ITEM 1. BUSINESS - ------- --------
ORGANIZATION - ------------
McNeil Pacific Investors Fund 1972 (the "Partnership") was organized September 30, 1971 as a limited partnership under provisions of the California Uniform Limited Partnership Act. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil ("McNeil"). The General Partner was elected at a meeting of limited partners on March 30, 1992, at which time the Partnership's restated certificate and agreement of limited partnership (the "Partnership Agreement") was amended. Prior to March 30, 1992, Pacific Investors Corporation (the "Corporate General Partner"), an affiliate of Southmark Corporation ("Southmark"), and McNeil were the general partners of the Partnership. The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240.
On March 8, 1972, a Registration Statement on Form S-11 was declared effective by the Securities and Exchange Commission whereby the Partnership offered for sale $15,000,000 of limited partnership units ("Units"). The Units represent equity interests in the Partnership and entitle the holders thereof to participate in certain allocations and distributions of the Partnership. The sale of Units closed on April 30, 1973 with 13,795 Units sold for gross proceeds of $13,795,000 to the Partnership, including 50 Units purchased by the original general partners. 37.5 and 5 Units were relinquished in 1994 and 1995, respectively, leaving 13,752.5 Units outstanding at December 31, 1998.
SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER - --------------------------------------------------
On July 14, 1989, Southmark filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership, McNeil, nor the Corporate General Partner were included in the filing. Southmark's reorganization plan became effective August 10, 1990. Under the plan, most of Southmark's assets, including Southmark's interest in the Corporate General Partner, were sold or liquidated for the benefit of creditors.
In accordance with Southmark's reorganization plan, Southmark, McNeil and various of their affiliates entered into an asset purchase agreement on October 12, 1990, providing for, among other things, the transfer of control to McNeil or his affiliates of 34 limited partnerships (including the Partnership) in the Southmark portfolio.
On February 14, 1991, pursuant to the asset purchase agreement as amended on that date: (a) an affiliate of McNeil purchased the Corporate General Partner's economic interest in the Partnership; (b) McNeil became the managing general partner of the Partnership pursuant to an agreement with the Corporate General Partner that delegated management authority to McNeil; and (c) McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of McNeil, acquired the assets relating to the property management and partnership administrative business of Southmark and its affiliates.
On March 30, 1992, the limited partners approved a proposal to (i) replace McNeil and the Corporate General Partner as general partners of the Partnership with the General Partner, and (ii) amend the Partnership Agreement to (a) extend the term of the Partnership from December 31, 1992, until December 31, 2002, (b) provide for a limitation on administrative operating expenses equal to 2% of tangible asset value, as defined, and (c) provide for the establishment of an oversight committee that will review and report on the Partnership's compliance with the 2% limitation on administrative operating expenses.
CURRENT OPERATIONS - ------------------
General:
The Partnership was engaged in real estate activities, including the ownership, operation and management of residential rental real estate and other real estate related assets. On September 30, 1997, the Partnership sold its last real estate asset, Palm Bay Apartments. The Partnership is in the process of liquidating its assets, satisfying its remaining creditors, and terminating its operations. At December 31, 1998, the Partnership did not own any income-producing properties.
The Partnership does not directly employ any personnel. The General Partner conducts the business of the Partnership directly and through its affiliates. The Partnership is managed by the General Partner. In accordance with the Partnership Agreement, the Partnership reimburses affiliates of the General Partner for certain expenses incurred by the affiliates in connection with the management of the Partnership. See Item 8 Note 2 - "Transactions With Affiliates."
The business of the Partnership to date has involved only one industry segment. See Item 8 - Financial Statements and Supplementary Data. The Partnership has no foreign operations. The business of the Partnership is not seasonal.
Business Plan:
Pursuant to its plan to liquidate its remaining properties, the Partnership sold its last real estate asset, Palm Bay Apartments, on September 30, 1997. The Partnership is currently in the process of liquidating its assets, satisfying all remaining creditors, and terminating its operations. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Information:
Within this document, certain statements are made as to expected Partnership developments, including the ultimate termination of the Partnership's business, satisfaction of the Partnership's creditors, and distributions to limited partners. All of these statements are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical and involve risks and uncertainties. The Partnership's actual financial condition, results of operations, and cash flows for future periods may differ materially due to several factors. These factors include, but are not limited to, the outcome of litigation in which the Partnership is a defendant.
Environmental Matters:
The environmental laws of the Federal government and of certain state and local governments impose liability on current property owners for the clean up of hazardous and toxic substances discharged on the property. This liability may be imposed without regard to the timing, cause or person responsible for the release of such substances onto the property.
Under such environmental laws, a current or previous owner or operator of real estate may be required to investigate and clean up certain hazardous or toxic substances and may be held liable to a governmental entity or third parties for property damage and for investigation and cleanup costs incurred by such parties in connection with the contamination whether or not the owner or operator knew of, or was responsible for, the contamination. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. The presence of contamination or the failure to remediate contaminations may adversely affect the owner's ability to sell or lease real estate or to borrow using the real estate as collateral. The owner or operator of a site may be liable under common law to third parties for damages and injuries resulting from environmental contamination emanating from the site. Such costs or liabilities could exceed the value of the affected real estate.
In connection with the proposed sale transaction as more fully described above, Phase I environmental site assessments have been completed for each property owned by the Partnership. Such environmental assessments performed on the properties have not revealed any environmental liability that the Partnership believes would have a material adverse effect on the Partnership's business, assets, or results of operations. The Partnership has not been notified by any governmental authority of any non-compliance, liability or other claim in connection with any of its properties. There can be no assurances, however, that environmental liabilities have not developed since such environmental assessments were prepared, or that future uses or conditions (including, without limitation, changes in applicable environmental laws and regulations) will not result in imposition of environmental liability.
Other Information:
In August 1995, High River Limited Partnership, a Delaware limited partnership controlled by Carl C. Icahn ("High River") made an unsolicited tender offer to purchase from holders of Units up to approximately 45% of the outstanding Units of the Partnership for a purchase price of $110 per Unit. In September 1996, High River made another unsolicited tender offer to purchase any and all of the outstanding Units of the Partnership for a purchase price of $224.50 per Unit. In addition, High River made unsolicited tender offers for certain other partnerships controlled by the General Partner. The Partnership made no recommendation to the limited partners concerning the tender offers made with respect to the Partnership. The General Partner believes that as of February 1, 1999, High River has purchased approximately 11.7% of the outstanding Units pursuant to the tender offers. In addition, all litigation filed by High River, Mr. Icahn and his affiliates in connection with the tender offers have been dismissed without prejudice.
ITEM 2.
ITEM 2. PROPERTY - ------- --------
The Partnership's last remaining property, Palm Bay Apartments, was sold to an unaffiliated purchaser on September 30, 1997.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS - ------- -----------------
The Partnership is not party to, nor are any of the Partnership's properties the subject of, any material pending legal proceedings, other than ordinary, routine litigation incidental to the Partnership's business, except for the following:
James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P., - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint).
The action involves purported class and derivative actions brought by limited partners of each of the limited partnerships that were named as nominal defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (collectively, the "Defendants") breached their fiduciary duties and certain obligations under the respective Amended Partnership Agreement. Plaintiffs allege that Defendants have rendered such Units highly illiquid and artificially depressed the prices that are available for Units on the resale market. Plaintiffs also allege that Defendants engaged in a course of conduct to prevent the acquisition of Units by an affiliate of Carl Icahn by disseminating purportedly false, misleading and inadequate information. Plaintiffs further allege that Defendants acted to advance their own personal interests at the expense of the Partnerships' public unit holders by failing to sell Partnership properties and failing to make distributions to unitholders.
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint. Plaintiffs are suing for breach of fiduciary duty, breach of contract and an accounting, alleging, among other things, that the management fees paid to the McNeil affiliates over the last six years are excessive, that these fees should be reduced retroactively and that the respective Amended Partnership Agreements governing the Partnerships are invalid.
Defendants filed a demurrer to the consolidated and amended complaint and a motion to strike on February 14, 1997, seeking to dismiss the consolidated and amended complaint in all respects. A hearing on Defendant's demurrer and motion to strike was held on May 5, 1997. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. The case was stayed pending settlement discussions. A Stipulation of Settlement dated September 15, 1998 has been signed by the parties. Preliminary Court approval was received on October 6, 1998. A hearing for Final Approval of Settlement, initially scheduled for December 17, 1998, has been continued to May 25, 1999.
Because McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P. would be part of the transaction contemplated in the settlement and Plaintiffs claim that an effort should be made to sell the McNeil Partnerships, Plaintiffs have included allegations with respect to McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P. in the third consolidated and amended complaint.
Plaintiff's counsel intends to seek an order awarding attorney's fees and reimbursements of their out-of-pocket expenses. The amount of such award is undeterminable until final approval is received from the court. Fees and expenses shall be allocated amongst the Partnerships on a pro rata basis, based upon tangible asset value of each such partnership, less total liabilities, calculated in accordance with the Amended Partnership Agreements for the quarter most recently ended.
For discussion of the Southmark bankruptcy, see Item 1 - Business.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- ---------------------------------------------------
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND - ------- ------------------------------------------------------------ RELATED SECURITY HOLDER MATTERS -------------------------------
(A) There is no established public trading market for limited partnership units, nor is one expected to develop.
(B) Title of Class Number of Record Unit Holders
Limited partnership units 1,165 as of February 1, 1999
(C) In December 1997, the Partnership distributed $4,772,400 to its partners. No distributions were made in 1998 or 1996. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the Partnership's plan to pay a liquidating distribution to the partners.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA - ------- -----------------------
The following table sets forth a summary of certain financial data for the Partnership. This summary should be read in conjunction with the Partnership's financial statements and notes thereto appearing in Item 8 - Financial Statements and Supplementary Data.
See Item 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------- ----------------------------------------------------------- AND RESULTS OF OPERATIONS -------------------------
FINANCIAL CONDITION - -------------------
On September 30, 1997, the Partnership sold its last real estate asset, Palm Bay Apartments. Proceeds from the sale were distributed to the partners in December 1997. As of the end of 1998, the Partnership's sole remaining asset consisted of $397,954 of cash and cash equivalents. At the end of 1998, the Partnership's liabilities consisted of $17,064 of accrued expenses, $12,362 of which were due to affiliates of the General Partner.
The Partnership remains subject to litigation as discussed in Item 3 - "Legal Proceedings." The General Partner intends to use the Partnership's remaining funds for the payment of costs associated with the litigation. After the remaining litigation is either adjudicated or otherwise settled, and all legal and other costs have been provided for, remaining Partnership funds, if any, will be distributed to the partners.
RESULTS OF OPERATIONS - ---------------------
1998 compared to 1997:
Revenue:
Due to the sale of the Partnership's last property on September 30, 1997, the Partnership earned no rental revenue for the year ended December 31, 1998. Similarly, no gain on sale of real estate was recorded during 1998.
Interest revenue decreased 76% to $20,070 for the year ended December 31, 1998. Interest revenue decreased after the Partnership distributed most of its cash reserves to its partners in December 1997.
Expenses:
The Partnership incurred a total of $11,114 of residual expenses related to Palm Bay Apartments during the year ended December 31, 1998.
General and administrative expenses decreased 48% to $45,935 in 1998 as compared to 1997. The Partnership continues to incur costs related to the litigation discussed below. However, the amount of litigation-related costs decreased for the twelve month period ended December 31, 1998, as compared to 1997.
General and administrative expenses paid to affiliates during 1998 reflects a $3,550 refund from affiliates. General and administrative expenses for 1997 exceeded the limit equal to 2% of the Partnership's assets established by the Amended Partnership Agreement. Consequently, in the first quarter of 1998 the Partnership received a refund from an affiliate.
1997 compared to 1996:
Revenue:
Rental revenue decreased $338,135 or 20% in 1997 as compared to 1996. Rental revenue decreased due to the September 30, 1997 sale of Palm Bay Apartments. Prior to the sale, rental revenues from Palm Bay Apartments were up 7.7% due to an improving occupancy rate. Vacancy losses for the period from January 1, 1997 through the date of sale decreased 11.9% as compared to the same period of 1996, while other rental discounts and concessions had decreased 77%.
The Partnership reported a $151,141 gain on the sale of Palm Bay Apartments. No such gain was realized in 1996. Proceeds from the sale of Palm Bay Apartments were invested in interest-bearing cash accounts. As a result, interest revenue increased to $84,447 for 1997 as compared to $27,011 of interest earned in 1996.
Expenses:
Expenses decreased $392,217 or 24% for 1997 as compared to 1996. Interest, property taxes, personnel expenses, property management fees, utilities and other operating expenses all decreased as a result of the September 30, 1997 sale of Palm Bay Apartments.
Repairs and maintenance, however, increased despite the sale of Palm Bay Apartments. Repairs and maintenance increased $1,104 to $312,631. Expenditures for replacement of floor covering and appliances, due to their magnitude, were capitalized in 1996. Such expenditures did not qualify for capitalization in 1997 and were, as a consequence, expensed.
General and administrative expenses increased $11,064 or 14.4% in 1997 compared to 1996. Beginning in 1997, investor services were provided by an independent contractor instead of by affiliates of the General Partner. $8,971 of the increase in general and administrative expenses is due to investor services costs.
General and administrative expenses paid to affiliates increased $42,189 to $88,126 in 1997 as compared to $45,937 in 1996. Included in general and administrative expenses paid to affiliates for 1997 is a $23,368 partnership management fee. Partnership management fees are equal to 9.5% of distributions of cash from operations paid to the limited partners. No such fee was incurred in 1996. Partnership administrative fees also increased because of expenses incurred as the Partnership begins to wind up its business affairs. Such increases were partially offset by decreased costs for investor services as explained in the preceding paragraph.
LIQUIDITY AND CAPITAL RESOURCES - -------------------------------
The Partnership used $53,552 in operating activities in 1998, as compared to providing $261,558 from operating activities in 1997. The September 30, 1997 sale of Palm Bay Apartments, the Partnership's last real estate asset, accounts for the decrease. The Partnership realized $4,549,786 of cash from the sale of Palm Bay Apartments, after retirement of the Palm Bay mortgage note. The cash realized from the sale of Palm Bay Apartments, as well as some cash reserves of the Partnership, were distributed to the partners in December 1997.
Short-term Liquidity:
At December 31, 1998, the Partnership held $397,954 of cash and cash equivalents. The Partnership owns no other assets. The Partnership intends to use its remaining funds to pay the remaining accrued expenses owed by the Partnership, in the amount of $17,064 as of December 31, 1998, to pay all remaining expenses connected with the termination of the Partnership, and to provide a contingency reserve to pay all costs associated with ongoing litigation involving the Partnership as a defendant. After all expenses have been provided for, and the litigation is resolved through either adjudication or settlement, any remaining Partnership funds will be distributed to the partners in accordance with terms of the Partnership Agreement. The General Partner considers the current balance of cash and cash equivalents adequate for all of these purposes.
Long-term Liquidity:
Because the Partnership is terminating its affairs, long-term liquidity no longer remains as an issue for the Partnership.
Distributions:
In December 1997, the Partnership distributed $4,772,400 to its partners.
No distributions were paid to the partners during 1998. Distribution of the remaining cash reserves of the Partnership will be made from any remaining funds of the Partnership after all liabilities of the Partnership have been paid, including costs associated with terminating the Partnership's affairs, and costs associated with adjudicating or settling litigation in which the Partnership is involved.
YEAR 2000 DISCLOSURE - --------------------
State of readiness - ------------------
The year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in major systems failure or miscalculations.
Management has assessed its information technology ("IT") infrastructure to identify any systems that could be affected by the year 2000 problem. The IT used by the Partnership for financial reporting and significant accounting functions was made year 2000 compliant during recent systems conversions. The software utilized for these functions are licensed by third party vendors who have warranted that their systems are year 2000 compliant.
Cost - ----
The cost of IT upgrades is not expected to be material to the Partnership. Because all the IT systems have been upgraded over the last three years, all such systems were compliant, or made compliant at no additional cost by third party vendors.
Risks - -----
Ultimately, the potential impact of the year 2000 issue will depend not only on the corrective measures the Partnership undertakes, but also on the way in which the year 2000 issue is addressed by government agencies and entities that provide services or supplies to the Partnership. Management has not determined the most likely worst case scenario to the Partnership. Management believes that progress on all areas is proceeding and that the Partnership will experience no adverse effect as a result of the year 2000 issue. However, there is no assurance that this will be the case.
Contingency plans - -----------------
Management is developing contingency plans to address potential year 2000 non-compliance of IT. Management believes that alternative systems are available that could be utilized to minimize such impact. Management will assess these risks and develop plans to mitigate possible failures by June, 1999.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------- ----------------------------------------------------------
Not Applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------
All schedules are omitted because they are not applicable or the financial information required is included in the financial statements or the notes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of McNeil Pacific Investors Fund 1972:
We have audited the accompanying statements of net assets in liquidation of McNeil Pacific Investors Fund 1972 (a California limited partnership) as of December 31, 1998 and 1997, and the related statement of changes in net assets in liquidation for the year ended December 31, 1998. In addition, we have audited the statements of operations, partners' equity and cash flows for each of the two years in the period ended December 31, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, on August 12, 1997, the sale of Palm Bay Apartments and the dissolution of the Partnership were approved at a meeting of the limited partners. After the September 30, 1997 sale of Palm Bay Apartments, the General Partner commenced the dissolution and termination of the Partnership. As a result, the Partnership has changed its basis of accounting as of and for the periods subsequent to December 31, 1997, from the going-concern basis to the liquidation basis. Accordingly, the carrying value of the remaining assets as of December 31, 1998, are presented at estimated realizable values and all liabilities are presented at estimated settlement amounts.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets in liquidation of McNeil Pacific Investors Fund 1972 as of December 31, 1998 and 1997, the changes in its net assets in liquidation for the year ended December 31, 1998, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1997, in conformity with generally accepted accounting principles applied on the bases described in the preceding paragraph.
/s/ Arthur Andersen LLP
Dallas, Texas March 19, 1999
McNEIL PACIFIC INVESTORS FUND 1972 (a California limited partnership in the process of liquidation)
STATEMENTS OF NET ASSETS IN LIQUIDATION
See accompanying notes to financial statements
McNEIL PACIFIC INVESTORS FUND 1972 (a California limited partnership in the process of liquidation)
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
December 31, -------------
Revenue: Interest and other revenue.................... $ 20,070 ------------
Expenses: Personnel expenses.............................. 73 Repairs and maintenance......................... 9,537 Other property operating expenses............... 1,504 General and administrative...................... 45,935 General and administrative - affiliates......... (3,550) ----------- Total expenses................................ 53,499 -----------
Net decrease in net assets in liquidation.......... (33,429)
Net assets in liquidation at beginning of year.. 414,319 -----------
Net assets in liquidation at end of year........ $ 380,890 ===========
Net decrease in net assets in liquidation per limited partnership unit.................... $ 2.43 ===========
See accompanying notes to financial statements.
McNEIL PACIFIC INVESTORS FUND 1972 (a California limited partnership in the process of liquidation)
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997 1996 ----------- ---------- Revenue: Rental revenue .......................... $1,350,389 $1,688,524 Interest and other revenue .............. 84,447 27,011 Gain on sale of real estate ............. 151,141 -- ---------- ---------- Total revenue ......................... 1,585,977 1,715,535 ---------- ----------
Expenses: Interest ................................ 133,196 198,739 Depreciation ............................ -- 294,001 Property taxes .......................... 90,765 121,352 Personnel expenses ...................... 245,872 263,324 Repairs and maintenance ................. 312,631 311,527 Property management fees - affiliates ............................ 80,160 99,681 Utilities ............................... 53,794 65,901 Other property operating expenses........ 126,264 133,627 General and administrative .............. 87,971 76,907 General and administrative - affiliates ............................ 88,126 45,937 ---------- ---------- Total expenses ........................ 1,218,779 1,610,996 ---------- ----------
Net income (loss) .......................... $ 367,198 $ 104,539 ========== ==========
Net income (loss) allocated to limited partners ........................ $ 244,912 $ 104,539 Net income allocated to General Partner ................................. 122,286 -- ---------- ----------
Net income (loss) .......................... $ 367,198 $ 104,539 ========== ==========
Net income (loss) per limited partnership unit ........................ $ 17.81 $ 7.60 ========== ==========
Distributions per limited partnership unit .................................... $ 315.59 $ -- ========== ==========
See accompanying notes to financial statements.
McNEIL PACIFIC INVESTORS FUND 1972 (a California limited partnership in the process of liquidation)
STATEMENTS OF PARTNERS' EQUITY
For the Years Ended December 31, 1997 and 1996
See accompanying notes to financial statements.
McNEIL PACIFIC INVESTORS FUND 1972 (a California limited partnership in the process of liquidation)
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
See accompanying notes to financial statements.
McNEIL PACIFIC INVESTORS FUND 1972 (a California limited partnership in the process of liquidation)
STATEMENTS OF CASH FLOWS
Reconciliation of Net Income to Net Cash Provided by Operating Activities
For the Years Ended December 31, -------------------------------- 1997 1996
Net income ................................ $ 367,198 $ 104,539 --------- ---------
Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ........................... -- 294,001 Amortization of deferred borrowing costs ................................ 4,327 10,387 Gain on sale of real estate ............ (151,141) -- Changes in assets and liabilities: Cash segregated for security deposits ........................... 57,204 (13,319) Accounts receivable .................. 4,147 (298) Prepaid expenses and other assets ............................. 23,694 (474) Escrow deposits ...................... 33,232 16,121 Accounts payable ..................... -- (20,363) Accrued interest ..................... (14,755) 4,679 Other accrued expenses ............... (4,644) (507) Payable to affiliates - General Partner ............................ 377 1,881 Security deposits and deferred rental revenue ..................... (58,081) 10,883 --------- ---------
Total adjustments ................ (105,640) 302,991 --------- ---------
Net cash provided by operating activities ................... $ 261,558 $ 407,530 ========= =========
See accompanying notes to financial statements.
McNEIL PACIFIC INVESTORS FUND 1972 (a California limited partnership in the process of liquidation)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------------------------
Organization - ------------
McNeil Pacific Investors Fund 1972 (the "Partnership") was organized September 30, 1971 as a limited partnership under provisions of the California Uniform Limited Partnership Act. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil ("McNeil"). The General Partner was elected at a meeting of limited partners on March 30, 1992, at which time the Partnership's restated certificate and agreement of limited partnership (the "Partnership Agreement") was amended. Prior to March 30, 1992, Pacific Investors Corporation, an affiliate of Southmark Corporation, and McNeil were the general partners of the Partnership. The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240.
The Partnership sold Palm Bay Apartments, the Partnership's sole remaining real estate asset, on September 30, 1997.
Basis of Presentation - ---------------------
At a meeting of the limited partners on August 12, 1997, the limited partners approved the sale of Palm Bay Apartments and the dissolution of the Partnership. After the September 30, 1997 sale of Palm Bay Apartments, the General Partner commenced the dissolution and termination of the Partnership. The assets and liabilities in the accompanying statements of net assets in liquidation at December 31, 1998 and 1997 are valued at their estimated realizable values and estimated settlement amounts, respectively. The Partnership is in the process of liquidating its assets, satisfying all creditors and claims against the Partnership, distributing its remaining assets to its partners, and terminating its existence.
Adoption of Recent Accounting Pronouncements - --------------------------------------------
The Partnership has adopted Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information ("SFAS 131"). SFAS 131 requires an enterprise to report financial information about its reportable operating segments, which are defined as components of a business for which separate financial information is evaluated regularly by the chief decision maker in allocating resources and assessing performance. The Partnership does not prepare such information for internal use, since it analyzes the performance of and allocates resources for each property individually. The Partnership's management has determined that it operates one line of business and it would be impracticable to report segment information. Therefore, the adoption of SFAS 131 has no impact on the Partnership's financial statements.
Cash and Cash Equivalents - -------------------------
Cash and cash equivalents include cash on hand and cash on deposit with financial institutions with original maturities of three months or less. Carrying amounts for cash and cash equivalents approximate fair value.
Rental Revenue - --------------
The Partnership leased its property under short-term operating leases. Lease terms generally were less than one year in duration. Rental revenue was recognized as earned.
Income Taxes - ------------
No provision for Federal income taxes is necessary in the financial statements of the Partnership because, as a partnership, it is not subject to Federal income tax and the tax effect of its activities accrues to the partners.
Allocation of Net Income and Net Loss - -------------------------------------
The Partnership Agreement provides that income will be allocated to the General Partner to the extent of distributions to the General Partner of cash from sales, refinancings, or from working capital reserves. All remaining net income and all losses are allocated 100% to the limited partners.
An estimated gain on the ultimate disposition of Palm Bay Apartments, in the amount of $309,944, was allocated to the General Partner in 1983 based upon a 1983 sales contract for Palm Bay Apartments. An adjustment was made in 1997 to adjust the amount allocated to the General Partner based on the 1997 sale of Palm Bay Apartments.
Federal income tax law provides that the allocation of loss to a partner will not be recognized unless the allocation is in accordance with a partner's interest in the partnership or the allocation has substantial economic effect. Internal Revenue Code Section 704(b) and accompanying Treasury Regulations establish criteria for allocations of Partnership deductions attributable to debt. The Partnership's tax allocations for 1998, 1997 and 1996 have been made in accordance with these provisions.
Distributions - -------------
At the discretion of the General Partner, distributions to partners are paid from operations of the Partnership's property, from the sale or refinancing of the property, or from cash maintained as working capital reserves. Cash from operations is distributed 100% to the limited partners.
Distributions of cash from sales and refinancings and cash from working capital reserves are made in the order shown below:
(a) First to the limited partners in an amount, when added to all prior distributions to the limited partners of disposition proceeds, that equals 109.6% of the portion of net offering proceeds invested in property sold; then,
(b) of the remaining balance, 90.5% to the limited partners and 9.5% to the General Partner.
In December 1997, the Partnership distributed $4,772,400 to its partners. This distribution includes $4,549,786 of net cash proceeds from the sale of Palm Bay Apartments, as well as $222,614 of cash reserves of the Partnership. Distribution of the remaining cash reserves of the Partnership will be made from any remaining funds of the Partnership after all liabilities of the Partnership have been paid, including costs associated with terminating the Partnership's affairs, and costs associated with adjudicating or settling litigation in which the Partnership is involved. No distributions were paid to the partners during 1998 or 1996.
Net Income (Loss) Per Limited Partnership Unit - ----------------------------------------------
Net income (loss) per limited partnership unit ("Units") is computed by dividing net income (loss) allocated to the limited partners by the weighted average number of Units outstanding. Per Unit information has been computed based on 13,752.5 Units outstanding in 1998, 1997, and 1996.
NOTE 2 - TRANSACTIONS WITH AFFILIATES - -------------------------------------
The General Partner is entitled to receive a partnership management fee equal to 9.5% of distributions of cash from operations when distributable cash from operations is distributed to the limited partners. The Partnership incurred a partnership management fee of $23,368 in 1997. No partnership management fees were incurred during 1998 or 1996.
The Partnership paid property management fees equal to 6% of the gross rental receipts of the Partnership's properties to McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of the General Partner, for providing property management and leasing services for the Partnership's properties.
The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. In 1998, the Partnership received a $3,550 refund from McREMI for overpayments of reimbursable costs the Partnership paid in 1997.
The General Partner is entitled to receive a sales commission as compensation for selling Partnership property equal to the lesser of 4% of the sales price of the property sold or the customary fee charged by independent real estate brokers in the area where the property is located. The Partnership paid a $137,000 sales commission to the General Partner in connection with the sale of Palm Bay Apartments.
Compensation and reimbursements paid or accrued for the benefit of the General Partner or its affiliates are as follows:
Payable to affiliates - General Partner at December 31, 1998 and 1997 consists of reimbursable administrative costs.
NOTE 3 - TAXABLE INCOME (LOSS) - ------------------------------
McNeil Pacific Investors Fund 1972 is a partnership and is not subject to Federal and state income taxes. Accordingly, no recognition has been given to income taxes in the accompanying financial statements of the Partnership since the income or loss of the Partnership is to be included in the tax returns of the individual partners. The tax returns of the Partnership are subject to examination by Federal and state taxing authorities. If such examinations result in adjustments to distributive shares of taxable income or loss, the tax liability of the partners could be adjusted accordingly.
The Partnership's net assets and liabilities for tax purposes exceeded the net assets and liabilities for financial reporting purposes by $36,732 in 1998 and $24,758 in 1997. The Partnership's net assets and liabilities for financial reporting purposes exceeded the net assets and liabilities for tax purposes by $1,981,839 in 1996.
NOTE 4 - SALE OF REAL ESTATE - ----------------------------
On September 30, 1997, the Partnership sold its investment in Palm Bay Apartments to an unaffiliated buyer for a cash sales price of $6,849,500. Cash proceeds from this transaction, as well as the gain on sale are detailed below.
NOTE 5 - LEGAL PROCEEDINGS - --------------------------
James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger, Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P., McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil, Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI, Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd., McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate Fund XXIII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund XXVII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P., - Superior Court of the State of California for the County of Los Angeles, Case No. BC133799 (Class and Derivative Action Complaint).
The action involves purported class and derivative actions brought by limited partners of each of the limited partnerships that were named as nominal defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of their senior officers and/or directors (collectively, the "Defendants") breached their fiduciary duties and certain obligations under the respective Amended Partnership Agreement. Plaintiffs allege that Defendants have rendered such Units highly illiquid and artificially depressed the prices that are available for Units on the resale market. Plaintiffs also allege that Defendants engaged
in a course of conduct to prevent the acquisition of Units by an affiliate of Carl Icahn by disseminating purportedly false, misleading and inadequate information. Plaintiffs further allege that Defendants acted to advance their own personal interests at the expense of the Partnerships' public unit holders by failing to sell Partnership properties and failing to make distributions to unitholders.
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint. Plaintiffs are suing for breach of fiduciary duty, breach of contract and an accounting, alleging, among other things, that the management fees paid to the McNeil affiliates over the last six years are excessive, that these fees should be reduced retroactively and that the respective Amended Partnership Agreements governing the Partnerships are invalid.
Defendants filed a demurrer to the consolidated and amended complaint and a motion to strike on February 14, 1997, seeking to dismiss the consolidated and amended complaint in all respects. A hearing on Defendant's demurrer and motion to strike was held on May 5, 1997. The Court granted Defendants' demurrer, dismissing the consolidated and amended complaint with leave to amend. On October 31, 1997, the Plaintiffs filed a second consolidated and amended complaint. The case was stayed pending settlement discussions. A Stipulation of Settlement dated September 15, 1998 has been signed by the parties. Preliminary Court approval was received on October 6, 1998. A hearing for Final Approval of Settlement, initially scheduled for December 17, 1998, has been continued to May 25, 1999.
Because McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P. would be part of the transaction contemplated in the settlement and Plaintiffs claim that an effort should be made to sell the McNeil Partnerships, Plaintiffs have included allegations with respect to McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P. in the third consolidated and amended complaint.
Plaintiff's counsel intends to seek an order awarding attorney's fees and reimbursements of their out-of-pocket expenses. The amount of such award is undeterminable until final approval is received from the court. Fees and expenses shall be allocated amongst the Partnerships on a pro rata basis, based upon tangible asset value of each such partnership, less total liabilities, calculated in accordance with the Amended Partnership Agreements for the quarter most recently ended.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING - ------- ----------------------------------------------------------- AND FINANCIAL DISCLOSURE ------------------------
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- --------------------------------------------------
Neither the Partnership nor the General Partner has any directors or executive officers. The names and ages of, as well as the positions held by, the officers and directors of McNeil Investors, Inc., the general partner of the General Partner, are as follows:
Other Principal Occupations and Other Name and Position Age Directorships During the Past 5 Years - ----------------- --- -------------------------------------
Robert A. McNeil, 78 Mr. McNeil is also Chairman of the Chairman of the Board and Director of McNeil Real Estate Board and Director Management, Inc. ("McREMI") which is an affiliate of the General Partner. He has held the foregoing positions since the formation of such an entity in 1990. Mr. McNeil received his B.A. degree from Stanford University in 1942 and his L.L.B. degree from Stanford Law School in 1948. He is a member of the State Bar of California and has been involved in real estate financing since the late 1940's and in real estate acquisitions, syndications and dispositions since 1960. From 1986 until active operations of McREMI and McNeil Partners, L.P. began in February 1991, Mr. McNeil was a private investor. Mr. McNeil is a member of the International Board of Directors of the Salk Institute, which promotes research in improvements in health care.
Carole J. McNeil 55 Mrs. McNeil is Co-Chairman, with husband Co-Chairman of the Robert A. McNeil, of McNeil Investors, Board Inc. Mrs. McNeil has twenty years of real estate experience, most recently as a private investor from 1986 to 1993. In 1982, she founded Ivory & Associates, a commercial real estate brokerage firm in San Francisco, CA. Prior to that, she was a commercial real estate associate with the Madison Company and, earlier, a commercial sales associate and analyst with Marcus and Millichap in San Francisco. In 1978, Mrs. McNeil established Escrow Training Centers, California's first accredited commercial training program for title company escrow officers and real estate agents needing college credits to qualify for brokerage licenses. She began in real estate as Manager and Marketing Director of Title Insurance and Trust in Marin County, CA. Mrs. McNeil serves on the International Board of Directors of the Salk Institute.
Ron K. Taylor 41 Mr. Taylor is the President and Chief President and Chief Executive Officer of McNeil Real Estate Executive Officer Management which is an affiliate of the General Partner. Mr. Taylor has been in this capacity since the resignation of Donald K. Reed on March 4, 1997. Prior to assuming his current responsibilities, Mr. Taylor served as a Senior Vice President of McREMI. Mr. Taylor has been in this capacity since McREMI commenced operations in 1991. Prior to joining McREMI, Mr. Taylor served as an Executive Vice President for a national syndication/property management firm. In this capacity, Mr. Taylor had the responsibility for the management and leasing of a 21,000,000 square foot portfolio of commercial properties. Mr. Taylor has been actively involved in the real estate industry since 1983.
Each director shall serve until his successor shall have been duly elected and qualified.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION - -------- ----------------------
No direct compensation was paid or payable by the Partnership to directors or officers (since it does not have any directors or officers) for the year ended December 31, 1998, nor was any direct compensation paid or payable by the Partnership to directors or officers of the general partner of the General Partner for the year ended December 31, 1998. The Partnership has no plans to pay any such remuneration to any directors or officers of the general partner of the General Partner in the future.
See Item 13 - Certain Relationships and Related Transactions for amounts of compensation and reimbursements paid by the Partnership to the General Partner and its affiliates.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- --------------------------------------------------------------
(A) Security ownership of certain beneficial owners.
No individual or group, as defined by Section 13(d)(3) of the Securities Exchange Act of 1934, known to the Partnership is the beneficial owner of more than 5% of the Partnership's securities with the exception of the following:
1. The General Conference Corporation of Seventh Day Adventists, 12501 Old Columbia Pike, Silver Spring, Maryland, 20904, owns 950 (6.9%) of the Partnership's Units as of February 1, 1999.
2. A group of ten limited partnerships affiliated with Liquidity Financial Corporation, all of whose outstanding stock is owned by Richard G. Wollack and Brent R. Donaldson, 2200 Powell Street, Suite 700, Emeryville, California, 94608, collectively own 825 (6.0%) of the Partnership's Units as of February 1, 1999.
3. High River Limited Partnership, 100 S. Bedford Road, Mount Kisco, New York, 10549, owns 1,606 (11.7%) of the Partnership's Units as of February 1, 1999.
(B) Security ownership of management.
As of February 1, 1999, the General Partner and the officers and directors of its general partner collectively own 50 Units, which is less than 1% of Units outstanding.
(C) Change in control.
None.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ----------------------------------------------
The General Partner is entitled to receive a partnership management fee equal to 9.5% of distributions of cash from operations when distributable cash from operations is distributed to the limited partners. No partnership management fees were incurred during 1998.
The Partnership pays property management fees equal to 6% of gross rental receipts of the Partnership's property to McREMI for providing property management and leasing services for the Partnership's property. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. No property management fees were incurred during 1998.
See Item 1 - Business, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 8 - Note 2 - "Transactions with Affiliates."
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K - -------- -----------------------------------------------------------------
See accompanying Index to Financial Statements at Item 8 - Financial Statements and Supplementary Data..
(A) Exhibits --------
The following exhibits are incorporated by reference and are an integral part of this Form 10-K.
Exhibit Number Description ------- -----------
3.1 Restated Certificate and Agreement of Limited Partnership dated as of March 8, 1972. Incorporated by reference to the Annual Report of McNeil Pacific Investors Fund 1972 on Form 10-K for the period ended December 31, 1990, as filed with the Securities and Exchange Commission on March 29, 1991.
3.2 Amendment to Restated Certificate and Agreement of Limited Partnership dated as of March 30, 1992. (1)
10.4 Amendment of Property Management Agree- ment, dated January 1, 1995, between McNeil Pacific Investors Fund 1972 and McNeil Real Estate Management, Inc. (2)
11. Statement regarding computation of net income (loss) per limited partnership unit (see Note 1 to Financial Statements).
(1) Incorporated by reference to the Annual Report of McNeil Pacific Investors Fund 1972 (Commission file number 0-7162), on Form 10-K for the period ended December 31, 1993, as filed with the Securities and Exchange Commission on March 30, 1994.
(2) Incorporated by reference to the Annual Report of McNeil Pacific Investors Fund 1972 (Commission file number 0-7162), on Form 10-K for the period ended December 31, 1994, as filed with the Securities and Exchange Commission on March 30, 1995.
27. Financial Data Schedule for the year ended December 31, 1998.
(B) Reports on Form 8-K. There were no reports on Form 8-K filed by the Partnership during the quarter ended December 31, 1998.
McNEIL PACIFIC INVESTORS FUND 1972 A Limited Partnership
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
McNEIL PACIFIC INVESTORS FUND 1972
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
March 31, 1999 By: /s/ Robert A. McNeil - -------------- --------------------------------------------- Date Robert A. McNeil Chairman of the Board and Director (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
March 31, 1999 By: /s/ Ron K. Taylor - -------------- --------------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer)
March 31, 1999 By: /s/ Brandon K. Flaming - -------------- --------------------------------------------- Date Brandon K. Flaming Vice President of McNeil Investors, Inc. (Principal Accounting Officer)