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 0-11128
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BALCOR PENSION INVESTORS-III
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(Exact name of registrant as specified in its charter)
Illinois 36-3164211
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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-III
(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 $ 1,359,552 $ 1,415,627
Cash and cash equivalents - Early
Investment Incentive Fund - restricted 5,102,573 4,985,126
Accrued interest receivable 25,036 26,625
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$ 6,487,161 $ 6,427,378
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 8,859 $ 27,199
Due to affiliates 49,134 44,432
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Total liabilities 57,993 71,631
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Commitments and contingencies
Limited Partners' capital (237,476
Interests issued) 13,204,775 13,131,354
Less Interests held by Early Investment
Incentive Fund (21,249 in 1999 and 1998) (7,024,362) (7,024,362)
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6,180,413 6,106,992
General Partner's capital 248,755 248,755
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Total partners' capital 6,429,168 6,355,747
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$ 6,487,161 $ 6,427,378
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-III
(An Illinois Limited Partnership)
STATEMENTS 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 $ 149,293 $ 169,919
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Total income 149,293 169,919
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Expenses:
Loss from operation of
real estate held for sale 6,734
Administrative 75,872 125,642
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Total expenses 75,872 132,376
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Net income $ 73,421 $ 37,543
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Net income allocated to General Partner None None
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Net income allocated to Limited Partners $ 73,421 $ 37,543
============== ==============
Net income per average number of Limited
Partnership Interests outstanding
(216,227 in 1999 and 1998) - Basic
and Diluted $ 0.34 $ 0.17
============== ==============
Distribution to General Partner None $ 147,037
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Distribution to Limited Partners None $ 1,669,271
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Distribution per Limited Partnership
Interest outstanding None $ 7.72
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-III
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended June 30, 1999 and 1998
(Unaudited)
1999 1998
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Income:
Interest on short-term investments $ 74,397 $ 82,461
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Total income 74,397 82,461
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Expenses:
Loss from operation of
real estate held for sale 6,734
Administrative 38,650 42,926
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Total expenses 38,650 49,660
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Net income $ 35,747 $ 32,801
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Net income allocated to General Partner None None
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Net income allocated to Limited Partners $ 35,747 $ 32,801
============== ==============
Net income per average number of Limited
Partnership Interests outstanding
(216,227 in 1999 and 1998) - Basic
and Diluted $ 0.17 $ 0.15
============== ==============
The accompanying notes are an integral part of the financial statements.
Balcor Pension Investors-III
(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 $ 73,421 $ 37,543
Adjustments to reconcile net income to
net cash provided by operating
activities:
Net change in:
Accounts and accrued
interest receivable 1,589 27,043
Accounts payable (18,340) (30,042)
Due to affiliates 4,702 21,480
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Net cash provided by operating activities 61,372 56,024
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Financing activities:
Distribution to Limited Partners (1,669,271)
Distribution to General Partner (147,037)
Increase in cash and cash equivalents -
Early Investment Incentive
Fund - restricted (117,447) (338,419)
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Cash used in financing activities (117,447) (2,154,727)
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Net change in cash and cash equivalents (56,075) (2,098,703)
Cash and cash equivalents at beginning
of period 1,415,627 3,558,254
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Cash and cash equivalents at end of period $ 1,359,552 $ 1,459,551
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-III
(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 June 1997. 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 4 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 are:
Paid
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Six Months Quarter Payable
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Reimbursement of expenses to
the General Partner, at cost $ 18,536 $ 9,157 $ 49,134
4. 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-III
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Pension Investors-III (the "Partnership") is a limited partnership
formed in 1982 to invest in wrap-around mortgage loans and, to a lesser extent,
other junior mortgage loans and first mortgage loans. The Partnership raised
$118,738,000 through the sale of Limited Partnership Interests and utilized
these proceeds to fund thirty-two loans. In addition, proceeds from prior loan
repayments were used to fund five additional loans. Eleven properties were
acquired through foreclosure and two loans were reclassified as investment in
joint ventures with affiliates. As of June 30, 1999, the Partnership has no
loans or real estate 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 primarily of
interest income earned on short-term investments which was partially offset by
administrative expenses. Primarily as a result of lower administrative expenses
in 1999 and additional expenditures paid during the second quarter of 1998
related to the Woods Apartments, which was sold in 1997, the Partnership's net
income increased during 1999 as compared to 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.
As a result of lower interest rates and lower average cash balances due
primarily to a distribution to Limited Partners in January 1998, interest
income on short-term investments decreased during 1999 when compared to 1998.
During 1998, the Partnership paid additional expenditures related to the Woods
Apartments, which was sold in 1997. As a result, the Partnership recognized a
loss from operation of real estate held for sale during 1998.
Primarily due to a decrease in portfolio management and accounting fees,
administrative expenses decreased during 1999 when compared to 1998.
Liquidity and Capital Resources
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The cash position of the Partnership decreased by approximately $56,000 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.
Interest income of approximately $117,000 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 June 1997. 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 cash distributions totaling $878.18 per $500
Interest. Of this amount, $510.73 represents Cash Flow from operations and
$367.45 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 21,249 Interests and cash of
$5,102,573 in the Early Investment Incentive Fund.
The Partnership sold all of its remaining real property investments and loans
receivable 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 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 - III
(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. 2 to the Registrant's Registration Statement on Form S-11 dated
May 20, 1982 (Registration Statement No. 2-75938) and as previously filed as
Exhibit 4(a) to Registrant's Registration Statement on Form S-11 dated
November 2, 1982 (Registration No. 2-80123), 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.
(27) Financial Data Schedule of the Registrant for the six months ended 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-III
By: /s/Thomas E. Meador
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Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Mortgage Advisors-II, 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-II, the
General Partner
Date: August 2, 1999
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