<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _______________ to _______________
Commission file number 0-20129
- --------------------------------------------------------------------------------
CHRISKEN GROWTH & INCOME L.P. II
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Delaware 36-3644609
- --------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
345 North Canal Street, Chicago, Illinois 60606
- -------------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (312) 454-1626
--------------------------
Securities registered under to Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Limited Partnership Interests
- --------------------------------------------------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 .
------- ------
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [x]
Issuer's total gross rental revenues for its most recent fiscal year ended
December 31, 1996 were $1,209,602. The aggregate sales price of the limited
partnership interests (the "Units") held by non-affiliates was $5,764,500
(based on the price at which Units were offered to the public) at December 31,
1996 and March 15, 1997. The aggregate sales price does not reflect market
value, it reflects only the price at which the Units were sold to the public.
Currently, there is no market for the Units and no market is expected to
develop.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Prospectus of the Registrant dated September 8, 1989, as
supplemented and filed pursuant to Rule 424(b) under the Securities Act of
1933, as amended, S.E.C. File No. 33-28893, are incorporated by reference in
Part III of this Annual Report on Form 10-KSB.
<PAGE> 2
TABLE OF CONTENTS
Page
-----
PART I
Item 1. Description of Business . . . . . . . . . . . . . . . . . . 1
Item 2. Description of Properties . . . . . . . . . . . . . . . . . . 2
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 4
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 4
PART II
Item 5. Market for Registrant's Limited Partnership Interests and
Related Security Holder Matters . . . . . . . . . . . . . . . 5
Item 6. Management's Discussion and Analysis or Plan of Operation . . 5
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . 7
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . 7
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act . . . . . . 8
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . 9
Item 11. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 12. Certain Relationships and Related Transactions . . . . . . . 10
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . F-1
(i)
<PAGE> 3
PART I
Item 1. Description of Business.
ChrisKen Growth & Income L.P. II (the "Partnership") is a Delaware
limited partnership formed in 1989 for the purpose of acquiring, operating,
holding for investment and disposing of one or more existing income-producing
apartment complexes and/or commercial properties located primarily in the
Midwestern United States. The general partners of the Partnership are ChrisKen
Income Properties, Inc. II (the "Managing General Partner") and ChrisKen
Limited Partnership II (the "Associate General Partner") (collectively, the
"General Partners"). The Managing General Partner is an Illinois corporation,
the shares of which are owned by Messrs. Robert W. Christoph and John F.
Kennedy. As of January 1, 1994 and pursuant to written agreement, Mr.
Christoph resigned as an officer and director of the Managing General Partner
and transferred his shares into a voting trust of which Mr. Kennedy is the
voting trustee. The Associate General Partner is an Illinois limited
partnership of which Mr. Kennedy and ChrisKen Equities Corp., an Affiliate,
are general partners. As of January 1, 1994 and pursuant to written agreement,
Mr. Christoph converted his general partner interest in the Associate General
Partner into a special limited partner interest without any management rights.
The principal investment objectives of the Partnership are: (i)
preservation and protection of capital; (ii) distribution of current cash flow,
a portion of which will not be subject to federal income taxes in the
Partnership's initial years of operation; and (iii) capital appreciation.
The Partnership originally intended to acquire one or more properties:
(i) directly through the acquisition of fee title; (ii) indirectly through the
acquisition of substantially all of the interest in an entity which, in turn,
owned the real property; or (iii) by way of other forms of acquisition deemed
to be advantageous to the Partnership. However, since sales of Units
progressed more slowly than originally anticipated by the General Partners, the
Partnership owns and operates only one property, known as Barrington Estates
(the "Property").
Discussion regarding apartment complexes which may compete with the
Property is set forth below in Item 2. Property - Analysis. The General
Partners believe that the Property remains competitive in its market.
The General Partners do not intend to reinvest the net proceeds from a
sale of the Property in additional properties. The General Partners expect to
begin an orderly liquidation of the Partnership's holdings after a period of
operations of from five to eight years. To date, the Partnership has been
operating for approximately seven years. The Partnership intends to hold the
Property, until such time as sale or other disposition of the Property would
further the Partnership's investment objectives or it appears that such
objectives would not be met within the Partnership's anticipated term of
existence. In determining whether to sell or refinance, the Partnership would
consider factors such as potential capital appreciation, cash flow and federal
income tax considerations, including possible adverse federal income tax
consequences to the Limited Partners. Pursuant to the Partnership Agreement,
the Partnership will terminate December 31, 2028, unless terminated earlier at
the sole discretion of the Managing General Partner.
1
<PAGE> 4
The Partnership has no employees. The General Partners believe that
ChrisKen Real Estate Management Company, Inc., the manager of the Property, has
sufficient personnel and other required resources to discharge all of its
responsibilities to the Partnership. The General Partners and their Affiliates
are permitted to perform services for the Partnership. The business of the
Partnership is not seasonal and the Partnership does no foreign or export
business.
A presentation of information about industry segments is not
applicable because the Partnership operates solely in the real estate industry.
The Partnership, by virtue of its ownership in real estate, is subject
to federal and state laws and regulations covering various environmental
issues. The Managing General Partner is not aware of any potential liability
related to environmental issues or conditions that would be material to the
Partnership.
Item 2. Description of Property.
The Property is an apartment complex commonly known as Barrington
Estates, located at 8717 Old Town West Drive, Indianapolis, Indiana and was
built in 1968. The purchase price of the Property was approximately
$3,775,000. The Property is situated on approximately 11 acres and is
comprised of 144 units of which 112 units are townhouses located in 13 separate
buildings, with 65 carports and 18 garages, an 1,800 square foot clubhouse and
a swimming pool. All buildings are either two or three stories. The Property
has one, two and three bedroom units, with current rents as follows:
<TABLE>
<CAPTION>
Approximate Average
Number of Rent Per Apartment Rent/Sq.Ft.
Apartment Type Apartments Month Size /Mo.
-------------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C>
One bedroom, one and 1/2 bath TH 6 $650 855 SF $.76
One bedroom, one bath 18 $530 628 SF $.84
Two bedrooms, one bath 14 $620-630 907 SF $.69
Two bedrooms, two and 1/2 bath 24 $710-745 1,153 SF $.63
TH
Two bedrooms, one and 1/2 bath 36 $710 1,069 SF $.66
TH
Three bedrooms, two bath TH 6 $855 1,295 SF $.66
Three bedrooms, two and 1/2 bath 40 $935 1,456 SF $.64
with den TH
TH=Townhouse
</TABLE>
2
<PAGE> 5
In 1990, the Partnership undertook a substantial repair and
improvement program (the "Renovations") with respect to the Property.
Renovations were completed in 1993 with the addition of 17 more carports,
enhanced exterior lighting and the remodeling of both the exterior and interior
of the clubhouse for a total cost of $3,353,906.
The exterior/structural renovations included roofs, windows, gutters,
carpeting, asphalt, fencing, pool, lighting, locks, drains, basement,
insulation, landscaping, water heater, carports, clubhouse, hallways, and
supervision/architecture. Interior/ Units renovations included complete
renovation of the apartment units consisting of appliances, carpeting, heating
and air conditioning, entry doors, kitchens, painting, bathrooms, and building
interior common areas. Marketing expenditures included signage and brochures.
The clubhouse Renovations were completed in May, 1993. No additional
renovations are presently scheduled for 1997.
At December 31, 1996, 139 of the Property's units were occupied while
5 units were vacant (97% occupancy). The chart below details the occupancy
status of the Property's units as of December 31, 1996. All tenant leases are
for periods of six months to one year and no tenants lease more than one unit.
Property Occupancy
<TABLE>
<CAPTION>
Post-Renovation Square Occupied Unoccupied
# Bed # Baths Rent Feet 12/31/96 12/31/96
----- ------- ------------------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
1 1 $530 628 18 0
1 1 1/2 $650 855 4 2
2 1 $620-630 907 13 1
2 1 1/2 $710 1,069 34 2
2 2 1/2 $710-745 1,153 24 0
3 2 $855 1,295 6 0
3 2 1/2 $935 1,456 40 0
---- --
139 5
=== =
</TABLE>
The Property is managed by ChrisKen Real Estate Management Company,
Inc. ("ChrisKen Management"), an Affiliate of the General Partners. ChrisKen
Management receives a property management fee equal to 5% of gross rental
receipts. The property management agreement is terminable by the Partnership
upon sixty days prior written notice to ChrisKen Management. The General
Partners believe that the property management fee is competitive with fees
which would be paid in the area in which the Property is located for comparable
services to an unaffiliated party. The General Partners believe that the
property is adequately covered by insurance.
3
<PAGE> 6
Analysis. The General Partners believe that the following information reflects
the current market conditions for apartment complexes which may compete with
the Property:
Competitive Projects
<TABLE>
<CAPTION>
Rent Per Approximate Apt. Rent/Sq.
Project Apartment Type Month Size in Sq. Ft. Ft./Mo.
- ------- -------------- -------- ---------------- -------
<S> <C> <C> <C> <C>
Willow Lake 1 Bdrm 1 Bath $ 785 1,121 $ .70
2 Bdrm 2 Bath $ 980 1,450 $ .68
The Springs 1 Bdrm 1 Bath $ 625 550 $1.14
2 Bdrm 2 Bath $ 940 1,150 $ .82
2 Bdrm 2 Bath $1,075 1,200 $ .90
Arbors of Willow 1 Bdrm 1 Bath $ 595 750 $ .79
Lake 1 Bdrm 1 Bath $ 615 875 $ .70
2 Bdrm 1 1/2Bath $ 665 930 $ .72
2 Bdrm 2 Bath $ 720 1,078 $ .67
3 Bdrm 2 Bath $ 870 1,258 $ .69
</TABLE>
Item 3. Legal Proceedings.
The Partnership is not a party to any material legal proceeding nor,
to the best of its knowledge, are any such proceedings either pending or
threatened.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the
fourth quarter of the Partnership's fiscal year covered by this report.
4
<PAGE> 7
PART II
Item 5. Market for Registrant's Limited Partnership Interests and
Related Security Holder Matters.
The Units are not readily transferable. There is no public market for
the Units and it is not currently expected that any will develop. There are
restrictions upon the transferability of the Units, including the requirement
that the General Partners consent to any transferee becoming a substituted
Limited Partner (which consent may be granted or withheld at the sole
discretion of the General Partners). In addition, restrictions on transfer may
be imposed under state securities laws.
The Revenue Act of 1987 contains provisions which may have an adverse
impact on investors in certain "publicly traded partnerships." If the
Partnership were to be classified as a "publicly traded partnership," income
attributable to the Units would be characterized as portfolio income and the
gross income attributable to Units acquired by tax-exempt entities would be
unrelated business income, with the result that the Units could be less
marketable. The General Partners will, if necessary, take appropriate steps to
ensure that the Partnership will not be deemed a "publicly traded partnership."
At December 31, 1996 and 1995, 11,529 Units were outstanding. Cash
distributions paid to Unit holders for 1996 and 1995 totaled $415,440 and
$396,249, respectively.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Liquidity and Capital Resources.
In October 1992, the Partnership refinanced its original acquisition
loan with a new mortgage loan (the "Loan") from Peoples Security Life Insurance
Company, a North Carolina corporation (the "Lender"), in the principal sum of
$3,000,000. The Loan is payable in monthly payments of interest only with the
outstanding principal due on November 1, 1997. The Loan bears interest at a
rate of 7.75%. Principal prepayments of the Loan are permitted beginning
November 1, 1994 provided that: (i) the Partnership pay a prepayment penalty
of 3% of the outstanding principal amount; (ii) notice of prepayment is given
to the Lender 90 days prior to remittance; and (iii) prepayments are in
multiples of $10,000. No prepayments of principal have been made and the
principal amount of the Loan outstanding remains at $3,000,000. The General
Partners are currently exploring refinancing alternatives and anticipate
replacing the current loan with equally favorable terms.
At December 31, 1996, the Partnership had cash and cash equivalents of
$142,419 compared to $137,759 at December 31, 1995. The increase in cash and
cash equivalents is primarily the result of several factors, including: an
increase in net income, offset by a decrease in accounts payable and other
liabilities, and an increase in distributions to partners. The Partnership has
established working capital reserves equal to approximately 1% of the gross
proceeds of the Offering ($57,645 at December 31, 1996) which the General
Partners believe is adequate to satisfy cash requirements. The Managing
General Partner will periodically review the level of working capital reserves
being maintained by the Partnership and will make adjustments as and if deemed
necessary and in the best interest of the Partnership. In connection
5
<PAGE> 8
therewith, the Managing General Partner may, in its sole discretion, determine
from time to time to distribute amounts set aside for working capital reserves
to Limited Partners, but in no event will the Managing General Partner reduce
working capital reserves to less than 1% of the gross proceeds of the Offering
by such distributions. To the extent the Partnership's working capital
reserves are depleted to less than 1% as a result of the application of such
reserves for working capital purposes, the Managing General Partner anticipates
that subsequent Operating Cash Flow will be utilized to replenish its working
capital reserves to the level deemed necessary for continued operation of the
Partnership prior to the distribution of Operating Cash Flow to the Partners.
In the event such reserves are insufficient to satisfy unanticipated costs, the
Partnership would be required to borrow additional funds to meet such costs.
The General Partners believe that because the Partnership currently has mortgage
indebtedness of only $3,000,000 after substantial renovation of the Property,
the Property could be refinanced or secondary financing could be obtained if
necessary to provide additional funds.
The source of future liquidity and cash distributions to the Partners
is dependent primarily upon the cash generated by the Property. At December
31, 1996 the Property was generating, and the General Partners believe that the
Property will continue to generate, sufficient cash flow from operations to
service existing indebtedness.
Results of Operations.
Comparison of 1996 to 1995 . The Property was 97% and 98% occupied as
of December 31, 1996 and 1995, respectively. See the chart on page 3 detailing
occupancy as of December 31, 1996. For the year ended December 31, 1996, the
Partnership had rental revenues of $1,209,602 compared to $1,161,912 for the
year ended December 31, 1995. Revenues increased in 1996 as a result of a 2.8%
increase in rental rates and a 21.7% reduction in vacancy loss due to generally
improved market conditions during 1996. For the year ended December 31, 1996,
the Partnership had incurred expenses, exclusive of interest expense, of
$910,805, a 3.7% decrease from expenses for the year ended December 31, 1995 of
$945,412. Property operations decreased 3.1% from $256,550 in 1995 to $248,515
in 1996, primarily as the result of decreased rubbish removal, structural
repairs, and apartment carpet replacement offset by increased protection and
security, maintenance labor, janitorial services, electricity and water/sewer
utilities, vehicle operating, grounds maintenance, and apartment and structural
painting. Real estate tax expense for the Property decreased from $105,146 for
1995 to $91,384 for 1996 primarily due to an 8% reduction in tax rates which was
in part offset by a 2% increase in assessed value. Repairs and maintenance
expenses increased 18.7% from $25,011 in 1995 to $29,697 in 1996 due to higher
appliance and swimming pool repairs offset by lower carpet cleaning costs.
Advertising expenses decreased 17.3% from $34,931 in 1995 to $28,896 in 1996,
due to overall higher occupancy in 1996 as compared to 1995, and the absence in
1996 of the 1995 club house equipment and furnishings replacement expenditures.
General and administrative expenses decreased 10% from $157,552 in 1995 to
$141,860 in 1996 primarily due to reduced bad debt expense, administrative, and
audit and accounting fees and other professional service costs offset by higher
administrative salaries, corporate suite operations, property insurance, and
employer related costs. Bad debt expense decreased due to generally improved
economic conditions which benefits the Property. Administrative expenses
decreased primarily due to a one time legal services expenditure in 1995.
Administrative salaries increased due to salary increases and performance
bonuses. Increased corporate suite operations expense was offset by increased
corporate suite revenue. Employer related payroll costs increased due to
increased salary expense and the implementation of an
6
<PAGE> 9
employee benefit program. Management fee expense increased from $62,585 in
1995 to $63,489 in 1996 as the result of increased total revenue in 1996.
Interest income for the year ended December 31, 1996 was $6,521
compared to $6,780 for the year ended December 31, 1995. Interest expense for
the years ended December 31, 1996 and 1995 was $248,914. The General Partners
anticipate interest expense to be $206,332 through November 1, 1997, when the
current mortgage loan expires. The General Partners are currently exploring
refinancing alternatives and anticipate replacing the current loan with equally
favorable terms.
The Partnership earned net income of $115,172 for the year ended
December 31, 1996 as compared to net income of $36,001 for the year ended
December 31, 1995. Net cash provided by operating activities in 1996 and 1995
was $386,843 and $348,687, respectively. For the years ended 1996 and 1995,
the Partnership paid distributions to Limited Partners of $36.04 and $34.37 per
unit, respectively, of which $21.42 and $29.34 per unit, respectively
represents a return of capital on a federal income tax basis. The General
Partners intend to continue making distributions to Limited Partners in 1997,
at or about the same level as in 1996. The General Partners believe that
during 1997 occupancy at the Property will remain at or above 95% as a result
of stable economic conditions.
Inflation.
Inflation has several types of potentially conflicting impacts on real
estate investments. Short-term inflation can increase real estate operating
costs which may or may not be recovered through increased rents and/or sales
prices, depending on general or local economic conditions. In the long-term,
inflation can be expected to increase operating costs and replacement costs and
may lead to increased rental revenues and real estate values.
Item 7. Financial Statements.
See Index to Financial Statements on Page F-1 of this Form 10-KSB for
Financial Statements.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
7
<PAGE> 10
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The Partnership does not have directors or officers. The General
Partners of the Partnership are ChrisKen Income Properties, Inc. II, an
Illinois corporation, as Managing General Partner, and ChrisKen Limited
Partnership II, an Illinois limited partnership, as Associate General Partner.
All issued and outstanding shares of the Managing General Partner are
owned by Messrs. Robert W. Christoph and John F. Kennedy. As of January 1,
1994 and pursuant to written agreement, Mr. Christoph resigned as an officer
and director of the Managing General Partner and transferred his shares into a
voting trust which terminates on December 31, 2003. Mr. Kennedy is the voting
trustee of this voting trust and has the power to exercise all voting rights
with respect to Mr. Christoph's shares; Mr. Christoph retains the economic and
beneficial interest in such shares. The sole officer of the Managing General
Partner is John F. Kennedy, who is President and Secretary. Mr. Kennedy is its
sole director. The general partners of the Associate General Partner are Mr.
Kennedy and ChrisKen Equities, Inc., an Affiliate. As of January 1, 1994 and
pursuant to written agreement, Mr. Christoph converted his general partner
interest in the Associate General Partner into a special limited partner
interest without any management rights.
The following is a list of the executive officers and directors of the
Managing General Partner as of March 15, 1997:
Name Age Position
- ---- --- --------
John F. Kennedy 46 Director, President and Secretary
John F. Kennedy holds a Bachelor of Arts degree in Psychology from
DePaul University. Mr. Kennedy co-founded The ChrisKen Group with Mr.
Christoph in June of 1982 and has been an officer, director, and shareholder of
its Affiliated companies as they have been formed or incorporated. Mr. Kennedy
has been a Director, President (Vice President until 1994) and Secretary of the
Managing General Partner since 1989, Secretary of ChrisKen Real Estate
Management Company, Inc. and is a general partner of the Associate General
Partner. Prior to co-founding The ChrisKen Group, he was involved from 1977 to
1978 with marketing various properties for American Invesco, a condominium
conversion firm headquartered in Chicago. Mr. Kennedy served as Vice President
of marketing for a privately held real estate securities firm based in Hawaii
from 1978 to 1980. Mr. Kennedy has been a licensed real estate broker since
1981 and is currently a general partner in 26 privately offered real estate
partnerships located primarily in the Midwest. He also serves as a principal
of the General Partners of ChrisKen Partners Cash Income Fund L.P., a public
real estate limited partnership.
8
<PAGE> 11
Item 10. Executive Compensation.
The Partnership does not have directors or officers. Furthermore, the
Partnership is not required to pay the officers and directors of its General
Partners any current or any proposed compensation in their capacities as
officers and directors of the General Partners. The Partnership is, however,
required to pay certain fees, make distributions and allocate a share of the
profits or losses of the Partnership to the General Partners as described under
the caption "Management Compensation" on pages 10 through 15 of the
Partnership's Prospectus, which description is incorporated herein by
reference.
The following is a schedule of the compensation paid or to be paid by
the Partnership to the General Partners or their Affiliates for the year ended
December 31, 1996 and a description of the transactions giving rise to such
compensation:
Description of Transaction
and Entity Receiving Amount of
Compensation Compensation
- ------------ -------------
Reimbursement of property operating
payroll costs to Affiliate of the
General Partners $ 90,508
Property Management Fee to Affiliate
of the General Partners 63,489
--------
Total $153,997
========
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
(a) To the best knowledge of the Partnership, as of December 31,
1996 and March 15, 1997, no person owned more than 5% of the Units.
(b) The Partnership, as an entity, does not have any directors or
officers. As of December 31, 1996 and March 15, 1997, 11,529 Units were
beneficially owned by 631 Limited Partners. No Units were owned by any
directors or executive officers of the General Partners. See Item 9., above.
9
<PAGE> 12
Item 12. Certain Relationships and Related Transactions.
ChrisKen Management, an Affiliate of the General Partners, will
provide property management services for the Property. The property manager's
duties and responsibilities include supervision of the day-to-day management of
the operations of the Property, the rendition of long-range planning services
and rendering such assistance and consultation to the Managing General Partner
as may be necessary to provide for the efficient administration and the
protection of the Property. Any fees for management services will be in
addition to the General Partners' distributive share of cash flow.
There may be conflicts of interest on the part of ChrisKen Management
since ChrisKen Management may be rendering similar services to other
partnerships owning properties in competition with the Partnership's Property.
However, the General Partners believe that ChrisKen Management has sufficient
personnel and other required resources to discharge all of its responsibilities
with respect to the Property that it currently manages and any properties which
it shall manage for the Partnership in the future.
Neither the General Partners nor their Affiliates are prohibited from
providing services to, and otherwise dealing or doing business with, persons
who deal with the Partnership. However, no rebates or "give ups" may be
received by the General Partners or any such Affiliates of the General
Partners, nor may the General Partners or any such Affiliates participate in
any reciprocal business arrangements which would have the effect of
circumventing any of the provisions of the Partnership Agreement.
The Partnership may enter into other transactions with an Affiliate
provided that such transactions will be conducted by the General Partners on
terms which are not less favorable to the Partnership than those available from
others, the fees and other terms of the contract are fully disclosed and such
party must have been previously engaged in such business independently of the
Partnership and as an ordinary and ongoing business.
Upon the sale or refinancing of a real estate investment purchased by
the Partnership, the General Partners will receive real estate brokerage
commissions in an amount equal to the lesser of: (a) 3% of the gross sales
price of the Property; or (b) 1/2 of the competitive real estate commission if
they have rendered such services; provided, however, that payment of such
commissions to the General Partners shall be subordinated to receipt by the
Limited Partners of their Adjusted Investment and their Preferential
Distribution.
10
<PAGE> 13
Item 13. Exhibits and Reports on Form 8-K.
(a) The following exhibits are included herein or incorporated by
reference:
Number Exhibit
- ------ -------
(3) Certificate of Limited Partnership, as amended (incorporated by
reference from Exhibit 3(e) of Registrant's Form S-11 Registration
Statement filed August 25, 1989, SEC File No. 33-28893).
(4) Amended and Restated Limited Partnership Agreement of Registrant dated
as of September 8, 1989 (incorporated by reference from Exhibit 3.1,
included in Amendment No. 4 to the Registrant's Form S-11
Registration Statement filed August 25, 1989, S.E.C.
File No. 33-28893).
(10)(1) Property Management Agreement between the Registrant and ChrisKen Real
Estate Management Company, Inc. (incorporated by reference from
Exhibit 19.1, included in Amendment No. 4 to the Registrant's
Form S-11 Registration Statement filed August 25, 1989, S.E.C.
File No. 33-28893).
(F-1) Index to Financial Statements.
Report of Independent Auditors F-2
Financial Statements:
Balance Sheet - December 31, 1996 F-3
Statements of Income for the Years Ended
December 31, 1996 and 1995 F-4
Statements of Partners' Capital (Deficit) for
the Years Ended December 31, 1996 and 1995 F-5
Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995 F-6
Notes to Financial Statements F-7
(28)(1) Pages 10-15 of the Registrant's final Prospectus dated
September 8, 1989 as filed with the Securities and Exchange
Commission pursuant to Rule 424(b) under the Securities Act of 1933,
as amended.
(b) Reports on Form 8-K.
The Partnership did not file any reports on Form 8-K during the quarter
ended December 31, 1996.
11
<PAGE> 14
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CHRISKEN GROWTH & INCOME L.P. II
By: ChrisKen Income Properties, Inc. II,
Managing General Partner
Date: March 25, 1997 By: /s/ John F. Kennedy
--------------------------------
Director and President
In accordance with the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 25, 1997 By: /s/ John F. Kennedy
--------------------------------
Director and President
of the Managing General
Partner
12
<PAGE> 15
Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Index to Financial Statements
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . F-2
Financial Statements
Balance Sheet - December 31, 1996 . . . . . . . . . . . . . . . . . . . F-3
Statements of Income for the Years Ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Partners' Capital (Deficit) for the Years
Ended December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . F-7
F-1
<PAGE> 16
Report of Independent Auditors
To the Partners
Chrisken Growth & Income L.P. II
We have audited the accompanying balance sheet of Chrisken Growth &
Income L.P. II (a Delaware limited partnership), as of December 31, 1996, and
the related statements of income, partners' capital (deficit), and cash flows
for the two years in the period ended December 31, 1996. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ChrisKen Growth &
Income L.P. II at December 31, 1996, and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Chicago, Illinois
March 14, 1997
F-2
<PAGE> 17
Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Balance Sheet
December 31, 1996
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents $ 142,419
Restricted cash 57,645
Real estate and other escrows 29,874
Deferred financing fees, net of accumulated amortization of $69,487 12,584
Other 8,825
-----------
251,347
Investment in real estate, at cost:
Land 315,334
Land improvements 372,881
Buildings and improvements 6,461,025
Equipment 409,212
-----------
7,558,452
Less: Accumulated depreciation (1,862,563)
-----------
5,695,889
-----------
Total assets $ 5,947,236
===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 48,146
Accrued real estate taxes 101,850
Tenants' security deposits 21,692
Mortgage loan payable 3,000,000
-----------
Total liabilities 3,171,688
Partners' capital, 11,529 limited partnership units issued
and outstanding 2,775,548
-----------
Total liabilities and partners' capital $ 5,947,236
===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 18
Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
-------------------------------
<S> <C> <C>
REVENUE
Rental $1,209,602 $1,161,912
Interest 6,521 6,780
Other 58,768 61,635
---------------------------
Total revenue 1,274,891 1,230,327
EXPENSES
Property operations 248,515 256,550
Interest 248,914 248,914
Real estate taxes 91,384 105,146
Repairs and maintenance 29,697 25,011
Advertising 28,896 34,931
Depreciation 306,964 303,637
General and administrative 141,860 157,552
Management fees - Affiliate 63,489 62,585
----------------------------
1,159,719 1,194,326
----------------------------
Net income $ 115,172 $ 36,001
============================
Net income allocated to general partners $ 11,517 $ 3,600
============================
Net income allocated to limited partners $ 103,655 $ 32,401
============================
Net income allocated to limited partners per limited partnership
units outstanding $ 8.99 $ 2.81
============================
Limited partnership units outstanding 11,529 11,529
============================
</TABLE>
See accompanying notes.
F-4
<PAGE> 19
Chrisken Growth and Income L.P. II
(A Delaware Limited Partnership)
Statements of Partners' Capital (Deficit)
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
PARTNERS' CAPITAL (DEFICIT) ACCOUNTS
--------------------------------------------------------------------
GENERAL LIMITED DUE FROM
PARTNERS PARTNERS AFFILIATES TOTAL
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $(29,014) $3,465,078 $(188,775) $3,247,289
Distributions (A) - (396,249) - (396,249)
Net income 3,600 32,401 - 36,001
Reduction of organization and
offering costs - - 141,150 141,150
-------------------------------------------------------------
Balance at December 31, 1995 (25,414) 3,101,230 (47,625) 3,028,191
Distributions (A) - (415,440) - (415,440)
Net income 11,517 103,655 - 115,172
Reimbursement from affiliates - - 47,625 47,625
-------------------------------------------------------------
Balance at December 31, 1996 $(13,897) $2,789,445 $ - $2,775,548
=============================================================
</TABLE>
Note (A): Summary of quarterly cash distributions paid per limited partnership
unit:
<TABLE>
<CAPTION>
1996 1995
------------------------
<S> <C> <C>
First quarter $8.82 $8.19
Second quarter 9.04 8.63
Third quarter 9.04 8.73
Fourth quarter 9.14 8.82
</TABLE>
See accompanying notes.
F-5
<PAGE> 20
Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
-------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 115,172 $ 36,001
Adjustments to reconcile net income to net cash
flows provided by operating activities:
Depreciation 306,964 303,637
Amortization of deferred financing fees 16,414 16,414
Net changes in operating assets and liabilities:
Increase in real estate and other escrows (12,473) (1,213)
Decrease in other assets 2,294 5,746
Decrease in accounts payable and accrued expenses (13,870) (902)
Decrease in tenants' security deposits (1,355) (10,996)
Decrease in due to affiliates (26,303) -
--------------------------
Net cash flows provided by operating activities 386,843 348,687
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to investment in real estate (14,368) (25,622)
--------------------------
Cash flows used in investing activities (14,368) (25,622)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions (415,440) (396,249)
Reimbursement from affiliates 47,625 -
--------------------------
Net cash flows used in financing activities (367,815) (396,249)
--------------------------
Net increase (decrease) in cash and cash equivalents 4,660 (73,184)
Cash and cash equivalents, beginning of year 137,759 210,943
--------------------------
Cash and cash equivalents, end of year $ 142,419 $137,759
==========================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 232,500 $232,500
==========================
</TABLE>
See accompanying notes.
F-6
<PAGE> 21
Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Notes to Financial Statements
Years ended December 31, 1996 and 1995
1. ORGANIZATIONAL DATA
Chrisken Growth & Income L.P. II (the Partnership) is a Delaware limited
partnership, organized on May 9, 1989, with Chrisken Income Properties, Inc. II
(Managing General Partner) and Chrisken Limited Partnership II as the General
Partners. Pursuant to a public offering (the Offering), the Partnership sold
11,529 limited partnership units at $500 for each unit. The proceeds of the
Offering were used to acquire Barrington Estates (the Property), a 144-unit
residential rental complex located in Indianapolis, Indiana.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
DEFERRED FINANCING FEES
Deferred financing fees are amortized over the life of the related loan using
the straight-line method.
INVESTMENT IN REAL ESTATE
Depreciation of property and improvements is computed using the straight-line
method over the estimated useful lives of the assets. Residential property is
depreciated over 27.5 years and equipment is depreciated over five to seven
years.
RENTAL REVENUE
The Partnership recognizes rental revenues as they are due in accordance with
the terms of the respective tenant leases. This method of rental recognition
approximates a straight-line basis due to the short-term nature (generally one
year or less) of tenant leases.
F-7
<PAGE> 22
Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet,
for which it is practical to estimate that value. Substantially all financial
instruments reflected in the Partnership's balance sheet, consisting of cash
and cash equivalents, restricted cash, escrow accounts, accounts payable, and
mortgage loan payable are, by their terms, equivalent with respect to carrying
and fair values. Management is not aware of the existence of any
off-balance-sheet financial instruments.
INCOME TAXES
The Partnership is not liable for federal income taxes. Each partner includes
his proportionate share of partnership income or loss in his own tax return.
Therefore, no provision for income taxes is made in the financial statements of
the Partnership.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. BASIS OF PRESENTATION
The Partnership maintains its accounting books and records in accordance with
the Internal Revenue Code's rules and regulations. The accompanying financial
statements are prepared in accordance with generally accepted accounting
principles, which will differ from the federal income tax basis method of
accounting due to the different treatment of various items as specified in the
Internal Revenue Code; principally depreciation expense and prepaid rent. The
net effect of these accounting differences is that net income recognized in the
financial statements for 1996 and 1995 is approximately $53,000 and $22,000
less, respectively, than the taxable income of the Partnership for the same
periods. The aggregate cost of real estate for federal income tax purposes at
December 31, 1996, is $7,548,892.
F-8
<PAGE> 23
Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Notes to Financial Statements (continued)
4. PARTNERSHIP AGREEMENT
The Limited Partners are entitled to receive 90% of, and the General Partners
10% of, any operating cash flow, as defined, provided, however, that the
General Partners' 10% shall be subordinated in each year to receipt by the
Limited Partners of a preferential, noncumulative, noncompounded return on
their adjusted investment, as defined, equal to 9% per annum (the Annual
Preferred Return). Distributions to partners in 1996 and 1995 were not
sufficient to meet the Annual Preferred Return.
Net sale or refinancing proceeds, as defined, to the extent distributed, will
be allocated to the Limited Partners until the Limited Partners receive
distributions equal to their adjusted investment in the Partnership, together
with an amount, to the extent not previously paid, necessary to yield an annual
return on their adjusted investment of 10% per annum, which shall be cumulative
but noncompounded. Thereafter, 85% of any additional net sale or refinancing
proceeds will be allocated to the Limited Partners, and 15% will be allocated
to the General Partners. Net proceeds from a sale may not be reinvested in new
properties by the Partnership after the Partnership has completed its second
year of operations. Net proceeds from a refinancing will be reinvested only to
the extent necessary for improvements and repairs to existing properties.
Profits and losses from operations are allocated between the General Partners
and the Limited Partners in the same proportion as distributions of operating
cash flow attributable to such year, although if no such distributions are made
in such year, profit and loss shall be allocated 99% to the Limited Partners
and 1% to the General Partners. Profits resulting from the sale or other
disposition of Partnership real estate assets shall be allocated first to the
Limited Partners until they have received an amount so that their capital
account balances equal their adjusted investment, then to the Limited Partners
until their capital account balances equal their unpaid preferential
distribution, as defined, plus their adjusted investment, and thereafter, the
remainder will be allocated 85% to the Limited Partners and 15% to the General
Partners.
The Partnership shall continue until December 31, 2028, unless sooner
terminated pursuant to the applicable provisions of the Partnership Agreement.
The Partnership maintains working capital reserves between 1% and 5% of the
proceeds of the limited partnership units sold as provided in the Partnership
Agreement. To the extent necessary and in accordance with the Partnership
Agreement, the Managing General Partner, at its discretion, may adjust the
level of working capital reserves to meet cash requirement needs of the
Partnership. At December 31, 1996, cash restricted for working capital reserve
purposes was $57,645.
F-9
<PAGE> 24
Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Notes to Financial Statements (continued)
5. RELATED PARTY TRANSACTIONS
The Partnership pays management fees to Chrisken Real Estate Management
Company, Inc. (Chrisken), an affiliate of the General Partners, equal to 5% of
property gross collections, as defined. Total management fees for 1996 and
1995 were $63,489 and $62,585, respectively. The agreement is subject to
annual renewal. In addition, the Partnership reimburses Chrisken for personnel
costs directly attributable to property operations totaling $90,508 and $88,570
in 1996 and 1995, respectively. These costs are included in property operation
expenses in the accompanying statements of income.
The Partnership incurred organization and offering expenses of $188,775 in
excess of the limitations set forth in the Partnership Agreement. This amount
was due from the General Partners and was recorded as due from affiliates and
classified as a reduction of Partners' Capital. Included in the excess
offering costs were $141,150 of printing costs for which the Partnership's
obligation was terminated in 1995. Accordingly, the Partnership recorded a
reduction to accounts payable and due from affiliates for the above amount in
1995. The Partnership received the remaining $47,625 from the General Partners
in 1996. Accordingly, the Partnership recorded a reduction in due from
affiliates for the above amount in 1996.
6. MORTGAGE LOAN PAYABLE
The Partnership has a nonrecourse first mortgage loan payable of $3,000,000 to
an unaffiliated insurance company, which is collateralized by the Partnership's
real estate. The loan is payable in monthly installments of interest only at a
rate of 7.75% per annum, which approximates current market rates for similar
instruments. Principal and unpaid interest are due on November 1, 1997.
Principal prepayments are permitted, provided that: (a) the Partnership pays a
prepayment penalty of 3% of the outstanding principal amount; (b) notice of
prepayment be given to the lender 90 days prior to remittance; and
(c) prepayments be in multiples of $10,000. The Partnership, in the normal
course of business, expects to obtain an extension on the mortgage loan or to
refinance the mortgage loan with another lender. No provision for any gain or
loss that may result from the outcome of this uncertainty has been reflected in
the accompanying financial statements. The Partnership incurred origination
costs of $82,062 related to the mortgage loan, which are being amortized over
the life of the loan. During 1996 and 1995, the Partnership recorded
amortization expense of $16,414 related to the origination costs which is
included in interest expense in the accompanying statements of income.
F-10
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000850625
<NAME> CHRISKEN GROWTH & INCOME LP II
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 200,064
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 251,347
<PP&E> 7,558,452
<DEPRECIATION> 1,862,563
<TOTAL-ASSETS> 5,947,236
<CURRENT-LIABILITIES> 171,688
<BONDS> 3,000,000
0
0
<COMMON> 0
<OTHER-SE> 2,775,548
<TOTAL-LIABILITY-AND-EQUITY> 5,947,236
<SALES> 1,209,602
<TOTAL-REVENUES> 1,274,891
<CGS> 0
<TOTAL-COSTS> 910,805
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 248,914
<INCOME-PRETAX> 115,172
<INCOME-TAX> 0
<INCOME-CONTINUING> 115,172
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,172
<EPS-PRIMARY> 8.99
<EPS-DILUTED> 8.99
</TABLE>
