<PAGE>
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, 1996 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 number 0-16518
--------------------------------------------------------
Wells Real Estate Fund II
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1678709
- ------------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3885 Holcomb Bridge Road, Norcross, Georgia 30092
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
----------------------------
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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>
Form 10-Q
---------
Wells Real Estate Fund II
-------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page No.
-------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C> <C>
Balance Sheets - September 30, 1996
and December 31, 1995........................... 3
Statements of Income for the Three Months and
Nine Months Ended September 30, 1996 and 1995... 4
Statements of Partners' Capital for the Year
Ended December 31, 1995 and the Nine Months
Ended September 30, 1996........................ 5
Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995............... 6
Condensed Notes to Financial Statements........... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 18
PART II. OTHER INFORMATION........................................... 26
</TABLE>
2
<PAGE>
WELLS REAL ESTATE FUND II
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets September 30, 1996 December 31, 1995
- ------ ------------------ -----------------
<S> <C> <C>
Investment in joint ventures (Note 2) $24,748,917 $25,561,588
Cash and cash equivalents 36,535 38,000
Due from affiliate 175,759 478,857
----------- -----------
Total assets $24,961,211 $26,078,445
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Withholdings and accounts payable $ 2,571 $ 4,558
Partnership distributions payable 161,314 487,104
----------- -----------
Total liabilities $ 163,885 $ 491,662
=========== ===========
Partners' capital:
Limited Partners:
Class A - 108,572 Units 24,346,865 24,200,488
Class B - 30,221 Units 450,461 1,386,295
---------- ----------
Total partners' capital 24,797,326 25,586,783
----------- -----------
Total liabilities and partners' capital $24,961,211 $26,078,445
=========== ===========
</TABLE>
See accompanying condensed notes to financial statements.
3
<PAGE>
WELLS REAL ESTATE FUND II
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- -----------------------------------------
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Revenues:
Equity in income of joint venture
(Note 2) $ 59,192 $ 356,670 $ 314,680 $ 927,490
Interest income 137 141 399 506
--------- --------- ---------- ----------
59,329 356,811 315,079 927,996
--------- --------- ---------- ----------
Expenses:
Partnership administration 90 0 90 0
--------- --------- ---------- ----------
Net Income $ 59,239 $ 356,811 $ 314,989 $ 927,996
========= ========= ========== ==========
Net income allocated to
Class A Limited Partners $ 371,196 $ 560,470 $1,250,823 $1,525,430
Net loss allocated to
Class B Limited Partners $(311,867) $(203,649) $ (935,834) $ (597,424)
Net income per Class A
Limited Partner Unit $ 3.42 $ 5.16 $ 11.52 $ 14.05
Net loss per Class B
Limited Partner Unit $ (10.32) $ (6.74) $ (30.97) $ (19.77)
Cash distribution per Class A
Limited Partner Unit $ 1.41 $ 4.55 $ 10.17 $ 12.93
</TABLE>
See accompanying condensed notes to financial statements.
4
<PAGE>
WELLS REAL ESTATE FUND II
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1995 AND NINE MONTHS ENDED
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
LIMITED PARTNERS
-----------------------------
CLASS A CLASS B TOTAL
-------------------- ----------------- PARTNERS'
UNITS AMOUNTS UNITS AMOUNTS CAPITAL
----- -------- ----- ------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 108,572 $24,160,544 30,221 $2,296,796 $26,457,340
Net income (loss) 0 1,922,246 0 (910,501) 1,011,745
Partnership distributions 0 (1,882,302) 0 0 (1,882,302)
------- ----------- ------ ---------- -----------
BALANCE, DECEMBER 31, 1995 108,572 $24,200,488 30,221 $1,386,295 $25,586,783
Net income (loss) 0 1,250,823 0 (935,834) 314,989
Partnership distributions 0 (1,104,446) 0 0 (1,104,446)
------- ----------- ------ --------- -----------
BALANCE, SEPTEMBER 30, 1996 108,572 $24,346,865 30,221 $ 450,461 $24,797,326
</TABLE>
See accompanying condensed notes to financial statements.
5
<PAGE>
WELLS REAL ESTATE FUND II
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------------
September 30, 1996 September 30, 1995
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 314,989 $ 927,996
----------- -----------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Equity in income of joint venture (314,680) (927,490)
Distributions received from joint venture 1,430,449 1,356,199
Distributions to partners from accumulated
earnings (1,430,236) (1,356,698)
Changes in assets and liabilities:
Accounts receivable 0 190
Withholdings and accounts payable (1,987) (84,504)
Due from limited partners 0 11,225
----------- -----------
Total adjustments (316,454) (1,001,078)
----------- -----------
Net cash used in operating activities (1,465) (73,082)
----------- -----------
Net decrease in cash and cash equivalents (1,465) (73,082)
Cash and cash equivalents, beginning of year 38,000 112,536
----------- -----------
Cash and cash equivalents, end of quarter $ 36,535 $ 39,454
=========== ===========
</TABLE>
See accompanying condensed notes to financial statements.
6
<PAGE>
WELLS REAL ESTATE FUND II
(A Georgia Public Limited Partnership)
Condensed Notes to Financial Statements
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) General
------------
Wells Real Estate Fund II (the "Partnership") is a Georgia public
limited partnership having Leo F. Wells, III and Wells Capital, Inc., as
General Partners. The Partnership was formed on June 23, 1986, for the
purpose of acquiring, developing, constructing, owning, operating,
improving, leasing and otherwise managing for investment purposes income-
producing commercial or industrial properties.
On September 8, 1986, the Partnership commenced a public offering of its
limited partnership units pursuant to a Registration Statement filed on
Form S-11 under the Securities Act of 1933. The Partnership terminated its
offering on September 7, 1988, and received gross proceeds of $34,948,250
representing subscriptions from 4,440 Limited Partners, composed of two
classes of limited partnership interests, Class A and Class B limited
partnership units.
As of September 30, 1996, the Partnership owned interests in the following
properties: (i) a retail shopping and commercial office complex located in
Tucker, Georgia, (ii) a shopping center located in Cherokee County,
Georgia, (iii) a two-story office building located in Charlotte, North
Carolina, (iv) a four-story office building located in metropolitan
Houston, Texas, (v) a restaurant located in Fulton County, Georgia, and
(vi) an office/retail center currently being developed in Fulton County,
Georgia. All of the foregoing properties were acquired on an all cash
basis.
(b) Basis of Presentation
--------------------------
The financial statements of Wells Real Estate Fund II (the "Partnership")
have been prepared in accordance with instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These quarterly
statements have not been examined by independent accountants, but in the
opinion of the General Partners, the statements for the unaudited interim
periods presented include all adjustments, which are of a normal and
recurring nature, necessary to present a fair presentation of the results
for such periods. For further information, refer to the financial
statements and footnotes included in the Partnership's Form 10-K for the
year ended December 31, 1995.
7
<PAGE>
(c) Employees
--------------
The Partnership has no direct employees. The employees of Wells Capital,
Inc., a General Partner of the Partnership, perform a full range of real
estate services including leasing and property management, accounting,
asset management and investor relations for the Partnership.
(d) Insurance
--------------
Wells Management Company, Inc., an affiliate of the General Partners,
carries comprehensive liability and extended coverage with respect to all
the properties owned directly or indirectly by the Partnership. In the
opinion of management of the registrant, the properties are adequately
insured.
(e) Competition
----------------
The Partnership will experience competition for tenants from owners and
managers of competing projects which may include the General Partners and
their affiliates. As a result, the Partnership may be required to provide
free rent, reduced charges for tenant improvements and other inducements,
all of which may have an adverse impact on results of operations. At the
time the Partnership elects to dispose of its properties, the Partnership
will also be in competition with sellers of similar properties to locate
suitable purchasers for its properties.
(f) Income Taxes
-----------------
The Partnership has not requested a ruling from the Internal Revenue
Service to the effect that it will be treated as a partnership and not an
association taxable as a corporation for Federal income tax purposes. The
Partnership requested an opinion of counsel as to its tax status, but such
opinion is not binding upon the Internal Revenue Service.
(g) Statement of Cash Flows
----------------------------
For the purpose of the statement of cash flows, the Partnership considers
all highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents. Cash equivalents include cash
and short-term investments.
8
<PAGE>
(2) Investment in Joint Venture
---------------------------
FUND II-FUND II-OW JOINT VENTURE
--------------------------------
The Partnership owns all of its properties through a joint venture (the
"Fund II-Fund II-OW Joint Venture") formed on March 1, 1988, between the
Partnership and Wells Real Estate Fund II-OW ("Wells Fund II-OW"). Wells
Fund II-OW is a Georgia public limited partnership affiliated with the
Partnership through common general partners. The investment objectives of
Wells Fund II-OW are substantially identical to those of the Partnership.
As of September 30, 1996, the Partnership's equity interest in the Fund II-
Fund II-OW Joint Venture was approximately 95%, and the equity interest of
Wells Fund II-OW was approximately 5%. The Partnership does not have
control over the operations of the joint venture; however, it does
exercise significant influence. Accordingly, investment in joint venture
is recorded on the equity method.
Of the six properties owned by the joint venture, one is a retail shopping
center, two are office buildings, one is an office/retail center, one is an
office/retail/restaurant center and one is a restaurant. As of September
30, 1996, these properties were 63.60% occupied, compared to 95.87% at
December 31, 1995 and 97.34% at December 31, 1994, 66.90% at December 31,
1993 and 93.76% at December 31, 1992, and 93.57% at December 31, 1991.
The following describes the properties in which the Partnership owns an
interest through the Fund II-Fund II-OW Joint Venture as of September 30,
1996:
The Charlotte Property/Fund II - Fund II-OW Joint Venture
---------------------------------------------------------
On May 9, 1988, the Fund II-Fund II-OW Joint Venture acquired a two-story
building containing approximately 70,752 net leasable square feet, located
on a 9.54 acre tract of land located in Charlotte, Mecklenburg County,
North Carolina (the"Charlotte Property") for a purchase price of
$8,550,000.
While the entire project was originally leased under a net lease to IBM,
IBM elected not to exercise its second three-year option to extend its
lease and vacated the building effective September 30, 1993, after paying a
$425,000 lease termination fee.
On May 1, 1994, First Union Bank assumed occupancy of the Charlotte
Property under a lease which expires April 30, 2001. The principal terms
of the lease provide for First Union's sole tenancy of the project as a
regional operations center for the initial term of seven years. Because
First Union Bank invested approximately $1 million in tenant improvements
at the Charlotte Property, a lower rental rate was accepted for the first
five years. There are presently no plans for improvement or further
development of the project.
9
<PAGE>
The annual base rent during the initial term is $412,705 payable in equal
monthly installments of $34,392 during the first two years; annual base
rent of $454,651 payable in equal monthly installments of $37,887 during
the third year; annual base rent of $489,650 payable in equal monthly
installments of $40,804 during the fourth year; and annual base rent of
$524,625 payable in equal monthly installments of $43,718.75 during the
fifth year. Rental rates during the remaining two years of the lease term
will be determined by market rates.
The occupancy rate at the Charlotte Property for the quarter ended
September 30, 1996 was 100%, which was the rate for the second quarter in
the five previous years.
The average effective annual rental per square foot at the Charlotte
Property was $6.49 for third quarter 1996, $5.83 for 1995, $3.88 for 1994,
$28.12 for 1993 and $15.69 for 1992, and 1991. The higher effective
annual rental rate for 1993 is due to the payment of $425,000 in lease
termination fees by IBM.
The Atrium/Fund II & Fund III Joint Venture
-------------------------------------------
On April 3, 1989, the Fund II-Fund II-OW Joint Venture formed a joint
venture (the "Fund II-Fund III Joint Venture") with Wells Real Estate Fund
III, L.P. ("Wells Fund III"), a public Georgia limited partnership
affiliated with the Partnership through common general partners. The
investment objectives of Wells Fund III are substantially identical to
those of the Partnership.
In April 1989, the Fund II-Fund III Joint Venture acquired a four-story
office building located on a 5.6 acre tract of land adjacent to the Johnson
Space Center in metropolitan Houston, in the City of Nassau Bay, Harris
County, Texas, known as "The Atrium at Nassau Bay", (the "Atrium").
The funds used by the Fund II-Fund III Joint Venture to acquire the Atrium
were derived from capital contributions made to the Fund II-Fund III Joint
Venture by the Fund II-Fund II-OW Joint Venture and Wells Fund III in the
amount of $8,327,856 and $2,538,000, respectively, for total initial
capital contributions of $10,865,856. As of September 30, 1996, the Fund
II-Fund II-OW Joint Venture and Wells Fund III had made total capital
contributions to the Fund II-Fund III Joint Venture of approximately
$8,330,000 and $4,448,000, respectively, for the acquisition and
development of the Atrium. The Fund II-Fund II-OW Joint Venture holds
approximately 66% equity interest in the Fund II-Fund III Joint Venture and
Wells Funds III holds approximately 34% equity interest in the Fund II-Fund
III Joint Venture.
The Atrium was first occupied in 1987 and contains approximately 119,000
net leasable square feet. Each floor of the Atrium was originally leased
under a separate lease to Lockheed Engineering and Science Company, Inc., a
wholly-owned subsidiary of the
10
<PAGE>
Lockheed Company, each of which leases had terms of approximately eight
years and expired on June 30, 1996.
Since Lockheed vacated the building as of June 30, 1996, the occupancy rate
of the Atrium Property was 0% for the third quarter of 1996. As set forth
above, the lease with Lockheed Company expired on September 30, 1996, and
although the Partnership has responded to various potential tenants
regarding leasing portions of the Atrium, no leases have been signed as of
September 30, 1996. It is anticipated that when leases are obtained for
the Atrium, rental rates will be lower than those paid by the previous
tenant, and income could decrease significantly under these new leases. In
addition, such leases are likely to require substantial tenant finish and
refurbishment expenditures by the Partnership which could further reduce
future cash distributions to Limited Partners.
The Brookwood Grill Property/Fund II & Fund III Joint Venture
-------------------------------------------------------------
On January 31, 1990, the Fund II-Fund II-OW Joint Venture acquired a 5.8
acre tract of undeveloped real property at the intersection of Warsaw Road
and Holcomb Bridge Road in Roswell, Fulton County, Georgia (the "Brookwood
Grill Property"). The Brookwood Grill Property is located about two miles
west of Georgia Highway 400 and approximately 20 radial miles north of the
Atlanta Central Business District. The Fund II-Fund II-OW Joint Venture
paid $1,848,561 including acquisition expenses for the 5.8 acre tract of
undeveloped property.
On September 20, 1991, the Fund II-Fund II-OW Joint Venture contributed the
Brookwood Grill, along with its interest as landlord under the lease
agreement referred to below, as a capital contribution to the Fund II-Fund
III Joint Venture. As of September 20, 1991, the Fund II-Fund II-OW Joint
Venture had expended approximately $2,128,000 for the land acquisition and
development of the Brookwood Grill Property.
As of September 20, 1991, a lease agreement was entered into with the
Brookwood Grill of Roswell, Inc. for the development of approximately 1.5
acres and the construction of a 7,440 square foot restaurant. The terms of
the lease call for an initial term of 9 years and 11 months, with two
additional 10-year option periods. The agreement calls for a base rental
of $217,006 per year for years 1 through 5 with a 15% increase over the
remainder of the initial term. Rental rates for all option periods will be
based on the prevailing market values and rates for those periods. Under
the terms of the lease, the Fund II-Fund III Joint Venture was required to
make certain improvements for the development and construction of the
restaurant building together with parking areas, driveways, landscaping and
other improvements described in the plans and specifications. The Fund II-
Fund III Joint Venture has expended approximately $1,100,000 for such
improvements. In addition to the base rent described above, the tenant is
required to pay "additional rent" in amounts equal to a 12% per annum
return on all amounts expended for such improvements.
11
<PAGE>
The occupancy rate for the Brookwood Grill, a sole tenant, was 100% for the
third quarter of 1996 and the quarter ended September 30, 1995, 1994, 1993,
and 1992. The average effective annual rental per square foot at the
Brookwood Grill is $30.32 for the third quarter 1996, $30.21 for 1995,
1994, and 1993, and $24.60 for 1992, the first year of occupancy.
As of September 30, 1996, the Fund II-Fund II-OW Joint Venture and Wells
Fund III had made total contributions to the Fund II-Fund III Joint Venture
of approximately $2,128,000 and $1,330,000 respectively for the acquisition
and development of the Brookwood Grill. The Fund II-Fund II-OW Joint
Venture holds an approximately 62% equity interest in the Brookwood Grill
Property and Wells Fund III holds an approximately 38% equity interest in
the project.
On January 10, 1995, the Fund II-Fund III Joint Venture contributed the
remaining 4.3 undeveloped acres of land comprising the Holcomb Bridge Road
Property to a new joint venture, Fund II, III, VI and VII Associates. This
property is described below.
FUND II, III, VI AND VII JOINT VENTURE/HOLCOMB BRIDGE ROAD PROPERTY
-------------------------------------------------------------------
On January 10, 1995, the Partnership, Fund II-Fund III Joint Venture, the
Wells Fund VI entered into a Joint Venture Agreement known as Fund II, III,
VI and VII Associates ("Fund II, III, VI, and VII Joint Venture"). The
Fund II-Fund III Joint Venture is a joint venture between Wells Real Estate
Fund III, a Georgia public limited partnership having Leo F. Wells, III and
Wells Capital, Inc., as general partners, and an existing joint venture
(the "Fund II-Fund II-OW Joint Venture") formed by Wells Real Estate Fund
II ("Wells Fund II"), a Georgia public limited partnership having Leo F.
Wells, III and Wells Capital, Inc., as general partners, and Wells Real
Estate Fund II-OW ("Wells Fund II-OW), a Georgia public limited partnership
having Leo F. Wells, III and Wells Capital, Inc., as general partners. The
investment objectives of Wells Fund II, Wells Fund II-OW, Wells Fund III
and Wells Fund VI are substantially identical to those of the Partnership.
In January 1995, the Fund II-Fund III Joint Venture contributed to the Fund
II, III, VI and VII Joint Venture approximately 4.3 acres of land at the
intersection of Warsaw Road and Holcomb Bridge Road in Roswell, Fulton
County, Georgia (the "Holcomb Bridge Road Property") including land
improvements. Development is substantially complete on two buildings
containing a total of approximately 49,500 square feet. Six tenants
occupied the 880 Holcomb Bridge Road property as of September 30, 1996 for
an occupancy rate of 54%. The average effective annual rental was $6.83
per square foot for the third quarter of 1996.
As of September 30, 1996, Fund II-Fund III Joint Venture contributed
$1,729,116 in land and improvements for an equity interest of approximately
25.2%, Wells Fund VI contributed $1,699,846 for an equity interest of
approximately 26.0%, and Wells Fund VII contributed $3,217,154 for an
equity interest of approximately 48.8%. The total costs to
12
<PAGE>
develop the Holcomb Bridge Road Property is currently estimated to be
approximately $5,000,000, excluding land. It is anticipated that of the
remaining cost of approximately $83,000, $16,000 will be contributed by
Wells Fund VI and $67,000 by Wells Fund VII, after which the equity
interests in the property will be 48.8% for Wells Fund VII, 25.5% for Wells
Fund VI, and 25.7% for the Fund II-Fund III Joint Venture.
Tucker Property/Fund I - Fund II Tucker Joint Venture
-----------------------------------------------------
The Tucker Property consists of a retail shopping center and a commercial
office building complex located in Tucker, DeKalb County, Georgia (the
"Tucker Property"). The retail shopping center at the Tucker Property
contains approximately 29,858 net leasable square feet. The commercial
office space at the Tucker Property, which is divided into seven separate
buildings, contains approximately 67,465 net leasable square feet.
On January 9, 1987, the Partnership acquired an interest in the Tucker
Property which was acquired by a joint venture (the "Tucker Joint Venture")
originally between the Partnership and Wells Real Estate Fund I ("Wells
Fund I"). Wells Fund I is a Georgia public limited partnership affiliated
with the Partnership through common general partners. The investment
objectives of Wells Fund I are substantially identical to those of the
Partnership. Upon the formation of the Fund II-Fund II-OW Joint Venture in
March 1988, the Partnership contributed its joint venture interest in the
Tucker Joint Venture to the Fund II-Fund II-OW Joint Venture as a part of
its capital contribution.
Both Wells Fund I and the Fund II-Fund II-OW Joint Venture have funded the
cost of completing the Tucker Property through capital contributions which
have been paid as progressive stages of construction were completed. As
of September 30, 1996, Wells Fund I had contributed a total of $6,399,854,
and the Fund II-Fund II-OW Joint Venture had contributed a total of
$4,826,015 to the Tucker Property. As of September 30, 1996, Wells Fund I
had an approximate 55% equity interest in the Tucker Project and Fund II-
Fund II-OW Joint Venture had an approximate 45% equity interest in the
Tucker Project. As of September 30, 1996, the occupancy rate at the Tucker
Property was 75%.
There are no tenants in the project occupying ten percent or more of the
rentable square footage. The principal businesses, occupations, and
professions carried on in the building are typical retail
shopping/commercial office services.
The occupancy rate at the Tucker Property for the quarters ended September
30 was 75% in 1996, 89% in 1995, 97% in 1994, 87% in 1993, and 78% in 1992.
The average effective annual rental per square foot at the Tucker Property
was $11.02 for 1996, $12.61 for 1995, $12.63 for 1994, $11.37 for 1993, and
$11.37 for 1992.
13
<PAGE>
Cherokee Property/Fund I, II, II-OW, VI, VII Joint Venture
----------------------------------------------------------
The Cherokee Property consists of a retail shopping center known as
"Cherokee Commons Shopping Center" located in metropolitan Atlanta,
Cherokee County, Georgia (the "Cherokee Property"). The Cherokee Property
consists of approximately 103,755 net leasable square feet.
On June 30, 1987, the Partnership acquired an interest in the Cherokee
Property through a joint venture (the "Cherokee Joint Venture") between the
Wells Fund II-Fund II-OW Joint Venture and Wells Fund I.
On August 1, 1995, the Fund II-Fund II-OW Joint Venture, Wells Fund I,
Wells Real Estate Fund VI, L.P. ("Wells Fund VI"), a Georgia public limited
partnership having Leo F. Wells, III and Wells Partners, L.P., a Georgia
limited partnership, as general partners, and Wells Real Estate Fund VII,
L.P. ("Wells Fund VII"), a Georgia public limited partnership having Leo F.
Wells, III and Wells Partners, L.P., a Georgia limited partnership, as
general partners entered into a joint venture agreement known as Fund I,
II, II-OW, VI, VII Associates (the "Fund I, II, II-OW, VI, VII Joint
Venture"), which was formed to own and operate the Cherokee Project. Wells
Partners, L.P. is a private limited partnership having Wells Capital, Inc.,
a General Partnership, as its sole general partner. The investment
objectives of Wells Fund I, Wells Fund VI and Wells Fund VII are
substantially identical to those of the Partnership.
As of September 30, 1996, Wells Fund I had contributed property with a book
value of $2,139,900, the Fund II-Fund II-OW Joint Venture had contributed
property with a book value of $4,860,100, Wells Fund VI had contributed
cash in the amount of $953,718 and Wells Fund VII had contributed cash in
the amount of $953,798 to the Fund I, II, II-OW, VI, VII Joint Venture.
As of September 30, 1996, the equity interests in the Cherokee Property
were approximately as follows: Wells Fund I - 24%, Fund II-Fund II-OW
Joint Venture - 54%, Wells Fund VI - 11% and Wells Fund VII - 11%.
The Cherokee Property is anchored by a 67,115 square foot lease with Kroger
Food/Drug which expires in 2011. Kroger's original lease was for 45,528
square feet. In 1994, Kroger expanded to the current 67,115 square feet
which is approximately 65% of the total rentable square feet in the
property. As of September 30, 1996, the Cherokee Property was
approximately 95% occupied by 20 tenants, including Kroger. Kroger, a
retail grocery chain, is the only tenant occupying ten percent or more of
the rentable square footage. The other tenants in the shopping center
provide typical retail shopping services.
The Kroger lease provides for an annual rent of $392,915 which increased to
$589,102 on August 16, 1995 due to the expansion from 45,528 square feet to
67,115 square feet. The lease expires March 31, 2011 with Kroger entitled
to five successive renewals each for a term of five years at the same
rental rate as the original lease.
14
<PAGE>
The occupancy rate at the Cherokee Property for the quarters ended
September 30 was 95% in 1996 and 1995, 92% in 1994, 82% in 1993, and 87% in
1992.
The average effective annual rental per square foot at the Cherokee
Property was $8.57 for 1996, $7.50 for 1995, $5.33 for 1994, $6.47 for
1993, $6.46 for 1992, and $6.52 for 1991.
For further information regarding the foregoing properties, refer to the
Partnership's Form 10-K for the year ended December 31, 1995.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a summary and discussion of the operations of
the properties described above during the quarter ended September 30, 1996.
The following summarizes the condensed financial statements of the Fund II-
Fund II-OW Joint Venture.
15
<PAGE>
Following are the financial statements for Fund II and II-OW:
FUND II AND II-OW
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets September 30, 1996 December 31,1995
------ ------------------ ----------------
<S> <C> <C>
Real estate assets, at cost:
Land $ 1,367,856 $ 1,367,856
Building and improvements, less accumulated
depreciation of $1,796,534 in 1996 and
$1,382,129 in 1995. 5,974,584 6,250,334
----------- -----------
Total real estate assets 7,342,440 7,618,190
----------- -----------
Investment in joint ventures 18,622,668 19,207,510
Cash and cash equivalents 67,466 72,419
Due from affiliates 98,893 415,195
Accounts receivable 108,522 95,202
Prepaid expenses and other assets 89,110 97,894
----------- ----------
Total assets $26,329,099 $27,506,410
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accounts payable and accrued expenses $ 0 $ 0
Partnership distributions payable 185,615 505,711
Due to affiliates 5,645 4,616
----------- -----------
Total liabilities 191,260 510,327
----------- -----------
Partners' Capital:
Wells Real Estate Fund II 24,748,917 25,561,588
Wells Real Estate Fund II-OW 1,388,922 1,434,495
----------- -----------
Total partners' capital 26,137,839 26,996,083
----------- -----------
Total liabilities and partners' capital $26,329,099 $27,506,410
=========== ===========
</TABLE>
16
<PAGE>
FUND II AND II-OW
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------------- -----------------------------------------
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $114,716 $114,716 $344,150 $ 344,150
Equity in income of joint ventures 71,304 344,511 416,245 926,333
Interest income 106 110 308 427
-------- -------- -------- ----------
186,126 459,337 760,703 1,270,910
-------- -------- -------- ----------
Expenses:
Management and leasing fees 6,883 6,883 20,649 20,649
Lease acquisition costs 4,589 4,589 13,766 13,766
Operating costs - rental property 4,935 2,073 16,046 21,651
Depreciation 91,917 48,570 275,750 145,709
Legal and accounting 678 1,171 39,126 23,308
Computer costs 1,404 390 3,207 5,005
Partnership administration 13,209 18,990 59,832 61,320
-------- -------- -------- ----------
123,615 82,666 428,376 291,408
-------- -------- -------- ----------
Net income $ 62,511 $376,671 $332,327 $ 979,502
======== ======== ======== ==========
Net income allocated to
Wells Real Estate Fund II $ 59,191 $356,669 $314,680 $ 927,490
Net income allocated to
Wells Real Estate Fund II-OW $ 3,320 $ 20,002 $ 17,647 $ 52,012
</TABLE>
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-----------------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
The following discussion and analysis should be read in conjunction with
the accompanying financial statements of the Partnership and notes thereto.
This Report contains forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933 and 21E of the Securities
Exchange Act of 1934, including discussion and analysis of the financial
condition of the Partnership, anticipated capital expenditures required to
complete certain projects, amounts of cash distributions anticipated to be
distributed to Limited Partners in the future and certain other matters.
Readers of this Report should be aware that there are various factors that
could cause actual results to differ materially from any forward-looking
statement made in the Report, which include construction costs which may
exceed estimates, construction delays, lease-up risks, inability to obtain
new tenants upon the expiration of existing leases, and the potential need
to fund tenant improvements or other capital expenditures out of operating
cash flow.
Results of Operations and Changes in Financial Conditions
---------------------------------------------------------
General
-------
As of September 30, 1996, the developed properties owned by the Fund II-
Fund II-OW Joint Venture, (including the Holcomb Bridge Road Property which
is substantially completed), were 63% occupied, as compared to 97% occupied
as of September 30, 1995.
Gross revenues of the Partnership were $59,329 for the three months ended
September 30, 1996, as compared to $356,811 for September 30, 1995. The
decrease in gross revenues for 1996 was due primarily to the decrease in
equity in income from the joint venture.
Administrative expenses of the Partnership are incurred at the joint
venture level. Accounting expenses increased for the nine month period
ended September 30, 1996 over the same period of 1995 due to payment of
fees for tax preparation and additional audit fees. Depreciation expenses
increased from 1995 to 1996 due to the change in the estimated useful lives
of all buildings and improvements in which the Partnership owns an interest
from 40 years to 25 years, which became effective December 31, 1995.
Distributions to the Partnership from Fund II-Fund II-OW Joint Venture for
the three month periods ended September 30, 1996 and September 30, 1995
were $175,759 and $493,394 respectively.
The Partnership made cash distributions to the Limited Partners holding
Class A Units of $1.41 per unit for the third quarter of 1996 as compared
to $4.55 per unit for the third quarter of 1995. No cash distributions were
made by the Partnership to the Limited Partners holding Class B Units.
Cash distributions for the third quarter of 1996 were made from investment
income and do not represent a return of capital.
18
<PAGE>
As of September 30, 1996, the Fund II-Fund II-OW Joint Venture had used all
of the remaining funds available for investment in properties.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
19
<PAGE>
PROPERTY OPERATIONS
- -------------------
As of September 30, 1996, the Partnership owned interests in the following
properties through the Fund II-Fund II-OW Joint Venture:
Charlotte Property/Fund II and II-OW Joint Venture
- --------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------- ---------------------------------------
September 30, 1996 September 30, 1995 September 30, 1996 September 30,1995
------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $114,716 $114,716 $344,150 $344,150
Expenses:
Depreciation 91,917 48,569 275,750 145,708
Management and leasing expenses 11,472 11,472 34,415 34,415
Other operating expenses 4,934 2,073 16,046 21,651
-------- -------- -------- --------
108,323 62,114 326,211 201,774
-------- -------- -------- --------
Net income $ 6,393 $ 52,602 $ 17,939 $142,376
======== ======== ======== ========
Occupied % 100% 100% 100% 100%
Partnership Ownership % 94.7% 94.7% 94.7% 94.7%
Cash generated to the Fund II-
Fund II-OW Joint Venture* $101,844 $ 90,783 $290,310 $267,229
Net income allocated to the Fund II-
Fund II-OW Joint Venture* $ 6,393 $ 52,602 $ 17,939 $142,376
</TABLE>
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income was stable for the three and nine months ended September 30, 1996
and 1995. The decrease in net income for the three and nine month periods of
1996 compared to 1995 was primarily due to the increase in depreciation expenses
which resulted from the change in fourth quarter, 1995, in estimated useful
lives of buildings and improvements previously discussed under the "General"
section of "Results of Operations and Changes in Financial Conditions". Cash
generated to the Joint Venture for the three month and nine month periods ended
September 30, 1996 increased over the same periods of 1995 due primarily to an
increase in the actual rent as of April 1996, which is not reflected in the
rental income for accounting purposes shown above due to straight-lining the
rent over the lease period.
20
<PAGE>
The Atrium/Fund II and Fund III Joint Venture
- ---------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 8,909 $519,836 $1,048,582 $1,559,509
Interest income 6,091 6,658 21,409 21,762
--------- -------- ---------- ----------
15,000 526,494 1,069,991 1,581,271
--------- -------- ---------- ----------
Expenses:
Depreciation 168,691 117,029 505,788 351,087
Management and leasing expenses 0 35,691 71,380 107,071
Other operating expenses (176,240) 64,686 57,310 196,713
--------- -------- ---------- ----------
(7,549) 217,406 634,478 654,871
--------- -------- ---------- ----------
Net income $ 22,549 $309,088 $ 435,513 $ 926,400
========= ======== ========== ==========
Occupied % 0% 100% 0% 100%
Partnership Ownership % 62.1% 62.1% 62.1% 62.1%
Cash distributions to the Fund II-
Fund II-OW Joint Venture* $ 0 $294,805 $ 472,173 $ 883,847
Net income allocated to the Fund II-
Fund II-OW Joint Venture* $ 14,792 $202,762 $ 285,696 $ 607,718
</TABLE>
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income decreased for the three and nine months ended September 30, 1996
compared to the same periods in 1995 due to the termination of the Lockheed
lease as of June 30, 1996. The increase in depreciation expenses for the three
months and nine months ended September 30, 1996 over the same periods in 1995 is
due to the change in the estimated useful lives of buildings and improvements
which was made in the fourth quarter of 1995. The decrease in operating
expenses for the three month period ended September 30, 1996 compared to
September 30, 1995, resulted from a reclassification of prior years' excess
reimbursements. The decrease in the nine month operating expenses for September
30, 1996 compared to September 30, 1995 is due to this reclassification and the
vacancy of the project during the quarter.
The lease with Lockheed Company expired on June 30, 1996, and although the
Partnership has responded to various potential tenants regarding leasing the
Atrium, no leases have been signed as of September 30, 1996. It is anticipated
that when leases are obtained for the Atrium, rental rates will be lower than
those paid by the previous tenant, and income could decrease significantly under
these new leases. In addition, such leases are likely to require further tenant
finish and refurbishment expenditures by the Partnership which could
substantially reduce future cash distributions to Limited Partners.
21
<PAGE>
The Brookwood Grill Property/Fund II and Fund III Joint Venture
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ------------------------------------------
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $56,797 $60,316 $169,172 $172,691
Equity loss of joint venture (573) 0 (26,996) 0
------- ------- -------- --------
56,224 60,316 142,176 172,691
------- ------- -------- --------
Expenses:
Depreciation 13,503 14,664 40,509 43,994
Management and leasing expenses 7,483 7,833 20,178 22,112
Other operating expenses 13,665 11,919 48,941 30,750
------- ------- -------- --------
34,651 34,416 109,628 96,856
------- ------- -------- --------
Net income $21,573 $25,900 $ 32,548 $ 75,835
======= ======= ======== ========
Occupied % 100% 100% 100% 100%
Partnership Ownership % 59.04% 59.04% 59.04% 59.04%
Cash distributions to the Fund II-
Fund II-OW Joint Venture* $26,840 $25,025 $ 65,958 $ 73,911
Net income allocated to the
Fund II-Fund II-OW
Joint Venture* $13,451 $16,149 $ 20,294 $ 47,283
</TABLE>
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income decreased slightly for the three months and nine months ended
September 30, 1996 compared to the same periods in 1995 due primarily to a
decrease in billing of expenses to the tenant. Expenses were stable for the
three months ended September 30, 1996 and 1995, but were substantially higher
for the nine month periods ended September 30, 1996 compared to September 30,
1995. The increase in other operating expenses is the result of decreased
property tax reimbursements and a reimbursement to the tenant in first quarter
1996 of administrative charges paid in 1995. Although there was a change in
useful lives of assets from forty years to twenty-five years in December 1995,
depreciation expense decreased in 1996, compared to the same periods in 1995,
due to the contribution of land and land improvements by Brookwood Grill to the
880 Holcomb Bridge Property. Net income decreased for both the three and nine
month periods of 1996 compared to 1995 for the reasons cited above and due to
the net loss generated by the Fund II, III, VI, VII Joint Venture.
22
<PAGE>
Holcomb Bridge Road Property/Fund II, III, VI, VII Joint Venture
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
September 30, 1996 September 30, 1996
------------------ ------------------
<S> <C> <C>
Revenues:
Rental income $82,869 $136,044
Expenses:
Depreciation 54,939 138,881
Management and leasing expenses 8,530 14,610
Other operating expenses 22,279 70,012
------- --------
85,748 223,503
------- --------
Net loss $(2,879) $(87,459)
======= ========
Occupied % 53.6% 53.6%
Partnership Ownership % in the
Fund II, III, VI, VII Joint Venture* 14.9% 14.9%
Cash distribution to the Fund II-
Fund III Joint Venture* $ 7,022 $ 7,022
Net loss allocated to the Fund II-
Fund III Joint Venture* $ (572) $(26,995)
</TABLE>
*The Partnership holds a 59.04% ownership in the Fund II-Fund III Joint Venture.
In January 1995, the Fund II-Fund III Joint Venture contributed 4.3 acres of
land and land improvements at 880 Holcomb Bridge Road (the "Holcomb Bridge Road
Property") to the Fund II, III, VI, and VII Joint Venture. Development is being
completed on two buildings with a total of approximately 49,500 square feet. As
of September 30, 1996, six tenants are occupying approximately 26,549 square
feet of space in the retail and office building under leases of varying lengths.
Since the property was not developed as of September 30, 1995, no comparative
figures are available for the quarter.
As of September 30, 1996, the Fund II-Fund III Joint Venture contributed
$1,729,116 in land and improvements for an equity interest of approximately
25.2%, Wells Fund VI contributed $1,699,846 for an equity interest of
approximately 26.0%, and Wells Fund VII contributed $3,217,154 for an equity
interest of approximately 48.8%. The total costs to develop the Holcomb Bridge
Road Property is currently estimated to be approximately $5,000,000, excluding
land. It is anticipated that of the remaining cost of approximately $83,000,
$16,000 will be contributed by Wells Fund VI and $67,000 by Wells Fund VII,
after which the equity interests in the property will be 48.8% for Wells Fund
VII, 25.5% for Wells Fund VI, and 25.7% for the Fund II-Fund III Joint Venture.
Wells Fund VI and Wells Fund VII have reserved sufficient funds for this
purpose.
23
<PAGE>
Tucker Property/Fund I - Fund II Tucker Joint Venture
- -----------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------ ------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $262,134 $313,802 $804,135 $957,817
Interest income 122 147 501 2,596
-------- -------- -------- --------
262,256 313,949 804,636 960,413
-------- -------- -------- --------
Expenses:
Depreciation 105,280 60,007 313,508 180,020
Management and leasing expenses 27,454 36,291 89,838 104,091
Other operating expenses 109,108 124,144 365,608 422,275
-------- -------- -------- --------
241,842 220,442 768,954 706,386
-------- -------- -------- --------
Net income $ 20,414 $ 93,507 $ 35,682 $254,027
======== ======== ======== ========
Occupied % 75% 89% 75% 89%
Partnership Ownership % 42.52% 42.52% 42.52% 42.52%
Cash distribution to the Fund II-
Fund II-OW Joint Venture* $ 52,215 $ 71,266 $150,347 $197,189
Net income allocated to the
Fund II-Fund II-OW
Joint Venture* $ 9,168 $ 25,025 $ 16,025 $ 73,911
</TABLE>
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income decreased in 1996 from 1995 due primarily to decreased tenant
occupancy. Operating expenses decreased in 1996 over 1995 due to a decrease in
utilities and other repairs and maintenance. The increase in depreciation
expense for 1996 as compared to 1995 is a result of the change in the estimated
useful lives of buildings and improvements as previously discussed under the
"General" section of "Results of Operations and Changes in Financial
Conditions". Net income of the property decreased in 1996 as compared to 1995
due to increased depreciation and decreased occupancy as discussed above.
The property was 75% leased, as of September 30, 1996, as compared to 89%
leased, as of September 30, 1995, due to three tenants vacating space totaling
9,761 square feet. Although no leases have been signed, every effort is being
made to re-lease this space.
24
<PAGE>
Cherokee Property/Fund I, II, II-OW, VI & VII Joint Venture
- -----------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------- -----------------------------------------
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $219,956 $253,387 $666,564 $546,904
Interest income 18 69 55 164
-------- -------- -------- --------
219,974 253,456 666,619 547,068
-------- -------- -------- --------
Expenses:
Depreciation 107,607 72,989 322,251 164,233
Management and leasing expenses 12,101 9,354 38,011 23,823
Other operating expenses 38,084 36,728 133,588 118,548
-------- -------- -------- --------
157,792 119,071 493,850 306,604
-------- -------- -------- --------
Net income $ 62,182 $134,385 $172,769 $240,464
======== ======== ======== ========
Occupied % 95% 95% 95% 95%
Partnership Ownership % 51.7% 51.1% 51.7% 51.1%
Cash distributions to the Fund II-
Fund II-OW Joint Venture* $108,584 $ 88,365 $312,609 $169,704
Net income allocated to the Fund II-
Fund II-OW Joint Venture* $ 33,928 $ 83,606 $ 94,265 $157,247
</TABLE>
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income decreased for the three months ended September 30, 1996, as
compared to the same period for 1995, due to the receipt in September 1995 of
certain excess rents relating to the Kroger expansion which, although completed
in November 1994, was billed retroactively and paid in September 1995. The
increases in depreciation expenses for 1996 as compared to 1995 are the result
of the change in the estimated useful lives of buildings and improvements as
previously discussed under the "General" section of "Results of Operation and
Changes in Financial Conditions". Management and leasing expenses increased in
1996 as compared to 1995 due to the increased revenue. Other operating expenses
increased in 1996 due to increased repairs and maintenance. Net income of the
property decreased for the nine month period ended September 30, 1996, as
compared to the same period for 1995, primarily due to the increase in
depreciation expenses offset partially by the increase in rental income.
A lease amendment executed with Kroger in 1994 provided for the expansion of its
existing store at the Cherokee Commons Shopping Center from 45,528 square feet
to 66,918 square feet. In November, 1994, construction was completed on the
Kroger expansion and remodeling of the center. The total costs for both the
Kroger expansion and remodeling of the Center was $2,807,367. The costs of this
expansion were funded in the following amounts: Wells Fund I - $94,679, the
Fund II-Fund II-OW Joint Venture - $805,092, Wells Fund VI - $953,798, and Wells
Fund VII - $953,798.
25
<PAGE>
PART II - OTHER INFORMATION
----------------------------
Item 6(b). No reports on Form 8-K were filed during the third quarter of 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WELLS REAL ESTATE FUND II
(Registrant)
Dated: November 11, 1996 By: /s/Leo F. Wells, III
--------------------
Leo F. Wells, III, as Individual
General Partner and as President,
Sole Director and Chief Financial
Officer of Wells Capital, Inc.
the Corporate General Partner
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 36,535
<SECURITIES> 24,748,917
<RECEIVABLES> 175,759
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,961,211
<CURRENT-LIABILITIES> 163,885
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 24,797,326
<TOTAL-LIABILITY-AND-EQUITY> 24,961,211
<SALES> 0
<TOTAL-REVENUES> 315,079
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 90
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 314,989
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 314,989
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
