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, 1996
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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 0-11126
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BALCOR EQUITY PROPERTIES-XII
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(Exact name of registrant as specified in its charter)
Illinois 36-3169763
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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
----
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
-----------------------------
(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 ]
<PAGE>
PART I
Item 1. Business
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Balcor Equity Properties-XII (the "Registrant") is a limited partnership formed
in 1981 under the laws of the State of Illinois. The Registrant raised
$37,447,000 from sales of Limited Partnership Interests. The Registrant's
operations consisted exclusively of investment in and operation of
income-producing real property, and all financial information included in this
report relates to this industry segment.
The Registrant utilized the net offering proceeds to acquire seven real
property investments and a minority joint venture interest in one additional
real property, three of which were disposed of in prior years, including the
property in which the Registrant held a minority joint venture interest. During
1996, the Registrant sold its remaining five real estate investments. The
Partnership Agreement generally provides that the proceeds of any sale or
refinancing of the Registrant's properties will not be reinvested in new
acquisitions.
In August 1996, the Registrant sold Brierwood Apartments in an all cash sale
for $5,250,000. In September 1996, the Registrant sold Somerset Village
Apartments in an all cash sale for $11,100,000. In November 1996, the
Registrant sold the Cedar Ridge and Sandridge - Phase I apartment complexes in
all cash sales for $7,200,000 and $8,250,000, respectively. In December 1996,
the Registrant sold the DeFoors Creek Apartments in an all cash sale for
$19,850,000. See "Other Information", below, and "Item 7. Liquidity and Capital
Resources" for additional information.
A portion of the proceeds from the property sales was distributed to Limited
Partners in October 1996 and January 1997, and the remaining available proceeds
will be distributed in 1997. The Registrant has retained a portion of the cash
to satisfy obligations of the Registrant as well as 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 stemming from litigation involving the Registrant including, but
not limited to, the lawsuits discussed in "Item 3. Legal Proceedings." In the
absence of any such contingency, the reserves will be paid within twelve months
of the last property sale. In the event a contingency continues to exist or
arises, reserves may be held by the Registrant for a longer period of time.
Activity for the purchase of limited partnership interests ("tender offers")
has increased in real estate limited partnerships generally. Many of these
tender offers have been made by investors seeking to make a profit from the
purchase of the interests. When a tender offer was made for interests in the
Registrant, the General Partner issued a response to limited partners
expressing the General Partner's opinion regarding the offer. Certain
administrative costs were incurred to respond to a tender offer.
The officers and employees of Balcor Partners-XII, the General Partner of the
Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
<PAGE>
Other Information
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Sandridge - Phase I Apartments
- ------------------------------
As previously reported, on August 27, 1996, the Registrant contracted to sell
Sandridge - Phase I Apartments, Pasadena, Texas, to an unaffiliated party,
Alliance Holdings, L.L.C., an Illinois limited liability company. The purchaser
assigned its rights under the agreement of sale to one of its affiliates,
Affiliate OG Portfolio L.P., and the sale closed on November 12, 1996. The sale
price was $8,250,000. From the proceeds of the sale, the Registrant repaid the
outstanding balance of the first mortgage loan of $5,829,712 and paid a
prepayment penalty of $141,832, closing costs of $32,925, $123,750 to an
unaffiliated party as a brokerage commission and $75,900 to an affiliate of the
third party providing property management services for the property as a fee
for services rendered in connection with the sale of the property. The
unsecured loan from the General Partner which was utilized towards the 1989
refinancing of the property and which had an outstanding balance of $440,724 at
June 30, 1996 has been repaid with proceeds from the previous sales of the
Registrant's properties. The Registrant received the remaining proceeds of
approximately $2,046,000.
DeFoors Creek Apartments
- ------------------------
As previously reported, on September 9, 1996, the Registrant contracted to sell
DeFoors Creek Apartments, Atlanta, Georgia, to an unaffiliated party, Lincoln
Property Company Southwest, Inc. The purchaser exercised its option to
terminate the sale; however, the agreement of sale was subsequently reinstated
by the Registrant and the purchaser. The purchaser assigned its rights under
the agreement of sale to one of its affiliates, Lincoln DeFoors Creek, L.P., a
Georgia limited partnership, and the sale closed on December 19, 1996. The sale
price was $19,850,000. The purchaser received a credit of $65,000 against the
sale price relating to the property's vacancy factor. From the proceeds of the
sale, the Registrant repaid the outstanding balances of the first and second
mortgage loans of $6,107,307 and $2,637,708, respectively, and paid closing
costs of $544,093, which includes a state withholding tax of $514,243 paid on
behalf of the Limited Partners relating to the gain on the sale of the
property, $428,589 in prepayment penalties, $198,500 to an unaffiliated party
as a brokerage commission and $148,875 to an affiliate of the third party
providing property management services for the property as a fee for services
rendered in connection with the sale of the property. The Registrant received
the remaining proceeds of approximately $9,720,000.
Item 2. Properties
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The Registrant no longer owns any physical properties.
Item 3. Legal Proceedings
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Proposed class action
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<PAGE>
On February 29, 1996, a proposed class action complaint was filed, Raymond
Masri vs. Lehman Brothers, Inc., et al., Case No. 96/103727 (Supreme Court of
the State of New York, County of New York). The Registrant, additional limited
partnerships which were sponsored by The Balcor Company, three limited
partnerships sponsored by the predecessor of Lehman Brothers, Inc. (together
with the Registrant and the affiliated partnerships, the "Defendant
Partnerships"), Lehman Brothers, Inc. and Smith Barney Holdings, Inc. are
defendants. The complaint alleges, among other things, common law fraud and
deceit, negligent misrepresentation and breach of fiduciary duty relating to
the disclosure of information in the offering of limited partnership interests
in the Defendant Partnerships. The complaint seeks judgment for compensatory
damages equal to the amount invested in the Defendant Partnerships by the
proposed class plus interest accrued thereon; general damages for injuries
arising from the defendants' alleged actions; recovery from the defendants of
all profits received by them as a result of their alleged actions relating to
the Defendant Partnerships; exemplary damages; attorneys' fees and other costs.
The 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 whether or not an
unfavorable decision in this action would have a material adverse impact on the
Registrant.
Proposed class action
- ---------------------
On August 30, 1996, a proposed class action complaint was filed, Lenore Klein
vs. Lehman Brothers, Inc., et al., Superior Court of New Jersey, Law Division,
Union County, Docket No. Unn-L-5162-96). The Registrant, additional limited
partnerships which were sponsored by The Balcor Company (together with the
Partnership, the "Affiliated Partnerships"), American Express Company, Lehman
Brothers, Inc., additional limited partnerships sponsored by the predecessor of
Lehman Brothers, Inc. (together with the Registrant and the Affiliated
Partnerships, the "Defendant Partnerships") and Smith Barney Holdings, Inc. are
the named defendants in the action. The complaint was amended on October 18,
1996 to add additional plaintiffs. The amended complaint alleges, among other
things, common law fraud and deceit, negligent misrepresentation, breach of
contract, breach of fiduciary duty and violation of certain New Jersey statutes
relating to the disclosure of information in the offering of limited
partnership interests in the Defendant Partnerships. The amended complaint
seeks judgment for compensatory damages equal to the amount invested in the
Defendant Partnerships by the proposed class plus interest; general damages for
injuries arising from the defendants' alleged actions; equitable relief,
including rescission, on certain counts; punitive damages; treble damages on
certain counts; recovery from the defendants of all profits received by them as
a result of their alleged actions relating to the Defendant Partnerships;
attorneys' fees and other costs.
The 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 whether or not an
unfavorable decision in this action would have a material adverse impact on 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 1996.
<PAGE>
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 distributions, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
As of December 31, 1996, the number of record holders of Limited Partnership
Interests of the Registrant was 3,192.
Item 6. Selected Financial Data
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Year ended December 31,
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1996 1995 1994 1993 1992
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Total income $8,278,842 $9,271,354 $ 8,743,519 $ 8,223,415 $ 8,308,626
Loss before gain
on sales of
properties and
extraordinary
items (122,001) (547,006) (1,032,968) (952,362) (445,671)
Net income (loss) 26,597,761 (547,006) (682,968) (755,843) 3,048,526
Net income (loss)
per Limited Part-
nership Interest 695.36 (14.46) (18.06) (19.98) 80.60
Total assets 20,139,284 25,940,108 27,188,193 27,222,063 28,297,996
Mortgage notes
payable None 30,082,916 30,487,859 30,815,836 31,133,258
Distributions per
Limited Partner-
ship Interest (A) 15.00 None None None None
(A) This amount represents a distribution of Original Capital.
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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<PAGE>
Summary of Operations
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Balcor Equity Properties - XII (the "Partnership") recognized gains related to
the 1996 property sales. As a result, the Partnership generated net income
during 1996 as compared to a net loss during 1995. The Partnership experienced
improved operations during 1995 primarily as a result of increased rental
income which resulted in the Partnership generating a decreased net loss during
1995 as compared to 1994. Further discussion of the Partnership's operations is
summarized below.
1996 Compared to 1995
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The Partnership sold the Brierwood, Cedar Ridge, DeFoors Creek, Sandridge -
Phase I, and Somerset Village apartment complexes during 1996, and recognized
gains on the sales totaling $27,809,874 during 1996.
As a result of the 1996 property sales, rental and service income decreased by
approximately $1,478,000 as compared to 1995. Increased rental rates at four of
the five sold properties resulted in higher rental income of approximately
$298,000, partially offsetting the decrease in rental and service income during
1996 as compared to 1995.
Due to higher average cash balances resulting from net proceeds received in
connection with the 1996 property sales and interest earned on escrow deposits,
interest income on short-term investments increased during 1996 as compared to
1995.
As a result of the 1996 property sales and the related payoff of the underlying
mortgages, interest expense on mortgage notes payable decreased during 1996 as
compared to 1995.
The repayment of the General Partner loan from proceeds from the sale of the
Brierwood Apartments during the third quarter of 1996 resulted in a decrease in
interest on short-term loan - affiliate for 1996 as compared to 1995.
As a result of the 1996 property sales, depreciation expense decreased during
1996 as compared to 1995.
As a result of the 1996 property sales, amortization of deferred expenses
decreased during 1996 as compared to 1995.
Property operating expense for 1996 decreased when compared to 1995 by
approximately $724,000 due to the 1996 property sales and additional repair and
maintenance expenses incurred in 1995, including the exterior painting of the
Brierwood Apartments. This decrease was partially offset by higher payroll,
utilities, and insurance expense at all of the properties and exterior painting
and repair expenditures in 1996 at Somerset Apartments totaling approximately
$390,000.
Real estate tax expense for 1996 decreased when compared to 1995 by
approximately $188,000 due to the 1996 property sales. Real estate tax expense
also decreased due to a refund of approximately $56,000 received from the
taxing authority for Somerset Village Apartments and due to lower taxes of
approximately $37,000 at the DeFoors Creek Apartments as a result of a decrease
in the assessed value and tax rate. These decreases were partially offset by an
<PAGE>
increase of approximately $31,000 at the Sandridge - Phase I Apartments due to
an increase in the assessed value of the property.
As a result of the 1996 property sales, property management fees decreased
during 1996 as compared to 1995.
The Partnership incurred legal, consulting, printing and postage costs in
connection with a tender offer during the fourth quarter of 1995. As a result,
administrative expenses decreased during 1996 as compared to 1995.
In connection with the 1996 property sales, the Partnership paid loan
prepayment penalties totaling $722,414, and wrote off the remaining unamortized
deferred expenses totaling $380,085. These amounts were recognized as
extraordinary items and classified as debt extinguishment expense.
1995 Compared to 1994
- ---------------------
As a result of higher rental rates at all of the Partnership's properties,
rental and service income increased during 1995 as compared to 1994.
As a result of higher average interest rates, interest income on short-term
investments increased during 1995 as compared to 1994.
The August 1994 retirement of the Sandridge - Phase I Apartments' second
mortgage loan resulted in a decrease of approximately $109,000 in interest
expense on mortgage notes payable during 1995 when compared to 1994. However,
the refinancing of the Brierwood and Sandridge - Phase I apartment complexes'
first mortgage loans in 1994 resulted in higher outstanding principal balances
and increased interest expense by approximately $128,000 which partially offset
this decrease. Interest expense also decreased by approximately $31,000 due to
lower average loan balances resulting from the regular monthly principal
payments on the loans.
Due to the retirement and replacement of the Sandridge - Phase I Apartments'
second mortgage loan with an unsecured General Partner loan in August 1994,
interest on short-term loans increased for 1995 as compared to 1994.
During 1994, the Brierwood and Sandridge - Phase I apartment complexes' first
mortgage loans were refinanced and the remaining unamortized deferred expenses
relating to the original loan were written off. As a result, amortization
expense decreased during 1995 as compared to 1994.
The Partnership incurred legal, consulting, printing and postage costs in
connection with a tender offer during the fourth quarter of 1995. As a result,
administrative expenses increased during 1995 as compared to 1994.
In July 1994, the Partnership repaid a $500,000 note payable to the seller of
the Sandridge - Phase I Apartments for $150,000, resulting in an extraordinary
gain on debt forgiveness of $350,000.
Liquidity and Capital Resources
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<PAGE>
The cash position of the Partnership as of December 31, 1996 increased by
approximately $19,678,000 as compared to December 31, 1995, primarily due to
the proceeds received from the 1996 property sales. Cash flow of approximately
$209,000 from operating activities consists primarily of property operations
and interest income on short term investments, which were partially offset by
the payment of administrative expenses. Cash flow from investing activities
consists primarily of net proceeds of approximately $50,306,000 from the 1996
property sales. Net cash used in financing activities consists primarily of
activities resulting from the 1996 property sales, including loan repayments
from sale proceeds of approximately $30,421,000, distributions to Partners of
approximately $562,000, principal payments of mortgage notes payable of
approximately $368,000 and the receipt of released escrow funds of
approximately $1,028,000. In addition, in January 1997 the Partnership made a
special distribution of $8,425,575 to Limited Partners from sale proceeds.
The Partnership classifies the cash flow of its properties as either positive,
a marginal deficit, or a significant deficit, each after consideration of debt
service payments unless otherwise indicated. A deficit is considered to be
significant if it exceeds $250,000 annually or 20% of the property's rental and
service income. The Partnership defines cash flow generated from its properties
as an amount equal to the property's revenue receipts less property related
expenditures, which include debt service payments. During 1996, the Partnership
sold all of its properties. All of the properties generated positive cash flow
prior to their sale. During 1995, all of the Partnership's properties generated
positive cash flow, with the exception of Brierwood Apartments, which generated
a marginal cash flow deficit due to exterior painting of the property in 1995.
In August 1996, the Partnership sold the Brierwood Apartments in an all cash
sale for $5,250,000. From the proceeds of the sale, the Partnership paid
$3,749,391 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $80,625 in selling costs. Pursuant to the terms of the
sale agreement, $500,000 of the sale proceeds was retained by the Partnership
and was unavailable for distribution until December 1996, at which time the
funds were released to the Partnership. The remainder of the proceeds were used
to repay the General Partner loan and to make a distribution to the Limited
Partners in October 1996. See Note 9 of Notes to Financial Statements for
additional information.
In September 1996, the Partnership sold the Somerset Village Apartments in an
all cash sale for $11,100,000. From the proceeds of the sale, the Partnership
paid $6,321,474 to the third party mortgage holder in full satisfaction of the
first mortgage loan, and paid $304,215 in selling costs. The remainder of the
proceeds was distributed to the Limited Partners in January 1997. See Note 9
of Notes to Financial Statements for additional information.
In November 1996, the Partnership sold the Cedar Ridge Apartments in an all
cash sale for $7,200,000. From the proceeds of the sale, the Partnership paid
$5,069,635 to the third party mortgage holder in full satisfaction of the first
and second mortgage loans, and paid $284,234 in selling costs and $151,993 in
prepayment penalties. The remainder of the proceeds was distributed to the
Limited Partners in January 1997. See Note 9 of Notes to Financial Statements
for additional information.
<PAGE>
In November 1996, the Partnership sold the Sandridge - Phase I Apartments in an
all cash sale for $8,250,000. From the proceeds of the sale, the Partnership
paid $5,829,712 to the third party mortgage holder in full satisfaction of the
first mortgage loan, and paid $232,575 in selling costs and $141,832 in
prepayment penalties. The remainder of the proceeds was distributed to the
Limited Partners in January 1997. See Note 9 of Notes to Financial Statements
for additional information.
In December 1996, the Partnership sold the DeFoors Creek Apartments in an all
cash sale for $19,850,000. The purchaser received a credit of $65,000 against
the sale price relating to the property's vacancy factor. From the proceeds of
the sale, the Partnership paid $8,745,015 to the third party mortgage holder in
full satisfaction of the first and second mortgage loans, and paid $377,225 in
selling costs and $428,589 in prepayment penalties. The remainder of available
proceeds will be distributed to the Limited Partners in 1997. See Note 9 of
Notes to Financial Statements for additional information.
The Partnership sold all of its remaining properties during 1996. A portion of
the proceeds from the property sales was distributed to Limited Partners in
October 1996 and January 1997 and the remaining available proceeds will be
distributed in 1997. The Partnership has retained a portion of the cash 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 stemming from litigation involving the Partnership including,
but not limited to, the lawsuits discussed in "Item 3. Legal Proceedings." In
the absence of any such contingency, the reserves will be paid within twelve
months of the last property sale. In the event a contingency continues to exist
or arises, reserves may be held by the Partnership for a longer period of time.
During October 1996, the Partnership made a distribution to Limited Partners of
$15.00 per Interest from Net Cash Proceeds received from the Brierwood
Apartments sale. In January 1997, the Partnership made a distribution of
$8,425,575 ($225 per Interest) to Limited Partners from the Net Cash Proceeds
received in connection with the sales of Somerset Village, Cedar Ridge and
Sandridge - Phase I apartment complexes. Including the January 1997
distribution, investors have received distributions of Net Cash Receipts of $70
and Net Cash Proceeds of $300.50, totaling $370.50 per $1,000 Interest, as well
as certain tax benefits. In light of results to date investors will not recover
all of their original investment.
Item 8. Financial Statements and Financial Statement Supplementary Data
- -----------------------------------------------------------------------
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.
The net effect of the differences between the financial statements and the tax
returns is summarized as follows:
<PAGE>
December 31, 1996 December 31, 1995
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Financial Tax Financial Tax
Statements Returns Statements Returns
---------- --------- ---------- ---------
Total assets $20,139,284 $20,139,284 $25,940,108 $13,228,239
Partners' capital
(deficit) accounts:
General Partner (42,000) None (600,773) (1,520,767)
Limited Partners 19,891,539 24,400,911 (5,071,501) (16,863,381)
Net income (loss):
General Partner 558,773 1,520,767 (5,470) (16,952)
Limited Partners 26,038,988 42,340,240 (541,536) (767,126)
Per Limited Part-
nership Interest 695.36 1,130.67 (14.46) (20.49)
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 on any matter
of accounting principles, practices or financial statement disclosure.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
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(a) Neither the Registrant nor Balcor Partners-XII, its General Partner, has a
Board of Directors.
(b, c & e) The names, ages and business experiences of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
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Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Vice President James E. Mendelson
Senior Vice President John K. Powell, Jr.
Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 49) 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 Director of The Balcor Company. He
is also 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.
Alexander J. Darragh (age 42) joined Balcor in September 1988 and is
responsible for due diligence analysis and real estate advisory services for
Balcor and American Express Company. He also has supervisory responsibility
for Balcor's environmental matters. Mr. Darragh received masters' degrees in
Urban Geography from Queen's University and in Urban Planning from
Northwestern University.
James E. Mendelson (age 34) joined Balcor in July 1984 and is responsible for
Balcor's property sales activities. He also has supervisory responsibility
for Balcor's accounting, financial, treasury, investor services and
investment administration functions. From 1989 to 1995, Mr. Mendelson was
Vice President - Transaction Management and Vice President - Senior
Transaction Manager and had responsibility for various asset management
matters relating to real estate investments made by Balcor, including
negotiations for the restructuring of mortgage loan investments. Mr.
Mendelson received his M.B.A. degree from the University of Chicago.
John K. Powell, Jr. (age 46) joined Balcor in September 1985 and is
responsible for portfolio and asset management matters relating to Balcor's
partnerships. Mr. Powell also has supervisory responsibility for Balcor's
risk management function. He received a Master of Planning degree from the
University of Virginia. Mr. Powell has been designated a Certified Real
Estate Financier by the National Society for Real Estate Finance and is a
full member of the Urban Land Institute.
<PAGE>
Jayne A. Kosik (age 39) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. 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 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 1996.
Item 11. Executive Compensation
- -------------------------------
The Registrant paid $1,161 in 1996 with respect to one of the executive
officers and directors of Balcor Partners-XII, the General Partner. The
Registrant has not paid and does not propose to pay any remuneration to the
remaining executive officers and directors of the General Partner. Certain of
the remaining 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 8 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 WIG XII 4,166.90 11.02%
Partnership Partners Limited
Interests Chicago, Partnership
Illinois Interests
Limited Metropolitan 3,351.50 8.86%
Partnership Acquisition VII Limited
Interests Greenville, Partnership
South Carolina Interests
For purposes of this Item 12, WIG XII Partners is an affiliate of Metropolitan
Acquisition VII and, collectively, they own 19.88% of the Interests.
(b) Balcor Partners-XII and its officers and partners own as a group the
following Limited Partnership Interests in the Registrant:
<PAGE>
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
Limited Partnership
Interests 70 Interests Less than 1%
Relatives and affiliates of the partners and officers of the General Partner
own 12 Limited Partnership Interests.
(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
- -------------------------------------------------------
(a & b) See Note 8 of Notes to Financial Statements for additional information
relating to transactions with affiliates.
See Note 4 of Notes to Financial Statements for information relating to the
Partnership Agreement and the allocation of distributions and profits and
losses.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------------------------------------------------------------------------
(a)
(1 & 2) See Index to Financial Statements in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement of Limited Partnership set forth as
Exhibit 3 to the Registrant's Post-Effective Amendment No. 1 to the
Registration Statement on Form S-11 dated June 28, 1983 (Registration
No. 2-76947) is incorporated herein by reference.
(4) Certificate of Limited Partnership set forth as Exhibit 4.1 to the
Registrant's Registration Statement on Form S-11 dated July 2, 1982
(Registration No. 2-76947) 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 hereby incorporated herein by reference.
(10) Material Contracts:
(a) Agreement of Sale relating to the sale of Somerset Village Apartments,
Tempe, Arizona previously filed as Exhibit 10 to the Registrant's Report on
Form 10-Q for the quarter ending June 30, 1996 is incorporated herein by
reference.
(b) (i) Agreement of Sale and attachment thereto relating to the sale of
Sandridge Apartments - Phase I, Pasadena, Texas, previously filed as Exhibit
2(a) to the Registrant's Current Report on Form 8-K dated August 27, 1996 is
incorporated herein by reference.
(ii) Modification Agreement relating to the sale of Sandridge Apartments -
Phase I, Pasadena, Texas, previously filed as Exhibit 2(b) to the Registrant's
Current Report on Form 8-K dated August 27, 1996 is incorporated herein by
reference.
(iii) Second Modification Agreement relating to the sale of Sandridge
Apartments - Phase I, Pasadena, Texas, previously filed as Exhibit (99) to the
Registrant's Current Report on Form 8-K dated September 25, 1996, is
incorporated herein by reference.
(iv) Letter Agreement relating to the sale of Sandridge Apartments - Phase I,
Pasadena, Texas, previously filed as Exhibit (c)(ii) to the Registrant's Report
on Form 10-Q for the quarter ended September 30, 1996, is incorporated herein
by reference.
(c) (i) Agreement of Sale and attachment thereto relating to the sale of
DeFoors Creek Apartments, Atlanta, Georgia, previously filed as Exhibit 2 to
the Partnership's Current Report on Form 8-K dated September 9, 1996 is
incorporated herein by reference.
(ii) Letter dated October 2, 1996 relating to the termination of the contract
for the sale of DeFoors Creek Apartments, Atlanta, Georgia, previously filed as
Exhibit (10)(c)(ii) to the Registrant's Report on Form 10-Q for the quarter
ended September 30, 1996, is incorporated herein by reference.
<PAGE>
(iii) First Amendment to Agreement of Sale and Escrow Agreement dated October
10, 1996 reinstating the contract for the sale of DeFoors Creek Apartments,
Atlanta, Georgia, previously filed as Exhibit (10)(c)(iii) to the Registrant's
Report on Form 10-Q for the quarter ended September 30, 1996, is incorporated
herein by reference.
(iv) Second Amendment to Agreement of Sale and Escrow Agreement dated October
17, 1996 relating to the sale of DeFoors Creek Apartments, Atlanta, Georgia,
previously filed as Exhibit (10)(c)(iv) to the Registrant's Report on Form 10-Q
for the quarter ended September 30, 1996, is incorporated herein by reference.
(v) Letter dated October 23, 1996 relating to the termination of the contract
for the sale of DeFoors Creek Apartments, Atlanta, Georgia, previously filed as
Exhibit (10)(c)(v) to the Registrant's Report on Form 10-Q for the quarter
ended September 30, 1996, is incorporated herein by reference.
(vi) Third Amendment of Agreement of Sale and Escrow Agreement dated October
31, 1996 reinstating the contract for the sale of DeFoors Creek Apartments,
Atlanta, Georgia, previously filed as Exhibit (10)(c)(vi) to the Registrant's
Report on Form 10-Q for the quarter ended September 30, 1996, is incorporated
herein by reference.
(d) (i) Agreement of Sale and attachment thereto relating to the sale of Cedar
Ridge Apartments, Baytown, Texas, previously filed as Exhibit 2(i) to the
Registrant's Current Report on Form 8-K dated September 25, 1996 is
incorporated herein by reference.
(ii) Letter Agreement relating to the sale of Cedar Ridge Apartments, Baytown,
Texas, previously filed as Exhibit 2 (ii) to the Registrant's Current Report on
Form 8-K dated September 25, 1996 is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1996 is attached hereto.
(b) A Current Report on Form 8-K dated September 25, 1996 was filed on October
9, 1996 reporting a contract to sell Cedar Ridge Apartments located in Dayton,
Texas, the closing of the sale of the Somerset Village Apartments located in
Tempe, Arizona and the modification of the contract to sell Sandridge
Apartments - Phase I located in Pasadena, Texas.
(c) Exhibits: See Item 14(a)(3) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 EQUITY PROPERTIES-XII
By: /s/Jayne A. Kosik
--------------------------------
Jayne A. Kosik
Managing Director and Chief
Financial Officer (Principal
Accounting Officer)
of Balcor Partners-XII, the
General Partner
Date: March 27, 1997
---------------------------
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 Partners-XII,
/s/Thomas E. Meador the General Partner March 27, 1997
- -------------------- --------------
Thomas E. Meador
Managing Director and Chief
Financial Officer (Principal
Accounting Officer) of
Balcor Partners-XII, the General
/s/Jayne A. Kosik Partner March 27, 1997
- -------------------- --------------
Jayne A. Kosik
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1996 and 1995
Statements of Partners' Capital (Deficit), for the years ended December 31,
1996, 1995 and 1994
Statements of Income and Expenses, for the years ended December 31, 1996, 1995
and 1994
Statements of Cash Flows, for the years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
Financial Statement Schedules are omitted for the reason that they are
inapplicable or equivalent information has been included elsewhere herein.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Equity Properties-XII:
We have audited the financial statements of Balcor Equity Properties-XII (An
Illinois Limited Partnership) as listed in the Index of this Form 10-K. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Balcor Equity Properties-XII
at December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
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
interests in real estate. At December 31, 1996 the Partnership has disposed of
all its real estate interests. Upon resolution of the litigation described in
Note 12 to the financial statements, the Partnership intends to cease
operations and dissolve.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 26, 1997
<PAGE>
BALCOR EQUITY PROPERTIES - XII
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
1996 1995
--------------- -------------
Cash and cash equivalents $ 19,824,096 $ 146,052
Escrow deposits 1,626,624
Accounts and accrued interest receivable 315,188 87,969
Prepaid expenses 95,080
Deferred expenses, net of accumulated
amortization of $157,220 in 1995 431,158
--------------- -------------
20,139,284 2,386,883
--------------- -------------
Investment in real estate:
Land 4,359,906
Buildings and improvements 39,176,170
-------------
43,536,076
Less accumulated depreciation 19,982,851
-------------
Investment in real estate, net of
accumulated depreciation 23,553,225
--------------- -------------
$ 20,139,284 $ 25,940,108
=============== =============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Loans payable - affiliate $ 705,724
Accounts payable $ 214,819 127,828
Due to affiliates 74,926 21,406
Accrued real estate taxes 516,588
Security deposits 157,920
Mortgage notes payable 30,082,916
--------------- -------------
Total liabilities 289,745 31,612,382
Commitments and contingencies
Limited Partners' capital (deficit)(37,447
Interests issued and outstanding) 19,891,539 (5,071,501)
General Partner's deficit (42,000) (600,773)
--------------- -------------
Total partners' capital (deficit) 19,849,539 (5,672,274)
--------------- -------------
$ 20,139,284 $ 25,940,108
=============== =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PROPERTIES - XII
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
for the years ended December 31, 1996, 1995, and 1994
Partners' Capital (Deficit) Accounts
-----------------------------------------
General Limited
Total Partner Partners (A)
------------- ------------- -------------
Balance at December 31, 1993 $ (4,442,300) $ (588,473) $ (3,853,827)
Net loss for the year
ended December 31, 1994 (682,968) (6,830) (676,138)
------------- ------------- -------------
Balance at December 31, 1994 (5,125,268) (595,303) (4,529,965)
Net loss for the year
ended December 31, 1995 (547,006) (5,470) (541,536)
------------- ------------- -------------
Balance at December 31, 1995 (5,672,274) (600,773) (5,071,501)
Cash distribution to Limited
Partners (B) (561,705) (561,705)
Deemed distribution (C) (514,243) (514,243)
Net income for the year
ended December 31, 1996 26,597,761 558,773 26,038,988
------------- ------------- -------------
Balance at December 31, 1996 $ 19,849,539 $ (42,000) $ 19,891,539
============= ============= =============
(A) Includes a $70,000 investment by the General Partner.
(B) Represents a $15.00 per Limited Partnership Interest distribution of
Original Capital paid in the fourth quarter 1996.
(C) This amount represents a state withholding tax paid on behalf of the
Limited Partners relating to the gain on the sale of the DeFoors
Creek Apartments.
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PROPERTIES - XII
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1996, 1995, and 1994
1996 1995 1994
------------- ------------- -------------
Income:
Rental and service $ 8,060,332 $ 9,240,631 $ 8,722,222
Interest on short-term
investments 218,510 30,723 21,297
------------- ------------- -------------
Total income 8,278,842 9,271,354 8,743,519
------------- ------------- -------------
Expenses:
Interest on mortgage
notes payable 2,424,115 2,880,912 2,892,591
Interest on short-term
loan - affiliate 21,152 52,902 38,671
Depreciation 1,056,973 1,273,190 1,268,188
Amortization of deferred
expenses 51,073 60,614 77,934
Property operating 3,397,145 3,731,112 3,819,252
Real estate taxes 651,962 901,493 879,193
Property management fees 402,252 460,331 434,842
Administrative 383,784 457,806 365,816
------------- ------------- -------------
Total expenses 8,388,456 9,818,360 9,776,487
------------- ------------- -------------
Loss before gain on sale of
properties and extraordinary
items (109,614) (547,006) (1,032,968)
Gain on sale of properties 27,809,874
------------- ------------- -------------
Income (loss) before
extraordinary items 27,700,260 (547,006) (1,032,968)
Extraordinary items:
Gain on forgiveness of debt 350,000
Debt extinguishment expense (1,102,499)
------------- ------------- -------------
Net income (loss) $ 26,597,761 $ (547,006) $ (682,968)
============= ============= =============
Income (loss) before
extraordinary items allocated
to General Partner $ 569,798 $ (5,470) $ (10,330)
============= ============= =============
Income (loss) before
extraordinary items allocated
to Limited Partners $ 27,130,462 $ (541,536) $ (1,022,638)
============= ============= =============
Income (loss) before
extraordinary items per
Limited Partnership Interest
(37,447 issued and outstanding)$ 724.51 $ (14.46) $ (27.31)
============= ============= =============
<PAGE>
Extraordinary items allocated
to General Partner $ (11,025) None $ 3,500
============= ============= =============
Extraordinary items allocated
to Limited Partners $ (1,091,474) None $ 346,500
============= ============= =============
Extraordinary items per Limited
Partnership Interest (37,447
issued and outstanding) $ (29.15) None $ 9.25
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PROPERTIES - XII
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1996, 1995, and 1994
(Continued)
1996 1995 1994
------------- ------------- -------------
Net income (loss) allocated to
General Partner $ 558,773 $ (5,470) $ (6,830)
============= ============= =============
Net income (loss) allocated to
Limited Partners $ 26,038,988 $ (541,536) $ (676,138)
============= ============= =============
Net income (loss) per Limited
Partnership Interest (37,447
issued and outstanding) $ 695.36 $ (14.46) $ (18.06)
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PROPERTIES - XII
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995, and 1994
1996 1995 1994
------------- ------------- -------------
Operating activities:
Net income (loss) $ 26,597,761 $ (547,006) $ (682,968)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Gain on sale of properties (27,809,874)
Gain on forgiveness of debt (350,000)
Debt extinguishment expense 380,085
Depreciation of properties 1,056,973 1,273,190 1,268,188
Amortization of deferred
expenses 51,073 60,614 77,934
Net change in:
Escrow deposits 598,803 (167,852) (149,547)
Accounts and accrued
interest receivable (227,219) (76,372) 25,791
Prepaid expenses 95,080 (95,080)
Accounts payable 86,991 2,922 (92,409)
Due to affiliates 53,520 (81,987) 9,959
Accrued liabilities (516,588) 89,458 32,950
Security deposits (157,920) 13,471 851
------------- ------------- -------------
Net cash provided by
operating activities 208,685 471,358 140,749
------------- ------------- -------------
Investing activities:
Improvements to properties (118,050) (20,814)
Proceeds from sale of
properties 51,585,000
Payment of selling costs (1,278,874)
------------- ------------- -------------
Net cash provided by (used in)
investing activities 50,306,126 (118,050) (20,814)
------------- ------------- -------------
Financing activities:
Distribution to Limited
Partners (561,705)
Deemed distribution (514,243)
Proceeds from loan payable
- affiliate 195,000
Repayment of loan payable
- affiliate (705,724) (515,000) (666,872)
Repayment of mortgage notes
payable (29,715,227) (7,565,417)
Proceeds from refinancing of
mortgage notes payable 9,701,000
Payment of deferred expenses (372,560)
Funding of capital
improvement escrows (865,844)
<PAGE>
Proceeds from the release of
capital improvement escrows 1,027,821 314,190 19,777
Principal payments on
mortgage notes payable (367,689) (404,943) (420,964)
------------- ------------- -------------
Net cash used in financing
activities (30,836,767) (410,753) (170,880)
------------- ------------- -------------
Net change in cash and cash
equivalents 19,678,044 (57,445) (50,945)
Cash and cash equivalents at
beginning of year 146,052 203,497 254,442
------------- ------------- -------------
Cash and cash equivalents at
end of year $ 19,824,096 $ 146,052 $ 203,497
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PROPERTIES-XII
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Equity Properties-XII (the "Partnership") was engaged principally in the
operation of residential real estate located in various markets within the
United States and sold its remaining investments during 1996.
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 all of its remaining properties in 1996. The
Partnership distributed a majority of the proceeds from the sales in 1996 and
the first quarter of 1997 and the remaining available proceeds will be
distributed in 1997. The Partnership has retained a portion of the proceeds
from the sales to satisfy obligations of the Partnership as well as establish a
reserve for contingencies. Such contingencies may include legal and other fees
stemming from litigation involving the Partnership, including but not limited
to, the lawsuits discussed in Note 12 of Notes to the Financial Statements. In
the absence of any such contingency, the reserves will be paid within twelve
months of the last property sale. In the event a contingency continues to exist
or arises, reserves may be held by the Partnership for a longer period of time.
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) Depreciation expense was computed using straight-line and accelerated
methods. Rates used in the determination of depreciation are based upon the
following estimated useful lives:
Years
-----
Buildings and improvements 22 to 30
Furniture and fixtures 5
Maintenance and repairs were charged to expense when incurred. Expenditures for
improvements were charged to the related asset account.
When properties were sold, the related costs and accumulated depreciation were
removed from the respective accounts. Any gain or loss on disposition was
recognized in accordance with generally accepted accounting principles.
(c) Effective January 1, 1995 the Partnership adopted Statement of Financial
Accounting Standards, No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of". Under SFAS 121, 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,
possible impairment to the value of its properties. The General Partner
<PAGE>
estimated the fair value of its properties based on the current sales price
less estimated closing costs. Under SFAS 121, the General Partner determined
that no impairment in value had occurred prior to the sales of the properties.
The General Partner considered the method referred to above to result in a
reasonable measurement of a property's fair value, unless other factors
affecting the property's value indicate otherwise.
(d) Deferred expenses consisted of loan modification and refinancing fees which
were amortized over the terms of the respective agreements. Upon sale, any
remaining balance was recognized as debt extinguishment expense and classified
as an extraordinary item.
(e) The Financial Accounting Standard Board's Statement No. 107, "Disclosures
About Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. Since quoted market prices are not available for the Partnership's
financial instruments, fair values have been based on estimates using present
value techniques. These techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, may not
be realized in immediate settlement of the instrument. Statement No. 107 does
not apply to all balance sheet items and excludes certain financial instruments
and all non-financial instruments such as real estate and investment in joint
ventures from its disclosure requirements.
(f) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles.
(g) 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. Cash equivalents are held or invested
primarily in one type of commercial paper.
(h) For financial statement purposes, in previous years partners were allocated
income and loss in accordance with the profit and loss percentages in the
Partnership Agreement. In order for the capital accounts of the General Partner
and Limited Partners to appropriately reflect their respective remaining
economic interests as provided for in the Partnership Agreement, the General
Partner was allocated additional income in 1996 for financial statement
purposes.
(i) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership loss or income in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
4. Partnership Agreement:
The Partnership was organized on December 23, 1981; however, operations did not
commence until 1982. The Partnership Agreement provides for Balcor Partners-XII
to be the General Partner and for the admission of Limited Partners through the
sale of up to 40,000 Limited Partnership Interests at $1,000 per Interest,
37,447 of which were sold through November 30, 1982, the termination date of
the offering.
<PAGE>
The Partnership Agreement provides that the General Partner will be allocated
1% of all profits and losses. One hundred percent of Net Cash Receipts
available for distribution shall be distributed to the holders of Interests.
However, there shall be accrued for the benefit of the General Partner as its
distributive share from operations an amount equivalent to 1% of the total Net
Cash Receipts being distributed which will be paid only out of Net Cash
Proceeds.
The Partnership sold its properties. The Net Cash Proceeds resulting therefrom,
which are available for distribution, will be distributed only to holders of
Interests until such time as holders of Interests have received an amount equal
to their Original Capital plus certain levels of return, as specified by the
Partnership Agreement. Only after such returns are made to the Limited Partners
would the General Partner receive 20% of further distributed Net Cash Proceeds.
Based on the proceeds recovered on the sale of properties described in Note 9
of Notes to Financial Statements, the General Partner will receive no
distributions of Net Cash Receipts or Net Cash Proceeds in accordance with this
provision.
5. Mortgage Notes Payable:
Mortgage notes payable at December 31, 1995 consisted of the following:
Carrying
Amount of
Notes at
Property Pledged as Collateral 12/31/95
- ----------------- ----------
Apartment Complexes (A)
- -------------------
Brierwood $3,759,681
Cedar Ridge-first mortgage 4,993,591
Cedar Ridge-second mortgage 103,600
DeFoors Creek-first mortgage 6,285,117
DeFoors Creek-second mortgage 2,666,889
Sandridge I 5,865,753
Somerset Village 6,408,285
-----------
Total $30,082,916
===========
(A) All of the Partnership's properties were sold during 1996, and any
outstanding loan balances were repaid from sale proceeds. See Note 9 of Notes
to Financial Statements for additional information.
During the years ended December 31, 1996, 1995 and 1994, the Partnership
incurred interest expense on mortgage notes payable to non-affiliates of
$2,424,115, $2,880,912 and $2,783,877, respectively. The Partnership paid
interest of $2,436,502, $2,880,912 and $2,783,877, respectively, during these
three years.
<PAGE>
6. Management Agreements:
All of the properties owned by the Partnership during 1996 were under
management agreements with a third-party management company. These management
agreements provided for annual fees of 5% of gross operating receipts.
7. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code,
rules and regulations promulgated thereunder and existing interpretations
thereof. The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, will differ from the
tax returns due to the different treatment of various items as specified in the
Internal Revenue Code. The net effect of these accounting differences is that
the net income for 1996 in the financial statements is $17,263,246 less than
the tax income of the Partnership for the same period.
8. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
-------------- ---------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Property management fees None None $39,770 None $393,340 $39,770
Reimbursement of
expenses to the
General Partner, at
cost:
Accounting 12,544 12,965 39,631 2,604 61,502 20,679
Data processing 5,601 2,551 22,121 2,125 34,079 6,337
Investor communica-
tions None None 4,890 None 18,146 4,630
Legal 11,000 11,120 18,918 2,199 12,222 5,000
Portfolio management 37,725 37,601 84,874 11,399 38,549 15,320
Property sales admin-
istration 13,294 10,689
Other None None 3,460 192 8,947 2,513
During August 1994, the $1,692,596 Sandridge - Phase I second mortgage loan
from an affiliate of the General Partner was retired and replaced with an
unsecured General Partner loan. During 1994, prior to retirement of the
mortgage loan, the Partnership incurred and paid interest expense of $108,714
and $72,184, respectively.
As of December 31, 1995, the General Partner loan had a balance of $705,724,
including accrued interest payable of $2,887 thereon. During 1996, the
Partnership repaid the General Partner loan with proceeds from the sale of the
Brierwood Apartments. During 1995 and 1994, the Partnership made net principal
repayments of $320,000 and $666,872, respectively, on this loan. The
Partnership incurred interest expense on the loan of $21,152 in 1996, $52,902
in 1995 and $38,671 in 1994, and paid interest expense of $24,039 in 1996,
$59,159 in 1995 and $29,527 in 1994. Interest expense on the General Partner
loan was computed at the American Express Company cost of funds rate plus a
<PAGE>
spread to cover administrative costs. The interest rate was 5.931% at the date
of the loan repayment.
The Partnership participates in an insurance deductible program with other
affiliated partnerships in which the program pays claims up to the amount of
the deductible under the master insurance policies for its properties. The
program is administered by an affiliate of the General Partner who receives no
fee for administering the program; however, the General Partner is reimbursed
for program expenses. The Partnership paid premiums to the deductible insurance
program of $11,099, $55,758 and $91,997 in 1996, 1995 and 1994, respectively.
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed all
of the Partnership's properties until the affiliate was sold to a third party
in November 1994.
9. Property Sales:
(a) In August 1996, the Partnership sold the Brierwood Apartments in an all
cash sale for $5,250,000. From the proceeds of the sale, the Partnership paid
$3,749,391 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $80,625 in selling costs. The basis of the property was
$2,279,282, which is net of accumulated depreciation of $2,738,335. For
financial statement purposes, the Partnership recognized a gain of $2,890,093
from the sale of this property.
(b) In September 1996, the Partnership sold the Somerset Village Apartments in
an all cash sale for $11,100,000. From the proceeds of the sale, the
Partnership paid $6,321,474 to the third party mortgage holder in full
satisfaction of the first mortgage loan, and paid $304,215 in selling costs.
The basis of the property was $5,543,350, which is net of accumulated
depreciation of $5,165,140. For financial statement purposes, the Partnership
recognized a gain of $5,252,435 from the sale of this property.
(c) In November 1996, the Partnership sold the Cedar Ridge Apartments in an all
cash sale for $7,200,000. From the proceeds of the sale, the Partnership paid
$5,069,635 to the third party mortgage holder in full satisfaction of the first
and second mortgage loans, and paid $284,234 in selling costs and $151,993 in
prepayment penalties. The basis of the property was $4,346,679, which is net of
accumulated depreciation of $3,683,824. For financial statement purposes, the
Partnership recognized a gain of $2,569,087 from the sale of this property.
(d) In November 1996, the Partnership sold the Sandridge - Phase I Apartments
in an all cash sale for $8,250,000. From the proceeds of the sale, the
Partnership paid $5,829,712 to the third party mortgage holder in full
satisfaction of the first mortgage loan, and paid $232,575 in selling costs and
$141,832 in prepayment penalties. The basis of the property was $4,280,023,
which is net of accumulated depreciation of $3,769,504. For financial statement
purposes, the Partnership recognized a gain of $3,737,402 from the sale of this
property.
(e) In December 1996, the Partnership sold the DeFoors Creek Apartments in an
all cash sale for $19,850,000. The purchaser received a credit of $65,000
against the sale price relating to the property's vacancy factor. From the
proceeds of the sale, the Partnership paid $8,745,015 to the third party
mortgage holder in full satisfaction of the first and second mortgage loans and
paid $377,225 in selling costs and $428,589 in prepayment penalties. In
addition, the Partnership paid a state withholding tax of $514,243 on behalf of
<PAGE>
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 $6,046,918, which is net of accumulated depreciation
of $5,683,021. For financial statement purposes, the Partnership recognized a
gain of $13,360,857 from the sale of this property.
10. Extraordinary Items:
a) In 1994, the $500,000 note due to the seller of the Sandridge - Phase I
Apartments was repaid for $150,000 resulting in an extraordinary gain on
forgiveness of debt of $350,000.
b) In connection with the 1996 property sales, the Partnership paid $722,414 of
prepayment penalties and wrote off the remaining unamortized deferred expenses
in the amount of $380,085. These amounts were recognized as extraordinary items
and classified as debt extinguishment expense. See Note 9 of Notes to Financial
Statements for additional information.
11. Fair Values of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1996 and 1995 are as follows:
The carrying value of cash and cash equivalents, accounts and accrued interest
receivable and accounts payable approximates fair value.
Based on borrowing rates available to the Partnership at the end of 1995 for
mortgage loans with similar terms and maturities, the fair value of the
mortgage notes payable approximated the carrying value.
12. Contingencies:
The Partnership is currently involved in two lawsuits whereby the Partnership
and certain affiliates have been named as defendants alleging substantially
similar claims involving certain federal securities law violations with regard
to the adequacy and accuracy of disclosures of information concerning, as well
as marketing efforts related to, the offering of the Limited Partnership
Interests of the Partnership. The defendants continue to vigorously contest
these actions. A plaintiff class has not been certified in either action and,
no determinations of the merits have been made. It is not determinable at this
time whether or not an unfavorable decision in either action would have a
material adverse impact on the financial position, operations and liquidity of
the Partnership. The Partnership believes it has meritorious defenses to
contest the claims.
13. Subsequent Event:
In January 1997, the Partnership paid $8,425,575 ($225 per Interest) to Limited
Partners representing Net Cash Proceeds received in connection with the sales
of Somerset Village, Cedar Ridge, and Sandridge - Phase I apartment complexes.
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 19824
<SECURITIES> 0
<RECEIVABLES> 315
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20139
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 20139
<CURRENT-LIABILITIES> 290
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19849
<TOTAL-LIABILITY-AND-EQUITY> 20139
<SALES> 0
<TOTAL-REVENUES> 36089
<CGS> 0
<TOTAL-COSTS> 4451
<OTHER-EXPENSES> 1492
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2445
<INCOME-PRETAX> 27701
<INCOME-TAX> 0
<INCOME-CONTINUING> 27701
<DISCONTINUED> 0
<EXTRAORDINARY> (1103)
<CHANGES> 0
<NET-INCOME> 26598
<EPS-PRIMARY> 695.36
<EPS-DILUTED> 695.36
</TABLE>
