Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: Carlyle Income Plus, L.P. - II
Commission File No. 0-17705
Form 10-K
Gentlemen:
Transmitted, for the above-mentioned registrant, is the
electronically filed executed copy of registrant's current report
on Form 10-K for the year ended December 31, 1996.
Thank you.
Very truly yours,
CARLYLE INCOME PLUS, L.P. - II
By: JMB Realty Corporation
Corporate General Partner
By: -------------------------------
Gailen J. Hull, Senior Vice President
and Principal Accounting Officer
CSN:vb
Enclosures <PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year
ended December 31, 1996 Commission file number 0-17705
CARLYLE INCOME PLUS, L.P. - II
------------------------------------------------------
(Exact Name of registrant as specified in its charter)
Delaware 36-3555432
(State of organization) (IRS Employer Identification No.)
900 N. Michigan Ave., Chicago, IL 60611
(Address of principal executive office) (Zip Code)
Registrant's telephone number,including area code 312/915-1987
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- -------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities 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.
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. Not applicable.
Documents incorporated by reference: None<PAGE>
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . 4
Item 3. Legal Proceedings . . . . . . . . . . . . . . . 6
Item 4. Submission of Matters to a
Vote of Security Holders. . . . . . . . . . . . 6
PART II
Item 5. Market for the Partnership's Limited
Partnership Interests and
Related Security Holder Matters . . . . . . . . 6
Item 6. Selected Financial Data . . . . . . . . . . . . 8
Item 7. Management's Discussion and
Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . 13
Item 8. Financial Statements and
Supplementary Data. . . . . . . . . . . . . . . 18
Item 9. Changes in and Disagreements
with Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . . . 60
PART III
Item 10. Directors and Executive Officers
of the Partnership. . . . . . . . . . . . . . . 60
Item 11. Executive Compensation. . . . . . . . . . . . . 64
Item 12. Security Ownership of Certain
Beneficial Owners and Management. . . . . . . . 65
Item 13. Certain Relationships and
Related Transactions. . . . . . . . . . . . . . 66
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.. . . . . . . . . . . . 66
PART IV
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 69
i<PAGE>
PART I
ITEM 1. BUSINESS
All references to "Notes" are to Notes to Consolidated
Financial Statements contained in this report. Capitalized terms
used herein, but not defined, have the same meanings as used in
the Notes.
The registrant, Carlyle Income Plus, L.P.-II (the
"Partnership"), is a limited partnership formed in December of
1987 and currently governed by the Revised Uniform Limited
Partnership Act of the State of Delaware to invest in
income-producing commercial and residential real property. On
May 24, 1988, the Partnership commenced an offering to the
public of $100,000,000 in Limited Partnership Interests
("Interests") pursuant to a Registration Statement on Form S-11
under the Securities Act of 1933 (No. 33-19463). A total of
64,264.53 Interests (at an offering price of $1,000 per Interest
before discounts) were issued to the public between May 24, 1988
and June 18, 1990. The offering closed on April 30, 1990. No
holder of Interests (hereinafter, a "Limited Partner") has made
any additional capital contribution after such date. The
Limited Partners of the Partnership share in their portion of
the benefits of ownership of the Partnership's real property
investments according to the number of Interests held.
The Partnership is engaged solely in the business of the
acquisition, operation and sale and disposition of equity real
estate investments. Such equity investments are held by fee
title and/or through joint venture partnership interests. The
Partnership's real property investments are located in
Washington, D.C. and Florida and it has no real estate
investments located outside of the United States. A
presentation of information about industry segments, geographic
regions, raw materials or seasonality is not applicable and
would not be material to an understanding of the Partnership's
business taken as a whole. Pursuant to the Partnership
Agreement, the Partnership is required to terminate no later
than December 31, 2038. The Partnership is self-liquidating in
nature. At sale of a particular property, the net proceeds, if
any, are generally distributed or reinvested in existing
properties rather than invested in acquiring additional
properties. As discussed further in Item 7, the Partnership
currently expects to conduct an orderly liquidation of its
remaining investment portfolio as quickly as practicable and to
wind up its affairs not later than December 31, 1999 (sooner if
the properties are sold in the nearer term), barring any
unforeseen economic developments.
The Partnership has made the real property investments set
forth in the following table:<PAGE>
<TABLE>
<CAPTION>
SALE OR DISPOSITION
DATE, OR IF OWNED
AT DECEMBER 31, 1996
NAME, TYPE OF PROPERTY DATE OF ORIGINAL INVESTED
AND LOCATION SIZE PURCHASE CAPITAL PERCENTAGE (a) TYPE OF OWNERSHIP
- ---------------------- ---------- -------- -------------------- -------------------
<S> <C> <C> <C> <C>
1. The Landings
Shopping Center
Sarasota, Florida 94,000 8/16/88 13% fee ownership of
sq. ft land and improvements
n.r.a (through a joint venture
. partnership) (b)
2. Ashby at McLean
Apartments
McLean, Virginia
. . . . . . . . . . 250 units 2/28/90 8/26/96 fee ownership of land
and improvements
(through a joint venture
partnership (b) (e)
3. 1225 Connecticut
Avenue, N.W.
Office Building
Washington, D.C. 203,000 5/24/90 49% fee ownership of land
sq.ft and improvements
g.l.a. (through a corporation)
g.l.a. (c)(d)
<FN>
- ----------
(a) The computation of this percentage for properties held at December 31, 1996 does not
include amounts invested from sources other than the original net proceeds of the public
offering described above and in Item 7.
(b) Reference is made to the Notes for a description of the joint venture partnership through
which the Partnership has made this real property investment.
(c) Reference is made to the Notes relating to 1225 Investment Corporation for a description
of the corporation through which the Partnership has made this real property investment.
<PAGE>
(d) Reference is made to Item 6 - Selected Financial Data for additional operating and lease
expiration data concerning this investment property.
(e) This property has been sold. Reference is made to the Notes for a further description
of the sale.
/TABLE
<PAGE>
On August 26, 1996, CIP/Ashby Partners sold the Ashby at
McLean Apartments. Reference is made to the Notes for a further
description of such transactions.
The Partnership's real property investments are subject to
competition from similar types of properties (including in
certain areas properties owned by affiliates of the General
Partners) in the respective vicinities in which they are
located. Such competition is generally for the retention of
existing tenants. Additionally, the Partnership is in
competition for new tenants in markets where significant
vacancies are present. Reference is made to Item 7 below for a
discussion of competitive conditions and future renovation and
capital improvement plans of the Partnership and certain of its
significant investment properties. Approximate occupancy levels
for the properties are set forth in the table in Item 2 below to
which reference is hereby made. The Partnership maintains the
suitability and competitiveness of its properties in its markets
primarily on the basis of effective rents, tenant allowances and
service provided to tenants. In the opinion of the Corporate
General Partner of the Partnership, all of the investment
properties held at December 31, 1996 are adequately insured.
The Partnership has no employees other than personnel
performing on-site duties at certain of the Partnership's
properties, none of whom are officers or directors of the
Corporate General Partner of the Partnership.
The terms of transactions between the Partnership, the
General Partners of the Partnership and their affiliates are set
forth in Item 11 below to which reference is hereby made for a
description of such terms and transactions.
ITEM 2. PROPERTIES
The Partnership owns or owned through joint venture
partnerships and a corporation, interests in the properties
referred to under Item 1 above to which reference is hereby made
for a description of said properties.
The following is a listing of principal businesses or
occupations carried on in and approximate occupancy levels by
quarter during fiscal years 1996 and 1995 for the Partnership's
investment properties owned during 1996:
<PAGE>
<TABLE>
<CAPTION>
1995 1996
------------------------ ---------------------
At At At At At At At
Principal Business 3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
------------------ ---- ---- ---- ----- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. The Landings Shopping
Center
Sarasota,
Florida. . . . . . . Retail 93% 91% 88% 95% 82% 65% 67% 60%
2. The Ashby at McLean
McLean, Virginia . . . . Residential 97% 97% 98% 96% 97% 96% N/A N/A
3. 1225 Connecticut
Washington, D.C. . . . . Public 100% 100% 100% 100% 100% 100% 100% 100%
Accounting/
Financial Services
<FN>
- ----------
An N/A indicates that the property was not owned by the Partnership as of the end of the
quarter.
Reference is made to Item 6, Item 7 and to the Notes for further information regarding
property occupancy, competitive conditions and tenant leases at the Partnership's investment
properties.
/TABLE
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not subject to any material pending
legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security
holders during 1995 and 1996.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP
INTERESTS AND RELATED SECURITY HOLDER MATTERS
As of December 31, 1996, there were 6,933 record holders of
Interests of the Partnership. There is no public market for
Interests, and it is not anticipated that a public market for
Interests will develop. Upon request, the Corporate General
Partner may provide information relating to a prospective
transfer of Interests to an investor desiring to transfer his
Interests. The price to be paid for the Interests, as well as
any other economic aspects of the transaction, will be subject
to negotiation by the investor.
There are certain conditions and restrictions on the
transfer of Interests, including, among other things, the
requirement that the substitution of a transferee of Interests
as a Limited Partner of the Partnership be subject to the
written consent of the Corporate General Partner, which may be
granted or withheld in its sole and absolute discretion. The
rights of a transferee of Interests who does not become a
substituted Limited Partner will be limited to the rights to
receive his share of profits or losses and cash distributions
from the Partnership, and such transferee will not be entitled
to vote such Interests or have other rights of a Limited
Partner. No transfer will be effective until the first day of
the next succeeding calendar quarter after the requisite
transfer form satisfactory to the Corporate General Partner has
been received by the Corporate General Partner. The transferee
consequently will not be entitled to receive any cash
distributions or any allocable share of profits or losses for
tax purposes until such next succeeding calendar quarter.
Profits or losses from operations of the Partnership for a
calendar year in which a transfer occurs will be allocated
between the transferor and the transferee based upon the number
of quarterly periods in which each was recognized as the holder
of the Interests, without regard to the results of the
Partnership's operations during particular quarterly periods and
without regard to whether cash distributions were made to the
transferor or transferee. Profits or losses arising from the
sale or other disposition of Partnership properties will be
allocated to the recognized holder of the Interests as of the
last day of the quarter in which the Partnership recognized such
profits or losses. Cash distributions to a holder of Interests
arising from the sale or other disposition of Partnership
<PAGE>
properties will be distributed to the recognized holder of the
Interests as of the last day of the quarterly period with
respect to which such distribution is made.
Reference is made to Item 6 for a discussion of cash
distributions to Limited Partners.
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
CARLYLE INCOME PLUS, L.P. - II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
YEARS ENDED DECEMBER 31, 1996, 1995, 1994, 1993 AND 1992
(NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
<CAPTION>
1996 1995 1994 1993 1992
------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total income . . . . . . $ 2,885,863 3,498,456 3,366,928 3,259,899 3,231,036
============ ============ ============ ============ ============
Operating earnings
(loss). . . . . . . . . $ 1,229,639 1,061,407 (6,678,918) 721,730 714,966
Partnership's share
of earnings (loss)
of unconsolidated
corporation . . . . . . . (1,623,860) 1,443,793 1,115,481 1,319,328 1,586,707
Partnership's share
of operations of
unconsolidated
venture . . . . . . . . . 153,503 (1,517,118) 245,774 219,250 196,978
Venture partner's
share of venture's
operations. . . . . . . . (417,997) (351,434) 2,041,247 (283,530) (265,863)
------------ ------------ ------------ ------------ ------------
Net operating earnings
(loss). . . . . . . . . . (658,715) 636,648 (3,276,416) 1,976,778 2,232,788
Gain on sale of investment
property, net . . . . . . 2,524,162 -- -- -- --
------------- ------------- ------------- ------------- ------------
Net earnings (loss). . . . $ 1,865,447 636,648 (3,276,416) 1,976,778 2,232,788
============ ============ ============= ============= ============
<PAGE>
Net earnings (loss)
per Interest (b). . . .
Net operating earnings
(loss). . . . . . . . . . $ (9.74) 9.41 (48.43) 29.22 33.00
Gain on sale of
investment property,
net. . . . . . . . . . . 38.88 -- -- -- --
------------ ------------ ------------ ------------ ----------
$ 29.14 9.41 (48.43) 29.22 33.00
============ ============ ============ ============ ============
Total assets . . . . . . . $ 28,511,534 49,373,424 52,629,847 61,350,856 61,464,441
============ ============ ============ ============ ============
Cash distributions
per Interest
(c) . . . . . . . . . .$ 265.00 56.00 32.00 32.50 40.00
============ ============ ============ ============ ============
<FN>
- -------------<PAGE>
(a) The above summary of financial data should be read in
conjunction with the consolidated financial statements
and the related notes appearing elsewhere in this annual
report.
(b) The net earnings (loss) per Interest is based upon the
number of Interests outstanding at the end of the period
(64,269.53).
(c) Cash distributions from the Partnership are generally not
equal to Partnership income (loss) for financial
reporting or Federal income tax purposes. Each Partner's
taxable income (or loss) from the Partnership in each
year is equal to his allocable share of the taxable
income (loss) of the Partnership, without regard to the
cash generated or distributed by the Partnership.
Accordingly, cash distributions to the Limited Partners
since the inception of the Partnership have not resulted
in taxable income to such Limited Partners and have
therefore represented a return of capital.
/TABLE
<PAGE>
<TABLE>
SIGNIFICANT PROPERTIES - SELECTED RENTAL AND OPERATING DATA AS OF DECEMBER 31, 1996
<CAPTION>
Property
- --------
1225 Connecticut
Avenue, N.W.
Office Building a) The gross leasable area ("GLA") occupancy rate and average base rent
per square foot as of December 31 for each of the last five years
were as follows:
GLA Avg. Base Rent Per
December 31, Occupancy Rate Square Foot (1)
------------ -------------- ------------------
<S> <C> <C> <C> <C>
1992 . . . . . . . 99% 19.78
1993 . . . . . . . 95% 27.63
1994 . . . . . . . 100% 33.49
1995 . . . . . . . 100% 32.98
1996 . . . . . . . 100% 30.84
<FN>
(1) Average base rent per square foot is based on GLA occupied
as of December 31 of each year.
</TABLE>
<TABLE>
<CAPTION>
Base Rent Scheduled Lease Lease
(b)Significant Tenant Square Feet Per Annum Expiration Date Renewal Option
------------------- ----------- --------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Ernst & Young 161,667 $5,448,800 6/2007 Yes
(Accounting Firm)
/TABLE
<PAGE>
<TABLE>
<CAPTION>
c) The following sets forth certain information with respect to
the expiration of leases for the next ten years at the
1225 Connecticut Avenue, N.W. Office Building.
Number of Approx. Total Annualized Percent of
Year Ending Expiring GLA of Base Rent Total 1996
December 31, Leases (1) Expiring of Expiring Base Rent
Leases (1) Leases Expiring
------------ ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
1997 -- -- -- --
1998 -- -- -- --
1999 -- -- -- --
2000 3 22,103 781,000 12.5%
2001 1 3,026 114,600 1.8%
2002 1 9,909 297,300 4.8%
2003 -- -- -- --
2004 -- -- -- --
2005 1 5,263 233,300 3.7%
2006 -- -- -- --
<FN>
(1) Excludes leases that expire in 1997 for which renewal leases or leases
with replacement tenants have been executed as of March 21, 1997.
/TABLE
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As a result of the public offering as described in Item 1,
the Partnership had approximately $55,000,000( after deducting
selling expenses and other offering costs) with which to make
investments in income-producing commercial and residential real
property, to pay legal fees and other costs (including
acquisition fees) related to such investments and to satisfy
working capital requirements. A portion of the proceeds was
utilized to acquire the properties described in Item 1 above.
During 1996 some of the Holders of Interests in the
Partnership received from unaffiliated third parties unsolicited
tender offers to purchase up to 4.9% of the Interests in the
Partnership at amounts between $350 and $400 per Interest. The
Partnership recommended against acceptance of these offers on
the basis that, among other things, the offer prices were
inadequate. Such offers have expired. As of the date of this
report, the Partnership is aware that 850 Interests have been
purchased by such unaffiliated third parties either pursuant to
such tender offers or through negotiated purchases. The
Partnership has recently received a request from another
unaffiliated third party for the list of Holders of Interests.
It is possible that other offers for Interests may be made by
unaffiliated third parties in the future although there is no
assurance that any other third party will commence an offer for
Interests, the terms of any such offer or whether any such
offer, if made, will be consummated, amended or withdrawn. The
board of directors of JMB Realty Corporation ("JMB"), the
corporate general partner of the Partnership, has established a
special committee (the "Special Committee") consisting of
certain directors of JMB to deal with all matters relating to
tender offers for Interests in the Partnership, including any
and all responses to such tender offers. The Special Committee
has retained independent counsel to advise it in connection with
any potential tender offers for Interests and has retained
Lehman Brothers Inc. as financial advisor to assist the Special
Committee in evaluating and responding to any additional
potential tender offers for Interests.
The Partnership has been made aware that in mid-March
another unaffiliated third party made an unsolicited tender
offer to some of the Holders of Interests. This offer sought to
purchase up to 4.9% of the Interests in the Partnership for $310
per Interest. This offer is currently scheduled to expire in
late April 1997. The Special Committee is in the process of
formulating their response regarding this latest offer.
During the fourth quarter of 1996, the Partnership
distributed approximately $16,003,000 to the Holders of
Interests ($249 per Interest) which included substantially all
of the net proceeds from the August 1996 sale of the Ashby
Apartments, as described below. The General Partners have
deferred their share of the distributions of proceeds from this
sale. In addition, the Partnership distributed $81,183 to the
<PAGE>
General Partners which represented their share of operational
cash flow of the Partnership. At December 31, 1996, the
Partnership and its consolidated venture had cash and cash
equivalents of approximately $3,934,000. Such funds are
available for contributions to its joint ventures, distributions
to partners and for other working capital requirements. The
Partnership's share of currently budgeted tenant and
improvements and other capital expenditures for its
unconsolidated venture and corporation in 1997 is currently
budgeted to be approximately $175,000. Actual amounts expended
in 1997 may vary depending on a number of factors including
actual leasing activity, results of property operations,
liquidity considerations and other market conditions over the
course of the year. The source of capital (in addition to the
cash and cash equivalents noted above) for such items and for
both future short-term and long-term liquidity and distributions
to the Limited and General Partners is expected to be from net
cash generated by the Partnership's investment properties and
from the sale of such investments. In such regard, reference is
made to the Partnership's property specific discussions below.
The General Partners do not intend to incur any additional
indebtedness secured by a mortgage or otherwise, unless it is
determined by the Corporate General Partner that it is in the
best interests of the Holders of Interests.
ASHBY APARTMENTS
On August 26, 1996 the CIP/Ashby joint venture sold the
land and related improvements of The Ashby at McLean Apartments.
The sale price was $21,400,000 (before selling costs).
Reference is made to the Notes for a further description of the
sale.
1225 CONNECTICUT AVENUE
1225 Investment Corporation incurred approximately
$5,300,000 of anticipated tenant improvement costs, lobby
renovation and sprinkler system costs related to the lease
extension for Ernst & Young, as well as tenant improvement costs
for other tenants in 1994 and 1995. Such costs were paid during
1994 and 1995 from the net proceeds of approximately $5,300,000
from the January 1994 refinancing of the existing mortgage loan
secured by the property. The property remains 100% occupied at
December 31, 1996.
LANDINGS SHOPPING CENTER
Occupancy at the property decreased to 60% at December 31,
1996, from 95% at December 31, 1995 primarily as a result of
the vacating of six tenants which occupied approximately 37,000
square feet. The JMB/Landings joint venture (the "venture") is
pursuing its legal remedies concerning the approximately $90,000
in aggregate arrearages due from various tenants, including
approximately $52,000 in delinquent rents due from a tenant
which had occupied 11,200 square feet whose parent company filed
for bankruptcy protection earlier in 1996. In addition, tenant
leases representing approximately 22%, 15% and 8% of the
leasable space at the property are scheduled to expire in 1997,<PAGE>
1998 and 1999, respectively, not all of which are expected to be
renewed. The venture is conserving its working capital in order
to fund budgeted 1997 capital and tenant costs of approximately
$290,000 (most of which has not been expended at March 21, 1997)
and for potential future costs in connection with the lease-up
of the vacant space, for which the venture is actively pursuing
replacement tenants.
There are certain risks associated with the Partnership's
investments made through joint ventures, including the
possibility that the Partnership's joint venture partners in an
investment might become unable or unwilling to fulfill their
financial or other obligations, or that such joint venture
partners may have economic or business interests or goals that
are inconsistent with those of the Partnership.
As the Partnership continues to conserve its working
capital, all expenditures are carefully analyzed and certain
capital projects are deferred when appropriate. By conserving
working capital, the Partnership will be in a better position to
meet the future needs of its properties since the availability
of satisfactory outside sources of capital may be limited. In
an effort to reduce Partnership operating expenses, the
Partnership elected to make semiannual rather than quarterly
distributions of available operating cash flow beginning in
November 1995. After reviewing the Partnership's properties and
marketplaces in which they operate, the General Partners of the
Partnership expect to be able to conduct an orderly liquidation
of its investment portfolio as quickly as practicable. In such
regard, the unconsolidated ventures which own the Partnership's
remaining investment properties (1225 Connecticut and
JMB/Landings) have classified such properties as held for sale
at December 31, 1996 and therefore such properties will no
longer be subject to continuing depreciation. Therefore, the
affairs of the Partnership are expected to be wound up no later
than December 31, 1999 (sooner if the properties are sold in the
nearer term), barring any unforeseen economic developments.
Although the Partnership expects to distribute sale
proceeds from the disposition of the Partnership's remaining
investment properties, without a dramatic improvement in market
conditions, aggregate distributions from sale proceeds received
by the Limited Partners over the entire term of the Partnership
are expected to approximate slightly more than half of their
original investment. These aggregate sale proceeds when
combined with aggregate distributions of net cash flow over the
entire term of the Partnership are expected to approximate
slightly less then the Limited Partners' original investment.
RESULTS OF OPERATIONS
At December 31, 1996 the Partnership owned an interest in
two operating investment properties.
The increase in cash and cash equivalents at December 31,
1996 as compared to December 31, 1995 is attributable primarily
to operating cash flow generated in 1996 in excess of operating
cash flow distributed in 1996.<PAGE>
The decreases in interest, rents and other receivables,
prepaid expenses, investment property, tenant security deposits
and venture partner's subordinated equity in venture at December
31, 1996 as compared to December 31, 1995 are attributable to
CIP/Ashby's August 1996 sale of the Ashby at McLean Apartments.
The decrease in investment in unconsolidated corporation,
at equity at December 31, 1996 as compared to December 31, 1995
and the decrease in Partnership's share of operations of
unconsolidated corporation in 1996 as compared to 1995 and 1994
is attributable primarily to the Partnership's share
($2,851,415) of the provision for value impairment recorded by
1225 Investment Corporation at December 31, 1996.
The decreases in rental income and property operating
expenses in 1996 as compared to 1995 are primarily due to the
August, 1996 sale of the Ashby at McLean Apartments. The
increase in rental income in 1995 as compared to 1994 is
attributable primarily to higher effective rents at The Ashby
due to rental increases implemented during 1995. The decrease
in depreciation expense in 1996 as compared to 1995 is primarily
due to the suspension of depreciation as of April 1, 1996 on the
Ashby at McLean Apartments as such property was classified as
held for sale as of such date. The decrease in depreciation
expense in 1995 as compared to 1994 is due primarily to the
provision for value impairment of $7,572,479 which was recorded
at September 30, 1994 by CIP/Ashby on The Ashby at McLean
Apartments.
The increase in interest income in 1996 as compared to 1995
is due primarily to higher average investment balances in 1996
in the Partnership's and its consolidated venture's short-term
investments (primarily as a result of CIP/Ashby's temporary
investment of the Ashby at McLean Apartments sale proceeds in
interest-bearing cash equivalents). The increase in interest
income in 1995 as compared to 1994 is attributable primarily to
higher yields in 1995 on the Partnership's and its consolidated
venture's short-term investments.
Fees for professional services increased in 1996 as
compared to 1995 and 1994 primarily as a result of expenses
incurred in connection with tender offer matters, as discussed
above.
The increases in general and administrative expenses in
1996 and 1995 as compared to 1994 are attributable primarily to
an increase in reimbursable costs to affiliates of the General
Partners and the recognition of certain additional prior year
reimbursable costs to such affiliates in 1995 and to the timing
of the recognition of costs for certain outsourcing services and
certain printing costs in 1996.
The provision for value impairment in the amount of
$7,572,459 recorded in 1994 was due to the uncertainty of
CIP/Ashby's ability to recover the net carrying value of the
Ashby at McLean Apartments.
<PAGE>
The increase in Partnership's share of operations of
unconsolidated corporation in 1995 as compared to 1994 is due
primarily to an increase in average occupancy in 1995 due to
Ernst & Young's lease renewals and the corresponding increase in
rental income at 1225 Connecticut Avenue, N.W.
The Partnership's share of operations of unconsolidated
venture in 1995 contains the Partnership's share ($1,750,000) of
the provision for value impairment record by JMB/Landings.
Operations of JMB/Landings decreased in 1996 primarily as a
result of a decrease in occupancy and a corresponding decrease
in rental income at The Landings Shopping Center in 1996.
The changes in venture partner's share of venture's
operations in 1996 as compared to 1995 and in 1995 as compared
to 1994 are due primarily to the suspension of depreciation and
eventual sale of the Ashby at McLean Apartments in 1996 and the
venture partner's share of the provision for value impairment
recorded by CIP/Ashby at September 30, 1995 and the related
decrease in depreciation expense recorded at the Ashby at McLean
Apartments as a result of the above-mentioned value impairment.
The gain on sale of investment property is attributable to
the August 1996 sale of the Ashby at McLean Apartments.
INFLATION
Due to the decrease in the level of inflation in recent
years, inflation generally has not had a material effect on
rental income or property operating expenses.
Inflation is not expected to significantly impact future
operations due to the expected liquidation of the Partnership by
1999. However, to the extent that inflation in future periods
would have an adverse impact on property operating expenses, the
effect would generally be offset by amounts recovered from
tenants as many of the long-term leases at the Partnership's
commercial properties have escalation clauses covering increases
in the cost of operating and maintaining the properties as well
as real estate taxes. Therefore, there should be little effect
on operating earnings if the properties remain substantially
occupied. In addition, substantially all of the leases at the
Partnership's shopping center investment contain provisions
which entitle the Partnership to participate in gross receipts
of tenants above fixed minimum amounts.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CARLYLE INCOME PLUS, L.P. - II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
INDEX
Independent Auditors' Report
Consolidated Balance Sheets, December 31, 1996 and 1995
Consolidated Statements of Operations, years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Partners' Capital Accounts,
years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows, years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
SCHEDULES NOT FILED:
All schedules have been omitted as the required information
is inapplicable or the information is presented in the
consolidated financial statements or related notes.
1225 INVESTMENT CORPORATION
(A CORPORATION)
INDEX
Independent Auditors' Report
Balance Sheets, December 31, 1996 and 1995
Statements of Operations, years ended December 31,
1996, 1995 and 1994
Statements of Changes in Shareholders' Equity, years
ended December 31, 1996, 1995 and 1994
Statements of Cash Flows, years ended December 31,
1996, 1995 and 1994
Notes to Financial Statements
Schedule
--------
Real Estate and Accumulated Depreciation III
SCHEDULES NOT FILED:
All schedules other than the one indicated in the index
have been omitted as the required information is inapplicable or
the information is presented in the financial statements or
related notes.<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
CARLYLE INCOME PLUS, L.P. - II:
We have audited the consolidated financial statements of
Carlyle Income Plus, L.P.-II (a limited partnership) and
consolidated venture as listed in the accompanying index. These
consolidated financial statements are the responsibility of the
General Partners of the Partnership. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by the General
Partners of the Partnership, 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 consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Carlyle Income Plus, L.P.-II and
consolidated venture as of December 31, 1996 and 1995 and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
As discussed in the Notes to the consolidated financial
statements, in 1996 the Partnership and its consolidated venture
changed their method of accounting for long-lived assets and
long-lived assets to be disposed of to conform with Statement of
Financial Accounting Standards No. 121.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 21, 1997<PAGE>
<TABLE>
CARLYLE INCOME PLUS, L.P. - II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
------
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .$ 3,933,927 3,606,715
Interest, rents and other receivables. . . . . . . . . . . . . . . . . 25,348 54,610
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 11,986
------------ -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . 3,959,275 3,673,311
------------ -----------
Investment property, at cost -
Land. . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 4,586,545
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . -- 16,793,928
------------ -----------
-- 21,380,473
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . -- 3,945,031
------------ -----------
Total investment property,
net of accumulated depreciation. . . . . . . . . . . . . . . -- 17,435,442
------------ -----------
Investment in unconsolidated corporation,
at equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,418,337 24,284,252
Investment in unconsolidated venture,
at equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,133,922 3,980,419
------------ -----------
$ 28,511,534 49,373,424
============ ===========
<PAGE>
CARLYLE INCOME PLUS, L.P. - II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
1996 1995
------------ -----------
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 71,858 21,939
Amounts due to affiliates . . . . . . . . . . . . . . . . . . . . . . 5,388 26,687
------------ -----------
Total current liabilities. . . . . . . . . . . . . . . . . . . 77,246 48,626
------------ -----------
Tenant security deposits . . . . . . . . . . . . . . . . . . . . . . . . -- 107,369
------------ -----------
Commitments and contingencies
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . 77,246 155,995
------------ -----------
Venture partner's subordinated equity
in venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,910 5,523,770
Partners' capital accounts (deficits):
General partners:
Capital contributions. . . . . . . . . . . . . . . . . . . . . . . 25,000 25,000
Cumulative net earnings. . . . . . . . . . . . . . . . . . . . . . 443,106 450,800
Cumulative cash distributions. . . . . . . . . . . . . . . . . . . (906,336) (771,032)
------------ -----------
(438,230) (295,232)
------------ -----------
Limited partners (64,269.53 interests):
Capital contributions, net of offering
costs and purchase discounts . . . . . . . . . . . . . . . . . . 55,256,131 55,256,131 <PAGE>
Cumulative net earnings. . . . . . . . . . . . . . . . . . . . . . 8,935,045 7,061,904
Cumulative cash distributions. . . . . . . . . . . . . . . . . . . (35,360,568) (18,329,144)
------------ -----------
28,830,608 43,988,891
------------ -----------
Total partners' capital accounts
(deficits) . . . . . . . . . . . . . . . . . . . . . . . . . 28,392,378 43,693,659
------------ -----------
$ 28,511,534 49,373,424
============ ===========
<FN>
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
<TABLE>
CARLYLE INCOME PLUS, L.P. - II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Rental income. . . . . . . . . . . . . . . . . . . $ 2,377,068 3,276,045 3,212,142
Interest income. . . . . . . . . . . . . . . . . . . 508,795 222,411 154,786
------------ ----------- -----------
2,885,863 3,498,456 3,366,928
------------ ----------- -----------
Expenses:
Depreciation . . . . . . . . . . . . . . . . . . . . 145,870 580,373 665,737
Property operating expenses. . . . . . . . . . . . . 1,188,800 1,576,669 1,600,383
Professional services. . . . . . . . . . . . . . . . 115,616 76,500 89,825
General and administrative . . . . . . . . . . . . . 205,938 203,507 117,422
Provision for value impairment . . . . . . . . . . . -- -- 7,572,479
------------ ----------- -----------
1,656,224 2,437,049 10,045,846
------------ ----------- -----------
Operating earnings (loss). . . . . . . . . . 1,229,639 1,061,407 (6,678,918)
Partnership's share of operations of uncon-
solidated corporation . . . . . . . . . . . . . . . (1,623,860) 1,443,793 1,115,481
Partnership's share of operations of
unconsolidated venture . . . . . . . . . . . . . . . 153,503 (1,517,118) 245,774
Venture partner's share of venture's
operations . . . . . . . . . . . . . . . . . . . . . (417,997) (351,434) 2,041,247
------------ ----------- -----------
Net operating earnings (loss) . . . . . . . . . . . $ (658,715) 636,648 (3,276,416)
Gain on sale of investment property,
net of venture partner's share. . . . . . . . . . . 2,524,162 -- --
------------ ----------- -----------
Net earnings (loss). . . . . . . . . . . . . . . . . 1,865,447 636,648 (3,276,416)
============ =========== =========== <PAGE>
Net earnings (loss) per
limited partnership interest:
Net operating earnings (loss). . . . . . . . . . $ (9.74) 9.41 (48.43)
Net gain on sale of investment
property. . . . . . . . . . . . . . . . . . . . . 38.88 -- --
----------- ----------- -----------
$ 29.14 9.41 (48.43)
=========== ========== ============
<FN>
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
<TABLE>
CARLYLE INCOME PLUS, L.P. - II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
GENERAL PARTNERS LIMITED PARTNERS (64,269.53 INTERESTS)
--------------------------------------------- --------------------------------------
CONTRI-
BUTIONS,
NET NET OF NET
CONTRI- EARNINGS CASH OFFERING EARNINGS CASH
BUTIONS (LOSS) DISTRIBUTIONS TOTAL COSTS (LOSS) DISTRIBUTIONS TOTAL
------- ---------- ------------- ----------- ----------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December
31, 1993. . . .$25,000 582,789 (473,363) 134,426 55,256,131 9,569,683 (12,673,426) 52,152,388
Net earnings
(loss) . . . . -- (163,821) -- (163,821) -- (3,112,595) -- (3,112,595)
Cash distri-
butions
($32.00 per
limited
partnership
interest) . . . -- -- (108,243) (108,243) -- -- (2,056,625) (2,056,625)
------- -------- --------- ---------- --------- ---------- ---------- ---------- <PAGE>
CARLYLE INCOME PLUS, L.P. - II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS (DEFICITS) - CONTINUED
GENERAL PARTNERS LIMITED PARTNERS (64,269.53 INTERESTS)
--------------------------------------------- --------------------------------------
CONTRI-
BUTIONS,
NET OF
CONTRI- NET CASH OFFERING NET CASH
BUTIONS EARNINGS DISTRIBU- TOTAL COSTS EARNINGS DISTRIBUTIONS TOTAL
(LOSS) TIONS (LOSS)
------- --------- --------- ------ ------- --------- ------------ ------
Balance
(deficit) at
December 31,
1994. . . . . .25,000 418,968 (581,606) (137,638) 55,256,131 6,457,088 (14,730,051) 46,983,168
Net earnings
(loss). . . . . -- 31,832 -- 31,832 -- 604,816 -- 604,816
Cash distri-
butions
($56.00 per
limited
partnership
interest) . . . -- -- (189,426) (189,426) -- -- (3,599,093) (3,599,093)
------- -------- --------- --------- ---------- --------- ----------- -----------
Balance
(deficit) at
December 31,
1995. . . . . .25,000 450,800 (771,032) (295,232) 55,256,131 7,061,904 (18,329,144) 43,988,891
Net earnings
(loss). . . . . -- (7,694) -- (7,694) -- 1,873,141 -- 1,873,141 <PAGE>
Cash
distri-
butions
($265.00 per
limited
partnership
interest). . . -- -- (135,304) (135,304) -- -- (17,031,424) (17,031,424)
------ ------- --------- --------- -------- -------- ------------ ------------
Balance
(deficit) at
December 31,
1996 . . . . .$25,000 443,106 (906,336) (438,230) 55,256,131 8,935,045 (35,360,568) 28,830,608
======= ========= ======== ========= =========== ========== ============ ============
<FN>
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
<TABLE>
CARLYLE INCOME PLUS, L.P. - II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss). . . . . . . . . . . . . . . . . $ 1,865,447 636,648 (3,276,416)
Items not requiring (providing) cash or
cash equivalents:
Depreciation . . . . . . . . . . . . . . . . . . . 145,870 580,373 665,737
Total gain on sale of investment
property . . . . . . . . . . . . . . . . . . . . (3,658,205) -- --
Partnership's share of operations of
unconsolidated corporation,
net of dividends . . . . . . . . . . . . . . . . 1,623,860 370,372 596,519
Partnership's share of operations of
unconsolidated venture, net of
distributions. . . . . . . . . . . . . . . . . . (153,503) 1,517,118 --
Venture partner's share of venture's
operations and gain on sale. . . . . . . . . . . 1,552,040 351,434 (2,041,247)
Provision for value impairment . . . . . . . . . . -- -- 7,572,479
Changes in:
Interest, rents and other receivables. . . . . . . 41,248 (11,056) (15,864)
Accounts payable . . . . . . . . . . . . . . . . . 49,919 (75,689) 10,318
Amounts due to affiliates. . . . . . . . . . . . . (21,299) 11,734 (18,675)
Tenant security deposits . . . . . . . . . . . . . (107,369) (4,531) (5,621)
----------- ----------- -----------
Net cash provided by (used in)
operating activities . . . . . . . . . . . 1,338,008 3,376,403 3,487,230
----------- ----------- -----------
Cash flows from investing activities:
Net sales and maturities
of short-term investments. . . . . . . . . . . . . -- 2,109,006 1,727,751
<PAGE>
CARLYLE INCOME PLUS, L.P. - II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1996 1995 1994
----------- ----------- -----------
Additions to investment property . . . . . . . . . . (48,234) (121,684) (348,151)
Partnership's distributions from
unconsolidated corporation . . . . . . . . . . . . 2,242,055 144,912 --
Partnership's distributions from
unconsolidated venture . . . . . . . . . . . . . . -- 250,000 279,226
Cash proceeds from sale of investment
property, net of selling expenses . . . . . . . . . 20,996,011 -- --
----------- ----------- -----------
Net cash provided by (used in)
investing activities . . . . . . . . . . . 23,189,832 2,382,234 1,658,826
----------- ----------- -----------
Cash flows from financing activities:
Distributions to venture partner . . . . . . . . . . (7,033,900) (387,500) (1,224,500)
Distributions to limited partners. . . . . . . . . . (17,031,424) (3,599,093) (2,056,625)
Distributions to general partners. . . . . . . . . . (135,304) (189,426) (108,243)
----------- ----------- -----------
Net cash provided by (used in)
financing activities . . . . . . . . . . . (24,200,628) (4,176,019) (3,389,368)
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents . . . . . . . . . . . 327,212 1,582,618 1,756,688
Cash and cash equivalents,
beginning of year. . . . . . . . . . . . . 3,606,715 2,024,097 267,409
----------- ----------- -----------
Cash and cash equivalents,
end of year. . . . . . . . . . . . . . . . $ 3,933,927 3,606,715 2,024,097
=========== =========== ===========
Supplemental disclosure of cash
flow information:
Cash paid for mortgage and other interest. . . . . . $ -- -- --
=========== =========== ===========
Non-cash investing and financing activities $ -- -- --
=========== =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
CARLYLE INCOME PLUS, L.P. - II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
OPERATIONS AND BASIS OF ACCOUNTING
General
The Partnership holds, through a joint venture and a
corporation, an equity investment in an office building and a
shopping center. Business activities consist of rentals to a
variety of commercial and retail companies, and the ultimate
sale or disposition of such real estate. The Partnership
currently expects to conduct an orderly liquidation of its
remaining investment portfolio and wind up its affairs not later
than December 31, 1999.
The accompanying consolidated financial statements include
the accounts of the Partnership and its majority-owned venture,
CIP/Ashby Partners (prior to its property sale in August 1996)
("CIP/Ashby"). The effect of all transactions between the
Partnership and the consolidated venture has been eliminated.
The equity method of accounting has been applied in the
accompanying consolidated financial statements with respect to
the Partnership's interests in JMB/Landings Associates
("JMB/Landings") , and 1225 Investment Corporation ("1225
Connecticut Avenue, N.W."). Accordingly, the accompanying
consolidated financial statements do not include the accounts of
JMB/Landings, or of 1225 Connecticut Avenue, N.W.
The Partnership's records are maintained on the accrual
basis of accounting as adjusted for Federal income tax reporting
purposes. The accompanying consolidated financial statements
have been prepared from such records after making appropriate
adjustments to present the Partnership's accounts in accordance
with generally accepted accounting principles ("GAAP") and to
consolidate the accounts of the venture as described above.
Such GAAP and consolidation adjustments are not recorded on the
records of the Partnership. The net effect of these items for
the years ended December 31, 1996 and 1995 is summarized as
follows:
<PAGE>
<TABLE>
<CAPTION>
1996 1995
------------------------------- ------------------------------
TAX BASIS TAX BASIS
GAAP BASIS (Unaudited) GAAP BASIS (Unaudited)
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Total assets . . . . . . . . . . . . $ 28,511,534 40,988,399 49,373,424 58,228,874
Partners' capital
accounts (deficit):
General Partners . . . . . . . . . (438,230) (447,922) (295,232) (405,313)
Limited Partners . . . . . . . . . 28,830,608 41,405,331 43,988,891 58,634,487
Net earnings (loss):
General Partners . . . . . . . . . (7,694) 92,695 31,832 116,005
Limited Partners . . . . . . . . . 1,873,141 (197,732) 604,816 2,204,102
Net earnings (loss)
per limited partnership
interest. . . . . . . . . . . . . . 29.14 (3.08) 9.41 34.29
=========== =========== =========== ===========
/TABLE
<PAGE>
The net earnings (loss) per limited partnership interest is
based upon the number of limited partnership interests
outstanding at the end of each period (64,269.53). Deficit
capital accounts will result, through the duration of the
Partnership, in net gain for financial reporting and Federal
income tax purposes.
The preparation of financial statements in accordance with
GAAP requires the Partnership to make estimates and assumptions
that affect the reported or disclosed amount of 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.
Statement of Financial Accounting Standards No. 95 requires
the Partnership to present a statement which classifies receipts
and payments according to whether they stem from operating,
investing or financing activities. The required information has
been segregated and accumulated according to the classifications
specified in the pronouncement. Partnership distributions or
dividends from unconsolidated investments are considered cash
flow from operating activities only to the extent of the
Partnership's cumulative share of net earnings. In addition,
the Partnership records amounts held in U.S. Government
obligations at cost, which approximates market. For the
purposes of these statements, the Partnership's policy is to
consider all such amounts held with original maturities of three
months or less ($3,808,897 and $3,494,383 at December 31, 1996
and 1995, respectively) as cash equivalents, which includes
investments in an institutional mutual fund which holds United
States Government obligations, with any remaining amounts
(generally with original maturities of one year or less)
reflected as short-term investments being held to maturity.
Certain amounts in the 1994 and 1995 consolidated financial
statements have been reclassified to conform with the 1996
presentation.
No provision for state or Federal income taxes has been
made as the liability for such taxes is that of the partners
rather than the Partnership.
INVESTMENT PROPERTIES
The Partnership has acquired, either by purchase of stock
or through joint ventures, interests in one apartment building,
one shopping center and one office building. At December 31,
1996, the apartment building has been sold and the remaining two
investment properties are in operation. Under certain
circumstances, the Partnership may be required to make cash
contributions to the ventures either pursuant to the venture
agreements or due to the Partnership's obligations as a general
partner. The cost of the investment property represents the
total cost to the Partnership plus certain acquisition costs.
<PAGE>
Depreciation on the properties has been provided over the
estimated useful lives of the various components as follows:
YEARS
-----
Buildings and improvements --
straight-line. . . . . . . . . . . . 30
Personal property --
straight-line. . . . . . . . . . . . 5
==
Maintenance and repair expenses are charged to operations
as incurred. Significant betterments and improvements are
capitalized and depreciated over their estimated useful lives.
The Partnership adopted Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121")
as required in the first quarter of 1996. SFAS 121 requires that
the Partnership record an impairment loss on its properties to
be held for investment whenever their carrying value cannot be
fully recovered through estimated undiscounted future cash flows
from their operations and sale. The amount of the impairment
loss to be recognized would be the difference between the
property's carrying value and the property's estimated fair
value. The Partnership's policy is to consider a property to be
held for sale when the Partnership has committed to a plan to
sell such property and active marketing activity has commenced
or is expected to commence in the near term. In accordance with
SFAS 121, any properties identified as "held for sale or
disposition" are no longer depreciated. Adjustments for
impairment loss for such properties (subsequent to the date of
adoption of SFAS 121) are made in each period as necessary to
report these properties at the lower of carrying value or fair
value less costs to sell. The adoption of SFAS 121 did not have
any significant effect on the Partnership's financial position,
results of operations or liquidity.
The accompanying consolidated financial statements include
$(1,470,357), $(73,325) and $1,361,255, respectively, of the
Partnership's share of total operations of $(3,422,578),
$281,780 and $3,053,517 for the years ended December 31, 1996,
1995 and 1994 of unconsolidated properties held for sale as of
December 31, 1996.
JMB/Landings
In August 1988, the Partnership, through JMB/Landings
Associates, a joint venture partnership with Carlyle Income
Plus, Ltd. ("CIP-I"), another partnership sponsored by the
General Partners of the Partnership, acquired a 50% interest in
a shopping center located in Sarasota, Florida and known as The
Landings Shopping Center.<PAGE>
JMB/Landings purchased the shopping center for a purchase
price of $13,100,000 which was paid in cash at closing. The
Partnership contributed one-half of such amount ($6,550,000) to
JMB/Landings for its 50% interest. As certain specified minimum
occupancy and income levels were not achieved, the purchase
price was reduced by approximately $532,000 in 1990.
The terms of the JMB/Landings partnership agreement provide
generally that annual cash flow, sale proceeds and tax items
will be distributed or allocated based on the capital
contributions made by each partner. Distributions and
allocations to date have been made (and any obligations to make
additional capital contributions will be made) 50% to the
Partnership.
Occupancy at the Landings Shopping Center decreased to 60%
at December 31, 1996, from 95% at December 31, 1995 primarily as
a result of the vacating of six tenants which occupied
approximately 37,000 square feet. JMB/Landings is pursuing its
legal remedies concerning the approximately $90,000 in aggregate
arrearages due from various tenants, including approximately
$52,000 in delinquent rents due from a tenant which had occupied
11,200 square feet whose parent company filed for bankruptcy
protection earlier in 1996. In addition, tenant leases
representing approximately 22%, 15% and 8% of the leasable
space at the property are scheduled to expire in 1997, 1998 and
1999, respectively, not all of which are expected to be renewed.
JMB/Landings is conserving its working capital in order to fund
budgeted 1997 capital and tenant costs of approximately $290,000
and for potential future costs in connection with the lease-up
of the vacant space, for which JMB/Landings is actively pursuing
replacement tenants. Furthermore, as of December 31, 1996,
JMB/Landings has committed to a plan to sell the property and
therefore the property was classified by the JMB/Landings
Venture as held for sale and will not be subject to continued
depreciation.
In response to uncertainty relating to the ability to
recover the net carrying value of the property through future
operations and sale, JMB/Landings, for financial reporting
purposes, recorded a provision for value impairment at September
30, 1995 in the amount of $3,500,000 (of which the Partnership's
share was $1,750,000). Such provision was recorded to reduce
the net basis of the investment property to its then estimated
fair value. There can be no assurance that any estimated fair
value of this investment property would ultimately be obtained
by the Partnership in any future sale or disposition
transaction. An affiliate of the General Partners of the
Partnership manages the property for a fee equal to 4% of the
property's gross receipts. Such property management fees for
the years ended December 31, 1996, 1995 and 1994 aggregated
$43,866, $45,840 and $46,008, respectively.
CIP/Ashby
In February 1990, the Partnership, through CIP/Ashby
Partners ("CIP/Ashby"), a joint venture partnership with CIP-I,
acquired a 69% interest in an apartment building located in<PAGE>
McLean, Virginia and known as The Ashby at McLean Apartments
("The Ashby"). The Ashby has 250 units, commercial space and
related parking facilities. CIP/Ashby's total cash investment in
The Ashby was approximately $28,705,000, of which the
Partnership's share was approximately $19,806,000.
In response to the uncertainty relating to CIP/Ashby's
ability to recover the net carrying value of The Ashby through
future operations or sale, CIP/Ashby, as a matter of prudent
accounting practice and for financial reporting purposes,
recorded a provision for value impairment at September 30, 1994
in the amount of $7,572,479 (of which the Partnership's share
was $5,225,011). Such provision was recorded to reduce the net
basis of the investment property to its then estimated fair
value.
In July 1996, CIP/Ashby entered into a contract with a
potential purchaser for the sale of this property for a sale
price of $21,400,000 (before selling costs and prorations),
payable in cash at closing. Pursuant to such contract, the
property was sold August 26, 1996. CIP/Ashby recognized a gain
on sale of $3,658,205 for financial reporting purposes (of which
the Partnership's share is $2,524,162), primarily as a result of
a value impairment recorded by CIP/Ashby in 1994 discussed
above, and recognized a loss of approximately $3,549,000 for
Federal income tax reporting purposes in 1996 (of which the
Partnership's share was approximately $2,449,000).
As CIP/Ashby had committed to a plan to sell the property,
the property was classified as held for sale as of April 1, 1996
and, therefore, was not been subject to continued depreciation
as of that date. The results of operations of the property
included in the accompanying consolidated financial statements
were $930,380, $782,224 and a loss of $4,544,170 for the years
ended December 31, 1996, 1995 and 1994, respectively.
The terms of the CIP/Ashby partnership agreement provided
generally that annual cash flow, sale proceeds and tax items
were distributed or allocated based on the capital contributions
made by each partner. Distributions and allocations have been
made 69% to the Partnership.
A former affiliate of the General Partners managed the
property for a fee equal to 5% of the property's gross receipts.
The former affiliate also operated the underground parking
facilities which it leased from CIP/Ashby.
1225 Connecticut Avenue, N.W.
In May 1990, the Partnership acquired approximately 44% of
the common stock of a newly formed Delaware corporation (1225
Investment Corporation) owned jointly with affiliates of the
General Partners. The 1225 Investment Corporation had acquired
an office building located in Washington, D.C. known as 1225
Connecticut Avenue, N.W. The eight-story office building has
202,915 rentable square feet and three levels of subsurface
parking.<PAGE>
The 1225 Investment Corporation purchased 1225 Connecticut
Avenue, N.W. office building for a purchase price of
approximately $54,125,000, including the assumption of existing
indebtedness of $2,700,000. The purchase price reflected a
credit of $600,000, which was intended to allow the 1225
Investment Corporation to pay certain future expenses related to
the removal of asbestos from the property. As of December 31,
1996, approximately $78,000 has been spent relating to the
removal of asbestos. Furthermore, the 1225 Investment
Corporation created reserves in the amount of approximately
$532,000 and $1,000,000 for working capital and for certain
possible capital improvements to the property, respectively.
The Partnership contributed $24,000,000 for its approximate 44%
interest in the stock of the 1225 Investment Corporation. the
1225 Investment Corporation has qualified as a real estate
investment trust ("REIT") pursuant to sections 856 through 860
of the Internal Revenue Code of 1986, as amended. The
Partnership is expected to be distributed approximately 44% of
the 1225 Investment Corporation's dividends. Such dividends
distributed from operations will constitute taxable income to
the Partnership.
In January 1994, 1225 Investment Corporation refinanced the
existing mortgage loan secured by the property. The existing
loan had an outstanding balance of $1,667,247 at the time of
refinancing and would have matured in March 1998. The
refinanced mortgage loan is in the amount of $7,000,000 and
requires payments of interest only, at an annual interest rate
of 6.98%, for a period of 7 years. The loan matures February 1,
2001. 1225 Investment Corporation used the approximately
$5,300,000 of loan proceeds to partially fund tenant improvement
costs, as required by certain tenant leases, at the property.
As the 1225 Investment Corporation has committed to a plan
to sell the property, the property was classified by the 1225
Investment Corporation as held for sale as of December 31, 1996
and therefore, will not be subject to continued depreciation.
In response to the uncertainty relating to 1225 Investment
Corporation's ability to recover the net carrying value of The
1225 Connecticut Avenue, N.W. office building through future
operations or sale, 1225 Investment Corporation, as a matter of
prudent accounting practice and for financial reporting
purposes, recorded a provision for value impairment in 1996 in
the amount of $6,548,956 (of which the Partnership's share was
$2,851,415). Such provision was applied $3,118,602 to buildings
and improvements, $3,295,006 to accrued rents receivable and
$135,348 to deferred expenses to reduce the net carrying value
of the investment property to its then estimated fair value
based upon an analysis of an independent appraisal received for
the property as of December 31, 1996.
A former affiliate of the General Partners manages the
property for a fee equal to 2.5% of the property's gross
revenues, plus reimbursement for certain expenses of the
manager.
<PAGE>
PARTNERSHIP AGREEMENT
Pursuant to the terms of the Partnership agreement, profits
and losses of the Partnership from operations are generally
allocated first to the General Partners in an amount equal to
the greater of the General Partners' share of "Disbursable Cash"
(as described below) or 1%. Profits from the sale or other
disposition of investment properties are generally allocated
first to the General Partners in an amount equal to the greater
of the General Partners' share of cash distributions of the
proceeds of any such sale or other disposition (as described
below) or 1% of the total profits from any such sales or other
dispositions, plus an amount which will reduce deficits (if any)
in the General Partners' capital accounts to a level consistent
with the gain anticipated to be realized from the sale of
properties. Losses from the sale or other disposition of
investment properties are to be allocated 1% to the General
Partners.
The General Partners have made capital contributions of
$25,000. Except under certain limited circumstances upon
dissolution or liquidation of the Partnership or the General
Partners' interests in the Partnership, the General Partners are
not required to make any additional capital contributions.
"Disbursable Cash" of the Partnership is to be distributed 93%
to the Holders of Interests and 7% to the General Partners;
provided, however, that receipt by the General Partners of two
of such seven percentage points of disbursable cash otherwise
distributable to them in any fiscal year will be subject to
receipt by the Holders of Interests of a 6% return for such year
on their "Average Adjusted Capital Contribution" on a
noncumulative basis. Distributions of "Sale Proceeds" are to be
initially allocated 99% to the Holders of Interests and 1% to
the General Partners. However, upon the completion of the
liquidation of the Partnership and final distribution of all
Partnership funds, all previous distributions of sale proceeds
to the General Partners are to be repaid to the Partnership to
the extent that the Holders of Interests have not received sales
proceeds equal to their initial capital investment plus a 6%
return thereon (as defined). After receipt by the Holders of
Interests of such preferred return, further distributions of
sale proceeds are to be allocated to the General Partners until
the General Partners have received distributions in an amount
equal to 3% of the aggregate selling prices of all properties
sold, with the remaining balance to be distributed 85% to the
Holders of Interests and 15% to the General Partners; provided,
however, that such 3% and 15% of sale proceeds distributable to
the General Partners are subordinate to the Holders of
Interests' receipt of a 9% return on their investment. Since
the Holders of Interests are not expected to receive an amount
equal to their initial contributed capital from the aggregate
sale proceeds of all of the Partnership's investment properties,
the General Partners are deferring their 1% share in the
distributions of proceeds from sales at this time.
<PAGE>
TRANSACTIONS WITH AFFILIATES
All of the Partnership's properties were managed by
affiliates of the General Partners or their assignees for fees
computed as a percentage of certain rents received by the
properties. In December 1994, one of the affiliated property
managers sold substantially all of its assets and assigned its
interest in its management contracts to an unaffiliated third
party. In addition, certain of the management personnel of the
property manager became management personnel of the purchaser
and its affiliates. The successor to the affiliated property
manager's assets was the property manager of The Ashby at McLean
Apartments prior to its sale in August 1996 and is acting as the
property manager of 1225 Connecticut Ave. N.W. after the
assignment of the management contract on the same terms that
existed prior to the assignment of the management company
contract.
The Partnership, pursuant to the Partnership Agreement, is
permitted to engage in various transactions involving the
Corporate General Partner and its affiliates including the
reimbursement for salaries and salary-related expenses of its
employees, certain of its officers, and other direct expenses
relating to the administration of the Partnership and the
operation of the Partnership's investments. Fees, commissions
and other expenses required to be paid by the Partnership to the
General Partners and their affiliates as of and for the year
ended December 31, 1996, 1995 and 1994 are as follows:<PAGE>
<TABLE>
<CAPTION>
UNPAID AT
DECEMBER 31,
1996 1995 1994 1996
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Property management and
leasing fees . . . . . . . . . . . . . $ -- -- 160,653 --
Insurance commissions. . . . . . . . . . 4,071 6,820 7,084 --
Reimbursement (at cost) for
accounting services . . . . . . . . . . 5,139 45,518 49,928 414
Reimbursement (at cost) for
portfolio management services . . . . . 13,311 13,530 11,850 4,011
Reimbursement (at cost) for
legal services. . . . . . . . . . . . . 2,392 934 4,715 963
Reimbursement (at cost) for
administrative charges and
other out-of-pocket-expenses . . . . . 787 71,407 997 --
-------- -------- -------- ------
$ 25,700 138,209 235,227 5,388
======== ======== ======== ======
<FN>
________
/TABLE
<PAGE>
All amounts payable to the General Partners and their
affiliates do not bear interest and are expected to be paid in
future periods.
INVESTMENT IN UNCONSOLIDATED VENTURE
Summary of financial information for JMB/Landings as of and
for the years ended December 31, 1996 and 1995 are as follows:
1996 1995
----------- -----------
Current assets . . . . . . . . . . . . . . $ 1,141,067 580,090
Current liabilities. . . . . . . . . . . . (27,202) (14,753)
----------- -----------
Working capital. . . . . . . . . 1,113,865 565,337
Investment property, net . . . . . . . . . 7,075,077 7,210,679
Other assets, net. . . . . . . . . . . . . 111,504 215,812
Other liabilities. . . . . . . . . . . . . (31,382) (29,768)
Venture partner's equity . . . . . . . . . (4,135,142) (3,981,641)
----------- -----------
Partnership's capital. . . . . . $ 4,133,922 3,980,419
=========== ===========
Represented by:
Invested capital . . . . . . . . . . . . $ 6,704,617 6,704,617
Cumulative distributions . . . . . . . . (2,729,801) (2,729,801)
Cumulative earnings. . . . . . . . . . . 159,106 5,603
----------- -----------
$ 4,133,922 3,980,419
=========== ===========
Total income . . . . . . . . . . . . . . . $ 1,038,681 1,272,150
=========== ===========
Expenses applicable to
operating income. . . . . . . . . . . . . $ 731,676 4,306,385
=========== ===========
Net earnings (loss). . . . . . . . . . . . $ 307,005 (3,034,235)
=========== ===========
The total income, expenses applicable to operating earnings
and net earnings for the above venture for the year ended
December 31, 1994 were $1,224,744, $733,196 and $491,548,
respectively.<PAGE>
INVESTMENT IN UNCONSOLIDATED CORPORATION
Summary financial information for the 1225 Investment
Corporation as of and for the years ended December 31, 1996 and
1995 are as follows:
1996 1995
----------- -----------
Current assets . . . . . . . . . . . . . . 1,619,958 2,383,361
Current liabilities. . . . . . . . . . . . (330,655) (328,676)
----------- -----------
Working capital. . . . . . . . . 1,289,303 2,054,685
Investment property, net . . . . . . . . . 52,000,000 56,328,487
Other assets . . . . . . . . . . . . . . . 68,590 3,854,983
Long-term debt . . . . . . . . . . . . . . (7,000,000) (7,000,000)
Other liabilities. . . . . . . . . . . . . (15,477) (16,164)
Affiliated shareholders' equity . . . . . (25,924,079) (30,937,739)
----------- -----------
Partnership's equity in
affiliated corporation . . . . $ 20,418,337 24,284,252
=========== ===========
Represented by:
Stock purchase and additional
paid-in-capital. . . . . . . . . . . . $ 24,429,164 24,429,164
Cumulative dividends . . . . . . . . . . (10,326,950) (8,084,895)
Cumulative earnings. . . . . . . . . . . 6,316,123 7,939,983
----------- -----------
$ 20,418,337 24,284,252
=========== ===========
Total income . . . . . . . . . . . . . . . $ 7,341,297 7,753,063
=========== ===========
Expenses applicable
to operating income . . . . . . . . . . . $ 11,070,880 4,437,048
=========== ===========
Net earnings (loss). . . . . . . . . . . . $ (3,729,583) 3,316,015
=========== ===========
The total income, expenses applicable to operating earnings
and net earnings for the above corporation for the year ended
December 31, 1994 were $6,578,479, $4,016,510 and $2,561,969,
respectively.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Carlyle Income Plus, L.P.-II:
We have audited the financial statements of 1225 Investment
Corporation as listed in the accompanying index. In connection
with our audits of the financial statements, we also have
audited the financial statement schedule as listed in the
accompanying index. These financial statements and financial
statement schedule are the responsibility of the Management of
the Corporation. Our responsibility is to express an opinion on
these financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by the Management
of the Corporation, 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 1225 Investment Corporation as of December 31, 1996 and 1995
and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles. Also
in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the
information set forth therein.
As discussed in the Notes to the financial statements, in
1996 the Corporation changed its method of accounting for long-
lived assets and long-lived assets to be disposed of to conform
with Statement of Financial Accounting Standards NO. 121.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 21, 1997<PAGE>
<TABLE>
1225 INVESTMENT CORPORATION
(A CORPORATION)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
------
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 1,511,116 2,317,327
Rents and other receivables. . . . . . . . . . . . . . . . . . . . . . 91,937 19,128
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,905 46,906
------------ -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . 1,619,958 2,383,361
------------ -----------
Investment property - Schedule III:
Land. . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 24,161,484
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . -- 38,400,096
------------ -----------
-- 62,561,580
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . -- 6,233,093
------------ -----------
Total property held for investment,
net of accumulated depreciation. . . . . . . . . . . . . . . -- 56,328,487
------------ -----------
Property held for sale or disposition . . . . . . . . . . . . . . . . . 52,000,000 --
------------ ------------
Total investment property. . . . . . . . . . . . . . . . . . . 52,000,000 56,328,487
Deferred costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,590 247,472
Accrued rents receivable . . . . . . . . . . . . . . . . . . . . . . . -- 3,607,511
------------ -----------
$ 53,688,548 62,566,831
============ ===========<PAGE>
1225 INVESTMENT CORPORATION
(A CORPORATION)
BALANCE SHEETS - CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
1996 1995
------------ -----------
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 83,435 39,655
Accrued real estate taxes. . . . . . . . . . . . . . . . . . . . . . . 206,503 248,304
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . 40,717 40,717
------------ -----------
Total current liabilities. . . . . . . . . . . . . . . . . . . 330,655 328,676
Tenant security deposits . . . . . . . . . . . . . . . . . . . . . . . . 15,477 16,164
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000,000 7,000,000
------------ -----------
Commitments and contingencies
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . 7,346,132 7,344,840
Shareholders' equity:
Common stock, $1 par value per share
100,000 shares authorized; 55,128 shares issued and
outstanding at December 31, 1996 and December 31, 1995 . . . . . . . 55,128 55,128
Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . . . 55,503,444 55,503,444
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,717,668) (18,567,676)
Accumulated earnings . . . . . . . . . . . . . . . . . . . . . . . . . 14,501,512 18,231,095
------------ -----------
Total shareholders' equity . . . . . . . . . . . . . . . . . . 46,342,416 55,221,991
------------ -----------
$ 53,688,548 62,566,831
============ ===========
<FN>
See accompanying notes to financial statements.
/TABLE
<PAGE>
<TABLE>
1225 INVESTMENT CORPORATION
(A CORPORATION)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Income:
Rental income. . . . . . . . . . . . . . . . . . . . $ 7,260,819 7,584,997 6,391,556
Interest income. . . . . . . . . . . . . . . . . . . 80,478 168,066 186,923
----------- ---------- ----------
7,341,297 7,753,063 6,578,479
----------- ---------- ----------
Expenses:
Mortgage and other interest. . . . . . . . . . . . . 488,600 488,600 466,987
Depreciation . . . . . . . . . . . . . . . . . . . . 1,281,412 1,287,756 1,144,439
Property operating expenses. . . . . . . . . . . . . 2,471,625 2,428,540 2,259,776
Amortization of deferred costs . . . . . . . . . . . 43,534 78,662 --
General and administrative . . . . . . . . . . . . . 236,753 153,490 145,308
Provision for value impairment . . . . . . . . . . . 6,548,956 -- --
----------- ---------- ----------
11,070,880 4,437,048 4,016,510
----------- ---------- ----------
Net earnings (loss). . . . . . . . . . . . . $ (3,729,583) 3,316,015 2,561,969
=========== ========== ==========
<FN>
See accompanying notes to financial statements.
/TABLE
<PAGE>
<TABLE>
1225 INVESTMENT CORPORATION
(A CORPORATION)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
AFFILIATED SHAREHOLDERS
-----------------------------------------------------------------
NET
NET CAPITAL EARNINGS DIVIDENDS
INVESTED (LOSS) PAID TOTAL
------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 . . . . . . . $ 31,129,408 6,972,402 (5,721,399) 32,380,411
Net earnings . . . . . . . . . . . . . . . -- 1,446,488 1,446,488
Dividends paid . . . . . . . . . . . . . . -- -- (2,220,458) (2,220,458)
------------ ---------- ----------- -----------
Balance at December 31, 1994 . . . . . . . 31,129,408 8,418,890 (7,941,857) 31,606,441
Net earnings . . . . . . . . . . . . . . . -- 1,872,222 -- 1,872,222
Dividends paid . . . . . . . . . . . . . . -- -- (2,540,924) (2,540,924)
------------ ---------- ----------- -----------
Balance at December 31, 1995 . . . . . . . 31,129,408 10,291,112 (10,482,781) 30,937,739
Net earnings (loss). . . . . . . . . . . . -- (2,105,723) -- (2,105,723)
Dividends paid . . . . . . . . . . . . . . -- -- (2,907,937) (2,907,937)
----------- ----------- ----------- -----------
Balance at December 31, 1996 . . . . . . . $ 31,129,408 8,185,389 (13,390,718) 25,924,079
=========== =========== ============ ===========
/TABLE
<PAGE>
<TABLE>
1225 INVESTMENT CORPORATION
(A CORPORATION)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - CONTINUED
<CAPTION>
CARLYLE INCOME PLUS, L.P. - II
--------------------------------------------------------------
NET
NET CAPITAL EARNINGS DIVIDENDS GRAND
INVESTED (LOSS) PAID TOTAL TOTAL
------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993 . . . . . . . . . . . $ 24,429,164 5,380,709 (4,413,818) 25,396,055 57,776,466
Net earnings . . . . . . . . -- 1,115,481 -- 1,115,481 2,561,969
Dividends paid . . . . . . . -- -- (1,712,000) (1,712,000) (3,932,458)
------------ ---------- ----------- ----------- -----------
Balance at December 31,
1994 . . . . . . . . . . . 24,429,164 6,496,190 (6,125,818) 24,799,536 56,405,977
Net earnings . . . . . . . . -- 1,443,793 -- 1,443,793 3,316,015
Dividends paid . . . . . . . -- -- (1,959,077) (1,959,077) (4,500,001)
------------ ---------- ----------- ----------- -----------
Balance at December 31,
1995 . . . . . . . . . . . 24,429,164 7,939,983 (8,084,895) 24,284,252 55,221,991
Net earnings (loss) . . . . -- (1,623,860) -- (1,623,860) (3,729,583)
Dividends paid . . . . . . . -- -- (2,242,055) (2,242,055) (5,149,992)
------------- ----------- ----------- ----------- ------------
Balance at December 31,
1996 . . . . . . . . . . . . $ 24,429,164 6,316,123 (10,326,950) 20,418,337 46,342,416
============ ========== =========== =========== ===========
<FN>
See accompanying notes to financial statements.
/TABLE
<PAGE>
<TABLE>
1225 INVESTMENT CORPORATION
(A CORPORATION)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss). . . . . . . . . . . . . . . . . . $(3,729,583) 3,316,015 2,561,969
Items not requiring (providing) cash:
Depreciation . . . . . . . . . . . . . . . . . . . . 1,281,412 1,287,756 1,144,439
Amortization of deferred costs . . . . . . . . . . . 43,534 78,662 --
Provision for value impairment . . . . . . . . . . . 6,548,956 -- --
Changes in:
Rents and other receivables. . . . . . . . . . . . (72,809) 18,692 220,104
Prepaid expenses . . . . . . . . . . . . . . . . . 30,001 (6,768) (326)
Escrow deposits. . . . . . . . . . . . . . . . . . -- -- 280,000
Deferred expenses. . . . . . . . . . . . . . . . . -- -- (251,052)
Accrued rents receivable . . . . . . . . . . . . . 312,505 (544,645) 595,599
Accounts payable . . . . . . . . . . . . . . . . . 43,780 (106,420) (454,961)
Accrued real estate taxes. . . . . . . . . . . . . (41,801) 19,929 22,840
Accrued interest payable . . . . . . . . . . . . . -- -- 31,543
Tenant security deposits . . . . . . . . . . . . . (687) 484 15,680
----------- ----------- -----------
Net cash provided by (used in) 4,415,308 4,063,705 4,165,835
operating activities . . . . . . . . . . . . ----------- ----------- -----------
Cash flows from investing activities:
Net sales and maturities (purchases) of
short-term investments . . . . . . . . . . . . . . -- 2,948,422 (1,234,369)
Additions to investment property . . . . . . . . . . (71,527) (1,480,977) (3,230,869)
Payment of deferred costs. . . . . . . . . . . . . . -- (28,025) --
----------- ----------- -----------
Net cash provided by (used in)
investing activities . . . . . . . . . . . (71,527) 1,439,420 (4,465,238)
----------- ----------- -----------
<PAGE>
1225 INVESTMENT CORPORATION
(A CORPORATION)
STATEMENTS OF CASH FLOWS - CONTINUED
1996 1995 1994
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from refinanced mortgage loan payable -- -- 7,000,000
Principal payments on long-term debt . . . . . . . . -- -- (1,694,722)
Cash dividends paid to shareholders. . . . . . . . . (5,149,992) (4,500,001) (3,932,458)
----------- ----------- -----------
Net cash provided by (used in)
financing activities . . . . . . . . . . . (5,149,992) (4,500,001) 1,372,820
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents . . . . . . . . . . . (806,211) 1,003,124 1,073,417
Cash and cash equivalents,
beginning of year. . . . . . . . . . . . . 2,317,327 1,314,203 240,786
----------- ----------- -----------
Cash and cash equivalents,
end of year. . . . . . . . . . . . . . . . $ 1,511,116 2,317,327 1,314,203
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest. . . . . . $ 488,600 488,600 435,444
=========== =========== ===========
Non-cash investing and financing activities $ -- -- --
=========== =========== ===========
<FN>
See accompanying notes to financial statements.
/TABLE
<PAGE>
1225 INVESTMENT CORPORATION
(A CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
OPERATIONS AND BASIS OF ACCOUNTING
The accompanying financial statements have been prepared
for the purpose of complying with Rule 3.09 of Regulation S-X of
the Securities and Exchange Commission. They include the
accounts of the unconsolidated corporation, 1225 Investment
Corporation, in which Carlyle Income Plus, L.P.-II and
affiliates of the General Partners of Carlyle Income Plus, L.P.-
II are shareholders.
1225 Investment Corporation (the "Corporation") has the
exclusive purpose of owning a 100% interest in the 1225
Connecticut Avenue N.W. office building, a 202,915 square foot
office building located in Washington, D.C. Endowment and
Foundation Realty, Ltd. -- JMB-IV, IDS Life Account RE,
JMB/Northern Real Estate Fund, Carlyle Income Plus, L.P.-II, and
certain other institutional investors collectively hold all of
the common stock of the Corporation and are being advised by
Heitman/JMB Advisory Corporation.
The Corporation's records are maintained on the accrual
basis of accounting as adjusted for Federal income tax reporting
purposes. The accompanying financial statements have been
prepared from such records after making appropriate adjustments
to present the Corporation's accounts in accordance with
generally accepted accounting principles ("GAAP"). Such
adjustments are not recorded on the records of the Corporation.
The effect of these items for the years ended December 31, 1996
and 1995 is summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
1996 1995
----------------------------- ------------------------------
TAX BASIS TAX BASIS
GAAP BASIS (Unaudited) GAAP BASIS (Unaudited)
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Total assets . . . . . . . . . . . . $ 53,688,548 64,154,246 62,566,831 64,846,159
Shareholders' equity . . . . . . . . 46,342,416 56,808,115 55,221,991 57,499,881
Net earnings (loss). . . . . . . . . (3,729,583) 3,207,134 3,316,015 3,036,158
=========== =========== =========== ===========
/TABLE
<PAGE>
The preparation of financial statements in accordance with
GAAP requires the Corporation to make estimates and assumptions
that affect the reported or disclosed amount of 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.
Statement of Financial Accounting Standards No. 95 requires
the Corporation to present a statement which classifies receipts
and payments according to whether they stem from operating,
investing or financing activities. The required information has
been segregated and accumulated according to the classifications
specified in the pronouncement. Corporation distribution or
dividends from unconsolidated investments are considered cash
flow from operating activities only to the extent of the
Corporation's cumulative share of net earnings. In addition,
the Corporation records amounts held in U.S. Government
obligations at cost which approximates market. For the purposes
of these statements, the Corporation's policy is to consider all
such amounts held with original maturities of three months or
less ($79,660 and $2,200,000 at December 31, 1996 and 1995,
respectively) as cash equivalents with any remaining amounts
(generally with original maturities of one year or less)
reflected as short-term investments being held to maturity.
Depreciation on buildings and improvements has been
provided over the estimated useful lives of the assets (30
years) using the straight-line method.
Maintenance and repair expenses are charged to operations
as incurred. Significant betterments and improvements are
capitalized and depreciated over their estimated useful lives.
Statement of Financial Accounting Standards No. 121 ("SFAS
121") "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of" was issued in March 1995.
The Corporation adopted SFAS 121 as required in the first
quarter of 1996. SFAS 121 requires that the Corporation record
an impairment loss on its property to be held for investment
whenever its carrying value cannot be fully recovered through
estimated undiscounted future cash flows from operations and
sale. The amount of the impairment loss to be recognized would
be the difference between the property's carrying value and the
property's estimated fair value. The Corporation's policy is to
consider the property to be held for sale or disposition when
the Corporation has committed to a plan to sell or dispose of
such property and active marketing activity has commenced or is
expected to commence in the near term. In accordance with SFAS
121, any property identified as "held for sale or disposition"
is no longer depreciated. Adjustments for impairment loss for
such a property (subsequent to a date of adoption of SFAS 121)
are made in each period as necessary to report the property at
the lower of carrying value or fair value less costs to sell.
There can be no assurance that any estimated fair value of the
property would ultimately be realized by the Corporation in any
future sale or disposition transaction.
<PAGE>
Under the prior accounting policy, provisions for value
impairment were recorded with respect to the investment property
whenever the estimated future cash flows from the property's
operations and projected sale were less than the property's
carrying value. An impairment loss under SFAS 121 is
determined without regard to the nature or the balance of any
non-recourse indebtedness. Upon the disposition of a property
with the related extinguishment of the long-term debt for which
an impairment loss has been recognized under SFAS 121, the
Corporation would recognize, at a minimum, a net gain for
financial reporting purposes (comprised of gain on
extinguishment of debt and gain or loss on the sale or
disposition of property) to the extent of any excess of the then
outstanding balance of the property's non-recourse indebtedness
over the then carrying value of the property, including the
effect of any reduction for impairment loss under SFAS 121.
In addition, upon the disposition of an impaired property,
the Corporation will generally recognize more net gain for
financial reporting purposes under SFAS 121 than it would have
under the Corporation's prior impairment policy, without regard
to the amount, if any, of cash proceeds received by the
Corporation in connection with the disposition. Although
implementation of this accounting statement could significantly
impact the Corporation's reported earnings, there would be no
impact on cash flows. Further, any such impairment loss is not
recognized for Federal income tax purposes.
Deferred costs consist of commitment fees incurred in
connection with the refinancing of the property and lease
commissions incurred. Deferred loan fees and lease commissions
are amortized over the terms of the related debt agreement and
leases using the straight-line method.
Although certain leases of the Corporation's office
building provide for increases in minimum lease payments over
the term of the lease, the Corporation accrues rental income for
the full period of occupancy on a straight-line basis.
The Corporation has qualified as a real estate investment
trust ("REIT") pursuant to Sections 856 through 860 of the
Internal Revenue Code of 1986 as amended and intends to
distribute at least 95% of its taxable income annually to its
shareholders. Since the Corporation has qualified as a REIT,
the Corporation in general will not be subject to Federal
corporate income tax or the District of Columbia corporate
franchise tax (except for the District of Columbia corporate
franchise minimum tax of $100) on its regular taxable income and
will not be taxed on long-term capital gain income to the extent
its income is distributed as dividends. Accordingly, no
provision for income taxes has been made in the accompanying
financial statements. Tax-exempt shareholders generally will
not be required to pay any Federal income tax on the dividends
they receive from the Corporation, provided such shareholders
<PAGE>
have not financed the acquisition of shares with "acquisition
indebtedness" as defined under the Code.
INVESTMENT PROPERTY
A description of the acquisition and other events relating
to the property, including the provision for value impairment
and the determination to classify the property as held for sale
or disposition at December 31, 1996, is contained in the Notes
to Consolidated Financial Statements of Carlyle Income Plus,
L.P.-II. Such note is incorporated herein by reference.
MANAGEMENT AGREEMENT
A description of the terms of the management agreement is
contained in the Notes to Consolidated Financial Statements of
Carlyle Income Plus, L.P.-II. Such note is incorporated herein
by reference.
LONG-TERM DEBT
Long-term debt consists of the following at December 31,
1996 and 1995:
1996 1995
------------ ------------
6.98% mortgage note, due February 1,
2001; secured by 1225 Connecticut
Avenue N.W.; payable in monthly
installments of $40,717 (interest
only) . . . . . . . . . . . . . . . . . . . . $ 7,000,000 7,000,000
---------- ----------
Total debt . . . . . . . . . . . . . 7,000,000 7,000,000
Less current portion
of long-term debt. . . . . . . . . $ -- --
---------- ----------
Total long-term debt . . . . . . . . $ 7,000,000 7,000,000
========== ==========
<PAGE>
Five year maturities of long-term debt are summarized as
follows:
1997. . . . . . . . . $ --
1998. . . . . . . . . --
1999. . . . . . . . . --
2000. . . . . . . . . --
2001. . . . . . . . . 7,000,000
===========
CORPORATION BY-LAWS
The Corporation's by-laws provide for the shareholders to
be allocated or distributed shares of profits and losses, cash
flow from operations and sale or refinancing proceeds according
to their respective ownership percentages.
LEASES - AS PROPERTY LESSOR
At December 31, 1996, the Corporation's principal asset is
an office building. The Corporation has determined that all
leases relating to this property are properly classified as
operating leases; therefore, rental income is reported when
earned and the cost of the property, excluding the cost of the
land, is depreciated over the estimated useful life. Leases
with tenants range in term from four to eleven remaining years
and provide for fixed minimum rent and partial reimbursement of
operating costs.
Minimum lease payments, including amounts representing
executory costs (e.g. taxes, maintenance, insurance) and any
related profit, to be received in the future under the operating
leases are as follows:
1997. . . . . . . . . . . . . . . . . . $ 6,805,000
1998. . . . . . . . . . . . . . . . . . . 6,817,000
1999. . . . . . . . . . . . . . . . . . . 6,862,000
2000. . . . . . . . . . . . . . . . . . . 6,633,000
2001. . . . . . . . . . . . . . . . . . . 6,040,000
Thereafter. . . . . . . . . . . . . . . . 30,880,000
-----------
$ 64,037,000
===========
The Corporation leases approximately 80% of the available
space of the property to one tenant under leases with remaining
terms of eleven years. For the year ended December 31, 1996,
such tenant represented approximately 71% of total revenue. The
tenant's principal business is accounting and financial
services.
TRANSACTIONS WITH AFFILIATES
Fees, commissions and other expenses required to be paid by
the Corporation to affiliates of JMB Realty Corporation as of
December 31, 1996 and for the years ended December 31, 1996,
1995 and 1994 are as follows:<PAGE>
<TABLE>
<CAPTION>
UNPAID AT
DECEMBER 31,
1996 1995 1994 1996
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Property management and
leasing fees . . . . . . . . . . . . . $ -- -- 181,452 --
Insurance commissions. . . . . . . . . . 4,101 6,083 6,687 --
Reimbursement (at cost)
for salary and salary - related
expenses related to the on-site
and other costs for the Partnership
and its investment property . . . . . . -- 278 4,083 --
------- ------- ------- --------
$ 4,101 6,361 192,222 --
======= ======= ======= ========
<FN>
/TABLE
<PAGE>
<TABLE> SCHEDULE III
1225 INVESTMENT CORPORATION
(A CORPORATION)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
COST CAPITALIZED
INITIAL COST TO SUBSEQUENT TO GROSS AMOUNT AT WHICH CARRIED
CORPORATION (A) TO ACQUISITION AT CLOSE OF PERIOD (B)
--------------------------- ------------------------ ---------------------------------------
BUILDINGS BUILDINGS PROVISION BUILDINGS
AND AND FOR VALUE AND
ENCUMBRANCE LAND IMPROVEMENTS IMPROVEMENTS IMPAIRMENT LAND IMPROVEMENTS TOTAL (D)
--------- ------- ------------ ------------ ----------- -------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE
BUILDING:
Washington,
D.C.. . . . .$7,000,000 24,161,484 32,522,877 5,948,746 (3,118,602) 22,958,445 36,556,060 59,514,505
========== ========== ========== ========== ========== ========== ========== ==========
/TABLE
<PAGE>
<TABLE> SCHEDULE III
1225 INVESTMENT CORPORATION
(A CORPORATION)
REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT OF 1996
ACCUMULATED DATE OF DATE OPERATION REAL ESTATE
DEPRECIATION(E) CONSTRUCTION ACQUIRED IS COMPUTED TAXES
---------------- ------------ ---------- --------------- -----------
<S> <C> <C> <C> <C> <C>
OFFICE
BUILDING:
Washington,
D.C.. . . . . . . . . . . . $7,514,505 1968 2/28/90 30 years 990,448
========== =======
<FN>
- ------------------
Notes:
(A) The initial cost to the Corporation represents the original purchase price of the
property, including amounts incurred subsequent to acquisition which were contemplated at the
time the property was acquired.
(B) The aggregate cost of real estate owned at December 31, 1996 for Federal income
tax purposes was $62,206,360.
(C) Reference is made to Notes to Consolidated Financial Statements of Carlyle Income Plus,
L.P. - II for a further description of the total provision for value impairment in the amount of
$6,548,956 recorded as of December 31, 1996.
/TABLE
<PAGE>
<TABLE> SCHEDULE III
1225 INVESTMENT CORPORATION
(A CORPORATION)
REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
(D) Reconciliation of real estate owned:
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period . . . . . . . . . $ 62,561,580 61,080,603 57,849,734
Additions during period. . . . . . . . . . . . . . 71,527 1,480,977 3,230,869
Provision for value impairment
allocable to property . . . . . . . . . . . . . . (3,118,602) -- --
----------- ----------- -----------
Balance at end of period . . . . . . . . . . . . $ 59,514,505 62,561,580 61,080,603
=========== =========== ===========
(E) Reconciliation of accumulated depreciation:
Balance at beginning of period . . . . . . . . . $ 6,233,093 4,945,337 3,800,898
Depreciation expense . . . . . . . . . . . . . . . 1,281,412 1,287,756 1,144,439
----------- ----------- -----------
Balance at end of period . . . . . . . . . . . . $ 7,514,505 6,233,093 4,945,337
=========== =========== ===========
/TABLE
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes of or disagreements with accountants
during fiscal years 1996 and 1995.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Corporate General Partner of the Partnership is JMB
Realty Corporation ("JMB"), a Delaware corporation,
substantially all of the outstanding stock of which is owned,
directly or indirectly, by certain of its officers, directors,
members of their families and their affiliates. JMB has
responsibility for all aspects of the Partnership's operations.
The Associate General Partner of the Partnership, AGPP
Associates, L.P., is an Illinois limited partnership with JMB as
the sole general partner which may, upon agreement with the
Corporate General Partner, from time to time participate in
managing Partnership properties, including approval of leasing
parameters, property management budgets and changes in
investment objectives based on changes in market conditions.
The Associate General Partner shall be directed by a majority in
interest of its limited partners (who are generally officers,
directors and affiliates of JMB or its affiliates) as to whether
to provide its approval (if applicable) with respect to the
management of real property (or any interest therein) of the
Partnership.
The Partnership is subject to certain conflicts of interest
arising out of its relationships with the General Partners and
their affiliates as well as the fact that the General Partners
and their affiliates are engaged in a range of real estate
activities. Certain services have been and may in the future be
provided to the Partnership or its investment properties by
affiliates of the General Partners, including property
management services and insurance brokerage services. In
general, such services are to be provided on terms no less
favorable to the Partnership than could be obtained from
independent third parties and are otherwise subject to
conditions and restrictions contained in the Partnership
Agreement. The Partnership Agreement permits the General
Partners and their affiliates to provide services to, and
otherwise deal and do business with, persons who may be engaged
in transactions with the Partnership, and permits the
Partnership to borrow from, purchase goods and services from,
and otherwise to do business with, persons doing business with
the General Partners or their affiliates. The General Partners
and their affiliates may be in competition with the Partnership
under certain circumstances, including, in certain geographical
markets, for tenants for properties and/or for the sale of
properties. Because the timing and amount of cash distributions
and profits and losses of the Partnership may be affected by
various determinations by the General Partners under the<PAGE>
Partnership Agreement, including whether and when to sell or
refinance a property, the establishment and maintenance of
reasonable reserves, the timing of expenditures and the
allocation of certain tax items under the Partnership Agreement,
the General Partners may have a conflict of interest with
respect to such determinations.
The names, positions held and length of service therein of
each director and the executive and certain other officers of
the Corporate General Partner are as follows:
SERVED IN
NAME OFFICE OFFICE SINCE
---- ------ ----------
Judd D. Malkin Chairman 5/03/71
Director 5/03/71
Chief Financial Officer 2/22/96
Neil G. Bluhm President 5/03/71
Director 5/03/71
Burton E. Glazov Director 7/01/71
Stuart C. Nathan Executive Vice President 5/08/79
Director 3/14/73
A. Lee Sacks Director 5/09/88
John G. Schreiber Director 3/14/73
H. Rigel Barber Executive Vice President 1/02/87
Chief Executive Officer 8/01/93
Glenn E. Emig Executive Vice President 1/01/93
Chief Operating Officer 1/01/95
Gary Nickele Executive Vice President
and 1/01/92
General Counsel 2/27/84
Gailen J. Hull Senior Vice President 6/01/88
Howard Kogen Senior Vice President 1/02/86
Treasurer 1/01/91
There is no family relationship among any of the foregoing
directors or officers. The foregoing directors have been
elected to serve a one-year term until the annual meeting of the
Corporate General Partner to be held on June 7, 1997. All of
the foregoing officers have been elected to serve one-year terms
until the first meeting of the Board of Directors held after the
annual meeting of the Corporate General Partner to be held on
June 7, 1997. There are no arrangements or understandings
between or among any of said directors or officers and any other
person pursuant to which any director or officer was elected as
such.
JMB is the corporate general partner of Carlyle Real Estate
Limited Partnership-VII ("Carlyle-VII"), Carlyle Real Estate
Limited Partnership-IX ("Carlyle-IX"), Carlyle Real Estate
Limited Partnership-XI ("Carlyle-XI"), Carlyle Real Estate
Limited Partnership-XII ("Carlyle-XII"), Carlyle Real Estate
Limited Partnership-XIII ("Carlyle-XIII"), Carlyle Real Estate
Limited Partnership-XIV ("Carlyle-XIV"), Carlyle Real Estate
Limited Partnership-XV ("Carlyle-XV"), Carlyle Real Estate
Limited Partnership-XVI ("Carlyle-XVI"), Carlyle Real Estate
Limited Partnership-XVII ("Carlyle-XVII"), JMB Mortgage
Partners, Ltd.-III ("Mortgage Partners-III"), JMB Mortgage<PAGE>
Partners, Ltd.-IV ("Mortgage Partners-IV"), Carlyle Income
Plus, Ltd. ("Carlyle Income Plus") and the managing general
partner of JMB Income Properties, Ltd.-IV ("JMB Income-IV"), JMB
Income Properties, Ltd.-V ("JMB Income-V"), JMB Income
Properties, Ltd.-VI ("JMB Income-VI"), JMB Income Properties,
Ltd.-VII ("JMB Income-VII"), JMB Income Properties, Ltd.-X ("JMB
Income-X"), JMB Income Properties, Ltd.-XI ("JMB Income-XI"),
JMB Income Properties, Ltd.-XII ("JMB Income-XII"), and JMB
Income Properties Ltd.-XIII ("JMB Income-XIII"). Most of the
foregoing directors and officers are also officers and/or
directors of various affiliated companies of JMB including
Arvida/JMB Managers, Inc. (the general partner of Arvida/JMB
Partners, L.P. ("Arvida")), Arvida/JMB Managers-II, Inc. (the
general partner of Arvida/JMB Partners, L.P.-II ("Arvida-II")
and Income Growth Managers, Inc. (the corporate general partner
of IDS/JMB Balanced Income Growth, Ltd. ("IDS/BIG")). Most of
such directors and officers are also partners of certain
partnerships which are associate general partners in the
following real estate limited partnerships: Carlyle-VII,
Carlyle-IX, Carlyle-XI, Carlyle-XII, Carlyle-XIII, Carlyle-XIV,
Carlyle-XV, Carlyle-XVI, Carlyle-XVII, JMB Income-VI, JMB
Income-VII, JMB Income-X, JMB Income-XI, JMB Income-XII, JMB
Income-XIII, Mortgage Partners-III, Mortgage Partners-IV,
Carlyle Income Plus and IDS/BIG.
The business experience during the past five years of each
such director and officer of the Corporate General Partner of
the Partnership in addition to that described above is as
follows:
Judd D. Malkin (age 59) is an individual general partner of
JMB Income-IV and JMB Income-V. Mr. Malkin has been associated
with JMB since October, 1969. Mr. Malkin is a director of Urban
Shopping Centers, Inc. ("USC, Inc."), an affiliate of JMB that
is a real estate investment trust in the business of owning,
managing and developing shopping centers. He is a Certified
Public Accountant.
Neil G. Bluhm (age 59) is an individual general partner of
JMB Income-IV and JMB Income-V. Mr. Bluhm has been associated
with JMB since August, 1970. Mr. Bluhm is a director of USC,
Inc. He is a member of the Bar of the State of Illinois and a
Certified Public Accountant.
Burton E. Glazov (age 58) has been associated with JMB
since June, 1971 and served as an Executive Vice President of
JMB until December of 1990. He is a member of the Bar of the
State of Illinois and a Certified Public Accountant.
Stuart C. Nathan (age 55) has been associated with JMB
since July, 1972. Mr. Nathan is also a director of Sportmart,
Inc., a retailer of sporting goods. He is a member of the Bar
of the State of Illinois.
<PAGE>
A. Lee Sacks (age 63) (President and Director of JMB
Insurance Agency, Inc.) has been associated with JMB since
December, 1972.
John G. Schreiber (age 50) has been associated with JMB
since December, 1970 and served as an Executive Vice President
of JMB until December 1990. Mr. Schreiber is a director of
Urban Shopping Centers, Inc., an affiliate of JMB that is real
estate investment trust in the business of owning, managing and
developing shopping centers. He is also a director of a number
of investment companies advised or managed by T. Rowe Price
Associates and its affiliates. Mr. Schreiber is President of
Schreiber Investments, Inc., a company which is engaged in the
real estate investing business. He is also a senior advisor and
partner of Blackstone Real Estate Partners, an affiliate of the
Blackstone Group, L.P. Since 1994, Mr. Schreiber has also
served as a Trustee of Amli Residential Property Trust, a
publicly-traded real estate investment trust that invests in
multi-family properties. He holds a Masters degree in Business
Administration from Harvard University Graduate School of
Business.
H. Rigel Barber (age 47) has been associated with JMB since
March, 1982. He holds a J.D. degree from the Northwestern Law
School and is a member of the Bar of the State of Illinois.
Glenn E. Emig (age 49) has been associated with JMB since
December, 1979. Prior to becoming Executive Vice President of
JMB in 1993, Mr. Emig was Executive Vice President and Treasurer
of JMB Institutional Realty Corporation. He holds a Masters
degree in Business Administration from the Harvard University
Graduate School of Business and is a Certified Public
Accountant.
Gary Nickele (age 44) has been associated with JMB since
February, 1984. He holds a J.D. degree from the University of
Michigan Law School and is a member of the Bar of the State of
Illinois.
Gailen J. Hull (age 48) has been associated with JMB since
March, 1982. He holds a Masters degree in Business
Administration from Northern Illinois University and is a
Certified Public Accountant.
Howard Kogen (age 61) has been associated with JMB since
March, 1973. He is a Certified Public Accountant.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The General Partners are entitled to receive a share of
cash distributions, when and as cash distributions are made to
the Limited Partners, and a share of profits or losses.
Reference is also made to the Notes for a description of such
distributions and allocations. In 1996, 1995 and 1994, the
General Partners received distributions of $135,304, $189,426,
and $108,243 respectively. The General Partners received a
share of Partnership earnings for tax purposes aggregating
$92,695 in 1996.
The Partnership, pursuant to the Partnership Agreement is
permitted to engage in various transactions involving the
Corporate General Partner and its affiliates including the
reimbursement for salaries and salary related expenses of its
employees, certain of its officers, and other direct expenses
relating to the administration of the Partnership and the
operation of the Partnership's investments. The relationship of
the Corporate General Partner (and its directors and officers)
to its affiliates is set forth in Item 10 above.
JMB Insurance Agency, Inc., and affiliate of the Corporate
General Partner, earned and received insurance brokerage
commissions in 1996 aggregating $4,071 in connection with
providing insurance coverage for certain of the real property
investments of the Partnership. Such commissions are at rates
set by insurance companies for the classes of coverage provided.
The Corporate General Partner and its affiliates were due
reimbursement (at cost) in 1996 for accounting services,
portfolio management services, legal services and for
administrative charges and other out-of-pocket expenses of
$5,139, $13,311, $2,392 and $787, respectively, of which $5,388
was unpaid at December 31, 1996.
All amounts payable to the General Partners and their
affiliates do not bear interest and are expected to be paid in
future periods.
<PAGE>
<TABLE>
<CAPTION>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) No person or group is known by the Partnership to own beneficially more than 5% of the outstanding Interests
of the Partnership.
(b) The Corporate General Partner, its officers and directors and the Associate General Partner own the following
Interests of the Partnership:
NAME OF AMOUNT AND NATURE
BENEFICIAL OF BENEFICIAL PERCENT
TITLE OF CLASS OWNER OWNERSHIP OF CLASS
- -------------- ---------- ----------------- --------
<S> <C> <C> <C>
Limited Partnership JMB Realty 5 Interests (1) Less than 1%
Interests Corporation indirectly
Limited Partnership General Partners 5 Interests (1) Less than 1%
Interests (and their officers, indirectly
directors and
partners)
<FN>
(1) Includes 5 Interests owned by the Initial Limited Partner of the Partnership, for which JMB Realty Corporation
as the indirect majority shareholder of the Initial Limited Partner is deemed to have the investment and voting power.
No officer or director of the Corporate General Partner of the Partnership possesses a right to acquire beneficial
ownership of Interests of the Partnership.
All of the outstanding shares of the Corporate General Partner of the Partnership are owned by certain officers and
directors (and members of their families) of JMB Realty Corporation, the Corporate General Partner, as set forth above
in Item 10.
(c) There exists no arrangement, known to the Partnership, the operation of which may at a subsequent date result
in a change in control of the Partnership.
/TABLE
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no significant transactions or business
relationships with the General Partners, affiliates or their
management other than those described in Items 10 and 11 above.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements (See Index to Financial
Statements filed with this annual report).
(2) Exhibits.
3. The Prospectus of the Partnership dated May
24, 1988, as supplemented August 19, 1988,
April 28, 1989, December 22, 1989, February
28, 1990, and June 5, 1990 as filed with the
Commission pursuant to Rules 424(b) and
424(c), is hereby incorporated herein by
reference to the Partnership's report for
December 31, 1993 on Form 10-K (File No. 0-
17705) dated March 25, 1994.
3.1. Agreement of Limited Partnership is set forth
as Exhibit A of the Partnership's Prospectus,
which is incorporated herein by reference to
the Partnership's Registration Statement on
Form S-11 (File No. 33-19463) dated May 24,
1988.
4.1. Assignment Agreement is hereby incorporated by
reference to Exhibit B of the Partnership's
Prospectus, which is hereby incorporated
herein by reference to Exhibit 4.1 of the
Partnership's report for December 31, 1993 on
Form 10-K (File No. 0-17705) dated March 25,
1994.
10.1. Escrow Deposit Agreement is hereby incorpor-
ated by reference to the Partnership's Pre-
Effective Amendment No. 2 to the Form S-11
(File No. 33-19463) Registration Statement of
the Partnership dated May 16, 1988.
10.2. Purchase Agreement dated as of August 16,
1988, by and among Sembler Family Partnership
#5, Ltd., University Retail Associates, Ltd.
and JMB/Landings Associates and letter
agreement with respect thereto, is hereby<PAGE>
incorporated herein by reference to Post-
Effective Amendment No. 1 to the Form S-11
(File No. 33-19463) Registration Statement of
the Partnership dated August 26, 1988.
10.3. Agreement for Operation and Management of
Shopping Center dated as of August 16, 1988,
by and between JMB/Landings Associates and The
Sembler Company, is hereby incorporated herein
by reference to Post-Effective Amendment No.
1 to the Form S-11 (File No. 33-19463)
Registration Statement of the Partnership
dated August 26, 1988.
10.4. Agreement Respecting Letters of Credit dated
as of August 16, 1988, by and among Sembler
Family Partnership #5, Ltd., University Retail
Associates, Ltd. and JMB/Landings Associates,
hereby incorporated herein by reference to
Post-Effective Amendment No. 1 to the Form S-
11 (File No. 33-19463) Registration Statement
of the Partnership dated August 26, 1988.
10.5. Guaranty dated as of August 16, 1988, by and
among Melvin F. Sembler, Betty S. Sembler, M.
Steven Sembler, Brent W. Sembler, Gregory S.
Sembler, Craig H. Sher, Thomas G. Dabney, II
and JMB/Landings Associates, hereby
incorporated herein by reference to Post-
Effective Amendment No. 1 to the Form S-11
(File No. 33-19463) Registration Statement of
the Partnership dated August 26, 1988.
10.6. Agreement of Partnership of JMB/Landings
Associates dated July 14, 1988, by and between
Carlyle Income Plus, Ltd. and the Partnership,
hereby incorporated herein by reference to
Post-Effective Amendment No. 2 to the Form S-
11 (File No. 33-19463) Registration Statement
of the Partnership dated September 28, 1988.
10.7. Acquisition documents relating to the purchase
by the Partnership of a portion of the common
stock in 1225 Investment Corporation which
owns 1225 Connecticut Avenue in Washington,
D.C. is hereby incorporated by reference to
the Partnership's prospectus on Form S-11
(File No. (33-19463)) dated June 5, 1990 as
amended.
10.8 Closing statement date January 28, 1994
relating to the refinancing by 1225 Investment
Corporation which owns 1225 Connecticut Avenue
in Washington, D.C., is hereby incorporated
herein by reference to the Partnership's
report for March 31, 1994 on Form 10-Q (File
No. 0-17705) dated May 11, 1994.
<PAGE>
10.9 Secured promissory note dated January 28,
1994 in the amount of $6,500,000 relating to
the refinancing by 1225 Investment Corporation
which owns 1225 Connecticut Avenue in
Washington, D.C., is hereby incorporated
herein by reference to the Partnership's
report for March 31, 1994 on Form 10-Q (File
No. 0-17705) dated May 11, 1994.
10.10. Secured promissory note dated January 28,
1994 in the amount of $500,000 relating to the
refinancing by 1225 Investment Corporation
which owns 1225 Connecticut Avenue in
Washington, D.C., is hereby incorporated
herein by reference to the Partnership's
report for March 31, 1994 on Form 10-Q (File
No. 0-17705) dated May 11, 1994.
10.11 Real Property Purchase Agreement between
CIP/Ashby Partners and WRIT Limited
Partnership dated July 19, 1996 relating to
the sale by the Partnership (through the
CIP/Ashby joint venture) of the Ashby at
Mclean Apartments is hereby incorporated
herein by reference to the Partnership's
report for August 26, 1996 on Form 8-K (File
No. 0-17705) dated September 6, 1996.
21. List of Subsidiaries.
24. Powers of Attorney.
27. Financial Data Schedule
(b) No Reports on Form 8-K were required or filed since the
beginning of the last quarter of the period covered by
this report.
No annual report or proxy material for the fiscal year 1996
has been sent to the Partners of the Partnership. An annual
report will be sent to the Partners subsequent to this filing.<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Act of 1934, the Partnership has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CARLYLE INCOME PLUS, L.P. - II
By: JMB Realty Corporation
Corporate General Partner
By: Gailen J. Hull
Senior Vice President
Date: March 21, 1997
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.
By: JMB Realty Corporation
Corporate General Partner
JUDD D. MALKIN*
By: Judd D. Malkin, Chairman and
Chief Financial Officer
Date: March 21, 1997
NEIL G. BLUHM*
By: Neil G. Bluhm, President and Director
Date: March 21, 1997
H. RIGEL BARBER*
By: H. Rigel Barber, Chief Executive Officer
Date: March 21, 1997
GLENN E. EMIG*
By: Glenn E. Emig
Chief Operating Officer
Date: March 21, 1997
By: Gailen J. Hull, Senior Vice President
Principal Accounting Officer
Date: March 21, 1997
A. LEE SACKS*
By: A. Lee Sacks, Director
Date: March 21, 1997
<PAGE>
STUART C. NATHAN*
By: Stuart C. Nathan, Executive Vice President
and Director
Date: March 21, 1997
*By: GAILEN J. HULL, Pursuant to a Power of
Attorney
By: Gailen J. Hull, Attorney-in-Fact
Date: March 21, 1997<PAGE>
CARLYLE INCOME PLUS, L.P. - II
EXHIBIT INDEX
DOCUMENT
INCORPORATED
BY REFERENCE PAGE
------------ ----
3. Certain pages of the Prospectus Yes
of the Partnership dated May 24,
1988, as supplemented August 19, 1988,
April 28, 1989, December 22, 1989,
February 28, 1990 and June 5, 1990.
3.1. Amended and Restated Agreement Yes
of Limited Partnership,
incorporated by reference to
Exhibit A of the Partnership's
Prospectus
4.1. Assignment Agreement, incorporated Yes
by reference to Exhibit B to the
Partnership's Prospectus
10.1.- Material Contracts Yes
10.11.
21. List of Subsidiaries No
24. Powers of Attorney No
27. Financial Data Schedule No
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
The Partnership is a joint venture partner in JMB/Landings
Associates, a general partnership which holds title to The Landings
Shopping Center, located in Sarasota, Florida.
The Partnership is a joint venture partner in CIP/Ashby
Partners, a general partnership which held title to The Ashby at
McLean Apartments, located in McLean, Virginia.
The Partnership is a stockholder in the 1225 Investment
Corporation, a corporation which holds title to the 1225
Connecticut Avenue, N.W. Office Building located in Washington,
D.C.
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers
of JMB Realty Corporation, the corporate general partner of CARLYLE
INCOME PLUS, LTD. - II, do hereby nominate, constitute and appoint
GARY NICKELE, GAILEN J. HULL, DENNIS M. QUINN or any of them,
attorneys and agents of the undersigned with full power of
authority to sign in the name and on behalf of the undersigned
officers a Report on Form 10-K of said partnership for the fiscal
year ended December 31, 1996, and any and all amendments thereto,
hereby ratifying and confirming all that said attorneys and agents
and any of them may do by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power
of Attorney the 22nd day of January, 1997.
H. RIGEL BARBER
- -----------------------
H. Rigel Barber Chief Executive
Officer
GLENN E. EMIG
- -----------------------
Glenn E. Emig Chief Operating Officer
The undersigned hereby acknowledge and accept such power of
authority to sign, in the name and on behalf of the above named
officers, a Report on Form 10-K of said partnership for the fiscal
year ended December 31, 1996, and any and all amendments thereto,
the 22nd day of January, 1997.
GARY NICKELE
-----------------------
Gary Nickele
GAILEN J. HULL
-----------------------
Gailen J. Hull
DENNIS M. QUINN
-----------------------
Dennis M. Quinn
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
officers and/or directors of JMB Realty Corporation, the
corporate general partner of CARLYLE INCOME PLUS, LTD. - II,
do hereby nominate, constitute and appoint GARY NICKELE,
GAILEN J. HULL, DENNIS M. QUINN or any of them, attorneys and
agents of the undersigned with full power of authority to sign
in the name and on behalf of the undersigned officers a Report
on Form 10-K of said partnership for the fiscal year ended
December 31, 1996, and any and all amendments thereto, hereby
ratifying and confirming all that said attorneys and agents
and any of them may do by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this
Power of Attorney the 22nd day of January, 1997.
NEIL G. BLUHM
- ----------------------- President and Director
Neil G. Bluhm
JUDD D. MALKIN
- ----------------------- Chairman and Chief Financial
Officer
Judd D. Malkin
A. LEE SACKS
- ----------------------- Director of General Partner
A. Lee Sacks
STUART C. NATHAN
- ----------------------- Executive Vice President
Stuart C. Nathan Director of General Partner
A. Lee Sacks
The undersigned hereby acknowledge and accept such power
of authority to sign, in the name and on behalf of the above
named officers and/or directors, a Report on Form 10-K of said
partnership for the fiscal year ended December 31, 1996, and
any and all amendments thereto, the 22nd day of January, 1997.
GARY NICKELE
-----------------------
Gary Nickele
GAILEN J. HULL
-----------------------
Gailen J. Hull
DENNIS M. QUINN
-----------------------
Dennis M. Quinn<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE REGISTRANT'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS INCLUDED IN SUCH REPORT.
</LEGEND>
<CIK> 0000827086
<NAME> CARLYLE INCOME PLUS, L.P. - II
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,933,927
<SECURITIES> 0
<RECEIVABLES> 25,348
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,959,275
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,511,534
<CURRENT-LIABILITIES> 77,246
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 28,392,378
<TOTAL-LIABILITY-AND-EQUITY> 28,511,534
<SALES> 2,377,068
<TOTAL-REVENUES> 2,885,863
<CGS> 0
<TOTAL-COSTS> 1,334,670
<OTHER-EXPENSES> 321,554
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,229,639
<INCOME-TAX> 0
<INCOME-CONTINUING> (658,715)
<DISCONTINUED> 2,524,162
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,865,447
<EPS-PRIMARY> 29.14
<EPS-DILUTED> 29.14
<PAGE>
</TABLE>
