UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-11805
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BALCOR REALTY INVESTORS-83
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(Exact name of registrant as specified in its charter)
Illinois 36-3189175
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Rd., Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(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 such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
PART I
Item 1. Business
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Balcor Realty Investors-83 (the "Registrant") is a limited partnership formed
in 1981 under the laws of the State of Illinois. The Registrant raised
$75,005,000 from sales of Limited Partnership Interests. The Registrant has
retained cash reserves from the sale of its real estate investments for
contingencies which exist or may arise. The Registrant's operations currently
consist of interest income earned on short-term investments and the payment of
administrative expenses.
The Registrant utilized the net offering proceeds to acquire eleven real
property investments and a minority joint venture interest in an additional
property and has since disposed of all of these investments. The Partnership
Agreement provides that the proceeds of any sale or refinancing of the
Registrant's properties will not be reinvested in new acquisitions.
The Partnership Agreement provides for the dissolution of the Registrant upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1996, the Registrant sold two properties. During 1997, the
Registrant sold its remaining five properties, the Springs Pointe Village,
Walnut Ridge - Phases I and II, Eagle Crest - Phase I and Deer Oaks apartment
complexes. The Registrant has retained a portion of the cash from the property
sales to satisfy obligations of the Registrant as well as establish a reserve
for contingencies. The timing of the termination of the Registrant and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies may include legal
and other fees and costs stemming from litigation involving the Registrant
including, but not limited to, the lawsuits discussed in "Item 3. Legal
Proceedings". In the absence of any such contingencies, the reserves will be
paid within twelve months of the last property being sold. In the event a
contingency continues to exist or arises, reserves maybe held by the Registrant
for a longer period of time.
The Registrant sold the Springs Pointe Village, Walnut Ridge - Phases I and II,
Eagle Crest - Phase I and Deer Oaks apartment complexes during 1997 in all cash
sales for $20,166,667, $19,475,000, $9,508,000, $7,250,000, respectively. See
"Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations - Liquidity and Capital Resources" for additional
information.
The Registrant no longer has an ownership interest in any real estate
investment. The General Partner is not aware of any material potential
liability relating to environmental issues or conditions affecting real estate
formerly owned by the Registrant.
The officers and employees of Balcor Partners-XIII, the General Partner of the
Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
Item 2. Properties
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As of December 31, 1997, the Registrant did not own any properties.
In the opinion of the General Partner, the Registrant has obtained adequate
insurance coverage.
See Notes to Financial Statements for other information regarding former real
property investments.
Item 3. Legal Proceedings
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Klein, et al. vs Lehman Brothers, Inc., et al.
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On August 30, 1996, a proposed class action complaint was filed, Lenore Klein,
et al. vs. Lehman Brothers, Inc., et al. (Superior Court of New Jersey, Law
Division, Union County, Docket No. Unn-L-5162-96). The complaint was amended on
each of October 18, 1996, December 5, 1997 and January 15, 1998. The
Registrant, additional limited partnerships which were sponsored by The Balcor
Company (together with the Registrant, the "Affiliated Partnerships"), The
Balcor Company, American Express Financial Advisors, and other affiliated
entities and various individuals are named defendants in the action. The most
recent amended complaint, plaintiffs' Third Amended Complaint, alleges, among
other things, common law fraud and deceit, negligent misrepresentation, breach
of contract, breach of fiduciary duty and violation of certain New Jersey
statues relating to the disclosure of information in the offering of limited
partnership interests in the Affiliated Partnerships, the marketing of
interests in the Affiliated Partnerships and the acquisition of real properties
for the Affiliated Partnerships. The Third Amended Complaint seeks judgment for
compensatory damages equal to the amount invested in the Affiliated
Partnerships by the proposed class plus interest; general damages for injuries
arising from the defendants' alleged actions; equitable relief, including
rescission, on certain counts; punitive damages; treble damages on certain
counts; recovery from the defendants of all profits received by them as a
result of their alleged actions relating to the Affiliated Partnerships;
attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Registrant believes it has meritorious defenses
to contest the claims. It is not determinable at this time whether or not an
unfavorable decision in this action would have a material adverse impact on the
Registrant.
Masri vs. Lehman Brothers., et al
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On February 29, 1996, a proposed class action complaint was filed, Raymond
Masri vs. Lehman Brothers, Inc., et al., Case No. 96/103727 (Supreme Court of
the State of New York, County of New York). The Registrant, additional limited
partnerships which were sponsored by The Balcor Company, three limited
partnerships sponsored by the predecessor of Lehman Brothers, Inc. (together
with the Registrant and the affiliated partnerships, the "Defendant
Partnerships"), Lehman Brothers, Inc. and Smith Barney, Inc. are defendants.
The complaint alleges, among other things, common law fraud and deceit,
negligent misrepresentation and breach of fiduciary duty relating to the
disclosure of information in the offering of limited partnership interests in
the Defendant Partnerships. The complaint seeks judgment for compensatory
damages equal to the amount invested in the Defendant Partnerships by the
proposed class plus interest accrued thereon; general damages for injuries
arising from the defendants' alleged actions; recovery from the defendants of
all profits received by them as a result of their alleged actions relating to
the Defendant Partnerships; exemplary damages; attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Registrant believes it has meritorious defenses
to contest the claims. It is not determinable at this time whether or not an
unfavorable decision in this action would have a material adverse impact on the
Registrant.
Plaintiffs' counsel has indicated an intent to withdraw this complaint. Raymond
Masri has joined as an additional plaintiff in the Lenore Klein matter
discussed above.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Limited Partners of the Registrant
during 1997.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
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There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding distributions, see "Item 7. Management's Discussion and Analysis of
Financial Conditions and Results of Operations - Liquidity and Capital
Resources".
As of December 31, 1997, the number of record holders of Limited Partnership
Interests of the Registrant was 6,378.
Item 6. Selected Financial Data
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Year ended December 31,
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1997 1996 1995 1994 1993
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Total income $1,586,170 $13,199,107 $15,442,492 $16,120,215 $16,565,748
(Loss) income
before gain
on sales of
properties and
extraordinary
items (270,634) 1,335,402 734,890 (291,500) (774,247)
Net income 27,125,351 11,374,454 3,387,955 1,108,900 2,994,111
Net income
per Limited Part-
nership Interest-
Basic and Diluted 324.25 144.07 42.91 14.05 37.92
Total assets 2,173,714 32,876,002 42,023,971 55,306,162 58,987,183
Mortgage notes
payable None 33,955,105 46,407,211 56,248,201 58,567,203
Distributions per
Limited Partner-
ship Interest(A) 303.02 105.50 85.00 18.00 None
(A) These amounts include distributions of Original Capital of $297.02, $77.00
and $67.00 per Limited Partnership Interest for 1997, 1996 and 1995,
respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Operations
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Summary of Operations
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Balcor Realty Investors-83 (the "Partnership") sold one property during 1995,
two properties during 1996 and its remaining five properties during 1997. The
Partnership recognized significantly higher gains on the sales of properties in
1997 as compared to 1996. This was the primary reason net income increased
during 1997 as compared to 1996. The gains on sales of properties recognized
during 1996 were higher than the gain on sale recognized in 1995. This was the
primary reason net income increased in 1996 as compared to 1995. Further
discussion of the Partnership's operations is summarized below.
1997 Compared to 1996
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The Partnership sold the Springs Pointe Village, Walnut Ridge - Phases I and
II, Eagle Crest - Phase I and Deer Oaks apartment complexes during 1997 and the
Desert Sands Village and Sandridge - Phase II apartment complexes during 1996.
The Partnership recognized gains in connection with the 1997 and 1996 sales
totaling $28,828,617 and $10,262,536, respectively. As a result, rental and
service income, interest expense on mortgage notes payable, depreciation,
amortization of deferred expenses, property operating expenses, real estate
taxes and property management fees decreased during 1997 as compared to 1996.
Higher average cash balances were available for investment in 1997 due to
proceeds received in connection with the 1997 property sales prior to
distribution to Limited Partners. This resulted in an increase in interest
income on short-term investments during 1997 as compared to 1996.
The Partnership reached a settlement with the seller of the Deer Oaks
Apartments in February 1996 and received $208,250 of settlement income relating
primarily to amounts due from the seller under the management and guarantee
agreement.
The Partnership recognized other income during 1997 in connection with refunds
of prior years' insurance premiums relating to the Partnership's properties.
The Partnership incurred additional legal, postage, printing and investor
processing costs in 1996 in connection with the Partnership's response to a
tender offer. This was the primary reason for the decrease in administrative
expenses during 1997 as compared to 1996. The Partnership also incurred higher
portfolio management fees during 1996 which contributed to the decrease.
During 1997, the Partnership wrote-off the remaining unamortized deferred
expenses in connection with the sales of the Walnut Ridge - Phases I and II,
Eagle Crest - Phase I and Deer Oaks apartment complexes totaling $327,266 and
paid prepayment penalties in connection with the sales of the Walnut Ridge -
Phases I and II and Eagle Crest - Phase I apartment complexes totaling
$1,105,366. During 1996, the Partnership wrote-off the remaining unamortized
deferred expenses in connection with the sales of Sandridge - Phase II and
Desert Sands Village apartment complexes totaling $151,959 and paid a
prepayment penalty of $71,525 in connection with the sale of Sandridge - Phase
II Apartments. These amounts were recognized as debt extinguishment expenses
and classified as extraordinary items for financial statement purposes.
1996 Compared to 1995
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The Partnership sold two properties in 1996, and the North Cove Apartments in
1995, which resulted in a decrease in rental and service income of
approximately $2,517,000 during 1996 as compared to 1995. The decrease was
partially offset by increases in rental and service income during 1996 at all
of the Partnership's remaining properties totaling approximately $260,000.
Due to lower average cash balances as a result of special distributions made to
Limited Partners in October 1995, and April and July 1996, interest income on
short-term investments decreased during 1996 as compared to 1995.
The sales of the Desert Sands Village and North Cove apartment complexes were
the primary reasons for the decrease in interest expense on mortgage notes
payable, depreciation, real estate taxes and property management fees during
1996 as compared to 1995.
The sales of the Desert Sands Village and North Cove apartment complexes were
the primary reasons for the decrease in property operating expenses during 1996
as compared to 1995. In addition, the Partnership incurred lower expenditures
for floor coverings and painting and decorating at the Deer Oaks Apartments
during 1996 due to lower tenant turnover, which contributed to the decrease in
property operating expenses.
Primarily as a result of lower accounting, legal and consulting fees of
approximately $218,000, administrative expense decreased during 1996 as
compared to 1995. Higher printing, postage and investor processing costs of
approximately $48,000 incurred in connection with the Partnership's response to
a tender offer during 1996 partially offset this decrease.
During 1995, the Partnership recognized a gain of $2,711,565 in connection with
the sale of North Cove Apartments.
During 1995, the Partnership recognized an extraordinary gain on forgiveness of
debt of $40,653 in connection with the settlement reached with the seller of
the Springs Pointe Village and Desert Sands Village apartment complexes.
In June 1995, the first mortgage loan collateralized by Deer Oaks Apartments
was refinanced, and a prepayment penalty of $43,153 was incurred. Also in June
1995, the North Cove Apartments was sold and the Partnership wrote-off the
remaining unamortized deferred expenses related to the property of $56,000.
These amounts have been recognized as debt extinguishment expenses and
classified as extraordinary items for financial statement purposes.
Liquidity and Capital Resources
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The cash position of the Partnership decreased by approximately $2,795,000 as
of December 31, 1997 when compared to December 31, 1996 primarily due to the
payment of a distribution to Limited Partners in 1997 of proceeds received from
the sale of Sandridge - Phase II Apartments in November 1996. The Partnership
used cash of approximately $796,000 to fund its operating activities. The
payment of administrative expenses, operating expenses related to sold
properties and prepayment penalties was partially offset by the cash flow from
interest income earned on short-term investments and the collection of escrow
deposits related to sold properties. The Partnership received cash of
approximately $54,684,000 from its investing activities relating to proceeds
received from the 1997 property sales, net of closing costs. The Partnership
used cash to fund its financing activities which consisted of distributions to
Limited Partners of approximately $22,728,000, the repayment of the loan
payable to an affiliate of the General Partner related to the Walnut Ridge -
Phase II Apartments of approximately $734,000, principal payments on mortgage
notes payable of approximately $29,000, and the repayment of mortgage notes
payable of approximately $33,192,000. In January 1998, the Partnership made a
distribution to Limited Partners of $258,774 from remaining available Net Cash
Proceeds, as discussed below.
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1996, the Partnership sold two properties. During 1997, the
Partnership sold its remaining five properties, the Springs Pointe Village,
Walnut Ridge - Phases I and II, Eagle Crest - Phase I and Deer Oaks apartment
complexes. The Partnership has retained a portion of the cash from the property
sales to satisfy obligations of the Partnership as well as establish a reserve
for contingencies. The timing of the termination of the Partnership and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies may include legal
and other fees and costs stemming from litigation involving the Partnership
including, but not limited to, the lawsuits discussed in "Item 3. Legal
Proceedings". In the absence of any such contingencies, the reserves will be
paid within twelve months of the last property being sold. In the event a
contingency continues to exist or arises, reserves may be held by the
Partnership for a longer period of time.
In January 1997, the Partnership sold the Springs Pointe Village Apartments in
an all cash sale for $20,166,667. From the proceeds of the sale, the
Partnership paid $10,645,034 to the third party mortgage holder in full
satisfaction of the first mortgage loan and paid $393,011 in selling costs.
Pursuant to the terms of the sale, $344,729 of the proceeds was retained by the
Partnership and was unavailable for distribution until April 1997, at which
time the funds were released in full. The remaining proceeds from this sale
were distributed to Limited Partners in April 1997. See Note 10 of Notes to
Financial Statements for additional information.
In January 1997, the Partnership sold the Walnut Ridge - Phases I and II
apartment complexes in an all cash sale for $19,475,000. The purchaser received
a $300,000 credit against the purchase price for certain repairs at the
properties. From the proceeds of the sale, the Partnership paid $10,752,114 to
the third party mortgage holder in full satisfaction of the first mortgage
loans, repaid a $740,792 loan including accrued interest from an affiliate of
the General Partner, and paid $470,165 in selling costs and a prepayment
penalty of $430,085. The remaining proceeds from this sale were distributed to
Limited Partners in April 1997. See Note 10 of Notes to Financial Statements
for additional information.
Eagle Crest - Phase I Apartments was owned by a joint venture between the
Partnership and seller. In January 1997, the joint venture sold the property in
an all cash sale for $9,508,000. From the proceeds of the sale, the joint
venture paid $7,093,430 to the third party mortgage holder in full satisfaction
of the first mortgage loan, and paid $357,702 in selling costs and a prepayment
penalty of $675,281. The Partnership received all remaining net proceeds from
this sale which were distributed to Limited Partners in April 1997. See Notes 7
and 10 of Notes to Financial Statements for additional information.
Deer Oaks Apartments was owned by a joint venture between the Partnership and
seller. In August 1997, the joint venture sold the property in an all cash sale
for $7,250,000. From the proceeds of the sale, the joint venture paid
$4,701,161 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $194,408 in selling costs. The Partnership received all
remaining net proceeds from this sale, which were distributed to Limited
Partners in October 1997. See Notes 7 and 10 of Notes to Financial Statements
for additional information.
The General Partner made distributions totaling $303.02, $105.50 and $85.00 per
Interest in 1997, 1996, and 1995, respectively. See Statement of Partners'
Capital for additional information. Distributions were comprised of $6.00 of
Net Cash Receipts and $297.02 of Net Cash Proceeds during 1997, $28.50 of Net
Cash Receipts and $77.00 of Net Cash Proceeds during 1996 and $18.00 of Net
Cash Receipts and $67.00 of Net Cash Proceeds during 1995.
In January 1998, the Partnership made a distribution of $258,774 ($3.45 per
Interest) to the holders of Limited Partnership Interests representing a
distribution of remaining available Net Cash Proceeds. Including the January
1998 distribution, Limited Partners have received distributions of Net Cash
Receipts of $105.50 and Net Cash Proceeds of $544.47, totaling $649.97 per
$1,000 Interest, as well as certain tax benefits. No additional distributions
are anticipated to be made prior to the termination of the Partnership.
However, after paying final partnership expenses, any remaining cash reserves
will be distributed. Limited Partners will not recover all of their original
investment.
Item 8. Financial Statements and Supplementary Data
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See Index to Financial Statements in this Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
The net effect of the differences between the financial statements and the tax
returns is summarized as follows:
December 31, 1997 December 31, 1996
----------------------- -------------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
---------- --------- ---------- ---------
Total assets $2,173,714 $10,505,531 $32,876,002 $23,905,692
Partners' capital
(deficit):
General Partner (104,991) (104,991) (2,910,234) (5,953,636)
Limited Partners 2,215,330 10,566,385 623,237 (5,329,139)
Net income:
General Partner 2,805,243 5,848,645 568,723 (217,697)
Limited Partners 24,320,108 38,623,539 10,805,731 17,444,702
Per Limited Part-
nership Interest 324.25(A) 514.95 144.07(A) 232.58
(A) Amount represents basic and diluted net income per Limited Partnership
Interest.
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
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There have been no changes in or disagreements with accountants on any matter
of accounting principles, practices or financial statement disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant
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(a) Neither the Registrant nor Balcor Partners-XIII, its General Partner, has a
Board of Directors.
(b, c & e) The names, ages and business experiences of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Vice President John K. Powell, Jr.
Senior Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 50) joined Balcor in July 1979. He is Chairman,
President and Chief Executive Officer and has responsibility for all ongoing
day-to-day activities at Balcor. He is a member of the board of directors of
The Balcor Company. He is also Senior Vice President of American Express
Company and is responsible for its real estate operations worldwide. Prior to
joining Balcor, Mr. Meador was employed at the Harris Trust and Savings Bank in
the commercial real estate division where he was involved in various lending
activities. Mr. Meador received his M.B.A. degree from the Indiana University
Graduate School of Business.
Alexander J. Darragh (age 43) joined Balcor in September 1988 and is
responsible for real estate advisory services for Balcor and American Express
Company. Mr. Darragh received masters' degrees in Urban Geography from Queen's
University and in Urban Planning from Northwestern University.
John K. Powell Jr. (age 47) joined Balcor in September 1985 and is responsible
for portfolio and asset management matters relating to Balcor's partnerships.
Mr. Powell also has supervisory responsibility for Balcor's risk management
function. He is a member of the board of directors of The Balcor Company. He
received a Master of Planning degree from the University of Virginia. Mr.
Powell has been designated a Certified Real Estate Financier by the National
Society for Real Estate Finance and is a full member of the Urban Land
Institute.
Jayne A. Kosik (age 40) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. From June 1989 until October 1996, Ms. Kosik had supervisory
responsibility for accounting functions relating to Balcor's public and private
partnerships. She is also Treasurer and a Senior Managing Director of The
Balcor Company. Ms. Kosik is a Certified Public Accountant.
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1997.
Item 11. Executive Compensation
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The Registrant paid $2,139 in 1997 with respect to one of the executive
officers and directors of Balcor Partners-XIII, the General Partner. The
Registrant has not paid and does not propose to pay any remuneration to the
remaining executive officers and directors of the General Partner. The other
officers receive compensation from The Balcor Company (but not from the
Registrant) for services performed for various affiliated entities, which may
include services performed for the Registrant. However, the General Partner
believes that any such compensation attributable to services performed for the
Registrant is immaterial to the Registrant. See Note 9 of Notes to Financial
Statements for information relating to transactions with affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
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(a) The following entity is the sole Limited Partner which owns beneficially
more then 5% of the outstanding Limited Partnership Interests of the
Registrant:
Name and Amount and
Address of Nature of
Beneficial Beneficial
Titled of Class Owner Ownership Percent of Class
--------------- ----------- ----------- -----------------
Limited WIG 83 5,753.08 7.67%
Partnership Partners Limited
Interests Chicago, Partnership
Illinois Interests
Limited Metropolitan 3,334.70 4.45%
Partnership Acquisition VII Limited
Interests Greenville, Partnership
South Carolina Interests
While Metropolitan Acquisition VII owns less than 5% of the Interests, for
purposes of this Item 12, Metropolitan Acquisition VII is an affiliate of WIG
83 Partners and, collectively, they own 12.12% of the Interests.
(b) Balcor Partners-XIII and its officers and partners own as a group the
following Limited Partnership Interests in the Registrant:
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
Limited Partnership 99 Interests Less than 1%
Interests
Relatives of the officers and affiliates of the partners of the General Partner
own 18 additional Interests.
(c) The Registrant is not aware of any arrangements, the operation of which may
result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
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(a & b) See Note 4 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profits and
losses.
See Note 9 of Notes to Financial Statements for information relating to
transactions with affiliates.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
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(a)
(1 & 2) See Index to Financial Statements and Financial Statement Schedule in
this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement of Limited Partnership set forth as
Exhibit 3 to Amendment No. 1 to the Registrant's Registration Statement on Form
S-11 dated December 10, 1982 (Registration No. 2-79043) is incorporated herein
by reference.
(4) Amended and Restated Certificate of Limited Partnership set forth as
Exhibit 4.1 to Amendment No. 1 to the Registrant's Registration Statement on
Form S-11 dated December 10, 1982 (Registration No. 2-79043) and Form of
Confirmation regarding Interests in the Registrant set forth as Exhibit 4.2 to
the Registrant's Report on Form 10-Q for the quarter ended June 30, 1992 are
incorporated herein by reference.
(10) Material Contracts:
(a) Agreement of Sale relating to the sale of North Cove Apartments previously
filed as Exhibit (2) to Registrant's Current Report on Form 8-K dated April 24,
1995 is incorporated herein by reference.
(b)(i) Agreement of Sale and attachment thereto relating to the sale of Desert
Sands Village Apartments previously filed as Exhibit (2)(a) to the Registrant's
Current Report on Form 8-K dated April 23, 1996, is incorporated herein by
reference.
(b)(ii) Master Amendment and Agreement dated May 22, 1996 relating to the sale
of Desert Sands Village Apartments, previously filed as Exhibit (10)(b)(ii) to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996 is incorporated herein by reference.
(b)(iii) Master Amendment and Agreement #2 dated May 22, 1996 relating to the
sale of Desert Sands Village Apartments, previously filed as Exhibit
(10)(b)(iii) to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996 is incorporated herein by reference.
(b)(iv) Letter Agreement dated May 22, 1996 relating to the sale of Desert
Sands Village Apartments, previously filed as Exhibit (99) to the Registrant's
Current Report on Form 8-K dated June 28, 1996, is incorporated herein by
reference.
(c)(i) Agreement of Sale and attachment thereto relating to the sale of Springs
Pointe Village Apartments, previously filed as Exhibit (10)(c) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, is incorporated herein by reference.
(d)(i) Agreement of Sale and attachment thereto relating to the sale of the
Walnut Ridge Apartments, Phases I and II, previously filed as Exhibit (2)(a) to
the Registrant's Current Report on Form 8-K dated October 7, 1996 is
incorporated herein by reference.
(d)(ii) Amendment to Agreement of Sale relating to the sale of Walnut Ridge
Apartments, Phases I and II, previously filed as Exhibit (10)(d)(ii) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, is incorporated herein by reference.
(d)(iii) Second Amendment to Agreement of Sale relating to the sale of the
Walnut Ridge Apartments, Phases I and II, previously filed as Exhibit (99) to
the Registrant's Current Report on Form 8-K dated January 20, 1997 is
incorporated herein by reference.
(e)(i) Agreement of Sale and attachments thereto relating to the Eagle Crest
Apartments, Phase I, previously filed as Exhibit (2)(a) to the Registrant's
Current Report on Form 8-K dated January 20, 1997 is incorporated herein by
reference.
(e)(ii) Modification to Agreement of Sale relating to the Eagle Crest
Apartments, Phase I, previously filed as Exhibit (2)(b) to the Registrant's
Current Report on Form 8-K dated January 20, 1997 is incorporated herein by
reference.
(f)(i) Agreement of Sale and attachment thereto relating to the Deer Oaks
Apartments, San Antonio, Texas, previously filed as Exhibit (2)(i) to the
Registrant's Current Report on Form 8-K dated July 18, 1997 is incorporated
herein by reference.
(f)(ii) First Amendment to Agreement of Sale relating to the sale of the Deer
Oaks Apartments, San Antonio, Texas, previously filed as Exhibit (2)(ii) to the
Registrant's Current Report on Form 8-K dated July 18, 1997 is incorporated
herein by reference.
(27) Financial Data Schedule of the Registrant for 1997 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended December 31, 1997.
(c) Exhibits: See Item 14 (a)(3) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALCOR REALTY INVESTORS-83
By:/s/Jayne A. Kosik
------------------------------
Jayne A. Kosik
Senior Managing Director and Chief
Financial Officer (Principal
Accounting Officer)
of Balcor Partners-XIII, the
General Partner
Date: March 25, 1998
------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ---------------------- ------------------------------- ----------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Partners-XIII,
the General Partner
/s/Thomas E. Meador March 25, 1998
- -------------------- --------------
Thomas E. Meador
Jayne A. Kosik
Senior Managing Director and Chief
Financial Officer (Principal
Accounting Officer)
of Balcor Partners-XIII, the
General Partner
/s/Jayne A. Kosik March 25, 1998
- -------------------- --------------
Jayne A. Kosik
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1997 and 1996
Statements of Partners' Capital (Deficit), for the years ended December 31,
1997, 1996 and 1995
Statements of Income and Expenses, for the years ended December 31, 1997, 1996
and 1995
Statements of Cash Flows, for the years ended December 31, 1997, 1996 and 1995
Notes to Financial Statements
Financial Statement Schedules are omitted for the reason that they are
inapplicable or equivalent information has been included elsewhere herein.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Realty Investors-83:
We have audited the financial statements of Balcor Realty Investors-83 (An
Illinois Limited Partnership) as listed in the Index of this Form 10-K. 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 Balcor Realty Investors-83 at
December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
As described in Note 2 to the financial statements, the partnership agreement
provides for the dissolution of the Partnership upon the disposition of all its
real estate interests. As of December 31, 1997, the Partnership has disposed of
all of its remaining real estate interests. Upon resolution of the litigation
described in Note 12 to the financial statements, the Partnership intends to
cease operations and dissolve.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 23, 1998
BALCOR REALTY INVESTORS-83
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
-------------- --------------
Cash and cash equivalents $ 2,153,216 $ 4,948,152
Escrow deposits 1,398,303
Accounts and accrued interest receivable 20,498 69,605
Prepaid expenses 116,589
Deferred expenses, net of accumulated
amortization of $572,658 in 1996 341,827
-------------- --------------
2,173,714 6,874,476
-------------- --------------
Investment in real estate:
Land 6,914,189
Buildings and improvements 40,057,396
--------------
46,971,585
Less accumulated depreciation 20,970,059
--------------
Investment in real estate, net of
accumulated depreciation 26,001,526
-------------- --------------
$ 2,173,714 $ 32,876,002
============== ==============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Accounts payable $ 25,081 $ 84,668
Due to affiliates 38,294 111,221
Accrued liabilities, principally real
estate taxes 775,260
Security deposits 236,745
Mortgage note payable-affiliate 734,154
Mortgage notes payable 33,220,951
-------------- --------------
Total liabilities 63,375 35,162,999
-------------- --------------
Commitments and contingencies
Limited Partners' capital (75,005
Interests issued and outstanding) 2,215,330 623,237
General Partner's deficit (104,991) (2,910,234)
-------------- --------------
Total partners' capital (deficit) 2,110,339 (2,286,997)
-------------- --------------
$ 2,173,714 $ 32,876,002
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS-83
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
for the years ended December 31, 1997, 1996 and 1995
Partners' Capital (Deficit) Accounts
-------------- ------------------------------
General Limited
Total Partner Partners
-------------- --------------- --------------
Balance at December 31, 1994 $ (2,760,951) $ (3,648,355) $ 887,404
Cash distributions to
Limited Partners (A) (6,375,427) (6,375,427)
Net income for the year
ended December 31, 1995 3,387,955 169,398 3,218,557
-------------- --------------- --------------
Balance at December 31, 1995 (5,748,423) (3,478,957) (2,269,466)
Cash distributions to
Limited Partners (A) (7,913,028) (7,913,028)
Net income for the year
ended December 31, 1996 11,374,454 568,723 10,805,731
-------------- --------------- --------------
Balance at December 31, 1996 (2,286,997) (2,910,234) 623,237
Cash distributions to
Limited Partners (A) (22,728,015) (22,728,015)
Net income for the year
ended December 31, 1997 27,125,351 2,805,243 24,320,108
-------------- --------------- --------------
Balance at December 31, 1997 $ 2,110,339 $ (104,991) $ 2,215,330
============== =============== ==============
(A) Summary of cash distributions per Interest:
1997 1996 1995
-------------- --------------- --------------
First Quarter $ 41.00 $ 4.50 $ 4.50
Second Quarter 230.15 18.00 4.50
Third Quarter None 77.00 4.50
Fourth Quarter 31.87 6.00 71.50
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS-83
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
-------------- --------------- --------------
Income:
Rental and service $ 1,159,961 $ 12,798,083 $ 15,054,742
Interest on short-term
investments 388,775 192,774 387,750
Settlement income 208,250
Other income 37,434
-------------- --------------- --------------
Total income 1,586,170 13,199,107 15,442,492
-------------- --------------- --------------
Expenses:
Interest on mortgage
notes payable 390,626 3,281,327 4,037,357
Depreciation 145,762 1,453,464 1,797,112
Amortization of deferred
expenses 14,561 154,992 169,149
Property operating 768,504 4,675,801 5,970,865
Real estate taxes 140,715 1,133,389 1,300,427
Property management fees 65,844 647,396 753,664
Administrative 330,792 517,336 679,028
-------------- --------------- --------------
Total expenses 1,856,804 11,863,705 14,707,602
-------------- --------------- --------------
(Loss) income before gain
on sales of properties and
extraordinary items (270,634) 1,335,402 734,890
Gain on sales of properties 28,828,617 10,262,536 2,711,565
-------------- --------------- --------------
Income before
extraordinary items 28,557,983 11,597,938 3,446,455
Extraordinary items:
Gain on forgiveness of
debt 40,653
Debt extinguishment
expenses (1,432,632) (223,484) (99,153)
-------------- --------------- --------------
Total extraordinary items (1,432,632) (223,484) (58,500)
-------------- --------------- --------------
Net income $ 27,125,351 $ 11,374,454 $ 3,387,955
============== =============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS-83
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1997, 1996 and 1995
(Continued)
1997 1996 1995
-------------- --------------- --------------
Income before
extraordinary items
allocated to General
Partner $ 2,953,403 $ 579,897 $ 172,323
============== =============== ==============
Income before
extraordinary items
allocated to Limited
Partners $ 25,604,580 $ 11,018,041 $ 3,274,132
============== =============== ==============
Income before
extraordinary items per
Limited Partnership
Interest (75,005 issued
and outstanding) - Basic
and Diluted $ 341.37 $ 146.90 $ 43.65
============== =============== ==============
Extraordinary items
allocated to General
Partner $ (148,160) $ (11,174) $ (2,925)
============== =============== ==============
Extraordinary items
allocated to Limited
Partners $ (1,284,472) $ (212,310) $ (55,575)
============== =============== ==============
Extraordinary items per
Limited Partnership
Interest (75,005 issued
and outstanding) - Basic
and Diluted $ (17.12) $ (2.83) $ (0.74)
============== =============== ==============
Net income allocated to
General Partner $ 2,805,243 $ 568,723 $ 169,398
============== =============== ==============
Net income allocated to
Limited Partners $ 24,320,108 $ 10,805,731 $ 3,218,557
============== =============== ==============
Net income per Limited
Partnership Interest
(75,005 issued and
outstanding) - Basic and
Diluted $ 324.25 $ 144.07 $ 42.91
============== =============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS-83
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
-------------- --------------- --------------
Operating activities:
Net income $ 27,125,351 $ 11,374,454 $ 3,387,955
Adjustments to reconcile
net income to net cash
(used in) or provided by
operating activities:
Gain on forgiveness of
debt (40,653)
Debt extinguishment
expenses 327,266 151,959 56,000
Gain on sales of
properties (28,828,617) (10,262,536) (2,711,565)
Depreciation of
properties 145,762 1,453,464 1,797,112
Amortization of deferred
expenses 14,561 154,992 169,149
Net change in:
Escrow deposits 1,398,303 296,474 (134,235)
Accounts receivable 49,107 (5,082) 33,323
Prepaid expenses 116,589 68,111 (148,434)
Accounts payable (59,587) (56,576) (73,066)
Due to affiliates (72,927) 86,410 (49,247)
Accrued liabilities (775,260) (163,049) (303,409)
Security deposits (236,745) (24,074) (28,007)
-------------- --------------- --------------
Net cash (used in) or
provided by
operating activities (796,197) 3,074,547 1,954,923
-------------- --------------- --------------
Investing activities:
Redemption of restricted
investment 700,000
Proceeds from sales of
properties 56,099,667 19,779,423 954,428
Payment of selling costs (1,415,286) (275,413) (168,597)
-------------- --------------- --------------
Net cash provided by
investing activities 54,684,381 19,504,010 1,485,831
-------------- --------------- --------------
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS-83
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
(Continued)
1997 1996 1995
-------------- --------------- --------------
Financing activities:
Distributions to Limited
Partners (22,728,015) (7,913,028) (6,375,427)
Repayment of mortgage
note payable-affiliate (734,154) (38,742)
Proceeds from issuance of
mortgage notes payable 11,980,000
Repayment of mortgage
notes payable (33,191,739) (11,904,134) (11,254,363)
Principal payments on
mortgage notes payable (29,212) (547,972) (691,660)
Payment of deferred
expenses (276,285)
-------------- --------------- --------------
Net cash used in
financing activities (56,683,120) (20,365,134) (6,656,477)
-------------- --------------- --------------
Net change in cash and cash
equivalents (2,794,936) 2,213,423 (3,215,723)
Cash and cash equivalents
at beginning of year 4,948,152 2,734,729 5,950,452
-------------- --------------- --------------
Cash and cash equivalents
at end of year $ 2,153,216 $ 4,948,152 $ 2,734,729
============== =============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS-83
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Realty Investors - 83 (the "Partnership") has retained cash reserves
from the sale of its real estate investments for contingencies which exist or
may arise. The Partnership's operations currently consist of interest income
earned on short-term investments and the payment of administrative expenses.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1996, the Partnership sold two properties. During 1997,
the Partnership sold its remaining five properties, the Springs Pointe Village,
Walnut Ridge - Phases I and II, Eagle Crest - Phase I and Deer Oaks apartment
complexes. The Partnership has retained a portion of the cash from the property
sales to satisfy obligations of the Partnership as well as establish a reserve
for contingencies. The timing of the termination of the Partnership and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies may include legal
and other fees and costs stemming from litigation involving the Partnership
including, but not limited to, the lawsuits discussed in Note 12 of Notes to
the Financial Statements. In the absence of any such contingencies, the
reserves will be paid within twelve months of the last property being sold. In
the event a contingency continues to exist or arises, reserves may be held by
the Partnership for a longer period of time.
3. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could vary from those estimates.
(b) Depreciation expense was computed using straight-line and accelerated
methods. Rates used in the determination of depreciation were based upon the
following estimated useful lives:
Years
-----
Buildings and improvements 20 to 30
Furniture and fixtures 5
Maintenance and repairs were charged to expense when incurred. Expenditures for
improvements were charged to the related asset account.
As properties were sold, the related costs and accumulated depreciation were
removed from the respective accounts. Any gain or loss on disposition was
recognized in accordance with generally accepted accounting principles.
(c) Effective January 1, 1995, the Partnership adopted Statement of Financial
Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of". Under SFAS 121, the
Partnership recorded its investments in real estate at the lower of cost or
fair value, and periodically assessed, but not less than on an annual basis,
possible impairment to the value of its properties. The General Partner
estimated the fair value of its properties based on the current sales price
less estimated closing costs. Under SFAS 121, the General Partner determined
that no impairment in value had occurred prior to the sales of the properties.
The General Partner considered the method referred to above to result in a
reasonable measurement of a property's fair value, unless other factors
affecting the property's value indicated otherwise.
(d) Deferred expenses consisted of loan modification and refinancing fees which
were amortized over the terms of the respective agreements. Upon sale, any
remaining unamortized balance was recognized as debt extinguishment expense and
classified as an extraordinary item.
(e) The Financial Accounting Standard Board's Statement No. 107, "Disclosures
About Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. Since quoted market prices are not available for the Partnership's
financial instruments, fair values have been based on estimates using present
value techniques. These techniques were significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, may not be realized in
immediate settlement of the instrument. Statement No. 107 does not apply to all
balance sheet items and excludes certain financial instruments and all
non-financial instruments such as real estate and investment in joint ventures
from its disclosure requirements.
(f) For financial statement purposes, in previous years partners were allocated
income and loss in accordance with the provisions in the Partnership Agreement.
In order for the capital accounts of the General Partner and Limited Partners
to appropriately reflect their remaining economic interests as provided for in
the Partnership Agreement, income allocations between the partners have been
adjusted for financial statement purposes in 1997.
(g) Revenue was recognized on an accrual basis in accordance with generally
accepted accounting principles.
(h) Cash and cash equivalents include all highly liquid investments with an
original maturity of three months or less. Cash is held or invested primarily
in one financial institution.
(i) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
(j) A reclassification has been made to the previously reported 1996 and 1995
financial statements to conform with the classifications used in 1997. This
reclassification has not changed the 1996 and 1995 results.
(k) Statement of Financial Accounting Standards, No. 128, "Earnings Per Share"
was adopted by the Partnership for the year-ended December 31, 1997 and has
been applied to all prior earnings periods presented in the financial
statements. Since the Partnership has no dilutive securities, there is no
difference between basic and diluted net income per Limited Partnership
Interest.
4. Partnership Agreement:
The Partnership was organized in December 1981; however, operations did not
commence until February 1983. The Partnership Agreement provides for Balcor
Partners-XIII to be the General Partner and for the admission of Limited
Partners through the sale of up to 75,005 Limited Partnership Interests at
$1,000 per Interest, all of which were sold as of March 28, 1983, the
termination date of the offering.
The Partnership Agreement provides that the General Partner will be allocated
5% of the operating profits and losses and 1% of capital losses and the greater
of 1% of capital profits or an amount equal to Net Cash Proceeds distributed to
the General Partner. For financial purposes, in previous year partners were
allocated income and loss in accordance with the provisions in the
Partnership's Agreement. In order for the capital accounts of the General
Partner and Limited Partners to appropriately reflect their remaining economic
interests as provided for in the Partnership Agreement, income allocations
between the partners have been adjusted for financial statement purposes in
1997.
One hundred percent of Net Cash Receipts available for distribution was
distributed to the holders of Interests in proportion to their participating
percentages as of the record date for such distributions. In addition, there
was accrued for the benefit of the General Partner as its distributive share
from operations, an amount equivalent to 5.26% of total Net Cash Receipts
distributed, which was to be paid only out of available Net Cash Proceeds.
When and as the Partnership sold or refinanced properties, the Net Cash
Proceeds resulting therefrom which were available for distribution were to be
distributed only to the Limited Partners until such time as the Limited
Partners received an amount equal to their Original Capital plus any deficiency
in the Cumulative Distribution of 6% per annum on Adjusted Original Capital.
Only after such returns are made to the Limited Partners would the General
Partner receive 18% of further distributed Net Cash Proceeds including its
accrued share of Net Cash Receipts, subject to certain limitations as specified
in the Partnership Agreement. The General Partner will not receive any
distributions of Net Cash Receipts or Net Cash Proceeds in accordance with
these provisions.
5. Mortgage Notes Payable:
Mortgage notes payable at December 31, 1996 consisted of the following:
Carrying
Property Amount of
Pledged as Notes at
Collateral 12/31/96
- --------------- -----------
Mortgage Notes Payable - Nonaffiliates:
Apartment Complexes:
Deer Oaks (A) $4,730,373
Eagle Crest -
Phase I (B) 7,093,430
Springs Pointe
Village (B) 10,645,034
Walnut Ridge -
Phase I (B) 5,713,772
Walnut Ridge -
Phase II (B) 5,038,342
----------
Subtotal 33,220,951
----------
Mortgage Notes Payable - Affiliate:
Apartment Complex:
Walnut Ridge -
Phase II (C) 734,154
-----------
Total $33,955,105
===========
(A) In August 1997, this property was sold. See Note 10 of Notes to Financial
Statements for additional information.
(B) In January 1997, this property was sold. See Note 10 of Notes to Financial
Statements for additional information.
(C) Represented an unsecured loan from The Balcor Company ("TBC"), an affiliate
of the General Partner, as successor to Balcor Real Estate Holdings, Inc. The
pay rate was equal to the net cash flow from the property and payments were
applied first to interest and then to principal. The loan matured in December
1994, and TBC extended the loan for an additional three years. During January
1997, this property was sold and the loan was repaid. See Note 9 of Notes to
Financial Statements for additional information.
During 1997, 1996 and 1995, the Partnership incurred and paid interest expense
on mortgage notes payable to non-affiliates of $383,988, $3,202,898 and
$3,962,845, respectively.
6. Management Agreements:
The Partnership's properties were under management agreements with a third
party management company prior to the sale of the properties. These management
agreements provided for annual fees of 5% of gross operating receipts.
7. Sellers' Participation in Joint Ventures:
The Eagle Crest - Phase I and Deer Oaks apartment complexes were owned by joint
ventures between the Partnership and the respective sellers. Consequently, the
sellers retained an interest in each property through their interest in each
joint venture. All assets, liabilities, income and expenses of the joint
ventures were included in the financial statements of the Partnership with the
appropriate deduction from income, if any, for the sellers' participation in
the joint ventures. The Eagle Crest - Phase I and Deer Oaks apartment complexes
were sold in January and August 1997, respectively. The sellers did not
recognize any income or receive any proceeds from the sales of these properties
pursuant to the joint venture agreements.
8. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code,
rules and regulations promulgated thereunder and existing interpretations
thereof. The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, will differ from the
tax returns due to the different treatment of various items as specified in the
Internal Revenue Code. For 1997, the net effect of these accounting differences
is that the net income in the financial statements is $17,346,833 less than the
tax income of the Partnership for the same period resulting primarily from the
application of different depreciation methods for generally accepted accounting
priciples and tax. Accumulated depreciation is a component of the calculation
of the gain on sale.
9. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/97 12/31/96 12/31/95
---------------- ---------------- ----------------
Paid Payable Paid Payable Paid Payable
-------- ------- -------- ------- -------- -------
Reimbursement of expenses
to General Partner,
at cost:
Accounting $33,848 $8,523 $19,567 $22,374 $58,817 $ 2,504
Data processing 4,871 None 7,563 3,828 32,721 2,404
Investor communica-
tions None None None None 7,620 None
Legal 20,577 5,390 13,308 14,295 30,838 2,549
Portfolio management 78,912 20,006 51,315 57,365 98,173 11,332
Other 6,721 4,375 18,011 6,721 15,322 6,022
The Partnership participated in an insurance deductible program with other
affiliated partnerships in which the program paid claims up to the amount of
the deductible under the master insurance policies for its properties. The
program was administered by an affiliate of the General Partner (The Balcor
Company) who received no fee for administering the program; however, the
General Partner was reimbursed for program expenses. The Partnership paid
premiums to the deductible insurance program of $16,271 and $97,533, in 1996
and 1995, respectively.
In February 1997, the Partnership repaid the Walnut Ridge - Phase II Apartments
note payable to TBC. The Partnership repaid the $734,154 loan with proceeds
received from the sale of the property. During 1997, 1996 and 1995, the
Partnership incurred interest expense on the TBC loan of $6,638, $78,429 and
$74,512 and paid interest expense of $13,276, $71,791 and $81,500,
respectively.
10. Property Sales:
(a) Deer Oaks Apartments was owned by a joint venture between the Partnership
and seller. In August 1997, the joint venture sold the property in an all cash
sale for $7,250,000. From the proceeds of the sale, the Partnership paid
$4,701,161 to the third party mortgage holder in full satisfaction of the first
mortgage loan and $194,408 in selling costs. The basis of the property was
$3,067,073 which is net of accumulated depreciation of $2,669,261. For
financial statement purposes, the Partnership recognized a gain of $3,988,519
from the sale of this property, and the joint venture partner was not allocated
any of the gain. The Partnership received all net proceeds from the sale.
(b) Eagle Crest - Phase I Apartments was owned by a joint venture between the
Partnership and seller. In January 1997, the joint venture sold the property in
an all cash sale for $9,508,000. From the proceeds of the sale, the Partnership
paid $7,093,430 to the third party mortgage holder in full satisfaction of the
first mortgage loan, $357,702 in selling costs and $675,281 of prepayment
penalties. The basis of the property was $5,340,277 which is net of accumulated
depreciation of $4,172,793. For financial statement purposes, the Partnership
recognized a gain of $3,810,021 from the sale of this property, and the joint
venture partner was not allocated any of the gain. The Partnership received all
net proceeds from the sale.
(c) In January 1997, the Partnership sold the Walnut Ridge - Phases I and II
apartment complexes in an all cash sale for $19,475,000. The purchaser received
a $300,000 credit against the purchase price for certain repairs at the
properties. From the proceeds of the sale, the Partnership paid $10,752,114 to
the third party mortgage holder in full satisfaction of the first mortgage
loans, repaid a $740,792 loan including accrued interest from TBC, paid
$470,165 in selling costs and $430,085 of prepayment penalties. The basis of
the properties was $10,277,246 which is net of accumulated depreciation of
$8,176,330. For financial statement purposes, the Partnership recognized a gain
of $8,427,589 from the sale of these properties.
(d) In January 1997, the Partnership sold the Springs Pointe Village Apartments
in an all cash sale for $20,166,667. From the proceeds of the sale, the
Partnership paid $10,645,034 to the third party mortgage holder in full
satisfaction of the first mortgage loan, and paid $393,011 in selling costs.
The basis of the property was $7,171,168 which is net of accumulated
depreciation of $6,097,437. For financial statement purposes, the Partnership
recognized a gain of $12,602,488 from the sale of this property.
(e) In November 1996, the Partnership sold the Sandridge - Phase II Apartments
in an all cash sale for $5,250,000. From the proceeds of the sale, the
Partnership paid $2,952,351 to the third party mortgage holder in full
satisfaction of the first mortgage loan, and paid $151,067 in selling costs.
The basis of the property was $2,818,888 which is net of accumulated
depreciation of $2,295,428. For financial statement purposes, the Partnership
recognized a gain of $2,280,045 from the sale of this property.
(f) In June 1996, the Partnership sold the Desert Sands Village Apartments in
an all cash sale for $14,529,423. From the proceeds of the sale, the
Partnership paid $8,951,783 to the third party mortgage holder in full
satisfaction of the first mortgage loan, and paid $124,346 in selling costs.
The basis of the property was $6,422,586 which is net of accumulated
depreciation of $5,116,720. For financial statement purposes, the Partnership
recognized a gain of $7,982,491 from the sale of this property.
(g) In June 1995, the Partnership sold the North Cove Apartments in an all cash
sale for $10,750,000. The purchaser of the property took title subject to the
existing first mortgage loan in the amount of $9,795,572, which represents a
noncash transaction to the Partnership. Accordingly, the noncash aspect of this
transaction is not presented in the Partnership's Statements of Cash Flow. The
basis of the property was $7,869,838, which is net of accumulated depreciation
of $5,731,055. For financial statement purposes, the Partnership recognized a
gain of $2,711,565 from the sale of this property.
11. Extraordinary Items:
(a) During 1997, the Partnership paid prepayment penalties totaling $1,105,366
in connection with the sales of the Eagle Crest - Phase I and Walnut Ridge -
Phases I and II apartment complexes and wrote-off the remaining unamortized
deferred expenses totaling $327,266 in connection with the sales of the Springs
Pointe Village, Walnut Ridge - Phases I and II, Eagle Crest - Phase I and Deer
Oaks apartment complexes. These amounts were recognized as debt extinguishment
expenses and classified as extraordinary items for financial statement
purposes.
(b) During 1996, the Partnership wrote-off the remaining unamortized deferred
expenses in the amount of $95,134 and $56,825 in connection with the sales of
the Sandridge - Phase II and Desert Sands Village apartment complexes. In
addition, the Partnership paid a prepayment penalty in connection with the sale
of Sandridge - Phase II of $71,525. These amounts were recognized as debt
extinguishment expenses and classified as extraordinary items for financial
statement purposes.
(c) During 1995, the Partnership recognized a gain on forgiveness of debt of
$40,653, which was classified as an extraordinary item for financial
statement purposes, in connection with the settlement reached with the seller
of the Springs Pointe Village and Desert Sands Village apartment complexes.
(d) During 1995, the Partnership refinanced the Deer Oaks Apartments first
mortgage loan. In connection with the refinancing, a prepayment penalty of
$43,153 was incurred. This amount was recognized as debt extinguishment expense
and classified as an extraordinary item for financial statement purposes.
(e) During 1995, the Partnership wrote off the remaining unamortized deferred
expenses in the amount of $56,000 in connection with the sale of the North Cove
Apartments. This amount was recognized as debt extinguishment expense and
classified as an extraordinary item for financial statement purposes.
12. Contingencies:
The Partnership is currently involved in two lawsuits whereby the Partnership
and certain affiliates have been named as defendants alleging substantially
similar claims involving certain state securities and common law violations
with regard to the property acquisition process of the Partnership, and to the
adequacy and accuracy of disclosures of information concerning, as well as
marketing efforts related to, the offering of the Limited Partnership Interests
of the Partnership. The defendants continue to vigorously contest these
actions. A plaintiff class has not been certified in either action and, no
determinations of the merits have been made. It is not determinable at this
time whether or not an unfavorable decision in either action would have a
material adverse impact on the financial position, operations or liquidity of
the Partnership. The Partnership believes it has meritorious defenses to
contest the claims.
13. Fair Value of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1997 and 1996 are as follows:
The carrying value of cash and cash equivalents, accounts and accrued interest
receivable, accounts and accrued interest payable approximates fair value.
Mortgage notes payable: Based on borrowing rates available to the Partnership
at the end of 1996 for mortgage loans with similar terms and maturities, the
fair value of the mortgage notes payable approximated the carrying value.
14. Subsequent Event:
In January 1998, the Partnership made a distribution of $258,774 ($3.45 per
Interest) to the holders of Limited Partnership Interests representing a
distribution of remaining available Net Cash Proceeds.