SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-11699
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BALCOR PENSION INVESTORS-IV
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(Exact name of registrant as specified in its charter)
Illinois 36-3202727
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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<PAGE>
BALCOR PENSION INVESTORS-IV
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
June 30, 1996 and December 31, 1995
(UNAUDITED)
ASSETS
1996 1995
-------------- --------------
Cash and cash equivalents $ 3,653,308 $ 4,220,385
Cash and cash equivalents - Early
Investment Incentive Fund 99,474 148,230
Escrow deposits 866,363 838,807
Accounts and accrued interest receivable 13,735 230,107
Prepaid expenses 336,279 144,818
Deferred expenses, net of accumulated
amortization of $69,851 in 1996 and
$58,586 in 1995 112,842 124,107
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5,082,001 5,706,454
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Investment in loan receivable - first
mortgage 1,588,691 1,657,786
Real estate held for sale (net of allowance
of $4,621,805 in 1996 and $2,621,805
in 1995) 39,070,142 40,692,114
Investment in joint venture with affiliates 4,319,009 4,223,275
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44,977,842 46,573,175
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$ 50,059,843 $ 52,279,629
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LIABILITIES AND PARTNERS' CAPITAL
Accounts and accrued real estate taxes
payable $ 731,999 $ 535,761
Due to affiliates 63,644 44,376
Other liabilities (principally security
deposits) 313,233 288,363
Mortgage notes payable 10,168,095 10,419,008
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Total liabilities 11,276,971 11,287,508
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Limited Partners' capital (429,606
Interests issued and outstanding) 51,267,546 53,167,282
Less Interests held by Early Investment
Incentive Fund (36,161 in 1996 and
34,915 in 1995) (8,761,012) (8,613,130)
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42,506,534 44,554,152
General Partner's deficit (3,723,662) (3,562,031)
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Total partners' capital 38,782,872 40,992,121
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$ 50,059,843 $ 52,279,629
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-IV
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the six months ended June 30, 1996 and 1995
(UNAUDITED)
1996 1995
(Restated)
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Income:
Interest on loans receivable $ 84,570 $ 99,331
Income from operations of real estate
held for sale 991,508 1,123,185
Participation in income of joint
venture with affiliates 200,943 224,451
Interest on short-term investments 105,849 354,225
Other income 710,155
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Total income 1,382,870 2,511,347
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Expenses:
Provision for potential losses on
real estate 2,000,000
Administrative 583,253 537,424
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Total expenses 2,583,253 537,424
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Net (loss) income $ (1,200,383) $ 1,973,923
============== ==============
Net (loss) income allocated to General
Partner $ (90,029) $ 148,044
============== ==============
Net (loss) income allocated to Limited
Partners $ (1,110,354) $ 1,825,879
============== ==============
Net (loss) income per average number of
Limited Partnership Interests outstanding
(394,684 in 1996 and 400,617 in 1995) $ (2.81) $ 4.56
============== ==============
Distributions to General Partner $ 71,602 $ 107,402
============== ==============
Distributions to Limited Partners $ 789,382 $ 1,201,868
============== ==============
Distributions per Limited Partnership
Interest $ 2.00 $ 3.00
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-IV
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended June 30, 1996 and 1995
(UNAUDITED)
1996 1995
(Restated)
-------------- --------------
Income:
Interest on loans receivable $ 53,165 $ 50,189
Income from operations of real estate
held for sale 616,572 467,297
Participation in income of joint
venture with affiliates 120,215 146,272
Interest on short-term investments 52,483 172,975
Other income 710,155
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Total income 842,435 1,546,888
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Expenses:
Provision for potential losses on
real estate 2,000,000
Administrative 426,581 301,600
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Total expenses 2,426,581 301,600
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Net (loss) income $ (1,584,146) $ 1,245,288
============== ==============
Net (loss) income allocated to General
Partner $ (118,811) $ 93,396
============== ==============
Net (loss) income allocated to Limited
Partners $ (1,465,335) $ 1,151,892
============== ==============
Net (loss) income per average number of
Limited Partnership Interests outstanding
(394,684 in 1996 and 400,617 in 1995) $ (3.71) $ 2.88
============== ==============
Distributions to General Partner $ 35,801 $ 53,701
============== ==============
Distributions to Limited Partners $ 394,691 $ 600,934
============== ==============
Distributions per Limited Partnership
Interest $ 1.00 $ 1.50
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-IV
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1996 and 1995
(UNAUDITED)
1996 1995
(Restated)
-------------- --------------
Operating activities:
Net (loss) income $ (1,200,383) $ 1,973,923
Adjustments to reconcile net income to net
cash provided by operating activities:
Participation in income of joint
venture with affiliates (200,943) (224,451)
Provision for potential losses on
real estate 2,000,000
Amortization of deferred expenses 11,265 11,264
Net change in:
Escrow deposits (27,556) (197,911)
Accounts and accrued interest
receivable 216,372 (818)
Prepaid expenses (191,461) (161,332)
Accounts and accrued real estate
taxes payable 196,238 258,649
Due to affiliates 19,268 (106,720)
Other liabilities 24,870 6,903
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Net cash provided by operating activities 847,670 1,559,507
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Investing activities:
Collection of principal payments on
loan receivable 69,095 64,360
Distributions from joint venture
with affiliates 105,209 84,508
Additions to real estate (378,028) (140,588)
Costs incurred in connection with real
estate acquired through foreclosure (375,000)
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Net cash used in investing activities (203,724) (366,720)
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Financing activities:
Distribution to Limited Partners (789,382) (1,201,868)
Distribution to General Partner (71,602) (107,402)
Change in cash and cash equivalents -
Early Investment Incentive Fund 48,756 7,743
Repurchase of Limited Partnership
Interests (147,882) (136,217)
Principal payments on mortgage notes
payable (250,913) (136,017)
Release of capital improvement escrows 23,060
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Net cash used in financing activities (1,211,023) (1,550,701)
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Net change in cash and cash equivalents (567,077) (357,914)
Cash and cash equivalents at beginning
of year 4,220,385 11,860,415
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Cash and cash equivalents at end of period $ 3,653,308 $ 11,502,501
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
A reclassification has been made to the previously reported 1995 financial
statements to conform with the classifications used in 1996. This
reclassification has not changed the 1995 results. In the opinion of
management, all adjustments necessary for a fair presentation have been made to
the accompanying statements for the six months and quarter ended June 30, 1996
and all such adjustments are of a normal and recurring nature.
2. Restatement:
In April 1995, the Partnership received insurance proceeds of $710,155 related
to earthquake damage at the Glendale Fashion Center. The proceeds were used to
reduce the basis of the property, which was consistent with the General
Partner's strategy at that time to redevelop the Center. During the fourth
quarter of 1995, the General Partner revised its strategy and decided to market
the Center for sale as a redevelopment project. As a result, the receipt of
insurance proceeds was recognized as other income at December 31,1995.
Consequently, at June 30,1995, real estate held for sale, partners' capital and
other income have been increased by $710,155 from amounts previously reported.
3. Interest Expense:
During the six months ended June 30, 1996 and 1995, the Partnership incurred
interest expense on mortgage notes payable of $476,007 and $498,589 and paid
interest expense of $476,428 and $498,589, respectively.
4. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates for the six
months and quarter ended June 30, 1996 are:
Paid
-----------------------
Six Months Quarter Payable
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Mortgage servicing fees $ 3,500 $ 1,750 $ 583
Reimbursement of expenses to
the General Partner, at cost 120,483 93,859 63,061
5. Investment in Joint Venture with Affiliates:
The Partnership owns a 15.37% joint venture interest in Perimeter 400 Center
Office Building. The following information has been summarized from the
financial statements of the joint venture:
1996
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Net investment in real estate as of June 30 $26,541,734
<PAGE>
Total liabilities as of June 30 321,922
Total income 2,890,131
Net income 1,307,372
6. Contingency:
A proposed settlement has been reached with respect to the class action
complaint, Paul Williams and Beverly Kennedy, et al v. Balcor Pension
Investors, et al. between counsel for the Class and counsel for the defendants.
A final hearing on the proposed settlement is expected to be held in November
1996. The General Partner does not believe that the proposed settlement will
have a material adverse impact on the Partnership.
7. Subsequent Event:
In July 1996, the Partnership made a distribution of $429,606 to the holders of
Limited Partnership Interests which represents a regular quarterly distribution
of available Cash Flow of $1.00 per Interest for the second quarter of 1996.
<PAGE>
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Pension Investors-IV (the "Partnership") is a limited partnership formed
in 1982 to invest in wrap-around mortgage loans and, to a lesser extent, make
other junior mortgage loans and first mortgage loans. The Partnership raised
$214,803,000 through the sale of Limited Partnership Interests and utilized
these proceeds to fund thirty-eight loans. As of June 30, 1996 there is one
loan outstanding in the Partnership's portfolio. In addition, the Partnership
is operating seven properties held for sale and holds a minority joint venture
interest in one property.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1995 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
- ---------------------
The Partnership recognized a provision for potential losses on real estate of
$2,000,000 related to the North Kent Mall during the second quarter of 1996.
In addition, in April 1995, the Partnership received insurance proceeds of
$710,155 related to the Glendale Fashion Center which were recognized as other
income. These events were the primary reasons a net loss was recognized during
the six months and quarter ended June 30, 1996 as compared to net income for
the same periods in 1995. Further discussion of the Partnership's operations is
summarized below.
1996 Compared to 1995
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Unless otherwise noted, discussions of fluctuations between 1996 and 1995 refer
to both the six months and quarters ended June 30, 1996 and 1995.
The prepayment of the Colonial Coach Mobile Home Park loan in September 1995
resulted in a decrease in net interest income on loans receivable during 1996
as compared to 1995. In addition, the final amount due from the settlement of
the remaining balance of the Briarwood Apartments loan receivable was received
and recognized as interest income during the second quarter of 1996. This
partially offset the decrease for the six months and resulted in an increase in
net interest income during the quarter ended June 30, 1996 as compared to the
same period in 1995.
The loan collateralized by the Stonehaven South Apartments was on non-accrual
status at June 30, 1996. This loan was subsequently prepaid in July 1996. For
non-accrual loans, income is recorded only as cash payments are received from
the borrowers. The funds advanced by the Partnership for this non-accrual loan
are approximately $2,800,000, representing approximately 1.46% of original
funds advanced. During 1996, the Partnership received cash payments of interest
income of approximately $60,000 on this loan. Under the terms of the original
<PAGE>
loan agreement, the Partnership would have received approximately $187,000 of
interest income.
Provisions are charged to income when the General Partner believes an
impairment has occurred, either in a borrower's ability to repay the loan or in
the value of the collateral property. Determinations of fair value are made
periodically on the basis of performance under the terms of the loan agreement
and assessments of property operations. Determinations of fair value represent
estimations based on many variables which affect the value of real estate,
including economic and demographic conditions. During the six months ended June
30, 1996 and 1995, the Partnership did not recognize any provisions for
potential losses related to its loan. The Partnership recognized a provision
of $2,000,000 related to the North Kent Mall during the six months ended June
30, 1996, to provide for the change in the estimate of the fair value of the
property. The Partnership did not recognize any provisions for potential losses
related to its real estate held for sale during the six months ended June 30,
1995.
Operations of real estate held for sale represent the net operations of those
properties acquired by the Partnership through foreclosure. At June 30, 1996,
the Partnership was operating seven properties. The funds advanced for these
seven properties by the Partnership total approximately $30,200,000,
representing approximately 15.7% of the original funds advanced. Rental and
service income decreased at the Glendale Fashion Center due to the termination
of certain tenants' leases during 1995 in an effort to prepare the property for
sale as a redevelopment project. In addition, electrical and plumbing repair
projects are being completed at the Pelican Pointe Apartments during 1996.
These events resulted in a decrease in income from real estate held for sale
during the six months ended June 30, 1996 as compared to the same period in
1995. The timing of certain tenant related expenditures at the North Kent Mall
resulted in an increase in income from real estate held for sale during the
quarter ended June 30, 1996 as compared to the same period in 1995.
Participation in income of joint venture with affiliates represents the
Partnership's 15.37% share of the operations from the Perimeter 400 Center
Office Building. Higher leasing costs in 1996 resulted in a decrease in
participation in income of joint venture with affiliates during 1996 as
compared to 1995.
Lower average cash balances were available for investment due to the payment of
special distributions to Limited Partners in July and October 1995 of proceeds
received in connection with prior loan repayments and property sales. This
resulted in a decrease in interest income on short-term investments during 1996
as compared to 1995.
In April 1995, the Partnership received insurance proceeds of $710,155 related
to earthquake damage incurred at the Glendale Fashion Center which was
recognized as other income.
The Partnership incurred legal, consulting, printing and postage costs in
connection with its response to a tender offer and certain related litigation
during the second quarter of 1996. As a result, administrative expenses
increased during 1996 as compared to 1995. This increase was partially offset
by lower accounting fees.
Liquidity and Capital Resources
- -------------------------------
<PAGE>
The cash position of the Partnership decreased by approximately $567,000 as of
June 30, 1996 when compared to December 31, 1995. The Partnership received cash
flow of approximately $848,000 from its operating activities, primarily from
interest income earned on its investment in loans receivable and short-term
interest bearing instruments and cash flow generated by the Partnership's
properties held for sale, net of administrative expenses. The Partnership used
cash of approximately $204,000 for investing activities relating primarily to
the completion of a new roof and tenant improvements at the North Kent Mall.
The Partnership also used cash of approximately $1,211,000 to fund its
financing activities which consisted primarily of the payment of distributions
to the Partners totaling approximately $861,000, the payment of principal of
approximately $251,000 on the mortgage notes payable and repurchases of Limited
Partnership Interests at a cost of approximately $148,000.
The Partnership classifies the cash flow performance 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, if applicable. The Del Lago, Pelican Pointe and Regency Club
apartment complexes do not have underlying debt. During the six months ended
June 30, 1996 and 1995, six of the Partnership's seven properties generated
positive cash flow and the Glendale Fashion Center operated at a significant
cash flow deficit. However, significant leasing costs were incurred at North
Kent Mall in order to lease vacant space and renew existing tenant leases which
were scheduled to expire during 1996. These costs were not included in
classifying the cash flow performance of the Mall since they are non-recurring
expenditures. Had these costs been included, the Mall would have operated at a
significant deficit during 1996. The Perimeter 400 Office Building, a property
in which the Partnership holds a minority joint venture interest, also
generated positive cash flow during 1996 and 1995.
As of June 30, 1996, the occupancy rates of the Partnership's residential
properties ranged from 91% to 99% except for the Colony Apartments which had an
occupancy rate of 89%. The current occupancy level of North Kent Mall is 61%.
After reviewing current market conditions, the General Partner determined that
it is in the best interest of the Partnership to sell the North Kent Mall and
therefore, is actively marketing the property for sale. The Glendale Fashion
Center is currently vacant due to the Partnership's strategy to market the
property for sale in 1996 as a redevelopment project. Many rental markets
continue to remain extremely competitive; therefore, the General Partner's
goals are to maintain high occupancy levels while increasing rents where
possible, and to monitor and control operating expenses and capital improvement
requirements at the properties.
The General Partner believes that the market for multifamily housing properties
is favorable to sellers of these properties. Currently, the Partnership has
entered into a contract to sell the Regency Club Apartments for a sale price of
$5,750,000. The Partnership is actively marketing its remaining residential
properties for sale. The Partnership is also actively marketing the North Kent
Mall and is preparing to market the Glendale Fashion Center. Additionally, the
General Partner is exploring the sale of the commercial property in which it
holds a minority joint venture interest. The General Partner examines each
<PAGE>
property individually by property type and market in determining the optimal
time to sell each property.
In April and June 1996, Cargill Financial Services and Heitman/JMB Advisory
Corporation, two unaffiliated third parties, separately initiated discussions
with the General Partner for a potential sale of all of the remaining
properties and the remaining loan of the Partnership. These discussions did
not result in any agreement of terms between the parties, and it is unlikely at
this time that a sale of the Partnership's assets to either of them will be
consummated. This will not affect the Partnership's strategy as described in
the preceding paragraph.
Changing interest rates can impact real estate values in several ways.
Generally, declining interest rates may lower the cost of capital allowing
buyers to pay more for a property whereas rising interest rates may increase
the cost of capital and lower the price of real estate. Lower interest rates
may increase the probability that the borrower may seek prepayment of the
Partnership's loan whereas rising interest rates decrease the yields on the
loan and make prepayment less likely.
In April 1984, the Partnership funded a second mortgage loan collateralized by
the Stonehaven South Apartments in the amount of $2,800,000. In June 1990, the
borrower of the loan filed for protection under the U.S. Bankruptcy Code and in
June 1991, the Partnership and the borrower executed a loan modification
agreement which was approved by the Bankruptcy Court in August 1991. Pursuant
to the modification, approximately $2,100,000 of the principal amount of the
loan was considered a secured claim. The remaining portion was considered an
unsecured claim and was payable from the net proceeds received by the borrower,
if any, upon the sale or refinancing of the property. In July 1996, the
borrower paid $2,120,289 to the Partnership in full satisfaction of the secured
portion of the loan and $250,000 in full satisfaction of the unsecured claim.
Certain of the Partnership's properties held for sale are owned through the use
of third-party mortgage loan financing and, therefore, the Partnership is
subject to the financial obligations required by such loans. The Partnership
has only one loan maturing within the next two years, a mortgage loan of
approximately $1,937,000 collateralized by the North Kent Mall. The Partnership
negotiated an extension of the maturity of the mortgage loan from July 1996 to
December 1996 and made a $100,000 principal payment on the loan as a condition
of the extension. The Partnership is marketing the property for sale to satisfy
the obligation.
In July 1996, the Partnership paid a distribution of $429,606 ($1.00 per
Interest) to the holders of Limited Partnership Interests representing the
regular quarterly distribution of Cash Flow for the second quarter of 1996. The
level of the regular quarterly distribution is consistent with the amount
distributed for the first quarter of 1996. Including the July 1996
distribution, Limited Partners have received cash distributions totaling
$575.23 per $500 Interest. Of this amount, $324.10 represents Cash Flow from
operations and $251.13 represents a return of Original Capital. In July 1996,
the Partnership also paid $35,801 to the General Partner as its distributive
share of Cash Flow distributed for the second quarter of 1996 and made a
contribution to the Early Investment Incentive Fund of $11,934.
The Partnership expects to continue making quarterly cash distributions;
however, the level of such future distributions will be dependent upon the cash
flow generated by the receipt of mortgage payments and operations of the
<PAGE>
Partnership's properties held for sale, less administrative expenses. The
General Partner believes the Partnership has retained an appropriate amount of
working capital to meet current cash or liquidity requirements which may occur.
During the six months ended June 30, 1996, the General Partner on behalf of the
Partnership used amounts placed in the Early Investment Incentive Fund to
repurchase 1,246 Interests from Limited Partners at a total cost of $147,882.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
<PAGE>
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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Williams class action
- ---------------------
With respect to the class action complaint, Paul Williams and Beverly Kennedy,
et al. vs. Balcor Pension Investors, et al. (U.S. District Court, Northern
District of Illinois, Case No.: 90 C 0726), the ongoing settlement discussions
among the parties have resulted in a proposed settlement between counsel for
the Class and counsel for defendants. A draft notice including a description of
the terms of the proposed settlement is attached as Exhibit 99. A final hearing
to determine the fairness, reasonableness and adequacy of the proposed
settlement will be held on November 20, 1996 at 11:00 a.m. Copies of the
proposed settlement agreement may be inspected at the office of the Clerk of
the Court of the United States District Court for the Northern District of
Illinois located at 219 South Dearborn, Chicago, Illinois 60604.
Proposed Class and Derivative Action Lawsuits
- ---------------------------------------------
On May 22, 1996, a proposed class and derivative action complaint was filed,
Chipain vs. Walton Street Capital Acquisition II, LLC (Circuit Court of Cook
County, Illinois, County Department, Chancery Division ("Chancery Court"), Case
No. 96 CH 05299) (the "Chipain Case"), naming the General Partner and the
general partners (together, the "Balcor Defendants") of nine other limited
partnerships sponsored by The Balcor Company (together, with the Partnership,
the "Affiliated Partnerships") as defendants. Additional defendants were
Insignia Management Group ("Insignia") and Walton Street Capital Acquisition
II, LLC ("Walton") and certain of their affiliates and principals
(collectively, the "Walton and Insignia Defendants"). The complaint alleged,
among other things, that the tender offers for the purchase of limited
partnership interests in the Affiliated Partnerships made by a joint venture
consisting of affiliates of Insignia and Walton were coercive and unfair.
The Walton and Insignia Defendants filed motions to dismiss the complaint,
which were granted on June 5, 1996. The plaintiffs filed an amended complaint,
which all defendants then moved to dismiss. On June 18, 1996, the court
dismissed the complaint in its entirety as to the Walton and Insignia
Defendants and as to the Balcor Defendants on all counts on which dismissal was
sought.
On June 14, 1996, a second proposed class and derivative action complaint was
filed in Chancery Court, Dee vs. Walton Street Capital Acquisition II, LLC
(Case No. 96 CH 06283) (the "Dee Case"). On July 1, 1996, a proposed class
action complaint was filed in the same court, Anderson vs. Balcor Mortgage
Advisors (Case No. 96 CH 06884) (the "Anderson Case"). An amended complaint
consolidating the Dee and Anderson Cases (the "Dee/Anderson Case") was filed on
July 25, 1996. The same day, the plaintiffs in the Chipain Case withdrew their
complaint. The Dee/Anderson Case names the Balcor Defendants, the Affiliated
Partnerships, and the Walton and Insignia Defendants, as defendants. The
complaint seeks to assert class and derivative claims against the Walton and
Insignia Defendants and alleges that, in connection with the tender offers, the
Walton and Insignia Defendants misused the General Partner's and Insignia's
fiduciary positions and knowledge in breach of the Walton and Insignia
Defendants' fiduciary duty and in violation of the Illinois Securities and
Consumer Fraud Acts. The plaintiffs request certification as a class and
derivative action, unspecified compensatory damages and rescission of the
tender offers.
The Balcor Defendants intend to vigorously contest this action. No class has
been certified as of this date. Management of each of the Balcor Defendants
believes they have 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 Partnership.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) (3) Exhibits:
(4) Form of Confirmation regarding Interests in the Registrant set forth as
Exhibit 4 to the Registrant's Report on Form 10-Q for the quarter ended
June 30, 1992 (Commission File No. 0-11699) is incorporated herein by
reference.
(27) Financial Data Schedule of the Registrant for the six months ended June
30, 1996 is attached hereto.
(99) Form of Notice of Proposed Class Action Settlement and Hearing relating to
Paul Williams and Beverly Kennedy, et al. vs. Balcor Pension Investors, et al.
(b) Reports on Form 8-K: There were no reports filed on Form 8-K during the
quarter ended June 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR PENSION INVESTORS-IV
By: /s/Thomas E. Meador
-----------------------------
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Mortgage Advisors-III, the General Partner
By: /s/Brian D. Parker
------------------------------
Brian D. Parker
Senior Vice President, and Chief Financial
Officer (Principal Accounting and Financial
Officer) of Balcor Mortgage Advisors-III,
the General Partner
Date: August 14, 1996
----------------------------
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
PAUL WILLIAMS, et al., )
)
Plaintiffs, )
) No. 90 C 0726
v. )
) Honorable James B. Zagel
BALCOR PENSION INVESTORS, )
et al., )
)
Defendants. )
)
)
BALCOR MORTGAGE ADVISORS, et al., )
)
Counter-plaintiffs, )
)
v. )
)
PAUL WILLIAMS, et al., )
)
Counter-defendants. )
NOTICE OF PROPOSED
CLASS ACTION SETTLEMENT AND HEARING
THIS IS NOT NOTICE OF A LAWSUIT AGAINST YOU. This Notice is to
advise you of a proposed settlement of the class action lawsuit captioned above
and of a court hearing on the proposed settlement.
1. Summary of Proposed Settlement. The proposed settlement resolves
all issues raised by this lawsuit. The parties in these suits are the First
Union National Bank of North Carolina, Trustee of the Ploof Truck Lines, Inc.
Profit Sharing and 401(k) Plan, Bruce McGlasson and Tom Chipain (collectively
the "Class Representatives") on behalf of themselves and the plaintiff class as
defined below (the "Class"), Paul Williams, Beverly Kennedy, William B.
Copeland, Allan Hirschfield, Gregory Baird, individually and as trustee of the
Iva Medical Center, P.A. Pension and Profit Sharing Plan, and Samuel Wegbreit
(collectively "the Individual Plaintiffs"), who brought this suit as a class
action and Balcor Pension Investors, Balcor Pension Investors-II, Balcor
Pension Investors-III, Balcor Pension Investors-IV, Balcor Pension Investors-V,
Balcor Pension Investors-VI, Balcor Pension Investors-VII, Balcor Preferred
Pension-12, Balcor Mortgage Advisors, Balcor Mortgage Advisors-II, Balcor
Mortgage Advisors-III, Balcor Mortgage Advisors-V, Balcor Mortgage Advisors-VI,
Balcor Mortgage Advisors-VII, Balcor Mortgage Advisors-VIII, Balcor Mortgage
Advisors, Inc., Balcor Mortgage Advisors-V, Inc., The Balcor Company, Balcor
Securities Co., Shearson Lehman Hutton Inc., and American Express Company
(collectively "Defendants"). Plaintiffs assert that Defendants violated the
<PAGE>
law by misrepresenting or concealing material information concerning Balcor
Pension Investors, Balcor Pension Investors-II, Balcor Pension Investors-III,
Balcor Pension Investors-IV, Balcor Pension Investors-V, Balcor Pension
Investors-VI, Balcor Pension Investors-VII, and Balcor Preferred Pension-12
(the "BPI Partnerships") in connection with purchases of interests in them by
members of the Class. Defendants vigorously deny any wrongdoing and assert
that their conduct was proper and conformed to the law. To avoid the further
expense and risks of continued litigation, the parties have determined to
compromise their differences and have agreed to a proposed settlement that
resolves all issues raised by these lawsuits.
The class of persons who will be affected by the proposed settlement
consists of all individuals, partnerships, corporations and other entities who
invested in Balcor Pension Investors, Balcor Pension Investors-II, Balcor
Pension Investors-III, Balcor Pension Investors-IV, Balcor Pension
Investors-V, Balcor Pension Investors-VI, Balcor Pension Investors-VII, and
Balcor Preferred Pension-12 (the "BPI Partnerships"), during the original
public offerings of such interests. The Class excludes the Defendants and any
entities owned or controlled by the Defendants, those individuals and/or
entities who acquired their Partnership interests after the original offering
periods ended and those individuals who notified Class Counsel on or before
November 20, 1995 that they wished to be excluded from the Class.
This Notice contains important information regarding the settlement,
the final hearing on the settlement, and your right to participate in the
settlement hearing, which will be held on November 20, 1996 at 11:00 a.m. If
the Court approves the settlement, you will be bound by the Final Judgment.
YOU SHOULD READ THE ENTIRE NOTICE CAREFULLY, SINCE YOUR RIGHTS WILL BE AFFECTED
BY THIS SETTLEMENT.
2. History of the Lawsuits. There is now pending in the United
States District Court for the Northern District of Illinois an action captioned
Paul Williams, et al. v. The Balcor Company, et al., No. 90 C 0726, which was
filed on February 7, 1990. The lawsuit alleges violations by Defendants of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C.
ee 78j(b) and 78t(a), Rule 10b-5 promulgated under e 10(b) of the Securities
Exchange Act of 1934, 17 C.F.R. d 240.10b-5, the rules and regulations of the
Securities and Exchange Commission promulgated under the Securities Exchange
Act of 1934, the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C.
ee 1961, et seq., and the common law in connection with the original offering
of interests in the BPI Partnerships. Defendants have denied these allegations
and have filed a class action counterclaim for declaratory judgment, which,
inter alia, concerns the propriety of defendants obtaining indemnification for
the attorneys' fees and expenses incurred defending this litigation from the
assets of the BPI Partnerships.
After the lawsuit was filed, the Seventh Circuit Court of Appeals
held in Short v. Belleville Shoe Mfg. Co., 908 F.2d 1385 (7th Cir. 1990), that
actions brought to enforce those provisions of the Securities Exchange Act of
1934 alleged in the lawsuit to have been violated by Defendants must be brought
within one year after discovery of the alleged violation and within three years
after such violation. Shortly thereafter, the United States Supreme Court made
a similar ruling in Lampf, Pleva, Lipkind, Prupis & Petrigrow v. Gilbertson,
<PAGE>
111 S.Ct. 2773 (1991). On July 21, 1994, the court granted the motion for
class certification filed by the class representatives and certified a class
solely on plaintiffs' claims of violations of the Securities and Exchange Act
of 1934.
On July 12, 1996, the Honorable James B. Zagel of the United States
District Court for the Northern District of Illinois preliminarily determined
that the proposed settlement is fair and reasonable.
3. Purpose of this Notice. This Notice is given pursuant to Federal
Rule of Civil Procedure 23 and an Order of the United States District Court for
the Northern District of Illinois. This Notice is not an expression of any
opinion by that Court as to the merits of any of the claims or defenses
asserted by any party in this lawsuit. The purpose of this Notice is to inform
you of the pendency of this lawsuit, the terms of the proposed class
settlement, the date of the court hearing on the settlement, and your rights
with respect to the settlement and hearing.
4. Definition of the Class. The proposed Class on whose behalf this
settlement is made consists of all individuals, partnerships, corporations and
other entities who invested in Balcor Pension Investors, Balcor Pension
Investors-II, Balcor Pension Investors-III, Balcor Pension Investors-IV,
Balcor Pension Investors-V, Balcor Pension Investors-VI, Balcor Pension
Investors-VII, and Balcor Preferred Pension-12, during the original public
offerings of such interests. The Class excludes the Defendants and any
entities owned or controlled by the Defendants, those individuals and/or
entities who acquired their Partnership interests after the original offering
periods ended and those individuals who notified Class Counsel on or before
November 20, 1995 that they wished to be excluded from the Class.
5. The Proposed Settlement. The parties have agreed to the
following settlement terms:
Consideration to the Class. As a condition of settlement, Defendants
will make the following consideration to the Class:
a. Defendants will deposit $100,000 into one of the bank
accounts of Balcor Preferred Pension-12 which shall be distributed to
members of the Class who invested in Balcor Preferred Pension-12.
b. The general partner ("General Partner") of each of the BPI
Partnerships will forego and instead distribute among the members of the
Class its distributive partnership share of Cash Flow from operations for
one of the four quarters immediately following the effective date of the
Settlement Agreement, excluding that percentage of such distributive share
of Cash Flow that, pursuant to the Partnership Agreement for each of the
BPI Partnerships (except Balcor Pension Investors), is to be set aside for
and deposited into the Early Investment Incentive Fund for such BPI
Partnership. The quarter for which the General Partner of each of the BPI
Partnerships will forego such distributive share of Cash Flow will be
chosen by Defendants by determining which quarter, of the four quarters
immediately following the effective date of the Settlement Agreement,
represents an average distributive Partnership share of Cash Flow earned
by such General Partner.
<PAGE>
c. Defendant The Balcor Company will guarantee to members of
the Class who invested in the following partnerships and who continue to
hold their units until termination of the partnership that the total
distributions from all sources, including Cash Flow, Mortgage Reductions,
distributions from the Early Investment Incentive Fund, and pursuant to
Section 18.4 of the Partnership Agreement for each of the BPI
Partnerships, made throughout the existence of the partnership, and
including monies distributed pursuant to this Settlement Agreement
will equal the following percentages of their respective initial capital
contributions:
Balcor Pension Investors VI - 90%
Balcor Pension Investors VII - 80%
Balcor Preferred Pension-12 - 80%
This guarantee will be null and void:
(1) As to any of the above partnerships in which there is
an effective change in control, including but not limited to:
(a) the replacement of the General Partner by an entity or individual
not affiliated with the current General Partner; (b) the General
Partner having been joined by any entity or individual not affiliated
with it as co-general partner; or (c) material restrictions having
been placed on the powers of the General Partner;
(2) As to any Class member who sells any of his/her/its
units, including any transfer of interests into the Early Investment
Incentive Fund, in any of the BPI Partnerships, with respect to such
units sold;
(3) As to any Class member who receives a tender offer
after April 1, 1996 for any of his/her/its units and does not accept
such tender offer, but which, if the Class member had accepted the
offer, would have resulted in the Class member having received
(including total partnership distributions to the Class member plus
the offer price of the tender) an amount equal to or greater than the
amount he/she/it would receive pursuant to the guarantee, the
percentage of the Initial Guarantee (the "Tender Percentage") equal
to the number of units which were not tendered pursuant to the tender
offer divided by the total number of units of the partnership
remaining eligible for the guarantee at the date of the termination
of said tender offer. In the event that more than one tender offer
is initiated, a Tender Percentage shall be computed for each tender
offer and the Tender Percentage for which the Initial Guarantee shall
be null and void shall be the sum of the Tender Percentages of all
tender offers. The "Initial Guarantee" for each of Balcor Pension
Investors-VI, Balcor Pension Investors-VII and Balcor Preferred
Pension-12 shall be a dollar amount per partnership interest equal to
the percentage of initial capital contribution described above as the
guarantee level in this Section 5(c) minus the actual dollar amount
distributed per partnership interest as of the date of the Settlement
Agreement. As of March 31, 1996, total distributions per interest in
these partnerships and the amount of additional distributions
guaranteed were:
<PAGE>
Additional Distributions
Per Interest Pursuant to
Total Distributions Per Initial Guarantee as of
Partnership Interest Through 03/31/96 03/31/96
Balcor Pension
Investors-VI $206.18 per $250 Interest $18.82 per $250 Interest
Balcor Pension
Investors-VII $147.05 per $250 Interest $52.95 per $250 Interest
Balcor Preferred
Pension-12 $55.87 per $100 Interest $24.13 per $100 Interest
As a result of distributions to holders of interests in these partnerships
and/or tender offers to holders of interests in certain of these partnerships
after April 1, 1996, the additional distributions per interest pursuant to the
Initial Guarantee have decreased and may decrease further. As of ,
defendants' records reflected that the number of interests held by members of
the Class who were original investors in these partnerships was approximately:
Units Held by
Partnership Class Members
Balcor Pension Investors-VI 1,032,269
Balcor Pension Investors-VII 379,261
Balcor Preferred Pension-12 262,174
The distributions provided for in subparagraphs 5.a. and 5.b. above
shall be made only to investors who purchased units in the BPI Partnerships
during the original public offerings of such interests, excluding those
individuals who excluded themselves from the Class. Those investors who
purchased interests in the BPI Partnerships during the original public
offerings but have excluded themselves from the Class and those investors who
purchased interests following the termination of the original offering periods
for such interests will receive only quarterly distributions of Cash Flow from
operations as provided in the Partnership Agreements for the BPI Partnerships.
6. Class Counsels' Attorneys' Fees and Costs. Defendants will pay
the fees and costs of class counsel that may be awarded or approved by the
Court.
7. Release. If the settlement is approved by the Court, all Class
members who did not timely exclude themselves from the Class will release
Defendants from all claims that were or could have been raised by the Class or
the Class Representatives against Defendants in these lawsuits.
8. Class Membership. If you invested in Balcor Pension Investors,
Balcor Pension Investors-II, Balcor Pension Investors-III, Balcor Pension
Investors-IV, Balcor Pension Investors-V, Balcor Pension Investors-VI, Balcor
Pension Investors-VII or Balcor Pension Preferred Pension-12 during the
<PAGE>
original public offerings of such interests, you are a member of the Class,
unless you expressly requested to be excluded ("opted out") on or before
November 20, 1995. As a member of the Class, any claims you may have against
defendants with respect to your interests in the BPI Partnerships will be
forever resolved and cannot be pursued in another lawsuit, except that you
shall not be precluded from participating in and sharing in any fund deposited
by any Defendant with the Securities and Exchange Commission, any state
securities commission or any governmental or regulatory entity in connection
with the resolution of proceedings relating to sales, marketing and related
activities as a soliciting dealer for the offering of interests in the BPI
Partnerships. YOU NEED DO NOTHING TO REMAIN A MEMBER OF THE CLASS, and your
rights in this lawsuit will be represented by class counsel, one of whom is
Norman Rifkind, Beigel, Schy, Lasky, Rifkind, Fertik & Gelber, 250 South Wacker
Drive, Suite 1500, Chicago, Illinois 60606.
9. Objecting to the Terms of the Settlement Agreement. If you have
any objections to the proposed settlement, you must file a written objection,
together with all briefs and other papers in support of the objection, with the
Court on or before November 4, 1996, and you must also serve copies of that
written objection on class counsel, Norman Rifkind, Esq., at the address set
forth in paragraph 8, above, and on counsel for Defendants, David L. Carden,
Esq., Jones, Day, Reavis & Pogue, 77 West Wacker, Chicago, Illinois 60601-1692,
postmarked no later than October 20, 1996.
10. Final Hearing on Fairness of Settlement. A final hearing to
determine the fairness, reasonableness and adequacy of the proposed settlement
will be held on November 20, 1996 in the United States District Court for the
Northern District of Illinois, located in the Federal Building, 219 South
Dearborn Street, Chicago, Illinois, in Room 1919 at 11:00 a.m.
11. Further Information. This Notice is not all-inclusive. For
further information concerning the litigation, you may refer to the pleadings
and other papers, including the proposed Settlement Agreement, that have been
filed with the Court, which may be inspected during regular business hours at
the Office of the Clerk of the Court identified in paragraph 10, above, 20th
floor, or you may obtain further information about this action, the terms of
the settlement, the settlement hearing and how the settlement may affect your
rights by calling the following toll-free number for a recorded message:
1-800-XXX-XXXX. PLEASE DO NOT CONTACT THE CLERK OF THE COURT.
Dated: ______________
Clerk of the Court, United States
District Court for the Northern
District of Illinois
<PAGE>
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