ITEM 2 - Properties
OFFICE BUILDING
The Partnership owns a nine-story, air-conditioned, multi-tenant office building with three self-service elevators located in Manassas, Virginia, on Sudley Road (State Route 234), a six lane median highway, just south of I-66, which provides direct access to Washington, D.C., and points in Northern Virginia. Completed in 1974, the office building has a gross area of approximately 95,000 square feet of which approximately 90,933 square feet are rentable. The office building is located on approximately 4.9 acres and has on- site parking for 337 cars, which exceeds the applicable zoning requirements.
As of September 30, 1998, the office building was approximately 77% leased with one tenant leasing in excess of 10% of the office building.
Because of the loan restructuring, the debt service requirements have been reduced. This reduction is now reflected in the rental structure which has been lowered to be more competitive in the marketplace. The completed renovation of the lobby gives the building a more inviting look for the 1990s.
The office building has been known as the First Virginia Building until First Virginia Bank terminated its lease in November 1990. The building name was then changed to The Sudley Tower.
SHOPPING CENTER
Sheridan Hills Plaza, a one-story shopping center completed in 1980, had approximately 117,000 square feet of rental space, 652 parking spaces, and was located on approximately 15 acres in Amherst, New York (a suburb of Buffalo, New York). On September 12, 1996, the shopping center was sold for $3,625,000. The outstanding principal balance on the mortgage of $2,962,361 was paid from the gross proceeds, as well as $295,791 in selling expenses and other related disbursements. The proceeds to the Partnership were $366,888, less additional legal fees of $16,000, resulting in net proceeds of $350,888.
Item 3
Item 3 - Legal Proceedings
Chapter 11 Filing - See Note 3 to Financial Statements at Item 8.
Item 4
Item 4 - Submission of Matters to a vote of Security Holders
On August 2, 1990, Amherst Properties, Inc. sent voting materials to limited partners of Gran-Mark Income Properties Limited Partnership and by August 24, 1990, had received written consents from a 60% majority of the units in favor of the removal of the former general partners and the substitution of Amherst Properties, Inc. as the new general partner.
PART II
Item 5
Item 5 - Market for Registrant's Common Equity and related Stockholders Matters
There is no established public trading market for the class of limited partnership units. The most recent price that the current general partner is aware of is $100 per $1,000 unit paid in early 1991 paid by an officer of the current general partner of the units owned by a third party.
Item 6
Item 6 - Selected Financial Data
For the Year ended September 30, 	 1998 1997 1996 1995 1994 Total Revenue $1,392,978 $1,385,802 $2,002,248 $1,870,121 $1,735,895
Net Loss (85,283) (28,705) (46,830) (217,247) (270,949) Net Loss per weighted average limited partnership unit (12.98) (4.37) (7.13) (33.06) (41.24)
Total Assets 5,786,078 5,958,162 6,447,761 9,646,761 9,930,069
Mortgage Payable 4,242,143 4,161,492 4,634,915 7,673,367 7,744,189
The sale of the New York shopping center on September 12, 1996, materially affects the comparability of the information reflected in the selected financial data.
Item 7
Item 7 - Management's discussion and analysis of financial condition and results of operations
General
During the fiscal year ending September 30, 1998, the Partnership's cash position changed from $485,768 to $576,670.
The occupancy of the Manassas office building was approximately 77% on September 30, 1998.
Partners' equity totaled $1,385,131 as of September 30, 1998, a decrease of $85,283 from the prior year.
The partnership's net loss for the fiscal year ending September 30, 1998, was $85,283; an increase of $56,578 from a loss of $28,705 for the fiscal year ending September 30, 1997.
Results of Operations
The sale of the shopping center in September 1996 is a material event which results in the historical operations and financial condition not being indicative of future operations or financial condition.
The office building's occupancy rate was approximately 77% on September 30, 1998. The office building was approximately 85% and 96% leased for the years ended September 30, 1997 and 1996, respectively. The office building generates a positive cash flow.
An analysis of the office building operations during fiscal year ending September 30, 1998, indicates that the office building revenues have remained constant. Interest expenses were affected by the rate increase at the time the mortgage was renegotiated. Expenses for depreciation and amortization have increased due to additional improvements and deferred costs. The expenses for utilities have remained constant. Expenses for property maintenance and repairs have decreased due to completion of several maintenance and replacement projects. Preventive maintenance programs continue to protect and improve the buildings and grounds. Management Fees have remained constant. General and Administration Expenses have increased due to the increased commissions on additional antenna leases, increased advertising, and increased professional fees. See Notes to Financial Statement - Note 10: Management Plans.
Trends & prospective information
See Item 6 - Selective Financial Data
The September 1996 sale of the shopping center is a material event which results in the historical operations and financial condition not being indicative of future operations or financial condition.
Current management expects that the capital improvements will continue to improve the appearance of the Manassas property, that the building will continue to successfully compete with existing office buildings and shopping centers, and will maintain a high rate of occupancy.
For further information, see Notes to Financial Statement - Note 10: Management Plans.
Liquidity
At the present time current rental income covers the expenses on the property. Partnership monthly cash flow has increased since the new managing general partner has taken control of the properties in October 1990.
During fiscal year ending September 30, 1998, $234,932 of cash was generated from operations. This reflects a decrease in cash flow from operations of $100,370 over the previous fiscal year.
The managing general partner deferred payment of most of its management fees from 1990 to 1993 to allow the partnership to continue to improve its financial position. The cash flow during the current year was sufficient to pay the current year's fees.
Funds were also used to acquire additional office equipment of $17,260, make building improvements of $71,154, and pay deferred costs in the amount of $15,376.
Capital Resources
Current management estimates the current market value to be more than $6,000,000. An improvement in the commercial rental real estate market and an increase in the occupancy of the Manassas office building would have a major effect on the market value of the property.
The mortgage payable on the Manassas property, which was due April 30, 1997, was refinanced.
Item 8
Item 8 - Financial Statements and Supplementary Data
Independent Auditor's Report.........................6 Balance Sheets.......................................7-8 Statements of Income.................................9 Statements of Changes in Partners' Equity............10 Statements of Cash Flow..............................11-12 Notes to Financial Statements........................13-21 Accompanying schedules are omitted since they are included in the Notes. 	
Jennifer A. Jones, CPA, Ltd. 10615 Judicial Drive, Suite 701 Fairfax, VA 22030 703-352-1587
December 29, 1998
Independent Auditors Report
To the Partners of Gran-Mark Income Properties Limited Partnership 7200 Sadly Road, Suite 900 Manassas, VA 22070
I have audited the accompanying balance sheets of Gran-Mark Income Properties Limited Partnership as of September 30, 1998 and 1997, and the related statements of income, changes in partners equity, and cash flows for the years ending September 30, 1998, 1997 and 1996. These financial statements are the responsibility of the Partnerships management. My responsibility is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards. These standards require that I 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.
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Gran-Mark Income Properties Limited Partnership as of September 30, 1998 and 1997, and the results of its operations and its cash flows for the years ending September 30, 1998, 1997 and 1996, in conformity with general accepted accounting principles.
		 Jennifer A. Jones, CPA, Ltd.
Gran-Mark Income Properties Limited Partnership Balance Sheets September 30, 1998 and 1997
ASSETS 9/30/98 9/30/97 [S] [C] [C] CURRENT ASSETS
Cash $ 576,670 $ 485,768 Tenant Rents Receivable 87,067 117,815 Prepaid Expenses and Other 1,398 7,888 Mortgage Escrow Accounts 41,189 38,198
Total Current Assets 706,324 649,669
FIXED ASSETS
Land 418,598 418,598 Buildings 6,594,998 6,594,998 Building Improvements 817,882 776,846 Office Equipment 59,342 47,767
Total 7,890,820 7,838,209 Less: Accumulated Depreciation 2,985,865 2,742,793
Total Book Value of Fixed Assets 4,904,955 5,095,416
OTHER ASSETS:
Deferred Costs net of accumulated amortization of $108,942 and $149,371 as of September 30, 1997 and September 30, 1998, respectively 174,799 213,077
Total Other Assets 174,799 213,077
Total Assets $ 5,786,078 $ 5,958,162
GranMark Income Properties Limited Partnership Balance Sheets September 30, 1998 and 1997
LIABILITIES AND PARTNERS' EQUITY
9/30/98 9/30/97 [S] [C] [C] CURRENT LIABILITIES
Accounts Payable $ 61,855 $ 87,585 Accrued Interest 123 16,617 Accrued Expenses 79,865 86,926 Unearned Rental Income 16,961 9,112 Current Portion of Mortgage Payable 46,827 45,946
Total Current Liabilities 205,631 246,186
LONG-TERM LIABILITIES:
Tenant Security Deposits Payable 48,549 53,828 Management Fees Payable to Amherst Properties, Inc. 72,342 72,188 Mortgage Payable - Office Building 4,074,425 4,115,546
Total Long-Term Liabilities 4,195,316 4,241,562
Total Liabilities 4,400,947 4,487,748
CONTINGENCIES AND COMMITMENTS (Notes 3 through 10)
PARTNERS' EQUITY General Partner (21,456) (20,603) Limited Partners (12,000 Units authorized; 6,505 issued and outstanding) 1,406,587 1,491,017
Total Partners' Equity 1,385,131 1,470,414
Total Liabilities and Partners' Equity $ 5,786,078 $ 5,958,162
Gran-Mark Income Properties Limited Partnership Statements of Income For Fiscal Years Ending September 30, 1998, 1997 and 1996
9/30/98 9/30/97 9/30/96 [S] [C] [C] [C] REVENUE:
Rental $ 1,311,872 $ 1,202,577 $ 1,686,507 Tenant Reimbursements 62,713 152,536 355,729 Interest 17,184 9,466 10,017 Other 1,209 21,223 26,410 Loss on Sale of Asset 0 0 (76,415)
Total Revenue 1,392,978 1,385,802 2,002,248
EXPENSES:
Interest 404,578 384,541 634,377 Depreciation & Amortization 332,529 321,017 432,665 Utilities 173,935 170,709 198,606 Real Estate Taxes & Licenses 49,046 49,128 234,218 Property Maintenance & Repairs 174,703 193,316 235,148 Management Fees 85,247 84,753 115,093 General & Administration Expenses 258,223 211,043 198,974
Total Expenses 1,478,261 1,414,507 2,049,081
Net Loss $ (85,283)$ (28,705)$ (46,833)
Allocation of Net Loss: General Partners $ (853)$ (288)$ (468) Limited Partners (84,430) (28,417) (46,365)
Net Loss per weighted average Limited Partnership unit (6,505 units) $ (12.98)$ (4.37)$ (7.13)
Gran-Mark Income Properties Limited Partnership Statements of Changes in Partners' Equity For Fiscal Years Ending September 30, 1998, 1997 and 1996
General Limited Partner Partners Total [S] [C] [C] [C] Balance, September 30, 1995 $ (19,847)$ 1,565,799 $ 1,545,952
Net Loss Fiscal Year Ending 1996 (468) (46,365) (46,833) Balance, September 30, 1996 (20,315) 1,519,434 1,499,119
Net Loss Fiscal Year Ending 1997 (288) (28,417) (28,705) Balance, September 30, 1997 $ (20,603)$ 1,491,017 $ 1,470,414
Net Loss Fiscal Year Ending 1998 (853) (84,430) (85,283) Balance, September 30, 1998 $ (21,456)$ 1,406,587 $ 1,385,131
Gran-Mark Income Properties Limited Partnership Statements of Cash Flow For Fiscal Years Ending September 30, 1998, 1997 and 1996
09/30/98 9/30/97 9/30/96 [S][C][C][C] CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income or Loss from Statements of Income $ (85,283)$ (28,705)$ (46,830)
Adjustments to reconcile net loss to cash provided by (used in) operating activities: Depreciation & Amortization 332,529 321,017 432,665 Loss on Vehicle 0 0 2,871 Loss on Sale of Assets 0 0 76,415 Operating Expenses not paid by cash, Withheld from Sale Proceeds 0 0 73,032 (Increase) Decrease in: Tenant Rents Receivable 30,748 15,528 (103,219) Prepaid Expenses and Other 6,490 22,314 17,008 Mortgage Escrow Accounts (2,991) (7,382) (2,985) Increase (Decrease) in: Accounts Payable (25,730) 32,242 (31,583) Accrued Interest (16,494) (29,862) (9,038) Accrued Expenses (7,061) 3,727 23,235 Unearned Rental Income 7,849 559 (56,863) Tenant Security Deposits Payable (5,279) 9,082 (12,339) Management Fees payable to Amherst Properties, Inc. 154 (3,218) (25,970)
Total Adjustments 320,215 364,007 383,229
Net Cash Provided by Operating Activities 234,932 335,302 336,399
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Assets 0 0 350,888 Additions to Office Equipment (17,260) (6,703) (18,676) Additions to Building Inprovements (71,154) (121,988) (158,014) Additions to Deferred Costs (15,376) (210,438) (12,650)
Net Cash Used in Investing Activities (103,790) (339,129) 161,548
Gran-Mark Income Properties Limited Partnership Statements of Cash Flow For Fiscal Years Ending September 30, 1998, 1997 and 1996
09/30/98 9/30/97 9/30/96 [S] [C] [C] [C] CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Notes $ 0 $ 0 $ (1,197) Repayment of Secured Claims (40,240) (473,424) (76,091)
Net Cash Used in Financing Activities (40,240) (473,424) (77,288)
Net Change in Cash $ (90,902)$ (477,251)$ 420,659
CASH AT BEGINNING OF YEAR 485,768 963,019 542,360
CASH AT END OF YEAR $ 576,670 $ 485,768 $ 963,019
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for Interest $ 421,072 $ 414,402 $ 650,168
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
On September 12, 1996, the New York shopping center was sold.
Gross Sales Price $ 3,625,000 Items paid from sales proceeds Selling Expenses (222,719) Secured Claims (2,962,361) Operating expenses (73,032) Legal Fees (16,000)
Net Proceeds from Sale $ 350,888
On December 31, 1995, the vehicle was traded in. Both the old and new vehicles are in Amherst Properties, Inc.'s name. The new vehicle is not recorded on the Partnership's books.
Fully depreciated building improvements totaling $31,118 were disposed of during the year ending September 30, 1998. Fully depreciated office equipment totaling $5,685 was disposed of during the year ending September 30, 1998.
GRAN-MARK INCOME PROPERTIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
Note 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business The Partnership owns and operates an office building in Manassas, Virginia, and until September 12, 1996, owned and operated a shopping center in Amherst, NY, which contains approximately 95,000 and 117,000 square feet, respectively.
Significant Accounting Policies The following accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Certain prior year amounts and disclosures have been reclassified to conform with the current year's presentation. These reclassifications have no effect on the net losses as previously reported.
Revenue Recognition Rental income is reported as earned over the lives of the related leases. Tenant reimbursements are accrued based on annual or quarterly expenses and included pro-rata payments under certain leases for increases in property taxes, insurance, depreciation and direct operating expenses. Such amounts are calculated annually on a calendar year basis or quarterly with pro-rata portions based upon square footage leased during the year.
Rental Property and Depreciation Buildings are stated at cost and depreciated over their estimated thirty-year useful lives. Leasehold improvements, also stated at cost, are depreciated over the lesser of the length of the related leases or the estimated useful lives. The improvements generally have a useful life from one to fifteen years. Depreciation is computed on the straight-line method for financial reporting purposes and for income tax purposes depreciation is computed on both accelerated and straight-line methods. Improvements and major renovations are capitalized, while expenditures for maintenance, repairs and minor renovations are expensed when the cost in incurred. 	 Deferred costs and amortization Financing costs are amortized over the terms of the related loans using the straight-line method. 	 Leasing costs are amortized over the terms of the lease using the straight-line method. 	 Cash and Cash Equivalents For balance sheet and cash flow purposes, the Partnership considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and all highly liquid financial instruments purchased with a maturity of three months or less to be cash and cash equivalents. 	 Net Loss Per Weighted Average Limited Partnership Unit	 The computation of net income (loss) per weighted average limited partnership units is based on the weighted average number of units outstanding during the year. The weighted average number of units for each period is 6,505. 	 Income Taxes Partnerships are not subject to income taxes. The partners are required to report their respective shares of partnership income or loss on their individual income tax returns. 	 Concentration of Credit Risk Financial instruments that potentially subject the Partnership to credit risk include cash on deposit with financial institutions amounting to $576,670 and $485,768 at September 30, 1998 and 1997, respectively, which was insured up to $300,000 and $200,000, respectively, by the Federal Deposit Insurance Corporation. 	 Allowance for Doubtful Accounts The Partnership considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required.
Financial Instruments The Partnership used the following methods and assumptions to estimate the fair values of financial instruments:
Cash and Cash Equivalents - the carrying amount approximates fair value because of the short period to maturity of the instruments.
Receivables and Payables - the carrying amount approximates fair value because of the short period to maturity of the instruments.
Short and Long-Term Debt - the carrying amount approximates fair value based on discounting the projected cash flows using market rates available for similar maturities.
None of the financial instruments are held for trading purposes.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
NOTE 2:	RENTAL PROPERTY:
Land, buildings, improvements, and other capital expenditures, and their related accumulated depreciation accounts are summarized as follows:
Building Office Manassas, VA Equipment
Date of Construction 1974
Date Acquire August 1986 Various Total Land $ 418,598 $ 0 $ 418,598 Buildings 6,594,998 0 6,594,998 Other $ 0 59,342 59,342
Total Initial Cost to Partnership 7,013,596 59,342 7,072,938
Improvements capitalized subsequent to acquisition 817,882 0 817,882 Total Accumulated Cost 7,831,478 59,342 7,890,820
Accumulated depreciation 2,959,676 26,189 2,985,865 Net Book Value $ 4,871,802 $ 33,153 $ 4,904,955
The following is a summary of activity for the land, buildings and improvements, for the years ended September 30, 1996, 1997 and 1998:
Rental Accumulated Property Depreciation Balance September 30, 1995 $ 12,273,217 $ (3,343,332)
Oct 1, 1995 through Sep 30, 1996 Additions during the period: Improvements capitalized 158,014 Depreciation expense (405,850) Deletions during the period (4,762,777) 1,302,389
Balance September 30, 1996 7,668,454 (2,446,793)
Oct 1, 1996 through Sep 30, 1997 Additions during the period: Improvements capitalized 121,988 Depreciation expense (273,041) Deletions during the period 0 0
Balance September 30, 1997 7,790,442 (2,719,834)
Oct 1, 1997 through Sep 30, 1998
Additions during the period: Improvements capitalized 71,154 Depreciation expense (269,960) Deletions during the period (30,118) 30,118
Balance September 30, 1998 $ 7,831,478 $ (2,959,676)
NOTE 3: PLAN OF REORGANIZATION UNDER CHAPTER 11:
By August 24, 1990, limited partners owning more than 60% of the Partnership's units voted to remove Gran-Mark Properties, Inc. and Fourth Coast Properties Ltd. as the general partners and replace the former general partners with Amherst Properties, Inc., the current general partner. The effective date of removal in accordance with the Partnership Agreement was September 30, 1990. On September 28, 1990, two days prior to the effective date of removal, the former managing general partner filed a petition for relief under Chapter 11 of the federal bankruptcy laws on behalf of Gran-Mark Income Properties Limited Partnership (the "Debtor") in the United States Bankruptcy Court for Eastern District of Virginia - - Alexandria Division.
A Plan of Reorganization dated March 27, 1992, a First Amended Plan of Reorganization dated April 13, 1992, and a Second Amended Plan of Reorganization dated June 2, 1992 were filed with the Court for approval. 		 On June 24, 1992, the U.S. Bankruptcy Court for the Eastern District of Virginia, Alexandria Division, approved a Disclosure Statement in connection with the Plan of Reorganization and the Plan was confirmed. The Effective Date of the Plan was August 28, 1992. 		 When an entity emerges from a Chapter 11 reorganization, it must determine if the reorganization value of its assets before the date of confirmation is less than the total of all post-petition liabilities and allowed claims, and if the holders of existing voting shares immediately before confirmation receive less than fifty percent (50%) of the voting shares of the emerging entity. If these conditions exist, then the entity adopts fresh-start reporting which adjusts the historical amounts of individual assets and liabilities, reports forgiveness of debt, and creates a new reporting entity. 		 These conditions did not exist and the partnership did not adopt fresh-start reporting.
NOTE 4: CAPITAL CONTRIBUTIONS 		 Under the provisions of the Plan of Reorganization, the general partner notified all limited partners of their right to make a capital contribution and the consequences of any failure to make the required capital contribution. The new capital raised under the Plan was $480,400: $300,250 from the 5% contribution due July 19, 1992, (25 days after the date of approval of the Disclosure Statement by the Bankruptcy Court) and $180,150 from the 3% contribution due July 28, 1993 (the first anniversary of the date of confirmation of the Plan of Reorganization). 		 The partnership received $480,400 related to the cash call and the partnership issued 6,005 units.
Under the Plan, the Amended Partnership Agreement was further modified to provide for future cash calls as deemed appropriate by the General Partner. Such cash calls shall not cause a forfeiture of Partnership interest for any Equity Security Holder who has made the subscriptions required by the Plan, however, any future cash call may result in a dilution in Partnership Interest.
Under the Plan of Reorganization, the general partner, Amherst Properties, Inc. had the right to convert its approved claim of $50,000 represented by a Note dated August 28, 1992, into a partnership interest in the reorganized partnership at the conversion price of $100.00 per partnership unit. On August 1, 1993, Amherst Properties, Inc. exercised that right and 500 units were issued. 		 As of September 30, 1998, a total of 6,505 units had been issued. 		 NOTE 5: SECURED CLAIMS: 		 Secured claims as of September 30, 1996 and 1997, which are collateralized by liens on the Partnership's rental property, including their related leases and accounts receivable are summarized below:
Lender Property Sept 30, 1998 Sept 30, 1997 Regency Savings	 Sudley Tower Bank Manassas, VA $ 4,121,251 $ 4,161,492
Scheduled maturities of secured claims at September 30, 1998, are as follows: 		 FYE 1999 $ 45,595 FYE 2000 54,465 FYE 2001 59,871 FYE 2002 3,961,321 		 Total $4,121,252
Regency Savings Bank:
On February 18, 1997, Gran-Mark Income Properties Limited Partnership and Regency Savings Bank entered into a Loan Extension and Modification Agreement to extend the maturity date and to modify the promissory note dated May 29, 1987. The maturity date of the note was extended to February 18, 2002, at which time a balloon payment of approximately $3,926,800 is due. As of February 18, 1997, the outstanding principal balance was $4,190,256. The mortgage bears interest at the rate of 9.5%. Fixed monthly payments of principal and interest of $36,610 are due through February 2002. In addition to monthly payments of principal and interest, a monthly escrow deposit for the real estate taxes is required. Pursuant to the terms of the Modification Agreement and Allonge Promissory Note dated June 30, 1992, the sum of $421,184 was required as payment of deferred interest and unpaid fees. In addition, an extension fee of $41,903 was payable by February 18, 1998. Interest charged to operations during the years ending September 30, 1998, 1997 and 1996 was $399,082, $247,851, and $0, respectively.
Old Stone Bank, FSB/Regency Savings Bank: 		 On June 30, 1992, Gran-Mark Income Properties Limited Partnership and Old Stone Bank entered into a Modification Agreement and Allonge Promissory Note to modify the promissory note dated May 29, 1987. The modification extended the maturity date to April 30, 1997. For the period from July 1, 1992 through April 30, 1994, monthly payments of interest only at the rate of 7.53% (2,25% added to the average two year U.S. Treasury Bill Rate for the last five business days of May, 1992, and calculated upon the principal outstanding), in the amount of $26,930.53 were due. For the period from May 1, 1994 through April 30, 1996, monthly payments of principal and interest are calculated based on an interest rate calculated by adding 2.75% to the average two year U.S. Treasury Bill Rate for the last five business days of April, 1994, and calculated upon the principal outstanding, plus a thirty year amortization of the principal balance of $4,291,717.51. For the period from May 1, 1996 through April 30, 1997, monthly payments of principal and interest were calculated based on an interest rate calculated by adding 3.0% to the average two year U.S. Treasury Bill Rate for the last five business days of April, 1996, and calculated upon the principal outstanding, plus a twenty eight year amortization of the principal balance. On April 30, 1997, all principal and accrued, unpaid interest was due plus a Deferred Balance of interest (totaling $374,761.19) and unpaid fees in the amount not to exceed $55,000. The principal balance was refinanced and the Deferred Balance and unpaid fees were paid, as discussed above. Interest charged to operations during the years ending September 30, 1998, 1997, and 1996, was $0, $131,311, and 352,456, respectively.
Seamen's Bank for Savings/Regency Savings Bank: 		 The mortgage bore interest at the rate of 10.31%; 2.5% over the Federal Home Loan Bank Board Five Year Advance Rate. The loan was to mature in January 1997, at which time a balloon payment of approximately $2,944,200 was due. Fixed monthly payments of $27,708 through January 1992 were based upon a thirty year amortization period. Commencing in February 1992, constant monthly payments in the amount of $28,936 are based on a twenty-five year amortization period. 		 The mortgage was only to be prepaid in the fifth, ninth or tenth years subject to a penalty of 1% in years five and ten and 2% in year nine, or if greater (in years nine and ten, only) 1% plus the prepayment fee then charged by the Federal Home Loan Bank Board. Interest Charged to operations during the years ending September 30, 1998, 1997, and 1996, was $0, $0, and $289,619, respectively.
This mortgage was paid in full September 1996 upon the sale of the New York shopping center. Payment was made from the gross proceeds. 		 First Virginia Bank 		 On November 21, 1991, the Partnership acquired a 1991 Chevrolet truck. The acquisition was financed solely with a loan in the amount of $15,665, for which the vehicle is collateral. The loan required forty eight (48) constant monthly payments of $398.95, which commenced on January 5, 1992. The interest charged to operations ending September 30, 1998, 1997, and 1996, was $0, $0, and $23, respectively. Both the truck and the loan were in Amherst Properties, Inc's name, but the truck was paid for solely by the Partnership. 				 UNSECURED CLAIMS: 		 Unsecured claims (accounts payable) as of September 30, 1998 and 1997, are summarized below: 1998 1997 General and Administrative $ 1,490 $ 1,650 Commissions 867 0 Utilities 0 15,274 Repairs & Maintenance 1,615 6,685 Rent Overpayment 325 325 Legal Fees to a Related Party 35,145 41,238 Construction Management Fee to a Related Party 22,413 22,413 			 Total $61,855 $87,585
NOTE 6: RELATED PARTY TRANSACTIONS:
Management Agreements 		 The Partnership maintains a management agreement with Amherst Properties, Inc. (the current general partner) which provides for a monthly payment of management fees in the amount of six percent (6%) of gross rents collected and reimbursement of out-of-pocket expenses incurred in connection with the property 		 On September 30, 1996, the partnership executed an Amendment to Management Agreement with Amherst Properties, Inc. extending the expiration date to September 30, 2000. All other terms and conditions remain the same.
Accordingly, aggregate management fees charged to operations for the years ended September 30, 1998, 1997, and 1996, were $85,247, $84,754, and $115,089, respectively. 				 As of September 30, 1998, $27,523 of these fees remain payable to Amherst Properties, Inc. 				 Reimbursement of Partnership Operating Expenses 		 The Partnership agreement provides for reimbursing the general partner and its affiliates for costs of providing administrative services to the partnership. Reimbursements charged to operations or capitalized for the years ended September 30, 1998, 1997, and 1996, were $23,871, $21,557, and $58,958, respectively.
During the period of October 1990 through December 1990, the general partner paid $79,994 in various costs for the Partnership. During prior periods, $35,174 of these costs have been reimbursed to the general partner, leaving a balance of unreimbursed costs of $44,820 as of September 30, 1998. These unreimbursed costs are included in Management Fees Payable to Amherst Properties, Inc. In December 1995, the Partnership agreed to pay interest at the rate of 12% on these unreimbursed costs from December 31, 1990, until paid. Interest charged to operations for the years ended September 30, 1998, 1997 and 1996, were $5,496, $5,378, and $5,556, respectively.
Certain administrative expenses, such as telephone charges, and operating expenses incurred on the Partnership's behalf by Amherst Properties, Inc. are billed to Amherst Properties, Inc. but are paid directly by the Partnership. 		 During the fiscal year ending September 30, 1998, the Partnership paid $21,990 for the monthly loan payment, down payment, and other expenses related to a vehicle owned by Amherst Properties, Inc. Both the vehicle and loan are in Amherst Properties, Inc.'s name. These payments are included in the interest paid to Amherst Properties, Inc. 		 NOTE 7: OPERATING LEASES 		 Minimum future rentals to be received under noncancellable operating leases from tenants of both properties in effect at September 30, 1998, are as follows: 		
Year ending September 30, Amount 	 	 1999 $ 1,201,148 2000 843,509 2001 563,595 2002 104,942 Subsequent to 2002 55,034
Total minimum future rentals $ 2,768,228 										
General leasing arrangements include a remaining fixed rental term with annual increases, pro rata share of increases in property expenses, and various renewal options. 		 NOTE 8: INCOME TAXES 		 A basic requirement of federal tax law requires that a partnership's general partners assume unlimited liability. Requirements, among others, in determining whether a limited partnership will be recognized as a partnership or if it will be recognized as a corporation are as follows: 		 A.	Limited partners may not own directly or indirectly more than 20 percent of the corporation or its affiliates. 		 B.	The net worth of the corporation must at all times be a minimum of 10 percent of total partnership contribution. 		 Affiliates of one of the Partnership's limited partners own a two- thirds interest in Amherst Properties, Inc. and Amherst Properties' net worth is less than the guidelines suggest. Accordingly, the possibility exists that the Partnership could be classified as an association and be subject to corporate tax laws, which could result in the disallowance of previous deductions taken by limited partners on their individual returns. 		 As previously noted in Securities and Exchange Commission filings, the previous managing general partner has not met the net worth requirements since 1987. 		 The Tax Reform Act of 1986 required the Partnership to change its reporting period for income tax purposes to a calendar year. The change became effective for the three month period ending December 31, 1988. 		 NOTE 9: PARTNERSHIP ALLOCATIONS: 		 Partnership income and net cash from operations are allocated 99% to the limited partners and 1% to the general partner until the limited partners have received their cumulative 7% priority return. After this return has been achieved, the general partner will then be allocated its annual incentive management fee so that total distribution will aggregate 10% to the general partner and 90% to the limited partners in accordance with the Partnership Agreement. The general partner will then receive its deferred incentive management fee, if any, and any remaining income. Net cash from operations in allocated 90% to the limited partners and 10% to the general partner. Losses are allocated 99% to the limited partners and 1% to the general partner. 		 NOTE 10: MANAGEMENT PLANS: 		 During the past year Prince William County experienced business growth and real estate development which impacted favorably on the Sudley Tower. Our occupancy continues to remain high with increasing base rental rates. We are also attracting larger companies with more diversity such as insurance, temporary personnel staffing, and service organizations. With high tech more in demand, we are considering the feasibility of installing a high transmission data line for lease to existing and new tenants. 	 Although the real estate market slowed some during the third quarter of 1998 we are continuing to upgrade the building to position ourselves in the real estate market and to become more attractive for new tenants. 	 Our capital improvement program continues to be implemented, as funds become available. The scheduled improvements include the following: 1) install a T-1 data transmission line; 2) renovate bathrooms on floors 2, 3, 4, 6, 7, 8 and 9; 3) modernize the elevators; 4) install energy efficient motors, which power the heating and hot water systems; 5) replace ceiling tiles throughout the building; and 6) install exterior lighting.
Our efforts to sell the Sudley Tower during the early part of this year were not successful in bringing any favorable results due to the conditions caused by the uncertainty in the stock market and the adverse money market changes in Europe and Asia. These events dulled the enthusiasm of the real estate investment trusts and other institutional investors to acquire real estate. In addition, the Sudley Tower itself has little appeal to institutions as a stand- alone property.
In view of this experience and the volatile market conditions we are now seeking ways to enhance the value of the property. Methods under consideration are development of a rooftop management program with aggressive marketing on a web site as well as E-mail advertising and distribution. In this regard we have engaged a technical analyst to prepare a report and a design for a rooftop antenna.
Also under consideration is the installation of a T-1 line in the conference room, Jackson Hall, for transient visitors and temporary offices for people moving into the area or people doing business in the area for several days. Additional avenues of property value enhancement are also under consideration.
Item 9
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
In October 1991, Jennifer A. Jones, CPA, Ltd. was appointed as new certified public accountant for the partnership, replacing Charles M. Terry & Company. Charles M. Terry & Company had replaced Charles H. Schnepfe, Certified Public Accountant in 1990. Charles H. Schnepfe had replaced Roberts, Halt, and Company in 1989, and Roberts, Halts, and Company had replaced Price Waterhouse in 1988.
Part III
Item 10
Item 10 - Directors and Executive Officers of the Registrant
The partnership has no directors or officers under the Partnership Agreement and the General Partner is solely responsible for the operation of the Partnership and its properties. The Limited Partners have no right to participate in the control of the Partnership. The current General Partner is Amherst Properties, Inc., located at 7900 Sudley Road, Suite 900, Manassas, Virginia 20109 ([703] 368-2415).
For information concerning the former general partners, see previous SEC filings.
Louis J. Marin, age 63, is the President of Amherst Properties, Inc. He received his B.B.A. in Business from City College, New York (1957), his MBA from Cornell University (1959) and his law degree from George Washington University (1964). He worked in the regulatory field for the Securities & Exchange Commission and the Office of the Comptroller of the Currency for 6 years. For the last 26 years he has worked as a lawyer specializing in real estate. During this time he has been a developer, investor, and manager of real estate.
Dr. Lionel Felsen, age 62, is the Executive Vice President of Amherst Properties, Inc. He did his undergraduate at Brooklyn College and graduate work at Georgetown University Medical and Dental School, D.D.S. (1964). He managed a professional office from 1964 until 1993. He has been an active investor in commercial and residential real estate for 28 years and is the major investor in Sher-Man Real Estate Partnership.
ITEM 11
ITEM 11 - Executive Compensation
The Partnership has no directors or officers. The Partnership will pay the costs incurred by the General Partners or their affiliates in performing administrative services necessary to the prudent operation of the Partnership; provided, however, that the amounts charged to the Partnership for services performed shall not exceed the lessor of (a) the actual cost of the services, or (b) 90% of the competitive price which would be charged by non-affiliated persons rendering services in the same or a comparable geographic location. Costs of the services as used herein means the pro rata cost of personnel including an allocation of overhead directly attributable to such services. ee Note 6 of the Notes to Financial Statements (Item 8) for Management fees and other payments to the Managing General Partner and its affiliates.
Item 12
Item 12 - Security Ownership of Certain Beneficial Owners and Management
As of September 30, 1998, Lou Marin, President of Amherst Properties, Inc., was a beneficial owner of 629.7438 units or 9.58% of the Partnership; Lionel Felsen, Executive Vice-President of Amherst Properties, Inc., was a beneficial owner of 1116.5596 units or 16.99% of the Partnership and Amherst Properties, Inc. was a beneficial owner of 500 units or 7.61% of the Partnership, in addition to its general partnership interest. To the knowledge of the Partnerships management there are no other beneficial owners of more than 5% of the Partnership.
Item 13
Item 13 - Certain Relationships and Related Transactions
See Note 6 of the Notes to Financial Statements at Item 8.
PART IV
(A) 	(1) Financial Statements - See Item 8
(B)	Reports on Form 8-K: None
(C)	Exhibits:	None
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 undersigned, thereunto duly authorized.
Gran-Mark Income Properties Limited Partnership
By: Amherst Properties, Inc. General Partner
By: Louis J. Marin December 29, 1998 Louis J. Marin Date President
By: Lionel Felsen December 29, 1998 Lionel Felsen Date Vice-President