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, 1998.
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
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, 1998 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
AND ASSIGNEE INTERESTS THEREIN
(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 . . . . . . . . . . . . . . . . . . . 3
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . 5
Item 4. Submission of Matters to a
Vote of Security Holders . . . . . . . . . . . . 5
PART II
Item 5. Market for the Partnership's Limited
Partnership Interests and
Related Security Holder Matters. . . . . . . . . 5
Item 6. Selected Financial Data. . . . . . . . . . . . . 6
Item 7. Management's Discussion and
Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . 10
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk. . . . . . . . . . . . . . . . 14
Item 8. Financial Statements and
Supplementary Data . . . . . . . . . . . . . . . 15
Item 9. Changes in and Disagreements
with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . 54
PART III
Item 10. Directors and Executive Officers
of the Partnership . . . . . . . . . . . . . . . 54
Item 11. Executive Compensation . . . . . . . . . . . . . 57
Item 12. Security Ownership of Certain
Beneficial Owners and Management . . . . . . . . 58
Item 13. Certain Relationships and
Related Transactions . . . . . . . . . . . . . . 59
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. . . . . . . . . . . . . 59
PART IV
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 62
i<PAGE>
PART I
ITEM 1. BUSINESS
Unless otherwise indicated, all references herein to "Notes" are to
Notes to Consolidated Financial Statements contained in this annual 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 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 $1,000 per Interest (fractional interests are
due to a Distribution Reinvestment Program) were sold 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 last remaining real property
investment is located in Washington, D.C. 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. Upon the sale of
a particular property, the net proceeds, if any, are held for working
capital, 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 and wind up its affairs not later than
December 31, 1999, barring any unforeseen economic developments.
The Partnership made real property investments set forth in the
following table:<PAGE>
<TABLE>
<CAPTION>
SALE OR DISPOSITION
DATE, OR IF OWNED
AT DECEMBER 31, 1998
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 12-30-97 fee ownership of land
sq ft. and improvements
n.r.a. (through a joint venture
partnership) (b) (e)
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)
(c)(d)
<FN>
- ----------
(a) The computation of this percentage for the remaining property held at December 31, 1998 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 had 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.
(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>
The Partnership's last remaining real property investment is subject to
competition from similar types of properties in the vicinity in which it is
located. Such competition is generally for the retention of existing
tenants. Additionally, the Partnership is in competition for new tenants.
Reference is made to Item 7 below for a discussion of competitive conditions
and future renovation and capital improvement plans of the Corporation which
holds the Partnership's last remaining investment property. Approximate
occupancy levels for the property 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 property in its market 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, the investment
property held at December 31, 1998 is adequately insured.
The Partnership has no employees.
The terms of transactions between the Partnership, the General Partners
of the Partnership and their affiliates are set forth in Items 10 and 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 such properties.
The following is a listing of principal businesses or occupations
carried on in and approximate occupancy levels by quarter during fiscal years
1998 and 1997 for the Partnership's remaining investment property owned
during 1998:
<PAGE>
<TABLE>
<CAPTION>
1997 1998
------------------------ ---------------------
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. 1225 Connecticut
Avenue, N.W. Office
Building. . . . . . . . . .
Washington, D.C.. . . . . . Public 100% 100% 95% 95% 95% 100% 98.5% 98.5%
Accounting/
Financial Services
<FN>
- ----------
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 last remaining investment property.
/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
1997 and 1998.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS AND
RELATED SECURITY HOLDER MATTERS
As of December 31, 1998, there were 6,584 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
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.
Reference is made to Item 7 for a discussion of unsolicited tender
offers received from unaffiliated third parties.<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
CARLYLE INCOME PLUS, L.P. - II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
YEARS ENDED DECEMBER 31, 1998, 1997, 1996, 1995 AND 1994
(NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
<CAPTION>
1998 1997 1996 1995 1994
------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total income . . . . . . .$ 102,972 190,289 2,885,863 3,498,456 3,366,928
============ ============ ============ ============ ============
Earnings
(loss)before gains. . . .
on sales of investment
properties . . . . . . . 1,252,220 2,315,269 (658,715) 636,648 (3,276,416)
Gain on sale of investment
property, net of
venture partner's
share . . . . . . . . . . -- -- 2,524,162 -- --
Partnership's share of
gain on sale of
investment property
by unconsolidated
venture . . . . . . . . . -- 969,419 -- -- --
------------- ------------- ------------- ------------- -------------
Net earnings (loss). . . . $ 1,252,220 3,284,688 1,865,447 636,648 (3,276,416)
============= ============ ============ ============= =============
Net earnings (loss)
per Interest (b):
Earnings
(loss)before gains
on sales of
investment
properties. . . . . . . $ 16.06 34.22 (9.74) 9.41 (48.43)
<PAGE>
Gain on sale of
investment property,
net of venture
partner's share . . . . -- -- 38.88 -- --
Partnership's share of
gain on sale of
investment property
by unconsolidated
venture . . . . . . . . . -- 14.93 -- -- --
------------ ------------ ------------ ------------ ----------
$ 16.06 49.15 29.14 9.41 (48.43)
============ ============ ============ ============ ============
Total assets . . . . . . . $ 21,406,362 29,020,192 28,511,534 49,373,424 52,629,847
============ ============ ============ ============ ============
Cash distributions
per Interest
(c) . . . . . . . . . . . $ 134.00 40.00 265.00 56.00 32.00
============ ============ ============ ============ ============
<FN>
- -------------
(a) The above selected 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 each
period (64,269.53) and the specified profit and loss allocations (as discussed in the Notes) between the
Limited and General Partners.
(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 (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, 1998
<CAPTION>
Property
- --------
<S> <C>
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>
1994. . . . . . . . 100% 33.49
1995. . . . . . . . 100% 32.98
1996. . . . . . . . 100% 30.84
1997. . . . . . . . 95% 35.34
1998. . . . . . . . 98.5% 33.94
<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 177,242 $5,869,000 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 1998
December 31, Leases (1) Expiring of Expiring Base Rent
Leases (1) Leases Expiring
------------ ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
1999 -- -- -- --
2000 2 17,384 649,000 9.4%
2001 1 3,026 115,000 1.7%
2002 -- -- -- --
2003 -- -- -- --
2004 -- -- -- --
2005 1 5,263 233,000 3.4%
2006 -- -- -- --
2007 9 177,242 5,869,000 85.2%
2008 -- -- -- --
<FN>
(1) Excludes leases that expire in 1999 for which renewal leases or leases
with replacement tenants have been executed as of March 22, 1999.
/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 of Interests as described in Item 1,
the Partnership had approximately $55,256,000( 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 for
working capital requirements. A portion of such 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. 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.
During 1997 and early 1998, other unaffiliated third parties made
unsolicited tender offers to some of the holders of Interests. These offers
each sought to purchase up to 4.9% of the Interests in the Partnership at
amounts between $304 and $325 per Interest. Certain of these unaffiliated
third parties made additional unsolicited tender offers to some of the
holders of Interests in May and October, 1998. These offers each sought to
purchase up to 4.9% of the Interests in the Partnership at amounts between
$150 and $215 per Interest. In early 1999, 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 at
$170 per Interest. All of the above offers have expired except for the offer
made in 1999, which expires March 31, 1999. The Special Committee
recommended against acceptance of these offers on the basis that, among other
things, the offer prices were inadequate. As of the date of this report, the
Partnership is aware that 5.74% of the outstanding Interests have been
purchased by all such unaffiliated third parties either pursuant to such
tender offers or through negotiated purchases.
At December 31, 1998, the Partnership had cash and cash equivalents of
approximately $1,195,000. After receiving its share of the proceeds from the
<PAGE>
December 1997 sale of the Landings Shopping Center from the JMB/Landings
venture in January 1998, the Partnership distributed approximately $7,327,000
to the Limited Partners ($114 per Interest) in February 1998, which included
$69 per Interest from the proceeds of the December 1997 sale of the Landings
Shopping Center and $45 per Interest from Partnership operational cash flow
and reserves, including those from offering proceeds. The Partnership also
made a distribution of $152,217 to the General Partners in February 1998,
which represented their share of Partnership operational cash flow and
reserves, including those from offering proceeds. Distributions of
approximately $643,000 ($10 per Interest) were made to the Limited Partners
in both May 1998 and November 1998 from Partnership operational cash flow and
reserves, including those from offering proceeds. The Partnership also made
a distribution of $33,826 to the General Partners in both May 1998 and
November 1998, which represented their share of Partnership operational cash
flow and reserves, including those from offering proceeds. The General
Partners are currently deferring their share of any distributions of proceeds
from sales, as the subordination requirements of the Partnership Agreement
for the retention of sales proceeds by the General partners are currently not
expected to be met. Remaining funds are available for contributions to its
remaining investment property, distributions to partners and for other
working capital requirements. The Partnership's share of currently budgeted
tenant improvements and other capital expenditures for its unconsolidated
corporation in 1999 is currently budgeted to be approximately $20,000.
Actual amounts expended in 1999 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 remaining investment property and from
the sale of such investment. In such regard, reference is made to the
Partnership's property specific discussion 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
In August, 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 and prorations). 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's occupancy was 98.5% at December 31, 1998, up from
95% at December 31, 1997. The remaining vacancy is the result of the
vacating of a tenant which occupied approximately 3,000 square feet and whose
lease is scheduled to expire in August, 2001. The tenant continues to pay
rent on its vacated space. Ernst & Young currently occupies approximately
87% of the property's leasable space.
The 1225 Investment Corporation began marketing the 1225 Connecticut
Ave. office building for sale during the second quarter of 1998.
In March 1999, the 1225 Investment Corporation executed an agreement
with a potential purchaser for the sale of the 1225 Connecticut Avenue,N.W.
office building for a sale price of $52,960,000, payable in cash at closing
(before selling costs and prorations). The sale of the property is subject
to the closing of the transaction including satisfaction of certain closing
conditions. There can be no assurance that the final sale agreement will not
differ in various respects from the present agreement or that the sale of the
property will be consummated on any terms with this purchaser or any other
purchaser in the near term. If the sale is consummated under the proposed
terms of the agreement, the 1225 Investment Corporation would not recognize
any significant gain or loss on sale for financial reporting purposes,
primarily as a result of value impairment provisions totaling $7,765,956
recorded by the 1225 Investment Corporation in 1996 and 1998 (of which the
Partnership's share was $3,381,297). Additionally, the 1225 Investment
Corporation would expect to recognize a loss on sale in 1999 for Federal
income tax purposes of approximately $1,900,000 (of which the Partnership's
share would be approximately $827,000).
LANDINGS SHOPPING CENTER
On December 30, 1997, the JMB/Landings joint venture sold the land and
related improvements of the Landings Shopping Center. The sale price was
$9,700,000 (before selling costs and prorations). Reference is made to the
Notes for a further description of the sale.
General
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 remaining property 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 remaining property and marketplace in which it operates, the
General Partners of the Partnership currently expect to be able to conduct an
orderly liquidation of its remaining investment portfolio and wind up its
affairs not later than December 31, 1999, barring any unforeseen economic
developments.
Although the Partnership expects to distribute sale proceeds from the
disposition of the Partnership's remaining investment property, aggregate
distributions from sale proceeds received by the Limited Partners over the
entire term of the Partnership are expected to be less than their original
investment. Accordingly, as the subordination requirements of the
Partnership Agreement for the retention of sales proceeds by the General
Partners are not expected to be met, the General Partners are currently
deferring their share of distributable sale proceeds.
RESULTS OF OPERATIONS
Reference is made to the Notes for additional information concerning
the Partnership's real estate investments.
At December 31, 1998, the Partnership owned, through an investment in
an unconsolidated corporation, an interest in one operating investment
property.
The decrease in cash and cash equivalents at December 31, 1998 as
compared to December 31, 1997 is due primarily to distributions of
approximately $7,327,000 ($114 per Interest) made to the holders of Interest
in February 1998, which included $69 per Interest from the distributions
received in 1998 from JMB/Landings relating to the December 1997 sale of the
Landings Shopping Center and $45 per Interest from Partnership operational
cash flow and reserves, including those from offering proceeds. The
Partnership also made a distribution of $152,217 to the General Partners in
February 1998, which represented their share of Partnership operational cash
flow and reserves, including those from offering proceeds. An additional
decrease in cash and cash equivalents is due to distributions of
approximately $643,000 ($10 per Interest) made to the Limited Partners in
both May 1998 and November 1998 from operational cash flow and reserves,
including those from offering proceeds. The Partnership also made a
distribution of $33,826 to the General Partners in both May 1998 and November
1998, which represented their share of Partnership operational cash flow and
reserves, including those offering proceeds. The General Partners are
currently deferring their share of any distributions of proceeds from sales,
as the subordination requirements of the Partnership Agreement for the
retention of sales proceeds by the General Partners are currently not
expected to be met. The above decreases in cash and cash equivalents at
December 31, 1997 were partly offset by the Partnership's receipt of
approximately $1,806,000 of dividends from 1225 Investment Corporation in
1998.
The decrease in investment in unconsolidated venture, at equity at
December 31, 1998 as compared to December 31, 1997 is due primarily to
distributions totaling approximately $5,438,000 received by the Partnership
from the JMB/Landings venture in 1998, a substantial portion of which
represented the Partnership's share of the proceeds from the December 1997
sale of the Landings Shopping Center.
The decrease in rental income, property operating expenses,
depreciation expense and venture partner's share of consolidated venture's
operations for the years ended December 31, 1998 and 1997 as compared to the
year ended December 31, 1996 is due primarily to the August, 1996 sale of The
Ashby at McLean Apartments.
The decrease in interest income for the year ended December 31, 1998 as
compared to the year ended December 31, 1997 is due primarily to smaller
average outstanding balances in the Partnership's interest-bearing cash and
cash equivalents in 1998. The decrease in interest income for the year ended
December 31, 1997 as compared to the year ended December 31, 1996 is due
primarily to CIP/Ashby's temporary investment in 1996 of the proceeds of the
August 1996 sale of The Ashby at McLean Apartments.
The provision for value impairment of $241,000 in 1998 is due to the
Partnership's reduction of the net carrying value of its investment in its
unconsolidated affiliated corporation, 1225 Investment Corporation, as of
December 31, 1998.
The decrease in Partnership's share of operations of unconsolidated
affiliated corporation for the year ended December 31, 1998 as compared to
the year ended December 31, 1997 is attributable primarily to the
Partnership's share ($529,882) of the total provision for value impairment
of $1,217,000 recorded by the 1225 Investment Corporation at December 31,
1998. The increase in Partnership's share of operations of unconsolidated
affiliated corporation for the year ended December 31, 1997 as compared to
the year ended December 31, 1996 is attributable primarily to the
Partnership's share ($2,851,415) of the total provision for value impairment
of $6,548,956 recorded by the 1225 Investment Corporation at December 31,
1996. An additional increase in Partnership's share of operations of
unconsolidated affiliated corporation in 1997 is attributable primarily to
the suspension of depreciation, effective January 1, 1997, on the 1225
Connecticut Avenue, N.W. office building, as the property was classified as
held for sale as of December 31, 1996, and to the recognition of higher
effective rents at the property in 1997.
The decrease in Partnership's share of operations of unconsolidated
venture for the year ended December 31, 1998 as compared to the year ended
December 31, 1997 is due primarily to the December 1997 sale of the Landings
Shopping Center by the JMB/Landings venture.
The gain on sale of investment property in 1996 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 the operations of the
Partnership.
Inflation is not expected to significantly impact future operations due
to the expected liquidation of the Partnership by the end of 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 property have escalation clauses covering increases
in the cost of operating and maintaining the property as well as real estate
taxes. Therefore, there should be little effect on operating earnings if the
property remains substantially occupied.
YEAR 2000
The Corporate General Partner has determined that it does not expect
that the consequences of the Partnership's Year 2000 issues would have a
material effect on the Partnership's business, results of operations or
financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership has identified interest rate changes as a potential
market risk. However, as the long-term debt of 1225 Investment Corporation
(the unconsolidated affiliated corporation in which the Partnership has an
equity investment) bears interest at a fixed rate and is due to mature
subsequent to the Partnership's expected liquidation and termination date (on
or before December 31, 1999), the Partnership does not believe that it is
exposed to market risk relating to interest rate changes.
<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, 1998 and 1997
Consolidated Statements of Operations, years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Partners'
Capital Accounts (Deficits),
years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows, years ended
December 31, 1998, 1997 and 1996
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, 1998 and 1997
Statements of Operations, years ended December 31,
1998, 1997 and 1996
Statements of Changes in Shareholders' Equity, years
ended December 31, 1998, 1997 and 1996
Statements of Cash Flows, years ended December 31,
1998, 1997 and 1996
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, 1998 and
1997, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1998, in conformity
with generally accepted accounting principles.
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 LLP
Chicago, Illinois
March 5, 1999<PAGE>
<TABLE>
CARLYLE INCOME PLUS, L.P. - II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
------
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 1,194,778 2,980,988
Interest, rents and other receivables. . . . . . . . . . . . . . . . . . 4,289 12,906
------------ -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 1,199,067 2,993,894
------------ -----------
Investment in unconsolidated affiliated corporation,
at equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,207,295 20,602,580
Investment in unconsolidated venture,
at equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 5,423,718
------------ -----------
$ 21,406,362 29,020,192
============ ===========
<PAGE>
CARLYLE INCOME PLUS, L.P. - II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICITS)
-----------------------------------------------------
1998 1997
------------ -----------
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,688 31,761
Amounts due to affiliates . . . . . . . . . . . . . . . . . . . . . . . 9,459 17,451
------------ -----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . 15,147 49,212
------------ -----------
Commitments and contingencies
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . 15,147 49,212
------------ -----------
Partners' capital accounts (deficits):
General partners:
Capital contributions. . . . . . . . . . . . . . . . . . . . . . . . 25,000 25,000
Cumulative net earnings. . . . . . . . . . . . . . . . . . . . . . . 788,432 568,563
Cumulative cash distributions. . . . . . . . . . . . . . . . . . . . (1,261,510) (1,041,641)
------------ -----------
(448,078) (448,078)
------------ -----------
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. . . . . . . . . . . . . . . . . . . . . . . 13,126,627 12,094,276
Cumulative cash distributions. . . . . . . . . . . . . . . . . . . . (46,543,465) (37,931,349)
------------ -----------
21,839,293 29,419,058
------------ -----------
Total partners' capital accounts
(deficits) . . . . . . . . . . . . . . . . . . . . . . . . . . 21,391,215 28,970,980
------------ -----------
$ 21,406,362 29,020,192
============ ===========
<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, 1998, 1997 AND 1996
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Rental income. . . . . . . . . . . . . . . . . . . . . $ -- -- 2,377,068
Interest income. . . . . . . . . . . . . . . . . . . . 102,972 190,289 508,795
------------ ----------- -----------
102,972 190,289 2,885,863
------------ ----------- -----------
Expenses:
Depreciation . . . . . . . . . . . . . . . . . . . . . -- -- 145,870
Property operating expenses. . . . . . . . . . . . . . -- -- 1,188,800
Professional services. . . . . . . . . . . . . . . . . 87,539 91,925 115,616
General and administrative . . . . . . . . . . . . . . 178,613 194,876 205,938
Provision for value impairment . . . . . . . . . . . . 241,000 -- --
------------ ----------- -----------
507,152 286,801 1,656,224
------------ ----------- -----------
(404,180) (96,512) 1,229,639
Partnership's share of operations of uncon-
solidated affiliated corporation . . . . . . . . . . . 1,651,955 2,078,083 (1,623,860)
Partnership's share of operations of
unconsolidated venture . . . . . . . . . . . . . . . . 4,445 320,377 153,503
Venture partner's share of consolidated
venture's operations . . . . . . . . . . . . . . . . . -- 13,321 (417,997)
------------ ----------- -----------
Earnings (loss) before gains on sales of
investment properties. . . . . . . . . . . . . . 1,252,220 2,315,269 (658,715)
Gain on sale of investment property,
net of venture partner's share of
$1,134,043 . . . . . . . . . . . . . . . . . . . . . -- -- 2,524,162
------------ ----------- ------------
<PAGE>
Partnership's share of gain on sale of
investment property by unconsolidated
venture . . . . . . . . . . . . . . . . . . . . . . . . -- 969,419 --
------------ ----------- -----------
Net earnings (loss). . . . . . . . . . . . . . . . . . $ 1,252,220 3,284,688 1,865,447
============ =========== ===========
Net earnings (loss) per
limited partnership interest:
Earnings (loss) before gains on sales of
investment properties . . . . . . . . . . . . . . . $ 16.06 34.22 (9.74)
Net gain on sale of investment
property. . . . . . . . . . . . . . . . . . . . . . -- -- 38.88
Partnership's share of gain on sale
of investment property by unconsolidated
venture . . . . . . . . . . . . . . . . . . . . . . -- 14.93 --
----------- ---------- ------------
$ 16.06 49.15 29.14
=========== ========== ============
<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, 1998, 1997 AND 1996
<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
(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
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<PAGE>
Net earnings
(loss) . . . . -- 125,457 -- 125,457 -- 3,159,231 -- 3,159,231
Cash dis-
tributions
($40.00 per
limited
partnership
interest). . . -- -- (135,305) (135,305) -- -- (2,570,781) (2,570,781)
-------- --------- -------- --------- ---------- ---------- ----------- -----------
Balance (deficit)
at December
31, 1997 . . .$25,000 568,563 (1,041,641) (448,078) 55,256,131 12,094,276 (37,931,349) 29,419,058
Net earnings
(loss). . . . -- 219,869 -- 219,869 -- 1,032,351 -- 1,032,351
Cash dis-
tributions
($134.00 per
limited
partnership
interest). . . -- -- (219,869) (219,869) -- -- (8,612,116) (8,612,116)
------- --------- --------- --------- ----------- ---------- ----------- -----------
Balance (deficit)
at December
31, 1998 . . .$ 25,000 788,432 (1,261,510) (448,078) 55,256,131 13,126,627 (46,543,465) 21,839,293
======= ========= ======== ========= =========== ========== ============ ============
<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, 1998, 1997 AND 1996
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss). . . . . . . . . . . . . . . . . . $ 1,252,220 3,284,688 1,865,447
Items not requiring (providing) cash or
cash equivalents:
Depreciation . . . . . . . . . . . . . . . . . . . . -- -- 145,870
Provision for value impairment . . . . . . . . . . . 241,000 -- --
Total gain on sale of investment
property . . . . . . . . . . . . . . . . . . . . . -- -- (3,658,205)
Partnership's share of operations of
unconsolidated corporation,
net of dividends . . . . . . . . . . . . . . . . . (1,651,955) (2,078,083) 1,623,860
Partnership's share of operations of
unconsolidated venture, net of
distributions. . . . . . . . . . . . . . . . . . . (4,445) (320,377) (153,503)
Venture partner's share of consolidated
venture's operations and gain on sale. . . . . . . -- (13,321) 1,552,040
Partnership's share of gain on sale
of investment property by unconsolidated
venture . . . . . . . . . . . . . . . . . . . . . . -- (969,419) --
Changes in:
Interest, rents and other receivables. . . . . . . . 8,617 12,442 41,248
Accounts payable . . . . . . . . . . . . . . . . . . (26,073) (40,097) 49,919
Amounts due to affiliates. . . . . . . . . . . . . . (7,992) 12,063 (21,299)
Tenant security deposits . . . . . . . . . . . . . . -- -- (107,369)
----------- ----------- -----------
Net cash provided by (used in)
operating activities . . . . . . . . . . . . (188,628) (112,104) 1,338,008
----------- ----------- -----------
Cash flows from investing activities:
<PAGE>
CARLYLE INCOME PLUS, L.P. - II
(A LIMITED PARTNERSHIP)
AND CONSOLIDATED VENTURE
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1998 1997 1996
----------- ----------- -----------
Additions to investment property . . . . . . . . . . . -- -- (48,234)
Partnership's dividends from
unconsolidated affiliated corporation. . . . . . . . 1,806,240 1,893,840 2,242,055
Partnership's distributions from
unconsolidated venture . . . . . . . . . . . . . . . 5,428,163 -- --
Cash proceeds from sale of investment
property, net of selling expenses . . . . . . . . . . -- -- 20,996,011
----------- ----------- -----------
Net cash provided by (used in)
investing activities . . . . . . . . . . . . 7,234,403 1,893,840 23,189,832
----------- ----------- -----------
Cash flows from financing activities:
Distributions to venture partner . . . . . . . . . . . -- (28,589) (7,033,900)
Distributions to limited partners. . . . . . . . . . . (8,612,116) (2,570,781) (17,031,424)
Distributions to general partners. . . . . . . . . . . (219,869) (135,305) (135,304)
----------- ----------- -----------
Net cash provided by (used in)
financing activities . . . . . . . . . . . . (8,831,985) (2,734,675) (24,200,628)
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents . . . . . . . . . . . . (1,786,210) (952,939) 327,212
Cash and cash equivalents,
beginning of year. . . . . . . . . . . . . . 2,980,988 3,933,927 3,606,715
----------- ----------- -----------
Cash and cash equivalents,
end of year. . . . . . . . . . . . . . . . . $ 1,194,778 2,980,988 3,933,927
=========== =========== ===========
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, 1998, 1997 AND 1996
OPERATIONS AND BASIS OF ACCOUNTING
General
At December 31, 1998, the Partnership holds, through a corporation, an
equity investment in an office building. Business activities consist of
rentals to commercial companies, and the ultimate sale or disposition of such
real estate. The General Partners of the Partnership currently expect to
conduct an orderly liquidation of its remaining investment portfolio and wind
up its affairs not later than December 31, 1999, barring any unforeseen
economic developments.
The accompanying consolidated financial statements include the accounts
of the Partnership and its majority-owned venture, CIP/Ashby Partners
("CIP/Ashby"), whose property was sold in August 1996. 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 interest in JMB/Landings Associates ("JMB/Landings"), whose
property was sold December 1997, and 1225 Investment Corporation ("1225
Connecticut Avenue, N.W."). Accordingly, the accompanying consolidated
financial statements do not include the accounts of JMB/Landings or 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,
1998 and 1997 is summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
1998 1997
------------------------------- ------------------------------
TAX BASIS TAX BASIS
GAAP BASIS (Unaudited) GAAP BASIS (Unaudited)
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Total assets . . . . . . . . . . . . . $ 21,406,362 31,954,945 29,020,192 39,235,019
Partners' capital
accounts (deficit):
General Partners . . . . . . . . . . (448,078) (647,647) (448,078) (506,679)
Limited Partners . . . . . . . . . . 21,839,293 32,596,907 29,419,058 39,709,940
Net earnings (loss):
General Partners . . . . . . . . . . 219,869 78,901 125,457 76,548
Limited Partners . . . . . . . . . . 1,032,351 1,499,083 3,159,231 875,390
Net earnings (loss)
per limited partnership
interest. . . . . . . . . . . . . . . 16.06 23.32 49.15 13.62
=========== =========== =========== ===========
/TABLE
<PAGE>
The net earnings (loss) per limited partnership interest ("Interest")
is based upon the number of 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 ($1,119,778_and 2,966,544 at December 31, 1998 and 1997, 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.
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 an apartment building, a shopping center and an
office building. At December 31, 1998, the apartment building and the
shopping center have been sold and the office building property is in
operation. Under certain circumstances, the Partnership may have been
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 properties represented 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. The Partnership and its unconsolidated
affiliated corporation have committed to such a plan for its remaining real
estate investment, 1225 Connecticut Avenue, N.W. office building. 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 1,656,400,
$2,398,460 and $(1,470,357) respectively, of the Partnership's share of
total operations of $3,803,422, $5,413,567 and $(3,422,578) for the years
ended December 31, 1998, 1997 and 1996 of unconsolidated properties held for
sale as of December 31, 1998 or sold during the years ended December 31,
1998, 1997 and 1996.
During the second quarter of 1997, Statements of Financial Accounting
Standards No. 128 ("Earnings per Share") and No. 129 ("Disclosure of
Information about Capital Structure") were issued. These standards became
effective for reporting periods after December 15, 1997. As the
Partnership's capital structure only has general and limited partnership
interests, the Partnership will not experience any significant impact on its
consolidated financial statements.
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 The Landings Shopping Center, located in Sarasota, Florida.
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 provided generally
that annual cash flow, sale proceeds and tax items were to be distributed or
allocated based on the capital contributions made by each partner.
Distributions and allocations to date have been made 50% to the Partnership.<PAGE>
As of December 31, 1996, JMB/Landings had committed to a plan to sell
the property and therefore the property was classified by the JMB/Landings
venture as held for sale and was not subject to continued depreciation as of
that date.
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.
JMB/Landings sold the land and related improvements of The Landings
Shopping Center in December 1997 for a sale price of $9,700,000.
JMB/Landings received the sale price in cash at closing, net of selling costs
and prorations. The sale resulted in a gain of approximately $1,939,000 to
JMB/Landings for financial reporting purposes (of which the Partnership's
share was approximately $970,000), primarily as a result of a value
impairment provision of $3,500,000 (of which the Partnership's share was
$1,750,000) recorded by JMB/Landings in 1995. In addition, JMB/Landings
recognized a loss on sale of approximately $1,448,000 for Federal income tax
reporting purposes in 1997( of which the Partnership's share was
approximately $724,000).
In connection with the sale of this property, as is customary in such
transactions, JMB/Landings agreed to certain representations and warranties,
with a stipulated survival period which expired, with no liability to
JMB/Landings, as scheduled in late June, 1998. The remaining funds of the
JMB/Landings venture were distributed to the venture partners in late June,
1998.
An affiliate of the General Partners of the Partnership managed the
property for a fee equal to 4% of the property's gross receipts. Such
property management fees for the years ended December 31, 1997 and 1996 were
$41,809 and $43,866, respectively.
CIP/Ashby
In February 1990, the Partnership, through CIP/Ashby, a joint venture
partnership with CIP-I, acquired a 69% interest in The Ashby at McLean
Apartments ("The Ashby"), an apartment building located in McLean, Virginia.
The Ashby had 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.
The terms of the CIP/Ashby partnership agreement provided generally
that annual cash flow, sale proceeds and tax items were to be distributed or
allocated based on the capital contributions made by each partner.
Distributions and allocations were made 69% to the Partnership. The
CIP/Ashby venture was liquidated in 1997.
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 subject to continued depreciation as of that date. The result of
operations of the property included in the accompanying consolidated
financial statements was $930,380 for the year ended December 31, 1996.
In August 1996, CIP/Ashby sold The Ashby property for a sale price
of $21,400,000, which was paid in cash at closing (net of selling costs and
prorations). CIP/Ashby recognized a gain on sale of $3,658,205 for financial
reporting purposes (of which the Partnership's share was $2,524,162),
primarily as a result of a $7,572,479 provision for value impairment recorded
by CIP/Ashby in 1994 (of which the Partnership's share was $5,225,011), 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).
In connection with the sale of this property, as is customary in such
transactions, CIP/Ashby agreed to certain representations and warranties,
with a stipulated survival period which expired, with no liability to
CIP/Ashby, as scheduled in late August, 1997.
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 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.
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, of which approximately $78,000 had
been spent. Additionally, the 1225 Investment Corporation established
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, the 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 monthly payments of interest only, at an annual
interest rate of 6.98%, for a period of 7 years. The loan matures February
1, 2001. The 1225 Investment Corporation used the approximately $5,300,000
of loan refinancing 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, is not subject to
continued depreciation as of that date.
In response to the uncertainty relating to the 1225 Investment
Corporation's ability to recover the net carrying value of the 1225
Connecticut Avenue, N.W. office building through future operations and sale,
the 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 independent appraisal received
for the property as of December 31, 1996. An additional provision for value
impairment of $1,217,000 (of which the Partnership's share was $529,882) was
recorded at December 31, 1998 to reflect the current estimated fair value,
less costs to sell, of the property.
In response to the uncertainty relating to the Partnership's ability
to recover the net carrying value of its investment in its unconsolidated
affiliated corporation, 1225 Investment Corporation, through future
operations and sale during the estimated holding period, the Partnership
recorded, as a matter of prudent accounting practice, a provision for value
impairment of such investment of $241,000 as of December 31, 1998. Such
provision was recorded to reduce the net carrying value of the investment to
its estimated fair value.
A former affiliate of the General Partners manages the property for
a fee equal to 2.5% of the property's operating gross receipts.
The property's occupancy was 98.5% at December 31, 1998, up from 95%
at December 31, 1997. The remaining vacancy is the result of the vacating of
a tenant which occupied approximately 3,000 square feet and whose lease is
scheduled to expire in August, 2001. The tenant continues to pay rent on its
vacated space. Ernst & Young currently occupies approximately 87% of the
property's leasable space.
The 1225 Investment Corporation began marketing the 1225 Connecticut
Avenue office building for sale during the second quarter of 1998.
In March 1999, the 1225 Investment Corporation executed an agreement
with a potential purchaser for the sale of the 1225 Connecticut Avenue,N.W.
office building for a sale price of $52,960,000, payable in cash at closing
(before selling costs and prorations). The sale of the property is subject
to the closing of the transaction including satisfaction of certain closing
conditions. There can be no assurance that the final sale agreement will not
differ in various respects from the present agreement or that the sale of the
property will be consummated on any terms with this purchaser or any other
purchaser in the near term. If the sale is consummated under the proposed
terms of the agreement, the 1225 Investment Corporation would not recognize
any significant gain or loss on sale for financial reporting purposes,
primarily as a result of value impairment provisions totaling $7,765,956
recorded by the 1225 Investment Corporation in 1996 and 1998 (of which the
Partnership's share was $3,381,297). Additionally, the 1225 Investment
Corporation would expect to recognize a loss on sale in 1999 for Federal
income tax purposes of approximately $1,900,000 (of which the Partnership's
share would be approximately $827,000).
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 sale or other disposition, 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 as required 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 sale 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 share of all distributions of proceeds from
sales at this time.
TRANSACTIONS WITH AFFILIATES
All of the Partnership's properties were managed by an affiliate of
the General Partners or a former affiliate of the General Partners 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
acting as 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 on the same terms that existed prior to the
assignment.
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
December 31, 1998 and for the years ended December 31, 1998, 1997 and 1996
are as follows:<PAGE>
<TABLE>
<CAPTION>
UNPAID AT
DECEMBER 31,
1998 1997 1996 1998
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Insurance commissions. . . . . . . . . . . $ 3,255 3,575 4,071 --
Reimbursement (at cost) for
accounting services . . . . . . . . . . . 21,344 16,910 5,139 1,562
Reimbursement (at cost) for
portfolio management services . . . . . . 14,510 17,387 13,311 3,735
Reimbursement (at cost) for
legal services. . . . . . . . . . . . . . 3,621 3,322 2,392 564
Reimbursement (at cost) for
administrative charges and
other out-of-pocket-expenses . . . . . . 3,598 3,507 787 3,598
-------- -------- -------- ------
$ 46,328 44,701 25,700 9,459
======== ======== ======== ======
<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 financial information for JMB/Landings (which sold its
investment property in December 1997) as of and for six months ended June 30,
1998 (the date of dissolution of the JMB/Landings venture) and for the year
ended December 31, 1997 is as follows:
1998 1997
----------- -----------
Current assets . . . . . . . . . . . . . . . $ -- 10,863,026
Current liabilities. . . . . . . . . . . . . -- (14,369)
---------- -----------
Working capital. . . . . . . . . . -- 10,848,657
Venture partner's equity . . . . . . . . . . -- (5,424,939)
---------- -----------
Partnership's capital. . . . . . . $ -- 5,423,718
========== ===========
Represented by:
Invested capital . . . . . . . . . . . . . $ -- 6,704,617
Cumulative distributions . . . . . . . . . -- (2,729,801)
Cumulative earnings. . . . . . . . . . . . -- 1,448,902
---------- -----------
-- 5,423,718
========== ===========
Total income . . . . . . . . . . . . . . . . $ 18,812 960,184
========== ===========
Expenses applicable to
earnings. . . . . . . . . . . . . . . . . . $ 9,498 319,430
========== ===========
Earnings (loss). . . . . . . . . . . . . . . $ 9,314 640,754
========== ==========
Partnership's share of earnings (loss) . . . $ 4,445 320,377
========== ===========
Gain on sale of property . . . . . . . . . . $ -- 1,938,838
========== ==========
Partnership's share of gain on sale
of property . . . . . . . . . . . . . . . . $ -- 969,419
========== ===========
The total income, expenses applicable to operating earnings and net
earnings for the above venture for the year ended December 31, 1996 were
$1,038,681, $731,676 and $307,005, respectively.<PAGE>
INVESTMENT IN UNCONSOLIDATED AFFILIATED CORPORATION
Summary financial information for the 1225 Investment Corporation as of
and for the years ended December 31, 1998 and 1997 are as follows:
1998 1997
----------- -----------
Current assets . . . . . . . . . . . . . . . $ 1,863,862 1,519,242
Current liabilities. . . . . . . . . . . . . (341,903) (312,984)
----------- -----------
Working capital. . . . . . . . . . 1,521,959 1,206,258
Property held for sale or
disposition . . . . . . . . . . . . . . . . 51,854,000 52,508,031
Other assets . . . . . . . . . . . . . . . . 34,295 51,442
Long-term debt . . . . . . . . . . . . . . . (7,000,000) (7,000,000)
Other liabilities. . . . . . . . . . . . . . -- (652)
Affiliated shareholders' equity . . . . . . (25,961,959) (26,162,499)
Provision for value impairment . . . . . . . (241,000) --
----------- -----------
Partnership's equity in
unconsolidated affiliated
corporation . . . . . . . . . . $ 20,207,295 20,602,580
=========== ===========
Represented by:
Stock purchase and additional
paid-in-capital . . . . . . . . . . . . $ 24,429,164 24,429,164
Cumulative dividends . . . . . . . . . . . (14,027,030) (12,220,790)
Cumulative earnings. . . . . . . . . . . . 10,046,161 8,394,206
Provision for value impairment . . . . . . (241,000) --
----------- -----------
$ 20,207,295 20,602,580
=========== ===========
Total income . . . . . . . . . . . . . . . . $ 8,101,051 7,878,414
=========== ===========
Expenses applicable
to operating earnings
(including a $1,217,000 provision
for value impairment in 1998). . . . . . $ 4,306,943 3,105,601
=========== ===========
Earnings (loss). . . . . . . . . . . . . . . $ 3,794,108 4,772,813
=========== ===========
Partnership's share of earnings (loss) . . . $ 1,651,955 2,078,083
=========== ===========
The total income, expenses applicable to operating earnings and net
earnings (loss) for the above corporation for the year ended December 31,
1996 were $7,341,297, $11,070,880 (including a $6,548,956 provision for value
impairment) and $(3,729,583), 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, 1998 and 1997, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1998, 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 LLP
Chicago, Illinois
March 5, 1999<PAGE>
<TABLE>
1225 INVESTMENT CORPORATION
(A CORPORATION)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
------
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 1,758,120 1,496,953
Rents and other receivables. . . . . . . . . . . . . . . . . . . . . . . 75,093 5,754
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,649 16,535
------------ -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 1,863,862 1,519,242
Property held for sale or disposition. . . . . . . . . . . . . . . . . . . 51,854,000 52,508,031
Deferred costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,295 51,442
------------ -----------
$ 53,752,157 54,078,715
============ ===========<PAGE>
1225 INVESTMENT CORPORATION
(A CORPORATION)
BALANCE SHEETS - CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
1998 1997
------------ -----------
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 89,613 65,764
Accrued real estate taxes. . . . . . . . . . . . . . . . . . . . . . . . 211,573 206,503
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . 40,717 40,717
------------ -----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . 341,903 312,984
Tenant security deposits . . . . . . . . . . . . . . . . . . . . . . . . . -- 652
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000,000 7,000,000
------------ -----------
Commitments and contingencies
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . 7,341,903 7,313,636
Shareholders' equity:
Common stock, $1 par value per share
100,000 shares authorized; 55,128 shares issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,128 55,128
Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . . . . 55,503,444 55,503,444
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,216,751) (28,067,818)
Accumulated earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 23,068,433 19,274,325
------------ -----------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . 46,410,254 46,765,079
------------ -----------
$ 53,752,157 54,078,715
============ ===========
<FN>
See accompanying notes to financial statements.
/TABLE
<PAGE>
<TABLE>
1225 INVESTMENT CORPORATION
(A CORPORATION)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Income:
Rental income. . . . . . . . . . . . . . . . . . . . . $ 8,019,745 7,801,276 7,260,819
Interest income. . . . . . . . . . . . . . . . . . . . 81,306 77,138 80,478
----------- ---------- ----------
8,101,051 7,878,414 7,341,297
----------- ---------- ----------
Expenses:
Mortgage and other interest. . . . . . . . . . . . . . 488,600 488,600 488,600
Depreciation . . . . . . . . . . . . . . . . . . . . . -- -- 1,281,412
Property operating expenses. . . . . . . . . . . . . . 2,357,144 2,385,689 2,471,625
Amortization of deferred costs . . . . . . . . . . . . 17,147 17,148 43,534
General and administrative . . . . . . . . . . . . . . 227,052 214,164 236,753
Provision for value impairment . . . . . . . . . . . . 1,217,000 -- 6,548,956
----------- ---------- ----------
4,306,943 3,105,601 11,070,880
----------- ---------- ----------
Net earnings (loss). . . . . . . . . . . . . . $ 3,794,108 4,772,813 (3,729,583)
=========== ========== ==========
<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, 1998, 1997 AND 1996
<CAPTION>
AFFILIATED SHAREHOLDERS
-----------------------------------------------------------------
NET
NET CAPITAL EARNINGS DIVIDENDS
INVESTED (LOSS) PAID TOTAL
------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
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
Net earnings (loss). . . . . . . . . . . . . -- 2,694,730 -- 2,694,730
Dividends paid . . . . . . . . . . . . . . . -- -- (2,456,310) (2,456,310)
----------- ----------- ------------ -----------
Balance at December 31, 1997 . . . . . . . . 31,129,408 10,880,119 (15,847,028) 26,162,499
Net earnings (loss). . . . . . . . . . . . . -- 2,142,153 -- 2,142,153
Dividends paid . . . . . . . . . . . . . . . -- -- (2,342,693) (2,342,693)
----------- ----------- ----------- -----------
Balance at December 31, 1998 . . . . . . . . $ 31,129,408 13,022,272 (18,189,721) 25,961,959
=========== =========== ============ ===========
/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,
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
Net earnings (loss). . . . . . -- 2,078,083 -- 2,078,083 4,772,813
Dividends paid . . . . . . . . -- -- (1,893,840) (1,893,840) (4,350,150)
------------ ----------- ----------- ----------- ------------
Balance at December 31,
1997 . . . . . . . . . . . . . 24,429,164 8,394,206 (12,220,790) 20,602,580 46,765,079
Net earnings (loss). . . . . . -- 1,651,955 -- 1,651,955 3,794,108
Dividends paid . . . . . . . . -- -- (1,806,240) (1,806,240) (4,148,933)
------------ ----------- ----------- ----------- -----------
Balance at December 31 1998. . $ 24,429,164 10,046,161 (14,027,030) 20,448,295 46,410,254
============ ========== =========== =========== ===========
<FN>
See accompanying notes to financial statements.
/TABLE
<PAGE>
<TABLE>
1225 INVESTMENT CORPORATION
(A CORPORATION)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss). . . . . . . . . . . . . . . . . . . $ 3,794,108 4,772,813 (3,729,583)
Items not requiring (providing) cash:
Depreciation . . . . . . . . . . . . . . . . . . . . . -- -- 1,281,412
Amortization of deferred costs . . . . . . . . . . . . 17,147 17,148 43,534
Provision for value impairment . . . . . . . . . . . . 1,217,000 -- 6,548,956
Changes in:
Rents and other receivables. . . . . . . . . . . . . (69,339) 86,183 (72,809)
Prepaid expenses . . . . . . . . . . . . . . . . . . (14,114) 370 30,001
Accrued rents receivable . . . . . . . . . . . . . . -- -- 312,505
Accounts payable . . . . . . . . . . . . . . . . . . 23,849 (17,671) 43,780
Accrued real estate taxes. . . . . . . . . . . . . . 5,070 -- (41,801)
Tenant security deposits . . . . . . . . . . . . . . (652) (14,825) (687)
----------- ----------- -----------
Net cash provided by (used in) 4,973,069 4,844,018 4,415,308
operating activities . . . . . . . . . . . . . ----------- ----------- -----------
Cash flows from investing activities:
Additions to investment property . . . . . . . . . . . (562,969) (508,031) (71,527)
----------- ----------- -----------
Net cash provided by (used in)
investing activities . . . . . . . . . . . . (562,969) (508,031) (71,527)
----------- ----------- -----------
<PAGE>
1225 INVESTMENT CORPORATION
(A CORPORATION)
STATEMENTS OF CASH FLOWS - CONTINUED
1998 1997 1996
----------- ----------- -----------
Cash flows from financing activities:
Cash dividends paid to shareholders. . . . . . . . . . (4,148,933) (4,350,150) (5,149,992)
----------- ----------- -----------
Net cash provided by (used in)
financing activities . . . . . . . . . . . . (4,148,933) (4,350,150) (5,149,992)
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents . . . . . . . . . . . . 261,167 (14,163) (806,211)
Cash and cash equivalents,
beginning of year. . . . . . . . . . . . . . 1,496,953 1,511,116 2,317,327
----------- ----------- -----------
Cash and cash equivalents,
end of year. . . . . . . . . . . . . . . . . $ 1,758,120 1,496,953 1,511,116
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest. . . . . . . $ 488,600 488,600 488,600
=========== =========== ===========
Non-cash investing and financing activities. . . . . . $ -- -- --
=========== =========== ===========
<FN>
See accompanying notes to financial statements.
/TABLE
<PAGE>
1225 INVESTMENT CORPORATION
(A CORPORATION)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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, 1998 and 1997 is summarized
as follows:
<PAGE>
<TABLE>
<CAPTION>
1998 1997
----------------------------- ------------------------------
TAX BASIS TAX BASIS
GAAP BASIS (Unaudited) GAAP BASIS (Unaudited)
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Total assets . . . . . . . . . . . . . $ 53,752,157 65,467,356 54,078,715 64,559,766
Shareholders' equity . . . . . . . . . 46,410,254 58,125,451 46,765,079 57,246,130
Net earnings (loss). . . . . . . . . . 3,794,108 3,797,451 4,772,813 3,559,430
=========== =========== =========== ===========
/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. 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 (none at December 31, 1998 and 1997) 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 was (through December 31,
1996) 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 were
depreciated over their estimated useful lives.
The Corporation adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to Be Disposed Of ("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. The Corporation has
committed to such a plan for its real estate investment, the 1225 Connecticut
Avenue, N.W. office building. 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>
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.
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 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 notes are 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 notes are incorporated herein by reference.
LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1998 and 1997:
1998 1997
------------ ------------
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
========== ==========
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, 1998, 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, was depreciated (through December 31, 1996) over the
estimated useful life. Leases with tenants range in term from 1 1/2 to 8 1/2
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:
1999 . . . . . . . . . . . . . . . . . . $ 6,836,000
2000 . . . . . . . . . . . . . . . . . . . 6,677,000
2001 . . . . . . . . . . . . . . . . . . . 6,163,000
2002 . . . . . . . . . . . . . . . . . . . 6,092,000
2003 . . . . . . . . . . . . . . . . . . . 6,098,000
Thereafter . . . . . . . . . . . . . . . . 20,963,000
-----------
$52,829,000
===========
The Corporation currently leases approximately 87% of the available
space of the property to one tenant under leases with remaining terms of 8
1/2 years. For the year ended December 31, 1998, such tenant represented
approximately 77% 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, 1998
and for the years ended December 31, 1998, 1997 and 1996 are as follows:<PAGE>
<TABLE>
<CAPTION>
UNPAID AT
DECEMBER 31,
1998 1997 1996 1998
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Insurance commissions. . . . . . . . . . . $ 6,091 7,058 4,101 --
======= ======= ======= ========
<FN>
/TABLE
<PAGE>
<TABLE>
SCHEDULE III
1225 INVESTMENT CORPORATION
(A CORPORATION)
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
COSTS CAPITALIZED
INITIAL COST TO SUBSEQUENT TO GROSS AMOUNT AT WHICH CARRIED
CORPORATION (A) TO ACQUISITION AT CLOSE OF PERIOD (B)
--------------------------- ---------------------------------------------------------------
BUILDINGS BUILDINGS PROVISIONS BUILDINGS
AND AND FOR VALUE AND
ENCUMBRANCE LAND IMPROVEMENTS IMPROVEMENTS IMPAIRMENT(C) 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 7,019,746 (4,335,602) 22,431,973 36,936,532 59,368,505
========== ========== ========== ========== ========== ========== ========== ==========
/TABLE
<PAGE>
<TABLE> SCHEDULE III
1225 INVESTMENT CORPORATION
(A CORPORATION)
REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
<CAPTION>
LIFE ON WHICH
DEPRECIATION
(THROUGH
DECEMBER 31, 1996) 1998
ACCUMULATED DATE OF DATE WAS REAL ESTATE
DEPRECIATION(E) CONSTRUCTION ACQUIRED COMPUTED TAXES
---------------- ------------ ---------- --------------- -----------
<S> <C> <C> <C> <C> <C>
OFFICE
BUILDING:
Washington,
D.C.. . . . . . . . . . . . $7,514,505 1968 2/28/90 30 years 802,434
========== =======
<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, 1998 for Federal income
tax purposes was $63,450,261.
(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 at December 31, 1996
and the additional provision for value impairment of $1,217,000 recorded at December 31, 1998.
/TABLE
<PAGE>
<TABLE> SCHEDULE III
1225 INVESTMENT CORPORATION
(A CORPORATION)
REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
(D) Reconciliation of real estate owned:
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period . . . . . . . . . . $ 60,022,536 59,514,505 62,561,580
Additions during period. . . . . . . . . . . . . . . 562,969 508,031 71,527
Provision for value impairment
allocable to property . . . . . . . . . . . . . . . (1,217,000) -- (3,118,602)
----------- ----------- -----------
Balance at end of period . . . . . . . . . . . . . $ 59,368,505 60,022,536 59,514,505
=========== =========== ===========
(E) Reconciliation of accumulated depreciation:
Balance at beginning of period . . . . . . . . . . $ 7,514,505 7,514,505 6,233,093
Depreciation expense . . . . . . . . . . . . . . . . -- -- 1,281,412
----------- ----------- -----------
Balance at end of period . . . . . . . . . . . . . $ 7,514,505 7,514,505 7,514,505
=========== =========== ===========
/TABLE
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in, or disagreements with, accountants during
fiscal years 1998 and 1997.
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 shares of JMB are owned, directly or indirectly, by certain of
its officers, directors, members of their families and their affiliates.
JMB, as the Corporate General Partner, has responsibility for all aspects of
the Partnership's operations. The Associate General Partner of the
Partnership, AGPP Associates, L.P., an Illinois limited partnership with JMB
as its sole general partner, 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
limited partners of the Associate General Partner are generally officers,
directors and affiliates of JMB or its affiliates.
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 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 and/or for the sale
of property. 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 Partnership Agreement, including whether and
when to sell a property, the establishment and maintenance of reasonable
reserves and the determination of the sources (i.e., offering proceeds, cash
generated from operations or sale proceeds) and uses of such 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 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
2, 1999. 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 2, 1999. 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-XI ("Carlyle-XI"), Carlyle Real Estate Limited Partnership-XIII
("Carlyle-XIII"), Carlyle Real Estate Limited Partnership-XIV ("Carlyle-
- -XIV"), and Carlyle Real Estate Limited Partnership-XV ("Carlyle-XV"), and
the managing general partner of JMB Income Properties, Ltd.-V ("JMB
Income-V"), JMB Income Properties, Ltd.-VII ("JMB Income-VII"), JMB Income
Properties, Ltd.-X ("JMB Income-X") and JMB Income Properties, Ltd.-XI ("JMB
Income-XI"). JMB is also the sole general partner of the associate general
partner of most of the foregoing partnerships. 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.). Most of such directors and officers
are also partners, directly of indirectly, of certain partnerships which are
or were associate general partners in the following real estate limited
partnerships, among others: the Partnership, Carlyle-XI, Carlyle-XIII,
Carlyle-XIV, Carlyle-XV, JMB Income-VII, JMB Income-X and JMB Income-XI.
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 61) is an individual general partner of JMB
Income-V. Mr. Malkin has been associated with JMB since October, 1969. Mr.
Malkin is also a director of Urban Shopping Centers, Inc., an affiliate of
JMB that is a real estate investment trust in the business of owning,
managing and developing shopping centers. He is also a director of Chisox
Corporation, which is the general partner of a limited partnership that owns
the Chicago White Sox Major League Baseball team, and CBLS, Inc., which is
the general partner of the general partner of a limited partnership that owns
the Chicago Bulls National Basketball Association team. He is a Certified
Public Accountant.
Neil G. Bluhm (age 61) is an individual general partner of JMB
Income-V. Mr. Bluhm has been associated with JMB since August, 1970. Mr.
Bluhm is also a principal of Walton Street Capital, L.L.C., which sponsors
real estate investment funds, and a director of Urban Shopping Centers, Inc.
He is a member of the Bar of the State of Illinois and a Certified Public
Accountant.
Burton E. Glazov (age 60) has been associated with JMB since June, 1971
and served as an Executive Vice President of JMB until December of 1990. Mr
Glazov is currently retired. He is a member of the Bar of the State of
Illinois
Stuart C. Nathan (age 57) has been associated with JMB since July,
1972. He is a member of the Bar of the State of Illinois.
A. Lee Sacks (age 65) has been associated with JMB since December,
1972. He is also President and a director of JMB Insurance Agency, Inc.
John G. Schreiber (age 52) has been associated with JMB since December,
1970 and served as an Executive Vice President of JMB until December 1990.
Mr. Schreiber is President of Schreiber Investments, Inc., which is engaged
in the real estate investing business. He is also a senior advisor and
partner of Blackstone Real Estate Advisors L.P., an affiliate of the
Blackstone Group, L.P. He is also a director of Urban Shopping Centers,Inc.,
Host Marriott Corporation, the Brickman Group, Ltd., which is engaged in the
landscaping maintenance business, and a number of investment companies
advised or managed by T. Rowe Price Associates, Inc. and its affiliates and
a trustee of Amli Residential Property Trust. He holds a Masters degree in
Business Administration from Harvard University Graduate School of Business.
H. Rigel Barber (age 50) 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 51) has been associated with JMB since December,
1979. It is expected that Mr. Emig will leave his position with JMB on or
about May 31, 1999 and his responsibilities will be taken over by various
other officers of JMB. 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 46) 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 50) 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 63) 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 1998, 1997
and 1996, the General Partners received distributions of $219,869, $135,305
and $135,304, respectively. The General Partners were allocated taxable
income of $ 78,901 in 1998.
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., an affiliate of the Corporate General
Partner, earned and received in 1998 insurance brokerage commissions from the
Partnership in 1998 aggregating $3,255 in connection with providing insurance
coverage for the Partnership's remaining real property investment. 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 1998 for accounting services, portfolio management services,
legal services and for administrative charges and other out-of-pocket
expenses of $21,344, $14,510, $3,621 and $3,598, respectively, of which
$9,459 was unpaid at December 31, 1998.
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>
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 of the Partnership beneficially own the
following Interests of the Partnership:
<CAPTION>
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
Interests and Assignee Corporation indirectly 1%
Interests therein
Limited Partnership Corporate General 5 Interests (1) Less than
Interests and Assignee Partner, its indirectly 1%
Interests therein officers and
directors, and the
Associate
General Partner as
a group
<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 shared
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.
Reference is made to Item 10 for information concerning the ownership of
the Corporate General Partner.
(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 Corporate General Partner, its 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 incorporated 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 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.
10.12 Real Property Purchase Agreement between
JMB/Landings Associates and Inland Real
Estate Acquisitions, Inc., dated November 25,
1997 relating to the sale of the Landings
Shopping Center is hereby incorporated herein
by reference to the Partnership's report on
Form 8-K (File No. 0-177-5) dated
November 25, 1997.
21. List of Subsidiaries.
24. Powers of Attorney.
27. Financial Data Schedule
(b) No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
- -------------
No annual report or proxy material for the fiscal year 1998 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 22, 1999
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 22, 1999
NEIL G. BLUHM*
By: Neil G. Bluhm, President and Director
Date: March 22, 1999
H. RIGEL BARBER*
By: H. Rigel Barber, Chief Executive Officer
Date: March 22, 1999
GLENN E. EMIG*
By: Glenn E. Emig
Chief Operating Officer
Date: March 22, 1999
_____________________________________
By: Gailen J. Hull, Senior Vice President
Principal Accounting Officer
Date: March 22, 1999
A. LEE SACKS*
By: A. Lee Sacks, Director
Date: March 22, 1999
STUART C. NATHAN*
By: Stuart C. Nathan, Executive Vice President
and Director
Date: March 22, 1999
*By: GAILEN J. HULL, Pursuant to a Power of Attorney
______________________________________
By: Gailen J. Hull, Attorney-in-Fact
Date: March 22, 1999<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
10.12.
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 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.
The Partnership was a joint venture partner in JMB/Landings
Associates, a general partnership which held title to The Landings Shopping
Center, located in Sarasota, Florida.
The Partnership was a joint venture partner in CIP/Ashby Partners, a
general partnership which held title to The Ashby at McLean Apartments,
located in McLean, Virginia.
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, L.P. - II, does 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 or directors, a Report on Form 10-K of said
partnership for the fiscal year ended December 31, 1998 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 has executed this Power of Attorney the
29th day of January, 1999.
_______________________
Neil G. Bluhm
President and Director
_______________________
Judd D. Malkin
Chairman and Chief Financial Officer
_______________________
A. Lee Sacks
Director of General Partner
_______________________
Stuart C. Nathan
Executive Vice President
Director of General Partner
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, 1998 and any and all amendments thereto, the 29th day of January, 1999.
_______________________________
Gary Nickele
_______________________________
Gailen J. Hull
_______________________________
Dennis M. Quinn<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, L.P
- - II, does 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, 1998 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 has executed this Power of Attorney
the 29th day of January, 1999.
_____________________________________
H. Rigel Barber
Chief Executive Officer
_____________________________________
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, 1998 and
any and all amendments thereto, the 29th day of January, 1999.
_____________________________________
Gary Nickele
_____________________________________
Gailen J. Hull
_____________________________________
Dennis M. Quinn
<PAGE>
EXHIBIT 27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,194,778
<SECURITIES> 0
<RECEIVABLES> 4,289
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,199,067
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,406,362
<CURRENT-LIABILITIES> 15,147
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 21,391,215
<TOTAL-LIABILITY-AND-EQUITY> 21,406,362
<SALES> 0
<TOTAL-REVENUES> 102,972
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 266,152
<LOSS-PROVISION> 241,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (404,180)
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,252,220
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,252,220
<EPS-PRIMARY> 16.06
<EPS-DILUTED> 16.06
</TABLE>
