANA did not hire the General Partner or any affiliate to perform asset
management or property management services for this property after close of the
sale. The Partnership was represented by a third-party broker, and ANA was
represented by an ANA-affiliated broker in this transaction. Collectively, these
brokers will be paid a commission not to exceed $242,550.
-14-
<PAGE> 15
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
Status of Iomega Business Center (Cont'd.)
ANA delivered approximately $400,000 cash to escrow (portions of which were used
in connection with closing costs and rent prorations), plus two promissory notes
in the face amount of $6,468,000 (the "First Note") and $1,217,000 (the "Second
Note"), respectively. The First Note bears 9% interest, with monthly payments
based upon a 20-year amortization schedule. It is due on June 15, 2000 and is
secured by a first deed of trust and assignment of rents and leases on Iomega.
The Second Note bears 12% interest, with monthly payments of interest only. In
addition, any "net cash flow" generated by Iomega will be paid to the
Partnership and applied against principal and interest payable under the Second
Note. The Second Note is due on June 15, 2000 and is secured by a second deed of
trust and assignment of rents and leases on Iomega, plus first deeds of trust
encumbering two other parcels of real estate located in Salt Lake City, Utah and
Davis County, Utah, plus a pledge of the ANA-affiliated broker's commission.
Shortly before closing, Iomega Corporation, which had leased the entire property
since the Partnership originally purchased it, disclosed that it would not renew
its lease on one of the buildings. To close the sale, the Partnership agreed to
lease back the building from ANA for a term ending May 31, 2001. Iomega
Corporation has not yet vacated the premises and is currently paying rent equal
to the leaseback obligations; the Partnership is negotiating with Iomega
Corporation and other prospective subtenants regarding further occupancy of the
building. So long as the Second Note is outstanding in full, the Partnership has
no rental obligation under the leaseback; if the Second Note is partly paid off,
the Partnership's rental obligation will commence proportionately. Upon
repayment in full of the Second Note, the Partnership will place in escrow the
total estimated rental payments for the balance of the leaseback period.
Thereafter, the Partnership will continue to receive all rental payments paid by
Iomega Corporation or any other subtenant.
Due to the significance of the promissory notes receivable in relationship to
the total sales price of Iomega Business Center and the Partnership's continuing
involvement through the leaseback agreement, the sales transaction did not meet
the requirements under generally accepted accounting principals for full accrual
profit recognition.
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. Prior to the January 1, 1995 appraisals, the
independent appraiser had 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 were not sold or under contract for sale by the end of
1996.
-15-
<PAGE> 16
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Cont'd.)
Capital Resources and Liquidity (Cont'd.)
Property Appraisals and Net Asset Value (Cont'd.)
Given this mandate, the General Partner requested that the appraiser provide an
assessment of value that reflects a shorter investment holding term. At that
time, the General Partner did not know how long it would take to sell the
Partnership's remaining properties, so it requested that the appraiser assume
that the entire portfolio would be sold over four years in connection with the
January 1995 appraisals, over three years in connection with the January 1996
appraisals, over approximately two years for the January 1997 appraisals and
over one year for the 1998 appraisals.
In lieu of obtaining appraisals as of January 1, 1999, the General Partner
calculated an estimated selling price net of estimated selling costs by taking
an average of the offer prices, net of estimated selling costs, from its various
sale proposals. The General Partner utilized those averages to estimate fair
value. The General Partner estimated the fair value of the Partnership's
remaining properties at January 1, 1999 to be $29,428,000, net of estimated
selling costs and disposition fees.
As of January 1, 2000, the Partnership only had one property remaining (Iomega)
in its portfolio. It was subsequently sold on February 9, 2000. Given the
contingencies involved in the sale and the fact that the carrying value roughly
approximates the actual selling price less actual selling costs, the General
Partner determined that the current carrying value of $7,689,000 should be
utilized as an estimate of fair value as of December 31, 1999.
The foregoing estimated fair value net of selling costs of the Partnership's
remaining property indicates an estimated net asset value in liquidation of
$14,183,000 or $270 per $1,000 of original investor subscription. Net assets in
liquidation represent the estimated selling price of the Partnership's property,
(net of estimated closing costs and disposition fees), cash and all other assets
less other liabilities including accrued expenses for liquidation. It does not,
however, take into consideration any costs associated with the current
litigation as such costs are unknown and not estimable. The Partnership
subsequently distributed $5,750,000 on March 1, 2000 (see Note 9 in Item 8).
Other Matters
- -------------
As of December 31, 1999, the Partnership's accounting systems and the investor
services system used to track the limited partners' interests, distributions and
tax information were tested and appear to be free of year 2000 bugs. The
Partnership's remaining property was also reviewed utilizing the Building Owners
and Managers Association ("BOMA") industry standards as a guideline for
necessary corrections and those corrections were successful. The Partnership did
not experience any significant issues or problems relating to year 2000. The
cost of the Partnership's accounting systems upgrade was borne by the General
Partner and will not be reimbursed by the Partnership.
-16-
<PAGE> 17
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, 1999
Because the Partnership is in the process of liquidating its remaining assets, a
comparison of the results of operations is not practical. As the Partnership's
assets (properties) are sold, the results of operations will be generated from a
smaller asset base, and are therefore not comparable. The Partnership completed
the sale of five of its six remaining properties (including a 58% interest in
Cooper Village shopping center) in three separate transactions during September
1999. The Partnership's operating results have been reflected on the Statements
of Changes of Net Assets in Liquidation.
For the year ended December 31, 1999, the Partnership generated $2,472,000 of
net operating income from operation of its properties as compared to $3,350,000
in 1998. The decrease was primarily attributable to the sales of Kennedy
Corporate Center, Lakeland Industrial Park, Ladera-II shopping center and
Creekridge business center in September 1999.
Interest income resulted from the temporary investment of Partnership working
capital. For the year ended December 31, 1999, the Partnership earned $239,000
of interest income. The increase as compared to 1998 was directly related to the
temporary investment of proceeds from the sale of properties in 1999.
The net loss on sale of real estate ($339,000) reflects the net gains and
(losses) on the respective sales of Kennedy Corporate Center $379,000, Lakeland
Industrial Park ($34,000), Ladera-II shopping center $4,000 and Creekridge
business center ($688,000).
The decrease in equity in earnings of Cooper Village Partners for the year ended
December 31, 1999, as compared to 1998, was primarily attributable to the sale
of Cooper Village Shopping Center that occurred on September 21, 1999 for a
sales price of $6,175,000. The Partnership's portion of the gain on the sale of
the property was $263,000.
General and administrative expenses for the year ended December 31,1999 include
charges of $265,000 from the General Partner and its affiliates for services
rendered in connection with administrating the affairs of the Partnership and
operating the Partnership's properties. Also included in general and
administrative expenses for the year ended December 31, 1999, are direct charges
of $332,000 relating to audit fees, tax preparation fees, legal and professional
fees, 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, 1999, when compared to 1998, was attributable to decreases in asset
management fees, administrative wages, partnership liability insurance costs and
appraisal fees. These decreases were partially offset by increases in legal and
professional services expenses and leasing fees incurred in 1999.
Accrued expenses for liquidation as of December 31, 1999, include estimates of
costs to be incurred in carrying out the dissolution and liquidation of the
Partnership.
-17-
<PAGE> 18
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, 1999 (Cont'd.)
These costs include estimates of legal fees, accounting fees, tax preparation
and filing fees, and other professional services. At December 31, 1999, the
General Partner re-evaluated the estimated costs to wind up and dissolve the
Partnership given the uncertainty involved with the ongoing litigation. The
provision for liquidation expenses was accordingly adjusted by an additional
$181,000 to reflect the revised estimates. The allowance for accrued expenses
for liquidation does not, however, reflect any costs of the ongoing litigation
due to the uncertainty associated with those matters.
Year Ended December 31, 1998
Because the Partnership adopted the liquidation basis of accounting on March 31,
1997, a comparison of the results of operations is not practical. The Statements
of Net Assets in Liquidation and Statements of Changes of Net Assets in
Liquidation reflect the Partnership in the process of liquidation. Prior
financial statements reflect the Partnership as a going concern. As the
Partnership's assets (properties) are sold, the results of operations will be
generated from a smaller asset base and are therefore not comparable. The
Partnership's operating results have been reflected on the Statements of Changes
of Net Assets in Liquidation for the year ended December 31, 1998.
For the year ended December 31, 1998, the Partnership generated $3,350,000 of
net operating income from operation of its properties. The increase in net
operating income for year ended December 31, 1998, when compared to 1997, was
primarily attributable to the following: 1) an increase in rental income at
Lakeland due to higher occupancy ($47,000) and an early lease termination fee of
$27,000 at Lakeland; 2) an increase in operating expense recoveries at Kennedy
($53,000); 3) an increase in the rental rate at Iomega ($36,000); and 4) an
increase in rental income at Creekridge due to a higher occupancy level
($141,000).
Interest income resulted from the temporary investment of Partnership working
capital. For the year ended December 31, 1998, interest income was approximately
$75,000.
General and administrative expenses for the year ended December 31, 1998 include
charges of $311,000 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 for the year ended December 31, 1998 are direct charges
of $354,000 relating to audit fees, tax preparation fees, legal and professional
fees, insurance expenses, 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, 1998, as compared to
1997, was primarily attributable to decreases in asset management fees, cost of
legal and professional services, postage and printing costs, insurance and
appraisal fees incurred in 1998.
For the year ended December 31, 1998, the General Partner determined that the
carrying values of Kennedy Corporate Center and Ladera-II Shopping Center were
in excess of their respective estimated net realizable values. As a result,
their carrying values were adjusted by $470,000 and $731,000, to $2,175,000 and
$1,586,000, respectively. The carrying value of real estate in the Partnership's
investment in Cooper Village
-18-
<PAGE> 19
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, 1998 (Cont'd.)
Partners was also adjusted as the General Partners of Cooper Village Partners
determined that the carrying value of real estate was in excess of its estimated
net realizable value. The Partnership's portion (58%) of the adjustment was
$328,000. In addition, during 1998, the carrying value of Iomega was increased
by $1,529,000 to its estimated net realizable value of $7,895,000, offsetting
the aforementioned decreases.
Accrued expenses for liquidation as of December 31, 1998, includes estimates of
costs to be incurred in carrying out the dissolution and liquidation of the
Partnership. These costs include estimates of legal fees, accounting fees, tax
preparation and filing fees, and professional services. The actual costs could
vary significantly from the related provisions due to the uncertainty related to
the length of time required to complete the liquidation and dissolution and the
complexities which may arise in disposing of the Partnership's remaining assets.
Year Ended December 31, 1997
Because the Partnership adopted the liquidation basis of accounting on March 31,
1997, a comparison of the results of operations is not practical. The Statement
of Net Assets in Liquidation and Statement of Changes of Net Assets in
Liquidation reflect the Partnership in the process of liquidation. Prior
financial statements reflect the Partnership as a going concern. As the
Partnership's assets (properties) are sold, the results of operations will be
generated from a smaller asset base and are therefore not comparable. The
Partnership's operating results have been reflected in the Statement of Changes
of Net Assets in Liquidation since March 31, 1997 (the date of adoption of the
liquidation basis of accounting) and the Statement of Operations for the three
months ended March 31, 1997.
For the year ended December 31, 1997, the Partnership generated $3,019,000 of
net operating income from operation of its properties. The decrease in net
operating income for year ended December 31, 1997, when compared to 1996, was
primarily the result of the sale of Atrium Place in November 1996.
Interest income resulted from the temporary investment of Partnership working
capital. For the year ended December 31, 1997, interest income was approximately
$72,000.
General and administrative expenses for the year ended December 31, 1997 include
charges of $318,000 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 for the year ended December 31, 1997 are direct charges
of $517,000 relating to audit fees, tax preparation fees, legal and professional
fees, insurance expenses, 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, 1997, as compared to
1996, was primarily attributable to the increase in legal and professional
services, printing costs, postage and mailing expenses associated with the
Partnership's solicitation of the Limited Partners consent for the Liquidation
of the Partnership in March 1997.
-19-
<PAGE> 20
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, 1997 (Cont'd.)
Accrued expenses for liquidation, as reflected in the Statement of Net Assets in
Liquidation as of December 31, 1997, are not included in results of operations
for the three month period ended March 31, 1997. The liquidation basis of
accounting was adopted on March 31, 1997 therefore, it was not appropriate to
include such adjustments in the results of operations for prior periods. Accrued
expenses for liquidation as of December 31, 1997, includes estimates of costs to
be incurred in carrying out the dissolution and liquidation of the Partnership.
These costs include estimates of legal fees, accounting fees, tax preparation
and filing fees, professional services and the general partner's liability
insurance. The actual costs could vary significantly from the related provisions
due to the uncertainty related to the length of time required to complete the
liquidation and dissolution and the complexities which may arise in disposing of
the Partnership's remaining assets.
Item 7a. Quantitative and Qualitative Market Risk Disclosures
As of December 31, 1999, the Partnership had cash equivalents of $5,690,000
invested in interest-bearing certificates of deposit. These investments are
subject to interest rate risk due to changes in interest rates upon maturity.
Declines in interest rates over time would reduce Partnership interest income.
-20-
<PAGE> 21
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................................................................. F-3
Financial Statements:
Statements of Net Assets in Liquidation as of December 31, 1999 and 1998............................. F-4
Statements of Changes of Net Assets in Liquidation for the Years Ended December 31, 1999 and 1998
and for the Nine Months Ended December 31, 1997...................................................... F-5
Statement of Operations for the Three Months Ended March 31, 1997.................................... F-6
Statement of Partners' Capital for the Three Months Ended March 31, 1997............................. F-7
Statement of Cash Flows for the Three Months Ended March 31, 1997.................................... F-8
Notes to Financial Statements........................................................................ F-9
Schedule:
III - Real Estate in Liquidation as of December 31, 1999............................................. F-23
</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 SCHEDULE
------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report.............................................................................. F-25
Financial Statements:
Statements of Net Assets in Liquidation as of December 31, 1999 and 1998............................. F-26
Statements of Changes of Net Assets in Liquidation for the Years Ended December 31, 1999 and 1998
and for the Nine Months Ended December 31, 1997...................................................... F-27
Statement of Operations for the Three Months Ended March 31, 1997.................................... F-28
</TABLE>
F-1
<PAGE> 22
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Statement of Partners' Capital for the Three Months Ended March 31, 1997............................. F-29
Statement of Cash Flows for the Three Months Ended March 31, 1997.................................... F-30
Notes to Financial Statements........................................................................ F-31
</TABLE>
Information required by schedules called for under Regulation S-X is either not
applicable or is included in the financial statements.
F-2
<PAGE> 23
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 net assets in liquidation as of December 31, 1999 and
1998 of Damson/Birtcher Realty Income Fund-II, and the changes of net assets in
liquidation for the years ended December 31, 1999 and 1998 and for the nine
months ended December 31, 1997 and the results of its operations and its cash
flows for the three months ended March 31, 1997, in conformity with generally
accepted accounting principles applied on the bases of accounting discussed in
note 2. 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.
As discussed in notes 1 and 2 to the financial statements, Damson/Birtcher
Realty Income Fund-II changed its basis of accounting as of March 31, 1997 from
the going-concern basis to the liquidation basis.
KPMG LLP
Orange County, California
March 24, 2000
F-3
<PAGE> 24
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS (Liquidation Basis):
Properties $ 7,689,000 $23,587,000
Investment in Cooper Village Partners -- 3,375,000
Cash and cash equivalents 6,418,000 1,564,000
Cash in escrow 553,000 --
Accounts receivable 14,000 20,000
Other assets 29,000 20,000
----------- -----------
Total Assets 14,703,000 28,566,000
----------- -----------
LIABILITIES (Liquidation Basis):
Accounts payable and accrued liabilities 210,000 685,000
Accrued expenses for liquidation 310,000 129,000
----------- -----------
Total Liabilities 520,000 814,000
----------- -----------
Net Assets in Liquidation $14,183,000 $27,752,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-4
<PAGE> 25
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED NINE MONTHS
DECEMBER 31, DECEMBER 31, ENDED DECEMBER 31,
1999 1998 1997
------------- ------------ ------------------
<S> <C> <C> <C>
Net assets in liquidation at
beginning of period $ 27,752,000 $ 27,394,000 $ 27,255,000
------------ ------------ ------------
Increase (decrease) during period:
Operating activities:
Property operating income, net 2,472,000 3,350,000 2,304,000
Interest income 239,000 75,000 52,000
General and administrative expenses (597,000) (665,000) (591,000)
Leasing commissions (197,000) (49,000) (47,000)
Equity in earnings of Cooper Village
Partners excluding $263,000 gain from
sale of Partnership's interest in Cooper
Village Shopping Center for 1999 and
$328,000 adjustment to carrying value
of investment in Cooper Village
Partners for 1998 282,000 348,000 203,000
------------ ------------ ------------
2,199,000 3,059,000 1,921,000
------------ ------------ ------------
Liquidating activities:
Loss from sale of real estate (net) (339,000) -- --
Gain from sale of Partnership's
interest in Cooper Village Shopping
Center 263,000 -- --
Distributions to partners (15,511,000) (2,752,000) (1,782,000)
Adjustment to the carrying value of
properties -- 328,000 --
Adjustment to carrying value of
investment in Cooper Village Partners -- (328,000) --
Decrease in (provision for) liquidation
expenses (181,000) 51,000 --
------------ ------------ ------------
(15,768,000) (2,701,000) (1,782,000)
------------ ------------ ------------
Net (decrease) increase in assets
in liquidation (13,569,000) 358,000 139,000
------------ ------------ ------------
Net assets in liquidation at
end of period $ 14,183,000 $ 27,752,000 $ 27,394,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 26
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
<TABLE>
<CAPTION>
<S> <C>
REVENUES:
Rental income $1,157,000
Interest and other income 20,000
----------
Total revenues 1,177,000
----------
EXPENSES:
Operating expenses 255,000
Real estate taxes 187,000
Depreciation and amortization 17,000
General and administrative 244,000
----------
Total expenses 703,000
----------
Income before equity in earnings
of Cooper Village Partners 474,000
Equity in earnings of
Cooper Village Partners 91,000
----------
NET INCOME $ 565,000
==========
NET INCOME ALLOCABLE TO:
General Partner $ 6,000
========
Limited Partners $559,000
========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-6
<PAGE> 27
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
STATEMENT OF PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------- -------- -----
<S> <C> <C> <C>
Balance, December 31, 1996 $(170,000) $ 27,746,000 $ 27,576,000
Net income 6,000 559,000 565,000
Distributions (5,000) (600,000) (605,000)
--------- ------------ ------------
Balance, March 31, 1997 $(169,000) $ 27,705,000 $ 27,536,000
========= ============ ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-7
<PAGE> 28
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income $ 565,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 17,000
Equity in earnings of Cooper
Village Partners (91,000)
Changes in:
Accounts receivable (14,000)
Accrued rent receivable 42,000
Prepaid expenses and other assets (26,000)
Accounts payable and accrued
liabilities 68,000
-----------
Net cash provided by operating
activities 561,000
-----------
Cash flows from investing activities:
Investments in real estate (61,000)
Distributions received from
Cooper Village Partners 70,000
-----------
Net cash provided by
investing activities 9,000
-----------
Cash flows from financing activities -
Distributions (605,000)
-----------
Net decrease in cash and cash equivalents (35,000)
Cash and cash equivalents, beginning
of period 1,639,000
-----------
Cash and cash equivalents, end
of period $ 1,604,000
===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-8
<PAGE> 29
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 assets.
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 modified 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 modified 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. The factor used to calculate the
annual asset management fee is reduced by .10% each year beginning
after December 31, 1996 (e.g., from .65% in 1997 to .55% in 1998 and to
.45% in 1999).
The amendment modified 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.
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.
F-9
<PAGE> 30
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
The amendment modified 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.
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.
Although the unpaid 9% Preferential Return to the Limited Partners
aggregates approximately $20,856,000 as of December 31, 1999, it is
anticipated that the limited partners will not realize this return due
to the Partnership's estimated liquidation value of $14,183,000. See
Information Statement dated February 18, 1997 for further discussion.
Income or loss from operations for financial statement purposes is
allocated 99% to the Limited Partners and 1% to the General Partner.
The amendment modified 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.
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.
F-10
<PAGE> 31
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(1) Organization and Operations (Cont'd.)
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.
On February 18, 1997, the Partnership mailed a Consent Solicitation to
the Limited Partners which sought their consent to dissolve the
Partnership and sell and liquidate all of its remaining properties as
soon as practicable, consistent with obtaining reasonable value for the
Partnership's properties. A majority in interest of the Limited
Partners consented by March 13, 1997. As a result, the Partnership
adopted the liquidation basis of accounting as of March 31, 1997. The
difference between the adoption of the liquidation basis of accounting
as of March 13, 1997 and March 31, 1997 was not material.
Under the liquidation basis of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at their
anticipated settlement amounts. The valuation of assets and liabilities
necessarily requires many estimates and assumptions, and there are
substantial uncertainties in carrying out the dissolution of the
Partnership. The actual values upon dissolution and costs associated
therewith could be higher or lower than the amounts recorded.
The Partnership adopted the liquidation basis of accounting on March
31, 1997. Comparison of results to prior years, therefore, is not
practical. The Statements of Net Assets in Liquidation and Statements
of Changes of Net Assets in Liquidation reflect the Partnership in the
process of liquidation. Prior financial statements reflect the
Partnership as a going concern.
As of December 31, 1995 the General Partner decided to treat its
properties as held for sale, instead of for investment, for financial
statement purposes. Since adoption of the 1993 amendment, the General
Partner has considered several preliminary indications of interest from
third parties to acquire some or all of the Partnership's properties.
Apart from the sale of Atrium Place in 1996, these transactions never
materialized, primarily because the General Partner rejected as too low
the valuations of the Partnership's remaining properties as proposed by
the potential purchasers. The Partnership's properties were held for
sale throughout 1997, 1998 and five of its six remaining properties
(including its 58% interest in Cooper Village Partners) were sold in
1999. The Partnership's last remaining property, Iomega Business Park,
was sold on February 9, 2000, subject to various contingencies. (See
Note 9)
In accordance with the liquidation basis of accounting adopted on March
31, 1997 (see Note 2), the carrying value of these properties was
evaluated to ensure that each property was carried on the Partnership's
Statements of Net Assets in Liquidation at estimated net realizable
value. The General Partner estimated net realizable value by using an
average of recent offers to acquire the properties, net of estimated
selling costs, in lieu of obtaining appraisals as of January 1, 2000 at
December 31, 1999 and as of January 1, 1999 at December 31, 1998. Fair
value can only be determined based upon sales to third parties, and
sales proceeds could differ substantially from internal estimates of
fair value or appraised values.
F-11
<PAGE> 32
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies
Liquidation Basis
The Partnership adopted the liquidation basis of accounting as of March
31, 1997. The liquidation basis of accounting is appropriate when
liquidation appears imminent, the Partnership can no longer be
classified as a going concern and the net realizable values of the
Partnership's assets are reasonably determinable. Under this method of
accounting, assets and liabilities are stated at their estimated net
realizable values and costs of liquidating the Partnership are provided
to the extent reasonably determinable.
For the year ended December 31, 1998, the General Partner determined
that the carrying values of Kennedy Corporate Center and Ladera-II
Shopping Center were in excess of their respective estimated net
realizable values. As a result, their carrying values were adjusted by
$470,000 and $731,000, to $2,175,000 and $1,586,000, respectively. In
addition, during 1998, the carrying value of Iomega was increased by
$1,529,000 to its estimated net realizable value of $7,895,000,
offsetting the aforementioned decreases.
During 1999, the General Partner determined that the carrying values of
Ladera-II Shopping Center and Iomega were in excess of their respective
estimated net realizable values, less estimated selling costs. As a
result, their carrying values were adjusted by $525,000 and $294,000,
to $1,118,000, and $7,600,000, respectively. In addition, the carrying
value of Creekridge was increased by $819,000 to its estimated net
realizable value, less estimated selling costs, of $7,721,000 which had
the effect of offsetting the aforementioned decreases.
As of January 1, 2000, the Partnership only had one property remaining
(Iomega) in its portfolio and it was subsequently sold on February 9,
2000 (see Note 9). Given the contingencies involved in the sale and the
fact that the carrying value roughly approximates the actual selling
price less actual selling costs, the General Partner determined that
the current carrying value of $7,689,000 should be utilized as an
estimate of fair value as of December 31, 1999.
Segment Reporting
The Partnership adopted Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 requires, among other items, that a
public business enterprise report a measure of segment profit or loss,
certain specific revenue and expense items, segment assets, information
about the revenues derived from the enterprise's products or services
and major customers. SFAS 131 also requires that the enterprise report
descriptive information about the way that the operating segments were
determined and the products and services provided by the operating
segments. Given that the Partnership is in the process of liquidation,
the Partnership has identified only one operating business segment
which is the business of asset liquidation. The adoption of SFAS 131
did not have an impact on the Partnership's financial reporting.
F-12
<PAGE> 33
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Segment Reporting (Cont'd.)
Rental income from Iomega Corporation totaled $1,317,000 in 1999,
$1,260,000 in 1998 and $1,216,000 in 1997, or approximately 30%, 23%
and 25%, respectively, of the Partnership's total rental income. Rental
income from Delta Dental Corporation totaled $0 in 1999, $888,000 in
1998 and $860,000 in 1997, or approximately 0%, 17% and 18%,
respectively, of the Partnership's total rental income.
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, 1999 and 1998, totaled $6,193,000 and $1,325,000,
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, however are subject to interest rate risk.
Revenue Recognition
Through March 31, 1997, rental income pertaining to operating lease
agreements which specify scheduled rent increases or free rent periods,
was recognized on a straight-line basis over the period of the related
lease agreement. After March 31, 1997, rental income has been
recognized according to the lease terms.
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")
(liquidation basis of accounting) and for federal income tax reporting
purposes at December 31:
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
(LIQUIDATION) (UNAUDITED) (LIQUIDATION) (UNAUDITED)
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Total Assets $14,703,000 $21,848,000 $28,566,000 $35,717,000
Total
Liabilities $ 520,000 $ 210,000 $ 814,000 $ 685,000
</TABLE>
F-13
<PAGE> 34
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Income Taxes (Cont'd.)
Following are the differences between Financial Statement and tax
return income:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income per Financial Statements (period
ending March 31, 1997 for 1997) $ -- $ -- $ 565,000
Change in net assets in liquidation from
operating activities including adjustments to
carrying values of real estate (nine months
ended December 31, 1997 for 1997) 2,199,000 3,059,000 1,921,000
Adjustment to carrying value of real estate -- (328,000) --
Adjustment in carrying value of Cooper Village -- 328,000 --
Depreciation differences on investments in real
estate (1,450,000) (1,429,000) (1,406,000)
Loss on sale of property in excess of book value (1,222,000) -- --
Other 198,000 (65,000) 55,000
----------- ----------- -----------
Taxable income per Federal tax return
(unaudited) $ (275,000) $ 1,565,000 $ 1,135,000
=========== =========== ===========
</TABLE>
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.
Estimations
The preparation of financial statements in conformity with generally
accepted
F-14
<PAGE> 35
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Estimations (Cont'd.)
accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses or changes in net assets during the reporting period.
Actual results could differ from those estimates.
Investment in Cooper Village
The Partnership used the equity method of accounting to account for its
investment in Cooper Village Partners inasmuch as control of Cooper
Village Partners was shared jointly between the Partnership and Real
Estate Income Partners III, Limited Partnership. The accounting
policies of Cooper Village Partners were consistent with those of the
Partnership.
(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 Shopping
Center. 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.
Cooper Village Shopping Center was sold on September 21, 1999 (see Note
5) and CV Partners' assets were distributed to the Partnership and Fund
III as of December 31, 1999.
Condensed summary financial information for CV Partners is presented
below.
Condensed Statements of Net Assets in Liquidation:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
---------- -----------
<S> <C> <C>
Property $ -- $ 5,632,000
Cash and Other Assets -- 387,000
Liabilities -- (134,000)
---------- -----------
Net assets in liquidation $ -- $ 5,885,000
========== ===========
</TABLE>
Condensed Statements of Changes
Of Net Assets in Liquidation:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net Assets in Liquidation
at beginning of period $ 5,885,000 $ 6,359,000 $ 6,384,000
Increase (decrease) during
period:
Operating Activities 510,000 580,000 345,000
Liquidating Activities (6,395,000) (1,054,000) (370,000)
----------- ----------- -----------
Net decrease in Assets in
Liquidation (5,885,000) (474,000) (25,000)
----------- ----------- -----------
Net Assets in Liquidation at
end of period $ -- $ 5,885,000 $ 6,359,000
=========== =========== ===========
</TABLE>
F-15
<PAGE> 36
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Investment in Cooper Village Partners (Cont'd.)
Condensed Statement
Of Operations:
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED MARCH 31,
1997
---------
<S> <C>
Rental and Other Income $ 242,000
Operating and Other Expenses (84,000)
Depreciation and Amortization (2,000)
---------
Net Income $ 156,000
=========
</TABLE>
For the year ended December 31, 1998, the carrying value of real estate
in the Partnership's investment in Cooper Village Partners was adjusted
as the General Partners of Cooper Village Partners determined that the
carrying value of real estate was in excess of its estimated net
realizable value. The Partnership's portion (58%) of the adjustment was
$328,000.
(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, 1999, 1998 and 1997 the Partnership was charged with approximately
$103,000, $115,000 and $114,000, respectively, of such expenses.
An affiliate of the General Partner provides property management
services with respect to the Partnership's properties and receives a
fee for such services not to exceed 6% of the gross receipts from the
properties under management, provided that leasing services are
performed, otherwise not to exceed 3%. Such fees amounted to
approximately $138,000 in 1999, $181,000 in 1998 and $159,000 in 1997.
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 $65,000, $36,000 and $35,000 for the
years ended December 31, 1999, 1998, and 1997, respectively. As
reimbursement of costs for on-site property management personnel and
other related costs, an affiliate of the General Partner received
$90,000 in 1999, $114,000 in 1998 and $109,000 in 1997. In addition to
the aforementioned, the General Partner was also paid $47,000, $55,000
and $51,000 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 CV Partners
for the year ended December 31, 1999, 1998 and 1997, respectively.
The amended Partnership Agreement provides for the Partnership's
payment to the General Partner of an annual asset management fee equal
to .45% (55% in 1998 and 65% in 1997) 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, 1999, 1998 and 1997, amounted to $97,000, $160,000 and
$170,000, respectively. In addition to the aforementioned, the General
Partner was also paid $11,000, $20,000 and $23,000, related to the
Partnership's portion (58%) of asset management fees
F-16
<PAGE> 37
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(4) Transactions with Affiliates (Cont'd.)
for Cooper Village Partners for the years ended December 31, 1999, 1998
and 1997, respectively.
(5) Loss from Sale of Real Estate
During the year ended December 31, 1999, the Partnership sold five of
its six properties (including its 58% interest in Cooper Village
Shopping Center) in three separate transactions, as set forth below:
Cooper Village
--------------
On September 21, 1999, the Partnership sold its 58% interest in Cooper
Village Shopping Center (co-owned with an affiliated partnership), in
Mesa, Arizona to Old Vine Corporation ("Old Vine"), a local shopping
center operator that is not affiliated in any way with the Partnership,
its General Partner or any of its principals or affiliates. The sale
price for the Partnership's 58% interest was $3,581,500.
The buyer was represented by a third-party broker in the transaction.
The Partnership's allocation of the broker commission paid was $46,000
from the sale proceeds. The General Partner was not paid any property
disposition fee in connection with the sale. Old Vine has hired an
affiliate of Birtcher to perform certain onsite property management
services (not accounting or asset management), pursuant to a contract
that is cancelable at any time upon 30 days notice.
The sale of Cooper Village shopping center resulted in a gain of
$263,000 (representing the Partnership's 58% interest), which is
reflected on the Statement of Changes of Net Assets in Liquidation. The
Partnership's portion of the final distribution from CV Partners was
$3,747,000.
Ladera-II
---------
On September 22, 1999, the Partnership sold Ladera-II Shopping Center,
in Albuquerque, New Mexico to CA New Mexico, LLC, a wholly-owned
subsidiary of CenterAmerica Trust ("CenterAmerica"), a Houston-based
real estate investment trust that is not affiliated in any way with the
Partnership, its General Partner or any of its principals or
affiliates. The sale price was $1,176,000.
CenterAmerica and the Partnership were each represented by third-party
brokers in the transaction. The brokers were paid an aggregate $49,657
from the sale proceeds. The General Partner was not paid a disposition
fee in connection with the transaction. CenterAmerica did not hire the
General Partner or any affiliate to perform asset management or
property management services for this property.
The sale of Ladera-II shopping center resulted in a gain of
approximately $4,000 upon disposition.
F-17
<PAGE> 38
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(5) Loss from Sale of Real Estate (Cont'd.)
The Rubin Pachulsky Dew Transaction
On September 23, 1999, the Partnership sold Creekridge Business Center,
in Bloomington, Minnesota, Kennedy Corporate Center, in Palatine,
Illinois and Lakeland Business Center, in Milwaukee, Wisconsin to Rubin
Pachulsky Dew Properties, LLC ("Rubin Pachulsky Dew") for $8,300,000,
$2,600,000, and $5,200,000, respectively, or an aggregate purchase
price of $16,100,000. Rubin Pachulsky Dew is a third-party real estate
investment entity that is not affiliated in any way with the
Partnership, its General Partner or any of its principals or
affiliates.
The purchase price for the Creekridge Business Center was effectively
reduced by approximately $905,000 in a tenant improvement allowance. As
previously reported, the Partnership had entered into a lease for the
42,203 square foot space at Creekridge Business Center that was vacated
by Delta Dental. Pursuant to that lease, the Partnership granted the
tenant an allowance of up to approximately $905,000 for tenant
improvements, pending agreement regarding the design for building out
the space.
Rubin Pachulsky Dew was represented by a third-party broker in the
transaction. The broker was paid $161,000 from the sale proceeds. Since
the sale price of Creekridge Business Center exceeded the January 1,
1993 appraised value ($6,400,000), pursuant to the 1993 Amendment of
the Partnership Agreement, the General Partner earned and was paid a
property disposition fee of $207,500 in connection with the sale.
Rubin Pachulsky Dew has hired an affiliate of Birtcher as property
manager for the properties for a fee that is approximately the same as
the fee the Partnership previously paid to the General Partner for
property management. In addition, Rubin Pachulsky Dew has hired an
affiliate of Birtcher to provide certain asset management services for
the properties, and will pay an incentive fee approximately equal to
10% of the profits, if any, after Rubin Pachulsky Dew has received a
15% return on its investment. The incentive fee, if earned, is not
payable until the last property is sold or four years from date of
purchase, whichever comes first. The property management agreement is
cancelable at any time upon 60 days notice, but the incentive fee will
survive termination of the contract.
A portion of the proceeds from the sale of the properties to Rubin
Pachulsky Dew continues to be held in escrow. A sum equal to two and
one-half percent of the purchase price was held back as a potential
source of payment for any claims that may arise related to a
Partnership breach of certain representations and warranties related to
the sale (expiring on September 23, 2000) and for any litigation costs
that may arise (released to the Partnership on March 23, 2000). The
remaining cash held in escrow relates to holdbacks for tax prorations.
The cash held in escrow is included in the calculation of loss from
sale of real estate.
The sales of Creekridge, Kennedy Corporate Center and Lakeland Business
Center resulted in net gains or (losses) of approximately ($688,000),
$379,000 and ($34,000), respectively upon disposition.
F-18
<PAGE> 39
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(6) Commitments and Contingencies
Litigation
So far as is known to the General Partner, neither the Partnership nor
its properties are subject to any material pending legal proceedings,
except for the following:
Bigelow Diversified Secondary Partnership Fund 1990 litigation
--------------------------------------------------------------
On March 25, 1997, a limited partner named Bigelow/Diversified
Secondary Partnership Fund 1990 filed a purported class action lawsuit
in the Court of Common Pleas of Philadelphia County against
Damson/Birtcher Partners, Birtcher Investors, Birtcher/Liquidity
Properties, Birtcher Investments, L.F. Special Fund II, L.P., L.F.
Special Fund I, L.P., Arthur Birtcher, Ronald Birtcher, Robert
Anderson, Richard G. Wollack and Brent R. Donaldson alleging breach of
fiduciary duty and breach of contract and seeking to enjoin the Consent
Solicitation dated February 18, 1997. On April 18, 1997, the court
denied the plaintiff's motion for a preliminary injunction. On June 10,
1997, the court dismissed the plaintiff's complaint on the basis of
lack of personal jurisdiction and forum non conveniens.
On June 13, 1997, the Partnership, its affiliated partnership, Real
Estate Income Partners III, and their general partner,
Birtcher/Liquidity Properties, filed a complaint for declaratory relief
in the Court of Chancery in Delaware against Bigelow/Diversified
Secondary Partnership Fund 1990 L.P. The complaint seeks a declaration
that the vote that the limited partners of the Partnership and Real
Estate Income Partners III took pursuant to the respective consent
solicitations dated February 18, 1997 were effective to dissolve the
respective partnerships and complied with applicable law, that the
actions of the General Partner in utilizing the consent solicitations
to solicit the vote of the limited partners did not breach any
fiduciary or contractual duty to such limited partners, and an award of
costs and fees to the plaintiffs. The defendant has answered the
complaint. The parties have initiated discovery. No motions are pending
at this time.
In September 1998, Bigelow/Diversified Secondary Partnership 1990
informed the Partnership that it was filing suit in the Delaware
Chancery Court against Damson/Birtcher Partners, Birtcher Investors,
Birtcher Liquidity Properties, Birtcher Investments, BREICORP, LF
Special Fund I, LP, LF Special Fund II. LP, Arthur Birtcher, Ronald
Birtcher, Robert Anderson, Richard G. Wollack and Brent R. Donaldson
alleging a purported class action on behalf of the limited partners of
Damson/Birtcher Realty Income Fund-I, Damson/Birtcher Realty Income
Fund-II and Real Estate Income Partners III alleging breach of
fiduciary duty and incorporating the allegations set forth in the
previously dismissed March 25, 1997 complaint filed in the Court of
Chancery of Philadelphia County. Plaintiff has engaged in preliminary
discovery and the parties have held settlement discussions. No motions
are pending at this time.
F-19
<PAGE> 40
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(6) Commitments and Contingencies (Cont'd.)
Litigation (Cont'd.)
Madison Partnership and ISA Partnership Litigation
--------------------------------------------------
On April 2, 1999, Madison Partnership Liquidity Investors XVI, LLC and
ISA Partnership Liquidity Investors filed a purported class and
derivative action in the California Superior Court in Orange County,
California against Damson Birtcher Partners, Birtcher/Liquidity
Properties, Birtcher Partners, Birtcher Investors, Birtcher
Investments, Birtcher Limited, Breicorp LP Special Fund II, L.P.,
Liquidity Fund Asset Management, Inc., Robert M. Anderson, Brent R.
Donaldson, Arthur B. Birtcher, Ronald E. Birtcher, and Richard G.
Wollack, Defendants, and Damson/Birtcher Realty Income Fund-I,
Damson/Birtcher Realty Income Fund-II, and Real Estate Income Partners
III, Nominal Defendants. The complaint asserts claims for breach of
fiduciary duty and breach of contract. The gravamen of the complaint is
that the General Partners of these limited partnerships have not
undertaken all reasonable efforts to expedite liquidation of the
Partnerships' properties and to maximize the returns to the
Partnerships' limited partners. The complaint seeks unspecified
monetary damages, attorneys' fees and litigation expenses, and an order
for dissolution of the partnerships and appointment of an independent
liquidating trustee. The Partnership moved to dismiss the case on the
grounds that the pending Bigelow class action, discussed above, raises
essentially the same claims. The court granted the Company's motion and
has ordered a stay of the litigation. The court will re-evaluate the
stay at a May 19, 2000 status conference.
Future Minimum Annual Rentals
The Partnership has determined that all leases which had been executed
as of December 31, 1999, 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, 1999, is as
follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
2000 $743,000
2001 66,000
2002 --
2003 --
2004 --
Thereafter --
--------
$809,000
========
</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.
F-20
<PAGE> 41
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(7) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1999 1998
-------- --------
<S> <C> <C>
Real estate taxes $ -- $362,000
Security deposits 54,000 145,000
Accounts payable and other 156,000 178,000
-------- --------
$210,000 $685,000
======== ========
</TABLE>
(8) Accrued Expenses for Liquidation
Accrued expenses for liquidation as of December 31, 1999, include
estimates of costs to be incurred in carrying out the dissolution and
liquidation of the Partnership. These costs include estimates of legal
fees, accounting fees, tax preparation and filing fees, and other
professional services. At December 31, 1999, the General Partner
re-evaluated the estimated costs to wind up and dissolve the
Partnership given the uncertainty involved with the ongoing litigation.
The provision for liquidation expenses was accordingly adjusted by an
additional $181,000 to reflect the revised estimates. The allowance for
accrued expenses for liquidation does not, however, reflect any costs
of the ongoing litigation due to the uncertainty associated with those
matters.
(9) Subsequent Events
On February 9, 2000, the Partnership sold Iomega Business Center to ANA
Development, L.C. ("ANA"), for a purchase price of $8,085,000. ANA is a
local real estate developer that is not affiliated in any way with the
Partnership or the General Partner, or any of the General Partner's
principals or affiliates. ANA did not hire the General Partner or any
affiliate to perform asset management or property management services
for this property after close of the sale. The Partnership was
represented by a third-party broker, and ANA was represented by an
ANA-affiliated broker in this transaction. Collectively, these brokers
will be paid a commission not to exceed $242,550.
ANA delivered approximately $400,000 cash to escrow (portions of which
were used in connection with closing costs and rent prorations), plus
two promissory notes in the face amount of $6,468,000 (the "First
Note") and $1,217,000 (the "Second Note"), respectively. The First Note
bears 9% interest, with monthly payments based upon a 20-year
amortization schedule. It is due on June 15, 2000 and is secured by a
first deed of trust and assignment of rents and leases on Iomega. The
Second Note bears 12% interest, with monthly payments of interest only.
In addition, any "net cash flow" generated by Iomega will be paid to
the Partnership and applied against principal and interest payable
under the Second Note. The Second Note is due on June 15, 2000 and is
secured by a second deed of trust and assignment of rents and leases on
Iomega, plus first deeds of trust encumbering two other parcels of real
estate located in Salt Lake City, Utah and Davis County, Utah, plus a
pledge of the ANA-affiliate broker's commission.
F-21
<PAGE> 42
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(9) Subsequent Events (Cont'd.)
Shortly before closing, Iomega Corporation, which had leased the entire
property since the Partnership originally purchased it, disclosed that
it would not renew its lease on one of the buildings. To close the
sale, the Partnership agreed to lease back the building from ANA for a
term ending May 31, 2001. Iomega Corporation has not yet vacated the
premises and is currently paying rent equal to the leaseback
obligations; the Partnership is negotiating with Iomega Corporation and
other prospective subtenants regarding further occupancy of the
building. So long as the Second Note is outstanding in full, the
Partnership has no rental obligation under the leaseback; if the Second
Note is partly paid off, the Partnership's rental obligation will
commence proportionately. Upon repayment in full of the Second Note,
the Partnership will place in escrow the total estimated rental
payments for the balance of the leaseback period. Thereafter, the
Partnership will continue to receive all rental payments paid by Iomega
Corporation or any other subtenant.
Due to the significance of the promissory notes receivable in
relationship to the total sales price of Iomega Business Center and the
Partnership's continuing involvement through the leaseback agreement,
the sales transaction did not meet the requirements under generally
accepted accounting principals for full accrual profit recognition.
On March 1, 2000, the Partnership made a cash distribution of
$5,750,000 to its Limited Partners.
F-22
<PAGE> 43
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
SCHEDULE III
REAL ESTATE IN LIQUIDATION
AS OF DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. C COL. D COL. E COL. H
------ ------ ------ ------ ------
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 DATE
DESCRIPTION(a) LAND IMPROVEMENTS IMPROVEMENTS COSTS(b) LAND IMPROVEMENTS TOTAL(d) ACQUIRED
- -------------- ---- ------------- ------------ -------- ---- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Iomega/Northpointe
Business Center
Roy, UT $672 $7,834 $491 $(1,308) $672 $7,017 $7,689 01/31/86
---- ------ ---- ------- ---- ------ ------
TOTAL $672 $7,834 $491 $(1,308) $672 $7,017 $7,689
==== ====== ==== ======= ==== ====== ======
</TABLE>
NOTE: Columns B, F, G and I are either none or are not applicable.
See notes to table on following page.
F-23
<PAGE> 44
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
NOTES TO SCHEDULE III
- ---------------------
(a) For a description of the property, see "Item 2. Property."
(b) Upon adoption of the liquidation basis of accounting on March 31, 1997,
accumulated depreciation was deleted through an adjustment to the cost
of the properties.
In June 1999, the General Partner determined that the carrying value
of Iomega was in excess of its net realizable value. As a result, the
carrying value of Iomega was reduced by $294,000 to $7,600,000.
For the year ended December 31, 1998, the General Partner determined
that the carrying value of Iomega was less than its net realizable
value. As a result, the carrying value of Iomega was increased by
$1,529,000 to its estimated net realizable value of $7,895,000.
The aggregate cost of land, buildings and improvements for Federal
income tax purposes (unaudited) was $9,085,000 as of December 31, 1999.
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 adjustments to the carrying value of real estate for financial
statement purposes have 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,
--------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Balance at beginning of year $ 23,587,000 $23,102,000
Additions during the year:
Improvements -- 157,000
Reductions during the year:
Disposition of assets (15,898,000) --
Adjustment to the carrying
value of properties -- 328,000
------------ -----------
Balance at end of year $ 7,689,000 $23,587,000
============ ===========
</TABLE>
F-24
<PAGE> 45
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 net assets in liquidation as of December 31, 1999 and
1998 of Cooper Village Partners, and the changes of net assets in liquidation
for the years ended December 31, 1999, 1998 and the nine months ended December
31, 1997 and the results of its operations and its cash flows for the three
months ended March 31, 1997, in conformity with generally accepted accounting
principles applied on the bases of accounting as discussed in note 2. 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.
As discussed in notes 1 and 2 to the financial statements, the Partnership
changed its basis of accounting as of March 31, 1997 from the going-concern
basis to the liquidation basis.
KPMG LLP
Orange County, California
March 24, 2000
F-25
<PAGE> 46
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS (Liquidation Basis): 1999 1998
- --------------------------- ----------- ----------
<S> <C> <C>
Property $ -- $5,632,000
Cash and cash equivalents -- 301,000
Accounts receivable -- 81,000
Other assets -- 5,000
----------- ----------
Total Assets -- 6,019,000
----------- ----------
LIABILITIES (Liquidation Basis):
Accounts payable and accrued liabilities -- 125,000
Accrued expenses for liquidation -- 9,000
----------- ----------
Total Liabilities -- 134,000
----------- ----------
Net Assets in Liquidation $ -- $5,885,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-26
<PAGE> 47
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED NINE MONTHS
DECEMBER 31, DECEMBER 31, ENDED DECEMBER 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net assets in liquidation at
beginning of period $ 5,885,000 $ 6,359,000 $ 6,384,000
----------- ----------- -----------
Increase (decrease) during period:
Operating activities:
Property operating income, net 491,000 650,000 381,000
Interest income 66,000 16,000 16,000
General and administrative expenses (41,000) (47,000) (39,000)
Leasing commissions (6,000) (39,000) (13,000)
----------- ----------- -----------
510,000 580,000 345,000
----------- ----------- -----------
Liquidating activities:
Adjustment to carrying value of
property in liquidation -- (564,000) --
Gain from sale of real estate 453,000 -- --
Decrease in liquidation accrual 9,000 -- --
Distributions to partners (6,857,000) (490,000) (370,000)
----------- ----------- -----------
(6,395,000) (1,054,000) (370,000)
----------- ----------- -----------
Net decrease in assets in liquidation (5,885,000) (474,000) (25,000)
----------- ----------- -----------
Net assets in liquidation at
end of period $ -- $ 5,885,000 $ 6,359,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 48
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
<TABLE>
<S> <C>
REVENUES:
Rental income $238,000
Interest and other income 4,000
--------
Total revenues 242,000
--------
EXPENSES:
Operating expenses 72,000
Depreciation and amortization 2,000
General and administrative 12,000
--------
Total expenses 86,000
--------
NET INCOME $156,000
========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-28
<PAGE> 49
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENT OF PARTNERS' CAPITAL
------------------------------
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-------------------------------------------------------------
GENERAL GENERAL
PARTNER PARTNER
DAMSON/BIRTCHER REAL ESTATE
REALTY INCOME INCOME
FUND II PARTNERS III TOTAL
--------------- ------------ -----------
<S> <C> <C> <C>
Balance, December 31, 1996 $ 3,630,000 $ 2,727,000 $ 6,357,000
Net income 90,000 66,000 156,000
Distributions (70,000) (50,000) (120,000)
----------- ----------- -----------
Balance, March 31, 1997 $ 3,650,000 $ 2,743,000 $ 6,393,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-29
<PAGE> 50
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 156,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 2,000
Changes in:
Accounts receivable (24,000)
Accrued rent receivable 2,000
Prepaid expenses and other assets 1,000
Accounts payable and accrued
liabilities 17,000
---------
Net cash provided by operating
activities 154,000
Cash flows from investing activities -
investments in real estate (22,000)
Cash flows from financing activities -
distributions (120,000)
---------
Net increase in cash and cash equivalents 12,000
Cash and cash equivalents,
beginning of period 355,000
---------
Cash and cash equivalents,
end of period $ 367,000
=========
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
F-30
<PAGE> 51
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.
On February 18, 1997, the General Partners mailed a Consent
Solicitation to the Limited Partners of Funds II and III which sought
their consent to dissolve those Partnerships and sell and liquidate all
of their remaining properties (including the Partnership's property) as
soon as practicable, consistent with obtaining reasonable value for the
Partnership's property. A majority in interest of the Limited Partners
of Funds II and III consented by March 13, 1997. As a result, the
General Partners, as well as the Partnership, have adopted the
liquidation basis of accounting as of March 31, 1997. The difference
between the adoption of the liquidation basis of accounting as of March
13, 1997 and March 31, 1997 was not material.
Under the liquidation basis of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at their
anticipated settlement amounts. The valuation of assets and liabilities
necessarily requires many estimates and assumptions, and there are
substantial uncertainties in carrying out the dissolution of the
Partnership. The actual values upon dissolution and costs associated
therewith could be higher or lower than the amounts recorded.
The Partnership adopted the liquidation basis of accounting on March
31, 1997. Comparison of results to prior years, therefore, is not
practical. The Statements of Net Assets in Liquidation and Statements
of Changes of Net Assets in Liquidation reflect the Partnership in the
process of liquidation. Prior financial statements reflect the
Partnership as a going concern.
As of December 31, 1995, the General Partners decided to treat their
properties, as well as the Partnership's property, as held for sale,
instead of for investment, for financial statement purposes. Since
1993, the General Partners have considered several preliminary
indications of interest from third parties to acquire the Partnership's
property. The Partnership's sole property was held for sale throughout
1997 and 1998 and was sold on September 21, 1999. See Note 5 for a
description of the transaction.
In accordance with the liquidation basis of accounting (see Note 2),
the carrying value of the Partnership's property was evaluated to
ensure it was carried on the Partnership's Statements of Net Assets in
Liquidation at net realizable value. The General Partners estimated net
realizable value for this purpose by using an average of the offers it
had received to acquire Cooper Village Shopping Center net of estimated
selling costs, in lieu of obtaining appraisals at December 31, 1998.
F-31
<PAGE> 52
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies
Liquidation Basis
The Partnership adopted the liquidation basis of accounting as of March
31, 1997. The liquidation basis of accounting is appropriate when
liquidation appears imminent, the Partnership can no longer be
classified as a going concern and the net realizable values of the
Partnership's assets are reasonably determinable. Under this method of
accounting, assets and liabilities are stated at their estimated net
realizable values and costs of liquidating the Partnership are provided
to the extent reasonably determinable.
For the year ended December 31, 1998, the General Partners determined
that the carrying value of Cooper Village Shopping Center was in excess
of its estimated net realizable value. As a result, the carrying value
was adjusted by $564,000 to $5,632,000.
Cooper Village Shopping Center was sold on September 21, 1999 (see Note
5) and the Partnership's assets were distributed to Fund II and Fund
III upon dissolution of the Partnership prior to December 31, 1999.
Segment Reporting
The Partnership adopted Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 requires, among other items, that a
public business enterprise report a measure of segment profit or loss,
certain specific revenue and expense items, segment assets, information
about the revenues derived from the enterprise's products or services
and major customers. SFAS 131 also requires that the enterprise report
descriptive information about the way that the operating segments were
determined and the products and services provided by the operating
segments. Given that the Partnership is in the process of liquidation,
the Partnership has identified only one operating business segment
which is the business of asset liquidation. The adoption of SFAS 131
did not have an impact on the Partnership's financial reporting.
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 cash investments. Cash
equivalents at December 31, 1998 totaled $297,000. 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.
Revenue Recognition
Through March 31, 1997, 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. After March 31, 1997, rental income has been
recognized according to the lease terms.
F-32
<PAGE> 53
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(2) Summary of Significant Accounting Policies (Cont'd.)
Estimations
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partners to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses or changes in net assets during the reporting
period. Actual results could differ from those estimates.
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.
Following are the Partnership's assets and liabilities as determined in
accordance with generally accepted accounting principles ("GAAP")
(liquidation basis of accounting) and for federal income tax reporting
purposes at December 31:
<TABLE>
<CAPTION>
1999 1998
----------------------------------- ---------------------------------
GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS
(LIQUIDATION) (UNAUDITED) (LIQUIDATION) (UNAUDITED)
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Total Assets $ -- $ -- $6,019,000 $6,508,000
Total Liabilities $ -- $ -- $ 134,000 $ 135,000
</TABLE>
F-33
<PAGE> 54
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 differences between Financial Statement and tax
return income:
<TABLE>
<CAPTION>
1999 1998 1997
----------- --------- ---------
<S> <C> <C> <C>
Net income per Financial Statements (period
ended March 31, 1997 for 1997) $ -- $ -- $ 156,000
Change in net assets in liquidation from
operating activities including adjustment to
carrying value of real estate (nine months
ended December 31, 1997 for 1997) 510,000 16,000 345,000
Depreciation differences on investments in real
estate (212,000) (221,000) (221,000)
Adjustment to carrying value of property in
liquidation -- 564,000 --
Loss on sale of property in excess of book value (1,339,000) -- --
Other 6,000 (72,000) 7,000
----------- --------- ---------
Taxable income per Federal tax return
(unaudited) $(1,035,000) $ 287,000 $ 287,000
=========== ========= =========
</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, 1999, 1998
and 1997, the Partnership was charged with approximately $1,000, $1,000
and $1,000, respectively, of such expenses.
An affiliate of the General Partner of Fund II and Fund III provides
property management services with respect to the Partnership's property
and receives a fee for such services not to exceed 6% of the gross
receipts from the property under management provided that leasing
services were performed, otherwise not to exceed 3%. Such fees amounted
to approximately $43,000 in 1999, $53,000 in 1998, and $47,000 in 1997.
In addition, as reimbursement of costs for on-site property management
personnel and other related costs, an affiliate of the General Partner
received $34,000 in 1999, $37,000 in 1998 and $37,000 in 1997, as
reimbursement of costs for on-site property management personnel and
other reimbursable costs.
F-34
<PAGE> 55
COOPER VILLAGE PARTNERS
(A GENERAL PARTNERSHIP)
-----------------------
NOTES TO FINANCIAL STATEMENTS (Cont'd.)
(3) Transactions with Affiliates (Cont'd.)
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 .45% (.55% in 1998 and .65% in 1997) 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, 1999, 1998 and 1997, amounted to $18,000,
$35,000 and $39,000, respectively.
In addition, the amended Partnership Agreements for Fund II and Fund
III provide for payment to the General Partner 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, 1999, 1998 and 1997, amounted
to $2,000, $4,000 and $6,000, respectively.
(4) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
-------- --------
<S> <C> <C>
Real estate taxes $ -- $ 73,000
Accounts payable and other -- 7,000
Security deposits -- 45,000
-------- --------
$ -- $125,000
======== ========
</TABLE>
(5) Gain from Sale of Real Estate
On September 21, 1999, the Partnership sold Cooper Village Shopping
Center, in Mesa, Arizona to Old Vine Corporation ("Old Vine"), a local
shopping center operator that is not affiliated in any way with the
Partnership, its General Partner or any of its principals or
affiliates. The sale price was $6,175,000.
The buyer was represented by a third-party broker in the transaction.
The Partnership paid a broker commission of $79,000 from the sale
proceeds. The General Partner was not paid any property disposition fee
in connection with the sale. Old Vine has hired an affiliate of
Birtcher to perform certain onsite property management services (not
accounting or asset management), pursuant to a contract that is
cancelable at any time upon 30 days notice.
The sale of Cooper Village Shopping Center resulted in a gain of
$453,000, which is reflected on the Statement of Changes of Net Assets
in Liquidation.
F-35
<PAGE> 56
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, 1999.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
General Partner's 1% share of
distributable cash $ 15,000 $ 28,000 $ 24,000
Asset management fees 97,000 160,000 170,000
Disposition fees 208,000 -- --
Property management fees 138,000 181,000 159,000
Property management expense
reimbursements 90,000 114,000 109,000
Other expense reimbursements 103,000 115,000 114,000
Leasing fee 65,000 36,000 35,000
-------- -------- --------
TOTAL $716,000 $634,000 $611,000
======== ======== ========
</TABLE>
-21-
<PAGE> 57
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1999, Grape Investors, LLC was the beneficial owner of
certain limited partnership interests, as follows:
<TABLE>
<CAPTION>
Title of Name and address of Amount and nature of Percent
Class beneficial owner beneficial ownership(1) of Class
-------- ------------------- ----------------------- --------
<S> <C> <C> <C>
Limited Grape Investors, LLC $3,156,000 6%
Partnership c/o Arlen Capital Advisors
Interests(2) 1650 Hotel Circle Dr. North
Suite 200
San Diego, CA 92018
</TABLE>
(1) Based upon original invested capital.
(2) Grape Investors, LLC is beneficial owner of these securities. The
Partnership has not admitted Grape Investors, LLC to the Partnership as
a limited partner.
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.
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)
-22-
<PAGE> 58
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Cont'd.)
10. Material Contracts (Cont'd.)
(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, 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
-23-
<PAGE> 59
DAMSON/BIRTCHER REALTY INCOME FUND-II,
LIMITED PARTNERSHIP
--------------------------------------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Cont'd.)
10. Material Contracts (Cont'd.)
Report on Form 10-Q for the quarter ended September
30, 1993.
(27) Financial Data Schedule
b) Reports on Form 8-K:
Reference has been incorporated for the Form 8-K filed on February 4,
1999 reporting that the agreement to sell all of Damson/Birtcher Realty
Income Fund-II's properties to Abbey Investments, Inc. had been
terminated.
Reference has also been incorporated for the Form 8-K filed on October
15, 1999 reporting the sales of Creekridge Business Center, Kennedy
Corporate Center, and Lakeland Business Center to Rubin Pachulsky Dew
Properties, LLC, on September 23, 1999, sale of Ladera-II Shopping
Center, to CA New Mexico, LLC, on September 22, 1999 and the sale of
Cooper Village Shopping Center (co-owned with an affiliated
partnership),to Old Vine Corporation ("Old Vine") on September 21,
1999.
-24-
<PAGE> 60
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.
<TABLE>
<S> <C> <C>
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, 2000 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, 2000 By: /s/ Brent R. Donaldson
----------------------
Brent R. Donaldson
President
Liquidity Fund Asset Management, Inc.
</TABLE>
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, 2000
- ---------------------- BREICORP
Arthur B. Birtcher
/s/ Ronald E. Birtcher Co-Chairman of the Board - March 30, 2000
- ---------------------- BREICORP
Ronald E. Birtcher
/s/ Richard G. Wollack Chairman of Liquidity Fund March 30, 2000
- ---------------------- Asset Management, Inc.
Richard G. Wollack
</TABLE>
-25-
<PAGE> 61
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-K DAMSON
BIRTCHER REALTY INCOME FUND II
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,971,000
<SECURITIES> 0
<RECEIVABLES> 14,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,014,000
<PP&E> 7,689,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,703,000
<CURRENT-LIABILITIES> 520,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,183,000
<TOTAL-LIABILITY-AND-EQUITY> 14,703,000
<SALES> 0
<TOTAL-REVENUES> 0<F1>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0<F1>
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>STATEMENT OF OPERATION IS NOT PRESENTED IN LIQUIDATION BASIS OF ACCOUNTING
</FN>
</TABLE>
