BALCOR PENSION INVESTORS - III
P.O. Box 7190
Deerfield, Illinois 60015-7190
May 29, 1996
Dear Investor:
On May 20, 1996, Walton Street Capital Acquisition Co. II, L.L.C.
("Walton Street") announced an unsolicited offer to purchase up to 78,367
(approximately 33%) of the limited partnership interests ("Units") of Balcor
Pension Investors-III (the "Partnership") at a price of $130 per Unit. Balcor
Mortgage Advisors-II ("Balcor"), your general partner, makes no recommendation
and is remaining neutral with respect to this offer and suggests that you
consider the following factors in making your decision to accept or reject this
offer:
1. The Partnership engaged Alex. Brown & Sons, Incorporated ("Alex.
Brown") to prepare a current liquidation value of the Partnership. The Alex.
Brown definition of current liquidation value assumes an orderly liquidation of
the remaining assets of the Partnership over a 12 month period. The Alex.
Brown value as of March 31, 1996 for Early Investors is $217-218 per Unit
depending upon assumptions made about prepayment penalties. (Note: All
investors in the Partnership are deemed to be Early Investors.) Please note
that the Partnership's letter to you dated May 16, 1996 contained a
typographical error for the Alex. Brown valuation. This value includes the
first quarter distribution which was paid in April, 1996 in the amount of $4.00
per Unit. Therefore, the net Alex. Brown value is $213-214 per Unit (the Alex.
Brown opinion of value is attached to this letter). The Walton Street offer is
approximately 61% of the net Alex. Brown value.
Additionally, as you know, the Partnership receives valuations quarterly
from Valuation Counselors Group and Darby & Associates ("Darby"). The Darby
valuation represents the value of a Unit based upon the present value of the
Partnership's projected future cash flows and the sale of the Partnership's
assets by the end of 1998. As such, it is not intended to represent the value
for which a Unit could be liquidated today and therefore is different from the
Alex. Brown value. The Darby valuation as of March 31, 1996 is $213 per Unit
and the net Darby value (after deducting the first quarter distribution of
$4.00 per unit) is $209. The Walton Street offer is approximately 62% of the
net Darby value.
2. The Partnership has nine remaining assets of which five are mortgage
loans and four are operating properties. As previously communicated to
investors, the Partnership has begun its liquidation stage and the strategy is
to sell or otherwise dispose of its remaining assets by the end of 1998. At
present, the Partnership is marketing for sale The Woods apartments and expects
to have the mortgage loan on Pepper Square apartments repaid by June 1, 1996.
Proceeds will be distributed to investors upon the sale or disposition of the
assets. If the Pepper Square loan is repaid on or about the maturity date of
June 1, 1996, we expect to distribute the proceeds of approximately $3.88 per
Unit in mid-July. This would be in addition to the distribution previously
discussed in paragraph 4 below. There can be no assurance that the mortgage
loan on Pepper Square will be repaid or what the final distribution to holders
of Units will be if repaid.
3. The Partnership continues to repurchase Units (as described in the
Partnership's original prospectus) from Limited Partners through the Early
Investment Incentive Fund (the "Fund"). Currently, the Fund owns approximately
16,090 Units (6.75% of the total outstanding Units). The Fund purchases Units
on a first-come first-served basis. The purchase price for Units by the Fund
is equal to 95% of the Partnership's most recent valuation less any
distributions made subsequent to the valuation date. The Fund most recently
purchased 3,400 Units during the fourth quarter of 1995 for $214.22 per Unit.
Approximately 1,600 Units are currently on a waiting list to be purchased by
the Fund. The General Partner believes that, based upon its projections of
cash being deposited into the Fund for the purchase of Units, the Fund will be
able to purchase all 1,600 Units on the waiting list plus approximately 2,500
additional Units during the first six months of 1996. Dollars available to the
Fund to repurchase Units are limited and, therefore, there may not be
sufficient dollars available to repurchase all Units on a current basis if more
Units are offered to the Fund than cash is available to repurchase Units. If
you are interested in selling Units to the Fund, you may call (800) 422-5267
for further information.
4. As of March 31, 1996, the Partnership had cash reserves of
approximately $19.79 per Unit, which represents approximately 15% of Walton
Street's offering price. This cash reserve has been adjusted to deduct the
quarterly distribution of $4.00, which was declared as of March 31, 1996 and
paid in mid-April, 1996. Based upon current operations, the Partnership
currently expects to make a distribution of $4.00 per Unit, as well as the
possible distribution set forth in paragraph 2 above, in mid-July 1996. If you
elect to tender your Units to Walton Street, these distributions will either be
paid directly to Walton Street or deducted from their offering price for your
Units.
5. The most recent issue of Partnership Spectrum (April/May 1996)
indicates that the Units traded in a range from $130 to $183 during the sixty
day period ended March 31, 1996, reflecting 20 trades. These prices do not
reflect commissions that may be payable by the sellers to third parties, so
that the actual proceeds received by a seller may be reduced. Due, in part, to
the inefficiencies of these secondary markets, there can be no assurance that
future secondary trades will result in similar trading prices.
6. As noted in the Walton Street offering materials, Walton Street is
making its offer with a view to making a profit, and there is accordingly a
conflict between Walton Street's desire to acquire the Units at a low price and
the desire of the Limited Partners to sell their Units at a high price.
However, for Limited Partners who desire immediate cash, Walton Street's offer
potentially provides you with an opportunity to immediately liquidate your
investment in the Partnership.
Under the terms of Walton Street's offer, they cannot, until June 17,
1996, purchase and pay for any Units tendered prior to that time, and you may
withdraw Units tendered to Walton Street at any time prior to 12:00 midnight on
June 17, 1996. If you wish to retain your Units, you need not take any action
regarding the Walton Street offer.
Balcor will continue to act in the manner that Balcor believes is in the
best interest of the Limited Partners. However, Limited Partners should
consult with their personal tax and legal advisors prior to accepting the Offer
and tendering their Units.
Balcor strongly urges you to read carefully the attached Schedule 14D-9
for a more thorough discussion of the above and other factors. We have omitted
the Exhibits to the Schedule 14D-9 but will deliver them, as well as the
Partnership's Form 10-Q for the quarter ended March 31, 1996, to you at the
Partnership's expense if you call 1-800-422-5267.
Very truly yours,
/s/Thomas E. Meador
Thomas E. Meador, Chairman
Balcor Mortgage Advisors-II