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, 1998
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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. The Registrant sold its final real estate investment in August
1997. 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". Due to this litigation, the Registrant will not be dissolved and
reserves will be held by the Registrant until the conclusion of all
contingencies. There can be no assurance as to the time frame for conclusion of
these contingencies.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for information regarding the
Registrant's Year 2000 readiness.
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, 1998, the Registrant did not own any properties.
In the opinion of the General Partner, the Registrant has obtained adequate
insurance coverage for property liability and property damage matters.
See Notes to Financial Statements for other information regarding former real
estate 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 Company, Lehman Brothers, Inc., Smith Barney,
Inc., 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 statutes 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.
In June 1998, the defendants filed a motion to dismiss the complaint for
failure to state a cause of action. Oral arguments were heard by the court on
August 21, 1998. On September 24, 1998, the judge issued a letter opinion
granting the defendants' motion to dismiss the complaint. On October 23, 1998,
the judge announced that he would enter an order dismissing the complaint
without prejudice, but stated that the plaintiffs would be required to file any
new pleading in a separate action and would not be allowed to amend the
existing complaint. The plaintiffs moved for a reconsideration of the judge's
ruling, which was denied on November 20, 1998. On December 28, 1998, plaintiffs
filed a notice of appeal from both the judge's October 23 and November 20, 1998
rulings.
On March 11, 1999, an order was entered by the Superior Court of New Jersey,
Appellate Division, dismissing the appeal in this action with prejudice.
Therefore, this will be the final report to investors regarding this matter.
Masri vs. Lehman Brothers, Inc., 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 how the outcome of
this action will impact the remaining cash reserves of the Registrant.
Plaintiffs' lead counsel also represents the plaintiffs in the Lenore Klein
matter discussed above. 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.
Bruss et al. vs. Lehman Brothers, Inc., et al.
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On January 25, 1999, a proposed class action complaint was filed, Dorothy
Bruss, et al. vs. Lehman Brothers, Inc., et al. (Superior Court of New Jersey,
Law Division, Essex County, Docket No. L-000898-99. The Registrant, additional
limited partnerships which were sponsored by The Balcor Company (together with
the Registrant, the "Affiliated Partnerships"), The Balcor Company, American
Express Company, Lehman Brothers, Inc., Smith Barney, Inc., American Express
Financial Corporation, and other affiliated entities and various individuals
are named defendants in the action. Lead counsel representing the plaintiffs
in this case is the same counsel representing the plaintiffs in each of the
Lenore Klein and Raymond Masri cases discussed above. The complaint relates
largely to the same issues as those raised in the Lenore Klein and the Raymond
Masri cases. The 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 and other similar state statutes
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 property
for the Affiliated Partnerships. The 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; and 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 that it has meritorious
defenses to contest the claims. It is not determinable at this time how the
outcome of this action will impact the remaining cash reserves of the
Registrant.
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 1998.
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, 1998, the number of record holders of Limited Partnership
Interests of the Registrant was 6,370.
Item 6. Selected Financial Data
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Year ended December 31,
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1998 1997 1996 1995 1994
----------- ----------- ----------- ------------ -----------
Total income $103,610 $ 1,586,170 $13,199,107 $15,442,492 $16,120,215
(Loss) income
before gain
on sales of
properties and
extraordinary
items (129,164) (270,634) 1,335,402 734,890 (291,500)
Net (loss) income (129,164) 27,125,351 11,374,454 3,387,955 1,108,900
Net (loss) income
per Limited Part-
nership Interest-
Basic and Diluted (1.72) 324.25 144.07 42.91 14.05
Total assets 1,805,553 2,173,714 32,876,002 42,023,971 55,306,162
Mortgage notes
payable None None 33,955,105 46,407,211 56,248,201
Distributions per
Limited Partner-
ship Interest (A) 3.4 5 303.02 105.50 85.00 18.00
(A) These amounts include distributions of Original Capital of $3.45, $297.02,
$77.00 and $67.00 per Limited Partnership Interest for 1998, 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 two properties during 1996
and its five remaining properties during 1997 and recognized gains in
connection with the property sales. During 1998, administrative expenses were
higher than interest income earned on short-term investments which was the
primary reason the Partnership recognized a net loss during 1998 as compared to
net income 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. Further discussion
of the Partnership's operations is summarized below.
1998 Compared to 1997
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The Partnership sold the Eagle Crest - Phase I, Springs Pointe Village, Walnut
Ridge - Phases I and II and Deer Oaks apartment complexes during 1997 and
recognized gains totaling $28,828,617 in connection with the property sales. As
a result of these sales, rental and service income, interest expense on
mortgage notes payable, depreciation, amortization, real estate taxes and
property management fees ceased during 1997.
Higher average cash balances were available for investment in 1997 due to
proceeds received in connection with the 1997 property sales prior to
distributions to Limited Partners in April 1997 and January 1998. As a result,
interest income on short-term investments decreased during 1998 as compared to
1997.
The Partnership recognized other income in 1997 primarily as a result of
partial refunds received for prior years' insurance premiums related to the
Partnership's properties sold in 1996.
Property operating expense decreased during 1998 as compared to 1997 due to the
sales of the Partnership's five remaining properties in 1997. The Partnership
paid additional expenditures during 1998 related to certain of the properties
sold in 1997.
Primarily due to lower accounting, data processing, portfolio management and
bank fees, administrative expenses decreased during 1998 as compared to 1997.
This decrease was partially offset by an increase in accrued legal fees in
connection with the litigation discussed in "Item 3. Legal Proceedings".
During 1997, the Partnership wrote-off the remaining unamortized deferred
expenses in connection with the sales of the Eagle Crest - Phase I, Walnut
Ridge - Phases I and II and Deer Oaks apartment complexes totaling $327,266 and
paid prepayment penalties in connection with the sales of these properties
totaling $1,105,366. These amounts were recognized as debt extinguishment
expenses and classified as an extraordinary item for financial statement
purposes.
1997 Compared to 1996
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The Partnership sold five properties in 1997 and the Desert Sands Village and
Sandridge - Phase II apartment complexes in 1996. The Partnership recognized
gains in connection with the 1996 sales totaling $10,262,536. 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 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 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 an
extraordinary item for financial statement purposes.
Liquidity and Capital Resources
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The cash position of the Partnership decreased by approximately $354,000 as of
December 31, 1998 when compared to December 31, 1997 primarily due to the
payment of a distribution to Limited Partners in January 1998 of remaining
available Net Cash Proceeds. The Partnership used cash of approximately $95,000
to fund its operating activities consisting of the payment of administrative
expenses and operating expenses related to sold properties which was partially
offset by interest income earned on short-term investments. The Partnership
used cash to fund its financing activities which consisted of a distribution to
Limited Partners of approximately $259,000.
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. The Partnership sold its final real estate investment in August
1997. The Partnership has retained a portion of the cash from the property
sales to satisfy obligations of the Partnership as well as to 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". Due to this litigation, the Partnership will not be
dissolved and reserves will be held by the Partnership until the conclusion of
all contingencies. There can be no assurances as to the time frame for
conclusion of these contingencies.
The Partnership made distributions in 1998, 1997 and 1996 totaling $3.45,
$303.02 and $105.50 per Limited Partnership Interest, respectively. See
Statements of Partners' Capital (Deficit) for additional information.
Distributions were comprised of $3.45 of Net Cash Proceeds in 1998, $6.00 of
Net Cash Receipts and $297.02 of Net Cash Proceeds in 1997 and $28.50 of Net
Cash Receipts and $77.00 of Net Cash Proceeds in 1996.
Limited Partners have received distributions totaling $649.97 per $1,000
Interest, as well as certain tax benefits. Of this amount, $105.50 represents
Net Cash Receipts and $544.47 represents Net Cash Proceeds. 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.
The Partnership sold all of its remaining real property investments and
distributed a majority of the proceeds from these sales to Limited Partners in
1996 and 1997. Since the Partnership no longer has any operating assets, the
number of computer systems and programs necessary to operate the Partnership
has been significantly reduced. The Partnership relies on third party vendors
to perform most of its functions and has implemented a plan to determine the
Year 2000 compliance status of these key vendors. The Partnership is within its
timeline for having these plans completed prior to the year 2000.
The Partnership's plan to determine the Year 2000 compliance status of its key
vendors involves the solicitation of information from these vendors through the
use of surveys, follow-up discussions and review of data where needed. The
Partnership has sent out surveys to these vendors and received back a majority
of these surveys. While the Partnership cannot guarantee Year 2000 compliance
by its key vendors, and in many cases will be relying on statements from these
vendors without independent verification, preliminary surveys indicate that the
key vendors performing services for the Partnership are aware of the issues and
are working on a solution to achieve compliance before the year 2000. The
Partnership is in the process of developing a contingency plan in the event any
of its key vendors are not Year 2000 compliant prior to the year 2000. As part
of its contingency plan, the Partnership will identify replacement vendors in
the event that current vendors are not substantially Year 2000 compliant by
June 30, 1999. The Partnership does not believe that failure by any of its key
vendors to be Year 2000 compliant by the year 2000 would have a material effect
on the business, financial position or results of operations of the
Partnership.
Certain statements in this report constitute "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements may include statements regarding income or losses as well as
assumptions relating to the foregoing.
The forward-looking statements made by the Partnership are subject to known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Partnership to differ from any
future results, performance or achievements expressed or implied by the
forward-looking statements.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
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The supplemental financial information specified by Item 305 of Regulation S-K
is not applicable.
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, 1998 December 31, 1997
----------------------- -------------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
---------- --------- ---------- ---------
Total assets $1,805,553 $10,145,642 $ 2,173,714 $10,505,531
Partners' capital
(deficit) accounts:
General Partner (104,991) (102,377) (104,991) (104,991)
Limited Partners 1,827,392 10,164,882 2,215,330 10,566,385
Net income (loss):
General Partner None 2,614 2,805,243 5,848,645
Limited Partners (129,164) (142,729) 24,320,108 38,623,539
Per Limited Part-
nership Interest (1.72)(A) (1.90) 324.25(A) 514.95
(A) Amount represents basic and diluted net (loss) 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 Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 51) 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.
Mr. Meador is on the Board of Directors of Grubb & Ellis Company, a publicly
traded commercial real estate firm. Mr. Meador was elected to the Board of
Grubb & Ellis Company in May 1998. Mr. Meador is also a director of AMLI
Commercial Properties Trust, a private real estate investment trust that owns
office and industrial buildings in the Chicago, Illinois area. Mr. Meador was
elected to the Board of AMLI Commercial Properties Trust in August 1998.
Alexander J. Darragh (age 44) 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.
Jayne A. Kosik (age 41) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. Ms. Kosik is also a member of the board of directors of The Balcor
Company. 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 1998.
Item 11. Executive Compensation
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The Registrant has not paid and does not propose to pay any remuneration to the
executive officers and directors of the General Partner. The executive 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
do not own any additional Interests.
In addition, Balcor LP Corp., an affiliate of the General Partner, holds title
to 43 Limited Partnership Interests in the Partnership due exclusively to
instances in which Limited Partners abandoned title to their Limited
Partnership Interests. Balcor LP Corp. is a nominee holder only of such
Interests and has disclaimed any economic or beneficial ownership in said
Interests. All distributions of cash payable with respect to such Interests
held by Balcor LP Corp. are returned to the Partnership for distribution to
other Limited Partners in accordance with the Partnership Agreement.
(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
- ------------------------------------------------------------------------
(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:
(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.
(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 1998 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended December 31, 1998.
(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 and Financial Officer)
of Balcor Partners-XIII, the
General Partner
Date: March 19, 1999
--------------
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 19, 1999
- -------------------- --------------
Thomas E. Meador
Senior Managing Director and Chief
Financial Officer (Principal
Accounting and Financial Officer)
of Balcor Partners-XIII, the
General Partner
/s/ Jayne A. Kosik March 19, 1999
- ------------------ --------------
Jayne A. Kosik
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1998 and 1997
Statements of Partners' Capital (Deficit), for the years ended December 31,
1998, 1997 and 1996
Statements of Income and Expenses, for the years ended December 31, 1998, 1997
and 1996
Statements of Cash Flows, for the years ended December 31, 1998, 1997 and 1996
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:
In our opinion, the accompanying balance sheets and the related statements of
partners' capital (deficit), of income and expenses and of cash flows present
fairly, in all material respects, the financial position of Balcor Realty
Investors-83 An Illinois Limited Partnership (the "Partnership") at December
31, 1998 and 1997, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted
auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
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, 1998, the Partnership no longer has
an ownership interest in any real estate investment. Upon resolution of the
litigation described in Note 13 to the financial statements, the Partnership
intends to cease operations and dissolve.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 17, 1999
BALCOR REALTY INVESTORS-83
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
1998 1997
-------------- --------------
Cash and cash equivalents $ 1,799,451 $ 2,153,216
Accounts and accrued interest receivable 6,102 20,498
-------------- --------------
$ 1,805,553 $ 2,173,714
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 59,606 $ 25,081
Due to affiliates 23,546 38,294
-------------- --------------
Total liabilities 83,152 63,375
-------------- --------------
Commitments and contingencies
Limited Partners' capital (75,005
Interests issued and outstanding) 1,827,392 2,215,330
General Partner's deficit (104,991) (104,991)
-------------- --------------
Total partners' capital 1,722,401 2,110,339
-------------- --------------
$ 1,805,553 $ 2,173,714
============== ==============
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, 1998, 1997 and 1996
Partners' Capital (Deficit) Accounts
-------------- ---------------------------
General Limited
Total Partner Partners
-------------- ------------- -------------
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
Cash distribution to
Limited Partners (A) (258,774) (258,774)
Net loss for the year (129,164) (129,164)
ended December 31, 1998 -------------- ------------- -------------
Balance at December 31, 1998 $ 1,722,401 $ (104,991) $ 1,827,392
============== ============= =============
(A) Summary of cash distributions per Interest:
1998 1997 1996
-------------- ------------- -------------
First Quarter $ 3.45 $ 41.00 $ 4.50
Second Quarter None 230.15 18.00
Third Quarter None None 77.00
Fourth Quarter None 31.87 6.00
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, 1998, 1997 and 1996
1998 1997 1996
-------------- ------------- -------------
Income:
Rental and service $ 1,159,961 $ 12,798,083
Interest on short-term
investments $ 103,610 388,775 192,774
Settlement income 208,250
Other income 37,434
-------------- ------------- -------------
Total income 103,610 1,586,170 13,199,107
-------------- ------------- -------------
Expenses:
Interest on mortgage
notes payable 390,626 3,281,327
Depreciation 145,762 1,453,464
Amortization of deferred
expenses 14,561 154,992
Property operating 13,457 768,504 4,675,801
Real estate taxes 140,715 1,133,389
Property management fees 65,844 647,396
Administrative 219,317 330,792 517,336
-------------- ------------- -------------
Total expenses 232,774 1,856,804 11,863,705
-------------- ------------- -------------
(Loss) income before gain
on sales of properties and
extraordinary item (129,164) (270,634) 1,335,402
Gain on sales of properties 28,828,617 10,262,536
-------------- ------------- -------------
(Loss) income before
extraordinary item (129,164) 28,557,983 11,597,938
Extraordinary item:
Debt extinguishment
expenses (1,432,632) (223,484)
-------------- ------------- -------------
Net (loss) income $ (129,164) $ 27,125,351 $ 11,374,454
============== ============= =============
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, 1998, 1997 and 1996
(Continued)
1998 1997 1996
-------------- ------------- -------------
Income before
extraordinary item
allocated to General
Partner None $ 2,953,403 $ 579,897
============== ============= =============
(Loss) income before
extraordinary item
allocated to Limited
Partners $ (129,164) $ 25,604,580 $ 11,018,041
============== ============= =============
(Loss) income before
extraordinary item per
Limited Partnership
Interest (75,005 issued
and outstanding) - Basic
and Diluted $ (1.72) $ 341.37 $ 146.90
============== ============= =============
Extraordinary item
allocated to General
Partner None $ (148,160) $ (11,174)
============== ============= =============
Extraordinary item
allocated to Limited
Partners None $ (1,284,472) $ (212,310)
============== ============= =============
Extraordinary item per
Limited Partnership
Interest (75,005 issued
and outstanding) - Basic
and Diluted None $ (17.12) $ (2.83)
============== ============= =============
Net income allocated to
General Partner None $ 2,805,243 $ 568,723
============== ============= =============
Net (loss) income allocated
to Limited Partners $ (129,164) $ 24,320,108 $ 10,805,731
============== ============= =============
Net (loss) income per Limited
Partnership Interest
(75,005 issued and
outstanding) - Basic and
Diluted $ (1.72) $ 324.25 $ 144.07
============== ============= =============
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, 1998, 1997 and 1996
1998 1997 1996
-------------- ------------- -------------
Operating activities:
Net (loss) income $ (129,164) $ 27,125,351 $ 11,374,454
Adjustments to reconcile
net (loss) income to net cash
(used in) or provided by
operating activities:
Debt extinguishment
expenses 327,266 151,959
Gain on sales of
properties (28,828,617) (10,262,536)
Depreciation of
properties 145,762 1,453,464
Amortization of deferred
expenses 14,561 154,992
Net change in:
Escrow deposits 1,398,303 296,474
Accounts receivable 14,396 49,107 (5,082)
Prepaid expenses 116,589 68,111
Accounts payable 34,525 (59,587) (56,576)
Due to affiliates (14,748) (72,927) 86,410
Accrued liabilities (775,260) (163,049)
Security deposits (236,745) (24,074)
-------------- ------------- -------------
Net cash (used in) or
provided by
operating activities (94,991) (796,197) 3,074,547
-------------- ------------- -------------
Investing activities:
Proceeds from sales of
properties 56,099,667 19,779,423
Payment of selling costs (1,415,286) (275,413)
------------- -------------
Net cash provided by
investing activities 54,684,381 19,504,010
------------- -------------
Financing activities:
Distributions to Limited
Partners (258,774) (22,728,015) (7,913,028)
Repayment of mortgage
note payable-affiliate (734,154)
Repayment of mortgage
notes payable (33,191,739) (11,904,134)
Principal payments on
mortgage notes payable (29,212) (547,972)
-------------- ------------- -------------
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, 1998, 1997 and 1996
(Continued)
1998 1997 1996
-------------- ------------- -------------
Cash used in
financing activities (258,774) (56,683,120) (20,365,134)
-------------- ------------- -------------
Net change in cash and cash
equivalents (353,765) (2,794,936) 2,213,423
Cash and cash equivalents
at beginning of year 2,153,216 4,948,152 2,734,729
-------------- ------------- -------------
Cash and cash equivalents
at end of year $ 1,799,451 $ 2,153,216 $ 4,948,152
============== ============= =============
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. The Partnership sold its final real estate investment in August
1997. The Partnership has retained a portion of the cash from the property
sales to satisfy obligations of the Partnership as well as to 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 13 of
Notes to the Financial Statements. Due to this litigation, the Partnership will
not be dissolved and reserves will be held by the Partnership until the
conclusion of all contingencies. There can be no assurance as to the time frame
for conclusion of these contingencies.
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) 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. 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 Partnership calculates the fair value of its financial instruments
based on estimates using present value techniques. The Partnership includes
this additional information in the notes to the financial statements when the
fair value is different than the carrying value of those financial instruments.
When the fair value reasonably approximates the carrying value, no additional
disclosure is made.
(f) For financial statement purposes, prior to 1997, partners were allocated
income and loss in accordance with the provisions in the Partnership Agreement.
In order for the capital account balances to more accurately reflect the
partners' remaining economic interests in the Partnership, the income (loss)
allocations have been adjusted.
(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) Statement of Financial Accounting Standards, No. 128, "Earnings Per Share"
was adopted by the Partnership effective for the year-ended December 31, 1997
and has been applied to the prior earnings period 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.
(k) Certain reclassifications of a prior year's information were made to
conform to the 1998 presentation.
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 generally 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 statement purposes, prior to
1997, partners were allocated income and loss in accordance with the provisions
in the Partnership Agreement. In order for the capital account balances to
more accurately reflect the partners' remaining economic interests in the
Partnership, the income (loss) allocations have been adjusted.
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. Under certain
circumstances, the General Partner would have participated in the Net Cash
Proceeds of the sale or refinancing of the Partnership's properties. The
General Partner's participation was limited to 18% of excess Net Cash Proceeds
after the return of Original Capital plus a Cumulative Distribution of 6% per
annum on Adjusted Original Capital to Limited Partners. Since the required
subordination levels were not met, the General Partner has not received any
distributions of Net Cash Receipts or Net Cash Proceeds during the lifetime of
the Partnership.
5. Mortgage Notes Payable:
During 1997 and 1996, the Partnership incurred and paid interest expense on
mortgage notes payable to non-affiliates of $383,988 and $3,202,898,
respectively.
6. Management Agreements:
The Partnership's properties were managed by 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 1998, the net effect of these accounting differences
is that the net loss in the financial statements is $10,951 less than the tax
loss of the Partnership for the same period.
9. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96
---------------- ---------------- ----------------
Paid Payable Paid Payable Paid Payable
-------- ------- -------- ------- -------- -------
Reimbursement of expenses
to General Partner,
at cost:
Accounting $7,399 $4,608 $33,848 $ 8,523 $19,567 $22,374
Data processing 3,576 872 4,871 None 4,053 None
Legal 5,127 3,316 20,577 5,390 13,308 14,295
Portfolio management 23,599 14,750 78,912 20,006 54,825 61,193
Other 6,721 None 6,721 4,375 18,011 6,721
Prior to May 1995, 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 policy for its
properties. The program was administered by an affiliate of the General Partner
which 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 relating to claims for periods prior to May 1,
1995 of $16,271 in 1996.
As of December 31, 1996, the Partnership had an unsecured loan from the Balcor
Company ("TBC"), an affiliate of the General Partner, relating to the Walnut
Ridge Phase II Apartments in the amount of $734,154. In February 1997, the
Partnership repaid the loan with proceeds received from the sale of the
property. During 1997 and 1996, the Partnership incurred interest expense on
the TBC loan of $6,638 and $78,429 and paid interest expense of $13,276 and
$71,791, 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.
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.
12. Settlement Income:
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.
13. Contingencies:
The Partnership is currently involved in two related lawsuits, Masri vs.
Lehman Brothers, Inc., et al. and Bruss et al. vs. Lehman Brothers, Inc., et
al., 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. With respect to the Masri case, no
determinations upon any significant issues have been made. The Bruss complaint
was filed on January 25, 1999. It is not determinable at this time how the
outcome of either action will impact the remaining cash reserves of the
Partnership. The Partnership believes it has meritorious defenses to contest the
claims.