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, 1998
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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
- ------------------------------- -------------------
(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
--------------
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 has
retained cash reserves from the sale of its real estate investments for
contingencies which exist or may arise. The Registrant's operations currently
consist of interest income earned on short-term investments and the payment of
administrative expenses.
The Registrant utilized the net offering proceeds to acquire seven real
property investments and a minority joint venture interest in one additional
real property, and has since disposed of all of these 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.
The Partnership Agreement provides for the dissolution of the Registrant upon
the occurrence of certain events, including the disposition of all interests in
real estate. The Registrant sold its final real estate investment in December
1996. The Registrant has retained a portion of the cash from the property sales
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 and costs stemming from litigation involving the Registrant,
including, but not limited to, the lawsuit discussed in "Item 3. Legal
Proceedings." Due to this litigation, the Registrant will not be dissolved and
the reserves will be held by the Registrant until the conclusion of all
contingencies. There can be no assurances as to the time frame for conclusion
of these contingencies.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for information regarding the
Registrant's Year 2000 readiness.
The Registrant no longer has an ownership interest in any real estate
investment. The General Partner is not aware of any material potential
liability relating to environmental issues or conditions affecting real estate
formerly owned by the Registrant.
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.
Item 2. Properties
- ------------------
As of December 31, 1998, the Registrant did not own any properties.
<PAGE>
In the opinion of the General Partner, the Registrant has obtained adequate
insurance coverage for property liability and property damage matters.
See Notes to Financial Statements for other information regarding former real
estate property investments.
Item 3. Legal Proceedings
- -------------------------
Klein, et al. vs. Lehman Brothers, Inc., et al.
- -----------------------------------------------
On August 30, 1996, a proposed class action complaint was filed, Lenore Klein,
et al. vs. Lehman Brothers, Inc., et al. (Superior Court of New Jersey, Law
Division, Union County, Docket No. Unn-L-5162-96). The complaint was amended on
each of October 18, 1996, December 5, 1997 and January 15, 1998. The
Registrant, additional limited partnerships which were sponsored by The Balcor
Company (together with the Registrant, the "Affiliated Partnerships"), The
Balcor Company, American Express Company, Lehman Brothers, Inc., Smith Barney,
Inc., American Express Financial Advisors, and other affiliated entities and
various individuals are named defendants in the action. The most recent amended
complaint, plaintiffs' Third 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 Affiliated Partnerships, the marketing of interests in the
Affiliated Partnerships and the acquisition of real properties for the
Affiliated Partnerships. The Third Amended Complaint seeks judgment for
compensatory damages equal to the amount invested in the Affiliated
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 Affiliated Partnerships;
attorneys' fees and other costs.
In June 1998, the defendants filed a motion to dismiss the complaint for
failure to state a cause of action. Oral arguments were heard by the court on
August 21, 1998. On September 24, 1998, the judge issued a letter opinion
granting the defendants' motion to dismiss the complaint. On October 23, 1998,
the judge announced that he would enter an order dismissing the complaint
without prejudice, but stated that the plaintiffs would be required to file any
new pleading in a separate action and would not be allowed to amend the
existing complaint. The plaintiffs moved for a reconsideration of the judge's
ruling, which was denied on November 20, 1998. On December 28, 1998, plaintiffs
filed a notice of appeal from both the judge's October 23 and November 20, 1998
rulings.
On March 11, 1999, an order was entered by the Superior Court of New Jersey,
Appellate Division, dismissing the appeal in this action with prejudice.
Therefore, this will be the final report to investors regarding this matter.
<PAGE>
Masri vs. Lehman Brothers, Inc., et al.
- ---------------------------------------
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, 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 how the outcome of
this action will impact the remaining cash reserves of the Registrant.
Plaintiffs' lead counsel also represents the plaintiffs in the Lenore Klein
matter discussed above. Plaintiffs' counsel has indicated an intent to withdraw
this complaint. Raymond Masri has joined as an additional plaintiff in the
Lenore Klein matter discussed above.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
No matters were submitted to a vote of the Limited Partners of the Registrant
during 1998.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- -------------------------------------------------------------------------------
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, 1998, the number of record holders of Limited Partnership
Interests of the Registrant was 3,204.
Item 6. Selected Financial Data
- -------------------------------
Year ended December 31,
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1998 1997 1996 1995 1994
--------- ---------- ---------- ---------- ----------
Total income $78,405 $316,105 $8,278,842 $ 9,271,354 $ 8,743,519
(Loss) income before
gain on sales of
properties and
extraordinary
items (140,399) 22,677 (109,614) (547,006) (1,032,968)
Net (loss) income (140,399) 22,677 26,597,761 (547,006) (682,968)
Net (loss) income
per Limited Part-
nership Interest -
Basic and Diluted (3.42) .61 695.36 (14.46) (18.06)
Total assets 1,413,764 1,828,319 20,139,284 25,940,108 27,188,193
Mortgage notes
payable None None None 30,082,916 30,487,859
Distributions per
Limited Partner-
ship Interest (A) 8.28 482.85 15.00 None None
(A) These amounts represent distributions of original capital.
Item 7. Management's Discussion and Analysis of Financial Condition and
- -----------------------------------------------------------------------
Results of Operations
- ---------------------
Operations
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<PAGE>
Summary of Operations
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Balcor Equity Properties - XII (the "Partnership") sold its remaining five
properties in 1996. During 1998, administrative expenses and the payment of
real estate taxes related to a property sold in 1996 were higher than interest
income earned on short-term investments, which resulted in a net loss during
1998. The operations of the Partnership during 1997 were comprised primarily of
interest income on short-term investments from proceeds received from property
sales prior to distributions to Limited Partners in 1997 and January 1998, and
income received related to partial refunds of prior years' insurance premiums
and refunds of real estate taxes relating to DeFoors Creek Apartments, which
was substantially offset by the payment of administrative and operating
expenses. As a result, the Partnership recognized a net loss during 1998 as
compared to net income during 1997. The gains recognized on the 1996 property
sales resulted in a significant decrease in net income during 1997 as compared
to 1996. Further discussion of the Partnership's operations is summarized
below.
1998 Compared to 1997
- ---------------------
Due to higher average cash balances in 1997 as a result of the investment of
proceeds received in connection with the 1996 property sales prior to
distributions to Limited Partners in 1997 and January 1998, interest income on
short term investments was higher during 1997 as compared to 1998.
The Partnership recognized other income in 1997 primarily in connection with
partial refunds of prior years' insurance premiums and refunds of real estate
taxes relating to the Partnership's properties.
During 1997, the Partnership paid additional expenditures related to certain of
the properties sold during 1996. As a result, the Partnership recognized
property operating expense during 1997.
During 1997 and 1998, the Partnership paid additional real estate taxes related
to the DeFoors Creek Apartments, which was sold in 1996. The Partnership had
filed an appeal against an increase in the assessed value of the property in
prior years. The Partnership did not win the appeal and consequently, paid the
taxes due for prior years.
1997 Compared to 1996
- ---------------------
During 1996, the Partnership sold the Brierwood, Cedar Ridge, DeFoors Creek,
Sandridge - Phase I and Somerset Village apartment complexes and recognized
gains in connection with these sales of $27,809,874. As a result of the sales
of these properties, rental and service income, interest expense on mortgage
notes payable, depreciation, amortization of deferred expenses, and property
management fees ceased, and property operating and real estate taxes decreased
during 1996.
<PAGE>
Due to higher average cash balances resulting from the investment of net
proceeds received in connection with the 1996 property sales prior to
distribution to Limited Partners in January and April of 1997, interest income
on short-term investments increased during 1997 as compared to 1996.
Due to the repayment of the short-term loan from an affiliate in August of 1996
with proceeds from the sale of the Brierwood Apartments, interest expense on
short-term loan - affiliate ceased.
Decreased accounting, portfolio management and legal fees in 1997 resulted in a
decrease in administrative expenses during 1997 as compared to 1996.
In connection with the 1996 property sales the Partnership paid $722,414 in
prepayment penalties and wrote off the remaining unamortized deferred expenses
in the amount of $380,085. These amounts were recognized as an extraordinary
item and classified as debt extinguishment expense for financial statement
purposes.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $394,000 as of
December 31, 1998 as compared to December 31, 1997 primarily due to a
distribution to the Limited Partners in January 1998 from remaining available
Net Cash Proceeds. The Partnership used cash of approximately $84,000 to fund
its operating activities, which consisted of the payment of administrative
expenses and real estate taxes related to a property sold in 1996, which were
partially offset by interest income earned on short-term investments and the
collection of an account receivable related to a sold property. Cash used in
financing activities consisted of the payment of a distribution to the Limited
Partners of approximately $310,000.
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. The Partnership sold its final real estate investment in December
1996. The Partnership has retained a portion of the cash from the property
sales to satisfy obligations of the Partnership as well as establish a reserve
for contingencies. The timing of the termination of the Partnership and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies include legal and
other fees and costs stemming from litigation involving the Partnership
including, but not limited to, the lawsuit discussed in "Item 3. Legal
Proceedings". Due to this litigation, the Partnership will not be dissolved and
the reserves will be held by the Partnership until the conclusion of all
contingencies. There can be no assurances as to the time frame for conclusion
of these contingencies.
The Partnership made distributions from Net Cash Proceeds totaling $8.28,
$482.85 and $15 per Interest in 1998, 1997 and 1996, respectively. See
Statements of Partners' Capital (Deficit) for additional information.
<PAGE>
Limited Partners have received cumulative distributions of $636.63 per $1,000
Interest, as well as certain tax benefits. Of this amount, $70.00 has been from
Net Cash Receipts and $566.63 has been from Net Cash Proceeds. 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. Limited Partners will not recover all of
their original investment.
The Partnership sold all of its remaining real property investments in 1996 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 the solicitation of information from these vendors through the
use of surveys, follow-up discussions and review of data where needed. The
Partnership has sent out surveys to these vendors and received back a majority
of these surveys. While the Partnership cannot guarantee Year 2000 compliance
by its key vendors, and in many cases will be relying on statements from these
vendors without independent verification, preliminary surveys indicate that the
key vendors performing services for the Partnership are aware of the issues and
are working on a solution to achieve compliance before the year 2000. The
Partnership is in the process of developing a contingency plan in the event any
of its key vendors are not Year 2000 compliant prior to the year 2000. As part
of its contingency plan, the Partnership will identify replacement vendors in
the event that current vendors are not substantially Year 2000 compliant by
June 30, 1999. The Partnership does not believe that failure by any of its key
vendors to be Year 2000 compliant by the year 2000 would have a material effect
on the business, financial position or results of operations of the
Partnership.
Certain statements in this report constitute "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements may include statements regarding income or losses as well as
assumptions relating to the foregoing.
The forward-looking statements made by the Partnership are subject to known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Partnership to differ from any
future results, performance or achievements expressed or implied by the
forward-looking statements.
Item 7a. Quantitative and Qualitative Disclosure About Market Risk
- ------------------------------------------------------------------
The supplemental financial information specified by Item 305 of Regulation S-K
is not applicable.
<PAGE>
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:
December 31, 1998 December 31, 1997
----------------------- ---------------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
---------- --------- ---------- -----------
Total assets $1,413,764 $5,965,140 $1,828,319 $6,361,598
Partners' capital
(deficit) accounts:
General Partner (54,412) (54,412) (42,000) (57,544)
Limited Partners 1,395,056 5,946,428 1,832,932 6,392,815
Net (loss) income:
General Partner (12,412) 3,132 None (57,544)
Limited Partners (127,987) (136,498) 22,677 73,188
Per Limited Part-
nership Interest (3.42)(A) (3.65) 0.61(A) 1.95
(A) Amount represents basic and diluted net income per Limited Partnership
Interest.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
- --------------------
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
- -----------------------------------------------------------
(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
Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 51) 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 member of the board of directors 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.
Mr. Meador is on the Board of Directors of Grubb & Ellis Company, a publicly
traded commercial real estate firm. Mr. Meador was elected to the Board of
Grubb & Ellis Company in May 1998. Mr. Meador is also a director of AMLI
Commercial Properties Trust, a private real estate investment trust that owns
office and industrial buildings in the Chicago, Illinois area. Mr. Meador was
elected to the Board of AMLI Commercial Properties Trust in August 1998.
Alexander J. Darragh (age 44) joined Balcor in September 1988 and is
responsible for real estate advisory services for Balcor and American Express
Company. Mr. Darragh received masters' degrees in Urban Geography from Queen's
University and in Urban Planning from Northwestern University.
Jayne A. Kosik (age 41) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. Ms. Kosik is also a member of the board of directors of The Balcor
Company. 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 Senior Managing Director of The
Balcor Company. Ms. Kosik is a Certified Public Accountant.
<PAGE>
(d) There is no family relationship between any of the foregoing officers.
(e) 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 1998.
Item 11. Executive Compensation
- -------------------------------
The Registrant has not paid and does not propose to pay any remuneration to the
executive officers and directors of the General Partner. The executive 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
information relating to transactions with affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
(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 11.13%
Partnership Partners Limited
Interests Chicago, Partnership
Illinois Interests
Limited Metropolitan 3,351.50 8.95%
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 20.08% of the Interests.
(b) Balcor Partners-XII and its officers and partners own as a group the
following Limited Partnership Interests in the Registrant:
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
<PAGE>
Limited Partnership
Interests 70 Interests Less than 1%
Relatives of the officers and affiliates of the General Partner do not own any
Limited Partnership Interests.
In addition, Balcor LP Corp., an affiliate of the General Partner, holds title
to 22 Limited Partnership Interests in the Partnership due exclusively to
instances in which Limited Partners abandoned title to their Limited
Partnership Interests. Balcor LP Corp. is a nominee holder only of such
Interests and has disclaimed any economic or beneficial ownership in said
Interests. All distributions of cash payable with respect to such Interests
held by Balcor LP Corp. are returned to the Partnership for distribution to
other Limited Partners in accordance with the Partnership Agreement.
(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 Quarterly Report on
Form 10-Q for the quarter ended June 30, 1992 are hereby incorporated herein by
reference.
(27) Financial Data Schedule of the Registrant for 1998 is attached hereto.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter
ended December 31, 1998.
(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
Senior Managing Director and Chief
Financial Officer (Principal
Accounting and Financial Officer)
of Balcor Partners-XII, the
General Partner
Date: March 26, 1999
--------------
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,
the General Partner
/s/ Thomas E. Meador March 26, 1999
- -------------------- --------------
Thomas E. Meador
Senior Managing Director and Chief
Financial Officer (Principal
Accounting and Financial Officer) of
Balcor Partners-XII, the General
Partner
/s/ Jayne A. Kosik March 26, 1999
- ------------------ --------------
Jayne A. Kosik
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1998 and 1997
Statements of Partners' Capital (Deficit), for the years ended December 31,
1998, 1997 and 1996
Statements of Income and Expenses, for the years ended December 31, 1998, 1997
and 1996
Statements of Cash Flows, for the years ended December 31, 1998, 1997 and 1996
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:
In our opinion, the accompanying balance sheets and the related statements of
partners' capital (deficit), of income and expenses and of cash flows present
fairly, in all material respects, the financial position of Balcor Equity
Properties-XII An Illinois Limited Partnership (the "Partnership") at December
31, 1998 and 1997, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted
auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
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
real estate interests. As of December 31, 1998, the Partnership no longer has
an ownership interest in any real estate investment. Upon resolution of the
litigation described in Note 11 to the financial statements, the Partnership
intends to cease operations and dissolve.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 17, 1999
<PAGE>
BALCOR EQUITY PROPERTIES - XII
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
1998 1997
--------------- --------------
Cash and cash equivalents $ 1,407,779 $ 1,801,748
Accounts and accrued interest receivable 5,985 26,571
--------------- --------------
$ 1,413,764 $ 1,828,319
=============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 54,683 $ 13,705
Due to affiliates 18,437 23,682
--------------- --------------
Total liabilities 73,120 37,387
--------------- --------------
Commitments and contingencies
Limited Partners' capital (37,447
Interests issued and outstanding) 1,395,056 1,832,932
General Partner's deficit (54,412) (42,000)
--------------- --------------
Total partners' capital 1,340,644 1,790,932
--------------- --------------
$ 1,413,764 $ 1,828,319
=============== ==============
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, 1998, 1997 and 1996
Partners' Capital (Deficit) Accounts
------------------------------------------
General Limited
Total Partner Partners (A)
-------------- ------------- -------------
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
Cash Distribution to Limited
Partners (B) (18,081,284) (18,081,284)
Net income for the year
ended December 31, 1997 22,677 None 22,677
-------------- ------------- -------------
Balance at December 31, 1997 1,790,932 (42,000) 1,832,932
Cash Distribution to Limited
Partners (B) (309,889) (309,889)
Net loss for the year
ended December 31, 1998 (140,399) (12,412) (127,987)
-------------- ------------- -------------
Balance at December 31, 1998 $ 1,340,644 $ (54,412) $ 1,395,056
============== ============= =============
(A) Includes a $70,000 investment by the General Partner.
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, 1998, 1997 and 1996
(Continued)
(B) Summary of distributions per Limited Partnership Interest:
1998 1997 1996
-------------- ------------- -------------
First Quarter $ 8.28 $ 225.00 None
Second Quarter None 257.85 None
Third Quarter None None None
Fourth Quarter None None $ 15.00
(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, 1998, 1997 and 1996
1998 1997 1996
-------------- ------------- -------------
Income:
Rental and service $ 8,060,332
Interest on short-term
investments $ 78,405 $ 267,421 218,510
Other income 48,684
-------------- ------------- -------------
Total income 78,405 316,105 8,278,842
-------------- ------------- -------------
Expenses:
Interest on mortgage
notes payable 2,424,115
Interest on short-term
loan - affiliate 21,152
Depreciation 1,056,973
Amortization of deferred
expenses 51,073
Property operating 77,742 3,397,145
Real estate taxes 53,417 42,742 651,962
Property management fees 402,252
Administrative 165,387 172,944 383,784
-------------- ------------- -------------
Total expenses 218,804 293,428 8,388,456
-------------- ------------- -------------
(Loss) income before gain
on sale of properties and
extraordinary item (140,399) 22,677 (109,614)
Gain on sale of properties 27,809,874
-------------- ------------ -------------
(Loss) income before
extraordinary item (140,399) 22,677 27,700,260
Extraordinary item:
Debt extinguishment expense (1,102,499)
-------------- ------------- -------------
Net (loss) income $ (140,399) $ 22,677 $ 26,597,761
============== ============= =============
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, 1998, 1997 and 1996
(Continued)
1998 1997 1996
-------------- ------------- -------------
(Loss) income before
extraordinary item allocated
to General Partner $ (12,412) None $ 569,798
============== ============= =============
(Loss) income before
extraordinary item allocated
to Limited Partners $ (127,987) $ 22,677 $ 27,130,462
============== ============= =============
(Loss) income before
extraordinary item per
Limited Partnership Interest
(37,447 issued and outstanding)
- Basic and Diluted $ (3.42) $ 0.61 $ 724.51
============== ============= =============
Extraordinary item allocated
to General Partner None None $ (11,025)
============== ============= =============
Extraordinary item allocated
to Limited Partners None None $ (1,091,474)
============== ============= =============
Extraordinary item per
Limited Partnership Interest
(37,447 issued and outstanding)
- Basic and Diluted None None $ (29.15)
============== ============= =============
Net (loss) income allocated to
General Partner $ (12,412) None $ 558,773
============== ============= =============
Net (loss) income allocated to
Limited Partners $ (127,987) $ 22,677 $ 26,038,988
============== ============= =============
Net (loss) income per Limited
Partnership Interest (37,447
issued and outstanding)
- Basic and Diluted $ (3.42) $ 0.61 $ 695.36
============== ============= =============
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, 1998, 1997 and 1996
1998 1997 1996
-------------- ------------- -------------
Operating activities:
Net (loss) income $ (140,399) $ 22,677 $ 26,597,761
Adjustments to reconcile
net (loss) income to
net cash (used in) or
provided by operating
activities:
Gain on sale of properties (27,809,874)
Debt extinguishment
expense 380,085
Depreciation of properties 1,056,973
Amortization of deferred
expenses 51,073
Net change in:
Escrow deposits 598,803
Accounts and accrued
interest receivable 20,586 288,617 (227,219)
Prepaid expenses 95,080
Accounts payable 40,978 (201,114) 86,991
Due to affiliates (5,245) (51,244) 53,520
Accrued liabilities (516,588)
Security deposits (157,920)
-------------- ------------- -------------
Net cash (used in) or provided
by operating activities (84,080) 58,936 208,685
-------------- ------------- -------------
Investing activities:
Proceeds from sale of
properties 51,585,000
Payment of selling costs (1,278,874)
-------------
Net cash provided by
investing activities 50,306,126
-------------
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, 1998, 1997 and 1996
(Continued)
1998 1997 1996
-------------- ------------- -------------
Financing activities:
Distributions to Limited
Partners (309,889) (18,081,284) (561,705)
Deemed distribution (514,243)
Repayment of loan payable
- affiliate (705,724)
Repayment of mortgage notes
payable (29,715,227)
Proceeds from the release of
capital improvement escrows 1,027,821
Principal payments on
mortgage notes payable (367,689)
-------------- ------------- -------------
Net cash used in financing
activities (309,889) (18,081,284) (30,836,767)
-------------- ------------- -------------
Net change in cash and cash
equivalents (393,969) (18,022,348) 19,678,044
Cash and cash equivalents at
beginning of year 1,801,748 19,824,096 146,052
-------------- ------------- -------------
Cash and cash equivalents at
end of year $ 1,407,779 $ 1,801,748 $ 19,824,096
============== ============= =============
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") has retained cash reserves
from the sale of its real estate investments for contingencies which exist or
may arise. The Partnership's operations currently consist of interest income
earned on short-term investments and the payment of administrative expenses.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. The Partnership sold its final real estate investment in December
1996. The Partnership has retained a portion of the cash from the property
sales to satisfy obligations of the Partnership as well as establish a reserve
for contingencies. The timing of the termination of the Partnership and the
final distribution of cash will depend upon the nature and extent of
liabilities and contingencies which exist or may arise. Such contingencies may
include legal and other fees and costs stemming from litigation involving the
Partnership, including but not limited to, the lawsuits discussed in Note 11 of
Notes to the Financial Statements. Due to this litigation, the Partnership will
not be dissolved and the reserves will be held by the Partnership until the
conclusion of all contingencies. There can be no assurances as to the time
frame for conclusion of these contingencies.
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 were based upon the
following estimated useful lives:
Buildings and improvements 22 to 30 years
Furniture and fixtures 5 years
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.
<PAGE>
(c) 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
estimated the fair value of its properties based on the current sales price
less estimated closing costs. 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
indicated 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 Partnership calculates the fair value of its financial instruments
based on estimates using present value techniques. The Partnership includes
this additional information in the notes to the financial statements when the
fair value is different than the carrying value of those financial instruments.
When the fair value reasonably approximates the carrying value, no additional
disclosure is made.
(f) For financial statement purposes, prior to 1996, the partners were
allocated income and losses in accordance with the provisions in the
Partnership Agreement. In order for the capital account balances to more
accurately reflect the partners' remaining economic interests in the
Partnership, the income (loss) allocations have been adjusted.
(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.
(h) 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.
(i) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles.
(j) Statement of Financial Accounting Standards, No. 128, "Earnings per Share"
was adopted by the Partnership effective for the year-ended December 31, 1997
and has been applied to the prior earnings period presented in the financial
statements. The Partnership has no dilutive securities.
(k) Certain reclassifications of prior years information were made to conform
to the 1998 presentation.
<PAGE>
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.
The Partnership Agreement provides that the General Partner will be allocated
1% of all profits and losses and the Limited Partners will be allocated 99% of
the profits and losses. For financial statement purposes, prior to 1996, the
partners were allocated income and losses in accordance with the provisions in
the Partnership Agreement. In order for the capital account balances to more
accurately reflect the partners' remaining economic interests in the
Partnership, the income (loss) allocations have been adjusted.
One hundred percent of Net Cash Receipts available for distribution was
distributed to the holders of Interests in proportion to their participating
percentages as of the record date for such distributions. Under certain
circumstances, the General Partner would have participated in the Net Cash
Proceeds from the sale or refinancing of Partnership properties. The General
Partner's participation was limited to 20% of excess Net Cash Proceeds and was
subordinated to the return of Original Capital plus certain levels of return to
the holders of Interests, as defined in the Partnership Agreement. Since the
required subordination levels were not met, the General Partner has not
received any distributions of Net Cash Receipts or Net Cash Proceeds during the
lifetime of the Partnership.
5. Mortgage Notes Payable:
During the year ended December 31, 1996, the Partnership incurred interest
expense on mortgage notes payable of $2,424,115 and paid interest of
$2,436,502, respectively.
6. Management Agreements:
The Partnership's properties were managed by a third party management company
prior to the sale of the properties. 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 loss for 1998 in the financial statements is $7,033 higher than the tax
loss of the Partnership for the same period.
<PAGE>
8. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96
-------------- ---------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Reimbursement of
expenses to the
General Partner, at
cost:
Accounting $4,128 $2,979 $17,030 $5,166 12,544 $12,965
Data processing 2,119 872 1,951 None 3,051 None
Legal 3,313 2,401 10,472 3,009 11,000 11,120
Portfolio management 16,423 12,185 42,839 13,824 40,275 40,152
Property sales admin-
istration 1,683 None 9,006 1,683 13,294 10,689
During 1996, the Partnership fully repaid the General Partner loan which had a
balance of $705,724 including accrued interest payable of $2,887 at December
31, 1995, with proceeds from the sale of the Brierwood Apartments. The
Partnership incurred interest expense on the loan of $21,152 and paid interest
expense of $24,039 in 1996. Interest expense on the General Partner loan was
computed at the American Express Company cost of funds rate plus a spread to
cover administrative costs. The interest rate was 5.931% at the date of the
loan repayment.
Prior to May 1995, the Partnership participated in an insurance deductible
program with other affiliated partnerships in which the program paid claims up
to the amount of the deductible under the master insurance policy for its
properties. The program was administered by an affiliate of the General Partner
(The Balcor Company) who received no fee for administering the program.
However, the General Partner was reimbursed for program expenses. The
Partnership paid premiums to the deductible insurance program relating to
claims for periods prior to May 1, 1995 of $11,099 in 1996.
9. Property Sales:
(a) 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
<PAGE>
addition, the Partnership paid a state withholding tax of $514,243 on behalf of
the Limited Partners relating to the gain on the sale of the property which was
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.
(b) 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.
(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 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.
(e) 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.
10. Extraordinary Item:
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 an extraordinary
item and classified as debt extinguishment expense. See Note 9 of Notes to
Financial Statements for additional information.
11. Contingencies:
The Partnership is currently involved in a lawsuit, Masri vs. Lehman
Brothers, Inc., et al., whereby the Partnership and certain affiliates have been
named as defendants alleging claims involving certain state securities and
<PAGE>
common law violations with regard to the property acquisition process of the
Partnership, and 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 this action. A plaintiff class has not been certified in
this action. No determinations upon any significant issues have been made. It
is not determinable at this time how the outcome of this action will impact
the remaining cash reserves of the Partnership. The Partnership believes it
has meritorious defenses to contest this claim.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1408
<SECURITIES> 0
<RECEIVABLES> 6
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1414
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1414
<CURRENT-LIABILITIES> 73
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1341
<TOTAL-LIABILITY-AND-EQUITY> 1414
<SALES> 0
<TOTAL-REVENUES> 78
<CGS> 0
<TOTAL-COSTS> 53
<OTHER-EXPENSES> 165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (140)
<INCOME-TAX> 0
<INCOME-CONTINUING> (140)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (140)
<EPS-PRIMARY> (3.42)
<EPS-DILUTED> (3.42)
</TABLE>
