SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1994
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-13348
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BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Illinois 36-3314331
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Balcor Plaza
4849 Golf Road, Skokie, Illinois 60077-9894
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 677-2900
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
June 30, 1994 and December 31, 1993
(UNAUDITED)
ASSETS
1994 1993
-------------- ---------------
Cash and cash equivalents $ 17,560,435 $ 17,153,575
Accounts and accrued interest receivable 1,171,959 1,215,873
Prepaid expenses, principally
real estate taxes 91,177
Deferred expenses, net of accumulated
amortization of $834,683 in 1994
and $721,884 in 1993 956,253 812,435
Investment in joint venture with an affiliate 1,504,256 1,463,700
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21,192,903 20,736,760
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Investment in loan receivable 7,540,986 7,540,986
Loan application and processing fees,
net of accumulated amortization of
$198,741 in 1994 and $185,636 in 1993 63,334 76,439
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7,604,320 7,617,425
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Investment in real estate:
Land 26,808,775 26,808,775
Buildings and improvements 107,711,021 107,555,724
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134,519,796 134,364,499
Less accumulated depreciation 37,553,088 35,953,859
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Investment in real estate, net of
accumulated depreciation 96,966,708 98,410,640
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$ 125,763,931 $ 126,764,825
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 144,943 $ 692,988
Due to affiliates 348,383 124,604
Accrued liabilities, principally
real estate taxes 334,167 342,803
Security deposits 441,636 409,091
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Total liabilities 1,269,129 1,569,486
Affiliates' participation in joint ventures 17,738,244 18,182,349
Partners' capital (939,587 Limited Partnership
Interests issued and outstanding) 106,756,558 107,012,990
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$ 125,763,931 $ 126,764,825
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The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the six months ended June 30, 1994 and 1993
(UNAUDITED)
1994 1993
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Income:
Rental income $ 8,814,817 $ 8,380,532
Service income 1,104,889 1,377,878
Interest on short-term investments 322,397 160,323
Interest on loan receivable - first
mortgage, net of amortization of
$13,105 in 1994 and 1993 305,930 351,505
Interest income from investment in
acquisition loan, net of amortization
of $14,731 in 1993 349,728
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Total income 10,548,033 10,619,966
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Expenses:
Depreciation 1,599,229 1,648,223
Amortization of deferred expenses 112,799 151,476
Property operating 3,292,512 2,978,840
Real estate taxes 791,203 1,056,223
Property management fees 366,217 359,162
Mortgage servicing fees 11,394 30,957
Administrative 477,496 489,662
Participation in loss (income) of joint
venture with an affiliate 4,509 (38,950)
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Total expenses 6,655,359 6,675,593
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Income before participation in joint
ventures and equity from investment in
acquisition loan 3,892,674 3,944,373
Affiliates' participation in income
from joint ventures (644,472) (637,452)
Equity in loss from investment in
acquisition loan (47,876)
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Net income $ 3,248,202 $ 3,259,045
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Net income allocated to General Partner $ 459,073 $ 467,703
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Net income allocated to Limited Partners $ 2,789,129 $ 2,791,342
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Net income per Limited Partnership Interest
(939,587 issued and outstanding) $ 2.97 $ 2.97
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Distributions to General Partner $ 350,464 $ 370,719
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Distributions to Limited Partners $ 3,154,170 $ 3,336,459
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Distributions per Limited Partnership
Interest:
Taxable $ 2.60 $ 2.75
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Tax-exempt $ 3.46 $ 3.66
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The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended June 30, 1994 and 1993
(UNAUDITED)
1994 1993
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Income:
Rental income $ 4,488,359 $ 4,075,049
Service income 677,498 594,743
Interest on short-term investments 179,511 81,130
Interest on loan receivable - first
mortgage, net of amortization of
$6,553 in 1994 and 1993 152,965 157,009
Interest income from investment in
acquisition loan, net of amortization
of $7,365 in 1993 119,676
Participation in income of joint
venture with an affiliate 16,821 20,637
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Total income 5,515,154 5,048,244
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Expenses:
Depreciation 799,349 841,121
Amortization of deferred expenses 57,155 77,941
Property operating 1,702,006 1,664,326
Real estate taxes 504,022 511,345
Property management fees 180,279 177,509
Mortgage servicing fees 5,697 15,479
Administrative 263,682 273,410
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Total expenses 3,512,190 3,561,131
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Income before participation in joint
ventures and equity from investment
in acquisition loan 2,002,964 1,487,113
Affiliates' participation in income
from joint ventures (273,208) (214,386)
Equity in income from investment
in acquisition loan 39,578
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Net income $ 1,729,756 $ 1,312,305
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Net income allocated to General Partner $ 239,982 $ 203,292
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Net income allocated to Limited Partners $ 1,489,774 $ 1,109,013
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Net income per Limited Partnership Interest
(939,587 issued and outstanding) $ 1.59 $ 1.18
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Distribution to General Partner $ 175,232 $ 175,232
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Distribution to Limited Partners $ 1,577,085 $ 1,577,085
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Distribution per Limited Partnership
Interest:
Taxable $ 1.30 $ 1.30
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Tax-exempt $ 1.73 $ 1.73
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The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1994 and 1993
(UNAUDITED)
1994 1993
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Operating activities:
Net income $ 3,248,202 $ 3,259,045
Adjustments to reconcile net income to net
cash provided by operating activities:
Affiliates' participation in income
from joint ventures 644,472 637,452
Participation in loss (income) of joint
venture with an affiliate 4,509 (38,950)
Equity in loss from investment in
acquisition loan 47,876
Depreciation of properties 1,599,229 1,648,223
Amortization of deferred expenses 112,799 151,476
Amortization of loan application and
processing fees 13,105 27,836
Net change in:
Accounts and accrued interest
receivable 43,914 382,078
Prepaid expenses 91,177 109,195
Accounts payable (548,045) 45,217
Due to affiliates 223,779 39,164
Accrued liabilities (8,636) 46,698
Security deposits 32,545 (19,323)
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Net cash provided by operating activities 5,457,050 6,335,987
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Investing activities:
Capital contributions to joint venture
with an affiliate (45,065) (136,441)
Improvements and additions to properties (155,297) (274,850)
Payment of deferred expenses (256,617)
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Net cash used in investing activities (456,979) (411,291)
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Financing activities:
Distributions to Limited Partners (3,154,170) (3,336,459)
Distributions to General Partner (350,464) (370,719)
Distributions to joint venture
partners - affiliates (1,088,577) (803,418)
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Net cash used in financing activities (4,593,211) (4,510,596)
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Net change in cash and cash equivalents 406,860 1,414,100
Cash and cash equivalents at beginning
of period 17,153,575 9,337,683
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Cash and cash equivalents at end of period $ 17,560,435 $ 10,751,783
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The accompanying notes are an integral part of the financial statements.
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
A reclassification has been made to the previously reported 1993 statements in
order to provide comparability with the 1994 statements. In the opinion of
management, all adjustments necessary for a fair presentation have been made to
the accompanying statements for the six months and quarter ended June 30, 1994,
and all such adjustments are of a normal and recurring nature.
2. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
six months and quarter ended June 30, 1994 are:
Paid
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Six Months Quarter Payable
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Mortgage servicing fees $11,394 $7,596 $1,899
Property management fees 366,264 187,685 59,078
Reimbursement of expenses to
the General Partner, at cost:
Accounting 24,566 21,169 51,866
Data processing None None 111,426
Investment processing 2,418 2,084 3,613
Investor communications 3,151 2,715 7,382
Legal 8,199 7,065 24,307
Portfolio management 33,967 29,271 82,875
Other 3,264 2,813 5,937
3. Subsequent Event:
In July 1994, the Partnership made a distribution of $1,577,085 ($1.30 per
Taxable Interest and $1.73 per Tax-exempt Interest) to the holders of Limited
Partnership Interests for the second quarter of 1994.
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Equity Pension Investors-II A Real Estate Limited Partnership (the
"Partnership") is a limited partnership formed in 1984 to make first mortgage
loans and to invest in and operate income-producing real property. The
Partnership raised $234,896,750 through the sale of Limited Partnership
Interests and utilized these proceeds to fund seven loans and acquire five real
property investments and a minority joint venture interest in one additional
real property. From 1987 through 1993, the Partnership acquired three
properties through foreclosure on the loans and accepted prepayments on three
additional loans. As of June 30, 1994, the Partnership has one loan outstanding
and operates eight properties and its minority joint venture interest.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1993 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
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Interest income and equity in income or loss from investment in acquisition
loan ceased as a result of the October 1993 repayment of the Davidson
Officenter acquisition loan. Additional rental income related to early lease
terminations and an increase in interest income on short-term investments
significantly offset this cessation of interest income, resulting in a slight
decrease in net income during the six months ended June 30, 1994 when compared
to the same period in 1993. Since the additional income related to early lease
terminations was received during the second quarter of 1994, net income
increased during the quarter ended June 30, 1994 when compared to the same
period in 1993. Further discussion of the Partnership's operations is
summarized below.
1994 Compared to 1993
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The Partnership received additional income during the second quarter of 1994
from several tenants at the 100 Ashford Center North and Westech 360 office
buildings due to early lease terminations. This additional income resulted in
an increase in rental income during the six months and quarter ended June 30,
1994 when compared to the same periods in 1993. In addition, a decrease in
rental income due to lower average occupancy at the 100 Ashford Center North
Office Building was offset by an increase in rental income due to higher
average occupancy at the Denver Centerpoint and the Ammendale Technology Park -
Phase I office buildings.
The Partnership bills most tenants at the commercial properties periodically
for common area maintenance, real estate taxes and other operating expenses of
the properties based on estimates. Adjustments are periodically made to these
billings once the Partnership has determined the actual amounts due. These
adjustments have resulted in a decrease in service income during the six months
ended June 30, 1994 and an increase in service income during the quarter ended
June 30, 1994 when compared to the same periods in 1993. In addition, a tenant
at the Denver Centerpoint Office Building reimbursed the Partnership in the
first quarter of 1993 for improvement costs paid by the Partnership in excess
of the stipulated amount per the lease agreement. This reimbursement
contributed to the decrease in service income during the six months ended June
30, 1994.
The proceeds received from the October 1993 repayment of the Davidson
Officenter acquisition loan and improved operations during 1993 at the
Partnership's properties resulted in an increase in funds available for short-
term investments. As a result, interest income on short-term investments
increased during the six months and quarter ended June 30, 1994 when compared
to the same periods in 1993.
In February and August 1993, the loan collateralized by the Colonial Coach and
Castlewood West mobile home parks was modified, reducing the interest rate.
This caused a decrease in interest income on loan receivable during the six
months and quarter ended June 30, 1994 when compared to the same periods in
1993.
Interest income and equity in income or loss from investment in acquisition
loan ceased as a result of the October 1993 repayment of the Davidson
Officenter acquisition loan. Equity in income or loss represented the
Partnership's share of property operations and had no effect on the cash flow
of the Partnership. Mortgage servicing fees decreased during the six months
and quarter ended June 30, 1994 as compared to the same periods in 1993 due to
this repayment.
Participation in loss/income of joint venture with an affiliate reflects the
Partnership's share of property operations at the Pacific Center Office
Buildings. Due to higher leasing and utility costs at this property in the
first half of 1994, a slight loss was generated, resulting in participation in
loss of joint venture with an affiliate during the six months ended June 30,
1994 as compared to participation in income during the same period in 1993.
Higher leasing costs and contracted services at the Ammendale Technology Park -
Phase I, 100 Ashford Center North, 1275 K Street and Westech 360 office
buildings resulted in an increase in property operating expense during the six
months and quarter ended June 30, 1994 when compared to the same periods in
1993.
A refund of 1992 taxes was received in the first quarter of 1994 from the local
taxing authority for the 1275 K Street Office Building due to a decrease in the
assessed tax value of this property. This refund caused a decrease in real
estate tax expense during the six months ended June 30, 1994 as compared to the
same period in 1993.
The Westech 360 and 1275 K Street office buildings are owned through joint
ventures with affiliates. As a result of the additional income received at the
Westech 360 Office Building due to early lease terminations, the affiliates'
income participation increased during the six months and quarter ended June 30,
1994 as compared to the same periods in 1993.
Liquidity and Capital Resources
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The cash flow provided by the Partnership's operating activities includes cash
flow from the operations of the properties, mortgage payments received on the
loan and short-term interest income. Cash received from these sources was
partially offset by the payment of administrative expenses. The net cash flow
provided by operating activities was partially used in investing activities for
capital improvements and leasing commissions at certain of the Partnership's
properties and in financing activities to make quarterly distributions to the
Partners and to the affiliated joint venture partners. The Partnership is
retaining cash reserves in anticipation of future leasing costs at several of
the Partnership's commercial properties. The Partnership's cash or near cash
position fluctuates during each quarter, initially decreasing with the payment
of the Partnership distributions for the previous quarter, and then gradually
increasing each month as mortgage payments on the loan and cash flow from
property operations are received.
During the six months ended June 30, 1994 and 1993, all of the Partnership's
properties, including the Pacific Center Office Buildings (in which the
Partnership holds a minority joint venture interest), generated positive cash
flow. Many rental markets continue to remain extremely competitive; therefore,
the General Partner's goals are to maintain high occupancy levels while
increasing rents where possible and to monitor and control operating expenses
and capital improvement requirements at the properties.
Distributions to Limited Partners can be expected to fluctuate for various
reasons. Generally, distributions are made from cash flow generated by interest
payments and property operations. Distribution levels can also vary as loans
are placed on non-accrual status, modified or restructured and, as a result of
property operations.
In July 1994, the Partnership paid $1,577,085 ($1.30 per Taxable Interest and
$1.73 per Tax-exempt Interest) representing the quarterly distribution for the
second quarter of 1994. The level of this distribution was consistent with the
amount distributed to Limited Partners for the previous quarter. The General
Partner expects that the cash flow from property operations and debt service
payments on the mortgage loan should enable the Partnership to continue making
quarterly distributions to Limited Partners. However, the level of future
distributions will be dependent on the amount of cash flow generated from
property operations and the receipts from the mortgage loan, as to which there
can be no assurances.
During the six months ended June 30, 1994, the General Partner, on behalf of
the Partnership, used amounts placed in the Repurchase Fund to repurchase 1,079
Interests from Limited Partners at a total cost of $114,749.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices,
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
(4) Forms of Subscription Agreements, previously filed as Exhibits 4.1.1 and
4.1.2 to Amendment No. 2 dated September 20, 1984 to the Registrant's
Registration Statement (Registration No. 2-91810) and to Amendment No. 1 dated
January 25, 1985 to the Registrant's Registration Statement (Registration No.
2-95409) 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 (Commission File No. 0-13348) are incorporated herein by
reference.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended June 30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Thomas E. Meador
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Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Equity Partners-II, the General Partner
By: /s/Allan Wood
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Allan Wood
Executive Vice President, and Chief
Accounting and Financial Officer (Principal
Accounting and Financial Officer) of Balcor
Equity Partners-II, the General Partner
Date: August 11, 1994
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