SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1999
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-10225
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BALCOR PENSION INVESTORS-II
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(Exact name of registrant as specified in its charter)
Illinois 36-3114027
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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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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
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BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1999 and December 31, 1998
(UNAUDITED)
ASSETS
1999 1998
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Cash and cash equivalents $ 1,223,292 $ 1,246,766
Cash and cash equivalents - Early
Investment Incentive Fund - restricted 4,073,919 3,933,560
Accrued interest receivable 21,626 21,547
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$ 5,318,837 $ 5,201,873
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 13,602 $ 20,848
Due to affiliates 35,778 32,496
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Total liabilities 49,380 53,344
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Commitments and contingencies
Limited Partners' capital (85,010
Interests issued) 10,285,064 10,164,136
Less Interests held by Early Investment
Incentive Fund (8,136 in 1999 and 1998) (5,015,607) (5,015,607)
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5,269,457 5,148,529
General Partner's capital None None
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Total partners' capital 5,269,457 5,148,529
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$ 5,318,837 $ 5,201,873
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the nine months ended September 30, 1999 and 1998
(UNAUDITED)
1999 1998
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Income:
Interest on short-term investments $ 184,792 $ 204,161
Other income 22,269
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Total income 207,061 204,161
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Expenses:
Administrative 86,133 129,970
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Total expenses 86,133 129,970
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Net income $ 120,928 $ 74,191
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Net income allocated to
General Partner None None
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Net income allocated to
Limited Partners $ 120,928 $ 74,191
============= =============
Net income per average number of
Limited Partnership Interests
outstanding (76,874 in 1999
and 1998) - Basic and Diluted $ 1.57 $ 0.97
============= =============
Distribution to General Partner None $ 50,510
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Distribution to Limited Partners None $ 548,106
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Distribution per Limited Partnership
Interest outstanding None $ 7.13
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended September 30, 1999 and 1998
(UNAUDITED)
1999 1998
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Income:
Interest on short-term investments $ 64,381 $ 67,949
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Total income 64,381 67,949
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Expenses:
Administrative 34,661 33,267
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Total expenses 34,661 33,267
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Net income $ 29,720 $ 34,682
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Net income allocated to
General Partner None None
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Net income allocated to
Limited Partners $ 29,720 $ 34,682
============= =============
Net income per average number of Limited
Partnership Interests outstanding
(76,874 in 1999 and 1998)
-Basic and Diluted $ 0.38 $ 0.46
============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1999 and 1998
(UNAUDITED)
1999 1998
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Operating activities:
Net income $ 120,928 $ 74,191
Adjustments to reconcile net income
to net cash provided by
operating activites:
Net change in:
Accounts and accrued interest
receivable (79) 14,929
Accounts payable (7,246) (19,195)
Due to affiliates 3,282 11,407
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Net cash provided by operating activities 116,885 81,332
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Financing activites:
Distribution to Limited Partners (548,106)
Distribution to General Partner (50,510)
Increase in cash and cash
equivalents - Early Investment
Incentive Fund - restricted (140,359) (224,515)
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Net cash provided by financing activities (140,359) (823,131)
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Net change in cash and cash equivalents (23,474) (741,799)
Cash and cash equivalents
at beginning of year 1,246,766 2,007,987
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Cash and cash equivalents at end of
period $ 1,223,292 $ 1,266,188
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
In the opinion of management, all adjustments necessary for a fair presentation
have been made to the accompanying statements for the nine months and quarter
ended September 30, 1999 and all such adjustments are of a normal and recurring
nature.
2. Partnership Termination:
The partnership agreement provides for the dissolution of the Partnership upon
the occurrence of certain events. The Partnership sold its final real estate
investment in December 1996. The Partnership has retained a portion of the cash
from property sales to satisfy obligations of the Partnership as well as to
establish a reserve for contingencies. As previously reported, the Sandra Dee
case was dismissed by the Illinois Supreme Court in April 1999. The Madison
Partnership litigation was filed in May 1999. The second Sandra Dee case was
filed June 1, 1999 and served on August 16, 1999. See Note 5 of Notes to
Financial Statements for additional information regarding the Madison
Partnership/Dee litigation. Despite the existence of the Madison
Partnership/Dee litigation, the Partnership currently plans to dissolve in
December 1999 and distribute remaining cash reserves (including any allocable
share of the Early Investment Incentive Fund) to the partners in accordance
with the partnership agreement. In the event that a new contingency (such as a
lawsuit) arises during 1999, the Partnership may not be dissolved and may
continue in existence until such new contingency is resolved. The Partnership
does not consider the Madison Partnership/Dee case to be a matter that would
preclude the dissolution of the Partnership in 1999.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1999 were:
Paid
-----------------------
Nine Months Quarter Payable
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Reimbursement of expenses to
the General Partner, at cost $ 22,175 $ 3,649 $ 35,778
4. Other Income:
The Partnership received $22,269 during the second quarter of 1999 relating to
a partial refund of real estate taxes paid on the 205 Armstrong Road Office
Building, which was sold in a prior year. This amount has been recognized as
other income for financial statement purposes.
5. Contingency:
In May 1999, a lawsuit was filed against the Partnership, Madison Partnership
Liquidity Investors XX, et al. vs. The Balcor Company, et al. whereby the
Partnership and certain affiliates have been named as defendants. The
plaintiffs are entities that initiated tender offers to purchase and, in fact,
purchased units in eleven affiliated partnerships. The complaint alleges breach
of fiduciary duties and breach of contract under the partnership agreement and
seeks the winding up of the affairs of the Partnership, the establishment of a
liquidating trust, the appointment of an independent trustee for the trust and
the distribution of a portion of the cash reserves to limited partners. On June
1, 1999, a second lawsuit was filed and was served on August 16, 1999, Sandra
Dee vs. The Balcor Company, et al. The Dee complaint is virtually identical to
the Madison Partnership complaint and on September 20, 1999 was consolidated
into the Madison Partnership case. The defendants intend to vigorously contest
these actions. The Partnership believes that it has meritorious defenses to
contest the claims. It is not determinable at this time how the outcome of
these actions will impact the remaining cash reserves of the Partnership.
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Pension Investors-II (the "Partnership") is a limited partnership formed
in 1981 to invest in wrap-around mortgage loans and, to a lesser extent, in
other junior mortgage loans and first mortgage loans. The Partnership raised
$85,010,000 through the sale of Limited Partnership Interests and used these
proceeds to originally fund thirty-three loans. Proceeds from the loan
repayments were used to fund three additional mortgage loans. As of September
30, 1999, the Partnership has no loans outstanding or properties remaining in
its portfolio.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1998 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
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The operations of the Partnership in 1999 and 1998 consisted of interest income
earned on short-term investments which was partially offset by administrative
expenses. During the second quarter of 1999, the Partnership recognized income
relating to a partial refund of real estate taxes paid on the 205 Armstrong
Road Office Building, which was sold in a prior year. Due to the recognition of
this income and lower administrative expenses in 1999, the Partnership's net
income increased during the nine months ended September 30, 1999 as compared to
the same period in 1998. As a result of slightly higher administrative expenses
and slightly lower interest income earned on short-term investments during the
quarter ended September 30, 1999, the Partnership's net income decreased during
the quarter ended September 30, 1999 as compared to the same period in 1998.
Further discussion of the Partnership's operations is summarized below.
1999 Compared to 1998
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Unless otherwise noted, discussions of fluctuations between 1999 and 1998 refer
to both the nine months and quarters ended September 30, 1999 and 1998.
Due to lower interest rates in 1999 and higher cash balances in 1998 prior to a
distribution to Limited Partners in January 1998, interest income on short-term
investments decreased during 1999 as compared to 1998.
The Partnership received $22,269 during the second quarter of 1999 relating to
a partial refund of real estate taxes paid on the 205 Armstrong Road Office
Building, which was sold in a prior year. This amount has been recognized as
other income for financial statement purposes.
Primarily due to lower accounting and portfolio management fees, administrative
expenses decreased during the nine months ended September 30, 1999 as compared
to the same period in 1998. During the quarter ended September 30, 1999, the
Partnership recognized higher legal expenses related to the litigation
discussed in Note 5 of Notes to Financial Statements which resulted in an
increase in administrative expenses during the quarter ended September 30,
1999 as compared to the same period in 1998.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $23,000 as of
September 30, 1999 when compared to December 31, 1998 as a result of
administrative expenses exceeding interest income earned on non-restricted cash
investments, which was partially offset by the receipt of a partial refund of
real estate taxes on one of the Partnership's properties, which was sold in a
prior year. Interest income of approximately $141,000 was earned on the Early
Investment Incentive Fund.
The partnership agreement provides for the dissolution of the Partnership upon
the occurrence of certain events. The Partnership sold its final real estate
investment in December 1996. The Partnership has retained a portion of the cash
from property sales to satisfy obligations of the Partnership as well as to
establish a reserve for contingencies. As previously reported, the Sandra Dee
case was dismissed by the Illinois Supreme Court in April 1999. The Madison
Partnership and the new Sandra Dee litigation, described in Part II, Item 1, of
this report, were filed in May 1999 and June 1999, respectively. Despite the
existence of the Madison Partnership/Dee litigation, the Partnership currently
plans to dissolve in December 1999 and distribute remaining cash reserves
(including any allocable share of the Early Investment Incentive Fund) to the
partners in accordance with the partnership agreement. In the event that a new
contingency (such as a lawsuit) arises during 1999, the Partnership may not be
dissolved and may continue in existence until such new contingency is resolved.
The Partnership does not consider the Madison Partnership/Dee case to be a
matter that would preclude the dissolution of the Partnership in 1999. As a
result of the pending dissolution of the Partnership, the general partner has
suspended transfer of limited partnership interests in the Partnership. Certain
transfers which are not for value (such as death, divorce, change of custodian
or other estate planning) will continue to be permitted. In the event that
dissolution of the Partnership does not occur during 1999, the Partnership will
allow transfers of limited partnership interests to occur commencing in January
2000.
Limited Partners have received distributions totaling $1,750.21 per $1,000
Interest. Of this amount, $1,101.08 represents Cash Flow from operations and
$649.13 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.
In 1997, the Partnership discontinued the repurchase of Interests from Limited
Partners. As of September 30, 1999, there was cash of $4,073,919 held in the
Early Investment Incentive Fund.
The Partnership sold all of its remaining real property investments and
distributed a majority of the proceeds from these sales to Limited Partners in
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 has involved soliciting information from these vendors through the use
of surveys, follow-up discussions and review of data where needed. The
Partnership has received the surveys from each of these vendors. While the
Partnership cannot guarantee Year 2000 compliance by its key vendors, and is
relying on statements from these vendors without independent verification,
these surveys, testing of systems, where applicable and discussions with the
key vendors performing services for the Partnership indicate that the key
vendors are substantially Year 2000 compliant as of September 30, 1999. The
Partnership will continue to monitor the Year 2000 compliance of its key
vendors during the fourth quarter of 1999. In addition, the Partnership has
developed a contingency plan in the event of non-compliance by these key
vendors in the Year 2000. 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.
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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Madison Partnership Liquidity Investors XX, et al. vs. The Balcor
- -----------------------------------------------------------------
Company, et al.
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On May 7, 1999, a proposed class action complaint was filed, and on May 13,
1999 was served on the defendants, Madison Partnership Liquidity Investors XX,
et al. vs. The Balcor Company, et al. (Circuit Court, Chancery Division, Cook
County, Illinois, Docket No. 99CH 06972). The general partner of the
Partnership, the general partners of twenty-one additional limited partnerships
which were sponsored by The Balcor Company, The Balcor Company and one
individual are named as defendants in this action. The Partnership and the
twenty-one other limited partnerships are referred to herein as the "Affiliated
Partnerships". Plaintiffs are entities that initiated tender offers to purchase
units and, in fact, purchased units in eleven of the Affiliated Partnerships.
The complaint alleges breach of fiduciary duties and breach of contract under
the partnership agreements for each of the Affiliated Partnerships. The
complaint seeks the winding up of the affairs of the Affiliated Partnerships,
the establishment of a liquidating trust for each of the Affiliated
Partnerships until a resolution of all contingencies occurs, the appointment of
an independent trustee for each such liquidating trust and the distribution of
a portion of the cash reserves to limited partners. The complaint also seeks
compensatory damages, punitive and exemplary damages, and costs and expenses in
pursuing the litigation. On July 14, 1999, the defendants filed a Motion to
Dismiss the complaint. A hearing date on the motion has not yet been set. On
September 20, 1999 the Sandra Dee case described below was consolidated with
this case. Future reports to investors will report only the consolidated case.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Partnership 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
Partnership.
Sandra Dee vs. The Balcor Company, et al.
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On June 1, 1999, a proposed class action complaint was filed, and on August 16,
1999 was served on the defendants, Sandra Dee vs. The Balcor Company, et al.
(Circuit Court, Chancery Division, Cook County, Illinois, Docket No. 99CH
08123). The general partner of the Partnership, the general partners of
twenty-one additional limited partnerships which were sponsored by The Balcor
Company, The Balcor Company and one individual are named as defendants in
this action. The Partnership and the twenty-one other limited partnerships are
referred to herein as the "Affiliated Partnerships". This complaint is
identical in all material respects to the Madison Partnership Liquidity
Investors XX, et al. vs. The Balcor Company et al. complaint filed in May 1999.
The complaint alleges breach of fiduciary duties and breach of contract under
the partnership agreements for each of the Affiliated Partnerships. The
complaint seeks the winding up of the affairs of the Affiliated Partnerships,
the establishment of a liquidating trust for each of the Affiliated
Partnerships until a resolution of all contingencies occurs, the appointment of
an independent trustee for each such liquidating trust and the distribution of
a portion of the cash reserves to limited partners. The complaint also seeks
compensatory damages, punitive and exemplary damages, and costs and expenses in
pursuing the litigation. The defendants filed on September 15, 1999 a motion to
consolidate this case with the Madison Partnership case. On September 20, 1999,
the motion was granted and this case was consolidated with the Madison
Partnership case. Future reports to investors will report only the consolidated
case. On September 15, 1999, the defendants also filed a Motion to Dismiss the
complaint.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The defendants believe that they have 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
Partnership.
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
(4) Form of Subscription Agreement previously filed as Exhibit 4(a) to
Amendment No. 1 to the Registrant's Registration Statement on Form S-11 dated
May 7, 1981 (Registration No. 2-70841) 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 (Commission File No. 0-10225)
is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the nine months ending
September 30, 1999 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended September 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR PENSION INVESTORS-II
By: /s/Thomas E. Meador
-----------------------------
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Mortgage Advisors, the General Partner
By: /s/Jayne A. Kosik
-----------------------------
Jayne A. Kosik
Senior Managing Director and Chief Financial
Officer (Principal Accounting and Financial
Officer) of Balcor Mortgage Advisors, the
General Partner
Date: November 4, 1999
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