SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1999
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-11699
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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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BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
BALANCE SHEETS
June 30, 1999 and December 31, 1998
(UNAUDITED)
ASSETS
1999 1998
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Cash and cash equivalents $ 2,314,151 $ 2,398,538
Cash and cash equivalents - Early
Investment Incentive Fund - restricted 4,185,894 4,089,546
Accrued interest receivable 26,204 23,899
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$ 6,526,249 $ 6,511,983
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 14,915 $ 35,266
Due to affiliates 70,768 63,273
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Total liabilities 85,683 98,539
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Commitments and contingencies
Limited Partners' capital (429,606
Interests issued and outstanding) 15,970,363 15,945,524
Less Interests held by Early Investment
Incentive Fund (41,330 in 1999 and 1998) (9,264,478) (9,264,478)
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6,705,885 6,681,046
General Partner's deficit (265,319) (267,602)
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Total partners' capital 6,440,566 6,413,444
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$ 6,526,249 $ 6,511,983
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the six months ended June 30, 1999 and 1998
(UNAUDITED)
1999 1998
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Income:
Interest on short-term investments $ 154,374 $ 193,778
Income from operations of real estate
held for sale 37,330
Other income 1,619 90,693
Recovery of loss on real estate held
for sale 285,231
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Total income 155,993 607,032
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Expenses:
Administrative 128,871 216,790
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Total expenses 128,871 216,790
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Net income $ 27,122 $ 390,242
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Net income allocated to General Partner $ 2,283 $ 131,572
============== ==============
Net income allocated to Limited Partners $ 24,839 $ 258,670
============== ==============
Net income per average number of Limited
Partnership Interests outstanding
(388,276 in 1999 and 1998) - Basic
and Diluted $ 0.06 $ 0.67
============== ==============
Distribution to General Partner None $ 229,122
============== ==============
Distribution to Limited Partners None $ 10,320,488
============== ==============
Distribution per Limited Partnership
Interest None $ 26.58
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended June 30, 1999 and 1998
(UNAUDITED)
1999 1998
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Income:
Interest on short-term investments $ 76,432 $ 82,449
Income from operations of real estate
held for sale 7,999
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Total income 76,432 90,448
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Expenses:
Administrative 75,421 91,538
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Total expenses 75,421 91,538
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Net income (loss) $ 1,011 $ (1,090)
============== ==============
Net income allocated to General Partner $ 1,011 None
============== ==============
Net income (loss) allocated to Limited
Partners None $ (1,090)
============== ==============
Net income (loss) per average number of
Limited Partnership Interests outstanding
(388,276 in 1999 and 1998) - Basic
and Diluted None $ (0.003)
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1999 and 1998
(UNAUDITED)
1999 1998
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Operating activities:
Net income $ 27,122 $ 390,242
Adjustments to reconcile net income
to net cash provided by operating
activities:
Recovery of loss on real estate owned (285,231)
Net change in:
Accounts and accrued interest
receivable (2,305) 17,316
Accounts and accrued real estate
taxes payable (20,351) (80,789)
Due to affiliates 7,495 29,394
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Net cash provided by operating activities 11,961 70,932
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Investing activities:
Proceeds from lease termination 1,000,000
Proceeds from sale of real estate 25,000
Costs incurred in connection with
disposition of real estate (36,743)
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Net cash provided by investing activities 988,257
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Financing activities:
Distribution to Limited Partners (10,320,488)
Distribution to General Partner (229,122)
Change in cash and cash equivalents -
Early Investment Incentive Fund -
restricted (96,348) (1,271,752)
Principal payments on mortgage notes
payable (5,166)
Repayment of mortgage note payable (763,435)
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Net cash used in financing activities (96,348) (12,589,963)
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Net change in cash and cash equivalents (84,387) (11,530,774)
Cash and cash equivalents at beginning
of year 2,398,538 13,969,707
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Cash and cash equivalents at end of period $ 2,314,151 $ 2,438,933
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The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
In the opinion of management, all adjustments necessary for a fair presentation
have been made to the accompanying statements for the six months and quarter
ended June 30, 1999 and all such adjustments are of a normal and recurring
nature.
2. Partnership Termination:
The partnership agreement provides for the dissolution of the Partnership upon
the occurrence of certain events. The Partnership sold its final real estate
investment in March 1998. The Partnership has retained a portion of the cash
from property sales to satisfy obligations of the Partnership as well as to
establish a reserve for contingencies. As previously reported, the Sandra Dee
case was dismissed by the Illinois Supreme Court in April 1999. The Madison
Avenue litigation was filed in May 1999. See Note 6 of Notes to Financial
Statements for additional information regarding the Madison Avenue litigation.
Despite the existence of the Madison Avenue litigation, the Partnership
currently plans to dissolve in December 1999 and distribute remaining cash
reserves to the partners in accordance with the partnership agreement. In the
event that a new contingency (such as a lawsuit) arises during 1999, the
Partnership may not be dissolved and may continue in existence until such new
contingency is resolved. The Partnership does not consider the Madison Avenue
case to be a matter that would preclude the dissolution of the Partnership in
1999.
3. Interest Expense:
During the six months ended June 30, 1998, the Partnership incurred and paid
interest expense on mortgage notes payable of $19,143.
4. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates for the six
months and quarter ended June 30, 1999 are:
Paid
------------------------
Six Months Quarter Payable
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Reimbursement of expenses to
the General Partner, at cost $ 19,111 $ 9,734 $ 70,768
5. Other Income:
During March 1999, the Partnership recognized other income in connection with a
partial refund of real estate taxes related to the 240 East Ontario Office
Building and a vendor refund related to the Del Lago Apartments, both of which
properties were sold in prior years.
6. Contingency:
In May 1999, a lawsuit was filed against the Partnership, Madison Partnership
Liquidity Investors XX, et al. vs. The Balcor Company, et al. whereby the
Partnership and certain affiliates have been named as defendants. The
plaintiffs are entities that initiated tender offers to purchase and, in fact,
purchased units in eleven affiliated partnerships. The complaint alleges breach
of fiduciary duties and breach of contract under the partnership agreement and
seeks the winding up of the affairs of the Partnership, the establishment of a
liquidating trust, the appointment of an independent trustee for the trust and
the distribution of a portion of the cash reserves to limited partners. The
defendants intend to vigorously contest this action. The Partnership believes
that it has meritorious defenses to contest the claims. It is not determinable
at this time how the outcome of this action will impact the remaining cash
reserves of the Partnership.
BALCOR PENSION INVESTORS-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 and subsequently funded four
additional loans and acquired fourteen properties through foreclosure. As of
June 30, 1999, the Partnership has no loans outstanding or properties remaining
in its portfolio.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1998 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
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The operations of the Partnership during 1999 consisted primarily of the
receipt of interest income earned on short-term investments which was partially
offset by the payment of administrative expenses. During the first quarter of
1998, the Partnership recognized a recovery of a loss related to the sale of
the North Kent Outlot and income in connection with a partial refund of 1996
real estate taxes related to the North Kent Mall. Primarily as a result of
these events, net income decreased during the six months ended June 30, 1999 as
compared to the same period in 1998. During the quarter ended June 30, 1999,
interest income earned on short-term investments was higher than administrative
expenses. This is the primary reason the Partnership recognized net income
during the quarter ended June 30, 1999 as compared to a net loss during the
quarter ended June 30, 1998. Further discussion of the Partnership's operations
is summarized below.
1999 Compared to 1998
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Unless otherwise noted, discussions of fluctuations between 1999 and 1998 refer
to both the six months and quarters ended June 30, 1999 and 1998.
As a result of higher cash balances in 1998 prior to the distribution to
Limited Partners in January 1998 and lower interest rates in 1999, interest
income on short-term investments decreased during 1999 as compared to 1998.
The Partnership recognized income from operations of real estate held for sale
during 1998 from the North Kent Outlot, which was sold in March 1998.
During March 1999, the Partnership recognized other income in connection with a
partial refund of real estate taxes related to the 240 East Ontario Office
Building and a vendor refund related to the Del Lago Apartments, both of which
were sold in prior years. During the quarter ended March 31, 1998, the
Partnership recognized other income in connection with a partial refund of 1996
real estate taxes related to the North Kent Mall.
Provisions were charged to income when the General Partner believed an
impairment had occurred to the value of its properties or in a borrower's
ability to repay a loan or in the value of the collateral property.
Determinations of fair value were made periodically on the basis of assessments
of property operations and the property's estimated sales price less closing
costs. Determinations of fair value represent estimations based on many
variables which affect the value of real estate, including economic and
demographic conditions. The Partnership did not recognize any provisions for
potential losses for its real estate held for sale during 1998. The Partnership
recognized a recovery of $285,231 and wrote off allowances of $1,206,569 in
connection with the sale of the North Kent Outlot in 1998.
Primarily due to a decrease in accounting, investor processing and portfolio
management fees, administrative expenses decreased during 1999 when compared to
1998.
Liquidity and Capital Resources
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The cash position of the Partnership decreased by approximately $84,000 as of
June 30, 1999 as compared to December 31, 1998 primarily as a result of
administrative expenses exceeding interest income earned on non-restricted cash
investments. Interest income of approximately $96,000 was earned on the Early
Investment Incentive Fund.
The partnership agreement provides for the dissolution of the Partnership upon
the occurrence of certain events. The Partnership sold its final real estate
investment in March 1998. The Partnership has retained a portion of the cash
from property sales to satisfy obligations of the Partnership as well as to
establish a reserve for contingencies. As previously reported, the Sandra Dee
case was dismissed by the Illinois Supreme Court in April 1999. The Madison
Avenue litigation, described in Part II, Item 1, of this report, was filed in
May 1999. Despite the existence of the Madison Avenue litigation, the
Partnership currently plans to dissolve in December 1999 and distribute
remaining cash reserves to the partners in accordance with the partnership
agreement. In the event that a new contingency (such as a lawsuit) arises
during 1999, the Partnership may not be dissolved and may continue in existence
until such new contingency is resolved. The Partnership does not consider the
Madison Avenue case to be a matter that would preclude the dissolution of the
Partnership in 1999. As a result of the pending dissolution of the Partnership,
the general partner has suspended transfer of limited partnership interests in
the Partnership. Certain transfers which are not for value (such as death,
divorce, change of custodian or other estate planning) will continue to be
permitted. Limited Partners should contact the Partnership if the suspension of
transfers causes any extraordinary hardships. In the event that dissolution of
the Partnership does not occur during 1999, the Partnership will allow
transfers of limited partnership interests to occur commencing in January 2000.
Limited Partners have received cash distributions totaling $672.56 per $500
Interest. Of this amount, $337.25 represents Cash Flow from operations and
$335.31 represents a return of Original Capital. No additional distributions
are anticipated to be made prior to the termination of the Partnership.
However, after paying final partnership expenses, any remaining cash reserves
will be distributed. Amounts allocated to the Early Investment Incentive Fund
will also be distributed at that time.
In 1997, the Partnership discontinued the repurchase of Interests from Limited
Partners. As of June 30, 1999, there were 41,330 Interests and cash of
$4,185,894 in the Early Investment Incentive Fund.
The Partnership sold all of its remaining real property investments and
distributed a majority of the proceeds from these sales to Limited Partners in
1997 and 1998. Since the Partnership no longer has any operating assets, the
number of computer systems and programs necessary to operate the Partnership
has been significantly reduced. The Partnership relies on third party vendors
to perform most of its functions and has implemented a plan to determine the
Year 2000 compliance status of these key vendors. The Partnership is within its
timeline for having these plans completed prior to the year 2000.
The Partnership's plan to determine the Year 2000 compliance status of its key
vendors involves soliciting information from these vendors through the use of
surveys, follow-up discussions and review of data where needed. The Partnership
has received the surveys from these vendors. While the Partnership cannot
guarantee Year 2000 compliance by its key vendors, and in many cases will be
relying on statements from these vendors without independent verification,
these surveys and discussions with the key vendors performing services for the
Partnership indicate that the key vendors are substantially Year 2000 compliant
as of June 30, 1999. The Partnership will continue to monitor the Year 2000
compliance of its key vendors during the third quarter of 1999. In addition,
the Partnership has developed a contingency plan in the event of non-compliance
by these key vendors in the Year 2000 which will be updated by September 30,
1999 based on the results of further surveys, discussions and testing of
systems, where applicable. The Partnership does not believe that failure by any
of its key vendors to be Year 2000 compliant by the year 2000 would have a
material effect on the business, financial position or results of operations of
the Partnership.
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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Madison Partnership Liquidity Investors XX, et al. vs. The Balcor Company,
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et al.
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On May 7, 1999, a proposed class action complaint was filed and on May 13, 1999
was served on the defendants, Madison Partnership Liquidity Investors XX, et
al. vs. The Balcor Company, et al. (Circuit Court, Chancery Division, Cook
County, Illinois, Docket No. 99CH08972). The Partnership, twenty-one additional
limited partnerships which were sponsored by The Balcor Company (together with
the Partnership, the "Affiliated Partnerships"), The Balcor Company, other
affiliated entities and one individual are named defendants in this action.
Plaintiffs are entities that initiated tender offers to purchase units and, in
fact, purchased units in eleven of the Affiliated Partnerships. The complaint
alleges breach of fiduciary duties and breach of contract under the partnership
agreements for each of the Affiliated Partnerships. The complaint seeks the
winding up of the affairs of the Affiliated Partnerships, the establishment of
a liquidating trust for each of the Affiliated Partnerships until a resolution
of all contingencies occurs, the appointment of an independent trustee for each
such liquidating trust and the distribution of a portion of the cash reserves
to limited partners. The complaint also seeks compensatory damages, punitive
and exemplary damages, and costs and expenses in pursuing the litigation. On
July 14, 1999, the defendants filed a Motion to Dismiss the complaint. A
briefing schedule on this motion has not yet been set.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Partnership believes it has meritorious defenses
to contest the claims. It is not determinable at this time how the outcome of
this action will impact the remaining cash reserves of the Partnership.
Item 6. Exhibits and Reports on Form 8-K
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(a)(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.
(10) Material Contracts:
(i) Agreement of Sale and attachment thereto dated January 21, 1998 relating to
the sale of the North Kent Outlot, Grand Rapids, Michigan, previously filed as
Exhibit (10(e)(i) to the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1997, is incorporated herein by reference.
(ii) Termination Agreement relating the sale of the North Kent Outlot, Grand
Rapids, Michigan, previously filed as Exhibit (10(e)(ii) to the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1997, is
incorporated herein by reference.
(iii) Agreement of Sale and attachment thereto dated February 27, 1998 relating
to the sale of the North Kent Outlot, Grand Rapids, Michigan, previously filed
as Exhibit (10(e)(iii) to the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1997, is incorporated herein by reference.
(iv) Lease Termination Agreement relating to the sale of North Kent Outlot,
Grand Rapids, Michigan, previously filed as Exhibit (10(e)(iv) to the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1997,
is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the six months ended June
30, 1999 is incorporated herein by reference.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR PENSION INVESTORS-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/Jayne A. Kosik
------------------------------
Jayne A. Kosik
Senior Managing Director and Chief Financial
Officer (Principal Accounting and Financial
Officer) of Balcor Mortgage Advisors-III,
the General Partner
Date: August 2, 1999
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