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
- -----
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1999
--------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----
EXCHANGE ACT OF 1934.
For the transition period from to
------------ ------------
Commission file number 0-10225
-------
BALCOR PENSION INVESTORS-II
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3114027
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
--------------
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
----- -----
<PAGE>
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
BALANCE SHEETS
March 31, 1999 and December 31, 1998
(Unaudited)
ASSETS
1999 1998
-------------- ---------------
Cash and cash equivalents $ 1,222,930 $ 1,246,766
Cash and cash equivalents - Early
Investment Incentive Fund 3,980,193 3,933,560
Accrued interest receivable 20,496 21,547
Prepaid expenses 1,897
-------------- ---------------
$ 5,225,516 $ 5,201,873
============== ===============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 13,609 $ 20,848
Due to affiliates 34,818 32,496
-------------- ---------------
Total liabilities 48,427 53,344
-------------- ---------------
Commitments and contingencies
Limited Partners' capital (85,010
Interests issued) 10,192,696 10,164,136
Less Interests held by Early Investment
Incentive Fund (8,136 in 1999 and 1998) (5,015,607) (5,015,607)
-------------- ---------------
5,177,089 5,148,529
General Partner's capital None None
-------------- ---------------
Total partners' capital 5,177,089 5,148,529
-------------- ---------------
$ 5,225,516 $ 5,201,873
============== ===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended March 31, 1999 and 1998
(Unaudited)
1999 1998
-------------- ---------------
Income:
Interest on short-term investments $ 60,630 $ 69,458
-------------- ---------------
Total income 60,630 69,458
-------------- ---------------
Expenses:
Administrative 32,070 49,049
-------------- ---------------
Total expenses 32,070 49,049
-------------- ---------------
Net income $ 28,560 $ 20,409
============== ===============
Net income allocated to
General Partner None None
============== ===============
Net income allocated to
Limited Partners $ 28,560 $ 20,409
============== ===============
Net income per average number of
Limited Partnership Interests outstanding
(76,874 in 1999 and 1998)
- Basic and Diluted $ 0.37 $ 0.27
============== ===============
Distribution to General Partner None $ 50,510
============== ===============
Distribution to Limited Partners None $ 548,106
============== ===============
Distribution per Limited Partnership
Interest outstanding None $ 7.13
============== ===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the quarters ended March 31, 1999 and 1998
(Unaudited)
1999 1998
-------------- ---------------
Operating activities:
Net income $ 28,560 $ 20,409
Adjustments to reconcile net income
to net cash provided by operating
activities:
Net change in:
Accounts and accrued interest
receivable 1,051 14,240
Prepaid expenses (1,897) (389)
Accounts payable (7,239) (8,941)
Due to affiliates 2,322 3,829
-------------- ---------------
Net cash provided by operating activities 22,797 29,148
-------------- ---------------
Financing activities:
Distribution to Limited Partners (548,106)
Distribution to General Partner (50,510)
Increase in cash and cash equivalents -
Early Investment Incentive Fund (46,633) (123,847)
-------------- ---------------
Cash used in financing activities (46,633) (722,463)
-------------- ---------------
Net change in cash and cash equivalents (23,836) (693,315)
Cash and cash equivalents at begining
of year 1,246,766 2,007,987
-------------- ---------------
Cash and cash equivalents at end of period $ 1,222,930 $ 1,314,672
============== ===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
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 quarter ended March 31,
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, including the disposition of all interests in
real estate. The Partnership sold its final real estate investment in December
1996. The Partnership has retained a portion of the cash from the property
sales to satisfy obligations of the Partnership as well as establish a reserve
for contingencies. The timing of the termination of the Partnership and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies may include legal
and other fees and costs stemming from litigation involving the Partnership.
There can be no assurances as to the time frame for the conclusion of
contingencies which exist or may arise.
3. Transactions with Affiliates:
Fees and expenses, paid and payable by the Partnership to affiliates during the
quarter ended March 31, 1999 were:
Paid Payable
------------ ---------
Reimbursement of expenses to
the General Partner, at cost $9,328 $34,818
4. Contingency:
The Partnership was involved in a lawsuit, Dee vs. Walton Street Capital
Acquisition II, LLC, whereby the Partnership, the General Partner and certain
third parties were 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 action has
been dismissed with prejudice, which dismissal was affirmed by the Appellate
Court of Illinois. Plaintiffs filed a further appeal to the Illinois Supreme
Court. The Illinois Supreme Court has issued a ruling in which it has declined
to hear the appeal. As a result, the Appellate Court of Illinois dismissed the
case on April 22, 1999.
<PAGE>
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 March 31,
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
- ----------
Summary of Operations
- ---------------------
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. As a result of lower administrative expenses in 1999, the
Partnership's net income increased slightly in 1999 as compared to 1998. This
increase was partially offset by a decrease in interest income earned on
short-term investments. Further discussion of the Partnership's operations is
summarized below.
1999 Compared to 1998
- ---------------------
Discussions of fluctuations between 1999 and 1998 refer to the quarters ended
March 31, 1999 and 1998.
Due to lower interest rates and lower average cash balances primarily due to a
distribution to Limited Partners in January 1998, interest income on short-term
investments decreased during 1999 as compared to 1998.
Primarily due to lower accounting and investor processing fees, administrative
expenses decreased during 1999 as compared to 1998.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $24,000 as of
March 31, 1999 as compared to December 31, 1998. The Partnership generated cash
flow from its operating activities of approximately $23,000 from interest
<PAGE>
income earned on short-term investments net of the payment of administrative
expenses. Cash used in financing activities represents an increase in cash and
cash equivalents in the Early Investment Incentive Fund of approximately
$47,000 from interest income earned on the Fund.
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 December
1996. The Partnership has retained a portion of the cash from the property
sales to satisfy obligations of the Partnership as well as establish a reserve
for contingencies. The timing of the termination of the Partnership and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies may include legal
and other fees and costs stemming from litigation involving the Partnership.
There can be no assurances as to the time frame for the conclusion of
contingencies which exist or may arise. See "Item 1. Legal Proceedings" for
additional information.
In 1997, the Partnership discontinued the repurchase of Interests from Limited
Partners. As of March 31, 1999, there were 8,136 Interests and cash of
$3,980,193 held in the Early Investment Incentive Fund.
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.
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
<PAGE>
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.
BALCOR PENSION INVESTORS-II
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Dee vs. Walton Street Capital Acquisition II, LLC
- ------------------------------------------------
The Illinois Supreme Court has issued a ruling in which it has declined to hear
the appeal filed by the plaintiffs in the Dee vs. Walton Street Capital
Acquisition II, LLC case. As a result, the Appellate Court of Illinois
dismissed the case on April 22, 1999. This case will be deleted from all future
reports of the Partnership.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(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 quarter ending March 31,
1999 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended March 31, 1999.
<PAGE>
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: May 10, 1999
------------
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 5203
<SECURITIES> 0
<RECEIVABLES> 20
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5226
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5226
<CURRENT-LIABILITIES> 48
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5177
<TOTAL-LIABILITY-AND-EQUITY> 5226
<SALES> 0
<TOTAL-REVENUES> 61
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 32
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 29
<INCOME-TAX> 0
<INCOME-CONTINUING> 29
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
