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 June 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
June 30, 1999 and December 31, 1998
(Unaudited)
ASSETS
1999 1998
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Cash and cash equivalents $ 1,232,348 $ 1,246,766
Cash and cash equivalents - Early
Investment Incentive Fund - restricted 4,026,232 3,933,560
Accrued interest receivable 19,787 21,547
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$ 5,278,367 $ 5,201,873
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 6,398 $ 20,848
Due to affiliates 32,232 32,496
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Total liabilities 38,630 53,344
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Commitments and contingencies
Limited Partners' capital (85,010
Interests issued) 10,255,344 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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5,239,737 5,148,529
General Partner's capital None None
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Total partners' capital 5,239,737 5,148,529
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$ 5,278,367 $ 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)
STATEMENT OF INCOME AND EXPENSES
for the six months ended June 30, 1999 and 1998
(Unaudited)
1999 1998
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Income:
Interest on short-term investments $ 120,411 $ 136,212
Other income 22,269
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Total income 142,680 136,212
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Expenses:
Administrative 51,472 96,703
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Total expenses 51,472 96,703
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Net income $ 91,208 $ 39,509
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Net income allocated to
General Partner None None
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Net income allocated to
Limited Partners $ 91,208 $ 39,509
============== ==============
Net income per average number of
Limited Partnership Interests
outstanding (76,874 in 1999 and 1998)
-Basic and Diluted $ 1.19 $ 0.51
============== ==============
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)
STATEMENT OF INCOME AND EXPENSES
for the quarters ended June 30, 1999 and 1998
(Unaudited)
1999 1998
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Interest:
Interest on short-term investments $ 59,781 $ 66,754
Other income 22,269
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Total income 82,050 66,754
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Expenses:
Administrative 19,402 47,654
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Total expenses 19,402 47,654
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Net income $ 62,648 $ 19,100
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Net income allocated to
General Partner None None
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Net income allocated to
Limited Partners $ 62,648 $ 19,100
============== ==============
Net income per average number of
Limited Partnership Interests
outstanding (76,874 in 1999 and 1998)
-Basic and Diluted $ 0.82 $ 0.24
============== ==============
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 six months ended June 30, 1999 and 1998
(Unaudited)
1999 1998
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Operating activities:
Net income $ 91,208 $ 39,509
Adjustments to reconcile net income
to net cash provided by operating
activities:
Net change in:
Accounts and accrued interest
receivable 1,760 15,105
Accounts payable (14,450) (21,681)
Due to affiliates (264) 12,292
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Net cash provided by operating activities 78,254 45,225
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Financing activities:
Distribution to Limited Partners (548,106)
Distribution to General Partner (50,510)
Increase in cash and cash
equivalents - Early Investment
Incentive Fund - restricted (92,672) (173,897)
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Cash used in financing activities (92,672) (772,513)
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Net change in cash and cash equivalents (14,418) (727,288)
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 $ 1,232,348 $ 1,280,699
============== ==============
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 six months and quarter
ended June 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
Avenue litigation was filed in May 1999. See Note 5 of Notes to Financial
Statements for additional information regarding the Madison Avenue litigation.
Despite the existence of the Madison Avenue litigation, the Partnership
currently plans to dissolve in December 1999 and distribute remaining cash
reserves 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 Avenue
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
six months and quarter ended June 30, 1999 were:
Paid
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Six Months Quarter Payable
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Reimbursement of expenses to
the General Partner, at cost $ 18,526 $ 9,198 $ 32,232
4. Other Income:
The Partnership received $22,269 during the second quarter of 1999 relating to
a 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. The
defendants intend to vigorously contest this action. 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.
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 June 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. In addition, during the quarter ended June 30, 1999, the Partnership
recognized income relating to a 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 six months and quarter ended June
30, 1999 as compared to the same periods 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 six months and quarters ended June 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 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 legal fees, administrative expenses
decreased during 1999 as compared to 1998.
Liquidity and Capital Resources
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The cash position of the Partnership decreased by approximately $14,000 as of
June 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 refund of real estate taxes on
one of the Partnership's properties, which was sold in a prior year. Interest
income of approximately $93,000 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
Avenue litigation, described in Part II, Item 1, of this report, was filed in
May 1999. Despite the existence of the Madison Avenue litigation, the
Partnership currently plans to dissolve in December 1999 and distribute
remaining cash reserves 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 Avenue 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. Limited Partners should contact the Partnership if the suspension of
transfers causes any extraordinary hardships. 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 June 30, 1999, there were 8,136 Interests and cash of
$4,026,232 held in the Early Investment Incentive Fund.
The Partnership sold all of its remaining real property investments and
mortgage loans 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 involves 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 these vendors. 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,
these surveys and discussions with the key vendors performing services for the
Partnership indicate that the key vendors are substantially Year 2000 compliant
as of June 30, 1999. The Partnership will continue to monitor the Year 2000
compliance of its key vendors during the third 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 which will be updated by September 30,
1999 based on the results of further surveys, discussions and testing of
systems, where applicable. 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
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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. 99CH08972). The Partnership, twenty-one additional
limited partnerships which were sponsored by The Balcor Company (together with
the Partnership, the "Affiliated Partnerships"), The Balcor Company, other
affiliated entities and one individual are named defendants in this action.
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
briefing schedule on this motion has not yet been set.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Partnership 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 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 six months ending June
30, 1999 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended June 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: August 10, 1999
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