UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________ to _________
Commission file number 33-28988
DBSI PACIFIC INCOME & GROWTH FUND - II A Real Estate Limited Partnership
State of Organization: Idaho Employer ID #: 82-0428903
1070 N. Curtis Rd., Suite 270, Boise, Idaho 83706
Telephone number: (208) 322-5858
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
N/A N/A
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
CROSS REFERENCE TO
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated Part of Form 10-K
Form S-11, Post Effective Part I, Item 1
Amendment #9, File No. 33-28988,
Pgs. 26-29, 54-56, 61-64, 118-140
Form S-11, Post Effective Part I, Item 2
Amendment #9, File No. 33-28988,
Pgs. 148a(1) - 148a(16)
Form S-11, Post Effective Part III, Items 10 (c)
Amendment #9, File No. 33-28988, and (e)
Pgs. 26-29.
Form S-11, Post Effective Part IV, Items 14 (3)
Amendment #9, File No. 33-28988, and (4)
Pgs. 118-140.
PART I
Item 1. Business.
The registrant is a Partnership which was formed for the express
purpose of investing in income-producing multi-family residential
real properties in the Northwestern United States. The Partnership
filed a Form S-11 registration statement which was declared effective
by the SEC on January 10, 1990. The primary objectives of the
Partnership are to: (1) preserve and protect the limited partners'
capital; (2) provide cash distributions to limited partners and (3)
obtain long-term appreciation through increases in the value of the
Partnership's real estate assets.
The general partners of the registrant are DBSI Housing Inc., an
Idaho corporation (incorporated in February 1980) and DBSI Realty
Partners, an Idaho general partnership (formed in May 1989). The
registrant is a limited partnership which was formed as of May 17,
1989 under the Idaho Uniform Limited Partnership Act and will
continue until December 31, 2039, unless sooner dissolved, in
accordance with the Partnership Agreement. The Partnership Offering
Circular disclosed the Partnership's intent to sell or refinance its
properties within five to ten years of the original offering date, and
to distribute the proceeds to its partners. The Partnership elected
to sell the properties, and has consummated sales on three of the
four properties and is actively marketing the fourth. See documents
incorporated by reference and attached hereto. (Form S-11, Post
Effective Amendment #9, File No. 33-28988, Pgs. 26-29, 54-56, 61-64,
118-140).
Item 2. Properties.
See documents incorporated by reference. (Form S-11, Post Effective
Amendment #9, File No. 33-28988, Pgs. 148a(1) - 148a(16).
Item 3. Legal Proceedings.
There were no material pending legal proceedings against the
registrant during 1996.
Item 4. Submission of Matters to a Vote of Security Holders.
Before distributing liquidation proceeds available from the sales,
the Partnership offered each limited partner an opportunity to
exchange their units in the Partnership for a new class of units
within the Partnership. Approximately 9.6% ($893,160) of the limited
partners exchanged their units. The new class offers a tax deferral
and a cumulative annual preferred return of 4% through the end of a
ten-year period. In addition, the holders of the new class of units
have the option to put the units to the Partnership after ten years
for an amount, in cash, equal to their original capital contribution
plus any cumulative unpaid preferred return amounts. The value of
this put is guaranteed by the General Partner. The General Partner
received the rights to future income and liquidation distributions of
the limited partners who exchanged their units. The remaining limited
partners elected to remain in the Partnership until the liquidation is
complete.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
There is no established public trading market for the Limited
Partnership Interests of the registrant.
As of December 31, 1991 the registrant had received the proceeds from
subscriptions for 9,262 interests. The offering period ended on
December 31, 1991.
Distributions to Limited Partners during the years ended December 31,
1996, 1995 and 1994 totaled $4,027,107, $480,435 and $682,938.
Item 6. Selected Financial Data.
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1992 1993 1994 1995 1996
__________ __________ __________ __________ __________
Total and other rental income $2,376,910 $2,377,701 $2,373,954 $2,349,549 $2,019,842
Total interest income 66,348 27,244 14,764 3,272 117,738
Gain on sale of rental properties 1,606,745
Net income (loss) 33,882 (7,691) (190,713) (215,148) 1,260,603
Cash and cash equivalents 1,470,760 192,207 294,265 41,572 286,062
Rental property 14,450,373 14,495,644 14,893,542 14,996,503 5,623,446
Total assets 15,390,996 13,784,641 13,628,017 12,928,418 8,159,252
Long term debt 8,702,599 7,766,202 8,506,409 8,435,881 6,648,920
Syndication costs 1,576,090 1,576,464 1,576,464 1,576,464 1,576,464
Redeemable capital 560,762
Partners' capital 6,529,730 5,812,999 4,887,928 4,192,345 469,422
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership generated funds primarily from sales of rental properties, from
the operation of rental properties and to a lesser extent from interest on
savings and certificates of deposit.
Funds are used for distributions to partners, rental property operating
expenses, debt service, fixed asset replacements, capital improvements,
management and professional fees. The three properties sold for $10,304,243,
with selling costs of $429,725 and a net carrying value of $7,917,824, resulting
in a total gain on sale of $1,956,694 ($1,606,745 current gain and $349,949
deferred gain).
The general partners believe that the Partnership has the liquidity and capital
resources to meet all of its known obligations and commitments.
The cash and cash equivalents position of the Partnership at December 31, 1996
represented approximately $286,062 available for Partnership operations, and
approximately $22,394 additionally in bank accounts reserved for tax, insurance
and replacements. There were no external sources of liquidity and there are no
outstanding capital commitments. The average rate of interest earned on cash
deposits was 5%.
Cash Flow and Operations
For the years ended December 31, 1996, 1995 and 1994, the projects generated
$103,675, $247,645, and $358,429 of cash from operating activities per the
Statements of Cash Flows. The following adjustments should be made to the
current year cash flow in order to arrive at an amount which can be compared to
the individual project first year pro forma funds from operations as found in
the supplements to the prospectus. First, changes in noncash operating assets
and liabilities should be adjusted to increase or decrease cash flow to the
actual funds generated from operations on an ongoing basis. Second, mortgage
debt service payments should be reduced to the anticipated level of mortgage
loans as shown on the pro forma statements. Third, cash flow should be reduced
for normal operational fixed asset purchases. Finally, on projects sold during
the year, cash flow should be annualized to a full year for comparisons to the
pro forma.
With the above adjustments, the individual projects generated the following
amounts of cash flow as a percent of pro forma:
Weatherstone Talisman Sorrento Dakota
__________________________________________________________________________________________________
Cash flow from operations ($1,557) ($53,576) $173,690 $30,102
Changes in current assets and liabilites (30,918) 11,341 19,834 (7,885)
________________________________________________
Subtotal (32,475) (42,235) 193,524 22,217
Add non pro forma interest payments 63,246 33,591
Add non pro forma principal payments 13,717 3,734
Less fixed asset purchases (118,185) (40,225) (18,612) (3,152)
________________________________________________
(150,660) (82,460) 251,875 56,390
Annualization factor 133.33% 133.33% 240.00%
________________________________________________
Annualized (150,660) (109,947) 335,833 135,336
Pro forma cash flow 112,741 82,450 311,181 179,244
Percent of pro forma -134% -133% 108% 76%
Annualized 1996 total rental property operating revenues of $2,502,824 increased
6.5% from the 1995 total revenue of $2,349,549 and 5.4% over the two years'
prior 1994 revenue of $2,373,954. Weatherstone Apartments (the only continuing
property) rental revenue increased in 1996 to $960,195, an 18.4% increase from
1995 revenue of $811,042 and an 11.5% increase over its two years' prior 1994
revenue of $861,533. Weatherstone operating expenses during the same periods
increased from $837,310 in 1994 and $833,640 in 1995 to $993,107 in 1996, due
largely to increased maintenance and utilities. With the increased income,
Weatherstone reduced its cash flow deficit to near break-even in 1996.
Interest income increased from $3,272 in 1995 to $117,738 in 1996, due to
investment of sale proceeds prior to distribution to partners. Repair and
maintenance costs of $401,541 in 1996 increased approximately $120,000 due
primarily to fix-up costs to prepare the rental properties for sale.
Following the sale of the three properties in 1996, the Partnership will only
distribute any cash flow from the remaining property or from the installment
note payments received in the sale. The Partnership distributed $4,027,107 to
limited partners and $395,657 to the General Partner in 1996, primarily from
rental property sales proceeds of $6,624,519 (net of debt payments of
$1,984,161) and to a lesser extent from cash flow from operations of $103,675.
The Partnership distributed $480,435 in 1995, including $247,645 from current
operations and $232,790 from excess cash reserves. In 1994 the partnership
distributed $734,358, including $358,429 from current year operations and
$375,929 from excess cash reserves.
Per $1,000 investment (on the basis of a $1,000 investment made at the inception
of the escrow and offering) distributions have been made in the following
amounts: escrow period - $58; November 1990 through May 1995 - approximately
$18 per quarter; August 1995 through October 1996 - $7.50 per quarter.
Distributions total approximately $440 per $1,000 investment since inception.
The partial liquidation distribution totalled $448 per $1,000 investment.
Limited partners who did not elect to exchange their units should expect to
receive additional liquidation distributions from the installment notes and the
sale of the fourth property.
Partnership net income (loss), after depreciation, for 1996, 1995 and 1994 were
$1,260,603, ($215,148) and ($190,713) respectively; therefore, cash
distributions in excess of cumulative net income to date have been a return of
capital.
Item 8. The following documents are filed on the pages listed below, as part
of Part II, Item 8, of this Report.
Document Page
-------- ----
1. Financial Statements and Accountants' Report:
Independent Auditors' Report F-1
Financial Statements:
Balance Sheets as of December 31, 1996 and December 31, 1995 F-2
Statements of Operations for the years ended December 31, 1996,
December 31, 1995 and December 31, 1994 F-3
Statements of Partners' Capital for the years ended December 31,
1996, December 31, 1995 and December 31, 1994 F-3
Statements of Cash Flows for the years ended December 31,
1996, December 31, 1995 and December 31, 1994 F-4
2. Notes to the Financial Statements (Notes 1-8) F-5 thru F-10
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) Identification of directors.
There has been no change in the general partners of the
Registrant.
The following individuals are not directors of the registrant
but are directors or partners of the general partners of the
registrant. Consequently the following information concerning
their roles as directors or partners in those other entities is
being submitted.
DBSI Housing Inc.:
Director - Douglas L. Swenson Age - 48
Term of office - February 1980 to present
Other positions - President of DBSI Housing Inc.
Founded DBSI in 1979.
Director - John D. Foster Age - 56
Term of office - March 1992 to present
Other positions - Executive Vice President, Operations
Time with firm - 1989 to present
Director - Charles E. Hassard Age - 49
Term of office - March 1992 to present
Other positions - Executive Vice President, Finance
Time with firm - 1984 to present
Director - John Mayeron Age - 42
Term of office - March 1992 to present
Other positions - Executive Vice President, Marketing
Time with firm - 1990 to present
Director - Farrell Bennett Age - 58
Term of office - March 1992 to present
Other positions - Vice President, Marketing
Time with firm - 1984 to present
Director - Walt Mott Age - 47
Term of office - March 1992 to present
Other positions - Vice President, Asset Management
Time with firm - 1991 to present
DBSI Realty Partners:
Partner - Douglas L. Swenson
Age - see above
Term of office - May 1989 to present
Time with firm - May 1989 to present
(b) Identification of executive officers.
The registrant has two general partners who direct and control
the operations of the Partnership. The officers of those two
general partners perform functions and tasks for the registrant
similar to those of executives. Those individuals are Douglas
L. Swenson, John D. Foster, and Charles E. Hassard and the ages
and other information concerning them are included in Item 10(a)
above.
(c) Identification of certain significant employees.
The current principal officers of the Company and the business
experience of each in the last five years are as follows:
Douglas L. Swenson, age 48, is President of the Company and also
the founder and current President of the other DBSI companies.
Prior to founding the DBSI group of companies, he practiced for
three and one-half years as a Certified Public Accountant in
Boise, Idaho, with Touche Ross & Co., an international
accounting firm, specializing in taxation. In this capacity, he
had extensive experience in the analysis of real estate
investments including their syndication into limited
partnerships. Prior to joining Touche Ross & Co., he was a
practicing Certified Public Accountant with Peat, Marwick,
Mitchell and Co. in Houston, Texas, beginning in 1972.
Mr. Swenson is a Certified Public Accountant, a real estate
licensee, and a direct placement securities principal in various
states and with the National Association of Securities Dealers.
He holds a Master of Accountancy degree from Brigham Young
University.
John D. Foster, age 56, is Executive Vice President, Operations
of the Company and DBSI Housing Inc. Prior to joining the DBSI
group of companies in 1989, he was managing partnerships and
third-party properties for Paul B. Larsen & Associates in
Boise, Idaho. He spent seven years with Boise Cascade
Corporation as Manager of the Timberland Resources Planning,
responsible for optimizing the financial return on a six-million
acre timberland base. He has management experience with other
Fortune 500 companies and while on active duty with the Navy was
responsible for management of all buildings, piers, and grounds
of the U.S. Naval Station, San Diego, California. He holds a
Bachelor of Science degree from Oklahoma State University and a
Master of Business Administration degree from the University of
Tulsa.
Charles E. Hassard, age 49, is Executive Vice President, Finance
of the Company and DBSI Housing Inc. Prior to joining the DBSI
group of companies in 1984, he was a Certified Public Accountant
for seven years with Touche Ross & Co. in San Francisco,
California, and Boise, Idaho, specializing in taxation. In his
position, he had extensive experience in analyzing real estate
investments and syndications. Mr. Hassard holds a Master
of Accountancy degree from Brigham Young University.
John Mayeron, age 42, is Executive Vice President, Marketing of
the Company and DBSI Housing Inc. With over ten years of
experience in the securities industry, his most recent position
was with Kavanaugh Securities before joining DBSI in 1990. Mr.
Mayeron holds a Bachelor's degree from the University of Oregon
in Marketing, International Business and Political Science. He
is a member of Phi Beta Kappa and Beta Gamma Sigma.
Farrell J. Bennett, age 58, is Vice President, Marketing of the
Company and DBSI Housing Inc. Prior to joining the DBSI group
of companies in 1984, he was owner-broker of American Realty
Corporation in Boise, Idaho, since 1967. In that position, he
analyzed and marketed numerous residential and commercial
properties. Mr. Bennett holds the CRB designation, is a
licensed real estate broker and a licensed direct placement
securities representative. His formal education was at the
University of Utah.
Walt Mott, age 47, is Vice President, Asset Management of the
Company and DBSI Housing Inc. Prior to joining the DBSI group
of companies in 1991, he was with Boise Cascade Corporation for
14 years where he served as Manager of Timberland Resources
Planning. In this capacity, Mr. Mott was responsible for the
financial analysis of nearly $400,000,000 in timberlands. He
has a background in land sales and acquisitions, as well as
experience in finance and accounting. He holds an A.A.S. degree
in Computer Science from County College of Morris, a Bachelor's
degree from the University of Idaho, a Master's degree
emphasizing finance and price theory from the University of
Idaho, and a Bachelor's degree in accounting from Boise State
University.
(d) Family relationships.
There are no family relationships between any director,
executive officer or person so nominated.
(e) Business experience.
(1) Background. The business experience of the directors and
partners of the general partners and other significant
employees are discussed in the aforementioned Form S-11
Post-Effective Amendment #9 (File No. 33-28988)
on pages 26-29 which are incorporated herein by reference.
(f) Involvement in certain legal proceedings.
There are no events listed in Regulation Section 229.401(f) that
would be material to an evaluation of the ability or integrity
of the people listed above.
(g) Promoters and control persons.
There are no items to report in Regulation Section 229.401(g)
Item 11. Executive Compensation.
There was no cash, bonus or deferred compensation paid to any
executive officers by the registrant during the fiscal year of
this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
This item is not applicable to the registrant during the fiscal
year of this report.
Item 13. Certain Relationships and Related Transactions.
See footnote 5 to the financial statements, December 31, 1996
(page F-8).
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
There have been no reports on form 8-K which were filed in the
last quarter of the period covered by this report.
The following documents are filed as part of this report:
Exhibits required by Item 601:
Page of
Form 10-K
---------
(1) Financial Statements:
Independent Auditors' Report F-1
Balance Sheets as of December 31, 1996
and December 31, 1995 F-2
Statements of Operations for the years ended
December 31, 1996, December 31, 1995, and
December 31, 1994 F-3
Statements of Partners' Capital for the years
ended December 31, 1996, December 31, 1995, and
December 31, 1994 F-3
Statements of Cash Flows for the years ended
December 31, 1996, December 31, 1995, and
December 31, 1994 F-4
Notes to the Financial Statements F-5 thru F-10
(2) Schedules:
All schedules are omitted because they are not required or
because the required information is included in the financial
statements or notes thereto.
(3) Articles of Incorporation and by-laws (Partnership
Agreement) - pages 118-140 of the aforementioned Form
S-11 Post-Effective Amendment #9 (File No. 33-28988)
which is incorporated herein by reference.
(4) Instruments defining the rights of security holders,
including indentures - pages 118-140 of the
aforementioned Form S-11 Post-Effective Amendment #9
(File No. 33-28988) which is incorporated herein by
reference.
(9) Voting trust agreement N/A
(10) Material contracts N/A
(11) Statement re computation of per share earnings N/A
(12) Statements re computation of ratios N/A
(13) Annual report to security holders. Form 10-Q
or quarterly report to security holders N/A
(16) Letter re change in certifying accountant N/A
(18) Letter re change in accounting principles N/A
(19) Previously unfiled documents N/A
(21) Subsidiaries of the registrant N/A
(22) Published report regarding matter submitted to
vote of security holders N/A
(23) Consents of experts and counsel N/A
(24) Power of attorney N/A
(28) Information from reports furnished to state
insurance regulatory authorities N/A
(99) Additional exhibits None
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.
DBSI PACIFIC INCOME & GROWTH FUND - II
A Real Estate Limited Partnership
by______________________________________ Date__________
Charles E. Hassard, Executive Vice President, Finance
of DBSI Housing Inc., general partner of
DBSI PACIFIC INCOME & GROWTH FUND - II
A Real Estate Limited Partnership
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
by______________________________________ Date__________
Douglas L. Swenson, President and
a Member of the Board of Directors
of DBSI Housing Inc., general partner
of DBSI PACIFIC INCOME & GROWTH FUND - II
A Real Estate Limited Partnership
by______________________________________ Date__________
Charles E. Hassard, Executive Vice President, Finance
and a Member of the Board of Directors
of DBSI Housing Inc., general partner
of DBSI PACIFIC INCOME & GROWTH FUND - II
A Real Estate Limited Partnership
by______________________________________ Date__________
John D. Foster, Executive Vice President, Operations
and a Member of the Board of Directors
of DBSI Housing Inc., general partner
of DBSI PACIFIC INCOME & GROWTH FUND - II
A Real Estate Limited Partnership
by______________________________________ Date__________
Farrell J. Bennett, Vice President, Marketing
and a Member of the Board of Directors
of DBSI Housing Inc., general partner
of DBSI PACIFIC INCOME & GROWTH FUND - II
A Real Estate Limited Partnership
Douglas L. Swenson, John D. Foster, Charles E. Hassard and Farrell J.
Bennett constitute a majority in interest of the Board of Directors of DBSI
Housing Inc. which is a general partner of the registrant.
INDEPENDENT AUDITORS' REPORT
To the Partners of
DBSI Pacific Income and Growth Fund - II
A Real Estate Limited Partnership:
We have audited the accompanying balance sheets of DBSI Pacific Income and
Growth Fund - II, A Real Estate Limited Partnership as of December 31, 1996 and
1995 and the related statements of operations, partners' capital and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of DBSI Pacific Income and Growth Fund - II,
A Real Estate Limited Partnership as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Boise, Idaho
March 14, 1997
DBSI PACIFIC INCOME & GROWTH FUND - II
A REAL ESTATE LIMITED PARTNERSHIP
(an Idaho limited partnership)
BALANCE SHEETS
ASSETS December 31, 1996 December 31, 1995
_________________ _________________
Rental property (Notes 2 and 3):
Land $575,000 $1,527,400
Buildings and improvements 4,540,262 12,461,311
Furniture and fixtures 508,184 1,007,792
________________ _________________
5,623,446 14,996,503
Less accumulated depreciation (1,134,148) (2,372,813)
________________ _________________
4,489,298 12,623,690
Cash and cash equivalents 286,062 41,572
Accounts receivable 55,635 7,229
Prepaid expenses 12,166
Reserves 22,394 41,010
Tenant security deposits 19,960 84,015
Note receivable (Note 2) 3,241,921
Other assets (Note 6) 43,982 118,736
_______________ _________________
Total assets $8,159,252 $12,928,418
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable (Note 5) $55,524 $43,624
Interest payable 54,715 75,466
Property taxes payable 10,052
Security deposits payable 19,960 50,550
Notes payable affiliate (Note 5) 120,500
Mortgages payable (Note 4) 6,648,920 8,435,881
Deferred gain on sale of rental property (Note 2) 349,949
_____________ ______________
Total liabilities 7,129,068 8,736,073
Redeemable limited partners' capital (Notes 1 and 7) 560,762
Partners' capital (Notes 1 and 7) 469,422 4,192,345
______________ ______________
Total liabilities and capital $8,159,252 $12,928,418
<FN>
The Accompanying Notes are an Integral Part of these Financial Statements
DBSI PACIFIC INCOME & GROWTH FUND - II
A REAL ESTATE LIMITED PARTNERSHIP
(an Idaho limited partnership)
STATEMENTS OF OPERATIONS
Year Ended Year Ended Year Ended
REVENUES December 31, 1996 December 31, 1995 December 31, 1994
----------------- ------------------ -----------------
Tenant rent $1,883,575 $2,244,280 $2,289,103
Gain on sale of rental property (Note 2) 1,606,745
Interest income 117,738 3,272 14,764
Other income 136,267 105,269 84,851
____________ ____________ ____________
3,744,325 2,352,821 2,388,718
EXPENSES
Interest 763,669 811,968 807,051
Depreciation 396,742 484,263 476,947
Property tax and insurance 206,540 223,938 254,219
Maintenance and repairs 401,541 281,936 316,597
Utilities 263,975 279,899 267,328
Administrative 166,924 198,457 172,016
Management fees (Note 5) 82,097 104,058 106,234
On-site manager (Note 5) 127,480 153,922 142,281
Amortization 74,754 29,528 36,758
___________ ___________ ___________
2,483,722 2,567,969 2,579,431
___________ ___________ ___________
Net income (loss) $1,260,603 ($ 215,148) ($ 190,713)
Net income (loss) per unit $136.10 ($23.23) ($20.59)
STATEMENTS OF PARTNERS' CAPITAL
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
----------------- ----------------- -----------------
Beginning capital $4,192,345 $4,887,928 $5,812,999
Preferred interest transfers (533,962)
Distributions (4,422,764) (480,435) (734,358)
Net income (loss) 1,233,803 (215,148) (190,713)
____________ ____________ ____________
Ending capital $469,422 $4,192,345 $4,887,928
<FN>
The Accompanying Notes are an Integral Part of these Financial Statements
DBSI PACIFIC INCOME & GROWTH FUND - II
A REAL ESTATE LIMITED PARTNERSHIP
(an Idaho limited partnership)
STATEMENTS OF CASH FLOWS
CASH FLOWS FROM Year Ended Year Ended Year Ended
OPERATING ACTIVITIES December 31, 1996 December 31, 1995 December 31, 1994
----------------- ----------------- -----------------
Net income (loss) $1,260,603 ($215,148) ($190,713)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 471,496 513,791 513,705
Gain on sale of rental property (1,606,745)
Changes in current operating
assets and liabilities:
Accounts receivable (48,406) 2,635 (2,880)
Prepaid expenses 12,166 7,400 (6,139)
Tenant security deposits 64,055 (7,045) 16,216
Accounts payable 11,899 (34,855) 13,689
Interest payable (20,751) 7,754 17,222
Property taxes payable (10,052) 1,645 (8,592)
Security deposits payable (30,590) (28,532) 5,921
_________ _________ _________
Net cash provided by operating activities 103,675 247,645 358,429
CASH FLOWS FROM
INVESTING ACTIVITIES
Rental property purchases (180,174) (102,961) (397,898)
Decrease in reserves 18,616 38,057 124,316
Proceeds from sales of rental properties 6,624,519
Proceeds from principal payments on note receivable 8,079
_________ _________ _________
Net cash provided by (used in) investing activities 6,471,040 (64,904) (273,582)
CASH FLOWS FROM
FINANCING ACTIVITIES
Decrease (increase) in other assets (4,971) 11,362
Advances from affiliate 76,700 120,500
Repayments to affiliate (197,200)
Principal payments on mortgages (1,786,961) (70,528) (59,793)
Distributions to partners (4,422,764) (480,435) (734,358)
Proceeds from financing 800,000
__________ _________ __________
Net cash provided by (used in)
financing activities (6,330,225) (435,434) 17,211
___________ __________ ___________
Net increase (decrease) in
cash and cash equivalents 244,490 (252,693) 102,058
Cash and cash equivalents at
beginning of period 41,572 294,265 192,207
__________ __________ __________
Cash and cash equivalents at end of period $286,062 $41,572 $294,265
In a non cash transaction (not included above), the Partnership received a
$3,250,000 installment note from the sale of Talisman Apartments.
[FN]
The Accompanying Notes are an Integral Part of these Financial Statements
DBSI PACIFIC INCOME & GROWTH FUND - II
A REAL ESTATE LIMITED PARTNERSHIP
(an Idaho limited partnership)
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1996, 1995, and 1994
NOTE 1. SUMMARY OF PARTNERSHIP ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Partnership Organization.
DBSI Pacific Income & Growth Fund - II A Real Estate Limited Partnership, was
formed on May 17, 1989 with general partners DBSI Housing Inc., an Idaho
corporation, and DBSI Realty Partners, an Idaho general partnership. The
Partnership was in the development stage through January 9, 1990 and in the
offering stage through December 31, 1991. The business purpose of the
Partnership is to acquire and operate leveraged multi-family housing projects
in the Western United States. The Partnership Offering Circular disclosed the
Partnership's intent to sell or refinance its properties within five to ten
years of the original offering date, and to distribute the proceeds to its
partners. The Partnership elected to sell the properties, and has consummated
sales on three of its four properties and is actively marketing the fourth (See
Note 2). The partnership agreement provides that the Partnership will be
dissolved no later than December 31, 2039, unless sooner terminated as
provided in the agreement.
Operating profits and losses exclusive of losses from the sale or disposition of
Partnership properties, and cash distributions, are allocated 98% to limited
partners and 2% to general partners. After the limited partners have received
distributions equal to a 7% annual return on their capital contributions
the general partners receive additional distributions equal to 5% of total
distributions. Proceeds from sale or refinancing are to be distributed,
generally, 100% to the limited partners until they have received cumulative
distributions equal to their capital contributions, then 85% to the limited
partners and 15% to the general partners. However, the limited partners must
receive cumulative distributions from operations and sale or refinancing
proceeds equal to their capital contributions plus a 10% per annum return
thereon before the general partners receive any sale or refinancing proceeds.
Before distributing liquidation proceeds available from the sales, the
Partnership offered each limited partner an opportunity to exchange their
units in the Partnership for a new class of units within the Partnership.
Approximately 9.6% ($893,160) of the limited partners voted to exchange their
units. The new class offers a tax deferral and a cumulative annual preferred
return of 4% through the end of a ten-year period. In addition, the holders
of the new class of units have the option to put the units to the Partnership
after ten years, for an amount, in cash, equal to their original capital
contribution plus any cumulative unpaid return amounts. The value of this put
is guaranteed by the General Partner. The General Partner received the rights
to future income and liquidation distributions of the limited patners who
exchanged their units. The remaining limited partners elected to receive
liquidation proceeds under the initial partnership agreement.
Significant Accounting Policies.
The balance sheets include only those assets, liabilities, and partners'
capital which relate to the business of the Partnership and do not include
any assets, liabilities, revenues or expenses attributable to the partners'
activities. No partners receive salaries from the Partnership for services.
No provision has been made for federal and state income taxes since these taxes
are the personal responsibility of the partners.
Rental property is recorded at cost. Depreciation is computed for all assets
over their estimated useful lives as follows: buildings and structural
improvements, 15 to 32 years; furniture and fixtures, 5 to 12 years.
Expenditures for maintenance and repairs are charged to operating expenses as
incurred. Mortgage loan fees are amortized over the estimated life of the
mortgage notes.
Cash and cash equivalents include cash in banks (except for security deposits
and reserve bank accounts). Reserves consist of bank deposits for repairs and
replacements, property taxes, insurance, and Partnership reserves.
The estimated fair value of cash and cash equivalents, accounts receivable,
notes receivable, accounts payable, interest payable, security deposits,
notes payable, and mortgages payable approximates their carrying amounts.
The preparation of the Partnership's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, requires management to review long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable or that management
intends to dispose of them. Such assets are required to be adjusted to fair
value minus estimated selling costs if the value is less than carrying value
minus estimated selling costs. The Partnership's remaining rental property
appraised at an amount in excess of net carrying value minus selling costs,
therefore no adjustment is considered necessary.
NOTE 2. SALE OF RENTAL PROPERTIES
The Partnership acquired three properties during 1990; Weatherstone
Apartments, an existing 138-unit project located in Silverdale (Kitsap
County), Washington; Sorrento View Apartements, an existing 80-unit project,
and Dakota Station Apartments, an existing 40-unit project, both located in
the Beaverton/Tigard (Portland), Oregon metropolitan area. In October 1991
the Partnership purchased a fourth property, Talisman Apartments, an existing
96-unit project located in Olympia, Washington.
During 1996, the Partnership sold three of the properties to unrelated third
parties. Dakota Station and Sorrento View were sold for cash. Talisman was
sold for cash and an installment note receivable of $3,250,000, payable in
monthly installments of $26,050 including interest at 8.25% until October
1998, monthly installments of $26,050 including interest at 8.50% until
October 2000, and monthly installments of $26,345 including interest of 8.75%
until November 15, 2001, when the full balance of approximately $2,997,000 is
due. The note is collateralized by the Talisman property. The $349,949
portion of the gain related to the proceeds to be received from note payments
is deferred and will be recognized on a pro rata basis as payments are
received. Gain and proceeds from the sales are as follows:
Dakota Station Talisman Sorrento View Total
-------------- ---------- ------------- -----------
Sale date June 5, 1996 Sept. 27, 1996 Oct. 16, 1996
Sale price $2,080,000 $4,204,243 $4,020,000 $10,304,243
Costs of sale (110,620) (194,920) (124,185) (429,725)
---------- ---------- ---------- -----------
Proceeds from sale 1,969,380 4,009,323 3,895,815 9,874,518
Net carrying value at date of sale (1,525,678) (3,548,687) (2,843,459) (7,917,825)
Deferred gain related to installment note (349,949) (349,949)
---------- ---------- ---------- -----------
Gain on property sales recognized in 1996 443,702 110,687 1,052,356 1,606,745
========== ========== ========== ===========
Proceeds from sale 1,969,380 4,009,323 3,895,815 9,874,518
Prorations taken from closing (38,239) (48,053) (61,591) (147,883)
Note repayment (779,341) (941,483) (1,720,824)
Installment note received (3,250,000) (3,250,000)
---------- ---------- ---------- -----------
Net cash at sale date $1,151,800 $ 711,270 $2,892,741 $ 4,755,811
========== ========== ========== ===========
Distributions of $3,749,198 to the limited partners and $395,657 to the
General Partner (related to exchanged interests - see Note 1) were made on
November 1, 1996 from the proceeds. A short-term working capital note of
$197,200 due to an affiliate of the General Partner was also paid from the
proceeds.
NOTE 3. RENTAL PROPERTY
The following schedules detail the activity in rental property assets and
accumulated depreciation.
Beginning Ending
Rental Property Balance Additions Disposals Balance
--------------------------------------------------------------------------------------
Land $ 1,527,400 $ 1,527,400
Buildings and improvements 12,410,992 $ 50,319 12,461,311
Furniture and fixtures 955,150 52,642 1,007,792
-------------------------------------------------
Total year ended December 31, 1995 $14,893,542 $102,961 $14,996,503
=================================================
Land $ 1,527,400 $ 952,400 $ 575,000
Buildings and improvements 12,461,311 $ 28,997 7,950,046 4,540,262
Furniture and fixtures 1,007,792 151,177 650,785 508,184
-------------------------------------------------
Total year ended December 31, 1996 $14,996,503 $180,174 $9,553,231 $ 5,623,446
Beginning Ending
Accumulated Depreciation Balance Additions Disposals Balance
______________________________________________________________________________________
Buildings and improvements $1,535,781 $386,123 $1,921,904
Furniture and fixtures 352,770 98,139 450,909
-------------------------------------------------
Total year ended December 31, 1995 $1,888,551 $484,262 $2,372,813
=================================================
Buildings and improvements $1,921,904 $309,912 $1,329,171 $ 902,645
Furniture and fixtures 450,909 86,829 306,235 231,503
-------------------------------------------------
Total year ended December 31, 1996 $2,372,813 $396,741 $1,635,406 $1,134,148
=================================================
NOTE 4. MORTGAGES PAYABLE
A mortgage payable of $3,875,000 to Pacific First Federal Savings Bank was used
in the purchase of Weatherstone Apartments in March, 1990. The balance of
$3,756,344 as of December 31, 1996 and $3,779,445 as of December 31, 1995 bears
interest at 9.875% and requires monthly payments of $32,942 through April 1,
2000 when the remaining balance of approximately $3,660,621 is due.
In October, 1991, the Partnership purchased Talisman Apartments by executing a
mortgage loan in the amount of $3,000,000. The mortgage note in the current
amount of $2,892,576 at December 31, 1996, and a balance of $2,918,151 as of
December 31, 1995 is held by the State of Washington, State Investment Board,
and requires payments of $26,050 monthly with interest charged at 9.875%.
The entire balance of the loan is due in ten years (November, 2001) when the
approximate balance will be $2,722,795. The loan is secured by the underlying
property which has been sold to a third party (See Note 2). The loan may not be
prepaid during the first five years of the loan period. During the second five
years of the loan period it may be prepaid subject to the greater of a yield
maintenance prepayment penalty or a minimum 2% prepayment penalty.
A first deed of trust loan of approximately $998,000 to Canada Life Assurance
Company was in place and required monthly payments of $7,996 with interest at
8.375%, until it was repaid upon the sale of the property on October 16, 1996.
An 8.25% $800,000 loan from Canada Life Assurance Co. secured by the Dakota
Station Apartments was obtained on April 28, 1994 to finance six to eighteen
additional units at Weatherstone Apartments. The loan was for five years with a
25-year amortization. The loan required monthly payments of $6,308 until it
was repaid upon sale of the property on June 5, 1996.
The following schedule details principal payments on outstanding mortgages as
of December 31, 1996:
Project 1997 1998 1999 2000 2001 Thereafter Total
- -------------------------------------------------------------------------------------------
Weatherstone $25,500 $28,135 $31,042 $3,671,667 -0- -0- $3,756,344
Talisman 28,218 31,134 34,352 37,593 $41,139 $2,720,140 2,892,576
----------------------------------------------------------------------------
$53,718 $59,269 $65,394 $3,709,260 $41,139 $2,720,140 $6,648,920
============================================================================
Interest paid on all debts for cash flow purposes during 1996, 1995, and 1994
was $784,420, $809,570, and $788,218.
NOTE 5. RELATED PARTY TRANSACTIONS
The Partnership borrowed $197,200 through the second quarter of 1996 from an
affiliate of the General Partner. This loan bears interest at the General
Partner's bank borrowing rate of prime plus 1.5% (10% as of December 31, 1996).
The loan proceeds provided funds for short-term operating cash flow needs of
the Seattle area projects and to enable the Partnership to maintain
distribution rates following the lower than anticipated operating cash flow
from these properties. The note was repaid from proceeds of the Dakota
Station property sale on June 5, 1996.
As described in the partnership agreement, affiliates of the general partner
receive compensation and fees in connection with the management of the
Projects. Such fees totaled $10,535 for 1996, $104,058 for 1995, and $106,234
for 1994, and were paid to affiliates of general partner DBSI Housing Inc.
DBSI Housing Inc. was reimbursed for $187, $153,922, and $142,281 of payroll
costs for on-site managers in 1996, 1995, and 1994.
Amounts due to related parties included in Accounts Payable at December 31
were for DBSI Realty Corp. (affiliate of DBSI Housing Inc.), administrative/
office supplies expense as follows: $1,211 for 1996, $1,547 for 1995, and
$111 for 1994.
NOTE 6. OTHER ASSETS
Other assets and accumulated amortization at December 31, 1996 consisted of
loan fees of $141,250, less amortization of $97,268.
NOTE 7. PARTNERS' CAPITAL
The following schedule details the capital activity and allocations between the
redeemable limited, limited and general partners during the periods reported:
Redeemable Syndication &
Limited Limited General Total Unallocated
Partners Partners Partners Allocated Capital Total
________ ________________________________________________________________
Balance January 1, 1994 $7,561,227 $(171,764) $7,389,463 $(1,576,464) $5,812,999
Net Loss (186,879) (3,834) (190,713) (190,713)
Distributions to Partners (682,938) (51,420) (734,358) (734,358)
________________________________________________________________
Balance December 31, 1994 6,691,410 (227,018) 6,464,392 (1,576,464) 4,887,928
Net Loss (210,739) (4,409) (215,148) (215,148)
Distributions to Partners (480,435) (480,435) (480,435)
________________________________________________________________
Balance December 31, 1995 6,000,236 (231,427) 5,768,809 (1,576,464) 4,192,345
1996 quarterly distributions (277,912) (277,912) (277,912)
Preferred interest transfer $528,410 (528,410) (528,410) (528,410)
Liquidating distributions (3,749,195) (395,657) (4,144,852) (4,144,852)
Net income 26,800 1,116,268 117,535 1,233,803 1,233,803
Preferred return 5,552 (5,552) (5,552) (5,552)
-------- -----------------------------------------------------------------
Balance December 31, 1996 $560,762 $2,560,987 ($515,101) $2,045,886 ($1,576,464) $ 469,422
======== ========== ========= ========== =========== ==========
NOTE 8. NET INCOME (LOSS) FROM RENTAL PROPERTIES
The following schedule details separate rental property and partnership
operations for the year ended December 31, 1996.
_________________________________________________________________________________
Weatherstone Talisman Sorrento View Dakota Station
Revenues: Apartments Apartments Apartments Apartments Partnership Total
---------------------------------------------------------------------------------
Tenant rent $ 873,656 $439,572 $457,635 $112,712 $1,883,575
Interest income 437 713 859 554 $ 115,175 117,738
Other income 86,539 17,806 22,854 9,013 55 136,267
Gain on sale of rental property 1,606,745 1,606,745
--------------------------------------------------------------------------------
960,632 458,091 481,348 122,279 1,721,975 3,744,325
Expenses:
Interest 371,799 191,550 63,246 33,591 103,483 763,669
Depreciation 186,469 90,438 93,701 26,134 396,742
Property tax and insurance 92,385 55,078 44,901 14,176 206,540
Maintenance and repairs 230,421 102,408 49,295 19,417 401,541
Utilities 132,939 61,124 53,898 16,014 263,975
Administration 72,006 38,632 23,318 5,544 27,424 166,924
Management fees 33,752 16,912 24,037 7,396 82,097
On-site manager 59,805 34,622 29,129 3,924 127,480
Amortization 74,754 74,754
--------------------------------------------------------------------------------
1,179,576 590,764 381,525 126,196 205,661 2,483,722
--------------------------------------------------------------------------------
Net income (loss) ($ 218,944) ($132,673) $ 99,823 ($ 3,917) $1,516,314 $1,260,603
================================================================================