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 0-13334
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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
---------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
-----------------------------
(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. The Registrant sold its final real estate investment in June 1997.
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". 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.
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 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, 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.
<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.
- -----------------------------------------------
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.
In June 1998, the defendants filed a motion to dismiss the complaint for
failure to state a cause of action. Oral arguments were heard by the court on
August 21, 1998. On September 24, 1998, the judge issued a letter opinion
granting the defendants' motion to dismiss the complaint. On October 23, 1998,
the judge announced that he would enter an order dismissing the complaint
without prejudice, but stated that the plaintiffs would be required to file any
new pleading in a separate action and would not be allowed to amend the
existing complaint. The plaintiffs moved for a reconsideration of the judge's
ruling, which was denied on November 20, 1998. On December 28, 1998, plaintiffs
filed a notice of appeal from both the judge's October 23 and November 20, 1998
rulings.
On March 11, 1999, an order was entered by the Superior Court of New Jersey,
Appellate Division, dismissing the appeal in this action with prejudice.
Therefore, this will be the final report to investors regarding this matter.
<PAGE>
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
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 how the outcome of
this action will impact the remaining cash reserves of the Registrant.
Plaintiffs' lead counsel also represents the plaintiffs in the Lenore Klein
matter discussed above. 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.
Bruss et al. vs. Lehman Brothers, Inc., et al.
- ----------------------------------------------
On January 25, 1999, a proposed class action complaint was filed, Dorothy
Bruss, et al. vs. Lehman Brothers, Inc., et al. (Superior Court of New Jersey,
Law Division, Essex County, Docket No. L-000898-99). 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 Corporation, and other affiliated entities and
various individuals are named defendants in the action. Lead counsel
representing the plaintiffs in this case is the same counsel representing the
plaintiffs in each of the Lenore Klein and Raymond Masri cases discussed above.
The complaint relates largely to the same issues as those raised in the Lenore
Klein and the Raymond Masri cases. The 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 and other similar
state 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 property
for the Affiliated Partnerships. The complaint seeks judgment for compensatory
damages equal to the amount invested in the Affiliated Partnerships by the
<PAGE>
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; and 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 that it has meritorious
defenses to contest the claims. It is not determinable at this time how the
outcome of this action will impact the remaining cash reserves of the
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 the Registrant's Common Equity and Related Stockholder
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Matters
- -------
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, 1998, the number of record holders of Limited Partnership
Interests of the Registrant was 8,459.
Item 6. Selected Financial Data
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Year ended December 31,
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1998 1997 1996 1995 1994
------------ ----------- ---------- ----------- -----------
Total income $114,580 $2,188,680 $9,561,969 $15,677,369 $17,020,543
Loss before
gains on sales
of assets and
extraordinary
items (116,459) (660,502) (4,547,636) (1,414,559) (3,313,544)
Net (loss) income (116,459) 10,767,865 22,488,661 (1,414,559) 2,454,938
Net (loss) income
per Limited Part-
nership Interest-
Basic and Diluted (1.34) 122.22 255.80 (16.09) 27.92
Total assets 2,017,273 2,920,976 15,614,734 54,412,115 56,636,602
Mortgage notes
payable None None 17,211,741 65,239,773 65,971,823
Distributions per
Limited Partner-
ship Interest (A) 9.24 63.00 58.00 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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<PAGE>
Summary of Operations
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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 significant gains in 1996 and 1997 in
connection with the property sales. During 1998, administrative expenses were
higher than interest income earned on short-term investments. As a result, the
Partnership recognized a net loss for 1998 as compared to net income in 1997.
Primarily as a result of larger gains from the property sales in 1996 as
compared to 1997, net income decreased during 1997 as compared to 1996. Further
discussion of the Partnership's operations is summarized below.
1998 Compared to 1997
- ---------------------
The Partnership sold the Spring Creek and Park Colony apartment complexes
during June 1997 and recognized gains totaling $12,350,293 in connection with
these sales. As a result of these sales, rental and service income, interest
expense on mortgage notes payable, depreciation, amortization, property
operating expenses, real estate taxes and property management fees ceased
during 1997.
The Partnership had higher average cash balances in 1997 resulting from the
investment of the available proceeds from the 1997 property sales prior to
distribution to Limited Partners in January 1998. As a result, interest income
on short-term investments decreased during 1998 as compared to 1997.
The Partnership recognized other income during 1997 primarily in connection
with a partial refund of prior years' insurance premiums relating to the
Partnership's properties.
Administrative expenses decreased during 1998 as compared to 1997 primarily due
to a decrease in accounting, portfolio management and bank fees, which were
partially offset by accrued legal fees in connection with the litigation
discussed in "Item 3. Legal Proceedings".
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 were recorded as extraordinary items and classified as debt
extinguishment expense for financial statement purposes.
1997 Compared to 1996
- ---------------------
In 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.
<PAGE>
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.
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 was recorded as other expense in 1997 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.
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.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $892,000 as of
December 31, 1998 when compared to December 31, 1997 primarily due to the
payment of a distribution to Limited Partners in January 1998 of remaining
available Net Cash Proceeds. The Partnership used cash of approximately $88,000
to fund its operating activities, which consisted of the payment of
administrative expenses which were partially offset by the receipt of interest
<PAGE>
income earned on short-term investments. The Partnership used cash to fund its
financing activities which consisted of a distribution to Limited Partners of
approximately $804,000.
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. The Partnership sold its final real estate investment in June
1997. 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 lawsuits 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 the
conclusion of these contingencies.
The Partnership made distributions from Net Cash Proceeds in 1998, 1997 and
1996 totaling $9.24, $63.00 and $58.00 per Interest, respectively. See
Statements of Partners' Capital for additional information. Limited Partners
have received cumulative distributions of Net Cash Proceeds totaling $130.24 per
$1,000 Interest, as well as certain tax benefits. 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. Investors will not recover a substantial portion of their original
investment.
The Partnership sold all of its remaining real property investments and
distributed a majority of the proceeds from these sales to Limited Partners in
1996 and 1997. Since the Partnership no longer has any operating assets, the
number of computer systems and programs necessary to operate the Partnership
has been significantly reduced. The Partnership relies on third party vendors
to perform most of its functions and has implemented a plan to determine the
Year 2000 compliance status of these key vendors. The Partnership is within its
timeline for having these plans completed prior to the year 2000.
The Partnership's plan to determine the Year 2000 compliance status of its key
vendors 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
<PAGE>
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
- -------------------------------------------------------------------
The supplemental financial information specified by Item 305 of Regulation S-K
is not applicable.
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, 1998 December 31, 1997
------------------------- -------------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
---------- --------- ---------- ---------
Total assets $2,017,273 $13,353,482 $2,920,976 $14,257,185
Partners' capital
(deficit) accounts:
General Partner (597,062) (588,940) (597,062) (597,062)
Limited Partners 2,531,075 13,859,166 3,451,421 14,801,020
Net (loss) income:
General Partner None 8,122 130,172 1,711,431
Limited Partners (116,459) (137,967) 10,637,693 16,365,416
Per Limited Part-
nership Interest (1.34)(A) (1.59) 122.22(A) 188.03<PAGE>
(A) Amount represents basic and diluted net (loss) income per Limited
Partnership Interest.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
- --------------------
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
- -----------------------------------------------------------
(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 Jayne A. Kosik. The term of office as a
director of the General Partner is one year. Directors are elected at the
annual meeting of shareholders.
Jayne A. Kosik is not a director 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.
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.
(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
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 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 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.
<PAGE>
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 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 1998.
Item 11. Executive Compensation
- -------------------------------
The Registrant has not paid and does not propose to pay any remuneration to the
executive officers and directors of the General Partner. 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
- -----------------------------------------------------------------------
(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
do not own any additional Interests.
In addition, Balcor LP Corp., an affiliate of the General Partner, holds title
to 61 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
<PAGE>
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
- -------------------------------------------------------
(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
- -------------------------------------------------------------------------
(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:
(a)(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.
(b) 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 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 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 and Financial Officer)
and Director of Balcor Partners-84 II, Inc.,
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, Chief Executive
Officer (Principal Executive
Officer) and Director of Balcor
Partners-84 II, Inc., 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)
and Director of Balcor Partners-84 II, Inc.,
the General Partner
/s/ Jayne A. Kosik March 19, 1999
- ------------------ --------------
Jayne A. Kosik
<PAGE>
INDEX TO FINANCIAL STATEMENT
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1998 and 1997
Statements of Partners' Capital (Deficit), 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 Realty Investors 84-Series II, A Real Estate Limited Partnership
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 Realty Investors
84-Series II, A Real Estate Limited Partnership (A Maryland 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 14 to the financial statements, the Partnership
intends to cease operations and dissolve.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 17, 1999
<PAGE>
BALCOR REALTY INVESTORS 84-SERIES II,
A REAL ESTATE LIMITED PARTNERSHIP
(A Maryland Limited Partnership)
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
1998 1997
-------------- --------------
Cash and cash equivalents $ 2,010,953 $ 2,902,925
Accounts and accrued interest receivable 6,320 18,051
-------------- --------------
$ 2,017,273 $ 2,920,976
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 60,731 $ 30,525
Due to affiliates 22,529 36,092
-------------- --------------
Total liabilities 83,260 66,617
-------------- --------------
Commitments and contingencies
Limited Partners' capital (87,037
Interests issued and outstanding) 2,531,075 3,451,421
General Partner's deficit (597,062) (597,062)
-------------- --------------
Total partners' capital 1,934,013 2,854,359
-------------- --------------
$ 2,017,273 $ 2,920,976
============== ==============
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, 1998, 1997 and 1996
Partners' Capital (Deficit) Accounts
--------------------------------------------
General Limited
Total Partner Partners (A)
-------------- -------------- --------------
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
Cash distributions to Limited
Partners (B) (803,887) (803,887)
Net loss for the year
ended December 31, 1998 (116,459) (116,459)
-------------- -------------- --------------
Balance at December 31, 1998 $ 1,934,013 $ (597,062) $ 2,531,075
============== ============== ==============
(A) Includes a $95,000 investment by the General Partner.
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, 1998, 1997 and 1996
(Continued)
(B) Summary of distributions per Limited Partnership Interest:
1998 1997 1996
------------ ------------ ------------
First Quarter $ 9.24 $ 10.00 None
Second Quarter None None None
Third Quarter None 15.00 $ 48.00
Fourth Quarter None 38.00 10.00
(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, 1998, 1997 and 1996
1998 1997 1996
-------------- -------------- --------------
Income:
Rental and service $ 1,969,239 $ 9,440,232
Interest on short-term
investments $ 114,580 175,018 121,737
Other income 44,423
-------------- -------------- --------------
Total income 114,580 2,188,680 9,561,969
-------------- -------------- --------------
Expenses:
Interest on mortgage
notes payable 771,770 3,034,761
Interest on short-term loans
from an affiliate 189,838
Depreciation 246,374 1,256,642
Amortization of deferred
expenses 31,315 132,436
Property operating 1,013,958 4,346,155
Real estate taxes 193,078 803,569
Property management fees 102,674 449,136
Other expense 176,685
Administrative 231,039 313,328 608,540
-------------- -------------- --------------
Total expenses 231,039 2,849,182 10,821,077
-------------- -------------- --------------
Loss before gains on sale of
properties, participation
in joint ventures and
extraordinary items (116,459) (660,502) (1,259,108)
Gains on sale of properties 12,350,293 27,237,296
Affiliates' participation in
income from joint ventures (3,288,528)
-------------- -------------- --------------
(Loss) income before
extraordinary items (116,459) 11,689,791 22,689,660
-------------- -------------- --------------
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, 1998, 1997 and 1996
(Continued)
1998 1997 1996
-------------- -------------- --------------
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
------------ ------------
Total extraordinary items (921,926) (200,999)
-------------- -------------- --------------
Net (loss) income $ (116,459) $ 10,767,865 $ 22,488,661
============== ============== ==============
Income before extraordinary
items allocated to
General Partner None $ 141,317 $ 226,897
============== ============== ==============
(Loss) income before
extraordinary items allocated
to Limited Partners $ (116,459) $ 11,548,474 $ 22,462,763
============== ============== ==============
(Loss) income before
extraordinary items per
Limited Partnership Interest
(87,037 issued and outstanding)
- Basic and Diluted $ (1.34) $ 132.68 $ 258.09
============== ============== ==============
Extraordinary items allocated
to General Partner None $ (11,145) $ (2,010)
============== ============== ==============
Extraordinary items allocated
to Limited Partners None $ (910,781) $ (198,989)
============== ============== ==============
Extraodinary items per Limited
Partnership Interest (87,037
issued and outstanding) -
Basic and Diluted None $ (10.46) $ (2.29)
============== ============== ==============
Net income allocated to
General Partner None $ 130,172 $ 224,887
============== ============== ==============
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, 1998, 1997 and 1996
(Continued)
1998 1997 1996
-------------- -------------- --------------
Net (loss) income allocated to
Limited Partners $ (116,459) $ 10,637,693 $ 22,263,774
============== ============== ==============
Net (loss) income per Limited
Partnership Interest (87,037
issued and outstanding) -
Basic and Diluted $ (1.34) $ 122.22 $ 255.80
============== ============== ==============
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, 1998, 1997 and 1996
1998 1997 1996
-------------- -------------- --------------
Operating activities:
Net (loss) income $ (116,459) $ 10,767,865 $ 22,488,661
Adjustments to reconcile net
(loss) income to net cash
used in 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 from
joint ventures 3,288,528
Depreciation of
properties 246,374 1,256,642
Amortization of deferred
expenses 31,315 132,436
Net change in:
Escrow deposits 634,200 524,546
Accounts and accrued
interest receivable 11,731 629,988 (458,787)
Prepaid expenses 44,776 114,384
Accounts payable 30,206 (36,283) (74,580)
Due to affiliates (13,563) (97,970) 7,412
Accrued liabilities (147,601) (748,731)
Security deposits (125,211) (148,458)
-------------- -------------- --------------
Net cash used in operating
activities (88,085) (233,732) (825,905)
-------------- -------------- --------------
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, 1998, 1997 and 1996
(Continued)
1998 1997 1996
-------------- -------------- --------------
Financing activities:
Distributions to Limited
Partners $ (803,887) $ (5,483,331) $ (5,048,146)
Deemed distribution to
Limited Partners (359,486)
Distributions to joint
venture partners-
affiliate (1,944,950)
Repayment of loans payable-
affiliate (8,385,555)
Principal payments on
mortgage notes payable (25,686) (619,604)
Repayment of mortgage notes
payable (17,186,055) (47,408,428)
-------------- -------------- --------------
Net cash used in financing
activities (803,887) (23,054,558) (63,406,683)
-------------- -------------- --------------
Net change in cash and cash
equivalents (891,972) 877,198 1,606,500
Cash and cash equivalents at
beginning of year 2,902,925 2,025,727 419,227
-------------- -------------- --------------
Cash and cash equivalents at
end of year $ 2,010,953 $ 2,902,925 $ 2,025,727
============== ============== ==============
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. The Partnership sold its final real estate investment in June
1997. 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 lawsuits discussed in Note 14 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) 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) 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. 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 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.
(f) For financial statement purposes, prior to 1997, the partners were
allocated income and loss 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.
(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.
(j) 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.
<PAGE>
(k) Certain reclassifications of prior years information were made to conform
to the 1998 presentation.
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, prior to 1997, the
partners were allocated income and loss 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.
One hundred percent of Net Cash Receipts available for distribution was to be
distributed to the holders of Interests in proportion to their participating
percentages as of the record date for such distributions. To date, Net Cash
Receipts have not been distributed to holders of Interests. Under certain
circumstances, the General Partner would have participated 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 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. Since the required subordination levels were not met, the General
Partner has not received any distributions of Net Cash Receipts or Net Cash
Proceeds during the lifetime of the Partnership.
5. Mortgage Notes Payable:
During 1997 and 1996, the Partnership incurred interest expense on mortgage
notes payable of $771,770 and $3,034,761 and paid interest expense of $738,380
and $3,362,444, respectively.
6. 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 5% of gross operating receipts.
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.
<PAGE>
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 was made to joint venture partners during 1996. 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 loss for 1998 in the financial statements is $13,386 less than the
taxable loss 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
12/31/98 12/31/97 12/31/96
----------------- -------------------- -----------------
Paid Payable Paid Payable Paid Payable
--------- ------- ---------- --------- --------- -------
Reimbursement of
expenses to
General Partner
at cost:
Accounting $10,419 $4,978 $36,618 $ 8,631 $13,048 $14,548
Data processing 2,328 872 3,268 None 3,022 None
Legal 6,732 3,252 24,036 5,027 14,075 15,692
Portfolio
management 27,990 13,427 96,897 19,904 83,982 93,633
Property sales 2,530 None 12,488 2,530 29,942 10,189
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
<PAGE>
Partner, which 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 prior to May 1,
1995 of $17,353 in 1996.
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, the Partnership incurred interest expense of $189,838
and paid interest expense of $277,324 on these loans. 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
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.
<PAGE>
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:
(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.
<PAGE>
(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. Contingencies:
The Partnership is currently involved in two related lawsuits, Masri vs.
Lehman Brothers, Inc., et al. and Bruss, et al. vs. Lehman Brothers, Inc., et
al., 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. With respect to the Masri case, no
determinations upon any significant issues have been made. The Bruss complaint
was filed on January 25, 1999. It is not determinable at this time how the
outcome of either action will impact the remaining cash reserves of the
Partnership. The Partnership believes it has meritorious defenses to contest
the claims.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2011
<SECURITIES> 0
<RECEIVABLES> 6
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2017
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2017
<CURRENT-LIABILITIES> 83
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1934
<TOTAL-LIABILITY-AND-EQUITY> 2017
<SALES> 0
<TOTAL-REVENUES> 115
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 231
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (116)
<INCOME-TAX> 0
<INCOME-CONTINUING> (116)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (116)
<EPS-PRIMARY> (1.34)
<EPS-DILUTED> (1.34)
</TABLE>
