UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 ------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to_____________ Commission file number 0-12915 --------- McNEIL REAL ESTATE FUND XIV, LTD. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 94-2822299 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (972) 448-5800 ----------------------------- Indicate by check mark whether the registrant, (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ---------------------------- McNEIL REAL ESTATE FUND XIV, LTD. BALANCE SHEETS (Unaudited) September 30, December 31, 1998 1997 ------------- ------------- ASSETS - ------ Real estate investments: Land ......................................................... $ 4,663,828 $ 4,663,828 Buildings and improvements ................................... 37,065,967 36,220,158 ------------ ------------ 41,729,795 40,883,986 Less: Accumulated depreciation .............................. (22,019,124) (20,632,796) ------------ ------------ 19,710,671 20,251,190 Asset held for sale, net ........................................ 2,028,131 1,932,910 Cash and cash equivalents ....................................... 1,489,430 1,292,615 Cash segregated for security deposits ........................... 382,826 431,148 Accounts receivable ............................................. 388,652 663,087 Prepaid expenses and other assets ............................... 136,207 141,281 Escrow deposits ................................................. 669,887 664,294 Deferred borrowing costs, net of accumulated amortization of $513,656 and $441,912 at September 30, 1998, and December 31, 1997, respectively ................................................. 877,336 949,080 ------------ ------------ $ 25,683,140 $ 26,325,605 ============ ============ LIABILITIES AND PARTNERS' EQUITY (DEFICIT) - ------------------------------------------ Mortgage notes payable, net ..................................... $ 23,573,408 $ 23,891,012 Accounts payable ................................................ 67,351 69,128 Accrued interest ................................................ 162,315 164,766 Accrued property taxes .......................................... 114,352 101,200 Other accrued expenses .......................................... 77,298 73,912 Payable to affiliates - General Partner ......................... 679,219 211,757 Deferred gain on involuntary conversion ......................... 189,154 346,114 Security deposits and deferred rental revenue ................... 394,253 368,672 ------------ ------------ 25,257,350 25,226,561 ------------ ------------ Partners' equity (deficit): Limited partners - 100,000 limited partnership units authorized; 86,534 limited partnership units outstanding at September 30, 1998 and December 31, 1997 .......................................... 1,491,538 1,763,445 General Partner .............................................. (1,065,748) (664,401) ------------ ------------ 425,790 1,099,044 ------------ ------------ $ 25,683,140 $ 26,325,605 ============ ============ The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XIV, LTD. STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ------------------------------ ------------------------------ 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Revenue: Rental revenue ..................... $ 2,197,752 $ 2,235,232 $ 6,477,188 $ 6,898,514 Interest ........................... 13,523 65,661 50,464 167,760 Gain on involuntary conversions ...................... -- -- 204,641 -- Gain on sale of real estate ........ -- 873,396 -- 3,081,755 ----------- ----------- ----------- ----------- Total revenue .................... 2,211,275 3,174,289 6,732,293 10,148,029 ----------- ----------- ----------- ----------- Expenses: Interest ........................... 538,488 593,552 1,623,437 1,857,424 Depreciation ....................... 462,111 470,606 1,386,328 1,407,920 Property taxes ..................... 155,885 154,836 478,997 511,065 Personnel expenses ................. 244,210 248,530 714,508 744,303 Utilities .......................... 123,357 121,549 351,873 366,973 Repair and maintenance ............. 330,106 295,169 833,752 854,200 Property management fees - affiliates ................ 109,018 114,687 319,149 345,280 Other property operating expenses ......................... 118,600 131,856 353,075 401,079 General and administrative ......... 61,832 24,907 278,647 77,051 General and administrative - affiliates ....................... 51,711 58,512 162,134 181,240 ----------- ----------- ----------- ----------- Total expenses ................... 2,195,318 2,214,204 6,501,900 6,746,535 ----------- ----------- ----------- ----------- Net income ............................ $ 15,957 $ 960,085 $ 230,393 $ 3,401,494 =========== =========== =========== =========== Net income allocated to limited partners ................... $ 15,797 $ 334,246 $ 228,089 $ 334,246 Net income allocated to General Partner .................... 160 625,839 2,304 3,067,248 ----------- ----------- ----------- ----------- Net income ............................ $ 15,957 $ 960,085 $ 230,393 $ 3,401,494 =========== =========== =========== =========== Net income per limited partnership unit ................... $ .19 $ 3.86 $ 2.64 $ 3.86 =========== =========== =========== =========== Distributions per limited partnership unit ................... $ -- $ 46.22 $ 5.78 $ 46.22 =========== =========== =========== =========== The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XIV, LTD. STATEMENTS OF PARTNERS' EQUITY (DEFICIT) (Unaudited) For the Nine Months Ended September 30, 1998 and 1997 Total Partners' General Limited Equity Partner Partners (Deficit) ------------ ------------ ----------- Balance at December 31, 1996 ............ $(3,166,815) $ 7,648,141 $ 4,481,326 Net income .............................. 3,067,248 334,246 3,401,494 Management Incentive Distribution........ (443,577) -- (443,577) Distributions to limited partners ....... -- (4,000,002) (4,000,002) ----------- ----------- ----------- Balance at September 30, 1997 ........... $ (543,144) $ 3,982,385 $ 3,439,241 =========== =========== =========== Balance at December 31, 1997 ............ $ (664,401) $ 1,763,445 $ 1,099,044 Net income .............................. 2,304 228,089 230,393 Management Incentive Distribution ....... (403,651) -- (403,651) Distributions to limited partners ....... -- (499,996) (499,996) ----------- ----------- ----------- Balance at September 30, 1998 ........... $(1,065,748) $ 1,491,538 $ 425,790 =========== =========== =========== The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XIV, LTD. STATEMENTS OF CASH FLOWS (Unaudited) Increase (Decrease) in Cash and Cash Equivalents Nine Months Ended September 30, -------------------------------- 1998 1997 ------------ ------------ Cash flows from operating activities: Cash received from tenants ............................. $ 6,555,375 $ 6,900,605 Cash paid to suppliers ................................. (2,520,022) (2,457,038) Cash paid to affiliates ................................ (417,472) (556,800) Interest received ...................................... 50,464 167,760 Interest paid .......................................... (1,516,455) (1,738,869) Property taxes paid and escrowed ....................... (466,825) (475,286) ----------- ----------- Net cash provided by operating activities ................. 1,685,065 1,840,372 ----------- ----------- Cash flows from investing activities: Insurance proceeds from involuntary conversions ........ 308,069 -- Proceeds from sale of real estate ...................... -- 9,868,594 Additions to real estate investments ................... (941,030) (390,094) ----------- ----------- Net cash provided by (used in) investing activities........ (632,961) 9,478,500 ----------- ----------- Cash flows from financing activities: Principal payments on mortgage notes payable ........... (355,293) (426,868) Retirement of mortgage note payable .................... -- (3,722,368) Management Incentive Distribution paid ................. -- (1,774,877) Distributions to limited partners ...................... (499,996) (4,000,002) ----------- ----------- Net cash used in financing activities ..................... (855,289) (9,924,115) ----------- ----------- Net increase in cash and cash equivalents ................. 196,815 1,394,757 Cash and cash equivalents at beginning of period ................................................. 1,292,615 1,903,902 ----------- ----------- Cash and cash equivalents at end of period ................ $ 1,489,430 $ 3,298,659 =========== =========== The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XIV, LTD. STATEMENTS OF CASH FLOWS (Unaudited) Reconciliation of Net Income to Net Cash Provided by Operating Activities Nine Months Ended September 30, ------------------------------- 1998 1997 ----------- ----------- Net income ..................................................... $ 230,393 $ 3,401,494 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ................................................ 1,386,328 1,407,920 Amortization of deferred borrowing costs .................... 71,744 71,743 Amortization of discounts on mortgage notes payable ............................................. 37,689 78,386 Gain on involuntary conversions ............................. (204,641) -- Gain on sale of real estate ................................. -- (3,081,755) Changes in assets and liabilities: Cash segregated for security deposits ..................... 48,322 (3,963) Accounts receivable ....................................... 14,047 25,029 Prepaid expenses and other assets ......................... 5,074 14,149 Escrow deposits ........................................... (5,593) 28,098 Accounts payable .......................................... (1,777) (34,524) Accrued interest .......................................... (2,451) (31,574) Accrued property taxes .................................... 13,152 23,872 Other accrued expenses .................................... 3,386 (15,359) Payable to affiliates - General Partner ................... 63,811 (30,280) Security deposits and deferred rental revenue ............. 25,581 (12,864) ----------- ----------- Total adjustments ....................................... 1,454,672 (1,561,122) ----------- ----------- Net cash provided by operating activities ...................... $ 1,685,065 $ 1,840,372 =========== =========== The financial information included herein has been prepared by management without audit by independent public accountants. See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XIV, LTD. Notes to Financial Statements (Unaudited) September 30, 1998 NOTE 1. - ------- McNeil Real Estate Fund XIV, Ltd. (the "Partnership") is a limited partnership organized under the laws of the State of California to invest in real property. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil. The Partnership is governed by an agreement of limited partnership ("Amended Partnership Agreement") that was adopted September 20, 1991. The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240. In the opinion of management, the financial statements reflect all adjustments necessary for a fair presentation of the Partnership's financial position and results of operations. All adjustments were of a normal recurring nature. However, the results of operations for the nine months ended September 30, 1998 are not necessarily indicative of the results to be expected for the year ending December 31, 1998. NOTE 2. - ------- The financial statements should be read in conjunction with the financial statements contained in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1997, and the notes thereto, as filed with the Securities and Exchange Commission, which is available upon request by writing to McNeil Real Estate Fund XIV, Ltd., c/o McNeil Real Estate Management, Inc., Investor Services, 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240. NOTE 3. - ------- The Partnership pays property management fees equal to 5% 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 services for the Partnership's residential and commercial properties and leasing services for its residential properties. McREMI may also choose to provide leasing services for the Partnership's commercial property, in which case McREMI will receive property management fees from the commercial property equal to 3% of the property's gross rental receipts plus leasing commissions based on the prevailing market rate for such services where the property is located. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. Under terms of the Amended Partnership Agreement, the Partnership is paying a Management Incentive Distribution ("MID") to the General Partner. The maximum MID is calculated as 1% of the tangible asset value of the Partnership. The maximum MID percentage decreases subsequent to 1999. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9% to the annualized net operating income of each property or (ii) a value of $10,000 per apartment unit for residential property and $50 per gross square foot for commercial property to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. MID will be paid to the extent of the lesser of the Partnership's excess cash flow, as defined, or net operating income, as defined, and may be paid (i) in cash, unless there is insufficient cash to pay the distribution in which event any unpaid portion not taken in Units will be deferred and is payable, without interest, from the first available cash and/or (ii) in Units. A maximum of 50% of the MID may be paid in Units. The number of Units issued in payment of the MID is based on the greater of $50 per Unit or the net tangible asset value, as defined, per Unit. Any amount of the MID that is paid to the General Partner in Units will be treated as if cash is distributed to the General Partner and is then contributed to the Partnership by the General Partner. The MID represents a return of equity to the General Partner for increasing cash flow, as defined, and accordingly is treated as a distribution. Compensation, reimbursements and distributions paid to or accrued for the benefit of the General Partner and its affiliates are as follows: Nine Months Ended September 30, ------------------------ 1998 1997 -------- -------- Property management fees - affiliates .................. $319,149 $345,280 Charged to general and administrative - affiliates: Partnership administration ........................... 162,134 181,240 -------- -------- $481,283 $526,520 ======== ======== Charged to General Partner's deficit: Management Incentive Distribution .................... $403,651 $443,577 ======== ======== NOTE 4. - ------- On July 18, 1997, a fire caused $49,498 of damage to two units of Embarcadero Club Apartments. In February 1998, the Partnership received $39,498 of insurance reimbursements to cover the repair and restorations costs to Embarcadero Club Apartments. The excess of the insurance proceeds received over the basis of the property damaged was recorded as a $17,998 deferred gain on involuntary conversion on the Partnership's December 31, 1997 Balance Sheet. The $17,998 gain on involuntary conversion was recognized in the first quarter of 1998 when the Partnership received the insurance proceeds. On November 14, 1997, a fire caused approximately $544,716 of damage to eight units of Thunder Hollow Apartments. The Partnership expects to receive a total of approximately $534,662 of insurance reimbursements to cover the repair and restoration costs at Thunder Hollow Apartments. As of September 30, 1998, the Partnership had received $268,571 of insurance reimbursements. The excess of the expected insurance reimbursements over the basis of the property damaged was recorded as a deferred gain on involuntary conversion on the Partnership's December 31, 1997 Balance Sheet. In 1998, the Partnership recorded an additional $47,681 of deferred gain to reflect additional expected insurance proceeds. As a result of the insurance payments received so far in 1998, $186,643 of the deferred gain was recognized during the first two quarters of 1998. The remaining deferred gain of $189,154 will be recognized when the Partnership receives the rest of the insurance reimbursements from its insurance carrier. NOTE 5. - ------- On April 8, 1997, the Partnership sold Country Hills Plaza to an unaffiliated purchaser for a cash sales price of $6,610,000. Cash proceeds from the sale, as well as the gain on sale are detailed below. Gain on Sale Cash Proceeds ------------ ------------- Cash sales price ............................... $ 6,610,000 $ 6,610,000 Selling costs .................................. (185,304) (185,304) Mortgage discount written off .................. (397,561) Straight-line rent receivables written off...... (26,828) Basis of real estate sold ...................... (3,791,948) ----------- ----------- Gain on sale of real estate .................... $ 2,208,359 =========== Proceeds from sale of real estate .............. 6,424,696 Retirement of mortgage note payable ............ (2,231,440) ----------- Net cash proceeds .............................. $ 4,193,256 =========== On September 24, 1997, the Partnership sold Midvale Plaza to an unaffiliated purchaser for a cash sales price of $3,500,000. Cash proceeds from the sale, as well as the gain on sale are detailed below. Gain on Sale Cash Proceeds ------------ ------------- Cash sales price ............................... $ 3,500,000 $ 3,500,000 Selling costs .................................. (56,100) (56,100) Mortgage discount written off .................. (241,778) Straight-line rent receivables written off (85,197) Prepaid leasing commission written off ......... (14,338) Basis of real estate sold ...................... (2,229,191) ----------- ----------- Gain on sale of real estate .................... $ 873,396 =========== Proceeds from sale of real estate .............. 3,443,900 Retirement of mortgage note payable ............ (1,490,930) ----------- Net cash proceeds .............................. $ 1,952,970 =========== NOTE 6. - ------- 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 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., et al. - 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 fourteen 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 on final Court approval is scheduled for December 17, 1998. Plaintiff's counsel intend 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------- --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- The Partnership was formed to acquire, operate and ultimately dispose of a portfolio of income-producing real properties. At September 30, 1998, the Partnership owned four apartment properties and one retail shopping center. All of the Partnership's properties are subject to mortgage notes. On October 1, 1996, the Partnership placed its three commercial properties, County Hills Plaza, Midvale Plaza and Redwood Plaza, on the market for sale. The Partnership sold Country Hills Plaza and Midvale Plaza on April 8, 1997 and September 24, 1997, respectively. The Partnership distributed the net proceeds from the sale of these two properties to the limited partners in 1997. Redwood Plaza, the Partnership's sole remaining commercial property, remains on the market for sale. RESULTS OF OPERATIONS - --------------------- The Partnership reported net income of $15,797 and $230,393 for the three month and nine month periods ended September 30, 1998. For the comparable periods of 1997, the Partnership reported net income of $960,085 and $3,401,494. Net income for the three month and nine month periods ended September 30, 1997 includes $873,396 and $3,081,755, respectively, of gains from the sale of Country Hills Plaza on April 8, 1997, and Midvale Plaza on September 24, 1997. Net income for the 1997 periods also includes revenues and expenses from the two properties prior to their respective sale dates. Net income for the nine months ended September 30, 1998 includes $204,641 in gains on involuntary conversions. Excluding the non-recurring gains and the revenues and expenses pertaining to Country Hills Plaza and Midvale Plaza, Partnership income decreased to $26,595 from $132,373 for the nine month periods ended September 30, 1998 and 1997, respectively. Revenues: Rental revenue decreased 1.7% and 6.1% for the three month and nine month periods ended September 30, 1998 as compared to the same periods of 1997. However, after eliminating the effects of rental revenues at Country Hills Plaza and Midvale Plaza, which were sold during 1997, rental revenue at the remainder of the Partnership's properties increased $205,780 or 3.3% for the nine month period ended September 30, 1998 as compared to the same period of 1997. Rental revenue increased at three of the Partnership's four residential properties. Increased rental rates at Embarcadero Club Apartments, Thunder Hollow Apartments and Windrock Apartments led to 5.2%, 3.6% and 2.1% increases in rental revenue, respectively. Rental revenue at Tanglewood Village Apartments was unchanged in 1998 compared to 1997. A 1% increase in rental rates at the Nevada property was matched by an equal amount of discounts and concessions granted to tenants. Rental revenue at Redwood Plaza, the Partnership's sole remaining commercial property, decreased 4.5%. Increased rental rates at the Salt Lake City property were more than offset by increased vacancy losses and decreased expense reimbursements from tenants. Interest revenue decreased 79% and 70% for the three month and nine month periods ended September 30, 1998 as compared to the same periods of 1997 because of decreased balances of Partnership cash reserves invested in interest-bearing accounts. The Partnership recognized gains of $17,998 and $186,643 relating to fires at Embarcadero Club Apartments and Thunder Hollow Apartments, respectively. The gains are the result of insurance proceeds received in excess of the basis of the property damaged by the fires. The Partnership will recognize an additional gain of $189,154 relating to the Thunder Hollow fire when the Partnership receives additional insurance reimbursements from its insurance carrier. No such gains were recognized during the first nine months of 1997. Expenses: Partnership expenses decreased 0.9% and 3.6% for the three month and nine month periods ended September 30, 1998 as compared to the same periods of 1997. However, after eliminating the effects of expenses pertaining to Country Hills Plaza and Midvale Plaza, which were sold during 1997, expenses at the remainder of the Partnership's properties increased $194,578 or 3.1% for the nine month period ended September 30, 1998 as compared to the same period of 1997. Expenses in all categories were comparable to the year-earlier figures except for general and administrative expenses and general and administrative expenses paid to affiliates. General and administrative expenses increased $36,925 and $201,596 to $61,832 and $278,647 for the three month and nine month periods ended September 30, 1998, respectively, as compared to the same periods of 1997. The increase was attributable to costs incurred to explore alternatives to maximize the value of the Partnership (see Liquidity and Capital Resources). General and administrative expenses paid to affiliates decreased 11.6% and 10.5% for the three month and nine month periods ended September 30, 1998, respectively, as compared to the same periods of 1997. The level of administrative reimbursements paid to affiliates is partly a function of the number of properties the Partnership owns. These expenses decreased due to the sale of Country Hills Plaza and Midvale Plaza during the course of 1997. Costs associated with investor relations services were charged to general and administrative during 1997. Such services, beginning in 1998, are now provided by an affiliate, and the related increase in general and administrative expenses paid to affiliates partially offset the decrease in expenses due to the reduced number of properties under management. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash flow from operations decreased $155,307 or 8.4% for the first nine months of 1998 as compared to the same period of 1997. Increased operating cash flow at the Partnership's remaining properties largely offset the loss of operating cash flow due to the 1997 sales of Country Hills Plaza and Midvale Plaza. The Partnership invested $941,030 in capital improvements during the first nine months of 1998. $549,312 of the capital improvements related to restoration work at Embarcadero Club Apartments and Thunder Hollow Apartments resulting from fire damage at the two properties. Insurance proceeds received and anticipated are expected to cover all restoration costs except a standard deductible. Besides the restoration work at Embarcadero Club Apartments and Thunder Hollow Apartments, the Partnership has budgeted a total of $625,000 of capital improvements to be completed during 1998. The Partnership has not yet made any MID payments to the General Partner during 1998. On March 30, 1998, the Partnership distributed $499,996 ($5.78 per limited partnership unit) to the limited partners. The distribution was funded from cash reserves of the Partnership. Short-term liquidity: The Partnership expended considerable resources over the past several years to restore its properties to good operating condition. These expenditures were necessary to maintain the competitive position of the Partnership's aging properties in each of their markets. The capital improvements enabled the Partnership to increase its rental revenues and reduce its operating costs beyond what would have otherwise been possible. For 1998, the Partnership has budgeted $625,000 of capital improvements to its real estate investments. The $625,000 budget does not include restoration work related to fire damage discussed above. Budgeted capital improvements for 1998 will be funded from property operations. At September 30, 1998, the Partnership held cash and cash equivalents of $1,489,430. The General Partner considers this level of cash reserves to be adequate to meet the Partnership's operating needs. The General Partner believes that anticipated operating results for 1998 will be sufficient to fund the Partnership's budgeted capital improvements for 1998 and to repay the current portion of the Partnership's mortgage notes. The Partnership's remaining commercial property, Redwood Plaza, is on the market for sale. Although the General Partner expects to successfully sell Redwood Plaza, there is no guarantee that the Partnership will be able to conclude a sale of Redwood Plaza for an amount sufficient to retire the related mortgage note and provide cash proceeds to the Partnership. Long-term liquidity: For the long-term, property operations will remain the primary source of funds. In this regard, the General Partner expects that the capital improvements made by the Partnership over the past few years will yield improved cash flow from property operations in the future. If the Partnership's cash position deteriorates, the General Partner may elect to defer certain of the capital improvements, except where improvements are expected to increase the competitiveness or marketability of the Partnership's properties. As previously announced, the Partnership has retained PaineWebber, Incorporated ("PaineWebber") as its exclusive financial advisor to explore alternatives to maximize the value of the Partnership including, without limitation, a transaction in which limited partnership interests in the Partnership are converted into cash. The Partnership, through PaineWebber, has provided financial and other information to interested parties and is currently conducting discussions with one such party in an attempt to reach a definitive agreement with respect to a sale transaction. It is possible that the General Partner and its affiliates will receive non-cash consideration for their ownership interests in connection with any such transaction. There can be no assurance that any such agreement will be reached nor the terms thereof. None of the Partnership's remaining mortgage notes mature before 2002. Income Allocations and Distributions: Terms of the Amended Partnership Agreement specify that net losses for financial reporting purposes are allocated 99% to the limited partners and 1% to the General Partner. Net income for financial reporting purposes is allocated to the General Partner in an amount equal to the greater of (a) 1% of net income or (b) the cumulative amount of the MID paid for which no income allocation has previously been made; any remaining net income is allocated to the limited partners. Therefore, for the nine months ended September 30, 1998 and 1997, net income of $2,304 and $3,067,248, respectively, was allocated to the General Partner. Net income of $228,089 and $334,246 was allocated to the limited partners for the nine months ended September 30, 1998 and 1997, respectively. On March 30, 1998, the Partnership distributed $499,996 to the limited partners. The General Partner will continue to monitor the cash reserves and working capital needs of the Partnership to determine when cash flows will support additional distributions to the limited partners. Forward-Looking Information: Within this document, certain statements are made as to the expected occupancy trends, financial condition, results of operations, and cash flows of the Partnership for periods after September 30, 1998. 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 occupancy trends, 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 Partnership's ability to control costs, make necessary capital improvements, negotiate sales or refinancings of its properties, and respond to changing economic and competitive factors. Other Information: Management has reviewed its information technology infrastructure to identify any systems that could be affected by the year 2000 problem. 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. The information systems used by the Partnership for financial reporting and significant accounting functions were made year 2000 compliant during recent systems conversions. Management is in the process of evaluating the mechanical and embedded technological systems at the various properties. Management intends to inventory all such systems and query suppliers, vendors and manufacturers to determine year 2000 compliance. In circumstances of non-compliance management will work with the vendor to remedy the problem or seek alternative suppliers who will be in compliance. Management believes that the remediation of any outstanding year 2000 conversion issues will not have a material or adverse effect on the Partnership's operations. However, no estimates can be made as to the potential adverse impact resulting from the failure of third party service providers and vendors to be year 2000 compliant. Management is in the process of identifying those risks as well as developing a contingency plan to mitigate potential adverse effects from non-compliance. PART II. OTHER INFORMATION ITEM 1. 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 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., et al. - 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 fourteen 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 on final Court approval is scheduled for December 17, 1998. Plaintiff's counsel intend 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 6. EXHIBITS AND REPORTS ON FORM 8-K - ------- -------------------------------- (a) Exhibits. Exhibit Number Description -------- ----------- 4. Amended and Restated Limited Partnership Agree- ment dated September 20, 1991. (1) 11. Statement regarding computation of net loss per limited partnership unit: net loss per limited partnership unit is computed by dividing net loss allocated to the limited partners by the number of limited partnership units outstanding. Per unit information has been computed based on 86,534 limited partnership units outstanding in 1998 and 1997. 27. Financial Data Schedule for the quarter ended September 30, 1998. (1) Incorporated by reference to the Annual Report of Registrant, on Form 10-K for the period ended December 31, 1991, as filed on March 30, 1992. (b) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended September 30, 1998. McNEIL REAL ESTATE FUND XIV, LTD. SIGNATURES Pursuant to the requirements 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 REAL ESTATE FUND XIV, Ltd. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner November 16, 1998 By: /s/ Ron K. Taylor - ----------------- ------------------------------------------- Date Ron K. Taylor President and Director of McNeil Investors, Inc. (Principal Financial Officer) November 16, 1998 By: /s/ Brandon K. Flaming - ----------------- ------------------------------------------- Date Brandon K. Flaming Vice President of McNeil Investors, Inc. (Principal Accounting Officer)