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, 1997
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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 0-13334
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BALCOR REALTY INVESTORS 84-SERIES II,
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Maryland 36-3223939
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Rd.
Bannockburn, IL 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
----
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 Realty Investors 84-Series II, A Real Estate Limited Partnership (the
"Registrant") is a limited partnership formed in 1983 and governed by the laws
of the State of Maryland. The Registrant raised $87,037,000 from sales of
Limited Partnership Interests. The Registrant has retained cash reserves from
the sale of its real estate investments for contingencies which exist or may
arise. The Registrant's operations currently consist of interest income earned
on short-term investments and the payment of administrative expenses.
The Registrant utilized the net offering proceeds to acquire fourteen real
property investments and has since disposed of all of these investments. The
Partnership Agreement provides that the proceeds of any sale or refinancing of
the Registrant's properties will not be reinvested in new acquisitions.
The Partnership Agreement provides for the dissolution of the Registrant upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1996, the Registrant sold six properties. During 1997, the
Registrant sold its remaining two properties, the Spring Creek and Park Colony
apartment complexes. The Registrant has retained a portion of the cash from the
property sales to satisfy obligations of the Registrant as well as establish a
reserve for contingencies. The timing of the termination of the Registrant and
final distribution of cash will depend upon the nature and extent of
liabilities and contingencies which exist or may arise. Such contingencies may
include legal and other fees and costs stemming from litigation involving the
Registrant including, but not limited to, the lawsuits discussed in "Item 3.
Legal Proceedings". In the absence of any such contingencies, the reserves will
be paid within twelve months of the last property being sold. In the event a
contingency continues to exist or arises, reserves may be held by the
Partnership for a longer period of time.
During June 1997, the Registrant sold the Spring Creek and Park Colony
apartment complexes in all cash sales for $10,225,000 and $14,500,000,
respectively. See "Item 7. Liquidity and Capital Resources" for additional
information.
The Registrant no longer has an ownership interest in any real estate
investment. The General Partner is not aware of any material potential
liability relating to environmental issues or conditions affecting real estate
formerly owned by the Registrant.
The officers and employees of Balcor Partners-84 II, Inc., the General Partner
of the Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
Item 2. Properties
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As of December 31, 1997, the Registrant did not own any properties.
In the opinion of the General Partner, the Registrant has obtained adequate
insurance coverage.
<PAGE>
See Notes to Financial Statements for other information regarding former real
property investments.
Item 3. Legal Proceedings
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Klein, et al. vs Lehman Brothers, Inc., et al.
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On August 30, 1996, a proposed class action complaint was filed, Lenore Klein,
et al. vs. Lehman Brothers, Inc., et al. (Superior Court of New Jersey, Law
Division, Union County, Docket No. Unn-L-5162-96). The complaint was amended on
each of October 18, 1996, December 5, 1997 and January 15, 1998. The
Registrant, additional limited partnerships which were sponsored by The Balcor
Company (together with the Registrant, the "Affiliated Partnerships"), The
Balcor Company, American Express Company, Lehman Brothers, Inc., Smith Barney,
Inc., American Express Financial Advisors, and other affiliated entities and
various individuals are named defendants in the action. The most recent amended
complaint, plaintiffs' Third Amended Complaint, alleges, among other things,
common law fraud and deceit, negligent misrepresentation, breach of contract,
breach of fiduciary duty and violation of certain New Jersey statutes relating
to the disclosure of information in the offering of limited partnership
interests in the Affiliated Partnerships, the marketing of interests in the
Affiliated Partnerships and the acquisition of real properties for the
Affiliated Partnerships. The Third Amended Complaint seeks judgment for
compensatory damages equal to the amount invested in the Affiliated
Partnerships by the proposed class plus interest; general damages for injuries
arising from the defendants' alleged actions; equitable relief, including
rescission, on certain counts; punitive damages; treble damages on certain
counts; recovery from the defendants of all profits received by them as a
result of their alleged actions relating to the Affiliated Partnerships;
attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Registrant believes it has meritorious defenses
to contest the claims. It is not determinable at this time whether or not an
unfavorable decision in this action would have a material adverse impact on the
Registrant.
Masri vs Lehman Brothers, Inc., et al.
- ---------------------------------------
On February 29, 1996, a proposed class action complaint was filed, Raymond
Masri vs. Lehman Brothers, Inc., et al., Case No. 96/103727 (Supreme Court of
the State of New York, County of New York). The Registrant, additional limited
partnerships which were sponsored by The Balcor Company, three limited
partnerships sponsored by the predecessor of Lehman Brothers, Inc. (together
with the Registrant and the affiliated partnerships, the "Defendant
Partnerships"), Lehman Brothers, Inc. and Smith Barney, Inc. are defendants.
The complaint alleges, among other things, common law fraud and deceit,
negligent misrepresentation and breach of fiduciary duty relating to the
disclosure of information in the offering of limited partnership interests in
the Defendant Partnerships. The complaint seeks judgment for compensatory
<PAGE>
damages equal to the amount invested in the Defendant Partnerships by the
proposed class plus interest accrued thereon; general damages for injuries
arising from the defendants' alleged actions; recovery from the defendants of
all profits received by them as a result of their alleged actions relating to
the Defendant Partnerships; exemplary damages; attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Registrant believes it has meritorious defenses
to contest the claims. It is not determinable at this time whether or not an
unfavorable decision in this action would have a material adverse impact on the
Registrant.
Plaintiffs' counsel has indicated an intent to withdraw this complaint.
Raymond Masri has joined as an additional plaintiff in the Lenore Klein matter
discussed above.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Limited Partners of the Registrant
during 1997.
<PAGE>
PART II
Item 5. Market for the 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 Conditions and Results of Operations - Liquidity and Capital
Resources."
As of December 31, 1997, the number of record holders of Limited Partnership
Interests of the Registrant was 8,440.
Item 6. Selected Financial Data
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Year ended December 31,
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1997 1996 1995 1994 1993
------------ ----------- ---------- ----------- -----------
Total income $2,188,680 $9,561,969 $15,677,369 $17,020,543 $17,984,872
Loss before
gains on sales
of assets and
extraordinary
items (660,502) (4,547,636) (1,414,559) (3,313,544) (3,371,970)
Net income (loss) 10,767,865 22,488,661 (1,414,559) 2,454,938 9,901,817
Net income (loss)
per Limited Part-
nership Interest-
Basic and Diluted 122.22 255.80 (16.09) 27.92 112.63
Total assets 2,920,976 15,614,734 54,412,115 56,636,602 73,333,165
Mortgage notes
payable None 17,211,741 65,239,773 65,971,823 84,130,907
Distributions per
Limited Partner-
ship Interest (A) 63.00 58.00 None None None
(A) These amounts represent distributions of original capital.
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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<PAGE>
Balcor Realty Investors 84 - Series II, A Real Estate Limited Partnership (the
"Partnership") sold six properties during 1996 and its remaining two properties
during 1997. The Partnership recognized large gains in 1996 and 1997 in
connection with the property sales. As a result, the Partnership recognized net
income during 1997 and 1996 as compared to a net loss during 1995. Further
discussion of the Partnership's operations is summarized below.
1997 Compared to 1996
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In June 1997, the Partnership sold the Spring Creek and Park Colony apartment
complexes and recognized gains in connection with these sales totaling
$12,350,293. During 1996, the Partnership sold the La Contenta, Meadow Creek,
Ridgetree - Phase II, Rosehill Pointe, Seabrook and Westwood Village apartment
complexes and recognized gains in connection with these sales totaling
$27,237,296. The sales of these properties resulted in decreases in rental and
service income, interest expense on mortgage notes payable, depreciation,
amortization, property operating expenses, real estate taxes and property
management fees during 1997 as compared to 1996.
Due to higher average cash balances resulting from the investment of a portion
of the net proceeds received by the Partnership from the 1997 sales of the
Spring Creek and Park Colony apartment complexes prior to distribution to
Limited Partners in October 1997, interest income on short-term investments
increased during 1997 as compared to 1996.
The Partnership recognized other income during 1997 primarily in connection
with a refund of a prior year's insurance premium relating to the Partnership's
properties.
Due to the repayment in full of the short-term loan from an affiliate during
June 1996 with proceeds from the sales of the Seabrook, La Contenta and Meadow
Creek apartment complexes, interest expense on short-term loans from an
affiliate ceased during 1996.
In connection with the 1996 sale of Meadow Creek Apartments, the Partnership
paid $176,685 in April 1997 for a state income tax liability related to the
gain on sale, which has been recorded as other expense for financial statement
purposes.
The Partnership incurred higher professional fees during 1996 in connection
with the valuation of the Partnership's assets. In addition, accounting and
portfolio management fees decreased during 1997 due to the sale of the
Partnership's properties. As a result, administrative expenses decreased during
1997 as compared to 1996.
Due to the sales of the Rosehill Pointe and Seabrook apartment complexes in
1996, affiliates' participation in income from joint ventures, which included
the affiliates' share of the gains on the sales of these properties, ceased
during 1996.
As a result of the sale of the Westwood Village Apartments, the Partnership
recognized an extraordinary gain on forgiveness of debt of $182,585 during
1996.
<PAGE>
In connection with the sales of the Spring Creek and Park Colony apartment
complexes in 1997, the Partnership paid $752,818 in prepayment penalties and
wrote off the remaining unamortized deferred expenses of $169,108. In
connection with the sales of the La Contenta and Meadow Creek apartment
complexes during 1996, the Partnership paid $171,661 in prepayment penalties.
In addition, in connection with the sales of the La Contenta, Meadow Creek,
Ridgetree-Phase II, Rosehill Pointe and Westwood Village apartment complexes
during 1996, the Partnership wrote off the remaining unamortized deferred
expenses of $232,868, the total of which includes $20,945 representing the
Rosehill Pointe Apartments affiliate's share. These amounts were recorded as
extraordinary items and classified as debt extinguishment expense for financial
statement purposes.
1996 Compared to 1995
- ---------------------
As a result of the six property sales in 1996, rental and service income
decreased by approximately $6,480,000 during 1996 as compared to 1995. This
decrease was partially offset by increases of approximately $298,000 in rental
and service income due to increased rental rates at the Partnership's two
remaining properties. In addition, the 1996 property sales resulted in
decreases in interest expense on mortgage notes payable, depreciation,
amortization, real estate taxes and property management fees during 1996 as
compared to 1995.
Proceeds received in connection with the property sales were invested in
short-term investments prior to their distribution to Limited Partners in July
and October 1996. As a result, interest income on short-term investments
increased during 1996 as compared to 1995.
Due to the repayment in full of the short-term loan from an affiliate during
June 1996 with proceeds from the sales of the Seabrook, La Contenta and Meadow
Creek apartment complexes, interest expense on short-term loans from an
affiliate decreased during 1996 as compared to 1995.
As a result of the 1996 property sales, property operating expense decreased by
approximately $1,913,000 during 1996 as compared to 1995. This decrease was
partially offset by an increase of approximately $277,000 related to painting
and structural repairs at Westwood Village Apartments, prior to its sale in
November 1996.
Administrative expense increased during 1996 as compared to 1995 primarily due
to higher professional fees of approximately $122,000 incurred in 1996
primarily in connection with the valuation of the Partnership's assets. This
increase was partially offset by lower legal fees of approximately $54,000.
The gains recognized in connection with the sales of the Rosehill Pointe and
Seabrook apartment complexes resulted in the recognition of affiliates'
participation in income from joint ventures during 1996 as compared to
affiliates' participation in loss from joint ventures during 1995.
Liquidity and Capital Resources
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<PAGE>
The cash position of the Partnership increased by approximately $877,000 as of
December 31, 1997 when compared to December 31, 1996 primarily due to the net
proceeds received from the sale of the Partnership's remaining two properties,
which was substantially offset by distributions to Limited Partners. The
Partnership used cash of approximately $234,000 to fund its operating
activities. The payment of administrative expenses, prepayment penalties
relating to the two property sales, an expense for a state income tax liability
related to a gain on a 1996 property sale and non-reimbursable expenditures
relating to the fire damage incurred at the Spring Creek Apartments was
partially offset by the net cash flow generated by the Partnership's
properties, interest income earned on short-term investments, the collection of
certain escrow deposits related to sold properties and insurance reimbursements
for a portion of the costs of the fire damage to the Spring Creek Apartments.
The Partnership received cash of approximately $24,165,000 from its investing
activities consisting of net proceeds received in connection with the sales of
the Partnership's remaining two properties. Financing activities consisted of
distributions of sale proceeds of approximately $5,483,000 to Limited Partners,
a deemed distribution to Limited Partners of approximately $359,000
representing a state withholding tax related to the sale of Park Colony
Apartments, principal payments on mortgage notes payable of approximately
$26,000 and the repayment of mortgage notes payable of approximately
$17,186,000. In addition, in January 1998, the Partnership made a distribution
to Limited Partners of $803,887 from remaining available Net Cash Proceeds, as
discussed below.
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. During 1996, the Partnership sold six properties. During 1997, the
Partnership sold its remaining two properties, the Spring Creek and Park Colony
apartment complexes. The Partnership has retained a portion of the cash from
the property sales to satisfy obligations of the Partnership as well as
establish a reserve for contingencies. The timing of the termination of the
Partnership and final distribution of cash will depend upon the nature and
extent of liabilities and contingencies which exist or may arise. Such
contingencies may include legal and other fees and costs stemming from
litigation involving the Partnership including, but not limited to, the
lawsuits discussed in "Item 3. Legal Proceedings". In the absence of any such
contingencies, the reserves will be paid within twelve months of the last
property being sold. In the event a contingency continues to exist or arises,
reserves may be held by the Partnership for a longer period of time.
In June 1997, the Partnership sold the Spring Creek Apartments in an all cash
sale for $10,225,000. From the proceeds of the sale, the Partnership paid
$7,297,746 to the third party mortgage holder in full satisfaction of the first
mortgage loan, $244,437 in selling costs and $218,932 in prepayment penalties.
Pursuant to the terms of the sale, $250,000 of the proceeds was retained by the
Partnership until October 1997, at which time the funds were released in full.
The available proceeds were distributed to Limited Partners in July and October
1997. See Note 11 of Notes to Financial Statements for additional information.
In June 1997, the Partnership sold the Park Colony Apartments in an all cash
sale for $14,500,000. From the proceeds of the sale, the Partnership paid
$9,888,309 to the third party mortgage holder in full satisfaction of the first
mortgage loan, $315,075 in selling costs and $533,886 in prepayment penalties.
<PAGE>
In addition, the Partnership paid a state withholding tax of $359,486 on behalf
of the Limited Partners relating to the gain on sale of the property. Pursuant
to the terms of the sale, $100,000 of the sale proceeds was placed in escrow
and was not to be disbursed until the later of the settlement of any claims by
the purchaser or August 1, 1997. Of the escrow amount, approximately $94,100
was disbursed to the Partnership in August 1997 and the balance of
approximately $5,900 was paid to the purchaser to settle the remaining claims.
The available proceeds were distributed to Limited Partners in October 1997.
See Note 11 of Notes to Financial Statements for additional information.
The Partnership commenced distributions in July of 1996 and made two
distributions totaling $58 per Interest during 1996 from Net Cash Proceeds.
During 1997, the Partnership made three distributions totaling $63 per Interest
from Net Cash Proceeds. In January 1998, the Partnership made a distribution of
$803,887 ($9.24 per Interest) to the holders of Limited Partnership Interests
representing a distribution of remaining available Net Cash Proceeds. Including
the January 1998 distribution, Limited Partners have received distributions of
Net Cash Proceeds totaling $130.24 per $1,000 Interest, as well as certain tax
benefits. No 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. Investors will not recover a
substantial portion of their original investment.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
See Index to Financial Statements and Schedule in this Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
The net effect of the differences between the financial statements and the tax
returns is summarized as follows:
December 31, 1997 December 31, 1996
------------------------- -------------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
---------- --------- ---------- ---------
Total assets $2,920,976 $14,257,185 $15,614,734 $19,655,348
Partners' capital
(deficit) accounts:
General Partner (597,062) (597,062) (727,234) (2,308,493)
Limited Partners 3,451,421 14,801,020 (1,343,454) 4,278,421
Net income:
General Partner 130,172 1,711,431 224,887 4,276,063
Limited Partners 10,637,693 16,365,416 22,263,774 29,499,196
Per Limited Part-
nership Interest 122.22(A) 188.03 255.80(A) 338.93
(A) Amount represents basic and diluted net income per Limited Partnership
Interest.
<PAGE>
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) The Registrant does not have a Board of Directors; however, Balcor
Partners-84 II, Inc., the General Partner, does have a Board of Directors which
consists of Thomas E. Meador and John K. Powell, Jr.. The term of office as a
director of the General Partner is one year. Directors are elected at the
annual meeting of shareholders.
The directors of Balcor Partners-84 II, Inc., the General Partner of the
Registrant, are not directors in any company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934 (the
"Act") or subject to the requirements of Section 15 (b) of the Act or any
company registered as an investment company under the Investment Company Act of
1940.
(b, c & e) The names, ages and business experiences of the executive officers,
directors and significant employees of the General Partner of the Registrant
are as follows:
TITLE OFFICERS
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Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Vice President John K. Powell, Jr.
Senior Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 50) joined Balcor in July 1979. He is Chairman,
President and Chief Executive Officer and has responsibility for all ongoing
day-to-day activities at Balcor. He is a member of the board of directors of
The Balcor Company. He is also Senior Vice President of American Express
Company and is responsible for its real estate operations worldwide. Prior to
joining Balcor, Mr. Meador was employed at the Harris Trust and Savings Bank in
the commercial real estate division where he was involved in various lending
activities. Mr. Meador received his M.B.A. degree from the Indiana University
Graduate School of Business.
Alexander J. Darragh (age 43) 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.
John K. Powell Jr. (age 47) joined Balcor in September 1985 and is responsible
for portfolio and asset management matters relating to Balcor's partnerships.
Mr. Powell also has supervisory responsibility for Balcor's risk management
function. He is a member of the board of directors of The Balcor Company. He
received a Master of Planning degree from the University of Virginia. Mr.
Powell has been designated a Certified Real Estate Financier by the National
Society for Real Estate Finance and is a full member of the Urban Land
Institute.
<PAGE>
Jayne A. Kosik (age 40) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. 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 or
directors.
(f) None of the foregoing officers, directors or employees are currently
involved in any material legal proceedings nor were any such proceedings
terminated during the fourth quarter of 1997.
Item 11. Executive Compensation
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The Registrant paid $2,614 in 1997 with respect to one of the executive
officers and directors of Balcor Partners-84 II, Inc., the General Partner. The
Registrant has not paid and does not propose to pay any remuneration to the
remaining executive officers and directors of the General Partner. Certain of
the remaining 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) No person owns of record or is known by the Registrant to own
beneficially more than 5% of the outstanding Limited Partnership
Interests of the Registrant.
(b) Balcor Partners-84 II, Inc. and its shareholders, directors, and officers
own as a group the following Limited Partnership Interests of the Registrant.
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
Limited Partnership
Interests 95 Interests Less than 1%
Relatives of the officers and affiliates of the partners of the General Partner
own 41 additional Interests.
(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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<PAGE>
(a & b) See Note 4 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profits 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 Schedule, and Reports on Form 8-K
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(a)
(1 & 2) See Index to Financial Statements and Financial Statement Schedule in
this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership
is set forth as Exhibit 3 to Amendment No. 2 to Registrant's Registration
Statement on Form S-11 dated July 6, 1984 (Registration No. 2-89319), and said
Agreement and Certificate is incorporated herein by reference.
(4) Form of Subscription Agreement and Power of Attorney set forth as
Exhibit 4.1 to Amendment No. 2 of the Registrant's Registration Statement on
Form S-11 dated July 6, 1984 (Registration No. 2-89319), and Form of
Confirmation regarding Interests in the Registrant set forth as Exhibit 4.2 to
the Registrant's Report on Form 10-Q for the quarter ended June 30, 1992 are
incorporated herein by reference.
(10) Material Contracts:
(10)(a)(i) Agreement of Sale and attachment thereto relating to the sale of
Ridgetree Apartments, Phase II, previously filed as Exhibit 2(a) to the
Registrant's Current Report on Form 8-K dated April 23, 1996, is incorporated
herein by reference.
(ii) Master Amendment and Agreement dated May 22, 1996 relating to the sale of
Ridgetree Apartments, Phase II and Rosehill Pointe Apartments, previously filed
as Exhibit 2(a)(i) to the Registrant's Current Report on Form 8-K dated May 31,
1996, is incorporated herein by reference.
(iii) Master Amendment and Agreement #2 dated May 22, 1996 relating to the sale
of Ridgetree Apartments, Phase II and Rosehill Pointe Apartments, previously
filed as Exhibit 2(a)(ii) to the Registrant's Current Report on Form 8-K dated
May 31, 1996, is incorporated herein by reference.
(b) Agreement of Sale and attachment thereto relating to the sale of Rosehill
Pointe Apartments, previously filed as Exhibit 2(b) to the Registrant's Current
Report on Form 8-K dated April 23, 1996, is incorporated herein by reference.
(c)(i) Agreement of Sale and attachment thereto relating to the sale of
Westwood Village Apartments, previously filed as Exhibit (2) to the
Registrant's Current Report on Form 8-K dated September 4, 1996, is
incorporated herein by reference.
(ii) Modification Agreement relating to the sale of Westwood Village
Apartments, previously filed as Exhibit (10)(c)(ii) to the Registrant's Report
on Form 10-Q for the quarter ended September 30, 1996 is incorporated herein by
reference.
<PAGE>
(iii) Letter Agreement relating to the sale of Westwood Village Apartments,
previously filed as Exhibit (10)(c)(iii) to the Registrant's Report on Form
10-Q for the quarter ended September 30, 1996 is incorporated herein by
reference.
(d)(i) Agreement of Sale and attachment thereto relating to the sale of Park
Colony Apartments, previously filed as Exhibit (10)(d)(i) to the Registrant's
Report on Form 10-Q for the quarter ended March 31, 1997 is incorporated herein
by reference.
(ii) First Amendment to Agreement of Sale relating to the sale of Park Colony
Apartments, previously filed as Exhibit (10)(d)(ii) to the Registrant's Report
on Form 10-Q for the quarter ended March 31, 1997 is incorporated herein by
reference.
(iii) Second Amendment to Agreement of Sale relating to the sale of Park Colony
Apartments, Gwinnett County, Georgia, previously filed as Exhibit (10)(d)(iii)
to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1997 is
incorporated herein by reference.
(iv) Third Amendment to Agreement of Sale relating to the sale of Park Colony
Apartments, previously filed as Exhibit (99) to the Registrant's Report on Form
8-K dated May 30, 1997 is incorporated herein by reference.
(e) Agreement of Sale and attachment thereto relating to the sale of Spring
Creek Apartments previously filed as Exhibit (2) to the Registrant's Report on
Form 8-K dated May 30, 1997 is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1997 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended December 31, 1997.
(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 REALTY INVESTORS 84-SERIES II,
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Jayne A. Kosik
------------------------
Jayne A. Kosik
Senior Managing Director and Chief
Financial Officer (Principal
Accounting Officer) of Balcor
Partners-84 II, Inc., the General
Partner
Date: March 17, 1998
------------------
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, Chief Executive
Officer (Principal Executive
Officer) and Director of Balcor
Partners-84 II, Inc., the General
Partner
/s/Thomas E. Meador March 17, 1998
- ---------------------- --------------
Thomas E. Meador
Senior Managing Director and Chief
Financial Officer (Principal
Accounting Officer) of Balcor
Partners-84 II, Inc., the General
Partner
/s/Jayne A. Kosik March 17, 1998
- ---------------------- --------------
Jayne A. Kosik
Senior Vice President and Director
of Balcor Partners - 84 II, Inc.,
the General Partner
/s/John K. Powell, Jr. March 17, 1998
- ----------------------- --------------
John K. Powell, Jr.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1997 and 1996
Statements of Partners' Capital (Deficit), for the years ended December 31,
1997, 1996 and 1995
Statements of Income and Expenses, for the years ended December 31, 1997, 1996
and 1995
Statements of Cash Flows, for the years ended December 31, 1997, 1996 and 1995
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 Realty Investors 84-Series II, A Real Estate Limited Partnership
We have audited the financial statements of Balcor Realty Investors 84-Series
II, A Real Estate Limited Partnership(A Maryland Limited Partnership) as listed
in the index of this Form 10-K. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Balcor Realty Investors
84-Series II, A Real Estate Limited Partnership at December 31, 1997 and 1996,
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
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, 1997, the Partnership has disposed of
all of its remaining real estate interests. Upon resolution of the litigation
described in Note 15 to the financial statements, the Partnership intends to
cease operations and dissolve.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 11, 1998
<PAGE>
BALCOR REALTY INVESTORS 84-SERIES II,
A REAL ESTATE LIMITED PARTNERSHIP
(A Maryland Limited Partnership)
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
-------------- --------------
Cash and cash equivalents $ 2,902,925 $ 2,025,727
Escrow deposits 634,200
Accounts and accrued interest receivable 18,051 648,039
Prepaid expenses 44,776
Deferred expenses, net of accumulated
amortization of $187,891 in 1996 200,423
-------------- --------------
2,920,976 3,553,165
-------------- --------------
Investment in real estate:
Land 2,714,509
Buildings and improvements 17,638,625
--------------
20,353,134
Less accumulated depreciation 8,291,565
--------------
Investment in real estate, net of
accumulated depreciation 12,061,569
-------------- --------------
$ 2,920,976 $ 15,614,734
============== ==============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Accounts payable $ 30,525 $ 66,808
Due to affiliates 36,092 134,062
Accrued real estate taxes 147,601
Security deposits 125,211
Mortgage notes payable 17,211,741
-------------- --------------
Total liabilities 66,617 17,685,423
-------------- --------------
Commitments and contingencies
Limited Partners' capital (deficit) (87,037
Interests issued and outstanding) 3,451,421 (1,343,455)
General Partner's deficit (597,062) (727,234)
-------------- --------------
Total partners' capital (deficit) 2,854,359 (2,070,689)
-------------- --------------
$ 2,920,976 $ 15,614,734
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 84-SERIES II,
A REAL ESTATE LIMITED PARTNERSHIP
(A Maryland Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
for the years ended December 31, 1997, 1996 and 1995
Partners' Capital (Deficit) Accounts
-----------------------------------------
General Limited
Total Partner Partners (A)
------------- ------------- -------------
Balance at December 31, 1994 $(18,096,645) $ (937,975) $(17,158,670)
Net loss for the year
ended December 31, 1995 (1,414,559) (14,146) (1,400,413)
------------- ------------- -------------
Balance at December 31, 1995 (19,511,204) (952,121) (18,559,083)
Cash distributions to Limited
Partners (B) (5,048,146) (5,048,146)
Net income for the year
ended December 31, 1996 22,488,661 224,887 22,263,774
------------- ------------- -------------
Balance at December 31, 1996 (2,070,689) (727,234) (1,343,455)
Cash distributions to Limited
Partners (B) (5,483,331) (5,483,331)
Deemed distribution to Limited
Partners (C) (359,486) (359,486)
Net income for the year
ended December 31, 1997 10,767,865 130,172 10,637,693
------------- ------------- -------------
Balance at December 31, 1997 $ 2,854,359 $ (597,062) $ 3,451,421
============= ============= =============
(A) Includes a $95,000 investment by the General Partner.
(B) Summary of distributions per Limited Partnership Interest:
1997 1996 1995
------------ ------------ ------------
First Quarter $ 10.00 None None
Second Quarter None None None
Third Quarter 15.00 $ 48.00 None
Fourth Quarter 38.00 10.00 None
(C) This amount represents a state withholding tax paid on
behalf of Limited Partners relating to the gain on the
sale of Park Colony Apartments.
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 84-SERIES II,
A REAL ESTATE LIMITED PARTNERSHIP
(A Maryland Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
------------- ------------- -------------
Income:
Rental and service $ 1,969,239 $ 9,440,232 $ 15,621,758
Interest on short-term
investments 175,018 121,737 55,611
Other income 44,423
------------- ------------- -------------
Total income 2,188,680 9,561,969 15,677,369
------------- ------------- -------------
Expenses:
Interest on mortgage
notes payable 771,770 3,034,761 5,762,150
Interest on short-term loans
from an affiliate 189,838 544,980
Depreciation 246,374 1,256,642 2,188,762
Amortization of deferred
expenses 31,315 132,436 178,088
Property operating 1,013,958 4,346,155 5,906,395
Real estate taxes 193,078 803,569 1,255,631
Property management fees 102,674 449,136 768,357
Other expense 176,685
Administrative 313,328 608,540 526,207
------------- ------------- -------------
Total expenses 2,849,182 10,821,077 17,130,570
------------- ------------- -------------
Loss before gains on sale of
properties, participation
in joint ventures and
extraordinary items (660,502) (1,259,108) (1,453,201)
Gains on sale of properties 12,350,293 27,237,296
Affiliates' participation in
(income) loss from joint
ventures (3,288,528) 38,642
------------- ------------- -------------
Income (loss) before
extraordinary items 11,689,791 22,689,660 (1,414,559)
------------- ------------- -------------
Extraordinary items:
Gain on forgiveness of debt 182,585
Debt extinguishment expense (921,926) (404,529)
Affiliate's participation in
debt extinguishment expense 20,945
------------- ------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 84-SERIES II,
A REAL ESTATE LIMITED PARTNERSHIP
(A Maryland Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1997, 1996 and 1995
(Continued)
1997 1996 1995
------------- ------------- -------------
Total extraordinary items (921,926) (200,999)
------------- ------------- -------------
Net income (loss) $ 10,767,865 $ 22,488,661 $ (1,414,559)
============= ============= =============
Income (loss) before
extraordinary items allocated
to General Partner $ 141,317 $ 226,898 $ (14,146)
============= ============= =============
Income (loss) before
extraordinary items allocated
to Limited Partners $ 11,548,474 $ 22,462,762 $ (1,400,413)
============= ============= =============
Income (loss) before
extraordinary items per
Limited Partnership Interest
(87,037 issued and outstanding)
- Basic and Diluted $ 132.68 $ 258.09 $ (16.09)
============= ============= =============
Extraordinary items allocated
to General Partner $ (11,145) $ (2,010) None
============= ============= =============
Extraordinary items allocated
to Limited Partners $ (910,781) $ (198,989) None
============= ============= =============
Extraodinary items per Limited
Partnership Interest (87,037
issued and outstanding) -
Basic and Diluted $ (10.46) $ (2.29) None
============= ============= =============
Net income (loss) allocated to
General Partner $ 130,172 $ 224,887 $ (14,146)
============= ============= =============
Net income (loss) allocated to
Limited Partners $ 10,637,693 $ 22,263,774 $ (1,400,413)
============= ============= =============
Net income (loss) per Limited
Partnership Interest (87,037
issued and outstanding) -
Basic and Diluted $ 122.22 $ 255.80 $ (16.09)
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 84-SERIES II,
A REAL ESTATE LIMITED PARTNERSHIP
(A Maryland Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
------------- ------------- -------------
Operating activities:
Net income (loss) $ 10,767,865 $ 22,488,661 $ (1,414,559)
Adjustments to reconcile net
income (loss) to net cash
(used in) provided by
operating activities:
Gain on forgiveness of debt (182,585)
Debt extinguishment expense 169,108 232,868
Affiliate's participation
in debt extinguishment
expense (20,945)
Gains on sale of properties (12,350,293) (27,237,296)
Affiliates' participation
in income (loss) from
joint ventures 3,288,528 (38,642)
Depreciation of
properties 246,374 1,256,642 2,188,762
Amortization of deferred
expenses 31,315 132,436 178,088
Net change in:
Escrow deposits 634,200 524,546 (64,188)
Accounts and accrued
interest receivable 629,988 (458,787) 174,800
Prepaid expenses 44,776 114,384 (159,160)
Accounts payable (36,283) (74,580) (29,005)
Due to affiliates (97,970) 7,412 (132,007)
Accrued liabilities (147,601) (748,731) (52,148)
Security deposits (125,211) (148,458) (20,253)
------------- ------------- -------------
Net cash (used in) provided
by operating activities (233,732) (825,905) 631,688
------------- ------------- -------------
Investing activities:
Proceeds from sale of
properties 24,725,000 67,215,000
Payment of selling costs (559,512) (1,375,912)
------------- ------------
Net cash provided by investing
activities 24,165,488 65,839,088
------------- ------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 84-SERIES II,
A REAL ESTATE LIMITED PARTNERSHIP
(A Maryland Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
(Continued)
1997 1996 1995
------------- ------------- -------------
Financing activities:
Distributions to Limited
Partners $ (5,483,331) $ (5,048,146)
Deemed distribution to
Limited Partners (359,486)
Capital contributions by
joint venture partners-
affiliate $ 42,706
Distributions to joint
venture partners-
affiliate (1,944,950) (125,529)
Proceeds from loans payable-
affiliate 677,000
Repayment of loans payable-
affiliate (8,385,555) (400,000)
Principal payments on
mortgage notes payable (25,686) (619,604) (732,050)
Repayment of mortgage notes
payable (17,186,055) (47,408,428)
------------- ------------- -------------
Net cash used in financing
activities (23,054,558) (63,406,683) (537,873)
------------- ------------- -------------
Net change in cash and cash
equivalents 877,198 1,606,500 93,815
Cash and cash equivalents at
beginning of year 2,025,727 419,227 325,412
------------- ------------- -------------
Cash and cash equivalents at
end of year $ 2,902,925 $ 2,025,727 $ 419,227
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 84-SERIES II,
A REAL ESTATE LIMITED PARTNERSHIP
(A Maryland Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Realty Investors 84-Series II, A Real Estate Limited Partnership
(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. During 1996, the Partnership sold six properties. During 1997, the
Partnership sold its two remaining properties, the Spring Creek and Park Colony
apartment complexes. The Partnership has retained a portion of the cash from
the property sales to satisfy obligations of the Partnership as well as
establish a reserve for contingencies. The timing of the termination of the
Partnership and final distribution of cash will depend upon the nature and
extent of liabilities and contingencies which exist or may arise. Such
contingencies may include legal and other fees and costs stemming from
litigation involving the Partnership including, but not limited to, the
lawsuits discussed in Note 15 of Notes to the Financial Statements. In the
absence of any such contingencies, the reserves will be paid within twelve
months of the last property being sold. In the event a contingency continues to
exist or arises, reserves may be held by the Partnership for a longer period of
time.
3. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from those estimates.
(b) Depreciation expense was computed using the straight-line and accelerated
methods. Rates used in the determination of depreciation were based upon the
following estimated useful lives:
Buildings and land improvements 30 years
Furniture and fixtures 5 years
Maintenance and repairs were charged to expense when incurred. Expenditures for
improvements were charged to the related asset account.
<PAGE>
As properties were sold, the related costs and accumulated depreciation were
removed from the respective accounts. Any gain or loss on disposition was
recognized in accordance with generally accepted accounting principles.
(c) Effective January 1, 1995 the Partnership adopted Statement of Financial
Accounting Standards, No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of". Under SFAS 121, the
Partnership recorded its investments in real estate at the lower of cost or
fair value, and periodically assessed, but not less than on an annual basis,
possible impairment to the value of its properties. The General Partner
estimated the fair value of its properties based on the current sales price
less estimated closing costs. Under SFAS 121, the General Partner determined
that no impairment in value had occurred prior to the sales of the properties.
The General Partner considered the method referred to above to result in a
reasonable measurement of a property's fair value, unless other factors
affecting the property's value indicated otherwise.
(d) Deferred expenses consisted of loan modification and financing fees which
were amortized over the terms of the respective loan agreements. Upon sale, any
remaining unamortized balance was recognized as debt extinguishment expense and
classified as an extraordinary item.
(e) The Financial Accounting Standard Board's Statement No. 107, "Disclosures
About Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. Since quoted market prices are not available for the Partnership's
financial instruments, fair values have been based on estimates using present
value techniques. These techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, may not be realized in
immediate settlement of the instrument. Statement No. 107 does not apply to all
balance sheet items and excludes certain financial instruments and all
non-financial instruments such as real estate from its disclosure requirements.
(f) For financial statement purposes, in previous years partners were allocated
income and loss in accordance with the provisions in the Partnership Agreement.
In order for the capital accounts of the General Partner and Limited Partners
to appropriately reflect their remaining economic interests as provided for in
the Partnership Agreement, income allocations between the partners have been
adjusted for financial statement purposes in 1997.
(g) Cash and cash equivalents include all unrestricted, highly liquid
investments with an original maturity of three months or less. Cash is held or
invested primarily in one financial institution.
(h) 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.
(i) Revenue was recognized on an accrual basis in accordance with generally
accepted accounting principles.
<PAGE>
(j) Statement of Financial Accounting Standards, No. 128, "Earnings per Share"
was adopted by the Partnership for the year-ended December 31, 1997 and has
been applied to all prior earnings periods 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.
4. Partnership Agreement:
The Partnership was organized in February 1983. The Partnership Agreement
provides for Balcor Partners-84 II, Inc. to be the General Partner and for the
admission of Limited Partners through the sale of up to 110,000 Limited
Partnership Interests at $1,000 per Interest, 87,037 of which were sold on or
prior to September 28, 1984, the termination date of the offering.
The Partnership Agreement provides that the General Partner will be allocated
1% of the profits and losses and the Limited Partners will be allocated 99% of
the profits and losses. For financial statement purposes, in previous years
partners were allocated income and loss in accordance with the provisions in
the Partnership Agreement. In order for the capital accounts of the General
Partner and Limited Partners to appropriately reflect their remaining economic
interests as provided for in the Partnership Agreement, income allocations
between the partners have been adjusted for financial statement purposes in
1997.
One hundred percent of Net Cash Receipts available for distribution was
distributed to the holders of Interests in proportion to their participating
percentages as of the record date for such distributions. However, there
accrued for the benefit of the General Partner as its distributive share from
operations, an amount equivalent to approximately 1% of the total Net Cash
Receipts being distributed, which was to be paid only out of Net Cash Proceeds.
Under certain circumstances, the General Partner could participate in the Net
Cash Proceeds of the sale or refinancing of Partnership properties. The General
Partner's participation was limited to 15% of Net Cash Proceeds, including its
share of accrued Net Cash Receipts, and was subordinated to the return of
Original Capital plus any deficiency in a Cumulative Distribution of 6% on
Adjusted Original Capital to the holders of Interests, as defined in the
Partnership Agreement. The General Partner will not receive any distribution of
Net Cash Receipts or Net Cash Proceeds in accordance with these provisions.
5. Mortgage Notes Payable:
As of December 31, 1996, the Partnership had mortgage notes payable outstanding
of $9,897,707 and $7,314,034 related to the Park Colony and Spring Creek
apartment complexes, respectively. These mortgage notes were repaid in
connection with the sales of these properties during 1997 as further described
in Note 11 of Notes to the Financial Statements.
During 1997, 1996 and 1995, the Partnership incurred interest expense on
mortgage notes payable of $771,770, $3,034,761 and $5,762,150 and paid interest
expense of $738,380, $3,362,444 and $5,829,192, respectively.
6. Management Agreements:
The Partnership's properties were under management agreements with a third
party management company prior to the sale of the properties. These management
agreements provided for annual fees of 5% of gross operating receipts.
<PAGE>
7. Seller's Participation in Joint Venture:
Meadow Creek Apartments was owned by a joint venture between the Partnership
and the seller. Consequently, the seller retained an interest in the property
through an interest in the joint venture. All assets, liabilities, income and
expenses of the joint venture were included in the financial statements of the
Partnership with the appropriate deduction from income, if any, for the
seller's participation in the joint venture. The property was sold in May 1996.
The seller did not receive any proceeds from the sale of the property.
8. Affiliates' Participation in Joint Ventures:
Rosehill Pointe Apartments was owned by the Partnership and an affiliate
(Balcor Realty Investors 85 - Series II) prior to its sale in June 1996.
Profits and losses were allocated 61.62% to the Partnership and 38.38% to the
affiliate. In addition, Seabrook Apartments was owned by the Partnership and
two affiliates (Balcor Realty Investors 85 - Series I and Balcor Realty
Associates) prior to its sale in February 1996. Profits and losses were
allocated 83.72% to the Partnership and 16.28% to the affiliates. All assets,
liabilities, income and expenses of the joint ventures were included in the
financial statements of the Partnership with the appropriate adjustment for
profit or loss for each affiliate's participation. Net distributions of
$1,944,950 and $82,823 were made to joint venture partners during 1996 and
1995, respectively. In addition, joint venture partners were allocated their
pro rata share of the gains on the sales of the Rosehill Pointe and Seabrook
apartment complexes of $3,055,484 and $228,084, respectively.
9. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code,
rules and regulations promulgated thereunder, and existing interpretations
thereof. The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, will differ from the
tax returns due to the different treatment of various items as specified in the
Internal Revenue Code. The net effect of these accounting differences is that
the net income for 1997 in the financial statements is $7,308,982 less than the
taxable income for the same period.
10. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/97 12/31/96 12/31/95
----------------- -------------------- -----------------
Paid Payable Paid Payable Paid Payable
--------- ------- ---------- --------- --------- -------
Reimbursement of
expenses to
General Partner
at cost:
Accounting $36,618 $8,631 $13,048 $14,548 $53,668 $4,094
Data processing 9,589 1,416 5,764 3,057 35,823 3,392
<PAGE>
Investor com-
munications None None None None 6,701 None
Legal 24,036 5,026 14,075 15,692 30,858 4,769
Other None None None None 5,790 None
Portfolio
management 90,576 18,489 81,240 90,576 117,173 18,971
Property sales
admini-
stration 12,488 2,530 29,942 10,189 9,056 7,938
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 policies 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 of $17,353 and $122,696 in 1996
and 1995, respectively.
During 1996, the Partnership repaid the General Partner loan primarily with
proceeds from the sales of the Seabrook, La Contenta and Meadow Creek apartment
complexes. See Note 11 of Notes to Financial Statements for additional
information. During 1996 and 1995, the Partnership incurred interest expense of
$189,838 and $544,980 and paid interest expense of $277,324 and 618,133 on
these loans, respectively. Interest expense was computed at the American
Express Company cost of funds rate plus a spread to cover administrative
expenses. The interest rate was 5.911% at the date of the loan repayment.
11. Property Sales:
(a) In June 1997, The Partnership sold the Spring Creek Apartments in an all
cash sale for $10,225,000. From the proceeds of the sale, the Partnership paid
$7,297,746 to the third party mortgage holder in full satisfaction of the first
mortgage loan, $244,437 in selling costs and $218,932 in prepayment penalties.
The basis of the property was $5,093,533, which is net of accumulated
depreciation of $3,509,545. For financial statement purposes, the Partnership
recognized a gain of $4,887,030 from the sale of this property.
(b) In June 1997, The Partnership sold the Park Colony Apartments in an all
cash sale for $14,500,000. From the proceeds of the sale, the Partnership paid
$9,888,309 to the third party mortgage holder in full satisfaction of the first
mortgage loan, $315,075 in selling costs and $533,886 in prepayment penalties.
In addition, the Partnership paid a state withholding tax of $359,486 on behalf
of the Limited Partners relating to the gain on the sale of the property, which
has been recorded as a deemed distribution for financial statement purposes.
The basis of the property was $6,721,662 which is net of accumulated
depreciation of $5,028,394. For financial statement purposes, the Partnership
recognized a gain of $7,463,263 from the sale of this property.
(c) The Seabrook Apartments was owned by a joint venture consisting of the
Partnership and two affiliates. The Partnership and the affiliates held
participating percentages in the joint venture of 83.72% and 16.28%,
respectively. In February 1996, the joint venture sold the property in an all
<PAGE>
cash sale for $5,915,000. From the proceeds of the sale, the joint venture paid
$5,081,898 to the third party mortgage holder in full satisfaction of the first
mortgage loan and $190,517 in selling costs. The basis of the property was
$4,361,052, which is net of accumulated depreciation of $2,625,226. For
financial statement purposes, the Partnership recognized a gain of $1,363,431
from the sale of this property, of which $228,084 is the minority joint venture
partners' share.
(d) In April 1996, the Partnership sold the La Contenta Apartments in an all
cash sale for $11,300,000. From the proceeds of the sale, the Partnership paid
$6,970,559 to the third party mortgage holder in full satisfaction of the first
mortgage loan, $236,400 in selling costs and $69,765 in prepayment penalties.
The basis of the property was $4,737,918, which is net of accumulated
depreciation of $3,049,224. For financial statement purposes, the Partnership
recognized a gain of $6,325,682 from the sale of this property.
(e) In May 1996, the Partnership sold the Meadow Creek Apartments in an all
cash sale for $11,100,000. From the proceeds of the sale, the Partnership paid
$5,076,321 to the third party mortgage holder in full satisfaction of the first
mortgage loan, $365,650 in selling costs and $101,896 in prepayment penalties.
The basis of the property was $4,195,785, which is net of accumulated
depreciation of $2,861,903. For financial statement purposes, the Partnership
recognized a gain of $6,538,565 from the sale of this property.
(f) In June 1996, the Partnership sold the Ridgetree Apartments - Phase II in
an all cash sale for $9,200,000. From the proceeds of the sale, the Partnership
paid $7,798,124 to the third party mortgage holder in full satisfaction of the
first and second mortgage loans and $107,000 in selling costs. The basis of the
property was $6,909,090, which is net of accumulated depreciation of
$4,455,600. For financial statement purposes, the Partnership recognized a gain
of $2,183,910 from the sale of this property.
(g) The Rosehill Pointe Apartments was owned by a joint venture consisting of
the Partnership and an affiliate. The Partnership and the affiliate hold
participating percentages in the joint venture of 61.62% and 38.38%,
respectively. In June 1996, the joint venture sold the property in an all cash
sale for $20,700,000. From the proceeds of the sale, the joint venture paid
$15,537,677 to the third party mortgage holders in full satisfaction of the
first and second mortgage loans and $170,250 in selling costs. The basis of the
property was $12,609,551, which is net of accumulated depreciation of
$7,424,419. For financial statement purposes, the Partnership recognized a gain
of $7,920,199 from the sale of this property, of which $3,055,484 is the
minority joint venture partner's share.
(h) In November 1996, the Partnership sold the Westwood Village Apartments in
an all cash sale for $9,000,000. From the proceeds of the sale, the Partnership
repaid the outstanding balances of the first and second mortgage loans of
$6,792,853 and $150,996, respectively, and $306,095 in selling costs. The basis
of the property was $5,788,396, which is net of accumulated depreciation of
$3,651,046. For financial statement purposes, the Partnership recognized a gain
of $2,905,509 from the sale of this property.
12. Extraordinary Items:
<PAGE>
(a) In connection with the sales of the Spring Creek and Park Colony apartment
complexes in 1997, the Partnership paid $752,818 in prepayment penalties and
wrote off the remaining unamortized deferred expenses of $169,108. These
amounts, totaling $921,926, were recognized as an extraordinary item and
classified as debt extinguishment expense.
(b) During 1996, the Partnership recognized an extraordinary gain on
forgiveness of debt of $182,585 as a result of the sale of the Westwood Village
Apartments.
(c) In connection with the sales of the La Contenta and Meadow Creek apartment
complexes during 1996, the Partnership paid $171,661 of prepayment penalties.
In addition, the Partnership wrote off the remaining unamortized deferred
expenses of $232,868 as a result of the sales of the La Contenta, Meadow Creek,
Ridgetree - Phase II, Rosehill Pointe and Westwood Village apartment complexes
during 1996. These amounts, totaling $404,529, were recognized as an
extraordinary item and classified as debt extinguishment expense, of which
$20,945 represents the Rosehill Pointe Apartments affiliate's share.
13. Other Expense:
In connection with the 1996 sale of Meadow Creek Apartments, the Partnership
paid $176,685 in April 1997 for a state income tax liability related to the
gain on sale, which has been recorded as other expense for financial statement
purposes.
14. Fair Value of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1997 and 1996 are as follows:
The carrying value of cash and cash equivalents, accounts and accrued interest
receivable and accounts payable approximates fair value.
Mortgage notes payable: Based on borrowing rates available to the Partnership
at the end of 1996 for mortgage loans with similar terms and maturities, the
fair value of the mortgage notes payable approximated the carrying value.
15. Contingencies:
The Partnership is currently involved in two lawsuits whereby the Partnership
and certain affiliates have been named as defendants alleging substantially
similar claims involving certain state securities and common law violations
with regard to the property acquisition process of the Partnership, and to the
adequacy and accuracy of disclosures of information concerning, as well as
marketing efforts related to, the offering of the Limited Partnership Interests
of the Partnership. The defendants continue to vigorously contest these
actions. A plaintiff class has not been certified in either action and, no
determinations of the merits have been made. It is not determinable at this
time whether or not an unfavorable decision in either action would have a
material adverse impact on the financial position, operations and liquidity of
the Partnership. The Partnership believes it has meritorious defenses to
contest the claims.
<PAGE>
16. Subsequent Event:
In January 1998, the Partnership made a distribution of $803,887 ($9.24 per
Interest) to the holders of Limited Partnership Interests representing a
distribution of remaining available Net Cash Proceeds.<PAGE>
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2903
<SECURITIES> 0
<RECEIVABLES> 18
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2921
<PP&E> 0
<DEPRECIATION> 0
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<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2854
<TOTAL-LIABILITY-AND-EQUITY> 2921
<SALES> 0
<TOTAL-REVENUES> 14539
<CGS> 0
<TOTAL-COSTS> 1486
<OTHER-EXPENSES> 591
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 11690
<INCOME-TAX> 0
<INCOME-CONTINUING> 11690
<DISCONTINUED> 0
<EXTRAORDINARY> (922)
<CHANGES> 0
<NET-INCOME> 10768
<EPS-PRIMARY> 122.22
<EPS-DILUTED> 122.22
</TABLE>
