<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File No. 0-15429
_________________
NEW ENGLAND LIFE PENSION PROPERTIES IV;
A REAL ESTATE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-2893298
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Franklin Street, 25th FL.
Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 261-9000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
No voting stock is held by non-affiliates of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I
------
Item 1. Business.
--------
New England Life Pension Properties IV; A Real Estate Limited
Partnership (the "Partnership") was organized under the Uniform Limited
Partnership Act of the Commonwealth of Massachusetts on October 16, 1985, to
invest primarily in newly constructed and existing income-producing real
properties.
The Partnership was initially capitalized with contributions of $2,000
in the aggregate from Fourth Copley Corp. (the "Managing General Partner") and
CCOP Associates Limited Partnership (the "Associate General Partner")
(collectively, the "General Partners") and $10,000 from Copley Real Estate
Advisors, Inc. (the "Initial Limited Partner"). The Partnership filed a
Registration Statement on Form S-11 (the "Registration Statement") with the
Securities and Exchange Commission on November 12, 1985, with respect to a
public offering of 60,000 units of limited partnership interest at a purchase
price of $1,000 per unit (the "Units") with an option to sell up to an
additional 60,000 Units (an aggregate of $120,000,000). The Registration
Statement was declared effective on January 3, 1986.
The first sale of Units occurred on May 29, 1986, at which time the
Initial Limited Partner withdrew its contribution from the Partnership.
Investors were admitted to the Partnership thereafter at monthly closings; the
offering terminated and the last group of subscription agreements was accepted
by the Partnership on December 31, 1986. As of January 31, 1987, a total of
94,997 Units had been sold, a total of 17,207 investors had been admitted as
limited partners (the "Limited Partners") and a total of $94,348,550 had been
contributed to the capital of the Partnership. The remaining 25,003 Units were
de-registered on February 23, 1987.
As of December 31, 1998, the Partnership had investments in the three
real properties described in A., D. and E. below. In December 1988, the
Partnership sold another one of its investments and received sale proceeds of
$10,577,476 which were substantially reinvested. Five other investments have
been sold. One investment in Atlanta, Georgia was sold on August 6, 1993,
resulting in sale proceeds of $7,917,000. Capital was distributed to the Limited
Partners in October 1993, in the amount of $82 per Unit . A second investment in
Rancho Cucamonga, California was sold on December 30, 1994, resulting in sale
proceeds of $5,261,275. On January 26, 1995, capital of $5,224,835 ($55 per
Unit) was distributed to the Limited Partners. A third investment located in
Decatur, Georgia was sold on October 10, 1996, resulting in sale proceeds of
$9,333,325. On October 24, 1996, capital of $9,214,709 ($97 per unit) was
distributed to the Limited Partners. A fourth investment located in Las Vegas,
Nevada was sold on October 24, 1997, resulting in sale proceeds of $22,983,007.
On November 25, 1997, the Partnership made a capital distribution of $22,989,274
($242 per limited partnership unit) from the proceeds of the sale and prior
sales proceeds previously held in reserves. Finally, a fifth investment located
in Phoenix, Arizona was sold on September 23, 1998, resulting in net sale
proceeds of $9,680,132. On October 29, 1998, the Partnership made a capital
distribution of $9,689,694 ($102 per limited partnership unit) from the proceeds
of the sale and prior sales proceeds previously held in reserves.
The Partnership has no current plan to renovate, improve or further
develop any of its real property. In the opinion of the Managing General Partner
of the Partnership, the properties are adequately covered by insurance. The
Partnership has no employees. Services are performed for the Partnership by the
Managing General Partner and affiliates of the Managing General Partner.
A. Apartment Complex in Fort Myers, Florida (" Reflections").
----------------------------------------------------------
On August 1, 1986, the Partnership acquired a 60% interest in Lee
Partners (the "Joint Venture"), a joint venture formed with Lee-Oxford Limited
Partnership, a Maryland limited partnership ("Lee-Oxford"). As of December 31,
1998, the Partnership had contributed $8,190,145 to the capital of the Joint
Venture out of a maximum commitment of $8,685,000. The joint venture agreement
entitles the Partnership to receive 60% of all cash flow from operations,
refinancing proceeds and net sale proceeds.
The Partnership also committed to make a loan for investment in the
joint venture of up to $5,790,000 to Lee-Oxford, of which $5,460,097 had been
funded as of December 31, 1998. Interest only on the loan is payable monthly at
the rate of 10.5% per annum. The entire outstanding principal balance of the
loan matures in December, 1999 or will be due on the sale of all or
substantially all of the assets of the Joint Venture or the sale of Lee-Oxford's
interest in the Joint Venture. Lee-Oxford must apply any cash flow received from
operations of the Joint Venture to interest payments on the loan and must apply
proceeds of financings or sales received from the Joint Venture to payment of
the interest on and principal of the loan. The Partnership agreed, effective
January 1, 1988, that to the extent that Lee-Oxford's 40% share of the cash flow
is not sufficient to pay interest currently due, interest due on the loan would
accrue and compound at a rate of 10.5% per annum. The Partnership agreed,
effective May 1, 1992, to extend the
<PAGE>
maturity date of the loan from August, 1996 to December, 1999, and the borrower
agreed to pay interest, currently, at a minimum of 7% with the remainder
accruing at 10.5% per annum compounded monthly. The loan was secured by Lee-
Oxford's interest in the Joint Venture and by a guarantee of Oxford Development
Corporation, an affiliate of Lee-Oxford.
The joint venture was restructured in the second quarter of 1996,
whereby Lee-Oxford became an indirect limited partner. The Partnership thereby
obtained control over management and operating decisions. The ownership
restructuring was accomplished with the establishment of a new partnership
entity in which the Partnership is the general partner and Lee-Oxford is the
limited partner. The new entity holds a 42% interest in the Joint Venture,
representing all of Lee-Oxford's prior direct ownership interest and 2% of the
Partnership's prior direct interest. The Partnership also agreed to release the
guarantee from Oxford Development Corporation upon payment to the Partnership of
a total of $650,000 of which the final payment of $136,437 was paid during the
first quarter of 1998.
The joint venture owns approximately 12.63 acres of land located in
Fort Myers, Florida and has constructed a 282-unit apartment complex, consisting
of 12 2- and 3-story buildings, thereon. The complex was approximately 94%
occupied as of December 31, 1998.
On August 21, 1998 the Partnership sold a parcel of land to the City
of Fort Myers. The Partnership received net proceeds totaling $67,881 and
recognized a gain of $35,591.
B. Office/Industrial Buildings in Phoenix, Arizona ("Metro Business
Center").
On September 15, 1986, the Partnership acquired a 60% interest in
Copley/Hewson Northwest Associates, a joint venture formed with an affiliate of
The Hewson Company (the "Developer"). Effective January 1, 1990, as a result of
operating deficits, the joint venture agreement was amended to reflect an
increase of the Partnership's interest in the joint venture to 80% and a
decrease in the Developer's interest to 20%. As of December 31, 1997, the
Partnership had contributed $5,302,193 to the capital of the joint venture out
of a maximum obligation of $5,580,000.
The Partnership also committed to make a loan for investment in the
joint venture of up to $3,988,000 to the Developer, of which $3,534,796 had been
funded as of December 31, 1997. Interest only on the loan was payable monthly at
the rate of 10.5% per annum. The loan had a ten-year term and was not
prepayable. The Developer was required to apply any cash flow received from
operations of the joint venture to interest payments on the loan and to apply
proceeds of refinancings or sales received from the joint venture to payments of
interest on and principal of the loan. The loan was secured by the borrower's
interest in the joint venture.
The joint venture agreement entitled the Partnership to receive 80% of
net cash flow, refinancing proceeds and sale proceeds once the loan and accrued
interest were repaid in full.
On January 1, 1996 a letter agreement was executed which modified
certain terms of the Joint Venture Agreement. The letter agreement, which
constituted an amendment to the Joint Venture Agreement, granted the Partnership
full control over management decisions. The Partnership's control over any
decision to sell the property, however, became effective on July 1, 1996.
Effective December 30, 1996, the property owned by the joint venture
was distributed to the venture partners as tenants-in-common. The Partnership,
however, retained its overall decision-making authority. The property interest
distributed to the Developer was encumbered by the aforementioned loan. The note
was amended to mature on February 1, 1997 and was secured by a recorded deed-of-
trust. The note was subsequently amended to mature on March 31, 1998. In
connection with the transaction, the Partnership obtained the option to purchase
the tenancy-in-common interest of the Hewson affiliate at its fair market value
beginning February 1, 1997.
On February 28, 1998, the Partnership executed a purchase and sale
agreement to purchase the tenancy-in-common interest of the Developer. The
Partnership finalized the acquisition on July 17, 1998. The purchase price was
$7,113,255 and was paid by the Partnership as follows: (i) A portion of the
purchase price was paid through the discharge of all outstanding amounts,
including but not limited to accrued but unpaid interest, owed by the Developer
to the Partnership under the loan made by the Partnership to the Developer in
connection with the original acquisition of the property and (ii) the
Partnership paid the remainder of the purchase price in cash in the amount of
$2,210.
On September 23, 1998, the Partnership sold the Metro Business Center.
The Partnership received net proceeds totaling $9,680,132. On October 29, 1998,
the Partnership
<PAGE>
made a capital distribution of $9,689,694 ($102 per limited partnership unit)
from the proceeds of the sale.
C. Office, Industrial and Retail Buildings in Las Vegas, Nevada ("Palms
--------------------------------------------------------------------
Business Center").
- -----------------
On December 29, 1986, the Partnership acquired a 60% interest in Rancho
Road Associates, a joint venture formed with an affiliate of Commerce Centre
Partners. In the first quarter of 1990, the Partnership committed to increase
its maximum commitment from $13,400,000 to $15,300,000. On October 2, 1991, the
Partnership committed to increase its maximum commitment from $15,300,000 to
$15,840,000. As of the date of sale, discussed below, the Partnership had
contributed all of its commitment of capital to the joint venture. The
additional funds were used to pay for higher than anticipated tenant finish
costs and the costs of re-leasing the space vacated by tenants when leases
expired. The joint venture agreement entitled the Partnership to receive a
preferred cumulative compounded return of 11% per annum on its capital
contribution, of which 9.5% per annum was due currently and up to 1.5% per annum
could be accrued if sufficient cash was not available therefor. The entire
unpaid accrued preferred return was due and payable at the end of the tenth year
of the joint venture's operations. The joint venture agreement also entitled
the Partnership to receive 60% of net cash flow and 60% of sale and refinancing
proceeds following the return of the Partnership's equity capital.
As of January 1, 1995, the joint venture agreement was amended and restated
granting the Partnership control over management and operating decisions.
Additionally, the venture partner become entitled to receive 40% of the excess
cash flow above a specified level until its cash investment of $360,000 was
repaid in full, after which the Partnership would become entitled to all cash
flow. Unpaid preferred returns of $2,936,919 were added to the Partnership's
capital account. Future preferred return payments were to be made monthly in
the amount of $121,125. to the extent operating revenues or extraordinary cash
flows were available. To the extent such payments could not be made from such
sources when due, payments could accrue at a rate of 9.5% per annum, compounded
monthly, until paid.
The joint venture owned approximately 14.1 acres of land in Las Vegas,
Nevada improved with 15 one-story buildings suitable for office, industrial and
retail use and containing approximately 224,474 square feet of space. At the
time of sale, approximately 86% of the available leasable area was leased.
On November 16, 1990, the joint venture filed a complaint against a tenant
for failure to pay rent and fraud, totaling approximately $500,000. A judgment
in the amount of $911,200 was recorded in 1995. The Partnership had not
collected on or recognized the judgment as of the date of sale.
On October 26, 1994, the joint venture filed a complaint against Han Lee,
Inc. for failure to pay rent totaling $69,171, including late charges. In
August, 1995, a Judgment by Default in the amount of $83,856 was legally
recorded. The Partnership has determined that the claim was not collectible at
the time of sale.
On October 24, 1997, the Palms Business Center was sold. The Partnership
received proceeds of $22,983,007. On November 25, 1997, the Partnership made a
distribution to the Limited Partners of $22,989,274 ($242 per Unit) from the
proceeds of this sale and from reserves established with the proceeds of prior
sales.
D. Office/Research and Development Buildings in Columbia, Maryland
---------------------------------------------------------------
("Columbia Gateway Corporate Park").
-----------------------------------
On December 21, 1987, the Partnership acquired a 17% interest in a joint
venture formed with an affiliate of the Partnership (the "Affiliate"), which had
a 33% interest, and M.O.R. Gateway 51 Associates Limited Partnership.
As of April 20, 1989, the joint venture agreement was amended and restated
reflecting an increase in the Partnership's interest in the joint venture to
34.75% and a decrease in the Affiliate's interest in the joint venture to
15.25%. In addition, the amended and restated joint venture agreement increased
the Partnership's maximum commitment to contribute capital to the joint venture
and reallocated the capital contributed to the joint venture between the
Partnership and the Affiliate. As of December 31, 1998, the Partnership had
contributed $14,086,147 to the capital of the joint venture out of a maximum
commitment of $14,598,000.
The joint venture agreement entitles the Partnership and the Affiliate to
receive a preferred return on the their respective invested capital at the rate
of 10.5% per annum. Such preferred return will be payable currently until the
Partnership and the Affiliate have received an aggregate of $8,865,000;
thereafter, if sufficient cash flow is not
<PAGE>
available therefor, the preferred return will accrue and bear interest at the
rate of 10.5% per annum, compounded monthly. The joint venture agreement also
entitles the Partnership to receive 34.75% of cash flow following payment of the
preferred return and 34.75% of the net proceeds of sales and refinancings
following return of the Partnership's and the Affiliate's equity. Ownership of
the joint venture has been restructured whereby the Partnership and the
Affiliate obtained full control over the business of the joint venture. The
restructuring was effective January 1, 1998.
The joint venture owns approximately 20.85 acres of land in the Columbia
Gateway Corporate Park in Columbia, Maryland. The intended development plan for
this land was for a two-stage development of seven office and research and
development buildings. The first phase of this development was completed by
1992 and included the construction of four, one-story buildings containing
142,545 square feet. The second phase of this development commenced in the
spring of 1994 in which a building totaling 46,000 square feet was constructed
and leased to a single tenant for a term of ten years. As of December 31, 1998,
the project was 100% leased.
E. Office/Research and Development Buildings in Frederick, Maryland ("270
----------------------------------------------------------------------
Technology Center").
- -------------------
On December 22, 1987, the Partnership acquired a 50% interest in a joint
venture formed with MORF Associates VI Limited Partnership. As of December 31,
1998, the Partnership had contributed $4,857,000 to the capital of the joint
venture out of a maximum commitment of $5,150,000. The joint venture agreement
entitles the Partnership to receive a preferred return on its invested capital
at the rate of 10% per annum. Such preferred return was payable currently
through September 30, 1988; presently, and until the termination of the joint
venture's operations, to the extent that sufficient cash flow is not available
therefor, the preferred return will accrue and bear interest at the rate of 10%
per annum, compounded monthly. The joint venture agreement entitles the
Partnership to receive 50% of the net proceeds of sales and financings after
return of its equity and preferred return.
As of July 3, 1990, the joint venture sold approximately 3.9 acres of land
to an unrelated third party. In return, the joint venture received
approximately $500,000 and a parcel of land consisting of approximately .4
acres. The joint venture currently owns approximately 8 acres of land in the
270 Technology Center in Frederick, Maryland, together with two one-story
research and development/office buildings, containing approximately 73,360
square feet of space, located thereon. As of December 31, 1998, the buildings
were approximately 100% leased.
<PAGE>
Item 2. Properties.
----------
The following table sets forth the annual realty taxes for the
Partnership's properties and information regarding tenants who occupy 10% or
more of gross leasable area (GLA) in the Partnership's properties.
<TABLE>
<CAPTION>
NUMBER
OF ANNUAL
ESTIMATED TENANTS CONTRACT
1998 WITH 10% NAME(S) SQUARE FEET RENT PER
REALTY TAXES OR MORE OF OF OF SQUARE LEASE
PROPERTY GLA TENANT(S) EACH TENANT FOOT EXPIRATION
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Apartment Complex in Fort Myers, FL $183,618 N/A N/A N/A N/A N/A
Office/R&D Buildings in Columbia, MD $211,966 4 Wiltel 27,480 $13.19 November, 2007
Columbia 45,951 $11.07 August, 2004
National
EVI, Inc. 38,225 $12.01 February, 2006
Avnet 21,991 $ 9.97 October, 1999
Office/R&D Buildings in Frederick, MD $ 57,455 4 Great West 16,143 $12.79 February, 2002
Life Annuity
Stulz Americ 9,933 $ 7.44 December, 1999
Science 10,996 $13.40 August, 1999
Applications
Bechtel 22,059 $ 10.5 April, 2001
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<CAPTION>
RENEWAL LINE OF BUSINESS
PROPERTY OPTIONS OF PRINCIPAL TENANTS
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Apartment Complex in Fort Myers, FL N/A N/A
Office/R&D Buildings in Columbia, MD Two for 5 Years Telecommunications
Two for 5 Years Home Mortgages
One for 5 Years Environmental/Testing
One for 5 Years Telecommunications
Office/R&D Buildings in Frederick, MD None Insurance
None HVAC Manufacturing
None Technology
None Engineering
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The following table sets forth for each of the last five years the
gross leasable area, occupancy rates, rental revenue and net effective rent for
the Partnership's properties:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
NET
RENTAL EFFECTIVE
GROSS LEASABLE YEAR-END REVENUE RENT
PROPERTY AREA OCCUPANCY RECOGNIZED ($/SF/YR)*
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Apartment Complex in Fort Myers, FL
- -----------------------------------
1994 250,810 96% $1,817,688 $ 7.51
1995 250,810 96% $1,867,298 $ 7.84
1996 250,810 88% $1,787,247 $ 7.75
1997 250,810 92% $1,822,350 $ 7.26
1998 250,810 94% $1,923,111 $ 8.16
Office/R&D Buildings in Columbia, MD
- ------------------------------------
1994 188,649 92% $1,496,175 $ 9.61
1995 188,649 92% $1,870,329 $10.78
1996 188,649 94% $1,941,458 $11.13
1997 188,649 98% $1,953,704 $10.82
1998 188,649 100% $2,312,692 $12.26
Office/R&D Buildings in Frederick, MD
- -------------------------------------
1994 73,360 100% $ 617,457 $10.20
1995 73,360 98% $ 762,212 $10.66
1996 73,360 89% $ 769,262 $11.43
1997 73,360 70% $ 728,065 $11.99
1998 73,360 100% $ 827,808 $12.20
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Net Effective Rent calculation is based on average occupancy during the
respective year.
<PAGE>
Following is a schedule of lease expirations for each of the next ten
years for the Partnership's properties based on the annual contract rent in
effect at December 31, 1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
TENANT AGING REPORT
PERCENTAGE
TOTAL OF
# OF TOTAL ANNUAL GROSS
LEASE SQUARE CONTRACT ANNUAL
PROPERTY EXPIRATIONS FEET RENT RENTAL
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Apartment Complex in Fort Myers, FL
- -----------------------------------
1999 N/A N/A N/A N/A
2000 N/A N/A N/A N/A
2001 N/A N/A N/A N/A
2002 N/A N/A N/A N/A
2003 N/A N/A N/A N/A
2004 N/A N/A N/A N/A
2005 N/A N/A N/A N/A
2006 N/A N/A N/A N/A
2007 N/A N/A N/A N/A
2008 N/A N/A N/A N/A
Office/R&D Buildings in Columbia, MD
- --------------------------------------
1999 2 32,570 $387,685 15%
2000 1 14,825 $180,611 8%
2001 0 0 $ 0 0%
2002 2 14,787 $214,003 10%
2003 0 0 $ 0 0%
2004 2 60,932 $711,192 31%
2005 0 0 $ 0 0%
2006 1 38,225 $459,023 20%
2007 1 27,480 $362,598 16%
2008 0 0 $ 0 0%
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Office/R&D Buildings in Frederick, MD
-------------------------------------
<S> <C> <C> <C> <C>
1999 2 20,929 $221,482 32%
2000 0 0 $ 0 0%
2001 1 22,059 $231,620 33%
2002 2 20,199 $247,353 35%
2003 0 0 $ 0 0%
2004 0 0 $ 0 0%
2005 0 0 $ 0 0%
2006 0 0 $ 0 0%
2007 0 0 $ 0 0%
2008 0 0 $ 0 0%
- ----------------------------------------------------------------------------------------------------
</TABLE>
Note: N/A denotes that the disclosure is not applicable based on the nature of
the property.
<PAGE>
The following table sets forth for each of the Partnership's properties
the: (i) federal tax basis, (ii) rate of depreciation, (iii) method of
depreciation, (iv) life claimed, and (v) accumulated depreciation, with respect
to each property or component thereof for purposes of depreciation:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Rate of Life Accumulated
Entity / Property Tax Basis Depreciation Method in years Depreciation
- -------------------------------------------------------------------------------------------------------------------------
Industrial Buildings, Phoenix, AZ
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Building & Improvements $ 4,032,589 3.18% SL 31.5 $1,376,096
Building Improvements 329,439 2.56% SL 39 16,466
----------- ----------
Total Depreciable Assets $ 4,362,028 $1,392,562
Apartment Complex, Fort Myers, FL
- ------------------------------------------------------------
Building $ 9,155,671 3.64% SL 27.5 $3,150,057
----------- ----------
Total Depreciable Assets $ 9,155,671 $3,150,057
Office/Research and Development Buildings, Columbia, MD
- ------------------------------------------------------------
Building $ 7,829,962 3.18% SL 31.5 $2,194,102
Land Improvements 3,955,863 2.56% SL 39 101,347
Land Improvements 94,022 N/A 150%DB 15 44,621
----------- ----------
Total Depreciable Assets $11,879,847 $2,340,070
Total Depreciable Assets $25,397,546 $6,882,689
=========== ==========
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
SL= Straight Line
DB= Declining Balance
<PAGE>
Following is information regarding the competitive market conditions for
each of the Partnership's properties. This information has been gathered from
sources deemed reliable. However, the Partnership has not independently
verified the information and, as such, cannot guarantee its accuracy or
completeness.
Apartment Complex in Fort Myers, Florida
- ----------------------------------------
Reflections Apartments is located in the city of Fort Myers in Lee County, which
has a population of approximately 375,000. While Fort Myers contains only
45,000 of the total Lee County population, it is the area's business and
government center. There are approximately 8,724 apartment units in 42
properties in the Fort Myers market. During 1998, approximately 760 new
"luxury" units were added to existing supply. There is uncertainly whether the
market can support such growth. Approximate year-end 1998 occupancy for
apartments in this market was 95%, and rents grew at approximately 3% over 1997.
In 1998, market rents averaged $628 per unit for one-bedroom units, $681 per
unit for two-bedroom units and $934 per unit for three-bedroom units.
Office/R&D Buildings in Columbia, MD
- ------------------------------------
The property is located within the Howard County R&D submarket. Employment in
Howard County increased approximately 6.9% over 1997. Due to the limited
availability of space in the marketplace, tenants are moving from Washington, DC
to the Baltimore suburbs in search of space that will accommodate their future
growth needs.. The Columbia flex submarket contains approximately seven million
square feet of space and had 4.9% vacancy at year-end 1998. Approximately
110,000 square feet of new R&D product came on the Columbia market during the
year. Rents for the Columbia flex market ranged between $9.50 and $11.00 per
square foot during 1998.
R&D/Office Buildings in Frederick, MD
- -------------------------------------
The property is located in the Frederick County office/flex and light industrial
market. The I-270 Technology Corridor, which is comprised of the Rockville,
North Rockville/Shady Grove, Gaithersburg, Germantown and Frederick submarkets,
contains approximately 25 million square feet of office and flex space. During
1998, an increase in development (speculative as well as build-to-suit) was
observed along the I-270 Corridor. The Frederick R&D/office submarket contained
approximately five million square feet of space and had a vacancy rate of
approximately 6% at year-end 1998. Recent Frederick submarket rents range from
$9.00 to $10.75 per square foot for R&D and $10.00 to $13.00 per square foot for
office. These rates represent a slight increase over rents at year-end 1997.
Several R&D/Flex buildings, totaling approximately 175,000 square feet of space,
were added to the Frederick submarket in 1998.
Item 3.
Legal Proceedings
- -----------------
The Partnership is not a party to, nor are any of its properties subject to, any
material pending legal proceedings. A joint venture in which the Partnership
holds an interest has received judgements against two former tenants for
defaults under leases. See Item 1.C.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Annual Report on Form 10-K.
PART II
- -------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
---------------------------------------------------------------------
There is no active market for the Units. Trading in the Units is
sporadic and occurs solely through private transactions.
As of December 31, 1998, there were 16,656 holders of Units.
The Partnership's Amended and Restated Agreement of Limited Partnership
dated May 29, 1986, as amended to date (the "Partnership Agreement"), requires
that any Distributable Cash (as defined therein) be distributed quarterly to the
Partners in specified proportions and priorities. There are no restrictions on
the Partnership's present or future ability to make distributions of
Distributable Cash. For the year ended December 31, 1998, cash distributions
paid in 1998 or distributed after year end with respect to 1998 to the Limited
Partners as a group totaled $13,030,738, including $9,689,694 ($102 per Limited
Partnership Unit) from the proceeds of a property sale. For the year ended
December 31, 1997, cash distributions paid in 1997 or distributed after year end
with respect to 1997 to the Limited Partners as a group totaled $26,517,463,
including $22,989,274 ($242 per Limited Partnership Unit) from the proceeds of
a property sale and proceeds from reserves established from the proceeds of
previous sales.
Cash distributions exceeded net income in 1998 and 1997 and, therefore,
resulted in a reduction of partners' capital. Reference is made to the
Partnership's Statement of Partner's Capital (Deficit) and Statement of Cash
Flows in Item 8 hereof.
<PAGE>
Item 6. Selected Financial Data.
-----------------------
<TABLE>
<CAPTION>
For Year For Year For Year For Year For Year
Ended or Ended or Ended or Ended or Ended or
as of : as of : as of : as of : as of :
12/31/98(1) 12/31/97(2) 12/31/96(3) 12/31/95(4) 12/31/94(5)
------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 8,561,528 $ 16,837,755 $ 7,582,119 $ 5,906,735 $ 4,576,435
Net Income $ 5,988,711 $ 13,211,159 $ 4,392,513 $ 3,912,897 $ 3,752,101
Net Income
per Unit of
Limited
Partnership
Interest $ 62.41 $ 137.68 $ 45.78 $ 40.78 $ 39.10
Total Assets $ 30,706,031 $ 37,925,503 $ 50,710,887 $ 59,991,655 $ 67,145,010
Total Cash
Distributions
per Unit of
Limited
Partnership
Interest,
including
amounts
distributed after
year end with
respect to such
year $ 137.17 $ 279.14 $ 147.71 $ 60.12 $ 105.49
</TABLE>
(1) Net income includes a gain on the sale of property of $3,742,541. Cash
distributions include a return of capital of $102.00 per Limited Partnership
Unit.
(2) Net income includes a gain on the sale of property of $10,482,458. Cash
distributions include a return of capital of $242.00 per Limited Partnership
Unit.
(3) Net income includes a gain on the sale of a joint venture investment of
$1,055,591. Cash distributions include a return of capital of $97.00 per Limited
Partnership Unit.
(4) Cash distributions include $8.09 per Limited Partnership Unit that is
attributable to a discretionary reduction of cash reserves, which had been
previously accumulated through operating activities.
(5) Net income includes a gain on the sale of a joint venture investment of
$399,865. Cash distributions include a return of capital of $55.00 per Limited
Partnership Unit.
<PAGE>
ITEM 7
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS
- ----------
LIQUIDITY AND CAPITAL RESOURCES
The Partnership completed its offering of units of limited partnership
interest in December, 1986. A total of 94,997 units were sold. The Partnership
received proceeds of $85,677,259, net of selling commissions and other offering
costs, which have been invested in real estate, used to pay related acquisition
costs, or retained as working capital reserves. The Partnership made nine real
estate investments. Six investments have been sold; one each in 1988, 1993,
1994, 1996, 1997 and 1998. Capital of $54,908,266 ($578 per limited partnership
unit) has been returned to the limited partners through December 31, 1998.
On October 10, 1996, the Partnership sold its interest in the Decatur
TownCenter II joint venture to its partner for $9,540,860. The Partnership
received net sale proceeds of $9,333,325 and after closing costs recognized a
gain of $1,055,591 ($11.00 per limited partnership unit). On October 24, 1996,
the Partnership made a capital distribution of $97 per limited partnership unit
($9,214,709) from the proceeds of the sale. The adjusted capital contribution
after this sale was $766.
On October 24, 1997, the Palms Business Center property was sold to an
institutional buyer which is unaffiliated with the Partnership for $23,200,000.
The Partnership received net proceeds of $22,983,007, after closing costs and
repayment of a loan from the venture partner. The Partnership recognized a gain
of $10,482,458 ($109.24 per limited partnership unit). A disposition fee of
$696,000 was accrued but not paid to AEW Real Estate Advisors Inc. ("AEW"). On
November 25, 1997, the Partnership made a capital distribution of $22,989,274
($242 per limited partnership unit) from the proceeds of the sale and prior
sales proceeds held in reserves. This distribution reduced the adjusted capital
contribution to $524 per limited partnership unit.
On August 21, 1998, the Reflections joint venture sold a parcel of land to
the City of Fort Myers. The Partnership received net proceeds totaling $67,881
and recognized a gain of $35,591.
On September 23, 1998, the Metro Business Center in Phoenix Arizona was sold
to an institutional buyer which is unaffiliated with the Partnership. The gross
sale price was $9,900,000. The Partnership received net proceeds totaling
$9,680,132, after closing costs and recognized a gain of $3,706,950 ($38.63 per
limited partnership unit). A disposition fee of $297,000 was accrued but not
paid to the AEW. On October 29, 1998, the Partnership made a capital
distribution of $9,689,694 ($102 per limited partnership unit) from the proceeds
of the sale and prior sales proceeds held in reserves. This distribution reduced
the adjusted capital contribution to $422 per limited partnership unit.
At December 31, 1998, the Partnership had $ 5,932,931 in cash and cash
equivalents, of which $653,464 was used for cash distributions to partners on
January 28, 1998; the remainder will primarily be used for working capital
reserves. The source of future liquidity and cash distributions to partners will
be cash generated by the Partnership's real estate and invested cash and cash
equivalents. Distributions of cash from operations for the first and second
quarters of 1998 were made at the annualized rate of 5.5% on the adjusted
capital contribution. Distributions of cash for the third and fourth quarters of
1998 were made at the annualized rate of 6% on the weighted average adjusted
capital contribution. Quarterly distributions of cash from operations relating
to 1997 were made at the annualized rate of 5% on the weighted average adjusted
capital contribution. The distribution rate was lower in 1997 in anticipation of
cash requirements related to lease rollovers.
The carrying value of real estate investments in the financial
statements at December 31, 1998 is at depreciated cost, or if the investment's
carrying value is determined not to be recoverable through expected undiscounted
future cash flows, the carrying value is reduced to estimated fair market value.
The fair market value of such investments is further reduced by the estimated
cost of sale for properties held for sale. Carrying value may be greater or
less than current appraised value. At December 31, 1998, the appraised values
of each investment exceeded the related carrying values by an aggregate of
<PAGE>
approximately $6,100,000. The current appraised value of real estate investments
has been estimated by the Managing General Partner and is generally based on a
combination of traditional appraisal approaches performed by AEW and independent
appraisers. Because of the subjectivity inherent in the valuation process, the
estimated current appraised value may differ significantly from that which could
be realized if the real estate were actually offered for sale in the
marketplace.
Year 2000 Readiness Disclosure
-----------------------------
The Year 2000 Issue is a result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in normal
business operations.
The Partnership relies on AEW Capital Management L.P. ("AEW Capital
Management"), the parent of AEW Real Estate Advisors, Inc., to generate
financial information and to provide other services which are dependent on the
use of computers. The Partnership has obtained assurances from AEW Capital
Management that:
. AEW Capital Management has developed a Year 2000 Plan (the "Plan")
consisting of five phases: inventory, assessment, testing, remediation/repair
and certification.
. As of September 30, 1998, AEW Capital Management had completed the
inventory and assessment phases of this Plan and had commenced the testing and
remediation/repair of internal systems.
. AEW Capital Management expects to conclude the internal testing,
remediation/repair and certifications of its Plan no later than June 30, 1999.
The Partnership also relies on joint venture partners and/or property
managers to supply financial and other data with respect to its real properties.
The Partnership is in the process of surveying these third party providers and
assessing their compliance with Year 2000 requirements. To date, the
Partnership is not aware of any problems that would materially impact its
results of operations, liquidity or capital resources. However, the Partnership
has not yet obtained written assurances that these providers would be Year 2000
compliant.
The Partnership currently does not have a contingency plan in the event of
a particular provider or system not being Year 2000 compliant. Such a plan will
be developed if it becomes clear that a provider (including AEW Capital
Management) is not going to achieve its scheduled compliance objectives by June
30, 1999. The inability of one of these providers to complete its Year 2000
resolution process could materially impact the Partnership. In addition, the
Partnership is also subject to external forces that might generally affect
industry and commerce, such as utility or transportation company Year 2000
compliance failures and related service interruptions. Given the nature of its
operations, the Partnership will not incur any costs associated with Year 2000
compliance. All such costs are borned by AEW Capital Management and the
property managers.
Results of Operations
Form of Real Estate Investments
At December 31, 1998, two of the investments in the portfolio are
structured as joint ventures with real estate development/management firms, and
in one case, with an affiliate of the Partnership. The Palms Business Center
(which was sold on October 24, 1997), Reflections Apartments and Metro Business
Center investments were originally structured as joint ventures. However,
effective January 1, 1995, April 1, 1996 and July 1, 1996, respectively, the
Partnership was granted full control over
<PAGE>
management decisions and the investments have been accounted for as wholly-owned
properties since those dates. As previously stated, the Metro Business Center
was sold on September 23, 1998.
Operating Factors
As previously discussed, the Palms Business Center was sold on
October 24, 1997 and the Partnership recognized a gain of $10,482,458. At the
time of the sale the Palms Business Center was 86% leased compared to 98% and
96% at December 31, 1996 and December 31, 1995, respectively.
Overall occupancy at Columbia Gateway Corporate Park was 100% at
December 31, 1998, up from 98% at December 31, 1997. Ownership of the Columbia
Gateway Corporate Park joint venture has been restructured whereby the
Partnership and its affiliate obtained full control over the business of the
joint venture. The restructuring was effective January 1, 1998.
Occupancy at Reflections Apartments at December 31, 1998 was 94% as it
was at December 31, 1997. Current rental rates are at the high end of the
market range. In the third quarter of 1998 a Purchase and Sale agreement was
executed to sell the Reflections investment. At December 31, 1998 the
Partnership and the potential buyer could not agree with the terms of the
Purchase and Sale and the offer was withdrawn.
Occupancy at Metro Business Center at December 31, 1997 was at 100%. As
discussed above, Metro Business Center was sold on September 23, 1998 and the
Partnership recognized a gain of $3,706,950. At the time of sale the property
was 100% leased.
Occupancy at 270 Technology Center was 100% at December 31, 1998, up from
70% at December 31, 1997.
Investment Activity
1998 Compared to 1997
Interest on cash equivalents and short-term investments decreased by
approximately $78,000 compared to 1997, primarily due to lower average
investment balances as a result of sales in both 1998 and 1997.
Total real estate operations were $2,509,656 and $2,925,862 for the
twelve months ended December 31, 1998 and 1997, respectively. The decrease of
$416,206, is primarily due to a decrease in operating income from wholly owned
properties of $1,031,189 primarily due to the sale of Metro Business Center
offset by an increase of $614,983 in joint venture earnings, primarily due to
improved performance at Columbia Gateway Corporate Park and 270 Technology Park.
The decrease in operating cash flow of approximately $972,000 between
1997 and 1998 is primarily due to the sale of Rancho Road in October, 1997 and a
decrease in operating liabilities.
1997 Compared to 1996
Interest on cash equivalents and short-term investments increased by
approximately $102,000 compared to 1996, primarily due to higher average
investment balances as a result of the temporary investment of the receipt of
the Palms Business Center sales proceeds and to higher yields.
Exclusive of 1996 operating results at Decatur TownCenter ($220,428),
total real estate operations were $2,925,862 and $3,558,278 for the twelve
months ended December 31, 1997 and 1996, respectively. The decrease of $632,416,
is primarily due to a decrease in joint venture earnings in 270 Technology
Center due to higher vacancy and a write off of tenant improvements. The
decrease is also attributable to the decrease in operations from Palms Business
Center due to the October, 1997 sale. These decreases were offset by improved
operating results at both Metro Business Center and Reflections, both of which
experienced higher occupancy rates during 1997.
Operating cash flow in 1997 decreased by approximately $1,400,000. Cash
flow in 1996 included $250,000 received pursuant to a loan guarantee from one of
the Partnership's joint venture
<PAGE>
partners, relating to previously accrued investment income. Exclusive of this
item, operating cash flow decreased $1,149,739 between 1996 and 1997. The change
primarily stems from the change in Partnership operating results discussed
above, increases in working capital and the timing of cash distributions from
joint ventures.
Portfolio Expenses
The Partnership management fee is 9% of distributable cash flow from
operations after any increase or decrease in working capital reserves as
determined by the Managing General Partner. General and administrative expenses
primarily consist of real estate appraisal, printing, legal, accounting and
investor servicing fees.
1998 Compared to 1997
General and administrative expenses increased approximately $7,400 or 2%,
primarily due to an increase in legal fees for 1998 which was the result of
fees incurred with the potential sale of Reflections Apartments. Offsetting
this is a reduction in investor servicing fees. Management fees decreased in
1998 compared to 1997 due to a decrease in distributable cash flow and a
corresponding decrease in operating distributions to partners as a result the of
sale of investments.
1997 Compared to 1996
General and administrative expenses decreased approximately $14,000 or
4%, primarily due to a decrease in professional fees for 1997 which were the
result of a reduction in accounting fees and lower legal fees in 1997. Legal
fees in 1996 had included expenses incurred for the two investment
restructurings. Management fees decreased in 1997 compared to 1996 due to a
decrease in distributable cash flow and a corresponding decrease in operating
distributions to partners.
Inflation
By their nature, real estate investments tend not to be adversely
affected by inflation. Inflation may tend to result in appreciation in the
value of the Partnership's real estate investments over time if rental rates and
replacement costs increase. Declines in real property values during the period
of the Partnership operations, due to market and economic conditions, have
overshadowed the overall positive effect inflation may have on the value of the
Partnership's investments.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Partnership was not party to derivative financial instruments or
derivative commodity instruments at or during the year ended December 31, 1998.
The Partnership's only other financial instruments (as defined by Financial
Accounting Standards Board Statement No. 107) are its cash and cash equivalents
for which cost approximates market value.
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
See the Financial Statements of the Partnership included as a part of
this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
- --------------------
The Partnership has had no disagreements with its accountants on any
matters of accounting principles or practices or financial statement disclosure.
<PAGE>
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
(a) and (b) Identification of Directors and Executive Officers.
--------------------------------------------------
The following table sets forth the names of the directors and
executive officers of the General Partner and the age and position held by each
of them as of December 31, 1998
<TABLE>
<CAPTION>
Name Position(s) with the Managing General Partner Age
- ---- --------------------------------------------- ---
<S> <C> <C>
J. Christopher Meyer, III President, Chief Executive Officer and Director 51
Pamela J. Herbst Vice President and Director 43
J. Grant Monahon Vice President and Director 53
James J. Finnegan Vice President 38
Karin J. Lagerlund Treasurer and Principal Financial and Accounting Officer 34
</TABLE>
(c) Identification of Certain Significant Employees.
-----------------------------------------------
None.
(d) Family Relationships.
--------------------
None.
(e) Business Experience.
-------------------
The Managing General Partner was incorporated in Massachusetts on
October 16, 1985. The background and experience of the executive officers and
directors of the Managing General Partner are as follows:
J. Christopher Meyer, III joined AEW Real Estate Advisors, Inc. ("AEW") ,
formerly known as Copley Real Estate Advisors, Inc., in 1987 and has been an
officer at AEW since then. AEW is a subsidiary of AEW Capital Management, L.P.
("AEW Capital Management"), of which he is also a Director. Prior to joining
AEW, he had senior positions with several regional real estate development
concerns, including Chief Financial Officer of Ford Motor Land Development
Corporation. His career at AEW has included asset management responsibility for
the company's Eastern Region, and portfolio manager for several commingled real
estate funds. Presently, Mr. Meyer has overall responsibility for all the
partnerships advised by AEW whose securities are registered under the Securities
and Exchange Act of 1934, and for several commingled funds. He received a B.A.
in Statistics from Princeton University and in MBA from the Wharton School of
the University of Pennsylvania.
Pamela J. Herbst directs AEW Capital Management's Institutional Real Estate
Services, with oversight responsibility for the asset and portfolio management
areas. Ms. Herbst is a member of AEW Capital Management's Investment Policy
Group and Management Committee. She came to AEW Capital Management in December
1996 as a result of the firm's merger with Copley Real Estate Advisors, Inc.,
where she held various senior level positions in asset and portfolio management,
acquisitions, and corporate operations since 1982. Ms. Herbst is a graduate of
the University of Massachusetts (B.A.) and Boston University (M.B.A.).
J. Grant Monahon is AEW Capital Management's General Counsel and a member
of the firm's Management Committee and Investment Policy Group. He has over 25
years of experience in real estate law and investments. Prior to joining the
predecessor of AEW Capital Management in 1987, Mr. Monahon was a partner with a
major Boston law firm. As the head of that firm's real estate finance
department, he represented a wide variety of institutional clients, both
domestic and international, in complex equity and debt transactions. He is the
former Chairman of the General Counsel section of the
<PAGE>
National Association of Real Estate Investment Managers. Mr. Monahon is a
graduate of Dartmouth College (B.A.) and Georgetown University Law Center
(J.D.).
James J. Finnegan is the Assistant General Counsel of AEW Capital
Management. Mr. Finnegan served as Vice President and Assistant General Counsel
of Aldrich, Eastman & Waltch, L.P., a predecessor to AEW Capital Management.
Mr. Finnegan has over ten years of experience in real estate law, including
seven years of experience in private practice with major New York City and
Boston law firms. Mr. Finnegan also serves as AEW's securities and regulatory
compliance officer. Mr. Finnegan is a graduate of the University of Vermont
(B.A.) and Fordham University School of Law (J.D.).
Karin J. Lagerlund directs the Institutional Real Estate Services
Portfolio Accounting Group at AEW Capital Management, overseeing portfolio
accounting, performance measurement and client financial reporting for AEW's
private equity investment portfolios. Ms. Lagerlund is a Certified Public
Accountant and has over ten years experience in real estate consulting and
accounting. Prior to joining AEW Capital Management in 1994, she was an Audit
Manager at EY/Kenneth Leventhal LLP. Ms. Lagerlund is a graduate of Washington
State University (B.A.).
(f) Involvement in Certain Legal Proceedings.
----------------------------------------
None.
Item 11. Executive Compensation.
----------------------
Under the Partnership Agreement, the General Partners and their affiliates
are entitled to receive various fees, commissions, cash distributions,
allocations of taxable income or loss and expense reimbursements from the
Partnership. See Notes 1, 2 and 6 to Notes to Financial Statements.
The following table sets forth the amounts of the fees and cash
distributions and reimbursements of out-of-pocket expenses which the Partnership
paid to or accrued for the account of the General Partners and their affiliates
for the year ended December 31, 1998.
<TABLE>
<CAPTION>
Amount of
Compensation
and
Receiving Entity Type of Compensation Reimbursement
- ---------------- -------------------- ----------------
<S> <C> <C>
General Partners Share of Distributable Cash $ 35,272
AEW Real Estate Advisors, Inc. Management Fees and
(formerly known as Copley Real Reimbursement of Expenses 333,771
Estate Advisors, Inc.)
New England Securities Corporation Servicing Fees and
Reimbursement of Expenses 37,823
----------------
TOTAL $406,866
================
</TABLE>
For the year ended December 31, 1998 the Partnership allocated $23,820 of
taxable income to the General Partners.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
-----------------------------------------------
No person or group is known by the Partnership to be the beneficial owner
of more than 5% of the outstanding Units at December 31, 1998. Under the
Partnership Agreement, the voting rights of the Limited Partners are limited
and, in some circumstances, are subject to the prior receipt of certain opinions
of counsel or judicial decisions.
Except as expressly provided in the Partnership Agreement, the right to
manage the business of the Partnership is vested exclusively in the General
Partner.
(b) Security Ownership of Management.
--------------------------------
An affiliate of the General Partner of the Partnership owned 1,648 Units as
of December 31, 1998.
(c) Changes in Control.
------------------
There exists no arrangement known to the Partnership the operation of which
may at a subsequent date result in a change in control of the Partnership.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The Partnership has no relationships or transactions to report other than
as reported in Item 11 above.
PART IV
-------
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K.
-------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) Financial Statements--The Financial Statements listed on the
accompanying Index to Financial Statements and Schedule, Financial
Statement Index No. 2 and Financial Statement Index No. 3 are filed as part
of this Annual Report.
(2) Financial Statement Schedule--The Financial Statement Schedule listed
on the accompanying Index to Financial Statements and Schedule is filed as
part of this Annual Report.
(3) Exhibits--The Exhibits listed in the accompanying Exhibit Index are
filed as a part of this Annual Report and incorporated in this Annual
Report as set forth in said Index.
(b) Reports on Form 8-K. During the last quarter of the year ended December
31, 1998, the Partnership filed no Current Report on Form 8-K.
<PAGE>
New England Life Pension Properties IV;
A Real Estate Limited Partnership
Financial Statements
* * * * * * *
December 31, 1998
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES IV
--------------------------------------
A REAL ESTATE LIMITED PARTNERSHIP
---------------------------------
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
------------------------------------------
Report of Independent Accountants
Financial Statements:
Balance Sheets--December 31, 1998 and 1997
Statements of Operations--Years ended December 31, 1998, 1997 and 1996
Statements of Partners' Capital (Deficit)--Years ended December 31, 1998,
1997 and 1996
Statements of Cash Flows--Years ended December 31, 1998, 1997 and 1996
Notes to Financial Statements
Financial Statement Schedule:
Schedule III--Real Estate and Accumulated Depreciation at December 31, 1998,
1997 and 1996
<PAGE>
Report of Independent Accountants
To the Partners
NEW ENGLAND LIFE PENSION PROPERTIES IV;
A REAL ESTATE LIMITED PARTNERSHIP
In our opinion, based upon our audits and the reports of other auditors for
the years ended December 31, 1998, 1997 and 1996, the financial statements
listed in the accompanying index present fairly, in all material respects, the
financial position of New England Life Pension Properties IV; a Real Estate
Limited Partnership (the "Partnership") at December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Fourth Copley
Corp., the Managing General Partner of the Partnership; our responsibility is to
express an opinion on these financial statements based on our audits. We did not
audit the financial statements of the Partnership's Columbia Gateway Corporate
Park and 270 Technology Center joint venture investees for the year ended
December 31, 1996 which results of operations are recorded using the equity
method of accounting in the Partnership's financial statements. Equity in joint
venture income for these ventures aggregated $1,415,605 for the year ended
December 31, 1996. We also did not audit the financial statements of the
Partnership's investment in Reflections and Metro Business Center for the year
ended December 31, 1996. Operating income and equity in joint venture income
for these investments was $809,714 and $339,763, respectively, for the year
ended December 31, 1996. We also did not audit the financial statements of
Palms Business Centers, a wholly-owned property, for the year ended December 31,
1996. Operating income for this investment was $1,806,638 for the year ended
December 31, 1996. Those statements were audited by other auditors whose
reports thereon have been furnished to us, and our opinion expressed herein,
insofar as it relates to the amount included for the equity in joint venture
income for Columbia Gateway Corporate Park and 270 Technology Center for the
year ended December 31, 1996, and for the operating income and equity in joint
venture income for Reflections, Metro Business Center and Palms Business Centers
for the year ended December 31, 1996 is based solely on the reports of the other
auditors. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by the
Managing General Partner, and evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors for
the years ended December 31, 1998, 1997and 1996 provide a reasonable basis for
the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------------
Boston, Massachusetts
March 19, 1999
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES IV;
A REAL ESTATE LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Real estate investments:
Joint ventures $15,666,643 $15,879,130
Property, net 9,106,457 15,139,147
----------- -----------
24,773,100 31,018,277
Cash and cash equivalents 5,932,931 4,017,473
Short-term investments - 2,889,753
----------- -----------
$30,706,031 $37,925,503
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 145,103 $ 152,095
Accrued management fee 32,314 39,859
Deferred management and disposition fees 4,229,398 4,205,989
----------- -----------
Total liabilities 4,406,815 4,397,943
----------- -----------
Partners' capital (deficit):
Limited partners ($422 and $524 per unit,
respectively; 120,000 units authorized,
94,997 units issued and outstanding) 26,341,929 33,594,888
General partners (42,713) (67,328)
----------- -----------
Total partners' capital 26,299,216 33,527,560
----------- -----------
$30,706,031 $37,925,503
=========== ===========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES IV;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT ACTIVITY
Property rentals $ 2,907,757 $ 4,981,451 $ 4,173,714
Property operating expenses (1,358,566) (2,028,830) (1,557,362)
Depreciation and amortization (549,260) (921,501) (805,522)
----------- ----------- -----------
999,931 2,031,120 1,810,830
Joint venture earnings 1,515,033 900,050 1,980,804
Amortization (5,308) (5,308) (12,928)
----------- ----------- -----------
Total real estate operations 2,509,656 2,925,862 3,778,706
Gain on sales of property 3,742,541 10,482,458 1,055,591
----------- ----------- -----------
Total real estate activity 6,252,197 13,408,320 4,834,297
Interest on cash equivalents
and short-term investments 396,197 473,796 372,010
----------- ----------- -----------
Total investment activity 6,648,394 13,882,116 5,206,307
----------- ----------- -----------
PORTFOLIO EXPENSES
Management fee 333,771 352,468 481,249
General and administrative 325,912 318,489 332,545
----------- ----------- -----------
659,683 670,957 813,794
----------- ----------- -----------
NET INCOME $ 5,988,711 $13,211,159 $ 4,392,513
=========== =========== ===========
Net income per limited
partnership unit $ 62.41 $ 137.68 $ 45.78
=========== =========== ===========
Cash distributions per limited
partnership unit $ 138.76 $ 282.60 $ 148.80
=========== =========== ===========
Number of limited partnership units
outstanding during the year 94,997 94,997 94,997
=========== =========== ===========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES IV;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,988,711 $ 13,211,159 $ 4,392,513
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 554,568 926,809 818,450
Equity in joint venture earnings (1,515,033) (900,050) (1,980,804)
Cash distributions from joint ventures 1,722,212 749,133 2,350,903
Gain on sales of property (3,742,541) (10,482,458) (1,055,591)
Decrease (increase) in investment income
and other receivables 51,042 (22,023) 20,992
Increase in deferred leasing commissions (35,241) (79,163) (58,972)
Decrease (increase) in property working capital (256,107) (144,177) 138,293
Increase (decrease) in operating liabilities (288,128) 192,568 225,753
------------ ------------ ------------
Net cash provided by operating activities 2,479,483 3,451,798 4,851,537
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sales of property 9,451,013 22,287,007 9,333,325
Deferred disposition fees 297,000 696,000 286,226
Loan to venture partner - (130,000) (100,000)
Investment in property (70,131) (306,987) (72,441)
Decrease (increase) in short-term
investments, net 2,838,711 (141,198) 617,015
Loan repayment by joint venture partner 136,437 - 263,563
------------ ------------ ------------
Net cash provided by investing activities 12,653,030 22,404,822 10,327,688
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITY:
Distributions to partners (13,217,055) (26,885,111) (14,185,260)
------------ ------------ ------------
Net cash used in financing activity (13,217,055) (26,885,111) (14,185,260)
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents 1,915,458 (1,028,491) 993,965
Cash and cash equivalents:
Beginning of year 4,017,473 5,045,964 4,051,999
------------ ------------ ------------
End of year $ 5,932,931 $ 4,017,473 $ 5,045,964
============ ============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Effective April 1, 1996, the Partnership's joint venture investment in
Reflections Apartments was converted to a wholly-owned property. The carrying
value of this investment at conversion was $10,469,511. Effective July 1, 1996,
the Partnership's joint venture investment in Metro Business Center was
converted to a wholly-owned property. The carrying value of this investment at
conversion was $5,889,261.
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES IV;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------------
1998 1997 1996
-------- -------- --------
General Limited General Limited General Limited
Partners Partners Partners Partners Partners Partners
-------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of year $(67,328) $ 33,594,888 $(160,481) $ 47,361,993 $(154,702) $ 57,148,961
Cash distributions (35,272) (13,181,783) (38,959) (26,846,152) (49,704) (14,135,556)
Net income 59,887 5,928,824 132,112 13,079,047 43,925 4,348,588
-------- ------------ --------- ------------ --------- ------------
Balance at end
of year $(42,713) $ 26,341,929 $ (67,328) $ 33,594,888 $(160,481) $ 47,361,993
======== ============ ========= ============ ========= ============
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES IV;
A REAL ESTATE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and Business
- ----------------------------------
General
-------
New England Life Pension Properties IV; A Real Estate Limited Partnership (the
"Partnership") is a Massachusetts limited partnership organized for the purpose
of investing primarily in newly constructed and existing income producing real
properties. It primarily serves as an investment for qualified pension and
profit sharing plans and other organizations intended to be exempt from federal
income tax. The Partnership commenced operations in May, 1986 and acquired the
three real estate investments it currently owns prior to the end of 1987. It
intends to dispose of its investments within twelve years of their acquisition,
and then liquidate; however, the Managing General Partner could extend the
investment period if it is considered to be in the best interest of the limited
partners.
The Managing General Partner of the Partnership is Fourth Copley Corp., a
wholly-owned subsidiary of AEW Real Estate Advisors, Inc. ("AEW"), formerly
known as Copley Real Estate Advisors, Inc. ("Copley"). The associate general
partner is CCOP Associates Limited Partnership, a Massachusetts limited
partnership. Subject to the Managing General Partner's overall authority, the
business of the Partnership is managed by AEW pursuant to an advisory contract.
On December 10, 1996, Copley's parent, New England Investment Companies,
Limited Partnership ("NEIC"), a publicly traded master limited partnership,
acquired certain assets subject to then existing liabilities from Aldrich
Eastman & Waltch, Inc. and its affiliates and principals (collectively, "the AEW
operations"). Simultaneously, a new entity, AEW Capital Management, L.P., was
formed into which NEIC contributed its interest in Copley and its affiliates.
As a result, the AEW operations were combined with Copley to form the business
operations of AEW Capital Management, L.P. At the end of 1997, NEIC completed a
restructuring plan under which it contributed all of its operations to a newly
formed private partnership, NEIC Operating Partnership, L.P., in exchange for a
general partnership interest in the newly formed entity. Accordingly, at
December 31, 1998, AEW Capital Management, L.P. was wholly owned by NEIC
Operating Partnership, L.P.. AEW is a subsidiary of AEW Capital Management,
L.P. Effective April 1, 1998, NEIC changed its name to Nvest, L.P. and NEIC
Operating Partnership, L.P. changed its name to Nvest Companies, L.P.
Prior to August 30, 1996, New England Mutual Life Insurance Company ("The New
England") was NEIC's principal unit holder and owner of all of the outstanding
stock of NEIC's general partner. On August 30, 1996, The New England merged with
and into Metropolitan Life Insurance Company ("Met Life"). Met Life is the
surviving entity and, therefore, through a wholly-owned subsidiary, became the
owner of the units of partnership interest previously owned by The New England
and of the stock of NEIC's general partner.
At December 31, 1998 and 1997, an affiliate of the Managing General Partner
owned 1,648 units of limited partnership interest, which were repurchased from
certain qualified plans, within specified annual limitations provided for in the
Partnership Agreement.
Management
----------
AEW, as advisor, is entitled to receive stipulated fees from the Partnership
in consideration of services performed in connection with the management of the
Partnership and the acquisition and disposition of Partnership investments in
real property. Partnership management fees are 9% of distributable cash flow
from operations, as defined, before deducting such fees. Payment of 50% of
management fees incurred is deferred until cash distributions to limited
partners exceed a specified rate. Deferred management fees were $2,237,519 and
$2,511,107 at December 31, 1998 and 1997, respectively. AEW is also reimbursed
for expenses incurred in connection with administering the Partnership ($15,000
in 1998, $15,000 in 1997 and $15,146 in 1996). Acquisition fees paid were based
on 2% of the gross proceeds from the offering. Disposition fees are limited to
the lesser of 3% of the
<PAGE>
selling price of the property, or 50% of the standard real estate commission
customarily charged by an independent real estate broker. Payments of
disposition fees are subject to the prior receipt by the limited partners of
their capital contributions plus a stipulated return thereon. Deferred
disposition fees were $1,991,879 and $1,694,879 at December 31, 1998 and 1997,
respectively.
New England Securities Corporation, an indirect subsidiary of Met Life, is
engaged by the Partnership to act as its unit holder servicing agent. Fees and
out-of-pocket expenses for such services totaled $37,823, $25,155, and $24,040
in 1998, 1997 and 1996, respectively.
Note 2 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Accounting Estimates
--------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Managing General Partner to make estimates
affecting the reported amounts of assets and liabilities, and of revenues and
expenses. In the Partnership's business, certain estimates require an
assessment of factors not within management's control, such as the ability of
tenants to perform under long-term leases and the ability of the properties to
sustain their occupancies in changing markets. Actual results, therefore, could
differ from those estimates.
Real Estate Joint Ventures
--------------------------
Investments in joint ventures, including loans made to venture partners, which
are in substance real estate investments, are stated at cost plus (minus) equity
in undistributed joint venture income (losses). Allocations of joint venture
income (losses) were made to the Partnership's venture partners as long as they
had substantial economic equity in the project. Currently, the Partnership
records an amount equal to 100% of the operating results of each joint venture,
after the elimination of all inter-entity transactions, except for the one
venture jointly owned by an affiliate of the Partnership, which has substantial
economic equity in the project. Joint ventures are consolidated with the
accounts of the Partnership if, and when, the venture partner no longer shares
in the control of the business.
Property
--------
Property includes land and buildings and improvements, which are stated at
cost less accumulated depreciation, plus other operating net assets
(liabilities). The Partnership's initial carrying value of a property
previously owned by a joint venture equals the Partnership's carrying value of
the predecessor investment on the conversion date.
Capitalized Costs, Depreciation and Amortization
------------------------------------------------
Maintenance and repair costs are expensed as incurred. Significant
improvements and renewals are capitalized. Depreciation is computed using the
straight-line method based on estimated useful lives of the buildings and
improvements. Leasing costs are also capitalized and amortized over the related
lease terms.
Acquisition fees have been capitalized as part of the cost of real estate
investments. Amounts not related to land are being amortized using the
straight-line method over the estimated useful lives of the underlying property.
Certain tenant leases provide for rental increases over the respective lease
terms. Rental revenue is being recognized on a straight-line basis over the
lease terms.
<PAGE>
Realizability of Real Estate Investments
----------------------------------------
The Partnership considers a real estate investment to be impaired when it
determines the carrying value of the investment is not recoverable through
expected undiscounted cash flows generated from the operations and disposal of
the property. The impairment loss is based on the excess of the investment's
carrying value over its estimated fair market value. For investments held for
sale, the impairment loss also includes estimated costs of sale. Property held
for sale is not depreciated during the holding period.
The carrying value of an investment may be more or less than its current
appraised value. At December 31, 1998 and 1997, the appraised values of each of
the Partnership's investments exceeded the related carrying values by an
aggregate of approximately $6,100,000 and $5,500,000, respectively.
The current appraised value of real estate investments has been estimated by
the Managing General Partner and is generally based on a combination of
traditional appraisal approaches performed by AEW and independent appraisers.
Because of the subjectivity inherent in the valuation process, the estimated
current appraised value may differ significantly from that which could be
realized if the real estate were actually offered for sale in the marketplace.
Cash Equivalents and Short-Term Investments
-------------------------------------------
Cash equivalents are stated at cost, plus accrued interest. The Partnership
considers all highly liquid debt instruments purchased with a maturity of ninety
days or less to be cash equivalents; otherwise, they are classified as short-
term investments.
The Partnership has the positive intent and ability to hold all short-term
investments to maturity; therefore, short-term investments are carried at cost
plus accrued interest, which approximates market value. At December 31, 1997
all investments were in commercial paper with less than seven months remaining
to maturity.
Deferred Disposition Fees
-------------------------
Disposition fees due to AEW related to sales of investments are included in
the determination of gains or losses resulting from such transactions.
According to the terms of the advisory contract, payment of such fees has been
deferred until the limited partners first receive their capital contributions,
plus stipulated returns thereon.
Income Taxes
------------
A partnership is not liable for income taxes and, therefore, no provision for
income taxes is made in the financial statements of the Partnership. A
proportionate share of the Partnership's income is reportable on each partner's
tax return.
Per Unit Computations
---------------------
Per unit computations are based on the number of units of limited partnership
interest outstanding during the year. The actual per unit amount will vary by
partner depending on the date of admission to, or withdrawal from, the
Partnership.
Segment Data
------------
Effective January 1, 1998, the Partnership adopted Financial Accounting
Standards Board Statement No. 131, "Disclosure about Segments on an Enterprise
and Related Information" (FAS 131). Based on the criteria established in FAS
131, the Managing General Partner has determined that the Partnership operates
in one operating segment which is investing in real estate properties which are
domiciled in the United States of America.
<PAGE>
Note 3 - Real Estate Joint Ventures
- -----------------------------------
The Partnership had invested in seven real estate joint ventures, organized as
general partnerships with a real estate management/development firm, and in one
case, with an affiliate of the Partnership. One joint venture sold its property
in 1994; another sold its property 1996. One joint venture investment was
restructured into a wholly-owned property in 1995; and two joint venture
investments were restructured into wholly-owned properties in 1996. The
Partnership made capital contributions to the ventures, which are generally
subject to preferential cash distributions at a specified rate and to priority
distributions with respect to sale or refinancing proceeds. The Partnership
also made loans to certain of its venture partners who, in turn, contributed the
proceeds to the capital of the venture. The loans bear interest at a specified
rate. The loans are in substance real estate investments and are accounted for
accordingly. The joint venture agreements provide for the funding of cash flow
deficits by the venture partners in proportion to their ownership interests, and
for the dilution of their ownership share in the event a venture partner does
not contribute proportionately.
The respective real estate management/development firms are responsible for
day-to-day development and operating activities, although overall authority and
responsibility for the business is shared by the venturers. The real estate
development/management firms or their affiliates also provide various services
to the respective joint ventures for a fee.
The following is a summary of cash invested in joint ventures, net of returns
of capital and excluding acquisition fees:
<TABLE>
<CAPTION>
Preferential
Investment/ Rate of Ownership December 31,
-------------------------
Location Return Interest 1998 1997
- ----------------------------- ------------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Columbia Gateway Corp. Park
Columbia, Maryland 10.5% 34.75% $12,580,704 $12,580,704
270 Technology Center
Frederick, Maryland 10.0% 50% $ 4,886,902 $ 4,886,902
</TABLE>
Columbia Gateway Corporate Park
-------------------------------
On December 21, 1987, the Partnership entered into a joint venture with
an affiliate of the Partnership and with an affiliate of the Manekin Corporation
to construct and operate seven research and development/office buildings, of
which six have been constructed to date. The Partnership committed to make a
$14,598,000 capital contribution. The Partnership and its affiliate
collectively had a 50% interest in the joint venture. Ownership of the Columbia
Gateway Corporate Park joint venture has been restructured whereby the
Partnership and its affiliate obtained additional voting rights in the joint
venture effective January 1, 1998. The minimum future rentals due to the
venture under non-cancelable operating leases are: $1,524,603 in 1999, $827,454
in 2000, $726,557 in 2001, $736,016 in 2002, and $745,758 in 2003.
270 Technology Center
---------------------
On December 22, 1987, the Partnership entered into a joint venture with
an affiliate of the Manekin Corporation to construct and operate two research
and development/office buildings. The Partnership committed to make a
$5,150,000 capital contribution. The minimum future rentals due to the venture
under non-cancelable operating leases are: $666,438 in 1999, $303,333 in 2000,
$296,644 in 2001 and $80,420 in 2002.
Reflections
-----------
On August 1, 1986, the Partnership entered into a joint venture with an
affiliate of Oxford Development Corporation to construct and operate a multi-
family apartment complex. The Partnership's commitment is for a total cash
investment of $14,475,000, $5,790,000 of which is a loan to the venture partner.
In May 1992, the Partnership agreed to extend the maturity of the loan from
<PAGE>
August, 1996 to December, 1999 and the venture partner agreed to pay interest at
a minimum of 7% per annum with the unpaid amount subject to compounding at 10.5%
per annum. The loan was secured by the venture partner's interest in the joint
venture, as well as a guarantee from an affiliate of the venture partner. In
the second quarter of 1996, the joint venture agreement was amended, whereby the
Partnership's venture partner became an indirect limited partner. Accordingly,
this investment has been accounted for as a wholly-owned property since April 1,
1996. (See Note 4.)
In connection with the ownership restructuring, the Partnership agreed to
release the affiliate of the venture partner from its guarantee upon payment to
the Partnership of $650,000. The Partnership received $250,000 at the time the
agreement was executed. During the third quarter of 1996, the Partnership
received an additional $263,563. The final payment of $136,437 was received
during the first quarter of 1998. The first payment was accounted for as a
reduction of previously accrued investment income. The second and third
payments were accounted for as a reduction of the Partnership's investment in
the property.
Metro Business Center
---------------------
On September 15, 1986, the Partnership entered into a joint venture with an
affiliate of Hewson Properties, Inc. (the "Developer"), to construct and operate
four multi-tenant office/warehouse buildings. The Partnership committed to make
a maximum cash investment of $9,568,000, $3,988,000 of which is a loan to the
venture partner. The loan was to mature in October 1996 and was secured by the
venture partner's interest in the joint venture. Effective January 1, 1996, the
joint venture agreement was amended to grant the Partnership full control over
management decisions, beginning July 1, 1996. As full control over the operation
of this investment was not transferred until July 1, 1996, the Partnership
accounted for this investment as a joint venture until that date.
Effective December 30, 1996, the property owned by the joint venture was
distributed to the venture partners as tenants-in-common. The Partnership,
however, retained its overall decision-making authority. The property interest
distributed to the Hewson affiliate was encumbered by the aforementioned loan to
the Hewson affiliate. The note was amended to mature on February 1, 1997 and is
secured by a recorded deed-of-trust which provided that the note would be due
upon the sale of the collateral. The note was subsequently amended to mature on
March 31, 1998. In connection with this transaction, the Partnership obtained
the option to purchase the tenancy-in-common interest of the Hewson affiliate at
its fair market value beginning February 1, 1997.
On February 28, 1998, the Partnership executed a purchase and sale
agreement to purchase the tenancy-in-common interest of the Developer. The
Partnership finalized the acquisition on July 17, 1998. The purchase price was
$7,113,255 and was paid by the Partnership as follows: (i) A portion of the
purchase price was paid through the discharge of all outstanding amounts,
including but not limited to accrued but unpaid interest, owed by the Developer
to the Partnership under the loan made by the Partnership to the Developer in
connection with the original acquisition of the property and (ii) the
Partnership paid the remainder of the purchase price in cash in the amount of
$2,210.
On September 23, 1998, the Metro Business Center was sold to an
institutional buyer which is unaffiliated with the Partnership. The gross sale
price was $9,900,000. The Partnership received net proceeds totaling $9,680,132,
after closing costs and recognized a gain of $3,706,950 ($38.63 per limited
partnership unit). A disposition fee of $297,000 was accrued but not paid to the
AEW. On October 29, 1998, the Partnership made a capital distribution of
$9,689,694 ($102 per limited partnership unit) from the proceeds of the sale.
.
Sale of Decatur TownCenter II
-----------------------------
On December 31, 1987, the Partnership entered into a joint venture with an
affiliate of Pope & Land Enterprises to construct and operate an office
building. The Partnership contributed a total of $10,985,575 to the venture. On
October 10, 1996, the joint venture sold its property for a total sales price of
$9,540,860. In conjunction with this sale, the joint venture was also dissolved.
After closing costs, the Partnership received proceeds of $9,333,325 and
recognized a gain on the sale of $1,055,591 ($11 per limited partnership unit.)
A disposition fee of $286,226 was accrued but not paid to AEW. A
<PAGE>
capital distribution to the limited partners was made on October 24, 1996 in the
aggregate amount of $9,214,709 ($97 per limited partnership unit).
Summarized Financial Information
- --------------------------------
The following summarized financial information is presented in the
aggregate for the joint ventures:
Assets and Liabilities
----------------------
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Assets
Real property, at cost less
accumulated depreciation
of $2,743,676 and
$2,321,074, respectively $19,830,637 $19,858,721
Other 888,075 958,432
----------- -----------
$20,718,712 20,817,153
Liabilities 339,188 240,284
----------- -----------
Net assets $20,379,524 $20,576,869
=========== ===========
</TABLE>
Results of Operations
---------------------
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenue
Rental income $3,047,719 $2,691,155 $4,926,504
Other income 119,729 3,233 138,669
---------- ---------- ----------
3,167,448 2,694,388 5,065,173
---------- ---------- ----------
Expenses
Operating expenses 723,908 596,471 1,690,232
Depreciation and amortization 488,068 854,025 1,038,931
---------- ---------- ----------
1,211,976 1,450,496 2,729,163
---------- ---------- ----------
Net income $1,955,472 $1,243,892 $2,336,010
========== ========== ==========
</TABLE>
Liabilities and expenses exclude amounts owed and attributable to the
Partnership and (with respect to one joint venture) its affiliate on behalf of
their various financing arrangements with the joint ventures.
Note 4 - Property
- -----------------
Palms Business Center
---------------------
Effective January 1, 1995, the Palms Business Center joint venture was
restructured, giving the Partnership control over management decisions. Since
that date, the investment was accounted for as a wholly-owned property. The
carrying value of the joint venture investment at conversion ($12,519,961) was
allocated to land, building and improvements, amount payable to venture partner
and other net operating liabilities. The venture partner received 40% of the
excess cash flow above a specified level until the initial obligation of
$360,000 was repaid in full. The obligation was paid in full as of the date of
sale (see discussion below).
<PAGE>
The buildings and improvements (fifteen office/industrial buildings in Las
Vegas, Nevada) were being depreciated over 25 years, beginning January 1, 1995.
The Palms Business Center was sold on October 24, 1997 to an institutional
buyer, which is unaffiliated with the Partnership for $23,200,000. The
Partnership received net proceeds of $22,983,007, after closing costs and payoff
of the remaining initial obligation due to the venture partner, and recognized a
gain of $10,482,458 ($109.24 per limited partnership unit). A disposition fee
of $696,000 was accrued but not paid to AEW. On November 25, 1997, the
partnership made a distribution to the limited partners in the aggregate amount
of $22,989,274 ($242 per limited partnership unit) with proceeds from this sale
and partially from reserves established from the proceeds of previous sales.
Reflections
-----------
Effective April 1, 1996, the Reflections joint venture was restructured,
whereby the Partnership's venture partner became an indirect limited partner.
Accordingly, the investment has been accounted for as a wholly-owned property
since that date. The carrying value of the joint venture investment at
conversion ($10,469,511) was allocated to land, building and improvements and
other net operating assets.
On August 21, 1998 the Partnership sold a parcel of land to the City of Fort
Myers. The gross sale price was $74,731. The Partnership received net proceeds
totaling $67,881 and recognized a gain of $35,591.
The buildings and improvements (a multi-family apartment complex in Fort
Meyers, Florida) are being depreciated over 25 years, beginning April 1, 1996.
Metro Business Center
---------------------
Effective July 1, 1996, the Partnership obtained control over all management
decisions related to the properties owned by the Metro Business Center joint
venture (and subsequently by the tenants-in common). (See Note 3.) Since that
date, the investment has been accounted for as a wholly-owned property. The
carrying value of the joint venture investment at conversion ($5,889.261) was
allocated to land, buildings and improvements, and other net operating assets.
As previously stated the Partnership sold the Metro Business Center on
September 23, 1998 and recognized a gain of $3,706,950.
The buildings and improvements (four office/warehouse buildings in Phoenix,
Arizona) were being depreciated over 25 years, beginning July 1, 1996.
The following is a summary of the Partnership's investment in properties (one
in 1998 and two in 1997):
Assets and Liabilities
----------------------
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
----------- ------------
<S> <C> <C>
Land $1,538,883 $ 3,451,272
Buildings and improvements
and other capitalized costs 8,383,001 12,648,418
Accumulated depreciation and
Amortization (932,007) (886,418)
Net operating liabilities 116,580 (74,125)
----------- ------------
$9,106,457 $15,139,147
=========== ============
</TABLE>
Tenant leases provide for minimum rents, subject to periodic adjustments.
Tenants are also generally obligated to reimburse their pro-rata share of
operating expenses. The minimum rents due under non-cancelable operating leases
at the Partnership's remaining properties are as follows: $730,000 in 1998;
$488,000 in 1999; $283,000 in 2000; $138,000 in 2001, and $38,000 in 2002.
<PAGE>
Note 5 - Income Taxes
- ---------------------
The Partnership's income for federal income tax purposes differs from
that reported in the accompanying statement of operations as follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Net income per financial
statements $ 5,988,712 $13,211,159 $4,392,513
Timing differences:
Joint venture earnings 775,991 335,601 539,479
Depreciation and amortization 549,260 926,809 230,922
Expenses (244,327) 176,233 253,552
Gain (loss) on sale (4,687,593) 1,008,333 (173,256)
----------- ----------- ----------
Taxable income $ 2,382,043 $15,658,135 $5,243,210
=========== =========== ==========
</TABLE>
Note 6 - Partners' Capital
- --------------------------
Allocation of net income (losses) from operations and distributions of
distributable cash from operations, as defined, are in the ratio of 99% to the
limited partners and 1% to the general partners. Cash distributions are made
quarterly.
Net sale proceeds and financing proceeds are allocated first to limited
partners to the extent of their contributed capital plus a stipulated return
thereon, as defined, second to pay disposition fees, and then 85% to the limited
partners and 15% to the general partners. As a result of returns of capital
from sales transactions, the adjusted capital contribution per limited
partnership unit was reduced from $1,000 to $918 in 1993, to $863 in 1995, to
$766 in 1996 to $524 in 1997 and to $422 in 1998. No capital distributions have
been made to the general partners. Income from a sale is allocated in
proportion to the distribution of related proceeds, provided that the general
partners are allocated at least 1%. Income or losses from a sale, if there are
no residual proceeds after the repayment of the related debt, will be allocated
99% to the limited partners and 1% to the general partners.
Note 7 - Subsequent Event
- -------------------------
Distributions of cash from operations relating to the quarter ended December
31, 1998 were made on January 28, 1999 in the aggregate amount of $653,464
($6.81 per limited partnership unit).
<PAGE>
NEW ENGLAND PENSION PROPERTIES IV;
A REAL ESTATE LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
Schedule III
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
Initial Cost to
the Partnership
-------------------------------------------------------------------------------
Buildings & Other Net
Description Land Improvements Operating Liabilities
- ----------- ----------------------- -------------------------- -------------------------
<S> <C> <C> <C>
50% interest in
Morf VI Venture.
Owner of two single story ------------------------------------------------------ See Note B ---
office/research and
development buildings in
Frederick, Maryland.
34.75% interest in
Gateway 51 Partnership ------------------------------------------------------ See Note B ---
which has constructed six office and
research and development buildings, and
owns land in Columbia, Maryland.
-------------------------------------------------------------------------------
Total Joint Ventures
===============================================================================
<CAPTION>
Costs Subsequent Gross amount at which
to Acquisition Carried at Close of Period
-------------------------------------- -----------------------------------------
Change in
Working Buildings &
Description Improvements Capital Land Improvements
- ----------- ------------------- ------------- --------- -----------------------
<S> <C> <C> <C> <C>
50% interest in
Morf VI Venture.
Owner of two single story -----------------------------------------------------------------------------------
office/research and
development buildings in
Frederick, Maryland.
34.75% interest in
Gateway 51 Partnership -----------------------------------------------------------------------------------
which has constructed six office and
research and development buildings, and
owns land in Columbia, Maryland.
-----------------------------------------------------------------------------------
Total Joint Ventures
===================================================================================
<CAPTION>
Gross amount at which
Carried at Close of Period
------------------------------
Other Net Disposal Accumulated Date of
Description Operating Liabilities of Asset Total Depreciation Construction
- ----------- ------------------------------ ------------ ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
50% interest in
Morf VI Venture.
Owner of two single story ------------------------------ $ 4,376,599 N/A 1987
office/research and
development buildings in
Frederick, Maryland.
34.75% interest in
Gateway 51 Partnership
which has constructed six office and ------------------------------ $ 11,290,044 N/A 1992
research and devlopment buildings,
and owns land in Columbia, Maryland.
------------------------------ ------------
Total Joint Ventures $ 15,666,643
============================== ============
<CAPTION>
Date Depreciable
Description Acquired Life
- ----------- --------------- ------------------
<S> <C> <C>
50% interest in
Morf VI Venture.
Owner of two single story 12/22/87 50 Years
office/research and
development buildings in
Frederick, Maryland.
34.75% interest in
Gateway 51 Partnership 12/21/87 50 years
which has constructed six office and
research and devlopment buildings, and
owns land in Columbia, Maryland.
Total Joint Ventures
<CAPTION>
<S> <C> <C> <C>
Las Vegas, NV
-Rancho Road Associates $3,072,333 $9,729,055 ($281,424)
Fort Myers, FL
- Lee Partners 1,571,173 8,653,313 245,029
Phoeniz, AZ
-Copley/Hewson Northwest 1,880,099 3,879,241 129,921
-------------------------------------------------------------------------------
Total Wholly-Owned Properties 6,523,605 22,261,609 93,526
===============================================================================
<CAPTION>
<S> <C> <C> <C> <C>
Las Vegas, NV
-Rancho Road Associates $ 51,768 $ 472,376 $ 3,072,333 $ 9,780,823
Fort Myers, FL
- Lee Partners 129,689 (543,887) 1,571,173 8,783,002
Phoeniz, AZ
-Copley/Hewson Northwest 319,870 31,999 1,880,099 4,199,111
-----------------------------------------------------------------------------------
Total Wholly-Owned Properties 501,327 (39,512) 6,523,605 22,762,936
===================================================================================
<CAPTION>
<S> <C> <C> <C> <C> <C>
Las Vegas, NV
-Rancho Road Associates $190,952 ($13,044,108) $ 0 $ 0 1988
Fort Myers, FL
- Lee Partners (298,862) (32,290) 10,023,023 (932,007) 1987
Phoeniz, AZ
-Copley/Hewson Northwest 161,920 (6,225,689) 15,441 (549,507) 1987
----------------------------------------------------------------------------
Total Wholly-Owned Properties 54,010 (19,302,087) 10,038,464 (1,481,514)
============================================================================
<CAPTION>
<S> <C> <C>
Las Vegas, NV
-Rancho Road Associates 12/29/86 25 Years
Converted to
wholly-owned 1/1/95
Fort Myers, FL 8/1/86 25 Years
- Lee Partners Converted to
wholly-owned 4/1/96
Phoeniz, AZ
-Copley/Hewson Northwest 9/15/86 25 Years
Converted to
wholly-owned 7/1/96
Total Wholly-Owned Properties
</TABLE>
<PAGE>
NEW ENGLAND PENSION PROPERTIES IV;
A REAL ESTATE LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION - WHOLLY OWNED PROPERTY
SCHEDULE III NOTE A
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
Balance Conversion to Additions to Charge in
as of Wholly-Owned Lease Additions to Write Down Property Working
Description 12/31/95 Property Commissions Property of Property Capital
- -------------------------------- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fort Myers, FL.
- Lee Partners $ 0 $ 10,469,511 $ 0 $ 42,591 $ 0 ($606,078)
Las Vegas, NV.
- Rancho Road Associates 12,553,080 0 37,164 0 0 171,244
Phoenix, AZ
- Copley/Hewson Northwest 0 5,889,261 21,808 29,850 0 (153,248)
-----------------------------------------------------------------------------------------------
Total Wholly-Owned Property $12,553,080 $ 16,358,772 $ 58,972 $ 72,441 $ 0 ($588,082)
===============================================================================================
<CAPTION>
12/31/96
12/31/95 1996 1996 Accumulated
Balance Accumulated Depreciation Accumulated 1996 and Depreci-
Disposal of as of Depreciation and and Amortization Dep/Armor Disposal tion and
Description Asset 12/31/96 Amortization Expense Subtotal Assets Amortization
- --------------------------- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fort Myers, FL.
- Lee Partners $ 0 $ 9,906,024 $ 0 ($257,265) $ 257,265 $ 0 $ 257,265
Las Vegas, NV.
- Rancho Road Associates 0 $12,761,488 444,790 (449,869) $ 894,659 0 $ 894,659
Phoenix, AZ
- Copley/Hewson Northwest 0 $ 5,787,671 0 (98,388) $ 98,388 0 $ 98,388
--------------------------------------------------------------------------------------------------------
Total Wholly-Owned Property $ 0 $28,455,183 $ 444,790 ($805,522) $1,250,312 $ 35 $1,250,312
========================================================================================================
<CAPTION>
Balance Conversion to Additions to Charge in
as of Wholly-Owned Lease Additions to Write Down Property Working
Description 12/31/96 Property Commissions Property of Property Capital
- -------------------------------- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fort Myers, FL.
- Lee Partners $ 9,906,024 $ 0 $ 0 $ 71,286 $ 0 $ 30,687
Las Vegas, NV.
- Rancho Road Associates 12,761,488 0 41,347 0 0 253,109
Phoenix, AZ
- Copley/Hewson Northwest 5,787,671 0 37,816 235,701 0 (9,620)
-----------------------------------------------------------------------------------------------
Total Wholly-Owned Property $28,455,183 $ 0 $ 79,163 $ 306,987 $ 0 $ 274,176
===============================================================================================
<CAPTION>
12/31/96 1997 12/31/97
Balance Accumulated Depreciation Accumulated 1997
Disposal of as of Depreciation and and Amortization Dep/Armor Disposal
Description Asset 12/31/97 Amortization Expense Subtotal Assets
- ----------------------------- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fort Myers, FL.
- Lee Partners $ 0 $10,007,997 $ 257,265 ($339,699) $ 596,964 $ 0
Las Vegas, NV.
- Rancho Road Associates (13,044,104) $ 11,806 $ 94,669 (344,900) $1,239,559 (1,239,559)
Phoenix, AZ
- Copley/Hewson Northwest 0 6,051,568 9?,388 (236,290) $ 236,290
------------------------------------------------------------------------------------------------
Total Wholly-Owned Property (313,044,108) $16,071,401 $ 1,250,312 ($921,501 $2,171,813 ($1,239,559)
================================================================================================
<CAPTION>
12/31/97
Accumulation
and Depreciation
Description Amortization
- ------------------------ ---------------------------
<S> <C>
Fort Myers, FL.
- Lee Partners $ 596,964
Las Vegas, NV. $ 0
- Rancho Road Associates
Phoenix, AZ
- Copley/Hewson Northwest $ 335,290
==========================
Total Wholly-Owned Property $ 932,254
==========================
<CAPTION>
Balance Conversion to Additions to Charge in
as of Wholly-Owned Lease Additions to Write Down Property Working
Description 12/31/97 Property Commissions Property of Property Capital
- ---------------------------------- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fort Myers, FL.
- Lee Partners $ 10,007,997 $ 0 $ 0 $ 15,812 ($136,437) $ 167,941
Las Vegas, NV.
- Rancho Road Associates 11,836 0 0 0 0 (11,836)
Phoenix, AZ
- Copley/Hewson Northwest 6,051,568 0 35,241 54,319 0 100,002
-----------------------------------------------------------------------------------------------
Total Wholly-Owned Property $16, 071,401 $ 0 $ 35,241 $ 70,131 ($136,437) $ 256,107
===============================================================================================
<CAPTION>
12/31/98
12/31/97 1998 12/31/98 Accumulated
Balance Accumulated Depreciation Accumulated 1998 Depreciat-
Disposal of as of Depreciation and and Amortization Dep/Armor Disposal ion and Amo
Description Asset 12/31/98 Amortization Expense Subtotal Assets rtization
- ------------------------------ --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fort Myers, FL. ($ 32,290) $10,023,023 $ 596,954 ($335,043) $ 932,007 $ 0 $ 932,007
- Lee Partners
Las Vegas, NV.
- Rancho Road Associates 0 0 0 0 0 0 $ 0
Phoenix, AZ
- Copley/Hewson Northwest (6,225,689) $ 15,441 335,290 (214,217) 549,507 ($549,507) $ 0
--------------------------------------------------------------------------------------------------
Total Wholly-Owned Property ($6,257,979) $10,038,464 $ 932,254 ($549,260) $ 1,481,514 ($549,507) $ 932,007
==================================================================================================
</TABLE>
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES IV;
A REAL ESTATE LIMITED PARTNERSHIP
SCHEDULE III NOTE B
REAL ESTATE AND ACCUMULATED DEPRECIATION-JOINT VENTURES
AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
PERCENT BALANCE INVESTMENT EQUITY IN 1996 AMORTIZATION
OF AS OF IN JOINT INCOME/ OF DEFERRED
DESCRIPTION OWNERSHIP 12/31/95 VENTURES (LOSS) ACQUISITION FEES
- --------------------------------- --------------- --------------- -------------- --------------- -----------------------
<S> <C> <C> <C> <C> <C>
Lee Partners 60% $10,659,267 $0 $ 161,081 ($1,550)
Copley/Hewson
Northwest Associates 80% 5,832,584 0 178,682 (2,005)
MORF VI Venture 50% 4,691,768 0 594,788 (1,840)
Decatur TownCenter II Associates 60% 8,325,253 0 225,436 (4,064)
Gateway 51 Partnership 34.75% 10,957,955 0 820,817 (3,469)
--------------- -------------- -------------- ------------------------
$40,466,827 $0 $1,980,804 ($12,928)
=============== ============== ============== ========================
<CAPTION>
CASH
DISTRIBUTION CONVERSION TO BALANCE
FROM WHOLLY-OWNED 1996 AS OF
DESCRIPTION JOINT VENTURE PROPERTY DISPOSALS 12/31/96
- --------------------------------- --------------- ----------------- --------------- --------------
<S> <C> <C> <C> <C>
Lee Partners ($349,287) ($10,469,511) $0 $0
Copley/Hewson
Northwest Associates (120,000) (5,889,261) 0 0
MORF VI Venture (561,999) 0 0 4,722,717
Decatur TownCenter II Associates (555,117) 0 (7,991,508) 0
Gateway 51 Partnership (764,500) 0 0 11,010,803
--------------- ----------------- --------------- --------------
($2,350,903) ($16,358,772) ($7,991,508) $15,733,520
=============== ================= =============== ==============
<CAPTION>
PERCENT BALANCE INVESTMENT EQUITY IN 1997 AMORTIZATION
OF AS OF IN JOINT INCOME/ OF DEFERRED
DESCRIPTION OWNERSHIP 12/31/96 VENTURES (LOSS) ACQUISITION FEES
- --------------------------------- --------------- --------------- -------------- --------------- -----------------------
<S> <C> <C> <C> <C> <C>
MORF VI Venture 50% 4,722,717 0 107,157 (1,840)
Gateway 51 Partnership 34.75% 11,010,803 0 783,507 (3,468)
--------------- -------------- -------------- ------------------------
$15,733,520 $0 $ 890,664 ($5,308)
=============== ============== ============== ========================
PERCENT BALANCE INVESTMENT EQUITY IN 1998 AMORTIZATION
OF AS OF IN JOINT INCOME/ OF DEFERRED
DESCRIPTION OWNERSHIP 12/31/97 VENTURES (LOSS) ACQUISITION FEES
- --------------------------------- --------------- --------------- -------------- --------------- -----------------------
MORF VI Venture 50% 4,608,034 0 511,405 (1,840)
Gateway 51 Partnership 34.75% 11,271,096 0 1,003,628 (3,468)
--------------- -------------- --------------- -----------------------
$15,879,130 $0 $1,515,033 ($5,308)
=============== ============== =============== =======================
CASH
DISTRIBUTION CONVERSION TO BALANCE
FROM WHOLLY-OWNED 1997 AS OF
DESCRIPTION JOINT VENTURE PROPERTY DISPOSALS 12/31/97
- --------------------------------- --------------- ----------------- --------------- --------------
MORF VI Venture (220,000) 0 0 4,608,034
Gateway 51 Partnership (519,746) 0 0 11,271,096
--------------- ----------------- --------------- --------------
($739,746) $0 $0 $15,879,130
=============== ================= =============== ==============
CASH
DISTRIBUTION CONVERSION TO BALANCE
FROM WHOLLY-OWNED 1998 AS OF
DESCRIPTION JOINT VENTURE PROPERTY DISPOSALS 12/31/98
- --------------------------------- --------------- ----------------- --------------- --------------
MORF VI Venture (741,000) 0 0 4,376,599
Gateway 51 Partnership (981,212) 0 0 11,290,044
--------------- ----------------- --------------- --------------
($1,722,212) $0 $0 $15,666,643
=============== ================= =============== ==============
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
INDEX NO. 2
AUDITOR'S REPORT AND FINANCIAL STATEMENTS
OF GATEWAY 51 PARTNERSHIP
Independent Auditor's Report of Wolpoff and Company, LLP
Balance Sheet - December 31, 1998 and 1997
Statement of Income - For the Years ended December 31, 1998, 1997 and 1996
Statement of Partners' Capital - For the Years ended December 31, 1998, 1997 and
1996
Statement of Cash Flows - For the Years ended December 31, 1998, 1997 and 1996
Notes to Financial Statements
<PAGE>
GATEWAY 51 PARTNERSHIP
(A MARYLAND GENERAL PARTNERSHIP)
FINANCIAL REPORT
DECEMBER 31, 1998
<PAGE>
GATEWAY 51 PARTNERSHIP
----------------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
CONTENTS
--------
DECEMBER 31, 1998
-----------------
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
Balance Sheet 2 - 3
Statement of Income 4
Statement of Partners' Capital 5
Statement of Cash Flows 6
Notes to Financial Statements 7 - 10
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION 11
SUPPLEMENTARY INFORMATION
Schedule of Partners' Capital 12
Schedule of Changes in Partners' Capital - Income Tax Basis 13
<PAGE>
[LETTERHEAD OF WOLPOFF & COMPANY, LLP APPEARS HERE]
To the Partners
Gateway 51 Partnership (A Maryland General Partnership)
Columbia, Maryland
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS
----------------------------------------------------
We have audited the balance sheet of Gateway 51 Partnership (A Maryland General
Partnership) as of December 31, 1998 and 1997, and the related statements of
income, partners' capital, and cash flows for each of the three years in the
period ended December 31, 1998, 1997, and 1996. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Gateway 51 Partnership (A
Maryland General Partnership) as of December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the three years ended December
31, 1998, 1997, and 1996, in conformity with generally accepted accounting
principles.
/s/ Wolpoff & Company, LLP
WOLPOFF & COMPANY, LLP
Baltimore, Maryland
January 13, 1999
<PAGE>
GATEWAY 51 PARTNERSHIP
-----------------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
BALANCE SHEET
-------------
ASSETS
------
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
PROPERTY, AT COST - Note 1
Land $ 4,966,738 $ 4,966,738
Building and Improvements 11,892,943 11,614,717
Preliminary Development Costs 42,247 42,247
Deferred Costs - Note 3 809,323 663,719
----------------- -----------------
17,711,251 17,287,421
Less Accumulated Depreciation and Amortization 1,984,627 1,630,022
----------------- -----------------
PROPERTY, NET 15,726,624 15,657,399
----------------- -----------------
OTHER ASSETS
Cash and Cash Equivalents - Note 1 421,833 558,136
----------------- -----------------
Receivables From Tenants
Rents and Expense Billings 106,282 -0-
Deferred Rent Receivable - Note 1 202,228 73,447
Allowance for Doubtful Accounts (95,174) -0-
----------------- -----------------
213,336 73,447
----------------- -----------------
Prepaid Expenses 107,644 107,442
----------------- -----------------
TOTAL OTHER ASSETS 742,813 739,025
----------------- -----------------
$ 16,469,437 $16,396,424
================= =================
</TABLE>
_____________________
The notes to financial statements are an integral part of these statement.
-2-
<PAGE>
GATEWAY 51 PARTNERSHIP
----------------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
BALANCE SHEET
-------------
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
LIABILITIES
Accounts Payable and Accrued Expenses $ 67,398 $ 34,935
Tenant Security Deposits 150,000 15,193
Prepaid Tenant Reimbursements 47,181 142,688
----------------- -----------------
TOTAL LIABILITIES 264,579 192,816
PARTNERS' CAPITAL - Notes 1 and 2 16,204,858 16,203,608
----------------- -----------------
$ 16,469,437 $ 16,396,424
================= =================
</TABLE>
___________________________
The notes to financial statements are an integral part of this statement.
-3-
<PAGE>
GATEWAY 51 PARTNERSHIP
----------------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
STATEMENT OF INCOME
-------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
REVENUE - Notes 1 and 5
Gross Rent Potential $ 1,943,734 $ 1,775,359 $ 1,684,997
Less Vacancies and Free Rent 72,135 80,444 108,412
---------------- ---------------- ----------------
Net Rental Income 1,871,599 1,694,915 1,576,585
Expense Reimbursements From Tenants 441,093 258,789 364,873
Other Income 15,809 20 18,163
---------------- ---------------- ----------------
TOTAL REVENUE 2,328,501 1,953,724 1,959,621
---------------- ---------------- ----------------
OPERATING EXPENSES
Real Property Taxes 211,009 211,967 207,855
Building and Grounds Maintenance 144,004 142,678 157,314
Bad Debts 95,174 -0- -0-
Management Fees - Note 3 62,338 61,036 57,542
Utilities 26,165 27,297 24,890
General and Administrative 17,966 12,229 25,856
Insurance 4,173 6,573 9,292
---------------- ---------------- ----------------
TOTAL OPERATING EXPENSES 560,829 461,780 482,749
---------------- ---------------- ----------------
OPERATING INCOME 1,767,672 1,491,944 1,476,872
---------------- ---------------- ----------------
ADJUSTMENTS TO ARRIVE AT NET INCOME
Depreciation and Amortization (354,605) (315,417) (302,585)
Abandonment of Tenant Improvements - Note 1 -0- (80,178) (24,256)
---------------- ---------------- ----------------
(354,605) (395,595) (326,841)
---------------- ---------------- ----------------
NET INCOME - Note 4 $ 1,413,067 $ 1,096,349 $ 1,150,031
================ ================ ================
</TABLE>
____________
The notes to financial statements are an integral part of this statement.
-4-
<PAGE>
GATEWAY 51 PARTNERSHIP
----------------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
STATEMENT OF PARTNERS' CAPITAL
------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1998 1997 1996
------------------ ----------------- -----------------
<S> <C> <C> <C>
CAPITAL CONTRIBUTIONS - Note 2
Prior Years $ 20,267,826 $ 20,267,826 $ 20,267,826
------------------ ----------------- -----------------
CAPITAL PLACEMENT FEE - Notes 1 and 2
Prior Years (202,678) (202,678) (202,678)
------------------ ----------------- -----------------
DISTRIBUTIONS
Prior Years (8,796,724) (8,048,893) (6,948,893)
Current Year (1,411,817) (747,831) (1,100,000)
------------------ ----------------- -----------------
(10,208,541) (8,796,724) (8,048,893)
------------------ ----------------- -----------------
ACCUMULATED INCOME
Prior Years 4,935,184 3,838,835 2,688,804
Current Year 1,413,067 1,096,349 1,150,031
------------------ ----------------- -----------------
6,348,251 4,935,184 3,838,835
------------------ ----------------- -----------------
TOTAL PARTNERS' CAPITAL $ 16,204,858 $ 16,203,608 $ 15,855,090
================== ================= =================
</TABLE>
_______________
The notes to financial statements are an integral part of this statement.
-5-
<PAGE>
GATEWAY 51 PARTNERSHIP
----------------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
STATEMENT OF CASH FLOWS
-----------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1998 1997 1996
-------------- -------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $1,413,067 $1,096,349 $1,150,031
-------------- -------------- ---------------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
Depreciation and Amortization 354,605 315,417 302,585
Abandonment of Tenant Improvements -0- 80,178 24,256
Change in Receivables From Tenants (139,889) 8,667 (41,033)
Increase in Prepaid Expenses (202) (64,870) (6,302)
Change in Accounts Payable and Accrued Expenses 32,463 (6,176) 16,526
Change in Prepaid Tenant Reimbursements (95,507) 142,688 -0-
-------------- -------------- ---------------
Total Adjustments 151,470 475,904 296,032
-------------- -------------- ---------------
Net Cash Provided by Operating Activities 1,564,537 1,572,253 1,446,063
-------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Building and Improvement Costs (278,227) (359,189) (258,309)
Leasing Costs (145,603) (116,524) (80,786)
Increase in Tenant Security Deposits 134,807 12,784 -0-
Decrease in Tenant Improvement Loans -0- 688 32,057
-------------- -------------- ---------------
Net Cash Used by Investing Activities (289,023) (462,241) (307,038)
-------------- -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Partners (1,411,817) (747,831) (1,100,000)
-------------- -------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (136,303) 362,181 39,025
CASH AND CASH EQUIVALENTS, BEGINNING 558,136 195,955 156,930
-------------- -------------- ---------------
CASH AND CASH EQUIVALENTS, ENDING $ 421,833 $ 558,136 $ 195,955
============== ============== ===============
</TABLE>
_______________
The notes to financial statements are an integral part of this statement.
-6-
<PAGE>
GATEWAY 51 PARTNERSHIP
----------------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998
-----------------
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
Gateway 51 Partnership (A Maryland General Partnership) (the
Partnership) was formed on December 21, 1987, under the Maryland
Uniform Partnership Act. The agreement was amended and restated in
1989 to reflect changes in partner ownership percentages.
The partnership agreement was amended and restated effective January
1, 1998, whereby M.O.R. Gateway 51, Limited Partnership (M.O.R.)
transferred 34.055% and 14.945% to New England Life Pension Properties
IV (NELPP IV) and New England Pension Properties V (NEPP V),
respectively. Subsequently, NELPP IV transferred a 0.695% partnership
interest, NEPP V transferred a 0.305% partnership interest, and M.O.R.
transferred a 1% partnership interest to NE/Gateway 51 Limited
Partnership (NE/Gateway), bringing the ownership as of January 1,
1998, to the following:
NELPP IV 68.11%
NEPP V 29.89%
NE/Gateway 2.00%
Property
--------
The Partnership owns 21 acres of land in Howard County, Maryland. The
property has been developed with six office/research buildings. Plans
call for a seventh building with approximately 15,000 square feet of
space.
All property is recorded at cost. Information regarding the buildings
is as follows:
<TABLE>
<CAPTION>
Occupancy
-------------------------------------
Square Date Placed
Building Footage Into Service Tenants 12/31/98 12/31/97 12/31/96
------------ ------------ --------------- ---------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
A 46,840 3/1/91 Multiple 100% 92% 92%
B 21,991 9/1/90 AVNET 100% 100% 100%
C 38,225 7/15/91 EVI, Inc. 100% 100% 100%
F 35,812 2/1/92 Multiple 100% 100% 82%
D-E 45,951 8/8/94 Columbia National 100% 100% 100%
------------
188,819 100% 98% 94%
============
</TABLE>
Carrying costs, operating expenses, and depreciation begin as a charge
against operations on the date the buildings were placed into service.
-7-
<PAGE>
GATEWAY 51 PARTNERSHIP
----------------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998
-----------------
Note 1 - During 1997, tenant improvements completed in prior years were
demolished in order to build out the space for new tenants.
(Cont.) The loss on abandonment of tenant improvements is calculated as
follows:
Cost $ 127,688
Accumulated Depreciation (47,510)
--------------
Abandonment of Tenant Improvements $ 80,178
==============
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Cash and Cash Equivalents
-------------------------
The Partnership considers all highly liquid debt instruments purchased
with a maturity of 3 months or less to be cash equivalents.
The majority of the Partnership's cash is held in financial
institutions with insurance provided by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000. Periodically during the year, the
balance may have exceeded the FDIC insurance limitation.
Depreciation
------------
Building costs are being depreciated using the straight-line method
over the estimated useful lives of 50 years. Beginning in January
1998, the Partnership changed depreciation methods for tenant
improvements. Tenant improvements are being depreciated using the
straight-line method over the life of the tenants' lease; in prior
years, the improvements were depreciated over 50 years.
Rental Income
-------------
Rental income for major leases is being recognized on a straight-line
basis over the terms of the leases. The excess of the rental income
recognized over the amount stipulated in the lease is shown as
deferred rent receivable.
Amortization
------------
Deferred costs are amortized as follows:
<TABLE>
<CAPTION>
Amortization
Amount Period
------------- ----------------
<S> <C> <C>
Organization Costs $13,555 Complete
Leasing Costs and Commissions 795,767 Lease Terms
-------------
$809,322
=============
</TABLE>
-8-
<PAGE>
GATEWAY 51 PARTNERSHIP
----------------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998
-----------------
Note 1 - Income Taxes
------------
(Cont.) Partnerships, as such, are not subject to income taxes. The partners
are required to report their respective shares of partnership income
and other tax items on their income tax returns (see Note 4).
Capital Placement Fee
---------------------
Costs incurred for arranging the Partnership's equity have been
treated as a reduction of partners' capital (see Note 2).
Note 2 - PARTNERS' CAPITAL
Capital Investment
------------------
NELPP IV and NEPP V have agreed to provide equity of $14,598,000 and
$6,402,000, respectively, totaling $21,000,000. As of December 31,
1998, 1997, and 1996, total capital contributions amounted to
$20,267,826.
Cumulative Priority Return
--------------------------
NELPP IV and NEPP V are entitled to cumulative priority returns of
10.5%, compounded monthly on capital invested. The Partnership paid
priority returns totaling $1,411,817, $747,831, and $1,100,000 during
1998, 1997, and 1996, respectively. As of December 31, 1998, 1997, and
1996, unpaid priority returns amounted to $10,855,114, $9,127,936, and
$6,888,115, respectively.
Capital Placement Fee
---------------------
The Partnership incurred fees of $202,678 with Paine Webber Mortgage
Finance, Inc. with respect to capital raised by the Partnership. This
amount has been charged against partners' capital.
Note 3 - RELATED PARTY TRANSACTIONS
Management Fees
---------------
The Partnership has entered into an agreement with Manekin
Corporation, a related entity, to act as management agent for the
property. The management agreement provides for a management fee equal
to 3% of rent and tenant expense billings.
Leasing Commissions
-------------------
Leasing commissions in the amount of $145,603, $105,387, and $80,786
were paid to related parties during 1998, 1997, and 1996,
respectively.
-9-
<PAGE>
GATEWAY 51 PARTNERSHIP
----------------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998
-----------------
Note 4 - TAX ACCOUNTING
Tax accounting differs from financial accounting as follows:
<TABLE>
<CAPTION>
Current Year Prior Years Total
--------------- --------------- ---------------
<S> <C> <C> <C>
Financial Income $1,413,067 $4,935,184 $6,348,251
Additional Depreciation (87,820) (757,466) (845,286)
Lease-Up Period Items
Capitalized for GAAP -0- 4,264 4,264
Allowance for Doubtful Accounts 95,174 -0- 95,174
Deferred Rent Receivable (128,781) (73,447) (202,228)
Prepaid Property Taxes (956) (105,026) (105,982)
Prepaid Tenant Reimbursements (95,507) 142,688 47,181
--------------- --------------- ---------------
Taxable Income $1,195,177 $4,146,197 $5,341,374
=============== =============== ===============
</TABLE>
Note 5 - LEASES
The following is a schedule of future minimum lease payments to be
received under noncancelable operating leases at December 31, 1998:
Year Ending December 31, 1999 $1,524,603
2000 827,454
2001 726,557
2002 736,016
2003 745,758
----------
$3,814,630
==========
-10-
<PAGE>
To the Partners
Gateway 51 Partnership (A Maryland General Partnership)
Columbia, Maryland
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION
---------------------------------------------------------
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information contained on pages 12 and 13 is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements. Such information has not been subjected to the auditing procedures
applied in the audits of the basic financial statements, and accordingly, we
express no opinion on it.
/s/ Wolfpoff & Company LLP
WOLPOFF & COMPANY, LLP
Baltimore, Maryland
January 13, 1999
-11-
<PAGE>
GATEWAY 51 PARTNERSHIP
----------------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
SCHEDULE OF PARTNERS' CAPITAL
-----------------------------
YEAR ENDED DECEMBER 31, 1998
----------------------------
<TABLE>
<CAPTION>
NE/ M.O.R. 51
New England New England Gateway 51 Gateway
Life Pension Pension Limited Limited
Properties IV Properties V Partnership Partnership Total
---------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
OWNERSHIP PERCENTAGE
Through December 31, 1997 34.75% 15.25% 0.00% 50.00% 100.00%
================ =============== ================ =============== ================
As of January 1, 1998 68.11% 29.89% 2.00% 0.00% 100.00%
================ =============== ================ =============== ================
CAPITAL CONTRIBUTIONS
Prior Years $14,086,139 $ 6,181,687 $ -0- $ -0- $20,267,826
---------------- --------------- ---------------- --------------- ----------------
CAPITAL PLACEMENT FEE
Prior Years (106,427) (96,251) -0- -0- (202,678)
---------------- --------------- ---------------- --------------- ----------------
DISTRIBUTIONS - Note 2
Prior Years (5,969,698) (2,827,026) -0- -0- (8,796,724)
Current Year (981,211) (430,606) -0- -0- (1,411,817)
---------------- --------------- ---------------- --------------- ----------------
(6,950,909) (3,257,632) -0- -0- (10,208,541)
---------------- --------------- ---------------- --------------- ----------------
ACCUMULATED INCOME
Prior Years 3,429,956 1,505,228 -0- -0- 4,935,184
Current Year 982,082 430,985 -0- -0- 1,413,067
---------------- --------------- ---------------- --------------- ----------------
4,412,038 1,936,213 -0- -0- 6,348,251
---------------- --------------- ---------------- --------------- ----------------
PARTNERS' CAPITAL, 12/31/98 $11,440,841 $ 4,764,017 $ -0- $ -0- $16,204,858
================ =============== ================ =============== ================
</TABLE>
________________
See Independent Auditor's Report on Supplementary Information.
-12-
<PAGE>
GATEWAY 51 PARTNERSHIP
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
SCHEDULE OF CHANGES IN PARTNERS' CAPITAL - INCOME TAX BASIS
-----------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
----------------------------
<TABLE>
<CAPTION>
NE/ M.O.R. 51
New England New England Gateway 51 Gateway
Life Pension Pension Limited Limited
Properties IV Properties V Partnership Partnership Total
---------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
OWNERSHIP PERCENTAGE
Through December 31, 1997 34.75% 15.25% 0.00% 50.00% 100.00%
================ =============== ================ =============== ================
As of January 1, 1998 68.11% 29.89% 2.00% 0.00% 100.00%
================ =============== ================ =============== ================
CAPITAL CONTRIBUTIONS
Prior Years $14,086,139 $ 6,181,687 $ -0- $ -0- $20,267,826
---------------- --------------- ---------------- --------------- ----------------
CAPITAL PLACEMENT FEE
Prior Years (106,427) (96,251) -0- -0- (202,678)
---------------- --------------- ---------------- --------------- ----------------
DISTRIBUTIONS - Note 2
Prior Years (5,969,698) (2,827,026) -0- -0- (8,796,724)
Current Year (981,211) (430,606) -0- -0- (1,411,817)
---------------- --------------- ---------------- --------------- ----------------
(6,950,909) (3,257,632) -0- -0- (10,208,541)
---------------- --------------- ---------------- --------------- ----------------
ACCUMULATED INCOME
Prior Years 2,883,779 1,262,418 -0- -0- 4,146,197
Current Year 830,648 364,529 -0- -0- 1,195,177
---------------- --------------- ---------------- --------------- ----------------
3,714,427 1,626,947 -0- -0- 5,341,374
---------------- --------------- ---------------- --------------- ----------------
PARTNERS' CAPITAL, 12/31/98 $10,743,230 $ 4,454,751 $ -0- $ -0- $15,197,981
================ =============== ================ =============== ================
</TABLE>
________________
See Independent Auditor's Report on Supplementary Information.
-13-
<PAGE>
FINANCIAL STATEMENTS
INDEX NO. 3
AUDITOR'S REPORT AND FINANCIAL STATEMENTS
OF MORF 6 VENTURE
Independent Auditor's Report of Wolpoff and Company, LLP
Balance Sheet - December 31, 1998 and 1997
Statement of Income - For the Years ended December 31, 1998, 1997 and 1996
Statement of Partners' Capital - For the Years ended December 31, 1998, 1997 and
1996
Statement of Cash Flows - For the Years ended December 31, 1998, 1997 and 1996
Notes to Financial Statements
<PAGE>
MORF 6 VENTURE
(A MARYLAND GENERAL PARTNERSHIP)
FINANCIAL REPORT
DECEMBER 31, 1998
<PAGE>
MORF 6 VENTURE
--------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
CONTENTS
--------
DECEMBER 31, 1998
-----------------
<TABLE>
<S> <C>
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Income 3
Statement of Partners' Capital 4
Statement of Cash Flows 5
Notes to Financial Statements 6 - 9
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION 10
SUPPLEMENTARY INFORMATION
Schedule of Partners' Capital 11
Schedule of Changes in Partners' Capital - Income Tax Basis 12
</TABLE>
<PAGE>
[LETTERHEAD OF WOLPOFF & COMPANY, LLP]
To the Partners
MORF 6 Venture
(A Maryland General Partnership)
Columbia, Maryland
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS
----------------------------------------------------
We have audited the balance sheet of MORF 6 Venture (A Maryland General
Partnership) as of December 31, 1998 and 1997, and the related statements of
income, partners' capital, and cash flows for each of the three years ended
December 31, 1998, 1997, and 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MORF 6 Venture (A Maryland
General Partnership) as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years ended December 31,
1998, 1997, and 1996, in conformity with generally accepted accounting
principles.
/s/ Wolpoff & Company, LLP
WOLPOFF & COMPANY, LLP
Baltimore, Maryland
January 12, 1999
<PAGE>
MORF 6 VENTURE
--------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
BALANCE SHEET
-------------
ASSETS
------
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1998 1997*
---------------- ----------------
<S> <C> <C>
PROPERTY, AT COST - Note 1
Buildings and Improvements $ 4,088,945 $ 4,154,411
Land and Land Improvements 630,335 630,335
Deferred Costs - Note 3 143,782 107,628
---------------- ----------------
4,863,062 4,892,374
Less Accumulated Depreciation and Amortization (914,049) (815,052)
---------------- ----------------
PROPERTY, NET 3,949,013 4,077,322
---------------- ----------------
OTHER ASSETS
Cash and Cash Equivalents - Note 1 113,865 183,313
---------------- ----------------
Receivable From Tenants 24,973 15,117
Allowance for Doubtful Accounts (22,870) -0-
---------------- ----------------
2,103 15,117
---------------- ----------------
Prepaid Expenses 29,294 28,803
---------------- ----------------
TOTAL OTHER ASSETS 145,262 227,233
---------------- ----------------
$ 4,094,275 $ 4,304,555
================ ================
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Prepaid Tenant Reimbursements $ 31,211 $ 14,441
Tenant Security Deposits 22,445 22,445
Rents Received in Advance 12,076 7,826
Accounts Payable 8,877 10,582
---------------- ----------------
TOTAL LIABILITIES 74,609 55,294
PARTNERS' CAPITAL - Note 2 4,019,666 4,249,261
---------------- ----------------
$ 4,094,275 $ 4,304,555
================ ================
</TABLE>
*Prior year balances were adjusted to conform with current year's presentation.
________________
The notes to financial statements are an integral part of this statement.
-2-
<PAGE>
MORF 6 VENTURE
--------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
STATEMENT OF INCOME
-------------------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1998 1997 1996
--------------- -------------- --------------
<S> <C> <C> <C>
REVENUE
Gross Rent Potential - Notes 1 and 5 $ 801,491 $ 784,015 $ 701,169
Less Vacancies 66,464 132,236 26,727
--------------- -------------- --------------
Net Rental Income 735,027 651,779 674,442
Expense Reimbursements From Tenants 92,781 76,286 94,820
Interest and Other Income 11,139 3,213 2,589
Release Fee Income -0- -0- 90,526
--------------- -------------- --------------
TOTAL REVENUE 838,947 731,278 862,377
--------------- -------------- --------------
OPERATING EXPENSES
Real Property Tax 55,967 41,093 40,970
Building and Grounds Maintenance 31,584 32,009 50,117
Management Fees - Note 3 24,585 22,507 26,849
Bad Debts 23,789 -0- -0-
General and Administrative 15,720 21,836 19,249
Utilities 11,434 17,246 15,738
--------------- -------------- --------------
TOTAL OPERATING EXPENSES 163,079 134,691 152,923
--------------- -------------- --------------
OPERATING INCOME 675,868 596,587 709,454
--------------- -------------- --------------
OTHER EXPENSES
Depreciation and Amortization (111,321) (116,945) (114,666)
Abandonment of Tenant Improvements - Note 1 (53,142) (372,485) -0-
--------------- -------------- --------------
TOTAL OTHER EXPENSES (164,463) (489,430) (114,666)
--------------- -------------- --------------
NET INCOME - Note 4 $ 511,405 $ 107,157 $ 594,788
=============== ============== ==============
</TABLE>
_____________________
The notes to financial statements are an integral part of this statement.
-3-
<PAGE>
MORF 6 VENTURE
--------------
(A MARYLAND GENERAL PARTNERSHIP)
------------------------------
STATEMENT OF PARTNERS' CAPITAL
------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
CAPITAL CONTRIBUTIONS - Note 2
Prior Years $ 4,857,000 $ 4,857,000 $ 4,857,000
---------------- ---------------- ----------------
CAPITAL PLACEMENT FEE - Notes 1 and 2 (38,250) (38,250) (38,250)
---------------- ---------------- ----------------
DISTRIBUTIONS - Note 2
Prior Years (4,567,931) (4,347,931) (3,785,931)
Current Year (741,000) (220,000) (562,000)
---------------- ---------------- ----------------
(5,308,931) (4,567,931) (4,347,931)
---------------- ---------------- ----------------
ACCUMULATED INCOME
Prior Years 3,998,442 3,891,285 3,296,497
Current Year 511,405 107,157 594,788
---------------- ---------------- ----------------
4,509,847 3,998,442 3,891,285
---------------- ---------------- ----------------
TOTAL PARTNERS' CAPITAL $ 4,019,666 $ 4,249,261 $ 4,362,104
================ ================ ================
</TABLE>
_____________________
The notes to financial statements are an integral part of this statement.
-4-
<PAGE>
MORF 6 VENTURE
--------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
STATEMENT OF CASH FLOWS
-----------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 511,405 $ 107,157 $ 594,788
-------------- -------------- --------------
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities
Depreciation and Amortization 111,321 116,945 114,666
Abandonment of Tenant Improvements 53,142 372,485 -0-
Decrease in Tenant Receivables, Net of Allowance 13,014 5,455 13,780
Increase in Prepaid Expenses (491) (13,647) (12,796)
Increase in Prepaid Tenant Reimbursements 16,770 14,441 -0-
Increase in Rents Received in Advance 4,250 -0- -0-
Change in Accounts Payable (1,705) (1,495) 10,478
-------------- -------------- --------------
Total Adjustments 196,301 494,184 126,128
-------------- -------------- --------------
Net Cash Provided by Operating Activities 707,706 601,341 720,916
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property Improvements -0- (262,947) (142,625)
Leasing Commissions (36,154) (54,802) (2,638)
Security Deposits -0- 2,017 (2,765)
-------------- -------------- --------------
Net Cash Used by Investing Activities (36,154) (315,732) (148,028)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Partner (741,000) (220,000) (562,000)
-------------- -------------- --------------
Net Cash Used by Financing Activities (741,000) (220,000) (562,000)
-------------- -------------- --------------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS (69,448) 65,609 10,888
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 183,313 117,704 106,816
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 113,865 $ 183,313 $ 117,704
============== ============== ==============
</TABLE>
_______________
The notes to financial statements are an integral part of this statement.
-5-
<PAGE>
MORF 6 VENTURE
--------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998
-----------------
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
MORF 6 Venture (A Maryland General Partnership) (the Partnership) was
formed on December 22, 1987, under the Maryland Uniform Partnership
Act. The Partnership purchased all of the land and buildings from
M.O.R.F. 6 Associates Limited Partnership, a general partner. The
buildings were in service and partially leased upon date of purchase.
Cash and Cash Equivalents
-------------------------
The Partnership considers all highly liquid debt instruments purchased
with a maturity of 3 months or less to be cash equivalents. The
Partnership's cash is held in financial institutions with insurance
provided by the Federal Deposit Insurance Corporation (FDIC) up to
$100,000. Periodically during the year, the balance exceeded the FDIC
insurance limitation.
Property
--------
The Partnership owns and operates two office buildings in Frederick,
Maryland, containing approximately 73,000 square feet of leasable
area.
All property is recorded at cost. Information regarding the buildings
is as follows:
<TABLE>
<CAPTION>
Occupancy
--------------------------------------
Square
Building Feet Tenants 12/31/98 12/31/97 12/31/96
- ------------ ---------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1 45,000 Multiple 100% 51% 94%
2 28,000 Multiple 100% 100% 81%
----------
73,000 100% 70% 89%
========== ======= ======== =======
</TABLE>
During 1998 and 1997, tenant improvements completed in prior years were
demolished in order to build out the space for new tenants. The loss on
abandonment of tenant improvements is calculated as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Cost $ 65,466 $480,157
Accumulated Depreciation (12,324) (107,672)
--------------- ---------------
Abandonment of Tenant Improvements $ 53,142 $372,485
=============== ===============
</TABLE>
-6-
<PAGE>
MORF 6 VENTURE
--------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
------------------------------------------
DECEMBER 31, 1998
-----------------
Note 1 - Depreciation
------------
(Cont.) Building costs are being depreciated using the straight-line method
over the estimated useful lives of 50 years. Beginning in January
1998, the Partnership changed depreciation methods for tenant
improvements. Tenant improvements are being depreciated using the
straight-line method over the life of the tenants' lease; in prior
years the improvements were depreciated over 50 years.
Amortization
------------
Various deferred costs are being amortized as follows:
<TABLE>
<CAPTION>
Amortization
Amount Period
---------- ------------
<S> <C> <C>
Leasing Commissions $ 136,064 1-5 Years
Organization Costs 7,718 Complete
----------
$ 143,782
==========
</TABLE>
Rental Income
-------------
Rental income for major leases is being recognized on a straight-line
basis over the term of the lease. The excess of the rental income
recognized over the amount stipulated in the lease is shown as
deferred rent receivable.
Income Taxes
------------
Partnerships, as such, are not subject to income taxes. The individual
partners are required to report their respective shares of partnership
income and other tax items on their respective income tax returns.
Capital Placement Fee
---------------------
The cost incurred for arranging the Partnership's equity has been
treated as a reduction of partners' capital (see Note 2).
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Note 2 - PARTNERS' CAPITAL
Capital Investment
------------------
New England Life Pension Properties IV (NELPP IV) has agreed to
provide equity up to an amount of $5,150,000 to the Partnership. Of
this amount, $5,004,841 was contributed, and in 1991, $293,000 was
returned from proceeds of a 1990 land sale. An additional $175,060 was
contributed in 1994, and in 1995, capital contributions of $29,901
were returned. Contributed capital totaled $4,857,000, at December 31,
1998, 1997, and 1996.
-7-
<PAGE>
MORF 6 VENTURE
--------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
DECEMBER 31, 1998
-----------------
Note 2 - NELPP IV is entitled to a cumulative priority return of 10%,
compounded monthly, on invested capital.
(Cont.) During 1998, 1997, and 1996, NELPP IV was paid $741,000, $220,000, and
$562,000, respectively, under this agreement. As of December 31, 1998,
1997, and 1996, the unpaid priority return was $-0-, $228,089, and
$-0-, respectively.
Capital Placement Fee
---------------------
The Partnership incurred fees of $38,250 with Paine Webber Mortgage
Finance, Inc. with respect to capital raised by the Partnership. This
amount has been charged against capital.
Note 3 - RELATED PARTY TRANSACTIONS
Management Fees
---------------
The Partnership has entered into an agreement with Manekin
Corporation, an affiliated entity, to act as management agent for the
property. The management agreement provides for fees equal to 3% of
rent and tenant expense billings. For the years ended December 31,
1998, 1997, and 1996, management fees of $24,585, $22,507, and
$26,849, respectively, were incurred.
Leasing Commissions
-------------------
Leasing commissions of $20,583, $54,802, and $2,638, were paid to
related parties during 1998, 1997, and 1996, respectively.
Note 4 - TAX ACCOUNTING
Tax accounting differs from financial accounting as follows:
<TABLE>
<CAPTION>
Current Prior
Year Years Total
-------------- --------------- ---------------
<S> <C> <C> <C>
Financial Income $ 511,405 $3,998,442 $4,509,847
Additional Depreciation (47,016) (544,147) (591,163)
Real Property
Taxes Expensed for Tax (728) (27,619) (28,347)
Prepaid Tenant Reimbursements 16,770 14,441 31,211
Rents Received in Advance 12,076 -0- 12,076
Additional Gain on Sale
of Land Recognized for Tax -0- 30,594 30,594
Allowance for Doubtful Accounts 22,870 -0- 22,870
-------------- --------------- ---------------
Taxable Income $ 515,377 $3,471,711 $3,987,088
============== =============== ===============
</TABLE>
-8-
<PAGE>
MORF 6 VENTURE
--------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
DECEMBER 31, 1998
-----------------
Note 5 - FUTURE MINIMUM LEASE PAYMENTS
The following is a schedule of future minimum lease payments to be
received under noncancelable operating leases at December 31, 1998:
<TABLE>
<S> <C>
Year Ending December 31, 1999 $ 666,438
2000 303,333
2001 296,644
2002 80,420
---------------
Total $1,346,835
===============
</TABLE>
-9-
<PAGE>
To the Partners
MORF 6 Venture
(A Maryland General Partnership)
Columbia, Maryland
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION
---------------------------------------------------------
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information contained on pages 11 and 12 is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements. Such information has not been subjected to the auditing procedures
applied in the audits of the basic financial statements, and accordingly, we
express no opinion on it.
/s/ Wolpoff & Company, LLP
WOLPOFF & COMPANY, LLP
Baltimore, Maryland
January 12, 1999
-10-
<PAGE>
MORF 6 VENTURE
--------------
(A MARYLAND GENERAL PARTNERSHIP)
------------------------------
SCHEDULE OF PARTNERS' CAPITAL
-----------------------------
YEAR ENDED DECEMBER 31, 1998
----------------------------
<TABLE>
<CAPTION>
M.O.R.F. 6
New England Associates
Life Pension Limited
Properties IV Partnership Total
------------------- --------------- ----------------
<S> <C> <C> <C>
OWNERSHIP PERCENTAGE 50% 50% 100%
================ ========== ================
CAPITAL CONTRIBUTIONS - Note 2
Prior Years $ 4,857,000 $ -0- $ 4,857,000
---------------- ---------- ----------------
CAPITAL PLACEMENT FEE - Notes 1 and 2 (38,250) -0- (38,250)
---------------- ---------- ----------------
DISTRIBUTIONS - Note 2
Prior Years (4,567,931) -0- (4,567,931)
Current Year (741,000) -0- (741,000)
---------------- ---------- ----------------
(5,308,931) -0- (5,308,931)
---------------- ---------- ----------------
ACCUMULATED INCOME
Prior Years 3,998,442 -0- 3,998,442
Current Year 511,405 -0- 511,405
---------------- ---------- ----------------
4,509,847 -0- 4,509,847
---------------- ---------- ----------------
TOTAL PARTNERS' CAPITAL $ 4,019,666 $ -0- $ 4,019,666
================ ========== ================
</TABLE>
_______________
See Independent Auditor's Report on Supplementary Information.
-11-
<PAGE>
MORF 6 VENTURE
--------------
(A MARYLAND GENERAL PARTNERSHIP)
--------------------------------
SCHEDULE OF CHANGES IN PARTNERS' CAPITAL - INCOME TAX BASIS
-----------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
----------------------------
<TABLE>
<CAPTION>
M.O.R.F. 6
New England Associates
Life Pension Limited
Properties IV Partnership Total
------------------- --------------- ----------------
<S> <C> <C> <C>
OWNERSHIP PERCENTAGE 50% 50% 100%
================ ========== ================
CAPITAL CONTRIBUTIONS - Note 2
Prior Years $ 4,857,000 $ -0- $ 4,857,000
---------------- ---------- ----------------
CAPITAL PLACEMENT FEE - Notes 1 and 2 (38,250) -0- (38,250)
---------------- ---------- ----------------
DISTRIBUTIONS - Note 2
Prior Years (4,567,931) -0- (4,567,931)
Current Year (741,000) -0- (741,000)
---------------- ---------- ----------------
(5,308,931) -0- (5,308,931)
---------------- ---------- ----------------
ACCUMULATED INCOME - Note 4
Prior Years 3,471,711 -0- 3,471,711
Current Year 515,377 -0- 515,377
---------------- ---------- ----------------
3,987,088 -0- 3,987,088
---------------- ---------- ----------------
TOTAL PARTNERS' CAPITAL $ 3,496,907 $ -0- $ 3,496,907
================ ========== ================
</TABLE>
_______________
See Independent Auditor's Report on Supplementary Information.
-12-
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER NUMBER
- ------- ------
<S> <C> <C>
10A. Agreement of Limited Partnership of Lee Partners, a *
Maryland Partnership, dated August 12, 1986, by and
among the Registrant and Lee-Oxford Limited Partnership,
as amended October 7, 1986.
10B. Term Loan Agreement dated August 1, 1986 between *
Lee-Oxford Limited Partnership and The Registrant,
as amended October 7, 1986.
10C. Promissory Note in the amount of $5,790,000 dated *
August 15, 1986 given by Lee-Oxford Limited Partnership
to the Registrant, and Allonge to Promissory Note dated
October 7, 1986
10D. General Partnership Interest Pledge and Security *
Agreement, dated August 1, 1986, by and between
Lee-Oxford Limited Partnership and The Registrant,
as amended October 7, 1986.
10E. Rancho Cucamonga No. 1 Associates Joint Venture *
Agreement dated as of December 1986 by and between
The Registrant and Vance Charles Mape III.
10F. Rancho Road Associates Joint Venture Agreement dated *
as of December 29, 1986 by and between The Registrant
and Commerce Centre Partners.
10G. General Warranty Deed as of December 23, 1986 between *
Calibre Log Cabin, Ltd., and the Registrant.
10H. Ground Lease by and between the Registrant, as Landlord *
and Calibre Log Cabin, Ltd., and the Registrant.
10I. Promissory Note dated December 22, 1986 in the amount *
of $8,862,500 from Calibre Log Cabin, Ltd. to the
Registrant.
10J. Deed to Secure Debt and Security Agreement, dated as of *
December 23, 1986 by and between Calibre Log Cabin, Ltd.,
as Borrower, and the Registrant, as Lender, in the amount
of $8,862,500.
10K. Hewson/Copley Northwest Associates Joint Venture *
Agreement by and between Hewson Properties, Inc. and
The Registrant dated as of September 15, 1986.
10L. Term Loan Agreement between Hewson Properties, Inc., *
Borrower, and the Registrant, as Lender, dated as of
September 15, 1986.
10M. Promissory Note dated September 15, 1986 in the amount *
of $3,720,000 from Hewson Properties, Inc. to the Registrant.
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Page
Number NUMBER
- ------- ------
<S> <C> <C>
10N. Ground Lease, dated December 16, 1987, between the *
Partnership and Rouse and Associates - 101 Brandywine
Limited Partnership ("Rouse-101").
10O. Promissory Note, dated December 17, 1987, from *
Rouse-101 to the Partnership.
10P. Leasehold Mortgage and Security Agreement, dated as of *
December 16, 1987, between Rouse-101 and the Partnership.
10Q. Ground Lease, dated December 16, 1987, between the *
Partnership and Rouse and Associates - 201-301 Brandywine
Limited Partnership ("Rouse - 201-301").
10R. Promissory Note, dated December 17, 1987, from Rouse *
-201-301 to the Partnership.
10S. Leasehold Mortgage and Security Agreement, dated as of *
December 16, 1987, between Rouse-201-301 and the
Partnership.
10T. General Partnership Agreement of Gateway 51 Partnership, *
dated as of December 21, 1987, between M.O.R. Gateway
51 Associates Limited Partnership and the Partnership.
10U. General Partnership Agreement of MORF 6 Venture, dated *
as of December 18, 1987, between M.O.R.F. 6 Associates
Limited Partnership and the Partnership.
10V. Decatur Town Center II Associates Joint Venture Agreement, *
dated as of December 31, 1987, between Decatur Town Center
Associates, Ltd. and the Partnership.
10W. First Amendment to Ground Lease dated as of July 1, 1988 *
by and between New England Mutual Life Insurance Company
and Calibre Briar Oaks, Ltd.
10X. First Amendment to Ground Lease dated as of July 1, 1988 *
by and between the Registrant and Calibre Log Cabin Ltd.
10Y. Second Priority Leasehold Deed To Secure Debt dated as *
of July 1, 1988 between the Registrant and Calibre Log
Cabin, Ltd.
10Z. Amended and Restated General Partnership Agreement *
Gateway 51 Partnership dated as of April 20, 1989,
between M.O.R. Gateway 51 Associates Limited Partnership,
New England Life Pension Properties IV; a Real Estate
Limited Partnership and New England Pension Properties
V; a Real Estate Limited Partnership.
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit PAGE
Number NUMBER
- ------- ------
<S> <C> <C>
10AA. First Amendment to Decatur TownCenter II Associates *
Joint Venture Agreement dated as of September 15, 1989
by and between Decatur TownCenter Associates, Ltd. and
New England Life Pension Properties IV; a Real Estate
Limited Partnership.
10BB. Pledge and Security Agreement dated as of March 7, *
1988 by and between Commerce Centre Partners, a California
general partnership, and the Registrant.
10CC. First Amendment to Pledge and Security Agreement dated as *
of November 1, 1989 by and between Commerce Centre Partners
and the Registrant.
10DD. First Amendment to Rancho Road Associates Joint Venture *
Agreement dated as of November 1, 1989 by and between the
Registrant and Commerce Centre Partners.
10EE. First Amendment to Promissory Note and Joint Venture *
Interest Pledge and Security Agreement dated and effective
as of January 1, 1990 by and between Hewson Properties,
Inc. and the Registrant.
10FF. First Amendment to Hewson/Copley Northwest Associates *
Amended and Restated Joint Venture Agreement dated and
effective as of January 1, 1990 by and between the
Registrant and Hewson Properties, Inc.
10GG. Second Allonge to Promissory Note dated March 30, 1990 *
by and between Lee-Oxford Limited Partnership and the
Registrant.
10HH. Letter Agreement dated as of March 30, 1990 by and between *
the Registrant and Lee-Oxford Limited Partnership.
10II. Like-Kind Exchange Contract entered into as of July 3, 1990 *
by and between Crown American Corporation and M.O.R.F. 6
Venture.
10JJ. Agreement for Purchase and Sale made and entered into as *
of February 1, 1990 by and between Calibre Log Cabin, Ltd.
and the Registrant.
10KK. Assignment of Ground Lease and Limited Warranty Deed made *
by and entered into as of February 1, 1990 by and between
Calibre Log Cabin, Ltd. and the Registrant.
10LL. Warranty Bill of Sale and Assignment made by and entered *
into as of February 1, 1990 by and between Calibre Log
Cabin, Ltd. and the Registrant.
10MM. Assignment of Rents and Leases made and entered into as *
of February 1, 1990 by and between Calibre Log Cabin,
Ltd. and the Registrant.
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit PAGE
Number NUMBER
- ------- ------
<S> <C> <C>
10NN. Allonge to Promissory Note dated May 1, 1992, by and between Lee- *
Oxford * Partnership and the Registrant.
10OO. Purchase and Sale Agreement and Escrow Instructions by and between *
Rancho Cucamonga No. 1 Associates, a California general partnership
and APT- Cabot California, Inc., a Delaware corporation dated as of November
30, 1994.
10PP. Amended and Restated Joint Venture Agreement of Rancho Road Associates *
between New England Life Pension Properties IV, a Real Estate Limited
Partnership and Commerce Centre Partners dated January 1, 1995.
10QQ. Fourth Amendment to Decatur TownCenter II Associates Joint Venture *
Agreement dated as of August 15, 1995 between Decatur TownCenter
Associates LTD., and the Registrant.
10RR. Letter Agreement dated as of January 1, 1996 by and between the *
Registrant and Hewson Properties, Inc.
10SS. Amended and Restated Pooling Agreement dated as of December 1, 1995 *
by and among the Registrant, Montgomery-Oxford Associates Limited
Partnership, Waters Landing-Oxford Associates Limited Partnership and
related documents dated as of December 1, 1995 and May 14, 1996.
10TT. Tenancy in Common Agreement dated as of December 30, 1996 by and *
among the Registrant and Hewson Properties, Inc.
27. Financial Data Schedule
</TABLE>
_______________________________________________________
* Previously filed and incorporated herein by reference
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,932,931
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,932,931
<PP&E> 24,773,100
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,706,031
<CURRENT-LIABILITIES> 177,417
<BONDS> 4,229,398
0
0
<COMMON> 0
<OTHER-SE> 26,299,216
<TOTAL-LIABILITY-AND-EQUITY> 30,706,031
<SALES> 4,422,790
<TOTAL-REVENUES> 8,561,528
<CGS> 1,358,566
<TOTAL-COSTS> 1,358,566
<OTHER-EXPENSES> 1,214,251
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,988,711
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,988,711
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,988,711
<EPS-PRIMARY> 62.41
<EPS-DILUTED> 62.41
</TABLE>
