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 September 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
September 30, 1999 and December 31, 1998
(Unaudited)
ASSETS
1999 1998
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Cash and cash equivalents $ 2,303,336 $ 2,398,538
Cash and cash equivalents - Early
Investment Incentive Fund - restricted 4,235,471 4,089,546
Accrued interest receivable 25,270 23,899
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$ 6,564,077 $ 6,511,983
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 24,857 $ 35,266
Due to affiliates 72,222 63,273
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Total liabilities 97,079 98,539
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Commitments and contingencies
Limited Partners' capital (429,606
Interests issued and outstanding) 15,996,795 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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6,732,317 6,681,046
General Partner's deficit (265,319) (267,602)
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Total partners' capital 6,466,998 6,413,444
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$ 6,564,077 $ 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 nine months ended September 30, 1999 and 1998
(Unaudited)
1999 1998
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Income:
Interest on short-term investments $ 231,365 $ 284,667
Income from operations of real
estate held for sale 22,463
Other income 1,619 99,415
Recovery of loss on real estate held
for sale 285,231
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Total income 232,984 691,776
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Expenses:
Administrative 179,430 287,981
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Total expenses 179,430 287,981
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Net income $ 53,554 $ 403,795
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Net income allocated to General
Partner $ 2,283 $ 131,572
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Net income allocated to Limited
Partners $ 51,271 $ 272,223
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Net income per average number of
Limited Partnership Interests outstanding
(388,276 in 1999 and 1998) - Basic
and Diluted $ 0.13 $ 0.70
============= =============
Distribution to General Partner None $ 229,122
============= =============
Distribution to Limited Partners None $ 10,320,488
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Distribution per Limited Partnership
Interest None $ 26.58
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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 quarters ended September 30, 1999 and 1998
(Unaudited)
1999 1998
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Income:
Interest on short-term investments $ 76,991 $ 90,889
Other income 8,722
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Total income 76,991 99,611
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Expenses:
Loss from operations of real
estate held for sale 14,867
Administrative 50,559 71,191
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Total expenses 50,559 86,058
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Net income $ 26,432 $ 13,553
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Net income allocated to General
Partner None None
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Net income allocated to Limited
Partners $ 26,432 $ 13,553
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Net income per average number of
Limited Partnership Interests outstanding
(388,276 in 1999 and 1998) - Basic
and Diluted $ 0.07 $ 0.03
============= =============
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 nine months ended September 30, 1999 and 1998
(Unaudited)
1999 1998
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Operating activities:
Net income $ 53,554 $ 403,795
Adjustments to reconcile net income
to net cash provided by operating
activities:
Recovery of loss on real estate held
for sale (285,231)
Net change in:
Accounts and accrued interest
receivable (1,371) 61,760
Accounts and accrued real estate
taxes payable (10,409) (83,239)
Due to affiliates 8,949 26,062
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Net cash provided by operating activities 50,723 123,147
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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 (145,925) (1,324,377)
Principal payments on mortgage notes
payable (5,166)
Repayment of mortgage note payable (763,435)
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Cash used in financing activities (145,925) (12,642,588)
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Net change in cash and cash equivalents (95,202) (11,531,184)
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 $ 2,303,336 $ 2,438,523
============= =============
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 nine months and quarter
ended September 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
Partnership litigation was filed in May 1999. The second Sandra Dee case was
filed June 1, 1999 and served on August 16, 1999. See Note 6 of Notes to
Financial Statements for additional information regarding the Madison
Partnership/Dee litigation. Despite the existence of the Madison
Partnership/Dee litigation, the Partnership currently plans to dissolve in
December 1999 and distribute remaining cash reserves (including amounts in the
Early Investment Incentive Fund) 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 Partnership/Dee case to be a matter that would preclude
the dissolution of the Partnership in 1999.
3. Interest Expense:
During the nine months ended September 30, 1998, the Partnership incurred and
paid interest expense on mortgage note payable of $19,143.
4. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates for the
nine months and quarter ended September 30, 1999 are:
Paid
-----------------------
Nine Months Quarter Payable
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Reimbursement of expenses to
the General Partner, at cost $ 22,760 $ 3,649 $ 72,222
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. On June
1, 1999, a second lawsuit was filed and was served on August 16, 1999, Sandra
Dee vs. The Balcor Company, et al. The Dee complaint is virtually identical to
the Madison Partnership complaint and on September 20, 1999 was consolidated
into the Madison Partnership case. The defendants intend to vigorously contest
these actions. The Partnership believes that it has meritorious defenses to
contest the claims. It is not determinable at this time how the outcome of
these actions 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
September 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 nine months ended September 30,
1999 as compared to the same period in 1998. During the quarter ended September
30, 1999, administrative expenses decreased as compared to the same period in
1998. This decrease was partially offset by a decrease in interest income
earned on short-term investments. In addition, during the quarter ended
September 30, 1998, the Partnership recognized a loss from operations of real
estate held for sale related to North Kent Mall and income in connection with a
real estate tax refund related to the Perimeter 400 Office Building. The
combined effect of these events resulted in an increase in net income during
the quarter ended September 30, 1999 as compared to the same period in 1998.
Further discussion of the Partnership's operations is summarized below.
1999 Compared to 1998
- ---------------------
Unless otherwise noted, discussions of fluctuations between 1999 and 1998 refer
to both the nine months and quarters ended September 30, 1999 and 1998.
As a result of lower interest rates in 1999 and higher cash balances in 1998
prior to a distribution to Limited Partners in January 1998, interest income on
short-term investments decreased during 1999 as compared to 1998.
In March 1998, the Partnership sold the North Kent Outlot, which was generating
income prior to the sale. During the third quarter of 1998, the Partnership
incurred additional expenditures related to the North Kent Outlot. As a result,
the Partnership recognized income from operations of real estate held for sale
during the nine months ended September 30, 1998 and a loss for the quarter
ended September 30, 1998.
During March 1999, the Partnership recognized 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 these
properties were sold in prior years. During the nine months ended September 30,
1998, the Partnership recognized income of $90,693 in connection with a partial
refund of 1996 real estate taxes related to the North Kent Mall, which was
relinquished pursuant to a deed in lieu of foreclosure in September 1997. The
Perimeter 400 Office Building, which was owned by a joint venture with three
affiliates, was sold in December 1996. During the third quarter of 1998, the
Partnership recognized $8,722 representing its share of a refund of 1996 real
estate taxes which had been under appeal. These amounts were recognized as
other income for financial statement purposes.
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 as compared to
1998.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $95,000 as of
September 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 $146,000 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
Partnership and the new Sandra Dee litigation, described in Part II, Item 1, of
this report, were filed in May 1999 and June 1999, respectively. Despite the
existence of the Madison Partnership/Dee litigation, the Partnership currently
plans to dissolve in December 1999 and distribute remaining cash reserves
(including amounts in the Early Investment Incentive Fund) 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 Partnership/Dee 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. 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 September 30, 1999, there was cash of $4,235,471 in the Early
Investment Incentive Fund.
The Partnership sold all of its remaining real property investments and
mortgage loans 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 has involved 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 each of these vendors. While the
Partnership cannot guarantee Year 2000 compliance by its key vendors, and is
relying on statements from these vendors without independent verification,
these surveys, testing of systems, where applicable and discussions with the
key vendors performing services for the Partnership indicate that the key
vendors are substantially Year 2000 compliant as of September 30, 1999. The
Partnership will continue to monitor the Year 2000 compliance of its key
vendors during the fourth 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. 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. 99CH 06972). The general partner of the
Partnership, the general partners of twenty-one additional limited partnerships
which were sponsored by The Balcor Company, The Balcor Company and one
individual are named as defendants in this action. The Partnership and the
twenty-one other limited partnerships are referred to herein as the "Affiliated
Partnerships". 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 hearing date on the motion has not yet been set. On
September 20, 1999 the Sandra Dee case described below was consolidated with
this case. Future reports to investors will report only the consolidated case.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. 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.
Sandra Dee vs. The Balcor Company, et al.
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On June 1, 1999, a proposed class action complaint was filed, and on August 16,
1999 was served on the defendants, Sandra Dee vs. The Balcor Company, et al.
(Circuit Court, Chancery Division, Cook County, Illinois, Docket No. 99CH
08123). The general partner of the Partnership, the general partners of
twenty-one additional limited partnerships which were sponsored by The Balcor
Company, The Balcor Company and one individual are named as defendants in this
action. The Partnership and the twenty-one other limited partnerships are
referred to herein as the "Affiliated Partnerships". This complaint is
identical in all material respects to the Madison Partnership Liquidity
Investors XX, et al. vs. The Balcor Company et al. complaint filed in May 1999.
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. The defendants filed on September 15, 1999 a motion to
consolidate this case with the Madison Partnership case. On September 20, 1999,
the motion was granted and this case was consolidated with the Madison
Partnership case. Future reports to investors will report only the consolidated
case. On September 15, 1999, the defendants also filed a Motion to Dismiss the
complaint.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The defendants believe that they have 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 nine months ended
September 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 September 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: November 4, 1999
----------------
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