<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
|X| Definitive proxy statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
MURRAY INCOME PROPERTIES II, LTD.
(Name of Registrant as Specified in Its Charter)
Not Applicable
(Name of Person(s) Filing proxy statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Limited Partnership Interests
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(2) Aggregate number of securities to which transaction applies:
314,687
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
$21,673,000. Pursuant to Rule O-11(c)(2), the fee was calculated on
the basis of the amount of cash that is estimated to be received by
the Registrant from the net sales proceeds from the sales of all
the Registrant's properties assuming that the properties are sold
for 95% of their appraised values (as of December 31, 1998), which
is a condition to the sale of the properties.
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(4) Proposed maximum aggregate value of transaction: $21,673,000
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(5) Total fee paid: $4,335
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[X] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
MURRAY INCOME PROPERTIES II, LTD.
NOTICE OF SPECIAL MEETING OF LIMITED PARTNERS
TO BE HELD ON MARCH 10, 2000
To the limited partners:
You are cordially invited to attend the special meeting of limited partners
of Murray Income Properties II, Ltd. to be held at 1:00 p.m. Dallas, Texas time,
on March 10, 2000 at 2200 Ross Avenue, Suite 2000, Dallas, Texas to consider and
act upon the following proposals:
PROPOSAL 1. The approval of the sale of the partnership's portfolio of
properties, in one or a series of sale transactions (which
may include one or more properties owned by Murray Income
Properties I, Ltd., an affiliate of the partnership under
joint management), the subsequent dissolution and
liquidation of the partnership upon the sale of the
partnership's last property and an amendment to the
partnership agreement to permit the proposed asset sale,
dissolution and liquidation on the terms set forth in the
attached proxy statement.
PROPOSAL 2. Such other matters as may properly come before the special
meeting or any adjournments thereof.
The record date for the special meeting is January 10, 2000. Only limited
partners of record at the close of business on that date are entitled to notice
of and to vote at the special meeting, or any adjournments of that meeting. The
affirmative vote of the holders of a majority of the outstanding limited
partnership interests on the record date is necessary to approve the proposal.
IT IS IMPORTANT THAT YOUR LIMITED PARTNERSHIP INTERESTS BE REPRESENTED AT
THE SPECIAL MEETING REGARDLESS OF THE NUMBER OF LIMITED PARTNERSHIP INTERESTS
YOU HOLD. YOU ARE INVITED TO ATTEND THE SPECIAL MEETING IN PERSON, BUT WHETHER
OR NOT YOU ATTEND, PLEASE ENSURE YOUR REPRESENTATION BY COMPLETING, SIGNING AND
DATING THE ACCOMPANYING PROXY CARD AND RETURNING IT IN THE ENCLOSED ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IN ADDITION, YOU MAY
ALSO VOTE VIA TELEPHONE BY CALLING (800) 213-7567, OR VIA THE INTERNET AT
WWW.PROXYBYNET.COM/MURRAY. YOU WILL NEED YOUR CONTROL NUMBER FROM YOUR PROXY
CARD TO VOTE VIA TELEPHONE OR THE INTERNET. YOUR GIVING OF YOUR PROXY WILL NOT
AFFECT YOUR RIGHTS TO VOTE IN PERSON AT THE SPECIAL MEETING. YOU MAY REVOKE YOUR
PROXY BY GIVING WRITTEN NOTICE TO BRENT BUCK AT THE PARTNERSHIP'S PRINCIPAL
EXECUTIVE OFFICE PRIOR TO THE BEGINNING OF THE SPECIAL MEETING, EXECUTING A
SUBSEQUENT-DATED PROXY OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
By order of the general partners
Murray Realty Investors IX, Inc.
Mitchell Armstrong, President
Crozier Partners IX, Ltd.
Jack E. Crozier, General Partner
5550 LBJ Freeway
Suite 675
Dallas, Texas 75240
(800) 765-3863
January 14, 2000
<PAGE> 3
MURRAY INCOME PROPERTIES
January 14, 2000
Dear limited partners:
You are cordially invited to attend a special meeting of the limited
partners of Murray Income Properties II, Ltd. to be held at 1:00 p.m. Dallas,
Texas time on March 10, 2000. The special meeting will be held at 2200 Ross
Avenue, Suite 2000, Dallas, Texas. Please make an effort to either attend the
meeting or return your proxy vote by mail, or vote by the telephone or Internet,
so that your vote is received by the general partners no later than March 8,
2000.
At the special meeting, you will be asked to consider and vote upon a
single proposal to:
o approve the sale of the partnership's portfolio of properties, in one
or a series of sale transactions (which properties may be sold with
one or more properties owned by Murray Income Properties I, Ltd., an
affiliate of the partnership under joint management ("MIP I"));
o dissolve and liquidate the partnership upon the sale of the final
property owned by the partnership; and
o amend the partnership agreement in order to permit the proposed asset
sale and dissolution.
At this time, the partnership has not entered into any agreement for the
sale of any of the partnership's properties, nor have any of the properties been
actively marketed for sale. If the asset sale, dissolution and amendment
proposal is approved, the general partners will proceed to sell the properties
as soon as practicable, consistent with obtaining fair value for the properties.
A condition placed on the sales of the properties is that the entire portfolio
of properties owned by the partnership (the "Portfolio") must be sold for at
least 95% of its appraised value (as of December 31, 1998) as reflected in the
independent appraisals prepared by Joseph J. Blake and Associates, Inc. As of
December 31, 1998, the appraised value of the Portfolio was $24,090,000, and 95%
of its appraised value was $22,885,500.
The partnership agreement generally provides that cash proceeds from sales
of the partnership's properties be distributed 99% to the limited partners and
1% to the general partners. However, upon the sale of the partnership's final
property, the partnership agreement requires cash to be distributed to the
partners pro rata in proportion to their existing capital accounts. Hence, the
amount of cash available for distribution to the limited partners is dependent
upon which of the partnership's properties is sold last due to the variations in
the capital accounts of the partners. The amount to be received by the limited
partners is also subject to uncertainties surrounding the estimation of future
operating income and expenses, as well as the estimation of sales costs.
Therefore, because of these numerous variables, the general partners believe
that it is impractical to provide you with a meaningful distribution estimate
per limited partnership interest.
The partnership agreement contains a provision which specially allocates
depreciation to limited partnership interests which, at the time of the initial
public offering, were subject to federal income tax (such limited partnership
interests referred to herein as "Taxable Interests"). The limited partnership
interests which did not receive the depreciation allocations are referred to as
"Non-taxable Interests" in this proxy statement. Since the initial public
offering of the limited partnership interests, this special allocation of
depreciation has created a wide discrepancy in the capital accounts of limited
partners who hold Taxable Interests versus those who hold Non-taxable Interests.
Hence, it is likely that the holders of Taxable Interests will receive a
different amount, and probably less, than the holders of Non-taxable Interests.
Further, if all the partnership's other properties are not sold before Tower
Place Festival (and interim distributions of the sales proceeds made therefrom),
then the discrepancy between the amounts received by the holders of Taxable
Interests and the holders of the Non-taxable Interests could be greater, with
the holders of Taxable Interests receiving an even smaller distribution and the
holders of the Non-taxable Interests receiving a larger distribution.
5550 LBJ Freeway, Suite 675, Dallas, Texas 75240
(972) 991-9090 FAX (972) 991-9086
<PAGE> 4
The enclosed materials discuss the proposal in detail, but we would like to
summarize the primary reasons for recommending that you approve the proposed
asset sale and dissolution.
o The general partners believe that both the markets where the
partnership's properties are located and the real estate market in
general have significantly improved from the real estate recession
which occurred in the late 1980's and early 1990's. Holding the
properties in hopes of further gains in value may put at risk the
selling opportunity provided by this favorable market.
o A significant percentage of the properties' leases have been renewed
over the past several years. Most of these renewals have achieved
higher rental rates than the leases which expired, thereby increasing
the value of the properties. Because most of the leases have terms of
three to five years, the general partners believe it will be several
years before further significant increases in value will occur.
o The properties have been maintained in good condition since they were
purchased and there is currently little deferred maintenance among the
partnership's properties. However, as the properties age, the cost of
repairs and maintenance will increase and this could have a negative
impact on their value in the future.
In considering whether to submit the asset sale, dissolution and
amendment proposal to the limited partners, the general partners also considered
the disadvantages of this course of action. The primary disadvantages of
disposing of the partnership's properties and dissolving the partnership
pursuant to this proposal are:
o There can be no assurance that the proposed asset sale and dissolution
will result in greater returns to the limited partners than a
continuation of the partnership. With respect to the partnership's
properties, as a result of the completion of the proposed asset sale
and dissolution, the partnership would not benefit from possible
improvements in economic and market conditions which could produce
increased cash flow and enhance the sales price of the properties.
o There is no guarantee that the other alternatives considered by the
general partners, if pursued, would not produce greater value for the
limited partners.
Additional factors that you should consider in determining whether to
approve the proposal are set forth in the attached proxy statement, to which
this summary is qualified in its entirety, including under the section entitled
"Risk Factors Relating to the Proposal."
The general partners' current goal is to complete the sale of the
properties within approximately six to nine months after approval of the asset
sale, dissolution and amendment proposal has been obtained. Prior to completion
of the sale of all of the properties, the general partners intend, but are not
obligated, to make at least one interim distribution of net proceeds from the
sales of the properties. The partnership also intends to continue to make
quarterly distributions of cash from operations.
The net proceeds of the sales of the partnership's properties (after
deducting the expenses of the sale and payment of certain fees, such as
accounting fees, legal fees and printing, solicitation and mailing expenses), as
well as the partnership's cash from operations, will be distributed to the
partners in accordance with the partnership agreement. After the sale of all the
partnership's properties, and after the partnership has paid, or made adequate
provision for, all its liabilities, the partnership will be dissolved. A vote in
favor of the proposal for the sale of all of the partnership's properties will
also be a vote in favor of the dissolution and liquidation of the partnership
following the sale of its last property and a vote in favor of the partnership
agreement amendment. Holders of at least a majority of the partnership's
outstanding limited partnership interests must approve the proposal in order for
the proposed transactions to proceed.
ALTHOUGH THE GENERAL PARTNERS BELIEVE THE PROPOSED ASSET SALE AND
DISSOLUTION AND THE RELATED PARTNERSHIP AGREEMENT AMENDMENT ARE IN THE BEST
INTERESTS OF THE LIMITED PARTNERS, YOU SHOULD CAREFULLY REVIEW THE ATTACHED
PROXY STATEMENT AND CONSULT YOUR OWN ADVISORS IN ORDER TO MAKE AN INFORMED VOTE
ON THE PROPOSAL. APPROVAL OF THE PROPOSAL REQUIRES THE AFFIRMATIVE VOTE OF THE
HOLDERS OF A MAJORITY OF THE PARTNERSHIP'S OUTSTANDING LIMITED PARTNERSHIP
INTERESTS. IF THE LIMITED PARTNERS DO NOT APPROVE THE PROPOSAL, THE
<PAGE> 5
PARTNERSHIP WILL CONTINUE TO PURSUE ITS BUSINESS OBJECTIVES RELATING TO
OPERATING AND LIQUIDATING ITS PROPERTIES PRIOR TO JANUARY 31, 2025. THE LIMITED
PARTNERS OF MIP I, A PARTNERSHIP WHICH IS JOINTLY MANAGED WITH THE PARTNERSHIP,
ARE ALSO BEING ASKED TO APPROVE A SIMILAR ASSET SALE AND DISSOLUTION PROPOSAL.
BECAUSE THE PARTNERSHIP AND MIP I SHARE GENERAL AND ADMINISTRATIVE EXPENSES
INCURRED BY BOTH PARTNERSHIPS, THE APPROVAL BY MIP I'S LIMITED PARTNERS AND THE
DISAPPROVAL BY THE PARTNERSHIP'S LIMITED PARTNERS OF THEIR RESPECTIVE ASSET SALE
AND DISSOLUTION PROPOSALS MAY SIGNIFICANTLY INCREASE THE PARTNERSHIP'S COSTS AND
DECREASE THE AMOUNT OF CASH AVAILABLE FOR DISTRIBUTION IN THE FUTURE.
Enclosed with this letter are a notice of special meeting and a proxy
statement which describe in detail the proposed asset sale, dissolution and
partnership agreement amendment. Please give all of the materials your careful
attention and consideration. It is important that your limited partnership
interests be represented at the special meeting, regardless of the number of
limited partnership interests you hold.
Accompanying the proxy statement is a proxy card which may be used to
indicate your vote on the proposals. You can cast your vote by appearing in
person and voting at the meeting, or by voting by proxy in one of the following
ways:
o By signing, dating and returning the enclosed proxy card to Morrow &
Co., Inc., using the enclosed postage-paid envelope.
o By calling the automated touch-tone telephone system 24 hours a day at
(800) 213-7567, entering your control number from your proxy card and
following the voice prompts to record your vote.
o By visiting the Internet website www.proxybynet.com/murray, and
entering your control number from your proxy card and registering your
vote.
If you vote using the telephone or the Internet, please do NOT mail in your
proxy card. Your giving of the proxy will not affect your rights to vote at the
special meeting. You may revoke your proxy by:
o Executing a subsequent-dated proxy and delivering it to Brent Buck,
the secretary of the corporate general partner, at the partnership's
principal executive office;
o Giving written notice prior to the beginning of the special meeting to
Brent Buck at the partnership's principal executive office; or
o Attending the special meeting and voting in person at the special
meeting.
YOU SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER "RISK FACTORS RELATING
TO THE PROPOSAL" STARTING ON PAGE 12 OF THE PROXY STATEMENT.
If you have any questions about the enclosed proxy materials or the
proposed sale of the partnership's properties and the subsequent dissolution and
liquidation of the partnership, please call the partnership at (800) 765-3863.
Sincerely,
THE GENERAL PARTNERS
Murray Realty Investors IX, Inc.
By: /s/ MITCHELL ARMSTRONG
Mitchell Armstrong, President
By: /s/ BRENT BUCK
Brent Buck, Executive Vice President and Secretary
Crozier Partners IX, Ltd.
By: /s/ JACK E. CROZIER
Jack E. Crozier, General Partner
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
FORWARD-LOOKING STATEMENTS.................................................................................1
QUESTIONS AND ANSWERS ABOUT THE PROPOSED SALE OF PROPERTIES AND DISSOLUTION ...............................2
THE SPECIAL MEETING........................................................................................5
Time, Date and Place of Special Meeting...........................................................5
Purpose of the Special Meeting and Recommendation of the General Partners.........................5
Record Date and Partnership Interests.............................................................5
Intentions to Vote by the General Partners........................................................5
Quorum and Voting of Proxies......................................................................6
Revocation of Proxies.............................................................................6
Voting Rights.....................................................................................6
Vote Required.....................................................................................6
No Dissenters' or Appraisal Rights Under Texas Law or the Partnership Agreement...................6
Proxy Solicitation and Expenses...................................................................6
Completion of Proxies.............................................................................7
Documents Included................................................................................7
THE PROPOSAL: AUTHORIZATION OF THE SALE OF ALL OF THE PARTNERSHIP'S
PROPERTIES, DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP AND AMENDMENT
OF THE PARTNERSHIP AGREEMENT...............................................................................8
The Partnership...................................................................................8
Descriptions of the Properties....................................................................8
Background for the Asset Sale.....................................................................9
Terms of the Asset Sale...........................................................................9
Abandonment and Events Requiring Solicitation or Subsequent Approval.............................10
Effect of the Asset Sale - Dissolution and Liquidation...........................................10
Certain Relationships with Third Parties.........................................................12
General Partners and Indemnification.............................................................12
RISK FACTORS RELATING TO THE PROPOSAL.....................................................................12
FAIRNESS OF THE ASSET SALE AND DISSOLUTION................................................................17
The General Partners' Recommendation and Reasons for the Proposed Asset Sale and Dissolution.....17
Alternatives to the Asset Sale and Dissolution...................................................19
Alternative One: Continuation of Partnership..............................................19
Alternative Two: Reorganization of Partnership as a REIT..................................20
Alternative Three: Leveraged Recapitalization.............................................21
Alternative Four: Merger with Another Entity..............................................22
</TABLE>
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<TABLE>
<S> <C> <C>
Appraisals of Properties.........................................................................22
Selection and Qualifications of Appraiser...............................................23
Summary of Methodology..................................................................23
Valuation Methodology - Income Capitalization Approach.........................23
Valuation Methodology - Sales Comparison Approach..............................24
Conclusions as to Value.................................................................24
Assumptions, Limitations and Qualifications of Appraisals...............................24
Compensation and Material Relationships.................................................26
Offers from Third Parties........................................................................26
AMENDMENT TO THE PARTNERSHIP AGREEMENT....................................................................26
SELECTED FINANCIAL DATA...................................................................................27
FEDERAL INCOME TAX CONSEQUENCES...........................................................................28
CONFLICTS OF INTEREST, RELATED TRANSACTIONS AND INTERESTS OF CERTAIN PERSONS IN THE PROPOSAL..............31
REGULATORY MATTERS........................................................................................32
ACCOUNTING TREATMENT......................................................................................32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE PARTNERSHIP.........................33
ABSENCE OF PUBLIC MARKET FOR LIMITED PARTNERSHIP INTERESTS................................................33
FEES AND EXPENSES.........................................................................................34
INFORMATION CONCERNING AUDITORS...........................................................................34
LIMITED PARTNER PROPOSALS.................................................................................34
OTHER MATTERS.............................................................................................34
WHERE YOU CAN FIND MORE INFORMATION.......................................................................34
INCORPORATION BY REFERENCE................................................................................35
APPENDIX A - BLAKE AND ASSOCIATES SUMMARY OF PROPERTY APPRAISALS
APPENDIX B - ANNUAL REPORT ON FORM 10-K (FOR THE YEAR ENDED DECEMBER 31, 1998)
APPENDIX C - QUARTERLY REPORT ON FORM 10-Q (FOR THE QUARTER ENDED SEPTEMBER 30, 1999)
APPENDIX D - LISTING AGREEMENT WITH TC TENNESSEE, INC.
APPENDIX E - PROPOSED AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE AND AGREEMENT
OF LIMITED PARTNERSHIP
</TABLE>
ii
<PAGE> 8
FORWARD-LOOKING STATEMENTS
Statements in this proxy statement that are not historical facts are
"forward-looking statements" within the meaning of the safe harbor provided by
Section 21E of the Securities Exchange Act of 1934. The words "may,"
"estimates," "believes," "anticipates," "expects," "intends" and similar
expressions are intended to identify these forward-looking statements. These
statements involve known and unknown risks and uncertainties that may cause the
partnership's actual results or outcomes, including the amount of cash estimated
to be distributed to the limited partners upon completion of the proposed sale
of the partnership's remaining portfolio properties, to be materially different
from those anticipated and discussed in this proxy statement. Important factors
that the partnership believes might cause such differences include the amount
and nature of liabilities that may be asserted against the partnership, the
general partners' inability to find a suitable buyer or buyers for the
properties, the inability to agree on a purchase price or contract terms with a
potential buyer, a decrease in the financial performance of the properties, the
discovery of an environmental condition on one or more properties, the condition
of real estate markets and general economic conditions, as well as those
specific risks that are discussed in this proxy statement and in the
partnership's previous filings with the Securities and Exchange Commission. In
assessing forward-looking statements contained herein, the limited partners are
urged to read carefully all cautionary statements contained in this proxy
statement and in those other filings made by the partnership with the SEC.
1
<PAGE> 9
QUESTIONS AND ANSWERS ABOUT THE PROPOSED SALE OF PROPERTIES AND DISSOLUTION
THE FOLLOWING QUESTIONS AND ANSWERS ARE INTENDED TO PROVIDE BRIEF ANSWERS
TO FREQUENTLY ASKED QUESTIONS CONCERNING THE PROPOSAL AND PROXY STATEMENT
PROCESS. THESE QUESTIONS AND ANSWERS DO NOT, AND ARE NOT INTENDED TO, ADDRESS
ALL THE QUESTIONS THAT MAY BE IMPORTANT TO YOU. YOU SHOULD CAREFULLY READ THE
REMAINDER OF THIS PROXY STATEMENT AS WELL AS THE APPENDICES AND THE DOCUMENTS
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT.
Q. WHO IS SOLICITING MY PROXY?
A. The general partners of the partnership.
Q. WHERE AND WHEN IS THE SPECIAL MEETING?
A. The special meeting will be held at 1:00 p.m., Dallas, Texas time, on March
10, 2000, at 2200 Ross Avenue, Suite 2000, Dallas, Texas.
Q. WHAT AM I VOTING ON?
A. The general partners are seeking the authorization of the limited partners
of a single proposal to:
o sell all of the partnership's portfolio of properties, in one or a
series of sale transactions;
o dissolve and liquidate the partnership after the sale of the last
property; and
o amend the partnership agreement to permit the proposed transactions.
Q. HOW MUCH WILL THE PARTNERSHIP'S PROPERTIES BE SOLD FOR?
A. The general partners will work diligently to achieve the highest price
possible for each of the partnership's properties. However, to help ensure
you that the properties will not be sold if market conditions deteriorate,
a condition to the sale of the partnership's properties is that the entire
portfolio of properties owned by the partnership (the "Portfolio") must be
sold for at least 95% of the appraised value of the Portfolio (as of
December 31, 1998), as reflected in independent appraisals obtained by the
partnership.
Q. HOW MUCH WILL I GET IF ALL THE PROPERTIES ARE SOLD?
A. The general partners believe that it is impractical to provide you with a
distribution estimate that is meaningful because of the numerous
uncertainties in such a calculation, including:
o the possibility that the general partners may sell the partnership's
properties for a price in excess of 95% of their appraised values (as
of December 31, 1998);
o the difficulty in estimating future operating income and expenses;
o the difficulty in estimating expenses relating to the property sales;
and
o the ability of the general partners to decide which property to sell
last, which will affect the distribution amount to limited partners
due to variations in the partners' capital accounts.
However, if all of the partnership's properties are sold for 95% of their
appraised values (as of December 31, 1998), the general partners estimate
that the partnership will receive net sales proceeds of approximately
$21,673,000. The partnership agreement contains a provision which specially
allocates depreciation to limited partnership interests which, at the time
of the initial public offering, were subject to federal income tax (such
limited partnership interests referred to herein as "Taxable Interests").
The limited partnership interests which did not receive the depreciation
allocations are referred to as "Non-taxable Interests" in this proxy
statement. Since the initial public offering of the limited partnership
interests, this special allocation of depreciation has created a wide
discrepancy in the capital accounts of limited partners who hold Taxable
Interests versus those who hold Non-taxable Interests. Hence, it is likely
that the holders of Taxable Interests will receive a different amount, and
probably less, than the holders of Non-taxable Interests. Further, if all
the partnership's other properties are not sold before Tower Place Festival
(and interim distributions of the sales proceeds made therefrom), then the
discrepancy between the amounts received by the holders of Taxable
Interests and the holders of Non-taxable Interests could be greater, with
the holders of Taxable Interests receiving an even smaller distribution and
the holders of Non-taxable Interests receiving a larger distribution.
2
<PAGE> 10
Q. WHEN WILL DISTRIBUTIONS BE MADE AND THE PARTNERSHIP DISSOLVED?
A. The general partners anticipate that the partnership will complete the sale
of all of the properties within six to nine months. However, it could take
more or less time, as further described in this proxy statement. Hence, the
partnership will not be dissolved prior to late 2000, and potentially not
until 2001 or beyond. Prior to completion of the sale of all of the
properties and the dissolution of the partnership, the general partners
intend, but are not obligated, to make at least one interim distribution of
net proceeds from the sales of the properties prior to the sale of the
partnership's final property.
Q. WILL I HAVE APPRAISAL RIGHTS?
A. No. You will not have dissenters' or appraisal rights as a result of this
transaction.
Q. WHAT DO THE GENERAL PARTNERS RECOMMEND?
A. The general partners recommend that you vote in favor of the proposal. The
general partners have analyzed market conditions and property performance,
and have consulted with the partnership's financial advisors. Based on this
assessment, the general partners believe that the proposed asset sale and
dissolution is the most favorable strategic alternative available to the
partnership and its limited partners. The primary reasons that the general
partners believe make the proposal advisable include, but are not limited
to:
o The general partners believe that both the markets where the
partnership's properties are located and the real estate market in
general have significantly improved from the real estate recession
which occurred in the late 1980's and early 1990's, and that holding
the properties in hopes of further gains in value may put at risk
selling opportunities provided by the current real estate market.
o A significant portion of the properties' leases have been recently
renewed, often at higher rates than in prior leases, and the general
partners believe that it will be several years before further
significant value increases will occur.
o As the properties age, the cost of repairs could have a negative
impact on their value.
Q. WHAT ARE THE PRIMARY DISADVANTAGES OF DISPOSING OF THE PROPERTIES AS
PROPOSED?
A. There can be no assurance that the proposal, if approved, will result in
greater returns to the limited partners than a continuation of the
partnership. The partnership will not benefit from possible improvements in
economic and market conditions after the properties are sold which could
produce increased cash flow and enhance the sales price of the properties.
Also, there is no guarantee that the other alternatives considered by the
general partners, if pursued, would not produce greater value for the
limited partners. However, as noted above, the general partners believe
that this is an advantageous time for the sale of the properties. As a
result of the uncertainty of future real estate market conditions, the
general partners do not believe the possibility of continued improvements
in economic and market conditions justifies postponing the sale of the
properties. Additional factors that you should consider in determining
whether to consent to the proposal are set forth in this proxy statement,
including under the section entitled "Risk Factors Relating to the
Proposal."
Q. WHAT WILL HAPPEN IF THE VOTE DOES NOT PASS?
A. If the vote does not pass, the partnership will continue to operate as it
has in the past. The general partners will continue to try to improve the
partnership's return on investment, and eventually liquidate the
partnership in accordance with the partnership agreement on or before
January 31, 2025. Further the limited partners of an affiliated
partnership, Murray Income Properties I, Ltd. ("MIP I"), are being asked to
approve a proposal similar to the one in this proxy statement. If the
limited partners of MIP I approve their proposal and the partnership's
limited partners do not approve the proposal in this proxy statement, the
partnership will have to bear all general and administrative costs which
are currently shared by both partnerships which could reduce the amount of
cash available for distribution in the future.
Q. WHOM CAN I CALL WITH QUESTIONS?
A. If you have any questions regarding the proxy card or the proposal
described in this proxy statement, please call Brent Buck or Mitchell
3
<PAGE> 11
Armstrong at the partnership at (800) 765-3863. The partnership can also be
reached by mail at its principal executive offices:
Murray Income Properties II, Ltd.
5550 LBJ Freeway
Suite 675
Dallas, Texas 75240
Q. WHAT HAPPENS IF I DO NOT RETURN MY PROXY CARD AND DO NOT VOTE?
A. The effect will be a vote against the proposal described in this proxy
statement.
Q. WHO CAN VOTE ON THE PROPOSAL?
A. Only limited partners of record on January 10, 2000 are entitled to vote on
the proposal.
Q. IS THE PROPOSED ASSET SALE AND SUBSEQUENT DISSOLUTION AND LIQUIDATION OF
THE PARTNERSHIP A TAXABLE TRANSACTION TO LIMITED PARTNERS?
A. Yes, the partnership will realize and recognize gain or loss separately for
each property when it is sold. The gain or loss realized and recognized by
the partnership upon the sale of each property will be allocated to the
partners in accordance with the partnership agreement. The distribution of
the cash received by the partnership from the sale of its interests in its
properties will result in taxable gain to a limited partner to the extent
that the amount of cash received by the limited partner exceeds its
adjusted basis in its limited partnership interests. If, following the sale
of the last property and the allocation of gain or loss therefrom, a
limited partner receives aggregate cash distributions that are less than
its adjusted tax basis in its limited partnership interests, the limited
partner will recognize a loss equal to the excess of its adjusted basis in
its limited partnership interests over the aggregate cash distributions
received by the limited partner.
Q. HOW CAN I VOTE?
A. You may vote in any of the following ways:
o By completing, signing and dating the enclosed proxy card and mailing
it in the enclosed postage-paid envelope.
o By calling our automated touch-tone telephone system 24 hours a day at
(800) 213-7567, entering your control number from your proxy card and
following the voice prompts.
o By visiting the Internet website at www.proxybynet.com/murray,
entering your control number from your proxy card and registering your
vote.
o By attending the special meeting and voting in person.
If you vote using the telephone or Internet, please do NOT mail in your proxy
card.
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED A SIGNED PROXY?
A. Yes. You can change your vote in one of three ways at any time before the
beginning of the special meeting:
o You can revoke your proxy by delivering a written notice to Brent
Buck, the secretary of the corporate general partner, at the
partnership's principal executive offices.
o You can complete a new, later-dated proxy and deliver it to Brent Buck
at the partnership's principal executive offices.
o You can attend the special meeting and vote in person.
Q. HAS THE PARTNERSHIP SOUGHT A FAIRNESS OPINION ON THE PROPOSED ASSET SALE
AND DISSOLUTION?
A. No. However, Joseph J. Blake and Associates, Inc. has made independent
appraisals as to the value of the partnership's properties, as of December
31, 1998.
The foregoing is a summary in question and answer format of certain
information contained in this proxy statement. Reference is made to, and this
question and answer information sheet is qualified in its entirety by, the more
detailed information contained in this proxy statement, including its
appendices. YOU ARE STRONGLY URGED TO CAREFULLY READ THIS PROXY STATEMENT AND
ITS APPENDICES IN THEIR ENTIRETY BEFORE YOU VOTE.
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MURRAY INCOME PROPERTIES II, LTD.
5550 LBJ FREEWAY, SUITE 675
DALLAS, TEXAS 75240
(800) 765-3863
PROXY STATEMENT
SPECIAL MEETING OF LIMITED PARTNERS
TO BE HELD ON MARCH 10, 2000
THE SPECIAL MEETING
TIME, DATE AND PLACE OF SPECIAL MEETING
This proxy statement is being furnished in connection with the solicitation
of proxies by the general partners of Murray Income Properties II, Ltd., a Texas
limited partnership, for use at the special meeting of limited partners to be
held at 1:00 p.m. (Dallas, Texas time) on March 10, 2000 at 2200 Ross Avenue,
Suite 2000, Dallas, Texas and at any meeting held upon adjournment or
postponement thereof.
Copies of this proxy statement, the attached notice of special meeting of
limited partners, and the enclosed form of proxy are first being mailed to the
limited partners on or about January 14, 2000.
PURPOSE OF THE SPECIAL MEETING AND RECOMMENDATION OF THE GENERAL PARTNERS
At the special meeting, the limited partners will consider a single
proposal to authorize the:
o Sale of the partnership's properties, in one or a series of sale
transactions (which may include properties from Murray Income Properties I,
Ltd., an affiliate of the partnership under joint management ("MIP I"));
o Dissolution and liquidation of the partnership after the partnership's last
property has been sold; and
o Amendment of the partnership agreement to permit the proposed asset sale
and dissolution.
The Amended and Restated Certificate and Agreement of Limited Partnership
of the partnership requires the partnership to obtain the affirmative vote of a
majority of the partnership's limited partnership interests in order to approve
the proposal. Each limited partnership interest is entitled to one vote. As soon
as practicable after the adoption of the proposals, the partnership will file
the amendment to the partnership agreement with the Texas Secretary of State and
implement the proposal authorized.
THE GENERAL PARTNERS HAVE BOTH INDEPENDENTLY APPROVED THE PROPOSAL (SUBJECT
TO LIMITED PARTNER APPROVAL) AND RECOMMEND THAT THE LIMITED PARTNERS APPROVE THE
PROPOSAL.
If a majority of the outstanding limited partnership interests as of the
record date do not vote in favor of the proposed asset sale, dissolution and
partnership agreement amendment, the partnership will continue operating in
accordance with its existing business plan, and will eventually sell its
properties and dissolve on or before January 31, 2025.
RECORD DATE AND PARTNERSHIP INTERESTS
Your general partners have fixed the close of business on January 10, 2000
as the record date for the determination of limited partners entitled to notice
of, and to vote at, the special meeting or any adjournment thereof. Accordingly,
only limited partners of record at the close of business on the record date will
be entitled to vote at the special meeting, either by proxy or in person. As of
the record date, there were 2,147 limited partners of record holding an
aggregate of 314,687 limited partnership interests.
INTENTIONS TO VOTE BY THE GENERAL PARTNERS
The general partners and their officers and directors collectively
beneficially own a total of 1,057 limited partnership interests. These
individuals intend to vote these limited partnership interests in favor of the
proposal.
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QUORUM AND VOTING OF PROXIES
The presence at the special meeting, in person or by proxy, of the holders
of 50% of the partnership's outstanding limited partnership interests on the
record date will constitute a quorum at the special meeting. Limited partnership
interests which are represented by properly executed proxy cards received by the
partnership at or prior to the special meeting, and not duly and timely revoked,
will be voted according to the instructions indicated on the proxy card. If you
do not return your proxy card and do not vote at the special meeting, the effect
will be a vote of your limited partnership interests AGAINST the proposal.
Limited partnership interests represented by proxies that reflect
abstentions will be treated as limited partnership interests that are present
and entitled to vote for purposes of determining the presence of a quorum. In
the event that a quorum is not present at the special meeting, the meeting will
be adjourned or postponed to solicit additional proxies. The persons named as
proxies with respect to the special meeting may propose and vote for one or more
adjournments of the special meeting to permit further solicitation of proxies in
favor of the proposal. No proxy which is voted against any proposal will be
voted in favor of any such adjournment or postponement.
Limited partnership interests represented by "broker non-votes" will not be
included in the affirmative vote totals, and therefore will have the same effect
as voting AGAINST the proposal for purposes of determining whether the requisite
amount of limited partnership interests have voted in favor of the proposal.
"Broker non-votes" include limited partnership interests held in record name by
brokers or nominees as to which:
o an executed proxy card has not been received from the beneficial owners or
persons entitled to vote at the special meeting;
o the broker or nominee does not have discretionary voting authority under
applicable rules or the instrument under which it serves in such capacity;
or
o the recordholder has indicated on the proxy card or has otherwise notified
the partnership that it does not have authority to vote the limited
partnership interests with respect to the proposal contained in this proxy
statement.
REVOCATION OF PROXIES
You have the power to revoke your proxy at any time prior to the beginning
of the special meeting by:
o delivering a written notice of revocation to Brent Buck, the secretary of
Murray Realty Investors IX, Inc., the corporate general partner, at the
partnership's principal executive offices;
o executing and delivering a proxy bearing a later date to Brent Buck at the
partnership's principal executive offices; or
o appearing in person and voting by ballot at the special meeting.
VOTING RIGHTS
Each limited partnership interest is entitled to one vote on each matter to
be acted upon or which may properly come before the special meeting. The limited
partnership interests constitute the only outstanding voting interests in the
partnership with respect to these matters.
VOTE REQUIRED
The affirmative vote of the holders of at least a majority of the limited
partnership interests outstanding on the record date is required to approve the
asset sale, dissolution and amendment proposal. Your failure to return your
proxy or to vote at the special meeting, or submitting a proxy that is marked
"ABSTAIN," will have the effect of voting AGAINST approval of the proposal.
NO DISSENTERS' OR APPRAISAL RIGHTS UNDER TEXAS LAW OR THE PARTNERSHIP AGREEMENT
Limited partners are not entitled to appraisal rights, dissenters' rights
or any other rights with respect to the proposed asset sale and dissolution
under the Texas Revised Limited Partnership Act or the partnership agreement.
PROXY SOLICITATION AND EXPENSES
The proxy is being solicited on behalf of the partnership by the general
partners. All expenses of this solicitation, including the cost of preparing,
assembling, and mailing this proxy solicitation material and notice of special
meeting of the limited partners, will be paid by the partnership. Additional
solicitation of limited partners by mail, telephone, facsimile or by personal
solicitation may be done by your general partners, for which they will receive
no
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additional compensation. The partnership intends to transmit the proxy statement
and form of proxy directly to all beneficial owners who have not objected to the
disclosure of their name and limited partnership interest holdings to the
partnership. Brokerage houses and other nominees, fiduciaries and custodians
nominally holding limited partnership interests as of the record date will be
requested to forward proxy soliciting material to the beneficial owners of such
limited partnership interests who have objected to disclosure of their names and
holdings to the partnership, and will be reimbursed by the partnership for their
reasonable out-of-pocket expenses.
COMPLETION OF PROXIES
The general partners ask that you vote your proxy in one of the following
ways:
o By completing, signing and dating the enclosed proxy card and mailing it in
the enclosed postage-paid envelope.
o By calling the automated touch-tone telephone system at (800) 213-7567,
entering your control number from your proxy card and following the voice
prompts.
o By visiting the Internet website at www.proxybynet.com/murray, entering
your control number from your proxy card and registering your vote.
o By attending the special meeting and voting in person.
If you vote using the telephone or Internet, please do NOT mail in your proxy
card.
If you have any questions regarding this proxy statement or the proxy
solicitation process, please call Brent Buck or Mitchell Armstrong at (800)
765-3863. The general partners have engaged Morrow & Co., Inc. to provide
consulting services and to mail, solicit and tabulate the proxies. For these
services, the partnership paid Morrow & Co., Inc. a fee of $6,250.
The proxies should be executed in exactly the same manner as the name(s) in
which ownership of the limited partnership interests are registered. If the
limited partnership interests are held by two or more joint owners, all such
persons should sign the proxy. If you are signing the proxy in a representative
capacity, please indicate so when signing the proxy and submit evidence
satisfactory to the partnership of authority to execute the proxy.
The execution and delivery of the proxy will not affect your right to
transfer your limited partnership interests.
DOCUMENTS INCLUDED
Blake and Associates' Summary of Property Appraisals of the partnership's
properties (as of December 31, 1998) is attached as Appendix A. Additionally,
the partnership's annual report on Form 10-K for the year ended December 31,
1998 and its quarterly report on Form 10-Q for the quarter ended September 30,
1999 are included with this proxy statement as Appendix B and C, respectively.
The listing agreement for the properties with TC Tennessee, Inc. is attached as
Appendix D. The proposed amendment to the partnership agreement is included as
Appendix E.
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THIS PROXY STATEMENT, INCLUDING THE SUMMARY OF PROPERTY APPRAISALS ATTACHED
HERETO AS APPENDIX A AND THE OTHER APPENDICES, CONTAINS IMPORTANT INFORMATION
WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE PROPOSAL.
ALL STATEMENTS IN THIS PROXY STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY
REFERENCE TO THE SUMMARY OF PROPERTY APPRAISALS, ATTACHED AS APPENDIX A.
LIMITED PARTNERS ARE URGED TO READ THE SUMMARY OF PROPERTY APPRAISALS.
THE TRANSACTIONS DESCRIBED IN THIS PROXY STATEMENT HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SEC PASSED
UPON THE FAIRNESS OR THE MERITS OF SUCH TRANSACTIONS NOR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
THE PROPOSAL: AUTHORIZATION OF THE SALE OF ALL OF THE
PARTNERSHIP'S PROPERTIES, DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
AND AMENDMENT OF THE PARTNERSHIP AGREEMENT
THE PARTNERSHIP
The partnership was formed December 23, 1985 under the Texas Uniform
Limited Partnership Act to acquire recently constructed income-producing
shopping centers located in growth markets. As of November 1989, the partnership
became governed by the Texas Revised Limited Partnership Act. The general
partners of the partnership are Murray Realty Investors, IX, Inc., a Texas
corporation, and Crozier Partners IX, Ltd., a Texas limited partnership.
In September 1986, the partnership acquired a 15% interest in Tower Place
Joint Venture, which owns Tower Place Festival Shopping Center. The remaining
85% interest in the joint venture is owned by MIP I, a publicly-registered real
estate limited partnership which is under joint management with the partnership.
The partnership also acquired Paddock Place Shopping Center on December 17,
1986, Germantown Collection Shopping Center on February 8, 1988, and 1202
Industrial Place (an office/warehouse facility) on February 26, 1988. All
acquisitions were paid for in cash.
A full description of the partnership's business, properties and legal
proceedings is contained in the partnership's annual report on Form 10-K for the
fiscal year ended December 31, 1998, and the partnership's quarterly report on
Form 10-Q for the quarter ended September 30, 1999, copies of which documents
(excluding exhibits) are attached as Appendices B and C to this proxy statement.
In addition, the partnership's selected financial information, management's
discussion and analysis of financial condition and disclosures about market risk
are contained in the Form 10-K and Form 10-Q.
DESCRIPTIONS OF THE PROPERTIES
Paddock Place Shopping Center. Paddock Place Shopping Center, located in
Nashville, Tennessee, is a 68,629 square foot shopping center situated on 4.66
acres. At September 30, 1999, Paddock Place was 89% leased at an average annual
lease rate of $14.35. Lease rates range from $9.79 to $19.00 per square foot.
One tenant, Rafferty's, leases 11.6% of the total rentable space of the
property. J. Alexander's, a full service restaurant, is occupying the space
under a sub-lease. The Rafferty's lease expires on December 31, 2001 and the
tenant has an option to extend the term of the lease for two successive periods
of five-years each. At December 31, 1998, Paddock Place was 90% leased.
Germantown Collection Shopping Center. Germantown, located in Germantown
(Memphis), Tennessee, is a 55,297 square foot shopping center situated on 11.4
acres. At September 30, 1999, Germantown was 99% leased at an average annual
lease rate of $16.42. Lease rates range from $14.00 to $20.00 per square foot.
One tenant, Chili's, leases 10% of the total rentable space. The Chili's lease
expires on December 31, 2001, and the tenant has the option to extend the term
of the lease for three consecutive terms of five-years each. At December 31,
1998, Germantown was 100% leased.
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1202 Industrial Place. 1202 Industrial Place, located in Grand Prairie,
Texas, is an office/warehouse facility containing 172,800 square feet situated
on 8.6 acres. At September 30, 1999, 1202 Industrial Place was 100% leased at an
average annual lease rate of $2.58. Lease rates range from $2.25 to $3.30 per
square foot. Pierce Leahy Corporation leases 69% of the total rentable space of
the property and Care Management Enterprises, Inc. leases 31% of the total
rentable space. The Pierce lease expires on October 31, 2014 and the tenant has
an option to renew the lease for one additional term of five-years. The Care
Management Enterprises, Inc. lease expires on November 30, 2000, at which time
the Pierce Leahy Corporation will occupy the space. Thereafter, until October
31, 2014, the Pierce Leahy Corporation will lease and occupy 100% of the total
rentable space. At December 31, 1998, 1202 Industrial Place was 100% leased.
Tower Place Festival Shopping Center. Tower Place Festival Shopping Center,
located in Pineville, North Carolina, is a 114,606 square foot shopping center
situated on 10.77 acres. At September 30, 1999, Tower Place was 98% leased at an
average annual lease rate of $14.19. Lease rental rates range from $9.00 to
$17.00 per square foot. One tenant, General Cinema, leases 27.8% of the total
rentable space of the property and another tenant, J&K Cafeterias, leases 10.6%
of the total rentable space. The General Cinema lease expires on September 30,
2006, with the tenant having the option to extend the term of the lease for two
successive five-year periods. The J&K Cafeteria lease expires on April 30, 2004,
and the tenant has the option to renew for two successive five-year periods. In
August 1998, General Cinema, the anchor tenant, vacated this property, but it
continues to make lease payments. At December 31, 1998, Tower Place Festival was
98% leased.
BACKGROUND FOR THE ASSET SALE
The original stated goal of the partnership was to sell its properties
within five to ten years from the date they were acquired by the partnership.
After the completion of the initial public offering of the limited partnership
interests, the real estate market suffered a recession which adversely affected
the partnership's ability to sell the properties for a fair value. The general
partners believe that both the markets where the partnership's properties are
located and the real estate market in general have significantly improved from
the real estate recession which occurred in the late 1980's and early 1990's,
and that holding the properties in hopes of further gains in value may put at
risk the selling opportunities provided by the current real estate market.
TERMS OF THE ASSET SALE
As of the date of this proxy statement, the partnership has not entered
into any agreement or understanding for the sale of any of the properties, nor
have any of the properties been actively marketed for sale. If the asset sale,
dissolution and amendment proposal is approved, the general partners will be
authorized to sell all of the partnership's properties, in one or a series of
transactions, on such terms as are negotiated by the general partners. In
addition, the general partners may also market and sell the partnership's
properties in packages which include properties owned by MIP I. Currently, the
general partners intend, but are not obligated, to sell Tower Place Festival
after the partnership's other three properties in order to minimize any
discrepancies in distributions to the limited partners due to any differences in
their capital accounts. Hence, the amount of distributions to be made to limited
partners will depend on which property is sold last by the partnership. Upon
approval of the proposal, the general partners will work diligently to
accomplish a sale or sales of the properties upon terms and conditions that they
deem consistent with obtaining fair values for the properties and subject to the
limitations of the proposal stated in this proxy statement.
A condition to sales of the properties will be that the aggregate price at
which all the properties may be sold may not be less than 95% of the appraised
value of the partnership's Portfolio as reflected in the appraisals prepared by
Blake and Associates as of December 31, 1998. The properties will be sold as
soon as practicable (consistent with obtaining fair values). The general
partners' current goal is to complete the sale of all of the properties within
approximately six to nine months after approval of the proposal has been
obtained. However, the time in which it takes to sell all of the properties
could be longer than anticipated as a result of several reasons, including any
delays in marketing the properties or closing sales of the properties, or the
inability to sell the Portfolio for at least 95% of its appraised value as
reflected in the December 31, 1998 appraisals.
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The properties will not be sold to any affiliate of the partnership or of
the general partners, except that MIP I may purchase the partnership's 15% joint
venture interest in Tower Place Festival if the partnership's limited partners
approve the asset sale and dissolution proposal in this proxy statement and MIP
I's limited partners do not approve a similar proposal to sell all of its
assets. Bidders for any group of properties containing the partnership's
properties and MIP I's properties will be required to specify how their overall
bid is allocated among the individual properties in the group, and proceeds from
the sales of any such transaction (as well as expenses related to the sale) will
be apportioned between the properties in each of the two partnerships based upon
such allocation.
Subject to the conditions described above, there can be no assurance as to
the prices at which the properties of the partnership can be sold or disposed
of, or as to the amount of net proceeds that will be available for distribution
to the limited partners. The appraisals reflect Blake and Associates' valuation
of the partnership's properties as of December 31, 1998 in the context of the
market conditions existing as of such date and the information available on such
date. The partnership does not intend to obtain any updated appraisals at the
time of any actual sale of the properties. It is the current intention of the
partnership to continue to obtain property appraisals at the end of each
calendar year. The appraisals that the partnership obtains in the future may
have a higher value for the partnership's properties.
ABANDONMENT AND EVENTS REQUIRING SOLICITATION OR SUBSEQUENT APPROVAL
Even if approval of the asset sale, dissolution and amendment proposal is
obtained from the limited partners, the general partners reserve the right, in
their sole discretion, to thereafter abandon the proposed asset sale and
dissolution. For example, the general partners may choose to abandon the asset
sale and dissolution in the event of changes in the general economy or real
estate markets.
If the general partners wish to engage in a sale transaction of the
partnership's properties that would result in the partnership receiving an
aggregate sales price of all the partnership's properties that is less than 95%
of the aggregated appraised value of the Portfolio (as of December 31, 1998),
the partnership will submit such sale to the limited partners for their approval
in a separate proxy. Any such submission to the limited partners of a proposed
property sale that would result in an aggregate sales price of the Portfolio of
less than 95% of its aggregated appraised value will likely delay consummation
of the asset sale and dissolution of the partnership and could prevent the
consummation of the asset sale and dissolution if such proposed property sale is
not approved. In addition, any such submission to the limited partners will
likely result in a smaller distribution to the limited partners from the asset
sale and dissolution, as a result of, among other things, the sales price of the
Portfolio being less than 95% of its aggregated appraised value, the costs and
expenses of such submission, and any operating loss of the partnership during
any delay occasioned by such submission to the limited partners.
EFFECT OF THE ASSET SALE - DISSOLUTION AND LIQUIDATION
Assuming that the proposal is approved by the limited partners at the
special meeting, the general partners will prepare and file a Certificate of
Amendment to the partnership agreement with the Texas Secretary of State. The
partnership will then proceed to sell the properties on the terms described in
this proxy statement.
As soon as practicable after the consummation of the sale of all of the
partnership's properties, the partnership will dissolve, wind up its affairs and
liquidate. In connection with the sale of the partnership's properties, the
dissolution of partnership, the winding up of its affairs and the liquidation of
the partnership, the partnership will distribute to limited partners, in the
manner provided in the partnership agreement:
o the net proceeds from the sale from the properties after deducting the
expenses of the sale and payment of certain fees (including sales
commissions and expenses of the proxy solicitation); and
o the net proceeds, if any, from the disposition (or realization) of any
remaining partnership assets (such as accounts receivable) after payment
of and provision for all partnership liabilities, including the
establishment of a reserve for contingent liabilities.
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The partnership agreement generally provides that cash proceeds from sales
of the partnership's properties be distributed 99% to the limited partners and
1% to the general partners. However, upon the sale of the partnership's final
property, the partnership agreement requires cash to be distributed to the
partners pro rata in proportion to their existing capital accounts. Hence, the
amount of cash available for distribution to the limited partners is dependent
upon which of the partnership's properties is sold last due to the variations in
the capital accounts of the partners. In addition, the partnership agreement
contains a provision which specially allocates depreciation to the Taxable
Interests, which are the limited partnership interests which, at the time of the
initial public offering, were subject to federal income tax. The limited
partnership interests which did not receive the depreciation allocations are
referred to as "Non-taxable Interests" in this proxy statement. There are
178,091 Taxable Interests and 136,596 Non-taxable Interests outstanding. Since
the initial public offering of the limited partnership interests, this special
allocation of depreciation has created a wide discrepancy in the capital
accounts of limited partners who hold Taxable Interests versus those who hold
Non-taxable Interests. To help minimize this distortion, the general partners
intend, but are not obligated to, make at least one interim distribution of the
net sales proceeds before the sale of the partnership's final property, and they
also intend to sell Tower Place Festival after the partnership's other
properties.
Pursuant to the terms of the partnership agreement, cash distributions
from the sale or refinancing of a property are allocated as follows:
o First, all distributions from sales of the partnership's properties are
allocated 99% to the limited partners and 1% to the non-corporate
general partner (Crozier Partners IX, Ltd.) until the limited partners
have been returned their original invested capital from cash
distributions from sales or refinancings, plus a 10% preferred return
from cash distributions from operations or cash distributions from sales
or refinancings.
o Next, all cash distributions from sales of the properties are allocated
99% to the general partners, and 1% to the non-corporate general partner
in an amount equal to any unpaid cash distributions from operations
subordinated to the limited partners' 7% non-cumulative annual return.
Cash distributions from the property sales payable to the general
partners are allocated 62 1/2% to the non-corporate general partner and
37 1/2% to the corporate general partner.
o Next, all cash distributions from sales or refinancings are allocated 1%
to the non-corporate general partner and 99% to the limited partners and
the general partners. Such 99% will be allocated 85% to the limited
partners and 15% to the general partners. Such 15% shall be allocated 62
1/2% to the non-corporate general partner and 37 1/2% to the corporate
general partner.
o Notwithstanding the above distribution formula, upon the sale of the
last property owned by the partnership, cash distributions from sales or
refinancings of a property are allocated in proportion with the
partners' existing capital account balances.
Cash distributions from operations are allocated and paid 7% to the
non-corporate general partner, 3% to the corporate general partner and 90% to
the limited partners. An amount equal to 5% of cash distributions from
operations out of the 7% allocated to the non-corporate general partner and the
entire amount allocated of cash distributions from operations to the corporate
general partner is subordinated to the prior receipt by the limited partners of
a non-cumulative 7% annual return from either cash distributions from operations
or cash distributions from sales or refinancings, or both, on their average
annual unreturned invested capital.
The partnership will also pay all expenses of the dissolution and
termination of the partnership's existence from the partnership's cash and from
the sale of these assets. The general partners do not believe there are any
material, contingent claims as of the date of this proxy statement. However, the
partnership will distribute 2% of the original equity, which is $629,000, to a
special liquidating trust which will hold these funds for three years after the
dissolution of the partnership in order to meet any contingent liabilities which
may arise.
Given the time needed to solicit proxies to authorize the proposed asset
sale and dissolution, market the properties, and close the sale of the
properties, the partnership does not presently anticipate that the sale of all
of the partnership's properties will be consummated prior to late 2000, and
potentially not until 2001 or later. The
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partnership intends to continue to make quarterly distributions of cash from
operations, and intends to make at least one distribution of cash from the sales
of the properties prior to the sale of the partnership's final property.
From inception of the partnership in 1985 through September 30, 1999, the
partnership has made aggregate distributions to its limited partners and general
partners of approximately $23,265,769 and $674,613, respectively.
After provision for creditors' claims is made and all property has been
distributed, and if there are no pending legal, administrative or arbitration
proceedings or adequate provision has been made to satisfy any judgment arising
therefrom, a Certificate of Cancellation of the partnership's Amended and
Restated Certificate and Agreement of Limited Partnership will be filed with the
Texas Secretary of State, and any and all other necessary or appropriate actions
will be taken to dissolve and to terminate the partnership's existence.
CERTAIN RELATIONSHIPS WITH THIRD PARTIES
The partnership has retained TC Tennessee, Inc., an affiliate of Trammell
Crow Company, as listing broker for the properties. The listing broker for the
properties is entitled to receive from the partnership a brokerage fee equal to
2% of the gross purchase price paid by a buyer for properties subject to the
listing agreement. However, if a co-broker is involved in the transfer of 1202
Industrial Place, the fee will be 2.5% of the gross purchase price. However, if
the partnership sells 1202 Industrial Place to Pierce Leahy due to the right of
first offer in Pierce Leahy's lease, then no commission will be paid on that
sale. TC Tennessee, Inc. is also the listing broker for MIP I's properties. TC
Tennessee, Inc. is also entitled to a maximum of $18,000 in marketing costs for
the two partnerships. A copy of the listing agreement with TC Tennessee, Inc. is
attached as Appendix D to this proxy statement.
At the request of the general partners, Houlihan Lokey Howard & Zukin
Capital was engaged to provide financial advisory services with respect to the
review of the partnership's business plan and various possible strategic
alternatives available to the partnership. Houlihan Lokey was also engaged to
provide the same service for MIP I. Houlihan Lokey received a total fee for its
services to the two partnerships of $53,000, of which $26,500 was paid by the
partnership and $26,500 was paid by MIP I. Houlihan Lokey is a nationally
recognized investment banking firm that is continually engaged in providing
financial advisory services in connection with strategic alternative reviews,
mergers and acquisitions, leveraged buyouts, business valuations for a variety
of regulatory and planning purposes, recapitalizations, financial restructurings
and private placements of debt and equity securities. Houlihan Lokey was not
retained to render a fairness opinion in connection with a specific transaction
or asked to review a particular transaction.
GENERAL PARTNERS AND INDEMNIFICATION
It is anticipated that the general partners will remain general partners of
the partnership whether or not the proposal is approved by the limited partners.
The partnership agreement provides for indemnification to the general partners
against all liabilities and expenses in connection with the proposed asset sale
and dissolution or any other affairs of the partnership.
RISK FACTORS RELATING TO THE PROPOSAL
In addition to the other information included elsewhere in this proxy
statement, the following factors should be considered carefully in determining
whether to approve the asset sale, dissolution and amendment proposal. There can
be no assurance that any sale or sales of the partnership's properties will be
consummated or that any of the estimates set forth in this proxy statement will
be realized. You are cautioned not to attribute undue certainty to any
estimates, which are based on a variety of assumptions relating to the
properties, general business and economic conditions and other matters. The
information contained in this proxy statement, including the minimum amount of
the proceeds from the sale of the properties and the date which consummation of
the sale of the properties is anticipated to occur, are based on the
partnership's current estimates and are subject to various and significant
uncertainties, many of which are beyond the partnership's control. These
uncertainties could cause the actual results to differ materially from the
partnership's expectations.
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<PAGE> 20
FUTURE OPERATING INCOME AND EXPENSES WILL AFFECT THE AMOUNT OF CASH AVAILABLE
FOR DISTRIBUTION.
Operating income and expenses of the partnership prior to the time the
properties are sold and the partnership dissolved will likely affect the amount
of distributable cash actually available for distribution to the limited
partners. If operating losses are incurred in such period, actual distributions
to limited partners as a result of the asset sale and dissolution could be
smaller than otherwise expected. However, if operating income is generated
during such period, actual distributions to limited partners as a result of the
asset sale and dissolution may be greater than expected.
IF ALL OTHER PROPERTIES ARE NOT SOLD BEFORE TOWER PLACE FESTIVAL (AND INTERIM
DISTRIBUTIONS OF PROCEEDS MADE), THEN THE TAXABLE INTERESTS MAY RECEIVE
SUBSTANTIALLY LESS THAN THEY WOULD OTHERWISE AND THE NON-TAXABLE INTERESTS MAY
RECEIVE A GREATER AMOUNT.
Due to the provisions of the partnership agreement requiring distributions
to the partners pro rata in proportion to their capital account balances upon
the sale of the partnership's last property, if a property other than Tower
Place Festival is sold last, or if all the partnership's properties are sold
simultaneously, then the holders of Taxable Interests may receive substantially
less than they would otherwise. Further, in such case, the holders of
Non-taxable Interests would receive a greater amount due to the differences in
their existing capital accounts. While the general partners intend to sell Tower
Place Festival last and make interim distributions of the sales proceeds of the
properties, there is no guarantee that the general partners might not do
otherwise if they believe it is in the best interest of the partnership and all
of its limited partners.
THE GENERAL PARTNERS MAY SELL AN INDIVIDUAL PROPERTY FOR LESS THAN 95% OF ITS
APPRAISED VALUE, WHICH COULD RESULT IN THE LIMITED PARTNERS RECEIVING A SMALLER
DISTRIBUTION.
Under the proposal contained in this proxy statement, the general partners
may not sell all of the partnership's properties for a total sales price which
is less than an aggregate sales price of 95% of the appraised value of the
entire Portfolio of properties as of December 31, 1998. However, this condition
does not prevent the general partners from selling one or more of the
partnership's properties at a price less than 95% of its appraised value if the
general partners believe that at the conclusion of the sales of all the
partnership's properties, the aggregate sales price for the properties will be
at least 95% of the appraised value of the Portfolio as of December 31, 1998.
Further, while the general partners have no intention to do so, they may sell
one or more of the partnership's properties at a price which later makes it
impossible to sell all of the partnership's properties at a price which is at
least 95% of the appraised value of the Portfolio as of December 31, 1998. The
general partners would then have to solicit new proxies in order to obtain
approval for the final sales transaction and the dissolution and liquidation of
the partnership. The costs associated with this additional proxy solicitation,
as well as the receipt by the partnership of sales proceeds of less than 95% of
the appraised value of the Portfolio (as of December 31, 1998), would result in
the limited partners receiving smaller distributions than otherwise anticipated.
Further, if one or more properties are sold at less than 95% of its appraised
value, but the Portfolio is still sold for 95% of its appraised value (as of
December 31, 1998), some limited partners may receive a smaller distribution
while others a larger distribution due to variations in the partners' capital
accounts which are discussed in this proxy statement.
DUE TO NUMEROUS VARIABLES, THE PARTNERSHIP IS UNABLE TO ESTIMATE THE AMOUNT OF
CASH THAT WILL ACTUALLY BE DISTRIBUTED TO YOU.
The amount of cash actually distributed to the limited partners is subject
to a variety of factors. These factors include, but are not limited to: the
actual sales price of each property, the uncertainty of costs associated with
the asset sale and dissolution, the uncertainty of future operating income and
expenses, the timing of the sales, whether all of the partnership's properties
will be sold in a single transaction, which property will be sold last, whether
interim distributions are made to the limited partners and the variations in the
capital accounts of the partners. Hence, the general partners believe that it is
not practicable to provide you with a meaningful estimate of the amount you
would receive if the asset sale and dissolution is consummated.
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<PAGE> 21
THE UNCERTAINTY OF COSTS ASSOCIATED WITH THE ASSET SALE AND DISSOLUTION AND
UNKNOWN PARTNERSHIP LIABILITIES COULD ADVERSELY AFFECT DISTRIBUTIONS.
The general partners have estimated that the costs and expenses of the
asset sale and dissolution (including sales commissions and the costs of this
proxy solicitation) will equal approximately 4% of the aggregate sales price of
the properties. If partnership liabilities, unknown at the time of the mailing
of this proxy statement, later arise which must be satisfied or reserved for as
part of the proposed asset sale and dissolution, the aggregate amount of
distributions to limited partners as a result of the asset sale and dissolution
could be less than anticipated. Delays in the sale of the properties and
dissolution of the partnership, such as delays involving the marketing of the
properties or closing of sales of the properties, could result in additional
expenses (and possibly operating losses) and result in actual aggregate
distributions to the limited partners as a result of the asset sale and
dissolution that are smaller than they otherwise would be.
THE PARTNERSHIP IS UNDER NO OBLIGATION TO UPDATE THE DECEMBER 31, 1998
APPRAISALS WITH RESPECT TO THE MINIMUM SALES PRICE.
The appraisals reflect Blake and Associates' valuation of the partnership's
properties as of December 31, 1998, in the context of the market conditions
existing as of such date and the information available on such date. The
partnership does not intend to obtain any updated appraisals at the time of any
actual sale of the properties. There can therefore be no assurance that the
partnership's properties will be sold or disposed of at a price equal to, or
representing at least 95% of, what an appraisal, conducted at the actual time of
sale, would indicate as the properties' values. Events occurring after the
December 31, 1998 date of the appraisals and before consummation of any sales of
properties, such as changes in capital markets (including changes in interest
rates) that might affect demand for real property, changes in building
occupancy, changes in tenant motivation with respect to the exercise of renewal
options or changes in real estate property markets, could affect the properties
or the assumptions used in preparing the appraisals and result in higher or
lower values of the properties if updated appraisals were conducted at such
time. The appraisals are subject to certain assumptions, limitations and
qualifications. The material assumptions, limitations and qualifications made by
Blake and Associates in conducting the appraisals are described in this proxy
statement.
ANY PROPERTY APPRAISALS THAT THE PARTNERSHIP RECEIVES IN THE FUTURE WILL NOT
AFFECT THE MINIMUM SALES PRICE.
The partnership will continue to obtain appraisals of its properties at the
end of each year pursuant to the requirements of the partnership agreement. The
appraised values of the partnership's properties in the future (including the
appraisals reflecting the properties' values as of December 31, 1999) may be
higher than the December 31, 1998 appraised values contained in this proxy
statement. However, even if the December 31, 1999 appraisals or other future
appraisals contain substantially higher values for the partnership's properties,
the general partners will still be authorized to sell the Portfolio for a sales
price of 95% of its aggregate appraised value as of December 31, 1998.
IF MIP I APPROVES THE SALE OF ITS PROPERTIES AND THE PARTNERSHIP DOES NOT, THE
PARTNERSHIP'S OPERATING EXPENSES MAY INCREASE SIGNIFICANTLY.
Affiliates of the general partners of the partnership are also the general
partners of MIP I. The partnership currently pays 53% of the combined general
and administrative expenses of the partnership and MIP I. Concurrently with this
proxy statement and solicitation, MIP I is also seeking approval from its
limited partners of a similar proposal to sell all of its assets and dissolve.
If MIP I's limited partners approve the sale of its assets and dissolution, and
the partnership's limited partners do not approve the asset sale, dissolution
and amendment proposal contained in this proxy statement, then the partnership
would have to pay 100% of the partnership's general and administrative expenses
upon the dissolution of MIP I. These increased expenses could substantially
reduce the future cash flow available for distribution to limited partners. In
addition, the partnership's operating income would be reduced because the
partnership would have to sell its 15% interest in Tower Place Festival.
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<PAGE> 22
THE ASSET SALE AND DISSOLUTION MAY NOT BE ACHIEVED OR MAY BE DELAYED.
After the sale of all of the properties and the receipt in cash of the
proceeds thereof, the partnership will be dissolved, and the partnership intends
to wind up its affairs and liquidate as soon thereafter as possible. The
partnership currently estimates that all the properties will not be sold and all
the proceeds from such sales will not be received prior to late 2000, and
potentially not until 2001 or later. There can be no assurance that the sale of
all or any of the properties will take place at all, or if sales do occur, in
accordance with such estimated time frame. If the sales do not occur, the
partnership will have incurred substantial expenses for which it will receive no
ultimate benefit.
ALLOCATION OF INCOME AND LOSS COULD CREATE NEGATIVE TAX CONSEQUENCES FOR YOU.
Each partner is required to take into account in computing his or her
income tax liability his or her allocable share of the partnership's items of
income, gain, loss, deduction and credit in accordance with the partnership
agreement. If the Internal Revenue Service were to successfully assert that
allocations of income or loss under the partnership agreement do not have
"substantial economic effect" as defined in Section 704(b) of the Internal
Revenue Code, the partnership's income or loss could be re-allocated in
accordance with the partners' economic interests in the partnership. Any such
reallocation could have the affect of increasing the share of income or
decreasing the share of any loss allocated to certain partners or decreasing the
share of income or increasing the share of any loss allocated to certain
partners. The general partners believe that the partnership will recognize, in
the aggregate with respect to all of its properties, tax gains as a result of
the asset sale and liquidation. However, depending on the timing of sales of
individual or groups of properties, losses may be realized in some periods and
gains in other periods.
YOU WILL NOT HAVE ANY DISSENTERS' OR APPRAISAL RIGHTS.
Neither applicable Texas law nor the partnership agreement provides you
with any right to dissent from, or seek an independent appraisal of, the value
of the partnership or its assets. Thus, you will be bound to accept the
consideration received by the partnership upon the sale of the properties and
the resulting distributions to you as a result of the asset sale and dissolution
if the asset sale and dissolution proposal is approved by the limited partners.
NO FAIRNESS OPINION WAS SOUGHT WITH RESPECT TO THE PROPOSED ASSET SALE AND
DISSOLUTION.
While the general partners did retain Blake and Associates to render
appraisals with respect to the value of the partnership's properties as of
December 31, 1998, they did not seek to obtain an opinion relating to the
fairness to the limited partners of the proposal. The general partners concluded
that because the Portfolio will not be sold for less than 95% of its appraised
value as of December 31, 1998, no such opinion is warranted. Had such a fairness
opinion been obtained, the minimum sales price of the Portfolio might have been
different and possibly more favorable to the partnership and the limited
partners. In addition, if the general partners sought a fairness opinion with
respect to the proposed asset sale and dissolution, it is possible that the
partnership would not have been able to obtain one.
THE GENERAL PARTNERS DID NOT RETAIN SEPARATE COUNSEL OR ADVISORS FOR THE LIMITED
PARTNERS.
The general partners engaged legal counsel and financial advisors that
represented the interests of the partnership. If advisors were hired that
represented only the interests of the limited partners, the terms of the
proposed asset sale and dissolution might have been different, and possibly more
favorable, to the limited partners.
THE LIMITED PARTNERS WILL LOSE THE OPPORTUNITY TO BENEFIT FROM FUTURE EVENTS.
It is possible that the future performance of the properties will improve
or that prospective buyers may be willing to pay more for the partnership's
properties in the future. It is also possible that limited partners might earn a
higher return on their investment if the partnership retained ownership of the
properties due to possible improvements in future economic and market conditions
or other reasons. By approving the proposed asset sale and
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<PAGE> 23
dissolution, the limited partners will also be foregoing certain current
benefits of ownership of the properties, such as continuing distributions from
operations.
THERE IS NO ASSURANCE THAT THE PROPOSED ASSET SALE AND DISSOLUTION WILL RESULT
IN GREATER RETURNS TO YOU THAN THE OTHER ALTERNATIVES, WHETHER OR NOT CONSIDERED
BY THE GENERAL PARTNERS, INCLUDING THE CONTINUATION OF THE PARTNERSHIP.
If the asset sale, dissolution and amendment proposal is not approved by
the limited partners, the general partners intend to continue to manage the
partnership and its properties substantially as they are currently being
managed, and to eventually liquidate and dissolve the partnership on or before
January 31, 2025. There can be no assurance that the proposed asset sale and
dissolution will result in greater returns to you than the continuation of the
partnership, a merger with another entity, the reorganization of the partnership
as a REIT, a leveraged recapitalization of the partnership or any other
strategic alternative, whether or not considered by the general partners.
THE GENERAL PARTNERS WILL HAVE BROAD DISCRETION IMPLEMENTING THE PROPOSAL IF IT
IS APPROVED.
The general partners have broad discretion to manage the business and
affairs of the partnership. If the limited partners approve the proposal, they
also will be deemed to have consented to any transaction that may be undertaken
to accomplish the proposed asset sale and dissolution and will not be entitled
to approve or disapprove of any such transaction, including any particular sale
or sales of the partnership's properties that are within the authorization of
the proposal contained in this proxy statement. The partnership will
automatically (without requiring any additional approval of the limited
partners) be terminated and dissolved following the sale of the partnership's
final property.
THE GENERAL PARTNERS MAY ABANDON THE ASSET SALE AND DISSOLUTION EVEN IF THE
PROPOSAL IS APPROVED.
Even if approval of the proposal is obtained from the limited partners, the
general partners reserve the right, in their sole discretion, to thereafter
abandon the asset sale and dissolution. For example, the general partners may
choose to abandon the asset sale and dissolution in the event of changes in the
general economy or real estate markets.
THE GENERAL PARTNERS HAVE CONFLICTS OF INTEREST.
The general partners have conflicts of interest in recommending and
consummating the asset sale and dissolution contemplated by the proposal.
Affiliates of the general partners are also general partners of MIP I, which is
also soliciting its limited partners for approval of a similar proposal. The
general partners have fiduciary duties to both partnerships which may
potentially create a conflict of interest in effecting the asset sale and
dissolution proposal. For example, if a potential buyer reviews properties from
both partnerships, but decides to only purchase one property, the general
partners' fiduciary duties to MIP I prevent them from advocating the purchase of
the partnership's properties over MIP I's properties. In addition, two employees
of the partnership, Mitchell Armstrong and Brent Buck, are also officers of the
corporate general partner and entitled to severance payments if their employment
is terminated due to the dissolution of the partnership. It is also probable
that the general partners will receive a portion of the net sales proceeds from
the sales of the partnership's properties and distributions from operations as
provided in the partnership agreement. Because of this financial interest and
the fact that the general partners will have broad authority in determining the
timing, manner and terms of the sales transactions, a conflict of interest may
arise. If the proposal is approved, the general partners will also be permitted
to market the partnership's properties with MIP I's properties. Finally,
consummation of the asset sale and dissolution of the partnership will eliminate
any liability of the general partners for liabilities of the partnership that
could arise in the continued operation of the partnership. For a more complete
discussion of the conflicts of interests of the general partners, see the
section in this proxy statement entitled "Conflicts of Interest, Related
Transactions and Interests of Certain Persons in the Proposal."
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THE POSSIBLE SUBMISSION OF ADDITIONAL MATTERS TO THE LIMITED PARTNERS MAY DELAY
THE ASSET SALE AND DISSOLUTION.
If the partnership is unable to sell the Portfolio for at least 95% of its
aggregate appraised value (as of December 31, 1998), the general partners will
have to re-solicit proxies from the limited partners to approve the sale of the
partnership's last property under the terms of the partnership agreement. Any
such submission to limited partners will likely delay consummation of the asset
sale and dissolution of the partnership and could prevent the consummation of
the asset sale and the dissolution if such proposed property sale which is
submitted to the limited partners is not approved. In addition, any such
submission to limited partners will likely result in smaller actual
distributions to limited partners from the asset sale and dissolution as a
result of, among other things, the costs and expenses of such submission, any
operating loss of the partnership during any delay occasioned by such submission
to the limited partners and the receipt of less than 95% of the Portfolio's
appraised value.
FAIRNESS OF THE ASSET SALE AND DISSOLUTION
THE GENERAL PARTNERS' RECOMMENDATION AND REASONS FOR THE PROPOSED ASSET SALE AND
DISSOLUTION
THE GENERAL PARTNERS BELIEVE THAT THE PROPOSED ASSET SALE AND DISSOLUTION
IS FAIR TO AND IN THE BEST INTERESTS OF THE PARTNERSHIP AND ITS LIMITED
PARTNERS. ACCORDINGLY, THE GENERAL PARTNERS HAVE APPROVED THE PROPOSED SALE OF
THE PARTNERSHIP'S PROPERTIES AND DISSOLUTION, AND RECOMMEND THAT YOU VOTE FOR
THE APPROVAL OF THE PROPOSAL.
The decision of the general partners to approve the proposed asset sale and
dissolution and to recommend the proposal to the limited partners was based upon
a detailed study of the advantages and disadvantages of selling the
partnership's assets and dissolving the partnership in the near future versus
certain other possible strategic alternatives available to the partnership. In
making the recommendation to the limited partners to approve the proposal, the
general partners considered a number of factors, the most significant of which
are listed immediately below:
o The partnership's properties consist of shopping centers leased to a
variety of individual tenants with lease terms averaging three to five
years. Over the past three years a significant percentage of these
leases have been renewed. Most of these renewals have achieved higher
rental rates than the leases that expired, thereby increasing the value
of the properties. In some instances the partnership has been able to
take a large space that was leased to one tenant and, when the tenant
vacated, divide the space and lease it to several smaller users. This
has increased value since smaller spaces typically lease for higher
rental rates than larger spaces. Because of the three-to-five year lease
terms now in place, the general partners believe it will be several
years before further significant increases can occur. The following
table shows the percentage of the square footage of non-anchor space for
each property that has either been renewed by existing tenants or leased
to new tenants from 1997 to the present. The general partners chose this
time period because it has been a period of rising rental rates which
has given the partnership the opportunity to increase the value of its
properties.
<TABLE>
<CAPTION>
Property Percent of Renewals/New Leases
-------- ------------------------------
<S> <C>
Tower Place Festival 71%
Paddock Place 60%
Germantown 84%
1202 Industrial Place (warehouse) 100%
</TABLE>
o Real estate markets tend to run in cycles and the markets in which the
partnership's properties are located have been experiencing a cycle of
high occupancies and increasing rental rates for these types of
properties. It is difficult to determine when this cycle will inevitably
end and when the next favorable market will develop. The general
partners believe that the increase in value that might occur by holding
the properties is not worth the risk of missing the opportunities
afforded by selling the properties in the current market environment.
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o The ages of the partnership's properties may begin to have a negative
impact on their value. As the properties age, the cost of repairs and
maintenance will increase, and potential buyers may discount the prices
accordingly. Over the past few years, the partnership has replaced the
roof at Paddock Place and has made other repairs at each property,
including replacing portions of the heating and cooling equipment. The
general partners believe that selling the properties when there is
little deferred maintenance will help the partnership achieve the best
sales price possible in the current market.
o When the limited partners invested in the partnership in the mid-1980's,
it was anticipated that the partnership would sell its properties within
five to ten years. After the partnership's initial public offering, the
real estate market entered a period of recession, due to, among other
factors: overbuilding, the negative impacts of the Tax Reform Act of
1986, and the collapse of the savings and loan industry. While the
effect of the recession on the partnership's properties was minimized by
the fact that the partnership had no debt, the overall problems in the
real estate industry did have a negative impact on the rental rates that
the partnership was able to achieve at the shopping centers. Because of
the long length of leases, it has taken years to return to the level of
rental rates that were common during the mid-1980's. Original investors
have now been limited partners for approximately 13 to 14 years. The
general partners believe that the real estate market has rebounded and
the partnership is now positioned to sell its properties for a fair
value.
o The general partners will work diligently to achieve the highest price
possible for each of the partnership's assets. This will be achieved by
listing the properties for sale with a nationally-recognized real estate
company to solicit bids from multiple unaffiliated third parties and
through arms' length negotiations with the potential purchasers. The
condition that the properties will not be sold, in the aggregate, for
less than 95% of the appraised value (as of December 31, 1998) of the
Portfolio is intended to give the limited partners some certainty that
the properties will not be sold if market conditions deteriorate after
the vote.
o If the properties are not sold, they will continue to subject the
partnership to the risks inherent in the ownership of property such as
fluctuations in occupancy rates, operating expenses and rental rates,
which in turn may be affected by general and local economic conditions,
the supply and demand for properties of the type owned by the
partnership and federal and local laws and regulations affecting the
ownership and operation of real estate.
The general partners also considered a number of negative factors, including
those listed below, in approving the proposal.
o There can be no assurance that the asset sale and dissolution will
result in greater returns to the limited partners than a continuation of
the partnership. With respect to the value of the partnership's
properties, the partnership will not benefit from possible improvements
in economic and market conditions which could produce increased cash
flow and enhance the sales price of the properties.
o The anchor space at Tower Place Festival is currently vacant, even
though the tenant is continuing to pay rent pursuant to its long-term
lease. There can be no assurance that the tenant will continue to pay
rent, and its failure to honor its lease could have a negative impact on
the price a buyer would be willing to pay for the shopping center. In
addition, it is possible that the partnership could find a replacement
tenant for this anchor space that would pay a higher rental rate and
increase the future value of the property.
o There is no guarantee that the other alternatives considered by the
general partners would not produce greater value for the limited
partners.
o There could be actual or potential conflicts of interest of the general
partners in connection with the asset sale and dissolution.
o The asset sale will be a taxable transaction to the limited partners.
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<PAGE> 26
The general partners did not attempt to quantify or otherwise assign
relative weights to the specific factors it considered or determine that any
factor was of particular importance. A determination of various weightings
would, in the view of the general partners, be impractical. Rather, the general
partners viewed their position and recommendations as being based on the
totality of the information presented to, and considered by, the general
partners. In addition, individual directors of the general partners may have
given different weight to different factors.
ALTERNATIVES TO THE ASSET SALE AND DISSOLUTION
In making its assessment of the fairness and advisability of the proposed
asset sale and dissolution, the general partners investigated, analyzed and
reviewed a number of available alternatives. These alternatives included, but
were not limited to, the following:
o The continuation of the partnership.
o The reorganization of the partnership as a real estate investment trust.
o Undergoing a leveraged recapitalization.
o A merger with another entity.
In order to determine whether the proposed asset sale and dissolution or
another strategic alternative would be more attractive to you, the general
partners compared the potential advantages and disadvantages to the proposed
asset sale and dissolution with the potential advantages and disadvantages of
the alternatives. The general partners believe that each of the considered
alternatives offers potential advantages and suffers from potential
disadvantages not possessed by the other alternatives. Set forth below are the
conclusions of the general partners regarding the comparisons of the proposal to
certain alternatives and a detailed discussion of the potential advantages and
disadvantages of each of these alternatives.
ALTERNATIVE ONE: CONTINUATION OF PARTNERSHIP. One alternative to the
proposed asset sale and dissolution would be to continue the partnership in
accordance with its existing business plan and partnership agreement. Nothing in
the partnership's organizational documents requires the general partners to
proceed with liquidating the partnership's assets. While the disclosure
documents, pursuant to which the limited partnership interests were offered to
the public, disclosed the intentions of the partnership to liquidate its assets
within five to ten years from acquisition, the general partners are not under
any legal or other obligation to liquidate assets within that time frame. To the
contrary, the partnership has an operating life lasting until January 31, 2025.
Advantages of Continuation:
o You should continue to receive regular distributions of net cash flow
arising from operation of and the eventual sale of the partnership's
properties.
o Continuing the partnership should allow the limited partners to benefit
from any possible future improvements in economic and market conditions,
which could produce increased cash flow and enhance the sales price of
the properties.
o Continuing the partnership would allow the general partners time to
resolve and lease the vacant anchor space at Tower Place Festival. This
could possibly result in higher values for this property.
o Continuation of the partnership avoids most disadvantages that might be
deemed inherent in the proposed asset sale and dissolution.
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<PAGE> 27
Disadvantages of Continuation:
o The primary disadvantage of continuing the partnership is the general
partners' belief that the partnership will not secure for limited
partners the benefits (on a net present value basis) that the general
partners expect to result from asset sale and dissolution of the
partnership.
o The general partners believe that, due to the average length of the
individual leases, it will be several years before the partnership can
achieve significant increases in value. Therefore, if the partnership
does not sell and liquidate, you should be prepared to continue holding
your investment in the partnership for at least several years into the
future.
o There is no liquid market for the limited partnership interests, except
a secondary market which trades at a discount to the original
investment.
o Affiliates of the general partners also manage MIP I, a partnership with
similar types of properties and similar goals and objectives. The
partnership pays for 53% of the combined general and administrative
expenses for managing the two partnerships. MIP I's limited partners are
also being asked to vote on a proposal to sell all their assets and
dissolve their partnership within the same time frame as this
partnership. If the limited partners of MIP I vote to sell and dissolve,
and the partnership's limited partners do not approve the proposal
contained in this proxy statement, all of the partnership's general and
administrative expenses will be borne 100% by the partnership after MIP
I dissolves. This could substantially reduce the future net cash flow
available for distribution.
o There can be no assurance that leases which expire will be able to be
renewed or re-leased at rental rates comparable to current rates.
Likewise, there can be no assurance that the anchor tenant at Tower
Place Festival will continue to pay rent pursuant to its lease while
keeping its suite vacant.
o The partnership's properties are aging, and increased capital
expenditures for property maintenance are likely.
o The partnership would continue to bear the risks of any catastrophic
internal or external events.
o There can be no guarantee that other alternatives, such as the proposal
described in this proxy statement, would not be more advantageous to the
limited partners.
General Partners' Recommendation and Comparison with the Proposed Asset
Sale and Dissolution. Continuing the partnership would keep you in a relatively
illiquid investment vehicle without the ability to reasonably exit the
investment. Due to the recent leases that were renewed and their lengthy terms,
the general partners believe that it will be several years before further
significant value increases in the properties will occur. Given the size and
number of properties held by the partnership, the sale of each individual
property would cause the partnership to continue to cover fixed administrative
charges with the remaining properties (which could increase if MIP I's limited
partners approve its asset sale and dissolution), resulting in future reductions
in partnership distributions. Hence, the general partners have concluded that
continuation of the partnership is not as attractive an alternative as the
proposed asset sale and dissolution.
ALTERNATIVE TWO: REORGANIZATION OF PARTNERSHIP AS A REIT. The general
partners considered the alternative strategy of reorganizing the partnership
into a real estate investment trust. If approved, such action may have provided
some of the advantages contemplated by the proposed asset sale and dissolution.
Advantages of Reorganization:
o It may provide you with some liquidity of your investment.
o It should permit distribution to you of a simpler federal income tax
form.
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<PAGE> 28
o The formation of a REIT could potentially be tax-free to you.
Disadvantages of Reorganization:
o Substantial costs and expenses would be incurred by the partnership were
it to separately pursue reorganization into a separate REIT.
o Because of the size of the partnership, the general partners believe
such reorganization would result in a limited market for the shares of
the newly formed REIT.
o Reorganization of the partnership as a REIT would not provide the
portfolio size, diversification or the structure of internal management
necessary to attract growth capital to the new entity.
o The general partners concluded that the size of an individual REIT would
be too small in the public market to be an attractive investment,
therefore making it a difficult vehicle to generate long-term value and
liquidity for you.
o There can be no guarantee that other alternatives, such as the proposal
described in this proxy statement, would not be more advantageous to the
limited partners.
General Partners' Recommendation and Comparison With the Asset Sale and
Dissolution. The general partners believe that the reorganization of the
partnership as a REIT may present the potential detriments of the asset sale and
dissolution without providing many of its potential benefits, such as the
potential to maximize liquidity to you.
ALTERNATIVE THREE: LEVERAGED RECAPITALIZATION. The general partners also
considered whether to attempt a leveraged recapitalization of the partnership.
This would involve securing debt using each of the partnership's properties as
collateral and distributing the loan proceeds to the limited partners. This
alternative would also involve the continuation of the partnership for an
undetermined period of time.
Advantages of the Recapitalization:
o The partnership could make immediate cash distributions based upon the
amount of debt acquired. Most likely, the debt would not exceed 50% of
the value of the properties.
o The partnership could continue to make further distributions, but at a
lower level due to the payment of debt service on the loans.
Disadvantages of the Recapitalization:
o The partnership would have debt, and therefore higher operating risk,
including the risk of foreclosure.
o While not prohibited by the partnership agreement, leverage was not part
of the partnership's original stated strategy.
o In the event that significant expenditures are needed by the
partnership, it would lose the flexibility to obtain necessary
financing.
o The partnership has already exceeded its original strategy of disposing
of the properties within five to ten years. A leveraged recapitalization
would involve holding your investment in the partnership for at least
several years into the future.
o The partnership would continue to bear the risks of any catastrophic
internal or external events.
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<PAGE> 29
o There can be no guarantee that the other alternatives, such as the
proposal described in this proxy statement, would not be more
advantageous to the limited partners.
General Partners' Recommendation and Comparison with the Proposed Asset
Sale and Dissolution. The leveraged recapitalization would increase the
operating risk of the partnership and would not offer full liquidity to the
limited partners of their current investment. Further, distributions from
operations would be reduced due to the payment of debt service. Therefore, the
general partners believe that this alternative is not as attractive as the
proposed asset sale and dissolution.
ALTERNATIVE FOUR: MERGER WITH ANOTHER ENTITY. Another alternative
considered by the general partners was to merge the partnership with another
entity.
Advantages of a Merger:
o A merger with a larger entity could supply the partnership with needed
capital for growth.
o If the entity which the partnership merges with is publicly-traded, you
would have increased liquidity for your investment.
Disadvantages of a Merger:
o It is difficult to find other merger partners who are similar to the
partnership.
o Given the partnership's size, it would likely be the target in any
merger transaction.
o The partnership has already exceeded its original strategy of disposing
of the properties within five to ten years.
o This alternative is a significant departure from the general objectives
of the partnership.
o This alternative is a very speculative scenario, given the uncertainties
of finding a merger partner or the timing of an exit.
o There can be no guarantee that the other alternatives, such as the
proposal described in this proxy statement, would not be more
advantageous to the limited partners.
General Partners' Recommendation and Comparison with the Proposed Asset
Sale and Dissolution. The possibility of finding a suitable candidate is highly
speculative and risky, and a merger might not provide you with the liquidity
that the proposed asset sale and dissolution potentially offers to you.
Therefore, the general partners believe that this is not as attractive as an
alternative to the proposed asset sale and dissolution.
APPRAISALS OF PROPERTIES
In determining the fairness of the asset sale, dissolution and amendment
proposal, the general partners have relied in part upon property appraisals (a
summary of which is attached hereto as Appendix A and incorporated herein by
this reference) prepared by an independent appraisal firm, Joseph J. Blake and
Associates, Inc., to establish the market values of the properties, sometimes
referred to as the appraised values in this proxy statement. A condition to the
sale of the properties will be that the aggregate price at which the sales are
made will equal at least 95% of the appraised value of the Portfolio as
reflected in Blake and Associates' appraisals as of December 31, 1998. Blake and
Associates also appraised the properties owned by MIP I. Such appraisals were
conducted using the same methodology and are subject to the same assumptions,
limitations and qualifications as described below for the partnership's
properties. In preparing the appraisals, Blake and Associates was engaged to
determine the market values of the properties without taking into account the
specific financial interest of any person. Blake and
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<PAGE> 30
Associates' appraisals were certified by an MAI appraiser who is a principal of
Blake and Associates. The general partners believe that the use of a single
independent appraiser, applying consistent methodology and criteria in assessing
the values of the partnership's properties, increased the likelihood that the
value of such assets would be determined on a fair, consistent and unbiased
basis.
Selection and Qualifications of Appraiser. The general partners engaged
Blake and Associates based on their desire to engage an appraiser with a
national reputation. Blake and Associates has provided information, research,
consulting and real estate appraisal services to clients located throughout the
United States, including litigation support and expert witness services, and due
diligence investigations. Blake and Associates has substantial experience and
expertise in assessing the value of real estate, having prepared real estate
appraisals for over 50 years.
Summary of Methodology. Appraisers typically consider three approaches to
value of properties: the income capitalization approach, the sales comparison
approach and the cost approach. The income capitalization approach involves an
economic analysis of the property based on its potential to provide future net
annual income. The sales comparison approach involves a comparative analysis of
the subject property with other similar properties that have sold recently or
that are currently offered for sale in the market. The cost approach involves an
economic analysis of the cost to produce a substitute property with equivalent
utility.
The appraisals were performed using the income capitalization approach and
the sales comparison approach for the properties. Properties were appraised by
Blake and Associates individually and not as groups or packages of properties.
The properties were appraised by Blake and Associates in accordance with the
Uniform Standards of Professional Appraisal Practice. The appraisals are
"limited appraisals" as defined by the Uniform Standards of Professional
Appraisal Practice, because Blake and Associates excluded the cost approach and
abbreviated the sales comparison approach. The cost approach, although
considered, was not used by Blake and Associates for any properties because
Blake and Associates believes the cost approach is generally not deemed a
reliable indicator of value for older properties due to the imprecise nature of
estimating accrued depreciation affecting improvements.
Valuation Methodology - Income Capitalization Approach. Blake and
Associates' valuation has been based in part upon information supplied to it by
the managers of the properties and the partnership, including but not limited
to:
<TABLE>
<S> <C>
o rent rolls. o property descriptive information.
o building reports. o prior appraisals.
o lease information. o proposed sales terms, sales agreements and
o financial schedules of current lease rates. supporting documentation.
o income, expenses, cash flow and related financial
information.
</TABLE>
Blake and Associates relied upon such information and assumed that the
information provided by the property managers and the partnership was accurate
and complete and did not attempt to independently verify such information.
Blake and Associates interviewed and relied upon the property managers'
management personnel to obtain information relating to the condition of each
property subject to the asset sale, including any deferred maintenance, capital
budgets, environmental conditions, status of on-going improvements or other
factors affecting the physical condition of the property improvements. However,
Blake and Associates was not provided with Property Condition Assessments
(deferred maintenance) or Phase I Environmental Reports on the properties. Blake
and Associates also interviewed the property manager's management personnel
regarding competitive conditions in property markets, trends affecting the
properties, certain lease and financing factors, and historical and anticipated
lease revenues and expenses. Blake and Associates also reviewed historical
operating statements for each of the properties subject to the asset sale.
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<PAGE> 31
Based on the lease and market rent analysis, rental revenue projections
were developed for each income-producing property subject to the asset sale
based on the terms of existing leases and based on analysis of market rents and
historical rents achieved at the property.
Expenses were analyzed based upon a review of 1996, 1997 and/or 1998 actual
expenses. Blake and Associates also reviewed, among other things, data on
expenses for comparable properties appraised by Blake and Associates. Inflation
and growth rates were estimated by Blake and Associates based on those
assumptions typically used by buyers and sellers in the local marketplace, which
were derived, in part, from published surveys of real estate brokers and
investors.
Blake and Associates considered two methods to determine valuation under
this income capitalization approach: a direct capitalization method and a
discounted cash flow method. Direct capitalization is a method used to convert a
single year's estimated stabilized net operating income into an indication of
value. Under this method, the income producing capacity of a property on a
stabilized basis is determined by estimating the gross potential revenue of the
property, making deductions for vacancy and collection losses and building
expenses, and then capitalizing the net income at a market-derived rate to yield
an estimate of value. In determining an overall capitalization rate, Blake and
Associates reviewed overall capitalization rates indicated by comparable sales
and published surveys of brokers, investors and other real estate market
participants. Net operating income was capitalized at a capitalization rate as
estimated in accordance with the comparable sales transaction data. Under the
discounted cash flow method, periodic cash flows (consisting of net income less
leasing commissions, tenant improvement allowances and applicable reserves per
period) and a reversionary value, if any (based on an assumed sale at the end of
the holding period, estimated for such purpose by capitalizing the following
year's net operating income), after deducting appropriate sales expenses, are
estimated and discounted to present value. Distinct discount rates were applied
to the operating cash flow projections and the reversionary values. The discount
rates employed were based on target rates of return and capitalization criteria
used by commercial property investors. Blake and Associates derived this
information, in part, from published surveys of brokers, investors and other
real estate market participants.
Valuation Methodology - Sales Comparison Approach. Based upon actual and
proposed sales transactions identified in the respective properties' region,
indices of value for the properties were derived considering the respective
properties' age, location and other factors. The indices of value primarily
included price per square foot. Adjustments were applied to the indices of value
derived from the comparable sales transactions. The indices of value were
applied to the properties to estimate value in accordance with the sales
comparison method. Price per square foot as estimated by reference to comparable
sales transactions was multiplied by the rentable square footage of the
respective properties to derive an estimate of value.
Conclusions as to Value. Based upon the review as described above, it is
Blake and Associates' opinion that the (i) market value and (ii) 95% of the
market value of the partnership's leased fee interests in the properties as of
December 31, 1998 is:
<TABLE>
<CAPTION>
PROPERTY NAME 100% OF VALUE 95% OF VALUE
------------------------------------------------ ----------------------- --------------------
<S> <C> <C>
Paddock Place $ 8,950,000 $ 8,502,500
Germantown 8,700,000 8,265,000
1202 Industrial Place 4,400,000 4,180,000
Tower Place Festival Shopping Center 2,040,000 1,938,000
TOTAL FOR ALL PROPERTIES $ 24,090,000 $ 22,885,500
</TABLE>
The values given for Tower Place Festival represent the partnership's 15%
ownership of the property on a pro rata allocation and do not account for the
typical discount associated with the valuation of a fractional interest.
Assumptions, Limitations and Qualifications of Appraisals. The appraisals
reflect Blake and Associates' valuation of the partnership's properties as of
December 31, 1998 in the context of the market conditions existing as of such
date and the information available on such date. Events occurring after the
December 31, 1998 date of the appraisals and before consummation of any sales of
properties comprising the asset sale, such as changes in capital
24
<PAGE> 32
markets (including changes in financing rates) that might affect demand for real
property, changes in building occupancy, changes in tenant motivation with
respect to the exercise of renewal options, or changes in real estate property
markets, could affect the properties or the assumptions used in preparing the
appraisals and result in higher or lower values of the properties if updated
appraisals were conducted at such time. Blake and Associates has no obligation
to update the appraisals on the basis of subsequent events.
Blake and Associates utilized certain assumptions to determine the
appraised value of the properties. The specific assumptions, limitations and
qualifications made by Blake and Associates in conducting the appraisals
include, among other things:
o Information and data contained in the reports, although obtained from
public records and other reliable sources and, where possible, carefully
checked by Blake and Associates, were accepted as satisfactory evidence
upon which rests the final expression of the properties' values.
o Blake and Associates made no legal surveys nor have they commissioned
them to be prepared and therefore reference to sketches, plats, diagrams
or previous surveys are only for the reader's visualization of the
properties.
o Blake and Associates assumed that all information known to the client
and relative to the valuation has been accurately furnished and that
there are no undisclosed leases, agreements, liens, or other
encumbrances affecting the use of the properties.
o Blake and Associates assumed that ownership and management are competent
and the properties are in responsible hands.
o No responsibility beyond reasonableness was assumed by Blake and
Associates for matters of a legal nature, whether existing or pending.
o Blake and Associates is not required to give testimony as an expert
witness in any legal hearing or before any court of law unless justly
and fairly compensated for such services.
o By reason of the purpose of the appraisals or function of the reports
set forth in the appraisals, the values reported are only applicable to
the property rights appraised and the appraisal reports should not be
used for any other purpose.
o Blake and Associates was not furnished with engineering or soil studies,
nor did they commission these to be prepared. Therefore, the opinions as
to structural strength of the improvements and drainage and subsoil
conditions were based upon observation only and are assumed to be
adequate.
o Blake and Associates believes that there is no evidence to suggest that
the properties are significant to American history, architecture or
culture. Moreover, the properties are not considered to be a part of a
historic district.
o Blake and Associates did not make specific compliance surveys and
analysis of the properties to determine whether or not they are in
conformity with the various detailed requirements of the Americans with
Disabilities Act. It is possible that compliance surveys of the
properties together with detailed analyses of the requirements of that
act could reveal that the properties are not in compliance with one or
more of the requirements of the act. If so, this fact could have a
negative effect upon the values of the properties. Since the appraisers
have no direct evidence relating to this issue, they did not consider
possible non-compliance with the requirements of that act in estimating
the values of the properties.
o At the partnership's request, the date of the appraised values is
December 31, 1998. As Blake and Associates' inspection of the properties
did not take place until February of 1999, and in some
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<PAGE> 33
instances, March of 1999, they assumed the property and general market
conditions to have remained stable from the date of the valuations to
the date of inspection.
o The appraisers have inspected the properties in regard to the presence
of hazardous materials and have questioned management specifically for
their knowledge, present and historically, as it relates to the problem.
Blake and Associates was not provided with Property Condition
Assessments or Phase I Environmental Reports on the properties. No
environmental hazards known have been uncovered at this time. However,
Blake and Associates are not qualified to detect such substances. The
presence of hazardous materials may affect the values of the properties.
The estimated values are predicated on the assumption that there is no
such material on or in the properties that would cause a loss in their
values. No responsibility is assumed for any such conditions, or for any
expertise or engineering knowledge required to discover them.
o Surveys of the subject sites were not provided to Blake and Associates.
The land areas of the partnership's properties were taken from the legal
descriptions provided by the partnership. These land areas are assumed
to be correct and any deviation in the land areas could impact the
market value estimates.
The appraisals are available for your inspection at the partnership's
executive offices during regular business hours
Compensation and Material Relationships. In exchange for preparing all the
appraisals for the partnership's properties and the MIP I properties, Blake and
Associates was paid a fee of $19,500, of which $10,025 was paid by the
partnership and $9,475 was paid by MIP I. Blake and Associates also was paid
$3,500 for its expenses in reviewing certain of the proxy solicitation materials
and related documentation, of which $1,750 was paid by the partnership with the
remainder paid by MIP I. Payment of appraisal fees to Blake and Associates is
not dependent upon the completion of the proposed asset sale.
OFFERS FROM THIRD PARTIES
With the exception of tender offers for less than 5% of the outstanding
limited partnership interests, the partnership has not received any offers, or
entered into any agreements, for the purchase of the limited partnership
interests or the partnership's properties within the last two years.
AMENDMENT TO THE PARTNERSHIP AGREEMENT
The general partners are proposing an amendment to the Amended and Restated
Certificate and Agreement of Limited Partnership, as amended, to permit the
consummation of the proposed asset sale and dissolution of the partnership on
the terms set forth in this proxy statement. The amendment would expressly
permit and empower the general partners to consummate the proposed asset sale
and dissolution. IF YOU VOTE TO APPROVE THE PROPOSED ASSET SALE AND DISSOLUTION,
YOU WILL BE APPROVING THE PROPOSED AMENDMENT TO THE PARTNERSHIP AGREEMENT.
Section 11.4 of the partnership agreement gives the limited partners the
right to approve any sale of all of the partnership's assets in a single
transaction, as well as the right to disapprove the sale of all of the
partnership's assets in a single transaction. Hence, if the general partners
were required to resolicit proxies so that the limited partners could approve a
final sales transaction, there would be a significant delay in consummating the
asset sale and dissolution as proposed in this proxy statement.
Section 15.1 of the partnership agreement states that the partnership is
dissolved upon the first of several events to occur, including the date of the
disposition of all the partnership's assets or the date on which a majority of
the limited partnership interests vote in favor of the dissolution and
termination of the partnership. This proxy statement asks the limited partners
to approve both the sale of all of the partnership's assets and the dissolution
of the partnership subsequent to the sale. Under the partnership agreement as
currently in effect, the partnership would be dissolved on the date of the
special meeting if the limited partners approve the proposal. However, under the
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<PAGE> 34
proposal, the dissolution of the partnership is contingent upon the sale of all
the properties and dissolution is not certain to occur. Hence, the partnership
agreement needs to be amended to avoid the inadvertent dissolution of the
partnership prior to the consummation of the sales of all of the partnership's
properties pursuant to the terms contained in this proxy statement. The proposed
amendment is set forth in its entirety as Appendix E to this proxy statement.
SELECTED FINANCIAL DATA
The selected financial data for the partnership for each of the years in
the five year period ended December 31, 1998, are derived from the partnership's
financial statements which have been audited by KPMG LLP, independent certified
public accountants. The data for the nine months ended September 30, 1999 and
1998 are derived from unaudited financial statements appearing in the
partnership's quarterly report on Form 10-Q for its quarter ended September 30,
1999, and which, in the opinion of the general partners, includes all
adjustments, consisting only of normal adjustments, necessary for the fair
statement of the results for the unaudited periods. The selected financial data
are qualified in their entirety by and should be read in conjunction with the
partnership financial statements and related notes appearing in the
partnership's annual report on Form 10-K for the year ended December 31, 1998,
and in the partnership's quarterly report on Form 10-Q for its quarter ended
September 30, 1999. These reports (without exhibits) are included in this proxy
statement as appendices B and C, respectively.
<TABLE>
<CAPTION>
For the nine months ended For the years ended
September 30, December 31,
1999 1998 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income $ 2,451,100 $ 2,332,636 $ 3,124,604 $ 2,927,389 $ 2,947,806 $ 2,794,261 $ 2,743,911
Net Earnings 1,070,957 966,780 1,290,459 1,108,782 1,160,228 1,121,097 1,064,413
Basic earnings per
Limited Partner
Interest 3.30 2.97 3.97 3.40 3.56 3.44 3.26
Distributions per
Limited Partner
Interest 4.50 4.50 6.00 5.94 6.00 6.00 5.63
Total Assets at
Period End $18,317,255 $18,859,709 $18,748,341 $19,396,894 $20,161,224 $20,934,041 $21,767,471
</TABLE>
The following table sets forth, for the last five fiscal years and the
current fiscal year as of September 30, 1999, the respective amounts of (i)
distributions made to the general partners; and (ii) distributions made to
limited partners.
<TABLE>
<CAPTION>
Year Ended Distributions to the Distributions to
December 31, General Partners Limited Partners
------------ -------------------- ----------------
<S> <C> <C>
1994 36,125 1,770,105
1995 38,533 1,888,105
1996 38,533 1,888,103
1997 38,132 1,868,450
1998 38,533 1,888,121
1999(1) 28,900 1,416,090
</TABLE>
(1) For the nine months ended September 30, 1999
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<PAGE> 35
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain United States federal income
tax consequences to limited partners arising from the proposed sale of the
partnership's interest in its remaining properties and the liquidation of the
partnership. This summary is based upon the Internal Revenue Code of 1986, as
currently in effect, applicable Treasury Regulations adopted thereunder,
reported judicial decisions and Internal Revenue Service rulings, all as of the
date hereof, and all of which are subject to prospective or retroactive change
in a manner which could adversely affect limited partners.
This summary is based on the assumption that interests in the partnership
are held by the limited partners as capital assets and does not purport to deal
with limited partners in special tax situations such as insurance companies,
real estate investment trusts, regulated investment companies, financial
institutions, tax-exempt entities, nonresident aliens and foreign corporations.
Moreover, this summary does not address the possible consequences to limited
partners under any state, local or foreign tax laws of the states and localities
where they reside or otherwise do business or where the partnership operates. AS
SUCH, EACH LIMITED PARTNER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING
THE CONSEQUENCES TO HIM OR HER OF THE SALE OF THE PROPERTIES AND THE DISSOLUTION
AND LIQUIDATION OF THE PARTNERSHIP.
Allocation of Income and Loss - Generally
A partnership is not a taxable entity. Therefore, no federal income tax
liability may be imposed upon a partnership. Instead, each partner is required
to take into account in computing his or her income tax liability his or her
allocable share of the partnership's items of income, gain, loss, deduction and
credit (collectively referred to herein as "income or loss") in accordance with
the partnership agreement. If the allocation of income or loss in the
partnership agreement does not have "substantial economic effect" as defined in
Internal Revenue Code Section 704(b), the law requires the partnership's income
or loss to be allocated in accordance with the partners' economic interests in
the partnership. Generally, the distribution of cash attributable to partnership
income is not a taxable event unless the distributee partner receives cash
distributions in excess of his or her basis in his or her interest in the
partnership.
Taxation of the Sale of Partnership Properties
For federal income tax purposes, the partnership will realize and recognize
gain or loss separately for each property sold. The amount of gain recognized
for federal income tax purposes with respect to a property, if any, will be an
amount equal to the excess of the amount realized (i.e. cash or other
consideration received by the partnership reduced by the expenses of the sale)
over the partnership's adjusted tax basis for the property. Conversely, the
amount of loss recognized with respect to the sale of a property, if any, will
be an amount equal to the excess of the partnership's adjusted tax basis in the
property over the amount realized by the partnership for such property. The
"adjusted tax basis" of a partnership property is its cost (including
non-deductible capital expenditures made by the partnership at the time of
purchase) with certain additions or subtractions for expenditures, receipts,
losses, or other items properly chargeable to the capital accounts during the
period of time from the acquisition of the property until the sale of the
property.
Characterization of Gain or Loss
In general, gains (other than the amount of gain attributable to certain
depreciation recapture, which would be classified as ordinary income, and any
gain attributable to the sale of the joint venture interest held by the
partnership in the Tower Place Joint Venture) recognized with respect to the
sale of the partnership's interests in its properties should be treated as
recognized from the sale of a "Section 1231" asset (i.e., real property and
depreciable assets used in a trade or business and held for more than one year).
A limited partner's share of gains from the sale of Section 1231 assets of the
partnership will be combined with any other Section 1231 gains and losses
recognized by such limited partner in that year. If the result is a net loss,
the loss is characterized as an ordinary loss. If the result is a net gain, the
gain is characterized as a capital gain except that such gain will be treated as
ordinary income to the extent the limited partner has "non-recaptured" Section
1231 losses. For these purposes, "non-recaptured"
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<PAGE> 36
Section 1231 losses means a limited partner's aggregate Section 1231 losses for
the five most recent prior years that have not previously been recaptured.
In general, gain or loss recognized with respect to the sale of the
partnership's interest in the Tower Place Joint Venture will be gain or loss
from the sale or exchange of a capital asset. However, any amount received in
exchange for a joint venture interest attributable to the joint venture's
"unrealized receivables" (including certain depreciation recapture) or
"inventory items" will be considered to be gain or loss from the sale or
exchange of property other than a capital asset.
For purposes of the passive activity loss limitations of Section 469 of the
Internal Revenue Code, gains recognized from the sale by the partnership of its
interests in its properties generally will be treated as passive activity
income.
Liquidation of the Partnership
A limited partner's adjusted tax basis in its limited partnership interests
is equal to its cost for the limited partnership interests reduced by its
allocable share of:
o partnership distributions;
o partnership losses; and
o expenditures of the partnership not deductible in computing its taxable
income and not properly chargeable to capital account.
A limited partner's adjusted tax basis is increased by its allocable share of:
o taxable income of the partnership;
o income of the partnership exempt from tax; and
o additional contributions to the partnership.
For purposes of determining a limited partner's adjusted tax basis in its
partnership interest, an increase in a limited partner's share of partnership
liabilities is treated as a contribution of cash by that limited partner to the
partnership, and thereby results in an increase in the limited partner's
adjusted tax basis in its limited partnership interests. Conversely, a decrease
in a limited partner's share of partnership liabilities is treated as
distribution of cash from the partnership, and thereby results in a decrease in
the limited partner's adjusted tax basis in its limited partnership interests.
To the extent that a decrease in a limited partner's share of partnership
liabilities results in a deemed cash distribution to the limited partner which
exceeds the limited partner's adjusted tax basis in its limited partnership
interests, the limited partner will recognize gain to the extent of the excess
of the deemed cash distribution over its adjusted tax basis in its limited
partnership interests.
Upon liquidation of the partnership, a limited partner will recognize gain
to the extent of the excess of the cash received by the limited partner
(including any deemed cash distributions to the limited partner attributable to
the limited partner's share of partnership liabilities) over the limited
partner's adjusted tax basis in its limited partnership interests, as such
adjusted tax basis is adjusted to reflect the limited partner's allocable share
of income or loss arising from normal partnership operations for the year of
liquidation and the sale of the partnership's interests in its properties in the
year of liquidation. Conversely, upon the sale of the last property and the
liquidation of the partnership (assuming only cash is distributed), a limited
partner will recognize loss to the extent of the excess of its adjusted tax
basis in its limited partnership interests (as adjusted to reflect the limited
partner's allocable share of income or loss arising from normal partnership
operations for the year of liquidation and the sale of the partnership's
interests in its properties in the year of liquidation) over the cash received
by the limited partner. In addition, the actual amount of gain arising from the
liquidation of the partnership will vary for each limited partner
29
<PAGE> 37
depending upon its adjusted tax basis in its limited partnership interests
(which in turn will vary depending upon the price paid by the limited partner
for its limited partnership interests, the aggregate partnership distributions
received by the limited partner with respect to its limited partnership
interests, and the items of partnership income or loss as well as allocations of
partnership indebtedness made to the limited partner for federal income tax
purposes) and the amount of cash distributed to the limited partner in
connection with the liquidation of the partnership.
Characterization of Gain or Loss
Any gain or loss recognized by a limited partner on liquidation of the
partnership should be treated as gain or loss from the sale of a capital asset
if the limited partner holds its limited partnership interests as a capital
asset. However, the treatment of the gains and losses recognized by the limited
partners (as capital or ordinary gain or loss and the ability to offset the two)
may differ depending on whether limited partners have any non-recaptured Section
1231 losses as discussed above. Any gain or loss arising from the liquidation of
the partnership generally will be treated as passive gain or loss pursuant to
Section 469 of the Internal Revenue Code.
Passive Loss Limitations
A limited partner's allocable share of partnership income or loss may be
subject to the passive activity loss limitations. Limited partners who are
individuals, trusts, estates, or personal service corporations may offset
passive activity losses only against both passive activity income. Limited
partners that qualify as closely held corporations under Section 469 of the
Internal Revenue Code may offset passive activity losses against both passive
activity income and active income (for this purpose, however, "active income"
does not include portfolio income). A limited partner's allocable share of any
partnership gain realized on the sale of the partnership's interests in its
properties will be characterized as passive activity income. Such passive
activity income may be offset by passive activity losses from other passive
activity investments. Because the sale of the partnership's last property and
the dissolution of the partnership following such sale will qualify as a
disposition of the partnership's activity for purposes of the passive loss
rules, a limited partner's allocable share of any partnership loss realized as a
result of the sale of the partnership's interests in its properties and any
suspended partnership losses from prior years should not be subject to the
passive loss limitations in the taxable year of such sale and dissolution.
Income Tax Rates/Taxation of Gains and Losses
The Taxpayer Relief Act of 1997 and the IRS Restructuring and Reform Act of
1998 contain significant changes to the taxation of capital gains of
individuals, trusts and estates. The maximum rate of tax on net capital gains of
individuals, trusts and estates from the sale or exchange of capital assets held
for more than one year has been reduced to 20%, and the maximum rate for net
capital gains attributable to the sale of depreciable real property held for
more than one year (other than certain depreciation recapture taxable as
ordinary income) is 25% to the extent of the deductions for depreciation with
respect to such property. The current maximum tax rate on ordinary income of
individuals is 39.6%. This disparity in tax rates could be beneficial to
individual limited partners with suspended losses attributable to the
partnership. Following the sale of the last property by the partnership, a
limited partner will be considered to have disposed of his or her entire
interest in the partnership, and thus, the limited partner should be entitled to
deduct all suspended passive losses from the partnership against any ordinary
income earned by such limited partner in the year of liquidation of the
partnership or use such suspended losses to offset any gain allocable to such
limited partner on the sale of the partnership's interests in its properties.
Capital gains of individuals and corporate taxpayers can be offset by capital
losses. However, capital losses can be deducted, in any year, only to the extent
of a limited partner's capital gains plus, in the case of an individual,
ordinary income up to $3,000.
Exempt Employee Trusts and Individual Retirement Accounts
Tax-exempt organizations, including trusts which hold assets of employee
benefit plans, although not generally subject to federal income tax, are subject
to tax on certain income derived from a trade or business carried on by the
organization which is unrelated to its exempt activities. However, such
unrelated business taxable income does not in general include income from real
property, gain from the sale of property other than inventory, interest,
dividends and certain other types of passive investment income that are not
derived from "debt-financed property" as defined
30
<PAGE> 38
in Section 514 of the Internal Revenue Code. If, as the partnership believes,
the properties are not characterized as "inventory," and are not held primarily
for sale to customers in the ordinary course of the partnership's business, and
the partnership's indebtedness is not "acquisition indebtedness" for purposes of
Section 514(c) of the Internal Revenue Code, the income from the sale of the
properties should not constitute unrelated business taxable income. Finally, the
partnership's temporary investment of funds in interest-bearing instruments and
deposits also should not give rise to unrelated business taxable income.
THE FOREGOING ANALYSIS CANNOT BE, AND IS NOT INTENDED AS, A SUBSTITUTE FOR
CAREFUL TAX PLANNING. LIMITED PARTNERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THEIR OWN TAX SITUATIONS AND THE EFFECTS OF THE SALE BY
THE PARTNERSHIP OF ITS INTERESTS IN ITS PROPERTIES AND THE LIQUIDATION OF THE
PARTNERSHIP AS TO FEDERAL, STATE, LOCAL AND FOREIGN TAXES INCLUDING, BUT NOT
LIMITED TO, INCOME AND ESTATE TAXES.
CONFLICTS OF INTEREST, RELATED TRANSACTIONS AND
INTERESTS OF CERTAIN PERSONS IN THE PROPOSAL
Under applicable law, the general partners have a fiduciary duty of both
loyalty and care to the partnership and to its limited partners. This duty
requires that the general partners exercise good faith and integrity in handling
partnership affairs and that these affairs be conducted in the best interests of
the partnership and the limited partners. As a fiduciary, the general partners
are charged with the safekeeping and use of all partnership funds and assets and
must use such funds and assets for the exclusive benefit of the partnership.
Further, the general partners must safeguard the rights of the limited partners
provided under Texas law and the partnership agreement. The general partners are
liable to the partnership for any violation or breach of these fiduciary duties.
In this connection, it is a requirement that all material conflicts of interest
faced by the general partners in connection with the adoption of the proposal
and the sale of the properties be fully disclosed for consideration by the
limited partners. In considering the recommendation of the general partners, you
should consider the conflicts of interests described below and be aware that the
general partners and some of their affiliates have interests in the proposal
that are different from, or in addition to, your interests as a limited partner.
Some affiliates of the partnership's general partners are also general
partners of MIP I, a partnership with investment objectives and goals similar to
the partnership's. MIP I is also soliciting the approval of its limited partners
to sell all of its assets and dissolve under a proposal similar to the one
described in this proxy statement. You should carefully consider the potential
conflict created by the fiduciary duties that the general partners owe to both
the partnership and MIP I. For example, if a potential buyer reviews properties
from both partnerships, but decides to only purchase one property, the general
partners' fiduciary duties to MIP I prevent them from advocating the purchase of
the partnership's properties over MIP I's properties. Further, if the limited
partners of MIP I vote to sell its properties and dissolve and the partnership's
limited partners do not approve the proposal described in this proxy statement,
the partnership's general partners would be required to sell Tower Place
Festival to a third party buyer.
There is also a potential conflict created by the asset sale because
properties of MIP I may be packaged for sale with properties of the partnership.
In order to address this apparent conflict, bidders for any package of
properties containing the partnership's properties and MIP I properties will be
required to specify how their overall bid is allocated among the individual
properties in the package, and proceeds from the sales of any such package (as
well as general expenses related to the sales) will be apportioned between the
two partnerships based upon such allocation. Further, if MIP I's limited
partners vote in favor of its proposed asset sale and dissolution and the
partnership's limited partners do not approve the proposal in this proxy
statement, then MIP I's general partners will have to dispose of MIP I's 85%
joint venture interest in Tower Place Festival, which could negatively impact
the results of partnership.
Mitchell Armstrong and Brent Buck are employees of the partnership and are
officers of the corporate general partner. If the asset sale, dissolution and
amendment proposal is approved, Messrs. Armstrong and Buck will receive
severance packages upon dissolution of the partnership. Hence, they have a
financial interest in securing the dissolution of the partnership. In addition,
the general partners will probably receive a portion of the net sales
31
<PAGE> 39
proceeds and distributions from operations pursuant to the terms of the
partnership agreement as a result of the consummation of the proposed asset sale
and dissolution. However, it is possible that, upon the sale of the
partnership's last property, the general partners will not have a capital
account balance which is in proportion to the 1% to 99% general distribution
split with the limited partners. Hence, this fact may influence the general
partners, who will have broad authority in determining the timing, manner and
terms of the sales transactions if the proposal is approved.
No formal procedures were put in place to minimize the potential conflicts
of interest between the general partners and the partnership. The general
partners have sought to honor faithfully their fiduciary duty to the partnership
even though the non-corporate general partner anticipates receiving a portion of
the asset sale and dissolution proceeds. The general partners believe that the
Blake and Associates appraisals and other aspects of procedural fairness have
been incorporated into the structure of the proposed asset sale and dissolution,
and the expected benefits to you from the proposed asset sale and dissolution
offset any detriment arising from such conflicts of interest or the absence of
an independent representative.
The general partners did not engage separate legal and financial
representation for the limited partners. Had separate representation been
arranged for limited partners, the terms of the proposed asset sale and
dissolution might have been different and possibly more favorable to you. In
addition, if separate representation had been arranged for the limited partners,
issues unique to the value of the partnership might have received greater
attention during the structuring of the proposed asset sale and dissolution.
The corporate general partner entered into a property management agreement
with the partnership for the management of 1202 Industrial Place, effective
January 1, 1996. Pursuant to this agreement, the corporate general partner
earned property management fees in the amount of $17,832 and $15,495 during the
years ended December 31, 1998 and 1997. The corporate general partner entered
into a property marketing agreement with the partnership for the leasing of 1202
Industrial Place, effective August 4, 1998. Pursuant to this agreement, the
corporate general partner earned leasing commissions in the amount of $197,865
during the year ended December 31, 1998.
REGULATORY MATTERS
No federal or state regulatory approvals need be obtained in connection
with the proposal and the sale of the properties thereunder. Certain filings
will be required in Texas upon approval of the amendment to the partnership
agreement and upon the dissolution of the partnership.
ACCOUNTING TREATMENT
The consent of the limited partners to the asset sale and dissolution
proposal will ultimately have an impact on the accounting treatment applied to
the partnership in its financial statements prepared in accordance with
generally accepted accounting principles. The partnership currently classifies
all of its operating properties as "assets to be held for use" and will continue
to classify the operating properties as such until it is determined that
management of the partnership actually has the current ability to remove the
assets from operations. At that time, the partnership will reclassify the
properties to "assets to be disposed of." Other criteria for the
reclassification to "assets to be disposed of" include:
o management, which has the appropriate level of authority, approving and
committing the partnership to a formal plan of sale;
o the formal plan of sale specifically identifies the assets to be sold,
actions to be taken and expected date of completion of the asset sale;
o the partnership has an active program to find a buyer for the assets;
o management can estimate the proceeds of the sale;
32
<PAGE> 40
o action required by the formal plan of sale will begin immediately; and
o the period of time to complete the asset sale indicates that significant
changes to the formal plan of sale are not likely.
Once the properties are classified as "assets to be disposed of," depreciation
is ceased and the properties are carried at the lower of carrying amount or fair
value less cost to sell.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF THE PARTNERSHIP
No person (including any "group" as that term is used in Section 13(d)(3)
of the Securities Exchange Act of 1934) is known to the partnership to be the
beneficial owner of more than five percent of the outstanding limited
partnership interests as of January 10, 2000.
The following table presents certain information regarding the number of
limited partnership interests owned, directly or indirectly, by (i) a general
partner of a general partner and executive officers and directors of a general
partner and (ii) a general partner of a general partner and executive officers
and directors of a general partner as a group as of January 10, 2000.
<TABLE>
<CAPTION>
Amount and nature
Of Beneficial Percent
Title of Class Beneficial Owner Beneficial Ownership Of Class
-------------- ---------------- -------------------- --------
<S> <C> <C> <C>
Limited Partnership Interests, Mitchell L. Armstrong 377 (1) .12%
$100 per Interest W. Brent Buck 251 (2) .08%
Jack E. Crozier 736 (3) .23%
Limited Partnership Interest, All General Partners 1,057 .34%
$100 per Interest as a group
</TABLE>
(1) The total of 377 interests listed above includes 126 interests owned
beneficially and of record by first Trust Corporation, Trustee for the
benefit of Mitchell L. Armstrong IRA; 195 interests owned by Murray
Realty Investors IX, Inc., a corporation in which Mr. Armstrong is an
officer, director, and substantial owner; and 56 Interests owned by
Crozier Partners IX, Ltd., a partnership in which Mr. Armstrong is a
limited partner.
(2) The total of 251 interests listed above includes 195 Interests owned by
Murray Realty Investors IX, Inc., a corporation in which Mr. Buck is an
officer, director and substantial owner; and 56 interests owned by
Crozier Partners IX, Ltd., a partnership in which Mr. Buck is a limited
partner.
(3) The total of 736 interests listed above included 272 interests owned by
Crozier Partners IX, Ltd., a partnership in which Mr. Crozier is a
general partner and 464 interests owned by Mrs. Irma Crozier as her
separate property.
No arrangements are known to the partnership which may result in a change
of control of the partnership.
ABSENCE OF PUBLIC MARKET FOR LIMITED PARTNERSHIP INTERESTS
There is no public market for the limited partnership interests and none
has existed since the original public offering of the limited partnership
interests. Occasional transfers of limited partnership interests have occurred
during this period, but the general partners only receive information once a
month regarding the prices, if any, paid for limited partnership interests in
connection with such transfers. Consequently, you may not be able to liquidate
your limited partnership interests in the event of an emergency or for any other
reason, and your limited partnership interests may not be readily accepted as
collateral for a loan.
33
<PAGE> 41
FEES AND EXPENSES
All fees and expenses in connection with the preparation, printing and
mailing of this proxy statement will be paid by the partnership. Such expenses
are expected to total approximately $200,000.
INFORMATION CONCERNING AUDITORS
Representatives of KPMG LLP will be present at the special meeting, will
have an opportunity to make a statement should they desire to do so and will be
available to respond to appropriate questions.
LIMITED PARTNER PROPOSALS
The partnership has no annual or periodic meetings of the limited partners.
Meetings of the limited partners shall be called by the general partners upon
receipt of a request in writing signed by limited partners holding at least 10%
of the limited partnership interests then outstanding. Such request shall state
the purpose or purposes of the proposed meeting and the business to be
transacted. Notice of any such meeting shall be delivered to all general and
limited partners within 10 days after receipt of the request and not less than
15 nor more than 60 days before the date of such meeting.
OTHER MATTERS
The partnership is not aware of any additional matters not set forth in the
notice of special meeting of limited partners that will be presented for
consideration at the special meeting. IF SUCH PROPOSALS OR ANY OTHER MATTERS
REQUIRING THE VOTE OF THE LIMITED PARTNERS PROPERLY COME BEFORE THE SPECIAL
MEETING, THE PERSONS AUTHORIZED UNDER THE PROXIES WILL VOTE AND ACT ACCORDING TO
THEIR BEST JUDGMENT.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, and the rules and regulations promulgated thereunder. Under the
Exchange Act, we must file reports, proxy statements and other information with
the SEC. You may read and copy any of this information at the following
locations of the SEC:
<TABLE>
<S> <C> <C>
SEC Public Reference Room Chicago Regional Office New York Regional Office
450 Fifth Street, N.W. Citicorp Center 7 World Trade Center
Room 1024 500 West Madison Street 13th Floor
Washington, D.C. 20549 Suite 1400 New York, New York 10048-1102
Chicago, Illinois 60661-2511
</TABLE>
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. You may also obtain copies of our material by
mail at prescribed rates from:
Public Reference Section
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0004.
The SEC also maintains an Internet website that contains reports, proxy
statements and other information regarding issuers, like the partnership, that
file electronically with the SEC. The address of that website is
http://www.sec.gov.
34
<PAGE> 42
INCORPORATION BY REFERENCE
A copy of the partnership's Annual Report on Form 10-K for the year ended
December 31, 1998, is attached to this proxy statement as Appendix B, and a copy
of the partnership's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 is attached to this proxy statement as Appendix C.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The documents the partnership is incorporating
by reference are:
o The partnership's Annual Report on Form 10-K for the twelve months ended
December 31, 1998;
o The partnership's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999; and
o All other documents which the partnership filed, or will file, pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 since
December 31, 1998 to the date of the special meeting.
The partnership will provide by first class mail within one business day of
receiving a written or oral request a copy of any or all of the documents
incorporated by reference in this proxy statement (other than exhibits to such
documents unless such documents are specifically incorporated by reference into
the information this proxy statement incorporates). Written requests for such
copies should be addressed to the partnership at 5550 LBJ Freeway, Suite 675,
Dallas, Texas 75240, and telephone requests may be made to Brent Buck, at (800)
765-3863.
35
<PAGE> 43
APPENDIX A
BLAKE AND ASSOCIATES SUMMARY OF PROPERTY APPRAISALS
<PAGE> 44
[JOSEPH J. BLAKE AND ASSOCIATES, INC. LETTERHEAD]
October 20, 1999
Murray Income Properties II, Ltd.
c/o Mr. Brent Buck
Executive Vice President
Murray Income Properties
5550 LBJ Freeway
Suite 675
Dallas, TX 75240
Reference: Summary of Limited Summary Appraisal Reports - Attachment to
the Joseph J. Blake and Associates December 31, 1998 Limited
Summary Appraisals on Germantown Collection Shopping Center
(Germantown, TN); Paddock Place Shopping Center (Nashville,
TN); 1202 Industrial Place (Grand Prairie, TX); and Tower
Place Festival Shopping Center (Pineville, NC)
Dear Mr. Buck:
In accordance with your request, we have summarized the 1998 valuations
referenced above. The information contained within this document was extracted
from the respective appraisals performed by our firm in the first quarter of
1999 which are assumed to be retained in your files. This attachment should be
used only in conjunction with the Limited Summary Appraisals, which include all
special assumptions and limiting conditions which are an integral part of our
value conclusions.
The purpose of the Limited Summary Appraisals was to estimate the "as is" Market
Values of the leased fee interests in the properties as of DECEMBER 31, 1998.
The function of these appraisals was for year-end 1998 valuation purposes.
Briefly described, Germantown Collection Shopping Center wraps the northeast
corner of Poplar Avenue and Exeter Road in Germantown (Memphis suburb), Shelby
County, Tennessee. The center contains two buildings with a total net rentable
area of 55,297 square feet. It should be noted that a separate OUT-PARCEL, which
is NOT included as part of the subject, is developed with a KROGER grocery
store.
<PAGE> 45
October 20, 1999
Mr. Brent Buck
Page 2 of 4
The property was reportedly constructed in 1988 and was observed as being in
good condition with no signs of significant deferred maintenance observed during
our inspection on February 20, 1999. The subject is situated on an
irregular-shaped parcel containing a total of 6.128-acres of land that is zoned
SC-1, Shopping Center Development. Parking is provided by an asphalt-paved
parking lot which contains 350+ or - spaces or 1 space per 158 square feet of
leasable area. As of the date of appraisal, the subject was 100% leased.
Paddock Place Shopping Center, is located at the southwest corner of White
Bridge Pike and Hillwood Terrace in Nashville, Davidson County, Tennessee. The
center contains one building with a total net rentable area of 68,629+ or
- - square feet.
The center was reportedly constructed in 1986 and was observed as being in good
condition with no signs of significant deferred maintenance observed during our
inspection on February 20, 1999. The subject is situated on an fairly
rectangular shaped parcel containing a total of 4.66+ or - acres of land that is
zoned CS, Community Services District by the City of Nashville. Parking is
provided by an asphalt-paved parking lot which contains 235+ or - spaces or
1 space per 292 square feet of leasable area. As of the date of appraisal, the
subject was 90% leased.
The 1202 Industrial Place is located on the southeast corner of Avenue R and
Great Southwest Parkway and contains 172,800 square feet. The warehouse was
reportedly constructed in 1980 and is situated on 8.64+ acres, zoned "LI"
Light Industrial, within the Great Southwest Industrial District, Grand Prairie,
Tarrant County, Texas. The warehouse contains approximately 10% office area and
is fully sprinklered. The building, which was constructed in 1980, was 100%
occupied by two tenants. No signs of deferred maintenance was observed during
our inspection on February 9, 1999.
Tower Place Festival Shopping Center, is located at the northwest corner of
Pineville-Matthews Road and Pine Cedar Drive in Pineville, Mecklenburg County,
North Carolina. Pineville is a suburb of Charlotte. The center contains three
buildings with a total net rentable area of 114,606+ or - square feet. The
subject WAS anchored by General Cinema, who occupied 31,837 square feet. In 1998
General Cinema ceased operating its theater at the subject. However, the primary
lease extends until September 2006. Based on conversations with property
management, a sublease tenant was being searched for at the time of the
appraisal. It was noted that General Cinema has a current $2.8 million lease
buyout. For the purpose of our analysis, we projected that sublease tenant will
be found and the space will be released at the expiration of the General Cinema
lease with market oriented alteration costs.
<PAGE> 46
October 20, 1999
Mr. Brent Buck
Page 3 of 4
The buildings were reportedly constructed from 1985 to 1987 and were observed as
being in good condition with no signs of significant deferred maintenance
observed on our February 28, 1999 inspection. The subject buildings are situated
on an irregular-shaped parcel containing a total of 10.777+ acres of land that
is zoned B-4, Highway Business District by the City of Pineville. Parking is
provided by an asphalt-paved parking lot which contains 677+ spaces or 1 space
per 169 square feet of leasable area for the entire center. As of the date of
appraisal, the subject was 67.4% occupied and 98% leased. The large difference
in occupied and leased figures is primarily due to the leased, but vacant,
31,837 square foot General Cinema space.
It should be noted that according to our client, Murray Income Properties II,
Ltd.'s interest in this property equates to an 15% INTEREST. However, the value
reflected in our December 31, 1998 valuation, which is noted on the following
page, represents the 100% interest in the property. A fractional interest was
not valued in our year-end 1998 appraisal.
APPRAISAL DEVELOPMENT AND REPORTING PROCESS
In the course of the preparation of the appraisals, a variety of market data,
including improved sales and rent comparables, were gathered. Statistical and
market data was obtained from recognized area real estate firms. Property
information was supplied to the appraisers by Murray Income Properties and
third-party management companies included unaudited historical income and
expense data, leases, tenant sales histories, and rent rolls. Other information
obtained included current rental information (asking rental rates, tenant
finish-out allowances, and brokers' commission rates).
In valuing the properties, the Income Capitalization Approach was considered to
be the most relevant technique because of the properties' income-producing
capabilities. The strength of this approach is that it closely mirrors the
actions of most investors who base their purchase decisions primarily on this
method for investment grade retail properties. In essence, the primary analysis
in our Summary Reports dealt with the Income Capitalization Approach.
The Sales Comparison Approach was also utilized since it is based upon the
principle that the market value of a given property is equivalent to the market
value of an equally desirable substitute property with similar functional
utility. This approach analyzes the actions of investors and how they react to
or interpret the market. The weakness of this approach is that it is based on
historical data in changing markets the data may not represent current investor
expectations. Furthermore, income producing properties like the subject are
frequently purchased for the anticipation of future income, not historical
income.
Even though both approaches were utilized, the Income Capitalization Approach
was emphasized.
<PAGE> 47
October 20, 1999
Mr. Brent Buck
Page 4 of 4
The appraisers note that they have not valued or inspected the properties as of
a current date.
After inspections of the properties in early 1999 and an analysis of pertinent
physical and economic factors, we estimated that the market values of the 100%
leased fee interests in the properties, as of DECEMBER 31, 1998, were as
follows:
<TABLE>
<CAPTION>
VALUE PER
PROPERTY VALUE SIZE SQUARE FOOT
-------- ----- ---- -----------
<S> <C> <C> <C>
Germantown Collection Shopping Center $ 8,700,000 55,297 $152.81
Paddock Place $ 8,950,000 68,629 $130.41
1202 Avenue R Warehouse $ 4,400,000 172,800 $ 25.46
Tower Place Festival (100% Interest) $13,600,000 114,606 $118.67
</TABLE>
If we can be of any further assistance, do not hesitate in contacting the
undersigned.
Respectfully submitted,
JOSEPH J. BLAKE AND ASSOCIATES, INC.
/s/ ARTURO SINGER
- ---------------------------
Arturo Singer, MAI
Principal/Regional Manager
<PAGE> 48
APPENDIX B
ANNUAL REPORT ON FORM 10-K (FOR THE YEAR ENDED DECEMBER 31, 1998)
<PAGE> 49
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-K
(Mark One)
X Annual Report pursuant to Section 13 or 15(d) of the Securities
- ---------- Exchange Act of 1934
For the Fiscal Year Ended DECEMBER 31, 1998
OR
- ---------- Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ______________ to _______________
COMMISSION FILE NO.
0-17183
---------------
MURRAY INCOME PROPERTIES II, LTD.
(Exact Name of Registrant as Specified in its Charter)
TEXAS 75-1946214
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5550 LBJ FREEWAY, SUITE 675, DALLAS, TEXAS 75240
(Address of principal executive offices) (Zip Code)
(972) 991-9090
(Registrant's Telephone Number, Including Area Code)
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 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. [ ]
<PAGE> 50
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
Page
<S> <C> <C>
Item 1. Business 1
Item 2. Properties 3
Item 3. Legal Proceedings 3
Item 4. Submission of Matters to a Vote of Security Holders 3
PART II
Item 5. Market for the Partnership's Limited Partnership
Interests and Related Security Holder Matters 4
Item 6. Selected Financial Data 4
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 9
Item 8. Financial Statements and Supplementary Data 10
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 21
PART III
Item 10. Directors and Executive Officers of the Partnership 22
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners
and Management 24
Item 13. Certain Relationships and Related Transactions 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 26
Signatures 33
Index to Exhibits 34
</TABLE>
<PAGE> 51
PART I
ITEM 1. BUSINESS.
General. Murray Income Properties II, Ltd. (the "Partnership") was formed
December 23, 1985 under the Texas Uniform Limited Partnership Act to acquire
recently constructed income-producing shopping centers located in growth
markets. As of November, 1989, the Partnership became governed by the Texas
Revised Limited Partnership Act. The General Partners of the Partnership are
Murray Realty Investors IX, Inc., a Texas corporation, and Crozier Partners IX,
Ltd., a Texas limited partnership.
In September 1986, the Partnership acquired a 15% interest in Tower Place
Joint Venture, which owns Tower Place Festival Shopping Center ("Tower Place").
The remaining 85% interest in the joint venture is owned by Murray Income
Properties I, Ltd., a publicly-registered real estate limited partnership, the
general partners of which are affiliates of the General Partners. The
Partnership also acquired Paddock Place Shopping Center ("Paddock Place") on
December 17, 1986, Germantown Collection Shopping Center ("Germantown") on
February 9, 1988, and 1202 Industrial Place (an office/warehouse facility) on
February 26, 1988. All acquisitions were paid for in cash. For a more detailed
description of the joint venture interest and the properties acquired by the
Partnership, see "Item 2. Properties".
The Partnership is in competition for tenants for its properties with
other real estate limited partnerships as well as with individuals,
corporations, real estate investment trusts, pension funds and other entities
engaged in the ownership and operation of retail real estate. When evaluating a
particular location to lease, a tenant may consider many factors, including,
but not limited to, space availability, rental rates, lease terms, access,
parking, quality of construction and quality of management. While the General
Partners believe that the Partnership's properties are generally competitive
with other properties with regard to these factors, there can be no assurance
that, in the view of a prospective tenant, other retail properties will not be
more attractive.
Tower Place Festival Shopping Center. At December 31, 1998, Tower Place
was 98% leased. One tenant, General Cinema, leases 27.8% of the total rentable
space of the property and another, J&K Cafeterias, leases 10.6% of the total
rentable space. The General Cinema lease expires on September 30, 2006, with
the tenant having the option to extend the term of the lease for two successive
terms of five years each. The J&K Cafeterias lease expires on April 30, 2004,
and the tenant has the option to renew for two periods of five years each. At
December 31, 1997, Tower Place was 100% leased.
Tower Place is subject to competition from similar types of properties in
the vicinity in which it is located. The following information on competitive
properties in the vicinity of Mountain View has been obtained from sources
believed reliable by the Partnership. The accuracy of this information was not
independently verified by the Partnership.
<TABLE>
<CAPTION>
Rentable Percent Leased at
Property Square Feet December 31, 1998
-------- ----------- -----------------
<S> <C> <C>
1 65,000 100%
2 132,648 95%
3 248,700 99%
</TABLE>
1
<PAGE> 52
Paddock Place Shopping Center. At December 31, 1998, Paddock Place was 90%
leased. One tenant, Rafferty's, leases 11.6% of the total rentable space of the
property. J. Alexander's, a full service restaurant, is occupying the space
under a sub-lease. The Rafferty's lease expires on December 31, 2001 and the
tenant has an option to extend the term of the lease for two successive periods
of five years each. At December 31, 1997, Paddock Place was 100% leased.
Paddock Place is subject to competition from similar types of properties
in the vicinity in which it is located. The following information on such
competitors has been obtained from sources believed reliable by the
Partnership. The accuracy of this information was not independently verified by
the Partnership.
<TABLE>
<CAPTION>
Rentable Percent Leased at
Property Square Feet December 31, 1998
-------- ----------- -----------------
<S> <C> <C>
1 108,000 95%
2 15,753 100%
3 178,491 98%
</TABLE>
Germantown Collection Shopping Center. At December 31, 1998, Germantown
was 100% leased. One tenant, Chili's, leases 10% of the total rentable space.
The Chili's lease expires on December 31, 2004, and the tenant has the option
to extend the term of the lease for three consecutive terms of five years each.
At December 31, 1997, Germantown was 100% leased.
Germantown is subject to competition from similar types of properties in
the vicinity in which it is located. The following information on such
competitors has been obtained from sources believed reliable by the
Partnership. The accuracy of this information was not independently verified by
the Partnership.
<TABLE>
<CAPTION>
Rentable Percent Leased at
Property Square Feet December 31, 1998
-------- ----------- -----------------
<S> <C> <C>
1 88,500 100%
2 84,000 96%
3 38,000 100%
</TABLE>
1202 Industrial Place. At December 31, 1998 and 1997, 1202 was 100%
leased. Pierce Family Partnership leases 69% of the total rentable space of the
property and Care Management Enterprises, Inc. leases 31% of the total rentable
space. The Pierce lease expires on October 31, 2014 and the tenant has an
option to renew the lease for one additional term of five years. The Care
Management Enterprises, Inc. lease expires on November 30, 2000.
1202 Industrial Place is subject to competition from similar types of
properties in the vicinity in which it is located. The following information on
such competitors has been obtained from sources believed reliable by the
Partnership. The accuracy of this information was not independently verified by
the Partnership.
<TABLE>
<CAPTION>
Rentable Percent Leased at
Property Square Feet December 31, 1998
-------- ----------- -----------------
<S> <C> <C>
1 100,000 100%
2 80,000 100%
3 100,000 100%
</TABLE>
The Partnership is reimbursed for 47% of the costs of four employees by
Murray Income Properties I, Ltd., an affiliate of the Partnership.
For a definition of the terms used herein and elsewhere in this Form 10-K,
see "Glossary" incorporated by reference herein as contained in the Prospectus
dated February 20, 1986 filed as a
2
<PAGE> 53
part of Amendment No. 1 to Registrant's Form S-11 Registration Statement (File
No. 33-2394) attached hereto as Exhibit 99a.
ITEM 2. PROPERTIES.
The Partnership owns a 15% interest in Tower Place Joint Venture which
owns the property described below:
<TABLE>
<CAPTION>
Location Description of Property
-------- -----------------------
<S> <C>
Pineville (Charlotte), Tower Place Festival Shopping Center
North Carolina A 114,562 square foot shopping center
situated on 10.777 acres. At
December 31, 1998, Tower Place was 98%
leased at an average annual lease rate of
$13.89. Lease rental rates range from $8.00
to $16.50 per square foot.
</TABLE>
The Partnership also owns the properties described below:
<TABLE>
<S> <C>
Nashville, Tennessee Paddock Place Shopping Center
A 68,629 square foot shopping center
situated on 4.66 acres. At December 31,
1998, Paddock Place was 90% leased at an
average annual lease rate of $14.45. Lease
rates range from $9.50 to $18.75 per square
foot.
Germantown (Memphis), Germantown Collection Shopping Center
Tennessee A 55,730 square foot shopping center
situated on 11.4 acres. At December 31,
1998, Germantown was 100% leased at an
average annual lease rate of $16.10. Lease
rates range from $13.50 to $19.79 per
square foot.
Grand Prairie, Texas, 1202 Industrial Place
An office/warehouse facility containing
172,800 square feet situated on 8.6 acres.
At December 31, 1998, 1202 Industrial Place
was 100% leased at an average annual lease
rate of $2.58. Lease rates range from $2.25
to $3.30 per square foot.
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings to which the General Partners or
the Partnership is a party or to which any of the Partnership's properties are
subject.
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 year covered by this report through the solicitation of proxies
or otherwise.
3
<PAGE> 54
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS AND RELATED
SECURITY HOLDER MATTERS.
A public market for Interests does not exist and is not likely to develop.
Consequently, a Limited Partner may not be able to liquidate its investment in
the event of emergency or for any other reason, and Interests may not be
readily accepted as collateral for a loan. Further, the transfer of Interests
is subject to certain limitations. For a description of such limitations, see
Article XIII of the Agreement of Limited Partnership as contained in the
Prospectus dated February 20, 1986 filed as a part of Amendment No. 1 to
Registrant's Form S-11 Registration Statement (File No. 33-2394) attached
hereto as Exhibit 99b.
At December 31, 1998, there were 2,166 record holders, owning an aggregate
of 314,687 interests.
The Partnership made its initial Cash Distribution from Operations
following the quarter ended November 30, 1986, the first complete quarter
subsequent to the acceptance of subscriptions for the minimum number of
Interests offered, and has continued to make distributions after each
subsequent quarter. See "Item 6. Selected Financial Data" for the cash
distributions per Limited Partnership Interest during the years ended December
31, 1994 through December 31, 1998. The Partnership intends to continue making
Cash Distributions from Operations on a quarterly basis.
The Partnership Agreement provides that under certain circumstances, the
General Partners may, in their sole discretion and upon the request of a
Limited Partner, repurchase the Interests held by such Limited Partner. Murray
Realty Investors IX, Inc. is obligated to set aside 25% of its share of Cash
Distributions from Operations and Crozier Partners IX, Ltd. is obligated to set
aside 25% of its 5% share of Cash Distributions from Operations that is
subordinated to the prior receipt by the Limited Partners of a non-cumulative
7% annual return from Cash Distributions from Operations for this purpose. Any
such repurchase shall be subject to the availability of funds set aside and the
other terms and conditions set forth in the Partnership Agreement. For
information on such terms and conditions, see Section 10.17 of the Agreement of
Limited Partnership as contained in Amendment No. 9 to the Agreement of Limited
Partnership contained in the Proxy Statement dated October 11, 1989 attached
hereto as Exhibit 99c. As of December 31, 1998, no funds were available for
this purpose.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income $ 3,124,604 $ 2,927,389 $ 2,947,806 $ 2,794,261 $ 2,743,911
Net Earnings 1,290,459 1,108,782 1,160,228 1,121,097 1,064,413
Basic earnings per
Limited Partnership
Interest* 3.97 3.40 3.56 3.44 3.26
Distributions per
Limited Partnership
Interest* 6.00 5.94 6.00 6.00 5.63
Total Assets at
Year End $18,748,341 $19,396,894 $20,161,224 $20,934,041 $21,767,471
</TABLE>
* Based on Limited Partnership Interests outstanding at year-end and net
earnings or distributions allocated to the Limited Partners.
4
<PAGE> 55
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing in Item 8 of this report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Liquidity and Capital Resources
As of December 31, 1998, the Partnership had cash, cash equivalents and
certificates of deposit of $1,342,995, which included $1,312,805 invested in
certificates of deposit and other money market instruments. Such amounts
represent cash generated from operations and working capital reserves. The
decrease in cash and cash equivalents from December 31, 1997 to December 31,
1998 is primarily due to the purchase of a new roof at Paddock Place and
increases in tenant finish and leasing costs at each of the Partnership's
properties.
Rental income from leases is accrued using the straight line method over
the related lease terms. At December 31, 1998 and December 31, 1997, there were
$232,338 and $185,338, respectively, of accounts receivable related to such
accruals. Accounts receivable also consist of tenant receivables, receivables
for rents collected (but not yet remitted to the Partnership by the property
management companies managing the properties), and interest receivable on
short-term investments. The increase in accounts receivable of $74,713
(exclusive of bad debts and recoveries) from December 31, 1997 to December 31,
1998 is primarily due to increases in tenant receivables at Germantown and
Paddock Place and increases in receivables related to the accruals described
above at each of the Partnership's properties.
Other assets consist primarily of deferred leasing costs. The increase in
other assets of $289,013 is primarily due to an increase (exclusive of
amortization) in leasing commissions paid at each of the Partnership's
properties.
During the year ended December 31, 1998, the Partnership made Cash
Distributions from Operations totaling $1,926,654. Subsequent to December 31,
1998 the Partnership made a Cash Distribution from Operations of $481,664,
which related to the three months ended December 31, 1998. The funds
distributed were derived from the net cash flow generated from operations of
the Partnership's properties and from interest earned, net of administrative
expenses, on funds invested in short-term money market instruments and
certificates of deposit.
Future liquidity is currently expected to result from cash generated from
the operations of the Partnership's properties (which could be affected
negatively in the event of weakened occupancies and/or rental rates), interest
earned on funds invested in short-term money market instruments and
certificates of deposit, and ultimately through the sale of the Partnership's
properties.
Overall market conditions remained stable in the cities in which the
Partnership owns property. This is evidenced by the fact that two of the
properties maintained the same average occupancy in 1998 as 1997, and two of
the properties experienced slight decreases in occupancy as compared to the
previous year. Real estate activity typically parallels employment, job growth,
and housing starts, and a strong national economy has spurred the construction
of new retail development in these markets. However, in Memphis and Nashville,
most of this new development has been in areas that are not in close proximity
to Germantown and Paddock Place. This is due to restrictive zoning and the lack
of available land in these sub-markets. The sub-market in which Tower Place is
located has seen significant retail development; however, most of this
development has been power centers and a regional mall, and therefore, does not
typically compete for the same type retailer as Tower Place. Unfortunately,
Tower Place did lose a major tenant when General Cinema closed its eight-screen
movie theater in August, 1998. This tenant has continued to pay rent according
to the terms of its lease. To date, Tower Place has not seen its occupancy or
overall performance severely impacted by the loss of the theater. However, an
unoccupied anchor space could result in less foot traffic in the
5
<PAGE> 56
shopping center, thereby impacting the sales of smaller tenants and,
consequently, their ability to pay rent. It could also impact the ability to
attract new retailers when space does become available for lease. Management is
working diligently to lease this space so that the property's long-term
performance is not adversely affected. The Dallas-Fort Worth industrial market
remains healthy, although there are some signs of overbuilding. According to
published reports, approximately 7 million square feet of industrial space was
absorbed through the first half of 1998. This is less than the 8.4 million
square feet of new space that came on the market during the first six months of
the year. Around 11.5 million square feet of additional industrial space was
under construction at the end of June 1998.
Results of Operations
Rental income increased $202,308 (8%) for the year ended December 31, 1998
as compared to the year ended December 31, 1997. Rental income decreased
$25,682 (1%) for the year ended December 31, 1997 as compared to the year ended
December 31, 1996. The following information details the rental income
generated, bad debt expense incurred, and average occupancy for the years ended
December 31, 1998, December 31, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Paddock Place Shopping Center
Rental income $ 1,194,824 $ 1,166,486 $ 1,180,740
Bad debt expense (recovery) 28,844 (7,200) (4,549)
Average occupancy 95% 94% 97%
Germantown Collection Shopping Center
Rental income $ 1,084,570 $ 1,008,103 $ 1,052,117
Bad debt expense -0- 686 -0-
Average occupancy 94% 94% 99%
1202 Industrial Place
Rental income $ 613,424 $ 515,921 $ 483,335
Bad debt expense -0- -0- -0-
Average occupancy 100% 100% 100%
</TABLE>
Rental income at Paddock Place Shopping Center in Nashville, Tennessee
increased $28,338 (2%) for the year ended December 31, 1998 as compared to the
year ended December 31, 1997 with increases in base rent being offset by a
decrease in percentage rent received from J. Alexander's Restaurant. Paddock
Place had an increase in base rents due to higher rental rates and also had
increases in percentage rent received from J. Alexander's Restaurant and tenant
reimbursements for common area maintenance costs for the year ended December
31, 1997. However, the 1996 same period income included a one time $40,000 fee
as consideration for the termination of the Waldenbooks lease. The increase in
rent income components described above in the amount of $25,746 less the one
time fee of $40,000 received in 1996 resulted in a net decrease of $14,254 (1%)
for the period ended December 31, 1997 as compared to the same period in 1996.
Paddock Place averaged 95% occupancy for the year ended December 31, 1998,
a one percent increase over the previous year. A tenant who occupied 3,706
square feet reduced the size of its space to 1,870 square feet. The remaining
1,836 square feet was leased by an adjacent tenant who now leases a total of
7,060 square feet. A restaurant which occupied 2,160 square feet vacated its
space prior to expiration of its lease. This tenant continued to pay rent and
subsequently assigned its lease to another restaurant. During this transition,
there was no loss of income to the Partnership. A tenant who occupied 1,354
square feet vacated its space prior to the expiration of its lease. This space
was then leased to an existing tenant who now leases a total of 4,154 square
feet.
6
<PAGE> 57
One tenant who leases 2,332 square feet renewed its lease for five years and
two tenants who lease a total of 4,486 square feet renewed their leases for
three years. A tenant who leased 6,669 square feet vacated its space upon
expiration of its lease. During the year, a new roof was installed on the
entire shopping center. As of December 31, 1998, Paddock Place was 90%
occupied.
Rental income at Germantown Collection in Germantown (Memphis), Tennessee
increased $76,467 (8%) for the year ended December 31, 1998 as compared to the
year ended December 31, 1997 due to higher rental rates and an increase in
tenant reimbursements for real estate taxes, offset by decreases in tenant
reimbursements for common area maintenance costs. Rental income at Germantown
Collection decreased $44,014 (4%) for the year ended December 31, 1997 as
compared to the year ended December 31, 1996 due to a decrease in occupancy and
a decrease in percentage rent received from Chili's Restaurant, offset by an
increase in tenant reimbursements for common area maintenance costs.
Occupancy at Germantown averaged 94% for the year ended December 31, 1998,
unchanged from the previous year. Three new leases totaling 8,191 square feet
were executed and all of these tenants took occupancy during the year. A tenant
who leased 1,052 square feet moved to a larger space containing 2,668 square
feet. The 1,052 square foot space was subsequently leased to an existing tenant
who now leases a total of 2,552 square feet. Two tenants totaling 6,775 square
feet renewed their leases for five years. Two tenants totaling 2,777 square
feet assigned their leases to new tenants with no loss of income to the
Partnership. As of December 31, 1998, Germantown was 100% occupied.
Rental income at 1202 Industrial Place in Grand Prairie (Dallas), Texas
increased $97,503 (19%) for the year ended December 31, 1998 as compared to the
year ended December 31, 1997 primarily due to higher rental rates on a lease
extension with Pierce Leahy, the warehouse's primary tenant, and an increase in
tenant reimbursements for common area maintenance costs and real estate taxes.
Rental income at 1202 Industrial Place increased $32,586 (7%) for the year
ended December 31, 1997 as compared to the year ended December 31, 1996
primarily due to higher rental rates and an increase in tenant reimbursements
for common area maintenance costs and real estate taxes.
1202 Industrial Place averaged 100% occupancy for the year ended December
31, 1998, unchanged from the previous year. In August, Care Management Inc., a
tenant who leases 54,000 square feet, ceased operations at the building. Their
lease expires November 30, 2000. Care Management has continued to pay rent
according to the terms of its lease, and subsequent to moving out, has
subleased the space on a short-term basis until July 31, 1999. Pierce Leahy
Corporation, who leases 118,800 square feet, signed a lease to take the 54,000
square foot space effective December 1, 2000. This lease will give Pierce Leahy
100% occupancy of the building. The new lease, as well as their existing lease
which was extended, will expire on October 31, 2014. As of December 31, 1998,
1202 Industrial Place was 100% occupied.
"Equity in earnings of joint venture" represents the Partnership's 15%
interest in the earnings of Tower Place Joint Venture. Rental income at Tower
Place Festival Shopping Center in Pineville (Charlotte), N.C. increased $14,414
(1%) for the year ended December 31, 1998 as compared to the year ended
December 31, 1997, with increases in rental rates offset by decreases in tenant
reimbursements for common area maintenance costs, reimbursements for common
advertising costs and a decrease in percentage rent received. Rental income at
Tower Place increased $36,633 (2%) for the year ended December 31, 1997 as
compared to the year ended December 31, 1996 primarily due to an increase in
occupancy, an increase in rental rates and an increase in tenant reimbursements
for common area maintenance costs, offset by a decrease in percentage rent
received. Tower Place's total operating expenses decreased with higher repair
and maintenance costs offset by lower leasing and promotion costs. During 1998,
the tenants at Tower Place stopped paying into a marketing fund for common
advertising costs. This resulted in lower income from reimbursements for
advertising costs and a corresponding decrease in advertising expenses. The
following information details the
7
<PAGE> 58
rental income generated, bad debt expense incurred, and average occupancy for
the years ended December 31, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
For the years ended
December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Tower Place Shopping Center
Rental income $ 1,787,124 $ 1,772,710 $ 1,736,077
Bad debt expense (recovery) 448 2,997 (4,305)
Average occupancy 96% 98% 97%
</TABLE>
The Partnership's share of income from the joint venture increased $4,904
(4%) for the year ended December 31, 1998 as compared to the year ended
December 31, 1997 for the reasons stated above. The Partnership's share of
income from the joint venture increased $3,334 (3%) for the year ended December
31, 1997 as compared to the year ended December 31, 1996 for the reasons stated
above.
Tower Place averaged 96% occupancy for the year ended December 31, 1998, a
two percent decrease from the previous year. A new lease for 1,604 square feet
was executed in January and the tenant took occupancy in February. One tenant
who occupied 1,050 square feet vacated its space prior to the expiration of its
lease. This space was subsequently leased to an existing tenant who now leases
a total of 3,750 square feet. Two other tenants who occupied a total of 3,570
square feet vacated their spaces prior to lease expiration. Both of these
spaces have been leased to new tenants who will take occupancy during the first
quarter of 1999. Two tenants who occupied a total of 2,650 square feet vacated
their spaces upon the expiration of their leases. One of these spaces,
containing 1,050 square feet, was leased to a new tenant who took occupancy in
September. One tenant who occupies 3,500 square feet renewed its lease for five
years and two tenants who occupy a total of 5,322 square feet renewed their
leases for three years. A tenant who occupies 1,400 square feet renewed its
lease for two years and a tenant who occupies 1,120 square feet renewed its
lease for one year. General Cinema, whose eight-screen theater occupies 31,837
square feet, ceased operations in August. They have continued to pay rent
according to the terms of their lease, which expires September 30, 2006.
Management is aggressively seeking a replacement tenant for this space. As of
December 31, 1998, Tower Place was 98% leased.
Depreciation is provided over the estimated useful lives of the respective
assets using the straight line method. The estimated useful lives of the
buildings and improvements range from three to twenty-five years.
Property operating expenses consist primarily of utility costs, repair and
maintenance costs, leasing and promotion costs, real estate taxes, insurance
and property management fees. Total property operating expenses increased
$25,788 (3%) for the year ended December 31, 1998 as compared to the year ended
December 31, 1997. The increase is due to higher repair and maintenance costs,
property management fees, real estate taxes and amortization of leasing costs,
offset by lower utility costs and leasing and promotion expenses. Property
operating expenses at Germantown increased $5,933 (2%), with increases in
repair and maintenance costs and property management fees offset by decreases
in leasing and promotion costs and real estate taxes. Property operating
expenses at Paddock Place decreased slightly ($1,098), with increases in real
estate taxes and amortization of leasing costs being more than offset by
decreases in repair and maintenance costs and utility costs. Property operating
expenses at 1202 Industrial Place increased $20,953 (11%) due to increases in
real estate taxes, property management fees and amortization of leasing costs.
Property operating expenses increased $16,362 (2%) for the year ended
December 31, 1997 as compared to the year ended December 31, 1996. The increase
is due to higher real estate taxes and leasing and promotion costs. Property
operating expenses at Germantown decreased $5,949 (2%), with decreases in
parking lot repairs and maintenance and landscaping costs being offset by
8
<PAGE> 59
increases in leasing and promotion costs and utility costs. Property operating
expenses at Paddock Place increased $4,322 (2%), with increases in real estate
taxes and parking lot repair and maintenance costs being offset by decreases in
utilities and snow removal costs. Property operating expenses at 1202
Industrial Place increased $17,989 (11%) primarily due to increases in parking
lot repair and maintenance costs and real estate taxes offset by decreases in
insurance costs and general building repair and maintenance costs.
General and administrative expenses incurred are related to legal and
accounting expenses, rent, investor services costs, salaries and benefits and
various other costs required for the administration of the Partnership. General
and administrative expenses decreased $36,100 (10%) for the year ended December
31, 1998 as compared to the year ended December 31, 1997 primarily due to
decreases in accounting and legal costs, investor services costs and telephone
expenses, offset by increases in salaries and benefits.
General and administrative expenses increased $26,364 (8%) for the year
ended December 31, 1997 as compared to the year ended December 31, 1996
primarily due to increases in telephone, salaries and benefits, seminars and
education costs, travel costs and legal and accounting fees.
Bad debt expense was $28,844 for the year ended December 31, 1998. This
expense occurred primarily because one tenant at Paddock Place declared
bankruptcy and vacated the premises during the year.
The effect of inflation on results of operations for the years ended
December 31, 1998, 1997, and 1996 was not significant.
The Partnership recognizes that the arrival of the Year 2000 poses a
unique challenge to the ability of an entity's information technology system
and non-information technology systems to recognize the date change from
December 31, 1999 to January 1, 2000. The Partnership is continuing to assess
and has made certain changes to provide for continued functionality of its
systems. An assessment of the readiness of the Partnership's external entities,
such as vendors, customers, payment systems and others is still ongoing. Due to
the nature and extent of the Partnership's operations that are affected by Year
2000 issues, the Partnership does not believe that Year 2000 issues will have a
material adverse effect on the business operation or the financial performance
of the Partnership. There can be no assurance, however, that Year 2000 issues
will not adversely affect the Partnership or its business. The Partnership
believes that the cost to make appropriate changes of its internal and external
systems will not be significant and that such costs will be funded completely
through operations.
Words or phrases when used in the Form 10-K or other filings with the
Securities and Exchange Commission, such as "does not believe" and "believes"
or similar expressions, are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
The Partnership's financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable, accrued property taxes
payable, and security deposits. The carrying amount of these instruments
approximate fair value due to the short-term nature of these instruments.
Therefore, the Partnership believes it is relatively unaffected by interest
rate changes or other market risks.
9
<PAGE> 60
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements are filed as part of this report:
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Independent Auditors' Report 11
Balance Sheets -- December 31, 1998 and 1997 12
Statements of Earnings -- Years ended December 31, 1998, 1997, and 1996 13
Statements of Changes in Partners' Equity -- Years ended
December 31, 1998, 1997, and 1996 14
Statements of Cash Flows -- Years ended December 31, 1998, 1997, and 1996 15
Notes to Financial Statements 16-20
</TABLE>
10
<PAGE> 61
INDEPENDENT AUDITORS' REPORT
The Partners
Murray Income Properties II, Ltd.:
We have audited the accompanying balance sheets of Murray Income Properties II,
Ltd. (a limited partnership) as of December 31, 1998 and 1997, and the related
statements of earnings, changes in partners' equity and cash flows for each of
the years in the three-year period ended December 31, 1998. 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 Murray Income Properties II,
Ltd. as of December 31, 1998 and 1997, and the results of their operations and
their cash flows for each of the years in the three-year period ended December
31, 1998, in conformity with generally accepted accounting principles.
KPMG LLP
Dallas, Texas
February 26, 1999
11
<PAGE> 62
MURRAY INCOME PROPERTIES II, LTD.
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Investment properties, at cost (note 3):
Land $ 5,789,291 $ 5,789,291
Buildings and improvements 17,813,151 17,495,190
------------ ------------
23,602,442 23,284,481
Less accumulated depreciation 8,431,219 7,716,316
------------ ------------
Net investment properties 15,171,223 15,568,165
Investment in joint venture,
at equity (note 4) 1,321,510 1,391,212
Cash and cash equivalents 745,995 890,256
Certificates of deposit 597,000 896,000
Accounts receivable, net of allowances of
$-0- and $1,447 in 1998 and 1997,
respectively (note 1) 453,670 407,801
Other assets, at cost, net of accumulated
amortization of $554,007 and $480,477 in
1998 and 1997, respectively 458,943 243,460
------------ ------------
$ 18,748,341 $ 19,396,894
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 19,293 $ 6,401
Accrued property taxes 297,194 291,570
Security deposits and other liabilities 72,906 108,423
Deferred income (note 3) 35,470 30,827
------------ ------------
Total liabilities 424,863 437,221
------------ ------------
Partners' equity:
General Partners:
Capital contributions 1,000 1,000
Cumulative net earnings 645,335 603,815
Cumulative cash distributions (645,713) (607,180)
------------ ------------
622 (2,365)
------------ ------------
Limited Partners (314,687 Interests):
Capital contributions, net of offering costs 27,029,395 27,029,395
Cumulative net earnings 13,143,140 11,894,201
Cumulative cash distributions (21,849,679) (19,961,558)
------------ ------------
18,322,856 18,962,038
------------ ------------
Total partners' equity 18,323,478 18,959,673
------------ ------------
$ 18,748,341 $ 19,396,894
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE> 63
MURRAY INCOME PROPERTIES II, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
INCOME:
Rental (note 3) $ 2,892,818 $ 2,690,510 $ 2,716,192
Interest 91,488 101,485 99,554
Equity in earnings of joint
venture (note 4) 140,298 135,394 132,060
------------ ------------ ------------
3,124,604 2,927,389 2,947,806
------------ ------------ ------------
EXPENSES:
Depreciation 714,903 724,411 734,143
Property operating (note 5) 778,727 752,939 736,577
General and administrative 311,671 347,771 321,407
Bad debts (recoveries), net 28,844 (6,514) (4,549)
------------ ------------ ------------
1,834,145 1,818,607 1,787,578
------------ ------------ ------------
Net earnings $ 1,290,459 $ 1,108,782 $ 1,160,228
============ ============ ============
Basic earnings per limited partnership
interest $ 3.97 $ 3.40 $ 3.56
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE> 64
MURRAY INCOME PROPERTIES II, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
------------ ------------ ------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Balance at December 31, 1995 $ (3,134) $ 20,527,015 $ 20,523,881
Net earnings 39,334 1,120,894 1,160,228
Cash distributions ($6.00 per limited
partnership interest) (38,533) (1,888,103) (1,926,636)
------------ ------------ ------------
Balance at December 31, 1996 $ (2,333) $ 19,759,806 $ 19,757,473
------------ ------------ ------------
YEAR ENDED DECEMBER 31, 1997:
Net earnings 38,100 1,070,682 1,108,782
Cash distributions ($5.94 per limited
partnership interest) (38,132) (1,868,450) (1,906,582)
------------ ------------ ------------
Balance at December 31, 1997 $ (2,365) $ 18,962,038 $ 18,959,673
------------ ------------ ------------
YEAR ENDED DECEMBER 31, 1998:
Net earnings 41,520 1,248,939 1,290,459
Cash distributions ($6.00 per limited
partnership interest) (38,533) (1,888,121) (1,926,654)
------------ ------------ ------------
Balance at December 31, 1998 $ 622 $ 18,322,856 $ 18,323,478
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE> 65
MURRAY INCOME PROPERTIES II, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended
December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,290,459 $ 1,108,782 $ 1,160,228
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Bad debts (recoveries), net 28,844 (6,514) (4,549)
Depreciation 714,903 724,411 734,143
Equity in earnings of joint venture (140,298) (135,394) (132,060)
Amortization of other assets 73,530 66,877 66,893
Amortization of deferred income (6,498) (6,498) (6,498)
Change in assets and liabilities:
Accounts and notes receivable (74,713) (22,371) 64,790
Other assets (289,013) (74,868) (83,571)
Accounts payable 12,892 865 (3,272)
Accrued property taxes, security deposits
and other liabilities and deferred income (18,752) 39,103 3,361
------------ ------------ ------------
Net cash provided by operating activities 1,591,354 1,694,393 1,799,465
------------ ------------ ------------
Cash flows from investing activities:
Additions to investment properties (317,961) (31,585) (70,895)
Purchases of certificates of deposit (498,000) (996,000) (895,000)
Proceeds from redemptions of certificates of deposit 797,000 995,000 895,000
Distributions from joint venture 210,000 212,700 198,750
------------ ------------ ------------
Net cash provided by investing activities 191,039 180,115 127,855
------------ ------------ ------------
Cash flows from financing activities - cash distributions (1,926,654) (1,906,582) (1,926,636)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (144,261) (32,074) 684
Cash and cash equivalents at beginning of year 890,256 922,330 921,646
------------ ------------ ------------
Cash and cash equivalents at end of year $ 745,995 $ 890,256 $ 922,330
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE> 66
MURRAY INCOME PROPERTIES II, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1998
1. ORGANIZATION AND BASIS OF ACCOUNTING
The Partnership was formed December 23, 1985 by filing a Certificate and
Agreement of Limited Partnership with the Secretary of State of the State of
Texas. The Partnership Agreement authorized the issuance of up to 500,000
limited partnership interests at a price of $100 each, of which 314,687 limited
partnership interests were issued. Proceeds from the sale of limited
partnership interests, net of related selling commissions, dealer-manager fees
and other offering costs, are recorded as contributed capital.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Rental income is recognized as earned under the leases. Accordingly, the
Partnership accrues rental income for the full period of occupancy using the
straight line method over the related terms. At December 31, 1998 and 1997,
there were $232,338 and $185,338, respectively, of accounts receivable related
to such accruals.
Other assets consist primarily of deferred leasing costs which are
amortized using the straight line method over the lives of the related leases.
Depreciation is provided over the estimated useful lives of the respective
assets using the straight line method. The estimated useful lives of the
buildings and improvements range from three to twenty-five years.
The Partnership periodically reevaluates the propriety of the carrying
amounts of investment properties to determine whether current events and
circumstances warrant an adjustment to such carrying amounts. Such evaluations
are performed utilizing annual appraisals performed by independent appraisers
as well as internally developed estimates of expected undiscounted future cash
flows. In the event the carrying value of an individual property exceeds
expected future undiscounted cash flows, the property is written down to the
most recently appraised value. Since inception of the Partnership, none of the
Partnership's properties have required write downs.
No provision for income taxes has been made as the liabilities for such
taxes are those of the individual Partners rather than the Partnership. The
Partnership files its tax return on the accrual basis used for Federal income
tax purposes.
Basic earnings and cash distributions per limited partnership interest are
based upon the limited partnership interests outstanding at year-end and the
net earnings and cash distributions allocated to the Limited Partners in
accordance with the Partnership Agreement, as amended.
Continued
16
<PAGE> 67
MURRAY INCOME PROPERTIES II LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
Certificates of deposit are held at commercial banks and are stated at
cost, which approximates market. For purposes of reporting cash flows, the
Partnership considers all certificates of deposit and highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
The following information relates to estimated fair values of the
Partnership's financial instruments as of December 31, 1998 and 1997. For cash
and cash equivalents, certificates of deposit, accounts receivable, accounts
payable, accrued property taxes payable, and security deposits, the carrying
amounts approximate fair value because of the short maturity of these
instruments.
2. PARTNERSHIP AGREEMENT
Pursuant to the terms of the Partnership Agreement, net profits or losses
of the Partnership and cash distributions are generally allocated 98% to the
Limited Partners and 2% to the General Partners, except that all depreciation
shall be allocated to those Limited Partners subject to Federal income taxes.
Cash Distributions from the sale or refinancing of a property are allocated as
follows:
(a) First, all Cash Distributions from Sales or Refinancings shall be
allocated 99% to the Limited Partners and 1% to the Non-corporate
General Partner until the Limited Partners have been returned their
Original Invested Capital from Cash Distributions from Sales or
Refinancings, plus their Preferred Return from Cash Distributions from
Operations or Cash Distributions from Sales or Refinancings.
(b) Next, all Cash Distributions from Sales or Refinancings shall be
allocated 99% to the General Partners and 1% to the Non-corporate
General Partner in an amount equal to any unpaid Cash Distributions
from Operations subordinated to the Limited Partners' 7% non-cumulative
annual return. Such 99% shall be allocated 62 1/2% to the Non-corporate
General Partner and 37 1/2% to the Corporate General Partner
(c) Next, all Cash Distributions from Sales or Refinancings shall be
allocated 1% to the Non-corporate General Partner and 99% to the
Limited Partners and the General Partners. Such 99% will be allocated
85% to the Limited Partners and 15% to the General Partners. Such 15%
shall be allocated 62 1/2% to the Non-corporate General Partner and
37 1/2% to the Corporate General Partner.
Continued
17
<PAGE> 68
MURRAY INCOME PROPERTIES II, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENT PROPERTIES
The Partnership owns and operates Paddock Place Shopping Center in
Nashville, Tennessee, Germantown Collection Shopping Center located in
Germantown (Memphis), Tennessee and 1202 Industrial Place (an office/warehouse
facility) located in Grand Prairie, Texas.
During 1998, the Partnership adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and related
information", which established standards for the way that public business
enterprises report information about operating segments in audited financial
statements, as well as related disclosures about products and services,
geographic areas, and major customers. The Partnership defines each of its
shopping centers and its warehouse as operating segments; however, management
has determined that all of its properties have similar economic characteristics
and also meet the other criteria which permit the properties to be aggregated
into one reportable segment. Management of the Partnership makes decisions
about resource allocation and performance assessment based on the same
financial information presented throughout these financial statements.
The Partnership had no outstanding receivable balances at December 31, 1998
or 1997, which, individually, exceeded 5% of the Partnership's total assets.
Rental income from a major customer was approximately $282,000 during year
ended December 31, 1998 and approximately $257,000 for each of the years 1997
and 1996, respectively.
Operating leases with tenants range in terms from thirty-three months to
fifteen years. Fixed minimum future rentals under existing leases at December
31, 1998 are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1999 $ 2,195,595
2000 2,042,875
2001 1,715,074
2002 1,353,635
2003 839,705
Thereafter 6,285,554
------------
$ 14,432,438
============
</TABLE>
Rental income includes $563,986, $543,118, and $507,503 in 1998, 1997, and
1996, respectively, related to reimbursements from tenants for common area
maintenance costs, real estate taxes and insurance costs.
During 1990, the Partnership reached a settlement with a tenant which
provided for the receipt of $245,000 in settlement of all past due rent and a
modification of future rental obligations. In connection with this settlement,
$19,495 and $25,993 at December 31, 1998 and 1997, respectively, is classified
as deferred income and recognized on a straight line basis over the remaining
term of this lease.
Continued
18
<PAGE> 69
MURRAY INCOME PROPERTIES II, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT IN JOINT VENTURE
The Partnership owns a 15% interest in Tower Place Joint Venture, a joint
venture that owns and operates Tower Place Festival Shopping Center located in
Pineville (Charlotte), North Carolina. The Partnership accounts for the joint
venture using the equity method. The remaining 85% interest in the joint
venture is owned by Murray Income Properties I, Ltd. ("MIP I"), an affiliated
real estate limited partnership. The Tower Place Joint Venture Agreement
provides that the Partnership will share profits, losses, and cash
distributions according to the Partnership's 15% ownership interest in the
joint venture.
Summarized financial information for the joint venture is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Total assets, principally investment property $ 8,995,551 $ 9,473,766
============ ============
Total liabilities 185,484 199,023
Venturers' capital 8,810,067 9,274,743
------------ ------------
$ 8,995,551 $ 9,473,766
============ ============
</TABLE>
<TABLE>
<CAPTION>
Years ended
December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income $ 1,810,269 $ 1,797,162 $ 1,761,565
Expenses 874,946 894,538 881,164
------------ ------------ ------------
Net earnings $ 935,323 $ 902,624 $ 880,401
============ ============ ============
</TABLE>
5. TRANSACTIONS WITH AFFILIATES
Murray Realty Investors IX, Inc. ("MRI IX"), the Corporate General Partner,
entered into a property management agreement with the Partnership for the
management of 1202 Industrial Place, effective January 1, 1996. Pursuant to
this agreement, MRI IX earned property management fees in the amount of $17,832
and $15,495 during the years ended December 31, 1998 and 1997. MRI IX entered
into a property marketing agreement with the Partnership for the leasing of
1202 Industrial Place, effective August 4, 1998. Pursuant to this agreement,
MRI IX earned leasing commissions in the amount of $197,865 during the year
ended December 31, 1998.
Continued
19
<PAGE> 70
MURRAY INCOME PROPERTIES II, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
6. RECONCILIATION OF FINANCIAL STATEMENT NET EARNINGS AND PARTNERS' EQUITY TO
FEDERAL INCOME TAX BASIS NET EARNINGS AND PARTNERS' EQUITY
Reconciliation of financial statement net earnings to Federal income tax
basis net earnings is as follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net earnings - financial statement basis $ 1,290,459 $ 1,108,782 $ 1,160,228
------------ ------------ ------------
Financial statement basis depreciation/amortization
over tax basis depreciation/amortization 94,799 111,112 123,618
Financial statement basis joint venture earnings
under tax basis joint venture earnings 4,798 6,560 2,906
Tax basis rental income over (under)
financial statement basis rental income (41,302) 23,404 23,274
------------ ------------ ------------
Sub-total 58,295 141,076 149,798
------------ ------------ ------------
Net earnings - Federal income tax basis $ 1,348,754 $ 1,249,858 $ 1,310,026
============ ============ ============
</TABLE>
Reconciliation of financial statement partners' equity to Federal income
tax basis partners' equity is as follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Total partners' equity - financial statement basis $ 18,323,478 $ 18,959,673 $ 19,757,473
Current year tax basis net earnings over
financial statement basis net earnings 58,295 141,076 149,798
Cumulative prior years tax basis net earnings
over financial statement basis net earnings 1,316,977 1,175,901 1,026,103
------------ ------------ ------------
Total partners' equity - Federal income tax basis $ 19,698,750 $ 20,276,650 $ 20,933,374
============ ============ ============
</TABLE>
Because many types of transactions are susceptible to varying
interpretations under Federal and state income tax laws and regulations, the
amounts reported above may be subject to change at a later date upon final
determination by the taxing authorities.
20
<PAGE> 71
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
21
<PAGE> 72
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP.
Murray Realty Investors IX, Inc., a Texas corporation, and Crozier Partners
IX, Ltd., a Texas limited partnership, are the General Partners of the
Partnership. The Limited Partners voting a majority of the interests may,
without the consent of the General Partners, remove a General Partner and elect
a successor General Partner.
The Partnership Agreement provides that the Partnership will have an
Investment Committee consisting initially of three members, appointed by Murray
Realty Investors IX, Inc. (the "Corporate General Partner"). A person appointed
to the Investment Committee may be removed by the Corporate General Partner,
but the Corporate General Partner must name a replacement. The acquisition,
sale, financing or refinancing of a Partnership property must be approved by a
majority of the members of the Investment Committee. The members of the
Investment Committee currently are Messrs. Jack E. Crozier, Mitchell L.
Armstrong and W. Brent Buck. Murray Realty Investors IX, Inc. is owned 60% by
Mr. Armstrong and 40% by Mr. Buck. The following is a brief description of Jack
E. Crozier, a general partner of Crozier Partners IX, Ltd. a General Partner,
and the directors and executive officers of the Corporate General Partner:
Crozier Partners IX, Ltd., General Partner
Jack E. Crozier, 70, General Partner. From 1954 through July 1990, Mr.
Crozier was affiliated with Murray Financial Corporation and various of its
affiliates. From 1977 through 1988, he was President of Murray Financial
Corporation, and from 1982 until June 1989, he also served as President of
Murray Savings Association, a principal affiliate of Murray Financial
Corporation. He served as President or Director of various other subsidiaries
of Murray Financial Corporation which were engaged in real estate finance,
development and management. He also served as the general partner in a number
of publicly registered limited partnerships, and a number of non-registered
limited partnerships, all of which had real estate as their principal assets.
He is a consultant to several companies.
Murray Realty Investors IX, Inc., Corporate General Partner
The directors and executive officers of Murray Realty Investors IX, Inc.
are:
Mitchell L. Armstrong, 48, President and Director. Mr. Armstrong became
President of Murray Realty Investors IX, Inc. on November 15, 1989. From
September 1984 to that date, he was Senior Vice President Product Development
of Murray Realty Investors, Inc. and Murray Property Investors, and Vice
President - Tax for Murray Properties Company. From November 1988 to November
15, 1989, he also served as Secretary to these companies. From August 1983 to
September 1984, he was Executive Vice President of Dover Realty Investors. From
September 1980 to August 1983, he was with Murray Properties Company, in charge
of tax planning and reporting. From July 1972 to August 1980, he was with the
international accounting firm of Deloitte Haskins and Sells (now Deloitte &
Touche). Mr. Armstrong is a Certified Public Accountant and a Certified
Financial Planner and holds a Bachelor of Business Administration degree with
high honors in Accounting from Texas Tech University. He is a member of the
American Institute of Certified Public Accountants and a member of the
Institute of Certified Financial Planners.
W. Brent Buck, 43, Executive Vice President and Director. Mr. Buck became
Executive Vice President of Murray Realty Investors VIII, Inc., on November 15,
1989. From September 1981 to November 15, 1989, Mr. Buck served in various
capacities for Murray Properties Company and certain subsidiaries. His primary
responsibilities included property acquisitions and asset management. He was
responsible for initially identifying and negotiating the purchase of all
22
<PAGE> 73
properties in the Partnership, except for Mountain View Plaza Shopping Center.
Since their acquisition to the present time, he has continued to oversee the
management of all properties of the Partnership. Mr. Buck holds a Master of
Business Administration degree in Finance and a Bachelor of Public
Administration degree in Urban Administration from the University of
Mississippi. He also holds a Texas real estate salesman license and a
Mississippi broker's license.
ITEM 11. EXECUTIVE COMPENSATION.
Pursuant to an amendment to the Partnership Agreement effective November
15, 1989, Murray Income Properties II, Ltd. is reimbursed by Murray Income
Properties I, Ltd. for forty-seven percent (47%) of executive compensation
incurred in the management of the two partnerships. Murray Income Properties I,
Ltd. is a real estate limited partnership, the general partners of which are
affiliates of the General Partners. The following table presents Murray Income
Properties II, Ltd.'s share of executive compensation.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------
All Other
Name and Principal Position Year Salary Compensation (1)
- --------------------------- ---- -------- ----------------
<S> <C> <C> <C>
Mitchell L. Armstrong, 1998 $ 66,621 $ 2,848
President* 1997 65,507 2,815
1996 63,414 499
W. Brent Buck, 1998 49,611 1,733
Executive Vice President* 1997 48,782 1,695
1996 47,224 221
</TABLE>
* Offices held in Murray Realty Investors IX, Inc., the Corporate General
Partner.
(1) The Partnership provides the named executive officers with certain group
life, health, medical and other non-cash benefits generally available to
all salaried employees. The amounts shown in this column include the
following:
(a) Matching contributions by the Partnership under its SIMPLE-IRA plan
which equaled 3% of each employee's covered compensation (salary and
term insurance value). During 1998 the Partnership's matching
contributions were $2,024 for Mr. Armstrong and $1,499 for Mr. Buck.
(b) Full premium cost of term insurance that will benefit the executive.
The Partnership and Murray Income Properties I, Ltd. entered into severance
agreements with Mr. Armstrong and Mr. Buck effective September 16, 1996.
Pursuant to these agreements, upon the occurrence of specified events, the
Partnership will be obligated for fifty-three (53%) of any benefits paid
pursuant to the agreements to either Mr. Armstrong or Mr. Buck. The agreement
with Mr. Armstrong provides for a benefit amount equal to the value of the
aggregate of one month of his highest monthly salary paid at any time during
the twelve months prior to his termination multiplied by fifteen (15), plus the
current monthly cost of such health, disability and life benefits (including
spousal or similar coverage and coverage for children) which he was receiving
or entitled to receive immediately prior to termination multiplied by eighteen
(18). The agreement with Mr. Buck provides for a benefit amount equal to the
value of the aggregate of one month of his highest monthly salary paid at any
time during the twelve months prior to his termination multiplied by twelve
(12), plus the current monthly cost of such health, disability and life
benefits (including
23
<PAGE> 74
spousal or similar coverage and coverage for children) which he was receiving
or entitled to receive immediately prior to termination multiplied by fourteen
(14).
The Partnership has not paid and does not propose to pay any bonuses or
deferred compensation, compensation pursuant to retirement or other plans, or
other compensation to the officers, directors or partners of the General
Partners other than described in the above table or the above paragraph. In
addition, there are no restricted stock awards, options or stock appreciation
rights, or any other long term incentive payouts.
During the operational and liquidation stages of this Partnership, the
General Partners and their affiliates receive various fees and distributions.
For information on these types of remuneration, reference is made to the
section entitled "Management Compensation" as contained in the Prospectus dated
February 20, 1986 filed as a part of Amendment No. 1 to Registrant's Form S-11
Registration Statement (File No. 33-2394) attached hereto as Exhibit 99d. See
"Item 13. Certain Relationships and Related Transactions" for information on
the fees and other compensation or reimbursements paid to the General Partners
or their Affiliates during the year ended December 31, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
No person (including any "group" as that term is used in Section 13 (d)(3)
of the Securities Exchange Act of 1934) is known to the Partnership to be the
beneficial owner of more than five percent of the outstanding voting Interests
as of December 31, 1998.
The following table presents certain information regarding the number of
Interests owned, directly or indirectly, by (i) a general partner of a General
Partner and executive officers and directors of a General Partner and (ii) a
general partner of a General Partner and executive officers and directors of a
General Partner as a group as of December 31, 1998:
<TABLE>
<CAPTION>
Amount and Nature
Of Beneficial Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
- ------------------------------ ----------------------- -------------------- --------
<S> <C> <C> <C>
Limited Partnership Interests, Mitchell L. Armstrong 377 (1) .12%
$100 per Interest W. Brent Buck 251 (2) .08%
Jack E. Crozier 736 (3) .23%
Limited Partnership Interest, All General Partners
$100 per Interest as a group 1,057 .34%
</TABLE>
(1) The total of 377 Interests listed above includes 126 Interests owned
beneficially and of record by First Trust Corporation, Trustee for the
benefit of Mitchell L. Armstrong IRA; 195 Interests owned by Murray Realty
Investors IX, Inc., a corporation in which Mr. Armstrong is an officer,
director, and substantial owner; and 56 Interests owned by Crozier
Partners IX, Ltd., a partnership in which Mr. Armstrong is a limited
partner.
(2) The total of 251 Interests listed above includes 195 Interests owned by
Murray Realty Investors IX, Inc., a corporation in which Mr. Buck is an
officer, director and substantial owner; and 56 Interests owned by Crozier
Partners IX, Ltd., a partnership in which Mr. Buck is a limited partner.
(3) The total of 736 Interests listed above included 272 Interests owned by
Crozier Partners IX, Ltd., a partnership in which Mr. Crozier is a general
partner and 464 Interests owned by Mrs. Irma Crozier as her separate
property.
24
<PAGE> 75
No arrangements are known to the Partnership which may result in a change
of control of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the year ended December 31, 1998 the Partnership was reimbursed by
Murray Income Properties I, Ltd. ("MIP I") for forty-seven percent (47%) of the
costs associated with the management of the Partnership and MIP I. MIP I is a
publicly-registered real estate limited partnership, the general partners of
which are affiliates of the General Partners. The reimbursement has been
accounted for as a reduction of general and administrative expenses. Murray
Realty Investors IX, Inc. ("MRI IX"), the Corporate General Partner, entered
into a property management agreement with the Partnership for the management of
1202 Industrial Place, effective January 1, 1996. Pursuant to this agreement,
MRI IX earned property management fees in the amount of $17,832 and $15,495
during the years ended December 31, 1998 and 1997. MRI IX entered into a
property marketing agreement with the Partnership for the leasing of 1202
Industrial Place, effective August 4, 1998. Pursuant to this agreement, MRI IX
earned leasing commissions in the amount of $197,865 during the year ended
December 31, 1998.
25
<PAGE> 76
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements - See Index to Financial Statements in Item 8
of this Form 10-K
2. Financial Statement Schedules with Independent Auditors' Report
Thereon:
(i) Valuation and Qualifying Accounts (Schedule II) - Years ended
December 31, 1998, 1997, and 1996.
(ii) Real Estate and Accumulated Depreciation (Schedule III) -
December 31, 1998
All other schedules have been omitted because they are not required or
the required information is shown in the financial statements or notes
thereto.
(b) Reports on Form 8-K filed during the last quarter of the year:
None
(c) Exhibits:
3a Agreement of Limited Partnership of Murray Income Properties II,
Ltd.. Reference is made to Exhibit A of the Prospectus dated
February 20, 1986 contained in Amendment No. 1 to Partnership's
Form S-11 Registration Statements filed with the Securities and
Exchange Commission on February 13, 1986. (File No. 33-2294).
3b Amended and Restated Certificate and Agreement of Limited
Partnership dated as of November 15, 1989. Reference is made to
Exhibit 3b to the 1989 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 31, 1989.
(File No. 0-17183)
3c Amended and Restated Certificate and Agreement of Limited
Partnership dated as of January 10, 1990. Reference is made to
Exhibit 3c to the 1989 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 31, 1989.
(File No. 0-17183)
10a Form of Joint Venture Agreement between the Partnership and Murray
Income Properties II, Ltd. Reference is made to Exhibit 10h to
Post-Effective Amendment No. l to Partnership's Form S-11
Registration Statements, filed with the Securities and Exchange
Commission on July 29, 1989. (File No. 33-2394)
10b Lease Agreement with General Cinema to lease certain premises as
described within the Lease Agreement dated July 23, 1985 at Tower
Place Festival Shopping Center. Reference is made to Exhibit 10q to
the 1989 Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 31, 1989. (File No. 0-17183)
10c Lease Agreement with Rafferty's Inc. to lease certain premises as
described within the Lease Agreement dated August 12, 1985 at
Paddock Place Shopping Center. Reference is made to Exhibit 10r to
the 1989 Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 31, 1989. (File No. 0-17183)
10d Lease Agreement with Chili's Inc. to lease certain premises as
described within the Lease Agreement dated May 19, 1988 at
Germantown Collection Shopping Center.
26
<PAGE> 77
Reference is made to Exhibit 10t to the 1989 Annual Report on Form
10-K filed with the Securities and Exchange Commission on March 31,
1989. (File No. 0-17183)
10e Settlement and Release Agreement with Rafferty's Inc. and Mid-South
Management Group, Inc., dated December 1, 1990. Reference is made
to Exhibit 10u to the 1990 Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 31, 1991.
(File No. 0-17183)
10f Management Agreement with Murray Realty Investors IX, Inc. for
management and operation services described in the Management
Agreement dated January 1, 1996 at 1202 Industrial Place. Reference
is made to Exhibit 10a to the Form 10-Q for the Quarter ended
March 31, 1996 filed with the Securities and Exchange Commission on
May 13, 1996. (File No. 0-17183)
10g Marketing Agreement with Murray Realty Investors IX, Inc. for
leasing services described in the Marketing Agreement dated
August 4, 1998 at 1202 Industrial Place. Reference is made to
Exhibit 10a to the Form 10-Q for the Quarter ended September 30,
1998 filed with the Securities and Exchange Commission on
November 6, 1998. (File No. 0-17183)
10h Data Processing System Use Agreement between Murray Income
Properties II, Ltd. and The Mavricc Management Systems, Inc., dated
September 1, 1998. Filed herewith.
10i Management Agreement with CK Charlotte Overhead Limited Partnership
for management and operation services described in the Management
Agreement dated November 9, 1998 at Tower Place Festival Shopping
Center. Filed herewith.
10j Management Agreement with Trammell Crow SE, Inc. for management and
operation services described in the Management Agreement dated
August 8, 1990 (as extended pursuant to the Modification to
Management Agreement dated February 28, 1998) at Germantown
Collection Shopping Center. Filed herewith.
10k Management Agreement with Brookside Commercial Services for
management and operation services described in the Management
Agreement dated March 1, 1991 (as extended pursuant to the
Extension of Property Management Agreement dated February 18, 1997
at Paddock Place Shopping Center. Filed herewith.
10l Lease Agreement with Calidad Foods, Inc. to lease certain premises
as described within the Lease Agreement dated October 19, 1992, at
1202 Industrial Place (an office/warehouse facility). Reference is
made to Exhibit 10v to the Form 10-Q for the Quarter ended
September 30, 1992 filed with the Securities and Exchange
Commission on November 13, 1992. (File No. 0-17183)
10m Lease Agreement with Pierce Family Partnership to lease certain
premises as described within the Lease Agreement dated October 23,
1992, at 1202 Industrial Place (an office/warehouse facility).
Reference is made to Exhibit 10x to the Form 10-Q for the Quarter
ended September 30, 1992 filed with the Securities and Exchange
Commission on November 13, 1992. (File No. 0-17183)
10n Amendment to Lease Agreement with Calidad Foods, Inc. dated
December 28, 1992 at 1202 Industrial Place (an office/warehouse
facility). Reference is made to Exhibit 10n to the 1992 Annual
Report on Form 10-K filed with the Securities and Exchange
Commission on March 19, 1993. (File No. 0-17183)
27
<PAGE> 78
10o Amendment to Lease Agreement with Pierce Leahy Corp., a
Pennsylvania corporation, as successor in interest to Pierce Family
Partnership Ltd., a Pennsylvania limited partnership, dated
October 8, 1998, at 1202 Industrial Place (an office/warehouse
facility). Filed herewith.
10p Lease Agreement with Pierce Leahy Corp., a Pennsylvania
corporation, to lease certain premises as described within the
Lease Agreement dated October 8, 1998, at 1202 Industrial Place
(an office/warehouse facility). Filed herewith.
10q Lease Agreement with Brown Group Retail, Inc. to lease certain
premises as described within the Lease Agreement dated November 9,
1993 at Tower Place Festival Shopping Center. Reference is made to
Exhibit 10p to the 1993 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 21, 1994.
(File No. 0-17183)
10r Lease Agreement with Care Management Enterprises, Inc. to lease
certain premises as described within the Lease Agreement dated
November 16, 1995 at 1202 Industrial Place (an office/warehouse
facility). Reference is made to Exhibit 10p to the 1995 Annual
Report on Form 10-K filed with the Securities and Exchange
Commission on March 22, 1996. (File No. 0-14105)
10s Severance Agreements by and among Murray Income Properties I, Ltd.
and Murray Income Properties II, Ltd. and Mitchell L. Armstrong
dated September 16, 1996. Reference is made to Exhibit 10a to the
1996 3rd Quarter Report on Form 10-Q filed with the Securities and
Exchange Commission on November 8, 1996. (File No. 0-14105)
10t Severance Agreements by and among Murray Income Properties I, Ltd.
and Murray Income Properties II, Ltd. and W. Brent Buck dated
September 16, 1996. Reference is made to Exhibit 10b to the 1996
3rd Quarter Report on Form 10-Q filed with the Securities and
Exchange Commission on November 8, 1996. (File No. 0-14105)
27 Financial Data Schedule. Filed herewith.
99a Glossary, as contained in the Prospectus dated February 20, 1986
filed as part of Amendment No. 2 to Registrant's Form S-11
Registration Statement (File No. 33-2394). Filed herewith.
99b Article XIII of the Agreement of Limited Partnership as contained
in the Prospectus dated February 20, 1986 filed as part of
Amendment No. 2 to Registrant's Form S-11 Registration Statement
(File No. 33-2394). Filed herewith.
99c Amendment No. 9 to the Agreement of Limited Partnership contained
in the Proxy Statement dated October 11, 1989. Filed herewith.
99d Management Compensation as contained in the Prospectus dated
February 20, 1986 filed as part of Amendment No. 2 to Registrant's
Form S-11 Registration Statement (File No. 33-2394). Filed
herewith.
(d) Financial Statement Schedules with Independent Auditors' Report Thereon:
(i) Valuation and Qualifying Accounts (Schedule II) - Years ended
December 31, 1998, 1997, and 1996.
(ii) Real Estate and Accumulated Depreciation (Schedule III) -
December 31, 1998.
28
<PAGE> 79
All other schedules have been omitted because they are not required or
the required information is shown in the consolidated financial
statements or notes thereto.
29
<PAGE> 80
INDEPENDENT AUDITORS' REPORT
The Partners
Murray Income Properties II, Ltd.:
Under date of February 26, 1999, we reported on the balance sheets of Murray
Income Properties II, Ltd. (a limited partnership) as of December 31, 1998 and
1997, and the related statements of earnings, changes in partners' equity, and
cash flows for each of the years in the three-year period ended December 31,
1998, as contained in Item 8 of this annual report on Form 10-K. In connection
with our audits of the aforementioned financial statements, we also audited the
related financial statement schedules as listed in Item 14(a)2 of this annual
report on Form 10-K. These financial statement schedules are the responsibility
of the Partnership`s management. Our responsibility is to express an opinion on
these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG LLP
Dallas, Texas
February 26, 1999
30
<PAGE> 81
Schedule II
MURRAY INCOME PROPERTIES II LTD.
(A LIMITED PARTNERSHIP)
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning costs and end of
Description of period expenses Deductions period
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996 $ 14,034 (4,549) -0- 9,485
========== ========== ========== ==========
Year ended December 31, 1997 $ 9,485 (6,514) 1,524 1,447
========== ========== ========== ==========
Year ended December 31, 1998 $ 1,447 28,844 30,291 -0-
========== ========== ========== ==========
</TABLE>
Deductions are primarily for writeoffs of accounts and notes receivables
deemed uncollectible by management.
31
<PAGE> 82
Schedule III
MURRAY INCOME PROPERTIES II, LTD.
(a limited partnership)
Real Estate and Accumulated Depreciation
December 31, 1998
<TABLE>
<CAPTION>
Costs Capitalized
Initial Cost Subsequent
to Partnership (A) to Acquisition
-------------------------- --------------
Buildings and
Description Encumbrances Land Improvements Improvements
----------- ------------ ---- ------------- ------------
<S> <C> <C> <C> <C>
Shopping Center
Nashville, Tennessee $ 0 $ 3,153,285 $ 6,615,549 $ 646,184
Shopping Center
Germantown (Memphis)
Tennessee $ 0 $ 1,751,518 $ 6,395,078 $ 1,147,982
Office Warehouse
Grand Prairie
Texas $ 0 $ 884,488 $ 2,895,376 $ 112,982
----------- ----------- ----------- -----------
$ 0 $ 5,789,291 $15,906,603 $ 1,907,148
=========== =========== =========== ===========
<CAPTION>
Gross Amount
at which carried at Life on which
Close of Period (D) Depreciation in
--------------------------------------- Fiscal Latest Statement
Buildings and Accumulated Year of Year of Earnings
Description Land Improvements Total Depreciation Construction Acquired is Computed
----------- ---- ------------- ----- ------------ ------------ ----------- ----------------
Shopping Center
Nashville, Tennessee $ 3,153,285 $ 7,261,733 $10,415,018 $ 3,579,653 1985/86 1986 3-25 YEARS
Shopping Center
Germantown (Memphis)
Tennessee $ 1,751,518 $ 7,543,060 $ 9,294,578 $ 3,485,370 1987 1988 3-25 YEARS
Office Warehouse
Grand Prairie
Texas $ 884,488 $ 3,008,358 $ 3,892,846 $ 1,366,196 1980 1988 3-25 YEARS
----------- ----------- ----------- -----------
$ 5,789,291 $17,813,151 $23,602,442 $ 8,431,219
=========== =========== =========== ===========
</TABLE>
Notes:
(A) The initial cost to the Partnership represents the original purchase
price of the properties.
(B) Reconciliation of real estate owned for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period $ 23,284,481 $ 23,252,896 $ 23,182,001
Additions during period $ 317,961 $ 31,585 $ 70,895
Retirements during period $ 0 $ 0 $ 0
------------ ------------ ------------
Balance at close of period $ 23,602,442 $ 23,284,481 $ 23,252,896
============ ============ ============
</TABLE>
(C) Reconciliation of accumulated depreciation for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period $ 7,716,316 $ 6,991,905 $ 6,257,762
Depreciation expense $ 714,903 $ 724,411 $ 734,143
Retirements during period $ 0 $ 0 $ 0
------------ ------------ ------------
Balance at close of period $ 8,431,219 $ 7,716,316 $ 6,991,905
============ ============ ============
</TABLE>
(D) The aggregate cost of real estate at December 31, 1998 for Federal income
tax purposes is $24,423,818
32
<PAGE> 83
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MURRAY INCOME PROPERTIES II, LTD.
By: Crozier Partners IX, Ltd.
a General Partner
Dated: March 26, 1999 By: /s/ Jack E. Crozier
----------------------------------
Jack E. Crozier
a General Partner
By: Murray Realty Investors IX, Inc.
a General Partner
Dated: March 26, 1999 By: /s/ Mitchell Armstrong
----------------------------------
Mitchell Armstrong
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Murray Realty Investors IX, Inc.
a General Partner
Dated: March 26, 1999 By: /s/ Brent Buck
----------------------------------
Brent Buck
Executive Vice President
Director
Dated: March 26, 1999 By: /s/ Mitchell Armstrong
----------------------------------
Mitchell Armstrong
Chief Executive Officer
Chief Financial Officer
Director
33
<PAGE> 84
APPENDIX C
QUARTERLY REPORT ON FORM 10-Q (FOR THE QUARTER ENDED SEPTEMBER 30, 1999)
<PAGE> 85
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-Q
------------
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
---------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
COMMISSION FILE NO.
0-17183
------------
MURRAY INCOME PROPERTIES II, LTD.
(Exact Name of Registrant as Specified in its Charter)
TEXAS 75-2085586
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5550 LBJ FREEWAY, SUITE 675, DALLAS, TEXAS 75240
(Address of principal executive offices) (Zip Code)
(972) 991-9090
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
<PAGE> 86
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MURRAY INCOME PROPERTIES II, LTD.
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Investment properties, at cost:
Land $ 5,789,291 $ 5,789,291
Buildings and improvements 17,821,334 17,813,151
------------ ------------
23,610,625 23,602,442
Less accumulated depreciation 8,971,519 8,431,219
------------ ------------
Net investment properties 14,639,106 15,171,223
Investment in joint venture, at equity 1,269,237 1,321,510
Cash and cash equivalents 797,542 745,995
Certificates of deposit 595,986 597,000
Accounts receivable, net of allowance
of $5,476 and $-0- in 1999 and 1998,
respectively 514,587 453,670
Other assets, at cost, net of accumulated
amortization of $612,695 and $554,007 in
1999 and 1998, respectively 500,797 458,943
------------ ------------
$ 18,317,255 $ 18,748,341
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 13,768 $ 19,293
Accrued property taxes 237,998 297,194
Security deposits and other liabilities 76,155 72,906
Deferred income 39,889 35,470
------------ ------------
Total liabilities 367,810 424,863
------------ ------------
Partners' equity:
General Partners:
Capital contributions 1,000 1,000
Cumulative net earnings 678,613 645,335
Cumulative cash distributions (674,613) (645,713)
------------ ------------
5,000 622
------------ ------------
Limited Partners (314,687 interests):
Capital contributions, net of offering costs 27,029,395 27,029,395
Cumulative net earnings 14,180,819 13,143,140
Cumulative cash distributions (23,265,769) (21,849,679)
------------ ------------
17,944,445 18,322,856
------------ ------------
Total partners' equity 17,949,445 18,323,478
------------ ------------
$ 18,317,255 $ 18,748,341
============ ============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 87
MURRAY INCOME PROPERTIES II, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INCOME:
Rental $ 741,124 $ 727,632 $ 2,286,104 $2,158,183
Interest 18,155 22,655 51,819 71,567
Equity in earnings of joint venture 35,945 34,312 113,177 102,886
---------- ---------- ----------- ----------
795,224 784,599 2,451,100 2,332,636
---------- ---------- ----------- ----------
EXPENSES:
Depreciation 177,998 180,330 540,300 534,878
Property operating 217,217 177,930 594,504 561,087
General and administrative 62,111 64,213 239,863 241,047
Bad debts, net 3,729 23,356 5,476 28,844
---------- ---------- ----------- ----------
461,055 445,829 1,380,143 1,365,856
---------- ---------- ----------- ----------
Net Earnings $ 334,169 $ 338,770 $ 1,070,957 $ 966,780
========== ========== =========== ==========
Basic earnings per limited
partnership interest $ 1.03 $ 1.04 $ 3.30 $ 2.97
========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 88
MURRAY INCOME PROPERTIES II, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
------------ ------------ ------------
<S> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1998:
Balance at December 31, 1997 $ (2,365) $ 18,962,038 $ 18,959,673
Net earnings 31,096 935,684 966,780
Cash distributions (28,899) (1,416,091) (1,444,990)
------------ ------------ ------------
Balance at September 30, 1998 $ (168) $ 18,481,631 $ 18,481,463
============ ============ ============
NINE MONTHS ENDED SEPTEMBER 30, 1999:
Balance at December 31, 1998 $ 622 $ 18,322,856 $ 18,323,478
Net earnings 33,278 1,037,679 1,070,957
Cash distributions (28,900) (1,416,090) (1,444,990)
------------ ------------ ------------
Balance at September 30, 1999 $ 5,000 $ 17,944,445 $ 17,949,445
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 89
MURRAY INCOME PROPERTIES II, LTD.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,070,957 $ 966,780
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Bad debts, net 5,476 28,844
Depreciation 540,300 534,878
Amortization of other assets 58,688 55,271
Equity in earnings of joint venture (113,177) (102,886)
Amortization of deferred income (4,874) (4,874)
Change in assets and liabilities:
Accounts receivable (66,393) (55,242)
Other assets (100,542) (86,550)
Accounts payable (5,525) 7,433
Accrued property taxes, security deposits
and other liabilities and deferred income (46,654) (61,534)
----------- -----------
Net cash provided by operating activities 1,338,256 1,282,120
----------- -----------
Cash flows from investing activities:
Additions to investment properties (8,183) (315,961)
Purchases of certificates of deposit (694,986) (298,000)
Proceeds from redemptions of certificates of deposit 696,000 597,000
Distributions from joint venture 165,450 156,000
----------- -----------
Net cash provided by investing activities 158,281 139,039
----------- -----------
Cash flows from financing activities - cash distributions (1,444,990) (1,444,990)
----------- -----------
Net increase (decrease) in cash and cash equivalents 51,547 (23,831)
Cash and cash equivalents at beginning of period 745,995 890,256
----------- -----------
Cash and cash equivalents at end of period $ 797,542 $ 866,425
=========== ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 90
MURRAY INCOME PROPERTIES II, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
1. BASIS OF ACCOUNTING
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Rental income is recognized as earned under the leases. Accordingly, the
Partnership accrues rental income for the full period of occupancy using the
straight line method over the related terms. At September 30, 1999 and December
31, 1998, $305,231 and $232,338, respectively, of accounts receivable related to
such accruals.
Other assets consist primarily of deferred leasing costs which are
amortized using the straight line method over the lives of the related leases.
Depreciation is provided over the estimated useful lives of the respective
assets using the straight line method. The estimated useful lives of the
buildings and improvements range from three to twenty-five years.
The Partnership periodically reevaluates the propriety of the carrying
amounts of investment properties to determine whether current events and
circumstances warrant an adjustment to such carrying amounts. Such evaluations
are performed utilizing annual appraisals performed by independent appraisers as
well as internally developed estimates of expected undiscounted future cash
flows. In the event the carrying value of an individual property exceeds
expected future undiscounted cash flows, the property is written down to the
most recently appraised value. Since inception of the Partnership, none of the
Partnership's properties have required write downs.
No provision for income taxes has been made as the liabilities for such
taxes are those of the individual Partners rather than the Partnership. The
Partnership files its tax return on the accrual basis used for Federal income
tax purposes.
Basic earnings per limited partnership interest are based upon the limited
partnership interests outstanding at period-end and the net earnings allocated
to the Limited Partners in accordance with the terms of the Partnership
Agreement, as amended.
Certificates of deposit are held at commercial banks and are stated at
cost, which approximates market. For purposes of reporting cash flows, the
Partnership considers all certificates of deposit and highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
The following information relates to estimated fair values of the
Partnership's financial instruments as of September 30, 1999 and December 31,
1998. For cash and cash equivalents, certificates of deposit, accounts and notes
receivable, accounts payable, accrued property taxes payable, and security
deposits, the carrying amounts approximate fair value because of the short
maturity of these instruments.
Effective January 1, 1999, the Partnership implemented the provisions of
Statement of Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities.
SOP 98-5 requires that the costs of start-up activities, including
organizational costs, be expensed as incurred. SOP 98-5 required the initial
6
<PAGE> 91
application to be recorded as of the beginning of the fiscal year in which the
SOP is first adopted. Due to the nature of capitalized costs of the Partnership,
there was no effect of implementation of this new pronouncement on the financial
condition or results of operations of the Partnership.
2. PARTNERSHIP AGREEMENT
Pursuant to the terms of the Partnership Agreement, net profits or losses
of the Partnership and cash distributions are generally allocated 98% to the
Limited Partners and 2% to the General Partners, except that all depreciation
shall be allocated to those Limited Partners subject to Federal income taxes.
Cash distributions from the sale or refinancing of a property are allocated as
follows:
(a) First, all Cash Distributions from Sales or Refinancings shall be
allocated 99% to the Limited Partners and 1% to the Non-corporate
General Partner until the Limited Partners have been returned their
Original Invested Capital from Cash Distributions from Sales or
Refinancings, plus their Preferred Return from either Cash
Distributions from Operations or Cash Distributions from Sales or
Refinancings.
(b) Next, all Cash Distributions from Sales or Refinancings shall be
allocated 99% to the General Partners and 1% to the Non-corporate
General Partner in an amount equal to any unpaid Cash Distributions
from Operations subordinated to the Limited Partners' 7% non-cumulative
annual return. Such 99% shall be allocated 62 1/2% to the Non-corporate
General Partner and 37 1/2% to the Corporate General Partner.
(c) Next, all Cash Distributions from Sales or Refinancings shall be
allocated 1% to the Non-corporate General Partner and 99% to the
Limited Partners and the General Partners. Such 99% will be allocated
85% to the Limited Partners and 15% to the General Partners. Such 15%
shall be allocated 62 1/2% to the Non-corporate General Partner and 37
1/2% to the Corporate General Partner.
(d) Upon the sale of the last property owned by the Partnership, Cash
Distributions from Sales or Refinancings shall be allocated and paid to
the Partners in an amount equal to, and in proportion with, their
existing capital account balances. Such distributions shall be made
only after distribution of all Cash Distributions from Operations and
only after all allocations of Partnership income, gain, loss, deduction
and credit (including net gain from the sale or other disposition of
the properties) have been closed to the Partners' respective capital
accounts.
3. INVESTMENT PROPERTY
The Partnership owns and operates Paddock Place Shopping Center in
Nashville, Tennessee, Germantown Collection Shopping Center located in
Germantown (Memphis), Tennessee and 1202 Industrial Place (an office/warehouse
facility) located in Grand Prairie, Texas.
The Partnership has adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information",
which established standards for the way that public business enterprises report
information about operating segments in audited financial statements, as well as
related disclosures about products and services, geographic areas, and major
customers. The Partnership defines each of its shopping centers and its
warehouse as operating segments; however, management has determined that all of
its properties have similar economic characteristics and also meet the other
criteria which permit the properties to be aggregated into one reportable
segment. Management of the Partnership makes decisions about resource allocation
and performance assessment based on the same financial information presented
throughout these financial statements.
7
<PAGE> 92
4. INVESTMENT IN JOINT VENTURE
The Partnership owns a 15% interest in Tower Place Joint Venture, a joint
venture that owns and operates Tower Place Festival Shopping Center located in
Pineville (Charlotte), North Carolina. The Partnership accounts for the joint
venture by using the equity method. The remaining 85% interest in the joint
venture is owned by Murray Income Properties I, Ltd. ("MIP I"), an affiliated
real estate limited partnership. The Tower Place Joint Venture Agreement
provides that the Partnership will share profits, losses, and cash distributions
according to the Partnership's 15% ownership interest in the joint venture.
5. TRANSACTIONS WITH AFFILIATES
Murray Realty Investors IX, Inc. ("MRI IX"), the Corporate General Partner,
entered into a property management agreement with the Partnership for the
management of 1202 Industrial Place, effective January 1, 1996. Pursuant to this
agreement, MRI IX earned property management fees in the amount of $14,161 and
$13,420 during the nine months ended September 30, 1999 and 1998, respectively.
6. OTHER
Information furnished in this interim report reflects all adjustments
consisting of normal recurring adjustments which, in the opinion of management,
are necessary to reflect a fair presentation of the results for the periods
presented.
The financial information included in this interim report as of September
30, 1999 and for the three and nine months ended September 30, 1999 and 1998 has
been prepared by management without audit by independent public accountants. The
Partnership's 1998 annual report contains audited financial statements including
the notes to the financial statements and should be read in conjunction with the
financial information contained in this interim report.
8
<PAGE> 93
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
As of September 30, 1999, the Partnership had cash, cash equivalents and
certificates of deposit of $1,393,528. Such amounts represent cash generated
from operations and working capital reserves.
Rental income from leases is accrued using the straight line method over
the related lease terms. At September 30, 1999 and December 31, 1998, $305,231
and $232,338, respectively, of accounts receivable related to such accruals.
Accounts receivable also consist of tenant receivables, receivables for rent
collected (but not yet remitted to the Partnership by the property management
companies), and interest receivable on short-term investments. The increase in
accounts receivable of $66,393 (exclusive of bad debts and recoveries) from
December 31, 1998 to September 30, 1999 is primarily due to increases in
receivables related to the accruals described above.
The decrease in accrued property taxes of $59,196 from December 31, 1998 to
September 30, 1999 is primarily due to payments of 1998 property taxes for the
Partnership's properties.
During the three months ended September 30, 1999, the Partnership made Cash
Distributions from Operations of $481,664 relating to the three-month period
ended June 30, 1999. Subsequent to September 30, 1999, the Partnership made the
regular Quarterly Cash Distributions from Operations of $481,664, relating to
the three months ended September 30, 1999. The funds distributed were derived
from the net cash flow generated from operations of the Partnership's properties
and from interest earned, net of administrative expenses, on funds invested in
short-term money market instruments and certificates of deposit.
Future liquidity is currently expected to result from cash generated from
the operations of the Partnership's properties (which could be affected
negatively in the event of weakened occupancies and/or rental rates), interest
earned on funds invested in short-term money market instruments and certificates
of deposit, and ultimately through the sale of the Partnership's properties.
9
<PAGE> 94
Results of Operations
Rental income increased $127,921 for the nine months ended September 30,
1999 as compared to the same period in 1998. The following information details
the rental income generated, bad debt expense incurred, and average occupancy
for the periods shown for the Partnership's properties.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Paddock Place Shopping Center
Rental income $285,465 $301,335 $902,100 $923,503
Bad debt expense 3,729 23,356 5,476 28,844
Average occupancy 89% 93% 90% 97%
Germantown Shopping Center
Rental income $282,201 $280,412 $845,743 $791,739
Bad debt expense -0- -0- -0- -0-
Average occupancy 99% 98% 100% 92%
1202 Industrial Place
Rental income $173,458 $145,885 $538,261 $442,941
Bad debt expense -0- -0- -0- -0-
Average occupancy 100% 100% 100% 100%
</TABLE>
Rental income at Paddock Place Shopping Center in Nashville, Tennessee
decreased $21,403 for the nine months ended September 30, 1999 as compared to
the same period in 1998. Decreases in base rents due to lower occupancy were
offset by increases in percentage rent received from J. Alexander's Restaurant
and tenant reimbursements for common area maintenance costs and real estate
taxes.
Occupancy at Paddock Place averaged 89% for the third quarter, a one
percent decrease from the previous quarter. A new lease for 4,154 square feet
was executed and the tenant will take occupancy during the fourth quarter. One
tenant who occupied 1,330 square feet vacated its space prior to the expiration
of its lease. During the quarter minor irrigation system repairs were completed.
Rental income at the Germantown Collection in Germantown (Memphis),
Tennessee increased $54,004 for the nine months ended September 30, 1999 as
compared to the same period in 1998. Increases in base rents due to higher
occupancies and increases in tenant reimbursements for common area maintenance
costs were offset by decreases in tenant reimbursements for real estate taxes.
Occupancy at Germantown averaged 99% during the quarter, a one percent
decrease from the previous quarter. A tenant who occupied 1,050 square feet
vacated its space upon the expiration of its lease. This space was subsequently
leased to a new tenant who took occupancy in September.
Rental income at 1202 Industrial Place in Grand Prairie (Dallas), Texas
increased $95,320 for the nine months ended September 30, 1999 as compared to
the same period in 1998, primarily due to higher rental rates on an extension
with Pierce Leahy, the warehouse's primary tenant, and an increase in tenant
reimbursements for common area costs, real estate taxes, and insurance costs.
10
<PAGE> 95
Occupancy at 1202 Industrial Place remained 100% during the quarter. In
September a tenant who leases 54,000 square feet subleased its space to a new
tenant who will occupy the space until the lease expires on November 30, 2000.
Parking lot repairs were completed in September.
"Equity in earnings of joint venture", as reflected in the Statements of
Earnings, represents the Partnership's 15% interest in the earnings of Tower
Place Joint Venture. Rental income at Tower Place Festival Shopping Center in
Pineville (Charlotte), N.C. increased $41,353 for the nine months ended
September 30, 1999 as compared to the same period in 1998 primarily due to an
increase in rental rates offset by a decrease in tenant reimbursements for
common area maintenance costs and insurance costs. The increase is also due to
the receipt of a lease termination fee from a tenant who elected, pursuant to
its lease, to terminate its lease effective October 5, 1999. Tower Place's total
operating expenses decreased due to lower repair and maintenance costs, security
costs and real estate taxes. The following information details the rental income
generated, bad debt expense incurred, and average occupancy for the periods
shown for Tower Place Shopping Center.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Tower Place Shopping Center
Rental income $ 448,250 $ 434,561 $1,374,622 $1,333,269
Bad debt expense (recovery) 918 68 918 (177)
Average occupancy 98% 95% 98% 97%
</TABLE>
The Partnership's share of income from the joint venture increased $10,291
for the nine months ended September 30, 1999 as compared to the same period in
1998 for the reasons stated above.
Occupancy at Tower Place averaged 98% for the third quarter, a one percent
decrease from the previous quarter. Two tenants who occupied a total of 2,310
square feet vacated their spaces prior to the expiration of their leases.
Another tenant who occupied 1,400 square feet vacated its space; however, this
tenant has indicated it will continue to pay rent according to the terms of its
lease which expires on March 31, 2000. Two tenants who occupy 2,800 square feet
renewed their leases for three years. During the quarter, some of the wood trim
along the fascia of the property was repaired and painted.
Depreciation is provided over the estimated useful lives of the respective
assets using the straight line method. The estimated useful lives of the
building and improvements range from three to twenty-five years.
Property operating expenses consist primarily of utility costs, repair and
maintenance costs, leasing and promotion costs, real estate taxes, insurance,
and property management fees. Total property operating expenses increased
$33,417 for the nine months ended September 30, 1999 as compared to the same
period in 1998. The increase is due to higher repair and maintenance costs,
property management fees and real estate taxes. Property operating expenses at
Paddock Place increased, with increases in building repair and maintenance costs
being offset by lower security costs. Property operating expenses at Germantown
increased, with increases in parking lot repair and maintenance costs, real
estate taxes and property management fees being offset by decreases in utilities
and landscaping maintenance costs. Property operating expenses at 1202
Industrial Place were flat, with increases in roof repair and maintenance costs
being offset by decreases in parking lot and general building repairs and
maintenance costs.
General and administrative expenses incurred are related to legal and
accounting costs, rent, investor services costs, salaries and benefits and
various other costs required for the administration
11
<PAGE> 96
of the Partnership. General and administrative expenses were flat for the nine
months ended September 30, 1999 as compared to the same period in 1998, with
decreases in investor services costs and telephone expenses offset by increases
in salaries and benefits.
The Partnership recognized that the arrival of the Year 2000 poses a unique
challenge to the ability of an its information technology system and
non-information technology systems to recognize the date change from December
31, 1999 to January 1, 2000. As of September 30, 1999, the Partnership has
completed its assessment and made certain changes to provide for continued
functionality of its systems. An assessment of the readiness of the
Partnership's external entities, such as vendors, customers, payment systems and
others is nearing completion and based on information received to date,
management believes its most critical external entities will be operational. Due
to the nature and extent of the Partnership's operations that are affected by
Year 2000 issues, the Partnership does not believe that Year 2000 issues will
have a material adverse effect on the business operation or the financial
performance of the Partnership. There can be no assurance, however, that Year
2000 issues will not adversely affect the Partnership or its business. The
Partnership believes that the cost to make appropriate changes of its internal
and external systems will not be significant and that such costs will be funded
completely through operations.
Words or phrases when used in this Form 10-Q or other filings with the
Securities and Exchange Commission, such as "does not believe" and "believes",
or similar expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Partnership's financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable, accrued property taxes
payable, and security deposits. The carrying amount of these instruments
approximate fair value due to the short-term nature of these instruments.
Therefore, the Partnership believes it is relatively unaffected by interest rate
changes or other market risks.
12
<PAGE> 97
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
3a Agreement of Limited Partnership of Murray Income Properties II,
Ltd. Reference is made to Exhibit A of the Prospectus dated
February 20, 1986 contained in Amendment No. 1 to Partnership's
Form S-11 Registration Statements filed with the Securities and
Exchange Commission on February 13, 1986. (File No. 33-2294)
3b Amended and Restated Certificate and Agreement of Limited
Partnership dated as of November 15, 1989. Reference is made to
Exhibit 3b to the 1989 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 31, 1989. (File No.
0-17183)
3c Amended and Restated Certificate and Agreement of Limited
Partnership dated as of January 10, 1990. Reference is made to
Exhibit 3c to the 1989 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 31, 1989. (File No.
0-17183)
10a Marketing Agreement with Murray Realty Investors IX, Inc. for
leasing services described in the Marketing Agreement commencing
on August 4, 1998 at 1202 Industrial Place. Reference is made to
Exhibit 10a to the Form 10-Q for the Quarter ended September 30,
1998 filed with the Securities and Exchange Commission on
November 6, 1998. (File No. 0-17183)
27 Financial Data Schedule. Filed herewith.
99a Glossary as contained in the Prospectus dated February 20, 1986
filed as part of Amendment No. 2 to Registrant's Form S-11
Registration Statement (File No. 33-2394). Filed herewith.
99b Article XIII of the Agreement of Limited Partnership as contained
in the Prospectus dated February 20, 1986 filed as part of
Amendment No. 2 to Registrant's Form S-11. Registration Statement
(File No. 33-2394). Filed herewith.
99c Amendment number nine to the Agreement of Limited Partnership
contained in the Proxy Statement dated October 11, 1989. Filed
herewith.
99d Management Compensation as contained in the Prospectus dated
February 20, 1986 filed as part of Amendment No. 2 to Registrant's
Form S-11 Registration Statement (File No. 33-2394). Filed
herewith.
(b) Reports on Form 8-K filed during the quarter ended September 30,
1999:
None
13
<PAGE> 98
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MURRAY INCOME PROPERTIES II, LTD.
By: Murray Realty Investors IX, Inc.
A General Partner
Date: November 5, 1999 By: /s/ Mitchell Armstrong
--------------------------------
Mitchell Armstrong
President
Chief Financial Officer
<PAGE> 99
APPENDIX D
LISTING AGREEMENT WITH TC TENNESSEE, INC.
<PAGE> 100
AGENCY AGREEMENT
TRAMMELL CROW COMPANY
Date: September 20, 1999
Trammell Crow Company
6000 Poplar, Suite 400
Memphis, IN 38119
RE: "Properties"
Paddock Place- 68,631 s.f. shopping center in Nashville, TN
Mt View Plaza- 58,047 s.f. shopping center in Scottsdale, AZ
Germantown Collection- 55,317 s.f. shopping center in Germantown, TN
Castle Oaks Village- 33,449 s.f. shopping center in San Antonio, TX
Tower Place Festival- 114,606 s.f. shopping center in Pineville, NC
1202 Industrial Place- 172,800 s.f. industrial building in Grand Prairie, TX
In consideration of the listing of the real estate described above
(hereinafter called "Properties") and the efforts to be made to sell said
Properties, Murray Income Properties (hereinafter called "Owner") or any
assignee or transfer thereof hereby employs and appoints TC Tennessee, Inc.
(hereinafter called "Agent"), its sole agent to sell, transfer or exchange said
Properties at the price and on the terms which the Owner authorizes or consents
to. This agency shall remain in effect from September 20, 1999 to a date which
is 12 months after the Owner has notified Agent in writing to proceed with
soliciting offers for the Properties. This agency may be terminated by either
party hereto upon sixty (60) days advance written notice to the other. Upon
expiration of the term, this Agreement shall continue on a month to month basis
until terminated in writing as provided for herein above. Agent makes no
guarantee of exchange or sale.
Terms: Cash or terms acceptable to Owner
If one or more of said Properties is sold, transferred, or exchanged to a
purchaser secured by Agent or by anyone else, including the Owner, during the
period of the agency herein given, at a price or on terms otherwise agreed upon
by the Owner, Owner agrees to pay to Agent a cash commission as follows:
SALE, TRANSFER OR EXCHANGE: 2% of the selling price, or of the transfer or
exchange value.
2.5% of the selling price if a co-broker is
involved in the transfer or exchange of Castle
Oaks Village or 1202 Industrial Place. No
additional commission will be paid for a
co-broker on the other Properties.
Notwithstanding the above, in the event Owner sells 1202 Industrial Place to
Pierce Leahy due to the exercising of the Right of First Offer contained in
Pierce Leahy's lease, then in that event, Agent will not be paid a commission
for the sale of said Property. If Pierce Leahy purchases the Property after
their Right of First Offer has expired, then Agent will receive the full
commission as stated above.
The Owner further agrees to refer all inquiries or offers from prospective
purchasers it may receive to the Agent If a sale or exchange is made within
twelve (12) months after the expiration or termination of this agency, or any
extension thereof, to any parry with whom Agent negotiated or had contact during
the agency period, the Owner agrees to pay Agent the commission herein provided.
Within 30 days after the end of the listing agreement, Agent agrees to provide
to Owner a list of all prospects Agent has contact during the agency period.
Agent is hereby authorized at Agents expense to submit and to advertise the
Properties in such manner as Agent deems expedient and most likely to produce a
sale. In the event this agreement expires or is terminated by Owner prior to the
sale of all the properties, Owner will reimburse Agent for his marketing costs
including package material and preparation, copies, postage and Federal Express
charges, and one time roundtrip air travel from Memphis, TN to each Property.
This cost shall not exceed $ 18,000.
In the event of consummation of a sale, transfer or exchange agreement,
owner agrees to deliver within a reasonable time a complete abstract of title
(or title search) at Purchaser's cost showing a good and merchantable title by
the undersigned Owner and Owner further agrees to execute and deliver to the
Purchaser a special warranty deed to the said Property.
The Owner agrees to save and hold harmless Agent, its agents, employees,
independent contractors, successors and assigns, from all claims, disputes,
litigation or judgements arising from any materially incorrect information
supplied by Owner or from any material fact or defect known by Owner regarding
Property which the Owner fails to disclose to Agent.
<PAGE> 101
AGENT:
TC Tennessee, Inc.
By: /s/ PHILIP J. FAWCETT
-------------------------------------
Philip J. Fawcett
Senior Vice President
OWNER:
Tower Place Joint Venture
By: Murray Income Properties I, Ltd.
By: Murray Realty Investors VIII, Inc.
By: /s/ BRENT BUCK
-------------------------------------
Brent Buck, Executive V.P.
Murray Income Properties I, Ltd.
By: Murray Realty Investors VIII, Inc.
By: /s/ BRENT BUCK
-------------------------------------
Brent Buck, Executive V.P.
Murray Income Properties II, Ltd.
By: Murray Realty Investors IX, Inc.
By: /s/ BRENT BUCK
-------------------------------------
Brent Buck, Executive V.P.
<PAGE> 102
APPENDIX E
PROPOSED AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE AND
AGREEMENT OF LIMITED PARTNERSHIP
RESOLVED, that the Amended and Restated Certificate and Agreement of Limited
Partnership of the Partnership, as amended, be further amended by adding a new
article and section, to be called Article XXV, Section 25.1, which shall read in
its entirety as follows:
"ARTICLE XXV
25.1 Notwithstanding Sections 11.4 and 15.1 or any other
provision in this Agreement to the contrary, the General
Partners shall have full authority and power to consummate the
sale of all of the Partnership's assets and to subsequently
dissolve the Partnership upon completion of the asset sale in
accordance with the terms approved by a majority of the
Limited Partners and as described in that certain Proxy
Statement on Schedule 14A filed by the Partnership with the U.
S. Securities and Exchange Commission dated on or about
January 13, 2000."
<PAGE> 103
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MURRAY INCOME PROPERTIES II, LTD.
PROXY
PROXY SOLICITED BY THE GENERAL PARTNERS FOR
SPECIAL MEETING TO BE HELD ON MARCH 10, 2000
The undersigned hereby appoints Mitchell Armstrong, Brent Buck or Jack Crozier,
and each of them, jointly and severally, as the undersigned's proxy or proxies,
with full power of substitution, to vote all limited partnership interests of
Murray Income Properties II, Ltd. which the undersigned is entitled to vote at
the Special meeting of the limited partners to be held at 2200 Ross Avenue,
Suite 2000, Dallas, Texas on March 10, 2000 at 1:00 p.m., local time, and any
adjournments thereof, as fully as the undersigned could if personally present,
upon the proposals set forth below, revoking any proxy or proxies heretofore
given.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE BELOW, BUT
IF NO CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSAL 1 AND IN THE
DISCRETION OF THE PROXY HOLDER WITH RESPECT TO ANY OTHER MATTER AS MAY PROPERLY
COME BEFORE THE MEETING OR ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.
(Continued, and to be marked, dated and signed, on the other side.)
[ ] FOLD AND DETACH HERE [ ]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF THREE WAYS:
1. If you are calling from within the United States, call TOLL FREE
1-800-213-7567 on a Touch-Tone telephone and follow the instructions on the
reverse side. There is NO CHARGE to you for this call.
OR
2. Vote by Internet at our Internet Address: www.proxybynet.com/murray
OR
3. Mark, sign and date your proxy card and return it promptly in the enclosed
envelope.
PLEASE VOTE
- -------------------------------------------------------------------------------
<PAGE> 104
- -------------------------------------------------------------------------------
THE GENERAL PARTNERS RECOMMEND A VOTE FOR PROPOSAL 1 Please mark your [X]
votes as indicated
in this example.
1. Approval of the proposed sale of all of the partnership's properties on the
terms described in the accompanying proxy statement, which would result in
the sale of all of the partnership's assets and the subsequent dissolution
and termination of the partnership, and the necessary amendment to the
partnership agreement to permit the proposed asset sale and dissolution and
termination of the partnership.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY
POSTPONEMENTS OR ADJOURNMENTS THEREOF.
Date /
--------------------------
--------------------------
Signature
--------------------------
Signature, If Jointly Held
If acting as Attorney,
Executor, Trustee or in
other representative
capacity, please sign name
and title.
FOLD AND DETACH HERE AND READ THE REVERSE SIDE
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VOTE BY TELEPHONE AND INTERNET
QUICK ***EASY***IMMEDIATE
Your telephone or Internet vote authorizes the named proxies to vote your
shares in the same manner as if you marked, signed and returned your proxy
card.
VOTE BY PHONE: You will be asked to enter a CONTROL NUMBER located in the
box in the lower right of this form.
OPTION A: To vote as the general partners recommend on the proposal: Press
1
OPTION B: If you choose to vote on each item separately, press 0. You will
hear these instructions:
Item 1: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
When asked, you must confirm your vote by pressing 1.
VOTE BY INTERNET: The Web address is: www.proxybynet.com/murray
IF YOU VOTE BY PHONE OR INTERNET - DO NOT MAIL THE PROXY CARD
THANK YOU FOR VOTING
CALL * * TOLL FREE * * ON A TOUCH TONE TELEPHONE
1-800-213-7567 - ANYTIME
THERE IS NO CHARGE TO YOU FOR THIS CALL
--------------------------------
--------------------------------
CONTROL NUMBER
FOR TELEPHONE/INTERNET VOTING
- --------------------------------------------------------------------------------
