FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to _____________
Commission file number 0-16793
BASS REAL ESTATE FUND-II
(Exact name of registrant as specified in its charter)
North Carolina 56-1490907
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4000 Park Road, Charlotte, North Carolina 28209
(Address of principal executive officer) (Zip Code)
Registrant's telephone number, including area code: 704/523-9407
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 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 _____
Aggregate market value of voting securities held by nonaffiliates: Not
applicable as all securities are non-voting.
Documents incorporated by reference: None
Page 1 of ___ sequentially numbered pages
Exhibit Index on Page ___
<PAGE>
PART I
Item 1 - Business.
The Registrant is a North Carolina limited partnership organized on November
14, 1985. The General Partners of the Registrant are Marion Bass Real Estate
Group, Inc. (the Managing General Partner), a North Carolina corporation, and
Marion F. Bass (the Individual General Partner), president and chief executive
officer of the Managing General Partner (collectively, the General Partners).
The Managing General Partner is wholly owned by Marion Bass Investment Group,
Inc., which in turn is wholly owned by Marion F. Bass.
By means of a public offering registered under the Securities Act of 1933,
as amended (the Offering), the Registrant offered and sold 9,938 units of
limited partnership interests (the Units) at $500 per Unit. On July 9, 1986, the
proceeds of the Offering of 3,029 Units were removed from escrow (the Initial
Closing) aggregating $1,332,760 after deduction of selling commissions and
organization and offering expenses. Subsequent to the Initial Closing,
additional limited partners were admitted monthly.
On January 30, 1987 the Offering terminated with aggregate proceeds
from the Offering totaling $4,969,000. After deduction for selling commissions
and organization and offering expenses of $596,280, net proceeds of $4,372,720
were available for partnership operations. In addition to these proceeds the
General Partners contributed amounts totaling $50,192.
The Registrant's principal investment objectives are to (1) obtain capital
appreciation, (2) provide cash distributions from operations, (3) preserve and
protect the capital of the Partners, (4) build equity through the reduction of
mortgage indebtedness encumbering the Registrant's properties, and (5) provide
tax losses equal to or in excess of cash distributions during the initial years
of the Registrant's operations.
On November 7, 1986, the Registrant purchased 23.75 acres of unimproved land
in Pineville, North Carolina for a total purchase price of $930,002. On March
18, 1987 the Registrant contracted with Marion Bass Construction Company (MBCC),
an affiliate of the General Partners, for the construction of an apartment
complex on the property containing 24 three-bedroom, 106 two-bedroom, and 72
one-bedroom apartment units for the fixed sum of $7,513,850. On July 15, 1987,
the contract was amended to provide for certain enhanced amenities at a revised
construction cost of $8,113,850. The construction of the project formerly known
as Sabal Point, now known as Sabal Point I, was completed in August, 1988. The
Registrant entered into an agreement with Marion Bass Equity Group, Inc., an
affiliate of the General Partners, (MBEG) wherein MBEG acted as development
manager in connection with the development and
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<PAGE>
construction of properties, including coordinating and supervising site
selection, property acquisition and performance by the general contractor under
the construction contract. MBEG received a fee of $600,000 in connection with
the development of Sabal Point I, of which $149,169 was paid in 1988. The total
cost of the acquisition, development and construction of the project, including
development fees, financing costs and construction period interest was
$10,087,691.
On November 17, 1987, the Registrant consummated construction financing for
Sabal Point I with First Union National Bank of North Carolina (FUNB). The
construction loan in the principal amount of $6,210,850 had a maturity date of
July 1, 1990 and required monthly payments of interest at an annual rate of
FUNB's prime rate plus 5/8 of 1% on the outstanding amount of the loan. Through
March 7, 1989, the Registrant had drawn $5,835,850, under the FUNB construction
loan.
On March 7, 1989, The Variable Annuity Life Insurance Company of Houston,
Texas made a permanent loan to the Registrant in the amount of $6,250,000. The
permanent loan has a ten-year term with interest accruing at 10 1/8% per annum.
Principal and accrued interest are payable monthly, but installments of
principal are based upon a thirty-year amortization schedule. The remaining
principal and all unpaid and accrued interest will be due and payable on April
1, 1999. After the pay-off of the indebtedness to FUNB and payment of expenses
relating to the permanent loan, approximately $323,464 was paid to the
Registrant.
The Registrant has entered into a property management agreement with Marion
Bass Properties, Inc. (MBP), an affiliate of the General Partners. The agreement
provides that MBP will be responsible for managing, operating and leasing the
Registrant's properties and that MBP will receive a fee for its services in an
amount equal to the lesser of (a) fees that are competitive and comparative with
fees of unaffiliated parties providing comparable services in the locality of
the Registrant's property, or (b) 5% of the monthly gross revenue from the
Registrant's property. MBP will also be entitled to reimbursement of on-site
management and maintenance services. The agreement will expire three years from
the date that occupancy of the Sabal Point I project begins, and will be
automatically renewed unless either party gives notice of its intention not to
renew. In addition, either party may terminate the agreement without penalty
upon 60 days' written notice. In any event, the agreement will automatically
terminate upon dissolution of the Registrant.
Cash at December 31, 1996, totalled $384,539. As of March 27, 1997, a
distribution has not been declared for the operational year of 1996. If the
remaining cash and other available cash flow are insufficient to cover expenses,
then the Registrant will have to obtain additional funds through borrowings or
refinancings.
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<PAGE>
Available operating cash fluctuates with partnership operations. See discussion
in Item 7 under Liquidity and Capital Resources.
The Registrant does not anticipate the acquisition or development of any
additional properties.
Upon the sale of any property by the Registrant, the proceeds of the sale
will be distributed to the partners. Therefore, it is intended that the
Registrant will be self-liquidating. The General Partners currently intend to
dispose of all properties purchased within nine to twelve years of the purchase.
Competition among owners of apartment complexes of the type and in the areas
that the Registrant owns apartment complexes generally is high. Competition is
based generally on price and features offered. Many of the Registrant's
competitors have greater assets and more experience than the Registrant and the
General Partners.
One or both of the General Partners serve as a general partner in eight
private partnerships which own various income-producing, multi-family
residential property. None of the private partnerships sponsored by the General
Partners currently contemplates the acquisition of additional properties. The
General Partners sponsored three public real estate partnerships, Bass Real
Estate Fund-84, Bass Income Plus Fund and Bass Real Estate Fund III with similar
objectives as the Registrant. Bass Income Plus Fund acquired a nine-acre tract
of land adjacent to Sabal Point I, on which MBCC constructed an apartment
complex of 88 units. Bass Real Estate Fund III acquired another adjacent parcel
of twelve acres with an apartment complex of 84 units. Conflicts could develop
between the Registrant and other existing or future partnerships which the
General Partners may manage. The General Partners intend to devote only such
time to the business of the Registrant as in their judgment is reasonably
required. The General Partners are engaged in other similar activities which
also require their time and attention.
The Registrant's property adjoins apartment complexes owned by Bass
Real Estate Fund-III and Bass Income Plus Fund. In order to achieve greater
economies of scale, Marion Bass Properties, Inc., the property manager for the
Registrant and the other owners, has combined the management and leasing
operations for all of the adjoining complexes. Under this arrangement, the
expenses are allocated on a per unit basis except for those costs that can be
directly attributed to a single complex. When leasing units, the property
manager shows available units in different complexes and the tenant chooses the
unit that he desires. The occupancy on December 31, 1996 for Sabal Point I was
95% and the adjoining complexes were 98% and 91%.
As of December 31, 1996, the Registrant did not directly employ
any persons in a full-time position. Certain employees of the
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<PAGE>
Managing General Partner and affiliates performed services for the Registrant
during the year.
Item 2 - Properties.
The Registrant completed construction in August, 1988 of a 202 unit
apartment community consisting of 2 two-story apartment buildings, 7 three-story
apartment buildings and 1 clubhouse building located on a 23.75 acre tract of
land in suburban Mecklenburg County, North Carolina formerly known as Sabal
Point, now known as Sabal Point I. MBCC, an affiliate of the General Partner,
constructed the property for a fixed sum of $8,113,850. Amenities include
clubhouse, swimming pool, tennis court, racquetball court, fitness room and
laundry facilities. At December 31, 1996, 95% of the apartment units were
occupied. The types of units and monthly rentals are described below:
<TABLE>
<CAPTION>
===================================================================================================================================
Units Description Size (sq. ft.) 12/31/96 12/31/95 12/31/94
Rental Rental Rental
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
60 one bedroom 760 $ 560-580 $ 540-560 $ 500-520
- -----------------------------------------------------------------------------------------------------------------------------------
111 two bedroom 1,010 670-690 650-670 600-620
- -----------------------------------------------------------------------------------------------------------------------------------
25 three bedroom 1,203 780 750 730
- -----------------------------------------------------------------------------------------------------------------------------------
202 192,345 $ 132,350 $ 127,735 $ 118,650
===================================================================================================================================
</TABLE>
The apartment community is managed by Marion Bass Properties, Inc., an affiliate
of the General Partner.
Item 3 - Legal Proceedings.
No material legal proceedings were initiated or terminated during the fiscal
year covered by this report.
Item 4 - Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the holders of Units during the
fourth quarter of the fiscal year ended December 31, 1996.
Item 5 - Market for Registrant's Units and Related Matters.
Transfer of the Units is subject to certain restrictions contained in the
Limited Partnership Agreement. There is no established market for the Units and
it is not anticipated that any will occur in the future. The Registrant is aware
of no subsequent sales of Units during the past two years. As of December 31,
1996, 577 persons were holders of 9,938 units.
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<PAGE>
The Registrant intends to make distributions of net cash flow from
operations semi-annually, provided cash reserves are at appropriate levels. A
summary of cash distributions follows:
Total Amount Average
Date Period Distributed(1) Per Unit
2-10-89 7-1-88 through 12-31-88 $ 50,000 $ 4.98
8-4-89 1-1-89 through 6-30-89 50,000 4.98
2-7-90 7-1-89 through 12-31-89 75,000 7.47
7-23-90 1-1-90 through 6-30-90 50,000 4.98
2-6-91 7-1-90 through 12-31-90 50,000 4.98
2-24-94 1-1-93 through 12-31-93 50,000 4.98
1-15-95 1-1-94 through 12-31-94 100,000 9.96
4-1-96 1-1-95 through 12-31-95 100,000 9.96
- -----------------
(1) Includes amounts distributed to General Partners under Registrant's
partnership agreement.
Item 6 - Selected Financial Data.
<TABLE>
<CAPTION>
==================================================================================================================================
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,523,174 $ 1,420,224 $ 1,330,309 $ 1,226,100 $ 1,150,343
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income 34,995
(loss) (103,659) ( 228,393) ( 293,290) ( 396,575)
- ----------------------------------------------------------------------------------------------------------------------------------
Per Unit 3.49 ( 10.33) ( 22.75) ( 29.22) ( 39.51)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Assets 7,535,102 7,667,475 7,912,388 8,299,902 8,633,646
- ----------------------------------------------------------------------------------------------------------------------------------
Mortgage Loan
Payable 5,999,300 6,053,951 6,103,361 6,151,556 6,191,604
- ----------------------------------------------------------------------------------------------------------------------------------
Cash
Distributions
per Unit 9.96 9.96 4.98 0.00 0.00
==================================================================================================================================
</TABLE>
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<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General.
The Registrant was organized on November 14, 1985, to engage in the
acquisition, development, operation, holding and disposition of income-producing
residential and commercial properties. Net proceeds of the offering and General
Partners' contributions aggregating $4,422,912 were available for partnership
operations. On November 7, 1986 the Partnership purchased 23.75 acres of
undeveloped land for $930,002. In 1987 the Registrant contracted with an
affiliate for the construction of a 202 unit apartment community to be known as
Sabal Point I. Construction of the project began in July 1987 and was completed
in August, 1988 with a total cost of $10,087,691. Units were available for lease
beginning June 1988.
Liquidity and Capital Resources.
At December 31, 1996, partners' equity was $1,499,189 or 20% of total
assets and liquid assets amounted to $384,539. The increase in cash of $161,329
was due to a net cash flow from operations of $347,754 less capital replacements
of $31,774, mortgage debt reduction of $54,651 and a distribution to partners of
$100,000. The Registrant had accrued liabilities of $17,208 which consisted of
management fees due to an affiliate of $6,255, trade account payables of $7,576
and tenant prepaid rent of $3,377.
Net cash flow (deficit) from operations before property additions,
payments on mortgage principal, and distributions to partners totaled $347,754
in 1996, $250,095 in 1995, and $80,521 in 1994. The Registrant had a 10.125%
amortizing mortgage note in the amount of $5,999,300 outstanding at December 31,
1996. Principal payments of $54,651, $49,410 and $48,195 were made in 1996, 1995
and 1994, respectively.
During 1996 the Charlotte market continued to witness increased
activity in the construction of multi-family residential apartment complexes.
With the addition of these new units, some properties have begun offering rental
concessions or other discounts to obtain tenants. Should this trend affect the
Registrant's operations during 1997, then certain marketing strategies will be
implemented in order to minimize any potential reduction in occupancy.
The 1997 operating plan and budget projects cash flow from Registrant
activities (which includes operating, investing, financing) of $290,000. The
projected occupancy rate for 1997 is 95%. As of March 15, 1997, the occupancy
rate was 94%. Capital replacements of $49,000 are budgeted and an additional
$16,000 in
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<PAGE>
Registrant expenses is expected. Rents have been increased 3% over rates charged
in 1996 to offset any normal increase in operating expenses. Based upon these
estimates, it is anticipated that cash flow from operations will be sufficient
to meet cash needs and build cash reserves.
Results of Operations.
The results from operations for the year 1996 reflect an increase in
total revenues of $102,950 due to maintaining an average occupancy of 96% and
increasing rents an average of 3%. Rental income was $1,456,491 in 1996 compared
to $1,364,926 in 1995, a difference of $91,565. Other operating income was
$54,839 in 1996 compared to $52,088 in 1995, reflecting a increase of $2,751.
Operating expenses (excluding depreciation and amortization) increased $13,708.
Utilities increased $5,384 due mainly to higher utility rates and resident
usage. Repairs and maintenance decreased $14,411 due to incurring fewer
noncapitalized replacement costs.
After interest expense of $610,473 and other nonoperating expenses of
$29,212 the Registrant realized net income of $34,995. This is compared to net
losses of $103,659 and $228,393 in 1995 and 1994, respectively. Before
recognizing the expense of depreciation and amortization, the 1996 operating
plan and budget had forecasted a net income of $351,000. This is compared to an
actual net income before depreciation and amortization of $373,538.
Item 8 - Financial Statements and Supplementary Data.
See Appendix A to this Form 10-K.
Item 9 - Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 10 - Directors and Executive Officers of the Registrant.
The Registrant has no directors or executive officers. Information as to the
directors and executive officers of the Managing General Partner is as follows:
Information about Directors
Name and Executive Officers
Marion F. Bass Director, President, Chief Executive
Officer, and Treasurer of the Managing
General Partner since 1977. He is 57
years old.
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<PAGE>
Robert J. Brietz Executive Vice President of the Managing
General Partner since October, 1988.
Director and Secretary of the Managing
General Partner since March, 1989.
Executive Vice President of Marion Bass
Securities Corporation since November,
1986. Senior Vice President with
Interstate Securities Corporation for the
period from 1978 to October, 1986. He is
53 years old.
The directors and executive officers of the Managing General Partner were
elected to their current positions on March 27, 1989. Each officer and director
holds office until his death, resignation, retirement, removal,
disqualification, or his successor is elected and qualified.
All of the executive officers and directors of the Managing General Partner
serve in the same capacities with Marion Bass Securities Corporation, Marion
Bass Construction Company, Marion Bass Properties, Inc., Marion Bass Equity
Group, Inc. (collectively, the Marion Bass Group). Marion F. Bass is the sole
shareholder of the Managing General Partner and the other corporations in the
Marion Bass Group.
Item 11 - Executive Compensation.
During the fiscal year ended December 31, 1996, the Registrant paid no
compensation to the executive officers or directors of the Managing General
Partner or to either of the General Partners. See Item 13 "Certain Relationships
and Related Transactions" for a discussion of amounts paid or which may be paid
to the General Partners and certain affiliates of the General Partners after
December 31, 1996.
Item 12 - Security Ownership of Certain Beneficial Owners and
Management.
As of March 15, 1997 no persons known to the Registrant have beneficial
ownership of more than 5% of the Units.
None of the directors and officers of the Managing General Partner owned any
Units of the Registrant at March 15, 1997.
Item 13 - Certain Relationships and Related Transactions.
The Registrant has and will engage in transactions with various corporations
within the Marion Bass Group. Under the terms of the partnership agreement, the
General Partners and their affiliates received fees and reimbursement of
expenses from operations as follows:
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<PAGE>
<TABLE>
<CAPTION>
==============================================================
1996 1995 1994
==============================================================
==============================--------------------------------------------------------------
<S> <C> <C> <C>
Management Fee of 5% of
gross revenues $75,303 $70,287 $65,640
- --------------------------------------------------------------------------------------------
Reimbursed maintenance
salaries 43,110 53,702 50,606
- --------------------------------------------------------------------------------------------
Reimbursed property
management salaries 39,650 44,727 47,543
- --------------------------------------------------------------------------------------------
Other miscellaneous
reimbursements 15,657 6,420 6,020
- --------------------------------------------------------------------------------------------
Total $173,720 $175,136 $169,809
============================================================================================
</TABLE>
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) Financial statements and schedules. See Index to Financial Statements
included in Appendix A to this Form 10-K. All other schedules are omitted
because they are not applicable, not required or because the requested
information is included in the Financial Statements or notes thereto.
(b) Exhibits.
3(a) Copy of Certificate of Limited Partnership dated as of November
13, 1985, filed as Exhibit 3(a) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987,
filed with the Securities and Exchange Commission, which is
incorporated herein by reference.
3(b) Copy of Amended and Restated Limited Partnership Agreement dated
as of July 10, 1986, filed as Exhibit 3(b) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1987, filed with the Securities and Exchange Commission,
which is incorporated herein by reference.
3(c) Copy of Amended and Restated Certificate of Limited Partnership,
dated as of July 10, 1986, filed as Exhibit 3(c) to the Regis-
trant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1987, filed with the Securities and Exchange
Commission, which is incorporated herein by reference.
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<PAGE>
3(d) Copy of Second Amended and Restated Cert-
ificate of Limited Partnership, dated as
of July 31, 1986, filed as Exhibit 3(d) to
the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987,
filed with the Securities and Exchange
Commission, which is incorporated herein by
reference.
3(e) Copy of Third Amended and Restated Certifi-
cate of Limited Partnership, dated as of
August 29, 1986, filed as Exhibit 3(e) to
the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987,
filed with the Securities and Exchange
Commission, which is incorporated herein by
reference.
3(f) Copy of Fourth Amended and Restated Certifi-
cate Certificate of Limited Partnership, dated
as of September 30, 1986, filed as Exhibit
3(f) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December
31, 1987, filed with the Securities and
Exchange Commission, which is incorporated
herein by reference.
3(g) Copy of Certificate of Domestic Limited Partnership, dated as of
October 31, 1986, filed as Exhibit 3(g) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1987, filed with the Securities and Exchange Commission,
which is incorporated herein by reference.
10(a) Copy of Construction Agreement dated as of April 8, 1987, filed
as Exhibit 10(a) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987, filed with the
Securities and Exchange Commission, which is incorporated herein
by reference.
10(b) Copy of Amended Construction Agreement dated
as of July 15, 1987, filed as Exhibit 10(b)
to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31,
1987, filed with the Securities and Exchange
Commission, which is incorporated herein by
reference.
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<PAGE>
10(c) Copy of Loan Documents for Construction Loan
by First Union National Bank of North Carolina,
dated as of November 17, 1987, filed as Exhibit
10(c) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December
31, 1987, filed with the Securities and Exchange
Commission, which is incorporated herein by
reference.
10(d) Copy of Loan Documents for Permanent Loan by
The Variable Annuity Life Insurance Company,
dated as of March 3, 1989, filed as Exhibit 10(d)
to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989,
filed with the Securities and Exchange
Commission, which is incorporated herein by
reference.
(c) Reports on Form 8-K. No reports on Form 8-K were filed during the last
quarter of the period covered by this report.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned thereunto duly authorized on March 27,
1997.
BASS REAL ESTATE FUND-II
By: MARION BASS REAL ESTATE GROUP,
INC., as Managing General Partner
By:
Marion F. Bass, President
By: MARION F. BASS, as Individual
General Partner
By:
Marion F. Bass
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
Signature Title Date
Director, President and March 27, 1997
Marion F. Bass Treasurer of Marion Bass
Real Estate Group, Inc.
(Principal Executive
Officer)
Director, Executive Vice March 27, 1997
Robert J. Brietz President and Secretary
of Marion Bass Real
Estate Group, Inc.
(Principal Financial and
Accounting Officer)
<PAGE>
APPENDIX A
BASS REAL ESTATE FUND-II
FINANCIAL STATEMENTS AND SCHEDULES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
C O N T E N T S
Page
FINANCIAL STATEMENTS:
Report of Independent Public Accountants 1
Balance Sheets - December 31, 1996 and 1995 2
Statements of Operations - For the Years ended
December 31, 1996, 1995 and 1994 3
Statements of Changes in Partners' Equity For the Years ended December 31,
1996, 1995
and 1994 4
Statements of Cash Flows - For the Years ended
December 31, 1996, 1995 and 1994 5
Notes to Financial Statements 6-9
FINANCIAL STATEMENT SCHEDULES:
Schedule III-Real Estate and Accumulated Depreciation -
December 31, 1996 10
<PAGE>
BASS REAL ESTATE FUND-II
(A LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996, 1995 AND 1994
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Bass Real Estate Fund-II:
We have audited the accompanying balance sheets of Bass Real Estate Fund-II (a
North Carolina limited partnership) as of December 31, 1996 and 1995, and the
related statements of operations, changes in partners' equity and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements and the schedule referred to below are the responsibility of the
managing general partner (see Note 4). Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
managing general partner, 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 Bass Real Estate Fund-II as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Appendix A is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our
audits of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen & Co. SC
Charlotte, North Carolina,
February 21, 1997.
<PAGE>
BASS REAL ESTATE FUND-II
(A LIMITED PARTNERSHIP)
BALANCE SHEETS -- DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
RENTAL PROPERTIES, at cost:
<S> <C> <C>
Land $ 930,002 $ 930,002
Buildings 8,393,797 8,393,797
Furnishings and fixtures 611,580 610,949
9,935,379 9,934,748
Accumulated depreciation (2,886,799) (2,588,880)
7,048,580 7,345,868
RESTRICTED ESCROW DEPOSITS 384,539 223,210
DEFERRED COSTS AND OTHER ASSETS, net 22,152 39,183
Total assets 79,831 59,214
$7,535,102 $7,667,475
LIABILITIES AND PARTNERS' EQUITY
MORTGAGE LOAN PAYABLE $5,999,300 $6,053,951
SECURITY DEPOSITS 19,405 33,610
ACCRUED LIABILITIES 17,208 15,720
Total liabilities 6,035,913 6,103,281
PARTNERS' EQUITY:
Limited partners' 1,484,065 1,548,420
General partners' 15,124 15,774
Total partners' equity 1,499,189 1,564,194
Total liabilities and partners' equity $7,535,102 $7,667,475
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
<PAGE>
BASS REAL ESTATE FUND-II
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
REVENUES:
Rental income $1,456,491 $1,364,926 $1,263,615
Interest income 11,844 3,210 2,471
Other operating income 54,839 52,088 64,223
1,523,174 1,420,224 1,330,309
OPERATING EXPENSES:
Fees and expenses to affiliates 173,720 175,136 169,809
Property taxes and insurance 79,843 78,556 74,478
Utilities 73,870 68,486 63,910
Repairs and maintenance 155,676 170,087 163,599
Advertising 16,378 18,555 21,422
Depreciation and amortization 338,543 361,735 390,952
Other 10,464 12,839 27,707
848,494 885,394 911,877
INTEREST EXPENSE 610,473 615,714 620,453
OTHER NONOPERATING EXPENSES 29,212 22,775 26,372
Total expenses 1,488,179 1,523,883 1,558,702
NET INCOME (LOSS) $ 34,995 $ (103,659) $ (228,393)
NET INCOME (LOSS) ALLOCATED TO GENERAL PARTNERS (1%) $ 350 $ (1,037) $ (2,284)
NET INCOME (LOSS) ALLOCATED TO LIMITED PARTNERS (99%) $ 34,645 $ (102,622) $ (226,109)
NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT $ 3.49 $ (10.33) $ (22.75)
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
BASS REAL ESTATE FUND-II
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C>
PARTNERS' EQUITY, December 31, 1993 $2,025,651 $20,595 $2,046,246
Net loss (226,109) (2,284) (228,393)
Cash distribution (49,500) (500) (50,000)
PARTNERS' EQUITY, December 31, 1994 ------------- ---------- -------------
1,750,042 17,811 1,767,853
Net loss (102,622) (1,037) (103,659)
Cash distribution (99,000) (1,000) (100,000)
PARTNERS' EQUITY, December 31, 1995 ------------- ---------- -------------
1,548,420 15,774 1,564,194
Net income 34,645 350 34,995
Cash distribution (99,000) (1,000) (100,000)
PARTNERS' EQUITY, December 31, 1996 ============= ========== =============
$1,484,065 $15,124 $1,499,189
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
BASS REAL ESTATE FUND-II
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ 34,995 $(103,659) $(228,393)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities-
Depreciation and amortization 338,543 361,735 390,952
Change in assets and other liabilities:
Increase (decrease) in accrued and other liabilities
(12,717) 8,156 (60,926)
Increase in escrows and other assets, net (13,067) (16,137) (21,112)
Net cash provided by operating activities 347,754 250,095 80,521
CASH FLOWS FROM INVESTING ACTIVITIES - Additions to rental properties
(31,774) (37,554) (27,958)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgage loan (54,651) (49,410) (48,195)
Distribution to partners (100,000) (100,000) (50,000)
Net cash used in financing activities (154,651) (149,410) (98,195)
NET INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS 161,329 63,131 (45,632)
CASH AND CASH INVESTMENTS, beginning of year 223,210 160,079 205,711
CASH AND CASH INVESTMENTS, end of year $384,539 $ 223,210 $ 160,079
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
BASS REAL ESTATE FUND-II
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Bass Real Estate Fund-II (the Partnership) was organized to engage in the
acquisition, development, operation, holding and disposition of income-producing
residential and commercial properties. Limited partnership interests were sold
at $500 per unit (9,938 units) for a total of $4,969,000.
Under the terms of the partnership agreement, net income (loss) and cash
distributions from operations are to be allocated 99% to the limited partners
and 1% to the general partners. Upon the sale or refinance of the partnership
property, the partnership agreement specifies certain allocations of net
proceeds and taxable gain or loss from the transaction.
CASH INVESTMENTS
For purposes of the statements of cash flows, the Partnership considers all
unrestricted, highly liquid investments purchased with an original maturity of
three months or less to be cash investments.
RENTAL PROPERTIES
Rental properties are carried at cost, which includes the initial land price as
well as capitalized interest, property taxes and development costs (see Note 2).
DEPRECIATION
The cost of rental properties is depreciated using the straight-line method over
the following estimated useful lives:
Buildings 30 years
Furnishings and fixtures 8 years
DEFERRED COSTS
Expenses incurred in connection with obtaining financing have been capitalized
as deferred costs and are being amortized over the term of the mortgage loan.
Amortization of these costs is included in depreciation and amortization expense
on the accompanying statements of operations.
<PAGE>
2
INCOME TAXES
Under current income tax laws, income or loss of partnerships is included in the
income tax returns of the partners. Accordingly, no provision has been made for
federal or state income taxes in the accompanying financial statements.
The tax returns of the Partnership are subject to examination by federal and
state taxing authorities. If such examinations occur and result in changes with
respect to the partnership qualification or in changes to partnership income or
loss, the tax liability of the partners would be changed accordingly.
Adjustments are required to reflect the Partnership's accounts on the basis of
accounting utilized for federal income tax reporting purposes. The significant
items giving rise to the adjustments are differing lives and methods of
depreciation and costs incurred in connection with raising of capital
(syndication costs).
The reconciliation of net loss for the years ended December 31, 1996, 1995 and
1994, from a financial reporting basis to a tax basis, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net income (loss) - Financial reporting basis $34,995 $(103,659) $(228,393)
Tax depreciation (greater) less than book depreciation
(11,593) 2,267 16,885
Other (2,631) (739) (7,874)
Net income (loss) - Tax basis $20,771 $(102,131) $(219,382)
</TABLE>
PER UNIT AMOUNTS
Net loss per limited partnership unit was determined based on the average number
of units outstanding during each year. The weighted average number of units
outstanding was 9,938 for 1996, 1995 and 1994.
NEW ACCOUNTING PRONOUNCEMENT
During 1996, the Partnership adopted Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." This statement establishes accounting
standards for the impairment of long-lived assets. Under the provisions of SFAS
No. 121, recoverability of long-lived assets is to be determined based on
expected future net cash flows resulting from the use of the asset. The adoption
of this new accounting pronouncement did not have an impact on the Partnership's
financial position or the results of its operations.
<PAGE>
3
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosures of contingent assets and liabilities at the date of the financial
statements. These estimates and assumptions also affect the reported amounts of
revenues and expenses during the period reported.
Actual results could differ from those estimates.
2. RENTAL PROPERTY:
Rental property consists of a residential apartment complex - Sabal Point I. The
complex, which was constructed by an affiliate of the general partners, is
comprised of 202 rental units. The units were available for lease beginning June
1988. The 23.75 acres of land in Mecklenburg County, North Carolina, where the
apartment complex is located, were purchased in December 1986 for $930,002
(including closing costs).
Affiliates of the general partners own two adjacent residential apartment
complexes, Sabal Point II and Sabal Point III. The three complexes merged their
management and leasing operations in 1990 and are sharing expenses related to
grounds, maintenance, leasing, management and other related costs. The managing
general partner believes that the allocation of expenses to each partnership has
been made on a reasonable basis.
3. MORTGAGE LOAN PAYABLE:
The mortgage loan payable is a 10-year note due April 1, 1999, with principal
and interest at 10-1/8% payable monthly based upon a 30-year amortization
period. The Sabal Point I complex is pledged as collateral for this mortgage.
Under the mortgage agreement, the Partnership is required to fund certain
reserves for insurance, property tax and capital improvement expenditures. These
reserves are included in other assets on the accompanying balance sheets.
Future principal payments due on the mortgage loan are as follows:
1997 $ 55,175
1998 66,303
1999 5,877,822
Cash paid for interest was $610,473, $615,714 and $620,453 in 1996, 1995 and
1994, respectively.
4. GENERAL PARTNERS AND RELATED-PARTY TRANSACTIONS:
The general partners of the Partnership are Marion F. Bass and Marion Bass Real
Estate Group, Inc. (the managing general partner). The Partnership's rental
properties are managed by Marion Bass Properties, Inc. Both Marion Bass Real
Estate Group, Inc. and Marion Bass Properties, Inc. are wholly owned by Marion
F. Bass.
<PAGE>
4
Under the terms of the partnership agreement, the general partners or their
affiliates charged certain fees and expenses during 1996, 1995 and 1994 as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C> <C>
Management fee of 5% of gross revenues $ 75,303 $ 70,287 $ 65,640
Reimbursed maintenance salaries 43,110 53,702 50,606
Reimbursed property manager salaries 39,650 44,727 47,543
Other miscellaneous reimbursements 15,657 6,420 6,020
$173,720 $175,136 $169,809
</TABLE>
The general partners and certain of their affiliates also perform, without cost
to the Partnership, day-to-day investment, management and administration
functions of the Partnership.
<PAGE>
APPENDIX
BASS REAL ESTATE FUND-II
(A LIMITED PARTNERSHIP)
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
COST CAPITALIZED
INITIAL COST TO SUBSEQUENT TO
COMPANY ACQUISITION
CARRYNG
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS COSTS
<S> <C> <C> <C> <C>
Sabal Point I, a residential apartment complex,
Pineville, NorthCarolina $5,999,300 $930,002 $8,759,244 $246,133
GROSS AMOUNT AT WHICH CARRIED AT ESTIMATED USEFUL
END OF PERIOD (NOTES 1, 3 AND 4) LIVES
BUILDINGS ACCUMULATED BUILDINGS
AND DEPRECIATION DATE DATE AND
LAND IMPROVEMENTS TOTAL (NOTES 1 AND 2) ACQUIRED COMPLETED IMPROVEMENTS
DESCRIPTION
Sabal Point I, a residential apartment complex,
Pineville, North Carolina $930,002 $9,005,377 $9,935,379 $(2,886,799) 12/86 8/88 Note 2
</TABLE>
Note 1:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Real estate activity is summarized as follows-
Balance at beginning of period $ 9,934,748 $ 9,934,748 $ 9,925,298
Improvements 31,774 37,554 27,958
Disposals (31,143) (37,554) (18,508)
Balance at end of period ============== =============== ===============
$ 9,935,379 $ 9,934,748 $ 9,934,748
Accumulated depreciation-
Balance at beginning of period $(2,588,880) $(2,274,180) $(1,911,218)
Depreciation expense (329,062) (352,254) (381,470)
Disposals 31,143 37,554 18,508
Balance at end of period ============== =============== ===============
$(2,886,799) $(2,588,880) $(2,274,180)
</TABLE>
Note 2:
Depreciation computed using the following estimated useful lives-
Buildings 30 years
Furnishings and fixtures 8 years
Note 3:
Buildings and improvements include costs of furnishings and fixtures.
Note 4:
Aggregate cost for federal income tax purposes, net of accumulated tax
depreciation, is $6,818,097 at December 31, 1996.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 384,539
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,152
<PP&E> 9,935,379
<DEPRECIATION> 2,886,799
<TOTAL-ASSETS> 7,535,102
<CURRENT-LIABILITIES> 36,613
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,499,189
<TOTAL-LIABILITY-AND-EQUITY> 7,535,102
<SALES> 1,456,491
<TOTAL-REVENUES> 1,523,174
<CGS> 0
<TOTAL-COSTS> 509,951
<OTHER-EXPENSES> 29,212
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 610,473
<INCOME-PRETAX> 34,995
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,995
<EPS-PRIMARY> 3.49
<EPS-DILUTED> 3.49
</TABLE>
