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 0-14332
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BALCOR PENSION INVESTORS-VI
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(Exact name of registrant as specified in its charter)
Illinois 36-3319330
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
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 Pension Investors-VI (the "Registrant") is a limited partnership formed
in 1984 under the laws of the State of Illinois. The Registrant raised
$345,640,500 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 originally funded thirty-one loans, and subsequently acquired
thirteen properties and three investments in joint ventures - affiliates
through foreclosure. The Registrant also purchased one additional investment in
joint venture-affiliate related to an existing investment. The Registrant has
since disposed of all of these investments, including the investments in joint
ventures-affiliates.
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 to 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 lawsuit 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 assurances 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 Mortgage Advisors-VI, 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
property investments.
Item 3. Legal Proceedings
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Dee vs. Walton Street Capital Acquisition II, LLC
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On June 14, 1996, a proposed class and derivative action complaint was filed,
Dee vs. Walton Street Capital Acquisition II, LLC (Circuit Court of Cook
County, Illinois, County Department, Chancery Division ("Chancery Court"), Case
No. 96 CH 06283) (the "Dee Case"), naming the General Partner and the general
partners (the "Balcor Defendants") of nine other limited partnerships sponsored
by The Balcor Company (together with the Registrant, the "Affiliated
Partnerships"), as well as the Affiliated Partnerships, as defendants.
Additional defendants were Insignia Management Group ("Insignia") and Walton
Street Capital Acquisition II, LLC ("Walton") and certain of their affiliates
and principals (collectively, the "Walton and Insignia Defendants"). The
complaint alleged, among other things, that the tender offers for the purchase
of limited partnership interests in the Affiliated Partnerships made by a joint
venture consisting of affiliates of Insignia and Walton were coercive and
unfair.
On July 1, 1996, another proposed class action complaint was filed in the
Chancery Court, Anderson vs. Balcor Mortgage Advisors (Case No. 96 CH 06884)
(the "Anderson Case"). An amended complaint consolidating the Dee and Anderson
Cases (the "Dee/Anderson Case") was filed on July 25, 1996.
The complaint seeks to assert class and derivative claims against the Walton
and Insignia Defendants and alleges that, in connection with the tender offers,
the Walton and Insignia Defendants misused the Balcor Defendants' and
Insignia's fiduciary positions and knowledge in breach of the Walton and
Insignia Defendants' fiduciary duty and in violation of the Illinois Securities
and Consumer Fraud Acts. The plaintiffs amended their complaint on October 8,
1996, adding additional claims. The plaintiffs requested certification as a
class and derivative action, unspecified compensatory damages and rescission of
the tender offers. Each of the defendants filed motions to dismiss the
complaint for failure to state a cause of action. On January 7, 1997, the
Chancery Court denied the plaintiffs' motion for leave to amend the complaint
and dismissed the matter for failure to state a cause of action, with
prejudice.
On February 3, 1997, the plaintiffs filed a Notice of Appeal of the Chancery
Court's order to the Appellate Court of Illinois. Oral arguments before the
Appellate Court were held on March 18, 1998. On November 12, 1998, the
Appellate Court issued an opinion affirming the Chancery Court's dismissal of
the case. On December 3, 1998, the plaintiffs filed a notice of intent to
appeal the Appellate Court's ruling to the Illinois Supreme Court.
The Balcor 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.
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 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 previous distributions, see "Item 7. Management's Discussion and
Analysis of Financial Condition 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 58,594.
Item 6. Selected Financial Data
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Year ended December 31,
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1998 1997 1996 1995 1994
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Total income $253,281 $2,716,977 $14,782,470 $16,011,025 $16,696,829
Recovery of
losses on
loans, real
estate and
accrued interest
receivable None None 3,351,785 2,465,000 None
Provision for
losses on
loans, real
estate and
accrued interest
receivable None 256,000 2,605,562 1,800,000 3,900,000
(Loss) income before
extraordinary item (441,549) 5,888,495 27,120,917 11,582,447 11,040,627
Net (loss) income (441,549) 5,888,495 26,593,221 11,582,447 11,040,627
Net (loss) income per
Limited Partner-
ship Interest-
Basic and Diluted (0.32) 4.20 12.89 7.54 7.18
Total assets 3,638,186 5,984,286 115,792,938 176,899,144 190,674,572
Mortgage notes
payable None None None 15,657,066 15,700,000
Distributions per
Limited Partner-
ship Interest (A) 1.40 79.00(B) 39.04 17.40 39.20
(A) These amounts include distributions of Original Capital of $1.40, $74.65,
$27.70, $8.80, and $29.20 per Limited Partnership Interest for the years 1998,
1997, 1996, 1995 and 1994, respectively.
(B) In addition to the above distributions, a special distribution of $.15 per
Interest was paid to class members including certain current investors in the
Partnership pursuant to the settlement of a class action lawsuit.
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Operations
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Summary of Operations
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Balcor Pension Investors-VI (the "Partnership") sold six properties during 1996
and its remaining five properties in 1997 and recognized net gains in
connection with the sales in both years. During 1998, administrative and other
expenses were higher than interest income earned on short-term investments. As
a result, the Partnership recognized a net loss for 1998 as compared to net
income in 1997. The Partnership recognized significantly higher net gains
related to its 1996 property sales as compared to the net gains recognized in
connection with the 1997 property sales. This was the primary reason net income
decreased during 1997 as compared to 1996. Income from operations of real
estate held for sale decreased significantly and participation in income of
joint venture-affiliates ceased due to the 1997 and 1996 sales of the
Partnership's properties and its joint venture interests in properties, which
contributed to the decrease in net income during 1997 as compared to 1996.
Further discussion of Partnership's operations is summarized below.
1998 Compared to 1997
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During 1997, the Partnership sold its five remaining properties, the Park
Central, Brookhollow/Stemmons Center and 420 North Wabash office buildings and
Flamingo Pines and Hammond Aire Plaza shopping centers, and recognized net
gains in connection with these sales of $5,820,593. Income from operations of
real estate held for sale represented the net operations of the properties
acquired by the Partnership through foreclosure. All of the properties sold in
1997 were generating income from operations prior to their sales. During 1998,
the Partnership received a refund related to one of the properties sold in 1996
which was partially offset by the payment of additional expenditures related to
one of the properties sold in 1997. As a result, income from operations of real
estate held for sale decreased during 1998 as compared to 1997.
Higher average cash balances were available for investment during 1997
primarily due to the proceeds received by the Partnership in connection with
the 1997 and 1996 property sales prior to distribution to Partners in 1997 and
April 1998. As a result, interest income on short-term investments decreased in
1998 as compared to 1997.
The Partnership recognized other income during 1998 in connection with a
partial refund of real estate taxes, which had been under appeal, related to
the Perimeter 400 Center Office Building. The Partnership held a joint venture
interest in this property, which was sold in 1996. The Partnership recognized
other income during 1997 in connection with partial refunds of prior years'
insurance premiums relating to the Partnership's properties.
Provisions were charged to income when the General Partner believed an
impairment had occurred to the value of its properties or in a borrower's
ability to repay a loan or in the value of the collateral property.
Determinations of fair value were made periodically on the basis of performance
under the terms of the loan agreement and assessments of property operations.
Determinations of fair value represented estimations based on many variables
which affected the value of real estate, including economic and demographic
conditions. During 1997, the Partnership recognized a provision of $256,000 to
provide for a decline in the estimate of the fair value of the Hammond Aire
Plaza Shopping Center. In addition, the Partnership wrote off previously
established allowances of $388,809, $2,120,000 and $2,562,000 related to the
Flamingo Pines and Hammond Aire Plaza shopping centers and 420 North Wabash
Office Building, respectively.
In connection with the sales of the Park Central, Brookhollow/Stemmons Center
and 420 North Wabash office buildings in 1997, the Partnership wrote-off the
remaining unamortized leasing commissions related to the properties. As a
result, amortization expense ceased during 1997.
During 1998, the Partnership paid $78,437 in settlement of claims presented by
the purchaser of the Hammond Aire Plaza Shopping Center for certain tenant
improvements, leasing, survey and escrow costs pursuant to the sale agreement.
The property was sold in 1997. In addition, the General Partner determined that
a receivable related to Woodscape Apartments, which was sold in 1996, was
uncollectible and the Partnership wrote-off the receivable in the amount of
$39,074. These amounts were recognized as other expenses for financial
statement purposes during 1998.
During February 1997, the General Partner made a payment, relating to the
settlement of certain litigation, to original investors who previously sold
their Interests in the Partnership. This payment was recorded as an
administrative expense. In addition, the Partnership incurred legal fees
related to this settlement. The Partnership also incurred legal, printing and
postage costs in connection with its responses to tender offers during the
first quarter of 1997. Accounting fees and bank charges also decreased during
1998 as compared to 1997. As a result, administrative expenses decreased during
1998 as compared to 1997.
The Brookhollow/Stemmons Center Office Building was owned by a joint venture
with an affiliate. As a result of the sale of this property during 1997,
affiliate's participation in income of joint venture ceased during 1997.
1997 Compared to 1996
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As a result of the sale of the Noland Fashion Square acquisition loan in August
1996, interest income and equity in loss from investment in acquisition loan
ceased during 1996.
During 1997, the Partnership sold its five remaining properties, as described
above. During 1996, the Partnership sold the Hawthorne Heights, Shoal Run, Sun
Lake and Woodscape apartment complexes and the Symphony Woods and Perimeter 400
Center office buildings and recognized net gains in connection with these sales
totaling $19,443,993. The 1997 and 1996 sales of the Partnership's properties,
which were generating income from operations prior to their sales, resulted in
a decrease in income from operations of real estate held for sale during 1997
as compared to 1996.
During 1996, the Partnership recognized provisions of $2,252,809, recoveries of
$3,351,785 and a write off of a previously established loss allowance of
$1,386,215 related to its real estate held for sale. The provisions were
recognized to provide for changes in the estimate of the fair value of the
Flamingo Pines and Hammond Aire Plaza shopping centers. In addition, in 1996,
the Partnership recognized a provision of $352,753 and a write off of an
allowance of $627,347 related to the Noland Fashion Square acquisition loan.
The Partnership wrote off the remaining unamortized leasing commissions of
approximately $747,000 in connection with the sales of the Park Central,
Brookhollow/Stemmons Center and 420 North Wabash office buildings during 1997,
which resulted in an increase in amortization expense during 1997 as compared
to 1996. During 1996, the Partnership wrote off the remaining unamortized
leasing commissions of approximately $712,000 in connection with the sale of
the Perimeter 400 Center office building, which partially offset the increase.
During 1996, the Partnership incurred higher legal, professional, printing and
postage costs in connection with its response to a tender offer. In addition,
portfolio management and legal fees decreased in 1997 due to the property sales
in 1996. As a result, administrative expenses decreased during 1997 as compared
to 1996.
Participation in income of joint ventures with affiliates represented the
Partnership's share of the operations of the Sand Pebble Village - Phases I and
II and Jonathan's Landing apartment complexes and the 45 West 45th Street
Office Building. Due to the 1996 sales of these properties, participation in
income of joint ventures with affiliates ceased during 1996. In addition, the
Partnership incurred its share of a prepayment penalty of $65,074 paid in 1996
in connection with the sale of Sand Pebble Village - Phase II Apartments. This
amount was recognized as participation in debt extinguishment expense of joint
venture-affiliate and classified as an extraordinary item during 1996.
The Sun Lake Apartments and Perimeter 400 Center and Brookhollow/Stemmons
Center office buildings were owned by joint ventures with affiliates. As a
result of the gain recognized in connection with the sale of Perimeter 400
Center Office Building and the recovery of a previously established loss
allowance related to Sun Lake Apartments in 1996, affiliates' participation in
income of joint ventures decreased during 1997 as compared to 1996.
In connection with the 1996 sale of Sun Lake Apartments, the Partnership wrote
off the remaining unamortized deferred expenses related to the property of
$746,767, of which $284,145 was the minority joint venture partner's share.
This amount was recognized as debt extinguishment expense and classified as an
extraordinary item during 1996.
Liquidity and Capital Resources
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The cash position of the Partnership decreased by approximately $1,898,000 as
of December 31, 1998 when compared to December 31, 1997 primarily due to the
April 1998 distribution to Limited Partners representing Mortgage Reductions
from the release of holdbacks and escrows on certain of the Partnership's
properties. The Partnership used cash of approximately $37,000 in its operating
activities to pay administrative expenses and expenses pursuant to the
settlement of claims presented by the purchaser of the Hammond Aire Plaza
Shopping Center, which were partially offset by interest earned on short-term
investments and the collection of a receivable related to a property sold in
1997. Cash received from investing activities consisted of the release of
restricted escrows of $75,000 related to the sale of the Hammond Aire Plaza
Shopping Center. The Partnership used cash to fund its financing activities
which consisted of a distribution to Limited Partners of approximately
$1,936,000.
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 lawsuit 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.
Pursuant to the sale agreement for the Hammond Aire Plaza Shopping Center,
$712,500 of the sales proceeds was to be retained until the later of November
1997 or the settlement of any claims presented by the purchaser. The funds were
released in March 1998 after the Partnership paid $53,437 for certain tenant
improvement costs and leasing commissions. Pursuant to the terms of the sale,
an additional $310,000 of the sale proceeds was placed in escrow at closing. In
March 1998, $50,000 of the escrow was disbursed to the Partnership and $25,000
was disbursed to the purchaser to cover certain survey and easement costs. The
remaining sale proceeds of $235,000 remain in escrow pending resolution of
certain tenant issues. The Partnership expects to receive the sales proceeds
remaining in the escrow.
In February 1997, the Partnership discontinued the repurchase of Interests from
Limited Partners. As of December 31, 1998, there were 70,711 Interests and cash
of $5,461,510 in the Early Investment Incentive Fund.
The Partnership made distributions totaling $1.40, $79.00 and $39.04 per
Interest in 1998, 1997 and 1996, respectively. See Statements of Partners'
Capital for additional information. Distributions were comprised of $1.40 of
Mortgage Reductions in 1998, $4.35 of Cash Flow and $74.65 of Mortgage
Reductions in 1997 and $11.34 of Cash Flow and $27.70 of Mortgage Reductions in
1996.
Limited Partners have received cash distributions totaling $320.76 per $250
Interest. Of this amount, $142.21 represents Cash Flow from operations and
$178.55 represents a return of Original Capital. 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. Amounts allocated to the Early Investment Incentive Fund
will also be distributed at that time.
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.
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 in 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 Mortgage Advisors-VI, its General
Partner, has a Board of Directors.
(b, c & e) The names, ages and business experience 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 a 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.
Mr. 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 11 of Notes to Financial Statements for
the information relating to transactions with affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
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(a) The following entities are the sole Limited Partners which own beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant.
Name and Amount and
Address of Nature of Percent
Beneficial Beneficial of
Title of Class Owner Ownership Class
- ---------------- ----------- ---------- ------------
Limited Walton Street 63,849.53 4.62%
Partnership Capital Acquisition Limited
Interests Co. II, L.L.C. Partnership
Chicago Interests
Illinois
Limited Beattie 34,380.51 2.49%
Partnership Place Limited
Interests Greenville, Partnership
South Carolina Interests
While Walton Street Capital Acquisition Co. II, L.C.C. and Beattie Place
individually own less than 5% of the Interests, for purposes of this Item 12,
Walton Street Capital Acquisition Co. II, L.L.C. is an affiliate of Beattie
Place and, collectively, they own 7.11% of the Interests.
(b) Balcor Mortgage Advisors-VI (principally through the Early Investment
Incentive Fund) and its officers and partners own as a group the following
Limited Partnership Interests of the Registrant:
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
Limited Partnership
Interests 70,714 Interests 5.1%
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 865 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 11 of Notes to Financial Statements for additional 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 and Reports on Form 8-K
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(a)
(1 & 2) See Index to Financial Statements in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership
previously filed as Exhibit 3 to Amendment No. 1 to the Registrant's
Registration Statement on Form S-11 dated January 14, 1985 (Registration No.
2-93840), is incorporated herein by reference.
(4) Form of Subscription Agreement previously filed as Exhibit 4.1 to Amendment
No. 1 to the Registrant's Registration Statement on Form S-11 dated January 14,
1985 (Registration No. 2-93840) 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)(i) Agreement of Sale relating to the contract to sell Brookhollow/Stemmons
Office Building, Dallas, Texas, previously filed as Exhibit (2) to the
Registrant's Current Report on Form 8-K dated March 27, 1997, is incorporated
herein by reference.
(ii) Amendment No. 1 to Agreement of Sale relating to the sale of
Brookhollow/Stemmons Center Office Building, Dallas, Texas, previously filed as
Exhibit (10)(d)(ii) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 is incorporated herein by reference.
(b)(i) Agreement of Sale and attachment thereto relating to the sale of the 420
North Wabash Office Building, Chicago, Illinois, as previously filed as Exhibit
(2)(ii) to the Registrant's Current Report on Form 8-K dated June 16, 1997, is
incorporated herein by reference.
(ii) First Amendment to Agreement of Sale relating to the sale of the 420 North
Wabash Office Building, Chicago, Illinois, previously filed as Exhibit
(2)(e)(ii) to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 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 PENSION INVESTORS-VI
By: /s/ Jayne A. Kosik
-----------------------------------
Jayne A. Kosik
Senior Managing Director and Chief
Accounting and Financial Officer
(Principal Accounting and Financial
Officer) of Balcor Mortgage
Advisors-VI, the General Partner
Date: March 26, 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 Mortgage
/s/ Thomas E. Meador Advisors-VI, the General Partner March 26, 1999
------------------- ---------------
Thomas E. Meador
Senior Managing Director and Chief
Accounting and Financial Officer
(Principal Accounting and Financial
Officer) of Balcor Mortgage
Advisors-VI, the General Partner
/s/ Jayne A. Kosik March 26, 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, 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 Pension Investors-VI:
In our opinion, the accompanying balance sheets and the related statements of
partners' capital, of income and expenses and of cash flows present fairly, in
all material respects, the financial position of Balcor Pension Investors-VI 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 17 to the financial statements, the Partnership
intends to cease operations and dissolve.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 17, 1999
BALCOR PENSION INVESTORS-VI
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
1998 1997
--------------- ---------------
Cash and cash equivalents $ 3,392,806 $ 5,290,460
Escrow deposits - restricted 235,000 310,000
Accounts and accrued interest receivable 10,380 383,826
--------------- ---------------
$ 3,638,186 $ 5,984,286
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 50,187 $ 41,259
Due to affiliates 88,560 66,452
--------------- ---------------
Total liabilities 138,747 107,711
--------------- ---------------
Commitments and contingencies
Limited Partners' capital (1,382,562
Interests issued and outstanding) 4,011,199 6,388,335
General Partner's (deficit) (511,760) (511,760)
--------------- ---------------
Total partners' capital 3,499,439 5,876,575
--------------- ---------------
$ 3,638,186 $ 5,984,286
=============== ===============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VI
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1998, 1997 and 1996
Partners' Capital (Deficit) Accounts
-------------- -------------- --------------
General Limited
Total Partner Partners
-------------- -------------- --------------
Balance at December 31,
1995 $ 139,091,553 $ (7,183,243) $ 146,274,796
Cash distributions to:
Limited Partners (A) (53,975,220) (53,975,220)
General Partner (1,742,028) (1,742,028)
Deemed distribution (B) (151,261) (151,261)
Net income for the year
ended December 31, 1996 26,593,221 8,773,679 17,819,542
-------------- -------------- --------------
Balance at December 31,
1996 109,816,265 (151,592) 109,967,857
Cash distributions to:
Limited Partners (A) (109,346,473) (109,346,473)
General Partner (668,239) (668,239)
Deemed distribution (C) (43,900) (43,900)
Cash contribution 230,427 230,427
Net income for the year
ended December 31, 1997 5,888,495 77,644 5,810,851
-------------- -------------- --------------
Balance at December 31,
1997 5,876,575 (511,760) 6,388,335
Cash distribution to:
Limited Partners (A) (1,935,587) (1,935,587)
Net loss for the year
ended December 31, 1998 (441,549) (441,549)
-------------- -------------- --------------
Balance at December 31,
1998 $ 3,499,439 $ (511,760) $ 4,011,199
============== ============== =============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VI
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1998, 1997 and 1996
(Continued)
(A) Summary of cash distributions paid per Limited Partnership Interest:
1998 1997 1996
-------------- ------------- --------------
First Quarter None $ 28.00 (D) $ 2.00
Second Quarter $ 1.40 31.35 2.86
Third Quarter None 15.45 7.68
Fourth Quarter None 4.20 26.50
(B) This amount represents a state withholding tax paid on behalf of the
Limited Partners relating to the gain on the sale of the Perimeter
400 Center Office Building.
(C) This amount represents a state withholding tax paid on behalf of the
Limited Partners relating to the gain on the sale of the Park Central
Office Building.
(D) In addition to the above distribution, a special distribution of $0.15
per Interest was paid to class members including certain current
investors in the Partnership pursuant to the settlement of a class
action lawsuit.
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VI
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1998, 1997 and 1996
1998 1997 1996
-------------- -------------- --------------
Income:
Interest on loans
receivable and from
investment in
acquisition loan $ 313,255
Income from operations
of real estate held
for sale $ 3,047 $ 1,569,360 9,923,126
Interest on short-term
investments 221,859 1,124,011 1,194,304
Recovery of losses on
real estate held
for sale 3,351,785
Other income 28,375 23,606
-------------- -------------- --------------
Total income 253,281 2,716,977 14,782,470
-------------- -------------- --------------
Expenses:
Provision for potential
losses on loans, real
estate and accrued
interest receivable 256,000 2,605,562
Amortization of deferred
expenses 853,874 851,951
Other expenses 117,511
Administrative 577,319 1,030,548 1,556,744
-------------- -------------- --------------
Total expenses 694,830 2,140,422 5,014,257
-------------- -------------- --------------
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VI
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1998, 1997 and 1996
(Continued)
1998 1997 1996
-------------- -------------- --------------
(Loss) income before joint
venture participations,
equity in loss from
investment in acquisition
loan, net gains on
dispositions of real estate
and extraordinary items $ (441,549) $ 576,555 $ 9,768,213
Participation in income
of joint ventures -
affiliates before
extraordinary items 5,573,531
Equity in loss from
investment in
acquisition loan (56,481)
Affiliates' participation
in income of joint
ventures (508,653) (7,608,339)
Net gains on dispositions
of real estate 5,820,593 19,443,993
-------------- -------------- --------------
(Loss) income before
extraordinary items (441,549) 5,888,495 27,120,917
-------------- -------------- --------------
Extraordinary items:
Debt extinguishment
expenses (746,767)
Affiliate's participation
in debt extinguishment
expenses 284,145
Participation in debt
extinguishment expense
of joint venture -
affiliate (65,074)
-------------
Total extraordinary
items (527,696)
-------------- -------------- --------------
Net (loss) income $ (441,549) $ 5,888,495 $ 26,593,221
============== ============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VI
(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
items allocated to
General Partner None $ 77,644 $ 8,826,449
============== ============== ==============
(Loss) income before
extraordinary items
allocated to
Limited Partners $ (441,549) $ 5,810,851 $ 18,294,468
============== ============== ==============
(Loss) income before
extraordinary items
per Limited Partnership
Interest (1,382,562
issued and outstanding)-
Basic and Diluted $ (0.32) $ 4.20 $ 13.23
============== ============== ==============
Extraordinary items
allocated to
General Partner None None $ (52,770)
============== ============== ==============
Extraordinary items
allocated to
Limited Partners None None $ (474,926)
============== ============== ==============
Extraordinary items per
Limited Partnership
Interest (1,382,562
issued and outstanding) -
Basic and Diluted None None $ (0.34)
============== ============== ==============
Net income allocated to
General Partner None $ 77,644 $ 8,773,679
============== ============== ==============
Net (loss) income allocated
to Limited Partners $ (441,549) $ 5,810,851 $ 17,819,542
============== ============== ==============
Net (loss) income per
Limited Partnership
Interest (1,382,562
issued and outstanding) -
Basic and Diluted $ (0.32) $ 4.20 $ 12.89
============== ============= ==============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VI
(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 $ (441,549) $ 5,888,495 $ 26,593,221
Adjustments to reconcile
net (loss) income to
net cash (used in) or
provided by operating
activities:
Recovery of losses on
real estate held
for sale (3,351,785)
Provision for
potential losses on
loans, real estate
and accrued interest
receivable 256,000 2,605,562
Payment of deferred
expenses (219,847) (297,704)
Amortization of
deferred expenses 853,874 851,951
Participation in
income of joint
ventures - affiliates (5,573,531)
Equity in loss from
investment in
acquisition loan 56,481
Affiliates'
participation in
income of joint
ventures 508,653 7,608,339
Net gains on
dispositions of real
estate (5,820,593) (19,443,993)
Debt extinguishment
expenses 746,767
Affiliate's
participation in debt
extinguishment
expense (284,145)
Participation in debt
extinguishment
expense of joint
venture - affiliate 65,074
-------------- -------------- --------------
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VI
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
(Continued)
1998 1997 1996
-------------- -------------- --------------
Net change in:
Escrow deposits 356,330
Accounts and accrued
interest receivable 373,446 1,008,678 (116,082)
Prepaid expenses 95,079 194,503
Accounts payable 8,928 (884,798) 162,315
Due to affiliates 22,108 (107,974) 122,726
Accrued liabilities (715,520) (92,742)
Security deposits (256,363) (408,642)
-------------- -------------- --------------
Net cash (used in) or
provided by operating
activities (37,067) 605,684 9,794,645
-------------- -------------- --------------
Investing activities:
Proceeds from sale of
investment in
acquisition loan $ 3,803,640
Costs incurred in
connection with sale of
investment in
in acquisition loan (53,058)
Distributions from joint
ventures - affiliates $ 206,499 26,576,814
Contribution to joint
ventures - affiliates (60,700)
Improvements to properties (428,213) (1,478,867)
Proceeds from dispositions
of real estate 63,195,000 85,116,168
Costs incurred with
dispositions of real
estate (1,679,908) (2,735,562)
Release (funding) of
escrow deposits -
restricted $ 75,000 (310,000)
-------------- -------------- --------------
Net cash provided by
investing activities 75,000 60,983,378 111,168,435
-------------- -------------- --------------
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VI
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
(Continued)
1998 1997 1996
-------------- -------------- --------------
Financing activities:
Distributions to Limited
Partners (1,935,587) (109,346,473) (53,975,220)
Deemed distribution to
Limited Partners (43,900) (151,261)
Distributions to General
Partner (668,239) (1,742,028)
Contribution by General
Partner 230,427
Distributions to joint
venture partners -
affiliates (4,412,960) (23,769,020)
Capital contributions by
joint venture partners -
affiliates 487,317
Principal payments on
mortgage note payable (148,234)
Release of repair escrows 201,075
-------------- -------------- --------------
Net cash used in
financing activities (1,935,587) (114,241,145) (79,097,371)
-------------- -------------- --------------
Net change in cash and cash
equivalents (1,897,654) (52,652,083) 41,865,709
Cash and cash equivalents
at beginning of year 5,290,460 57,942,543 16,076,834
-------------- -------------- --------------
Cash and cash equivalents
at end of year $ 3,392,806 $ 5,290,460 $ 57,942,543
============== ============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VI
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Pension Investors-VI (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 lawsuit discussed in Note 17 of
Notes to 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 assurances 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
reporting period. Actual results could vary from those estimates.
(b) Income on loans was recorded as earned in accordance with the terms of the
related loan agreements. The accrual of interest was discontinued when a loan
became ninety days contractually delinquent or sooner when, in the opinion of
the General Partner, an impairment had occurred in the value of the collateral
property securing the loan. Income on nonaccrual loans or loans which were
otherwise not performing in accordance with their terms was recorded on a cash
basis.
Income from operations of real estate held for sale was reflected in the
accompanying Statements of Income and Expenses net of related direct operating
expenses.
(c) Losses on loans receivable were charged to income and an allowance account
was established when the General Partner believed the loan balance would not be
recovered. The General Partner assessed the collectibility of each loan on a
periodic basis through a review of the collateral property's operations, the
property's value and the borrower's ability to repay the loan. Upon
foreclosure, the loan net of the allowance was transferred to real estate held
for sale after the fair value of the property, less costs of disposal, was
assessed. Upon the transfer to real estate held for sale, a new basis in the
property was established.
(d) 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, the fair value of its real estate properties held for sale. The General
Partner estimated the fair value of its properties based on the current sales
price less estimated closing costs. Changes in the property's fair value were
recorded by an adjustment to the property allowance account and was recognized
in the income statement as an increase or decrease through recovery income or a
provision for loss in the period the change in fair value was determined. The
General Partner considered the methods 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) Investment in acquisition loan represented a first mortgage loan which,
because the loan agreement included certain specified terms, was accounted for
as an investment in a real estate venture. The investment was therefore
reflected in the accompanying financial statements using the equity method of
accounting. Under this method, the Partnership recorded its investment at cost
(representing total loan fundings) and subsequently adjusted its investment for
its share of property income or loss.
Amounts representing contractually required debt service were recorded in the
accompanying Statements of Income and Expenses as interest income and
participation income. Equity from investment in acquisition loan represented
the Partnership's share of the collateral property's operations, including
depreciation and interest expense. The Partnership's share of operations had no
effect on cash flow of the Partnership.
(e) Investment in joint ventures - affiliates represented the Partnership's
44.63%, 41.3%, and 46.5% interest, under the equity method of accounting, in
joint ventures with affiliates. Under the equity method of accounting, the
Partnership recorded its initial investment at cost and adjusted its investment
account for additional capital contributions, distributions and its share of
joint venture income or loss.
(f) Deferred expenses, which consisted of refinancing fees, were amortized
over the term of the respective agreement and upon sale, any remaining
unamortized balance was recognized as debt extinguishment expense and
classified as an extraordinary item. Leasing commissions were amortized over
the life of each respective lease and upon sale, any remaining unamortized
balance was recognized as amortization expense.
(g) 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.
(h) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles. Income from operating leases with significant
abatements and/or scheduled rent increases was recognized on a straight line
basis over the respective lease term. Service income included reimbursements
from operating costs such as real estate taxes, maintenance and insurance and
was recognized as revenue in the period the applicable costs were incurred.
(i) Cash and cash equivalents include all unrestricted highly liquid
investments with an original maturity of three months or less. Cash is held or
invested in one financial institution.
(j) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership's income or loss in his
tax return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
(k) For financial statement purposes, prior to 1996, the 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.
(l) 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.
(m) Certain reclassifications of prior years information were made to conform
to the 1998 presentation.
4. Partnership Agreement:
The Partnership was organized in October 1984. The Partnership Agreement
provided for the admission of Limited Partners through the sale of up to
1,450,000 Limited Partnership Interests at $250 per Interest, 1,382,562 of
which were sold on or prior to October 31, 1985, the termination date of the
offering.
The Partnership Agreement provides that the profits and losses will be
allocated 90% to Limited Partners and 10% to the General Partner, of which 2.5%
of the General Partner's share relates to the Early Investment Incentive Fund
(the "Fund"). For financial statement purposes, prior to 1996, the 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.
To the extent that Cash Flow was distributed, distributions were made as
follows: (i) 90% of such Cash Flow was distributed to the Limited Partners,
(ii) 7.5% of such Cash Flow was distributed to the General Partner, and (iii)
an additional 2.5% of such Cash Flow was distributed to the General Partner and
constitutes the Fund. Amounts placed in the Fund were used to repurchase
Interests from existing Limited Partners, at the sole discretion of the General
Partner and subject to certain limitations. Distributions of Cash Flow and
Mortgage Reductions pertaining to such repurchased Interests were paid to the
Fund and were available to repurchase additional Interests. In February 1997,
the Partnership discontinued the repurchase of Interests from Limited Partners.
Upon liquidation of the Partnership, the General Partner will return to the
Partnership for distribution to the Early Investors an amount not to exceed the
2.5% share originally allocated to the Fund. As of December 31, 1998, there
were 70,711 Interests and cash of $5,461,510 in the Early Investment Incentive
Fund. All Limited Partners are Early Investors.
In accordance with the Partnership Agreement, 100% of Mortgage Reductions
generated from the disposition of the Partnership's investments were
distributed to the Limited Partners.
5. Interest Expense:
During the year ended December 31, 1996, the Partnership incurred and paid
interest expense on the mortgage notes payable of $941,895.
6. Investment in Acquisition Loan:
In January 1989, the joint venture consisting of the Partnership and two
affiliates entered into a participation agreement to fund a $23,300,000 first
mortgage loan on the Noland Fashion Square. The Partnership participated
ratably in 21.46% of the loan amount, related interest income and participation
income. In August 1996, the Partnership sold its interest in the loan for a
sales price of $3,803,640. From the proceeds of the sale, the Partnership paid
$53,058 as its share of the selling costs. The carrying value of the loan was
$4,377,929. The Partnership did not recognize a gain or loss in connection with
the sale of this loan. During 1996, the Partnership recognized a provision for
loan losses of $352,753 and wrote off $627,347 against the previously
established loss allowance related to this loan.
7. Allowances for Losses on Loans and Real Estate Held for Sale:
Activity recorded in the allowances for losses on loans and real estate held
for sale during the three years ended December 31, 1998 is described in the
table below:
1998 1997 1996
----------- ----------- -----------
Loans:
Balance at beginning of
year None None $274,594
Provision charged to
income None None 352,753
Direct write-off of
loans against allowance None None (627,347)
----------- ----------- -----------
Balance at the end of
the year None None None
=========== =========== ===========
Real Estate Held for Sale:
Balance at beginning of
year None $4,814,809 $7,300,000
Provision charged to
income None 256,000 2,252,809
Recovery of provision
previously charged
to income None None (3,351,785)
Direct write-off of real
estate held for sale
against allowance None (5,070,809) (1,386,215)
----------- ---------- ------------
Balance at the end of
the year None None $4,814,809
=========== =========== ===========
8. 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 3% to 6% of gross operating receipts.
9. Affiliates' Participation in Joint Ventures:
(a) The Brookhollow/Stemmons Center Office Complex was owned by the Partnership
and an affiliate prior to its sale in April 1997. In previous years, profits
and losses were allocated 72.5% to the Partnership and 27.5% to the affiliate.
In order for the capital accounts of the joint venture partners to
appropriately reflect their respective remaining economic interests, the
minority joint venture partner received an adjusted income allocation during
1997. Pursuant to the sale agreement, $250,000 of the sale proceeds were placed
in an escrow and were not to be disbursed to the joint venture until the
earlier of the settlement of any claims presented by the purchaser or October
1997. The funds were released in full in October 1997 and the affiliate's share
of the proceeds was $68,750. See Note 12 of Notes to Financial Statements for
additional information.
(b) The Perimeter 400 Center Office Building was owned by a joint venture
consisting of the Partnership and three affiliates prior to its sale in
December 1996. Profits and losses were allocated 50% to the Partnership and 50%
among the affiliates. Pursuant to the sale agreement, $1,750,000 of the sale
proceeds was retained by the joint venture and was unavailable for distribution
until September 1997, at which time the funds were released in full. The
affiliate's share of the proceeds was $875,000. See Note 12 of Notes to
Financial Statements for additional information.
(c) The Sun Lake Apartments was owned by a joint venture consisting of the
Partnership and an affiliate prior to its sale in November 1996. Profits and
losses were allocated 61.95% to the Partnership and 38.05% to the affiliate.
See Note 12 of Notes to Financial Statements for additional information.
All assets, liabilities, income and expenses of the joint ventures were
included in the financial statements of the Partnership with the appropriate
adjustment of profit or loss for each affiliate's participation.
Net distributions of $4,412,960 and $23,281,703 were made to joint venture
partners during 1997 and 1996, respectively. In addition, the joint venture
partners were allocated their pro-rata share of the recovery of losses in the
amount of $977,945 during 1996.
10. Investment in Joint Ventures with Affiliates:
(a) Title to Sand Pebble Village - Phase I Apartments was acquired through a
foreclosure sale by a joint venture consisting of the Partnership and an
affiliate in 1992. The joint venture purchased the adjacent property, Sand
Pebble Village - Phase II Apartments in October 1993. Profits and losses, all
capital contributions and distributions for both properties were allocated in
accordance with each participant's original funding percentage in the Phase I
loan. The Partnership's ownership percentage was 44.63%.
In August 1996, the joint venture sold Sand Pebble Village Apartments - Phase I
in an all cash sale for $19,411,765. From the proceeds of the sale, the joint
venture paid $431,822 in selling costs. The basis of the property was
$21,436,000. The joint venture recognized no gain or loss on the sale of this
property. The joint venture recognized a recovery of loss on real estate of
$2,080,943 from the sale of this property, of which $928,725 represented the
Partnership's share.
In August 1996, the joint venture also sold Sand Pebble Village Apartments -
Phase II in an all cash sale for $12,088,235. From the proceeds of the sale,
the joint venture paid $4,859,155 to the third party mortgage holder in full
satisfaction of the first mortgage loan, paid a prepayment penalty of $145,775
and selling costs of $272,701. The basis of the property was $9,357,449. The
joint venture recognized a gain of $2,458,085 from the sale of this property,
of which $1,097,043 represented the Partnership's share.
The Partnership's share of the recovery of the loss allowance in 1996 was
included in the Partnership's participation in income (loss) of joint venture
with affiliates. In addition, during 1996, the Partnership received net
distributions from these joint ventures totaling $12,229,052.
(b) In 1995, a joint venture consisting of the Partnership and three
affiliates acquired title to the 45 West 45th Street Office Building. Profits
and losses, all capital contributions and distributions were allocated in
accordance with each participant's original funding percentage in the loan. The
Partnership's ownership percentage was 41.3%.
In November 1996, the joint venture sold the 45 West 45th Street Office
Building in an all cash sale for $10,300,000. From the proceeds of the sale the
joint venture paid $579,075 in selling costs. The basis of the property was
$6,786,740. The joint venture recognized a gain of $2,934,185 and a recovery of
a previously established loss allowance of $2,475,000 from the sale of this
property, of which the Partnership's share is $1,211,818 and $1,021,000,
respectively. Pursuant to the sale agreement, $500,000 of the sale proceeds was
retained by the joint venture and was unavailable for distribution until April
1997, at which time the funds were released in full. The Partnership's share
was $206,499.
During 1996 the Partnership received net distributions from the joint venture
of $4,121,167.
(c) In 1995, a joint venture consisting of the Partnership and an affiliate
acquired title to the Jonathan's Landing Apartments. Profits and losses, all
capital contributions and distributions were allocated in accordance with each
participant's original funding percentage in the loan. The Partnership's
ownership percentage was 46.5%.
In November 1996, the joint venture sold the Jonathan's Landing Apartments in
an all cash sale for $21,300,000. From the proceeds of the sale, the joint
venture paid $796,475 in selling costs. The basis of the property was
$18,354,120. The joint venture recognized a gain of $2,149,405 from the sale of
this property, of which $999,473 is the Partnership's share.
During 1996, the Partnership received net distributions from the joint venture
of $10,165,895.
The following combined information has been summarized from the December 31,
1996 financial statements of the above joint ventures:
Net investment in real estate
as of December 31 None
Total liabilities as
of December 31 $108,700
Total income 17,522,704
Income before loss provisions,
gains on sales and
extraordinary items 2,380,073
Recovery of loss 4,553,943
Gain on sales 9,622,619
Extraordinary items:
Debt extinguishment expense 145,775
Net income 16,410,860
11. 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
------ ------- ------ ------- ------ -------
Mortgage servicing fees None None None None $8,338 None
Reimbursement of expenses
to the General Partner,
at cost:
Accounting $46,168 $27,173 $72,527 $17,704 38,973 $26,534
Data processing 2,640 872 6,045 1,768 5,882 None
Legal 21,042 13,119 27,757 6,335 18,825 12,816
Portfolio management 79,128 47,396 170,830 40,645 198,406 135,076
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 $41,553 in 1996.
The General Partner made a contribution of $230,427 to the Partnership in
connection with the settlement of certain litigation as further described in
Note 14 of Notes to the Financial Statements.
12. Property Dispositions:
(a) In August 1997, the Partnership sold the 420 North Wabash Office Building
in an all cash sale for $5,000,000. From the proceeds of the sale, the
Partnership paid $146,323 in selling costs. In connection with the sale, the
Partnership wrote off $336,626 of accounts receivable related to rental
abatements and scheduled rent increases, which has been recorded as a cost of
sale of this property. The basis of the property was $4,800,000, which is net
of an allowance of $2,562,000. The Partnership had previously established an
allowance for potential losses related to this property against which
$2,562,000 of its remaining net investment was written off. For financial
statement purposes, the Partnership recognized a loss of $282,949 in connection
with the sale of this property.
(b) In May 1997, the Partnership sold the Hammond Aire Plaza Shopping Center in
an all cash sale for $13,800,000. From the proceeds of the sale, the
Partnership paid $376,001 in selling costs. Pursuant to the terms of the sale,
$310,000 of the sale proceeds was placed in escrow at closing. In March 1998,
$50,000 of the escrow was disbursed to the Partnership and $25,000 was
disbursed to the purchaser to cover certain survey and easement costs. The
remaining sale proceeds of $235,000 remain in escrow pending resolution of
certain tenant issues. The Partnership expects to receive the sales proceeds
remaining in the escrow. The basis of the property was $13,423,999, which is
net of an allowance of $2,120,000. For financial statement purposes, the
Partnership recognized no gain or loss from the sale of this property.
However, the Partnership had previously established an allowance for
potential losses related to this property against which its remaining net
investment of $2,120,000 was written off.
(c) The Brookhollow/Stemmons Center Office Building was owned by a joint
venture consisting of the Partnership and an affiliate. The Partnership and the
affiliate held participation percentages in the joint venture of 72.5% and
27.5%, respectively. In April 1997, the joint venture sold the property in an
all cash sale for $12,724,000. From the proceeds of the sale, the joint venture
paid $340,293 in selling costs. In connection with the sale, the joint venture
wrote off $903,384 of accounts receivable related to rental abatements and
scheduled rent increases, which has been recorded as a cost of sale of this
property. The basis of the property was $11,074,128. For financial statement
purposes, the joint venture recognized a gain of $406,195 from the sale of this
property, all of which was allocated to the minority joint venture partner. See
Note 10 of Notes to Financial Statements for additional information regarding
the allocation of the gain.
(d) In February 1997, the Partnership sold the Flamingo Pines Shopping Center
in an all cash sale for $10,200,000. From the proceeds of the sale, the
Partnership paid $346,400 in selling costs. The basis of the property was
$9,853,600, which is net of an allowance of $388,809. For financial statement
purposes, the Partnership recognized no gain or loss on the sale of this
property. However, the Partnership had previously established an allowance for
potential losses related to this property against which its remaining net
investment of $388,809 was written off.
(e) In February 1997, the Partnership sold the Park Central Office Building in
an all cash sale for $21,471,000. From the proceeds of the sale, the
Partnership paid $470,891 in selling costs. In addition, the Partnership paid a
state withholding tax of $43,900 on behalf of the Limited Partners relating to
the gain on the sale of the property which has been recorded as a deemed
distribution for financial statement purposes. The basis of the property was
$15,302,762. For financial statement purposes, the Partnership recognized a
gain of $5,697,347 in connection with the sale of this property.
(f) In December 1996, the Partnership sold Symphony Woods Office Building in an
all cash sale for $7,275,000. From the proceeds of the sale, the Partnership
paid $251,836 in selling costs. The basis of the property was $5,153,837. For
financial statement purposes, the Partnership recognized a gain of $1,869,327
from the sale of this property.
(g) The Perimeter 400 Center Office Building was owned by a joint venture
consisting of the Partnership and three affiliates. The Partnership and the
affiliates held participating percentages in the joint venture of 50%, 22%,
15%, and 13%, respectively. In December 1996, the joint venture sold the
property in an all cash sale for $40,700,000. From the proceeds of the sale,
the joint venture paid $882,765 in selling costs. In addition, the Partnership
paid a state withholding tax of $151,261 relating to the gain on the sale of
this property. The basis of the property was $27,396,252. For financial
statement purposes, the Partnership recognized a gain of $12,420,983 from the
sale of this property, of which $6,210,492 was the minority joint venture
partners' share.
(h) Sun Lake Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. The Partnership and the affiliate held
percentages in the joint venture of 61.95% and 38.05%, respectively. In
November 1996, the joint venture sold the property in an all cash sale for
$24,000,000. The purchaser of the property took title to the property subject
to the existing first mortgage loan of $15,508,832, 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 Flows.
From the proceeds of the sale, the joint venture paid $701,215 in selling
costs. The basis of the property was $24,685,000. For financial statement
purposes, the joint venture recognized no gain or loss from the sale of this
property. The joint venture recognized a recovery of loss on real estate of
$1,413,785 from the sale of this property, of which $537,945 was the minority
joint venture partner's share, and wrote off $1,386,215 against the previously
established loss allowance related to this property.
(i) In September 1996, the Partnership sold Shoal Run Apartments in an all cash
sale for $10,800,000. From the proceeds of the sale, the Partnership paid
$290,800 in selling costs. The basis of the property was $9,450,000. For
financial statement purposes, the Partnership recognized a gain of $1,059,000
from the sale of this property.
(j) In August 1996, the Partnership sold the Woodscape Apartments in an all
cash sale for $9,550,000. From the proceeds of the sale, the Partnership paid
$299,421 in selling costs. The basis of the property was $6,629,000. For
financial statement purposes, the Partnership recognized a gain of $2,621,579
from the sale of this property.
(k) In June 1996, the Partnership sold the Hawthorne Heights Apartments in an
all cash sale for $8,300,000. From the proceeds of the sale, the Partnership
paid $309,525 in selling costs. The basis of the property was $6,517,570. For
financial statement purposes, the Partnership recognized a gain of $1,472,905
from the sale of this property.
13. Extraordinary Items:
(a) In connection with the 1996 sale of the Sun Lake Apartments, the
Partnership wrote off the remaining unamortized deferred financing fees in the
amount of $746,767, of which $284,145 was the minority joint venture partner's
share. This amount was recognized as debt extinguishment expense and classified
as an extraordinary item.
(b) In connection with the 1996 sale of the Sand Pebble Village - Phase II
Apartments, the joint venture paid a prepayment penalty in the amount of
$145,775, of which $65,074 was the Partnership's share. This amount was
recognized as debt extinguishment expense and classified as an extraordinary
item.
14. Settlement of Litigation:
A settlement received final approval by the court in November 1996 in the class
action, Paul Williams and Beverly Kennedy, et al. vs. Balcor Pension Investors,
et al. upon the terms described in the notice to class members in September
1996. The General Partner made a contribution of $230,427 to the Partnership,
from which the plaintiffs' counsel was paid $23,043 pursuant to the settlement
agreement. In February 1997, the General Partner made a settlement payment of
$207,384 ($0.15 per Interest) to members of the class pursuant to the
settlement. Of the total settlement amount, $124,075 was paid to original
investors who held their Limited Partnership Interests at the date of the
settlement and was recorded as a distribution to Limited Partners in the
Financial Statements. The remaining portion of the settlement of $83,309 was
paid to original investors who previously sold their Interests in the
Partnership. This amount was recorded as an administrative expense in the
Financial Statements. Similar contributions and payments were made on the seven
other partnerships included in the lawsuit in addition to those payments
described above. The Balcor Company paid an additional $635,000 to the
plaintiffs' class counsel and The Balcor Company received approximately
$946,000 from the eight partnerships as a reimbursement of its legal expenses,
of which $272,571 was the Partnership's share. The settlement had no material
impact on the Partnership.
15. Other Income:
(a) The Perimeter 400 Center Office Building, which was owned by a joint
venture consisting of the Partnership and three affiliates, was sold in
December 1996. During October 1998, the Partnership received $28,375
representing its share of a partial refund of 1996 real estate taxes which had
been under appeal.
(b) The Partnership recognized other income during 1997 in connection with
partial refunds of prior years' insurance premiums relating to the
Partnership's properties.
16. Other Expenses:
During 1998, the Partnership paid $78,437 in settlement of claims presented by
the purchaser of the Hammond Aire Plaza Shopping Center for certain tenant
improvements, leasing, survey and escrow costs pursuant to the sale agreement.
The property was sold in 1997. In addition, the General Partner determined that
a receivable related to Woodscape Apartments, which was sold in 1996, was
uncollectible and the Partnership wrote-off the receivable in the amount of
$39,074. These amounts were recognized as other expenses for financial
statement purposes during 1998.
17. Contingency:
The Partnership is currently involved in a lawsuit, Dee vs. Walton Street
Capital Acquisition II, LLC, whereby the Partnership, the General Partner and
certain third parties have been named as defendants seeking damages relating to
tender offers to purchase interests in the Partnership and nine affiliated
partnerships initiated by the third party defendants in 1996. The defendants
continue to vigorously contest this action. The action has been dismissed with
prejudice, which dismissal was affirmed by the Illinois Appellate Court.
Plaintiffs have filed a further appeal to the Illinois Supreme Court. It is not
determinable at this time how the outcome of this action will impact the
remaining cash reserves of the Partnership. The Partnership believes that it
has meritorious defenses to contest the claims.