ANNUAL REPORT
FOR THE PERIOD ENDED
DECEMBER 31, 1996
FELLOW PARTNERS:
Now that we have initiated the disposition phase of your Fund,
the amount of your distributions and the estimated value of a
Fund unit will be influenced more by sales than by operations. As
a result, we thought it appropriate to begin this report by
providing you with the estimated unit value of the Fund and an
update on property dispositions as well as your fourth quarter
distribution.
At this stage of your Fund's life cycle, our primary focus
is shifting from the production of income to the strategic
positioning of Fund properties to maximize potential sales
proceeds.
Unit Valuation
As you know, at the end of each year we employ a third-party
appraiser to review and assess the analysis and assumptions used
to prepare an estimated current value of the properties held in
your Fund. We then use these valuations to prepare an estimated
unit value, which may not be representative of the value of your
units when the Fund ultimately liquidates.
Real Estate Investments (Dollars in thousands)
_________________________________________________________________
Average Contribution
Leased Status Leased Status to Net Income
___________ _____________ ____________
Gross Twelve Twelve
Leasable Months Ended Months Ended
Property Area December 31, December 31, December 31,
Name (Sq. Ft.) 1996 1995 1996 1995 1996
_________ __________ __________ _____ _____ _____ _____
Atlantic 187,844 100% 97% 93% $240 $ 214
Coronado 95,732 100 100 100 193 189
Oakbrook
Corners 123,948 94 68 75 (96) (985)
Baseline 100,204 96 88 90 86 (636)
Business
Plaza 66,342 89 85 79 355 33
Tierrasanta 104,236 62 75 87 80 (734)
________ ____ ____ ____ _____ _____
678,306 91 86 88 858 (1,919)
Held for Sale
AMCC 99,950 100 100 100 903 263
South Point
Plaza 49,163 90 67 74 84 (47)
Bonnie Lane 119,590 100 78 96 161 239
Glenn Avenue 82,000 100 100 100 172 178
________ ____ ____ ____ ____ ____
1,029,009 94 87 90 2,178 (1,286)
Properties Sold - - - - 442 858
Fund Expenses
Less Interest
Income - - - - (228) (292)
________ ____ ____ ____ _____ _____
Total 1,029,009 94% 87% 90% $2,392 $ (720)
Nor is there any assurance that you could sell your units today
at a price equal to the current estimated value.
At December 31, 1996, the estimated unit value of the Fund
was $487. After adjusting for our February distribution of $16,
the estimated value per unit is $471. Total appreciation for the
year, including net appreciation on properties sold, is 7.5%.
As you may recall, we mailed this information to you in a
letter dated January 22, 1997, in response to the offerings made
to you by other investors. While we cannot assure that you will
ultimately receive the exact amount of the estimated unit value,
we believe our valuation process has been sound, and we want you
to be as well-informed as possible about the value of your
investment. Our objective is to supply you with the information
you need to make the best decisions based on your particular
circumstances.
Disposition Update
On November 20, 1996, we executed a purchase and sale agreement
for AMCC and closed on January 23, 1997, after the end of the
reporting period. Net sales proceeds of $7.7 million, or
approximately $91 per limited partnership unit, will be
distributed to you in May.
We mentioned in our last report that two properties were
added to the held for sale category - Bonnie Lane and Glenn
Avenue, two industrial buildings in the Chicago area that have
been marketed with three similar holdings in Realty Income Fund
III. We signed a letter of intent with a potential buyer for the
entire group of properties in January and hope to complete the
transaction in April, although there is no assurance the sale
will be consummated.
In addition, we signed a listing agreement to sell South
Point Plaza, in which the Fund has a 50% interest. The property,
a shopping center in Tempe, Arizona, is currently being actively
marketed by the listing broker. We will update you on all these
properties held for sale in our next quarterly report.
Cash Distributions
The Fund declared a fourth quarter distribution from operations
of $16 per unit, bringing the total operating distributions for
the year to $35.50. Additionally, $27.91 per unit was paid out to
you during the year from sales proceeds for the Fund's 24% share
of Fairchild, resulting in total distributions of $63.41 per unit
for 1996. Future distributions will be determined each quarter
based on cash flow, anticipated capital requirements, and the
status of property dispositions.
Results of Operations
The Fund had a net loss of $720,000 in 1996 compared with net
income of $2,392,000 in 1995. The change in property valuation
adjustments of $3,850,000 accounted for much of the difference,
which was partly offset by a $699,000 gain on the sale of
Fairchild. Income before the gain on the property sale declined
$3,811,000, due largely to downward valuation adjustments for
Oakbrook Corners, Baseline, Tierrasanta, and AMCC. While
conditions in the markets where these properties are located are
generally improving, the shortened anticipated holding period due
to our disposition plans caused us to adjust the carrying values
downward. Property carrying amounts for financial statement
purposes should not be confused with the estimated fair market
values used to determine your estimated unit value.
Income from operations before the valuation adjustments was
up $39,000 over the year before. Revenues from rental income and
interest income resulted in total gross revenues of $6,189,000
for the year compared with $6,964,000 a year earlier. However,
this comparison was affected by the absence of a full year's
rental income from Regal Row and Fairchild, the two properties
sold in 1996. Results were helped by a decline of $814,000 in
operating expenses, before valuation adjustments, primarily due
to the property sales.
At the property level, we reported previously that a tenant
who occupied 38% of the total space at Tierrasanta did not renew
upon expiration in August. There is interest in the property and
the market is tightening, but several competitive properties have
comparable space available, and we cannot be sure when this space
will be re-leased. At Baseline, 39% of the leases will expire
between now and the end of 1997, and our strategy here will be to
find replacement tenants with better credit than those who do not
renew while focusing on longer-term leases.
During the year, we signed leases totaling approximately 35%
of Fund properties, resulting in an increase in year-end leased
status of five percentage points over the year before. Increased
leasing activity at Atlantic, Oakbrook Corners, Baseline,
Business Plaza, Bonnie Lane, and South Point Plaza more than
offset the decrease at Tierrasanta.
Outlook
We continue to make progress toward the disposition of the Fund's
properties during the next two years. Some of you have asked why
we are beginning to sell now, just as the market has been
exhibiting signs of strengthening.
Our primary goal is to take advantage of rising property
values as the Fund nears the end of its planned lifespan. As real
estate markets have been improving during the past few years, we
have used the opportunity to capture higher prices for investors.
As usually happens in improving markets, the turnaround in
real estate is broadly encouraging an increasing supply of new
properties, which could eventually lead to an oversupply and
softer prices down the road. This is normal as the real estate
cycle runs its course. While we do not expect a recession in
either real estate or the general economy to emerge in the near
future, the country's economic expansion is almost six years old
and is approaching an advanced stage, by historical measures.
It is possible that by selling Fund properties during the
next few years, we might miss some further advances in real
estate values. However, with prices currently rising due to
strong tenant and investor demand, supply growing in many
markets, and the Fund nearing the end of its planned lifespan, we
believe it is prudent to sell into that strength while prices are
on the upswing.
Sincerely,
James S. Riepe
Chairman
February 7, 1997
REAL ESTATE HOLDINGS
December 31, 1996
(In thousands)
Date Carrying
Property Name Type and Location Acquired Amount
_______________ _____________ _________ ________
Atlantic Industrial 10/86 $ 3,416
Gwinnett Co.,
Georgia
Coronado Industrial 11/86 3,407
Anaheim,
California
Oakbrook Corners Business Park 11/86 5,098
Gwinnett Co.,
Georgia
Baseline Business Park 12/86 3,884
Tempe, Arizona
Business Plaza Office 12/86 3,638
Ft. Lauderdale,
Florida
Tierrasanta Business Park 4/88 1,727
San Diego,
California
_______
21,170
Held for Sale
AMCC R&D/Office 9/87 7,772
San Diego,
California
Bonnie Lane Industrial 11/87 3,316
Elk Grove,
Illinois
Glenn Avenue Industrial 11/87 2,257
Wheeling,
Illinois
South Point Retail 4/88 1,515
Tempe, Arizona _______
$ 36,030
_______
_______
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,December 31,
1996 1995
_________ _________
Assets
Real Estate Property Investments
Land. . . . . . . . . . . . . . . . $ 8,443 $14,544
Buildings and Improvements. . . . . 19,352 45,170
________ ________
27,795 59,714
Less: Accumulated Depreciation
and Amortization . . . . . . . . (6,625) (18,049)
________ ________
21,170 41,665
Held for Sale . . . . . . . . . . . 14,860 3,500
________ ________
36,030 45,165
Cash and Cash Equivalents. . . . . . 3,667 4,782
Accounts Receivable (less allowances of
$22 and $165) . . . . . . . . . . . 162 172
Other Assets . . . . . . . . . . . . 333 410
________ ________
$ 40,192 $50,529
________ ________
________ ________
Liabilities and Partners' Capital
Security Deposits and Prepaid Rents $ 505 $ 493
Accrued Real Estate Taxes . . . . . 394 502
Accounts Payable and Other Accrued
Expenses . . . . . . . . . . . . 307 433
________ ________
Total Liabilities. . . . . . . . . . 1,206 1,428
Partners' Capital. . . . . . . . . . 38,986 49,101
________ ________
$ 40,192 $50,529
________ ________
________ ________
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per-unit amounts)
Years Ended December 31,
1996 1995 1994
_________ __________________
Revenues
Rental Income. . . . . . . . $ 5,944 $ 6,717 $ 6,834
Interest Income. . . . . . . 245 247 149
_______ _______ _______
6,189 6,964 6,983
_______ _______ _______
Expenses
Property Operating Expenses. 1,113 1,103 1,399
Real Estate Taxes. . . . . . 747 991 877
Depreciation and
Amortization . . . . . . . 1,781 2,362 2,979
Decline (Recovery) of Property
Values . . . . . . . . . . 3,168 (682) (860)
Management Fee to General
Partner. . . . . . . . . . 298 346 269
Partnership Management
Expenses . . . . . . . . . 501 452 457
_______ _______ _______
7,608 4,572 5,121
_______ _______ _______
Income (Loss) from Operations before
Real Estate Sold . . . . . (1,419) 2,392 1,862
Gain on Real Estate Sold . . 699 - -
_______ _______ _______
Net Income (Loss). . . . . . $ (720) $ 2,392 $ 1,862
_______ _______ _______
_______ _______ _______
Activity per Limited Partnership
Unit
Net Income (Loss). . . . . . $ (8.48) $ 28.16 $ 21.92
_______ _______ _______
_______ _______ _______
Cash Distributions Declared
from Operations. . . . . . $ 35.50 $ 37.68 $ 35.50
from Sale Proceeds . . . . 70.86 40.79 -
_______ _______ _______
Total Distributions
Declared . . . . . . . . . $106.36 $ 78.47 $ 35.50
_______ _______ _______
_______ _______ _______
Units Outstanding . . . . . 84,099 84,099 84,099
_______ _______ _______
_______ _______ _______
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(In thousands)
General Limited
Partner Partners Total
________ ________ ________
Balance, December 31, 1993 . $ (261) $53,401 $53,140
Net Income . . . . . . . . . 19 1,843 1,862
Redemption of Units. . . . . - (1) (1)
Cash Distributions . . . . . (25) (2,439) (2,464)
_______ _______ _______
Balance, December 31, 1994 . (267) 52,804 52,537
Net Income . . . . . . . . . 24 2,368 2,392
Cash Distributions . . . . . (32) (5,796) (5,828)
_______ _______ _______
Balance, December 31, 1995 . (275) 49,376 49,101
Net Loss . . . . . . . . . . (7) (713) (720)
Cash Distributions . . . . . (26) (9,369) (9,395)
_______ _______ _______
Balance, December 31, 1996 . $ (308) $39,294 $38,986
_______ _______ _______
_______ _______ _______
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
1996 1995 1994
_______ _______ _______
Cash Flows from Operating Activities
Net Income (Loss) . . . . . . . $ (720) $ 2,392 $ 1,862
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided by Operating
Activities
Depreciation and
Amortization . . . . . . . 1,781 2,362 2,979
Decline (Recovery) of
Property Values. . . . . . 3,168 (682) (860)
Gain on Real Estate
Sold . . . . . . . . . . . (699) - -
Change in Accounts Receivable,
Net of Allowances. . . . . 6 (11) 68
Change in Other Assets . . . 72 (125) (180)
Change in Security Deposits and
Prepaid Rents. . . . . . . 12 (29) 50
Change in Accrued Real Estate
Taxes. . . . . . . . . . . (108) 70 (47)
Change in Accounts Payable and
Other Accrued
Expenses . . . . . . . . . (126) 154 5
_______ _______ _______
Net Cash Provided by Operating
Activities . . . . . . . . . . 3,386 4,131 3,877
_______ _______ _______
Cash Flows from Investing Activities
Proceeds from Property
Dispositions . . . . . . . . . 5,959 2,622 -
Investments in Real Estate . . . (1,065) (962) (805)
_______ _______ _______
Net Cash Provided by (Used in)
Investing Activities . . . . . 4,894 1,660 (805)
_______ _______ _______
Cash Flows Used in Financing
Activities
Cash Distributions . . . . . . . (9,395) (5,828) (2,464)
Redemption of Units. . . . . . . - - (1)
_______ _______ _______
Net Cash Used in Financing
Activities . . . . . . . . . . (9,395) (5,828) (2,465)
_______ _______ _______
Cash and Cash Equivalents
Net Change during Year . . . . . (1,115) (37) 607
At Beginning of Year . . . . . . 4,782 4,819 4,212
_______ _______ _______
At End of Year . . . . . . . . . $ 3,667 $ 4,782 $ 4,819
_______ _______ _______
_______ _______ _______
The accompanying notes are an integral part of the consolidated
financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
T. Rowe Price Realty Income Fund II, America's
Sales-Commission-Free Real Estate Limited Partnership (the
"Partnership"), was formed on January 7, 1986, under the Delaware
Revised Uniform Limited Partnership Act for the purpose of
acquiring, operating, and disposing of existing income-producing
commercial and industrial real estate properties. T. Rowe Price
Realty Income Fund II Management, Inc., is the sole General
Partner. The initial offering resulted in the sale of 84,144
limited partnership units at $1,000 per unit.
In accordance with provisions of the partnership agreement,
income from operations is allocated and related cash
distributions are generally paid to the General and Limited
Partners at the rates of 1% and 99%, respectively. Sale or
refinancing proceeds are generally allocated first to the Limited
Partners in an amount equal to their capital contributions, next
to the Limited Partners to provide specified returns on their
adjusted capital contributions, next 3% to the General Partner,
with any remaining proceeds allocated 85% to the Limited Partners
and 15% to the General Partner. Gain on property sold is
generally allocated first between the General Partner and Limited
Partners in an amount equal to the depreciation previously
allocated from the property and then in the same ratio as the
distribution of sale proceeds. Cash distributions, if any, are
made quarterly based upon cash available for distribution, as
defined in the partnership agreement. Cash available for
distribution will fluctuate as changes in cash flows and adequacy
of cash balances warrant.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership's financial statements are prepared in accordance
with generally accepted accounting principles which requires the
use of estimates and assumptions by the General Partner.
The accompanying consolidated financial statements include
the accounts of the Partnership and its pro rata share of the
accounts of T. Rowe Price-Pacific (AMCC), a California limited
partnership, South Point Partners, and Tierrasanta 234, which are
California general partnerships, in which the Partnership has
90%, 50%, and 30% interests, respectively. They also include the
Partnership's pro-rata share of the accounts of Fairchild 234, a
California general partnership in which the Partnership had a 24%
interest prior to disposition of the property on August 28, 1996.
The other partners in these ventures, except for T. Rowe
Price-Pacific, are affiliates of the Partnership. All
intercompany accounts and transactions have been eliminated in
consolidation.
Depreciation is calculated primarily on the straight-line
method over the estimated useful lives of buildings and
improvements, which range from five to 40 years. Lease
commissions and tenant improvements are capitalized and amortized
over the life of the lease using the straight-line method.
Cash equivalents consist of money market mutual funds, the
cost of which approximates fair value.
The Partnership uses the allowance method of accounting for
doubtful accounts. Provisions for (recoveries of) uncollectible
tenant receivables in the amounts of $29,000, ($101,000), and
$162,000 were recorded in 1996, 1995, and 1994, respectively. Bad
debt expense (recoveries) is included in Property Operating
Expenses.
The Partnership will review its real estate property
investments for impairment whenever events or changes in
circumstances indicate that the property carrying amounts may not
be recoverable. Such a review results in the Partnership
recording a provision for impairment of the carrying value of its
real estate property investments whenever the estimated future
cash flows from a property's operations and projected sale are
less than the property's net carrying value. The General Partner
believes that the estimates and assumptions used in evaluating
the carrying value of the Partnership's properties are
appropriate; however, changes in market conditions and
circumstances could occur in the near term which would cause
these estimates to change.
Rental income is recognized on a straight-line basis over
the term of each lease. Rental income accrued, but not yet
billed, is included in Other Assets and aggregates $280,000 and
$300,000 at December 31, 1996 and 1995, respectively.
Under provisions of the Internal Revenue Code and applicable
state taxation codes, partnerships are generally not subject to
income taxes; therefore, no provision has been made for such
taxes in the accompanying consolidated financial statements.
NOTE 3 - TRANSACTIONS WITH RELATED PARTIES
As compensation for services rendered in managing the affairs of
the Partnership, the General Partner earns a partnership
management fee equal to 9% of net operating proceeds. The General
Partner earned partnership management fees of $298,000, $346,000,
and $269,000 in 1996, 1995, and 1994, respectively. In addition,
the General Partner's share of cash available for distribution
from operations, as discussed in Note 1, totaled $30,000,
$31,000, and $28,000 in 1996, 1995, and 1994, respectively.
In accordance with the partnership agreement, certain
operating expenses are reimbursable to the General Partner. The
General Partner's reimbursement of such expenses totaled
$117,000, $107,000, and $108,000 for communications and
administrative services performed on behalf of the Partnership
during 1996, 1995, and 1994, respectively.
An affiliate of the General Partner earned a normal and
customary fee of $10,000, $20,000, and $16,000 from the money
market mutual funds in which the Partnership made its interim
cash investments during 1996, 1995, and 1994, respectively.
LaSalle Advisors Limited Partnership ("LaSalle") is the
Partnership's advisor and is compensated for its advisory
services directly by the General Partner. LaSalle is reimbursed
by the Partnership for certain operating expenses pursuant to its
contract with the Partnership to provide real estate advisory,
accounting, and other related services to the Partnership.
LaSalle's reimbursement for such expenses during each of the last
three years totaled $150,000.
An affiliate of LaSalle earned $131,000, $129,000, and
$145,000 in 1996, 1995, and 1994, respectively, for property
management fees and leasing commissions on tenant renewals and
extensions at several of the Partnership's properties.
NOTE 4 - PROPERTIES HELD FOR SALE AND DISPOSITIONS
On June 29, 1995, the Partnership sold Sullyfield Circle and
received net proceeds of $2,622,000. Because the carrying value
of this property had been written down to approximate its market
value, no gain or loss was recognized on this property
disposition.
On February 14, 1996, the Partnership sold Regal Row and
received net proceeds of $3,612,000. The net book value of this
property at the date of disposition was also $3,612,000, after
accumulated depreciation expense and previously recorded property
valuation allowances. Therefore, no gain or loss was recognized
on the property sale.
On August 28, 1996, Fairchild Corporate Center, an office
property in which the Partnership had a 24% interest was sold.
The Partnership received net proceeds of $2,347,000. The net
book value of the Partnership's interest at the date of sale was
$1,648,000, after deduction of accumulated depreciation and
previously recorded impairments. Accordingly, the Partnership
recognized a $699,000 gain on the sale of this property.
The Partnership began actively marketing its two midwest
industrial properties, Bonnie Lane and Glenn Avenue in late 1996,
and has subsequently signed a letter of intent with a prospective
buyer. In late 1996, the Partnership also began marketing South
Point Plaza, a shopping center in which the Partnership has a 50%
interest. The Partnership has classified the carrying amounts of
these three properties as held for sale in the accompanying
December 31, 1996 balance sheet.
The Partnership began actively marketing the AMCC property
in June 1996, and classifies it as held for sale in the
accompanying December 31, 1996 balance sheet at an amount equal
to its estimated net sales proceeds. The disposition of AMCC was
completed in early 1997.
Results of operations for properties held for sale at
December 31, 1996, and properties sold during the past three
years, are summarized below:
1996 1995 1994
_________ __________ ________
Recovery (Decline) of $(679,000) $ 343,000 $ 899,000
Property Values
Other Components of 1,471,000 1,417,000 1,386,000
Operating Income
__________ __________ _________
Results of Operations $ 792,000 $1,760,000 $2,285,000
__________ __________ _________
__________ __________ _________
NOTE 5 - PROPERTY VALUATIONS
On January 1, 1996, the Partnership adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," which changed the Partnership's method of
accounting for its real estate property investments when
circumstances indicate that the carrying amount of a property may
not be recoverable. Measurement of an impairment loss on an
operating property will now be based on the estimated fair value
of the property, which becomes the property's new cost basis,
rather than the sum of expected future cash flows. Properties
held for sale will continue to be reflected at the lower of
historical cost or estimated fair value less anticipated selling
costs. In addition, properties held for sale are no longer
depreciated.
Based upon a review of current market conditions, estimated
holding period, and future performance expectations of each
property, the General Partner has determined that the net
carrying value of certain Partnership properties held for
operations may not be fully recoverable. Charges recognized for
such impairments aggregated $2,489,000 in 1996 and $550,000 in
1994.
Because the Business Plaza property was not then being
actively marketed for sale, its carrying value was assessed and,
accordingly, a net valuation allowance of $1,957,000 at December
31, 1995 was reclassified as a permanent impairment of the
property's carrying value. Valuation recoveries for this
property were $339,000 in 1995 and $511,000 in 1994.
NOTE 6 - LEASES
Future minimum rentals (in thousands) to be received by the
Partnership under noncancelable operating leases in effect at
December 31, 1996, are:
1997 $ 4,493
1998 2,777
1999 1,655
2000 1,051
2001 730
Thereafter 1,089
_______
Total $11,795
_______
_______
NOTE 7 - RECONCILIATION OF FINANCIAL STATEMENT TO TAXABLE INCOME
As described in Note 2, the Partnership has not provided for an
income tax liability; however, certain timing differences (in
thousands) exist between amounts reported for financial reporting
and federal income tax purposes. These differences are
summarized below for the last three years:
1996 1995 1994
___________________ ________
Book net income (loss) . . . $ (720) $ 2,392 $ 1,862
Allowance for
doubtful accounts. . . . . (142) (161) 182
Property valuation
allowance and losses
on dispositions. . . . . . (2,732) (2,793) (860)
Normalized and
prepaid rents. . . . . . . 78 (81) (182)
Interest income. . . . . . . - 301 302
Depreciation . . . . . . . . (214) 18 609
Other items. . . . . . . . . (8) (61) (8)
________ ________ ________
Taxable income (loss). . . . $(3,738) $ (385) $ 1,905
________ ________ ________
________ ________ ________
NOTE 8 - SUBSEQUENT EVENT
The Partnership declared a quarterly cash distribution of $16.00
per unit to Limited Partners of the Partnership as of the close
of business on December 31, 1996. The Limited Partners will
receive $1,346,000, and the General Partner will receive $14,000.
INDEPENDENT AUDITORS' REPORT
To the Partners
T. Rowe Price Realty Income Fund II,
America's Sales-Commission-Free Real Estate Limited Partnership:
We have audited the accompanying consolidated balance sheets
of T. Rowe Price Realty Income Fund II, America's
Sales-Commission-Free Real Estate Limited Partnership and its
consolidated ventures as of December 31, 1996 and 1995, and the
related consolidated statements of operations, partners' capital
and cash flows for each of the years in the three-year period
ended December 31, 1996. These consolidated financial statements
are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated
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 consolidated financial statements are free from
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of T. Rowe Price Realty Income Fund II,
America's Sales-Commission-Free Real Estate Limited Partnership
and its consolidated ventures as of December 31, 1996 and 1995,
and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 30, 1997
