<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
---------------------------------------------------
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 0-17610
-----------------------------------------------------
First Capital Insured Real Estate Limited Partnership
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Illinois 36-3525946
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 1000, Chicago, Illinois 60606-2607
- --------------------------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 207-0020
--------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
--------------------
Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Units
-------------------------
</TABLE>
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. [x]
Documents incorporated by reference:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the definitive Prospectus dated August 1, 1988, included
in the Registrant's Registration Statement on Form S-11 (Registration
No. 33-15999), is incorporated herein by reference in Part IV of this report.
Exhibit Index - Page A-1
<PAGE>
PART I
ITEM 1. BUSINESS
The registrant, First Capital Insured Real Estate Limited Partnership (the
"Partnership"), is a limited partnership organized in 1987 under the Revised
Uniform Limited Partnership Act of the State of Illinois. The Partnership sold
688,194 Limited Partnership Assignee Units (the "Units") to the public from
August 1988 to July 1990, pursuant to a Registration Statement on Form S-11
filed with the Securities and Exchange Commission (the "Commission")
(Registration Statement No. 33-15999). Capitalized terms used in this report
have the same meaning as those terms have in the Partnership's Registration
Statement. In May 1991, the Partnership returned $28,821,600 or $41.88 per Unit
to the Limited Partners, representing a return of a portion of the Net Proceeds
of the Offering as a result of the Partnership not having acquired properties
where the purchase price equaled the total equity raised within the period
required by the Policy (as defined in Notes to Financial Statements included in
this Report).
The business of the Partnership was to invest, on an all cash basis, primarily
in a diversified portfolio of institutional quality, existing, income-producing
real estate, such as shopping centers, office buildings, apartments, warehouses
or any one or more of these categories. From November 1988 through December
1991, the Partnership made two real property investments and purchased a 50%
interest in a joint venture which was formed with an Affiliated partnership for
the purpose of acquiring a 100% interest in certain real property. The
Partnership's joint venture was operated under the common control of First
Capital Financial Corporation (the "General Partner").
Property management services for the Partnership's real estate investments were
provided by Affiliates of the General Partner for fees calculated as a
percentage of gross rents received from the properties.
Prior to December 31, 1997, the Partnership sold all of its real property
investments. On February 28, 1998, the Partnership distributed all remaining
cash (less a reserve established by the General Partner for any known,
contingent or unforeseen liabilities or obligations of the Partnership) to
Limited Partners. As a result, the General Partner currently intends to
dissolve and wind up the affairs of the Partnership as soon as practicable
following the filing of this Form 10-K with the Commission. Following the
dissolution of the Partnership, the General Partner intends to apply to the
Commission to terminate the registration of the Units under the Securities
Exchange Act of 1934, as amended.
ITEM 2. PROPERTIES
All real properties owned by the Partnership were sold prior to December
31, 1997.
ITEM 3. LEGAL PROCEEDINGS
(a & b) The Partnership and its properties were not a party to, nor the subject
of, any material pending legal proceedings, nor were any such proceedings
terminated during the quarter ended December 31, 1997. Ordinary routine legal
matters incidental to the business which was not deemed material were pursued
during the quarter ended December 31, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a,b,c & d) None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY AND RELATED SECURITY HOLDER MATTERS
There has not been, nor is there expected to be, a public market for Units.
As of March 1, 1998, there were 4,311 Holders of Units.
2
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 6,280,400 $ 7,199,100 $ 4,948,100 $ 4,751,900 $ 4,652,900
Net income (loss) $ 4,113,300 $ 4,091,200 $ 525,600 $(2,342,800) $ 1,564,500
Net income (loss)
allocated to Limited
Partners $ 4,033,300 $ 2,994,100 $ 520,300 $(2,319,400) $ 1,548,900
Net income (loss)
allocated to Limited
Partners per Unit
(688,194 Units
outstanding) $ 5.86 $ 4.35 $ 0.76 $ (3.37) $ 2.25
Total assets $15,404,100 $22,061,400 $27,825,700 $29,056,800 $33,120,400
Distributions to Limited
Partners per Unit
(688,194 Units
outstanding)(a) $ 32.61 $ 13.93 $ 2.36 $ 2.36 $ 1.32
Return of capital to
Limited Partners per
Unit (688,194 Units
outstanding)(b) $ 26.75 $ 9.58 $ 1.60 $ 2.36 None
OTHER DATA:
Investment in commercial
rental properties (net
of accumulated
depreciation and
amortization) None $17,919,000 $22,973,900 $23,894,600 $28,677,400
Number of real property
interests owned at
December 31 None 2 3 3 3
- --------------------------------------------------------------------------------------
</TABLE>
(a) Distributions during 1997 and 1996 included Sale Proceeds of $31.03 and
$11.57 per Unit, respectively.
(b) For the purposes of this table, return of capital represents either: the
amount by which distributions, if any, exceed net income for each
respective year; or total distributions, if any, in years when the
Partnership incurred a net loss. Pursuant to the Partnership Agreement,
Capital Investment is only reduced by distributions of Sale or Refinancing
Proceeds. Accordingly, return of capital as used in the above table does
not impact Capital Investment.
The following table includes a reconciliation of Cash Flow (as defined in the
Partnership Agreement) to cash flow provided by operating activities as
determined by generally accepted accounting principles ("GAAP"):
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash Flow (as defined in
the Partnership
Agreement)(a) $ 1,334,300 $ 2,523,000 $ 2,672,800 $ 2,535,900 $ 2,146,700
Items of reconciliation:
Premium amortization 296,500
Portfolio Management
Fee 120,800 180,500 180,500 180,500 100,900
Changes in current
assets and
liabilities:
Decrease (increase) in
current assets 131,800 2,100 (39,000) 19,700 68,500
(Decrease) increase in
current liabilities (348,900) (83,300) 35,500 (119,600) 108,500
- -------------------------------------------------------------------------------------------
Net cash provided by
operating activities $ 1,238,000 $ 2,622,300 $ 2,849,800 $ 2,616,500 $ 2,721,100
- -------------------------------------------------------------------------------------------
Net cash provided by
(used for) investing
activities $ 22,401,000 $ 5,499,400 $(1,233,800) $ (201,700) $(1,734,100)
- -------------------------------------------------------------------------------------------
Net cash (used for)
financing activities $(10,421,700) $(9,772,200) $(1,792,200) $(1,601,200) $(1,291,400)
- -------------------------------------------------------------------------------------------
</TABLE>
(a) Cash Flow is defined in the Partnership Agreement as Partnership cash
revenues earned from operations (excluding tenant deposits, proceeds from
the Policy after payment of outstanding obligations of the Partnership, and
proceeds from Major Capital Events), minus all cash expenses incurred
(including Operating Expenses, payments of Policy premiums and any loans
and debt service related thereto, payments of the Portfolio Management Fee
and any reserves of revenues from operations deemed reasonably necessary by
the General Partner), except capital expenditures and lease acquisition
expenditures.
The above selected financial data should be read in conjunction with the
financial statements and the related notes appearing on pages A-1 through A-7
in this report.
3
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The ordinary business of the Partnership is expected to pass through its life
cycle in three phases: (i) the Offering of Units and Investment in Properties;
(ii) the operation of properties and (iii) the disposition of properties.
The Partnership commenced the Offering of Units on August 1, 1988 and began
operations on October 17, 1988, after achieving the required minimum
subscription level. On July 31, 1990, the Offering was Terminated upon the sale
of 688,194 Units. In May 1991, the Partnership returned $28,821,600 to the
Limited Partners, or $41.88 per Unit, representing a return of a portion of the
Net Proceeds of the Offering as a result of the Partnership not having acquired
properties where the purchase price equaled the total equity raised within the
period required by the Policy. From November 1988 through December 1991, the
Partnership made two real property investments and purchased a 50% interest in
a joint venture which was formed with an Affiliated partnership for the purpose
of acquiring a 100% interest in certain real property.
During 1996, the Partnership entered the disposition of properties stage.
During the disposition phase of the Partnership's life cycle, comparisons of
operating results are complicated due to the timing and effect of property
sales. Partnership operating results are generally expected to decline as real
property interests are sold or disposed of since the Partnership no longer
receives income generated from such real property interests. During 1997, the
Partnership sold its remaining property investment Lakeview Office Park
Buildings II & III ("Lakeview"), for $12,870,000, and its 50% interest in
Carrollton Crossroads Shopping Center ("Carrollton"), of which the
Partnership's share of the sale price was $9,050,000. During 1996, the
Partnership sold Telegraph Hill Apartments ("Telegraph") for $8,100,000. The
Partnership realized gains of $3,494,700 and $303,900 during 1997 in connection
with the sales of Lakeview and Carrollton, respectively. During 1996, the
Partnership realized a gain of $2,496,400 in connection with the sale of
Telegraph. For further information, see Note 5 of Notes to Financial
Statements.
OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31,
1996
Net income increased by $22,100 for the year ended December 31, 1997 when
compared to the year ended December 31, 1996. The increase in the gains
recorded on the 1997 property sales when compared to the 1996 sale, as
discussed above, along with the increase in interest earned on the
Partnership's short-term investments, which was due to Sale Proceeds being
invested prior to their distribution to Limited Partners, was almost entirely
offset by the absence of operating results from the Partnership's property
investments due to their sales during 1997 and 1996.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31,
1995
Net income for the year ended December 31, 1996 increased by $3,565,600 when
compared to the year ended December 31, 1995. The increase was primarily the
result of the effects of the sale of Telegraph in 1996 and the provision for
value impairment recognized on Lakeview in 1995. Exclusive of the gain on sale,
operating results from Telegraph and provision for value impairment, net income
decreased by $14,700 for the comparable periods. This decrease was primarily
due to diminished operating results at Lakeview. Partially offsetting the
decrease was improved operating results at Carrollton and a decrease in general
and administrative expenses, which was primarily due to a decrease in printing,
mailing and appraisal costs.
The following discussion excludes the comparative operating results of
Telegraph.
Rental revenues increased by $150,300 or 4.6% for the year ended December 31,
1996 when compared to the year ended December 31, 1995. The increase was
primarily the result of an increase in base rents at Lakeview which was due to
increases in the average occupancy and base rental rates.
Real estate taxes decreased by $41,900 for the year ended December 31, 1996
when compared to the year ended December 31, 1995. This decrease was primarily
due to a decrease in the tax rate at Lakeview.
Depreciation and amortization expense increased by $124,300 for the years under
comparison. The increase was primarily the result of an increase in
depreciation expense at Lakeview resulting from significant tenant improvements
over the past two years. Partially offsetting the increase at Lakeview was a
decrease in depreciation expense due to the effects of the provision for value
impairment recorded for Lakeview during the year ended December 31, 1995.
Property operating expenses increased by $49,700 for the years under
comparison. Property operating expenses for 1996 increased due to a one-time
expense incurred in moving Lakeview's new major tenant to the property.
Partially offsetting the increase was a decrease in professional services at
Lakeview which was primarily the result of leasing related costs. These costs
are ordinarily paid to and provided by an Affiliate of the General Partner and
included in its property management and leasing fee and recorded as expense,
however, during 1996 were paid to outside brokers and capitalized as lease
commissions and are being amortized over the respective lease terms of new
tenants.
The rate of inflation has remained relatively stable during the years under
comparison and has had a minimal impact on the operating results of the
Partnership. The nature of various tenants lease clauses protected the
Partnership, to some extent, from increases in the rate of inflation. Certain
of the lease clauses provided for the following: 1) annual rent increases based
on the Consumer Price Index or graduated rental increases and 2) total or
partial tenant reimbursement of property operating expenses (e.g., common area
maintenance, real estate taxes, etc.).
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives was to dispose of its properties when
market conditions allow for the achievement of the maximum possible sales
price. Notwithstanding the Partnership's intention relative to property sales,
another primary objective of the Partnership is to provide cash distributions
to Partners from Partnership operations. To the extent cumulative cash
distributions exceed net income, such excess distributions will be treated as a
return of capital. Cash Flow (as defined in the Partnership Agreement) is
generally not equal to Partnership net income or cash flows as determined by
GAAP, since certain items are treated differently under the Partnership
Agreement than under GAAP. The General Partner believes that to facilitate a
clear understanding of the Partnership's operations, an analysis of Cash Flow
(as defined in the Partnership Agreement) should be examined in conjunction
with an analysis of net income or cash flows as determined by GAAP. The second
table in
4
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
Selected Financial Data includes a reconciliation of Cash Flow (as defined in
the Partnership Agreement) to cash flow provided by operating activities as
determined by GAAP. Such amounts are not indicative of actual distributions to
Partners and should not necessarily be considered as an alternative to the
results disclosed in the Statements of Income and Expenses and Statements of
Cash Flows.
Cash Flow (as defined in the Partnership Agreement) decreased by $1,188,700 for
the year ended December 31, 1997 when compared to the year ended December 31,
1996. The decrease was primarily the result of the absence of operating results
resulting from the sales of the Partnership's properties partially offset by an
increase in interest income earned on the Partnership's short-term investments.
The increase of $13,217,300 in the Partnership's cash position as of December
31, 1997 was primarily the result of the receipt of proceeds from the sale of
Lakeview. Liquid assets (including cash and cash equivalents) of the
Partnership as of December 31, 1997 were comprised of undistributed Sales
Proceeds and previously retained Cash Flow (as defined in the Partnership
Agreement).
Net cash provided by operating activities decreased by $1,384,300 for the year
ended December 31, 1997 when compared to the year ended December 31, 1996. The
decrease was primarily due to the sale of the Partnership's two remaining
properties.
Net cash provided by investing activities increased by $16,901,600 for the year
ended December 31, 1997 when compared to the year ended December 31, 1996. The
increase was primarily due to the 1997 receipt of proceeds from the sales of
Lakeview and Carrollton exceeding the proceeds received from the 1996 sale of
Telegraph, as well as the decrease in the Partnership's investments in debt
securities.
Net cash used for financing activities increased by $649,500 for the year ended
December 31, 1997 when compared to the year ended December 31, 1996. This
increase was primarily the result of the 1997 special distribution of
Carrollton Sale Proceeds exceeding the 1996 special distribution of Telegraph
Sale Proceeds, as discussed below.
On October 1, 1997, the Partnership completed the sale of Lakeview. Net
proceeds generated from this sale amounted to $12,508,900. In connection with
this sale, the Partnership declared a special distribution in the amount of
$12,504,500 or $18.17 per Unit. This special distribution was paid on February
28, 1998 to Limited Partners of record as of October 1, 1997.
On January 17, 1997, the joint venture in which the Partnership has a 50%
interest completed the sale of Carrollton. The Partnership's share of net
proceeds generated from this sale amounted to $8,846,700. As a result of this
sale, the Partnership paid a special distribution in the amount of $8,850,200
or $12.86 per Unit on May 31, 1997 to Limited Partners of record as of January
17, 1997.
On October 15, 1996, the Partnership completed the sale of Telegraph. Net
proceeds generated from this sale amounted to $7,961,700. As a result of this
sale, the Partnership paid a special distribution in the amount of $7,962,000
or $11.57 per Unit on November 30, 1996 to Limited Partners of record as of
October 15, 1996.
On February 28, 1998, Limited Partners were paid a cash distribution of
$158,300 or $0.23 per Unit, representing Cash Flow (as defined in the
Partnership Agreement) for the fourth quarter of 1997.
Prior to December 31, 1997, the Partnership sold all of its real property
investments. In addition to the distributions referred to above, on February
28, 1998, the Partnership distributed $2,415,600 or $3.51 per Unit to Limited
Partners of record as of February 1, 1998, representing the Partnership's
remaining cash (less (i) a reserve of approximately $250,000 established by the
General Partner for any known, contingent or unforeseen liabilities or
obligations of the Partnership and (ii) the General Partner's deferred
Portfolio Management Fee of $170,800). The General Partner currently intends to
dissolve and wind up the affairs of the Partnership as soon as practicable.
Following the dissolution of the Partnership, the General Partner intends to
apply to the Securities and Exchange Commission to terminate the registration
of the Units under the Securities Exchange Act of 1934, as amended.
5
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this report.
See page A-1 "Index of Financial Statements, Schedule and Exhibits."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
6
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) & (e) DIRECTORS
The Partnership has no directors. First Capital Financial Corporation
("FCFC") is the General Partner. The directors of FCFC, as of March 31, 1998,
are shown in the table below. Directors serve for one year or until their
successors are elected. The next annual meeting of FCFC will be held in June
1998.
<TABLE>
<CAPTION>
Name Office
---- ------
<S> <C>
Douglas Crocker II................................... Director
Sheli Z. Rosenberg................................... Director
</TABLE>
Douglas Crocker II, 57, has been President and Chief Executive Officer since
December 1992 and a Director since January 1993 of the General Partner. Mr.
Crocker has been President, Chief Executive Officer and trustee of Equity
Residential Properties Trust since March 31, 1993. Mr. Crocker is a member of
the Board of Directors of Horizon Group, Inc. and Wellsford Real Properties
Inc. Mr. Crocker was an Executive Vice President of Equity Financial and
Management Company ("EFMC") from November 1992 until March 31, 1997.
Sheli Z. Rosenberg, 56, was President and Chief Executive Officer of the
General Partner from December 1990 to December 1992 and has been a Director of
the General Partner since September 1983; was Executive Vice President and
General Counsel for EFMC from October 1980 to November 1994; has been
President and Chief Executive Officer of Equity Group Investments, Inc.
("EGI") since November 1994; has been a Director of Great American Management
and Investment Inc. ("Great American") since June 1984 and is a director of
various subsidiaries of Great American. She is also a director of Anixter
International Inc., American Classic Voyages Co., CVS Corporation, Illinova
Corporation, Illinois Power Co., Jacor Communications, Inc., and Manufactured
Home Communities, Inc. She is also a trustee of Equity Residential Properties
Trust, Equity Office Properties Trust and Capital Trust. Ms. Rosenberg was a
Principal of Rosenberg & Liebentritt, P.C., counsel to the Partnership, the
General Partner and certain of their Affiliates from 1980 to September 1997.
She had been Vice President of First Capital Benefit Administrators, Inc.
("Benefit Administrators") since July 22, 1987 until its liquidation in
November 1995. Benefit Administrators filed for protection under the Federal
Bankruptcy laws on January 3, 1995.
7
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
(b) & (e) EXECUTIVE OFFICERS
The Partnership does not have any executive officers. The executive officers
of the General Partner as of March 31, 1998 are shown in the table. All
officers are elected to serve for one year or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
Name Office
---- ------
<S> <C>
Douglas Crocker II.............................President and Chief Executive Officer
Donald J. Liebentritt..........................Vice President
Norman M. Field................................Vice President - Finance and Treasurer
</TABLE>
PRESIDENT AND CEO- See Table of Directors above.
Donald J. Liebentritt, 47, has been Vice President of the General Partner
since July 1997 and is Executive Vice President and General Counsel of EGI,
Vice President and Assistant Secretary of Great American and Principal and
Chairman of the Board of Rosenberg & Liebentritt, P.C.
Norman M. Field, 49, has been Vice President of Finance and Treasurer of the
General Partner since February 1984, and also served as Vice President and
Treasurer of Great American from July 1983 until March 1995. Mr. Field had
been Treasurer of Benefit Administrators since July 22, 1987 until its
liquidation in November 1995. Benefit Administrators filed for protection
under the Federal Bankruptcy laws on January 3, 1995. He was Chief Financial
Officer of Equality Specialties, Inc. ("Equality"), a subsidiary of Great
American, from August 1994 to April 1995. Equality was sold in April 1995.
(d) FAMILY RELATIONSHIPS
There are no family relationships among any of the foregoing directors and
officers.
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
With the exception of the bankruptcy matter disclosed under Items 10 (a), (b)
and (e), there are no involvements in certain legal proceedings among any of
the foregoing directors and officers.
8
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
(a - d) As stated in Item 10, the Partnership has no officers or directors.
Neither the General Partner, nor any director or officer of the General Partner,
received any direct remuneration from the Partnership during the year ended
December 31, 1997. However, the General Partner and its Affiliates do
compensate directors and officers of the General Partner. For additional
information see Item 13 (a) Certain Relationships and Related Transactions.
(e) None.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) As of March 1, 1998, the following Limited Partner was known by the
Partnership to own beneficially more than 5% of the Partnership's 688,194
Units outstanding:
<TABLE>
<CAPTION>
Name and Address Amounts and Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class
- ---------------- ----------------------------- ------------------------- ----------
<S> <C> <C> <C>
Limited County Employees and Officers $5,376,300 (53,763 Units) 7.81%
Partnership Annuity and Benefit Fund of Direct Ownership
Units Cook County
118 North Clark Street
Room 1072
Chicago, Illinois 60602
</TABLE>
(b) The Partnership has no directors or executive officers. As of March 1,
1998, none of the executive officers and directors of the General Partner
owned any Units.
(c) None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
a) Certain Affiliates of the General Partner provide leasing, property
management and supervisory services to the Partnership. Compensation for
property management services may not exceed the lesser of: (i) the
compensation customarily charged in arm's-length transactions in the same
geographic area and for a comparable property or (ii) 6% of the gross
receipts from the property being managed where the General Partner or
Affiliates provide leasing, re-leasing and leasing related services, reduced
by an amount not to exceed 3% of gross receipts for leasing fees paid to
third-parties. For the year ended December 31, 1997, these Affiliates were
entitled to supervisory and property management and leasing fees of
$132,400. In addition, other Affiliates of the General Partner were entitled
to receive $30,600 for fees and reimbursements from the Partnership for
insurance, personnel services and other miscellaneous services. Compensation
for these services are on terms which are fair, reasonable and no less
favorable to the Partnership than reasonably could be obtained from
unaffiliated persons. As of December 31, 1997, total fees and reimbursements
of $500 were due to Affiliates. In addition, as of December 31, 1997, the
property management company for Lakeview owed the Partnership $10,200.
9
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued
- -------- ----------------------------------------------------------
In accordance with the Partnership Agreement, as compensation for services
rendered in managing the affairs of the Partnership, the General Partner is
entitled to receive subsequent to July 31, 1990, the Termination of the
Offering, a Portfolio Management Fee, payable quarterly, with respect to
such fiscal quarter. The Portfolio Management Fee is an amount equal to the
lesser of (i) 0.625% of the gross value of the Partnership's assets plus,
to the extent the Portfolio Management Fee paid in any prior quarter was
less than 0.625% of the gross value of the Partnership's assets in such
prior quarter, the amount of such deficit, or (ii) an amount equal to the
remainder obtained by subtracting the aggregate amount previously paid to
the General Partner as Portfolio Management Fees during such fiscal year,
from an amount equal to 10% of the Partnership's aggregate Cash Flow (as
defined in the Partnership Agreement) (computed prior to deduction for
Portfolio Management Fees) for such fiscal year. For the year ended
December 31, 1997, the General Partner was paid a Portfolio Management Fee
of $120,800.
In accordance with the Partnership Agreement, Net Profits and Net Losses
(exclusive of Net Profits and Net Losses from a Major Capital Event) are
allocated 1% to the General Partner and 99% to the Limited Partners as a
group. Net Losses from a Major Capital Event are allocated (prior to giving
effect to any distributions of Sale Proceeds from said Major Capital
Event): first, to the General Partner and Limited Partners with positive
balances in their Capital Accounts, in proportion to and to the extent of
such positive balances; and second, the balance, if any, 1% to the General
Partner and 99% to the Limited Partners as a group. Net Profits from a
Major Capital Event are allocated (prior to giving effect to any
distribution of Sale Proceeds from said Major Capital Event): first, Net
Profits in the amount of the Minimum Gain attributable to the property that
is the subject of such Major Capital Event are allocated to the General
Partner and Limited Partners with negative balances in their capital
accounts, in proportion to and to the extent of such negative balances;
second, to the General Partner and each Limited Partner in proportion to
and to the extent of the amounts, if any, of Sale Proceeds to be
distributed to the General Partner or each such Limited Partner with
respect to such Major Capital Event pursuant to the Partnership Agreement;
and third, the balance, if any, 1% to the General Partner and 99% to the
Limited Partners as a group. Notwithstanding the foregoing, there shall be
allocated to the General Partner not less than 1% of all items of
Partnership income, gain, loss, deduction and credit during the existence
of the Partnership. For the year ended December 31, 1997, the General
Partner was allocated Net Profits of $80,000, which included gains on sale
of property of $76,700.
b) Rosenberg & Liebentritt, P.C. ("Rosenberg"), serves as legal counsel to the
Partnership, the General Partner and certain of their Affiliates. Donald J.
Liebentritt, Vice President, is a Principal and Chairman of the Board of
Rosenberg. For the year ended December 31, 1997, Rosenberg was entitled to
$41,300 for legal fees from the Partnership. As of December 31, 1997,
$15,000 was payable to Rosenberg. Compensation for these services are on
terms which are fair, reasonable and no less favorable to the Partnership
than reasonably could be obtained from unaffiliated persons.
c) No management person is indebted to the Partnership.
d) None.
10
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------- ----------------------------------------------------------------
(a, c & d) See Index of Financial Statements, Schedule and Exhibits on page A-1
of Form 10-K.
(b) Reports on Form 8-K:
A report on Form 8-K was filed on October 16, 1997 reporting the sale of
Lakeview Office Park Buildings II & III, located in Indianapolis, Indiana.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST CAPITAL INSURED REAL ESTATE
LIMITED PARTNERSHIP
BY: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
Dated: March 31, 1998 By: /s/ DOUGLAS CROCKER II
-------------- ------------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
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.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ DOUGLAS CROCKER II March 31, 1998 President, Chief Executive Officer and
- ------------------------ -------------- Director of the General Partner
DOUGLAS CROCKER II
/s/ SHELI Z. ROSENBERG March 31, 1998 Director of the General Partner
- ------------------------- --------------
SHELI Z. ROSENBERG
/s/ DONALD J. LIEBENTRITT March 31, 1998 Vice President
- ------------------------- --------------
DONALD J. LIEBENTRITT
/s/ NORMAN M. FIELD March 31, 1998 Vice President - Finance and Treasurer
- ------------------------- --------------
NORMAN M. FIELD
</TABLE>
12
<PAGE>
INDEX OF FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
<TABLE>
<CAPTION>
Pages
----------------
<S> <C>
Report of Independent Auditors A-2
Balance Sheets as of December 31, 1997 and 1996 A-3
Statements of Partners' Capital for the Years Ended
December 31, 1997, 1996 and 1995 A-3
Statements of Income and Expenses for the Years Ended
December 31, 1997, 1996 and 1995 A-4
Statements of Cash Flows for the Years Ended December
31, 1997, 1996 and 1995 A-4
Notes to Financial Statements A-5 to A-7
</TABLE>
SCHEDULES FILED AS PART OF THIS REPORT
All schedules have been omitted as inapplicable, or for the reason that the
required information is shown in the financial statements or notes thereto.
EXHIBITS FILED AS PART OF THIS REPORT
EXHIBITS (3 & 4) First Amended and Restated Certificate and Agreement of
Limited Partnership as set forth on pages A-1 through A-35 of the Partnership's
definitive Prospectus dated August 1, 1988, included in the Partnership's
Registration Statement on Form S-11 (Registration No. 33-15999), filed pursuant
to Rule 424 (b), is incorporated herein by reference.
EXHIBIT (10) Material Contracts
Real Estate Sale Agreement for the sale of Lakeview Office Park Buildings II &
III filed as an exhibit to the Partnership's Report on Form 8-K filed on October
16, 1997 is incorporated herein by reference.
Real Estate Sale Agreement for the sale of Carrollton Crossroads Shopping Center
filed as an exhibit to the Partnership's Report on Form 8-K filed on January 31,
1997 is incorporated herein by reference.
Real Estate Sale Agreement for the sale of Telegraph Hill Apartments filed as an
exhibit to the Partnership's Report on Form 8-K filed on October 29, 1996 is
incorporated herein by reference.
EXHIBIT (13) Annual Report to Security Holders
The 1996 Annual Report to Limited Partners is being sent under separate cover,
not as a filed document and not via EDGAR, for the information of the
Commission.
EXHIBIT (27) Financial Data Schedule
A-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
First Capital Insured Real Estate Limited Partnership
Chicago, Illinois
We have audited the accompanying balance sheets of First Capital Insured Real
Estate Limited Partnership as of December 31, 1997 and 1996, and the related
statements of income and expenses, partners' capital and cash flows for each of
the three years in the period ended December 31, 1997. 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 First Capital Insured Real
Estate Limited Partnership at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
March 9, 1998
A-2
<PAGE>
BALANCE SHEETS
December 31, 1997 and 1996
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ $ 2,237,300
Buildings and improvements 21,181,100
- ------------------------------------------------------------------------------
23,418,400
Accumulated depreciation and amortization (5,499,400)
- ------------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 17,919,000
Cash and cash equivalents 15,395,800 2,178,500
Investment in debt securities 1,116,400
Rents receivable 7,800 139,000
Deferred insurance premium (net of accumulated
amortization of $949,400 at December 31, 1996) 707,400
Other assets 500 1,100
- ------------------------------------------------------------------------------
$15,404,100 $22,061,400
- ------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 67,400 $ 352,700
Due to Affiliates 5,300 23,000
Security deposits 88,100
Distributions payable 12,680,400 451,100
Other liabilities 500 46,400
- ------------------------------------------------------------------------------
12,753,600 961,300
- ------------------------------------------------------------------------------
Partners' capital:
General Partner (deficit) (82,600) (41,800)
Limited Partners (688,194 Units issued and
outstanding) 2,733,100 21,141,900
- ------------------------------------------------------------------------------
2,650,500 21,100,100
- ------------------------------------------------------------------------------
$15,404,100 $22,061,400
- ------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL
For the years ended December 31, 1997, 1996 and 1995
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital, January 1,
1995 $(783,200) $28,838,100 $28,054,900
Net income for the year ended December
31, 1995 5,300 520,300 525,600
Distributions for the year ended December
31, 1995 (180,500) (1,624,100) (1,804,600)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
1995 (958,400) 27,734,300 26,775,900
Net income for the year ended December
31, 1996 1,097,100 2,994,100 4,091,200
Distributions for the year ended December
31, 1996 (180,500) (9,586,500) (9,767,000)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
1996 (41,800) 21,141,900 21,100,100
Net income for the year ended December
31, 1997 80,000 4,033,300 4,113,300
Distributions for the year ended December
31, 1997 (120,800) (22,442,100) (22,562,900)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December 31,
1997 $ (82,600) $ 2,733,100 $ 2,650,500
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-3
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the years ended December 31, 1997, 1996 and 1995
(All dollars rounded to nearest 00s except per Unit amounts)
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Rental $1,953,800 $4,454,400 $4,727,500
Interest 528,000 248,300 220,600
Gain on sales of property 3,798,600 2,496,400
- ------------------------------------------------------------------------------
6,280,400 7,199,100 4,948,100
- ------------------------------------------------------------------------------
Expenses:
Depreciation and amortization 1,140,400 1,108,700 1,027,700
Property operating:
Affiliates 142,900 209,800 276,600
Nonaffiliates 277,500 639,500 589,600
Real estate taxes 128,800 364,200 410,700
Insurance--Affiliate 17,100 52,100 49,100
Repairs and maintenance 283,500 571,200 581,200
General and administrative:
Affiliates 25,400 40,400 40,800
Nonaffiliates 151,500 122,000 146,800
Provision for value impairment 1,300,000
- ------------------------------------------------------------------------------
2,167,100 3,107,900 4,422,500
- ------------------------------------------------------------------------------
Net income $4,113,300 $4,091,200 $ 525,600
- ------------------------------------------------------------------------------
Net income allocated to General Partner $ 80,000 $1,097,100 $ 5,300
- ------------------------------------------------------------------------------
Net income allocated to Limited Partners $4,033,300 $2,994,100 $ 520,300
- ------------------------------------------------------------------------------
Net income allocated to Limited Partners per
Unit (688,194 Units outstanding) $ 5.86 $ 4.35 $ 0.76
- ------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997, 1996 and 1995
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,113,300 $ 4,091,200 $ 525,600
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,140,400 1,108,700 1,027,700
Gain on sales of property (3,798,600) (2,496,400)
Provision for value impairment 1,300,000
Changes in assets and liabilities:
Decrease (increase) in rents
receivable 131,200 (14,900) (22,900)
Decrease (increase) in other assets 600 17,000 (16,100)
(Decrease) increase in accounts
payable and accrued expenses (285,300) (63,100) 12,700
(Decrease) increase in due to
Affiliates (17,700) 6,500 (26,800)
(Decrease) increase in other
liabilities (45,900) (26,700) 49,600
- ------------------------------------------------------------------------------
Net cash provided by operating
activities 1,238,000 2,622,300 2,849,800
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for capital and tenant
improvements (71,100) (1,345,900) (1,233,800)
Decrease (increase) in investments in
debt securities, net 1,116,400 (1,116,400)
Proceeds from sales of property 21,355,700 7,961,700
- ------------------------------------------------------------------------------
Net cash provided by (used for)
investing activities 22,401,000 5,499,400 (1,233,800)
- ------------------------------------------------------------------------------
Cash flows from financing activities:
Distributions paid to Partners (10,333,600) (9,767,000) (1,804,600)
(Decrease) increase in security
deposits (88,100) (5,200) 12,400
- ------------------------------------------------------------------------------
Net cash (used for) financing
activities (10,421,700) (9,772,200) (1,792,200)
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 13,217,300 (1,650,500) (176,200)
Cash and cash equivalents at the
beginning of the year 2,178,500 3,829,000 4,005,200
- ------------------------------------------------------------------------------
Cash and cash equivalents at the end
of the year $ 15,395,800 $ 2,178,500 $ 3,829,000
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Agreement of Limited Partnership,
which is included in the Registration Statement and incorporated herein by
reference.
ORGANIZATION:
The Partnership was formed on June 30, 1987, by the filing of a Certificate and
Agreement of Limited Partnership with the Recorder of Deeds of Cook County,
Illinois, and commenced the Offering of Units on August 1, 1988. The required
minimum subscription level was reached, and Partnership operations commenced on
September 16, 1988. The Partnership was formed to invest, on an all cash basis,
primarily in a diversified portfolio of institutional quality income producing
real estate such as shopping centers, office buildings, apartments, warehouses
or any one or more of these categories.
The Partnership Agreement provides that the Partnership will be dissolved on or
before December 31, 2017. The Limited Partners, by a majority vote, may
dissolve the Partnership at any time.
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). The Partnership utilizes the accrual
method of accounting. Under this method, revenues are recorded when earned and
expenses are recorded when incurred.
Preparation of the Partnership's financial statements in conformity with GAAP
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
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The financial statements include the Partnership's 50% interest in a joint
venture with an Affiliated partnership. This joint venture was formed for the
purpose of acquiring a 100% interest in certain real property and is operated
under the common control of the General Partner. Accordingly, the Partnership's
pro rata share of the venture's revenues, expenses, assets, liabilities and
Partners' capital was included in the financial statements.
The Partnership is not liable for federal income taxes as the Partners
recognize their proportionate share of the Partnership income or loss in their
income tax returns; therefore, no provision for income taxes is made in the
financial statements of the Partnership. In addition, it is not practicable for
the Partnership to determine the aggregate tax bases of the individual
Partners; therefore, the disclosure of the difference between the tax bases and
the reported assets and liabilities of the Partnership would not be meaningful.
Commercial and residential rental properties are recorded at cost, net of any
provisions for value impairment, and depreciated (exclusive of amounts
allocated to land) on the straight-line method over their respective estimated
useful lives. Lease acquisition fees are recorded at cost and amortized using
the straight-line method over the life of each respective lease. Repair and
maintenance costs are expensed as incurred; expenditures for improvements are
capitalized and depreciated on the straight-line method over the estimated life
of such improvements.
Property sales are recorded when title transfers and sufficient consideration
has been received by the Partnership. Upon disposition, the related costs and
accumulated depreciation are removed from the respective accounts. Any gain or
loss on sale is recognized in accordance with GAAP.
Cash equivalents are considered all highly liquid investments with a maturity
of three months or less when purchased.
Investments in debt securities were comprised of corporate debt securities and
are classified as held-to-maturity. These investments are carried at their
amortized cost basis in the financial statements, which approximated fair
market value. All of these securities had maturities of less than one year when
purchased.
The Partnership's financial statements include financial instruments, including
receivables and trade liabilities. The fair value of all financial instruments,
including cash and cash equivalents was not materially different from the
carrying values at December 31, 1997 and 1996.
2. RELATED PARTY TRANSACTIONS:
In accordance with the Partnership Agreement, as compensation for services
rendered in managing the affairs of the Partnership, the General Partner is
entitled to receive subsequent to July 31, 1990, the Termination of the
Offering, a Portfolio Management Fee, payable quarterly, with respect to such
fiscal quarter. The Portfolio Management Fee is an amount equal to the lesser
of (i) 0.625% of the gross value of the Partnership's assets plus, to the
extent the Portfolio Management Fee paid in any prior year was less than 0.625%
of the gross value of the Partnership's assets in such prior year, the amount
of such deficit, or (ii) an amount equal to the remainder obtained by
subtracting the aggregate amount previously paid to the General Partner as
Portfolio Management Fees during such fiscal year, from an amount equal to 10%
of the Partnership's aggregate Cash Flow (as defined in the Partnership
Agreement) (computed prior to deduction for Portfolio Management Fees) for such
fiscal year. For the years ended December 31, 1997, 1996 and 1995 the General
Partner was paid a Portfolio Management Fee of $120,800, $180,500 and $180,500,
respectively.
In accordance with the Partnership Agreement, Net Profits and Net Losses
(exclusive of Net Profits and Net Losses from a Major Capital Event) are
allocated 1% to the General Partner and 99% to the Limited Partners as a group.
Net Losses from a
A-5
<PAGE>
Major Capital Event are allocated (prior to giving effect to any distributions
of Sale Proceeds from said Major Capital Event): first, to the General Partner
and Limited Partners with positive balances in their Capital Accounts, in
proportion to and to the extent of such positive balances; and second, the
balance, if any, 1% to the General Partner and 99% to the Limited Partners as a
group. Net Profits from a Major Capital Event are allocated (prior to giving
effect to any distribution of Sale Proceeds from said Major Capital Event):
first, Net Profits in the amount of the Minimum Gain attributable to the
property that is the subject of such Major Capital Event are allocated to the
General Partner and Limited Partners with negative balances in their Capital
Accounts, in proportion to and to the extent of such negative balances; second,
to the General Partner and each Limited Partner in proportion to and to the
extent of the amounts, if any, of Sale Proceeds to be distributed to the
General Partner or each such Limited Partner with respect to such Major Capital
Event pursuant to the Partnership Agreement; and third, the balance, if any, 1%
to the General Partner and 99% to the Limited Partners as a group.
Notwithstanding the foregoing, there shall be allocated to the General Partner
not less than 1% of all items of Partnership income, gain, loss, deduction and
credit during the existence of the Partnership. For the year ended December 31,
1997, the General Partner was allocated Net Profits of $80,000, which included
gain on the sales of property of $76,700. For the year ended December 31, 1996,
the General Partner was allocated Net Profits of $1,097,100, which included a
gain on sale of property of $1,081,200. For the year ended December 31, 1995,
the General Partner was allocated Net Profits of $5,300, which included a
(loss) from a provision for value impairment of $(13,000).
Fees and reimbursements paid and payable/(receivable) by the Partnership
to/(from) Affiliates were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------
1997 1996 1995
----------------- ---------------- ----------------
Paid Payable Paid Payable Paid Payable
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Property management and
leasing fees $154,900 $(10,200) $186,400 $12,300 $304,700 $ 9,200
Reimbursement of property
insurance premiums, at
cost 17,100 None 52,100 None 49,100 None
Legal 41,300 15,000 22,700 8,000 22,400 None
Reimbursement of expenses,
at cost:
-- Accounting 10,700 400 25,100 2,300 19,500 5,700
-- Investor communication 5,000 100 10,500 400 15,000 1,600
-- Other None None None None 100 None
- --------------------------------------------------------------------------------
$229,000 $ 5,300 $296,800 $23,000 $410,800 $16,500
- --------------------------------------------------------------------------------
</TABLE>
On-site property management for the Partnership's properties was provided by
Affiliates of the General Partner for fees equal to 3% of gross rents received
from the properties. Affiliates were entitled to leasing fees equal to 3% of
gross rents received from the properties, reduced by leasing fees, if any, paid
to third parties.
3. INCOME TAX:
The Partnership utilizes the accrual method of accounting for both income tax
reporting and financial statement purposes. Financial statement results will
differ from income tax results due to the use of differing depreciation lives
and methods, the recognition of rents received in advance as taxable income and
the Partnership's provisions for value impairment. The (loss) for income tax
purposes for the year ended December 31, 1997 was $(2,323,800).
4. DEFERRED INSURANCE PREMIUM:
The Partnership obtained an insurance policy (the "Policy") from CNA which, in
effect, insured that, if all Net Proceeds of the Offering were invested or
allocated to investment in properties, the cumulative amount of Insured Cash
Available for Distribution from all sources, as determined in accordance with
the Policy and related agreements, including the Appraised Values of the
properties then owned by the Partnership, would equal at least 100% of an
amount equal to the Original Capital Contribution on the tenth anniversary of
the day on which the last property was acquired by the Partnership. Liability
and the amount of payment under the Policy was subject to certain conditions
and limitations. The Policy was intended to cover economic or functional
obsolescence of the properties, but did not apply to certain losses, costs,
penalties or expenses. The premium for the Policy equaled 4.6% of the Original
Capital Contribution allocated to properties, payable to CNA as and when each
property which was endorsed under the Policy was acquired. Following the sale
of the Partnership's remaining property investment it was determined that
Limited Partners would receive greater than 100% of their Original Capital
Contribution. Accordingly, the unamortized premium under the policy was written
off during the year ended December 31, 1997.
5. PROPERTY SALES:
On October 1, 1997, the Partnership consummated the sale of Lakeview Office
Park Buildings II & III, located in Indianapolis, Indiana for a sale price of
$12,870,000. Sales Proceeds from this transaction were $12,508,900, which was
net of selling expenses. The Partnership reported a gain for financial
reporting purposes of $3,494,700 for the year ended December 31, 1997 in
connection with this sale. On February 28, 1998, the Partnership distributed
$12,504,500 or $18.17 per Unit of the Sale Proceeds to Limited Partners of
record as of October 1, 1997. For tax reporting purposes, the Partnership
recorded a (loss) of $(2,900,300) for the year ended December 31, 1997.
On January 17, 1997, the joint venture in which the Partnership owns a 50%
interest sold Carrollton Crossroads Shopping Center, located in Carrollton,
Georgia for $18,100,000. The Partnership's share of Sale Proceeds from this
transaction were $8,846,700. The Partnership reported a gain of $303,900 for
the year ended December 31, 1997. On May 31, 1997, the Partnership distributed
$8,850,200 or $12.86 per Unit of the Sales Proceeds to Limited Partners of
record as of January 17, 1997 For tax reporting purposes, the Partnership
recorded a gain of $166,900 for the year ended December 31, 1997.
A-6
<PAGE>
On October 15, 1996 the Partnership consummated the sale of Telegraph Hill
Apartments, located in Albuquerque, New Mexico, for a sale price of $8,100,000.
Sale Proceeds from this transaction were $7,961,700, which is net of selling
expenses. The Partnership reported a gain of $2,496,400 in connection with this
sale for the year ended December 31, 1996. On November 30, 1996, the
Partnership distributed all of the Sale Proceeds to Limited Partners of record
as of October 15, 1996. For tax reporting purposes, the Partnership reported a
net gain of $2,292,500 for the year ended December 31, 1996.
6. PROVISION FOR VALUE IMPAIRMENT:
Due to regional factors and other matters relating specifically to the
Partnership's office property, there was uncertainty as to the Partnership's
ability to recover the net carrying value of Lakeview during its estimated
holding period. Accordingly, it was deemed appropriate to reduce the basis of
Lakeview by recording a (loss) from provision for value impairment of
$(1,300,000) during the year ended December 31, 1995. The provision for value
impairment was considered a noncash event for the purpose of the Statement of
Cash Flows and was not utilized in the determination of Cash Flow (as defined
in the Partnership Agreement).
7. SUBSEQUENT EVENT:
Prior to December 31, 1997, the Partnership sold all of its real property
investments. In addition to the distributions referred to above, on February
28, 1998, the Partnership distributed $2,415,600 or $3.51 per Unit to Limited
Partners of record as of February 1, 1998, representing the Partnership's
remaining cash (less (i) a reserve of approximately $250,000 established by the
General Partner for any known, contingent or unforeseen liabilities or
obligations of the Partnership and (ii) the General Partner's deferred
Portfolio Management Fee of $170,800). The General Partner currently intends to
dissolve and wind up the affairs of the Partnership as soon a practicable.
Following the dissolution of the Partnership, the General Partner intends to
apply to the Securities and Exchange Commission to terminate the registration
of the Units under the Securities Exchange Act of 1934, as amended.
A-7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 15,395,800
<SECURITIES> 0
<RECEIVABLES> 7,800
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,403,600
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,404,100
<CURRENT-LIABILITIES> 12,753,100
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,650,500
<TOTAL-LIABILITY-AND-EQUITY> 15,404,100
<SALES> 0
<TOTAL-REVENUES> 6,280,400
<CGS> 0
<TOTAL-COSTS> 849,800
<OTHER-EXPENSES> 176,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,113,300
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,113,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,113,300
<EPS-PRIMARY> 5.86
<EPS-DILUTED> 5.86
</TABLE>
