-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TukcuW+k6WS3VrWTVjd9TJTh0rIcDadzH0W1JuDUInDhBxAzz6jA5ufSILWEVdRz FPjStxqq0hEv8EhlMo+UKQ== 0000928790-97-000035.txt : 19970329 0000928790-97-000035.hdr.sgml : 19970329 ACCESSION NUMBER: 0000928790-97-000035 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STAMFORD TOWERS LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000799149 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133392080 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16536 FILM NUMBER: 97567247 BUSINESS ADDRESS: STREET 1: 3 WORLD FINANCIAL CENTER 29TH FLOOR STREET 2: C/O SHEARSON LEHMAN BROTHERS INC CITY: NEW YORK STATE: NY ZIP: 10285 BUSINESS PHONE: 212526-323 MAIL ADDRESS: STREET 1: 31 ST JAMES ST STREET 2: 6TH FLOOR CITY: BOSTON STATE: MA ZIP: 02117 FORMER COMPANY: FORMER CONFORMED NAME: SHEARSON LEHMAN DEVELOPMENT FUND I LTD PARTNERSHIP DATE OF NAME CHANGE: 19861015 10-K 1 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 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 For the transition period from _________ to __________ Commission file number: 33-8105 STAMFORD TOWERS LIMITED PARTNERSHIP and STAMFORD TOWERS DEPOSITARY CORP. Exact name of registrant as specified in its charter State or other jurisdiction of I.R.S. Employer incorporation or organization Identification No. Stamford Towers Limited Partnership - Delaware 13-3392080 Stamford Towers Depositary Corp. - Delaware 13-3392081 Attention: Andre Anderson 3 World Financial Center, 29th Floor, New York, New York 10285 Address of principal executive offices Zip Code Registrant's telephone number, including area code: (212) 526-3237 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Depositary Units of Limited Partnership Interest Title of Class Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the 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 ] Aggregate market value of voting stock held by non-affiliates of the Registrant - - Not Applicable Documents Incorporated by Reference: Portions of Parts I, II, III, IV are incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1996. PART I ITEM 1. Business (a) General Development of Business. Stamford Towers Limited Partnership (the "Partnership") is a Delaware limited partnership which was formed on August 14, 1986. The general partner of the Partnership is Stamford Towers Inc., a Delaware corporation (the "General Partner") and an affiliate of Lehman Brothers Inc. The sole limited partner of the Partnership is Stamford Towers Depositary Corp., a Delaware corporation (the "Assignor Limited Partner") and also an affiliate of Lehman Brothers Inc. The control and management of the Partnership's business and affairs are vested solely in the General Partner. On November 19, 1986, the Partnership began an offering of 7,826,300 depositary units ("Units") representing assignments of the limited partnership interests in the Partnership. The offering was on a "best efforts" basis through Shearson Lehman Brothers Inc. ("Shearson") at a price of $10 per Unit. On June 30, 1987, a supplement to the prospectus for the offering of the Units was issued for the purpose of updating, modifying and amending certain information contained in the original prospectus. On July 30, 1987, the Partnership commenced operations with the acceptance of subscriptions for 4,562,075 Units ($45,620,750). The remaining Units were sold pursuant to eight additional Partnership closings occurring on a monthly basis from August 1987 through March 1988. Net proceeds to the Partnership from the public offering of the Units were $71,808,474, after deducting offering and organizational costs and setting aside funds for a working capital reserve. The Partnership was formed to acquire, construct, develop, own and operate two parcels of land totaling approximately 3.63 acres located in the central business district of Stamford, Connecticut (the "Land") and two commercial office buildings together with ancillary facilities (the "Buildings") constructed thereon which contain 325,416 net rentable square feet (the Land and the Buildings are collectively referred to as the "Property"). See Item 2. The Partnership entered into a development agreement dated September 17, 1986 as modified by a modification dated June 5, 1987 (collectively, the "Development Agreement") with an unaffiliated party, Edlar, Inc., a Delaware corporation (the "Developer"), pursuant to which the Developer agreed to convey the Land to the Partnership and construct the Buildings. Under the terms of the Development Agreement, the Developer was obligated, among other things, to (1) cause substantial completion of the Buildings to occur within 550 days of the commencement of construction (subject to extensions for force majeure work delays and approved change orders), (2) complete construction of the Buildings for a guaranteed maximum cost (including Land and Miscellaneous carrying costs) of $59,384,922 (subject to increases attributable to approved change orders and costs resulting from force majeure work delays) and (3) complete the tenant finish pursuant to a standard work letter for all initial leases entered into prior to the date 550 days after substantial completion of the Buildings, for a guaranteed maximum cost. The Developer, in connection with carrying out its construction obligations under the Development Agreement, entered into a construction management agreement dated May 28, 1987 with Gilbane Building Company ("Gilbane"), a Rhode Island corporation, and assigned a construction supervisor to the Property to work with Gilbane. Edward Feldman, the principal shareholder of the Developer, executed a personal guaranty in favor of the Partnership (the "Guaranty"), guaranteeing the Developer's payment obligations under the Development Agreement, including those relating to failure to complete performance of the work in a timely fashion and funding of cost overruns. In the Guaranty, Mr. Feldman agreed to maintain a personal net worth of at least $15,000,000 for so long as his obligations thereunder remained outstanding. Because of Mr. Feldman's substantial financial commitments with respect to other projects, as well as his substantial contingent liabilities, it was understood that there could be no assurance that Mr. Feldman would be able to make any required payments under the Guaranty. Construction of the Buildings commenced in July 1987. Certificates of Occupancy were not received from the City of Stamford until February 1990, representing a substantial delay from the originally scheduled completion date of February 1989. Moreover, during the course of the construction, substantial cost overruns were incurred. Because the Developer denied responsibility for the delays and overruns, the Partnership commenced an arbitration in January 1989 to resolve the dispute. In the arbitration, the Partnership contended that the Developer was responsible for all cost overruns (except for the cost of three approved change orders which represented a total cost of less than $20,000) incurred in connection with the construction of the buildings. In addition, the Partnership contended that the Developer was obligated to make certain liquidated damage payments as a result of the unjustified delays in the completion of construction, and that the Developer's failure to make those payments entitled the Partnership to terminate the Developer. The Developer, in turn, filed numerous claims against the Partnership principally designed to establish the Partnership's responsibility for the cost overruns incurred on the Property. As a result of a ruling by the New York State Supreme Court, the Partnership's arbitration with the Developer was combined with the Developer's separate arbitration with the Property's construction manager, Gilbane. Hearings in the consolidated arbitration commenced in the fall of 1989 and continued periodically until the summer of 1992. On January 27, 1993, the arbitration panel issued its decision, awarding the Partnership approximately $8.1 million in monetary relief and granting certain additional declaratory relief. The arbitrators also decided in favor of Gilbane with respect to its separate dispute with the Developer. See Items 3 and 7 for a discussion of the arbitration award and its significance. Because of the delays and cost overruns which occurred in the course of construction of the Buildings, funds in addition to those budgeted were required to complete the construction of the Buildings. Furthermore, due to soft market conditions in Stamford, additional funds have been required to fund increases in the Partnership's leasing budget. Accordingly, on July 19, 1990, the Partnership closed a mortgage loan (the "Financing") with People's Bank ("People's") to provide mortgage financing to the Partnership. The Financing consisted of a $25 million, seven-year, revolving loan payable, secured by a non-recourse first mortgage on the Property. For the specific terms of the Financing, see Note 7 "Mortgage Note Payable" of the Notes to the Financial Statements, included in the Partnership's Annual Report for the year ended December 31, 1996, which is filed as an exhibit under Item 14. On February 17, 1994, the Partnership entered into a loan modification agreement with People's (the "Loan Modification"). The Loan Modification: (i) reduced the interest rate on the loan from 11.5% to 7.43% commencing February 1, 1994 and continuing until the first adjustment date on July 19, 1995, at which time the interest rate was reset to 9.03%; (ii) reduced the principal balance of the loan from $25 million to $24,449,795; and (iii) eliminated the interest reserve line item. Payments of interest are due monthly in arrears and are required to be paid from the Partnership's own funds. Loan proceeds may continue to be used on an "as needed" basis to fund all other approved line items. As of December 31, 1996, the principal balance of the loan was $17,798,291 plus interest payable of $134,080 for a total balance of $17,932,371. The Partnership is exploring its options with respect to refinancing the Financing which matures in August 1997. The General Partner, at this time, cannot determine whether or when cash flow from operations will be available for distribution to holders of Units ("Unit Holders"). (b) Financial Information About Industry Segments. The Partnership's sole business is the ownership and operation of the Property. All of the Partnership's revenues, operating profit or loss and assets relate solely to its interest as the owner of the Property. (c) Narrative Description of Business. The Partnership's sole business is the ownership and operation of the Property. The Partnership currently intends to hold the Property until such time as the General Partner, pursuant to the terms of the Partnership Agreement, deems it prudent to sell the Property. The principal objectives of the Partnership, in no particular order of priority, are to: (i) provide long-term capital appreciation; (ii) provide cash distributions from operations following lease-up of the Property subsequent to the repayment of the Financing; and (iii) preserve and protect Partnership capital. There can be no assurance that the Partnership will achieve its objectives. The Partnership has no employees. Until October 1996, full-time property management services were provided by CB Commercial Real Estate Group Inc. In October 1996, the Partnership changed property management firms to Rostenberg-Doern & Company, which also serves as the Property's exclusive leasing agent. In March 1997, Rostenberg-Doern & Company was acquired by the Edward S. Gordon Co., which is owned by Insignia Financial Group, Inc. ITEM 2. Properties The Land has been developed with two architecturally integrated, 11-story, multi-tenant office buildings (comprised of four levels of parking and seven levels of office space), one of which contains approximately 192,939 square feet of rentable floor space (the "North Tower"), and the other of which contains approximately 132,477 square feet of rentable floor space (the "South Tower"). The Partnership owns no real property other than the Land and the Buildings. A 3,000 square foot cafeteria available for the use of all tenants was completed in December 1990 on the 5th floor of the North Tower. Leasing Status The Partnership entered into a lease with Citicorp POS Information Services, Inc. ("Citicorp POS") which became effective on May 15, 1990 (the "Original Lease") for approximately 136,000 rentable square feet in the Property's North Tower. On June 28, 1995, the Partnership executed the First Amendment (the "Citicorp Lease Extension") to the Original Lease with Citicorp North America, Inc. ("Citicorp"). For information regarding the lease with Citicorp and the Citicorp Lease Extension, refer to Note 5 "Lease Agreement with Citicorp POS Information Services" of the Notes to the Financial Statements, which is filed as an exhibit under Item 14. The Property was 72% leased as of December 31, 1996, as compared to 49% leased at December 31, 1995. In addition to Citicorp, there are nine other tenants leasing space in the Property as of December 31, 1996. Eight of these tenants lease approximately 96,784 square feet of office space. The ninth tenant leases approximately 500 square feet of retail space. During the first quarter of 1996, the Partnership signed a 10-year lease with MemberWorks (formerly Cardmember Publishing Corp.) for approximately 18,650 square feet in the Property's South Tower. The tenant took occupancy on March 15, 1996. The cost of the tenant improvements necessitated by the lease were funded from drawdowns on the Financing. During the second quarter of 1996, the Partnership signed a lease with Learning International, Inc. ("Learning") for 36,720 square feet covering two floors in the South Tower. Learning took occupancy on July 1, 1996. The terms of the lease required Learning to fund the necessary improvements for the space and related leasing commissions in exchange for a reduced rental rate. Additionally, Millsport L.L.C., expanded its leased space by 2,341 square feet during the second quarter of 1996 to 10,941 square feet. The tenant occupied the expanded space in the third quarter of 1996. During the third quarter of 1996, the Partnership signed a lease agreement with Tradition Financial Services, Inc. for 11,605 square feet in the South Tower. The new tenant took occupancy late in the fourth quarter of 1996. The cost of the tenant improvements and leasing commissions necessitated by the lease will be funded from drawdowns on the Partnership's revolving loan payable. During the fourth quarter of 1996, the Partnership signed a 10-year lease agreement with the Life Extension Institute ("Life Extension") for 5,688 square feet in the North Tower. The tenant is expected to take occupancy early in the second quarter of 1997. The cost of the tenant improvements and leasing commissions necessitated by the lease will be funded from drawdowns on the Financing. Stamford Market The Stamford commercial real estate market continued to recover in 1996. As reported by Rostenberg-Doern & Company, the market vacancy rate for commercial office space declined from 12.5% at year-end 1995 to 11.0% at the end of 1996. The average market lease rate for class A office space in Stamford increased to $23.50 per square foot in the fourth quarter of 1996, from $20 per square foot in the fourth quarter of 1995. The improving conditions prompted a rise in new construction proposals for several new office properties. If such construction does in fact occur, and demand does not keep pace with the delivery of any new space to the market, leasing activity and rental rates may be negatively impacted. One of the most significant developments in Stamford in recent years was the announcement in 1994 that Swiss Bank Corporation ("Swiss Bank") would be constructing a 20-story North American headquarters building directly across the street from the Property. Construction commenced in January 1996 and is expected to be completed in 1998. Swiss Bank's commitment is an indication of the continuing interest of major corporations in Stamford as an alternative to New York. Swiss Bank's plans call for the relocation of approximately 1,200 employees from its current Manhattan location to Stamford upon the completion of the construction. ITEM 3. Legal Proceedings In early 1993, the Partnership received the decision of a five-member arbitration board impaneled to determine numerous disputes between and among the Partnership, the Developer and Gilbane arising from the development and construction of the Property. In their decision, the arbitrators awarded the Partnership approximately $8.1 million in damages and costs on its claims against the Developer and awarded the Developer no amounts on its claims against the Partnership. The arbitrators also awarded Gilbane approximately $2.6 million in damages and costs on its claims against the Developer and ordered that the Developer hold the Partnership harmless with respect to any mechanics liens filed against the Partnership's property in connection with the Property. The Partnership has obtained a judgment in New York for the full amount of the arbitration award against Edlar and Edward Feldman, pursuant to the Guaranty. However, the General Partner's investigation indicated that the Developer has no significant assets from which the Partnership's arbitration award could be satisfied. Moreover, Mr. Feldman advised the Partnership that he has no significant liquid assets from which to satisfy the judgment against him, and that he has outstanding debts to other creditors in the approximate amount of $53,000,000. On February 1, 1991, Gilbane filed a mechanic's lien against the Property in the sum of $4,583,481. This amount was subsequently reduced by Gilbane to $2,650,018 at the request of the Partnership. On August 9, 1991, Gilbane commenced an action entitled Gilbane Building Co. v. Stamford Towers Limited Partnership, et. al., in the Connecticut Superior Court for the Judicial District of Stamford/Norwalk at Stamford (the "Gilbane Action"). The defendants include the Partnership. Gilbane alleges breach of various contracts and unfair trade practices and seeks foreclosure of its mechanic's lien, approximately $2.65 million in monetary damages, interest, costs, attorneys' fees, punitive damages, possession of the Property, and the appointment of a receiver. On October 21, 1993, the Partnership filed its Answer, Special Defenses and Counterclaims to Gilbane's Action, which alleged breach of various contracts, unfair trade practices and slander of title. On September 13, 1995, the Partnership filed a Substituted Answer, Special Defenses, Counterclaims, Set-offs and Recoupment which, in addition to the allegations of its original counterclaim, brought additional claims of negligence, breach of warranty, breach of contract, products liability and unfair trade practices. The Partnership, by way of its counterclaims, seeks approximately $1.7 million in damages in addition to interest, costs, punitive damages and attorneys' fees. On December 31, 1990, a subcontractor of the Property, Moliterno Stone Sales, Inc. ("Moliterno") filed a mechanic's lien against the Property in the sum of $155,936. On December 11, 1991, Moliterno filed a cross-claim against the Partnership in the Gilbane Action. Moliterno seeks foreclosure on its mechanic's lien, monetary damages, and possession of the Property. An application to discharge Moliterno's mechanic's lien was filed by the Partnership on April 30, 1993. On September 1, 1995, the Partnership filed its answer, special defenses and counterclaims to Moliterno's cross-claim, alleging that Moliterno was negligent, breached its contract and an implied warranty, and engaged in unfair trade practices in performing its work on the Property. On November 18, 1996, Judge Ryan of the Connecticut Superior Court (the "Court") entered a final judgment in this proceeding. The judgment awarded Gilbane $770,070 and Moliterno $155,000. All remaining claims, including the Partnership's counterclaims, were dismissed. The Partnership has sufficient cash to pay the amounts awarded which will not have a material impact on the Partnership's financial condition. Although post-judgment motions to alter the judgment were denied by the Court on March 13, 1997, it is anticipated that Gilbane may appeal. ITEM 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of the Unit Holders at a meeting or otherwise during the fourth quarter in the year for which this report is filed. PART II ITEM 5. Market for the Partnership's Limited Partnership Interests and Related Security Holder Matters (a) Market Price Information. There is no established trading market for the Units. The Partnership originally intended to apply to include the Units on NASDAQ or another quoted securities market upon the completion of the lease-up of the Property. However, an application is not anticipated at this time. (b) Holders. As of December 31, 1996, there were 8,826 Unit Holders. (c) Distribution of Net Cash Flow. For information regarding the Partnership's policy with respect to distribution of net cash flow, refer to Note 3 "The Partnership Agreement" of the Notes to the Financial Statements, included in the Partnership's Annual Report for the year ended December 31, 1996, which is filed as an exhibit under Item 14. ITEM 6. Selected Financial Data Set forth below is the selected financial data for the referenced periods. For the years ended December 31, 1996 1995 1994 1993 1992 Rental Income $ 4,144,475 $ 2,947,857 $ 2,486,730 $ 2,392,211 $ 2,359,242 Interest Income 256,063 319,278 192,911 182,101 259,422 Net Loss (2,660,356) (3,017,904) (3,711,936) (4,387,694) (4,180,101) Net Loss per Unit (1) (.34) (.38) (.47) (.56) (.53) Total Assets 69,645,169 69,670,348 70,989,125 74,328,520 76,917,606 Revolving loan payable 17,798,291 16,483,152 15,407,772 14,951,320 13,312,685 Cash Distributions per Unit -0- -0- -0- -0- -0- (1) Based upon the weighted average number of Units (7,826,300) outstanding at year end. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Initially, the principal source of the Partnership's liquidity was the proceeds from the offering of Units which was completed in March 1988 and totaled $78,263,000. After paying offering expenses and syndication costs of the Partnership and establishing a working capital reserve, the Partnership had approximately $71,808,474 available to invest in the acquisition of the Land and the construction, lease-up and operation of the Buildings. On July 30, 1987, the Partnership acquired the Land for $14,714,483. As of December 31, 1996, $61,125,236 had been invested in the construction of the Buildings and tenant improvements. The Partnership is currently preserving its funds to lease and operate the Property. Through December 31, 1996, the Partnership's sources of liquidity have been net proceeds from the public offering of the Units, rental payments under the terms of the leases discussed in Item 2, proceeds from the Financing discussed in Item 1 and Note 7, "Mortgage Note Payable", of the Notes to the Financial Statements, included in the Partnership's Annual Report for the year-ended December 31, 1996, which is filed as an exhibit under Item 14, and interest earned on the Partnership's cash balance. Because of delays and cost overruns which occurred in the course of construction of the Buildings and due to soft market conditions in the Stamford real estate market, additional funds have been required to fund cost overruns, operating deficits and leasing costs (see Item 1). While the Partnership sought to recover the amount of the construction overruns from the Developer and eventually prevailed on most of its claims at the arbitration (see Item 3), it currently appears that neither the Developer nor Edward Feldman, the Developer's principal shareholder, have any significant liquid assets from which to pay the Partnership. While the General Partner intends to pursue, with all prudent measure, payment of the $8.1 million arbitration award, it seems unlikely that any substantial sums will be realized in the foreseeable future with respect to the arbitration award. In order to meet the Partnership's liquidity requirements during the Property's leasing phase, the Partnership obtained the Financing. On February 17, 1994, the Partnership entered into the Loan Modification with People's which: (i) reduced the interest rate on the loan from 11.5% to 7.43% commencing February 1, 1994 and continuing until the first adjustment date on July 19, 1995, at which time the interest rate was reset to 9.03%; (ii) reduced the principal balance of the loan from $25 million to $24,449,795; and (iii) eliminated the interest reserve line item. Payments of interest are due monthly in arrears and are required to be paid from the Partnership's own funds. Loan proceeds may continue to be used on an "as needed" basis to fund all other approved line items. The $1,315,139 increase in principal from December 31, 1995 was attributable to funds drawn to pay for costs associated with leasing costs and tenant improvements associated with the new leases signed for the South Tower. The Partnership is exploring its options with respect to refinancing the Financing which matures in August 1997. Cash and cash equivalents totaled $5,668,459 and $5,873,982 at December 31, 1996 and 1995, respectively. The decrease is attributable to net cash used for operating activities and additions to real estate exceeding net cash provided by borrowings under the revolving loan payable. The Partnership's restricted cash balance increased to $337,676 at December 31, 1996 from $91,458 at year-end 1995. The increase is primarily attributable to security deposits received from two new tenants in the South Tower. Deferred charges net of accumulated amortization declined to $53,896 at December 31, 1996 from $181,696 at year-end 1995. The decrease is due to the amortization of capitalized fees related to the Loan Modification. Prepaid expenses increased from $1,399,363 at December 31, 1995 to $1,632,689 at December 31, 1996. The increase is primarily attributable to the payment of leasing commissions related to the Citicorp Lease Extension and the leasing activity in the South Tower, partially offset by the continued amortization of leasing commissions. Accounts payable and accrued expenses increased from $1,482,840 at December 31, 1995 to $2,793,018 at December 31, 1996. The increase is primarily attributable to accruals for the judgments awarded to Gilbane and Moliterno resulting from the November 18, 1996 judgment. The increase is also due to accruals for costs relating to tenant improvements in the South Tower and the receipt of security deposits from MemberWorks and Consolidated Hydro, partially offset by a decrease in prepaid rent in 1996 due to the recognition of prepaid rental payments made by Citicorp in 1995. The Partnership has made no cash distributions to date. On February 16, 1996, based upon, among other things, the advice of legal counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partner adopted a resolution that states, among other things, if a Change of Control (as defined below) occurs, the General Partner may distribute the Partnership's cash balances not required for its ordinary course day-to-day operations. "Change of Control" means any purchase or offer to purchase more than 10% of the Units that is not approved in advance by the General Partner. In determining the amount of the distribution, the General Partner may take into account all material factors. In addition, the Partnership will not be obligated to make any distribution to any partner, and no partner will be entitled to receive any distribution, until the General Partner has declared the distribution and established a record date and distribution date for the distribution. Results of Operations 1996 vs. 1995 The Partnership incurred a net loss of $2,660,356 for the year ended December 31, 1996 compared with a net loss of $3,017,904 for the year ended December 31, 1995. The reduction in the net loss in 1996 is primarily attributable to the increase in rental income resulting from the addition of new tenants in the South Tower and the Citicorp Lease Extension, partially offset by the accrual of the November 18, 1996 judgment amounts awarded to Gilbane and Moliterno. Rental income increased by 41%, to $4,144,475 in 1996, from $2,947,857 in 1995, primarily due to increased occupancy in the South Tower and a reduction in the amortization of deferred rent relating to the Citicorp Lease Extension. Interest income for the year ended December 31, 1996 was $256,063 as compared to $319,278 for the year ended December 31, 1995. The decrease is the result of the Partnership maintaining lower average cash balances in 1996. Other income increased to $474,457 in 1996 from $331,828 in 1995, primarily due to the reimbursement of tenant improvements in 1996. Total expenses for the year ended December 31, 1996 were $7,535,351 compared with $6,616,867 in 1995. The increase is primarily attributable to the $925,070 judgment awarded to Gilbane and Moliterno and an increase in interest expense and property operating expenses, partially offset by lower depreciation and amortization and professional fees. Depreciation and amortization for the year ended December 31, 1996 was $2,070,391 compared to $2,446,866 in 1995. The decrease in depreciation and amortization is attributable to the Citicorp Lease Extension which extended the length of Citicorp's lease and the corresponding asset life of the tenant improvements. Property operating expenses increased to $2,584,730 from $2,308,093 in 1995, primarily due to increases in utilities, cleaning, security and repairs and maintenance expenses arising from increased occupancy in the South Tower. Interest expense relating to the revolving loan payable increased to $1,549,523 in 1996 from $1,289,309 in 1995. Interest expense increased due to a drawdown in July 1995 to fund leasing commissions associated with the Citicorp Lease Extension, the additional borrowings in 1996 to fund leasing commissions and tenant improvements associated with the new leases in the South Tower and, to a lesser extent, an increase in the average interest rate as discussed above. Professional fees totaled $258,524 in 1996 compared with $434,597 in 1995. The decrease is attributable to lower legal fees in 1996 associated with the Gilbane litigation. 1995 vs. 1994 The Partnership incurred a net loss of $3,017,904 for the year ended December 31, 1995 compared with a net loss of $3,711,936 for the year ended December 31, 1994. The reduction in the net loss was primarily the result of increases in rental income due to the Citicorp Lease Extension and, to a lesser extent, an increase in interest income. Rental income totaled $2,947,857 in 1995, up 19% from 1994, primarily due to a rent step-up in 1995 and a reduction in the amortization of deferred rent relating to the Citicorp Lease Extension. Other income increased from $293,767 in 1994 to $331,828 in 1995, reflecting an increase in tenant reimbursements for HVAC improvements for Citicorp and, to a lesser extent, income received from the rental of storage space to Citicorp. Partially offsetting these increases was a reduction in tenant reimbursements for electricity costs, resulting primarily from a reduction in the number of employees occupying the Citicorp space. Interest income for the year ended December 31, 1995 was $319,278 as compared to $192,911 for the year ended December 31, 1994. The increase was the result of an increase in the Partnership's average cash balance due to a drawdown on the first mortgage loan in July 1995, as well as an increase in the interest rate earned on the balance. Total expenses for the year ended December 31, 1995 were $6,616,867 compared with $6,685,344 in 1994. Depreciation and amortization for the year ended December 31, 1995 was $2,446,866 compared to $2,912,878 in 1994. The decline in depreciation and amortization was attributable to the Citicorp Lease Extension which extended the length of Citicorp's lease and the corresponding asset life of the tenant improvements. As a result, the annual depreciation expense was reduced. Property operating expenses decreased to $2,308,093 from $2,313,161 in 1994, primarily due to lower real estate taxes, advertising and promotion expenses. Real estate taxes were reduced as a result of a reduction in the City of Stamford's real estate tax rate and a reduction in the assessed value of the South Tower, partially offset by a slight increase in the assessed value of the North Tower. Partially offsetting these reductions was an increase in construction costs related to HVAC improvements for Citicorp. These expenses were reimbursed to the Partnership by Citicorp and are reflected under other income. Interest expense relating to the revolving loan payable increased to $1,289,309 in 1995 from $1,188,986 in 1994. Interest expense increased due to the additional borrowings and an increase in the interest rate discussed above. Professional fees totaled $434,597 in 1995 compared with $146,489 in 1994. The increase was attributable to legal and engineering consulting fees associated with the Gilbane litigation, and to a lesser extent, an increase in legal fees associated with new leases. ITEM 8. Financial Statements and Supplementary Data Incorporated by reference to the Partnership's Annual Report to Unitholders for the fiscal year ended December 31, 1996, which is filed as an exhibit under Item 14. Supplementary data is incorporated by reference to page F-1 of this report. 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 The Partnership has no Directors or Executive Officers. The affairs of the Partnership are conducted through the General Partner. Certain officers and directors of the General Partner are now serving (or in the past have served) as officers and directors of entities which act as general partners of a number of real estate limited partnerships which have sought protection under the provisions of the Federal Bankruptcy Code. The partnerships which have filed for bankruptcy petitions own real estate which has been adversely affected by the economic condition in the markets in which the real estate is located and, consequently, the partnerships sought protection of the bankruptcy laws to protect the partnerships' assets from loss through foreclosure. On July 31, 1993, Shearson Lehman Brothers, Inc. ("Shearson") sold certain of its domestic retail brokerage and asset management businesses to Smith Barney, Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to this sale, Shearson changed its name to Lehman Brothers Inc. ("Lehman"). The transaction did not affect the ownership of the Partnership or the General Partner. Set forth below are the names, positions and offices held, and a brief account of the business experience during the past five years of each Director and Executive Officer of the General Partner and the Assignor Limited Partner as of December 31, 1996. Each such officer and director holds a similar position in the General Partner and the Assignor Limited Partner. Name Office Regina M. Hertl President Rocco F. Andriola Vice President, Director and Chief Financial Officer Jeffrey C. Carter Vice President Timothy Needham Vice President Kenneth Boyle Vice President Regina M. Hertl, 38, is a First Vice President of Lehman Brothers in its Diversified Asset Group and is responsible for the investment management of commercial and residential real estate, and a venture capital portfolio. From January 1988 through December 1988, Ms. Hertl was Vice President of the Real Estate Accounting Group within the Controller's Department of Shearson Lehman Brothers. From September 1986 through December 1987, she was an Assistant Vice President responsible for real estate accounting analysis within the Controller's Department at Shearson. From September 1981 to September 1986, Ms. Hertl was employed by the accounting firm of Coopers & Lybrand. Ms. Hertl, who is a Certified Public Accountant, graduated from Manhattan College in 1981 with a B.S. degree in Accounting. Rocco F. Andriola, 38, is a Managing Director of Lehman Brothers in its Diversified Asset Group and has held such position since October 1996. Since joining Lehman Brothers in 1986, Mr. Andriola has been involved in a wide range of restructuring and asset management activities involving real estate and other direct investment transactions. From June 1991 through September 1996, Mr. Andriola held the position of Senior Vice President in Lehman's Diversified Asset Group. From June 1989 through May 1991, Mr. Andriola held the position of First Vice President in Lehman's Capital Preservation and Restructuring Group. From 1986-89, Mr. Andriola served as a Vice President in the Corporate Transactions Group of Shearson Lehman Brothers' office of the general counsel. Prior to joining Lehman Brothers, Mr. Andriola practiced corporate and securities law at Donovan Leisure Newton & Irvine in New York. Mr. Andriola received a B.A. degree from Fordham University, a J.D. degree from New York University School of Law, and an LLM degree in Corporate Law from New York University's Graduate School of Law. Jeffrey C. Carter, 51, is a Senior Vice President of Lehman Brothers in the Diversified Asset Group. Mr. Carter joined Lehman Brothers in September 1988. From 1972 to 1988, Mr. Carter held various positions with Helmsley-Spear Hospitality Services, Inc. and Stephen W. Brener Associates, Inc. including Director of Consulting Services at both firms. From 1982 through 1987, Mr. Carter was President of Keystone Hospitality Services, an independent hotel consulting and brokerage company. Mr. Carter received his B.S. degree in Hotel Administration from Cornell University and an M.B.A. degree from Columbia University. Timothy E. Needham, 28, is an Associate of Lehman Brothers and assists in the management of commercial real estate in the Diversified Asset Group. Mr. Needham joined Lehman Brothers in September 1995. Prior to joining Lehman Brothers Mr. Needham was a consultant with KPMG Peat Marwick LLP in the Banking and Investment Services Group from 1994-1995. Mr. Needham received his master's degree in international management from the American Graduate School of International Management in December of 1993. Previous to entering graduate school, Mr. Needham worked in Tokyo, for approximately one year doing market research for a Japanese firm (1991). In addition, Mr. Needham is currently a candidate for the designation of Chartered Financial Analyst, Level III. Kenneth Boyle, 33, is a Vice President of Lehman Brothers in the Diversified Asset Group. Mr. Boyle joined Lehman in January 1991. Mr. Boyle is a Certified Public Accountant and was employed by the accounting firm of KPMG Peat Marwick LLP from 1985 to 1990. Mr. Boyle graduated from the State University of New York at Binghamton with a B.S. degree in Accounting. ITEM 11. Executive Compensation The Directors and Officers of the General Partner and the Assignor Limited Partner do not receive any salaries or other compensation from the Partnership or the Assignor Limited Partner. The General Partner is entitled to varying percentages of Net Cash Flow distributed in any fiscal year and to varying percentages of the Net Proceeds of capital transactions. See Note 3 "The Partnership Agreement" of the Notes to the Financial Statements, included in the Partnership's Annual Report to Unitholders for the year ended December 31, 1996, which is filed as an exhibit under Item 14. ITEM 12. Security Ownership of Certain Beneficial Owners and Management As of December 31, 1996, the only entity known by the Partnership to be the beneficial owner of more than 5% of the Units was Chrysler Master Pension Trust, U/A/D 5/28/56, 12,000 Chrysler Drive, Highland Park, Michigan, which was the beneficial owner of 450,000 Units or approximately 5.74% of the total outstanding Units. As of December 31, 1996, neither the General Partner nor any of its officers or directors held any Units. ITEM 13. Certain Relationships and Related Transactions The General Partner or its affiliates earned fees and compensation in connection with the syndication, acquisition, and organization services rendered to the Partnership. As of December 31, 1996, $127,921 remained unpaid. Under the terms of the Partnership Agreement, the General Partner and certain affiliates may be reimbursed by the Partnership for certain operational expenses, including but not limited to audit, appraisal, legal and tax preparation fees as well as costs of data processing. First Data Investor Services Group provides partnership accounting and investor relations services for the Registrant. Prior to May 1993, these services were provided by an affiliate of the General Partner. The Registrant's transfer agent and certain tax reporting services are provided by Service Data Corporation. Both First Data Investor Services Group and Service Data Corporation are unaffiliated companies. For the amounts paid to affiliates for the three years ended December 31, 1996, 1995, and 1994, see Note 4 "Transactions with Related Parties" of the Notes to the Financial Statements, included in the Partnership's Annual Report to Unitholders for the year ended December 31, 1996, which is filed as an exhibit under Item 14. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)(1) Financial Statements and Schedules. Page Balance Sheets at December 31, 1996 and 1995 (1) Statements of Partners' Capital (Deficit) for the years ended December 31, 1996, 1995 and 1994 (1) Statements of Operations for the years ended December 31, 1996, 1995 and 1994 (1) Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 (1) Notes to the Financial Statements (1) Report of Independent Auditors (1) (a)(2) Financial Statement Schedule Schedule III - Real Estate and Accumulated Depreciation F-1 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission have been omitted since (1) the information required is disclosed in the financial statements and the notes thereto; (2) the schedules are not required under the related instructions; or (3) the schedules are inapplicable. (1) Incorporated by reference to the Partnership's Annual Report to Unitholders for the year ending December 31, 1996, filed as an exhibit under Item 14. (b) Reports on Form 8-K. On November 26, 1996, the Partnership filed a Form 8-K on the Court's decision regarding the legal proceedings with Gilbane Building Company and Moliterno Stone Sales, Inc. See Item 3 for more information about the Court's decision. (c) Exhibits Subject to Rule 12b-32 of the Securities and Exchange Act of 1934 regarding incorporation by reference, listed below are the exhibits which are filed as part of this report: 3. The Partnership's Amended and Restated Agreement of Limited Partnership, dated as of November 1, 1986, is hereby incorporated by reference to Exhibit A to the Prospectus contained in Registration Statement No. 33-8105, which registration statement (the "Registration Statement") was declared effective by the SEC on November 19, 1986. 4. The form of Unit Certificate is hereby incorporated by reference to Exhibit 4.1 to the Registration Statement. 10.1 Subscription Agreement and Signature Page is included as Exhibits B and C to the Prospectus contained in the Registration Statement, and is incorporated herein by reference. 10.2 Escrow Agreement between the Partnership and United States Trust Company of New York is hereby incorporated by reference to Exhibit 10.3 to the Registration Statement. 10.3 Property Management Agreement between the Partnership and Feldman Realty relating to the Property is hereby incorporated by reference to Exhibit 10.3 to the Registration Statement. 10.4 Supervisory Leasing and Management Agreement between the Partnership and the Manager relating to the Property is hereby incorporated by reference to Exhibit 10.4 to the Registration Statement. 10.5 Demand Promissory Note from Shearson to the General Partner is hereby incorporated by reference to Exhibit 10.5 to the Registration Statement. 10.6 Contract of Sale, as amended to date, relating to the land portion of the Property and all exhibits thereto is included as Exhibit L to the Development Agreement, and is hereby incorporated herein by reference to Exhibit 10.6 to the Registration Statement. 10.7 Development Agreement between the Developer and the Partnership is hereby incorporated by reference to Exhibit 10.7 to the Registration Statement. 10.8 Guaranty of the Developer's obligations is hereby incorporated by reference to Exhibit 10.8 to the Registration Statement. 10.9 Form of Letter Agreement between Edward Feldman and the Partnership relating to the Guaranty is hereby incorporated by reference to Exhibit 10.9 to the Registration Statement. 10.10 Modification of Development Agreement between the Developer and the Partnership is hereby incorporated by reference to Exhibit 10.10 to the Registration Statement. 10.11 Commitment Letter from Shearson Lehman Brothers Holdings Inc. to the Partnership is hereby incorporated by reference to Exhibit 10.11 to the Registration Statement. 10.12 Agreement Regarding Securities Law Liability between Developer, Feldman Realty & Management Corp., Edward Feldman, Shearson, Registrant and the General Partner is hereby incorporated by reference to Exhibit 10.14 to the Registration Statement. 10.13 Modification of Supervisory Leasing and Management Agreement between the Partnership and the Manager is hereby incorporated by reference to Exhibit 10.15 to the Registration Statement. 10.14 Commercial Revolving Loan Agreement between the Partnership and People's Bank dated July 19, 1990 is hereby incorporated by reference to Exhibit 10.14 to the Partnership's report on Form 10-K for the year ended December 31, 1990. 10.15 Modification of Loan Agreement, Mortgage, Collateral Assignment of Leases and Other Loan Documents, between the Partnership and Peoples Bank, dated February 17, 1994, is hereby incorporated by reference to Exhibit 10.15 to the Partnership's report on Form 10-K for the year ended December 31, 1993. 13. Annual Report to Unitholders for the year ended December 31, 1996. 23. Consent of Ernst & Young LLP, Independent Auditors 27. Financial Data Schedule. SIGNATURES 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. Dated: March 27, 1997 STAMFORD TOWERS LIMITED PARTNERSHIP BY: Stamford Towers, Inc. General Partner BY: /S/ Rocco F. Andriola Name: Rocco F. Andriola Title: Director, Chief Financial Officer and Vice President STAMFORD TOWERS DEPOSITARY CORP. BY: /S/ Rocco F. Andriola Name: Rocco F. Andriola Title: Director, Chief Financial Officer and Vice President 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 in the capabilities and on the dates indicated. STAMFORD TOWERS, INC. and STAMFORD TOWERS DEPOSITARY CORP. General Partner Date: March 27, 1997 BY: /S/ Rocco F. Andriola Rocco F. Andriola Vice President, Director and Chief Financial Officer Date: March 27, 1997 BY: /S/ Regina Hertl Regina Hertl President EX-13 2 ANNUAL REPORT TO UNITHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1996 Stamford Towers Limited Partnership 1996 Annual Report Exhibit 13 Stamford Towers Limited Partnership Stamford Towers Limited Partnership is a Delaware limited partnership formed in 1986 for the purpose of developing, owning and operating two class A office buildings located in Stamford Connecticut. The two buildings consist of 325,000 square feet of office space, four levels of parking, and space for several retail tenants. Property Profile (at December 31, 1996) North Tower Leasable Area 193,000 square feet Percentage Leased 82% Tenants: Citicorp North America, Inc. 136,000 square feet Millsport, Inc. 10,941 square feet Life Extension Institute 5,688 square feet M.D. Revenues, Inc. 2,500 square feet Dow Jones & Company, Inc. 2,100 square feet Tower Connections, Ltd. 500 square feet South Tower Leasable Area 132,000 square feet Percentage Leased 57% Tenants: Learning International, Inc. 36,720 square feet Cardmember Publishing Corp. 18,650 square feet Tradition Financial Services, Inc. 11,605 square feet Consolidated-Hydro, Inc. 8,600 square feet Total Percentage Leased 72% Contents 1 Message to Investors 3 Financial Statements 6 Notes to the Financial Statements 12 Report of Independent Auditors 13 Net Asset Valuation Administrative Inquiries Performance Inquiries/Form 10-Ks Address Changes/Transfers First Data Investor Services Group Service Data Corporation P.O. Box 1527 2424 South 130th Circle Boston, Massachusetts 02104-1527 Omaha, Nebraska 68144-2596 Attn: Financial Communications 800-223-3464 800-223-3464 Message to Investors Presented for your review is the 1996 Annual Report for Stamford Towers Limited Partnership (the "Partnership"). This letter includes an update on the Stamford commercial real estate market, an update on the significant leasing progress made at Stamford Towers (the "Property") during 1996, an analysis of the Partnership's financial performance during the past year and information on the status of the Partnership's legal proceedings. Attached to this letter are the Partnership's audited financial statements for the year ended December 31, 1996. Stamford Market Update The Stamford commercial real estate market continued to recover in 1996. As reported by Rostenberg-Doern & Company, the market vacancy rate for commercial office space declined from 12.5% at year-end 1995 to 11% at the end of 1996. As a result, average market rents for class A office space in Stamford increased to $23.50 per square foot by year-end 1996 from $20 per square foot at year-end 1995. The improved conditions have prompted a number of construction proposals for new office properties. If such construction does in fact occur and demand does not keep pace with the delivery of any new space to the market, leasing activity and rental rates may be negatively impacted. The construction of Swiss Bank Corporation's new U.S. headquarters, located directly across the street from the Property, continues to progress. It is expected that Swiss Bank's presence, representing the addition of approximately 1,200 employees to the area, will have a positive impact on the Stamford economy. The construction is scheduled to be completed in 1998. Property Update The improvement in market conditions brought about renewed interest in the Property during 1996. We are pleased to report that the Partnership signed five new leases totaling 74,984 square feet during the year, bringing the Property's overall percentage of leased space to 72% as of year-end 1996 as compared to 49% at year-end 1995. The increase in leased space, coupled with the improving market conditions, resulted in an increase of approximately $12.5 million in the appraised value of the Property when compared to the prior year. As a result of such increase, the Partnership's estimate of net asset value increased from $2.37 per Unit at year-end 1995 to $3.82 per Unit at year-end 1996. We will continue our efforts to market the Property's available space and are hopeful that additional leases will be executed in 1997. As previously reported, the Partnership is exploring its options with respect to refinancing the $17.8 million first mortgage debt maturing in August 1997. We will update you on our progress in future reports. Financial Highlights Year ended Year ended December 31, December 31, 1996 1995 Rental Income $ 4,144,475 $ 2,947,857 Interest & Other Income 730,520 651,106 Total Income 4,874,995 3,598,963 Property Operating Expenses 2,584,730 2,308,093 Interest Expense 1,549,523 1,289,309 Settlement Costs 925,070 -- Professional Fees 258,524 434,597 Depreciation and Other Expenses 2,217,504 2,584,868 Total Expenses 7,535,351 6,616,867 Net Loss $(2,660,356) $(3,017,904) Net Cash Used for Operating Activities $ (328,864) $ (765,796) (including interest expenses) - Rental income increased by 41% due primarily to significant leasing activity in 1996 and a reduction in the amortization of deferred rent relating to the extension of Citicorp's lease in 1995. - Overall interest and other income increased due to the reimbursement of certain tenant improvements which was partially offset by a decrease in interest income resulting from the Partnership's lower average cash balance. - The increase in property operating expenses is primarily due to the increases in utilities, cleaning, security and repair and maintenance expenses arising from increased occupancy in the South Tower. - Interest expense relating to the revolving loan payable increased as a result of a previous drawdown to fund leasing commissions associated with the Citicorp lease extension and additional drawdowns in 1996 to fund leasing commissions and tenant improvements related to the new tenants in the South Tower. The increase is also due to an increase in the average interest rate on the loan. - Professional fees decreased as a result of lower legal fees associated with the Gilbane litigation. - The decrease in depreciation and other expenses is primarily due to a reduction in depreciation due to the extension of the Citicorp lease and the corresponding extension of the period over which the tenant improvements are being depreciated. Legal Proceedings As discussed in prior correspondence, the Partnership has been involved in litigation with the Property's former construction manager, Gilbane Building ("Gilbane"), and a subcontractor, Moliterno Stone Sales, Inc. ("Moliterno"). In this suit, Gilbane and Moliterno, respectively, sought $2.65 million and $155,000 in damages, plus interest and other relief. On November 18, 1996, the Connecticut Superior Court (the "Court") entered a final judgment awarding Gilbane $770,070 and Moliterno $155,000. All remaining claims, including the Partnership's counterclaims, were dismissed. The Partnership has sufficient cash to pay the amounts awarded which will not have a material impact on the Partnership's financial condition. Although post-judgment motions to alter the judgment were denied by the Court on March 13, 1997, it is anticipated that Gilbane may appeal. General Information As you are probably aware, several third parties have commenced partial tender offers to purchase units of the Partnership at grossly inadequate prices substantially below the Partnership's estimate of the net asset value per unit. In response, we have recommended that investors reject these offers because they do not reflect the underlying value of the Partnership's assets. To date, holders of an overwhelming majority of the outstanding units have agreed that these offers were inadequate and have rejected such offers. Please be assured that if any additional tender offers are made for your units, we will endeavor to provide you with our position regarding such offer on a timely basis. Summary We are pleased with the increased leasing activity at the Property in 1996 and are hopeful that the continued improvement in the Stamford real estate market will lead to the execution of additional leases in 1997. Very truly yours, Stamford Towers, Inc. General Partner /s/ Regina M. Hertl Regina M. Hertl President March 27, 1997 Balance Sheets At December 31, At December 31, 1996 1995 Assets Real estate, at cost: Land $ 14,714,483 $ 14,714,483 Buildings and improvements 52,933,678 52,729,013 Tenant improvements 8,191,558 6,786,915 Furniture, fixtures and equipment 293,864 372,541 76,133,583 74,602,952 Less accumulated depreciation (16,104,668) (14,405,825) 60,028,915 60,197,127 Cash and cash equivalents 5,668,459 5,873,982 Restricted cash 337,676 91,458 Accounts receivable 80,245 71,052 Deferred rent receivable 1,843,289 1,855,670 Deferred charges, net of accumulated amortization of $701,187 in 1996 and $573,387 in 1995 53,896 181,696 Prepaid expenses, net of accumulated amortization of $934,564 in 1996 and $775,742 in 1995 1,632,689 1,399,363 Total Assets $ 69,645,169 $ 69,670,348 Liabilities and Partners' Capital (Deficit) Liabilities: Accounts payable and accrued expenses $ 2,793,018 $ 1,482,840 Interest payable 134,080 124,036 Due to affiliates 128,262 128,446 Revolving loan payable 17,798,291 16,483,152 Total Liabilities 20,853,651 18,218,474 Partners' Capital (Deficit): General Partner (230,070) (203,466) Limited Partners (7,826,300 units outstanding) 49,021,588 51,655,340 Total Partners' Capital 48,791,518 51,451,874 Total Liabilities and Partners' Capital $ 69,645,169 $ 69,670,348 Statement of Partners' Capital (Deficit) For the years ended December 31, 1996, 1995 and 1994 General Limited Partner Partners Total Balance at December 31, 1993 $ (136,168) $ 58,317,882 $ 58,181,714 Net Loss (37,119) (3,674,817) (3,711,936) Balance at December 31, 1994 $ (173,287) $ 54,643,065 $ 54,469,778 Net Loss (30,179) (2,987,725) (3,017,904) Balance at December 31, 1995 $ (203,466) $ 51,655,340 $ 51,451,874 Net Loss (26,604) (2,633,752) (2,660,356) Balance at December 31, 1996 $ (230,070) $ 49,021,588 $ 48,791,518 Statements of Operations For the years ended December 31, 1996 1995 1994 Income Rental $ 4,144,475 $ 2,947,857 $ 2,486,730 Interest 256,063 319,278 192,911 Other 474,457 331,828 293,767 Total Income 4,874,995 3,598,963 2,973,408 Expenses Depreciation and amortization 2,070,391 2,446,866 2,912,878 Property operating 2,584,730 2,308,093 2,313,161 Settlement costs 925,070 -- -- Interest 1,549,523 1,289,309 1,188,986 Professional fees 258,524 434,597 146,489 Partnership service fees 115,406 104,289 99,724 General and administrative 31,707 33,713 24,106 Total Expenses 7,535,351 6,616,867 6,685,344 Net Loss $(2,660,356) $(3,017,904) $(3,711,936) Net Loss Allocated: To the General Partner $ (26,604) $ (30,179) $ (37,119) To the Limited Partners (2,633,752) (2,987,725) (3,674,817) $(2,660,356) $(3,017,904) $(3,711,936) Per limited partnership unit (7,826,300 outstanding) $ (.34) $ (.38) $ (.47) Statements of Cash Flows For the years ended December 31, 1996 1995 1994 Cash Flows From Operating Activities: Net Loss $(2,660,356) $(3,017,904) $(3,711,936) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation 1,783,769 2,179,559 2,640,336 Amortization 286,622 267,307 272,542 Increase (decrease) in cash arising from changes in operating assets and liabilities: Restricted cash (246,218) (2,164) (6,702) Accounts receivable (9,193) 32,149 (32,231) Deferred rent receivable 12,381 526,199 26,856 Deferred charges -- -- (137,622) Prepaid expenses (392,148) (1,218,849) (7,791) Accounts payable and accrued expenses 886,419 438,889 (36,578) Interest payable 10,044 28,636 (47,476) Due to affiliates (184) 382 143 Net cash used for operating activities (328,864) (765,796) (1,040,459) Cash Flows From Investing Activities: Additions to real estate (1,191,798) (204,504) (199,169) Net cash used for investing activities (1,191,798) (204,504) (199,169) Cash Flows From Financing Activities: Borrowings under the revolving loan payable 1,315,139 1,075,380 456,452 Net cash provided by financing activities 1,315,139 1,075,380 456,452 Net increase (decrease) in cash and cash equivalents (205,523) 105,080 (783,176) Cash and cash equivalents, beginning of year 5,873,982 5,768,902 6,552,078 Cash and cash equivalents, end of year $ 5,668,459 $ 5,873,982 $ 5,768,902 Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest $ 1,539,479 $ 1,260,673 $ 949,390 Supplemental Disclosure of Non-Cash Investing Activities: Write-off of fully depreciated building improvements $ 84,926 $ -- $ -- Tenant improvements funded through accounts payable $ 423,759 $ 155,840 $ -- Notes to the Financial Statements December 31, 1996, 1995 and 1994 1. Organization and Business Stamford Towers Limited Partnership (the "Partnership"), a Delaware limited partnership, was formed on August 14, 1986 for the purpose of acquiring two parcels of land, aggregating 3.63 acres, located in Stamford, Connecticut and developing, owning and operating two class A office buildings (the "Buildings") to be constructed thereon (collectively the "Property"). The Buildings contain approximately 325,000 square feet of rentable space. The general partner of the Partnership is Stamford Towers, Inc. (the "General Partner"), an affiliate of Lehman Brothers Inc. (see below). Construction of the Buildings commenced in July 1987. However, certificates of occupancy were not received from the City of Stamford until February 6, 1990, representing a substantial delay from the originally scheduled completion date of February 1989. Moreover, during the course of construction, substantial cost overruns were incurred. The Partnership initiated an arbitration proceeding against Edlar, Inc., a Delaware corporation, ("Edlar") in order to establish Edlar's responsibility for certain cost overruns, delays, expenses and liquidated damages in connection with the construction phase of the Property. In January 1993, the arbitrators issued their decision which, in substance, awarded the Partnership approximately $8.1 million in damages and costs against Edlar. However, the General Partner's preliminary investigation indicates that Edlar had no significant assets from which the Partnership's arbitration award could be satisfied. Moreover, Edward Feldman, the principal of Edlar, has advised the Partnership that he has no significant liquid assets from which to satisfy the judgment against him pursuant to his personal guaranty of Edlar's obligation to the Partnership. Mr. Feldman has proposed that his creditors, including the Partnership, enter into a non-judicial workout arrangement whereby his debts might be partially satisfied in the event that his real estate investments appreciate in value in future years. Currently, those investments appear to be over-leveraged and without significant market value. The Partnership is in the process of evaluating Mr. Feldman's proposal (see Note 9). On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic retail brokerage and asset management businesses to Smith Barney, Harris Upham & Co. Incorporated. Subsequent to the sale, Shearson Lehman Brothers Inc. changed its name to Lehman Brothers Inc. The transaction did not affect the ownership of the General Partner. The Partnership will terminate on December 31, 2036 unless dissolved sooner as provided within the Agreement. On February 16, 1996, based upon, among other things, the advice of legal counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partner adopted a resolution that states, among other things, if a Change of Control (as defined below) occurs, the General Partner may distribute the Partnership's cash balances not required for its ordinary course day-to-day operations. "Change of Control" means any purchase or offer to purchase more than 10% of the Units that is not approved in advance by the General Partner. In determining the amount of the distribution, the General Partner may take into account all material factors. In addition, the Partnership will not be obligated to make any distribution to any partner and no partner will be entitled to receive any distribution until the General Partner has declared the distribution and established a record date and distribution date for the distribution. 2. Significant Accounting Policies Real Estate Investments - Real estate investments, which consist of buildings and improvements, tenant improvements and furniture, fixtures and equipment, are recorded at cost less accumulated depreciation. Cost of the buildings includes the initial purchase price of the property plus closing costs, acquisition and legal fees and capital improvements. Depreciation on the buildings and improvements is computed using the straight-line method based on estimated useful lives of 35 years. Tenant improvements are depreciated by the straight-line method over the terms of the related leases. Furniture, fixtures and equipment are depreciated over their estimated useful lives. Accounting for Impairment - In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"), which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. FAS 121 also addresses the accounting for long- lived assets that are expected to be disposed of. The Partnership adopted FAS 121 during the fourth fiscal quarter of 1995. Reclassifications - Certain prior year amounts have been reclassified in order to conform to the current year's presentation. Cash and Cash Equivalents - Cash and cash equivalents consist of short-term highly liquid investments which have maturities of three months or less from the date of purchase. The carrying value approximates fair value because of the short maturity of these instruments. Restricted Cash - Restricted cash primarily represents cash held in connection with tenant security deposits. Offering Costs - Offering costs of $6,454,526 are non-amortizable and have been deducted from the Limited Partners' capital. Deferred Rent Receivable - Deferred rent receivable consists of rental income which is recognized on a straight-line basis over the non-cancelable portion of the leases which will not be received until later periods as a result of rental concessions. Deferred Charges - Costs incurred in connection with obtaining mortgage financing are included in deferred charges. These costs are amortized over the life of the related mortgage loan. Leasing Commissions - Leasing commissions included in prepaid expenses are being amortized over the term of the non-cancelable portions of the leases. Income Taxes - No provision for income taxes has been made in the financial statements since such taxes are the responsibility of the individual partners rather than that of the Partnership. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount 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. Fair Value of Financial Instruments - Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments" ("FAS 107"), requires that the Partnership disclose the estimated fair values of its financial instruments. Fair values generally represent estimates of amounts at which a financial instrument could be exchanged between willing parties in a current transaction other than in forced liquidation. Fair value estimates are subjective and are dependent on a number of significant assumptions based on management's judgment regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. In addition, FAS 107 allows a wide range of valuation techniques, therefore, comparisons between entities, however similar, may be difficult. 3. The Partnership Agreement Pursuant to the terms of the Partnership Agreement, all net income from operations of the Partnership will be allocated in substantially the same manner as cash distributions from operations. All net losses from operations of the Partnership generally will be allocated 99% to the Limited Partners and 1% to the General Partner. Distributions of net cash flow from operations, if any, as defined in the Partnership Agreement, shall be made to the partners quarterly during each year on the basis of 99% to the Limited Partners and 1% to the General Partner until the Limited Partners have received their Preferred Return (14% per annum), as defined in the Partnership Agreement, and then 90% to the Limited Partners and 10% to the General Partner. Cash distributions from operations will be reduced to the extent of any debt service payable with respect to the financing (see Note 7). Upon sale or an interim capital transaction, net proceeds will be distributed after the close of the calendar quarter in which such a sale or capital transaction occurs. Such net proceeds will first be distributed 99% to the Limited Partners and 1% to the General Partner until the Limited Partners receive their Preferred Return Arrearage and Unrecovered Capital, as defined in the Partnership Agreement, with any remaining proceeds to be distributed 90% to the Limited Partners and 10% to the General Partner. Upon sale or an interim capital transaction, net gains will first be allocated to the extent of net proceeds distributed to the Limited Partners and General Partner from related transactions, then to the Limited Partners and General Partner in proportion to their respective negative balances in their capital accounts; then the remainder of such net gains should be allocated to the extent possible so that the positive balances in the capital accounts of the Limited Partners and the General Partner are in the proportions of 90% and 10%, respectively. Tax losses from sale or an interim capital transaction will be allocated to the Limited Partners and General Partner in proportion to their respective positive balances in their capital accounts after such allocation, the remainder of the tax losses should be allocated to the extent possible so that the negative balances in the capital accounts of the Limited Partners and General Partner are in the proportions of 90% and 10%, respectively. All net gains and tax losses in connection with the sale of all or substantially all of the assets of the Partnership or any other event causing a dissolution of the Partnership shall be allocated in substantially the same manner as net gains and tax losses from sale or an interim capital transaction. If, as a result of the dissolution of the Partnership, the capital account of the General Partner is less than zero, the General Partner shall contribute to the Partnership an amount equal to the lesser of the deficit balance in its capital account or the excess of one and one one-hundredth percent of the total capital contribution of the Limited Partners over the total capital contributions previously made by the General Partner to the Partnership. 4. Transactions with Related Parties The General Partner earned fees and compensation in connection with organization, syndication and acquisition services rendered to the Partnership. As of December 31, 1996, $127,921 of these amounts remain accrued and unpaid. Certain cash and cash equivalents were on deposit with an affiliate of the General Partner during a portion of 1996 and all of 1995. As of December 31, 1996, no cash and cash equivalents were on deposit with an affiliate of the General Partner or the Partnership. 5. Lease Agreement with Citicorp POS Information Services The Partnership entered into a lease with Citicorp POS Information Services ("Citicorp POS") on May 11, 1990 (the "Original Lease"). Citicorp POS leased approximately 136,000 rentable square feet ("RSF") of the North Tower, representing 41% of the Property. The lease term was for 11 years with the option to cancel after June 1996. In December 1992, Citicorp POS discontinued operations, vacated the space and assigned the Lease Agreement to Citicorp North America, Inc. ("Citicorp"). On June 28, 1995, the Partnership executed the First Amendment (the "Citicorp Lease Extension") to the Original Lease between the Partnership and Citicorp. The Citicorp Lease Extension, which was effective July 1, 1995, (i) reduces Citicorp's annual rent from $29.50 to $25 per RSF for the initial three years and to $24 per RSF for the next two years, and (ii) extends the term of the Original Lease for an additional five years, through June 30, 2006, at an annual rental rate of $24 per RSF. In addition, there was no tenant improvement allowance provided by the Partnership to Citicorp in connection with the Citicorp Lease Extension. Although the Original Lease was for an 11-year term, expiring June 30, 2001, Citicorp had the option to terminate the Original Lease as of June 30, 1996 by paying $45 per RSF or approximately $6.1 million to the Partnership on or before June 30, 1995. The Citicorp Lease Extension ensures Citicorp's continued occupancy at the Property through June 30, 2006. As a result of the Citicorp Lease Extension, the Partnership extended the amortization period of the deferred rent relating to the Original Lease through June 30, 2006, effective July 1, 1995. As of December 1996, substantially all of the space of the North Tower is occupied by Citicorp and its affiliates. During 1996, 1995 and 1994, Citicorp and other tenants, have reimbursed the Partnership for tenant electricity, overtime heating and air conditioning charges and certain other operating expenses, in accordance with their respective lease agreements, in the total amount of $450,327, $326,963 and $288,472, respectively. These amounts have been included in other income on the statement of operations. 6. Future Minimum Lease Rental Payments Future minimum rental payments (excluding cancellation penalties) to be received under the non-cancelable portion of the existing operating leases as of December 31, 1996 are as follows: Year Amount 1997 $ 5,112,944 1998 5,080,353 1999 4,976,353 2000 5,008,077 2001 5,046,687 Thereafter 22,493,640 $ 47,718,054 Lease terms range from five to sixteen years. The leases allow for increases in certain property operating expenses to be passed on to the tenants. 7. Mortgage Note Payable On July 19, 1990, the Partnership closed a loan with People's Bank ("People's") to provide mortgage financing to the Partnership. As part of this loan, the Partnership paid People's a fee equal to one and one-half percent of the aggregate loan amount. The mortgage note payable (the "Financing") was a $25 million, seven year, non-recourse first mortgage loan with an 11.5% fixed interest rate for the first five years which was set at 3% over the five-year United States treasury security rate at loan closing. The General Partner is currently reviewing the Partnership's options with respect to refinancing the Property's outstanding mortgage loan which matures in August 1997. On February 17, 1994, the Partnership entered into modification of the First Mortgage Loan with People's Bank (the "Loan Modification") which: (i) reduced the interest rate from 11.5% to 7.43% for the period February 1, 1994 through the adjustment date on July 19, 1995, at which time the interest rate was reset to 9.03%, (ii) reduced the principal balance of the First Mortgage Loan from $25 million to $24,449,795; and (iii) eliminated the interest reserve line item. Another provision of the Financing was that when occupancy at the Property reached 50% or greater, the interest rate on the loan would be reduced by 25 basis points. During 1996, the Property's occupancy exceeded 50% thus resulting in a 25-basis point reduction in the interest rate. Payments of interest are due monthly in arrears and are paid from the Partnership's funds. The remaining First Mortgage Loan proceeds available at December 31, 1996 were $6,651,504 and may continue to be used on an "as needed" basis to fund all other approved line items. Payment of the outstanding principal amount is due at the end of the seven-year term. The loan may be prepaid in whole or in part at any time without penalty. As of December 31, 1996, the principal balance of the loan was $17,798,291 plus interest payable of $134,080 for a total balance of $17,932,371. During 1996, the Partnership drew down on the loan $1,315,139 for tenant improvements. In 1995 the Partnership drew down on the loan $1,075,380 for leasing commissions associated with the Citicorp Lease Extension. In 1994 the Partnership drew down on the loan $456,452 for capital expenditures and interest expense. Based on the borrowing rates currently available to the Partnership for mortgage loans with similar terms and average maturities and considering its maturity, the fair value of long- term debt approximates its carrying value. 8. Reconciliation of Net Loss to Tax Loss For the year ended December 31, 1996, net loss reported in the financial statements exceeded the tax loss by $703,574. For the year ended December 31, 1995, the net loss reported in the financial statements exceeded the tax loss by $707,321. For the year ended December 31, 1994 the tax loss exceeded the net loss reported in the financial statements by $28,358. These differences are due to the differences between the tax basis and financial statement basis of buildings and improvements and the use of accelerated methods of depreciating real estate for tax purposes as compared to the straight-line method used for financial statement purposes. In addition, rental income is recorded on a straight-line basis over the terms of the leases for financial statement purposes, and is reportable for tax purposes when received or receivable. 9. Arbitration Proceedings with the Developer In late January 1989, the Partnership initiated an arbitration proceeding against Edlar in order to establish Edlar's responsibility for certain cost overruns, delays, expenses and liquidated damages in connection with the construction phase of the Property. Subsequently, the arbitration was consolidated with a separate arbitration between Edlar and the Property's construction manager, Gilbane Building Company ("Gilbane"). In January 1993, the arbitrators issued their decision which, in substance, awards the Partnership approximately $8.1 million in damages and costs against Edlar and awards Gilbane approximately $2.6 million in damages and costs against Edlar. In addition, the arbitrators ordered Edlar to hold the Partnership harmless with respect to (i) the mechanic's lien filed by Gilbane against the Partnership, which is presently the subject of an action in Connecticut state court, and (ii) any similar liens filed by subcontractors who worked on the Property. The arbitrators further found that the Partnership properly terminated Edlar under the Development Agreement. That finding has the effect of eliminating the residual interest of Edlar's affiliate, Feldco, Inc., in the Property. Edlar was not awarded any amounts on its claims against the Partnership or Gilbane. The Partnership has entered judgment against both Edlar and Edward Feldman for the full amount of the arbitration award. Based on an investigation by the General Partner, it appears that Edlar has no significant assets from which to satisfy the arbitration award. Moreover, based on the General Partner's discussions with Edward Feldman concerning his proposal for a non- judicial workout, it would appear that his assets, consisting largely of illiquid real estate investments, are insufficient to satisfy his substantial outstanding obligations to his creditors, including the Partnership. 10. Litigation In February 1991, Gilbane filed a mechanic's lien against the Property in the sum of $4,583,481. This amount was subsequently reduced to $2,650,018 at the request of the Partnership. In August 1991, Gilbane commenced an action entitled Gilbane Building Co. v. Stamford Towers Limited Partnership, et. al., in the Connecticut Superior Court for the Judicial District of Stamford/Norwalk at Stamford (the "Gilbane Action"). The defendants include the Partnership. Gilbane alleges breach of various contracts and unfair trade practices and seeks foreclosure of its mechanic's lien, approximately $2.65 million in monetary damages, interest, costs, attorneys' fees, punitive damages, possession of the Property, and the appointment of a receiver. In October 1993, the Partnership filed its Answer, Special Defenses and Counterclaims to Gilbane's Action, which alleged breach of various contracts, unfair trade practices and slander of title. In September 1995, the Partnership filed a Substituted Answer, Special Defenses, Counterclaims, Set-offs and Recoupment which, in addition to the allegations of its original counterclaim, brought additional claims of negligence, breach of warranty, breach of contract, products liability and unfair trade practices. The Partnership, by way of its counterclaims, sought approximately $1.7 million in damages in addition to interest, costs, punitive damages and attorneys' fees. In December 1990, a subcontractor of the Property, Moliterno Stone Sales, Inc. ("Moliterno") filed a mechanic's lien against the Property in the sum of $155,936. In December 1991, Moliterno filed a cross-claim against the Partnership in the Gilbane Action. Moliterno seeks foreclosure on its mechanic's lien, monetary damages, and possession of the Property. An application to discharge Moliterno's mechanic's lien was filed by the Partnership in April 1993. In September 1995, the Partnership filed its answer, special defenses and counterclaims to Moliterno's cross-claim, alleging that Moliterno was negligent, breached its contract and an implied warranty, and engaged in unfair trade practices in performing its work on the Property. The Partnership, Gilbane and Moliterno (collectively, the "Parties") participated in the trial of the Gilbane Action over the course of approximately 20 trial days in late 1995. A final trial day was held and the evidentiary portion of the trial was completed in April 1996. At that time, the court ordered the parties to file initial post-trial briefs within three weeks. Subsequently, Gilbane requested two extensions of this deadline. The parties exchanged post trial briefs in June 1996, followed by reply briefs in July 1996. Under the court's current order, all submissions to the court have been completed. In November 1996, Judge Ryan of the Connecticut Superior Court (the "Court") entered a final judgment in this proceeding. The judgment awarded Gilbane $770,070 without interest on one of its claims against the Partnership and dismissed Gilbane's remaining claims. The Court also awarded Moliterno $155,000 without interest on its claim against the Partnership. All remaining claims, including the Partnership's counterclaims, were dismissed. Post judgment motions to alter the judgment were denied by the Court on March 13, 1997. It is anticipated that Gilbane may appeal. Given the outcome of the November 1996 judgment, the Partnership has accrued the Gilbane and Moliterno awards of $770,070 and $155,000, respectively. The amounts are currently reflected within accounts payable and accrued expenses on the Partnership's December 31, 1996 balance sheet. Report of Independent Auditors General and Limited Partners Stamford Towers Limited Partnership We have audited the consolidated balance sheets of Stamford Towers Limited Partnership as of December 31, 1996 and 1995, and the related statements of operations, partners' capital (deficit) 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, the financial statements referred to above present fairly, in all material respects, the financial position of Stamford Towers Limited Partnership as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Boston, Massachusetts January 27, 1997, except for Note 10, for which the date is March 13, 1997 Net Asset Valuation Determination of Net Asset Value Per $10.00 Unit at December 31, 1996 (Unaudited) Partnership's Share of December 31, 1996 Appraised Property Value (1) North Tower $ 27,600,000 (1) South Tower 15,750,000 (1) Less: Revolving loan payable (17,798,291) 25,551,709 Cash and cash equivalents (3) 5,668,459 Accounts receivable 80,245 Prepaid expenses 1,632,689 32,933,102 Less: Total liabilities (3) (2,584,130) Interest payable (134,080) Partnership Net Asset Value (2) $ 30,214,892 Net Asset Value Allocated: Limited Partners $ 29,912,743 General Partner 302,149 $ 30,214,892 Net Asset Value Per Unit (7,826,300 Units outstanding) $3.82 (1) This represents the Partnership's share of the December 31, 1996 Appraised Values which were determined by an independent property appraisal firm. (2) The Net Asset Value assumes a hypothetical sale on December 31, 1996 of all the remaining Partnership properties at a price based upon their value as determined by an independent property appraisal firm, and the distribution of the proceeds of such sale, combined with the Partnership's cash after payment of the Partnership's liabilities, to the Partners. (3) Cash and cash equivalents includes a reserve of $925,070 in funds withheld for the judgment awarded to Gilbane & Moliterno regarding the legal proceedings. The accrual for this judgment is reflected within total liabilities. Limited Partners should note that appraisals are estimates of current value and actual values realizable upon sale may be significantly different. A significant factor in establishing an appraised value is the actual selling price for properties which the appraiser believes are comparable. In addition, the appraised value does not reflect the actual costs which would be incurred in selling the properties. As a result of these factors and the illiquid nature of an investment in Units, the variation between the appraised value of the Partnership's properties and the price at which Units of the Partnership could be sold may be significant. Fiduciaries of Limited Partners which are subject to ERISA or other provisions of law requiring valuations of Units should consider all relevant factors, including, but not limited to Net Asset Value per Unit, in determining the fair market value of the investment in the Partnership for such purposes. Schedule III - Real Estate and Accumulated Depreciation December 31, 1996 Office Buildings: North Tower South Tower Total Location Stamford, CT Stamford, CT na Construction date began August 1987 August 1987 na Construction date complete February 1990 February 1990 na Acquisition date na na na Life on which depreciation in latest income statements is computed 5 - 35 years 5 - 35 years na Encumbrances $11,143,447 6,654,844 $17,798,291 Initial cost to Partnership (1): Land 8,828,690 5,885,793 14,714,483 Buildings and improvements 31,289,872 20,859,915 52,149,787 Costs capitalized subsequent to acquisition: Land, buildings and improvements 7,802,963 1,774,354 9,577,317 Retirements (209,218) (98,786) (308,004) Gross amount at which carried at close of period (2): Land $ 8,828,690 5,885,793 $14,714,483 Buildings and improvements 38,883,617 22,535,483 61,419,100 $47,712,307 $28,421,276 $76,133,583 Accumulated depreciation (3) $11,863,293 $ 4,241,375 $16,104,668 (1) The initial cost to the Partnership represents the original purchase price of the properties. (2) For Federal income tax purposes, the aggregate cost of real estate at December 31, 1996 and 1995 is $76,625,475 and $75,009,915, respectively. (3) For Federal income tax purposes, the amount of accumulated depreciation at December 31, 1996 and 1995 is $13,154,443 and $11,221,111, respectively. A reconciliation of the carrying amount of real estate and accumulated depreciation for the years ended December 31, 1996, 1995, and 1994 follows: 1996 1995 1994 Real estate investments: Beginning of year $74,602,952 $74,242,608 $74,043,439 Additions 1,615,557 360,344 199,169 Retirements (84,926) -- -- End of year $76,133,583 $74,602,952 $74,242,608 Accumulated depreciation: Beginning of year $14,405,825 $12,226,266 $ 9,585,930 Depreciation expense 1,783,769 2,179,559 2,640,336 Retirements (84,926) -- -- End of year $16,104,668 $14,405,825 $12,226,266 EX-23 3 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Stamford Towers Limited Partnership of our report dated January 27, 1997, included in the 1996 Annual Report of Stamford Towers Limited Partnership. Our audit also included the financial statement schedule of Stamford Towers Limited Partnership listed in Item 14(a). This schedule is the responsibility of the Partnership's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth herein. ERNST & YOUNG LLP Boston, Massachusetts January 27, 1997 EX-27 4 FINANCIAL DATA SCHEDULE FOR 1996 YEAR END FORM 10-K STAMFORD TOWERS LIMITED PARTNERSHIP
5 12-mos Dec-31-1996 Dec-31-1996 5,668,459 000 80,245 000 000 000 76,133,583 (16,104,668) 69,645,169 3,055,360 17,798,291 000 000 000 48,791,518 69,645,169 4,144,475 4,874,995 000 2,584,730 3,401,098 000 1,549,523 (2,660,356) 000 (2,660,356) 000 000 000 (2,660,356) (.34) (.34)
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