UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-11699
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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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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
<PAGE>
PART I
Item 1. Business
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Balcor Pension Investors-IV (the "Registrant") is a limited partnership formed
in 1982 under the laws of the State of Illinois. The Registrant raised
$214,803,000 from sales of Limited Partnership Interests. The Registrant has
retained cash reserves from the sale of its real estate investments for
contingencies which exist or may arise. The Registrant's operations currently
consist of interest income earned on short-term investments and the payment of
administrative expenses.
The Registrant originally funded thirty-eight loans, and subsequently funded
four additional loans and acquired fourteen properties through foreclosure and
has since disposed of all of these investments.
The Partnership Agreement provides for the dissolution of the Registrant upon
the occurrence of certain events, including the disposition of all interests in
real estate. In March 1998, the Registrant sold the North Kent Outlot, its
remaining real estate investment. The Registrant has retained a portion of the
cash from the property sales to satisfy the obligations of the Registrant as
well as to establish a reserve for contingencies. The timing of the termination
of the Registrant and final distribution of cash will depend upon the nature
and extent of liabilities and contingencies which exist or may arise. Such
contingencies may include legal and other fees and costs stemming from
litigation involving the Registrant including, but not limited to, the lawsuit
discussed in "Item 3. Legal Proceedings". Due to this litigation, the
Registrant will not be dissolved and reserves will be held by the Registrant
until the conclusion of all contingencies. There can be no assurances as to the
time frame for conclusion of these contingencies.
During March 1998, the Registrant sold the North Kent Outlot in an all cash
sale for $25,000. In addition, the Registrant received $1,000,000 in March 1998
pursuant to a lease termination agreement between the Registrant and the lessee
of the theater located on the property. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" for additional information.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources" for information regarding the
Registrant's Year 2000 readiness.
The Registrant no longer has an ownership interest in any real estate
investment. The General Partner is not aware of any material potential
liability relating to environmental issues or conditions affecting real estate
formerly owned by the Registrant.
The officers and employees of Balcor Mortgage Advisors-III, the General Partner
of the Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
<PAGE>
Item 2. Properties
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As of December 31, 1998, the Registrant did not own any properties.
In the opinion of the General Partner, the Registrant has obtained adequate
insurance coverage for property liability and property damage matters.
See Notes to Financial Statements for other information regarding former real
property investments.
Item 3. Legal Proceedings
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Dee vs. Walton Street Capital Acquisition II, LLC
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On June 14, 1996, a proposed class and derivative action complaint was filed,
Dee vs. Walton Street Capital Acquisition II, LLC (Circuit Court of Cook
County, Illinois, County Department, Chancery Division ("Chancery Court"), Case
No. 96 CH 06283) (the "Dee Case"), naming the General Partner and the general
partners (the "Balcor Defendants") of nine other limited partnerships sponsored
by The Balcor Company (together with the Registrant, the "Affiliated
Partnerships"), as well as 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.
On July 1, 1996, another proposed class action complaint was filed in the
Chancery 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 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 Balcor Defendants' 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 amended their complaint on October 8,
1996, adding additional claims. The plaintiffs requested certification as a
class and derivative action, unspecified compensatory damages and rescission of
the tender offers. Each of the defendants filed motions to dismiss the
complaint for failure to state a cause of action. On January 7, 1997, the
Chancery Court denied the plaintiffs' motion for leave to amend the complaint
and dismissed the matter for failure to state a cause of action, with
prejudice.
On February 3, 1997, the plaintiffs filed a Notice of Appeal of the Chancery
<PAGE>
Court's order to the Appellate Court of Illinois. Oral arguments before the
Appellate Court were held on March 18, 1998. On November 12, 1998, the
Appellate Court issued an opinion affirming the Chancery Court's dismissal of
the case. On December 3, 1998, the plaintiffs filed a notice of intent to
appeal the Appellate Court's ruling to the Illinois Supreme Court.
The Balcor Defendants intend to vigorously contest this action. No class has
been certified as of this date. The Registrant believes it has meritorious
defenses to contest the claims. It is not determinable at this time how the
outcome of this action will impact the remaining cash reserves of the
Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Limited Partners of the Registrant
during 1998.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
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Matters
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There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding distributions, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources" and Financial Statements.
As of December 31, 1998, the number of record holders of Limited Partnership
Interests of the Registrant was 27,558.
Item 6. Selected Financial Data
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Year ended December 31,
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1998 1997 1996 1995 1994
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Total income $773,187 $455,604 $5,105,335 $1,477,161 $3,221,514
Provision for losses
on loans, real
estate and
accrued interest
receivable None 2,354,057 4,703,830 1,414,270 None
Income (loss) before
gains on dispositions
of assets and
extraordinary
items 387,735 ( 2,720,943) 1,315,305 1,339,538 2,241,206
Net income (loss) 387,735 (692,154) 5,962,109 1,339,538 3,411,752
Net income (loss)
per average number
of Limited Part-
nership Interests
outstanding - Basic
and Diluted 0.66 (1.78) 5.73 3.10 7.84
Total assets 6,511,983 17,480,283 44,064,474 52,279,629 61,470,589
Mortgage notes
payable None 768,601 3,883,828 10,419,008 11,316,222
Distributions per
Limited Partner-
ship Interest(A) 26.58 56.75(B) 17.00 21.13 14.05
(A) These amounts include distributions of Original Capital of $20.18 $51.00,
$13.00, $16.13 and $8.55 per Limited Partnership Interest during 1998, 1997,
1996, 1995 and 1994, respectively.
<PAGE>
(B) In addition to the above distributions, a special distribution of $.08 per
Interest was paid to class members including certain current investors in the
Partnership pursuant to the settlement of a class action lawsuit.
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Operations
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Summary of Operations
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Balcor Pension Investors-IV (the "Partnership") recognized a recovery of
potential losses on real estate held for sale in 1998 related to the sale of
North Kent Outlot in March 1998 and a provision for potential losses on real
estate held for sale and a gain on forgiveness of debt during 1997 related to
the foreclosure of North Kent Mall in September 1997. During 1997 and 1996, the
Partnership recognized gains related to property sales. In addition, the
Partnership generated a loss from operations of real estate held for sale
during 1997 as compared to income during 1996. During 1996, the Partnership
also recognized a recovery of losses on real estate held for sale related to
the Glendale Fashion Center and provisions for potential losses on real estate
held for sale related to the North Kent Mall and the Del Lago and Regency Club
apartment complexes. In addition, during 1996, the Partnership recognized
participation income from the gain on the sale of the property which the
Partnership owned through a joint venture with affiliates and a gain on the
prepayment of a loan receivable. As a result of the combined effect of these
transactions, the Partnership recognized net income in 1998 and 1996 and a net
loss in 1997. Further discussion of the Partnership's operations is summarized
below.
1998 Compared to 1997
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Higher average cash balances were available for investment during 1997 due to
the proceeds received by the Partnership from property sales during the latter
part of 1996 and 1997 prior to distribution to Partners in 1997 and January
1998. This was the primary reason interest income on short-term investments
decreased during 1998 as compared to 1997.
Operations of real estate held for sale represent the net operations of those
properties acquired by the Partnership through foreclosure. In March 1998, the
Partnership sold the North Kent Outlot which was generating income prior to the
sale. During 1997, the Partnership sold the Glendale Fashion Center and
recognized a gain of $259,732 in connection with the sale. In addition, in
1997, the lender on the North Kent Mall acquired the property pursuant to a
deed in lieu of foreclosure and the Partnership recognized a gain on
forgiveness of debt of $1,769,057. The loss from operations generated by
<PAGE>
Glendale Fashion Center in 1997 prior to its sale was partially offset by the
income generated by North Kent Mall prior to the foreclosure. As a result, the
Partnership recognized income from operations of real estate held for sale
during 1998 and a loss for 1997.
In June 1997, the Partnership received $75,000 as a final payment related to
the October 1996 settlement with a former tenant of the 240 East Ontario Office
Building, which was sold in 1993. The settlement related to rental income owed
to the Partnership pursuant to the terms of the tenant's lease. This amount was
recognized as settlement income for financial statement purposes.
In 1998, the Partnership recognized other income in connection with a refund of
1996 real estate taxes related to the North Kent Mall of $90,693 due to a
reduction in the assessed value of the property. In addition, during 1998, the
Partnership received $8,722 representing its share of a refund of 1996 real
estate taxes which had been under appeal related to the Perimeter 400 Office
Building. The Partnership held a joint venture interest in this property which
was sold in December 1996. This amount was also recognized as other income. In
1997, the Partnership recognized other income primarily in connection with a
partial refund of prior years' insurance premiums relating to the Partnership's
properties.
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 represented estimations based on many
variables which affect the value of real estate, including economic and
demographic conditions. The Partnership recognized a provision of $2,354,057
related to the North Kent Mall during 1997 to provide for a change in the
estimate of the fair value of the property and wrote-off allowances of
$4,885,527 in connection with the foreclosure of the property. The Partnership
recognized a recovery of $285,231 and wrote off the remaining allowance of
$1,206,569 in connection with the sale of the North Kent Outlot in 1998.
Primarily due to decreased portfolio management, accounting, legal and
professional fees during 1998, administrative expenses decreased during 1998 as
compared to 1997.
1997 Compared to 1996
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As a result of the prepayment of the Stonehaven South Apartments loan in 1996,
interest income on loan receivable ceased. In addition, the Partnership
recognized a gain of $786,766 in 1996 in connection with the prepayment of the
loan receivable.
The Stonehaven South Apartments loan provided additional interest in the form
of a share in the increase of the gross income of the property above a certain
level. Participation income was recognized during 1996 in connection with this
loan.
<PAGE>
Higher average cash balances were available for investment primarily due to
proceeds received by the Partnership from the property sales during the latter
part of 1996 prior to distribution to Limited Partners in January 1997. In
addition, higher average cash balances were available for investment in the
Early Investment Incentive Fund due to the discontinuance of repurchases of
Interests from Limited Partners in February 1997. This resulted in an increase
in interest income on short-term investments in 1997 as compared to 1996.
During 1996, the Partnership received $675,000 related to the October 1996
settlement with a former tenant of the 240 East Ontario Office Building which
was sold in 1993.
The Partnership recognized provisions of $4,703,830 in 1996 related to the
North Kent Mall and Del Lago and Regency Club apartment complexes to provide
for changes in the estimates of the fair values of the properties. In addition,
during 1996, the Partnership recognized a recovery of $2,621,805 related to the
change in the estimated fair value of the Glendale Fashion Center. During 1996,
the Partnership did not recognize any provisions for potential losses for its
loan. The Partnership wrote off allowances of $106,330 and $574,500 related to
the sales of the Regency Club and the Del Lago apartment complexes,
respectively, in 1996.
In 1996, the Partnership sold five properties and recognized gains in
connection with the property sales of $4,085,118. These properties were
generating income from operations prior to their sales, which resulted in a
significant decrease in income from operations of real estate held for sale
during 1997. In addition, during 1997, the Partnership sold the Glendale
Fashion Center, which was operating at a loss prior to the sale. As a result of
these transactions, the Partnership recognized a loss from operations of real
estate held for sale during 1997 as compared to income in 1996.
Participation in loss (income) of joint venture with affiliates represented the
Partnership's 15.37% share of the operations from the Perimeter 400 Center
Office Building. In December 1996, the joint venture sold the property and the
Partnership recognized its share of the gain on sale. During 1997, the
Partnership paid its share of additional expenses related to the property. As a
result, the Partnership recognized participation in loss of joint venture with
affiliates during 1997 as compared to income in 1996.
The Partnership incurred higher legal, consulting, printing and postage costs
in connection with its response to a tender offer and certain related
litigation during 1996. In addition, the Partnership reimbursed The Balcor
Company in 1996 for legal expenses incurred in connection with a class action
lawsuit pursuant to a settlement agreement. These were the primary reasons for
the decrease in administrative expenses during 1997 as compared to 1996. The
Partnership also incurred higher portfolio management fees during 1996 which
contributed to the decrease.
In 1996, the Partnership sold the Colony and Palm View apartment complexes. In
connection with the sales, the Partnership paid $123,308 of prepayment
penalties and wrote off the remaining unamortized deferred expenses in the
amount of $101,772. These amounts were recognized as debt extinguishment
expenses and classified as extraordinary items.
<PAGE>
Liquidity and Capital Resources
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The cash position of the Partnership decreased by approximately $11,571,000 as
of December 31, 1998 when compared to December 31, 1997 due to the payment of a
distribution to partners in January 1998 primarily from proceeds received in
connection with the 1997 sale of the Glendale Fashion Center. The Partnership
received cash from its operating activities of approximately $134,000 which
consisted of interest income earned on short-term investments, refunds of real
estate taxes related to the North Kent Mall and the Perimeter 400 Office
Building and cash flow generated by the North Kent Outlot prior to its sale in
March 1998, net of the payment of administrative expenses. Cash received from
investing activities consisted of net proceeds of approximately $988,000 from
the sale of the North Kent Outlot and the related lease termination. Cash used
in financing activities consisted of the payment of a distribution to Partners
of approximately $10,550,000, an increase in restricted cash and cash
equivalents in the Early Investment Incentive Fund of approximately $1,376,000
due to the discontinuance of the repurchase of Interests from Limited Partners
in February 1997, the repayment of the mortgage note payable of approximately
$763,000 and principal payments on the mortgage note payable of approximately
$5,000.
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. In March 1998, the Partnership sold the North Kent Outlot, its
remaining real estate investment. The Partnership has retained a portion of the
cash from the property sales to satisfy obligations of the Partnership as well
as to establish a reserve for contingencies. The timing of the termination of
the Partnership and final distribution of cash will depend upon the nature and
extent of liabilities and contingencies which exist or may arise. Such
contingencies may include legal and other fees and costs stemming from
litigation involving the Partnership including, but not limited to, the lawsuit
discussed in "Item 3. Legal Proceedings". Due to this litigation, the
Partnership will not be dissolved and reserves will be held by the Partnership
until the conclusion of all contingencies. There can be no assurances as to the
time frame for conclusion of these contingencies.
In March 1998, the Partnership sold the North Kent Outlot in an all cash sale
for $25,000. As part of the transaction, the Partnership received $1,000,000
pursuant to a lease termination agreement between the Partnership and the
lessee of the theater located on the property. From the aggregate proceeds
received, the Partnership paid $763,435 to the third party mortgage holder in
full satisfaction of the first mortgage loan and paid $36,743 in selling costs.
In February 1997, the Partnership discontinued the repurchase of Interests from
Limited Partners. As of December 31, 1998, there were 41,330 Interests and cash
of $4,089,546 in the Early Investment Incentive Fund.
The Partnership made distributions to Limited Partners totaling $26.58, $56.75
and $17.00 per Interest in 1998, 1997 and 1996, respectively. See Statement of
Partners' Capital for additional information. Distributions were comprised of
$6.40 of Cash Flow and $20.18 of Mortgage Reductions in 1998, $5.75 of Cash
Flow and $51.00 of Mortgage Reductions in 1997 and $4.00 of Cash Flow and
$13.00 of Mortgage Reductions in 1996.
<PAGE>
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.
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 the solicitation of information from these vendors through the
use of surveys, follow-up discussions and review of data where needed. The
Partnership has sent out surveys to these vendors and received back a majority
of these surveys. While the Partnership cannot guarantee Year 2000 compliance
by its key vendors, and in many cases will be relying on statements from these
vendors without independent verification, preliminary surveys indicate that the
key vendors performing services for the Partnership are aware of the issues and
are working on a solution to achieve compliance before the year 2000. The
Partnership is in the process of developing a contingency plan in the event any
of its key vendors are not Year 2000 compliant prior to the year 2000. As part
of its contingency plan, the Partnership will identify replacement vendors in
the event that current vendors are not substantially Year 2000 compliant by
June 30, 1999. The Partnership does not believe that failure by any of its key
vendors to be Year 2000 compliant by the year 2000 would have a material effect
on the business, financial position or results of operations of the
Partnership.
Certain statements in this report constitute "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements may include statements regarding income or losses as well as
assumptions relating to the foregoing.
The forward-looking statements made by the Partnership are subject to known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Partnership to differ from any
future results, performance or achievements expressed or implied by the
forward-looking statements.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
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The supplemental financial information specified by Item 305 of Regulation S-K
is not applicable.
<PAGE>
Item 8. Financial Statements and Supplementary Data
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See Index to Financial Statements in this Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
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There have been no changes in or disagreements with accountants on any matter
of accounting principles, practices or financial statement disclosure.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
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(a) Neither the Registrant nor Balcor Mortgage Advisors-III, its General
Partner, has a Board of Directors.
(b, c & e) The names, ages and business experiences of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 51) joined Balcor in July 1979. He is Chairman, President
and Chief Executive Officer and has responsibility for all ongoing day-to-day
activities at Balcor. He is a member of the board of directors of The Balcor
Company. He is also a Senior Vice President of American Express Company and is
responsible for its real estate operations worldwide. Prior to joining Balcor,
Mr. Meador was employed at the Harris Trust and Savings Bank in the commercial
real estate division where he was involved in various lending activities. Mr.
Meador received his M.B.A. degree from the Indiana University Graduate School
of Business.
Mr. Meador is on the Board of Directors of Grubb & Ellis Company, a publicly
traded commercial real estate firm. Mr. Meador was elected to the Board of
Grubb & Ellis Company in May 1998. Mr. Meador is also a director of AMLI
Commercial Properties Trust, a private real estate investment trust that owns
office and industrial buildings in the Chicago, Illinois area. Mr. Meador was
elected to the Board of AMLI Commercial Properties Trust in August 1998.
Alexander J. Darragh (age 44) joined Balcor in September 1988 and is
responsible for real estate advisory services for Balcor and American Express
Company. Mr. Darragh received masters' degrees in Urban Geography from Queen's
University and in Urban Planning from Northwestern University.
Jayne A. Kosik (age 41) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. Ms. Kosik is also a member of the board of directors of The Balcor
Company. From June 1989 until October 1996, Ms. Kosik had supervisory
responsibility for accounting functions relating to Balcor's public and private
partnerships. She is also Treasurer and a Senior Managing Director of The
Balcor Company. Ms. Kosik is a Certified Public Accountant.
(d) There is no family relationship between any of the foregoing officers.
<PAGE>
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1998.
Item 11. Executive Compensation
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The Registrant has not paid and does not propose to pay any remuneration to the
executive officers and directors of Balcor Mortgage Advisors - III, the General
Partner. The executive officers receive compensation from The Balcor Company
(but not from the Registrant) for services performed for various affiliated
entities, which may include services performed for the Registrant. However, the
General Partner believes that any such compensation attributable to services
performed for the Registrant is immaterial to the Registrant. See Note 10 of
Notes to Financial Statements for the information relating to transactions with
affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
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(a) The following is the sole Limited Partner which owns beneficially more than
5% of the outstanding Limited Partnership Interests of the Registrant:
Name and Amount and
Address of Nature of Percent
Beneficial Beneficial of
Title of Class Owner Ownership Class
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Limited Walton Street 20,641.06 4.80%
Partnership Capital Limited
Interests Acquisition Partnership
Co. II, L.C.C. Interests
Chicago,
Illinois
Limited Beattie 11,114.42 2.59%
Partnership Place Limited
Interests Greenville, Partnership
South Carolina Interests
While Walton Street Capital Acquisition Co. II, L.C.C. and Beattie Place
individually own less than 5% of the Interests. For purposes of this Item 12,
Walton Street Capital Acquisition Co. II, L.C.C. is an affiliate of Beattie
Place and, collectively, they own 7.39% of the Interests.
(b) The Registrant, through the Early Investment Incentive Fund, Balcor
Mortgage Advisors-III, and their officers and partners own as a group the
following Limited Partnership Interests of the Registrant:
<PAGE>
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
Limited Partnership
Interests 41,346 Interests 9.6%
Relatives of the officers and affiliates of the partners of the General Partner
do not own any additional interests.
In addition, Balcor LP Corp., an affiliate of the General Partner, holds title
to 54 Limited Partnership Interests in the Partnership due exclusively to
instances in which Limited Partners abandoned title to their Limited
Partnership Interests. Balcor LP Corp. is a nominee holder only of such
Interests and has disclaimed any economic or beneficial ownership in said
Interests. All distributions of cash payable with respect to such Interests
held by Balcor LP Corp. are returned to the Partnership for distribution to
other Limited Partners in accordance with the Partnership Agreement.
(c) The Registrant is not aware of any arrangements, the operation of which may
result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
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(a & b) See Note 4 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profit and
losses.
See Note 10 of Notes to Financial Statements for additional information
relating to transactions with affiliates.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
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(a)
(1 & 2) See Index to Financial Statements in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement of Limited Partnership and Amended and
Restated Certificate of Limited Partnership, previously filed as Exhibits 3(a)
and 3(b) to Amendment No. 2 to the Registrant's Registration Statement on
Form S-11 dated February 23, 1983 (Registration No. 2-80287) and to the
Registrant's Registration Statement dated April 8, 1983 (Registration No.
2-82952), are incorporated herein by reference.
(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 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 1998 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended December 31, 1998.
(c) Exhibits: See Item 14(a)(3) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALCOR PENSION INVESTORS-IV
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: March 19, 1999
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ---------------------- ------------------------------ ------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Mortgage
Advisors-III, the General
Partner
/s/ Thomas E. Meador March 19, 1999
- -------------------- --------------
Thomas E. Meador
Senior Managing Director and Chief
Financial Officer (Principal
Accounting and Financial Officer)
of Balcor Mortgage Advisors-III,
the General Partner
/s/ Jayne A. Kosik March 19, 1999
------------------ --------------
Jayne A. Kosik
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1998 and 1997
Statements of Partners' Capital, for the years ended December 31, 1998, 1997
and 1996
Statements of Income and Expenses, for the years ended December 31, 1998, 1997
and 1996
Statements of Cash Flows, for the years ended December 31, 1998, 1997 and 1996
Notes to Financial Statements
Financial Statement Schedules are omitted for the reason that they are
inapplicable or equivalent information has been included elsewhere herein.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Pension Investors-IV
In our opinion, the accompanying balance sheets and the related statements of
partners' capital, of income and expenses and of cash flows present fairly, in
all material respects, the financial position of Balcor Pension Investors-IV An
Illinois Limited Partnership (the "Partnership") at December 31, 1998 and 1997,
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Partnership's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As described in Note 2 to the financial statements, the partnership agreement
provides for the dissolution of the Partnership upon the disposition of all its
real estate interests. As of December 31, 1998, the Partnership no longer has
an ownership interest in any real estate investment. Upon resolution of the
litigation described in Note 16 to the financial statements, the Partnership
intends to cease operations and dissolve.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 17, 1999
<PAGE>
BALCOR PENSION INVESTORS-IV
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
December 31, 1998 AND 1997
ASSETS
1998 1997
-------------- --------------
Cash and cash equivalents $ 2,398,538 $ 13,969,707
Cash and cash equivalents - Early
Investment Incentive Fund 4,089,546 2,713,854
Accounts and accrued interest receivable 23,899 93,696
-------------- --------------
6,511,983 16,777,257
Real estate held for sale (net of allowance
of $1,491,800 in 1997) 703,026
-------------- --------------
$ 6,511,983 $ 17,480,283
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts and accrued real $ 35,266 $ 84,991
estate taxes payable
Due to affiliates 63,273 51,372
Mortgage note payable 768,601
-------------- --------------
Total liabilities 98,539 904,964
-------------- --------------
Commitments and contingencies
Limited Partners' capital (429,606
Interests issued and outstanding) 15,945,524 26,009,849
Less Interests held by Early Investment
Incentive Fund (41,330 in 1998 and 1997) (9,264,478) (9,264,478)
-------------- --------------
6,681,046 16,745,371
General Partner's deficit (267,602) (170,052)
-------------- --------------
Total partners' capital 6,413,444 16,575,319
-------------- --------------
$ 6,511,983 $ 17,480,283
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-IV
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1998, 1997 and 1996
Partners' Capital (Deficit) Accounts
------------- ------------- -------------
General Limited
Total Partner Partners
------------- ------------- -------------
Balance at December 31, 1995 $ 40,992,121 $ (3,562,031) $ 44,554,152
Repurchase of 6,415 Limited
Partnership Interests (651,348) (651,348)
Cash distributions (A) (6,814,402) (143,204) (6,671,198)
Net income for the year
ended December 31, 1996 5,962,109 3,705,235 2,256,874
------------- ------------- -------------
Balance at December 31, 1996 39,488,480 None 39,488,480
Cash distributions (A) (22,256,808) (205,853) (22,050,955)
Cash contribution 35,801 35,801
Net loss for the year
ended December 31, 1997 (692,154) None (692,154)
------------- ------------- -------------
Balance at December 31, 1997 16,575,319 (170,052) 16,745,371
Cash distributions (A) (10,549,610) (229,122) (10,320,488)
Net income for the year
ended December 31, 1998 387,735 131,572 256,163
------------- ------------- -------------
Balance at December 31, 1998 $ 6,413,444 $ (267,602) $ 6,681,046
============= ============= =============
(A) Summary of cash distributions paid per Limited Partnership Interes
1998 1997 1996
------------- ------------- -------------
First Quarter $ 26.58 $ 50.00(B)$ 1.00
Second Quarter None 2.75 1.00
Third Quarter None 2.00 1.00
Fourth Quarter None 2.00 14.00
(B) In addition to the above distribution, a special distribution of $0.08
per Interest was paid to class members including certain current
investors in the Partnership pursuant to the settlement of a
class action lawsuit.
The accompanying notes are an integral part of the financial statement.
<PAGE>
BALCOR PENSION INVESTORS-IV
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1998, 1997 and 1996
1998 1997 1996
------------- ------------- -------------
Income:
Interest on loans
receivable $ 119,018
Participation income 10,283
Interest on short-term
investments $ 366,042 $ 568,011 408,096
Income (loss) from
operations of real estate
held for sale 22,499 (222,403) 1,271,133
Settlement income 75,000 675,000
Other income 99,415 34,996
Recovery of losses on real
estate held for sale 285,231 2,621,805
------------- ------------- -------------
Total income 773,187 455,604 5,105,335
------------- ------------- -------------
Expenses:
Participation in loss
(income) of joint ventures
with affiliate 81,930 (2,184,244)
Provision for potential
losses on real estate held
for sale 2,354,057 4,703,830
Administrative 385,452 740,560 1,270,444
------------- ------------- -------------
Total expenses 385,452 3,176,547 3,790,030
------------- ------------- -------------
Income (loss) before gain on
prepayment of loan receivable,
gains on sales of real estate
and extraordinary items 387,735 (2,720,943) 1,315,305
Gain on prepayment of loan
receivable 786,766
Gains on sales of real estate 259,732 4,085,118
------------- ------------- -------------
The accompanying notes are an integral part of the financial statement.
<PAGE>
BALCOR PENSION INVESTORS-IV
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1998, 1997 and 1996
(Continued)
1998 1997 1996
------------- ------------- -------------
Income (loss) before
extraordinary items 387,735 (2,461,211) 6,187,189
Extraordinary items:
Gain on forgiveness of debt 1,769,057
Debt extinguishment expense (225,080)
------------- ------------- -------------
Net income (loss) $ 387,735 $ (692,154) $ 5,962,109
============= ============= =============
Income before extraordinary
items allocated to General
Partner $ 131,572 None $ 3,722,116
============= ============= =============
Income (loss) before
extraordinary items allocated
to Limited Partners $ 256,163 $ (2,461,211) $ 2,465,073
============= ============= =============
Income (loss) before
extraordinary items per
average number of Limited
Partnership Interests
outstanding (388,276 for the
years ended December 31, 1998
and 1997 and 393,690 for the
year ended December 31, 1996
- Basic and Diluted $ 0.66 $ (6.34) $ 6.26
============= ============= =============
Extraordinary items allocated
to General Partner None None $ (16,881)
============= ============= =============
Extraordinary items allocated
to Limited Partners None $ 1,769,057 $ (208,199)
============= ============= =============
The accompanying notes are an integral part of the financial statement.
<PAGE>
BALCOR PENSION INVESTORS-IV
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1998, 1997 and 1996
(Continued)
1998 1997 1996
------------- ------------- -------------
Extraordinary items per average
number of Limited Partnership
Interests outstanding
(388,276 for the years
ended December 31, 1998
and 1997 and 393,690 for the
year ended December 31, 1996
Basic and Diluted None $ 4.56 $ (0.53)
============= ============= =============
Net income allocated to
General Partner $ 131,572 None $ 3,705,235
============= ============= =============
Net income (loss) allocated to
Limited Partners $ 256,163 $ (692,154) $ 2,256,874
============= ============= =============
Net income (loss) per average
number of Limited Partnership
Interests outstanding
(388,276 for the years
ended December 31, 1998
and 1997 and 393,690 for the
year ended December 31, 1996
Basic and Diluted $ 0.66 $ (1.78) $ 5.73
============= ============= =============
The accompanying notes are an integral part of the financial statement.
<PAGE>
BALCOR PENSION INVESTORS-IV
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
1998 1997 1996
------------- ------------ ------------
Operating activities:
Net income (loss) $ 387,735 $ (692,154) $ 5,962,109
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Debt extinguishment
expense 101,772
Gain on forgiveness of
debt (1,769,057)
Gain on prepayment of
loan receivable (786,766)
Gains on sales of real
estate (259,732) (4,085,118)
Participation in loss
(income) of joint
venture with affiliates 81,930 (2,184,244)
Recovery of losses on
real estate held for
sale (285,231) (2,621,805)
Provision for potential
losses on real estate
held for sale 2,354,057 4,703,830
Amortization of deferred
expenses 22,335
Accrued expenses due at
maturity 35,750
Net change in:
Escrow deposits 240,948
Accounts and accrued
interest receivable 69,797 998,644 (862,233)
Prepaid expenses 54,692 90,126
Accounts and accrued
real estate taxes
payable (49,725) (334,224) (1,855)
Due to affiliates 11,901 (94,399) 101,395
Other liabilities (3,000) (275,874)
------------- ------------ ------------
Net cash provided by
operating activities 134,477 336,757 440,370
------------- ------------ ------------
The accompanying notes are an integral part of the financial statement.
<PAGE>
BALCOR PENSION INVESTORS-IV
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
(Continued)
1998 1997 1996
------------- ------------- -------------
Investing activities:
Capital contribution to joint
venture with affiliate $ (81,930)
Distributions from joint
venture with affiliates 268,975 $ 6,138,544
Collection of principal
payment on loan receivable 2,444,552
Additions to real estate (459,041)
Proceeds from lease
termination $ 1,000,000
Proceeds from sales of
real estate 25,000 10,770,000 31,150,000
Costs incurred in connection
with sales of real estate (36,743) (308,951) (1,254,152)
------------- ------------- -------------
Net cash provided by
investing activities 988,257 10,648,094 38,019,903
------------- ------------- -------------
Financing activities:
Distributions to Limited
Partners (10,320,488) (22,050,955) (6,671,198)
Distributions to General
Partner (229,122) (205,853) (143,204)
Contribution by General
Partner 35,801
Change in cash and cash
equivalents - Early
Investment Incentive
Fund (1,375,692) (2,528,687) (36,937)
Repurchase of Limited
Partnership Interests (651,348)
Principal payments on
mortgage notes payable (5,166) (199,785) (405,526)
Repayment of mortgage
notes payable (763,435) (1,270,565) (6,165,404)
Release of capital
improvement escrows 597,859
------------- ------------- -------------
The accompanying notes are an integral part of the financial statement.
<PAGE>
BALCOR PENSION INVESTORS-IV
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
(Continued)
1998 1997 1996
------------- ------------- -------------
Net cash used in financing
activities (12,693,903) (26,220,044) (13,475,758)
------------- ------------- -------------
Net change in cash and cash
equivalents (11,571,169) (15,235,193) 24,984,515
Cash and cash equivalents at
beginning of year 13,969,707 29,204,900 4,220,385
------------- ------------- -------------
Cash and cash equivalents
at end of year $ 2,398,538 $ 13,969,707 $ 29,204,900
============= ============= =============
The accompanying notes are an integral part of the financial statement.
<PAGE>
BALCOR PENSION INVESTORS-IV
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Pension Investors-IV (the "Partnership") has retained cash reserves from
the sale of its real estate investments for contingencies which exist or may
arise. The Partnership's operations currently consist of interest income earned
on short-term investments and the payment of administrative expenses.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. In March 1998, the Partnership sold the North Kent Outlot, its
remaining real estate investment. The Partnership has retained a portion of the
cash from the property sales to satisfy the obligations of the Partnership as
well as to establish a reserve for contingencies. The timing of the termination
of the Partnership and final distribution of cash will depend upon the nature
and extent of liabilities and contingencies which exist or may arise. Such
contingencies may include legal and other fees and costs stemming from
litigation involving the Partnership including, but not limited to, the lawsuit
discussed in Note 16 of Notes to the Financial Statements. Due to this
litigation, the Partnership will not be dissolved and reserves will be held by
the Partnership until the conclusion of all contingencies. There can be no
assurances as to the time frame for conclusion of these contingencies.
3. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from those estimates.
(b) Income on loans was recorded as earned in accordance with the terms of the
related loan agreements. The accrual of interest was discontinued when a loan
became ninety days contractually delinquent or sooner when, in the opinion of
the General Partner, an impairment had occurred in the value of the collateral
property securing the loan. Income on nonaccrual loans or loans which were
otherwise not performing in accordance with their terms was recorded on a cash
basis.
Various loan agreements provided for participation by the Partnership in
increases in value of the collateral property when the loan was repaid or
refinanced. In addition, certain loan agreements allowed the Partnership to
receive a percentage of rental income exceeding a base amount. Participation
income was reflected in the accompanying Statements of Income and Expenses when
received.
<PAGE>
Income from operations of real estate owned and held for sale is reflected in
the accompanying Statements of Income and Expenses net of related direct
operating expenses.
(c) Losses on loans receivable were charged to income and an allowance account
was established when the General Partner believed the loan balance would not be
recovered. The General Partner assessed the collectibility of each loan on a
periodic basis through a review of the collateral property's operations, the
property's value and the borrower's ability to repay the loan. Upon
foreclosure, the loan net of the allowance was transferred to real estate held
for sale after the fair value of the property, less costs of disposal, was
assessed. Upon the transfer to real estate held for sale, a new basis in the
property was established.
(d) The General Partner periodically assessed, but not less than on an annual
basis, the fair value of its real estate properties held for sale. The General
Partner estimated the fair value of its properties based on the current sales
price less estimated closing costs. Changes in the property's fair value were
recorded by an adjustment to the property allowance account and were recognized
in the income statement as an increase or decrease through recovery income or a
provision for loss in the period the change in fair value was determined. The
General Partner considered the methods referred to above to result in a
reasonable measurement of a property's fair value, unless other factors
affecting the property's value indicated otherwise.
(e) Investment in joint venture with affiliates represented the Partnership's
15.37% interest, under the equity method of accounting, in a joint venture with
affiliated partnerships. Under the equity method of accounting, the Partnership
recorded its initial investment at cost and adjusted its investment account for
additional capital contributions, distributions and its share of joint venture
income or loss.
(f) Deferred expenses consisted of financing fees which were amortized over the
terms of the respective agreement. Upon sale, any remaining unamortized balance
was recognized as debt extinguishment expense and classified as an
extraordinary item.
(g) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles. Income from operating leases with significant
abatements and/or scheduled rent increases was recognized on a straight line
basis over the respective lease term. Service income included reimbursements
for operating costs such as real estate taxes, maintenance and insurance and
was recognized as revenue in the period the applicable costs were incurred.
(h) The Partnership calculates the fair value of its financial instruments
based on estimates using present value techniques. The Partnership includes
this additional information in the notes to the financial statements when the
fair value is different than the carrying value of those financial instruments.
When the fair value reasonably approximates the carrying value, no additional
disclosure is made.
<PAGE>
(i) The Partnership recorded repurchases of Interests by the Early Investment
Incentive Fund as a reduction of Partners' Capital (see Note 4 of Notes to
Financial Statements). Cash and cash equivalents not utilized to repurchase
Interests, but which are part of the Early Investment Incentive Fund, are
classified as restricted assets of the Partnership.
(j) Cash and cash equivalents include all unrestricted, highly liquid
investments with an original maturity of three months or less. Cash is held or
invested in one financial institution.
(k) For financial statement purposes, prior to 1996, the partners were
allocated income and losses in accordance with the provisions in the
Partnership Agreement. In order for the capital account balances to more
accurately reflect the partners' remaining economic interests in the
Partnership, the income (loss) allocations have been adjusted.
(l) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
(m) Statement of Financial Accounting Standards, No. 128, "Earnings per Share"
was adopted by the Partnership effective for the year-ended December 31, 1997
and has been applied to the prior earnings period presented in the financial
statements. Since the Partnership has no dilutive securities, there is no
difference between basic and diluted net income (loss) per Limited Partnership
Interest.
(n) Certain reclassifications of prior years information were made to conform
to the 1998 presentation.
4. Partnership Agreement:
The Partnership was organized on October 21, 1982. The Partnership Agreement
provided for the admission of Limited Partners through the sale of up to
450,000 Limited Partnership Interests at $500 per Interest, 429,606 of which
were sold on or prior to June 2, 1983, the termination date of the offering.
The Partnership Agreement provides that profits and losses are allocated 92.5%
to the Limited Partners, of which 2.5% relates to the Early Investment
Incentive Fund, and 7.5% to the General Partner. For financial statement
purposes, prior to 1996, the partners were allocated income and losses in
accordance with the provisions in the Partnership Agreement. In order for the
capital account balances to more accurately reflect the partners' remaining
economic interests in the Partnership, the income (loss) allocations have been
adjusted.
The Limited Partners receive 100% of all distributions of Mortgage Reductions.
To the extent that Cash Flow is distributed, distributions are made as follows:
(i) 90% of such Cash Flow is distributed to the Limited Partners, (ii) 7.5% of
such Cash Flow is distributed to the General Partner, and (iii) 2.5% of such
Cash Flow is set aside in the Early Investment Incentive Fund (the "Fund") for
payment on dissolution of the Partnership to those investors who subscribed
<PAGE>
prior to August 31, 1983 ("Early Investors") if necessary for them to receive a
return of their Original Capital plus a specified Cumulative Return based on
the date of investment. Amounts, if any, remaining in the Fund after Early
Investors have received such returns will be distributed 90% to all Limited
Partners and 10% to the General Partner. Since the required subordination
levels were not met, the General Partner will not receive any distributions
from the Early Investment Incentive Fund.
Amounts placed in the Fund were, at the sole discretion of the General Partner
and subject to certain limitations as set forth in the Partnership Agreement,
used to repurchase Interests from existing Limited Partners. Distributions of
Cash Flow and Mortgage Reductions pertaining to such repurchased Interests were
paid to the Fund. In February 1997, the Partnership discontinued the repurchase
of Interests from Limited Partners. To the extent that amounts in the Fund have
not been utilized to repurchase Interests, such amounts are invested in
short-term interest-bearing instruments with interest thereon being earned by
the Fund. As of December 31, 1998, there were 41,330 Interests and cash of
$4,089,546 in the Fund.
5. Investment in Loans Receivable:
The Stonehaven South Apartments loan receivable had been classified as
nonaccrual due to the borrower's noncompliance with the original terms of the
loan agreement and was scheduled to mature in 1997. However, in July 1996, the
borrower paid $2,380,685 in full satisfaction of the loan. For financial
statement purposes, the loan balance at the date of prepayment was $1,588,691,
and the Partnership recognized a gain of $786,766 from the prepayment.
Loans which had been classified as nonaccrual as a result of delinquency or
other noncompliance with the terms of the loan agreements were referred to as
impaired loans. The average recorded investment in impaired loans in 1996 was
approximately $828,893. Interest income relating to impaired loans would have
been approximately $218,000 in 1996. Net interest income from impaired loans
included in the accompanying Statements of Income and Expenses amounted to
approximately $94,000 in 1996 ($163,000 cash basis).
6. Allowance for Losses on Loans and Real Estate Held for Sale:
There was no activity recorded in the allowance for losses on loans during the
three years ended December 31, 1998.
Activity recorded in the allowance for losses on real estate held for sale
during the three years ended December 31, 1998 is described in the table below:
1998 1997 1996
------------ ----------- -----------
Real Estate Held for Sale:
Balance at beginning of
year $ 1,491,800 $ 4,023,000 $ 2,621,805
Provision charged to
income None 2,354,057 4,703,830
<PAGE>
Recovery of provision
previously charged to income (285,231) None (2,621,805)
Direct write-off of real
estate held for sale
against allowance (1,206,569) (4,885,257) (680,830)
------------ ----------- -----------
Balance at the end of
the year None $ 1,491,800 $ 4,023,000
============ =========== ============
7. Mortgage Notes Payable:
The Partnership sold the North Kent Outlot in March 1998. The carrying value of
the mortgage loan payable related to the Outlot at December 31, 1997 was
$768,601. See Note 11 of Notes to Financial Statements for additional
information.
During the years ended December 31, 1998, 1997 and 1996, the Partnership
incurred interest expense on the mortgage loans payable of $19,143, $333,100
and $902,936, respectively, and paid interest of $19,143, $351,985 and
$903,851, respectively.
8. Investment in Joint Venture with Affiliates:
The Perimeter 400 Center Office Building was owned by a joint venture
consisting of the Partnership and three affiliates. The Partnership's sharing
percentage was 15.37%. In December 1996, the joint venture sold the property in
all cash sale for $40,700,000. From the proceeds of the sale, the joint venture
paid $882,765 in selling costs. The joint venture recognized a gain of
$12,420,982 from the sale of this property, of which $1,910,549 is the
Partnership's share. For financial statement purposes, the Partnership's share
of the gain is included in participation in income of joint venture with
affiliates in 1996. Pursuant to the terms of the sale, $1,750,000 of the
proceeds were retained by the joint venture until September 1997 at which time
the funds were released in full. The Partnership's share was $268,975. In
addition, during 1997 and 1996, the Partnership received net distributions from
the joint venture totaling $187,045 and $6,138,544, respectively.
The following information has been summarized from the financial statements of
the joint venture:
1996
-----------
Total income before
gain on sale $4,891,231
Gain on sale 12,420,982
Net income 6,567,998
9. Management Agreements:
The Partnership's properties were managed by a third party management company
prior to the sale of the properties. These management agreements provided for
annual fees of 3% to 6% of gross operating receipts.
<PAGE>
10. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96
--------------- --------------- ---------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Mortgage servicing fees None None None None $4,666 None
Reimbursement of expenses
to the General Partner,
at cost:
Accounting $27,246 $16,309 $47,704 $9,486 28,774 $21,248
Data processing 2,328 872 4,198 None 4,068 None
Legal 12,221 7,876 26,527 5,145 15,887 11,360
Portfolio management 61,961 38,216 180,204 36,741 165,238 113,163
Prior to May 1995, the Partnership participated in an insurance deductible
program with other affiliated partnerships in which the program paid claims up
to the amount of the deductible under the master insurance policy for its
properties. The program was administered by an affiliate of the General Partner
(The Balcor Company) who received no fee for administering the program.
However, the General Partner was reimbursed for program expenses. The
Partnership paid premiums to the deductible insurance program relating to
claims for periods prior to May 1, 1995 of $12,743 for 1996.
The General Partner made a contribution of $35,801 to the Partnership in
connection with the settlement of certain litigation as further described in
Note 14 of Notes to Financial Statements.
11. Sales of Real Estate:
(a) In March 1998, the Partnership sold the North Kent Outlot in an all cash
sale for $25,000. In addition, the Partnership received $1,000,000 in March
1998 pursuant to a lease termination agreement between the Partnership and the
lessee of the theater located on the Outlot. From the aggregate proceeds
received, the Partnership paid $763,435 to the third party mortgage holder in
full satisfaction of the first mortgage loan and paid $36,743 in selling costs.
The basis of the property was $703,026, which is net of an allowance of
$1,491,800. For financial statement purposes, the Partnership recognized no
gain or loss on the sale of this property. However, the Partnership recognized
a recovery of loss on real estate of $285,231 and wrote off $1,206,569 against
the previously established loss allowance related to this property.
(b) In December 1997, the Partnership sold the Glendale Fashion Center in an
all cash sale for $10,700,000. In addition, the purchaser paid the Partnership
$70,000 as a fee for extending the closing. From the proceeds of the sale, the
Partnership paid $1,270,565 to the third party mortgage holder in full
satisfaction of the first mortgage loan and paid $308,951 in selling costs. The
basis of the property was $10,201,317. For financial statement purposes, the
Partnership recognized a gain of $259,732 from the sale of this property.
<PAGE>
(c) In December 1996, the Partnership sold the Palm View Apartments in an all
cash sale for $6,500,000. From the proceeds of the sale, the Partnership paid
$2,782,063 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $289,386 in selling costs and $55,641 of prepayment
penalties. The basis of the property was $5,726,999. For financial statement
purposes, the Partnership recognized a gain of $483,615 from the sale of this
property.
(d) In November 1996, the Partnership sold the Del Lago Apartments in an all
cash sale for $2,800,000. From the proceeds of the sale, the Partnership paid
$174,500 in selling costs. The basis of the property was $3,200,000. For
financial statement purposes, the Partnership recognized no gain or loss on the
sale of this property. However, the Partnership had previously established an
allowance for potential losses related to this property against which its
remaining net investment of $574,500 was written off.
(e) In November 1996, the Partnership sold the Colony Apartments in an all cash
sale for $7,100,000. From the proceeds of the sale, the Partnership paid
$3,383,341 to the third party mortgage holder in full satisfaction of the first
mortgage loan, and paid $254,621 in selling costs and $67,667 of prepayment
penalties. The basis of the property was $4,507,984. For financial statement
purposes, the Partnership recognized a gain of $2,337,395 from the sale of this
property.
(f) In October 1996, the Partnership sold the Pelican Pointe Apartments in an
all cash sale for $9,000,000. From the proceeds of the sale, the Partnership
paid $312,315 in selling costs. The basis of the property was $7,423,577. For
financial statement purposes, the Partnership recognized a gain of $1,264,108
from the sale of this property.
(g) In September 1996, the Partnership sold the Regency Club Apartments in an
all cash sale of $5,750,000. From the proceeds of the sale, the Partnership
paid $223,330 in selling costs. The basis of the property was $5,633,000. For
financial statement purposes, the Partnership recognized no gain or loss on the
sale of this property. However, the Partnership had previously established an
allowance for potential losses related to this property against which its
remaining net investment of $106,330 was written off.
12. Real Estate Relinquished through Foreclosure:
North Kent Mall is composed of two portions, the Mall and the North Kent
Outlot, each of which was collateralized by a mortgage loan from a different
lender. In September 1997, the lender of the mortgage loan collateralized by
the Mall took title to the property pursuant to a deed in lieu of foreclosure.
In connection with the foreclosure, the Partnership recognized a $1,769,057
extraordinary gain on forgiveness of debt representing the outstanding mortgage
balance of $1,644,877 and other liabilities of $124,180 assumed by the lender.
In addition, the Partnership recognized a $2,354,057 provision for losses. The
basis of the property was $4,885,287. For financial statement purposes, the
basis of the Mall was written off against the loss allowance of $4,885,287
related to this property. The Partnership sold the North Kent Outlot in March
1998. See Note 11 of Notes to Financial Statements for additional information
relating to the sale of the North Kent Outlot.
<PAGE>
13. Extraordinary Items:
(a) In connection with the 1997 foreclosure of the North Kent Mall, the
Partnership recognized a $1,769,057 extraordinary gain on forgiveness of debt
representing the outstanding mortgage balance of $1,644,877 and other
liabilities of $124,180 assumed by the lender.
(b) In 1996, the Partnership sold the Colony and Palm View apartment complexes.
In connection with the sales, the Partnership paid $123,308 of prepayment
penalties and wrote-off the remaining unamortized deferred expenses in the
amount of $101,772. These amounts were recognized as debt extinguishment
expenses and classified as extraordinary items.
14. Settlement of Litigation:
(a) A settlement received final approval by the court in November 1996 in the
class action, Paul Williams and Beverly Kennedy, et. al. v. Balcor Pension
Investors, et. al. upon the terms described in the notice to class members in
September 1996. The General Partner made a contribution of $35,801 to the
Partnership, from which the plaintiff's counsel was paid $3,581 pursuant to the
settlement agreement. In February 1997, the General Partner made a settlement
payment of the remaining $32,220 ($0.08 per Interest) to members of the class
pursuant to the settlement agreement. Of the settlement amount, $16,056 was
paid to original investors who held their Limited Partnership Interests at the
date of the settlement and was recorded as a distribution to Limited Partners
in the Financial Statements. The remaining portion of the settlement of $16,164
was paid to original investors who previously sold their Interests in the
Partnership. This amount was recorded as an administrative expense in the
Financial Statements. Similar contributions and payments were made on the seven
other partnerships included in the lawsuit in addition to those payments
described above. The Balcor Company paid an additional $635,000 to the
plaintiffs' class counsel and The Balcor Company received approximately
$946,000 from the eight partnerships as a reimbursement of its legal expenses,
of which $169,393 was the Partnership's share. The settlement had no material
impact on the Partnership.
(b) In October 1996, the Partnership reached a settlement totaling $750,000
with a former tenant at the 240 East Ontario Office Building (which was sold in
1993) for rental income owed to the Partnership pursuant to the terms of the
tenant's lease. Under the terms of the settlement, the Partnership received
$675,000 in 1996. In June 1997, the Partnership received a final payment of
$75,000. The payments were recognized as settlement income for financial
statement purposes.
15. Other Income:
In 1998, the Partnership recognized other income in connection with a refund of
1996 real estate taxes related to the North Kent Mall of $90,693 due to a
reduction in the assessed value of the property. The Perimeter 400 Office
Building, which was owned by a joint venture with three affiliates, was sold in
December 1996. During 1998, the Partnership received $8,722 representing its
share of a refund of 1996 real estate taxes which had been under appeal. This
amount was also recognized as other income.
<PAGE>
During 1997, the Partnership recognized other income primarily in connection
with a partial refund of prior years' insurance premiums relating to the
Partnership's properties.
16. Contingency:
The Partnership is currently involved in a lawsuit, Dee vs. Walton Street
Capital Acquisition II, LLC, whereby the Partnership, the General Partner and
certain third parties have been named as defendants seeking damages relating to
tender offers to purchase interests in the Partnership and nine affiliated
partnerships initiated by the third party defendants in 1996. The defendants
continue to vigorously contest this action. The action has been dismissed with
prejudice which dismissal was affirmed by the Illinois Appellate Court.
Plaintiffs have filed a further appeal to the Illinois Supreme Court. It is not
determinable at this time how the outcome of this action will impact the
remaining cash reserves of the Partnership. The Partnership believes it has
meritorious defenses to contest the claims.
<PAGE>
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